<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PREMIER LASER SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
---------------
<TABLE>
<S> <C> <C>
CALIFORNIA 3841 33-0472684
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION NUMBER) IDENTIFICATION NO.)
INCORPORATION
OR ORGANIZATION)
</TABLE>
---------------
3 MORGAN
IRVINE, CALIFORNIA 92618, (714) 859-0656
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
COLETTE COZEAN, PH.D.
PREMIER LASER SYSTEMS, INC.
3 MORGAN
IRVINE, CALIFORNIA 92618, (714) 859-0656
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM J. SIMPSON, ESQ. RICHARD A. DENMON, ESQ.
PETER J. TENNYSON, ESQ. CARLTON, FIELDS, WARD, EMMANUEL,
PAUL, HASTINGS, JANOFSKY & WALKER LLP SMITH & CUTLER, P.A.
695 TOWN CENTER DRIVE, 777 SOUTH HARBOR ISLAND BOULEVARD
SEVENTEENTH FLOOR TAMPA, FLORIDA 33602-5799
COSTA MESA, CALIFORNIA 92626-1924 (813) 223-7000
(714) 668-6200
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon the
expiration date of the exchange offer made by the Registrant for the common
stock of Ophthalmic Imaging Systems.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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, 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(d)
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, no par
value........................... 60,850 shares n/a $592,154 $175
Class C Warrant.................. 2,691,610 warrants
Class A Common Stock, no par
value........................... 60,850 shares
Class D Warrant.................. 2,691,610 warrants
Class A Common Stock, no par
value........................... 60,850 shares
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the Registrant's estimate of the maximum number of Class A Common
Stock, no par value, Class C Warrants and Class D warrants of the
Registrant that may be issued in the exchange offer.
(2) Estimated solely for the purpose of calculating the registration fee. The
registration fee has been calculated in accordance with Rule 457(f)(1) and
(3) under the Securities Act of 1933, as amended, based on the market
value of the shares of Common Stock, no par value of Ophthalmic Imaging
Systems ("Ophthalmic Common Stock"), to be received in the exchange for
the shares of the Registrant's securities registered pursuant hereto
($1.97, which is the average of the high and low bid per share of
Ophthalmic Common Stock on the Nasdaq Small-Cap Market on March 9, 1998),
reduced by $4,710,317.50, the total amount of cash to be paid by the
Registrant in connection with the exchange.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PROSPECTUS/OFFER TO EXCHANGE DATED , 1998
PROSPECTUS/OFFER TO EXCHANGE
EACH OUTSTANDING SHARE OF COMMON STOCK, NO PAR VALUE
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
OF
OPHTHALMIC IMAGING SYSTEMS
FOR
$1.75 NET PER SHARE IN CASH
AND
$0.25 OF COMMON STOCK, NO PAR VALUE
(SUBJECT TO VARIATION AS DESCRIBED BELOW)
AND
ONE CLASS C WARRANT,
AND
ONE CLASS D WARRANT
OF
PREMIER LASER SYSTEMS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON , 1998,
UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) PREMIER LASER
SYSTEMS, INC. ("PREMIER") BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE
RIGHTS (AS DEFINED HEREIN) REMAIN INAPPLICABLE TO THE OFFER, (2) THE
SATISFACTION OF ALL APPLICABLE GOVERNMENTAL APPROVALS AND (3) LISTING OF
PREMIER COMMON STOCK OFFERED HEREBY ON THE NASDAQ STOCK MARKET, INC. ("NASDAQ")
WHEN ISSUED. THE OFFER IS ALSO SUBJECT TO THE OTHER TERMS AND CONDITIONS WHICH
ARE CONTAINED IN THIS PROSPECTUS/OFFER TO EXCHANGE. SEE "CERTAIN CONDITIONS OF
THE OFFER."
THE ACTUAL VALUE OF THE PREMIER COMMON STOCK (AS DEFINED HEREIN) EXCHANGED
FOR EACH SHARE (AS DEFINED HEREIN) MAY BE LESS THAN $0.25, DEPENDING UPON,
AMONG OTHER THINGS, THE PREMIER AVERAGE PRICE (AS DEFINED HEREIN) USED TO
DETERMINE THE EXCHANGE RATIO (AS DEFINED HEREIN) AND THE TRADING PRICE OF
PREMIER COMMON STOCK AT THE TIME OF THE EXCHANGE.
The Dealer Manager for the Offer is:
JOSEPHTHAL & CO. INC.
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
<PAGE>
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
OPHTHALMIC SHAREHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/OFFER TO EXCHANGE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF PREMIER OR OPHTHALMIC
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/OFFER TO EXCHANGE IN CONNECTION
WITH THE OFFER MADE BY THIS PROSPECTUS/OFFER TO EXCHANGE AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY PREMIER, OPHTHALMIC OR ANY UNDERWRITER, DEALER OR AGENT.
NEITHER THE DELIVERY OF THIS PROSPECTUS/OFFER TO EXCHANGE NOR ANY EXCHANGE OF
THE SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PREMIER OR
OPHTHALMIC SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS
PROSPECTUS/OFFER TO EXCHANGE OR IN THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE IS CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS/OFFER
TO EXCHANGE DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
<PAGE>
To the Holders of Common Stock (including the associated preferred share
purchase rights) of Ophthalmic Imaging Systems:
INTRODUCTION
This Prospectus/Offer to Exchange relates to the offer by Premier Laser
Systems, Inc., a California corporation ("Premier"), upon the terms and
subject to the conditions set forth herein (this "Prospectus/Offer to
Exchange") and in the related Letter of Transmittal (the "Letter of
Transmittal," as amended from time to time, and the Prospectus/Offer to
Exchange, as it may be amended from time to time, which together constitute
the "Offer") to exchange (a) $1.75 net in cash (the "Cash Consideration"), (b)
that number of shares of Premier Class A Common Stock, no par value (the
"Premier Common Stock"), determined by the Exchange Ratio (the "Stock
Consideration"), (c) one Premier Class C Warrant (the "Class C Warrant"), and
(d) one Premier Class D Warrant (the "Class D Warrant"), (together with the
Class C Warrant, the "Warrants" or the "Warrant Consideration") (the Cash
Consideration, the Stock Consideration and the Warrant Consideration together
constitute the "Offer Consideration"), for each share of Common Stock, no par
value (the "Common Stock"), of Ophthalmic Imaging Systems, a California
corporation ("Ophthalmic"), including the associated preferred share purchase
rights (the "Rights" and, together with the Common Stock, the "Shares") issued
pursuant to the Rights Agreement, dated as of December 31, 1997, as amended
(the "Rights Agreement"), between Ophthalmic and American Securities Transfer,
Inc. (the "Rights Agent"). Unless the context otherwise requires, all
references to the Rights shall include the benefits that may inure to holders
of the Rights pursuant to the Rights Agreement. See "Comparison of Rights of
Holders of Ophthalmic Common Stock and Premier Common Stock--Ophthalmic
Shareholder Rights Plan."
The Offer is being made pursuant to a Stock Purchase Agreement dated as of
February 25, 1998 by and between Premier and Ophthalmic (the "Stock Purchase
Agreement"). See "Summary--The Stock Purchase Agreement," "The Stock Purchase
Agreement," and Appendix A--"Stock Purchase Agreement." In connection with the
transactions contemplated by the Stock Purchase Agreement, Premier entered
into certain private stock purchase agreements for the purchase of an
aggregate of 980,360 shares of Ophthalmic Common Stock on February 25, 1998
(the "Private Purchase Agreements"). Certain of the Private Purchase
Agreements provide for (i) rescission if Premier fails to make, or withdraws,
abandons or terminates the Offer without purchasing all Shares validly
tendered and not validly withdrawn prior to the Expiration Date (as defined
herein, see "Terms of the Offer--Expiration Date"), and/or (ii) a purchase
price adjustment that will make the stock consideration to be paid under such
Private Purchase Agreement equal to the Stock Consideration paid under this
Offer. Registration rights were granted in connection with the Private
Purchase Agreements pursuant to Registration Rights Agreements (the
"Registration Rights Agreements").
"Exchange Ratio" means the quotient (rounded to the nearest 1/100,000)
determined by dividing $0.25 by the average closing bid prices for Premier
Common Stock (as reported on the Nasdaq National Market (the "NNM") as
published in The Wall Street Journal or, if not published therein, in another
authoritative source) for either (i) the fifteen (15) consecutive NNM trading
days (each, a "Trading Day") ending five Trading Days immediately preceding
the Expiration Date, (ii) the thirty (30) consecutive Trading Days ending
twenty (20) Trading Days prior to the Expiration Date, whichever yields the
fewer number of shares of Premier Common Stock (the "Premier Average Price").
Cash will be exchanged in lieu of any entitlements to fractional shares of
Premier Common Stock (after taking into account all Shares tendered by such
holder) in an amount equal to the fractional part of the Premier Common Stock
multiplied by the "market price" (as defined herein) of one share of Premier
Common Stock payable as part of the Offer Consideration. See "Exchange of
Shares and Delivery of Offer Consideration--Fractional Shares." Tendering
shareholders should periodically verify the trading price of the Premier
Common Stock to be issued in the Offer. See "Terms of the Offer--Exchange
Ratio" for a complete discussion of the Exchange Ratio.
1
<PAGE>
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the exchange of Shares by
Premier pursuant to the Offer. Premier will pay all charges and expenses of
Josephthal & Co. Inc., ("Josephthal") which is acting as the Dealer Manager
for the Offer (in such capacity, the "Dealer Manager"), American Stock
Transfer & Trust Company (the "Exchange Agent") and Allen & Caron, Inc. (the
"Information Agent") incurred in connection with the Offer. See "Fees and
Expenses."
The purpose of the Offer is to acquire additional shares of Ophthalmic
Common Stock. After the consummation of the Offer, Premier intends to
negotiate with Ophthalmic to acquire the remaining shares of Common Stock in a
merger or similar business combination for consideration having the same
economic value as the Offer Consideration. See "Terms of the Offer--Proposed
Merger."
The timing of consummation of the Offer will depend on a variety of factors
and legal requirements and whether the conditions to the Offer are satisfied
or waived. Consummation of the Offer is conditioned upon, among other things,
Premier being satisfied, in its sole discretion, that the Rights remain
inapplicable to the Offer (the "Rights Condition") and upon Premier's
satisfaction of all applicable governmental authorizations, consents, orders
and approvals, including the effectiveness and continued effectiveness of the
Form S-4 (the "Form S-4") filed in connection with the Prospectus/Offer to
Exchange and the approval to list the Premier Common Stock, when issued, for
quotation on Nasdaq (the "Regulatory Approvals Condition").
Premier is not aware of any jurisdiction where the making of the Offer is
prohibited by any administrative or judicial action pursuant to any valid
state statute. If Premier becomes aware of any valid state statute prohibiting
the making of the Offer or the acceptance of Shares pursuant thereto, Premier
will make a good faith effort to comply with any such state statute. If, after
such good faith effort, Premier cannot comply with any such state statute, the
Offer will not be made to (nor will tenders be accepted from or on behalf of)
the holders of Shares in such state. In any jurisdiction where the securities,
blue sky or other laws require the Offer to be made by a licensed broker or
dealer, the Offer shall be deemed to be made on behalf of Premier by the
Dealer Manager or by one or more registered brokers or dealers licensed under
the laws of such jurisdiction.
IMPORTANT
Premier reserves the right to amend the Offer (including amending the number
of Shares to be exchanged for and the consideration therefor) at any time;
provided, however, that Premier has no intention of reducing the consideration
paid to Ophthalmic's shareholders below that being offered in the Offer.
Any shareholder desiring to tender all or any portion of such shareholder's
Shares should either (1) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and mail or deliver it, together with the certificate(s)
evidencing tendered Shares and, if separate, the certificates representing the
associated Rights, and any other required documents, to the Exchange Agent or
tender such Shares pursuant to the procedures for book-entry transfer set
forth in "Procedures for Accepting the Offer and Tendering Shares" or (2)
request such shareholder's broker, dealer, commercial bank, trust company or
other nominee to effect the transaction for such shareholder. Any shareholder
whose Shares are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such broker, dealer, commercial
bank, trust company or other nominee if such shareholder desires to tender
such Shares. Unless and until Premier declares that the Rights Condition is
satisfied, shareholders will be required to tender one Right for each Share
tendered in order to effect a valid tender of such Share.
A shareholder who desires to tender Shares and whose certificates evidencing
such Shares are not immediately available, or who cannot comply with the
procedure for book-entry transfer on a timely basis, may tender such Shares by
following the procedure for guaranteed delivery set forth in "Procedures for
Accepting the Offer and Tendering Shares."
2
<PAGE>
Questions or requests for assistance may be directed to the Information
Agent or to the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of this Prospectus/Offer to Exchange.
Additional copies of this Prospectus/Offer to Exchange, the Letter of
Transmittal and the Notice of Guaranteed Delivery may also be obtained from
the Information Agent or from brokers, dealers, commercial banks or trust
companies.
THE OFFER IS ALSO SUBJECT TO THE OTHER TERMS AND CONDITIONS WHICH ARE
CONTAINED IN THIS PROSPECTUS/OFFER TO EXCHANGE. SEE "TERMS OF THE OFFER" AND
"CERTAIN CONDITIONS OF THE OFFER" WHICH SET FORTH IN FULL THE CONDITIONS TO
THE OFFER.
THIS PROSPECTUS/OFFER TO EXCHANGE AND THE RELATED LETTER OF TRANSMITTAL
CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 5
Incorporation of Certain Documents by Reference........................... 6
Summary................................................................... 8
Cautionary Statement Regarding Forward-Looking Statements................. 11
Risk Factors.............................................................. 12
The Stock Purchase Agreement.............................................. 20
Terms of the Offer........................................................ 21
Exchange of Shares and Delivery of Offer Consideration.................... 26
Procedures for Accepting the Offer and Tendering Shares................... 28
Withdrawal Rights......................................................... 30
Dividends and Distributions............................................... 31
Summary of Certain Federal Income Tax Considerations...................... 32
Effect of the Offer on the Market for the Shares, Exchange Listing and
Exchange Act Registration Update......................................... 33
Certain Conditions of the Offer........................................... 34
Premier's Reasons for the Transaction..................................... 36
Future Plans of Premier................................................... 37
Ophthalmic's Reasons for Recommending the Offer........................... 37
Background of the Offer; Contacts with Ophthalmic......................... 38
Opinion of Ophthalmic's Financial Advisor................................. 42
Information Regarding Premier............................................. 47
Information Regarding Ophthalmic.......................................... 50
Financing of the Offer.................................................... 52
Unaudited Pro Forma Combined Financial Statements......................... 53
Unaudited Pro Forma Condensed Consolidated Statement of Operations........ 54
Unaudited Pro Forma Condensed Consolidated Balance Sheet.................. 56
Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations .............................................................. 57
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet......... 59
Comparative Historical and Pro Forma Per Share Data....................... 60
Market Price of Premier and Ophthalmic Common Stock....................... 60
Description of Securities of Premier...................................... 61
Ophthalmic Common Stock................................................... 63
Comparison of Rights of Holders of Ophthalmic Common Stock and Premier
Common Stock............................................................. 64
Regulatory Approvals...................................................... 68
State Takeover Laws....................................................... 68
Antitrust................................................................. 69
Fees and Expenses......................................................... 69
Legal Matters............................................................. 70
Experts................................................................... 70
Schedule I--Directors and Executive Officers of Premier................... 71
Schedule II--Schedule of Transactions in Shares During the Past 60 Days... 73
Appendices
A Stock Purchase Agreement
B Form of Class C Warrant Agreement
C Form of Class D Warrant Agreement
D Ophthalmic's Annual Report on Form 10-KSB for the fiscal year ended
August 31, 1997
E Ophthalmic's Quarterly Report on Form 10-QSB for the period ended
November 30, 1994
F Opinion of Cowen & Company, Financial Advisor to Ophthalmic
</TABLE>
4
<PAGE>
AVAILABLE INFORMATION
Premier has filed with the Commission a registration statement on Form S-4
("Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the shares of Premier Common Stock and the
Warrants to be issued in connection with this Offer. For further information
pertaining to the Premier Common Stock and the Warrants to which this
Prospectus/Offer to Exchange relates, reference is made to such Registration
Statement, including the exhibits, schedules and appendices filed as a part
thereof. This Prospectus/Offer to Exchange constitutes the prospectus of
Premier filed as part of the Registration Statement and it does not contain
all of the information set forth in the Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of
the Commission. In addition, Premier and Ophthalmic are subject to the
informational requirements of the Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, file periodic reports, proxy
statements and other information with the Commission relating to their
businesses, financial statements and other matters. Reports and proxy and
information statements filed pursuant to Section 14(a) and 14(c) of the
Exchange Act and other information filed with the Commission as well as copies
of the Registration Statement can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Midwest Regional Office, 500 West Madison
Avenue, Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. In addition, the Commission maintains
a Web site that contains reports, proxy and information statements and other
information that Premier and Ophthalmic file electronically with the
Commission. The Commission's Web site address is http://www.sec.gov. Premier's
Class A Common Stock and Class B Warrants are listed and traded on the NNM
under the symbols "PLSIA" and "PLSIZ," respectively. Ophthalmic Common Stock
is listed and traded on The Nasdaq Small-Cap Market ("SCM") under the symbol
"OISI." Reports, proxy statements, and other information concerning Premier
and Ophthalmic may also be inspected at the offices of Nasdaq, 1735 K Street,
N.W., Washington, D.C. 20006-1500, and with respect to Ophthalmic, at the
offices of the Boston Stock Exchange, One Boston Place, Boston, Massachusetts
02103.
Not later than the date of commencement of the Offer, Premier will file with
the Commission a statement on Schedule 14D-1 pursuant to Rule 14d-3 under the
Exchange Act furnishing certain information with respect to the Offer.
Pursuant to Rules 14d-9 and 14e-2 under the Exchange Act, Ophthalmic will file
a statement on Schedule 14D-9 furnishing certain information with respect to
its position concerning the Offer. Such Schedules (together with all exhibits
thereto), and any amendments thereto, should be available for inspection and
copying as set forth above (except that such Schedules, and any amendments
thereto, will not be available at the regional offices of the Commission).
5
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Premier with the
Commission, are incorporated into this Prospectus and made a part hereof:
1. Premier's Current Report on Form 8-K, as filed with the Commission on
March 9, 1998.
2. Premier's Current Report on Form 8-K, as filed with the Commission on
December 30, 1997.
3. Premier's Current Report on Form 8-K, as filed with the Commission on
December 8, 1997.
4. Premier's Current Report on Form 8-K, as filed with the Commission on
October 15, 1997 and as amended by Form 8-K/A filed with the Commission on
November 14, 1997.
5. Premier's Annual Report on Form 10-K for the fiscal year ended March 31,
1997, as filed with the Commission on May 28, 1997 pursuant to Section 13(a)
of the Exchange Act and as amended by Form 10-K/A filed with the Commission on
June 18, 1997.
6. Premier's Quarterly Report on Form 10-Q for the period ended December 31,
1997, as filed with the Commission on February 17, 1998 pursuant to Section 13
or 15(d) the Exchange Act.
7. Premier's Quarterly Report on Form 10-Q for the period ended September
30, 1997, as filed with the Commission on November 14, 1997 pursuant to
Section 13 or 15(d) of the Exchange Act and as amended by Form 10-Q/A filed
with the Commission on November 26, 1997.
8. Premier's Quarterly Report on Form 10-Q for the period ended June 30,
1997, as filed with the Commission on August 14, 1997 pursuant to Section 13
or 15(d) of the Exchange Act.
9. The description of Premier's Common Stock contained in Premier's
Registration Statement on Form 8-A, as filed with the Commission on December
7, 1994 and as amended by Form 8-A/A filed with the Commission on January 31,
1995.
All reports and other documents filed by Premier with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus/Offer to Exchange and prior to the termination
of the Offer which is the subject of this Prospectus/Offer to Exchange shall
be deemed to be incorporated herein by this reference and to be made a part
hereof from the date of filing of such reports and documents.
THIS PROSPECTUS/OFFER TO EXCHANGE INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE DOCUMENTS RELATING TO
PREMIER (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, WHICH EXHIBITS ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST FROM PREMIER. REQUESTS FOR SUCH INFORMATIONAL
DOCUMENTS SHOULD BE DIRECTED TO PREMIER LASER SYSTEMS, INC., 3 MORGAN, IRVINE,
CALIFORNIA 92618, TELEPHONE NUMBER (714) 859-0656, ATTENTION: CORPORATE
SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE. PERSONS
REQUESTING COPIES OF EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS WILL BE CHARGED THE COSTS OF
REPRODUCTION AND MAILING OF SUCH EXHIBITS.
The following documents previously filed by Ophthalmic with the Commission
are hereby incorporated by reference in this Prospectus/Offer to Exchange: (a)
the Ophthalmic Annual Report on Form 10-KSB for the fiscal year ended August
31, 1997; (b) the Ophthalmic Quarterly Report on Form 10-QSB for the period
ended November 30, 1997; (c) the Ophthalmic Current Report on Form 8-K filed
January 2, 1998; (d) the Ophthalmic registration statement on Form 8-A filed
on January 2, 1998; and (e) the Ophthalmic Current Report onForm 8-K filed on
March 9, 1998.
6
<PAGE>
THE DOCUMENTS RELATING TO OPHTHALMIC (OTHER THAN EXHIBITS TO SUCH DOCUMENTS,
WHICH EXHIBITS ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH
DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM STEVEN C. LAGORIO,
DIRECTOR OF FINANCE, OPHTHALMIC IMAGING SYSTEMS, 221 LATHROP WAY, SUITE I,
SACRAMENTO, CALIFORNIA 95815, TELEPHONE (916) 646-2020. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FIVE BUSINESS
DAYS PRIOR TO THE EXPIRATION DATE. PERSONS REQUESTING COPIES OF EXHIBITS TO
SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH
DOCUMENTS WILL BE CHARGED THE COSTS OF REPRODUCTION AND MAILING OF SUCH
EXHIBITS.
This Prospectus/Offer to Exchange contains certain analyses and statements
with respect to the financial condition, results of operations and business of
Premier following the consummation of the Offer, including statements relating
to the cost savings or synergies that may be realized as a result of the
Offer. See "Premier's Reason for the Transaction." These analyses and
statements include forward looking statements with respect to, among other
things, expected cost savings, future business decisions, and other
uncertainties, which, although considered reasonable by Premier, are subject
to uncertainties and involve matters that are beyond Premier's control and
difficult to predict. See "Summary--Cautionary Statement Regarding Forward
Looking Statements." Further information and other factors which could affect
the financial results of Premier following the consummation of the Offer are
included in filings with the Commission incorporated by reference.
7
<PAGE>
SUMMARY
The following is a summary of certain information contained or incorporated
by reference in this Prospectus/Offer to Exchange and is qualified in its
entirety by the more detailed information and financial statements contained or
incorporated by reference in this Prospectus/Offer to Exchange or delivered
herewith. An investment in the securities described in this Prospectus/Offer to
Exchange involves a high degree of risk. See "Risk Factors."
THE PARTIES
PREMIER
Premier is a California corporation that develops, manufactures and markets
several lines of surgical lasers, laser waveguides and laser fiber optic
devices, disposables and associated accessory products for the medical market.
The principal offices of Premier are located at 3 Morgan, Irvine, California
92618, and its telephone number is (714) 859-0656.
OPHTHALMIC
Ophthalmic is a California corporation that is engaged in the business of
designing, developing, manufacturing, and marketing digital imaging systems and
image enhancement and analysis software for use by practitioners in the ocular
health field. The principal offices of Ophthalmic are located at 221 Lathrop
Way, Suite I, Sacramento, California 95815, and its telephone number is (916)
646-2020.
THE OFFER
Introduction................ On February 25, 1998, Premier and Ophthalmic
entered into a Stock Purchase Agreement pursuant
to which, subject to the terms and conditions
therein and in this Prospectus/Offer to Exchange
and the accompanying Letter of Transmittal,
Premier agreed to exchange the Offer
Consideration for each share of Ophthalmic Common
Stock (including the associated Rights), and
Ophthalmic agreed to recommend the Offer and not
to solicit any acquisition proposals competing
with the Offer. See "The Stock Purchase
Agreement."
Private Purchases........... In connection with the transactions contemplated
by the Stock Purchase Agreement, Premier entered
into certain Private Stock Purchase Agreements
for the purchase of an aggregate of 980,360
shares of Ophthalmic Common Stock on February 25,
1998. Certain of the Private Purchase Agreements
provide for (i) rescission if Premier fails to
make, or withdraws, abandons or terminates the
Offer without purchasing all Shares tendered and
not validly withdrawn prior to the Expiration
Date, and/or (ii) a purchase price adjustment
that will make the stock consideration to be paid
under such Private Purchase Agreement equal to
the Stock Consideration paid under this Offer.
Registration rights were granted in connection
with the Private Purchase Agreements pursuant to
Registration Rights Agreements. See "The Stock
Purchase Agreement."
The Offer................... Premier hereby offers to acquire, on the terms
and subject to the conditions set out in this
Prospectus/Offer to Exchange and the accompanying
Letter of Transmittal (including the terms and
conditions of any revisions, extensions or
renewals thereof), each outstanding share of
Ophthalmic Common Stock (including the associated
Rights) tendered by holders other than Premier
for (a) $1.75 in cash, (b) $0.25 of its Class A
Common Stock (subject to
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ariations described herein), (c) one Class C
Warrant and (d) one Class D Warrant. See "Terms
of the Offer."
Offer Period ............... The Offer will commence at 12:01 a.m. New York
City time on , 1998 and will expire at
12:00 midnight, New York City Time, on , 1998,
unless the Offer is extended. Following the
Expiration Date, including any extension thereof,
all Ophthalmic Common Stock validly tendered and
not validly withdrawn will be exchanged. See
"Terms of the Offer."
Tender Procedure............ A properly completed Letter of Transmittal,
including required attachments, should be sent to
the Exchange Agent. See "Procedures for Accepting
the Offer and Tendering Shares."
Withdrawal Rights........... Ophthalmic shareholders will have the right to
withdraw any tendered Shares until the Expiration
Date. Premier reserves the right to (but will not
be obligated to) extend the Offer at any time or
from time to time. See "Withdrawal Rights."
Assuming a properly completed Letter of
Transmittal has been sent, a tender will be
processed promptly upon the Expiration Date. See
"Exchange of Shares and Delivery of Offer
Consideration."
Conditions of the Offer..... The Offer is conditioned upon, among other
things, (i) Premier being satisfied, in its sole
discretion, that the Rights remain inapplicable
to the Offer, (ii) Premier's satisfaction of all
applicable governmental authorizations, consents,
orders and approvals, including the effectiveness
and continued effectiveness of the Registration
Statement and (iii) the approval to list
Premier's Common Stock, when issued, for
quotation on Nasdaq. See "Terms of the Offer,"
and "Certain Conditions of the Offer."
No Fractional Shares........ Cash will be paid to Ophthalmic Shareholders in
lieu of any entitlements to fractional shares of
Premier Common Stock (after taking into account
all Shares tendered by such holder) in an amount
equal to the fractional part of the Premier
Common Stock multiplied by the "market price" (as
defined herein) of one share of Premier Common
Stock payable as part of the Offer Consideration.
See "Exchange of Shares and Delivery of Offer
Consideration--Fractional Shares."
Proposed Merger............. Premier intends that Ophthalmic will become a
wholly owned subsidiary of Premier. Following the
consummation of this Offer, Premier intends, if
necessary, to propose and seek to have Ophthalmic
effect a merger with Premier. See "Terms of the
Offer--Proposed Merger" and "Future Plans of
Premier."
Ophthalmic Options.......... The Offer extends to any shares of Ophthalmic
Common Stock which are unconditionally issued or
allotted upon the exercise of vested options
granted under Ophthalmic option plans or
otherwise while the Offer remains open for
acceptance. In addition, a proposal is being made
to option holders under Ophthalmic option plans
in respect of unexercised options which will
enable option holders to cancel their options in
return for the grant of a comparable option to
purchase Premier Common Stock under Premier's
1998 Rollover Option Plan. Vested options that
are not exercised as of the Expiration Date will
be exchanged for Premier options using a
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formula based upon the Premier Average Price at
such time. Unvested options will vest on the
earlier to occur of their scheduled vesting date
and six (6) months following the Expiration Date.
At such time, the newly vested options will be
exchanged for Premier options using a formula
based upon the Premier Average Price in effect at
such time, unless the respective holders of such
options elect (prior to the Expiration Date) to
have the options exchanged using a formula based
upon the Premier Average Price in effect as of
the Expiration Date. See "Terms of the Offer--
Ophthalmic Options."
Affiliate's Restrictions on
Sale of Shares of Premier
Common Stock............... The Premier Common Stock to be issued pursuant to
the Offer has been registered under the
Securities Act pursuant to a Registration
Statement on Form S-4, thereby allowing such
securities to be traded without restriction by
any former holder of Ophthalmic Common Stock if
such former holder (i) is not deemed to be an
"affiliate" (as defined for the purposes of Rule
144 under the Securities Act) of Premier within
30 calendar days prior to the date of the Offer
and (ii) does not become an affiliate or officer
of Premier pursuant to the Offer.
Accounting Treatment........ Premier and Ophthalmic intend that the
consummation of the Offer will be treated under
the purchase method for accounting purposes under
GAAP.
Certain Consequences of the
Offer...................... The purchase of Shares pursuant to the Offer will
reduce the number of security holders and the
number of shares that would otherwise be publicly
traded and could adversely affect the liquidity
and market value of the remaining shares of
Ophthalmic Common Stock held by the public. In
addition, shares of Ophthalmic Common Stock will
cease to be quoted on the SCM if Premier
consummates the Proposed Merger. Even if Premier
does not consummate the Proposed Merger,
Ophthalmic's Common Stock will be delisted from
the SCM if certain minimum requirements with
respect to the number of publicly held shares
and/or the number of public shareholders or other
criteria are not met. On March 3, 1998, the
Boston Stock Exchange suspended Ophthalmic's
Common Stock from trading and filed for delisting
with the Commission for not meeting the
eligibility requirements of the Boston Stock
Exchange. Nasdaq has also indicated that it
intends to suspend trading and delist
Ophthalmic's Common Stock from the SCM for
failure to meet certain eligibility requirements.
A request has been made seeking to continue
listing on the SCM until the Expiration Date. See
"Effect of the Offer on the Market for the
Shares, Exchange Listing and Exchange Act
Registration Update."
Recommendation of the
Offer...................... The Board of Directors of Ophthalmic (the
"Ophthalmic Board") has determined that the terms
of the Offer are fair to, and in the best
interests of, Ophthalmic and holders of
Ophthalmic Common Stock. For a discussion of the
factors taken into consideration by the
Ophthalmic Board, see "Ophthalmic's Reasons for
Recommending the Offer."
Exchange Agent.............. American Stock Transfer & Trust Company,
telephone (718) 921-8200
By Mail, Hand or Overnight Courier:
40 Wall Street, 46th Floor
New York, New York 10005
Federal Income Tax
Consequences............... An exchange pursuant to the Offer will be taxable
for federal income tax purposes. See "Summary of
Certain Federal Income Tax Considerations."
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COMPARISON OF PREMIER COMMON STOCK AND OPHTHALMIC COMMON STOCK
Stock Exchange Listing.... Premier's Class A Common Stock is listed and
traded on the NNM, Frankfurt Stock Exchange and
Berlin Stock Exchange under the symbols "PLSIA,"
"PLSA" and "TLSA," respectively. Premier's Class B
Warrants are listed and traded on the NNM under
the symbol "PLSIZ." Premier does not intend to
list the Class C Warrants or Class D Warrants on
Nasdaq or any other securities exchange or inter-
dealer quotation system. Ophthalmic Common Stock
is listed and traded on the SCM under the symbol
"OISI" and was traded on the Boston Stock Exchange
under the symbol "OIS" until trading was suspended
on March 3, 1998. Nasdaq has also indicated that
it intends to suspend trading and delist
Ophthalmic's Common Stock from the SCM. See
"Effect of the Offer on the Market for the Shares,
Exchange Listing and Exchange Act Registration
Update." On February 25, 1998 (being the last
trading day prior to the announcement that Premier
and Opthalmic had entered into the Stock Purchase
Agreement), the closing price of Premier Class A
Common Stock on the NNM was $10.1875 per share and
the closing bid per share of Ophthalmic Common
Stock was $1.75. On March , 1998 (being the
latest practicable date prior to the effective
date of this Prospectus/Offer to Exchange) the
closing price of Premier Class A Common Stock on
the NNM was $ per share and the closing bid
per share of Ophthalmic Common Stock was $ .
Dividends................. Neither Premier nor Ophthalmic have paid any cash
dividends on their Common Stock.
See "Comparison of Rights of Holders of Ophthalmic Common Stock and Premier
Common Stock" for additional information.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Premier's Reasons for the Transaction,"
"Future Plans of Premier," "Terms of the Offer--Proposed Merger," "Unaudited
Pro Forma Condensed Consolidated Statements of Operations" and "Unaudited Pro
Forma Condensed Consolidated Balance Sheet" including any forecasts,
projections and descriptions of anticipated cost savings and synergies referred
to therein, and certain statements incorporated by reference from documents
filed with the Commission by Premier and Ophthalmic, including any statements
contained herein or therein regarding the development or possible assumed
future results of operations of Premier's and Ophthalmic's businesses, the
markets for Premier and Ophthalmic's services and products, anticipated capital
expenditures, regulatory developments and the effects of the Offer, any
statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," or similar expression, and other statements contained
or incorporated by reference herein regarding matters that are not historical
facts, are or may constitute forward-looking statements. Because such
statements are subject to risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
The risks and uncertainties that may cause actual results to differ include,
among others, general economic conditions, risks associated with acquisitions,
dependence on suppliers, fluctuations in operating results because of
acquisitions, stock prices, changes in applicable federal, state and local laws
and regulations, especially environmental regulations, alternate and emerging
technologies, competition and pricing pressures, overcapacity in the industry,
seasonal fluctuations due to weather, uncertainties of litigations, and risks
associated with the operation, growth and integration of the newly acquired
business. As a result of these factors, Premier's revenue and income could vary
significantly from quarter to quarter, and past financial performance should
not be considered a reliable indicator of future performance. All subsequent
written and oral forward-looking statements attributable to Premier or persons
acting on its behalf are expressly qualified in their entirety by the
cautionary statements set forth or referred to above in this paragraph.
Investors are cautioned not to place undue reliance on such statements, which
speak only as of the date hereof. Premier undertakes no obligation to release
publicly any revision to these forward-looking statements to reflect events of,
or circumstances after, the date hereof or to reflect the occurrence of
unanticipated events, except as may be required by the federal securities laws.
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RISK FACTORS
The securities offered hereby are highly speculative in nature and involve a
high degree of risk. Prospective investors should carefully consider, along
with the other information contained in this Prospectus/Offer to Exchange, the
following considerations and risks in evaluating an investment in Premier.
FIXED EXCHANGE RATIO; CHANGE IN PREMIER COMMON STOCK PRICE MAY CHANGE VALUE OF
OFFER CONSIDERATION
In deciding whether to tender Shares to Premier pursuant to the Offer,
Ophthalmic shareholders should consider that the value of the Offer
Consideration depends in part on the price of Premier Common Stock as
determined on the Expiration Date. Pursuant to the Offer, each Share will be
exchanged for $1.75 in cash, the Warrants, and that number of shares of
Premier Common Stock determined by the Exchange Ratio. If the Premier Average
Price is equal to the closing price of the Premier Common Stock on the
Expiration Date, each Share would be exchanged for, in addition to the Cash
Consideration and the Warrants, Stock Consideration having a market value of
$0.25 per Share. Ophthalmic shareholders should be aware that, should the
Premier Average Price be greater than the closing price of the Premier Common
Stock on the Expiration Date, the Stock consideration exchanged pursuant to
the Offer will have a market value less than $0.25 per Share as of the
Expiration Date.
EXERCISE OF WARRANTS CONTINGENT ON ACHIEVEMENT OF SALES MILESTONES
Whether the Class C Warrants or Class D Warrants will be exercisable will
depend solely on Ophthalmic's financial performance through the twelve month
periods ended August 31, 1998 and December 31, 1999, respectively. See "Terms
of the Offer--The Warrants." The ability of Ophthalmic to achieve the net
sales milestones will depend in part on economic and other conditions beyond
the control of Premier and Ophthalmic. Accordingly, there can be no assurance
that the Warrants will be exercisable.
ABSENCE OF PUBLIC MARKET FOR WARRANTS
The Warrants to be issued in connection with the Offer (other than Warrants
issued to affiliates of Premier) will be freely transferable under the
Securities Act. However, there has been no public trading market for the
Warrants prior to the Offer, and it is not expected that there will be a
public market for the Warrants in the foreseeable future. Premier does not
intend to list the Warrants for trading on Nasdaq or any other securities
exchange or inter-dealer quotation system.
CURRENT PROSPECTUS AND BLUE SKY RESTRICTIONS
The Warrants offered hereby will only be exercisable if a current prospectus
relating to the shares underlying the Warrants is then in effect and only if
such shares are qualified for sale under applicable state securities laws of
the states in which the various holders of the Warrants reside or are exempt
from such qualification. Premier intends to maintain this Prospectus/Offer to
Exchange, or to file and maintain another current prospectus which will permit
the purchase and sale of Premier Common Stock underlying the Warrants.
However, there can be no assurance that Premier will keep this
Prospectus/Offer to Exchange or any prospectus covering such shares current.
The Warrants may be deprived of any value if a current prospectus covering the
shares issuable upon exercise thereof is not effective or if such shares are
not qualified in the states in which holders of the Warrants reside.
ABILITY TO EXERT SIGNIFICANT INFLUENCE
As of the date of the Offer, Premier owned beneficially approximately 51.3%
of the outstanding Common Stock. If the Offer is successful, Premier will
beneficially own an increased percentage of Ophthalmic's outstanding shares of
Common Stock. As result, Premier will likely have the ability to effectively
control all outcomes submitted to a vote of Ophthalmic's shareholders,
including the election of directors and significant corporate transactions.
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PURCHASE METHOD OF ACCOUNTING MAY IMPACT REPORTED OPERATING RESULTS
Under the purchase method of accounting, the estimated fair value of the
Shares purchased under the Offer would be recorded as the cost of acquiring
Ophthalmic's business. This cost would be allocated to the individual assets
acquired and liabilities assumed according to their respective fair value with
the excess of the estimated fair value of the Shares over the fair value of
net assets acquired recorded as goodwill, to be amortized over a period up to
40 years. The estimated fair value of the Ophthalmic Common Stock to be
purchased under the Offer is substantially in excess of the amount which the
net assets are carried in Ophthalmic's accounts. Therefore, purchase method
accounting treatment may have a material adverse impact on the reported
operating results of the combined companies.
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES
Premier has not generated significant revenues since it was formed in July
1991. As of December 31, 1997, Premier had an accumulated deficit of
approximately $36.4 million and tangible net worth of approximately $32.0
million. For the fiscal years ended March 31, 1995, 1996 and 1997, Premier had
operating losses of approximately $3.9 million, $5.9 million and $5.6 million,
respectively, resulting principally from costs incurred in research and
development and other costs of operations. For the fiscal quarter ended
December 31, 1997, Premier had operating profits of approximately $227,441,
due principally from increased sales across all product lines and increased
sales to distributors. There can be no assurance, however, that operating
profits will continue. Premier may incur losses for the foreseeable future due
to the significant costs associated with manufacturing, marketing and
distributing its laser products and due to continual research and development
activities which will be necessary to develop additional applications for
Premier's laser technology.
Ophthalmic, which has derived substantially all of its revenues from the
sale of Ophthalmic digital imaging systems, has experienced operating losses
for each fiscal year since its initial public offering in 1992. While the
management of Ophthalmic believes that the overall angiography market has
modest growth potential, sustained growth in the angiography equipment
business may become increasingly difficult due to increased competition.
Ophthalmic's results of operations have historically fluctuated from quarter
to quarter and management anticipates that such fluctuations will continue in
the future. There can be no assurance that revenue growth or profitability can
be achieved or sustained in the future.
UNCERTAINTIES CONCERNING FUTURE PROFITABILITY
Premier had operating profits for the first time in the fiscal quarter ended
December 31, 1997. Premier's ability to maintain profitability will depend, in
part, on its ability to continue to successfully develop clinical
applications, obtain regulatory approvals for its products, develop the
capacity to manufacture and market such products on a wide scale and integrate
acquired businesses. There is no assurance that Premier will be able to
successfully make the transition from research and development to
manufacturing and selling commercial medical laser products on a broad basis.
While attempting to make this transition, Premier will be subject to all risks
inherent in a growing venture, including the need to produce reliable
products, develop marketing expertise and enlarge its sales force.
UNCERTAIN MARKET ACCEPTANCE
Premier's future sales are dependent, in part, on Premier's ability to
demonstrate to dentists, ophthalmologists and other physicians the potential
cost and performance advantages of its laser systems and those of acquired
businesses such as Ophthalmic over traditional methods of treatment and, to a
lesser extent, over competitive laser systems. To date, commercial sales of
Premier's and Ophthalmic's lasers have been limited, and no assurance can be
given that these laser products can be successfully commercialized on a broad
basis. Lasers have not been widely used in dentistry and their use requires
training and expertise. The acceptance of dental and ocular lasers may be
adversely affected by their high cost, concerns by patients, dentists and
ophthalmologists relating to their safety and efficacy, and the substantial
market acceptance and penetration of alternative dental and ocular tools.
Current economic pressure may make doctors, dentists and ophthalmologists
reluctant to purchase substantial capital equipment or invest in new
technology. The failure of medical lasers to
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achieve broad market acceptance would have a material adverse effect on
Premier's business, financial condition and results of operations. No
assurance can be given that any of Premier's or Ophthalmic's products will be
accepted by the medical, dental or ocular community or by patients, or that a
significant market for Premier's or Ophthalmic's laser systems will be
developed and sustained. Premier currently has a limited sales force and will
need to hire additional sales and marketing personnel to increase the general
acceptance of its products.
COSTS ASSOCIATED WITH INTEGRATION OF ACQUIRED BUSINESSES
On September 30, 1997, Premier acquired EyeSys Technologies, Inc. ("EyeSys")
through the merger of a newly formed subsidiary of Premier with and into
EyeSys (the "EyeSys Merger"). Upon the effectiveness of the EyeSys Merger,
EyeSys became a wholly owned subsidiary of Premier. As a result of the EyeSys
Merger, Premier must integrate and coordinate the business formerly operated
by EyeSys with Premier's other businesses. Although Premier believes that
there are certain synergies in the two lines of business, it may incur
expenses in connection with its efforts to integrate the two businesses. For
example, although certain of the existing EyeSys management personnel have
been retained by EyeSys following the EyeSys Merger, members of Premier's
management must also expend time and effort on new activities relating to the
EyeSys operations, which will detract from their time available to attend to
Premier's pre-EyeSys Merger activities. No assurance can be given that Premier
will receive the advantages from the EyeSys Merger, or that the expenses or
dislocations it may suffer or incur as a result of the post-EyeSys Merger
coordination of these businesses will not be material.
EyeSys currently markets two primary products (a portable and a stationary
corneal topography measuring system) in a highly competitive market.
Historically, EyeSys has incurred substantial losses. The ability of EyeSys to
achieve a break even level of operating performance is dependent on the demand
for its products as well as maintaining sufficient research, development and
sales and marketing expenditures to meet the requirements of the market. There
can be no assurance that the revenues from the EyeSys product line will be
sufficient to cover all of the expenses related to such operations.
In the event that Premier's bid to acquire additional outstanding shares of
Ophthalmic Common Stock is accepted, Premier will encounter issues similar to
the above regarding the integration of the two businesses. As a result,
certain expenses may be incurred in efforts to address such issues.
REALIZATION OF EXPECTED OPERATING SYNERGIES MAY NOT MATERIALIZE
The consummation of the Offer and the Proposed Merger will involve the
combination of two companies that have previously operated independently.
Although Premier expects to achieve savings in operating costs, delays or
unexpected expenses related to operating the companies under common ownership
could result in a reduction of net income.
GOING CONCERN REPORT WITH RESPECT TO EYESYS
EyeSys' independent auditors have included an explanatory paragraph in their
report covering EyeSys' financial statements for the year ended December 31,
1996, which paragraph emphasizes substantial doubt as to EyeSys' ability to
continue as a going concern. EyeSys' independent auditors cited the following
reasons for such explanatory paragraph: (i) EyeSys reported net losses of
$4,164,998, $3,424,996 and $3,708,657 for the years ended December 31, 1996,
1995 and 1994, respectively, (ii) EyeSys was in default of several loan
covenants relating to its revolving lines of credit, and (iii) EyeSys had not
repaid such loan obligations within their respective terms.
DEPENDENCE ON SUPPLIERS
Premier purchases certain raw materials, components and subassemblies
included in Premier's products from a limited group of qualified suppliers and
does not maintain long-term supply contracts with any of its key suppliers.
The disruption or termination of these sources could have a material adverse
effect on Premier's
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business and results of operations. For example, during fiscal 1994, Premier's
sole supplier of the specialized optic fiber required for use in Premier's
Er:YAG lasers ceased to provide this fiber to Premier. While Premier has since
qualified the new suppliers of this fiber, Premier's inability to obtain
sufficient quantities of this specialized optical fiber had a material adverse
effect on the volume of Er:YAG lasers Premier was able to sell during fiscal
1994 and 1995. While Premier believes that alternative suppliers could be
found, there can be no assurance that any supplier could be replaced in a
timely manner. Any interruption in the supply of other key components could
have a material adverse effect on Premier's ability to manufacture its
products and on its business, financial condition and results of operations.
Certain computer memory chips used by EyeSys in its proprietary hardware are
manufactured by a single company. These computer memory chips are subject to
rapid innovation and obsolescence. The discontinuance of the manufacturing of
this chip may require EyeSys to redesign certain hardware and software to
accommodate a replacement chip. While in the past EyeSys has been successful
in these redesign efforts, there can be no assurance that such an event would
not prove costly or cause a disruption in sales of corneal topography systems.
RISKS APPLICABLE TO FOREIGN SALES
Sales of Premier's products to foreign markets account for a substantial
portion of Premier's sales. Foreign sales expose Premier to certain risks,
including the difficulty and expense of maintaining foreign sales distribution
channels, barriers to trade, potential fluctuations in foreign currency
exchange rates, political and economic instability, availability of suitable
export financing, accounts receivable collections, tariff regulations, quotas,
shipping delays, foreign taxes, export licensing requirements and other United
States and foreign regulations that may apply to the export of medical lasers.
The regulation of medical devices worldwide also continues to develop, and
there can be no assurance that new laws or regulations will not have an
adverse effect on Premier. In addition, Premier may experience additional
difficulties in providing prompt and cost effective service of its medical
lasers in foreign countries. Premier does not carry insurance against such
risks. The occurrence of any one or more of these events may individually or
in the aggregate have a material adverse effect upon Premier's business,
financial condition and results of operations.
RISK OF TECHNOLOGICAL OBSOLESCENCE
The markets in which Premier's laser products compete are subject to rapid
technological change as well as the potential development of alternative
surgical techniques or new pharmaceutical products. Such changes could render
Premier's products uncompetitive or obsolete. Premier will be required to
invest in research and development to attempt to maintain and enhance its
existing products and develop new products. No assurances can be given that
such research and development efforts will result in the introduction of new
products or product improvements.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
Premier's success will depend in part on its ability to obtain patent
protection for products and processes, to preserve its trade secrets and to
operate without infringing the proprietary rights of third parties. While
Premier holds 23 U.S. patents and 16 foreign patents (including 2 utility
model patents) and has other patent applications pending in the United States
and foreign countries, no assurance can be given that any additional patents
will be issued, that the scope of any patent protection will exclude
competitors or that any of Premier's patents will be held valid if
subsequently challenged. Further, there can be no assurance that others will
not independently develop similar products, duplicate Premier's products or
design products that circumvent any patents used by Premier. Premier is aware
of certain patents which, along with other patents that may exist or be
granted in the future, could restrict Premier's right to market certain of its
technologies without a license, including, without limitation, patents
relating to Premier's lens emulsification product and ophthalmic probes for
the Er:YAG laser. In the past, Premier has received allegations that certain
of Premier's laser products infringe other patents. BriteSmile, Inc., a wholly
owned subsidiary of Ion Laser Technology, Inc. has filed a lawsuit alleging
that the
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use of one of Premier's products in connection with a laser bleaching
procedure infringes a patent which they hold. Premier has filed a counter
claim seeking a declaration that the patent is invalid and unenforceable.
There has been significant patent litigation in the medical industry in
general, and in the medical laser industry in particular. Adverse
determinations in litigation or other patent proceedings to which Premier may
become a party could subject Premier to significant legal judgments or other
liabilities to third parties and could require Premier to seek licenses from
third parties that may or may not be economically viable. Patent and other
intellectual property rights disputes often are settled through licensing
arrangements. No assurance can be given that any licenses required under these
or any other patents or proprietary rights would be available on terms
acceptable to Premier, if at all. If Premier does not obtain such licenses, it
could encounter delays in product introductions while it attempts to design
around such patents, or it could find that the development, manufacture or
sale of products requiring such licenses could be enjoined. If Premier is
found, in a legal proceeding, to have infringed the patents or other
proprietary rights of others, it could be liable for significant damages.
Premier also relies upon unpatented trade secrets, and no assurance can be
given that others will not independently develop or otherwise acquire
substantially equivalent trade secrets. In addition, at each balance sheet
date, Premier is required to review the value of its intangible assets based
on various factors, such as changes in technology. Any adjustment downward in
such value may result in a write-off of the intangible asset and a substantial
charge to earnings, thereby adversely affecting the operating results of
Premier in the future.
NEED FOR FDA AND FOREIGN GOVERNMENTAL APPROVALS; GOVERNMENT REGULATION
Premier's products are regulated as medical devices by the FDA under the
Federal Food, Drug and Cosmetic Act (the "FDC Act"). As such, these devices
require either Section 510(k) premarket clearance ("510(k)") or approval of a
premarket approval application ("PMA") by the FDA prior to commercialization.
Satisfaction of applicable regulatory requirements may take several years and
varies substantially based upon the type, complexity and novelty of such
devices, as well as the clinical procedure. Filings and governmental approvals
may be required in foreign countries before the devices can be marketed in
these countries. There is no assurance that further clinical trials of
Premier's medical lasers or of any future products will be successfully
completed or, if they are completed, that any requisite FDA or foreign
governmental approvals will be obtained. FDA or other governmental approvals
of products developed by Premier in the future may require substantial filing
fees which could limit the number of applications sought by Premier and may
entail limitations on the indicated uses for which such products may be
marketed. In addition, approved or cleared products may be subject to
additional testing and surveillance programs required by the FDA and other
regulatory agencies, and product approvals and clearances could be withdrawn
for failure to comply with regulatory standards or by the occurrence of
unforeseen problems following initial marketing. Also, Premier has made
modifications to certain of its existing products which it does not believe
require the submission of a new 510(k) notification to the FDA. However, there
can be no assurance that the FDA would agree with Premier's determination and
not require Premier to discontinue marketing one or more of the modified
devices until they have been cleared by the FDA. Premier is also required to
adhere to applicable requirements for Current Good Manufacturing Practices
("CGMP") and radiological health requirements, to engage in extensive record
keeping and reporting and to comply with the FDA's product labeling,
promotional and advertising requirements. Noncompliance with state, local,
federal or foreign requirements can result in fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, delay, denial or withdrawal of premarket clearance or approval of
devices, recommendations by the FDA that Premier not be allowed to enter into
government contracts, and criminal prosecution, all of which would have a
material adverse effect on Premier's business, financial condition and results
of operations. Premier's manufacturing facilities are subject to periodic
inspections by state and federal agencies, including the FDA, the California
Department of Health Services, and comparable agencies in other countries.
DEPENDENCE ON KEY PERSONNEL
Premier depends to a considerable degree on a limited number of key
personnel, including Colette Cozean, Ph.D., its Chairman of the Board,
President, Chief Executive Officer and Director of Research. Dr. Cozean is
also an inventor of a number of Premier's patented technologies. During
Premier's limited operating history, many key responsibilities within Premier
have been assigned to a relatively small number of individuals. The
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loss of Dr. Cozean's services or those of certain other members of management
could adversely affect Premier. Premier carries key person life insurance in
excess of $3 million on Dr. Cozean. Premier has no employment agreements with
its key personnel. The success of Premier will also depend, among other
factors, on the successful recruitment and retention of qualified technical
and other personnel.
HIGHLY COMPETITIVE INDUSTRY
The medical laser industry is subject to intense competition and is
characterized by rapid technological change. Premier is and will continue to
be subject to competition in its targeted markets, principally from businesses
providing other traditional surgical and nonsurgical treatments, including
existing and developing technologies, and to a lesser extent competitors' CO2,
Argon, Er:YAG and Nd:YAG lasers. Many of Premier's competitors have
substantially greater financial, marketing and manufacturing resources and
experience than Premier. Furthermore, Premier expects other companies will
enter the market, particularly as medical lasers gain increasing market
acceptance. Significant competitive factors which will affect future sales in
the marketplace include regulatory approvals, performance, pricing and general
market acceptance.
The corneal topography market is also highly competitive. There are many
companies, both public and private, some with significantly greater resources
than EyeSys, engaged in the corneal topography market. These companies include
Alcon Laboratories (a subsidiary of Nestle), Humphrey Instruments (a
subsidiary of Carl Zeiss), and Tomey Technology. These companies, together
with EyeSys and others, market corneal topography instruments which utilize a
technology for measuring corneal curvature based on reflected images. Other
companies, including PAR Technology and Orbtek, utilize other technologies to
measure the corneal surface. There can be no assurances that EyeSys'
competitors will not succeed in developing technologies, procedures or
products that are more effective or economical than those marketed or being
developed by EyeSys or that would render EyeSys' products obsolete or
noncompetitive.
To continue to remain competitive, EyeSys must develop new software and
hardware meeting the needs of ophthalmologists and optometrists. EyeSys'
future revenues will depend, in part, on its ability to develop and
commercialize these new products as well as on the success of development and
commercialization efforts of its competitors.
Competition for products that can diagnose and evaluate eye disease is
intense and is expected to increase. Ophthalmic's two main competitors in the
United States angiography market are Topcon and Tomey. Four other companies
are known to have products in the international market, each with small market
penetration. Many of Ophthalmic's competitors and potential competitors have
substantially greater financial, manufacturing, marketing, distribution and
technical resources than Ophthalmic. The introduction of any new devices and
alternative methods to diagnose could hinder Ophthalmic's ability to compete
effectively and could have a material adverse effect on its business,
financial condition and results of operations.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Due to the relatively high sales price of Premier's laser systems and the
low sales unit volume, minor timing differences in receipt of customer orders
have produced and could continue to produce significant fluctuations in
quarterly results. In addition, if anticipated sales and shipments in any
quarter do not occur when expected, expenditures and inventory levels could be
disproportionately high, and Premier's operating results for that quarter, and
potentially for future quarters, would be adversely affected. Quarterly
results may also fluctuate based on a variety of other factors such as
seasonality, production delays, product mix, cancellation or rescheduling of
orders, new product announcements by competitors, receipt of FDA clearances or
approvals by Premier or its competitors, notices of product suspension or
recall, Premier's ability to manage product transitions, sales prices and
market conditions. In addition, if Premier expands or augments its
manufacturing capabilities in connection with the introduction of new
products, quarterly revenues and operating results are expected to fluctuate
to an even greater degree.
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UNCERTAIN ABILITY TO MEET CAPITAL NEEDS
Premier will require substantial additional funds for its research and
development programs, preclinical and clinical testing, development of its
sales and distribution force, operating expenses, regulatory processes and
manufacturing and marketing programs and for its integration and support of
Ophthalmic. Premier's capital requirements will depend on numerous factors,
including the progress of its research and development programs, results of
preclinical and clinical testing, the time and cost involved in obtaining
regulatory approvals, the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights, competing
technological and market developments, developments and changes in Premier's
existing research, licensing and other relationships and the terms of any new
collaborative, licensing and other arrangements that Premier may establish.
Premier believes its available current assets and investment income will be
sufficient to meet its operating expenses and capital expenditures through the
next 12 months. However, Premier's cash requirements may vary materially from
those now planned due to potential future acquisitions, the progress of
research and development programs, results of clinical testing, relationships
with strategic partners, if any, competitive and technological advances, the
FDA and foreign regulatory processes and other factors. There can be no
assurance, however, that additional financing will be available when needed,
or if available, will be available on acceptable terms. Insufficient funds may
prevent Premier from implementing its business strategy or may require Premier
to delay, scale back or eliminate certain of its research and product
development programs or to license to third parties rights to commercialize
products or technologies that Premier would otherwise seek to develop itself.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Premier Common Stock. In addition, the market price of the
Premier Common Stock has been and is likely to be highly volatile. Factors
such as fluctuations in Premier's operating results, announcements of
technological innovations or new products by Premier or its competitors, FDA
and international regulatory actions, developments with respect to patents or
proprietary rights, public concern as to the safety of products developed by
Premier or its competitors, changes in health care policy in the United States
and internationally, changes in analysts' recommendations regarding Premier,
other medical companies or the medical laser industry generally and general
market conditions may have a significant effect on the market price of the
Premier Common Stock.
PRODUCT LIABILITY EXPOSURE
The sale of Premier's laser systems and corneal topography systems involves
the inherent risk of product liability claims against Premier. Premier
currently maintains product liability insurance coverage in the amount of $5.0
million per occurrence and $5.0 million in the aggregate, but such insurance
is expensive, subject to various coverage exclusions and may not be obtainable
by Premier in the future on terms acceptable to Premier. There can be no
assurance that claims against Premier arising with respect to its products
will be successfully defended or that the insurance carried by Premier will be
sufficient to cover liabilities arising from such claims. A successful claim
against Premier in excess of Premier's insurance coverage could have a
material adverse effect on Premier.
LIMITATIONS ON THIRD PARTY REIMBURSEMENT
Premier's products are generally purchased by physicians, ophthalmologists,
dentists and surgical centers which then bill various third party payors, such
as government programs and private insurance plans, for the procedures
conducted with these products. Third-party payors carefully review and are
increasingly challenging the prices charged for medical products and services.
Reimbursement rates from private companies vary depending on the procedure
performed, the third-party payor, the insurance plan and other factors.
Medicare reimburses hospitals a prospectively-determined fixed amount for the
costs associated with an in-patient hospitalization based on the patient's
discharge diagnosis, and reimburses physicians a prospectively-determined
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<PAGE>
fixed amount based on the procedure performed, regardless of the actual costs
incurred by the hospital or physician in furnishing the care and unrelated to
the specific devices used in that procedure. Third-party payors are
increasingly scrutinizing whether to cover new products and the level of
reimbursement for covered products. While Premier believes that the laser
procedures using its products have generally been reimbursed, payors may deny
coverage and reimbursement for Premier's products if they determine that the
device was not reasonable and necessary for the purpose for which used, was
investigational or not cost-effective. As a result, there can be no assurance
that reimbursement from third party payors for these procedures will be
available or if available, that reimbursement will not be limited, thereby
adversely affecting Premier's ability to sell its products on a profitable
basis. Moreover, Premier is unable to predict what legislation or regulation,
if any, relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future, or what effect such legislature or
regulation may have on Premier.
UNCERTAINTIES REGARDING HEALTH CARE REFORM
Several states and the United States government are investigating a variety
of alternatives to reform the health care delivery system and further reduce
and control health care spending. These reform efforts include proposals to
limit spending on health care items and services, limit coverage for new
technology and limit or control the price health care providers and drug and
device manufacturers may charge for their services and products. If adopted
and implemented, such reforms could have a material adverse effect on
Premier's business, financial condition and results of operations.
CHARGE TO EARNINGS IN THE EVENT OF RELEASE OF ESCROW SHARES
Premier has outstanding shares of Class E-1 and Class E-2 Common Stock (the
"Escrow Shares") which are being held by Premier in escrow, and which will be
released from escrow and converted into shares of Common Stock if certain
criteria are met. In the event any of these criteria are met and any shares
are released from escrow to stockholders who are officers, directors,
employees or consultants of Premier, a substantial noncash compensation
expense will be recorded for financial reporting purposes. The recognition of
such compensation expense may have an adverse effect on the market price of
Premier's securities.
SHARES ELIGIBLE FOR FUTURE SALE; EFFECT OF OUTSTANDING OPTIONS AND WARRANTS
Sales of a substantial number of shares of Premier Common Stock in the
public market could adversely affect the market price for the Premier Common
Stock. Substantially all of Premier's shares of Premier Common Stock
outstanding as of the date hereof are freely tradeable, subject to compliance
with Rule 144 promulgated under the Securities Act. As of March 5, 1998, an
additional approximately 7,593,160 shares of Premier Common Stock are issuable
upon the full exercise of Premier's outstanding Class B Warrants, and in
excess of four million shares of Premier Common Stock are issuable upon
exercise of other outstanding warrants and options. The issuance of shares
upon the exercise of the Class B Warrants has been registered under the
Securities Act, and substantially all of the shares of Premier Common Stock
issuable upon exercise of the remaining options and warrants may be resold
pursuant to currently effective registration statements or Rule 701 under the
Securities Act. The existence of Premier's outstanding warrants and options
could adversely affect Premier's ability to obtain future financing. The price
which Premier may receive for the Premier Common Stock issued upon exercise of
such options and warrants will likely be less than the market price of the
Premier Common Stock at the time such options and warrants are exercised.
Moreover, the holders of the options and warrants might be expected to
exercise them at a time when Premier would, in all likelihood, be able to
obtain needed capital by a new offering of its securities on terms more
favorable than those provided for by the options and warrants.
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
Premier's Amended and Restated Articles of Incorporation authorize the
issuance of 8,850,000 shares of "blank check" preferred stock, which will have
such designations, rights and preferences as may be determined
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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 the
Premier Common Stock. In the event of such issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of Premier.
THE STOCK PURCHASE AGREEMENT
On February 25, 1998, Premier and Ophthalmic entered into a Stock Purchase
Agreement whereby Premier agreed to make the Offer to all Ophthalmic
stockholders with a view to acquiring additional shares of Ophthalmic Common
Stock and Ophthalmic agreed to recommend the Offer and not to solicit any
acquisition proposals competing with Premier's proposal. Pursuant to the Stock
Purchase Agreement, Premier may not decrease the Offer Consideration or change
the form of consideration payable in the Offer, decrease the number of Shares
sought to be purchased in the Offer, impose additional conditions to the Offer
or amend any other term of the Offer in any manner adverse to the Ophthalmic
stockholders, without the prior written consent of Ophthalmic. Except as
expressly contemplated by the Stock Purchase Agreement or as expressly agreed
to in writing by Premier, Ophthalmic agreed to conduct its operations
according to its ordinary and usual course of business, consistent with past
practice until the earliest of (a) August 30, 1998, (b) the termination of the
Stock Purchase Agreement, or (c) the closing of the Proposed Merger.
Accordingly, without the prior written consent of Premier, Ophthalmic may not:
(i) adopt or amend its employee benefit plans (outside of its ordinary course
of practice), (ii) incur any material indebtedness, (iii) make capital
expenditures in excess of $100,000 per fiscal quarter, (iv) encumber or
dispose of its material properties or assets (outside its ordinary course of
practice), (v) declare or make any distributions on, split, combine or
reclassify, or redeem or otherwise acquire any of its securities, (vi)
authorize for issuance, issue or sell any shares of equity securities (except
for the issuance of shares of Ophthalmic Common Stock pursuant to Ophthalmic's
options and warrants outstanding as of the date of the Stock Purchase
Agreement), (vii) amend its organizational documents, (viii) make any material
acquisition of assets (other than purchases of inventory and supplies in its
ordinary course of practice), (ix) settle or pay any claims in an aggregate
amount in excess of $100,000 (except for repayment of its indebtedness to
Imperial Bank under its current financing arrangements), (x) make any material
tax election or settle any material tax liability or (xi) amend or terminate
any material contract (outside its ordinary course of practice). The Stock
Purchase Agreement shall terminate if the Offer has not been consummated by
August 21, 1998, if Premier and Ophthalmic have used their best efforts to
consummate the transaction, and may be earlier terminated (a) upon the mutual
consent of the Ophthalmic and Premier, (b) by Ophthalmic, if Premier
withdraws, abandons or terminates the Offer without purchasing all Shares
validly tendered pursuant to the Offer and not validly withdrawn prior to the
Expiration Date (provided that all conditions of the Offer have been satisfied
or waived), (c) by either Premier or Ophthalmic, upon the entry of an order or
decree prohibiting the Offer, (d) by Ophthalmic following a material breach of
the Stock Purchase Agreement by Premier, or (e) by Premier, if prior to
exchanging the Offer Consideration for the Shares hereunder, Ophthalmic
withdraws or modifies its approval or recommendation of the Offer in a manner
adverse to Premier, or if Ophthalmic approves or recommends a competing
proposal from a third party. Each of Premier and Ophthalmic are liable to the
other for a termination fee if the Stock Purchase Agreement is terminated as a
result of a "material breach" by it. A "material breach" by Premier means any
action by Premier to withdraw the Offer unless (i) following good faith
efforts by Premier, the conditions to the Offer have not been satisfied or
(ii) a material breach by Ophthalmic has occurred. A "material breach" by
Ophthalmic means any action by Ophthalmic, (i) to redeem the Rights, (ii) to
amend, terminate or waive rights under the Rights Agreement (other than in
conjunction with the Offer), (iii) to solicit a competing proposal, (iv) to
negotiate a competing proposal, (v) to abandon, terminate or fail to recommend
that its stockholders accept the Offer, or (vi) to withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to Premier, the
approval or recommendation by the Ophthalmic Board of Directors of the Offer.
A copy of the Stock Purchase Agreement is attached as Appendix A hereto.
Simultaneous with the signing of the Stock Purchase Agreement, Premier
entered into individual purchase agreements ("Private Purchase Agreement" or
"Private Purchase Agreements") with Mark S. Blumenkranz,
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M.D. and Recia Blumenkranz, M.D. (collectively, the "Blumenkranzes"); Stanley
Chang, M.D. ("Chang") and JB Oxford & Company ("JBO") providing for these
parties to sell to Premier 421,052, 50,000 and 259,308 Shares, respectively,
for consideration per Share consisting of (a) $1.75 of cash, (b) $0.25 of
Premier Common Stock (measured by a formula in the Private Purchase
Agreements, substantively identical to the Exchange Ratio formula provided in
this Offer), (c) one Class C Warrant, and (d) one Class D Warrant. Premier,
with the assistance of Josephthal, Premier's independent investment and
financial advisor, valued such cash and securities at $2.18 per Share.
Additionally, JBO sold to Premier, pursuant to the terms of a Private Purchase
Agreement, warrants (the "JBO Warrants") to purchase 250,000 Shares. Premier
exercised the JBO Warrants on February 26, 1998. The consideration per Share
paid by Premier to purchase and exercise the JBO Warrants was equal to the
consideration described above. The sales, which occurred on February 26, 1998,
together with the exercise of the JBO Warrants, resulted in an aggregate
consideration of $2,137,184.80, using the value of $2.18 per Share. The
Private Purchase Agreement with the Blumenkranzes (Mark Blumenkranz being an
Ophthalmic director) provides for rescission if Premier fails to make, or
withdraws, the Offer as provided in the Stock Purchase Agreement. The Private
Purchase Agreements with the Blumenkranzes and JBO provide for a purchase
price adjustment that will make the purchase consideration to be paid
thereunder equal to the Stock Consideration paid under this Offer.
Registration rights were granted pursuant to Registration Rights Agreements
with the Blumenkranzes, Chang and JBO. The Private Purchase Agreements, the
warrants issued to each of the Blumenkranzes, Chang and JBO pursuant to the
Private Purchase Agreements (the "Private Warrants"), and the Registration
Rights Agreements are incorporated herein by reference and copies of each have
been filed with the Commission as an exhibit to the Registration Statement and
the Schedule 14D-1. Copies of the Private Purchase Agreements, the Private
Warrants and the Registration Rights Agreements may be examined and copies may
be obtained at the places and in the manner set forth under the heading
"Available Information."
TERMS OF THE OFFER
Premier hereby offers to acquire, on the terms and conditions stated in this
Prospectus/Offer to Exchange (including, if the Offer is extended or amended,
the terms and conditions of such extension or amendment), and the accompanying
Letter of Transmittal, each Share validly tendered prior to the Expiration
Date and not withdrawn as permitted by "Withdrawal Rights" for (a) $1.75 net
in cash, (b) that number of shares of Premier Common Stock determined by the
Exchange Ratio, (c) One Class C Warrant, and (d) one Class D Warrant. This
Prospectus/Offer to Exchange constitutes the formal offer by Premier.
EXPIRATION DATE
The term "Expiration Date" means 12:00 midnight, New York City time, on
, 1998, unless in its sole discretion, Premier shall have extended
the period of time for which the Offer is open as may be permitted by the
terms of the Stock Purchase Agreement or applicable law, in which event the
term "Expiration Date" shall mean the latest time and date at which the Offer,
as so extended by Premier, shall expire.
EXCHANGE RATIO
"Exchange Ratio" means the quotient (rounded to the nearest 1/100,000)
determined by dividing $0.25 by the Premier Average Price for either (i) the
fifteen (15) consecutive Trading Days ending five (5) Trading Days immediately
preceding the Expiration Date, or (ii) the thirty (30) consecutive Trading
Days ending twenty (20) Trading Days prior to the Expiration Date, whichever
yields the fewer number of shares of Premier Common Stock. Cash will be paid
in lieu of any entitlements to fractional shares of Premier Common Stock
(after taking into account all Shares tendered by such holder) in an amount
equal to the fractional part of the Premier Common Stock multiplied by the
"market price" of one share of Premier Common Stock payable as part of the
Offer Consideration. See "Exchange of Shares and Delivery of Offer
Consideration--Fractional Shares." Tendering Shareholders should periodically
verify the trading price of the Premier Common Stock to determine the value of
the Premier Common Stock to be issued in the Offer. The Exchange Ratio will
change as the market price of the Premier Common Stock changes. Ophthalmic
Shareholders may call (800) 452-1346 any time on or after the
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date hereof through the Expiration Date, for the current Exchange Ratio
calculated for purposes of responding to telephone inquiries based on the
average of the closing sales prices of Premier Common Stock for the
(i) fifteen (15) consecutive Trading Days preceding the date the call is
placed and (ii) the thirty consecutive Trading Days ending sixteen (16)
Trading Days preceding the date the call is placed. If the Premier Average
Price is equal to the closing price of the Premier Common Stock on the
Expiration Date, each Share would be exchanged for, in addition to the Cash
Consideration and the Warrants, Stock Consideration having a market value of
$0.25 per Share. Should the Premier Average Price be less than the closing
price of the Premier Common Stock on the Expiration Date, the Stock
Consideration exchanged pursuant to the Offer will have a market value in
excess of $0.25 as of the Expiration Date. Should the Premier Average Price be
greater than the closing price of the Premier Common Stock on the Expiration
Date, the Stock Consideration exchanged pursuant to the Offer will have a
market value less than $0.25 per Share as of the Expiration Date. The Exchange
Ratio and the Premier Average Price will change as the market price of the
Premier Common Stock changes. The actual Premier Average Price and Exchange
Ratio will be calculated as of the fifth Trading Day immediately prior to the
Expiration Date, as described above, and a press release will be issued
announcing the actual Exchange Ratio prior to the opening of the fourth
Trading Day prior to the Expiration Date.
The following table sets forth for illustrative purposes the Exchange Ratio
at a variety of assumed Premier Average Prices. This table is illustrative
only, the actual Premier Average Price will be determined as set forth above.
<TABLE>
<CAPTION>
MARKET VALUE
OF SHARES OF
PREMIER PREMIER COMMON STOCK MARKET VALUE OF
AVERAGE ON THE EXPIRATION OFFER
PRICE EXCHANGE RATIO DATE CONSIDERATION(1)
------- -------------- -------------------- ----------------
<S> <C> <C> <C>
$10.00 0.02500 $ 9.75 $2.174
$10.00 0.02500 $10.25 $2.186
$10.50 0.02381 $10.00 $2.168
$10.50 0.02381 $10.75 $2.186
$11.00 0.02273 $10.75 $2.174
$11.00 0.02273 $11.25 $2.186
$11.50 0.02174 $10.75 $2.164
$11.50 0.02174 $11.75 $2.185
</TABLE>
- --------
(1) This assumes an aggregate value of $0.18 assigned to the Warrants
exchangeable for each validly tendered Share.
THE WARRANTS
Class C Warrant
Each Class C Warrant will entitle the holder to $0.25 of Premier Common
Stock (measured by the Class C Warrant Share Factor (as defined below)). The
Class C Warrant will not become exercisable unless the Net Sales of Qualified
Products (both as defined below) for the twelve (12) month period ended August
31, 1998 (the "Class C Warrant Determination Date") equal or exceed $7.0
Million. "Net Sales" means net sales of Qualified Products as determined by
generally accepted accounting principles, as consistently applied by
Ophthalmic. "Qualified Products" means products sold by and in connection with
the current core business of Ophthalmic, including: (i) products related to or
arising out of such current core products; (ii) products under development as
of the date of this Offer; and (iii) those same products if sold by any
successor owner of Ophthalmic's operations. As soon as practicable after the
Class C Warrant Determination Date, Premier will determine the Net Sales of
Qualified Products for the twelve (12) month period ended on the Class C
Warrant Determination Date and will mail to the holders of the Class C
Warrants and shall publish in a newspaper of national circulation a notice (an
"Exercise Notice") stating whether this condition to the exercisability has
been
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met. The date of such mailing and publication is the "Class C Warrant Notice
Date." The Class C Warrant shall be exercisable at the option of the holder at
any time from the Class C Warrant Notice Date until 5:00 p.m. (California
time) on the ninetieth (90th) day following the Class C Warrant Notice Date
(unless earlier terminated as provided in the Class C Warrant). To determine
the number of shares of Premier Common Stock for which a Class C Warrant may
be exercised, Premier shall determine the average closing sales price of the
Premier Common Stock for (i) the fifteen (15) consecutive Trading Days
immediately preceding the Class C Warrant Determination Date and (ii) the
thirty (30) consecutive Trading Days ending fifteen (15) Trading Days prior to
the Class C Warrant Determination Date, and shall calculate the number of
shares of the Premier Common Stock, or fraction thereof, which could be
purchased at the greater of such two average closing prices for a purchase
price of $0.25. The result of this calculation shall be the "Class C Warrant
Share Factor." The Class C Warrant Share Factor shall be multiplied by the
number of Class C Warrants for which a holder is entitled to determine the
number of whole shares of Premier Common Stock for which such holder's Class C
Warrants may be exercised. Fractional shares resulting from aggregate
exercises shall be rounded to the nearest whole share. The purchase or
exercise price per share shall be $0.01, regardless of the number of Class C
Warrants which must be exercised to obtain a share of Premier Common Stock.
The number and kind of securities that may be acquired upon exercise of the
Class C Warrants will be subject to adjustment in certain circumstances in the
event of a stock dividend, stock split, reorganization, business combination
or other similar event. Nothing contained in the Class C Warrants will be
construed as conferring any rights as a stockholder upon a holder until, and
only to the extent that, such holder's Class C Warrants shall have been
exercised. Except as provided therein, no dividends or interest shall be
payable or accrued in respect of any Class C Warrant or the interest
represented thereby or the shares of Premier Common Stock purchasable
thereunder until, and only to the extent that, the Class C Warrant shall have
been exercised. The Class C Warrant and all rights thereunder are transferable
and may be sold, transferred, assigned or hypothecated by the holder thereof.
Class D Warrant
Each Class D Warrant will entitle the holder to $0.25 of Premier Common
Stock (measured by the Class D Share Factor (as defined below)). The Class D
Warrant will not become exercisable unless the Net Sales of Qualified Products
for the twelve (12) month period ended December 31, 1999 (the "Class D Warrant
Determination Date") equal or exceed $11.6 million. For purposes of the Class
D Warrants only, firm purchase orders or purchase agreements from purchasers
seeking shipments of goods by December 31, 1999, which are accompanied by at
least a ten percent (10%) deposit, shall be deemed to be December 1999 sales.
As soon as practicable after the Class D Warrant Determination Date, Premier
will determine the Net Sales of Qualified Products for the twelve (12) month
period ended on the Class D Warrant Determination Date and will mail to the
holders of the Class D Warrants, and shall publish in a newspaper of national
circulation an Exercise Notice stating whether this condition to the
exercisability has been met. The date of such mailing and publication is the
"Class D Warrant Notice Date." The Class D Warrant shall be exercisable at the
option of the holder at any time from the Class D Warrant Notice Date until
5:00 p.m. (California time) on the ninetieth (90th) date following the Class D
Warrant Notice Date (unless earlier terminated as provided in the Class D
Warrant). To determine the number of shares of Premier Common Stock for which
a Class D Warrant may be exercised, Premier shall determine the average
closing sales price of the Premier Common Stock for the (i) for the fifteen
(15) consecutive Trading Days immediately preceding the Class D Warrant
Determination Date and (ii) the thirty (30) consecutive Trading Days ending
fifteen (15) Trading Days prior to the Class D Warrant Determination Date, and
shall calculate the number of shares of the Premier Common Stock, or fraction
thereof, which could be purchased at the greater of such two average closing
prices for a purchase price of $0.25. The result of this calculation shall be
the "Class D Warrant Share Factor." The Class D Warrant Share Factor shall be
multiplied by the number of Class D Warrants for which a holder is entitled to
determine the number of whole shares of Premier Common Stock for which such
holder's Class D Warrants may be exercised. Fractional shares resulting from
aggregate exercises shall be rounded to the nearest whole share. The purchase
or exercise price per share shall be $0.01, regardless of the number of Class
D Warrants which must be exercised to obtain a share of Premier Common Stock.
The number and kind of securities that may be acquired upon exercise of the
Class D Warrants will be subject to adjustment in certain circumstances in the
event of a stock dividend, stock split,
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reorganization, business combination or other similar event. Nothing contained
in the Class D Warrants will be construed as conferring any rights as a
stockholder upon a holder until, and only to the extent that, such holder's
Class D Warrants shall have been exercised. Except as provided therein, no
dividends or interest shall be payable or accrued in respect of any Class D
Warrant or the interest represented thereby or the shares of Premier Common
Stock purchasable thereunder until, and only to the extent that, the Class D
Warrant shall have been exercised. The Class D Warrants and all rights
thereunder are transferable and may be sold, transferred, assigned or
hypothecated by the holder thereof.
THE OFFER
Premier hereby offers to purchase, upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any extension or amendment), all Shares validly
tendered prior to the Expiration Date and not theretofore validly withdrawn.
Premier expressly reserves the right, in its sole discretion, at any time and
from time to time, to extend for any reason the period of time during which
the Offer is open, including the occurrence of any of the conditions specified
in "Certain Conditions of the Offer," by giving oral or written notice of such
extension to the Exchange Agent. During any such extension, all Shares
previously tendered and not validly withdrawn will remain subject to the
Offer, subject to the rights of tendering shareholders to withdraw their
Shares. See "Withdrawal Rights."
Consummation of the Offer is conditioned upon, among other things, Premier
being satisfied, in its sole discretion, that the Rights remain inapplicable
to the Offer and upon Premier's satisfaction of the Regulatory Approvals
Condition. If any or all of such conditions are not satisfied, or if any or
all of the other events set forth in "Certain Conditions of the Offer" shall
have occurred prior to the Expiration Date, Premier reserves the right (but
shall not be obligated) to decline to exchange the Offer Consideration for
each Share tendered in the Offer and terminate the Offer and return all
tendered Shares to the tendering shareholders, or waive or amend any or all
other conditions to the Offer to the extent permitted by applicable law and,
subject to complying with applicable rules and regulations of the Commission,
exchange the Offer Consideration for each Share validly tendered.
Subject to the applicable regulations of the Commission, Premier expressly
reserves the right, in its sole discretion, at any time and from time to time,
(i) to delay acceptance for, exchange of, or, regardless of whether such
Shares were theretofore accepted for exchange, exchange of any Shares pending
receipt of any regulatory approval specified in "Regulatory Approvals," (ii)
to terminate the Offer and not accept for exchange or exchange any Shares upon
the occurrence of any of the conditions specified in "Certain Conditions of
the Offer" and (iii) to waive any condition or otherwise amend the Offer in
any respect, by giving oral or written notice of such delay, termination,
waiver or amendment to the Exchange Agent and by making a public announcement
thereof. Premier acknowledges that (i) Rule 14e-1(c) under the Exchange Act
requires Premier to exchange the consideration offered or return the Shares
tendered promptly after the termination or withdrawal of the Offer and (ii)
Premier may not delay acceptance for exchange of, or exchange for (except as
provided in clause (i) of the first sentence of this paragraph), any Shares
upon the occurrence of any of the conditions specified in "Certain Conditions
of the Offer" without extending the period of time during which the Offer is
open. Under no circumstances will interest be paid on the purchase price for
tendered shares, whether or not Premier exercises its right to extend the
Offer.
Any such extension, delay, termination, waiver or amendment will be followed
as promptly as practicable by public announcement thereof, such announcement
in the case of an extension to be made no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1(d)
under the Exchange Act, which require that material changes be promptly
disseminated to shareholders in a manner reasonably designed to inform them of
such changes) and without limiting the manner in which Premier may choose to
make any public announcement, Premier shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release to the Dow Jones News Service and making any
appropriate filing with the Commission.
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If Premier makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Premier will disseminate additional exchange offer materials and extend
the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under
the Exchange Act. The minimum period during which a tender offer must remain
open following material changes in terms of the Offer or the information
concerning the Offer, other than a change in price or a change in percentage
of securities sought, will depend upon the relevant facts and circumstances,
including the relative materiality of the changes to such terms or
information. With respect to a change in price or a change in percentage of
securities sought, a minimum ten business day period is generally required to
allow for adequate dissemination to stockholders and investor response.
If, prior to the Expiration Date, Premier should decide to decrease the
number of Shares being sought or to increase or decrease the consideration
being offered in the Offer, such decrease in the number of Shares being sought
or such increase or decrease in the consideration being offered will be
applicable to all shareholders whose Shares are accepted for exchange pursuant
to the Offer and, if at the time notice of any such increase or decrease is
first published, sent or given to holders of such Shares, the Offer is
scheduled to expire at any time earlier than the period ending on the tenth
business day from and including the date that such notice is first so
published, sent or given, the Offer will be extended at least until the
expiration of such ten business day period. For purposes of the Offer, a
"business day" shall have the meaning set forth in Rule 14d-1 under the
Exchange Act (means any day other than a Saturday, Sunday or federal holiday
and consists of the time period from 12:01 a.m. through 12:00 midnight, New
York City time).
As of the date of this Prospectus/Offer to Exchange, the Rights are
evidenced by the certificates evidencing the Shares and do not trade
separately. Accordingly, by tendering a certificate evidencing Shares, a
shareholder is automatically tendering a similar number of associated Rights.
If, however, pursuant to the Rights Agreement or for any other reason, the
Rights detach and separate Rights Certificates (as defined herein) are issued,
shareholders will be required to tender one Right for each share of Common
Stock tendered in order to effect a valid tender of such share of Common
Stock.
Ophthalmic has agreed to provide its shareholder list and security position
listings for the purpose of disseminating the Offer to holders of Shares. This
Prospectus/Offer to Exchange and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on Ophthalmic's
shareholder list and will be furnished, for subsequent transmittal to
beneficial owners of Shares, to brokers, dealers, commercial banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on the shareholder list or who are listed as participants in a clearing
agency's security position listing.
OPHTHALMIC OPTIONS
The Offer extends to any shares of Ophthalmic Common Stock which are
unconditionally issued or allotted upon the exercise of vested options granted
under Ophthalmic option plans or otherwise while the Offer remains open for
acceptance. In addition, a proposal is being made to option holders under
Ophthalmic option plans in respect of unexercised options pursuant to which
such option holders may elect (i) to exercise their existing Ophthalmic
options and then tender the Shares received upon such exercise, or (ii) to
rollover their existing options. Option holders who elect to rollover their
options will receive comparable options from Premier on the terms of the
existing relevant Ophthalmic option plan, such options to be issued pursuant
to Premier's 1998 Rollover Option Plan. Entitlements to fractional shares of
Premier Common Stock will be treated as set forth below. Vested options that
are not exercised as of the Expiration Date will be exchanged for Premier
options using a formula based upon the Premier Average Price at such time.
Unvested options will vest on the earlier to occur of their scheduled vesting
date and six (6) months following the Expiration Date. At such time, the newly
vested options will be exchanged for Premier options using a formula based
upon the Premier Average Price in effect at such time, unless the respective
holders of such options elect (prior to the Expiration Date) to have the
options exchanged using a formula based upon the Premier Average Price in
effect as of the Expiration Date. See "Appendix A--Stock Purchase Agreement."
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PROPOSED MERGER
Premier presently intends, if necessary, as soon as practicable after
consummation of the Offer, to propose and seek to have Ophthalmic effect a
merger (the "Proposed Merger"), if possible, with Premier pursuant to the
provisions of the California General Corporation Law (the "CGCL"). The
consideration per share in the Proposed Merger would be substantively equal in
value to the Offer Consideration. Under California law, however, any proposed
merger may not be accomplished for cash paid to Ophthalmic's shareholders if
Premier owns directly or indirectly more than 50% but less than 90% of the
then outstanding Shares unless either all the shareholders consent or the
Commissioner of Corporations of the State of California approves, after a
hearing, the terms and conditions of a proposed merger and the fairness
thereof. If the Proposed Merger is consummated, Premier currently intends that
Ophthalmic will become a wholly owned subsidiary of Premier.
AFFILIATE'S RESTRICTIONS ON SALE OF SHARES OF PREMIER COMMON STOCK
The Premier Common Stock to be issued pursuant to the Offer has been
registered under the Securities Act pursuant to a Registration Statement,
thereby allowing such securities to be traded without restriction by any
former holder of Ophthalmic Common Stock if such former holder (i) is not
deemed to be an "affiliate" (as defined for the purposes of Rule 144 under the
Securities Act) of Premier within 30 calendar days prior to the date of the
Offer, and (ii) does not become an affiliate or officer of Premier pursuant to
the Offer.
PURCHASE METHOD ACCOUNTING TREATMENT
It is expected that the consummation of the Offer will be accounted for
under the purchase method of accounting.
EXCHANGE OF SHARES AND DELIVERY OF OFFER CONSIDERATION
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), Premier will accept for exchange and will exchange for all
shares validly tendered prior to the Expiration Date, and not theretofore
withdrawn, after the latest to occur of (a) the Expiration Date or (b) subject
to compliance with Rule 14e-1(c) under the Exchange Act, the satisfaction of
the Regulatory Approvals Condition. Notwithstanding the immediately preceding
sentence and subject to compliance with Rule 14e-1(c) under the Exchange Act,
Premier expressly reserves the right to delay acceptance for exchange of, or
exchange for, Shares pending receipt of any regulatory approvals specified in
"Regulatory Approvals" or in order to comply in whole or in part with
applicable laws. Any such delay will be effected in compliance with Rule 14e-
1(c) under the Exchange Act (which requires a bidder to pay the consideration
offered or return the securities deposited by or on behalf of holders of
securities promptly after the termination or withdrawal of such bidder's
offer).
In all cases, the exchange for Shares tendered and accepted for exchange
pursuant to the Offer will be made only after timely receipt by the Exchange
Agent of (i) the certificates evidencing such Shares (the "Share
Certificates") and, if the Rights are at such time separately traded,
certificates representing the Rights associated with shares of Common Stock
(the "Rights Certificates") or timely confirmation (a "Book-Entry
Confirmation") of a book-entry transfer of such Shares (and Rights, if
applicable) into the Exchange Agent's account at The Depository Trust Company
or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer
Facility" and, together, the "Book-Entry Transfer Facilities") pursuant to the
procedures set forth in "Procedures for Accepting the Offer and Tendering
Shares," (ii) the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees or, in the
case of a book-entry transfer, an Agent's Message (as defined below) and (iii)
any other documents required under the Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part
of a Book-Entry Confirmation that states that such Book-
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Entry Transfer Facility has received an express acknowledgment from the
participant in such Book-Entry Transfer Facility tendering the Shares which
are the subject of such book-entry confirmation, that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that Premier may enforce such agreement against such participant.
For purposes of the Offer, Premier will be deemed to have accepted for
exchange (and thereby exchanged) Shares validly tendered and not properly
withdrawn as, if and when Premier gives oral or written notice to the Exchange
Agent of Premier's acceptance for exchange of such Shares pursuant to the
Offer. Delivery of the Cash Consideration, the Premier Common Stock and the
Warrants in exchange for Shares (and Rights, if applicable) pursuant to the
Offer and cash in lieu of fractional shares of Common Stock will be made by
the Exchange Agent as soon as practicable after receipt of such notice. The
Exchange Agent will act as agent for tendering Ophthalmic shareholders for the
purpose of receiving the Offer Consideration (including cash to be paid in
lieu of fractional shares of Premier Common Stock) from Premier and
transmitting such Offer Consideration to tendering Ophthalmic shareholders.
Under no circumstances will interest be paid by Premier by reason of any delay
in making such exchange.
If any tendered Shares are not accepted for exchange for any reason pursuant
to the terms and conditions of the Offer or if certificates are submitted
evidencing more Shares than are tendered or accepted for exchange,
certificates evidencing unexchanged Shares will be returned, without expense
to the tendering shareholder (or, in the case of Shares tendered by book-entry
transfer into the Exchange Agent's account at a Book-Entry Transfer Facility
pursuant to the procedure set forth in "Procedures for Accepting the Offer and
Tendering Shares," such Shares will be credited to an account maintained at
such Book-Entry Transfer Facility), as promptly as practicable following the
expiration or termination of the Offer.
If, prior to the Expiration Date, Premier increases the consideration to be
exchanged per Share pursuant to the Offer, Premier will exchange such
increased consideration for all such Shares exchanged pursuant to the Offer,
whether or not such Shares were tendered prior to such increase in
consideration.
Premier reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates, the right to exchange all or
any portion of the Shares tendered pursuant to the Offer, but any such
transfer or assignment will not relieve Premier of its obligations under the
Offer and will in no way prejudice the rights of tendering shareholders to
receive payment for Shares validly tendered and accepted for exchange pursuant
to the Offer.
FRACTIONAL SHARES
Each holder of Shares tendered for exchange pursuant to this Offer who would
otherwise have been entitled to receive a fraction of a share of Premier
Common Stock (after taking into account all Shares tendered by such holder)
shall receive, in lieu thereof, cash in an amount equal to the fractional part
of the Premier Common Stock multiplied by the "market price" of one share of
Premier Common Stock, payable as part of the Offer Consideration. The "market
price" of one share of Premier Common Stock shall be the closing price of such
common stock as reported on the NNM (as published in The Wall Street Journal
or, if not published therein, any other authoritative source) on the last
Trading Date preceding the Expiration Date.
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PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
VALID TENDER
In order for a holder of Shares to validly tender Shares pursuant to the
Offer, the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees, or any
Agent's Message (in the case of any book-entry transfer) and any other
documents required by the Letter of Transmittal, must be received by the
Exchange Agent at one of its addresses set forth on the back cover of this
Prospectus/Offer to Exchange and either (i) the certificates evidencing
tendered Shares must be received by the Exchange Agent at such address or such
Shares must be tendered pursuant to the procedure for book-entry transfer
described below and a Book-Entry Confirmation must be received by the Exchange
Agent, in each case prior to the Expiration Date, or (ii) the tendering
shareholder must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, RIGHTS CERTIFICATES (IF
APPLICABLE) AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY
BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING
SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE EXCHANGE AGENT INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY
BOOK-ENTRY CONFIRMATION. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish accounts with respect to the Shares at the
Book-Entry Transfer Facilities for purposes of the Offer within two business
days after the date of this Prospectus/Offer to Exchange. Any financial
institution that is a participant in the system of any Book-Entry Transfer
Facility may make a book-entry delivery of Shares by causing such Book-Entry
Transfer Facility to transfer such Shares into the Exchange Agent's account at
such Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at a Book-Entry Transfer Facility,
the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, together with any required signature guarantees, or an Agent's
Message in lieu of the Letter of Transmittal, and any other required
documents, must, in any case, be received by the Exchange Agent at one of its
addresses set forth on the back cover of this Prospectus/Offer to Exchange
prior to the Expiration Date, or the tendering shareholder must comply with
the guaranteed delivery procedure described below.
DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES
No signature guarantee is required on the Letter of Transmittal if (i) the
Letter of Transmittal is signed by a registered holder of Shares who has not
completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii)
such shares are tendered for the account of an Eligible Institution (as
defined below). In all other cases, signatures on Letters of Transmittal must
be guaranteed by a firm which is a member of the Medallion Signature Guarantee
Program, or by any other "eligible guarantor institution," as such term is
defined in Rule 17Ad-5 promulgated under the Exchange Act (each of the
foregoing being referred to as an "Eligible Institution"). If a certificate is
registered in the name of a person other than the signer of the Letter of
Transmittal, or if exchange is to be made, or a Share Certificate not accepted
for payment or not tendered is to be returned, to a person other than the
registered holder(s), then the Share Certificate must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear on the Share Certificate, with the
signature(s) on such Share certificate or stock powers guaranteed by an
Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal.
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GUARANTEED DELIVERY
If a shareholder desires to tender Shares pursuant to the Offer and such
shareholder's certificates evidencing such Shares are not immediately
available or such shareholder cannot deliver the certificates and all other
required documents to the Exchange Agent prior to the Expiration Date, or such
shareholder cannot complete the procedure for delivery by book-entry transfer
on a timely basis, such Shares may nevertheless be tendered, provided that all
the following conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by Premier, is received prior to
the Expiration Date by the Exchange Agent as provided below; and
(iii) the certificates (or a Book-Entry Confirmation) evidencing all
tendered Shares, in proper form for transfer, in each case together with
the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and any other documents required
by the Letter of Transmittal are received by the Exchange Agent within
three New York Stock Exchange, Inc. ("NYSE") trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Exchange Agent and
must include a guarantee by an Eligible Institution in the form set forth in
the form of Notice of Guaranteed Delivery made available by Premier.
In all cases, exchange for Shares tendered and accepted for exchange
pursuant to the Offer will be made only after timely receipt by the Exchange
Agent of the certificates evidencing such Shares, or a Book-Entry Confirmation
of the delivery of such Shares, and the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message), and
any other documents required by the Letter of Transmittal.
DISTRIBUTION OF RIGHTS
Unless the Rights are redeemed prior to the Expiration Date, holders of
Shares will be required to tender one Right for each Share tendered to effect
a valid tender of such Share. Unless and until the Distribution Date (as
defined below) occurs, the Rights are represented by and transferred with the
Shares. Accordingly, if the Distribution Date does not occur prior to the
Expiration Date, a tender of Shares will constitute a tender of the associated
Rights. If the Distribution Date has occurred, certificates representing a
number of Rights equal to the number of shares of Common Stock being tendered
must be delivered to the Exchange Agent in order for such shares of Common
Stock to be validly tendered. If the Distribution Date has occurred, a tender
of shares of Common Stock without Rights constitutes an agreement by the
tendering shareholder to deliver certificates representing a number of Rights
equal to the number of shares of Common Stock tendered pursuant to the Offer
to the Exchange Agent within three NYSE trading days after the date such
certificates are distributed. Premier reserves the right to require that it
receive such certificates prior to accepting shares of Common Stock for
exchange. Exchange for shares of Common Stock tendered and exchanged pursuant
to the Offer will be made only after timely receipt by the Exchange Agent of,
among other things, such certificates, if such certificates have been
distributed to holders of shares of Common Stock. Premier will not exchange
any additional consideration for the Rights tendered pursuant to the Offer.
DETERMINATION OF VALIDITY
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Shares will be
determined by Premier in its sole discretion, which determination shall be
final and binding on all parties. Premier reserves the absolute right to
reject any and all tenders determined by it not to be in proper form or the
acceptance for payment of which may, in the opinion of its counsel, be
unlawful. Premier
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also reserves the absolute right to waive any condition of the Offer, except
for Premier's obligations to satisfy the Regulatory Approvals Condition, or
any defect or irregularity in the tender of any Shares of any particular
shareholder, whether or not similar defects or irregularities are waived in
the case of other shareholders. No tender of Shares will be deemed to have
been validly made until all defects and irregularities have been cured or
waived. None of Premier, the Dealer Manager, the Exchange Agent, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. Premier's interpretation
of the terms and conditions of the Offer (including the Letter of Transmittal
and the instructions thereto) will be final and binding.
OTHER REQUIREMENTS
By executing the Letter of Transmittal as set forth above, a tendering
shareholder irrevocably appoints designees of Premier as such shareholder's
proxies, each with full power of substitution, in the manner set forth in the
Letter of Transmittal, to the full extent of such shareholder's rights with
respect to the Shares (including the associated Rights) tendered by such
shareholder and accepted for exchange by Premier (and with respect to any and
all other Shares or other securities issued or issuable in respect of such
Shares on or after the date of this Prospectus/Offer to Exchange). All such
proxies shall be considered coupled with an interest in the tendered Shares.
Such appointment will be effective when, and only to the extent that, Premier
accepts such Shares for payment. Upon such acceptance for exchange, all prior
proxies given by such shareholder with respect to such Shares (and such other
Shares and securities) will be revoked without further action, and no
subsequent proxies may be given nor any subsequent written consent executed by
such shareholder (and, if given or executed, will not be deemed to be
effective) with respect thereto. The designees of Premier will, with respect
to the Shares for which the appointment is effective, be empowered to exercise
all voting and other rights of such shareholder as they in their sole
discretion may deem proper at any annual or special meeting of Ophthalmic's
shareholders or any adjournment or postponement thereof, by written consent in
lieu of any such meeting or otherwise. Premier reserves the right to require
that, in order for Shares to be deemed validly tendered, immediately upon
Premier's exchange for such Shares, Premier must be able to exercise full
voting rights with respect to such Shares.
The acceptance for exchange by Premier of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering shareholder and Premier upon the terms and subject to the conditions
of the Offer.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO OFFER
CONSIDERATION EXCHANGED FOR PURSUANT TO THE OFFER, EACH SUCH SHAREHOLDER MUST
PROVIDE THE EXCHANGE AGENT WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER
IDENTIFICATION NUMBER AND CERTIFY THAT SUCH SHAREHOLDER IS NOT SUBJECT TO
BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN
THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 9 OF THE LETTER OF TRANSMITTAL.
WITHDRAWAL RIGHTS
Except as otherwise provided hereunder, tenders of Shares made pursuant to
the Offer are irrevocable. Shares tendered pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for exchange by Premier pursuant to the Offer, may also be withdrawn
at any time after 60 days following the date that the Prospectus/Offer to
Exchange is declared effective by the Commission. If Premier extends the
Offer, is delayed in its acceptance for exchange of Shares or is unable to
accept Shares for exchange pursuant to the Offer for any reason, then, without
prejudice to Premier's rights under the Offer, the Exchange Agent may,
nevertheless, on behalf of Premier, retain tendered Shares, and such Shares
may not be withdrawn except to the extent that tendering shareholders are
entitled to withdrawal rights as described herein, subject to Rule 14e-1(c)
under the Exchange Act, which provides that no person who makes a tender offer
shall fail to pay the consideration offered or return the securities deposited
by or on behalf of securities holders
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promptly after termination or withdrawal of the tender offer. Any such delay
will be by an extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Exchange
Agent at its address set forth on the back cover page of this Prospectus/Offer
to Exchange. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder of such Shares, if different from that
of the person who tendered such Shares. If certificates evidencing Shares to
be withdrawn have been delivered or otherwise identified to the Exchange
Agent, then, prior to the physical release of such certificates, the serial
numbers shown on such certificates must be submitted to the Exchange Agent and
the signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution, unless such Shares have been tendered for the account of an
Eligible Institution. If Shares have been tendered pursuant to the procedure
for book-entry transfer as set forth in "Procedures for Accepting the Offer
and Tendering Shares," any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Premier, in its sole discretion,
which determination will be final and binding. None of Premier, the Dealer
Manager, the Exchange Agent, the Information Agent or any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "Procedures for Accepting the Offer and Tendering
Shares."
DIVIDENDS AND DISTRIBUTIONS
If, on or after the date of this Prospectus/Offer to Exchange, Ophthalmic
should (i) split, combine or otherwise change the Shares or its
capitalization, (ii) acquire or otherwise cause a reduction in the number of
outstanding Shares or (iii) issue or sell any additional Shares, shares of any
other class or series of capital stock, other voting securities or any
securities convertible into, or options, rights or warrants, conditional or
otherwise, to acquire, any of the foregoing, then, without prejudice to
Premier's rights under "Certain Conditions of the Offer," Premier, in its sole
discretion, may make such adjustments to the purchase price and other terms of
the Offer (including the number and type of securities to be purchased) as it
deems appropriate to reflect such split, combination or other change.
If, on or after the date of this Offer, Ophthalmic should declare or pay any
dividend on the Shares or make any other distribution (including the issuance
of additional shares of capital stock pursuant to a stock dividend or stock
split, the issuance of other securities or the issuance of rights for the
purchase of any securities) with respect to the Shares that is payable or
distributable to shareholders of record on a date prior to the transfer to the
name of Premier or its nominee or transferee on Ophthalmic's stock transfer
records of the Shares purchased pursuant to the Offer, then, without prejudice
to Premier's rights under "Certain Conditions of the Offer", (i) the purchase
price per Share payable by Premier pursuant to the Offer will be reduced to
the extent any such dividend or distribution is payable in cash and (ii) any
non-cash dividend, distribution or right shall be received and held by the
tendering shareholder for the account of Premier and will be required to be
promptly remitted and transferred by each tendering shareholder to the
Exchange Agent for the account of Premier, accompanied by appropriate
documentation of transfer. Pending such remittance and subject to applicable
law, Premier will be entitled to all the rights and privileges as owner of any
such non-cash dividend, distribution or right and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof,
as determined by Premier in its sole discretion.
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SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, subject to the limitations set forth herein,
describes the material federal income tax consequences of the Offer to holders
of Shares who hold the Shares as capital assets and exchange Shares for cash
and other consideration pursuant to the Offer. The tax consequences to a
specific shareholder may vary depending upon such shareholder's particular tax
situation, and the discussion set forth below may not apply to certain
categories of holders of Shares subject to special treatment under the
Internal Revenue Code of 1986, as amended (the "Code"), such as foreign
shareholders, securities dealers, broker-dealers, insurance companies,
financial institutions, tax-exempt entities and shareholders who acquired such
Shares pursuant to an exercise of an employee stock option or otherwise as
compensation or who hold restricted stock. The discussion is based on the Code
as in effect on the date of this Prospectus/Offer to Exchange, as well as
regulations promulgated thereunder, existing administrative interpretations
and court decisions currently in effect, all of which are subject to change,
retroactively or prospectively, and to possibly differing interpretations and
does not address state, local or foreign tax laws. Since the Offer is
conditioned upon, among other events, the Rights having been redeemed or
invalidated or being otherwise inapplicable to the Offer, this tax discussion
assumes the satisfaction of such condition and thus no allocation of
consideration to the Rights or the Rights Certificates. No ruling will be
requested from the Internal Revenue Service (the "IRS") regarding the tax
consequences of the Offer and thus there can be no assurance that the IRS will
agree with the discussion set forth below.
The exchange of Shares for cash, Premier Common Stock and the Warrants
pursuant to the Offer will be taxable to exchanging shareholders of
Ophthalmic. Each shareholder of Ophthalmic tendering pursuant to the Offer
will recognize capital gain or loss for federal income tax purposes measured
by the difference between such shareholder's tax basis in such shareholder's
Shares tendered in the Offer and the amount of cash and the value of Premier
Common Stock and the Warrants received by such shareholder. (See "Taxation of
Capital Gains" below.) Premier, with the assistance of Josepthal, has valued
each Class C Warrant at $0.15, each Class D Warrant at $0.03 and the Stock
Consideration at $0.25, for each Share exchangeable pursuant to this Offer.
SHAREHOLDERS OF OPHTHALMIC SHOULD CONSIDER THAT THE OFFER CONSIDERATION WILL
BE PARTIALLY OR FULLY TAXABLE TO THEM AND ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE TAX CONSEQUENCES OF THE OFFER AND THE PROPOSED MERGER.
TAXATION OF CAPITAL GAINS
Under recently enacted legislation, a non-corporate shareholder would be
subject to tax at ordinary income rates if the Shares were held for one year
or less, at a maximum rate of 28% if held for more than one year but not more
than eighteen months, and at a maximum rate of 20% if held for more than
eighteen months.
TRANSFER TAXES
Premier will not pay any transfer taxes applicable to the exchange of shares
of Ophthalmic Common Stock tendered and accepted pursuant to the Offer. Such
taxes, if any, will be the responsibility of the tendering holder.
WITHHOLDING
Shareholders (other than tax-exempt persons, corporations and certain
foreign individuals) who tender shares may be subject to 31% backup
withholding unless those shareholders provide a taxpayer identification number
("TIN") and are certain that the TIN is correct or properly certify that they
are awaiting a TIN. A shareholder may avoid backup withholding by properly
completing and signing the Substitute Form W-9 included as part of the Letter
of Transmittal. If a shareholder who is subject to backup withholding does not
properly complete and sign the substitute Form W-9, Premier will withhold 31%
with respect to any consideration received pursuant to the Offer.
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THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT APPLY TO CERTAIN
CATEGORIES OF HOLDERS OF SHARES SUBJECT TO SPECIAL TREATMENT UNDER THE CODE,
SUCH AS FOREIGN HOLDERS AND HOLDERS WHOSE SHARES WERE ACQUIRED PURSUANT TO THE
EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION, OR WHO HOLD
RESTRICTED STOCK, OR WHO ARE SUBJECT TO ALTERNATIVE MINIMUM TAX. SHAREHOLDERS
OF OPHTHALMIC ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE OFFER, INCLUDING ANY STATE, LOCAL OR OTHER
TAX CONSEQUENCES OF THE OFFER.
EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, EXCHANGE LISTING AND
EXCHANGE ACT REGISTRATION UPDATE
The acquisition of Shares by Premier pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly and will reduce the
number of holders of Shares, which could adversely affect the liquidity and
market value of the remaining Shares held by the public. The acquisition of
Shares pursuant to the Offer can also be expected to reduce the number of
holders thereof.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the Boston Stock Exchange and
Nasdaq for continued inclusion on the SCM. Nasdaq requires that an issuer (a)
have at least 500,000 publicly held shares, (b) be held by at least 300
shareholders, (c) have a market value of at least $1.0 million, (d) maintain a
minimum bid price of at least $1 per share and (e) have at least two market
makers or a market capitalization of at least $35.0 million or net income of
$500,000 during the last fiscal year or two of the three last fiscal years.
On March 3, 1998, the Boston Stock Exchange suspended Ophthalmic's Common
Stock from trading and filed for delisting with the Commission for not meeting
one or more of the minimum listing requirements of the Boston Stock Exchange.
Nasdaq has also indicated that it intends to suspend trading and delist
Ophthalmic's Common Stock from the SCM. A request has been made seeking to
continue listing on the SCM until the Expiration Date. The decision is pending
and is expected to be forthcoming.
If Nasdaq were to delist the Shares, it is possible that the Shares would
continue to trade on another securities exchange or in the over-the-counter
market and that price or other quotations would be reported by such exchange
or other sources. The extent of the public market therefor and the
availability of such quotations would depend, however, upon such factors as
the number of shareholders and/or the aggregate market value of such
securities remaining at such time, the interest in maintaining a market in the
Shares on the part of securities firms, the possible termination of
registration under the Exchange Act as described below, and other factors.
Premier cannot predict whether the reduction in the number of Shares that
might otherwise trade publicly would have an adverse or beneficial effect on
the market price for or marketability of the Shares or whether it would cause
future market prices to be greater or less than the Offer Consideration.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by Ophthalmic to the
Commission if the Shares are not listed on a national securities exchange and
there are fewer than 300 record holders. It is the intention of Premier to
seek to cause an application for such termination to be made as soon after
consummation of the Offer as the requirements for termination of the
registration of Shares are met. The termination of the registration of the
Shares under the Exchange Act would substantially reduce the information
required to be furnished by Ophthalmic to holders of Shares and to the
Commission and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy statement in connection with shareholders' meetings and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Shares. In addition,
"affiliates" of Ophthalmic and persons holding "restricted securities" of
Ophthalmic may be deprived of the ability to dispose of such securities
pursuant to Rules 144 and 144A promulgated under the Securities Act. If
registration of the Shares under the Exchange Act were terminated, the Shares
would no longer be eligible for reporting on Nasdaq.
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CERTAIN CONDITIONS OF THE OFFER
Pursuant to the terms of the Stock Purchase Agreement, notwithstanding any
other provision of the Offer, and in addition to (and not in limitation of)
Premier's rights to extend and amend the Offer at any time, in its sole
discretion, Premier shall not be required to accept for exchange or, subject
to any applicable rules or regulations of the Commission, including Rule 14e-
1(c) under the Exchange Act, exchange for any Shares or options tendered
pursuant to the Offer, and may terminate or amend the Offer, if (i) any one or
more of the Rights Condition and the Regulatory Approval Condition shall not
have been satisfied or (ii) prior to the acceptance for exchange or exchange
for any Shares, any of the following conditions shall exist:
(a) there shall have been instituted or be pending any action or
proceeding before any court or governmental, administrative or regulatory
authority or agency, domestic or foreign (each, a "Governmental Entity"),
or by any other person, domestic or foreign, before any court or
Governmental Entity, (i) challenging or seeking to, or which is reasonably
likely to, make illegal, materially delay or otherwise directly or
indirectly restrain or prohibit or seeking to, or which is reasonably
likely to, impose voting, procedural, price or other requirements, in
addition to those required by federal securities laws and the CGCL (each as
in effect on the date this Prospectus/Offer to Exchange is filed with the
SEC in connection with the Offer), in connection with the making of the
Offer, the acceptance for exchange of, or exchange for, any Shares by
Premier or any other affiliate of Premier or other business combination
with Ophthalmic, or seeking to obtain material damages in connection
therewith; (ii) seeking to prohibit or limit materially the ownership or
operation by Ophthalmic, Premier or any of their subsidiaries of all or any
material portion of the business or assets of Ophthalmic, Premier or any of
their subsidiaries, or to compel Ophthalmic, Premier or any of their
subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of Ophthalmic, Premier or any of their subsidiaries;
(iii) seeking to impose or confirm limitations on the ability of Premier or
any other affiliate of Premier to exercise effectively full rights of
ownership of any Shares (including the Rights associated with Shares),
including, without limitation, the right to vote any Shares acquired by
Premier pursuant to the Offer or otherwise on all matters properly
presented to Ophthalmic's shareholders; (iv) seeking to require divestiture
by Premier or any other affiliate of Premier of any Shares; (v) seeking any
material diminution in the benefits expected to be derived by Premier, or
any other affiliate of Premier as a result of the transactions contemplated
by the Offer or any other similar business combination with Ophthalmic;
(vi) otherwise directly or indirectly relating to the Offer or which
otherwise, in the reasonable judgment of Premier and Ophthalmic, might
materially adversely affect Ophthalmic or Premier, or any other affiliate
of Premier; or (vii) which otherwise, in the reasonable judgment of Premier
and Ophthalmic, is reasonably likely to materially adversely affect the
business, operations (including, without limitation, results of
operations), properties (including, without limitation, intangible
properties), condition (financial or otherwise), assets or liabilities
(including, without limitation, contingent liabilities) or prospects of
either Ophthalmic or Premier;
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Premier, Ophthalmic or any subsidiary or affiliate of
Premier or (ii) the Offer or other business combination by Premier or any
affiliate of Premier with Ophthalmic, by any legislative body, court,
government or governmental, administrative or regulatory authority or
agency, domestic or foreign, which, in the sole judgment of Premier, is
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (vii) of paragraph (a)
above;
(c) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on Nasdaq, the NYSE or any
other securities exchange, (ii) any decline, measured from the close of
business on February 25, 1998, in the Standard & Poor's 500 Index by an
amount in excess of 20%, (iii) any material adverse change in United States
currency exchange rates or a suspension of, or limitation on, currency
exchange markets, (iv) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (v) any
limitation (whether or not mandatory) by any government or governmental,
administrative or regulatory authority or agency, domestic or foreign, on,
or other event that, in the sole judgment of Premier, might affect the
extension of credit by banks or other lending
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institutions, (vi) a commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving the
United States or (vii) in the case of any of the foregoing existing on
February 25, 1998, a material acceleration or worsening thereof;
(d) Ophthalmic shall have, directly or indirectly, (i) split, combined or
otherwise changed, or authorized or proposed a split, combination or other
change of, the Shares or its capitalization, (ii) issued or sold, or
authorized or proposed the issuance, distribution or sale of, additional
Shares (other than the issuance of Shares under options and warrants
outstanding prior to the date of this Prospectus/Offer to Exchange, in
accordance with the terms of such options as such terms have been publicly
disclosed prior to the date of this Prospectus/Offer to Exchange), shares
of any other class of capital stock, other voting securities or any
securities convertible into, or rights, warrants or options, conditional or
otherwise, to acquire, any of the foregoing, (iii) declared or paid, or
proposed to declare or pay, any dividend or other distribution, whether
payable in cash, securities or other property, on or with respect to any
shares of capital stock of Ophthalmic, (iv) altered or proposed to alter
any material term of any outstanding security (including the Rights) other
than to amend the Rights Agreement to make the Rights inapplicable to
Premier, (v) authorized, recommended, proposed or entered into an
agreement, agreement in principle or arrangement or understanding with
respect to any merger, consolidation, liquidation, dissolution, business
combination, acquisition of assets, disposition of assets, release or
relinquishment of any material contractual or other right of Ophthalmic or
any comparable event not in the ordinary course of business, (vi)
authorized, recommended, proposed or entered into, or announced its
intention to authorize, recommend, propose or enter into, any agreement,
arrangement or understanding with any person or group that in the sole
judgment of Premier could adversely affect either the value of Ophthalmic
or any of its subsidiaries, joint ventures or partnerships or the value of
the Shares to Premier or any affiliate of Premier, (vii) entered into or
amended any employment, change in control, severance, executive
compensation or similar agreement, arrangement or plan with or for the
benefit of any of its employees, consultants or directors, or made grants
or awards thereunder, other than in the ordinary course of business or
entered into any agreements, arrangements or plans so as to provide for
increased or accelerated benefits to any such persons, (viii) except as may
be required by law, taken any action to terminate or amend any employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended) of Ophthalmic or any of its subsidiaries,
or Premier shall have become aware of any such action that was not
disclosed in publicly available filings prior to the date of this
Prospectus/Offer to Exchange, or (ix) except as contemplated by the Stock
Purchase Agreement amended or authorized or proposed any amendment to
Ophthalmic's Restated Articles of Incorporation or Bylaws, or Premier shall
have become aware that Ophthalmic shall have proposed or adopted any such
amendment that was not disclosed in publicly available filings prior to the
date of this Prospectus/Offer to Exchange;
(e) any person or group shall have entered into a definitive agreement or
an agreement in principle or made a proposal with respect to a tender offer
or exchange offer or a merger, consolidation or other business combination
with Ophthalmic;
(f) any approval, permit, authorization or consent of any governmental
authority or agency needed for the Offer shall not have been obtained on
terms satisfactory to Premier or Premier shall have been notified by
Ophthalmic that such terms are not satisfactory to Ophthalmic;
(g) the Stock Purchase Agreement shall have been terminated in accordance
with its terms; or
(h) Ophthalmic's Board of Directors shall have publicly withdrawn or
modified in any manner adverse to Premier its recommendation that
shareholders accept the Offer.
The foregoing conditions (including those set forth in clause (i) of the
initial paragraph) are for the sole benefit of Premier and may be asserted by
Premier regardless of the circumstances giving rise to any such conditions and
may be waived by Premier, in whole or in part, at any time and from time to
time, in its reasonable discretion. The failure by Premier at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
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PREMIER'S REASONS FOR THE TRANSACTION
Premier is seeking to acquire Shares pursuant to the Offer in order to
ultimately obtain the entire equity interest in Ophthalmic. Following the
closing of the Private Purchase Agreements (the "Private Acquisition") Premier
owned approximately 51.3% of the issued and outstanding Shares of Ophthalmic.
Premier believes that its target market, the medical laser industry, is
subject to intense competition and is characterized by rapid technological
changes. Premier believes that its ability to compete successfully against
traditional treatments, competitive laser systems and treatments that may be
developed in the future will depend on its ability to create and maintain
advanced technology, develop proprietary products, obtain required regulatory
and clearances for its products, attract and retain scientific personnel,
obtain patent or other proprietary protection for its products and
technologies, and manufacture and successfully market products either alone or
through other parties. Consequently, a key element of Premier's business
strategy has been to seek growth through acquisition in order to achieve these
objections. Premier participates in three primary market segments: dentistry,
surgery and ophthalmology.
Premier believes that the acquisition of Ophthalmic offers Premier an
opportunity to improve its competitive position in the ophthalmology market. A
substantial portion of Ophthalmic's business involves the business of
designing, developing, manufacturing and marketing digital imaging systems and
image enhancement and analysis software for use by practitioners in the ocular
health field.
In evaluating Premier's acquisition of Shares, including pursuant to the
Offer and the Private Acquisition, the Board of Directors of Premier (the
"Premier Board"), with assistance of Josephthal and outside counsel considered
the following factors: (i) Premier's ability to sell its products through the
combined Ophthalmic and EyeSys-Premier marketing and sales organization; (ii)
Premier's ability to expand sales of Ophthalmic's products through its
international distribution network; (iii) the expectation that Premier's sales
will be benefitted by Ophthalmic's reputation in the ophthalmic field; (iv)
the ability to sell Premier's ophthalmic lasers in conjunction with
Ophthalmic's reliable and high quality retinal imaging systems; and (v) the
fact that Premier's and Ophthalmic's products complement each other in the
retinal glaucoma field.
The Premier Board considered each of the factors listed above to be
beneficial to the Premier shareholders. Based on this analysis, the Premier
Board determined that the Offer is fair to, and in the best interests of, the
Premier shareholders. The foregoing discussion of the information and factors
considered by the Premier Board is not intended to be exhaustive, and were
considered collectively by the Premier Board in connection with its review of
the Stock Purchase Agreement and the terms of the Offer. The decision of the
Premier Board to approve the Stock Purchase Agreement and the transactions
contemplated thereby, including the Offer and the Private Acquisition, was
based on its consideration of many factors, including those noted above, taken
as a whole. The Premier Board did not analyze specific factors in isolation.
In view of the variety of factors considered in connection with its evaluation
of the Stock Purchase Agreement and the transactions contemplated thereby,
including the Offer and the Private Acquisition, the Premier Board did not
find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the Premier Board may have given different
weights to different factors.
The Premier Board also considered specific risk factors in connection with
the acquisition of Shares, including pursuant to the Offer and the Private
Acquisition. Such factors included the following: (i) the value of the Stock
Consideration and the Warrant Consideration given for each Share may vary due
to the calculation of the Premier Average Price and the Exchange Ratio after
giving effect to the market value of the Premier Common Stock on the
Expiration Date; (ii) operating synergies between Premier and Ophthalmic may
not, or may be slow, to materialize; (iii) the dilution to holders of Premier
Common Stock resulting from the issuance of the Stock Consideration pursuant
to the Offer and shares of Premier Common Stock pursuant to the exercise of
the Warrants, if the conditions for exercise contained therein are met; and
(iv) Ophthalmic's operating losses to be borne by Premier.
The Premier Board concluded, in its business judgment, that the factors
favoring adoption of the Stock Purchase Agreement, and the acquisition of
Shares pursuant to the Private Acquisition and this Offer, outweighed the risk
factors identified above.
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THE PREMIER BOARD BELIEVES THAT THE STOCK PURCHASE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THIS OFFER AND THE PRIVATE
ACQUISITION, ARE FAIR TO, AND IN THE BEST INTEREST OF PREMIER AND ITS
SHAREHOLDERS.
FUTURE PLANS OF PREMIER
Following the Offer, Premier and persons related to or affiliated with
Premier may acquire additional Shares. Any such acquisition may be made
through private purchases, through one or more future tender or exchange
offers or by any other means deemed advisable by Premier in its sole
discretion. Any such acquisition may be at a price higher or lower than the
price to be paid for the Shares acquired pursuant to the Offer, and may be for
cash or other consideration. Premier also may consider selling some or all of
the Shares it acquires pursuant to the Offer, depending among other things on
liquidity, strategic, tax and other considerations.
Premier presently intends, if necessary, as soon as practicable after
consummation of the Offer, to propose and seek to have Ophthalmic effect the
Proposed Merger, if possible, with Premier pursuant to the provisions of the
CGCL. The consideration per Share in the Proposed Merger would be
substantively equal in value to the Offer Consideration. Under California law,
however, any proposed merger may not be accomplished for cash paid to
Ophthalmic's shareholders if Premier owns directly or indirectly more than 50%
but less than 90% of the then outstanding Shares unless either all of the
shareholders consent or the Commissioner of Corporations of the State of
California approves, after a hearing, the terms and conditions of a proposed
merger and the fairness thereof. If the Proposed Merger is consummated,
Premier currently intends that Ophthalmic will become a wholly owned
subsidiary of Premier.
If Premier is successful in acquiring the Shares it is tendering for
pursuant to the Offer, it intends to conduct a review of Ophthalmic and
Ophthalmic's assets, operations, properties, management and personnel and
consider what, if any, recommendations, suggestions, actions or changes
Premier believes would be desirable in connection with Ophthalmic in light of
the circumstances that then exist. Premier intends to approach current
management of Ophthalmic with such possible recommendations suggestions,
actions and changes.
Except as set forth in this Prospectus/Offer to Exchange, Premier has no
present plans or proposals that would result in an extraordinary corporate
transaction, such as a merger, reorganization, liquidation, reallocation of
operations or sale or transfer of assets involving Ophthalmic or any material
change in Ophthalmic's structure, business or composition of its management or
personnel.
OPHTHALMIC'S REASONS FOR RECOMMENDING THE OFFER
In evaluating and determining to approve the Stock Purchase Agreement and
the transactions contemplated thereby, including the Offer and the Private
Acquisition, the Board of Directors of Ophthalmic (the "Ophthalmic Board"),
with the assistance of Cowen & Company ("Cowen"), Ophthalmic's independent
financial advisor, and outside counsel, considered a variety of factors and
based its opinion as to the fairness of the transactions contemplated by the
Stock Purchase Agreement primarily on the following factors:
(i) The financial terms of the Offer, including the value of
consideration offered, the premium to book value paid, prices paid in
comparable transactions, relative earnings per share, and shareholders'
equity of Premier and Ophthalmic.
(ii) The likely delisting of Ophthalmic Common Stock by Nasdaq and the
Boston Stock Exchange, and the resulting lack of liquidity for Ophthalmic
Common Stock, and the active trading market for the Premier Common Stock,
as well as the future prospects for appreciation of such stock.
(iii) The future prospects of Ophthalmic and possible alternatives to the
proposed Offer, including the prospects of continuing as an independent
company. The Ophthalmic Board also considered the market risks of
proceeding independently, the timing of the Offer, and the prospects of
receiving a better financial offer
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from another third party. In this regard, the Ophthalmic Board considered
the Company's cash flow problems and the limited sources of available funds
for maintaining its operations, and that Premier could furnish the cash
necessary for the Company to continue its ongoing operations and to develop
its products.
(iv) Information with respect to the financial condition, results of
operations, and the prospects of Ophthalmic and the current industry,
economic, and market conditions, as well as the risks associated with
achieving those prospects.
(v) The financial presentation by and opinion of Cowen that, as of the
date of such opinion, the financial terms of the Offer as provided in the
Stock Purchase Agreement were fair, from a financial point of view, to
Ophthalmic stockholders (other than Premier and its affiliates). The
opinion of Cowen is further described in "Opinion of Ophthalmic's Financial
Advisor" and is attached as Appendix F hereto.
(vi) The fact that if Ophthalmic wished to maintain its current level of
operations and to achieve profitability, significant capital would have to
be raised from outside sources, possibly from a public offering, and the
opinion of the Ophthalmic Board that the ability to raise such funds was
questionable; and that to maximize the stockholder value with the current
Premier offer was a better choice in relation to the risks and
uncertainties associated with raising such additional capital.
(vii) To the extent that Ophthalmic Common Stock continues to be listed
and traded on SCM or the Boston Stock Exchange (which prospects for
continued listing appeared unlikely), the Ophthalmic Board considered the
relative lack of liquidity for Ophthalmic Common Stock as a SCM securities,
the consideration to be received by Ophthalmic Stockholders in the Offer in
relation to the current market price of Ophthalmic Common Stock, and the
fact that the Offer would afford Ophthalmic Stockholders the opportunity to
exchange their shares for an ownership interest in a combined enterprise
which was larger and had greater financial resources than Ophthalmic on a
stand-alone basis, and whose securities were publicly traded on NMS.
(viii) The compatibility of the respective businesses and the management
philosophies of Ophthalmic and Premier, including the desires of Ophthalmic
and Premier to expand their ophthalmic imaging operations.
(ix) The business, financial, and earning prospects of Premier, the
potential for growth in Premier Common Stock, and the competence,
integrity, and experience of Premier and its management.
Each of the above factors support, directly or indirectly, the determination
of the Ophthalmic Board as to the fairness of the Offer. Accordingly, based on
all of the foregoing factors, and such other matters as deemed relevant, the
Ophthalmic Board unanimously approved and adopted the Stock Purchase Agreement
and the Offer. The Ophthalmic Board did not quantify or attempt to assign
relative weights to the specific factors considered in reaching its
determination; however, the Ophthalmic Board did place special emphasis on the
consideration payable in the proposed Offer, the potential delisting of the
Ophthalmic Common Stock, and the receipt of a fairness opinion from its
financial advisor. See "Opinion of Ophthalmic's Financial Advisor."
THE OPHTHALMIC BOARD BELIEVES THAT THE OFFER IS FAIR TO, AND IN THE BEST
INTEREST OF, OPHTHALMIC AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
OPHTHALMIC SHAREHOLDERS TENDER THEIR SHARES IN THE OFFER.
BACKGROUND OF THE OFFER; CONTACTS WITH OPHTHALMIC
In the ordinary course of business, Premier analyzes a broad range of
strategic alternatives, including possible business combinations with other
companies in the surgical laser, laser waveguides and laser fiber optic device
businesses. Over the past year, Premier has monitored Ophthalmic as a
potential acquisition candidate.
Over the period from October 1997 through December 31, 1997 Premier acquired
an aggregate of 1,151,398 shares of Ophthalmic Common Stock.
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On or about December 17, 1998, Premier engaged Josephthal to assist it in
connection with its potential interest in Ophthalmic and to, among other
things, evaluate Ophthalmic's business, prospects and financial condition, the
market for the Shares, other opportunities available to Premier, prospects for
Premier's own business, general economic conditions, money and stock market
conditions and other future developments and factors deemed material to
Premier's investment decision. See "Fees and Expenses."
On December 29, 1997, Premier filed a Schedule 13D disclosing the
acquisition of approximately 28% of the shares of Ophthalmic Common Stock.
Effective December 31, 1997, Ophthalmic adopted and implemented the Rights
Plan.
On January 5, 1998, Premier amended its Schedule 13D to disclose that it had
increased its holdings in Ophthalmic to approximately 29.5% prior to December
31, 1997.
On or about January 7, 1998, representatives of Premier contacted Ophthalmic
to set a time to meet for an informal discussion of their interest in a
possible transaction involving the two companies.
On or about January 14, 1998, members of management of Premier and
Ophthalmic met to discuss each company's business and Ophthalmic's prospects.
On January 16, 1998, Premier extended a proposal both by letter to the Board
of Directors of Ophthalmic and via press release to acquire the Shares that
Premier did not already own for $1.75 per share in cash in a friendly
transaction, provided Ophthalmic modify its Rights Plan to permit the
transaction to proceed. Following is the text of the proposal letter:
Dear Mr. Verdooner:
I am pleased to present this proposal for the acquisition by Premier
Laser Systems of Ophthalmic.
Pursuant to the transaction, Ophthalmic shareholders would receive $1.75
per share in cash. Assuming your board of directors is receptive to the
proposal, we would meet to negotiate definitive documentation as soon as
possible. We expect this documentation to contain a "no shop" provision,
but to provide that Ophthalmic would be entitled to accept an unsolicited
higher offer. In the event it elected to do so, however, Ophthalmic would
pay Premier a break-up fee equal to 10% of the value of the other
transaction. Of course, we also assume that Ophthalmic will modify its
shareholders rights plan as necessary to permit this transaction to go
forward.
Our proposal of $1.75 represents a substantial premium over Ophthalmic's
bid price of $1.34 on January 15, and even a larger premium over the
approximately $.62 price at which Ophthalmic was trading prior to Premier's
involvement. We hope that you and your Board will agree that this is a
highly attractive proposal for Ophthalmic and its shareholders.
We request that Ophthalmic respond in writing to this proposal no later
than 5:00 p.m. on Thursday, January 22. If we do not receive a positive
response by such date, this proposal will be withdrawn and we will consider
our other alternatives.
On January 18, 1998, the Ophthalmic Board held a special meeting to consider
the unsolicited offer of Premier. At this meeting the Ophthalmic Board
determined that it should engage the services of an investment banking firm to
assist them in evaluating the Premier offer and to evaluate other alternatives
available to Ophthalmic. During this meeting, representatives of Cowen
discussed generally with the Ophthalmic Board the various strategies that the
Ophthalmic Board could consider in connection with Premier's unsolicited
offer.
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On January 20, 1998 Ophthalmic issued the following press release in
response to Premier's January 16, 1998, unsolicited offer:
SACRAMENTO, CALIFORNIA, January 20, 1998--Ophthalmic Imaging Systems
(NASDAQ Small Cap: OISI) announced today that it has received an
unsolicited bid from Premier Laser Systems, Inc., proposing to acquire
Ophthalmic in an all cash transaction in which shareholders would receive
$1.75 per share. Premier has set 5:00 p.m. on Thursday, January 22, 1998 as
a deadline for responding to its offer. The Board of Directors of
Ophthalmic has indicated that it will evaluate and consider the Premier bid
in due course. An announcement of the Board of Directors' response, if any,
to the Premier bid will be made following its evaluation of the proposal.
Ophthalmic also announced that it has retained the investment banking
firm of Cowen & Company to assist the Board of Directors in evaluating the
Premier bid and in analyzing other alternatives available to Ophthalmic,
including the possibility of remaining independent. No specific time frame
has been established by Ophthalmic for completing its evaluation of the
Premier bid or any other alternatives which the Company may consider.
Headquartered in Sacramento, California, Ophthalmic is engaged in the
business of designing, developing, manufacturing, and marketing digital
imaging systems and image enhancement and analysis software for use by
practitioners in the ocular health field.
On January 23, 1998, Premier sent a letter to Ophthalmic requesting that it
provide a list of Ophthalmic's shareholders for purposes related to Premier's
interests as a shareholder of Ophthalmic. Specifically, to ascertain the
identity of the other Ophthalmic shareholders in order to communicate with
them to consider whether to call a special meeting of shareholders and solicit
proxies for such a meeting.
On or about January 25, 1998, members of Premier's management met with
certain of Ophthalmic's directors to further discuss each company's business.
Representatives of Ophthalmic informed Premier that Premier's proposal to pay
Ophthalmic's shareholders $1.75 per share (as proposed in Premier's January 16
letter) did not fairly represent Ophthalmic's value.
On or about January 27, 1998, members of Premier's management met with the
remaining Ophthalmic directors and discussed potential terms of a deal
involving the two companies. On or about January 28, 1998, representatives of
Premier telephoned Ophthalmic's chief executive officer, who disclosed that
Premier would be interested in agreeing to a possible transaction between the
companies.
Between January 28 and January 30, 1998, representatives of the companies
had daily telephone conversations to discuss the general terms of a possible
transaction, including pricing. On or about January 29, 1998, Premier proposed
to Ophthalmic that it pay the Opthalmic shareholders consideration
substantively equal to the Offer Consideration. On January 30, 1998, the
Ophthalmic Board held a special meeting to consider the revised Premier offer,
at which they discussed, with representatives of Cowen, the proposed offer.
After further negotiations concerning the price and form of the offer
consideration, Premier and Ophthalmic agreed to the basic terms and conditions
of the Offer and the price per share to be paid as part of the Offer. The
Ophthalmic Board authorized its Chief Executive Officer to negotiate the final
terms of the agreement. Thereafter, representatives of Premier and Ophthalmic
began negotiating the definitive terms of a stock purchase agreement between
Ophthalmic and Premier and the terms of the Private Acquisition.
Between February 4 and February 6, 1998, representatives of the companies
had various conversations to negotiate the terms of the Warrants. On or about
February 9, 1998, representatives of Premier visited Ophthalmic's facilities
and commenced their financial, operational and legal due diligence
investigation of Ophthalmic.
On February 12, 1998, Premier entered into a standstill agreement (the
"Standstill Agreement") with Ophthalmic, wherein, among other things, until
March 6, 1998, Premier agreed not to engage in certain acts which could lead
to acquiring Ophthalmic on a non-friendly basis and Ophthalmic agreed not to
solicit any
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acquisition proposals competing with Premier's proposal. Concurrently
therewith, Ophthalmic and Premier executed a confidentiality agreement (the
"Ophthalmic Confidentiality Agreement") preceding Premier's review of certain
information about Ophthalmic. On February 20, 1998, Premier and Ophthalmic
executed a confidentiality agreement (the "Premier Confidentiality Agreement"
together with the Ophthalmic Confidentiality Agreement, the "Confidentiality
Agreements") preceding Ophthalmic's review of certain information about
Premier. Pursuant to the Confidentiality Agreements, Premier and Ophthalmic
agreed to provide, among other things, for the confidential treatment of their
discussions regarding a possible merger, purchase, consolidation, or other
acquisitions. Each of the Confidentiality Agreements and the Standstill
Agreement is incorporated herein by reference and copies of each have been
filed as an exhibit to the Registration Statement and the Schedule 14D-1. The
Confidentiality Agreements and the Standstill Agreement may be examined and
copies may be obtained at the places and in the manner set forth under the
heading "Available Information."
On February 22, 1998, following the negotiation of the material terms of the
Stock Purchase Agreement and the ancillary documents and transactions, the
Ophthalmic Board held a special meeting to review the terms of the
transaction. At the special meeting, Cowen made a presentation to the
Ophthalmic Board and delivered to the board its oral opinion to the effect
that, as of such date, the financial terms of the Offer were fair, from a
financial point of view, to Ophthalmic's shareholders (other than Premier and
its affiliates). The directors asked numerous questions to ascertain whether
the proposed price and terms of the offer adequately reflected the values of
Ophthalmic's assets. As a result of the foregoing and other considerations
described above in "Ophthalmic's Reasons for Recommending the Offer," the
Ophthalmic Board unanimously agreed to approve the terms of the transaction.
On February 24, 1998 Cowen delivered a written opinion confirming and updating
its oral opinion. The text of such opinion to the Ophthalmic Board is set
forth in Appendix F. See "Opinion of Ophthalmic's Financial Advisor."
On February 23, 1998 management negotiated several additional terms with
respect to the proposed Stock Purchase Agreement, which terms were reviewed by
the Ophthalmic Board and approved at a duly called meeting on the same date.
Following additional negotiations concerning the Private Acquisition, the
warrant and the final structure of the transaction on February 25, 1998,
Premier and Ophthalmic entered into the Stock Purchase Agreement, pursuant to
which, subject to the terms and conditions therein and in this
Prospectus/Offer to Exchange and in the accompanying Letter of Transmittal,
Premier agreed to exchange the Offer Consideration for each Share and
Ophthalmic agreed to recommend the Offer and not to solicit any acquisition
proposals competing with the Offer. Concurrently therewith and in connection
with the transactions contemplated by the Stock Purchase Agreement, Premier
entered into the Private Purchase Agreements for the purchase of an aggregate
of 980,360 Shares (including the purchase of warrants to purchase 250,000
Shares). Certain of the Private Purchase Agreements (including the Private
Purchase Agreement between Premier and Mark Blumenkranz, a director for
Ophthalmic, for the purchase of 421,052 Shares) provide for (i) rescission if
Premier fails to make, or withdraws, abandons or terminates the Offer without
purchasing all Shares validly tendered and not validly withdrawn prior to the
Expiration Date and/or (ii) a purchase price adjustment that will make the
stock consideration to be paid under such Private Purchase Agreement equal to
the Stock Consideration to be paid under this Offer. Registration rights were
granted in connection with the Private Purchase Agreements pursuant to
Registration Rights Agreements. See "The Stock Purchase Agreement." The
transactions contemplated by the Stock Purchase Agreement and the Private
Purchase Agreements were publicly announced on February 26, 1998.
On March 3, 1998, Premier amended its Schedule 13D to reflect the
consummation of the Private Stock Acquisition and its ownership of
approximately 51.3%, of Ophthalmic Common Stock.
On March 10, 1998, Premier filed the Registration Statement to register the
shares of Premier Common Stock to be issued as part of the Stock Consideration
and upon exercise of the Warrants, in the event the conditions to exercise the
Warrants are met, for sale to the public in connection with this Offer.
On , 1998, Premier commenced the Offer.
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OPINION OF OPHTHALMIC'S FINANCIAL ADVISOR
Pursuant to an engagement letter, effective as of January 18, 1998 (the
"Cowen Engagement Letter"), the Ophthalmic Board retained Cowen to serve as
its financial advisor with respect to the Offer. As part of this assignment,
Cowen was asked to render an opinion to the Ophthalmic Board as to the
fairness, from a financial point of view, to the holders of Ophthalmic Common
Stock (other than Premier and its affiliates) of the financial terms of the
Offer.
On February 22, 1998 Cowen delivered certain of its written analyses and its
oral opinion to the Ophthalmic Board, subsequently confirmed in a written
opinion dated February 24, 1998, to the effect that, as of such date, the
financial terms of the Offer were fair, from a financial point of view, to the
holders of Ophthalmic Common Stock (other than Premier and its affiliates).
THE FULL TEXT OF THE WRITTEN OPINION OF COWEN, DATED FEBRUARY 24, 1998, IS
ATTACHED HERETO AS APPENDIX F AND IS INCORPORATED HEREIN BY REFERENCE. HOLDERS
OF OPHTHALMIC COMMON STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR
THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS
OF THE REVIEW BY COWEN. THE SUMMARY OF THE WRITTEN OPINION OF COWEN SET FORTH
HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. COWEN'S ANALYSES AND OPINION WERE PREPARED FOR AND ADDRESSED TO THE
OPHTHALMIC BOARD AND ARE DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT
OF VIEW, OF THE FINANCIAL TERMS OF THE OFFER, AND DO NOT CONSTITUTE AN OPINION
AS TO THE MERITS OF THE OFFER OR A RECOMMENDATION TO ANY STOCKHOLDER AS TO
WHETHER OR NOT TO TENDER THEIR SHARES IN THE OFFER.
Cowen was selected by the Ophthalmic Board as its financial advisor, and to
render an opinion to the Ophthalmic Board, because Cowen is a nationally
recognized investment banking firm and because certain principals of Cowen
have substantial experience in transactions similar to the Offer and are
familiar with Ophthalmic and its businesses. As part of its investment banking
business, Cowen is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions and valuations for
corporate and other purposes. In the ordinary course of its business, Cowen
and its affiliates trade the equity securities of Premier for their own
account and for the accounts of their customers, and accordingly, may at any
time hold a long or short position in such securities. In addition, at the
date of its opinion Cowen and its affiliates owned 23,159 shares of Premier
Common Stock.
In arriving at its opinion, Cowen (a) reviewed Ophthalmic's financial
statements for the fiscal years ended August 31, 1995, 1996 and 1997 and the
fiscal quarter ended November 30, 1997, certain publicly available filings
with the Securities and Exchange Commission and certain other relevant
financial and operating data of Ophthalmic; (b) reviewed the February 24, 1998
draft of the Stock Purchase Agreement; (c) held meetings and discussions with
management and senior personnel of Ophthalmic to discuss the business,
operations, historical financial results and future prospects of Ophthalmic;
(d) reviewed the financial projections furnished to Cowen by the management of
Ophthalmic, including, among other things, the capital structure, sales, net
income, cash flow, capital requirements and other data of Ophthalmic Cowen
deemed relevant; (e) compared the financial terms of the Offer with certain
other transactions in which control of an entity was acquired; (f) reviewed
certain financial and stock market information regarding Ophthalmic, in
comparison with similar information regarding certain other publicly traded
companies; and (g) conducted such other studies, analyses, inquiries and
investigations as Cowen deemed appropriate. Cowen noted in its opinion that it
had not been provided with financial projections by Premier. Cowen was not
requested to, and did not, solicit third party indications of interest in
acquiring all or substantially all of the stock or assets of Ophthalmic.
In rendering its opinion, Cowen relied, with the consent of the Ophthalmic
Board, upon Ophthalmic's management with respect to the accuracy and
completeness of the financial and other information furnished to it as
described above or that was otherwise reviewed by Cowen. With respect to the
financial projections furnished to Cowen by management of Ophthalmic, Cowen
assumed, with the Ophthalmic Board's consent, that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of Ophthalmic's management. Cowen also assumed, with the Ophthalmic
Board's consent, that such projections provide a reasonable basis for Cowen's
opinion and, with the Ophthalmic Board's consent, Cowen relied upon such
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projections in preparing its opinion. Because such projections are inherently
subject to uncertainty, none of Ophthalmic, Cowen or any other person assumes
responsibility for their accuracy. Cowen did not assume any responsibility for
independent verification of such information, including financial information,
nor did it make or receive an independent evaluation or appraisal of any of
the properties or assets of Ophthalmic or Premier. With respect to all legal
matters relating to Ophthalmic and Premier, Cowen relied on the advice of
legal counsel to Ophthalmic.
Cowen's opinion is necessarily based on general economic, market, financial
and other conditions as they existed on, and could be evaluated as of,
February 24, 1998, as well as the information then available to Cowen. It
should be understood that, although developments subsequent to February 24,
1998 may affect Cowen's opinion, Cowen does not have any obligation to update,
revise or reaffirm its opinion. Cowen's opinion does not imply any conclusion
as to the likely trading range for Ophthalmic Common Stock or Premier Common
Stock following consummation of the Offer or otherwise, which may vary
depending on numerous factors that generally influence the price of
securities. Cowen's opinion is limited to the fairness, from a financial point
of view, of the financial terms of the Offer to the holders of Ophthalmic
Common Stock (other than Premier and its affiliates). Cowen expressed no
opinion with respect to any other reasons, legal, business or otherwise, that
may support the decision of the Ophthalmic Board to approve the Offer, or
Ophthalmic's decision to enter into the Agreement. Cowen was not asked to
opine with respect to any consideration that may be paid in any transaction
other than the Offer, including any merger or other transaction that may be
effected subsequent to the Offer.
For purposes of rendering its opinion, Cowen assumed, in all respects
material to its analysis, that the representations and warranties of each
party contained in the Stock Purchase Agreement are true and correct, that
each party will perform all of the covenants and agreements required to be
performed by it under the Stock Purchase Agreement and that all conditions to
the consummation of the Offer will be satisfied without waiver thereof. Cowen
also assumed that all governmental, regulatory or other consents and approvals
contemplated by the Stock Purchase Agreement will be obtained and that in the
course of obtaining any of those consents no restrictions will be imposed or
waivers made that would have an adverse effect on the contemplated benefits of
the Offer. Finally, Cowen assumed that the Offer will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended, and all other applicable federal and state
statutes, rules and regulations.
The following is a summary of certain financial analyses performed by Cowen
to arrive at its opinion. Cowen performed certain procedures, including each
of the financial analyses described below, and reviewed with the management of
Ophthalmic the assumptions on which such analyses were based and other
factors, including the historical financial results of the combined entity. No
limitations were imposed by the Ophthalmic Board with respect to the
investigations made or procedures followed by Cowen in rendering its opinion.
PREMIUMS PAID ANALYSIS
Cowen reviewed 17 transactions involving the acquisition of companies which
were closed between August 2, 1993 and May 15, 1997 in the medical technology
industry, including two companies in the ophthalmologic and related eyecare
industry, five companies with a capitalization of less than $200 million in
the diagnostic industry and ten companies in other medical technology
industries (based on publicly available data). With respect to these
transactions, Cowen analyzed the percentage premium of equity value paid above
closing equity value one trading day and four weeks prior to the announcement
of the transaction. This analysis indicated that the median premiums paid in
the ophthalmology and related eyecare transactions were 38.3% and 32.6%,
respectively, and the median premiums paid in the diagnostic transactions were
53.0% and 64.1%, respectively, and the median premiums paid in the other
medical technology transactions were 22.5% and 26.7%, respectively. The
corresponding premiums implied by the terms of the Offer one trading day and
four weeks prior to the January 16, 1998 announcement of Premier's intent to
launch a tender offer for Ophthalmic shares are 33.3% and 77.8%, based on the
Non-Contingent Consideration (as defined below), and 43.0% and 90.7%, based on
the Contingent Consideration (as defined below).
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ANALYSIS OF CERTAIN TRANSACTIONS
Cowen reviewed the financial terms, to the extent publicly available, of 22
selected transactions (collectively, the "Selected Mergers") involving the
acquisition of companies in the medical technology industry, including eight
such transactions in the ophthalmic and related eyecare industry and 14 such
transactions involving companies with a capitalization of less than $300
million in the diagnostic industry, which were announced or completed since
November 1991. Cowen reviewed the market capitalization of common stock plus
total debt less cash and equivalents ("Enterprise Value") paid in the Selected
Mergers as a multiple of latest reported twelve month ("LTM") revenues,
earnings before interest expense, income taxes, depreciation, and amortization
("EBITDA") and earnings before interest expense and income taxes ("EBIT") and
also examined the multiples of equity value paid in the Selected Mergers to
LTM earnings, book value and tangible assets. Such analyses indicated that (i)
on the basis of the Enterprise Value paid, the Selected Mergers had mean and
median valuations, respectively, of 2.0 and 1.6 times LTM revenue, with a high
of 6.7 and a low of 0.4, 11.4 and 10.6 times LTM EBITDA, with a high of 23.1
and a low of 6.1, and 16.4 and 14.2 times LTM EBIT, with a high of 35.1 and a
low of 6.5; and (ii) on the basis of equity value paid, the Selected Mergers
had mean and median valuations, respectively, of 4.3 and 2.5 times book value,
with a high of 11.6 and a low of 1.5, 28.2 and 26.3 times LTM earnings, with a
high of 49.6 and a low of 6.9, and 2.8 and 2.3 times tangible assets, with a
high of 10.1 and a low of 0.8.
Cowen reviewed the multiples implied by Premier's offer, based on a value of
$2.00 per share (the "Non-Contingent Consideration"), without attributing any
value to the Class C and Class D Warrants to be issued in the Offer, and on a
value of $2.15 per share (the "Contingent Valuation"), by attributing $0.15 as
the value of the Class C and Class D Warrants to be issued in the Offer,
determined using information supplied by management of Ophthalmic as to the
probability the Warrants would become exercisable and discounting the value of
the Warrants based on the cost of capital and other factors.
The corresponding multiples of LTM revenues implied by Premier's offer
before synergies are 1.18 times and 1.26 times, based on the Non-Contingent
Consideration and the Contingent Consideration, respectively. The multiples of
equity value to book value were 29.5 times and 31.7 times, and the multiples
of tangible assets were 2.7 times and 3.5 times, in each case based on the
Non-Contingent Consideration and the Contingent Consideration, respectively.
Cowen noted that Ophthalmic's LTM EBITDA, LTM EBIT and LTM earnings were
negative.
Although the Selected Mergers were used for comparison purposes, none of
such transactions is directly comparable to the Offer, and none of the
companies in such transactions is directly comparable to Ophthalmic or
Premier. Accordingly, an analysis of the results of such a comparison is not
purely mathematical but instead involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of the companies involved and other factors that could affect
the acquisition value of such companies or Ophthalmic to which they are being
compared.
ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES
To provide contextual data and comparative market information, Cowen
compared selected historical operating and financial data and ratios for
Ophthalmic to the corresponding operating and financial data and ratios of
certain other companies in the medical technology industry (the "Selected
Companies") whose securities are publicly traded and which Cowen believes have
operating, market valuation and trading valuations similar to what might be
expected of Ophthalmic. These companies were comprised of Premier; Escalon
Medical Corporation; KeraVision, Inc.; Staar Surgical Company; Summit
Technology, Inc.; and VISX, Inc. Such data and ratios included the Enterprise
Value of such Selected Companies as multiples of revenue, EBITDA and EBIT for
the LTM period. Cowen also examined the ratios of the current prices of the
Selected Companies to the LTM earnings per share ("EPS"), estimated calendar
year 1998 EPS (as estimated by First Call) and estimated calendar year 1999
EPS (as estimated by First Call) for these companies. Such analysis indicated
that, for the Selected Companies, (i) the mean and median valuations,
respectively, of Enterprise Value as a multiple of LTM revenues, EBITDA and
EBIT were 3.5 and 3.9 times, with a high of 7.8 and a low of 1.4, 16.2 and
16.2 times,
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with a high of 17.2 and a low of 15.1, and 19.2 and 19.2 times, with a high of
19.6 and a low of 18.8, respectively; and (ii) the mean and median prices per
share, respectively, as a multiple of estimated EPS for the calendar year 1998
and calendar year 1999 were 24.7 and 21.0 times, with a high of 34.0 and a low
of 19.2, and 15.7 and 15.8 times, with a high of 17.5 and a low of 13.9,
respectively.
The corresponding multiples of LTM revenues implied by Premier's offer
before synergies are 1.18 times and 1.26 times, based on the Non-Contingent
Consideration and the Contingent Consideration, respectively. The
corresponding multiples of estimated EPS for calendar year 1999 (as provided
by management of Ophthalmic) are 10.1 times and 10.9 times, based on the Non-
Contingent Consideration and the Contingent Consideration, respectively. Cowen
noted that the LTM EBITDA, LTM EBIT and estimated EPS for calendar year 1998
(as provided by management of Ophthalmic) of Ophthalmic are negative.
Although the Selected Companies were used for comparison purposes, none of
such companies is directly comparable to Ophthalmic. Accordingly, an analysis
of the results of such a comparison is not purely mathematical but instead
involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the
Selected Companies and other factors that could affect the public trading
value of the Selected Companies or Ophthalmic to which they are being
compared.
STOCK TRADING HISTORY
Cowen reviewed the historical market prices and trading volumes of
Ophthalmic Common Stock from May 15, 1992 (the date of the initial public
offering of Ophthalmic Common Stock) to February 20, 1998 (the last trading
day prior to the date of Cowen's presentation to the Ophthalmic Board) and
Premier Common Stock from February 20, 1997 to February 20, 1998. This
information was presented solely to provide the Ophthalmic Board with
background information regarding the stock price of Ophthalmic and Premier
over the period indicated. Cowen noted that between February 20, 1997 and
February 20, 1998 the high and low prices for shares of Ophthalmic Common
Stock were $3.88 and $0.56, respectively, and the high and low prices of
Premier Common Stock were $14.00 and $5.25, respectively.
The summary set forth above does not purport to be a complete description of
all the analyses performed by Cowen. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant
methods of financial analyses and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. Cowen did not
attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, notwithstanding the separate factors
summarized above, Cowen believes, and has advised the Ophthalmic Board, that
its analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the process underlying its
opinion. In performing its analyses, Cowen made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Ophthalmic and Premier. These
analyses performed by Cowen are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses or securities may actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty and, though
considered reasonable by Ophthalmic, they are subject to significant business,
economic, competitive, regulatory and other uncertainties and contingencies,
all of which are difficult or impossible to predict and are beyond the control
of Cowen, Ophthalmic and Premier. None of Ophthalmic, Cowen or any other
person assumes responsibility for such analyses and estimates. As mentioned
above, the analyses of Cowen and its opinion were among several factors taken
into consideration by the Ophthalmic Board in making its decision to enter
into the Stock Purchase Agreement and should not be considered as
determinative of such decision.
Pursuant to the Cowen Engagement Letter, Ophthalmic has agreed to pay
certain fees to Cowen for its financial advisory services provided in
connection with the Offer. If the Offer is consummated, Cowen will be entitled
to receive an aggregate transaction fee in an amount equal to $350,000 plus
1.0% of the incremental consideration between $10 million and $100 million
resulting from the acquisition. Ophthalmic also has agreed
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to pay Cowen an advisory fee of $50,000 in consideration for Cowen's
professional services and an additional fee of $100,000 for the delivery of
its opinion as set out above, which fees will be netted from the transaction
fee described above if the Offer is consummated. Additionally, Ophthalmic has
agreed to reimburse Cowen for its out-of-pocket expenses (including the
reasonable fees and expenses of its counsel) incurred or accrued during the
period of, and in connection, with Cowen's engagement. Ophthalmic has also
agreed to indemnify Cowen against certain liabilities, including liabilities
under the federal securities laws, relating to or arising out of services
performed by Cowen as financial advisor to the Ophthalmic Board in connection
with the Offer, unless it is finally judicially determined that such
liabilities arose out of Cowen's gross negligence or willful misconduct. The
terms of the fee arrangement with Cowen, which are customary in transactions
of this nature, were negotiated at arm's length between Ophthalmic and Cowen,
and the Ophthalmic Board was aware of such arrangement, including the fact
that a significant portion of the aggregate fee payable to Cowen is contingent
upon consummation of the Offer.
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INFORMATION REGARDING PREMIER
Premier develops, manufactures and markets several lines of surgical lasers,
laser waveguides and laser fiber optic devices, disposables and associated
accessory products for the medical market. Premier commenced operations in
August 1991 after acquiring substantially all of the assets of Pfizer Laser
Systems ("Pfizer Laser"), a division of Pfizer Hospital Products Group, Inc.
("Pfizer HPG") which had entered the laser business in December 1984. The
assets acquired from Pfizer Laser by Premier included proprietary rights to a
broad base of laser and fiber optic technologies.
In addition, Premier's recently acquired subsidiary, EyeSys, is engaged in
the business of designing, developing and marketing noninvasive corneal
topography systems for use by ophthalmologists and optometrists in surgical
planning and evaluation, diagnosis of corneal pathologists and contact lens
fitting.
Premier's product line of patented proprietary lasers includes CO2, diode,
argon, neodymium: yttrium aluminum garnet ("Nd:YAG"), erbium:yttrium aluminum
garnet ("Er:YAG") and holmium:yttrium aluminum garnet ("Ho:YAG") lasers, which
Premier believes are capable of a wide range of procedures in multiple medical
and surgical specialties ranging from cutting bone and teeth to removing
precise layers of cellular tissue in the eye. Representative procedures for
which Premier has market clearance from the United States Food and Drug
Administration ("FDA") include treatment of gum disease, laparoscopic
procedures, hard tissue and cavity preparation procedures, treatment of
endometriosis, dermatological treatment of port wine stains and discectomy.
Premier is currently conducting various clinical trials relating to additional
applications for its laser products. The primary focus of Premier's research,
marketing and sales efforts is in specific niche medical specialties, such as
dentistry and ophthalmology, where Premier believes opportunities exist for
clinical advances and market growth.
The principal offices of Premier are located at 3 Morgan, Irvine, California
92618, and its telephone number is (714) 859-0656.
The name, citizenship, business address, principal occupation or employment,
and five-year employment history for each of the directors and executive
officers of Premier and certain other information are set forth in Schedule I
hereto.
A description of Premier's business is set forth in Premier's Annual Report
on Form 10-K for the fiscal year ended March 31, 1997, as amended (the
"Premier Annual Report"), which description is incorporated herein by this
reference.
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PREMIER LASER SYSTEMS, INC.
SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data are derived from consolidated
financial statements of Premier. The financial statements for the year ended
March 31, 1997 have been audited by Ernst & Young LLP, independent auditors.
The financial statements for the years ended March 31, 1994, 1995, and 1996,
as well as statement of operations data for the nine months ended March 31,
1993, have been audited by Price Waterhouse LLP, independent accountants. The
report of Price Waterhouse LLP with respect to such financial statements
contains an explanatory paragraph that describes an uncertainty about
Premier's ability to continue as a going concern. The selected financial data
for the nine month periods ended December 31, 1996 and 1997 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which Premier considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. Operating results for the nine months ended
December 31, 1997 are not necessarily indicative of the results that may be
expected for the entire year ending March 31, 1998. The data should be read in
conjunction with the consolidated financial statements, related notes, and
other financial information included or incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS
NINE MONTHS ENDED ENDED
MARCH 31, FISCAL YEARS ENDED MARCH 31, DECEMBER 31,
----------------- ---------------------------------- -----------------
1993(1) 1994 1995 1996 1997 1996 1997
----------------- -------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Sales............... $ 1,527 $ 2,079 $ 1,249 $ 1,704 $ 5,531 $ 3,887 $ 12,321
Cost of Sales........... 1,053 1,753 1,298 3,325 3,969 2,709 6,936
Selling and Marketing
Expenses............... 1,262 1,087 1,036 1,309 2,406 1,534 3,184
Research and
Development............ 647 678 1,036 1,213 1,563 785 2,016
General and
Administrative......... 574 1,323 1,747 1,709 1,736 1,109 1,783
Write-Off of Investment
in Mattan Corporation.. -- -- -- -- 881 -- --
Termination of Strategic
Alliance .............. -- -- -- -- 332 -- --
Merger Related
Integration Costs...... -- -- -- -- -- -- 2,147
In-Process Research and
Development Related to
EyeSys Technologies,
Inc. Acquisition....... -- -- -- -- -- -- 9,200
In-Process Research and
Development Related to
Data.Site Acquisition.. -- -- -- -- 250 -- --
Settlement of Joint
Marketing Agreement.... -- -- -- -- -- 332 --
-------- -------- ------- ------- ------- ------- --------
Loss from Operations.... (2,009) (2,762) (3,868) (5,852) (5,606) (2,582) (12,945)
Interest Income
(Expense), Net......... (202) (435) (322) 99 15 (69) 726
-------- -------- ------- ------- ------- ------- --------
Loss Before
Extraordinary Item..... (2,211) (3,197) (4,190) (5,753) (5,591) (2,651) (12,219)
Extraordinary Gain from
the Extinguishment of
Indebtedness........... -- -- 382 -- -- -- --
-------- -------- ------- ------- ------- ------- --------
Net Loss................ $(2,211) $(3,197) $(3,808) $(5,753) $(5,591) $(2,651) $(12,219)
======== ======== ======= ======= ======= ======= ========
Net Loss per Share
Before Extraordinary
Gain(2)................ $ -- $ (2.45) $ (1.59) $ (1.26) $ (0.96) $ (0.46) $ (1.14)
Extraordinary Gain...... -- -- 0.15 -- -- -- --
======== ======== ======= ======= ======= ======= ========
Net Loss Per Share,
Basic(5)............... $ -- $ (2.45) $ (1.44) $ (1.26) $ (0.96) $ (0.46) $ (1.14)
======== ======== ======= ======= ======= ======= ========
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
-------------------------------------- ---------------
1993 1994 1995 1996 1997 1996 1997
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash
Equivalents(3)......... $ -- $ 309 $ 5,888 $ 35 $ 174 $ 3,689 $ 7,482
Working Capital(3)...... $ -- $ 1,288 $ 6,756 $ 5,818 $ 8,019 $10,687 $29,735
Total Assets(4)......... $7,459 $12,325 $16,884 $15,675 $19,321 $19,254 $54,965
Long-term Debt(4)....... $1,565 $ 4,304 $ -- $ -- $ 49 $ -- $ 170
Total Stockholders'
Equity(3).............. $ -- $ 6,022 $15,002 $13,797 $16,632 $18,083 $46,656
</TABLE>
- --------
(1) Premier changed its fiscal year end from June 30 to March 31, commencing
with the fiscal year ended March 31, 1993. Accordingly, the fiscal year
ended March 31, 1993 was a nine-month period.
(2) The effect on net loss per common share of the conversion of Premier's
debentures was to reduce historical net loss by $37,500 and $67,995 and to
increase weighted average shares outstanding by 76,875 shares and 321,099
shares for the fiscal years ended March 31, 1994 and 1995, respectively.
Net loss per common share was computed based on the weighted average
number of Premier's common shares outstanding during the fiscal years
ended March 31, 1994 and 1995 after giving retroactive adjustment for
recapitalization and conversion of debentures into Units upon completion
of Premier's initial public offering.
(3) These amounts were unavailable for March 31, 1993.
(4) Total assets and long-term debt amounts at March 31, 1993 are unaudited.
Amounts for long-term debt at March 31, 1994 include $285,000 in
mandatorily redeemable warrants.
(5) Weighted average of shares used to calculate net loss per share for fiscal
years ended March 31, 1994, 1995, 1996 and 1997 were 1,288,751; 2,584,722;
4,556,959; and 5,833,326, respectively. Weighted average of shares used to
calculate net loss per share for the periods ended December 31, 1996 and
1997 were 5,716,333 and 10,725,769, respectively. This does not include
shares of Class E-1 or Class E-2 common stock, which are subject to
cancellation in certain circumstances.
(6) In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Statement No.
128 replaced the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes the dilutive effects
of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings
per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the Statement No.
128 requirements.
49
<PAGE>
INFORMATION REGARDING OPHTHALMIC
The information concerning Ophthalmic contained in this Prospectus/Offer to
Exchange, including financial information and information relating to the
Rights and the Rights Agreement, has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources. Premier does not assume any responsibility for the accuracy or
completeness of the information concerning Ophthalmic contained in such
documents and records or for any failure by Ophthalmic to disclose events
which may have occurred or may affect the significance or accuracy of any such
information but which are unknown to Premier.
Ophthalmic was incorporated under the laws of the State of California on
July 14, 1986 and is engaged in the business of designing, developing,
manufacturing, and marketing digital imaging systems and image enhancement and
analysis software for use by practitioners in the ocular health field. Its
products are compatible with standard diagnostic procedures used in all types
of eye care practices.
Since its inception, Ophthalmic has primarily addressed the needs of the
ophthalmic fluorescein angiography market, and more recently the indocyanine
green market. The current flagship products in Ophthalmic's angiography line
are its digital imaging systems, the WinStation 1024(TM) and WinStation
640(TM). These WinStation products are targeted primarily at retinal
specialists and general ophthalmologists.
The principal offices of Ophthalmic are located at 221 Lathrop Way, Suite I,
Sacramento, California 95815, and its telephone number is (916) 646-2020.
A description of Ophthalmic's business is set forth in its Annual Report on
Form 10-KSB for the fiscal year ended August 31, 1997, filed with the
Commission on December 1, 1997 (the "Ophthalmic Annual Report"), which
Ophthalmic Annual Report is delivered together with this Prospectus/Offer to
Exchange as Appendix D and is incorporated herein by reference. Financial
statements for Ophthalmic's most recent fiscal quarter are included in
Ophthalmic's Quarterly Report on Form 10-QSB for the fiscal quarter ended
November 30, 1997, filed with the Commission on January 14, 1998 (the
"Ophthalmic Form 10-QSB"), which Report is delivered together with this
Prospectus/Offer to Exchange as Appendix E and is incorporated herein by
reference.
50
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
SUMMARY SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table represents the selected historical statement of
operations and balance sheet data of Ophthalmic. The balance sheet data
presented below as of August 31, 1997 and the statement of operations data for
the fiscal years ended August 31, 1996 and 1997 have been derived from audited
financial statements included in the Ophthalmic Annual Report. The balance
sheet data as of August 31, 1996 and the statement of operations data for the
fiscal year ended August 31, 1995 have been derived from the audited financial
statements of Ophthalmic included in Ophthalmic's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1996. The balance sheet data as of August
31, 1995 and the statement of operations data for the fiscal year ended August
31, 1994 have been derived from the audited financial statements of Ophthalmic
included in Ophthalmic's Annual Report on Form 10-KSB for the fiscal year
ended August 31, 1995. The balance sheet data as of August 31, 1994 and the
statement of operations data for the fiscal year ended August 31, 1993 have
been derived from the audited financial statements of Ophthalmic included in
Ophthalmic's Annual Report on Form 10-KSB for the fiscal year ended August 31,
1994, except for the 1993 net loss per share and shares used in the
calculation thereof, which amounts have been adjusted to reflect a 1-for-3
reverse stock split effective November 30, 1994. The balance sheet data as of
August 31, 1993 have been derived from the audited financial statements of
Ophthalmic included in Ophthalmic's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1993. The balance sheet data as of November 30,
1997 and the statement of operations data for the three months ended
November 30, 1996 and 1997 have been derived from the unaudited financial
statements of Ophthalmic included in Ophthalmic's Form 10-QSB for the
quarterly period ended November 30, 1997. The balance sheet data as of
November 30, 1996 have been derived from the unaudited financial statements of
Ophthalmic included in Ophthalmic's Form 10-QSB for the quarterly period ended
November 30, 1996. The operating results for the three months ended November
30, 1997 are not necessarily indicative of the results that may be expected in
any future periods. Ophthalmic's selected historical financial data should be
read in conjunction with, and are qualified in their entirety by reference to
the historical financial statements (and related notes) of Ophthalmic and
other financial information included or incorporated by reference herein.
Ophthalmic reports quarterly and annual earnings results using methods
required by generally accepted accounting principles.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEARS ENDED AUGUST 31, NOVEMBER 30,
------------------------------------------ --------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
Net Sales.............. $ 3,083 $ 4,547 $6,724 $ 6,673 $ 6,480 $ 884 $1,902
Other Revenue.......... 290 245 235 201 146 -- --
Cost of Sales........... 2,765 3,480 4,616 4,797 4,885 622 1,182
Sales and Marketing..... 1,418 1,398 1,546 1,653 1,625 497 572
General and
Administrative......... 1,137 548 441 723 1,090 282 324
Research and
Development............ 608 596 691 846 1,070 265 212
------- ------- ------ ------- ------- ------ ------
Loss from Operations.... (2,555) (1,230) (335) (1,145) (2,044) (782) (388)
Other Income (Expense),
Net.................... 19 8 (21) (268) (67) (14) (9)
------- ------- ------ ------- ------- ------ ------
Net Loss................ $(2,536) $(1,222) $ (356) $(1,413) $(2,111) $ (796) $ (397)
======= ======= ====== ======= ======= ====== ======
Net Loss Per Share...... $ (3.31) $ (1.40) $(0.41) $ (0.64) $ (0.59) $(0.24) $(0.10)
======= ======= ====== ======= ======= ====== ======
<CAPTION>
AT
AT AUGUST 31, NOVEMBER 30,
------------------------------------------ --------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and Cash
Equivalents............ $ 2,011 $ 811 $ 317 $ 1,051 $ 142 $ 459 $ 228
Working Capital
(Deficit).............. $ 2,344 $ 1,035 $ 692 $ 1,347 $ 280 $ 575 $ (80)
Total Assets............ $ 3,666 $ 2,969 $3,126 $ 4,217 $ 3,062 $3,484 $3,265
Total Current
Liabilities............ $ 965 $ 1,671 $2,172 $ 2,422 $ 2,395 $2,411 $2,966
Total Stockholders'
Equity................. $ 2,507 $ 1,285 $ 928 $ 1,781 $ 668 $1,071 $ 299
</TABLE>
- -------
(1) Shares used in the calculation of net loss per share for the fiscal years
ended August 31, 1993, 1994, 1995, 1996, and 1997 are 767,000; 875,112;
875,112; 2,204,506; and 3,597,879, respectively, and for the three month
periods ended November 30, 1996 and 1997, are 3,320,969; and 3,905,428,
respectively.
51
<PAGE>
FINANCING OF THE OFFER
The total amount of funds required for the purchase of the Shares not
already owned by Premier is approximately $6.0 million (inclusive of estimated
legal and accounting fees and other fees and costs incurred in connection with
the Offer). This Offer is not subject to a financing contingency. Premier's
existing cash and other working capital are sufficient to provide the funds
required in connection with the Offer without any borrowings.
Premier has not had access to all of the instruments and agreements under
which Ophthalmic has existing debt or other obligations (collectively
"Ophthalmic Debt"). There can be no assurance that the purchase of the Shares
will not result in an event of default, cross default or other adverse
consequences under any or all of the instruments defining the rights of the
holders of Ophthalmic Debt. As a result, it is possible that holders of
certain of Ophthalmic Debt may have the right to require its immediate payment
and Premier may need to refinance this additional indebtedness. In the event
that the holders of some or all of Ophthalmic Debt have the right to demand
its immediate payment upon purchase of the Shares pursuant to the Offer,
Premier presently intends to seek such holders' consent to the Premier's
assumption of Ophthalmic Debt pursuant to the same terms and conditions as
such Ophthalmic Debt presently outstanding or to refinance such Ophthalmic
Debt through additional borrowings.
52
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
are presented assuming the purchase of the remaining 49% of Ophthalmic Common
Stock not presently owned by Premier has been acquired and the transaction has
been accounted for as a purchase. The Pro Forma Condensed Combined Statements
of Operations for the year ended March 31, 1997 and the nine month period
ending December 31, 1997 have been prepared as if the acquisition had occurred
on April 1, 1996. The Pro Forma Condensed Combined Balance Sheet as of
December 31, 1997 has been prepared as if the acquisition had occurred on
December 31, 1997. Premier's condensed financial information included in these
Pro Forma Condensed Combined Financial Statements was derived from the
Unaudited Pro Forma Condensed Combined Financial Information included in its
Current Report on Form 8-K filed on March 9, 1998. Accordingly, Premier's
condensed statements of operations included in these Pro Forma Condensed
Combined Statements of Operations for the year ended March 31, 1997 and for
the nine months ended December 31, 1997 give effect to Premier's September 30,
1997 acquisition of EyeSys and Premier's cumulative purchases through February
26, 1998 of 51% of Ophthalmic's Common Stock as if those transactions had
occurred on April 1, 1996; and, Premier's balance sheet included in this Pro
Forma Condensed Combined Balance Sheet gives effect to Premier's cumulative
purchases through February 26, 1998 of 51% of Ophthalmic's Common Stock as if
those purchases had occurred on December 31, 1997.
The Unaudited Pro Forma Condensed Combined Balance Sheet and Statements of
Operations were prepared assuming the consummation of the Offer and the
Proposed Merger, which is accounted for under the purchase method of
accounting. The unaudited pro forma adjustments are described in the
accompanying notes. The unaudited pro forma adjustments represent Premier's
preliminary determination of the necessary adjustments and are based upon
certain assumptions Premier considers reasonable under the circumstances.
Final amounts may differ from those set forth below.
The unaudited pro forma financial information presented does not consider
any future events which may occur after the consummation of the Offer and the
Proposed Merger, including the possible payment of additional purchase price
(i.e. the Warrant Consideration) based upon established financial goals for
fiscal years 1998 and 1999. The unaudited pro forma financial information
presented does not attempt to quantify any operating expense synergies or cost
reductions of the combined operations of Premier and Ophthalmic that may be
realized after the consummation of the Offer and the Proposed Merger. Nor does
the unaudited pro forma financial information consider the incremental
expense, capital or conversion costs which may be incurred as a result of the
consummation of the Offer and the Proposed Merger.
THE UNAUDITED PRO FORMA FINANCIAL INFORMATION IS PRESENTED FOR INFORMATIONAL
PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING RESULTS OR
FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE OFFER AND PROPOSED MERGER
BEEN CONSUMMATED AT THE DATES INDICATED, NOR IS IT NECESSARILY INDICATIVE OF
FUTURE OPERATING RESULTS OR FINANCIAL POSITION OF PREMIER FOLLOWING THE
CONSUMMATION OF THE OFFER AND PROPOSED MERGER.
The unaudited pro forma condensed financial information should be read in
conjunction with the consolidated financial statements of Premier and the
financial statements of Ophthalmic and the related notes thereto contained in
(i) Premier's Annual Report, as amended, and (ii) Ophthalmic's Annual Report,
which Report is delivered together with the Prospectus/Offer to Exchange as
Appendix E.
53
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
PREMIER LASER SYSTEMS, INC.
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED MARCH 31, 1997 (1)
---------------------------------------------
PRO FORMA
PREMIER PRO FORMA CONDENSED
LASER ADJUSTMENTS COMBINED
------------ ----------- ------------
<S> <C> <C> <C>
Net Sales............... $ 19,592,266 $ -- $ 19,592,266
Cost of Sales........... 12,938,613 -- 12,938,613
------------ ----------- ------------
Gross Profit............ 6,653,653 -- 6,653,653
Selling and marketing
expenses............... 8,066,500 -- 8,066,500
Research and development
expenses............... 3,792,449 29,400 (2) 3,821,849
General and
administrative
expenses............... 4,725,894 213,462 (2) 4,939,356
Write off of investment
in Mattan Corporation.. 881,010 -- 881,010
Termination of strategic
alliance with IBC...... 331,740 -- 331,740
In-process research and
development acquired in
the Data Site
acquisition............ 250,000 -- 250,000
------------ ----------- ------------
Loss from operations.. (11,393,940) (242,862) (11,636,802)
Interest income
(expense), net......... (454,416) -- (454,416)
Minority interest in net
loss of consolidated
subsidiary ............ 887,422 (887,422)(4(c)) --
------------ ----------- ------------
Net loss................ $(10,960,934) $(1,130,284) $(12,091,218)
============ =========== ============
Net loss per share...... $ (1.54) $ (1.69)
============ ============
Shares used in the
computation of net loss
per share.............. 7,097,016 7,152,795
============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
54
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
PREMIER LASER SYSTEMS, INC.
<TABLE>
<CAPTION>
PRO FORMA NINE MONTHS ENDED DECEMBER 31, 1997(1)
---------------------------------------------
PRO FORMA
PREMIER PRO FORMA CONDENSED
LASER ADJUSTMENTS COMBINED
------------ ----------- ------------
<S> <C> <C> <C>
Net Sales....................... $ 18,765,449 $ -- $ 18,765,449
Cost of Sales................... 11,893,793 -- 11,893,793
------------ ----------- ------------
Gross Profit.................... 6,871,656 -- 6,871,656
Selling and marketing expenses.. 5,484,107 -- 5,484,107
Research and development
expenses....................... 3,096,166 22,050 (2) 3,118,216
General and administrative
expenses....................... 4,669,534 160,097 (2) 4,829,631
In-process research and
development related to
EyeSys Technologies, Inc.
acquisition.................... 9,200,000 -- 9,200,000
Acquisition related and
integration costs.............. 2,146,912 -- 2,146,912
------------ ----------- ------------
Loss from operations............ (17,725,063) (182,147) (17,907,210)
Interest income (expense), net.. 353,245 -- 353,245
Other income (expense), net..... 1,263,212 -- 1,263,212
Minority interest in net loss of
consolidated subsidiary........ 888,659 (888,659)(4(c)) --
------------ ----------- ------------
Net loss........................ $(15,219,947) $(1,070,806) $(16,290,753)
============ =========== ============
Net loss per share.............. $ (1.31) $ (1.40)
============ ============
Shares used in the computation
of net loss per share.......... 11,577,232 11,633,011
============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
55
<PAGE>
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
PREMIER LASER SYSTEMS, INC.
<TABLE>
<CAPTION>
PRO FORMA AS OF DECEMBER 31, 1997(1)
------------------------------------------------
PRO FORMA
PREMIER PRO FORMA CONDENSED
LASER ADJUSTMENTS COMBINED
------------ ----------- ------------
ASSETS
- ------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.. $ 5,230,340 $(3,541,426)(2) $ 1,688,914
Short-term investments..... 9,737,929 -- 9,737,929
Restricted cash............ 2,150,000 -- 2,150,000
Accounts receivable, net... 9,818,151 -- 9,818,151
Inventories................ 7,754,289 -- 7,754,289
Prepaid expenses and other
current assets............ 3,590,055 -- 3,590,055
------------ ----------- ------------
Total current assets..... 38,280,764 (3,541,426) 34,739,338
------------ ----------- ------------
Property and equipment, net.. 1,652,705 -- 1,652,705
Intangible, net.............. 10,938,723 1,519,000 (2) 12,457,723
Goodwill..................... 5,354,661 1,088,000 (2) 6,442,661
Other assets................. 279,215 -- 279,215
------------ ----------- ------------
$ 56,506,068 $ (934,426) $ 55,571,642
============ =========== ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
- -----------------------------
<CAPTION>
<S> <C> <C> <C>
Current liabilities:
Accounts payable........... $ 3,838,377 $ -- $ 3,838,377
Line of credit............. 2,333,461 -- 2,333,461
Accrued compensation and
related costs............. 829,512 -- 829,512
Accrued liabilities........ 4,733,907 1,254,214 (2) 5,988,121
Notes payable and current
portion of capital lease
obligations............... 205,001 -- 205,001
------------ ----------- ------------
Total current
liabilities............. 11,940,258 1,254,214 13,194,472
------------ ----------- ------------
Long-term liabilities:
Capital lease obligations--
non-current............... 169,933 -- 169,933
Minority interest in
consolidated subsidiary... 146,558 (146,558)(4(a)) --
------------ ----------- ------------
Total long-term
liabilities............. 316,491 (146,558) 169,933
------------ ----------- ------------
Commitments and contingencies
Shareholders' equity
Preferred stock............ --
Common stock............... 69,807,079 505,918 (2) 70,312,997
Common stock--Class E-1.... 4,769,878 -- 4,769,878
Common stock--Class E-2.... 4,769,878 -- 4,769,878
Class A warrants........... 2,295,328 -- 2,295,328
Class B warrants........... 1,491,797 -- 1,491,797
Warrants to purchase Class
A common stock............ 192,130 -- 192,130
Accumulated deficit........ (39,076,771) (2,548,000)(2)(4(b)) (41,624,771)
------------ ----------- ------------
Total shareholders'
equity.................. 44,249,319 (2,042,082) 42,207,237
------------ ----------- ------------
$ 56,506,068 $ (934,426) $ 55,571,642
============ =========== ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
56
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Premier's condensed financial information included in these Pro Forma
Condensed Combined Financial Statements was derived from the Unaudited Pro
Forma Condensed Combined Financial Information included in its Current Report
on Form 8-K filed on March 9, 1998. Accordingly, Premier's condensed
statements of operations included in these Pro Forma Condensed Combined
Statements of Operations for the year ended March 31, 1997 and for the nine
months ended December 31, 1997 give effect to Premier's September 30, 1997
acquisition of EyeSys and Premier's cumulative purchases through February 26,
1998 of 51% of Ophthalmic's Common Stock as if those transactions had occurred
on April 1, 1996 and April 1, 1997, respectively; and, Premier's balance sheet
included in this Pro Forma Condensed Combined Balance Sheet gives effect to
Premier's cumulative purchases through February 26, 1998 of 51% of
Ophthalmic's Common Stock as if those purchases had occurred on December 31,
1997. Accordingly, Premier's condensed financial information reflects the
consolidation of Ophthalmic's balances, the allocation of the excess purchase
price over the amount paid for Premier's 51% ownership interest and a 49%
minority interest in Ophthalmic's net losses and net assets. The condensed
combined pro forma information does not give effect to Ophthalmic options
which may be exercised.
Ophthalmic's condensed financial information included in these Pro Forma
Condensed Combined Financial Statements was derived from its historical
financial statements which are based on a fiscal year ending August 31.
Accordingly, the results of operations for Ophthalmic included in the
Unaudited Pro Forma Condensed Combined Statements of Operations for the year
ended March 31, 1997 and the nine month period ended December 31, 1997 were
derived from Ophthalmic's historical financial statements for the twelve
months ended February 28, 1997 and the nine months ended November 30, 1997;
and, the balance sheet amounts included in the Unaudited Pro Forma Condensed
Combined Balance Sheet at December 31, 1997 were derived from Ophthalmic's
historical balance sheet at November 30, 1997.
The results of operations for Ophthalmic included in the Unaudited Pro Forma
Condensed Consolidated Statements of Operations contain certain
reclassification entries in order to present Ophthalmic information on a basis
consistent with the presentation used by Premier.
2. PURCHASE BUSINESS COMBINATION
Premier's aggregate purchase price assuming the purchase of the remaining
49% of the outstanding shares of Ophthalmic Common Stock amounted to
$5,301,344 and consisted of cash of $3,541,426, 55,779 shares of Premier
Common Stock valued at $505,918 and estimated related expenses of $1,254,000.
For purposes of allocating the purchase price, the carrying values of
Ophthalmic's recorded assets and liabilities were assumed to represent their
fair values. The excess of Premier's purchase price over its remaining 49%
share of the carrying value of Ophthalmic's net assets amounted to $5,155,000
and has been preliminarily allocated to the following intangible assets in the
pro forma condensed financial statements on the basis of 49% of the estimated
fair values:
<TABLE>
<S> <C>
In process research and development............................. $2,548,000
==========
Developed technology (five year life)........................... 147,000
Assembled work force (five year life)........................... 343,000
Trade names and trademark (thirteen year life).................. 539,000
Customer related intangible assets (ten year life).............. 490,000
----------
$1,519,000
==========
Goodwill (twenty year life)..................................... $1,088,000
==========
</TABLE>
The amount allocated to in process research and development was determined
in part by independent appraisal and is expected to be expensed entirely in
the quarter in which the acquisition is consummated. The amount is reflected
in the Pro Forma Condensed Combined Balance Sheet as a direct charge to the
accumulated deficit at December 31, 1997.
57
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The amounts and lives above represent Premier management's preliminary
determinations and are based on certain assumptions considered by management
to be reasonable under the circumstances. Final amounts may differ.
The Pro Forma Condensed Combined Statements of Operations include the
following amounts to reflect the amortization of the aforementioned intangible
assets for the periods indicated:
<TABLE>
<CAPTION>
NINE-MONTHS
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------ ----------
<S> <C> <C>
Developed technology................................. $ 22,050 $ 29,400
======== ========
Assembled workforce.................................. $ 51,450 $ 68,600
Customer-related intangible.......................... 36,750 49,000
Trademarks and trade names........................... 31,097 41,462
Goodwill............................................. 40,800 54,400
-------- --------
$160,097 $213,462
======== ========
</TABLE>
3. CONTINGENT CONSIDERATION
In connection with Premier's purchase of 2,691,610 shares of Ophthalmic
Common Stock, 4,047,344 warrants to purchase additional shares of Premier
Common Stock were issued. The warrants become exercisable in two equal
increments in 1998 and 1999 only in the event that net sales of qualified
products, as defined, exceed certain defined amounts for each period. In the
event that the sales targets are achieved for both periods, additional
purchase price of $1,011,836 would be recorded as an increase to goodwill. The
Unaudited Pro Forma Condensed Combined Financial Statements do not include
adjustments for the contingent consideration. The effect of including the
contingent consideration in the purchase allocation would not be material to
pro forma total assets, pro forma amortization expense, pro forma net loss, or
pro forma net loss per share for the nine months ended December 31, 1997 and
the year ended March 31, 1997.
4. PRO FORMA COMBINATION ELIMINATIONS
The following pro forma adjustments were made to reflect the combination of
Ophthalmic's balances with Premier's and assuming the purchase of the
remaining 49% of the outstanding shares of Common Stock of Ophthalmic:
(a) Reflects the elimination of Premier's 49% minority interest in
Ophthalmic's net assets at December 31, 1997.
(b) Reflects the elimination of the equity of Ophthalmic upon combination
with Premier.
(c) Reflects the elimination of Premier's 49% minority interest in the
net loss of Ophthalmic.
5. NET LOSS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Statement No. 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share exclude the dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement No. 128 requirements. The Pro Forma Condensed
Combined Shares used in the computation of net loss per share have been
increased by 55,779 shares of Premier Common Stock (See Note 2).
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<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth Premier's historical per share data and pro
forma combined per share data for the year ended March 31, 1997 and the nine
months ended December 31, 1997 giving effect to the consummation of the Offer,
to be accounted for under the purchase method of accounting, and is derived
from the historical financial statements of Premier and Ophthalmic and the
unaudited pro forma condensed combination information. The pro forma combined
financial information does not purport to represent what the combined
financial position or results of operations actually would have been if the
Offer had been consummated at the beginning of the periods presented. The
information below should be read in conjunction with the historical financial
statements of Premier and Ophthalmic incorporated by reference and the
unaudited condensed combined financial statements included elsewhere in this
Prospectus/Offer to Exchange. See "Unaudited Pro Forma Condensed Combined
Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Premier
Book value (at end of period)............. $2.25 $3.69
Cash dividends............................ -- --
Loss from continuing operations........... $(1.46) $(1.14)
Premier Pro Forma Combined
Book value (at end of period)............. $1.95 $3.48
Cash dividends............................ -- --
Loss from continuing operations........... $(1.69) $(1.40)
</TABLE>
MARKET PRICE OF PREMIER AND OPHTHALMIC COMMON STOCK
On February 26, 1998, Premier announced the signing of the Stock Purchase
Agreement and its intent to make the Offer. The following table sets forth the
closing price of Premier's Common Stock on the NNM and the closing bid of
Ophthalmic Common Stock on the SCM on February 25, 1998 (being the last
trading day prior to the announcement that Premier and Ophthalmic had entered
into the Stock Purchase Agreement), and for March , 1998 (being the last
practical date prior to the effective date of the Prospectus/Offer to Exchange
with the Commission), and the equivalent market price of the Offer
Consideration being offered per share of Ophthalmic Stock:
<TABLE>
<CAPTION>
CLOSING SALES EQUIVALENT
PRICE MARKET PRICE
------------- ------------
<S> <C> <C>
February 25, 1998:
Premier Common Stock............................ $10.1875 $ --
Ophthalmic Common Stock......................... $ 1.75 $2.18
March , 1998:
Premier Common Stock............................ $ $ --
Ophthalmic Common Stock......................... $ $2.18
</TABLE>
The amounts set forth in the above table for February 25, 1998 represent an
increase in value of Ophthalmic Common Stock (assuming that the Offer was
consummated on such date) of $0.43 or 24.6% (without accounting for any
liability for taxes or for sales expenses associated with the exchange of
Ophthalmic Common Stock).
59
<PAGE>
DESCRIPTION OF SECURITIES OF PREMIER
COMMON STOCK
The following description of Premier's capital stock and selected provisions
of its Amended and Restated Articles of Incorporation and Bylaws is a summary
and is qualified in its entirety by Premier's Amended and Restated Articles of
Incorporation and Bylaws, copies of which have been filed with the Commission.
Premier is authorized to issue 35,600,000 shares of Class A Common Stock, no
par value, 2,200,000 shares of Class E-1 Common Stock, no par value, and
2,200,000 shares of Class E-2 Common Stock. The Class A Common Stock, Class E-
1 Common Stock and the Class E-2 Common Stock have equal voting rights and are
entitled to share equally in dividends from sources available therefor when,
as and if declared by the Board of Directors. Holders of Class A Common Stock
have no preemptive rights and no right to convert their Common Stock into any
other securities. The holders of each class of Common Stock are entitled to
one vote for each share held of record on all matters submitted to a vote of
the shareholders, except that holders of Common Stock are entitled to
cumulative voting with respect to the election of directors upon giving notice
as required by law. In cumulative voting, the holders of Common Stock are
entitled to cast for each share held the number of votes equal to the number
of directors to be elected. In the event of a liquidation, dissolution or
winding up of Premier, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any then outstanding Preferred Stock. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
are, and all shares to be sold and issued as contemplated hereby will be,
fully paid and non-assessable and legally issued. The Board of Directors is
authorized to issue additional shares of Common Stock within the limits
authorized by Premier's charter and without shareholder action. As of March 4,
1998, there were 14,838,557 shares of Class A Common Stock outstanding.
CLASS E-1 COMMON STOCK
As of March 2, 1998, there were outstanding 1,257,178 shares of Class E-1
Common Stock and 1,257,178 shares of Class E-2 Common Stock. The Escrow Shares
are not transferrable (but may be voted), and each Escrow Share will
automatically convert into one share of Common Stock and be released to the
owners thereof upon the achievement of the objectives described below. On June
30, 2000, all Escrow Shares not previously converted into Common Stock will be
canceled. This arrangement was required by the representative of the
underwriters for Premier's initial public offering as a condition of such
offering.
All of the shares of Class E-1 Common Stock will be automatically converted
into Common Stock in the event that Premier's net income before provision for
income taxes, as defined, exceeds certain amounts. These amounts were
originally $6,850,000, $8,425,000, $9,900,000 for the fiscal years ending
March 31, 1998 through 2000, respectively, but these amounts will be increased
in future fiscal years in proportion to increases in the weighted average
number of shares of common stock outstanding in the relevant year, as compared
to the number of shares outstanding immediately after Premier's initial public
offering. If the above earnings levels are not reached, the Class E-1 Common
Stock will be canceled on June 30, 2000.
CLASS E-2 COMMON STOCK
All of the shares of Class E-2 Common Stock will be automatically converted
into Common Stock in the event that Premier's net income before provision for
income taxes, as defined, amounts to at least $14,750,000, $20,475,000 or
$26,750,000 for the years ending March 31, 1998 through 2000, respectively
(which amounts shall be adjusted in the same manner as those for the Class E-1
Common Stock). If the above earnings levels are not reached, the Class E-2
Common Stock will be canceled on June 30, 2000.
Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution or total or partial
60
<PAGE>
liquidation of Premier, shall be held by Premier in escrow until conversion of
the Escrow Shares. If none of the foregoing earnings levels are attained, the
Escrow Shares, as well as any dividends or other distributions made with
respect thereto, will be canceled. The earnings levels set forth above were
determined by negotiation between Premier and the representative of the
underwriter in Premier's initial public offering and should not be construed
to imply or predict any future earnings by Premier or any increase in the
market price of its securities. There can be no assurance that such earnings
levels will be attained or that any or all of the Escrow Shares will be
converted into Common Stock. However, the conversion to Common Stock of all or
any portion of the Escrow Shares may result in a charge to earnings to the
extent that such shares are held by management or employees.
PREFERRED STOCK
Premier's authorized preferred stock consists of 20,000,000 shares, no par
value (the "Preferred Stock"), of which 11,150,000 shares have been canceled
or already designated. The Board of Directors has the authority, without
further action by the shareholders, to issue from time to time up to 8,850,000
shares of Preferred Stock in one or more series and to fix the dividend rights
and terms, conversion rights, voting rights (whole, limited or none),
redemption rights and terms, liquidation preferences, sinking funds and any
other rights, preferences, privileges and restrictions applicable to each such
series of Preferred Stock. The purpose of authorizing the Board of Directors
to determine such rights and preferences is to eliminate delays associated
with a shareholder vote on specific issuances. The issuance of the Preferred
Stock, while providing flexibility in connection with possible acquisitions
and other corporate purposes, could, among other things, adversely affect the
voting power of the holders of Common Stock and, under certain circumstances,
could make it more difficult for a third party to gain control of Premier.
Such issuance of Preferred Stock could also adversely affect the distributions
on and liquidation preference of the Common Stock by creating more series of
Preferred Stock with distribution or liquidation preferences senior to the
Common Stock. Premier has no present plan to issue any shares of Preferred
Stock.
REDEEMABLE WARRANTS
Premier has outstanding redeemable Class B Warrants (the "Class B Warrants")
which are currently listed on the NNM under the symbol "PLSIZ." These Class B
Warrants are in fully registrable form under a Class B Warrant Agreement (the
"Class B Warrant Agreement") between Premier and American Stock Transfer &
Trust Company, and are evidenced by Class B Warrant certificates. These Class
B Warrants may be exercised upon surrender of the Class B Warrant certificate
on or prior to the respective expiration dates (or earlier redemption dates),
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of Premier) for the number of shares with respect to
which the Class B Warrants are being exercised. Holders of the Class B
Warrants do not have any voting or other rights of a shareholder of Premier.
Upon notice to the holders of the Class B Warrants, Premier has the right to
unilaterally reduce the exercise price or extend the expiration date of the
Class B Warrants. The Class B Warrants provide for the adjustment of the
exercise price and for a change in the number of shares issuable upon exercise
to protect the holders of the Class B Warrants against dilution in the event
of a stock dividend, stock split, combination or reclassification of the
Common Stock or upon issuance of additional shares of Common Stock at prices
lower than the market price then in effect other than issuances upon exercise
of options granted to employees, directors and consultants to Premier.
Each Class B Warrant entitles the registered holder to purchase one share of
Common Stock at an exercise price of $8.00 per share at any time prior to
November 30, 1999. As of March 9, 1998, Premier had outstanding 7,593,160
Class B Warrants. Premier has a right to redeem all of the Class B Warrants at
a price of $.05 per Class B Warrant upon not less than 30 days' prior written
notice at any time, provided that before any such redemption can take place,
the last sale price of Premier's Class A Common Stock in the over-the-counter
market shall have averaged in excess of $11.20 per share for 30 consecutive
business days ending within 15 days prior to the date of the notice of
redemption. During the 30-day notice period, a holder shall have the option to
exercise his Class B Warrants.
61
<PAGE>
OPHTHALMIC COMMON STOCK
STOCK EXCHANGE LISTING
Shares of Ophthalmic Common Stock were listed for trading on the Boston
Stock Exchange under the symbol "OIS" and are currently traded on the SCM
under the symbol "OISI." Trading of Ophthalmic Common Stock was suspended on
the Boston Stock Exchange as of the close of business on March 3, 1998 for
failure to meet certain eligibility requirements and Nasdaq has indicated that
it also intends to suspend trading and delist Ophthalmic's Common Stock from
the SCM. A request has been made seeking to continue listing on the SCM until
the Expiration Date. See "Effect of the Offer on the Market for the Shares,
Exchange Listing and Exchange Act Registration Update."
PRICE RANGE OF SHARES; DIVIDENDS
The following table sets forth, for the quarters indicated, the high ask and
low bid prices per share of Ophthalmic Common Stock as reported on the SCM.
Over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-downs or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH(ASK) LOW(BID)
--------- -------
<S> <C> <C>
Fiscal Year Ended August 31, 1996;
First Quarter............................................. 3.75 1.50
Second Quarter............................................ 4.00 1.5625
Third Quarter............................................. 7.375 3.00
Fourth Quarter............................................ 5.75 3.125
Fiscal Year Ending August 31, 1997:
First Quarter............................................. 5.75 3.25
Second Quarter............................................ 5.1875 3.00
Third Quarter............................................. 3.875 1.875
Fourth Quarter............................................ 2.25 0.50
Fiscal Year Ending August 31, 1998:
First Quarter............................................. 1.1875 0.75
Second Quarter ........................................... 2.00 0.50
Third Quarter (through March , 1998).....................
------ ------
</TABLE>
On February 25, 1998, the last full trading day prior to the date of the
public announcement of the execution of the Stock Purchase Agreement and
Premier's intention to make the Offer, the closing bid price per share of
Ophthalmic Common Stock as reported on SCM was $1.75. On March , 1998, the
last full trading day prior to the effective date of this Prospectus/Offer to
Exchange, the closing bid price per share of Ophthalmic Common Stock as
reported on the SCM was $ . Past performance is not necessarily indicative
of likely future price performance.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
Prior to the occurrence of the Distribution Date, the Rights are attached to
outstanding Shares and may not be traded separately. As a result, the sales
prices per Share set forth above include the associated Rights. As a result of
the commencement of the Offer, the Distribution Date may occur, after which
the Rights will separate and will begin trading apart from the Shares. IN SUCH
EVENT, SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION, IF ANY,
FOR THE RIGHTS.
According to the Ophthalmic Annual Report, Ophthalmic has not paid any cash
dividends since its inception and does not anticipate paying my cash dividends
on the Common Stock in the foreseeable future. Ophthalmic's ability to pay
dividends is reportedly restricted by the terms of its current financing
arrangements. The Ophthalmic Annual Report reported that future dividend
policy will be determined periodically by Ophthalmic's board of directors
based upon conditions then existing, including Ophthalmic's earnings and
financial condition, capital requirements, and other relevant factors.
62
<PAGE>
On December 31, 1997, under the provisions of the Rights Agreement the
Ophthalmic Board declared a dividend of one Right for each outstanding share
of Common Stock payable on January 2, 1998 to the shareholders of record on
that date. Each Right entitles the registered holder, upon the occurrence of
certain events, to purchase from Ophthalmic one one-hundredth of a share of
Series A Junior Participating Preferred Stock, value per share, of Ophthalmic
at a price of $10.00 per one one-hundredth of a Preferred Share, subject to
adjustment. See "Comparison of Rights of Holders of Ophthalmic Common Stock
and Premier Common Stock--Ophthalmic Shareholder Rights Plan."
COMPARISON OF RIGHTS OF HOLDERS OF
OPHTHALMIC COMMON STOCK AND PREMIER COMMON STOCK
GENERAL
The holders of Ophthalmic Common Stock are currently governed by the CGCL,
and Ophthalmic's Amended and Restated Articles of Incorporation (the
"Ophthalmic Charter") and its Bylaws, as amended, ("Opthalmic Bylaws"). Upon
consummation of the Offer and Proposed Merger, stockholders of Opthalmic will
become stockholders of Premier and their rights as stockholders of Premier,
which is a California corporation, will be governed by the CGCL and Premier's
Amended and Restated Articles of Incorporation ("Premier Charter") and
Premier's Bylaws ("Premier Bylaws").
The following is a summary of material differences between the rights of
holders of Ophthalmic Common Stock and Premier Common Stock. The summary does
not purport to be complete and it is qualified in its entirety by reference to
the CGCL and the respective Charters and Bylaws of Ophthalmic and Premier.
AMENDMENT OF BYLAWS
The Premier Bylaws provide that the new bylaws may be adopted or the Premier
Bylaws may be amended or repealed by either (i) the vote or written consent of
holders of a majority of the outstanding shares entitled to vote or (ii) the
Board of Directors. Notwithstanding the above, however, (i) the Board of
Directors may not amend a bylaw provision specifying an authorized range or
fixed number of directors and (ii) the shareholders may not amend the bylaws
to reduce the fixed number or the minimum number of directors to a number less
than five (5) if the votes cast against its adoption (or the shares not
consenting in the case of action by written consent) exceed 66 2/3 percent of
the outstanding shares entitled to vote thereon. The Ophthalmic Charter and
Opthalmic Bylaws provide that the Ophthalmic Bylaws may be amended by a
majority of the outstanding shares entitled to vote.
NUMBER OF DIRECTORS
The Premier Bylaws provide that the number of directors constituting the
Board of Directors shall be not less than four (4) nor more than seven (7),
with the exact number of directors to be fixed by resolution of the Board of
Directors or shareholders. The Premier Board of Directors presently has five
(5) members. The Ophthalmic Bylaws provide that the number of directors of
Ophthalmic shall be not less than three (3) nor more than five (5), with the
exact number to be fixed from time to time by resolution of the Board of
Directors. The Ophthalmic Board of Directors is presently comprised of five
(5) members.
REMOVAL OF DIRECTORS
Pursuant to the CGCL, the shareholders of Premier and Ophthalmic may remove
any director from the board, with or without cause, by affirmative vote of a
majority of the outsanding shares entitled to vote thereon; provided, however,
that a director may not be removed from the board if the number of shares
voting against
63
<PAGE>
removal would be sufficient to elect a director to the board if voted
cumulatively at an election where the same number of shares were present. The
Premier Bylaws do not address the procedure for removing directors while the
Ophthalmic Bylaws provide that the remaining Board Members may elect a
successor director to fill a vacancy for the remaining unexpired term of the
director so removed.
POWER TO CALL STOCKHOLDER MEETINGS
Both the Ophthalmic Bylaws and the Premier Bylaws provide that a special
meeting of stockholders may be called by (i) the Board of Directors, (ii) the
Chairman of the Board, (iii) the President, or (iv) any one or more
stockholders holding shares in the aggregate entitled to cast no less than ten
percent (10%) of the votes at the meeting. Under the Ophthalmic Bylaws and
Premier Bylaws, if a meeting is requested by persons other than the Board of
Directors, the officer receiving the request must promptly notify the
stockholders of the meeting and the date specified for the meeting may not be
less than 35 nor more than 60 days after the request for the meeting is
received. If notice of the meeting has not been given within 20 days after
receipt of the request, both Ophthalmic Bylaws and Premier Bylaws provide that
the persons requesting the meeting may give the notice.
INDEMNIFICATION OF DIRECTORS/OFFICERS
The CGCL provides that California corporations may include provisions in
their articles of incorporation relieving directors of monetary liability for
breach of their duties as directors, except for the liability of a director
resulting from (i) any transaction from which the director derives an improper
personal benefit, (ii) acts or omissions involving intentional misconduct or a
knowing and culpable violation of law, (iii) acts or omissions that a director
believes to be contrary to the best interests of the company or its
shareholders or that involves the absence of good faith on the party of the
director, (iv) acts or omissions constituting an unexcused pattern of
inattention that amounts to an abdication of the directors's duty to the
company or its shareholders, (v) acts or omissions showing a reckless
disregard for the director's duty to the company or its shareholders in
circumstances in which the director was aware or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to the company or its shareholders, (vi) any improper transaction
between a director and the company in which the director has a material
financial interest, or (vii) the making of an illegal distribution to
shareholders or an illegal loan or guaranty. The Premier Charter provides that
Premier's directors are not liable to Premier or its shareholders for monetary
damages for breach of their fiduciary duties to the fullest extent permitted
by the CGCL. Certain liabilities of Premier's officers and directors may also
be covered by Directors and Officers Liability Insurance that Premier may
carry from time to time.
The Premier Charter and the Premier Bylaws and the Ophthalmic Charter and
Ophthalmic Bylaws provide that Premier and Opthalmic are authorized to
indemnify their directors and officers to the fullest extent permitted by the
CGCL, including circumstances in which indemnification is otherwise
discretionary under the CGCL. Premier and Ophthalmic have entered into
indemnification agreements with certain of its directors and officers that
require Premier to indemnify such directors and officers to the fullest extent
permitted by law.
PREMIER'S PREFERRED STOCK
Premier's Charter authorizes the issuance of 8,850,000 shares of "blank
check" preferred stock, which will have such designations, rights and
preferences as may be determined from time to time by the Premier Board.
Accordingly, the Premier Board 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 the Premier Common Stock. In the event of such issuance, the
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of Premier.
64
<PAGE>
OPHTHALMIC SHAREHOLDER RIGHTS PLAN
On December 31, 1997, under the provisions of the Rights Agreement the
Ophthalmic Board declared a dividend of one Right for each outstanding share
of Ophthalmic Common Stock payable on January 2, 1998 (the "Record Date") to
the shareholders of record on that date. Each Right entitles the registered
holder to purchase from Ophthalmic one one-hundredth of a share of Series A
Junior Participating Preferred Stock, no par value per share ("Preferred
Shares") of Ophthalmic at a price of $10.00 per one one-hundredth of a
Preferred Share (the "Purchase Price"), subject to adjustment.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") shall have acquired beneficial ownership of 20% or more of the
outstanding Ophthalmic Common Stock, or (ii) 10 business days (or such later
date as may be determined by action of the Board of Directors prior to such
time as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership of a person or group of 20% or more of such outstanding
Ophthalmic Common Stock (or, in the case of a tender or exchange offer
commenced by Premier, a tender or exchange offer the consummation of which
would result in Premier becoming the beneficial owner of an additional 1% of
the Ophthalmic Common Stock then-outstanding than are beneficially owned by
Premier as of the close of business on December 31, 1997 (the "Effective
Date"))(the earlier of such dates being a "Distribution Date"), the Rights
will be evidenced, with respect to any of the Ophthalmic Common Stock
certificates outstanding as of the Record Date, by which Common Stock
certificate with a copy of the Summary of Rights (a form of which is included
as Exhibit C to the Rights Agreement) attached thereto. An "Acquiring Person"
will not be deemed to include Premier which has filed a Schedule 13D under the
Exchange Act, unless Premier becomes the beneficial owner of an additional 1%
or more of the Ophthalmic Common Stock then-outstanding than Premier owned at
the close of business on the Effective Date.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with
and only with the Ophthalmic Common Stock. Until the Distribution Date (or
earlier redemption or expiration of the Rights), new Ophthalmic Common Stock
certificates issued after the Record Date upon transfer or new issuance of
Ophthalmic Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender or transfer of any certificates for
Ophthalmic Common Stock outstanding as of the Record Date, even without such
notation or a copy of the Summary of Rights being attached thereto, will also
constitute the transfer of the Rights associated with the Ophthalmic Common
Stock represented by such certificate. As soon as practicable following the
Distribution Date, Rights Certificates will be mailed to holders of record of
the Ophthalmic Common Stock as of the close of business on the Distribution
Date and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
on December 31, 2007 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by
Ophthalmic, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion
price, less than the ten-current market price of the Preferred Shares or (iii)
upon the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Ophthalmic Common Stock)
or of subscription rights or warrants (other than those referred to above).
65
<PAGE>
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Rights are also subject to
adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Ophthalmic Common Stock payable in Ophthalmic Common Stock or
subdivisions, consolidations, or combinations of the Ophthalmic Common Stock
occurring, in any such case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per Ophthalmic Common
Stock. In the event of liquidation, the holders of the Preferred Shares will
be entitled to a minimum preferential liquidation payment of $100 per share
but will be entitled to an aggregate payment of 100 times the payment made per
Ophthalmic Common Stock. Each Preferred Share will have 100 votes, voting
together with the Common Stock. Finally, in the event of any merger,
consolidation, or other transaction in which Ophthalmic Common Stock are
exchanged, each Preferred Share will be entitled to receive 100 times the
amount received per Share of Ophthalmic Common Stock. These rights are
protected by customary anti-dilution provisions.
Because of the Preferred Shares' dividend, liquidation, and voting rights,
the value of the one one-hundredth interest in a Preferred Share purchasable
upon exercise of each Right should approximate the Ophthalmic Board's
estimated value of one share of Ophthalmic Common Stock.
In the event that Ophthalmic is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times
the exercise price of the Right. In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of shares of Ophthalmic
Common Stock having a market value of two times the exercise price of the
Right.
At any time after a person or affiliated or associated persons becomes an
Acquiring Person and prior to the acquisition by such person or group of 50%
or more of the outstanding Ophthalmic Common Stock, the Board of Directors of
Ophthalmic may exchange the Rights (other than Rights owned by such person or
group which have become void), in whole or in part, at an exchange ratio of
one share of Ophthalmic Common Stock, or one one-hundredth of a Preferred
Share (or of a share of a class or series of Ophthalmic's preferred stock
having equivalent rights, preferences, and privileges), per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of Ophthalmic, be evidenced by depository
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to a person or group of affiliated or associated persons
becoming an Acquiring Person, the Board of Directors of Ophthalmic may redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"). The redemption of the rights may be made effective at
such time on such basis and with such conditions as the Board of Directors in
its sole discretion may establish. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of
Ophthalmic without the consent of the holders of the Rights, except that from
and after such time as any person becomes an Acquiring Person no such
amendment may adversely affect the interests of the holders of the Rights.
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Until a Right is exercised, the holder thereof, as such will have no rights
as a shareholder of Ophthalmic, including without limitation, the right to
vote or to receive dividends.
Concurrently with the signing of the Stock Purchase Agreement, Ophthalmic
amended the Rights Plan (the "Amendment") to permit the Private Acquisition,
the execution and delivery of the Stock Purchase Agreement, and the making of
the Offer without (i) causing any Rights issued pursuant to the Rights
Agreement to become exercisable or to separate from the stock certificates to
which they are attached, (ii) causing Premier or any of its Affiliates to be
an Acquiring Person, or (iii) triggering other provisions of the Rights
Agreement, including giving rise to a Distribution Date. Pursuant to the Stock
Purchase Agreement, Ophthalmic may not terminate or revise the Rights
Agreement or the Amendment until such time as the Board of Directors of
Ophthalmic (as advised by its outside counsel with respect to fiduciary
obligations) determines in good faith by a majority vote that it is necessary
to terminate or revise the Rights Agreement or the Amendment in the exercise
of its fiduciary obligations under applicable law. Prior to the closing of the
Offer, Ophthalmic shall amend the Rights Agreement to permit the purchase of
all Shares validly tendered and not validly withdrawn.
The Rights Agreement and the Rights issued thereunder are described in
Ophthalmic's Current Report on Form 8-K filed on December 31, 1997 and an
amendment to the Rights Agreement is described in Ophthalmic's Current Report
on Form 8-K filed on March 9, 1998.
REGULATORY APPROVALS
Based upon its examination of publicly available information with respect to
Ophthalmic, Premier is not aware of any license or other regulatory permit
that appears to be material to the business of Ophthalmic and its
subsidiaries, taken as a whole, which might be adversely affected by the
acquisition of Shares by Premier pursuant to the Offer or, except as set forth
below, of any approval or other action by any domestic (federal or state) or
foreign governmental, administrative or regulatory authority or agency which
would be required prior to the acquisition of Shares by Premier pursuant to
the Offer. Should any such approval or other action be required, it is
Premier's present intention to seek such approval or action. Premier does not
currently intend, however, to delay the purchase of Shares tendered pursuant
to the Offer pending the outcome of any such action or the receipt of any such
approval (subject to Premier's right to decline to purchase Shares if any of
the conditions in "Certain Conditions of the Offer" shall have occurred).
There can be no assurance that any such approval or other action, if needed,
would be obtained without substantial conditions or that adverse consequences
might not result to the businesses of Ophthalmic or Premier or that certain
parts of the businesses of Ophthalmic or Premier might not have to be disposed
of or held separate or other substantial conditions complied with in order to
obtain such approval or other action or in the event that such approval was
not obtained or such other action was not taken. Premier's obligation under
the Offer to accept for payment and pay for Shares is subject to certain
conditions, including conditions relating to the legal matters discussed
herein. See "Certain Conditions of the Offer."
Certain contracts between Ophthalmic and the United States government may
require certain notices, approvals, consents, or security clearances in
connection with the Offer and the Proposed Merger. Premier expects to take
such action as may be required in accordance with applicable law and the terms
of such government contracts.
STATE TAKEOVER LAWS
Ophthalmic's principal executive offices are located in, and Ophthalmic is
incorporated under the laws of, the State of California, which currently has
no takeover statute that would apply to the Offer. However, there can be no
assurances that California will not, prior to the completion of the Offer,
adopt such a statute.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, shareholders, principal executive offices or
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principal places of business, or whose business operations otherwise have
substantial economic effects, in such states. In Edgar v. Mite Corp., the
Supreme Court of the United States invalidated on constitutional grounds the
Illinois Business Takeover Statute, which, as a matter of state securities
law, made takeovers of corporations meeting certain requirements more
difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the
Supreme Court held that the State of Indiana may, as a matter of corporate law
and, in particular, with respect to those aspects of corporate law concerning
corporate governance, constitutionally disqualify a potential acquirer from
voting on the affairs of a target corporation without the prior approval of
the remaining shareholders. The state law before the Supreme Court was by its
terms applicable only to corporations that had a substantial number of
shareholders in the state and were incorporated there.
Ophthalmic conducts business in a number of states throughout the United
States, some of which have enacted takeover laws. Premier does not know
whether any of these laws will, by their terms, apply to the Offer and has not
sought to comply with any such laws. Should any person seek to apply any state
takeover law, Premier will take such action as then appears desirable, which
may include challenging the validity or applicability of any such statute in
appropriate court proceedings. In the event it is asserted that one or more
state takeover laws is applicable to the Offer and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer,
Premier might be required to file certain information with, or receive
approvals from, the relevant state authorities. In addition, if enjoined,
Premier might be unable to accept for exchange any Shares tendered pursuant to
the Offer, or be delayed in continuing or consummating the Offer. In such
case, Premier may not be obligated to accept for exchange any Shares tendered.
See "Certain Conditions of the Offer."
ANTITRUST
Premier does not believe that the Hart-Scott-Rodino Antitrust Improvements
Act of 1986, as amended, applies to the acquisition of the Shares contemplated
by the Offer or a potential subsequent merger.
FEES AND EXPENSES
Except as set forth below, Premier will not pay any fees or commissions to
any broker, dealer or other person for soliciting tenders of Shares pursuant
to the Offer.
Josephthal is acting as Dealer Manager for the Offer. Questions regarding
the Offer may be directed to Josephthal at the phone number and address set
forth on the back cover hereof.
As compensation for its services to Premier as an independent investment and
financial advisor in connection with Premier's acquisition of Shares and
determination to consummate the Stock Purchase Agreement and the transactions
contemplated thereby, including the Private Acquisition and this Offer,
Josephthal will receive fees of $325,000 payable by Premier and warrants to
purchase 150,000 shares of Premier Common Stock at an exercise price per share
equal to the market value per share of Premier Common Stock on January 1,
1998. As compensation for its services to Premier in connection with its role
as Dealer Manager for the Offer, Josephthal will receive fees of $50,000
payable by Premier. In addition, Josephthal is entitled to reimbursement for
the fees and disbursements of counsel and all of Josephthal's reasonable
travel and other out-of-pocket expenses, as well as indemnification from
certain liabilities.
Premier has retained Allen & Caron Inc. as the Information Agent, and
American Stock Transfer & Trust Company as the Exchange Agent, in connection
with the Offer. The Information Agent may contact holders of Shares by mail,
telephone, telex, telecopy, telegraph and personal interview and may request
banks, brokers, dealers and other nominee shareholders to forward materials
relating to the Offer to beneficial owners.
As compensation for acting as Information Agent in connection with the
Offer, Allen & Caron Inc. will be paid a fee of $10,000 and will also be
reimbursed for certain out-of-pocket expenses and may be indemnified against
certain liabilities and expenses in connection with the Offer, including
certain liabilities under the federal
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securities laws. Premier will pay the Exchange Agent reasonable and customary
compensation for its services in connection with the Offer, plus reimbursement
for out-of-pocket expenses, and will indemnify the Exchange Agent against
certain liabilities and expenses in connection therewith, including certain
liabilities under the federal securities laws. Brokers, dealers, commercial
banks and trust companies will be reimbursed by Premier for customary handling
and mailing expenses incurred by them in forwarding material to their
customers.
LEGAL MATTERS
The legality of the shares of Premier Common Stock, Class C Warrants and
Class D Warrants to be issued in the Offer and certain other matters related
thereto will be passed upon on behalf of Premier by Paul, Hastings, Janofsky &
Walker LLP, Orange County, California.
EXPERTS
The consolidated financial statements of Premier Laser Systems, Inc.
appearing in the Premier Laser Systems, Inc. Annual Report (Form 10-K) for the
year ended March 31, 1997, as amended, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements
are incorporated herein by reference in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
The financial statements of Premier as of March 31, 1996 and for each of the
two fiscal years in the period ended March 31, 1996 included in the Premier
Annual Report, that have been incorporated by reference herein have been so
incorporated in reliance upon the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The report of Price Waterhouse LLP with respect to such financial
statements contains an explanatory paragraph that describes uncertainty as to
the ability of Premier to continue as a going concern.
The financial statements of Ophthalmic at August 31, 1997 and for the years
ended August 31, 1996 and 1997, included in the Ophthalmic Annual Report, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of EyeSys at December 31, 1995 and 1996 and the
statements of operations, changes in stockholders' equity and cash flows for
each of the three years ended December 31, 1996, incorporated by reference
into this Prospectus/Offer to Exchange, have been so incorporated in reliance
on the report, which includes an explanatory paragraph discussing the
uncertainty about EyeSys' ability to continue as a going concern, of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of such firm
as experts in accounting and auditing.
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PREMIER
Set forth below are the name, current business address, citizenship and
present principal occupation or employment, and material occupations,
positions, offices or employments and business addresses thereof for the past
five years of each director and executive officer of Premier. Unless otherwise
indicated, the current business address of each person is 3 Morgan, Irvine,
California 92618 and each occupation set forth opposite an individual's name
refers to employment with Premier. Unless otherwise indicated, each such
person is a citizen of the United States of America and has held his or her
present position as set forth below for the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<C> <C> <S>
Chairman of the Board, President and Chief
Colette Cozean.......... 39 Executive Officer
Tom Hazen............... 56 Executive Vice President--Operations
Randy Alexander......... 53 Executive Vice President--Sales, Marketing and
Strategic Business Units
T. Daniel Caruso, Jr. .. 55 Executive Vice President--Corporate Marketing,
Mergers & Acquisitions
Vice President--Finance and Chief Financial
Michael L. Hiebert...... 35 Officer
Vice President--Regulatory Affairs and Quality
Jeffrey Anderson........ 31 Assurance
Judy McCall............. 57 Vice President--Human Resources
Patrick J. Day.......... 70 Director
Grace Ching-Hsin Lin.... 48 Director
G. Lynn Powell.......... 56 Director
E. Donald Shapiro....... 66 Director
</TABLE>
Colette Cozean, Ph.D. is a founder of Premier and has been Chairman of the
Board of Directors, President and Director of Research of Premier since it
began operations in August 1991 and became the Chief Executive Officer in
1994. From April 1987 to August 1991, Dr. Cozean served as Director of
Research and Development, Regulatory Affairs and Clinical Programs at Pfizer
Laser and in such capacities managed the development of the laser technologies
which were acquired by Premier from Pfizer Laser. Prior to April 1987, Dr.
Cozean held various research positions at Baxter Edwards, a division of Baxter
Healthcare Corporation ("Baxter"), and American Technology and Ventures, a
division of American Hospital Supply Company ("American Hospital"). Baxter and
American Hospital are manufacturers and suppliers of advanced medical
products. Dr. Cozean holds a Ph.D. in biomedical engineering and an M.S. in
electrical Engineering from Ohio State University, a B.S. in biomedical
engineering from the University of Southern California, and a B.A. in physical
sciences from Westmont College.
Tom Hazen has been Premier's Executive Vice President--Operations since
October 1997. From 1992 to 1997, Mr. Hazen was Vice President of Operations at
Imagyn Medical, Inc., a health-care technology company and, from 1991 to 1992,
was Vice President of Operations for MICA Technology Services, an MRI/CT scan
services company. Mr. Hazen holds a B.S. in Mechanical Engineering from the
University of Arizona and an M.B.A. from the University of California at Los
Angeles.
Randy Alexander has been Executive Vice President--Sales, Marketing and
Strategic Business Units since February 1998. From 1989 through February 1998
Mr. Alexander was Senior Vice President, Asian Pacific, Latin America,
Australia and Canada Operations for Chiron Vision, a manufacturer of
ophthalmic and surgical products. Mr. Alexander holds a B.S. and an M.S. in
Biological Sciences from Marshall University.
T. Daniel Caruso, Jr. has been Executive Vice President--Corporate
Marketing, Mergers & Acquisitions since November 1997. Mr. Caruso was Vice
President--Sales and Marketing, from July 1992 through November 1997. He
became a Senior Vice President in May 1996. From July 1989 to April 1992, Mr.
Caruso was
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Vice President, Sales and Marketing at Hyco Biomedical, a laboratory
diagnostics company. From March 1988 to July 1989, Mr. Caruso was President
and Chief Executive Officer of Physicians Home Infusion Care, a home health
care company. Mr. Caruso has a B.S. in Biology and Chemistry and an M.B.A. in
marketing from the University of Southern California.
Michael L. Hiebert has been Premier's Vice President--Finance and Chief
Finance Officer since November 5, 1996. Prior to joining Premier, Mr. Hiebert
was the controller and director of management information systems and business
analysis of Urethane Technologies, Inc., a plastics manufacturer, which
position he held from 1994 to 1996. From 1992 to 1994, Mr. Hiebert was Vice
President, Finance and Administration of Active Organics, Inc., a cosmetics
manufacturer, and from 1987 to 1992 he was an accounting manager with the
general engineering firm of C.A. Rasmussen, Inc. Mr. Hiebert has a B.S. in
Business Administration with an emphasis in finance, and an M.B.A. from
California State University at Northridge.
Jeffrey Anderson has been Vice President--Regulatory Affairs and Quality
Assurance since January 1998 and served as Director of Regulatory Affairs and
Quality Assurance from September 1997 through January 1998. Between November
1995 and September 1997, Mr. Anderson was Manager of Regulatory Affairs for
Medtronic, a manufacturer of cardiovascular and neurological devices and
between December 1993 and November 1995 he served as a Regulatory Affairs
Manager for Sybron Dental Specialists, a parent company of dental device
manufacturing companies. From December 1991 through December 1993, Mr.
Anderson was the Regulatory Affairs/Quality Assurance Manager for Laser
Medical Technology, Inc., a manufacturer of medical lasers. Mr. Anderson has a
B.A. in Physics from California State University, Fullerton.
Judy McCall has been Secretary and Vice President--Human Resources,
Administration and Special Projects since January 1998. From April 1993
through January 1998 Ms. McCall was employed by Premier as an Executive
Assistant, Manager of Human Resources and then Director of Human Resources.
Between May 1980 and April 1993 Ms. McCall was Director of Training for API
Security Systems. Ms. McCall holds a B.A. in Bible & Christian Education &
Biology from St. Andrews Church and an M.A. in Marriage, Family and Child
Psychology from Azusa Pacific College.
Patrick J. Day has served as a director of Premier since August 1991. Mr.
Day is a Certified Public Accountant and owns a CPA firm which he established
in 1967. He has served as a director for several organizations including the
First Presbyterian Church of Hollywood and many private companies. Mr. Day is
the father of Dr. Cozean, Premier's Chairman of the Board, Chief Executive
Officer and President. Mr. Day has a B.A. in accounting from the University of
Idaho.
Grace Ching-Hsin Lin has served as a director of Premier since February
1992. Ms. Lin has been an agent providing real estate consulting services for
Security Trust Realty since April 1988 and an owner of South Pacific
Investment, an investment management company, since 1989.
G. Lynn Powell, D.D.S. Dr. Powell joined the Board of Directors in January
1997. Dr. Powell has been on the faculty at the University of Utah since 1982,
where he currently serves as the Assistant Dean for Dental Education in the
School of Medicine and Professor in the Department of Pathology. He is a
patent holder who has performed extensive research in the field of dentistry
serving as primary investigator on several funded grants and is author or co-
author of over 45 papers in journals, a majority of which relate to the use of
lasers in dentistry. He serves as a reviewer for three dental and laser
journals, has lectured nationally as well as internationally and routinely
presents his work at research meetings. Dr. Powell is the current President of
the International Society for Lasers in Dentistry. Dr. Powell received his
D.D.S. from the University of Washington and was on the full time faculty in
Restorative Dentistry at that institution for ten (10) years.
E. Donald Shapiro joined the Board of Directors in August 1994. Since 1983,
Mr. Shapiro has served as the Joseph Solomon Distinguished Professor of Law at
New York Law School where he served as both Dean and Professor of Law from
1973 to 1983. He is Supernumerary Fellow of St. Cross College at Oxford
University, England. Mr. Shapiro received a J.D. degree at Harvard Law School.
He currently serves on the Boards of Directors for several public companies
including Loral Space and Communications, Ltd., Eyecare Products, Kranzco
Realty Trust, Group Health Incorporated, Vasomedical Corporation, United
Industrial, Telepad, Inc. and Food Entertainment, Inc. He also serves on the
Board of Directors of Bank Leumi.
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SCHEDULE II
SCHEDULE OF TRANSACTIONS IN SHARES
DURING THE PAST 60 DAYS
The following table sets forth purchases of the Shares within the past 60
days by or on behalf of Premier. Except as otherwise indicated, all
transactions were effected in open market transactions.
<TABLE>
<CAPTION>
NUMBER OF SHARES AGGREGATE
DATE OF TRANSFER PURCHASED PRICE PER SHARE PURCHASE PRICE
- ---------------- ---------------- --------------- --------------
<S> <C> <C> <C>
12/22/97........................ 5,000 1.156 $ 5,780.00
12/22/97........................ 800 1.187 949.60
12/22/97........................ 16,500 1.25 20,625.00
12/23/97........................ 9,000 1.25 11,250.00
12/23/97........................ 7,000 1.281 8,968.75
12/23/97........................ 13,000 1.312 17,062.50
12/23/97........................ 12,000 1.34375 16,125.00
12/23/97........................ 5,000 1.375 6,875.00
12/23/97........................ 1,500 1.46875 2,203.13
12/23/97........................ 9,000 1.50 13,500.00
12/23/97........................ 500,000 1.50 750,000.00
12/24/97........................ 30,000 1.50 45,000.00
12/24/97........................ 20,000 1.484375 29,687.50
12/24/97........................ 5,000 1.46875 7,343.75
12/26/97........................ 175,000 1.6875 295,312.50
12/26/97........................ 5,500 1.59375 8,765.63
12/26/97........................ 4,000 1.50 6,000.00
12/29/97........................ 10,000 1.6563 16,562.50
12/29/97........................ 15,200 1.625 24,700.00
12/30/97........................ 3,000 1.6563 4,968.90
12/30/97........................ 8,865 1.6875 14,959.69
12/30/97........................ 15,500 1.75 27,125.00
12/31/97........................ 3,333 1.75 5,832.75
2/26/98......................... 980,360(1) 2.18(2) 237,184.80
</TABLE>
- --------
(1) Acquired in three private transactions, entered into concurrently with the
execution of the Stock Purchase Agreement, pursuant to the Private Purchase
Agreements providing for the sales of 421,052, 50,000 and 259,308 Shares to
Premier, respectively. Additionally, one of the Private Purchase Agreements
provided for the sale of warrants to purchase 250,000 Shares, which
warrants were exercised by Premier on February 26, 1998. Mark Blumenkranz,
an Ophthalmic director, is a party to the Private Purchase Agreement
providing for the sale of 421,052 Shares to Premier. The Private Purchase
Agreement covering the sale of 421,052 (for which Mr. Blumenkranz is a
party) provides for rescission if Premier fails to make, or withdraws,
abandons or terminates the Offer without purchasing all Shares tendered and
not validly withdrawn prior to the Expiration Date.
(2) The Shares (including those issued to Premier as a result of its exercise
of warrants to purchase 250,000 Shares) were acquired by Premier for
consideration per Share consisting of (a) $1.75 of cash, (b) $0.25 of
Premier Common Stock (measured by a formula in the private transaction
agreements), (c) one Class C Warrant and (d) one Class D Warrant. Premier,
with the assistance of Josephthal, valued such cash and securities at $2.18
per Share.
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APPENDIX A
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
PREMIER LASER SYSTEMS, INC.
AND
OPHTHALMIC IMAGING SYSTEMS
DATED AS OF
FEBRUARY 25, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I THE OFFER................................................. 1
SECTION 1.1 The Offer................................................. 1
SECTION 1.2 Ophthalmic Actions........................................ 3
ARTICLE II AMENDMENT TO RIGHTS PLAN; CLOSING OF THE PRIVATE
ACQUISITION............................................... 4
SECTION 2.1 Amendment to Rights Plan; Closing of the Private
Acquisition............................................... 4
ARTICLE III [NOT USED]................................................ 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF OPHTHALMIC.............. 4
SECTION 4.1 Organization and Qualification; No Subsidiaries........... 4
SECTION 4.2 Capitalization............................................ 5
SECTION 4.3 Authority Relative to this Agreement...................... 5
SECTION 4.4 No Violation.............................................. 6
SECTION 4.5 SEC Reports and Financial Statements...................... 6
SECTION 4.6 Compliance with Applicable Laws and Permits; Regulatory
Matters................................................... 6
SECTION 4.7 Change of Control......................................... 7
SECTION 4.8 Litigation................................................ 7
SECTION 4.9 Information............................................... 7
SECTION 4.10 Employee Benefit Plans.................................... 8
SECTION 4.11 Taxes..................................................... 9
SECTION 4.12 Intellectual Property..................................... 9
SECTION 4.13 Contracts................................................. 10
SECTION 4.14 Voting Requirements....................................... 10
SECTION 4.15 Absence of Certain Changes................................ 10
SECTION 4.16 Rights Agreement.......................................... 10
SECTION 4.17 Brokers................................................... 11
SECTION 4.18 Opinion of Investment Banker.............................. 11
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PREMIER................. 11
SECTION 5.1 Organization and Qualification............................ 11
SECTION 5.2 Authority Relative to this Agreement...................... 11
SECTION 5.3 No Violation.............................................. 12
SECTION 5.4 Information............................................... 12
SECTION 5.5 Funds; Reservation of Shares.............................. 12
SECTION 5.6 Intention to Propose a Merger............................. 12
SECTION 5.7 Ownership of Shares....................................... 12
SECTION 5.8 SEC Reports and Financial Statements...................... 12
SECTION 5.9 Absence of Certain Changes................................ 13
SECTION 5.10 Capitalization............................................ 13
ARTICLE VI COVENANTS................................................. 13
SECTION 6.1 Conduct of Business of Ophthalmic......................... 13
SECTION 6.2 Covenants of Premier...................................... 14
SECTION 6.3 Access to Information; Confidentiality.................... 15
SECTION 6.4 Efforts................................................... 15
SECTION 6.5 Public Announcements...................................... 16
SECTION 6.6 Employee Benefit Arrangements; Warrants................... 16
SECTION 6.7 Notification of Certain Matters........................... 17
SECTION 6.8 Rights Agreement.......................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 6.9 State Takeover Laws....................................... 18
SECTION 6.10 No Solicitation........................................... 18
SECTION 6.11 Indemnification........................................... 19
SECTION 6.12 Conditions................................................ 20
ARTICLE VII CONDITIONS TO CONSUMMATE THE TRANSACTIONS HEREUNDER....... 20
SECTION 7.1 Conditions................................................ 20
SECTION 7.2 Conditions to Obligations of Premier...................... 20
SECTION 7.3 Conditions of Premier to Close the Offer.................. 20
ARTICLE VIII TERMINATION; AMENDMENTS; WAIVER........................... 21
SECTION 8.1 Termination............................................... 21
SECTION 8.2 Effect of Termination..................................... 21
SECTION 8.3 Fees and Expenses......................................... 21
SECTION 8.4 Amendment................................................. 22
SECTION 8.5 Extension; Waiver......................................... 22
ARTICLE IX MISCELLANEOUS............................................. 22
SECTION 9.1 Non-Survival of Representations and Warranties............ 22
SECTION 9.2 General Release of Ophthalmic Executive Officers and
Directors................................................. 22
SECTION 9.3 Entire Agreement; Assignment.............................. 22
SECTION 9.4 Validity.................................................. 23
SECTION 9.5 Notices................................................... 23
SECTION 9.6 Governing Law............................................. 24
SECTION 9.7 Descriptive Headings...................................... 24
SECTION 9.8 Counterparts.............................................. 24
SECTION 9.9 Parties in Interest....................................... 24
SECTION 9.10 Certain Definitions....................................... 24
SECTION 9.11 Specific Performance...................................... 24
SECTION 9.12 Fiduciary Duty............................................ 24
SECTION 9.13 Obligation of Premier..................................... 24
</TABLE>
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), is dated as of February 25,
1998, by and between Premier Laser Systems, Inc., a California corporation
("Premier"), and Ophthalmic Imaging Systems, a California corporation
("Ophthalmic").
WHEREAS, the respective Boards of Directors of Premier and Ophthalmic have
approved the acquisition of up to all the outstanding shares of common stock
of Ophthalmic by Premier on the terms and subject to the conditions set forth
in this Agreement;
WHEREAS, pursuant to this Agreement Premier has agreed to commence an
exchange offer (the "Offer") to exchange for each outstanding share of
Ophthalmic's common stock, no par value (the "Common Stock") (including the
associated preferred share purchase rights (the "Rights") issued pursuant to
the Rights Agreement, dated as of December 31, 1997, between Ophthalmic and
American Securities Transfer, Inc., as Rights Agent (the "Rights Agreement"),
which Rights together with the Common Stock are hereinafter referred to as the
"Shares"): (a) $1.75 net in cash (the "Cash Consideration"), (b) that number
of shares of Premier Class A Common Stock, no par value (the "Premier Common
Stock") equal to the Exchange Ratio (as defined herein) (the "Stock
Consideration"), (c) one Premier Class C Warrant (a "Class C Warrant"), and
(d) one Premier Class D Warrant (a "Class D Warrant", and together with a
Class C Warrant, the "Warrants" or the "Warrant Consideration") (the Cash
Consideration, the Stock Consideration and the Warrant Consideration together
constitute the "Offer Consideration");
WHEREAS, the Board of Directors of Ophthalmic (the "Ophthalmic Board") has,
in light of and subject to the terms and conditions set forth herein, (i)
determined that the Offer Consideration and the Offer, and the transactions
contemplated hereby, are fair to and in the best interest of Ophthalmic and
its stockholders; and (ii) resolved to approve and adopt this Agreement and
the transactions contemplated hereby and to recommend acceptance of the Offer
to Ophthalmic's stockholders;
WHEREAS, the respective Boards of Directors of Premier and Ophthalmic
contemplate that upon completion of the Offer, the parties may pursue a merger
providing all stockholders of Ophthalmic remaining after consummation of the
Offer an economic benefit similar to the Offer Consideration;
WHEREAS, Premier and Ophthalmic desire to make certain representations,
warranties, covenants and agreements in connection with the Offer, and also to
prescribe various conditions to the Offer; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Premier and certain stockholders of Ophthalmic will enter into
certain Purchase Agreements providing for the acquisition of Shares by Premier
from the holders named therein in exchange for the same consideration as being
exchanged pursuant to the Offer (the "Private Acquisition");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
for other good and valuable consideration, intending to be legally bound
hereby, Premier and Ophthalmic agree as follows:
ARTICLE I
THE OFFER
SECTION 1.1 The Offer.
(a) Provided that this Agreement shall not have been terminated in
accordance with Section 8.1 of this Agreement and none of the events set forth
in Annex I hereto (the "Exchange Offer Conditions") shall have occurred and be
existing, as promptly as practicable, but in no event later than the fifth
business day from the
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date of this Agreement, Premier shall commence (within the meaning of Rule
14d-2 under the Securities Exchange Act of 1934, as amended, including the
rules and regulations promulgated thereunder (the "Exchange Act")), a tender
offer for any and all Shares in exchange for the Offer Consideration and shall
use reasonable best efforts to consummate the Offer. The obligation of Premier
to accept for exchange and to exchange the Offer Consideration for any Shares
tendered pursuant thereto will be subject only to the satisfaction of the
conditions set forth in Annex I hereto. This Offer shall be made by means of a
Prospectus/Offer to Exchange (the "Offer to Purchase") containing the terms
set forth in this Agreement and the conditions set forth in Annex I.
Notwithstanding anything to the contrary in clause (iii) of Annex I hereto,
Premier shall be required to make a reasonable determination that any of the
events set forth in paragraphs (a) through (h) of Annex I shall have occurred
in order to refuse payment of the Offer Consideration for the tendered Shares
or to terminate the Offer in connection with any purported failure to meet a
condition specified in such paragraphs (a) through (h) of Annex I.
(b) The Offer Consideration shall consist of: (x) the Cash Consideration,
(y) the Stock Consideration, and (z) the Warrant Consideration. The Stock
Consideration is equal to that number of shares of Premier Common Stock equal
to the Exchange Ratio. "Exchange Ratio" means the quotient (rounded to the
nearest 1/100,000) determined by dividing $0.25 by closing sales prices for
Premier Common Stock as reported on The Nasdaq Stock Market, Inc. ("NASDAQ")
as published in The Wall Street Journal or, if not published therein, in
another authoritative source) for either (i) the fifteen (15) consecutive
trading days (each, a "Trading Day") ending five Trading Days immediately
preceding the Expiration Date (as defined below) or (ii) the thirty (30)
consecutive Trading Days ending twenty (20) Trading Days prior to the
Expiration Date, whichever yields the fewer number of shares of Premier Common
Stock (the "Premier Average Price"). The Class C Warrants and the Class D
Warrants shall be substantively in the forms attached as Exhibits A and B
hereto, respectively.
(c) Without the prior written consent of Ophthalmic, Premier shall not
decrease the Offer Consideration or change the form of consideration payable
in the Offer, decrease the number of Shares sought to be purchased in the
Offer, impose additional conditions to the Offer or amend any other term of
the Offer in any manner adverse to the holders of Common Stock. The Offer
shall remain open until the date that is 20 business days (as such term is
defined in Rule 14d-1(c)(6) under the Exchange Act) after the commencement of
the Offer (the "Expiration Date"), unless Premier shall have extended the
period of time for which the Offer is open pursuant to, and in accordance
with, the two succeeding sentences or as may be required by applicable law, in
which event the term "Expiration Date" shall mean the latest time and date as
the Offer, as so extended, may expire. Subject to the terms of the Offer and
this Agreement and the satisfaction of all the Exchange Offer Conditions as of
any Expiration Date, Premier shall accept for exchange and exchange the Offer
Consideration for all Shares validly tendered and not withdrawn pursuant to
the Offer as promptly as practicable after such Expiration Date; provided
that, if on any scheduled Expiration Date of the Offer all of the Exchange
Offer Conditions shall not have been satisfied or waived, unless this
Agreement has been terminated pursuant to Section 8.1 hereof, the Offer may,
but need not, be extended from time to time without the consent of Ophthalmic
for such period of time as is reasonably expected by Premier to be necessary
to satisfy the unsatisfied conditions; provided further that the Offer may be
extended by Premier without the consent of Ophthalmic for any period required
by any rule, regulation, interpretation or position of the SEC or the staff
thereof applicable to the Offer.
(d) Concurrently with the commencement of the Offer, Premier shall file with
the Securities and Exchange Commission ("SEC") a Tender Offer Statement on
Schedule 14D-1 in accordance with the Exchange Act with respect to the Offer
(together with all amendments, supplements, and exhibits thereto, including
the Offer to Purchase, the "Schedule 14D-1") and a Registration Statement on
Form S-4 (the "Form S-4") in accordance with the Securities Act of 1933, as
amended (the "Securities Act") to register the Premier Common Stock and the
Warrants to be issued in connection with the Offer (together with all
amendments, supplements, and exhibits thereto, including the Prospectus in the
form of the Offer to Purchase, the "Registration Statement"). The Schedule
14D-1 and the Registration Statement are referred to collectively herein as
the "Offer Documents". Ophthalmic and its counsel shall be given a reasonable
opportunity to review and comment and on the Offer Documents and all
amendments and supplements thereto prior to their filing with the SEC or
dissemination to
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stockholders of Ophthalmic. Premier agrees to provide Ophthalmic and its
counsel in writing with any comments Premier and its counsel may receive from
the SEC or its staff with respect to the Offer Documents promptly after
receipt of such comments and shall provide Ophthalmic and its counsel with
reasonable opportunity to review and comment on the response of Premier to
such comments. Premier represents that the Offer Documents will comply in all
material respects with the provisions of applicable federal and state
securities laws, and, on the date filed with the SEC and on the date first
published, sent or given to Ophthalmic's stockholders, shall not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by Premier with respect to
information supplied by Ophthalmic in writing for inclusion in the Offer
Documents. Ophthalmic shall provide Premier with such information as Premier
may reasonably request in connection with the preparation of the Offer
Documents. Each of Premier and Ophthalmic agrees promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that it shall have become incomplete, false or misleading in any material
respect and Premier further agrees to take all steps necessary to cause the
Offer Documents as so corrected to be filed with the SEC and to be
disseminated to stockholders of Ophthalmic, in each case, as and to the extent
required by applicable federal and state securities laws.
(e) Notwithstanding any other provision of this Agreement, each holder of
Shares tendered for exchange pursuant to this Offer who would otherwise have
been entitled to receive a fraction of a share of Premier Common Stock (after
taking into account all shares tendered by such holder) shall receive, in lieu
thereof, cash in an amount equal to the fractional part of the Premier Common
Stock multiplied by the "market price" of one share of Premier Common Stock,
payable as part of the Offer Consideration. The "market price" of one share of
Premier Common Stock shall be the closing price of such common stock as
reported on NASDAQ (as published in The Wall Street Journal or, if not
published therein, any other authoritative source) on the last Trading Date
preceding the Expiration Date.
SECTION 1.2 Ophthalmic Actions.
(a) Ophthalmic hereby approves and consents to the Offer and represents,
that the Ophthalmic Board, at a meeting duly called and held, has (i)
determined by unanimous vote of its directors that each of the transactions
contemplated hereby, is fair to and in the best interests of Ophthalmic and
its stockholders, (ii) approved the Offer and adopted this Agreement in
accordance with the California General Corporation Law ("CGCL") and pursuant
to Article Six of the Restated Articles of Incorporation of Ophthalmic, and
(iii) resolved to recommend that the stockholders of Ophthalmic accept the
Offer and tender their Shares thereunder to Premier; provided, however, that
such recommendation and approval may be withdrawn, modified or amended only in
accordance with Section 6.10 of this Agreement. Ophthalmic further represents
that, prior to the execution hereof, Cowen & Company (the "Investment
Banker"), has delivered to the Ophthalmic Board its written opinion that, as
of the date thereof, the financial terms of the Offer are fair, from a
financial point of view to the holders of shares of Common Stock (other than
Premier and its affiliates). Ophthalmic hereby consents to the inclusion in
the Offer Documents of the recommendations of the Ophthalmic Board described
in this Section 1.2(a).
(b) Ophthalmic shall file with the SEC, as promptly as possible after the
filing by Premier of the Schedule 14D-1, a Solicitation/Recommendation
Statement on Schedule 14D-9 in accordance with the Exchange Act (together with
all amendments, supplements, and exhibits thereto, the "Schedule 14D-9"),
which shall contain the recommendation referred to in Section 1.2(a)(iii) of
this Agreement; provided that subject to Section 6.10 of this Agreement, such
recommendation may be withdrawn, modified, or amended. Premier and its counsel
shall be given reasonable opportunity to review and comment on the Schedule
14D-9 prior to its filing with the SEC. Ophthalmic agrees to provide Premier
and its counsel in writing with any comments Ophthalmic or its counsel may
receive from the SEC or its staff with respect to the Schedule 14D-9 promptly
after receipt of such comments. Ophthalmic represents that the Schedule 14D-9
will comply in all material respects with the provisions of applicable federal
and state securities laws and, on the date filed with the SEC and on the date
first published, sent or given to Ophthalmic's stockholders, shall not contain
any untrue statement of a material fact
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or omit to state any material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by Ophthalmic with respect to information supplied by Premier in writing
for inclusion in the Schedule 14D-9. Each of Ophthalmic and Premier agree
promptly to correct any information provided by either of them for use in the
Schedule 14D-9 if and to the extent that it shall have become false or
misleading, and Ophthalmic further agrees to take all steps necessary to cause
the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to the holders of Shares, in each case, as and to the extent
required by applicable federal and state securities laws.
(c) In connection with the Offer, Ophthalmic shall furnish or cause to be
furnished to Premier with mailing labels, security position listings, any
available non-objecting beneficial owner lists and any available listing or
computer list containing the names and addresses of the record holders of the
Common Stock as of the most recent practicable date and shall furnish Premier
with such additional available information (including, but not limited to,
updated lists of holders of Common Stock and their addresses, mailing labels
and lists of security positions and non-objecting beneficial owner lists) and
such other assistance as Premier or its agents may reasonably request in
communicating the Offer to Ophthalmic's record and beneficial stockholders.
Subject to the requirements of applicable law, and except for such steps as
are necessary to disseminate the Offer Documents and any other documents
necessary to consummate the transactions contemplated hereby, Premier and its
affiliates, associates, agents and advisors, shall keep such information
confidential and use the information contained in any such labels, listings
and files only in connection with the Offer and, if this Agreement shall be
terminated, shall deliver to Ophthalmic all copies of, and extracts and
summaries from, such information then in their possession.
ARTICLE II
AMENDMENT TO RIGHTS PLAN; CLOSING OF THE PRIVATE ACQUISITION
SECTION 2.1 Amendment to Rights Plan; Closing of the Private
Acquisition. Provided that this Agreement is not earlier terminated, the
Ophthalmic Board shall amend the Rights Plan in accordance with Section 4.16
simultaneously with the closing of the Private Acquisition.
ARTICLE III
[NOT USED]
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF OPHTHALMIC
Ophthalmic represents and warrants to Premier as follows:
SECTION 4.1 Organization and Qualification; No Subsidiaries. Ophthalmic is a
corporation duly organized, validly existing and in good standing under the
laws of the state of California and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification, except
where failure to be in good standing or to so qualify would not have a
Material Adverse Effect on Ophthalmic. Except as set forth in Section 4.1 of
the Ophthalmic Disclosure Schedule, Ophthalmic has the requisite corporate
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to have such power, or authority and
governmental approvals would not, individually or in the aggregate, have a
Material Adverse Effect. The term "Material Adverse Effect on Ophthalmic," as
used in this Agreement, means any change in or effect on the business,
financial condition or results of operations of
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Ophthalmic that would have, individually or in the aggregate, a material
adverse impact on Ophthalmic. Ophthalmic has heretofore made available to
Premier a complete and correct copy of its Restated Articles of Incorporation
(including all Certificates of Determination) and By-Laws, each as amended to
the date hereof. Such Restated Articles of Incorporation, By-Laws and
equivalent organizational documents are in full force and effect. Except as
set forth in Section 4.1 or the Ophthalmic Disclosure Schedule, Ophthalmic is
not in violation of any provision of its Restated Articles of Incorporation,
By-Laws, or equivalent organizational documents. Ophthalmic does not have any
subsidiaries.
SECTION 4.2 Capitalization. The authorized capital stock of Ophthalmic
consists of 20,000,000 of shares of Common Stock and 20,000,000 shares of
preferred stock ("Preferred Stock"), of which 100,000 shares are designated
Series A Junior Participating Preferred Stock, no par value ("Junior Preferred
Stock"). As of the close of business on February 25, 1998, 3,905,428 shares of
Common Stock were issued and outstanding, and no shares of Common Stock were
held in treasury. Ophthalmic has no shares of Preferred Stock issued and
outstanding. As of the date hereof, except for (i) 1,514,742 Common Stock
reserved for issuance pursuant to outstanding options granted by Ophthalmic
("Ophthalmic Options"), (ii) 250,000 shares of Common Stock reserved for
issuance pursuant to outstanding warrants ("Ophthalmic Warrants") and (iii)
100,000 shares of Junior Preferred Stock reserved for issuance upon exercise
of the Rights, there are not now, and at the Expiration Date there will not
be, any existing options, warrants, calls, subscriptions, or other rights, or
other agreements or commitments, obligating Ophthalmic to issue, transfer or
sell any shares of capital stock of Ophthalmic or bonds, debentures, notes or
other indebtedness having general voting rights (or convertible into
securities having such rights) of, or other equity interest in, Ophthalmic or
securities convertible into or exchangeable for such shares or equity interest
or obligating Ophthalmic to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or
commitment other than as set forth in Section 6.1 of the Ophthalmic Disclosure
Schedule. Since February 12, 1998, Ophthalmic has not issued any shares of its
capital stock, except pursuant to Ophthalmic Options and Ophthalmic Warrants
outstanding on such date. All issued and outstanding shares of Common Stock
are and all shares of Common Stock which may be issued pursuant to the
exercise of outstanding Ophthalmic Options and Ophthalmic Warrants will be,
when issued in accordance with the respective terms thereof, duly authorized
and validly issued, fully paid and nonassessable, and such issuance will not
violate any preemptive rights under law or otherwise. Except as contemplated
by the Offer contemplated by this Agreement and pursuant to the Private
Acquisition, there are no outstanding contractual obligations of Ophthalmic to
repurchase, redeem or otherwise acquire any shares of Common Stock or the
capital stock of Ophthalmic.
SECTION 4.3 Authority Relative to this Agreement.
(a) Ophthalmic has the requisite corporate power and authority to execute
and deliver this Agreement and, to the extent required by applicable law or
Ophthalmic's Restated Articles of Incorporation, subject to the approval and
adoption of any Proposed Merger by the stockholders of Ophthalmic, if
required, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Ophthalmic and the consummation by
Ophthalmic of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Ophthalmic,
subject, in the case of the Proposed Merger, to any necessary approval thereof
by the stockholders of Ophthalmic. This Agreement has been duly and validly
executed and delivered by Ophthalmic, and, assuming this Agreement constitutes
a valid and binding obligation of Premier, this Agreement constitutes a valid
and binding agreement of Ophthalmic, enforceable against Ophthalmic in
accordance with its terms (except in all cases as such enforceability may be
limited to applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditor's rights generally and
except that the availability of the equitable remedy of specific performance
or injunctive relief is subject to the discretion of any court before which
any proceeding may be brought).
(b) Except as set forth in this Section 4.3 of the Ophthalmic Disclosure
Schedule, other than in connection with, or in compliance with, the provisions
of the CGCL with respect to the transactions contemplated hereby, the federal
securities laws, the securities laws of the various states, the rules of
NASDAQ, and other than notices to or filings with the Internal Revenue Service
or the Pension Benefit Guaranty Corporation with respect to
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employee benefit plans, or under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), no authorization, consent or approval
of, or filing with, any Governmental Entity (as hereinafter defined) is
necessary for the consummation by Ophthalmic of the transactions contemplated
by this Agreement other than authorizations, consents and approvals the
failure to obtain, or filings the failure to make, which would not,
individually in the aggregate, have a Material Adverse Effect on Ophthalmic.
As used in this Agreement, the term "Governmental Entity" means any government
or subdivision thereof, domestic, foreign or supranational or any
administrative, governmental or regulatory authority, agency, commission,
tribunal or body, domestic, foreign or supranational.
SECTION 4.4 No Violation. Neither the execution or delivery of this
Agreement by Ophthalmic nor the consummation by Ophthalmic of the transactions
contemplated hereby will (i) constitute a breach or violation of any provision
of the Restated Articles of Incorporation or By-Laws of Ophthalmic, (ii)
except as set forth in Section 4.4 of the Ophthalmic Disclosure Schedule,
constitute a breach, violation or default (or any event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of any lien or encumbrance upon any material property or asset of
Ophthalmic under, any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument to which Ophthalmic, or by which it or
any of its properties or assets, are bound, or (iii) subject to the receipt of
the requisite consents, approvals, or authorizations of, or filings with
Governmental Entities under federal securities laws, applicable corporate and
securities laws, the rules of NASDAQ and the Boston Stock Exchange, and laws
relating to employee benefit plans, conflict with or violate any order,
judgment or decree, or to the knowledge of Ophthalmic, any statute, ordinance,
rule or regulation applicable to Ophthalmic, or by which it or any of its
properties or assets may be bound or affected, other than, in the case of the
foregoing clauses (ii) or (iii), conflicts, breaches, violations, defaults,
terminations, accelerations or creation of liens and encumbrances which,
individually or in the aggregate, would not have a Material Adverse Effect on
Ophthalmic.
SECTION 4.5 SEC Reports and Financial Statements. Ophthalmic has filed with
the SEC, and has made available to Premier, copies of all forms, reports and
documents ("Ophthalmic SEC Reports") required to be filed by it since
September 1, 1994 under the Securities Act or the Exchange Act. None of such
Ophthalmic SEC Reports (as of their respective filing dates) contained any
untrue statement of a material fact or omitted 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 (except any statement or omission therein which as been corrected
or otherwise disclosed or updated in a subsequent Ophthalmic SEC Report). The
audited and unaudited consolidated financial statements of Ophthalmic included
in any Ophthalmic SEC Report on Form 10-QSB or Form 10-KSB have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as otherwise stated in such financial statements,
including the related notes or, in the case of unaudited statements, as
permitted by Form 10-QSB of the SEC rules), comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto and fairly present the financial
position of Ophthalmic as of the dates thereof and the results of its
operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited financial statements, to year-end audit
adjustments, and except for the absence of certain footnote information in the
unaudited statements. Except as set forth in Section 4.5 of the Ophthalmic
Disclosure Schedule, Ophthalmic does not have any liabilities or obligations
of any nature (whether absolute, accrued, contingent, unmatured, unaccrued,
unliquidated, unasserted, conditional or otherwise), except for liabilities or
obligations (i) reflected or reserved against on the balance sheet as at
November 30, 1997 (including the notes thereto and the other disclosure made
in Ophthalmic's Form 10-QSB for the quarter ended November 30, 1997) included
in the Ophthalmic SEC Reports, or (ii) incurred in the ordinary course of
business consistent with past practice since such date.
SECTION 4.6 Compliance with Applicable Laws and Permits; Regulatory
Matters. Except as set forth in Section 4.6 of the Ophthalmic Disclosure
Schedule, to the knowledge of Ophthalmic, it has in effect and holds all
permits, licenses, orders, authorizations, registrations, approvals and other
analogous instruments, and
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Ophthalmic has made all filings and registrations and the like necessary or
required by law to conduct its business as presently conducted, other than
such permits, licenses, orders, authorizations, registrations, approvals, and
other instruments, the absence of which do not have a Material Adverse Effect
on Ophthalmic. Ophthalmic has not received any written governmental notices
within two years of the date hereof of any violation by Ophthalmic of any such
laws, rules, regulations or orders. Except as set forth in Section 4.6 of the
Ophthalmic Disclosure Schedule or where the failure to comply would not have a
Material Adverse Effect, to the knowledge of Ophthalmic, Ophthalmic is not in
default or noncompliance under any (a) permits, consents, or similar
instruments, and (b) the business and local and county laws, ordinances,
regulations, judgments, orders, decrees or rules of any court, arbitrator or
governmental, regulatory or administrative agency or entity, other than such
default or noncompliance which is not reasonably likely to have a Material
Adverse Effect on Ophthalmic. Without limiting the generality of the
foregoing, except as set forth in Section 4.6 of the Ophthalmic Disclosure
Schedule, all of the products presently marketed by Ophthalmic have been
approved or cleared to market pursuant to valid and subsisting Premarket
Approval or Section 510(k) Clearances issued by the United States Food and
Drug Administration ("FDA"). Ophthalmic has never conducted any clinical
trials which have required Investigational Device Exemptions ("IDE's"). No
written notification has been furnished to Ophthalmic of any medical
complications arising in connection with or resulting from clinical trials
conducted by Ophthalmic either directly or under its direction, or from the
use of its products following FDA approval or clearance. Ophthalmic has not
received any written complaint nor has Steven Verdooner, during the past six
months, been made aware of any oral complaint made with respect to such
procedures and no Medical Device Reports have been filed by Ophthalmic or have
been required to be filed. Except as set forth in Section 4.6 of the
Ophthalmic Disclosure Schedule, the design, manufacture and distribution of
all of Ophthalmic products, to the extent required, has been conducted, and
shall continue through the Expiration Date to be conducted, substantially in
accordance with "good manufacturing practices" as required by the FDA.
SECTION 4.7 Change of Control. Except as provided by the terms of any
Ophthalmic Warrant, any Ophthalmic stock option plan, or any Ophthalmic
Options, or as set forth on Section 4.7 of the Ophthalmic Disclosure Schedule,
the transactions contemplated by this Agreement will not constitute a "change
of control" under, require the consent from or the giving of notice to a third
party pursuant to, permit a third party to terminate or accelerate vesting or
repurchase rights, or create any other detriment under the terms, conditions
or provisions of any material note, bond, mortgage, indenture, license, lease,
contract, agreement or other instrument or obligation to which Ophthalmic is a
party or by which it or any of its properties or assets may be bound, except
where the adverse consequences resulting from such change of control or where
the failure to obtain such consents or provide such notices would not,
individually or in the aggregate, have a Material Adverse Effect on
Ophthalmic.
SECTION 4.8 Litigation. Except as disclosed in an SEC Report or in Section
4.8 of the Ophthalmic Disclosure Schedule, or otherwise fully covered by
insurance, there is no suit, claim, action, proceeding or investigation
pending or, to the knowledge of Ophthalmic, threatened, against Ophthalmic,
individually or in the aggregate, which would have a Material Adverse Effect
on Ophthalmic or would reasonably be expected to prevent or materially delay
the consummation of the transactions contemplated by this Agreement. Except as
disclosed in the Ophthalmic SEC Reports filed prior to the date of this
Agreement, Ophthalmic is not subject to any outstanding order, writ,
injunction or decree which, individually or in the aggregate, would have a
Material Adverse Effect on Ophthalmic or would reasonably be expected to
prevent or materially delay the consummation of the transactions contemplated
hereby.
SECTION 4.9 Information. None of the written information supplied by
Ophthalmic (other than projections of future financial performance) expressly
for inclusion or incorporation by reference in the Offer Documents, will, at
the time filed with the SEC, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Notwithstanding the foregoing, no
representation is made by Ophthalmic with respect to (i) any forward-looking
information which may have been supplied by Ophthalmic, whether or not
included by Premier in any Offer Document or (ii) statements made in any of
the foregoing documents based upon information supplied by Premier.
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SECTION 4.10 Employee Benefit Plans.
(a) Section 4.10(a)/(b) of the Ophthalmic Disclosure Schedule includes a
complete list of all material employee benefit plans and programs providing
benefits to any employee or former employee of Ophthalmic sponsored or
maintained by Ophthalmic or to which Ophthalmic contributes or is obligated to
contribute ("Plans") and all written employment, severance, consulting and
other compensation contracts between Ophthalmic and any current or former
director, officer, or employee thereof ("Employment Contracts"). Ophthalmic is
not party to any oral Employment Contracts that are not terminable at will.
Without limiting the generality of the foregoing, the term "Plans" includes
all employee welfare benefit plans within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder ("ERISA"), and all employee pension benefit plans
within the meaning of Section 3(2) of ERISA.
(b) With respect to each Plan, Ophthalmic has made available to Premier (to
the extent requested) a true, correct and complete copy of: (i) all plan
documents, benefit schedules, trust agreements, and insurance contracts and
other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series)
and accompanying schedule, if any; (iii) the current summary plan description,
if any; (iv) the most recent annual financial report, if any; (v) the most
recent actuarial report, if any; (vi) the most recent determination letter
from the United States Internal Revenue Service (the "IRS"), if any; and (vii)
each Employment Contract.
(c) Except as set forth in Section 4.10(d) of the Ophthalmic Disclosure
Schedule, all Plans are in compliance, in all material respects with all
applicable provisions of ERISA, the Code and all laws and regulations
applicable to the Plans. With respect to each Plan that is intended to be a
"qualified plan" within the meaning of Section 401(a) of the Code ("Qualified
Plans"), the IRS has issued a favorable determination letter.
(d) Except as set forth in Section 4.10(d) of the Ophthalmic Disclosure
Schedule, all contributions required to be made by Ophthalmic to any Plan
under applicable law or regulation or by any plan document or other
contractual undertaking, and all premiums due or payable with respect to
insurance policies funding any Plan, have been timely made or paid in full or,
to the extent not required to be made or paid, have been fully reflected in
the financial statements of Ophthalmic included in the Ophthalmic SEC Reports
to the extent required under generally accepted accounting principles.
(e) No Plan is subject to Title IV or Section 302 of ERISA or Section 412 or
4971 of the Code. Without limiting the generality of the foregoing, no Plan is
a "multi-employer plan" within the meaning of Section 4001(a)(3) of ERISA (a
"Multi-Employer Plan") or a plan that has two or more contributing sponsors at
least two of whom are not under common control, within the meaning of Section
4063 of ERISA and which is subject to Title IV of ERISA (a "Multiple Employer
Plan").
(f) There does not now exist, nor do any circumstances exist that would
reasonably be expected to result in, any liability under (i) Title IV of
ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code,
(iv) the continuation coverage requirements of Section 601 et seq. of ERISA
and Section 4980B of the Code, or (v) corresponding or similar provisions of
foreign laws or regulations, other than a liability that arises solely out of,
or relate solely to, the Plans, that would be a liability of Ophthalmic or any
of its subsidiaries following the Expiration. Without limiting the generality
of the foregoing, (i) neither of Ophthalmic nor any ERISA Affiliate of
Ophthalmic has engaged in any transaction described in Section 4069 or Section
4204 or 4212 of ERISA, (ii) no liability under Title IV or a violation of
Section 302 of ERISA has been incurred by Ophthalmic that has not been
satisfied in full, and Ophthalmic is not aware of any condition that exists
that presents a material risk to Ophthalmic of incurring any such liability,
other than liability for premiums due to the Pension Benefit Guaranty
Corporation (which premiums have been paid when due) and for contributions due
to a pension plan (which contributions have been paid through the end of
1997), and (iii) no Plan or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of each Plan ended prior to the Expiration Date. An
"ERISA Affiliate" means any entity, trade or business that is a member of a
group
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described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1)
of ERISA that includes Ophthalmic or any of its subsidiaries, or that is a
member of the same "controlled group" as Ophthalmic or any of its
subsidiaries, pursuant to Section 4001(a)(14) of ERISA.
(g) To the knowledge of Ophthalmic, there are no pending, threatened or
anticipated claims by or on behalf of any Plan, by any employee or beneficiary
covered under any such Plan, or otherwise involving any such Plan (other than
routine claims for benefits).
SECTION 4.11 Taxes.
(a) Except as set forth in Section 4.11 of the Ophthalmic Disclosure
Schedule, Ophthalmic has (i) timely filed all income Tax Returns (as
hereinafter defined), and all other material Tax Returns required to be filed
by or with respect to it, or requests for extensions have been filed, granted,
and have not expired, for the periods ending on or after December 31, 1996,
and on or before the date of the most recent fiscal year and immediately
preceding the date hereof, and to the knowledge of Ophthalmic all such Tax
Returns are true, correct and complete in all material respects, and (ii) to
the knowledge of Ophthalmic, all Taxes (as hereinafter defined) shown as due
and payable on such Tax Returns have been paid, and (iii) made adequate
provision in Ophthalmic's financial statements for payment of all Taxes
anticipated to be payable in respect of all taxable periods or portions
thereof ending on or before the date hereof, except where the failures to so
file or pay or make adequate provision would not, individually or in the
aggregate, have a Material Adverse Effect on Ophthalmic. There are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any Tax Return of Ophthalmic. Ophthalmic (i) has not been a
member of a group filing consolidated returns for federal income tax purposes,
or (ii) is not a party to a Tax sharing or Tax indemnity agreement or any
other agreement of a similar nature that remains in effect. There is no audit
examination, deficiency, refund litigation, proposed adjustment or matter in
controversy with respect to any Taxes due and owing by Ophthalmic which would,
individually or in the aggregate, have a Material Adverse Effect on
Ophthalmic. There are no Tax liens upon any of the assets or property of
Ophthalmic, except liens for current Taxes not yet due and payable. As soon as
practicable after the public announcement of the execution of this Agreement,
Ophthalmic will provide Premier with written schedules with respect to income
taxes of (i) the taxable years of Ophthalmic as to which the statutes of
limitations with respect to Taxes have not expired and (ii) with respect to
such taxable years, those years for which examinations have been completed,
those years for which examinations are presently being conducted, those years
for which examinations have not been initiated and those years for which
required Tax Returns have not yet been filed.
(b) For purposes of this Agreement, the term "Taxes" means all taxes, levies
or other assessments, including, without limitation, income, gross receipts,
excise, property, sales, license, payroll, withholding and franchise taxes,
imposed by the United States or any state or local government or subdivision
or agency thereof, including any interest, penalties or additions thereto. For
purposes of this Agreement, the term "Tax Return" means any report, return or
other information or document required to be supplied to a taxing authority in
connection with Taxes.
SECTION 4.12 Intellectual Property.
(a)(i) Ophthalmic owns, has the right to acquire or is licensed or otherwise
has the right to use (in each case, free and clear of any liens or
encumbrances of any kind), all Intellectual Property (as defined below) used
in or necessary for the conduct of its business as currently conducted, (ii)
no claims are pending or, to the knowledge of Ophthalmic, threatened, that
Ophthalmic is infringing on or otherwise violating the rights of any person
with regard to any Intellectual Property, and (iii) to the knowledge of
Ophthalmic, no person is infringing on or otherwise violating any right of
Ophthalmic with respect to any Intellectual Property owned by and/or licensed
to Ophthalmic.
(b) For purposes of this Agreement, "Intellectual Property" shall mean
material patents, copyrights, trademarks (registered or unregistered), service
marks, brand names, trade dress, trade names, the goodwill associated with the
foregoing and registrations in any jurisdiction of, and applications in any
jurisdiction to
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register, the foregoing; and trade secrets and rights in any jurisdiction to
limit the use or disclosure thereof by any person.
SECTION 4.13 Contracts. Each material note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Ophthalmic is a party or by which it or any of its properties or assets may be
bound (the "Material Contracts") is in full force and effect, except where
failure to be in full force and effect would not have a Material Adverse
Effect on Ophthalmic, and there are no defaults by Ophthalmic or, to
Ophthalmic's knowledge, any other party thereto, thereunder, except those
defaults that would not have a Material Adverse Effect on Ophthalmic.
SECTION 4.14 Voting Requirements. No vote of the holders of the class or
series of Ophthalmic's capital stock is necessary in connection with this
Agreement, except as may be required in connection with the approval of the
Proposed Merger.
SECTION 4.15 Absence of Certain Changes. Except as disclosed in the
Ophthalmic SEC Reports filed prior to the date of this Agreement or in Section
4.15 of the Ophthalmic Disclosure Schedule, there has not been, since August
31, 1997, any event that has had or that is reasonably expected to have a
Material Adverse Effect on Ophthalmic. Except as disclosed in the Ophthalmic
SEC Reports filed prior to the date of this Agreement or in Section 4.15 of
the Ophthalmic Disclosure Schedule, since August 31, 1997, Ophthalmic has
conducted its business only in the ordinary course of business consistent with
past practices and there has not been, directly or indirectly:
(i) any exchange or grant by Ophthalmic or any increase in compensation
to any director or executive officer of Ophthalmic or, except in the
ordinary course of business and consistent with past practice or as
required under employment agreements in effect as of or prior to the date
of this Agreement, of any employee of Ophthalmic;
(ii) any grant by Ophthalmic to any such director, executive officer or
employee of any increase in severance or termination pay, except as
required under employment, severance or termination agreements or plans in
effect as of the date of this Agreement;
(iii) except as contemplated by this Agreement, any entry by Ophthalmic
into any employment, severance or termination agreement with any such
director or executive officer, or, except in the ordinary course of
business consistent with past practice, employee;
(iv) except in the ordinary course of business and consistent with past
practice or as required under employment agreements in effect as of or
prior to the date of this Agreement, any material adoption or material
increase in exchanges to or benefits under any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan for or with any employees of Ophthalmic;
(v) any change in accounting methods, principles or practices by
Ophthalmic materially affecting its assets, liabilities or business, except
insofar as may have been required by change in generally accepted
accounting principles; or
(vi) any agreement to do any of the things described in the preceding
clauses (i) through (v).
SECTION 4.16 Rights Agreement. The Ophthalmic Board has duly authorized and
Ophthalmic will execute an amendment (the "Rights Agreement Amendment") to the
Rights Agreement (without redeeming the Rights) which will permit the
execution or delivery of this Agreement, the making of the Offer, the
acquisition of Shares pursuant to the Offer and the consummation of the
Proposed Merger without (i) causing any Rights issued pursuant to the Rights
Agreement to become exercisable or to separate from the stock certificates to
which they are attached, (ii) causing Premier or any of its Affiliates to be
an Acquiring Person (as each such term is defined in the Rights Agreement), or
(iii) triggering other provisions of the Rights Agreement, including giving
rise to a Distribution Date (as such term is defined in the Rights Agreement),
and the Rights Agreement Amendment shall be in full force and effect from and
after the date hereof until such time as, after being advised
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by its outside counsel with respect to fiduciary obligations, the Board of
Directors of Ophthalmic determines in good faith by a majority vote that it is
necessary to terminate or revise such amendment or the Rights Agreement in the
exercise of its fiduciary obligations under applicable law.
SECTION 4.17 Brokers. Except for the engagement of the Investment Banker,
none of Ophthalmic, or any of its officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage
fees, commissions or finder's fees in connection with the transactions
contemplated by this Agreement.
SECTION 4.18 Opinion of Investment Banker. Ophthalmic has received the
written opinion of the Investment Banker to the effect that, as of the date
such opinion, the financial terms of the Offer are fair, from a financial
point of view to the holders of shares of Common Stock (other than Premier and
its affiliates).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PREMIER
Premier represents and warrants to Ophthalmic as follows:
SECTION 5.1 Organization and Qualification. Premier is a corporation duly
organized, validly existing and in good standing under the laws of its state
or jurisdiction of incorporation and is in good standing as a foreign
corporation in each other jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and
where failure to be in good standing or to so qualify would have a Material
Adverse Effect on Premier. Premier has the requisite corporate power and
authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted,
except where the failure to have such power, or authority and governmental
approvals would not, individually or in the aggregate, have a Material Adverse
Effect. The term "Material Adverse Effect on Premier", as used in this
Agreement, means any change in or effect on the business, financial condition
or results of operations of Premier or any of its subsidiaries that would,
individually or in the aggregate, be materially adverse to Premier and its
subsidiaries taken as a whole. Premier has heretofore made available to
Ophthalmic a complete and correct copy of its Articles of Incorporation
(including all Certificates of Determination) and By-Laws, each as amended to
the date hereof. Such Articles of Incorporation, By-Laws and equivalent
organizational documents are in full force and effect. Premier is not in
violation of any provision of its Articles of Incorporation, By-Laws, or
equivalent organizational documents.
SECTION 5.2 Authority Relative to this Agreement.
(a) Premier has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Premier and no other corporate proceedings on the part
of Premier is necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Premier and, assuming this Agreement constitutes a
valid and binding obligation of Ophthalmic, this Agreement constitutes a valid
and binding agreement Premier, enforceable against Premier in accordance with
its terms.
(b) Other than in connection with, or in compliance with, the provisions of
the CGCL with respect to the transactions contemplated hereby, the Exchange
Act, the securities laws of the various states, no authorization, consent or
approval of, or filing with, any Governmental Entity is necessary for the
consummation by Premier of the transactions contemplated by this Agreement
other than authorizations, consents and approvals the failure to obtain, or
filings the failure to make, which would not, in the aggregate, have a
Material Adverse Effect on Premier.
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SECTION 5.3 No Violation. Neither the execution or delivery of this
Agreement by Premier nor the consummation by Premier of the transactions
contemplated hereby will (i) constitute a breach or violation of any provision
of the Articles of Incorporation or By-Laws of Premier, (ii) constitute a
breach, violation or default (or any event which, with notice or lapse of time
or both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in the creation of any
lien or encumbrance upon any of the material property or asset of Premier or
any of its subsidiaries under, any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument to which Premier or any
of its subsidiaries is a party or by which they or any of their respective
properties or assets are bound, or (iii) subject to the receipt of the
requisite consents, approvals, or authorizations of, or filings with
Governmental Entities under federal securities laws, applicable corporate and
securities laws, the rules of NASDAQ and laws relating to employee benefit
plans, conflict with or violate any order, judgment or decree, or to the
knowledge of Premier, any statute, ordinance, rule or regulation applicable to
Premier, or by which it or any of its properties or assets may be bound or
affected, other than, in the case of the foregoing clauses (ii) or (iii),
conflicts, breaches, violations, defaults, terminations, accelerations or
creation of liens and encumbrances which, individually or in the aggregate,
would not have a Material Adverse Effect on Premier.
SECTION 5.4 Information. None of the information supplied by Premier in
writing (other than projections of future financial performance) specifically
for inclusion or incorporation by reference in (i) the Schedule 14D-9, or (ii)
the Other Filings will, at the respective times filed with the SEC or other
Governmental Entity contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding the foregoing, no
representation is made by Premier with respect to statements made in any of
the foregoing documents based upon information supplied in writing by
Ophthalmic.
SECTION 5.5 Funds; Reservation of Shares. Premier has on the date hereof and
will have at the time of acceptance for exchange and exchange of Shares
pursuant to the Offer and at the Expiration Date, the funds necessary and will
have reserved for issuance the Premier Common Stock, the Premier Common Stock
issuable upon exercise of the Warrants and the Warrants to consummate the
Offer and the transactions contemplated thereby on a timely basis in
accordance with this Agreement, which Premier Common Stock and Warrants when
issued, will be duly authorized and validly issued, fully paid and
nonassessable, and such issuance will not violate any preemptive rights under
law or otherwise.
SECTION 5.6 Intention to Propose a Merger. As of the date hereof, Premier
presently intends to, at a reasonable time following its acceptance for
exchange and exchange for shares pursuant to the Offer, propose a merger with
Premier providing holders of shares of Common Stock at such time an economic
benefit similar to that of the Offer Consideration (the "Proposed Merger").
SECTION 5.7 Ownership of Shares. Except as disclosed on the latest Schedule
13D as filed by Premier with the SEC prior to the date of this Agreement with
respect to the Common Stock, none of Premier or its Subsidiaries or affiliates
owns (beneficially or otherwise) any shares of Common Stock. From the date of
this Agreement through the Expiration Date, except for those Private
Acquisitions entered into concurrently herewith, none of Premier or its
Subsidiaries or affiliates shall purchase or otherwise acquire beneficial
ownership of any additional shares of Common Stock.
SECTION 5.8 SEC Reports and Financial Statements. Premier has filed and has
made available to Ophthalmic all forms, reports and documents ("Premier SEC
Reports") required to be filed by it with the SEC since April 1, 1994. None of
such Premier SEC Reports (as of their respective filing dates) contained any
untrue statement of a material fact or omitted 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 (except any statement or omission therein which as been corrected
or otherwise disclosed or updated in a subsequent Premier SEC Report). The
audited and unaudited consolidated financial statements of Premier included in
any Premier SEC Report on Form 10-Q or Form 10-K have been prepared in
accordance with generally accepted
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accounting principles applied on a consistent basis (except as otherwise
stated in such financial statements, including the related notes or, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC rules),
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present the financial position of Premier as of the dates
thereof and the results of its operations and changes in financial position
for the periods then ended, subject, in the case of the unaudited financial
statements, to year-end audit adjustments, and except for the absence of
certain footnote information in the unaudited statements. Premier does not
have any liabilities or obligations of any nature (whether absolute, accrued,
contingent, unmatured, unaccrued, unliquidated, unasserted, conditional or
otherwise), except for liabilities or obligations (i) reflected or reserved
against on the balance sheet as at December 31, 1997 (including the notes
thereto and the other disclosure made in Ophthalmic's Form 10-Q for the
quarter ended December 31, 1997) included in the Premier SEC Reports, or (ii)
incurred in the ordinary course of business consistent with past practice
since such date, in each case of clauses (i) and (ii) which, individually or
in the aggregate, would not have a Material Adverse Effect on Premier.
SECTION 5.9 Absence of Certain Changes. Except as disclosed in the Premier
SEC Reports filed prior to the date of this Agreement and made available to
Ophthalmic, there has not been since March 31, 1997 any event that has had or
that is reasonably expected to have a Material Adverse Effect on Premier.
SECTION 5.10 Capitalization. The Premier Common Stock and Warrants (i) when
issued upon exchange for the Shares in accordance with the Offer and (ii) in
the case of Premier Common Stock if and when issued pursuant to the Warrants
in accordance with the respective terms thereof, will be duly authorized,
validly issued, fully paid, nonassessable and such issuances will not violate
any pre-emptive rights under applicable laws, Premier's Articles of
Incorporation or By-Laws, material contract or agreement or otherwise.
ARTICLE VI
COVENANTS
SECTION 6.1 Conduct of Business of Ophthalmic. Except as contemplated by
this Agreement or as expressly agreed to in writing by Premier, during the
period from the date of this Agreement to the earliest of (a) August 30, 1998,
(b) the termination of this Agreement, or (c) the closing of the Proposed
Merger, Ophthalmic will conduct its operations according to its ordinary and
usual course of business and consistent with past practice and will use its
reasonable efforts, to preserve intact the business organization of
Ophthalmic, to keep available the services of its and their present officers
and key employees, and to preserve the good will of those having business
relationships with it. Without limiting the generality of the foregoing, and
except as (y) otherwise expressly provided in this Agreement, or (z) required
by law, prior to the earlier of the Expiration Date or the termination of this
Agreement, Ophthalmic will not, without the prior written consent of Premier
(which consent shall not be unreasonably withheld):
(i) except with respect to annual bonuses made in the ordinary course of
business consistent with past practice, adopt or amend in any material
respect any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, pension, retirement, employment or
other employee benefit agreement, trust, plan or other arrangement for the
benefit or welfare of any director, officer or employee of Ophthalmic or
increase in any manner the compensation or fringe benefits of any director,
officer or employee of Ophthalmic or pay any benefit not required by any
existing agreement or place any assets in any trust for the benefit of any
director, officer or employee of Ophthalmic (in each case, except with
respect to employees, non-executive officers and directors in the ordinary
course of business consistent with past practice);
(ii) incur any material indebtedness for borrowed money (other than under
existing lines of credit or under that certain factoring arrangement with
Imperial Bank dated as November 18, 1997) or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Ophthalmic,
guarantee any debt securities of another person, enter into any "keep
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well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of
any of the foregoing, or make any loans or advances outside the ordinary
course of business to, or capital contributions to, or investments in, any
other person;
(iii) expend funds for capital expenditures (as determined under
generally accepted accounting principles) in excess of $100,000 per fiscal
quarter;
(iv) sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets other than
immaterial properties or assets (or immaterial portions of properties or
assets), except (i) in the ordinary course of business consistent with past
practice or (ii) pursuant to contracts or agreements in force as of the
date of this Agreement;
(v) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (y) split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or (z) purchase, redeem or otherwise acquire
any shares of capital stock of Ophthalmic or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities;
(vi) except pursuant to the exercise of outstanding Ophthalmic Options or
Ophthalmic Warrants, or as disclosed in Section 6.1 of the Ophthalmic
Disclosure Schedule, authorize for issuance, issue, deliver, sell or agree
or commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledge or otherwise encumber any shares of its
capital stock or the capital stock of any of its subsidiaries, any other
voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or any other securities or equity equivalents
(including without limitation stock appreciation rights);
(vii) except as contemplated by this Agreement, amend its Restated
Articles of Incorporation, By-Laws or equivalent organizational documents;
(viii) make or agree to make any acquisition of assets which is material
to Ophthalmic except for purchases of inventory, supplies and material in
the ordinary course of business;
(ix) settle, pay or compromise any claims, individually or in the
aggregate in an amount in excess of $100,000 (other than repayment of
Ophthalmic's indebtedness to Imperial Bank), other than in consultation and
cooperation with Premier, and, with respect to any such settlement, with
the prior written consent of Premier, which consent shall not be
unreasonably withheld;
(x) make any material Tax election or settle or compromise any material
Tax liability (whether with respect to amount or timing); or
(xi) except in the ordinary course of business, modify, amend or
terminate any material contract or waive or release or assign any material
rights or claims.
SECTION 6.2 Covenants of Premier. From the date of this Agreement until the
earliest of (a) August 30, 1998, (b) the termination of this Agreement, and
(c) the closing of the Proposed Merger, Premier covenants and agrees that it
shall (x) continue to conduct its business and the business of its
Subsidiaries in a manner designed in its reasonable judgment, to enhance the
long-term value of the Premier Common Stock and the business prospects of
Premier and its Subsidiaries, and (y) take no action which would (i)
materially adversely affect the ability of any party to this Agreement to
obtain any consents, approvals, or authorizations required for the
transactions contemplated hereby without imposition of a condition or
restriction of any materially adverse conditions or restrictions, or (ii)
materially adversely affect the ability of any party to perform its covenants
and agreements under this Agreement; provided, that the foregoing shall not
prevent Premier from discontinuing or disposing of any of its properties,
assets, or business if such action is, in the judgment of Premier, desirable
in the conduct of the business of Premier and its Subsidiaries.
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SECTION 6.3 Access to Information; Confidentiality. From the date hereof
until the earlier of the Expiration Date or the termination of this Agreement,
upon reasonable notice and subject to applicable laws, Premier and Ophthalmic
shall afford each other, and each other's accountants, counsel, and other
representatives, during normal business hours during the period of time prior
to the Expiration Date, reasonable access to all of its properties, books,
contracts, commitments, and records and, during such period, each of Premier
and Ophthalmic shall furnish promptly to the other (a) a copy of each report,
schedule, and other document filed or received by it during such period
pursuant to the requirements of federal and state securities laws, (b) a copy
of all filings made with any Governmental Entities in connection with the
transactions contemplated by this Agreement and all written communications
received from such Governmental Entities related thereto, and (c) all other
information concerning its business, properties, and personnel as such other
party may reasonably request. Each party hereto shall, and shall cause its
advisors and representatives to (x) conduct its investigation in such a manner
that will not unreasonably interfere with the normal operations, customers or
employee relations of the other and shall be in accordance with procedures
established by the parties having due regard for the foregoing, and (y)
refrain from using for any purposes other than as set forth in this Agreement
and shall treat as confidential all such information obtained by each
hereunder or in connection herewith and not otherwise known to them prior to
the Expiration Date. Except as otherwise agreed to in writing by Ophthalmic,
until the Expiration Date, Premier and its Subsidiaries and affiliates will be
bound by, and all information received with respect to Ophthalmic pursuant to
this Section 6.3 shall be subject to that certain confidentiality agreement
entered into with Premier on February 12, 1998 (the "Ophthalmic
Confidentiality Agreement"). Except as otherwise agreed to in writing by
Premier, until the Expiration Date, Ophthalmic will be bound by, and all
information received with respect to Premier pursuant to this Section 6.3
shall be subject to that certain Confidentiality Agreement entered into with
Ophthalmic on February 20, 1998 (the "Premier Confidentiality Agreement").
SECTION 6.4 Efforts.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all appropriate action, and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement, including (i)
obtaining all necessary opinions, waivers, consents and approvals and effect
all necessary registrations and filings and (ii) defending any lawsuit or
other legal proceedings challenging this Agreement or the Offer. In case at
any time after the Expiration Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary
action. Without limiting the foregoing, each of Ophthalmic and Premier shall
make all necessary filings with Governmental Entities as promptly as
practicable in order to facilitate prompt consummation of the transactions
contemplated by the Offer and this Agreement. In addition, each of Premier and
Ophthalmic will use its reasonable best efforts (including, without
limitation, exchange of any required fees) and will cooperate fully with each
other to (i) comply as promptly as practicable with all governmental
requirements applicable to the transactions contemplated by the Offer and this
Agreement, including the making of all filings necessary or proper under
applicable laws and regulations to consummate and make effective the
transactions contemplated by the Offer and this Agreement, including, but not
limited to, cooperation in the preparation and filing of the Offer Documents,
the Schedule 14D-9 and any actions or filings related thereto, and any
amendments to any thereof, and (ii) obtain promptly all consents, waivers,
approvals, authorizations or permits of, or registrations or filings with or
notifications to (any of the foregoing being a "Consent"), any Governmental
Entity necessary for the consummation of the transactions contemplated by the
Offer and this Agreement. Premier and Ophthalmic shall furnish to each other
such necessary information and reasonable assistance as Premier or Ophthalmic
may reasonably request in connection with the foregoing. In addition, if at
any time prior to the Expiration Date any event or circumstance relating to
either Ophthalmic or Premier or any of their respective subsidiaries, should
be discovered by Ophthalmic or Premier, as the case may be, and which should
be set forth in an amendment to the Offer Documents or Schedule 14D-9, the
discovering party will promptly inform the other party of such event or
circumstance.
(b) Without limiting Section 6.4(a), Premier and Ophthalmic shall each (i)
take any and all steps necessary to avoid or eliminate each and every
impediment under any antitrust, competition, or trade regulation law that
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may be asserted by any Governmental Entity with respect to the Offer so as to
enable consummation thereof to occur as soon as reasonably possible, including
without limitation, proposing, negotiating, committing to and effecting, by
consent decree, hold separate order, or otherwise, the sale, divestiture or
disposition of such assets or businesses of Premier or Ophthalmic as may be
required in order to avoid the entry of, or to effect the dissolution of, any
injunction, temporary restraining order or other order in any suit or
proceeding, which would otherwise have the effect of preventing or delaying
consummation of the Offer or the Proposed Merger; and (ii) use its reasonable
best efforts to avoid the entry of, or to have vacated or terminated, any
decree, order, or judgment that would restrain, prevent or delay the
consummation of the Offer, including without limitation defending through
litigation on the merits any claim asserted in any court by any party. Each
party hereto shall promptly notify the other parties of any written
communication to that party from any Governmental Entity and permit the other
parties to review in advance any proposed communication to any Governmental
Entity. Premier and Ophthalmic shall not (and shall cause their respective
affiliates and representatives not to) agree to participate in any meeting
with any Governmental Entity in respect of any filings, investigation or other
inquiry unless it consults with the other party in advance and, to the extent
permitted by such Governmental Entity, gives the other party the opportunity
to attend and participate thereat. Each of the parties hereto will coordinate
and cooperate fully with the other parties hereto in exchanging such
information and providing such assistance as such other parties may reasonably
request in connection with the foregoing.
SECTION 6.5 Public Announcements. From the date of this Agreement, until the
Expiration Date or the termination of this Agreement, each of Ophthalmic and
Premier agree to consult promptly with each other prior to issuing any press
release or otherwise making any public statement with respect to the Offer,
the Proposed Merger and the other transactions contemplated hereby, agree to
provide to the other party for review a copy of any such press release or
statement, and shall not issue any such press release or make any such public
statement prior to such consultation and review, unless required by applicable
law or any listing agreement with a securities exchange.
SECTION 6.6 Employee Benefit Arrangements; Warrants. (a) Each of Ophthalmic
and Premier agrees that it will take all corporate action to amend or adopt
new stock options and/or stock incentive plans and warrants to provide for the
issuance of Premier Common Stock rather than Common Stock issuable upon
exercise of such plan or plans or warrants, effective as of the Expiration
Date as set forth below.
(i) Vested Options. The value of outstanding, unexercised, vested
Ophthalmic Options of a holder (the "Vested Options") shall be equal to the
product of (x) $2.18 multiplied by (y) the number of shares of Common Stock
issuable upon exercise thereof (the "Aggregate Ophthalmic Option Value").
On the Expiration Date, each Vested Option of a holder shall be exchanged
for Premier options (the "Premier Options") issuable for that number of
shares of Premier Common Stock (the "Vested Exchange Rate") equal to (xx)
the Aggregate Ophthalmic Option Value of a holder divided by (yy) the
Premier Average Price. The exercise price per share of Premier Common Stock
issuable to a holder upon exercise of the Premier Options (the "Vested
Exercise Price") shall be equal to (xxx) the aggregate exercise price for
all Vested Options exchanged by such holder divided by (yyy) the number of
shares of Premier Common Stock issuable to such holder upon exercise of the
Premier Options exchanged therefor. Ophthalmic Options granted under
Ophthalmic's 1997 Stock Option Plan shall vest on the Expiration Date and
shall be Vested Options.
(ii) Unvested Options. Unless earlier terminated, each outstanding,
unexercised, unvested Ophthalmic Option shall vest (a "Subsequently Vesting
Option") on the earlier of (aa) its scheduled vesting date and (bb) with
respect to any Ophthalmic employee who is employed by Ophthalmic, Premier
or any of their affiliates six (6) months after the Expiration Date, six
(6) months following the Expiration Date (the "Measurement Date"). On the
Measurement Date, the Subsequently Vesting Option of a holder shall be
exchanged for Premier Options issuable for that number of shares of Premier
Common Stock equal to (xx) the Aggregate Ophthalmic Option Value of a
holder attributable to such Subsequently Vesting Options divided by (yy)
the Premier Average Price calculated using the Measurement Date in lieu of
the Expiration Date. The exercise price per share of Premier Common Stock
issuable to a holder upon exercise of such
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Subsequently Vesting Options shall be equal to (xxx) the aggregate exercise
price for all Subsequently Vesting Options of such holder that vested on
such Measurement Date divided by (yyy) the number of shares of Premier
Common Stock issuable upon exercise of the Premier Options exchanged
therefor. Ophthalmic Options not granted under Ophthalmic's 1997 Stock
Option Plan shall vest as provided in this Section 6.1(a)(ii).
(iii) Exchange and Pricing Election. Notwithstanding anything to the
contrary contained in Section 6.6(a)(ii), each holder of Ophthalmic Options
not granted under Ophthalmic's 1997 Stock Option Plan may elect, by
providing written notice to Ophthalmic prior to the Expiration Date, to
have such holder's Ophthalmic Options exchanged, when vested as provided in
Section 6.6(a)(ii), for Premier Options at the Vested Exchange Rate for an
exercise price equal to the Vested Exercise Price.
(iv) Termination of Employment. For a period of six (6) months following
the Expiration Date, Ophthalmic Options issued to officers or employees of
Ophthalmic, which have not earlier vested as provided herein, shall vest on
the date of termination of such officer or employee "without cause" by
Ophthalmic or Premier, as determined in the reasonable discretion of
Ophthalmic, in which case such Ophthalmic Options shall be exchanged in
accordance with Section 6.6(a)(ii) (with the date of such termination being
the Measurement Date), or Section 6.6(a)(i) if a valid election is made by
such officer or employee pursuant to Section 6.6(a)(iii).
(b) Following the Expiration Date, Premier shall provide or cause its
Subsidiaries to provide generally to officers and employees of Ophthalmic
employee benefits, including without limitation, pension benefits, health and
welfare benefits, life insurance and vacation, and severance arrangements, on
terms and conditions which when taken as a whole are no less favorable than
those currently provided by Premier and its Subsidiaries to their similarly
situated officers and employees. Premier does not currently provide its
officers and employees with pension benefits or severance plans. For purposes
of participation and vesting under any employee benefit plan of Ophthalmic and
its Subsidiaries, the service of the employees of Ophthalmic prior to the
Expiration Date shall be treated as service with the Premier or its
subsidiaries participating in such employee benefit plans. Premier shall, and
shall cause its Subsidiaries to, honor in accordance with their terms, all
Employment Contracts, and all provisions for vested benefits or other vested
amounts earned or accrued through the Expiration Date under the Plans.
(c) For a period of ninety (90) days following the Expiration Date, Premier
shall provide or cause its Subsidiaries to provide generally to officers and
employees of Ophthalmic severance benefits equal to one week's pay for each
full year of service to Ophthalmic to each such officer or employee that is
terminated without cause by Premier or its Subsidiary. The phrase "without
cause" shall not apply to those officers and employees that are terminated
because they do not elect to work for Premier or its Subsidiaries.
SECTION 6.7 Notification of Certain Matters. Premier and Ophthalmic shall
promptly notify each other orally and in writing of (i) the occurrence or non-
occurrence of any fact or event which would be reasonably likely (A) to cause
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Expiration Date or (B) to cause any covenant, condition or agreement under
this Agreement not to be complied with or satisfied in any material respect
and (ii) any failure of Ophthalmic or Premier, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that no such notification shall
affect the representations or warranties of any party or the conditions to the
obligations of any party hereunder. Each of Ophthalmic and Premier shall give
prompt notice to the other of any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
SECTION 6.8 Rights Agreement. Ophthalmic covenants and agrees that, unless
the Board of Directors of Ophthalmic determines in good faith by a majority
vote that taking such action is necessary in the exercise of its fiduciary
obligations under applicable law, it will not (i) redeem the Rights, (ii)
amend the Rights Agreement except as provided in Section 4.16, or (iii) take
any action which would allow any Person (as defined in the
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Rights Agreement) other than Premier to acquire beneficial ownership of 20% or
more of the Common Stock without causing a Distribution Date (as such term is
defined in the Rights Agreement) to occur.
SECTION 6.9 State Takeover Laws. Ophthalmic covenants and agrees that,
unless the Board of Directors of Ophthalmic determines in good faith by a
majority vote that taking such action is proscribed in the exercise of its
fiduciary obligations under applicable law, it shall, upon the request of
Premier, take all reasonable steps to assist in any challenge by Premier to
the validity or applicability to the transactions contemplated by this
Agreement, including the Offer and the Proposed Merger, of any state takeover
law.
SECTION 6.10 No Solicitation.
(a) Ophthalmic represents and warrants to, and covenants and agrees with,
Premier that Ophthalmic does not have any agreement, arrangement or
understanding with any potential third party acquiror that, directly or
indirectly, would be violated, or require any exchanges, by reason of the
execution, delivery and/or consummation of this Agreement. Ophthalmic shall,
and it shall cause its officers, directors, employees, investment bankers,
attorneys and other agents and representatives to, immediately cease any
existing discussions or negotiations with any person other than Premier (a
"Third Party") heretofore conducted with respect to any Acquisition
Transaction (as hereinafter defined). Ophthalmic shall not, and it shall
prohibit its officers, directors, employees, investment bankers, attorneys and
other agents and representatives from taking any action to, directly or
indirectly, (w) solicit, initiate, continue, facilitate or encourage
(including by way of furnishing or disclosing non-public information) any
inquiries, proposals or offers from any Third Party with respect to any
acquisition or purchase of a material portion of the assets (other than in the
ordinary course of business) or business of, or any significant equity
interest in (including by way of a tender offer), or any merger, consolidation
or business combination with, or any recapitalization or restructuring, or any
similar transaction involving, Ophthalmic (the foregoing being referred to
collectively as an "Acquisition Transaction"), or (x) negotiate, explore or
otherwise communicate in any way with any Third Party with respect to any
Acquisition Transaction, (y) enter into, approve or recommend any agreement,
arrangement or understanding requiring Ophthalmic to abandon, terminate or
fail to recommend that its stockholders accept the Offer or any other
transaction contemplated hereby, or (z) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Premier, the approval
or recommendation by the Ophthalmic Board of the Offer, or this Agreement;
provided, however, that nothing herein shall prevent the Ophthalmic Board from
taking, and disclosing to Ophthalmic's shareholders, a position contemplated
by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with respect to
any tender offer. Ophthalmic will promptly notify Premier of the receipt of
any proposal relating to an Acquisition Transaction. Notwithstanding anything
to the contrary in the foregoing, Ophthalmic may, in response to an
unsolicited written proposal with respect to an Acquisition Transaction
involving an Acquisition Transaction from a Third Party (i) furnish or
disclose non-public information to such Third Party and (ii) negotiate,
explore or otherwise communicate with such Third Party, in each case only if
(a) after being advised (x) by its outside counsel with respect to its
fiduciary obligations and (y) with respect to the financial terms of any such
proposed Acquisition Transaction, the Board of Directors of Ophthalmic
determines in good faith by a majority vote that taking such action is
necessary in the exercise of its fiduciary obligations under applicable law
(the proposal with respect to an Acquisition Transaction meeting the
requirements of this clause (a), a "Superior Proposal") and (b) prior to
furnishing or disclosing any non-public information to, or entering into
discussions or negotiations with, such Third Party, Ophthalmic receives from
such Third Party an executed confidentiality agreement (which Ophthalmic is
hereby expressly permitted to negotiate with such party) with terms no less
favorable in the aggregate to Ophthalmic than those contained in the
Ophthalmic Confidentiality Agreement, but which confidentiality agreement
shall not provide for any exclusive right to negotiate with Ophthalmic or any
exchanges by Ophthalmic and need not contain any "standstill" or similar
provisions. In addition, the Ophthalmic Board may approve or recommend (and,
in connection therewith withdraw or modify its approval or recommendation of
the Offer or this Agreement) a Superior Proposal and may terminate this
Agreement solely to enter into a definitive agreement with respect to a
Superior Proposal provided, however, that Ophthalmic shall not, and shall
cause its affiliates not to, enter into a definitive agreement with respect to
a Superior Proposal unless Ophthalmic concurrently terminates this Agreement
in accordance with the terms hereof and pays any Termination Fee required
under Section 8.3(b).
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(b) Ophthalmic shall promptly (but in any event within one business day of
Ophthalmic becoming aware of same) advise Premier of the receipt by
Ophthalmic, any of its subsidiaries or any of Ophthalmic's bankers, attorneys
or other agents or representatives of any written inquiries or proposals
relating to an Acquisition Transaction and any actions taken pursuant to
Section 6.9(a), and shall promptly (but in any event within one business day
of Ophthalmic becoming aware of same) provide Premier with a copy of any such
written inquiry or proposal. Ophthalmic shall keep Premier reasonably informed
of the status and content of and material developments (including the calling
of meetings of the Ophthalmic Board to take action with respect to such
Acquisition Transaction) with respect to any discussions regarding any
Acquisition Transaction with a Third Party. Ophthalmic agrees that it will not
enter into any agreement with respect to a Superior Proposal unless and until
Premier has been given notice of the identity of the parties making such
Superior Proposal, the material terms thereof and material developments
referred to in the preceding sentence at least two business days prior to the
entering into such agreement.
SECTION 6.11 Indemnification.
(a) Premier shall, and in the event of a Proposed Merger, shall cause the
surviving corporation of the Proposed Merger (and its successors and assigns)
to, indemnify, defend, and hold harmless the present directors, officers,
employees, and agents of Ophthalmic (each, an "Indemnified Party") after the
Expiration Date against all costs, fees, or expenses (including reasonable
attorneys' fees) judgments, fines, penalties, losses, damages, liabilities,
and amounts paid in settlement in connection with any claim, action, suit,
proceeding, or investigation, whether civil, administrative, or investigative,
arising out of actions or omissions occurring at or prior to the Expiration
Date (including the transactions contemplated by this Agreement), unless such
actions or omissions constitute fraud or willful misconduct, to the full
extent permitted under California law and by Ophthalmic's Restated Articles of
Incorporation and By-Laws as in the effect as of the date hereof, including
any provisions relating to advances of expenses incurred in the defense of any
action, suit, or proceeding for a period of five years after the date hereof.
If indemnification is sought hereunder, the Indemnified Party shall notify
Premier of the commencement of the litigation, proceeding, or other action, or
any overt threat with respect to any of the foregoing; provided, however, that
the failure to provide such notification shall not relieve Premier from its
indemnification obligations hereunder or otherwise to such Indemnified Party
unless and only to the extent that such failure shall materially and adversely
affect the ability of Premier to defend such litigation, proceeding, or other
action. Following such notification, Premier may elect to assume the defense
of such litigation, proceeding, or other action (and the costs related
thereto) and, upon such defense of such election, Premier shall not be liable
for any legal costs subsequently incurred by such Indemnified Party (other
than the costs of investigation or the production of documents or witnesses)
unless (i) Premier fails to provide legal counsel reasonably satisfactory to
such Indemnified Party in a timely manner, or (ii) such Indemnified Party
shall have reasonably concluded that (A) the representation of such
Indemnified Party by legal counsel selected by Premier would be inappropriate
due to actual or potential conflicts of interest or (B) there may be a legal
defense available to such Indemnified Party that are different from or
additional to those available to the Premier or any other Indemnified Party
represented by such legal counsel. Nothing set forth herein shall preclude any
Indemnified Party from retaining its own counsel at its own expense. Premier
shall, and shall cause the surviving corporation of any Proposed Merger and
all other relevant Premier Subsidiaries to apply such rights of
indemnification in good faith and to the fullest extent permitted by
applicable law.
(b) Incident to any information furnished or disclosed by Premier or any
Premier Subsidiary in connection with the Offer Documents and the Schedule
14D-9, and subject to applicable law, Premier shall indemnify, defend, and
hold harmless Indemnified Parties against all costs, fees, or expenses
(including reasonable attorneys' fees), judgments, fines, penalties, losses,
damages, liabilities, and amounts paid in settlement in connection with any
claim, action, suit, proceeding, or investigation, whether civil,
administrative, or investigative, arising out of or under the securities laws
or any state blue sky or securities laws based in whole or in part on (i) any
untrue statement or alleged untrue statement of a material fact contained in
such documents including any amendment or supplement to such document, (ii)
any omission or alleged omission to state in such documents a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation of
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Premier or any Premier Subsidiary of the securities laws or any state blue sky
or securities laws in connection with such documents; provided, however, that
neither Premier or any Premier Subsidiary will be liable in any such case to
the extent that any such claim, action, suit, or investigation is based on any
untrue statement or alleged untrue statement or omission or alleged omission
made in such Offer Document or Schedule 14D-9 or any amendment or supplement
thereto in reliance upon and in conformity with information furnished in
writing to Premier or any Premier Subsidiary by Ophthalmic or any Indemnified
Party specifically for use therein.
(c) If Premier or the surviving corporation in any Proposed Merger or any of
its successors or assigns shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any person, corporation or entity, then in
each case, proper provision shall be made so that the successors and assigns
of Premier shall assume the obligations set forth in this Section 6.11.
(d) For five years from the Expiration Date, Premier shall use its best
efforts to maintain in effect, if available, directors' and officers'
insurance liability in an amount equal to $2,000,000, covering those persons
who are currently covered by the directors' and officers' liability insurance
policy maintained by Ophthalmic.
(e) The provisions of this Section 6.11 are intended to be for the benefit
of and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives, and shall survive the consummation of the Offer and be
binding on all successors and assigns of Premier and the surviving corporation
of any Proposed Merger.
SECTION 6.12 Conditions. Prior to consummating the exchange pursuant to the
Offer, Premier shall use its best efforts to (a) cause the Premier Common
Stock and the Premier Common Stock issuable upon exercise of the Warrants to
be listed on NASDAQ, (b) cause the Form S-4 to have been declared effective by
the Commission, and (c) deposit the Offer Consideration with the Exchange
Agent.
ARTICLE VII
CONDITIONS TO CONSUMMATE THE TRANSACTIONS HEREUNDER
SECTION 7.1 Conditions. The respective obligations of each of Premier and
Ophthalmic to consummate the transactions contemplated hereby are subject to
the satisfaction, at or before the time each action is to be taken, of the
condition that no statute, rule, regulation, executive order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
court of competent jurisdiction or other Governmental Entity which prohibits
the consummation of the Offer or any other transactions contemplated hereunder
provided, however, that Ophthalmic and Premier shall use their reasonable best
efforts to have any such order, decree, or injunction vacated.
SECTION 7.2 Conditions to Obligations of Premier. In the event the Offer
shall not have been terminated, the obligations of Premier to make the Offer
and to consummate the exchange pursuant to the Offer shall be further subject
to the following conditions:
(a) Performance of Obligations of Ophthalmic. Ophthalmic shall have
performed the obligations required to be performed by it under Section 4.16.
(b) Private Acquisition. The Private Acquisition shall have been
consummated.
SECTION 7.3 Conditions of Premier to Close the Offer. Prior to consummating
the exchange pursuant to the Offer, Premier shall have (a) caused the Premier
Common Stock, the Premier Common Stock issuable upon exercise of the Warrants
and the Warrants to be listed on NASDAQ, (b) caused the Form S-4 to have been
declared effective by the Commission, and (c) deposited the Offer
Consideration with the Exchange Agent.
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ARTICLE VIII
TERMINATION; AMENDMENTS; WAIVER
SECTION 8.1 Termination. This Agreement shall be terminated if the Offer
shall not have been consummated by August 21, 1998, if each party has used its
best efforts to consummate the transaction, and may be terminated:
(a) by the mutual written consent of Premier and Ophthalmic, by action of
their respective Boards of Directors;
(b) by Ophthalmic, if Ophthalmic is not in material breach of any of its
representations contained in this Agreement and if (i) Premier fails to
commence the Offer as provided in Section 1.1, or (ii) at any time following
the Expiration Date, as it may be extended pursuant to Section 1.1(c), Premier
shall not have accepted for exchange and exchanged the Offer Consideration for
all Shares tendered pursuant to the Offer in accordance with the terms hereof
and thereof, or (iii) if Premier should withdraw, abandon, or terminate the
Offer without purchasing all Shares validly tendered pursuant to the Offer;
provided that all conditions to the Offer shall have been satisfied or waived
in accordance with the terms hereof;
(c) by either Premier or Ophthalmic, if any court of competent jurisdiction
in the United States or other United States Governmental Entity has issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Offer and such order, decree, ruling or other action
shall have become final and nonappealable; provided, however, that the party
seeking to terminate this Agreement shall have used its reasonable best
efforts to remove or lift such order, decree, ruling or other action;
(d) by Ophthalmic if, prior to the acceptance for exchange of Common Stock
pursuant to the Offer, (i) there shall have occurred, on the part of Premier,
a material breach of any representation or warranty, covenant or agreement
contained in this Agreement which is not curable or (ii) Ophthalmic (A) to the
extent permitted by Section 6.10, enters into a definitive agreement with
respect to a Superior Proposal and (B) concurrently pays any Termination Fee
required under Section 8.3(b); or
(e) by Premier, prior to the exchange for Common Stock pursuant to the
Offer, if the Ophthalmic Board shall have withdrawn or modified (including by
amendment of the Schedule 14D-9) in a manner adverse to Premier its approval
or recommendation of the Offer or, this Agreement shall have approved or
recommended Superior Proposal, or shall have resolved to effect any of the
foregoing.
SECTION 8.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall forthwith become void
and have no effect, without any liability on the part of any party or its
directors, officers or stockholders, other than the provisions in Sections
8.2, 8.3, 9.2, 9.3, 9.5, 9.6, 9.10 and 9.11, and the last sentence in Section
6.3, which shall survive any such termination. Nothing contained in this
Section 8.2 shall relieve any party from liability for any breach of this
Agreement.
SECTION 8.3 Fees and Expenses.
(a) Except as otherwise specifically provided herein, all costs and expenses
incurred in connection with the Offer, this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
(b) In the event that this Agreement is terminated as a result of a material
breach by Ophthalmic, then Ophthalmic shall promptly pay to Premier in lieu of
any other right to damages, a termination fee of $500,000. Thereafter,
Ophthalmic shall promptly pay to Premier an additional $250,000 (collectively,
the "Termination Fee") if Ophthalmic enters into a definitive agreement with
respect to a Superior Proposal within six (6) months of the date of
termination. For purposes of this Section 8.3, a "material breach by
Ophthalmic" shall include any action by Ophthalmic, its officers, directors,
employees, investment bankers, attorneys and other agents and representatives
(i) to redeem the Rights, (ii) to amend, terminate or waive rights under the
Rights Agreement (other than the Rights Agreement Amendment), (iii) to
solicit, initiate, continue, facilitate or encourage
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(including by way of furnishing or disclosing non-public information) any
Acquisition Transaction, (iv) to negotiate, explore or otherwise communicate
in any way with any Third Party with respect to any Acquisition Transaction,
(v) enter into, approve or recommend any agreement, arrangement or
understanding requiring Ophthalmic to abandon, terminate or fail to recommend
that its stockholders accept the Offer or any other transaction contemplated
hereby, or (vi) withdraw or modify (including by Amendment of the Schedule
14D-9), or propose publicly to withdraw or modify, in a manner adverse to
Premier, the approval or recommendation by the Ophthalmic Board of the Offer
or this Agreement.
(c) In the event that this Agreement is terminated as a result of a material
breach by Premier, then Premier shall promptly pay to Ophthalmic in lieu of
any other right to damages, a termination fee of $500,000. For purposes of
this Section 8.3, a "material breach by Premier" shall include any action by
Premier to withdraw the Offer unless (i) following good faith efforts by
Premier, all of the conditions set forth in Annex I have not been satisfied,
or (ii) a material breach by Ophthalmic has occurred.
SECTION 8.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
SECTION 8.5 Extension; Waiver. Subject to Section 1.3(c), at any time
Premier and Ophthalmic may (i) extend the time for the performance of any of
the obligations or other acts of the other, (ii) waive any inaccuracies in the
representations and warranties contained herein of the other or in any
document, certificate or writing delivered pursuant hereto by the other, or
(iii) waive compliance by the other with any of the agreements or conditions.
Any agreement on the part of any party to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Expiration Date. Notwithstanding the foregoing, the agreements set forth
in Sections 6.5, 8.3(a), 9.1 and 9.2 shall, and if the Offer closes, Sections
5.4, 5.5 and 6.6, shall, survive indefinitely. If the Offer closes, Section
6.11 shall survive until the expiration of the applicable statute of
limitations period. The agreements set forth in Section 9.3 shall survive as
provided therein.
SECTION 9.2 General Release of Ophthalmic Executive Officers and Directors.
(a) Premier and Ophthalmic hereby release the present officers and directors
of Ophthalmic (each, a "Releasee"), of and from all actions, causes of action,
suits, demands and all other claims whatsoever which Premier and/or Ophthalmic
ever had, now has, or which Premier or Ophthalmic hereafter can, shall or may
have against any Releasee in connection with such Releasee's role as officer
or director of Ophthalmic, arising out of actions or omissions occurring on or
prior to the date of this Agreement, unless such actions or omissions
constitute self-dealing, fraud or willful misconduct.
(b) Premier and Ophthalmic hereby waive any rights they may have under
Section 1542 of the California Civil Code, which reads:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
SECTION 9.3 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments referred to
herein) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with
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respect to the subject matter hereof and thereof, except for the Ophthalmic
Confidentiality Agreement, the Premier Confidentiality Agreement and
provisions of that certain standstill agreement entered into by and between
Premier and Ophthalmic in February 1998 (the "Standstill Agreement"), which
continue in effect. The Termination Date (as provided in the Standstill
Agreement) is hereby extended to that date which ends two (2) months following
the earlier of (i) the termination of this Agreement and (ii) the Expiration
Date if Premier shall not have accepted for exchange and exchanged the Offer
Consideration for all Shares tendered pursuant to the Offer in accordance with
terms hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder will be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other party
(except that Premier may assign its rights, interest and obligations to any
affiliate or direct or indirect subsidiary of Premier without the consent of
Ophthalmic provided that no such assignment shall relieve Premier of any
liability for any breach by such assignee). Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
SECTION 9.4 Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
SECTION 9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or telecopier to the
respective parties as follows:
If to Premier:
Premier Laser Systems, Inc.
3 Morgan
Irvine, California 92718
Attention: President and Chief Executive Officer
Facsimile Number: (714) 952-7218
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
17th Floor
Costa Mesa, California 92626
Attn: William J. Simpson, Esq.
Facsimile Number: (714) 979-1921
If to Ophthalmic:
Ophthalmic Imaging Systems
221 Lathrop Way, Suite I
Sacramento, California 95815
Attn: President
Facsimile Number: (916) 646-0207
with a copy to:
Carlton Fields, Attorneys at Law
One Harbour Place
777 S. Harbour Island Boulevard
Tampa, Florida 33602-5799
Attention: Richard A. Denmon, Esq.
Facsimile Number: (813) 229-4133
23
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or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
SECTION 9.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
SECTION 9.7 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
SECTION 9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 9.9 Parties in Interest. This Agreement, except for Sections 6.6,
6.11 and 9.2, shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended
to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 9.10 Certain Definitions. As used in this Agreement:
(a) the term "affiliate," as applied to any person, shall mean any other
person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise;
(b) the term "Person" or "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act); and
(c) the term "Subsidiary" or "subsidiaries" means, with respect to Premier
or any other person, any corporation, partnership, joint venture or other
legal entity of which Premier, or such other person, as the case may be
(either alone or through or together with any other subsidiary), owns,
directly or indirectly, stock or other equity interests the holders of which
are generally entitled to more than 50% of the vote for the election of the
board of directors or other governing body of such corporation or other legal
entity.
SECTION 9.11 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy
to which they are entitled at law or in equity, except for termination fees
and expenses.
SECTION 9.12 Fiduciary Duty. Notwithstanding anything to the contrary in
this Agreement, no provision of this Agreement shall be construed to prevent
the exercise by any director of Ophthalmic (or the actions of Ophthalmic
thereon) of his or her fiduciary duty as contemplated to be exercised under
Section 6.10 of this Agreement.
SECTION 9.13 Obligation of Premier. Whenever this Agreement requires Premier
to take any action, such requirement shall be deemed to include an undertaking
by Premier to cause the Premier Subsidiaries to take such action.
[Signature page follows]
24
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[SIGNATURE PAGE--STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized,
all as of the day and year first above written.
PREMIER LASER SYSTEMS, INC.
/s/ Colette Cozean
By: _________________________________
Colette Cozean, Ph.D.
Chief Executive Officer
OPHTHALMIC IMAGING SYSTEMS
/s/ Steven Verdooner
By: _________________________________
Steven Verdooner
Chief Executive Officer
25
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ANNEX I
Conditions to the Offer. Notwithstanding any other provisions of the Offer,
Premier shall not be required to accept for exchange or, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c)
promulgated under the Exchange Act, exchange for any tendered Shares and may
terminate or amend the Offer, if (i) the Rights have not been redeemed or
invalidated or are otherwise inapplicable to the Offer, (ii) Premier does not
receive all applicable governmental and Nasdaq authorizations, consents,
orders and appraisals, including the continued effectiveness of its Form S-4
filed in connection with the transactions contemplated by the Agreement, (iii)
at any prior to the time of acceptance for exchange or exchange for any
Shares, any of the following events shall occur:
(a) there shall have been instituted or be pending any action or
proceeding before any court or governmental, administrative or regulatory
authority or agency, domestic or foreign (each, a "Governmental Entity"),
or by any other person, domestic or foreign, before any court or
Governmental Entity, (i) challenging or seeking to, or which is reasonably
likely to, make illegal, materially delay or otherwise directly or
indirectly restrain or prohibit or seeking to, or which is reasonably
likely to, impose voting, procedural, price or other requirements, in
addition to those required by federal securities laws and the CGCL (each as
in effect on the date of the Prospectus/Offer to Exchange is filed with the
SEC in connection with the Offer), in connection with the making of the
Offer, the acceptance for exchange of, or exchange for, any Shares by
Premier or any other affiliate of Premier or other business combination
with Ophthalmic, or seeking to obtain material damages in connection
therewith; (ii) seeking to prohibit or limit materially the ownership or
operation by Ophthalmic, Premier or any of their subsidiaries of all or any
material portion of the business or assets of Ophthalmic, Premier or any of
their subsidiaries, or to compel Ophthalmic, Premier or any of their
subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of Ophthalmic, Premier or any of their subsidiaries;
(iii) seeking to impose or confirm limitations on the ability of Premier or
any other affiliate of Premier to exercise effectively full rights of
ownership of any Shares (including the Rights associated with Shares),
including, without limitation, the right to vote any Shares acquired by
Premier pursuant to the Offer or otherwise on all matters properly
presented to Ophthalmic's shareholders; (iv) seeking to require divestiture
by Premier or any other affiliate of Premier of any Shares; (v) seeking any
material diminution in the benefits expected to be derived by Premier, or
any other affiliate of Premier as a result of the transactions contemplated
by the Offer or any other similar business combination with Ophthalmic;
(vi) otherwise directly or indirectly relating to the Offer or which
otherwise, in the reasonable judgment of Premier and Ophthalmic, might
materially adversely affect Ophthalmic or Premier, or any other affiliate
of Premier; or (vii) which otherwise, in the reasonable judgment of Premier
and Ophthalmic, is reasonably likely to materially adversely affect the
business, operations (including, without limitation, results of
operations), properties (including, without limitation, intangible
properties), condition (financial or otherwise), assets or liabilities
(including, without limitation, contingent liabilities) or prospects of
either Ophthalmic or Premier;
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Premier, Ophthalmic or any subsidiary or affiliate of
Premier or (ii) the Offer or other business combination by Premier or any
affiliate of Premier with Ophthalmic, by any legislative body, court,
government or governmental, administrative or regulatory authority or
agency, domestic or foreign, which, in the sole judgment of Premier, is
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (vii) of paragraph (a)
above;
(c) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on Nasdaq, the New York
Stock Exchange (NYSE) or any other securities exchange, (ii) any decline,
measured from the close of business on February 25, 1998, in the Standard &
Poor's 500 Index by an amount in excess of 20%, (iii) any material adverse
change in United States currency exchange rates or a suspension of, or
limitation on, currency exchange markets, (iv) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, (v) any limitation (whether or not
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<PAGE>
mandatory) by any government or governmental, administrative or regulatory
authority or agency, domestic or foreign, on, or other event that, in the
sole judgment of Premier, might affect the extension of credit by banks or
other lending institutions, (vi) a commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States or (vii) in the case of any of the
foregoing existing on February 25, 1998, a material acceleration or
worsening thereof;
(d) Ophthalmic shall have, directly or indirectly, (i) split, combined or
otherwise changed, or authorized or proposed a split, combination or other
change of, the Shares or its capitalization, (ii) issued or sold, or
authorized or proposed the issuance, distribution or sale of, additional
Shares (other than the issuance of Shares under options and warrants
outstanding prior to the date of this Offer to Exchange, in accordance with
the terms of such options as such terms have been publicly disclosed prior
to the date of this Offer to Exchange), shares of any other class of
capital stock, other voting securities or any securities convertible into,
or rights, warrants or options, conditional or otherwise, to acquire, any
of the foregoing, (iii) declared or paid, or proposed to declare or pay,
any dividend or other distribution, whether payable in cash, securities or
other property, on or with respect to any shares of capital stock of
Ophthalmic, (iv) altered or proposed to alter any material term of any
outstanding security (including the Rights) other than to amend the Rights
Agreement to make the Rights inapplicable to Premier, (v) authorized,
recommended, proposed or entered into an agreement, agreement in principle
or arrangement or understanding with respect to any merger, consolidation,
liquidation, dissolution, business combination, acquisition of assets,
disposition of assets, release or relinquishment of any material
contractual or other right of Ophthalmic or any comparable event not in the
ordinary course of business, (vi) authorized, recommended, proposed or
entered into, or announced its intention to authorize, recommend, propose
or enter into, any agreement, arrangement or understanding with any person
or group that in the sole judgment of Premier could adversely affect either
the value of Ophthalmic or any of its subsidiaries, joint ventures or
partnerships or the value of the Shares to Premier or any affiliate of
Premier, (vii) entered into or amended any employment, change in control,
severance, executive compensation or similar agreement, arrangement or plan
with or for the benefit of any of its employees, consultants or directors,
or made grants or awards thereunder, other than in the ordinary course of
business or entered into any agreements, arrangements or plans so as to
provide for increased or accelerated benefits to any such persons, (viii)
except as may be required by law, taken any action to terminate or amend
any employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended) of Ophthalmic or any of
its subsidiaries, or Premier shall have become aware of any such action
that was not disclosed in publicly available filings prior to the date of
this Offer to Exchange, or (ix) except as contemplated by this Agreement
amended or authorized or proposed any amendment to Ophthalmic's Restated
Articles of Incorporation or Bylaws, or Premier shall have become aware
that Ophthalmic shall have proposed or adopted any such amendment that was
not disclosed in publicly available filings prior to the date of the
Prospectus/Offer to Exchange;
(e) any person or group shall have entered into a definitive agreement or
an agreement in principle or made a proposal with respect to a tender offer
or exchange offer or a merger, consolidation or other business combination
with Ophthalmic;
(f) any approval, permit, authorization or consent of any governmental
authority or agency needed for the Offer shall not have been obtained on
terms satisfactory to Premier or Premier shall have been notified by
Ophthalmic that such terms are not satisfactory to Ophthalmic;
(g) the Agreement shall have been terminated in accordance with its
terms; or
(h) Ophthalmic's Board of Directors shall have publicly withdrawn or
modified in any manner adverse to Premier its recommendation that
shareholders accept the Offer.
The foregoing conditions (including those set forth in clauses (i) and (ii) of
the initial paragraph) are for the benefit of Premier and may be asserted by
Premier regardless of the circumstances giving rise to any such conditions
and, consent may be waived by Premier, in whole or in part, at any time and
from time to time, in their reasonable discretion, in each case, subject to
the terms of the Agreement. The failure by Premier at any
27
<PAGE>
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
The capitalized terms used in this Annex I shall have the meanings set forth
in the Agreement to which it is annexed.
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EXHIBIT "A"
FORM OF CLASS C WARRANT
<PAGE>
EXHIBIT "B"
FORM OF CLASS D WARRANT
<PAGE>
APPENDIX B
CLASS C WARRANT
TO PURCHASE COMMON STOCK
NO PAR VALUE OF
PREMIER LASER SYSTEMS, INC.
Warrants (Partial Shares)/1/ , 1998
This certifies that ("Holder"), for value received, is entitled,
subject to the other terms set forth below, to purchase from Premier Laser
Systems, Inc., a California corporation (the "Company"), having a place of
business at 3 Morgan, Irvine, California 92618, at any time from the Notice
Date defined below until 5:00 P.M. (California time) on the ninetieth day
following the Notice Date (the "Expiration Date"), unless earlier terminated
pursuant to the provisions of Section 2.4 hereof, at which time this Warrant
shall expire and become void, a fraction of a share, of the Company's Common
Stock, no par value (the "Common Stock") in an amount determined pursuant to
Section 2 below. The purchase or exercise price per share (the "Exercise
Price") shall be one cent ($0.01) regardless of the number of Warrants which
must be exercised to obtain a Warrant Share (as defined below).
The number and character of the securities purchasable upon exercise of this
Warrant are subject to adjustment as provided in Section 3.3 hereof.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 Duration of Exercise of Warrant. This Warrant is exercisable at the
option of Holder at any time from the Notice Date until 5:00 P.M. (California
time) on the Expiration Date for all or a portion of the shares of Common
Stock that may be purchased hereunder. This Warrant shall be exercised upon
surrender to the Company of this Warrant properly endorsed with a completed
and executed Subscription Agreement in the form attached hereto as Exhibit A,
and upon payment in cash or cashier's check of the aggregate Exercise Price
for the number of shares of Common Stock for which this Warrant is being
exercised (the "Warrant Shares"). The Company agrees that any Warrant Shares
purchased under this Warrant shall be deemed to be issued to Holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares.
Certificates for the Warrant Shares so purchased, together with any other
securities or property to which Holder is entitled upon such exercise, shall
be delivered to Holder by the Company or its transfer agent at the Company's
expense as soon as practicable after the rights represented by this Warrant
have been exercised. Each stock certificate so delivered shall be in such
denominations of Common Stock as may be reasonably requested by Holder and
shall be registered in the name of Holder or such other name as shall be
designated by Holder. If, upon exercise of this Warrant, fewer than all of the
shares issuable upon exercise of this Warrant are purchased, one or more new
warrants substantially in the form of, and on the terms contained in, this
Warrant will be issued for the remaining number of shares not exercised.
1.2 Securities to be Fully Paid; Reservation of Warrant Shares. The Company
covenants and agrees that all Warrants and Warrant Shares that may be issued
upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable and
such issuance will not violate any pre-emptive rights under applicable law,
the Premier Articles of Incorporation or By-laws, contracts, or agreement, or
otherwise. The Company covenants that it will at all times from the date
hereof reserve and keep available a sufficient number of shares of its
authorized but unissued Common Stock (or other securities) solely for issuance
and delivery to Holder upon exercise of this Warrant. The Company will take
all such reasonable action as may be necessary to assure that such Warrants
and Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation.
- --------
/1/(Does not represent shares--See Paragraph 2 for computation.)
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2. NOTICE OF EXERCISABILITY AND DETERMINATION OF NUMBER OF WARRANT SHARES.
2.1 Condition to Exercise. This Warrant shall not become exercisable unless
the Net Sales of Qualified Products (both as defined herein) for the twelve
(12) month period ended August 31, 1998 (the "Determination Date") equal or
exceed Seven Million Dollars ($7,000,000). "Net Sales" shall mean net sales of
Qualified Products as determined by generally accepted accounting principles,
as consistently applied by Ophthalmic Imaging Systems ("OIS"). "Qualified
Products" shall mean products sold by and in connection with the current core
business of OIS including: (i) products related to or arising out of such
current core products; (ii) products under development as of the date hereof;
and (iii) those same products if sold by any successor owner of OIS'
operations. As soon as practicable after the Determination Date, the Company
shall determine the Net Sales of Qualified Products for the twelve (12) month
period ended on the Determination Date and shall mail to the holder of the
Warrant, and shall publish in a newspaper of national circulation a notice
(the "Exercise Notice") stating whether this condition to exercisability has
been met. The date of such mailing and publication is the "Notice Date."
2.2 Shares Issuable. To determine the number of Warrant Shares for which the
Warrant may be exercised, the Company shall determine the average Closing
Price (as defined below) of the Common Stock for the (i) fifteen (15)
consecutive trading days immediately preceding the Determination Date and (ii)
the thirty (30) consecutive trading days ending fifteen (15) trading days
prior to the Determination Date, and shall calculate the number of shares of
the Common Stock, or fraction thereof, which could be purchased at the greater
of such two average Closing Prices for a purchase price of twenty-five cents
($0.25). The result of this calculation shall be the "Share Factor." The Share
Factor shall be multiplied by the number of Warrants stated on the first page
of this Warrant to determine the number of whole shares for which this Warrant
may be exercised. Fractional shares resulting from aggregate exercises shall
be rounded to the nearest whole share.
2.3 Notice. The Exercise Notice sent to the Holder shall state the number of
Warrant Shares for which the Warrant has become exercisable.
2.4 Exercise. If the Exercise Notice states that the condition stated in
Section 2.1 has not been satisfied, then the Notice Date shall become the
Expiration Date, this Warrant shall expire effective as of the Notice Date and
the Holder shall have no further rights hereunder. If the Exercise Notice
states the condition has been met, this Warrant shall thereafter be
exercisable for the number of whole shares determined as provided in
Section 2.2 and specified in the applicable Exercise Notice.
2.5 Closing Price. For purposes of any computation pursuant to this Section
2, the term "Closing Price" for any day shall mean the last reported sale
price, regular way, of the Common Stock, or, in case no such reported sale
takes place on such day, the average of the closing bid and asked prices,
regular way, for such day, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or if it
is not listed or admitted to trading on any national securities exchange, but
is traded on Nasdaq, the closing sale price of the Common Stock or, in case no
sale is reported, the average of the closing bid and asked quotations for the
Common Stock on Nasdaq, or any comparable system.
3. CERTAIN NOTICES.
3.1 Notice of Certain Events. If at any time after the Determination Date
and before the Expiration Date:
3.1.1 the Company shall declare any cash dividend upon its Common Stock;
3.1.2 the Company shall declare any dividend upon its Common Stock
payable in stock (other than a dividend payable solely in shares of Common
Stock) or make any special dividend or other distribution to the holders of
its Common Stock;
3.1.3 the Company shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or other
rights;
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3.1.4 there shall be any capital reorganization or reclassification of
the capital stock of the Company; or consolidation or merger of the Company
with, or sale or leases, exchanges or other conveyances (other than
pledges, mortgages and liens related to loans) of substantially all of its
assets to, another corporation;
3.1.5 there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Company; or
3.1.6 any purchase, retirement, or redemption by the Company of its
Common Stock;
then, in any one or more of said cases, the Company shall give to the
registered holder of this Warrant, by the means specified in Section 7 herein,
(i) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, at least twenty (20) days' prior written notice of
the date when the same shall take place; provided, however, that the Company
shall not be required to send any notice pursuant to this Section 3.1 if the
Company determines the condition in Section 2.1 has not been met. Any notice
given in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto. Any notice given
in accordance with the foregoing clause (ii) shall also specify the date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion or public offering, as the case may be. If Holder does
not exercise this Warrant prior to the occurrence of an event described above,
Holder shall not be entitled to receive the benefits accruing to then existing
holders of Common Stock.
3.2 Notice of Adjustment. Upon the happening of an event requiring an
adjustment of the amount or the kind of securities or property purchasable
hereunder, the Company shall forthwith give notice to the Holder which
indicates the event requiring the adjustment, the adjusted number of Warrant
Shares that may be acquired or the amount or kind of any such securities or
property so purchasable upon exercise of this Warrant, as the case may be, and
setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. The Company's independent public
accountant shall determine the method for calculating the adjustment and shall
prepare a certificate setting forth such calculations, the reason for the
methodology chosen, and the facts upon which such calculation is based. Such
certificate shall accompany the notice to be provided to the Holder pursuant
to this Section 3.2.
3.3 Adjustment of Purchase Price and Number of Warrant Shares. The number
and kind of securities that may be acquired upon the exercise of this Warrant
shall be subject to adjustment following the Determination Date and prior to
the earlier of the exercise of, or the Expiration Date of this Warrant, upon
the happening of any of the following events:
(a) Dividends, Subdivisions, Combinations, or Consolidations of Common
Stock.
(i) In the event the Company shall declare, pay, or make any dividend upon
its outstanding Common Stock payable in Common Stock or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock, then the Share Factor shall be adjusted so that the
number of Warrant Shares that may thereafter be purchased upon the exercise of
the rights represented hereby shall be increased in proportion to the increase
in the number of outstanding shares of Common Stock through such dividend or
subdivision. In case the Company shall at any time combine the outstanding
shares of its Common Stock into a smaller number of shares of Common Stock,
the Share Factor shall be adjusted so that number of Warrant Shares that may
thereafter be acquired upon the exercise of the rights represented hereby
shall be decreased in proportion to the decrease through such combination. In
each case, the Exercise Price will not be adjusted.
(ii) If the Company declares, pays or makes any dividend or other
distribution upon its outstanding Common Stock payable in securities or other
property (excluding cash dividends and dividends payable in
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Common Stock, but including, without limitation, shares of any other class of
the Company's stock or stock or other securities convertible into or
exchangeable for shares of Common Stock or any other class of the Company's
stock or other interests in the Company or its assets ("Convertible
Securities")), a proportionate part of those securities or that other property
shall be set aside by the Company and delivered to the Holder in the event
that the Holder exercises this Warrant. The securities and other property then
deliverable to the Holder upon the exercise of this Warrant shall be in the
same ratio to the total securities and property set aside for the Holder as
the number of Warrant Shares with respect to which this Warrant is then
exercised as to the total number of Warrant Shares that may be acquired
pursuant to this Warrant at the time the securities or property were set aside
for the Holder.
(iii) If the Company shall declare a dividend payable in money on its
outstanding Common Stock and at substantially the same time shall offer to its
shareholders a right to purchase new shares of Common Stock from the proceeds
of such dividend or for an amount substantially equal to the dividend, all
shares of Common Stock so issued shall, for purposes of this Warrant, be
deemed to have been issued as a stock dividend subject to the adjustments set
forth in Section 3.3 (a)(i).
(iv) If the Company shall declare a dividend payable in money on its
outstanding Common Stock and at substantially the same time shall offer to its
shareholders a right to purchase new shares of a class of stock (other than
Common Stock), Convertible Securities, or other interests from the proceeds of
such dividend or for an amount substantially equal to the dividend, all shares
of stock, Convertible Securities, or other interests so issued or transferred
shall, for purposes of this Warrant, be deemed to have been issued as a
dividend or other distribution subject to Section 3.3(a)(ii).
(v) If the Company shall declare a dividend payable in cash on its
outstanding Common Stock, such dividend shall be deemed to have been issued as
a dividend or other distribution subject to Section 3.3(a)(i).
(b) Effect of Reclassification, Reorganization, Consolidation, Merger, or
Sale of Assets.
(i) Upon the occurrence of any of the following events, the Company shall
cause an effective provision to be made so that the Holder shall have the
right thereafter, by the exercise of this Warrant, to acquire for the Exercise
Price described in this Warrant the kind and amount of shares of stock and
other securities, property and interests as would be issued or payable with
respect to or in exchange for the number of Warrant Shares that are then
purchasable pursuant to this Warrant as if such Warrant Shares had been issued
to the Holder immediately prior to such event: (A) reclassification, capital
reorganization, or other change of outstanding Common Stock (other than a
change as a result of an issuance of Common Stock under Subsection 3.3(a)),
(B) consolidation or merger of the Company with or into another corporation or
entity (other than a consolidation or merger in which the Company is the
continuing corporation and that does not result in any reclassification,
capital reorganization or other change of the outstanding shares of Common
Stock or the Warrant Shares issuable upon exercise of this Warrant), or (C)
spin-off of assets, a subsidiary or any affiliated entity, or the sale, lease,
conveyance (other than pledges, mortgages and liens related to loans) or
exchange of a significant portion of the Company's assets taken as a whole, in
a transaction pursuant to which the Company's shareholders of record are to
receive securities or other interests in a successor entity. Any such
provision made by the Company for adjustments with respect to this Warrant
shall be as nearly equivalent to the adjustments otherwise provided for in
this Warrant as is reasonably practicable. The foregoing provisions of this
Section 3.3(b)(i) shall similarly apply to successive reclassifications,
capital reorganizations and similar changes of shares of Common Stock and to
successive consolidations, mergers, spin-offs, sales, leases or exchanges.
(ii) If any sale or exchange of all, or substantially all, of the Company's
assets or business or any dissolution, liquidation or winding up of the
Company (a "Termination of Business") shall be proposed, the Company shall
deliver written notice to the Holder of this Warrant in accordance with
Section 3.2 hereof as a condition precedent to the consummation of that
Termination of Business. If the result of the Termination of Business is that
shareholders of the Company are to receive securities or other interests of a
successor entity, the provisions of Section 3.3(b)(i) above shall apply.
However, if the result of the Termination of Business is that shareholders of
the Company are to receive money or property other than securities or other
interests in a
4
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successor entity, the Holder of this Warrant shall be entitled to exercise
this Warrant and, with respect to any Warrant Shares purchasable pursuant to
this Warrant so acquired, shall be entitled to all of the rights of the other
shareholders of Common Stock with respect to any distribution by the Company
in connection with the Termination of Business. In the event no successor
entity is involved and Section 3.3(b)(i) does not apply, all acquisition
rights under this Warrant shall terminate at the close of business on the date
as of which shareholders of record of the Common Stock shall be entitled to
participate in a distribution of the assets of the Company in connection with
the Termination of Business; provided, that, in no event shall that date be
less than 20 days after delivery to the Holder of this Warrant of the written
notice described above and in Section 3.2 hereof. If the termination of
acquisition rights under this Warrant is to occur as a result of the event at
issue, a statement to that effect shall be included in that written notice.
(c) Obligation of Successors or Transferees. The Company shall not effect
any consolidation, merger, or sale or conveyance of assets within the meaning
of Section 3.3(b)(i)(B)-(C) unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed or delivered to
the Holder pursuant to Section 8 herein, the obligation to deliver to the
Holder such shares of stock, securities, or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. In no event shall
the securities received pursuant to this Section be registerable or
transferable other than pursuant and subject to the terms of this Warrant.
(d) Application of This Section. The provisions of this Section 3.3 shall
apply to successive events that may occur from time to time but shall only
apply to a particular event if it occurs prior to the expiration of this
Warrant either by its terms or by its exercise in full.
(e) Definition of Common Stock. Unless the context requires otherwise,
whenever reference is made in this Section 3.3 to the issue or sale of shares
of Common Stock, the term "Common Stock" shall mean (i) the no par value Class
A Common Stock of the Company, (ii) any other class of stock ranking on a
parity with, and having substantially similar rights and privileges as the
Company's no par value Class A Common Stock, and (iii) any Convertible
Security convertible into either (i) or (ii). However, subject to the
provisions of Section 3.3(b)(i) above, Common Stock issuable upon the exercise
of this Warrant shall include only shares of Common Stock designed as no par
value Class A Common Stock of the Company as of the date of this Warrant.
(f) Company-Held Stock. For purposes of Sections 3.3(a) above, shares of
Common Stock owned or held at any relevant time by, or for the account of, the
Company in its treasury or otherwise, shall not be deemed to be outstanding
for purposes of the calculation and adjustments described therein.
4. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of the Warrant shall be made without charge to Holder of any issue
tax or other governmental charges in respect thereof; provided, however, that
the Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the then holder of the Warrant being
exercised.
5. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained
in this Warrant shall be construed as conferring upon Holder the right to vote
or to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company, until, and only to
the extent that, this Warrant shall have been exercised. Except as provided in
Section 3.1 in the event of a dividend on the Common Stock payable in shares
of Common Stock, no dividends or interest shall be payable or accrued in
respect of this Warrant or the interest represented hereby or the Warrant
Shares purchasable hereunder until, and only to the extent that, this Warrant
shall have been exercised. The Company covenants, however, that until the
Termination Date, for so long as this Warrant remains at least partially
unexercised, it will furnish the Holder with copies of all reports and
communications furnished to the stockholders of the Company. No provisions
hereof, in the absence of affirmative action by Holder to purchase Warrant
Shares, and no mere enumeration herein of the
5
<PAGE>
rights or privileges of Holder shall give rise to any liability of Holder for
the Exercise Price or as a stockholder of the Company whether such liability
is asserted by the Company or by its creditors.
6. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
7. NOTICES. Any notice required or permitted under this Warrant shall be in
writing and either delivered personally, telegraphed or telecopied or sent by
certified or registered mail, postage prepaid, and shall be deemed to be
given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five (5) business days after the date of mailing to
the following address or facsimile number, or to such other address or
addresses as such person may subsequently designate by notice given hereunder.
If to the Company: Premier Laser Systems, Inc.
Attention: Secretary
3 Morgan
Irvine, California 92618
Facsimile: 714 951-7218
with a copy to: Paul, Hastings, Janofsky & Walker LLP
Attention: Peter J. Tennyson, Esq.
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626-1924
Facsimile: 714 979-1921
If to Holder: As Holder's address appears
on a register of Warrants
maintained by the Company's
transfer agent.
8. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder.
9. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of the
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
10. EXCHANGE, ASSIGNMENT, COMBINATION AND REPLACEMENT OF WARRANTS.
(a) This Warrant is exchangeable, without expense other than as provided in
this Section 10, at the option of the Holder upon the reasonable request,
presentation and surrender hereof to the Company for other Warrants of
different denominations entitling the Holder thereof to acquire in the
aggregate the same number of Warrant Shares that may be acquired hereunder.
(b) All of the covenant and provisions of this Warrant by or for the benefit
of the Holder shall be binding upon and shall inure to the benefit of, its
successors and permitted assigns hereunder. This Warrant and all rights
hereunder are transferrable and may be sold, transferred, assigned, or
hypothecated upon surrender of this Warrant to the Company, together with a
duly executed assignment in the form attached hereto as Exhibit B (the
"Assignment Form"), whereupon the Company shall, without charge, execute and
deliver a new Warrant containing the same terms and conditions of this Warrant
in the name of the assignee as named in the Assignment Form, and this Warrant
shall be canceled at that time. This Warrant, if properly assigned, may be
exercised by a new Holder without first having the new Warrant issued.
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(c) This Warrant may be delivered or combined with other Warrants that carry
the same rights upon the reasonable request, presentation and surrender of
this Warrant at the office of the Company, together with a written notice
signed by the Holder, specifying the names and denominations in which new
Warrants are to be issued.
(d) The Company will execute and deliver to the Holder a new Warrant of like
tenor and date upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction, or mutilation of this Warrant;
provided, that (i) in the case of loss, theft, or destruction, the Company
receives a reasonably satisfactory indemnity or bond, or (ii) in the case of
mutilation, the Holder shall provide and surrender this Warrant to the Company
for cancellation.
(e) Any new Warrant executed and delivered by the Company in substitution or
replacement of this Warrant shall constitute a contractual obligation of the
Company regardless of whether this Warrant was lost, stolen, destroyed or
mutilated, and shall be enforceable by any Holder thereof.
(f) The Holder shall pay all transfer and excise taxes applicable to any
issuance of new Warrants under this Section 10.
11. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of
this Warrant. The Company shall, in lieu of issuing any fractional share,
round such fractional shares to the nearest whole share.
12. BEST EFFORTS. The Company covenants that it will not, by amendment of
its Articles of Incorporation or bylaws, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, reissue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observation or performance for any term of this Warrant, but will at all times
in good faith assist in carrying out all those terms and in taking all action
necessary or appropriate to protect the rights of the Holder against dilution
or other impairment.
13. FURTHER ASSURANCES. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue, duly authorized fully paid and nonassessable Warrants and Common Stock
and other securities issuable upon exercise of this Warrant from time to time
and not in violation of any pre-emptive rights.
(Signature page follows.)
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer effective as of , 1998.
PREMIER LASER SYSTEMS, INC.
By: _________________________________
Colette Cozean, Ph.D.
Chief Executive Officer
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EXHIBIT A
PREMIER LASER SYSTEMS, INC.
COMMON STOCK WARRANT
FORM OF SUBSCRIPTION AGREEMENT
(TO BE SIGNED AND DELIVERED
UPON EXERCISE OF WARRANT)
PREMIER LASER SYSTEMS, INC.
3 Morgan
Irvine, California 92618
Attention: Secretary
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, shares of Common Stock (the "Stock") of Premier
Laser Systems, Inc. (the "Company") and herewith makes payment of
Dollars ($ ) therefor and requests that the certificates for such shares
be issued in the name of, and delivered to, , whose address is
. A copy of the Exercise Notice (as defined in the Warrant)
evidencing that the Warrant is exercisable for at least the number of shares
covered by this agreement is attached.
The address set forth below is the true and correct address of the
undersigned.
-------------------------------------
(Name)
-------------------------------------
(Address)
-------------------------------------
-------------------------------------
If said number of shares shall not be all the shares exercisable or
purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the Warrants.
Dated: ,
-------------------------------------
Name of holder must conform in all
respects to name of holder as
specified on the face of the Warrant
or with the name of the assignee
appearing on the assignment form
attached hereto.)
-------------------------------------
(signature)
-------------------------------------
(print name)
-------------------------------------
(print title)
A-1
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the receipt and adequacy of which are each hereby
confirmed, the undersigned, , hereby sells, assigns and transfers
unto all of the undersigned's right, title and interest in and to
an aggregate of ( ) warrants to purchase shares of the Common
Stock of Premier Laser Systems, Inc. (the "Corporation") standing in the name
of the undersigned on the books of the Corporation and evidenced by that
certain Class C Warrant, dated , (the "Warrant"), and does
hereby irrevocable constitute and appoint as attorney-in-fact
to effect the reissue of the Warrant as necessary and the transfer of said
Warrant on the books of the Corporation with full power of substitution upon
presentation to the Corporation of this Assignment Form together with the
Warrant.
Dated: ,
Signature: __________________________
Printed Name: _______________________
B-1
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APPENDIX C
CLASS D WARRANT
TO PURCHASE COMMON STOCK
NO PAR VALUE OF
PREMIER LASER SYSTEMS, INC.
Warrants (Partial Shares)/1/ , 1998
This certifies that ("Holder"), for value received, is
entitled, subject 1 to the other terms set forth below, to purchase from
Premier Laser Systems, Inc., a California corporation (the "Company"), having
a place of business at 3 Morgan, Irvine, California 92618, at any time from
the Notice Date defined below until 5:00 P.M. (California time) on the
ninetieth day following the Notice Date (the "Expiration Date"), unless
earlier terminated pursuant to the provisions of Section 2.4 hereof, at which
time this Warrant shall expire and become void, a fraction of a share, of the
Company's Common Stock, no par value (the "Common Stock") in an amount
determined pursuant to Section 2 below. The purchase or exercise price per
share (the "Exercise Price") shall be one cent ($0.01) regardless of the
number of Warrants which must be exercised to obtain a Warrant Share (as
defined below).
The number and character of the securities purchasable upon exercise of this
Warrant are subject to adjustment as provided in Section 3.3 hereof.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 Duration of Exercise of Warrant. This Warrant is exercisable at the
option of Holder at any time from the Notice Date until 5:00 P.M. (California
time) on the Expiration Date for all or a portion of the shares of Common
Stock that may be purchased hereunder. This Warrant shall be exercised upon
surrender to the Company of this Warrant properly endorsed with a completed
and executed Subscription Agreement in the form attached hereto as Exhibit A,
and upon payment in cash or cashier's check of the aggregate Exercise Price
for the number of shares of Common Stock for which this Warrant is being
exercised (the "Warrant Shares"). The Company agrees that any Warrant Shares
purchased under this Warrant shall be deemed to be issued to Holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares.
Certificates for the Warrant Shares so purchased, together with any other
securities or property to which Holder is entitled upon such exercise, shall
be delivered to Holder by the Company or its transfer agent at the Company's
expense as soon as practicable after the rights represented by this Warrant
have been exercised. Each stock certificate so delivered shall be in such
denominations of Common Stock as may be reasonably requested by Holder and
shall be registered in the name of Holder or such other name as shall be
designated by Holder. If, upon exercise of this Warrant, fewer than all of the
shares issuable upon exercise of this Warrant are purchased, one or more new
warrants substantially in the form of, and on the terms contained in, this
Warrant will be issued for the remaining number of shares not exercised.
1.2 Securities to be Fully Paid; Reservation of Warrant Shares. The Company
covenants and agrees that all Warrants and Warrant Shares that may be issued
upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable and
such issuance will not violate any pre-emptive rights under applicable law,
the Premier Articles of Incorporation or By-laws, contracts, or agreement, or
otherwise. The Company covenants that it will at all times from the date
hereof reserve and keep available a sufficient number of shares of its
authorized but unissued Common Stock (or other securities) solely for issuance
and delivery to Holder upon exercise of this Warrant. The Company will take
all such reasonable action as may be necessary to assure that such Warrants
and Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation.
- --------
/1/(Does not represent shares--See Paragraph 2 for computation.)
1
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2. NOTICE OF EXERCISABILITY AND DETERMINATION OF NUMBER OF WARRANT SHARES.
2.1 Condition to Exercise. This Warrant shall not become exercisable unless
the Net Sales of Qualified Products (both as defined herein) for the twelve
(12) month period ended December 31, 1999 (the "Determination Date") equal or
exceed Eleven Million Six Hundred Dollars ($11,600,000). Except as set forth
below, "Net Sales" shall mean net sales of Qualified Products as determined by
generally accepted accounting principles, as consistently applied by
Ophthalmic Imaging Systems ("OIS"). "Qualified Products" shall mean products
sold by and in connection with the current core business of OIS including: (i)
products related to or arising out of such current core products; (ii)
products under development as of the date hereof; and (iii) those same
products if sold by any successor owner of OIS' operations. For the purposes
of this Class D Warrant only, firm purchase orders or purchase agreements from
purchasers seeking shipment of goods by December 31, 1999, and which are
accompanied by at least a 10% deposit, shall be deemed to be December 1999
sales. As soon as practicable after the Determination Date, the Company shall
determine the Net Sales of Qualified Products for the twelve (12) month period
ended on the Determination Date and shall mail to the holder of the Warrant,
and shall publish in a newspaper of national circulation a notice (the
"Exercise Notice") stating whether this condition to exercisability has been
met. The date of such mailing and publication is the "Notice Date."
2.2 Shares Issuable. To determine the number of Warrant Shares for which the
Warrant may be exercised, the Company shall determine the average Closing
Price (as defined below) of the Common Stock for the (i) fifteen (15)
consecutive trading days immediately preceding the Determination Date and (ii)
the thirty (30) consecutive trading days ending fifteen (15) trading days
prior to the Determination Date, and shall calculate the number of shares of
the Common Stock, or fraction thereof, which could be purchased at the greater
of such two average Closing Prices for a purchase price of twenty-five cents
($0.25). The result of this calculation shall be the "Share Factor." The Share
Factor shall be multiplied by the number of Warrants stated on the first page
of this Warrant to determine the number of whole shares for which this Warrant
may be exercised. Fractional shares resulting from aggregate exercises shall
be rounded to the nearest whole share.
2.3 Notice. The Exercise Notice sent to the Holder shall state the number of
Warrant Shares for which the Warrant has become exercisable.
2.4 Exercise. If the Exercise Notice states that the condition stated in
Section 2.1 has not been satisfied, then the Notice Date shall become the
Expiration Date, this Warrant shall expire effective as of the Notice Date and
the Holder shall have no further rights hereunder. If the Exercise Notice
states the condition has been met, this Warrant shall thereafter be
exercisable for the number of whole shares determined as provided in
Section 2.2 and specified in the applicable Exercise Notice.
2.5 Closing Price. For purposes of any computation pursuant to this Section
2, the term "Closing Price" for any day shall mean the last reported sale
price, regular way, of the Common Stock, or, in case no such reported sale
takes place on such day, the average of the closing bid and asked prices,
regular way, for such day, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or if it
is not listed or admitted to trading on any national securities exchange, but
is traded on Nasdaq, the closing sale price of the Common Stock or, in case no
sale is reported, the average of the closing bid and asked quotations for the
Common Stock on Nasdaq, or any comparable system.
3. CERTAIN NOTICES.
3.1 Notice of Certain Events. If at any time after the Determination Date
and before the Expiration Date:
3.1.1 the Company shall declare any cash dividend upon its Common Stock;
3.1.2 the Company shall declare any dividend upon its Common Stock
payable in stock (other than a dividend payable solely in shares of Common
Stock) or make any special dividend or other distribution to the holders of
its Common Stock;
3.1.3 the Company shall offer for subscription pro rata to the holders of
its Common Stock any additional shares of stock of any class or other
rights;
2
<PAGE>
3.1.4 there shall be any capital reorganization or reclassification of
the capital stock of the Company; or consolidation or merger of the Company
with, or sale or leases, exchanges or other conveyances (other than
pledges, mortgages and liens related to loans) of substantially all of its
assets to, another corporation;
3.1.5 there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Company; or
3.1.6 any purchase, retirement, or redemption by the Company of its
Common Stock;
then, in any one or more of said cases, the Company shall give to the
registered holder of this Warrant, by the means specified in Section 7 herein,
(i) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, at least twenty (20) days' prior written notice of
the date when the same shall take place; provided, however, that the Company
shall not be required to send any notice pursuant to this Section 3.1 if the
Company determines the condition in Section 2.1 has not been met. Any notice
given in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto. Any notice given
in accordance with the foregoing clause (ii) shall also specify the date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, conversion or public offering, as the case may be. If Holder does
not exercise this Warrant prior to the occurrence of an event described above,
Holder shall not be entitled to receive the benefits accruing to then existing
holders of Common Stock.
3.2 Notice of Adjustment. Upon the happening of an event requiring an
adjustment of the amount or the kind of securities or property purchasable
hereunder, the Company shall forthwith give notice to the Holder which
indicates the event requiring the adjustment, the adjusted number of Warrant
Shares that may be acquired or the amount or kind of any such securities or
property so purchasable upon exercise of this Warrant, as the case may be, and
setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. The Company's independent public
accountant shall determine the method for calculating the adjustment and shall
prepare a certificate setting forth such calculations, the reason for the
methodology chosen, and the facts upon which such calculation is based. Such
certificate shall accompany the notice to be provided to the Holder pursuant
to this Section 3.2.
3.3 Adjustment of Purchase Price and Number of Warrant Shares. The number
and kind of securities that may be acquired upon the exercise of this Warrant
shall be subject to adjustment following the Determination Date and prior to
the earlier of the exercise of, or the Expiration Date of this Warrant, upon
the happening of any of the following events:
(a) Dividends, Subdivisions, Combinations, or Consolidations of Common Stock
(i) In the event the Company shall declare, pay, or make any dividend upon
its outstanding Common Stock payable in Common Stock or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock, then the Share Factor shall be adjusted so that the
number of Warrant Shares that may thereafter be purchased upon the exercise of
the rights represented hereby shall be increased in proportion to the increase
in the number of outstanding shares of Common Stock through such dividend or
subdivision. In case the Company shall at any time combine the outstanding
shares of its Common Stock into a smaller number of shares of Common Stock,
the Share Factor shall be adjusted so that number of Warrant Shares that may
thereafter be acquired upon the exercise of the rights represented hereby
shall be decreased in proportion to the decrease through such combination. In
each case, the Exercise Price will not be adjusted.
(ii) If the Company declares, pays or makes any dividend or other
distribution upon its outstanding Common Stock payable in securities or other
property (excluding cash dividends and dividends payable in
3
<PAGE>
Common Stock, but including, without limitation, shares of any other class of
the Company's stock or stock or other securities convertible into or
exchangeable for shares of Common Stock or any other class of the Company's
stock or other interests in the Company or its assets ("Convertible
Securities")), a proportionate part of those securities or that other property
shall be set aside by the Company and delivered to the Holder in the event
that the Holder exercises this Warrant. The securities and other property then
deliverable to the Holder upon the exercise of this Warrant shall be in the
same ratio to the total securities and property set aside for the Holder as
the number of Warrant Shares with respect to which this Warrant is then
exercised as to the total number of Warrant Shares that may be acquired
pursuant to this Warrant at the time the securities or property were set aside
for the Holder.
(iii) If the Company shall declare a dividend payable in money on its
outstanding Common Stock and at substantially the same time shall offer to its
shareholders a right to purchase new shares of Common Stock from the proceeds
of such dividend or for an amount substantially equal to the dividend, all
shares of Common Stock so issued shall, for purposes of this Warrant, be
deemed to have been issued as a stock dividend subject to the adjustments set
forth in Section 3.3 (a)(i).
(iv) If the Company shall declare a dividend payable in money on its
outstanding Common Stock and at substantially the same time shall offer to its
shareholders a right to purchase new shares of a class of stock (other than
Common Stock), Convertible Securities, or other interests from the proceeds of
such dividend or for an amount substantially equal to the dividend, all shares
of stock, Convertible Securities, or other interests so issued or transferred
shall, for purposes of this Warrant, be deemed to have been issued as a
dividend or other distribution subject to Section 3.3(a)(ii).
(v) If the Company shall declare a dividend payable in cash on its
outstanding Common Stock, such dividend shall be deemed to have been issued as
a dividend or other distribution subject to Section 3.3(a)(i).
(b) Effect of Reclassification, Reorganization, Consolidation, Merger, or
Sale of Assets.
(i) Upon the occurrence of any of the following events, the Company shall
cause an effective provision to be made so that the Holder shall have the
right thereafter, by the exercise of this Warrant, to acquire for the Exercise
Price described in this Warrant the kind and amount of shares of stock and
other securities, property and interests as would be issued or payable with
respect to or in exchange for the number of Warrant Shares that are then
purchasable pursuant to this Warrant as if such Warrant Shares had been issued
to the Holder immediately prior to such event: (A) reclassification, capital
reorganization, or other change of outstanding Common Stock (other than a
change as a result of an issuance of Common Stock under Subsection 3.3(a)),
(B) consolidation or merger of the Company with or into another corporation or
entity (other than a consolidation or merger in which the Company is the
continuing corporation and that does not result in any reclassification,
capital reorganization or other change of the outstanding shares of Common
Stock or the Warrant Shares issuable upon exercise of this Warrant), or (C)
spin-off of assets, a subsidiary or any affiliated entity, or the sale, lease,
conveyance (other than pledges, mortgages and liens related to loans) or
exchange of a significant portion of the Company's assets taken as a whole, in
a transaction pursuant to which the Company's shareholders of record are to
receive securities or other interests in a successor entity. Any such
provision made by the Company for adjustments with respect to this Warrant
shall be as nearly equivalent to the adjustments otherwise provided for in
this Warrant as is reasonably practicable. The foregoing provisions of this
Section 3.3(b)(i) shall similarly apply to successive reclassifications,
capital reorganizations and similar changes of shares of Common Stock and to
successive consolidations, mergers, spin-offs, sales, leases or exchanges.
(ii) If any sale or exchange of all, or substantially all, of the Company's
assets or business or any dissolution, liquidation or winding up of the
Company (a "Termination of Business") shall be proposed, the Company shall
deliver written notice to the Holder of this Warrant in accordance with
Section 3.2 hereof as a condition precedent to the consummation of that
Termination of Business. If the result of the Termination of Business is that
shareholders of the Company are to receive securities or other interests of a
successor entity, the provisions of Section 3.3(b)(i) above shall apply.
However, if the result of the Termination of Business is that
4
<PAGE>
shareholders of the Company are to receive money or property other than
securities or other interests in a successor entity, the Holder of this
Warrant shall be entitled to exercise this Warrant and, with respect to any
Warrant Shares purchasable pursuant to this Warrant so acquired, shall be
entitled to all of the rights of the other shareholders of Common Stock with
respect to any distribution by the Company in connection with the Termination
of Business. In the event no successor entity is involved and Section
3.3(b)(i) does not apply, all acquisition rights under this Warrant shall
terminate at the close of business on the date as of which shareholders of
record of the Common Stock shall be entitled to participate in a distribution
of the assets of the Company in connection with the Termination of Business;
provided, that, in no event shall that date be less than 20 days after
delivery to the Holder of this Warrant of the written notice described above
and in Section 3.2 hereof. If the termination of acquisition rights under this
Warrant is to occur as a result of the event at issue, a statement to that
effect shall be included in that written notice.
(c) Obligation of Successors or Transferees. The Company shall not effect
any consolidation, merger, or sale or conveyance of assets within the meaning
of Section 3.3(b)(i)(B)-(C) unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed or delivered to
the Holder pursuant to Section 8 herein, the obligation to deliver to the
Holder such shares of stock, securities, or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. In no event shall
the securities received pursuant to this Section be registerable or
transferable other than pursuant and subject to the terms of this Warrant.
(d) Application of this Section. The provisions of this Section 3.3 shall
apply to successive events that may occur from time to time but shall only
apply to a particular event if it occurs prior to the expiration of this
Warrant either by its terms or by its exercise in full.
(e) Definition of Common Stock. Unless the context requires otherwise,
whenever reference is made in this Section 3.3 to the issue or sale of shares
of Common Stock, the term "Common Stock" shall mean (i) the no par value Class
A Common Stock of the Company, (ii) any other class of stock ranking on a
parity with, and having substantially similar rights and privileges as the
Company's no par value Class A Common Stock, and (iii) any Convertible
Security convertible into either (i) or (ii). However, subject to the
provisions of Section 3.3(b)(i) above, Common Stock issuable upon the exercise
of this Warrant shall include only shares of Common Stock designed as no par
value Class A Common Stock of the Company as of the date of this Warrant.
(f) Company-Held Stock. For purposes of Sections 3.3(a) above, shares of
Common Stock owned or held at any relevant time by, or for the account of, the
Company in its treasury or otherwise, shall not be deemed to be outstanding
for purposes of the calculation and adjustments described therein.
4. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of the Warrant shall be made without charge to Holder of any issue
tax or other governmental charges in respect thereof; provided, however, that
the Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the then holder of the Warrant being
exercised.
5. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained
in this Warrant shall be construed as conferring upon Holder the right to vote
or to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company, until, and only to
the extent that, this Warrant shall have been exercised. Except as provided in
Section 3.1 in the event of a dividend on the Common Stock payable in shares
of Common Stock, no dividends or interest shall be payable or accrued in
respect of this Warrant or the interest represented hereby or the Warrant
Shares purchasable hereunder until, and only to the extent that, this Warrant
shall have been exercised. The Company covenants, however, that until the
Termination Date, for so long as this Warrant remains at least partially
unexercised, it will furnish the Holder with copies of all reports and
communications furnished to the stockholders of the Company. No provisions
hereof, in the
5
<PAGE>
absence of affirmative action by Holder to purchase Warrant Shares, and no
mere enumeration herein of the rights or privileges of Holder shall give rise
to any liability of Holder for the Exercise Price or as a stockholder of the
Company whether such liability is asserted by the Company or by its creditors.
6. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
7. NOTICES. Any notice required or permitted under this Warrant shall be in
writing and either delivered personally, telegraphed or telecopied or sent by
certified or registered mail, postage prepaid, and shall be deemed to be
given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five (5) business days after the date of mailing to
the following address or facsimile number, or to such other address or
addresses as such person may subsequently designate by notice given hereunder.
If to the Company: Premier Laser Systems, Inc.
Attention: Secretary
3 Morgan Irvine, California
92618 Facsimile: 714 951-7218
with a copy to: Paul, Hastings, Janofsky & Walker LLP
Attention: Peter J. Tennyson, Esq.
695 Town Center Drive, 17th Floor
Costa Mesa, California 92626-1924
Facsimile: 714 979-1921
If to Holder: As Holder's address appears
on a register of Warrants
maintained by the Company's
transfer agent.
8. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder.
9. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of the
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
10. EXCHANGE, ASSIGNMENT, COMBINATION AND REPLACEMENT OF WARRANTS.
(a) This Warrant is exchangeable, without expense other than as provided in
this Section 10, at the option of the Holder upon the reasonable request,
presentation and surrender hereof to the Company for other Warrants of
different denominations entitling the Holder thereof to acquire in the
aggregate the same number of Warrant Shares that may be acquired hereunder.
(b) All of the covenant and provisions of this Warrant by or for the benefit
of the Holder shall be binding upon and shall inure to the benefit of, its
successors and permitted assigns hereunder. This Warrant and all rights
hereunder are transferrable and may be sold, transferred, assigned, or
hypothecated upon surrender of this Warrant to the Company, together with a
duly executed assignment in the form attached hereto as Exhibit B (the
"Assignment Form"), whereupon the Company shall, without charge, execute and
deliver a new Warrant containing the same terms and conditions of this Warrant
in the name of the assignee as named in the Assignment
6
<PAGE>
Form, and this Warrant shall be canceled at that time. This Warrant, if
properly assigned, may be exercised by a new Holder without first having the
new Warrant issued.
(c) This Warrant may be delivered or combined with other Warrants that carry
the same rights upon the reasonable request, presentation and surrender of
this Warrant at the office of the Company, together with a written notice
signed by the Holder, specifying the names and denominations in which new
Warrants are to be issued.
(d) The Company will execute and deliver to the Holder a new Warrant of like
tenor and date upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction, or mutilation of this Warrant;
provided, that (i) in the case of loss, theft, or destruction, the Company
receives a reasonably satisfactory indemnity or bond, or (ii) in the case of
mutilation, the Holder shall provide and surrender this Warrant to the Company
for cancellation.
(e) Any new Warrant executed and delivered by the Company in substitution or
replacement of this Warrant shall constitute a contractual obligation of the
Company regardless of whether this Warrant was lost, stolen, destroyed or
mutilated, and shall be enforceable by any Holder thereof.
(f) The Holder shall pay all transfer and excise taxes applicable to any
issuance of new Warrants under this Section 10.
11. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of
this Warrant. The Company shall, in lieu of issuing any fractional share,
round such fractional shares to the nearest whole share.
12. BEST EFFORTS. The Company covenants that it will not, by amendment of
its Articles of Incorporation or bylaws, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, reissue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observation or performance for any term of this Warrant, but will at all times
in good faith assist in carrying out all those terms and in taking all action
necessary or appropriate to protect the rights of the Holder against dilution
or other impairment.
13. FURTHER ASSURANCES. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue, duly authorized fully paid and nonassessable Warrants and Common Stock
and other securities issuable upon exercise of this Warrant from time to time
and not in violation of any pre-emptive rights.
(Signature Page follows.)
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer effective as of , 1998.
PREMIER LASER SYSTEMS, INC.
By: _________________________________
Colette Cozean, Ph.D.
Chief Executive Officer
8
<PAGE>
EXHIBIT A
PREMIER LASER SYSTEMS, INC.
COMMON STOCK WARRANT
FORM OF SUBSCRIPTION AGREEMENT
(TO BE SIGNED AND DELIVERED
UPON EXERCISE OF WARRANT)
PREMIER LASER SYSTEMS, INC.
3 Morgan
Irvine, California 92618
Attention: Secretary
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, shares of Common Stock (the "Stock") of Premier
Laser Systems, Inc. (the "Company") and herewith makes payment of
Dollars ($ ) therefor and requests that the certificates for such shares
be issued in the name of, and delivered to, , whose address is
. A copy of the Exercise Notice (as defined in the Warrant)
evidencing that the Warrant is exercisable for at least the number of shares
covered by this agreement is attached.
The address set forth below is the true and correct address of the
undersigned.
-------------------------------------
(Name)
-------------------------------------
(Address)
-------------------------------------
-------------------------------------
If said number of shares shall not be all the shares exercisable or
purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the Warrants.
Dated: ,
-------------------------------------
Name of holder must conform in all
respects to name of holder as
specified on the face of the Warrant
or with the name of the assignee
appearing on the assignment form
attached hereto.)
-------------------------------------
(signature)
-------------------------------------
(print name)
-------------------------------------
(print title)
A-1
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the receipt and adequacy of which are each hereby
confirmed, the undersigned, , hereby sells, assigns and transfers
unto all of the undersigned's right, title and interest in and to
an aggregate of ( ) warrants to purchase shares of the Common
Stock of Premier Laser Systems, Inc. (the "Corporation") standing in the name
of the undersigned on the books of the Corporation and evidenced by that
certain Class D Warrant, dated , (the "Warrant"), and does
hereby irrevocable constitute and appoint as attorney-in-fact
to effect the reissue of the Warrant as necessary and the transfer of said
Warrant on the books of the Corporation with full power of substitution upon
presentation to the Corporation of this Assignment Form together with the
Warrant.
Dated: ,
Signature: __________________________
Printed Name: _______________________
B-1
<PAGE>
APPENDIX D
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-KSB
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 1-11140
----------------
OPHTHALMIC IMAGING SYSTEMS
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 94-3035367
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
221 LATHROP WAY, SUITE I, SACRAMENTO, CALIFORNIA 95815
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(916) 646-2020
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, No Par Value Boston Stock Exchange
NASDAQ
</TABLE>
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
NONE
(TITLE OF CLASS)
----------------
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
CHECK IF NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF
REGULATION S-B IS CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB. [_]
The issuer's revenues for its most recent fiscal year was $6,625,616.
The aggregate market value of the Common Stock of the issuer held by non-
affiliates as of October 31, 1997, was approximately $3,507,989 by reference
to the average bid and ask price of the Common Stock as quoted by NASDAQ Small
Cap Market on such date. As of October 31, 1997, there were 3,905,428 issued
and outstanding shares of issuer's Common Stock.
Traditional Small Business Disclosure Format (check one): Yes [_] No [X]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Ophthalmic Imaging Systems (the "Company" or "OIS") was incorporated under
the laws of the State of California on July 14, 1986. The Company is engaged
in the business of designing, developing, manufacturing, and marketing digital
imaging systems and image enhancement and analysis software for use by
practitioners in the ocular health field.
Since its inception, the Company's products have addressed primarily the
needs of the ophthalmic fluorescein angiography market, and more recently the
indocyanine green market. The current flagship products in the Company's
angiography line are its digital imaging systems, the WinStation 1024(TM) and
WinStation 640(TM). These WinStation products are targeted primarily at
retinal specialists and general ophthalmologists.
The Company believes, however, that as the U.S. healthcare system moves
toward managed care the needs of the managed care providers are changing the
nature of demand for medical imaging equipment and services. New opportunities
in telemedicine are emerging that allow managed care organizations to reduce
costs while maintaining their quality of patient care. OIS is currently a
market leader in the ophthalmic imaging field and plans to expand this role by
applying its technology to telemedicine/managed care applications.
The Company's objective is to become a leading provider of ophthalmic
diagnostic products and services in the ocular health care industry, while
maintaining its position as and a market leader in digital imaging
telemedicine.
In this regard, over the past two years, the Company has expended
significant resources in developing a Reading and Documentation Center through
which it originally intended to provide documentation services of
electronically transmitted digital images acquired at remote locations. The
Company has recently redefined the scope of the Reading and Documentation
Center, however, to support research and development efforts surrounding its
existing products. The Reading and Documentation Center is presently being
utilized in the validation of diabetic retinopathy screening through
electronically transmitted digital images acquired at remote locations. The
Company is currently conducting a pilot program with a major managed care
provider to evaluate remote image interpretation for diabetic retinopathy
screening and intends to utilize this validation study to help expand the use
of the Company's digital imaging products for such screening.
The Company also recently has refocused its resources on the marketing and
sales of its WinStation digital imaging systems. The Company's products are
currently being utilized in a variety of ophthalmic settings for the
telemedicine application of remote consultation. The Company is currently
focusing its product development efforts on features and enhancements to its
existing products targeting various other telemedicine applications.
Additionally, in the near-term, the Company intends to utilize its Reading and
Documentation Center to develop and assess viable opportunities for the
Company's digital imaging products in screening, remote consultation, distance
learning and other telemedicine applications.
The Company continues to assess market opportunities for its Glaucoma-
Scope(R)(TM), but currently does not actively market for the sale of this
product.
The Company has experienced operating losses for each fiscal year since its
initial public offering in 1992. The Company expects to continue to incur
operating losses for the foreseeable future and there can be no assurance that
the Company will be able to achieve or sustain significant revenues or
profitability in the future. In an effort to achieve profitability, the
Company intends to strengthen its existing product lines and expand into new
product lines. In this regard, the Company's plans to expand its technology to
telemedicine/managed care applications which may result in significant
expenses over the next several years.
2
<PAGE>
The Company, headquartered in Sacramento, California, enjoys a fine
reputation within the ophthalmic community for producing high quality,
reliable, easy to use equipment. Its products are compatible with standard
diagnostic procedures used in all types of eye care practices.
The Industry
There are approximately 18,000 ophthalmologists in the United States and
28,000 ophthalmologists practicing medicine in countries outside the United
States. This group has been traditionally divided into two major groups:
anterior segment (front of the eye) and posterior segment (back of the eye).
Within these groups there are several sub-specialties including medical
retina, retina and vitreous, glaucoma, neuro, plastics, pediatric, cataract,
cornea and refractive surgery. The Company's WinStation products are targeted
primarily at the retina specialist and general ophthalmologist.
Products
The Company currently offers two products to the ophthalmic market:
WinStation 640 and the WinStation 1024.
Winstation Systems (640 & 1024)
The Company's WinStation systems (640 and 1024 resolution) are primarily
used by ophthalmologists to perform a diagnostic test procedure known as
fluorescein angiography. This procedure is used to diagnose and monitor
pathology and provide important information in making treatment decisions.
Fluorescein angiography is performed by injecting a fluorescent dye in the
bloodstream. As the dye circulates through the blood vessels of the eye, the
WinStation system connected to a fundus camera takes detailed images of the
patient's retina. Quite often these images provide a "road map" for laser
treatment.
Over the past 35 years fluorescein angiography has been performed using
photographic film which requires special processing and printing. The
Company's WinStation systems allow for immediate diagnosis and treatment of
the patient. Images are automatically data based and are permanently stored on
optical laser disk or CD-ROM. OIS offers a variety of networking and printer
options to best fit the practice needs.
The Company's WinStation systems are also used by ophthalmologists to
perform indocyanine green ("ICG") angiography. ICG angiography is a new
diagnostic test procedure which is yielding new clinically significant
information that is helpful in the treatment of patients with macular
degeneration (a leading cause of blindness afflicting over 13 million people
in the U.S.). ICG angiography, used for approximately 10-20% of patient
angiography, is a dye procedure that can only be performed using a digital
imaging system.
Other
The Company also developed the Glaucoma-Scope(R)(TM), designed for use by
ocular health providers that manage patients with glaucoma by providing a
means for comparing optic nerve head topography over a number of patient
visits. While the Company has sold Glaucoma-Scope(R)(TM) units in the past, it
no longer actively markets this product for sale.
Markets
The WinStation market consists of current fundus camera owners and
anticipated fundus cameras purchasers of cameras suitable for interfacing with
the Company's digital imaging system products. Presently there are over 8,500
mydriatic fundus cameras in clinical use in the United States with an equal
number in the international market. New fundus camera sales fluctuate between
500 and 1,000 units per year. Of the total number of fundus cameras worldwide,
approximately 12,000 are suitable to be interfaced with OIS digital imaging
systems.
Currently there are six manufacturers of fundus cameras producing a total of
17 models. OIS has successfully designed optical and electronic interfaces to
each of these cameras.
3
<PAGE>
The primary target market for digital angiography systems is retinal
specialists who number approximately 3,000 in the U.S. For the past two years
OIS digital imaging system sales have been driven in this segment to a large
extent by indocyanine green ("ICG") angiography. ICG angiography is a new
diagnostic test procedure which is yielding new clinically significant
information that is helpful in the treatment of patients with macular
degeneration (a leading cause of blindness afflicting over 13 million people
in the U.S.). ICG angiography is a dye procedure that can only be performed
using a digital imaging system. While only used for 10-20% of patient
angiography, it has been the catalyst to digital imaging system purchases.
Competition is intense in the retinal community and those practices without
ICG capability are losing referral business from general ophthalmologists. The
Company expects the demand for digital angiography to continue as it is
becoming a standard of care.
Although the Company no longer actively manufactures or markets the
Glaucoma-Scope(R)(TM) for sale, it continue to asses potential market
opportunities for this product.
Sales, Marketing and Distribution
The Company utilizes a direct sales force in marketing its products
throughout the United States and Canada. The direct sales force consists of
territory representatives and product specialists strategically located
throughout the contiguous U.S. as well as a marketing manager located at the
Company's headquarters. These regional representatives and product specialists
provide marketing, sales, service, installation and training. Additionally,
the Company subcontracts service in several cities in the U.S. and Canada for
routine component replacement. Internationally, the Company has retained
specialized ophthalmic distributors which sell the Company's products in
various foreign countries. Each country has trained sales and technical
service staff for their respective territories.
For its marketing activities, the Company prepares brochures, data sheets,
application notes on its products, and participates in industry trade shows
and workshops. Advertising and promotion is achieved through advertisements in
trade journals, press releases, a Company newsletter, direct mail
solicitations, journal articles, and scientific papers and presentations.
Manufacturing and Production
The Company is primarily a systems integrator with proprietary software,
optical interfaces, and electronic fundus camera interfaces. Certain
components are subcontracted to outside vendors and assembled at OIS. The
Company inventories and assembles components in a 10,500 square foot facility
located in Sacramento, California. For production of certain components of its
products, the Company's manufacturing strategy is to use subcontractors to
minimize time and reduce capital requirements.
The Company's product line is manufactured by assembling components
purchased from established outside quality vendors as well as certain
components manufactured by OIS. Proprietary components manufactured by the
Company include interface circuit boards for 17 fundus camera models, video
optical interfaces including ICG and live viewing options. The Glaucoma-
Scope(R)(TM) optical head is also manufactured by the Company.
The Company has been routinely audited by the Food and Drug Administration
and was deemed to conform to Good Manufacturing Practices ("GMP"). The Company
has 510(k)'s on file for both the Glaucoma-Scope(R)(TM) and its digital
angiography products. See "Government Regulation".
Components, Raw Materials and Supplers
As a systems integrator, a significant number of the major hardware
components in the Company's products are procured from sole source vendors.
Whenever possible, however, the Company seeks multiple vendor sources from
which to procure its components. As with any manufacturing concern dependent
on subcontractors and component suppliers, significant delays in receiving
products or unexpected vendor price increases could adversely affect the
Company.
4
<PAGE>
The Company works closely with its principal component suppliers and the
rest of its vendors to maintain dependable working relationships and to
continually integrate the most current proven pertinent technologies into the
manufacturing of its products.
Warranties
The Company generally provides a 12-month limited warranty for parts, labor
and shipping charges in connection with the initial sale of its products. The
Company also provides its standard limited warranty beyond the 12-month period
in consideration for increased deposits from customers. Peripheral products
such as monitors, printers and optical laser disk drives also carry the
original manufacturer's warranty.
To insure quality control and the proper functioning of a product in the
doctor's office, the Company installs the system and trains the doctor and his
staff. The Company makes every effort to provide the customer with a properly
functioning system and a well-trained staff.
The Company also offers service plans for sale to its customers as a
supplement to the original manufacturer's warranties carried on certain of the
Company's component parts used in its products.
Competition
The healthcare industry is characterized by extensive research and
development efforts and rapid technological change. Competition for products
that can diagnose and evaluate eye disease is intense and is expected to
increase. The Company is aware of two primary competitors in the U.S. which
produce and are delivering digital fundus imaging systems, Topcon and Tomey.
Four other companies are known to have systems in the international market
each with small market penetration.
Topcon is the Company's main competitor in the angiography market. Topcon
angiography products predominantly interface with Topcon fundus cameras while
the Company's systems interface with 17 different models or fundus cameras
from a wide variety of manufacturers.
Although the Company will continue to work to develop new and improved
products, many companies are engaged in research and development of new
devices and alternative methods to diagnose and evaluate eye disease.
Introduction of such devices and alternative methods could hinder the
Company's ability to compete effectively and could have a material adverse
effect on its business, financial condition and results of operations. Many of
the Company's competitors and potential competitors have substantially greater
financial, manufacturing, marketing, distribution and technical resources than
the Company.
Research and Development
The Company intends to devote significant resources to the development of
telemedicine/managed care applications, the improvement of optics, new fundus
camera interfaces for ICG, software development (including the continued
enhancement of WinStation), hardware optimization, and the patient/doctor
interface. The Company's research and development expenditures in the periods
ended August 31, 1997 and 1996, were $1,070,192 and $846,034, respectively.
Patents, Trademarks and Other Intellectual Property
On June 15, 1993 the Company was issued United States Letters Patent
5,220,360 for "Apparatus and Method for Topographical Analysis of the Retina."
This patent relates to the Glaucoma-Scope(R)(TM) apparatus, and methods used
by the apparatus for topographically mapping the retina and comparing the
mapping to previous mappings. In addition, the Company relies upon trade
secrets, know-how, and continuing technological innovation to develop and
maintain its competitive position. The Company anticipates aggressively
defending its patents and proprietary technology, although there can be no
assurance that any patent will not be circumvented or invalidated.
5
<PAGE>
Further, although the Company believes that the GlaucomaScope(R)(TM) and the
Company's other products do not and will not infringe patents or violate
proprietary rights of others, it is possible that its existing rights may not
be valid or that infringement of existing or future patents, trademarks or
proprietary rights may occur. In the event that any of the Company's products,
including the Glaucoma-Scope(R)(TM), infringe patents, trademarks or
proprietary rights of others, the Company may be required to modify the design
of such products, change the names under which the products or services are
provided, or obtain licenses. There can be no assurance that the Company will
be able to do so in a timely manner, upon acceptable terms and conditions, or
at all. The failure to do any of the foregoing could have a material adverse
effect on the Company. There can be no assurance that the Company's patents or
trademarks, if granted, would be upheld if challenged, or that competitors
might not develop similar or superior processes or products outside the
protection of any patents issued to the Company. In addition, there can be no
assurance that the Company will have the financial or other resources
necessary to enforce or defend a patent or trademark infringement or
proprietary rights violation action. Moreover, if the Company's products
infringe patents, trademarks or proprietary rights of others, the Company
could, under certain circumstances, become liable for damages, which also
could have a material adverse effect on the Company.
The Company also relies on unpatented proprietary technology. Certain of the
image processing and optical interfaces of the Company's digital imaging
systems are largely proprietary and constitute trade secrets, but the basic
computer hardware, software, and video components are purchased from third
parties. No patent applications have been filed with respect thereto. There is
no assurance that others will not independently develop substantially
equivalent proprietary information or techniques, or otherwise gain access to
the Company's trade secrets or disclose such technology, or that the Company
can meaningfully protect its rights to its unpatented trade secrets.
The Company seeks to protect its unpatented proprietary technology, in part,
through proprietary confidentiality and nondisclosure agreements with
employees, consultants and other parties. The Company's confidentiality
agreements with its employees and consultants generally contain industry
standard provisions requiring such individuals to assign to the Company
without additional consideration any inventions conceived or reduced to
practice by them while employed or retained by the Company, subject to
customary exceptions. There can be no assurance that proprietary information
agreements with employees, consultants and others will not be breached, that
the Company would have adequate remedies for any breach or that the Company's
trade secrets will not otherwise become known to or independently developed by
competitors.
Government Regulation
The marketing and sale of the Company's products are subject to certain
domestic and foreign governmental regulations and approvals. Pursuant to the
Federal Food, Drug, and Cosmetic Act ("FDCA"), the Company is required under
Section 510(k) to file, and has submitted, a Pre-Marketing Notification with
the Federal Drug Administration (the "FDA") which provides certain safety and
effectiveness information concerning the Company's diagnostic imaging systems
and the Glaucoma-Scope(R)(TM). The FDA has approved the Company's pre-
marketing notification submittals thereby granting the Company permission to
market its product, subject to the general controls and provisions of the
FDCA. The Company's products are classified as Class II devices (special
controls) which require, among other things, annual registration, listing of
devices, good manufacturing practices and labeling, and prohibition against
misbranding and adulteration.
The Company has registered its manufacturing facility with both the FDA and
the California authorities as a medical device manufacturer and operates such
facility under FDA and California requirements concerning Quality System
Requirements ("QSR"), and formerly GMP. As a medical device manufacturer, the
Company is required to continuously maintain its QSR compliance status and to
demonstrate such compliance during periodic FDA or California inspections. If
the facilities do not meet applicable QSR regulatory requirements, the Company
may be required to implement changes necessary to comply with such
regulations.
6
<PAGE>
Although the FDA has made findings which permit the Company to proceed with
its products to the marketplace, such findings do not constitute FDA approval
of these devices. Further, since the Company is engaged in international
sales, the Company's products must satisfy certain manufacturing requirements
and may subject the Company to various filing and other regulatory
requirements imposed by foreign governments as a condition to the sale of such
products. The Company cannot predict the effect that future legislation or
regulatory developments may have on its operations. Additional regulations,
reconsideration of approvals granted under current regulations, or a change in
the manner in which existing statutes and regulations are interpreted or
applied may have a material adverse impact on the Company's business,
financial condition and results of operations. Moreover, new products and
services developed by the Company, if any, also may be subject to the same or
other various federal and state regulation, including that of the FDCA.
Insurance
The Company maintains general commercial casualty and property insurance
coverage for its business operations, as well as product liability insurance.
As of August 31, 1997, the Company has not received any product liability
claims and is unaware of any threatened or pending claims. To the extent that
product liability claims are made against the Company in the future, such
claims may have a material adverse impact on the Company.
Employees
As of August 31, 1997, the Company had 33 employees, of which 28 were full
time. The Company also engages the services of consultants from time to time
to assist the Company on specific projects in the area of research and
development, software development, regulatory affairs, and product services.
These consultants periodically engage contract engineers as independent
consultants for specific projects. The Company has no collective bargaining
agreements covering any of its employees, has never experienced any material
labor disruption, and is unaware of any current efforts or plans to organize
its employees. The Company considers its relationship with its employees to be
good.
ITEM 2. DESCRIPTION OF PROPERTY
Facilities
The Company leases, under a triple net lease, approximately 13,875 square
feet of office, manufacturing, and warehouse space in Sacramento, California
under a lease which terminates June 30, 1998. The Company also leases an
approximately 200 square foot sales office in Simsbury, Connecticut on a
month-to-month basis. Management believes that its existing facilities are
suitable and adequate to meet its current needs. The Company pays monthly
lease payments, with respect to these properties, in the aggregate of
approximately $10,200.
The Company does not have, and does not foresee acquiring, any real estate
or investments in real estate, and is not engaged in any real estate
activities.
ITEM 3. LEGAL PROCEEDINGS
On September 6, 1996, an action was filed in Superior Court in the County of
Sacramento, California against the Company by a former employee alleging that
such employee was wrongfully terminated by the Company in retaliation for
filing a grievance against a co-employee for harassment and creation of a
hostile work environment. The suit, which is still pending, seeks, among other
things, lost wages, $150,000 in compensatory damages, and punitive damages.
The Company believes that this action is without merit and intends to defend
this action vigorously.
There is no other material litigation or other legal proceedings presently
pending or threatened (to the knowledge of management of the Company) to which
the Company (or any of its directors or officers in their capacity as such)
is, or may be a party, or to which property of the Company is, or may be,
subject.
7
<PAGE>
On or about August 17, 1997, the Company was advised that JB Oxford &
Company ("JBO"), one of several market makers in the Company's common shares
which trade over the counter on the NASDAQ Small-Cap Market, was being
investigated by the Securities and Exchange Commission ("SEC"). In connection
with this investigation, the Company, and Mr. Verdooner, in his capacity as
Chief Executive Officer of the Company, were served by the SEC with a subpoena
on or about August 18, 1997. These subpoenas require the submission to the SEC
of various documents, predominantly relating to JBO.
The Company has cooperated with the SEC investigation and is making every
effort to produce the documents requested. The Company does not believe, nor
has it any reason to believe, it is a subject of the SEC inquiries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's securities
holders during the fourth quarter of its fiscal year ended August 31, 1997
covered by this Annual Report on Form 10-KSB.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company, no par value, is traded over-the-counter on
the NASDAQ Small-Cap Market under the symbol "OISI" and on the Boston Stock
Exchange under the symbol "OIS."
The table below sets forth the high ask and low bid prices for the Company's
Common Stock for each quarter of fiscal year 1996 and 1997, respectively. The
source of the following information was NASDAQ. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-downs or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1997
--------------------- ---------------------
HIGH LOW HIGH LOW
ASK BID DIVIDEND ASK BID DIVIDEND
----- ------ -------- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C>
QUARTER 1........................ 3 3/4 1 1/2 -- 5 3/4 3 1/4 --
QUARTER 2........................ 4 1 9/16 -- 5 3/16 3 --
QUARTER 3........................ 7 3/8 3 -- 3 7/8 1 7/8 --
QUARTER 4........................ 5 3/4 3 1/8 -- 2 1/4 1/2 --
</TABLE>
On October 31, 1997 the closing price for the Company's Common Stock as
reported by Nasdaq was $1.00 per share and there were approximately 168
shareholders of record.
Under the NASDAQ rules, one prerequisite to continued listing on NASDAQ, is
maintenance by a company of a minimum closing bid price of $1.00 per share. If
a company's closing bid price per share is below $1.00 per share for ten (10)
consecutive trading days, the company may be subject to having its shares
delisted from NASDAQ.
In September 1997, the Company's closing bid price per share fell below
$1.00 per share for ten (10) consecutive trading days. Accordingly, the
Company received a letter from NASDAQ which indicated that although the
Company's closing bid price per share did not meet the minimum $1.00
requirement, NASDAQ was not going to commence any delisting action at that
time. Instead, NASDAQ stated that the Company would be in compliance with its
minimum listing price rules, if at any time during the next 90 calendar days
from September 23, 1997, the closing bid price per share of the Company's
common stock is at least $1.00 for ten consecutive trading days ("Minimum
Closing Price Requirement").
8
<PAGE>
Although the bid price of the Company's shares has closed at or above $1.00
per share since September 23, 1997, as of the date hereof the Company has not
met the Minimum Closing Price Requirement and there can be no assurance that
the Company will meet said requirement or that the Company may not become
subject to delisting from the NASDAQ Small-Cap Market in the future.
Dividend Policy
The Company has not paid any cash dividends since its inception and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company expects to retain its earnings, if any, to provide funds
for the expansion of its business. Pursuant to a Credit Agreement (defined
below), the Company is restricted from paying dividends prior to retirement of
the debt thereunder. Future dividend policy will be determined periodically by
the Board of Directors based upon conditions then existing, including the
Company's earnings and financial condition, capital requirements, and other
relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE STATEMENTS BELOW INCLUDE STATEMENTS THAT ARE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 21A OF THE SECURITIES ACT OF 1933,
AS AMENDED, IN SECTION 21E OF THE SECURITIES ACT OF 1934, AS AMENDED, AND IS
SUBJECT TO THE SAFE HARBOR CREATED THEREBY. FUTURE OPERATING RESULTS MAY BE
ADVERSELY EFFECTED AS A RESULT OF A NUMBER OF FACTORS ENUMERATED IN THE
COMPANY'S PUBLIC REPORTS.
Overview
To date, the Company has designed, developed, manufactured and marketed
ophthalmic digital imaging systems and has derived substantially all of its
revenues from the sale of such products. The Company has a reputation within
the ophthalmic community for producing high quality, reliable, easy to use
equipment and believes itself to be an acknowledged industry leader in the
technology and sales of digital ophthalmic imaging systems.
The Company believes, however, that as the U.S. healthcare system moves
toward managed care the needs of the managed care providers are changing the
nature and demand for medical imaging equipment and services. New
opportunities in telemedicine are emerging that may allow managed care
organizations to reduce costs while maintaining their quality of patient care.
OIS plans to leverage its digital imaging technology and established customer
base to develop product features and services targeting telemedicine/managed
care applications for the ocular health care industry.
Since its inception, the Company's products have addressed primarily the
needs of the ophthalmic fluorescein angiography market, and more recently the
indocyanine green ("ICG") market. While the Company believes that the overall
angiography market has modest growth potential, sustaining growth in its
traditional angiography equipment business may become increasingly difficult
due to increased competition. In recognition of this, the Company is expanding
its product capabilities to address the emerging telemedicine market. The
Company will continue to support and expand its entire line of digital
angiography products, and will focus its future efforts on developing product
enhancements and pursuing viable opportunities in this market, particularly as
they relate to telemedicine applications.
The Company's objective is to become a leading provider of ophthalmic
diagnostic products and services in the ocular health care industry, while
maintaining its position as a market leader in its existing digital imaging
products and telemedicine.
In this regard, over the past two years, the Company has expended
significant resources in developing a Reading and Documentation Center through
which it originally intended to provide documentation services of
9
<PAGE>
electronically transmitted digital images acquired at remote locations. The
Company has recently redefined the scope of the Reading and Documentation
Center, however, to support research and development efforts surrounding its
existing products. The Reading and Documentation Center is presently being
utilized in the validation of diabetic retinopathy screening through
electronically transmitted digital images acquired at remote locations. The
Company is currently conducting a pilot program with a major managed care
provider to evaluate remote image interpretation for diabetic retinopathy
screening and intends to utilize this validation study to help expand the use
of the Company's digital imaging products for such screening.
The Company also recently has refocused its resources on the marketing and
sales of its WinStation digital imaging systems. The Company's products are
currently being utilized in a variety of ophthalmic settings for the
telemedicine application of remote consultation. The Company is currently
focusing its product development efforts on features and enhancements to its
existing products targeting various other telemedicine applications.
Additionally, in the near-term, the Company intends to utilize its Reading and
Documentation Center to develop and assess viable opportunities for the
Company's digital imaging products in screening, remote consultation, distance
learning and other telemedicine applications.
Although the Company no longer actively markets for the sale of its
Glaucoma-Scope(R)(TM), it continues to assess market opportunities for this
product.
The Company's results of operations have historically fluctuated from
quarter to quarter and from year to year and management anticipates that such
fluctuations will continue in the future. There can be no assurance that
revenue growth or profitability can be achieved or sustained in the future.
Results of Operations
The Company's revenues decreased to $6,625,616 in 1997 from $6,873,651 in
1996. The primary factor contributing to the reduced 1997 revenue level was a
reallocation of the Company's resources to address emerging opportunities in
the telemedicine/managed care market; and pursuit of sales for its Reading and
Documentation Center Services, which it has since ceased. During the 1996 fall
meeting of the American Academy of Ophthalmology ("AAO"), the Company
introduced lower-priced digital imaging systems incorporating telemedicine
features providing for remote consultation and distance learning, as well as
other applications. The Company has targeted these products to the general
ophthalmology and retinal specialty practice markets and made initial
deliveries of these systems during the latter half of 1997. During the
recently completed 1997 AAO meeting, the Company introduced new models of its
digital angiography products incorporating enhanced telemedicine features,
with the Company receiving significantly more purchase commitments for its
products as compared to previous AAO meetings. As such, the Company will
continue to allocate resources to address these markets, and direct the
majority of its resources to both support the demand for its digital imaging
products in these and related markets and, more recently, to pursue
opportunities in the telemedicine/managed care market.
Contribution to revenues from sales of Glaucoma-Scope(R)(TM) units have been
negligible and management does not anticipate near-term sales improvement from
the Glaucoma-Scope(R)(TM).
Gross margins were approximately 26% in 1997 as compared to approximately
30% in 1996. This decrease in gross margin percentage was attributable
primarily to the adverse impact of a non-recurring adjustment to reduce the
carrying value of certain inventory, including field spares, due to, among
other things, potential obsolescence and reduced cost recovery estimates. The
Company continues to evaluate its expenses in this area consistent with
current and anticipated business conditions and management believes that near-
term gross margin improvement, if any, would result principally from reduced
material costs associated with currently deliverable system configurations,
outsourcing additional manufacturing and assembly operations and related fixed
cost reduction measures implemented during the latter half of 1997, including
personnel cutbacks, economics of scale from increased unit production and
other manufacturing efficiencies.
10
<PAGE>
Sales and marketing and general and administrative expenses accounted for
approximately 41% of revenues for the fiscal year ended August 31, 1997 as
compared to approximately 35% for the previous fiscal year. Expenses were
$2,714,140 in 1997 as compared to $2,375,427 in 1996, representing an increase
of approximately 14%. The primary factors contributing to this increase were
costs associated with hiring additional support personnel, the impact of
increased reserves for potential credit losses and the costs associated with
developing the telemedicine/managed care applications and the start-up
marketing efforts. The Company anticipates expenses in this area will continue
to run above historical levels for the foreseeable future, in particular in
conjunction with the hiring of additional senior management level personnel
during the fourth quarter of fiscal 1997.
Research and development expenses increased by approximately 26% to
$1,070,192, or approximately 16% of revenues in 1997 from $846,034, or
approximately 12% of revenues in 1996. The Company intends to focus its
research and development efforts on current product enhancements and reducing
cost configurations for its current products. The Company anticipates that
research and development expense will be maintained at current levels in the
near term.
Interest income was $13,912 during 1997 versus $20,618 during 1996. Interest
expense accounted for $80,746 and $288,667 in 1997 and 1996, respectively.
Interest expense decreased in 1997 from 1996 due to significant charges
incurred in 1996 in connection with a stock appreciation right previously
granted to the Company's bank. In May 1996, the bank exercised an alternative
stock appreciation right available under the warrant. During 1996, the Company
recognized as interest expense approximately $218,000 in connection with the
alternative stock appreciation right. Principal and interest amounts due under
the alternative stock appreciation right, which were payable on November 30,
1997, have recently been extended to April 1, 1998.
Export Sales
Revenues from sales to customers located outside of the United States
(primarily Europe) accounted for approximately 30% and 29% of the net sales
for the years ended August 31, 1997 and 1996, respectively.
Seasonality
The Company's most effective marketing tool is the demonstration and display
of its products at the annual meeting of the American Academy of Ophthalmology
held during the fall of each year, with a significant amount of the Company's
sales orders generated during or shortly after this meeting. Accordingly, the
Company expends a considerable amount of time and resources during the first
quarter of its fiscal year preparing for this event. As a consequence, the
Company's revenues and profitability typically decrease during the periods
prior to and following the annual meeting.
Liquidity and Capital Resources
The Company's operating activities used cash of $1,411,425 in 1997 as
compared to $1,460,460 in 1996. The cash used in operations in 1997 was
partially offset by the significant reduction to inventories. Cash used in
operating activities in 1996 was comprised principally of the net loss for the
year and, to a lesser extent, increased inventory levels.
Net cash used in investing activities decreased to $161,735 during 1997 from
$215,884 during 1996. The Company's primary investing activities consist of
equipment and other capital asset acquisitions. The higher levels during 1996
included capital expenditures associated with establishing the Company's
Reading and Documentation Center as well as the purchase and installation of
software to upgrade its management information systems, which expenditures
were not required during 1997. The Company does not currently have commitments
for capital expenditures, however, the Company plans to upgrade its existing
management information and corporate communication systems, which may result
in increased near term expenditures. In addition, the Company anticipates
certain capital expenditures to support efforts to expand its technology to
11
<PAGE>
telemedicine/managed care applications. The Company anticipates that related
expenditures, if any, will be financed from one or more of the following
sources: (i) working capital; (ii) borrowings under an existing credit
agreement, if available; or (iii) debt, equity or other financing
arrangements, if any, available to the Company.
Net cash provided by financing activities in 1997 was $664,135 as compared
to $2,410,464 during 1996. The sources of cash from financing activities
during the 1997 period were principally the net proceeds of approximately
$757,000 from the exercise of certain Series A and B Warrants issued pursuant
to a private placement of the Company's Common Stock discussed in the
succeeding sentence, and, to a lesser extent, proceeds from the exercise of
stock options. The sources of cash from financing activities during the 1996
period were principally the net proceeds of approximately $1,075,000 from a
private placement of 1,368,421 shares of the Company's Common Stock and
warrants in November 1995, the net proceeds of approximately $1,180,000 from
the exercise in May 1996 of certain Series A Warrants issued pursuant to said
private placement and, to a lesser extent, borrowings under the Credit
Agreement which is more fully described immediately below. See Footnote 7 of
the Company's financial statements for a more detailed description of the
private placement. Cash generated from financing activities during 1997 was
partially offset by the net repayment of borrowings under the Credit
Agreement, and during both 1997 and 1996 was offset slightly by principal
repayments on notes payable.
The Company is party to a revolving line of credit agreement (the "Credit
Agreement") with a bank which matured on November 7, 1997. The maximum amount
available under the Credit Agreement is $750,000, based upon eligible
outstanding accounts receivable balances. Borrowings under the Credit
Agreement bear interest at the rate of the bank's prime plus 3% per annum and
are secured by substantially all of the Company's assets. The Credit Agreement
contains certain restrictive covenants which provide for, among other things,
certain working capital and net worth balances and ratios. The Company was not
in compliance with the restrictive covenants at August 31, 1997 and borrowings
in the amount of approximately $311,000 were outstanding related to the Credit
Agreement at that date. On November 18, 1997, the Credit Agreement was
converted to a full recourse accounts receivable credit agreement (the
"Agreement"), and all amounts outstanding under the Credit Agreement were
considered to be the initial advance under the Agreement. The Agreement allows
for up to an 80% advance rate on eligible accounts receivable balances, and
the maximum borrowing base under the Agreement is $1.2 million. The Bank has
full recourse against the Company under the Agreement and the Agreement
expires in November 1998. Borrowings under the Agreement bear interest at the
Bank's prime lending rate plus 4%. In addition, the Bank will charge monthly
an administrative fee equal to the greater of 1/2% of the average daily
balance for the month or $1,200. Under the terms of the Agreement, borrowings
are secured by substantially all of the Company's assets.
At August 31, 1997, the Company's cash and cash equivalents were $142,300.
As indicated above, the Company typically expends considerable time and
resources during the first quarter of its fiscal year preparing for the annual
meeting of the American Academy of Ophthalmology and as a consequence, the
Company's revenues and profitability typically decrease during the period
surrounding the meeting which could adversely impact the Company's cash
position in the immediate term. The Company believes, however, that its
existing cash balances together with ongoing collections of its accounts
receivable and recently increased available borrowing capacity under the
Agreement will be adequate to meet its liquidity and capital requirements over
the next twelve months. The Company does not expect to experience collection
difficulties with respect to its accounts receivable that would have a
material adverse effect on its liquidity. In addition, principal and interest
amounts due under the alternative stock appreciation right with the Bank,
which amounts were approximately $251,000 as of August 31, 1997, and were
originally payable on November 30, 1997, have recently been extended to April
1, 1998. The Company will, however, continue to evaluate alternative sources
of capital to meet its cash requirements, including other debt financing,
issuing equity securities and entering into other financing arrangements
and/or strategic alliances. There can be no assurance, however, that
additional financing will be available and, if available, can be obtained on
terms favorable to the Company. Additional capital could also be made
available to the Company pursuant to the exercise of Series C Warrants issued
to JBO in connection with a November 1995 private placement of the Company's
common stock, as well as from other outstanding
12
<PAGE>
stock options; however, there can be no assurance any such warrants or options
will be exercised in the near-term, if at all. In this regard, there can be no
assurance that the SEC investigation of JBO may not adversely affect JBO's
ability to exercise the Series C Warrants.
In addition, the Company faces the possibility of its common stock being
delisted from NASDAQ unless it meets the Minimum Closing Price Requirement as
stipulated therein. See "Item 5--Market for Common Equity and Related
Stockholder Matters". If the Company's common stock is delisted, it may be
difficult for the Company to raise capital through the sale of its common
stock.
Inflation
The Company believes that inflation has not had a material or significant
impact on the Company's revenue or on its results from operations.
Income Taxes
Deferred income taxes are accounted for pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," and result from
differences in the timing of recognition of certain revenues and expenses for
financial statement and income tax reporting purposes.
General business credits are accounted for as a reduction of federal income
taxes payable under the flow-through method.
Accounting--Earnings Per Share Computation and Capital Structure Disclosure
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required for both interim and annual
periods ending after December 15, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact of Statement No. 128 on the calculation of primary and
fully diluted earnings per share is not expected to be material.
In February 1997, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure". Statement 129 consolidates existing guidance in APB
Opinion No. 10, Omnibus Opinion, Opinion 15, Earnings per Share, and FASB
Statement No. 47, Disclosure of Long-Lived Obligations, relating to disclosure
about the Company's capital structure. The Financial Accounting Standards
Board believes that placing capital structure disclosures in a single standard
will simplify compliance with the requirements. Statement 129 effective for
financial statements for periods ending after December 15, 1997. The impact of
Statement No. 129 on the disclosures relating to the Company's capital
structure is not expected to be significant.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
13
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The age of each director or executive officer, his positions and offices
with the Company, his term of office as a director, his business experience
during the past five years or more, and additional biographical data are set
forth below. Information with respect to the officer or director is as of
November 1, 1997, except as otherwise stated.
Director
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH COMPANY SINCE
---- --- --------------------- --------
<S> <C> <C> <C>
Steven R. Verdooner..... 36 Chairman of the Board, Chief Executive 1986
Officer, Chief Financial Officer,
and Secretary
William L. Mince........ 46 President and Chief Operating Officer 1997
Mark S. Blumenkranz, MD. 47 Director 1995
Robert W. Medearis...... 65 Director 1997
Robert I. Schnuer....... 64 Director 1996
Lawrence A. Yannuzzi,
MD..................... 60 Director 1996
</TABLE>
All directors of the Company hold office until the earlier of the next
annual meeting of shareholders and until their successors have been duly
elected and qualified, or their death, resignation or removal. Officers are
elected annually by the Board of Directors to hold office until the earlier of
their death, resignation, or removal.
Set forth below is a description of their business experience during the
past five years or more, and other biographical information, for the Company's
executive officers an directors:
STEVEN R. VERDOONER is Chief Executive Officer, Chief Financial Officer and
Secretary for the Company. Mr. Verdooner served as acting President from May
of 1993 until his election by the Board of Directors to the position of Chief
Executive Officer in July 1997. Mr. Verdooner first served as Secretary of the
Company from 1987 to 1988 and has been serving in this capacity since May
1993. Since the Company's inception, Mr. Verdooner has served as a director
and is currently the Chairman of the Board of Directors. From 1986 to May
1993, Mr. Verdooner served as Vice President of the Company. From 1986 to
1987, and since 1988, Mr. Verdooner has served as the Company's Chief
Financial Officer. From 1983 to 1986, Mr. Verdooner directed the activities of
Ocular Graphics, a privately owned company engaged in the business of
fluorescein angiography. In 1983 Mr. Verdooner was a member of a research team
at the University of California, Davis, School of Medicine, Department of
Human Anatomy.
WILLIAM L. MINCE joined the Company in July 1997 as President and Chief
Operating Officer. From 1994 to July 1997, Mr. Mince held the position of Vice
President of Operations for PICS Retail Networks, a company pioneering point-
of-sale interactive multimedia advertising. From 1988 to 1994, Mr. Mince
served in various operational management capacities for Nellcor/Puritan
Bennett, a manufacturer of medical devices and related disposable products.
From 1984 to 1988, Mr. Mince was Director of Operations for Topaz, Inc./Square
D, a manufacturer of power conditioners, noise suppressers and uninterruptible
power supplies. Prior to joining Topaz, Inc./Square D, Mr. Mince served in
various manufacturing and operations management positions during a 12-year
tenure with Armorlite, Inc., a subsidiary of 3M Company.
MARK S. BLUMENKRANZ, M.D. has been a director of the Company since 1995. He
also serves on the Company's Scientific Advisory Board. Since 1992 he has been
Clinical Professor of Ophthalmology and Co- Director of Retinal Service at
Stanford University, and a partner in California Vitreoretinal Associates, a
14
<PAGE>
professional medical corporation specializing in diseases and surgery of the
retina and vitreous. From 1985 to 1992, he was a partner in Associated Retinal
Consultants, a professional medical corporation. Dr. Blumenkranz is currently
a director of Midlabs, Inc., a manufacturer of ophthalmic surgical
instruments. Dr. Blumenkranz is an associate examiner for the American Board
of Ophthalmology and a member of the Retina, Macula and Vitreous Societies.
ROBERT W. MEDEARIS has been a director of the Company since August 1997. He
has been the President, Chief Executive Officer and co-owner of Chalice
Investments Inc., a company engaged in joint ventures and related
entrepreneurial and international management consulting activities in the
former USSR, primarily the Republic of Georgia, since its formation in 1992.
Since 1980, Mr. Medearis has served as director for a number of companies,
both private and public, engaged principally in engineering, real estate and
banking.
ROBERT I. SCHNUER has been a director of the Company since March 1996. He
has been the President and Chief Executive Officer of RIS Consulting Services,
his own consulting firm which concentrates in the health care and employee
benefits industry, since its formation in 1995. From 1954 to 1995, Mr. Schnuer
was employed by CIGNA Corporation in the sales and account management aspects
of its health care and employee benefits operations, ultimately serving as a
Vice President.
LAWRENCE A. YANNUZZI, M.D. has been a director of the Company since March
1996. He also serves on the Company's Scientific Advisory Board. Dr. Yannuzzi
is the founder and President of Vitreous-Retina-Macula Consultants of New
York, P.C., a professional medical corporation specializing in diseases and
surgery of the retina and vitreous, for which he has been an officer,
director, and practicing ophthalmologist for over 15 years. Dr. Yannuzzi also
is Director of Retinal Services and Vice Chairman of the Department of
Ophthalmology at the Manhattan Eye, Ear, and Throat Hospital and he is a
professor of Clinical Ophthalmology at the College of Physicians and Surgeons
of Columbia University Medical School.
There is no family relationship between any of the Company's directors or
officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act of 1934, as amended ("Exchange
Act"), all executive officers, directors, and persons who are the beneficial
owner of more than 10% of the common stock of a company which files reports
pursuant to Section 12 of the Exchange Act are required to report the
ownership of such common stock, options, and stock appreciation rights (other
than certain cash-only rights) and any changes in that ownership with the
Securities and Exchange Commission (the "SEC"). Specific due dates for these
reports have been established, and the Company is required to report in this
Form 10-KSB any failure to comply therewith during the fiscal year ended
August 31, 1997. The Company believes that all of these filing requirements
were satisfied by its executive officers, directors, and by the beneficial
owners of more than 10% of the Common Stock, except for Messrs. Mince and
Medearis' inadvertent failure to file a Form 3 upon becoming a Company officer
and director, respectively, and a Form 4 upon the Company's grant of stock
options, Mr. Verdooner and Dr. Yannuzzi's inadvertent failure to timely file a
Form 4 in connection with stock options granted in April 1997, and Dr.
Blumenkranz's inadvertent failure to timely file a Form 4 upon exercise of
warrants in February 1997. In making this statement, the Company has relied on
copies of the reporting forms received by it or on the written representations
from certain reporting persons that no Form 5 (Annual Statement of Changes in
Beneficial Ownership) were required to be filed under applicable rules of the
SEC.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the cash and non-cash
compensation paid to or accrued for the Company's Chief Executive Officer and
President during the last three fiscal years. The table also includes
information for other Company employees earning total compensation in excess
of $100,000 for fiscal year 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION
------------------------------ SECURITIES
NAME AND SALARY UNDERLYING ALL OTHER
PRINCIPAL OCCUPATION YEAR ($) ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
-------------------- -------- -------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Steven R. Verdooner..... 1997 $123,750 0 0 $ 768(1)
Chief Executive
Officer, 1996 $120,000 0 0 $ 3,768(1)
Chief Financial Officer 1995 $ 96,308 0 0 $ 4,018(1)
and Secretary
William L. Mince........ 1997 $ 17,500(2) 5,250(3) 0 0
President and 1996 $ 0 0 0 0
Chief Operating Officer 1995 $ 0 0 0 0
Glenn W. Erickson....... 1997 $ 75,000 0 0 $49,827(4)
Regional Sales Manager 1996 $ 75,000 0 0 $64,048(4)
and Product Specialist 1995 $ 75,000 0 0 $59,652(4)
</TABLE>
- --------
(1) Includes disability insurance premiums in the amount of $518 paid by the
Company on behalf of Mr. Verdooner for each of the fiscal years ended in
1997, 1996, and 1995, and royalty payments to Mr. Verdooner in the amount
of $250, $3,250, and $3,500 for each for the fiscal years ended 1997,
1996, and 1995, respectively.
(2) Mr. Mince was appointed as President for the Company in July 1997. This
figure reflects the portion of Mr. Mince's $140,000 annual salary that
accrued during fiscal year 1997.
(3) This amount represents the portion of Mr. Mince's annual bonus that
accrued for fiscal year 1997.
(4) This figure reflects sales commission paid to Mr. Erickson during the
year.
16
<PAGE>
STOCK OPTIONS GRANTED
As of August 31, 1997, the Company did not have any long term incentive
plans nor had it awarded any restricted stock. The table set forth below
contains information with respect to the award of stock options during the
fiscal year ended August 31, 1997 to the executive officers covered by the
Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS MARKET
UNDERLYING GRANTED TO PRICE ON
OPTIONS EMPLOYEES IN EXERCISE OR DATE OF EXPIRATION
NAME GRANTED (#) 1997 BASE PRICE GRANT DATE
---- ----------- ------------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Steven R. Verdooner. 50,000(1) 27%(2) $2.75 $2.75 04/11/2002
William L. Mince.... 100,000(3) 54%(2) $1.19 $1.19 08/11/2002
Glenn W. Erickson... -- -- -- -- --
</TABLE>
- --------
(1) These options were granted to Mr. Verdooner on April 11, 1997, pursuant to
the Company's 1992 Nonstatutory Stock Option Plan and 50,000 options under
this same plan previously granted to Mr. Verdooner on March 27, 1992
expired in March 1997.
(2) Employees of the Company were granted options from the Company's 1992
Stock Option Plan, with an aggregate of 36,500 shares of common stock
underlying such options.
(3) These options were granted to Mr. Mince on August 11, 1997 as required by
Mr. Mince's employment contract with the Company, executed in July 1997.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
No stock options or SARs were exercised in 1997 by the executive officers
covered by the Summary Compensation Table. The following table sets forth, for
each of the executive officer named in the Summary Compensation Table above,
the number of the stock options held at August 31, 1997, and the realizable
gain of the stock options that are "in-the-money". The in-the-money stock
options and SARs are those with exercise prices that are below the year-end
stock price because the stock value grew since the date of the grant.
FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISED (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven R. Verdooner..... -- -- 108,333 75,000 $2,000 --
William L. Mince........ -- -- -- 100,000 -- --
Glenn W. Erickson....... -- -- 32,167 30,833 $ 130 $50
</TABLE>
- --------
(1) Based upon the closing price of the Common Stock as quoted by Nasdaq Small
Cap Market on August 29, 1997 of $1.00 per share.
EMPLOYMENT AGREEMENTS
Mr. Verdooner's employment agreement, as amended in 1995, provides for an
annual salary of $120,000, incentive stock options covering 33,333 shares of
the Company's Common Stock pursuant to the Company's 1992 Stock Option Plan
and a termination date of November 1998. In July 1997, the Company
restructured its executive management and Mr. Verdooner was appointed, from
his former position of President, to serve as Chief Executive Officer. As a
result of his new office, the Company has increased Mr. Verdooner's annual
salary from $120,000 to $150,000, and extended the term of his employment
agreement to July 1999, effective July 1997. A formal amendment to Mr.
Verdooner's employment agreement with the Company reflecting these changes is
expected to be executed in the near future.
17
<PAGE>
In July 1997, the Company hired Mr. Mince to serve as the Company's
President and Chief Operating Officer. Pursuant to the terms of the employment
agreement, which has a two (2) year term, the Company has granted a stock
option to Mr. Mince to purchase 100,000 shares of the Company's common stock.
Further, the employment agreement provides, among other things, for an annual
base salary of $140,000 and the opportunity for Mr. Mince to receive an annual
performance bonus, not to exceed $42,000. In addition, if Mr. Mince's
employment is terminated before the expiration of its two-year term, other
than as provided in the employment agreement, Mr. Mince may be eligible to
receive severance payments ranging from $70,000 to $140,000.
DIRECTORS FEES
During 1997, the Company implemented a directors fees policy. Under the
Company's policy, directors receive $1,000 for each meeting attended in person
and reimbursement of costs associated with such attendance. Each director who
attends a directors' meeting by telephone receives $500, which covers all
telephonic meetings for that particular quarter. In addition, under the new
policy, each director receives, on the subsequent anniversary date for each
year of service to the Company as a director, an option to purchase 5,000
shares of the Company's common stock.
SCIENTIFIC ADVISORY BOARD
The Company has assembled fourteen ophthalmologists from around the country
with expertise complimentary to the Company's proprietary technology who have
agreed to serve on a Scientific Advisory Board (the "SAB"). The principal
purpose of the SAB is to assist in advancing the Company's technology by
reviewing its status and recommending alternative approaches. The SAB plans to
hold meetings in conjunction with national conferences such as the annual
meeting of the American Academy of Ophthalmology held during the fall of each
year. The members of the SAB are not expected to devote substantial amounts of
their time as a result of serving on the SAB. The composition of the SAB may
vary from time to time depending on the Company's evolving technological
needs. SAB members do not receive compensation for their services as advisors.
They are, however, reimbursed for reasonable out-of-pocket expenses incurred
in connection with their services and the Company has granted options under
its 1995 Nonstatutory Stock Option Plan to each member of the SAB to purchase
shares of Common Stock.
In addition to Drs. Mark S. Blumenkranz and Lawrence A. Yannuzzi, both
directors of the Company, the SAB includes:
DAVID BOYER, M.D.
Senior Partner, Retina Vitreous Associates
North Hollywood, California
STANLEY CHANG, M.D.
Chairman Department of Ophthalmology
Columbia University
DONALD D'AMICO, M.D.
Associate Chief of Ophthalmology for Clinical Affairs
Professor of Ophthalmology Massachusetts Eye and Ear Infirmary
JAY FEDERMAN, M.D.
Professor of Ophthalmology Medical College of Pennsylvania
Co-Director of Retina Services of Wills Eye Hospital
Co-Director of Associated Retinal Consultants
18
<PAGE>
HARRY FLYNN, JR., M.D.
Professor of Ophthalmology Bascom Palmer Eye Institute
KURT A. GITTER, M.D.
Clinical Professor of Ophthalmology
Louisiana State University
Director, Foundation for Retinal Research
LEE JAMPOL, M.D.
Professor and Chairman of Department of Ophthalmology,
Northwestern University of Medical School
JONATHAN JAVITT, M.D., M.P.H.
Chairman and Chief Medical Officer
Certitude
HENRY J. KAPLAN, M.D.
Professor and Chairman Department of Ophthalmology & Visual Sciences
Washington University School of Medicine
HILEL LEWIS, M.D.
Chairman, Division of Ophthalmology, Cleveland Clinic
Director, Eye Clinic, Cleveland Clinic
LAWRENCE SINGERMAN, M.D.
Clinical Professor of Ophthalmology
Case Western Reserve University
Director, The Retina Institute and Retina Service
Mt. Sinai Medical Center
President, Retina Associates of Cleveland, Inc.
Founder, The Macula Society
GEORGE WILLIAMS, M.D.
Chief of Vitreo-Retina Surgery
William Beaumon Hospital, Royal Oak, MI
Associate Clinical Professor Oakland University, Rochester Hills, MI
President Michigan Ophthalmology Society
Vice President Vitreous Society
19
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of October 31, 1997,
by: (i) each executive officer of the Company named in the Summary
Compensation Table, (ii) all directors and executive officers of the Company
as a group, and (iii) each person known to the Company to own beneficially
more than 5% of its outstanding Common Stock. Except as otherwise indicated,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock owned by them.
<TABLE>
<CAPTION>
CURRENT
BENEFICIAL OWNERSHIP
---------------------
NUMBER OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) OF CLASS(2)
------------------------------------ --------- -----------
<S> <C> <C>
DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
Steven R. Verdooner (3).............................. 182,372 4.5%
221 Lathrop Way, Suite I
Sacramento, CA 95815
William L. Mince..................................... 30,450 *
221 Lathrop Way, Suite I
Sacramento, CA 95815
Mark S. Blumenkranz, M.D. (4)........................ 694,911 16.6%
1225 Crane Street
Menlo Park, CA 94025
Glenn W. Erickson (5)................................ 39,583 1.0%
221 Lathrop Way, Suite I
Sacramento, CA 95815
Robert W. Medearis (6)............................... 5,000 *
195 Bryant Street, Suite A
Palo Alto, CA 94301
Robert I. Schnuer (7)................................ 39,450 1.0%
111 Roxen Road
Rockville Centre, NY 11570
Lawrence A. Yannuzzi, M.D. (8)....................... 40,000 1.0%
519 East 72nd Street, Suite 203
New York, NY 10021
All directors and executive officers as a group (7
persons)............................................ 1,031,767 23.3%
OTHER BENEFICIAL HOLDERS
JB Oxford & Company (9).............................. 250,000 6.0%
9665 Wilshire Boulevard
Beverly Hills, CA 90212
</TABLE>
- --------
* Less than 1%
(1) In accordance with Rule 13d-3 promulgated pursuant to the Securities
Exchange Act of 1934, a person is deemed to be the beneficial owner of a
security for purposes of the rule if he or she has or shares voting power
or dispositive power with respect to such security or has the right to
acquire such ownership within sixty days. As used herein, "voting power"
is the power to vote or direct the voting of shares, and "dispositive
power" is the power to dispose or direct the disposition of shares,
irrespective of any economic interest therein.
20
<PAGE>
(2) In calculating the percentage ownership for a given individual or group,
the number of shares of Common Stock outstanding includes unissued shares
subject to options, warrants, rights or conversion privileges exercisable
within sixty days held by such individual or group, but are not deemed
outstanding by any other person or group.
(3) Includes 121,666 shares subject to currently exercisable options and
16,666 shares subject to currently exercisable warrants.
(4) Includes 63,333 shares subject to currently exercisable stock options, and
210,526 shares subject to Series B Warrants (which expired November 21,
1997).
(5) Includes 37,583 shares subject to currently exercisable stock options.
(6) Includes 5,000 shares subject to currently exercisable stock options.
(7) Includes 31,250 shares subject to currently exercisable stock options.
(8) Includes 40,000 shares subject to currently exercisable stock options.
(9) Includes 250,000 shares subject to currently exercisable Series C
Warrants, which warrants were issued in connection with the Company's
November 1995 private placement offering of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The U.S. patent application relating to the Glaucoma-Scope(TM) was
originally filed on June 24, 1991 in the name of Dennis J. Makes, a former
officer and director of the Company, Mr. Verdooner and Ms. Patricia C. Meade.
Each of these individuals assigned all their U.S. and foreign rights in the
invention to the Company pursuant to an assignment dated October 23, 1990
recorded with the U.S. Patent and Trademark Office. Mr. Makes and Mr.
Verdooner each have been granted a royalty of $250 for each Glaucoma-Scope(TM)
sold by the Company. During the 1997 fiscal year, Mr. Verdooner received
royalty payments of $250. Ms. Meade assigned her patent rights to the Company
pursuant to her condition of employment by the Company and no additional
compensation was paid to her as a result of such assignment.
In addition, the Company also entered into a consulting agreement with G.
Peter Halberg, M.D., a former Company director, on January 23, 1992, pursuant
to which Dr. Halberg is entitled to receive a partial payment for services
rendered under such agreement, deferred compensation in the form of a royalty
payment of $200 for each of the first 100 Glaucoma-Scope(TM) units sold at
full price (for a maximum royalty payment of $20,000).
Other than as described above, the Company has no other agreements,
contracts, understandings or arrangements, directly or indirectly, to pay any
additional royalties on the sale of its products.
Mr. Verdooner and Mr. Mince each have an employment agreement with the
Company. See "Employment Agreements" above.
All current and future transactions between the Company and its officers and
directors and principal shareholders or any affiliates thereof will be on
terms no less favorable than could be obtained from unaffiliated third
parties.
Except as described herein, none of the directors or officers of the
Company, and no shareholders holding over 5% of the Company's Common Stock and
no corporations or firms with which such persons or entities are associated,
currently maintains or has maintained since the beginning of the last fiscal
year, any significant business or personal relationship with the Company,
other than such as arises by virtue of such position or ownership interest in
the Company.
21
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<CAPTION>
EXHIBIT FOOTNOTE
NUMBER DESCRIPTION OF EXHIBIT REFERENCE
------- ---------------------- ---------
<C> <S> <C>
3.1 Articles of Incorporation of the Registrant, as amended. *
3.2 Amended Bylaws of the Registrant. *
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles
of Incorporation, as amended, and the amended Bylaws of
the Registrant defining the rights of holders of Common
Stock of the Registrant. *
10.1 Lease Agreement, dated as of July 10, 1987, between the
Registrant (as tenant) and Transamerica/Emkay Income
Properties I, as amended on July 23, 1990 and June 11,
1991. *
10.1(a) Seventh Amendment to lease effective as of July 18, 1996. (7)
10.2 Employment Agreement, dated March 27, 1992, between the
Registrant and Dennis J. Makes. *
10.2(a) Amendment dated June 30, 1993 to the Employment Agreement
between the Registrant and Dennis J. Makes dated March
27, 1992. (1)
10.3 Confidentiality Agreement, dated March 27, 1992 between
the Registrant and Dennis J. Makes. *
10.4 Confidentiality Agreement, dated March 27, 1992 between
the Registrant and Steven R. Verdooner. *
10.5 Confidentiality Agreement, dated March 27, 1992 between
the Registrant and Richard Wullaert. *
10.6 Consulting Agreement, dated January 23, 1992, between the
Registrant and G. Peter Halberg, M.D. *
10.7 Assignment dated October 23, 1990 of U.S. Patent
Application for Apparatus and Method for Topographical
Analysis of the Retina to the Registrant by Steven R.
Verdooner, Patricia C. Meade, and Dennis J. Makes (as
recorded on Reel 5490, Frame 423 in the Assignment
Branch of the U.S. Patent and Trademark Office). *
10.8 Form of International Distribution Agreement used by the
Registrant and sample form of End User Software License
Agreement. *
10.9 Original Equipment Manufacturer Agreement, dated April 1,
1991, between the Registrant and SONY Medical
Electronics, a division of SONY Corporation of America. *
10.10 Original Equipment Manufacturer/Value Added Reseller
Agreement, dated May 7, 1991, between the Registrant and
Eastman Kodak Company. *
10.11 The Registrant's 1992 Nonstatutory Stock Option Plan and
sample form of Nonstatutory Stock Option Agreement. *
10.12 Common Stock and Warrant Purchase Agreement ("Stock
Purchase Agreement"), dated as of February 8, 1992,
among the Registrant, Johnnie R. Williams, Kathleen M.
O'Donnell, as Trustee of Irrevocable Trust No. 6, FBO
F.E. O'Donnell, Jr., M.D., Steven R. Verdooner and
Dennis J. Makes. *
10.12(a) Amendment No. 1 to Stock Purchase Agreement, dated March
25, 1992, among the Registrant, Johnnie R. Williams,
individually, Johnnie R. Williams, as Trustee of
Irrevocable Trust No. 1, Rambert Summons, and Kathleen
M. O'Donnell, as Trustee of Irrevocable Trust No. 6, FBO
F.E. O'Donnell, Jr., M.D. *
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT FOOTNOTE
NUMBER DESCRIPTION OF EXHIBIT REFERENCE
------- ---------------------- ---------
<C> <S> <C>
10.13 Cross-Indemnification Agreement, dated February 14, 1991,
among Dennis Makes, Steven Verdooner, and Richard
Wullaert. *
10.14 Key Man Life Insurance Policies in the amount of
$1,000,000 for each of Dennis J. Makes and Steven R.
Verdooner, with the Registrant as the named beneficiary. *
10.15 Warrant dated February 12, 1993 issued by the Registrant
to Steven R. Verdooner to purchase 50,000 shares of
Common Stock. (1)
10.16 Stock Option Plan. (1)
10.17 Promissory Note dated January 4, 1993 from the Registrant
to Western Financial Savings Bank in the amount of
$25,209.83 due in full by January 4, 1998. (1)
10.18 Rental Agreement dated May 1, 1994 by and between the
Registrant and Robert J. Rossetti. (2)
10.19 Security and Loan Agreement (with Credit Terms and
Conditions) dated April 12, 1995 by and between the
Registrant and Imperial Bank. (3)
10.19(a) General Security Agreement dated April 12, 1995 by and
between the Registrant and Imperial Bank. (3)
10.19(b) Warrant dated November 1, 1995 issued by the Registrant
to Imperial Bank to purchase 67,500 shares of Common
Stock. (4)
10.19(c) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated November 1, 1995. (4)
10.19(d) Registration Rights Agreement dated November 1, 1995
between the Registrant and Imperial Bank. (4)
10.19(e) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated April 4, 1996. (6)
10.19(f) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated July 12, 1996. (7)
10.19(g) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated November 21, 1996. (7)
10.19(h) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated June 3, 1997. (8)
10.19(i) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated August 28, 1997. (9)
10.19(j) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated October 24, 1997. (9)
10.19(k) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated November 3, 1997. (9)
10.19(l) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated November 21, 1997. (9)
10.19(m) Agreement for Purchase of Receivable (Full Recourse)
dated November 18, 1997 between the Registrant and
Imperial Bank. (9)
10.20 Purchase Agreements dated November 21, 1995 between the
Registrant, JB Oxford & Company and certain Investors. (4)
10.20(a) Warrant Agreement dated November 21, 1995 between the
Registrant, JB Oxford & Companyand certain Investors. (4)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT FOOTNOTE
NUMBER DESCRIPTION OF EXHIBIT REFERENCE
------- ---------------------- ---------
<C> <S> <C>
10.20(b) First Amendment Warrant Agreement dated November 21, 1996
between the Registrant, JB Oxford & Company and certain
Holders. (7)
10.20(c) Registration Rights Agreement dated November 21, 1995
between the Registrant, JB Oxford & Company and certain
Investors. (4)
10.21 Employment Agreement dated November 20, 1995 between the
Registrant and Steven R. Verdooner. (4)
10.22 Employment Agreement dated November 20, 1995 between the
Registrant and R. Michael Clark. (4)
10.23 Employment Agreement dated July 14, 1997 between the
Registrant and William L. Mince. (9)
10.25 The Registrant's 1995 Nonstatutory Stock Option Plan and
sample form of Nonstatutory Stock Option Agreement. (5)
11.1 Computation of net loss per share. (9)
23.1 Consent of Ernst & Young LLP, Independent Auditors. (9)
27 Financial Data Schedule (for SEC use only). (9)
</TABLE>
- --------
* Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-18, number 33-46864-LA.
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1993 filed on November 26, 1993.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1994 filed on November 29, 1994.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarterly period ended May 31, 1995 filed on July 14, 1995.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1995 filed on November 29, 1995.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 filed on May 28, 1996, number 333-0461.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarterly period ended May 31, 1996 filed on July 15, 1996.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1996 filed on November 29, 1996.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarterly period ended May 31, 1997 filed on July 15, 1997.
(9) Exhibit filed herewith.
B. Reports on Form 8-K
None.
24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OPHTHALMIC IMAGING SYSTEMS
/s/ Steven R. Verdooner
By: _________________________________
Steven R. Verdooner
Chief Executive Officer, Chief
Financial Officer and Secretary
Date: November 28, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dated indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steven R. Verdooner Chief Executive Officer, November 28, 1997
____________________________ Chief Financial Officer,
Steven R. Verdooner Secretary and Director
(Principal Executive
Officer and Principal
Financial Officer)
/s/ William L. Mince President and Chief November 28, 1997
____________________________ Operating Officer
William L. Mince
/s/ Steven C. Lagorio Director of Finance November 28, 1997
____________________________ (Principal Accounting
Steven C. Lagorio Officer)
/s/ Mark S. Blumenkranz, Director November 28, 1997
M.D.
____________________________
Mark S. Blumenkranz, M.D.
/s/ Robert W. Medearis Director November 28, 1997
____________________________
Robert W. Medearis
/s/ Robert I. Schnuer Director November 28, 1997
____________________________
Robert I. Schnuer
/s/ Lawrence A. Yannuzzi Director November 28, 1997
____________________________
Lawrence A. Yannuzzi, M.D.
</TABLE>
25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
------- ---------------------- ------
<C> <S> <C>
3.1 Articles of Incorporation of the Registrant, as amended. *
3.2 Amended Bylaws of the Registrant. *
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation, as amended, and the amended Bylaws of the
Registrant defining the rights of holders of Common Stock of
the Registrant. *
10.1 Lease Agreement, dated as of July 10, 1987, between the
Registrant (as tenant) and Transamerica/Emkay Income
Properties I, as amended on July 23, 1990 and June 11, 1991. *
10.1(a) Seventh Amendment to lease effective as of July 18, 1996. (7)
10.2 Employment Agreement, dated March 27, 1992, between the
Registrant and Dennis J. Makes. *
10.2(a) Amendment dated June 30, 1993 to the Employment Agreement
between the Registrant and Dennis J. Makes dated March 27,
1992. (1)
10.3 Confidentiality Agreement, dated March 27, 1992 between the
Registrant and Dennis J. Makes. *
10.4 Confidentiality Agreement, dated March 27, 1992 between the
Registrant and Steven R. Verdooner. *
10.5 Confidentiality Agreement, dated March 27, 1992 between the
Registrant and Richard Wullaert. *
10.6 Consulting Agreement, dated January 23, 1992, between the
Registrant and G. Peter Halberg, M.D. *
10.7 Assignment dated October 23, 1990 of U.S. Patent Application
for Apparatus and Method for Topographical Analysis of the
Retina to the Registrant by Steven R. Verdooner, Patricia C.
Meade, and Dennis J. Makes (as recorded on Reel 5490, Frame
423 in the Assignment Branch of the U.S. Patent and
Trademark Office). *
10.8 Form of International Distribution Agreement used by the
Registrant and sample form of End User Software License
Agreement. *
10.9 Original Equipment Manufacturer Agreement, dated April 1,
1991, between the Registrant and SONY Medical Electronics, a
division of SONY Corporation of America. *
10.10 Original Equipment Manufacturer/Value Added Reseller
Agreement, dated May 7, 1991, between the Registrant and
Eastman Kodak Company. *
10.11 The Registrant's 1992 Nonstatutory Stock Option Plan and
sample form of Nonstatutory Stock Option Agreement. *
10.12 Common Stock and Warrant Purchase Agreement ("Stock Purchase
Agreement"), dated as of February 8, 1992, among the
Registrant, Johnnie R. Williams, Kathleen M. O'Donnell, as
Trustee of Irrevocable Trust No. 6, FBO F.E. O'Donnell, Jr.,
M.D., Steven R. Verdooner and Dennis J. Makes. *
10.12(a) Amendment No. 1 to Stock Purchase Agreement, dated March 25,
1992, among the Registrant, Johnnie R. Williams,
individually, Johnnie R. Williams, as Trustee of Irrevocable
Trust No. 1, Rambert Summons, and Kathleen M. O'Donnell, as
Trustee of Irrevocable Trust No. 6, FBO F.E. O'Donnell, Jr.,
M.D. *
10.13 Cross-Indemnification Agreement, dated February 14, 1991,
among Dennis Makes, Steven Verdooner, and Richard Wullaert. *
10.14 Key Man Life Insurance Policies in the amount of $1,000,000
for each of Dennis J. Makes and Steven R. Verdooner, with
the Registrant as the named beneficiary. *
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
------- ---------------------- ------
<C> <S> <C>
10.15 Warrant dated February 12, 1993 issued by the Registrant to
Steven R. Verdooner to purchase 50,000 shares of Common
Stock. (1)
10.16 Stock Option Plan. (1)
10.17 Promissory Note dated January 4, 1993 from the Registrant to
Western Financial Savings Bank in the amount of $25,209.83
due in full by January 4, 1998. (1)
10.18 Rental Agreement dated May 1, 1994 by and between the
Registrant and Robert J. Rossetti. (2)
10.19 Security and Loan Agreement (with Credit Terms and
Conditions) dated April 12, 1995 by and between the
Registrant and Imperial Bank. (3)
10.19(a) General Security Agreement dated April 12, 1995 by and
between the Registrant and Imperial Bank. (3)
10.19(b) Warrant dated November 1, 1995 issued by the Registrant to
Imperial Bank to purchase 67,500 shares of Common Stock. (4)
10.19(c) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated November 1, 1995. (4)
10.19(d) Registration Rights Agreement dated November 1, 1995 between
the Registrant and Imperial Bank. (4)
10.19(e) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated April 4, 1996. (6)
10.19(f) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated July 12, 1996. (7)
10.19(g) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated November 21, 1996. (7)
10.19(h) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated June 3, 1997. (8)
10.19(i) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated August 28, 1997. (9)
10.19(j) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated October 24, 1997. (9)
10.19(k) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated November 3, 1997. (9)
10.19(l) Amended Loan and Security Agreement (with Credit Terms and
Conditions) dated November 21, 1997. (9)
10.19(m) Agreement for Purchase of Receivable (Full Recourse) dated
November 18, 1997 between the Registrant and Imperial Bank. (9)
10.20 Purchase Agreements dated November 21, 1995 between the
Registrant, JB Oxford & Company and certain Investors. (4)
10.20(a) Warrant Agreement dated November 21, 1995 between the
Registrant, JB Oxford & Company and certain Investors. (4)
10.20(b) First Amendment Warrant Agreement dated November 21, 1996
between the Registrant, JB Oxford & Company and certain
Holders. (7)
10.20(c) Registration Rights Agreement dated November 21, 1995
between the Registrant, JB Oxford & Company and certain
Investors. (4)
10.21 Employment Agreement dated November 20, 1995 between the
Registrant and Steven R. Verdooner. (4)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NUMBER
------- ---------------------- ------
<C> <S> <C>
10.22 Employment Agreement dated November 20, 1995 between the
Registrant and R. Michael Clark. (4)
10.23 Employment Agreement dated July 14, 1997 between the
Registrant and William L. Mince. (9)
10.25 The Registrant's 1995 Nonstatutory Stock Option Plan and
sample form of Nonstatutory Stock Option Agreement. (5)
11.1 Computation of net loss per share. (9)
23.1 Consent of Ernst & Young LLP, Independent Auditors. (9)
27 Financial Data Schedule (for SEC use only). (9)
</TABLE>
- --------
* Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-18, number 33-46864-LA.
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1993 filed on November 26, 1993.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1994 filed on November 29, 1994.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarterly period ended May 31, 1995 filed on July 14, 1995.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1995 filed on November 29, 1995.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 filed on May 28, 1996, number 333-0461.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarterly period ended May 31, 1996 filed on July 15, 1996.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1996 filed on November 29, 1996.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form 10-
QSB for the quarterly period ended May 31, 1997 filed on July 15, 1997.
(9) Exhibit filed herewith.
28
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OPHTHALMIC IMAGING SYSTEMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Balance Sheet as of August 31, 1997....................................... F-3
Statements of Operations for the Years Ended August 31, 1997 and 1996..... F-4
Statements of Stockholders' Equity for the Years Ended August 31, 1997 and
1996..................................................................... F-5
Statements of Cash Flows for the Years Ended August 31, 1997 and 1996..... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ophthalmic Imaging Systems
We have audited the accompanying balance sheet of Ophthalmic Imaging Systems
as of August 31, 1997, and the related statements of operations, stockholders'
equity, and cash flows for the years ended August 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ophthalmic Imaging Systems
at August 31, 1997, and the results of its operations and its cash flows for
the years ended August 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Sacramento, California
October 21, 1997, except for Note 10,
as to which the date is November 18, 1997
F-2
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
BALANCE SHEET
AUGUST 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents............................................ $ 142,300
Accounts receivable, net of allowance for doubtful accounts of
approximately $100,000......................................... 1,644,541
Inventories..................................................... 794,052
Prepaid expenses and other current assets....................... 93,408
-----------
Total current assets.............................................. 2,674,301
Furniture and equipment, net...................................... 380,782
Other assets...................................................... 7,385
-----------
$ 3,062,468
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................................... $ 311,002
Accounts payable................................................ 816,509
Accrued liabilities............................................. 794,305
Accrued warrant appreciation right.............................. 251,497
Deferred extended warranty revenue.............................. 93,614
Customer deposits............................................... 125,538
Notes payable................................................... 2,234
-----------
Total current liabilities......................................... 2,394,699
Commitments
Stockholders' equity:
Preferred stock, no par value, 20,000,000 shares authorized;
none issued or outstanding..................................... --
Common stock, no par value, 20,000,000 shares authorized;
3,905,428 shares issued and outstanding........................ 10,244,615
Deferred compensation........................................... (306,894)
Accumulated deficit............................................. (9,269,952)
-----------
Total stockholders' equity........................................ 677,769
-----------
$ 3,062,468
===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUES:
Net sales............................................ $ 6,480,055 $ 6,672,667
Other revenue........................................ 145,561 200,984
----------- -----------
6,625,616 6,873,651
Cost of sales........................................ 4,885,004 4,797,324
----------- -----------
Gross profit......................................... 1,740,612 2,076,327
OPERATING EXPENSES:
Sales and marketing.................................. 1,624,470 1,652,965
General and administrative........................... 1,089,670 722,462
Research and development............................. 1,070,192 846,034
----------- -----------
Total operating expenses............................. 3,784,332 3,221,461
----------- -----------
Loss from operations................................. (2,043,720) (1,145,134)
OTHER INCOME (EXPENSE):
Interest income...................................... 13,912 20,618
Interest expense..................................... (80,746) (288,667)
----------- -----------
Net loss............................................. $(2,110,554) $(1,413,183)
=========== ===========
Net loss per share................................... $ (.59) $ (.64)
=========== ===========
Shares used in the calculation of net loss per share. 3,597,879 2,204,506
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION DEFICIT EQUITY
--------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at August 31,
1995................... 875,112 $ 6,674,639 $ -- $(5,746,215) $ 928,424
Sale of common stock
through private
placement.............. 1,368,421 1,074,841 -- -- 1,074,841
Options exercised....... 11,000 10,230 -- -- 10,230
Issuance of common stock
upon exercise of
warrants............... 1,052,631 1,180,486 -- -- 1,180,486
Net loss................ -- -- -- (1,413,183) (1,413,183)
--------- ----------- --------- ----------- -----------
Balances at August 31,
1996................... 3,307,164 8,940,196 -- (7,159,398) 1,780,798
Options exercised....... 52,400 152,286 -- -- 152,286
Issuance of common stock
upon exercise of
warrants............... 545,864 757,097 -- -- 757,097
Deferred compensation
related to stock
options granted to non-
employees.............. -- 395,036 (395,036) -- --
Stock option
compensation expense... -- -- 88,142 -- 88,142
Net loss................ -- -- -- (2,110,554) (2,110,554)
--------- ----------- --------- ----------- -----------
Balances at August 31,
1997................... 3,905,428 $10,244,615 $(306,894) $(9,269,952) $ 667,769
========= =========== ========= =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................ $(2,110,554) $(1,413,183)
Adjustments to reconcile net loss to net cash used
in operating activities:
Accrued warrant appreciation right................ 27,215 211,782
Depreciation and amortization..................... 142,148 102,156
Provision for doubtful accounts................... (6,116) (5,338)
Stock option compensation expense................. 88,142 --
Net changes in operating assets and liabilities:
Accounts receivable............................... (566,421) 239,943
Inventories....................................... 786,483 (405,040)
Prepaid expenses and other current assets......... (28,460) (475)
Other assets...................................... 79,250 (79,797)
Accounts payable.................................. (120,950) (164,714)
Accrued liabilities............................... 196,664 75,716
Deferred extended warranty revenue................ 12,417 6,100
Customer deposits................................. 88,757 (27,610)
----------- -----------
Net cash used in operating activities............... (1,411,425) (1,460,460)
INVESTING ACTIVITY:
Capital expenditures for furniture and equipment.... (161,735) (215,884)
FINANCING ACTIVITIES:
Proceeds from short-term borrowings................. 308,000 150,000
Repayment of short-term borrowings.................. (546,998) --
Principal payments on notes payable................. (6,250) (5,093)
Issuance of common stock............................ 909,383 2,265,557
----------- -----------
Net cash provided by financing activities........... 664,135 2,410,464
----------- -----------
Net (decrease) increase in cash and equivalents..... (909,025) 734,120
Cash and equivalents, beginning of year............. 1,051,325 317,205
----------- -----------
Cash and equivalents, end of year................... $ 142,300 $ 1,051,325
=========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Ophthalmic Imaging Systems (the Company), was incorporated in California in
July 1986. The Company is primarily engaged in the business of designing,
developing, manufacturing, and marketing digital imaging systems, image
enhancements and analysis software, and related products and services for use
by practitioners in the ocular healthcare field.
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which require the Company's
management to make estimates and assumptions that affect the amounts reported
therein. Actual results could vary from such estimates.
Concentrations of Credit Risk and Export Sales
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company places its temporary cash
investments with high credit quality financial institutions. Concentrations of
credit risk with respect to trade receivables are limited due to the Company's
policy of requiring deposits from customers, the number of customers and their
geographic dispersion. The Company maintains reserves for potential credit
losses and such losses have historically been within management's
expectations. No single customer during fiscal 1997 or 1996 comprised 10% or
more of net sales.
Revenues from sales to customers located outside of the United States
(primarily Europe) accounted for approximately 30% and 29% of net sales during
the years ended August 31, 1997 and 1996, respectively.
Inventories
Inventories, which consist primarily of purchased system parts,
subassemblies and assembled systems are stated at the lower of cost
(determined using the first-in, first-out method) or market.
Furniture and Equipment
Furniture and equipment are stated at cost and depreciated or amortized on a
straight-line basis over the estimated useful lives of the assets. The
estimated useful lives generally range from three to seven years.
Revenue Recognition and Warranties
The Company recognizes revenue from the sale of its products when the goods
are shipped to its customers. The Company generally provides a one-year
warranty covering materials and workmanship and accruals are provided for
anticipated warranty expenses.
Customers may purchase extended warranty coverage for additional one or two
year periods. Revenues from the sale of these extended warranties are deferred
and recognized as other revenue on a straight-line basis over the term of the
extended warranty contract.
F-7
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--
(CONTINUED)
Income Taxes
Deferred income taxes are accounted for pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as a result of
differences in the timing of recognition of certain revenues and expenses for
financial statement and income tax reporting purposes.
General business credits are accounted for as a reduction of federal income
taxes payable under the flow-through method.
Net Loss Per Share
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation because their effect is
antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required for both interim and annual
periods ending after December 15, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact of Statement No. 128 on the calculation of primary and
fully diluted earnings per share is not expected to be material.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers highly
liquid investments with original maturities of three months or less as cash
equivalents.
Cash paid for interest amounted to approximately $64,000 and $67,000 during
the years ended August 31, 1997 and 1996, respectively. Cash paid for income
taxes amounted to approximately $800 for each of the years ended August 31,
1997 and 1996.
Stock Based Compensation
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
which the Company adopted in 1996, the Company has elected to follow
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations in accounting for its stock
option plans. Under APB 25, if the exercise price of the Company's employee
stock options equals or exceeds the fair value of the underlying stock on the
date of grant as determined by the Company's Board of Directors, no
compensation expense is recognized. See Note 7 for pro forma disclosures
required by SFAS 123.
Long-lived Assets
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires
impairment losses to be recognized for long-lived assets used in operations
when indicators of impairment are present and the estimated undiscounted cash
flows to be generated by those assets are less than their carrying amounts.
The impairment loss is measured by comparing the fair value of the asset to
its carrying amount. The adoption of SFAS No. 121 had no effect on the
Company's financial position or results of operations for the year ended
August 31, 1997.
F-8
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVENTORIES
Inventories consist of the following as of August 31, 1997:
<TABLE>
<S> <C>
Raw materials..................................................... $526,090
Work-in-process................................................... 139,182
Finished goods.................................................... 128,780
--------
$794,052
========
</TABLE>
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following as of August 31, 1997:
<TABLE>
<S> <C>
Research and manufacturing equipment........................... $ 554,147
Office furniture and equipment................................. 358,537
Demonstration equipment........................................ 183,938
Vehicles....................................................... 58,991
----------
1,155,613
Less accumulated depreciation and amortization................. (774,831)
----------
$ 380,782
==========
</TABLE>
4. SHORT-TERM BORROWINGS
The Company entered into a revolving line of credit agreement (the "Credit
Agreement") with a bank (the "Bank") which expired on November 7, 1997. The
maximum amount available under the terms of the Credit Agreement is $750,000
and is based upon eligible outstanding accounts receivable balances.
Borrowings under the Credit Agreement bear interest at the Bank's prime
lending rate plus three percent (11% as of August 31, 1997) and are secured by
substantially all assets of the Company. The Credit Agreement contains certain
restrictive covenants which provide for, among other things, certain working
capital and net worth balances and ratios. The Company was not in compliance
with the various restrictive covenants as of August 31, 1997. In addition, the
Credit Agreement restricts the Company's ability to 1) enter into any merger
or acquisition, 2) pay dividends or repurchase stock, 3) mortgage existing
assets or 4) loan money or guarantee the loans of others without the Bank's
prior approval. As of August 31, 1997, borrowings in the amount of $311,000
were outstanding related to the Credit Agreement. Subsequent to year-end the
Credit Agreement was converted to a full recourse accounts receivable credit
agreement (Note 10).
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of August 31, 1997:
<TABLE>
<S> <C>
Accrued compensation............................................. $402,389
Accrued warranty expenses........................................ 170,200
Other accrued liabilities........................................ 221,716
--------
$794,305
========
</TABLE>
F-9
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS
Leases
The Company leases its facility under a noncancelable operating lease which
expires in June 1998. The lease agreement provides for minimum lease payments
of approximately $84,000 for the year ended August 31, 1998.
Rental expense charged to operations for all operating leases was
approximately $126,000 and $88,000 during the years ended August 31, 1997 and
1996, respectively.
Employment Agreements
The Company has employment agreements with two of its executive officers.
The agreement with the chief executive officer calls for an annual salary of
$150,000 and a performance based bonus plan, which has yet to be determined by
the Company's compensation committee. The agreement with the president/chief
operating officer calls for an annual salary of $140,000 and an annual bonus
not to exceed $42,000. In addition, the Company's board of directors granted
the president/chief operating officer incentive stock options covering 100,000
shares of common stock. Both agreements have a 24 month term expiring in July
1999.
7. STOCKHOLDERS' EQUITY
Common Stock
Of the 16,094,572 shares of common stock authorized but unissued as of
August 31, 1997, the following shares are reserved for issuance:
<TABLE>
<S> <C>
Common stock warrants.......................................... 1,299,750
Stock option plans............................................. 1,338,267
---------
2,638,017
=========
</TABLE>
Private Placement
In November 1995, the Company completed a private placement of 1,368,421
shares of its common stock with detachable warrants. The net proceeds from
this offering was approximately $1,075,000. Along with each share of common
stock issued the purchasers were given an "A Warrant" and a "B Warrant" to
purchase shares of the Company's common stock. The A and B Warrants per share
exercise prices are $1.25 and $1.75, respectively. The number of shares
exercisable as well as the per share exercise prices of the A and B Warrants
are subject to adjustment upon the occurrence of certain events. The A and B
Warrants expired on February 19, 1997 as amended and November 21, 1997,
respectively. In May 1996, 1,052,631 A Warrants were exercised resulting in
net proceeds to the Company of approximately $1,180,000. During the year ended
August 31, 1997, 210,526 and 335,338 A and B warrants, respectively, were
exercised resulting in aggregate net proceeds to the Company of approximately
$757,000.
The private placement underwriter was issued a warrant to purchase 250,000
shares of the Company's common stock at $.95 per share. The number of shares
exercisable as well as the per share exercise price are subject to adjustment
upon the occurrence of certain events. This warrant expires on November 21,
1999. In addition, the underwriter will receive as a commission, 10% of the
proceeds received by the Company upon exercise of the A and B Warrants
described above.
F-10
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCKHOLDERS' EQUITY--(CONTINUED)
Other Warrants
In February 1993, the Company issued a warrant to the Bank that provided a
line-of-credit (Note 4). The warrant was amended several times in connection
with amendments to the line-of-credit as well as the current Credit Agreement.
The warrant is currently exercisable for 50,000 shares of common stock at an
exercise price of $1.73 per share and it expires in November 2000. This
warrant includes a provision wherein the Bank can require the Company to pay
in cash the difference between the fair market value (as defined) of the
underlying common stock of the warrant and the exercise price (the
"Appreciation Right"). The Bank informed the Company of its intent to exercise
the Appreciation Right on May 23, 1996. The Company has accrued the entire
amount of the Appreciation Right and it is reflected as a current liability on
the accompanying balance sheet. For purposes of the statement of operations,
the amount has been recorded as additional interest expense for the year ended
August 31, 1996. The Appreciation Right is due on April 1, 1998.
During February 1993, in consideration for providing bridge loans, each of
the two officers, then employed by the Company, was issued a warrant to
purchase 16,667 shares of the Company's common stock at an exercise price of
$18.00 per share. These warrants expire in February 1998. During fiscal 1995,
one of the warrants to purchase 16,667 shares was canceled.
Stock Option Plans
At August 31, 1997, the Company has three stock-based compensation plans,
which are described below. The Company applies APB 25 and related
Interpretations in accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for under SFAS 123
requires use of option valuation models that were not developed for use in
valuing stock options. Under APB 25, because the exercise price of the
Company's stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
During March 1992, the Company adopted a Stock Option Plan (the "Plan")
under which the board of directors is authorized to grant options to key
directors, executives, employees and others for the purchase of up to 116,667
shares of the Company's common stock at prices not less than the fair market
value of the common stock on the date of grant. The term over which the
options are exercisable, which may not exceed five years, is determined by the
board of directors at the time of the grant. Pursuant to the Plan, options to
purchase 100,000 shares of the Company's common stock at an exercise price of
$3.00 per share were granted (50,000 options each) to the Company's chief
executive officer and chief financial officer. The options granted were fully
vested on the grant date and expired in March 1997. During the year ended
August 31, 1997, prior to the expiration of these options, options to purchase
50,000 shares were exercised. Options to purchase the remaining 50,000 shares
of the Company's common stock subsequently expired in March 1997. In April
1997, the board of directors granted options to purchase 50,000 shares of the
Company's common stock at an exercise price of $2.75 to the Company's chief
executive officer/chief financial officer. The options granted vest 25,000 on
the date of grant and 25,000 in April 1998. These options expire in April
2002.
In December 1992 and January 1993, the Company's board of directors and
shareholders, respectively, approved a second Stock Option Plan (the "Option
Plan") under which all officers, employees, directors and consultants may
participate. The Plan expires December 2002. Options granted under the Option
Plan may be either incentive stock options or non-qualified stock options and
will generally have a term of ten years from the date of grant, unless
otherwise specified in the option agreement. The exercise prices of incentive
stock options granted under the Option Plan will be at 100% of the fair market
value of the Company's common stock on the date of grant. The exercise prices
of non-qualified stock options granted under the Option Plan cannot be less
F-11
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCKHOLDERS' EQUITY--(CONTINUED)
Stock Option Plans--(continued)
than 85% of the fair market value of the Company's common stock on the date of
grant. The maximum number of shares of the Company's common stock which may be
optioned and sold under the Option Plan is 150,000, of which 13,608 remained
available for the granting of options as of August 31, 1997. As of August 31,
1997, stock options to purchase 122,992 shares at exercise prices ranging from
$.94 to $4.25 were granted and outstanding under the Option Plan. During the
year ended August 31, 1997 and 1996, 2,400 and 11,000 options were exercised,
respectively.
In August 1995, the Company's board of directors approved a Nonstatutory
Stock Option Plan (the "Nonstatutory Plan") under which all officers,
employees, directors and consultants may participate. The Nonstatutory Plan
expires November 2005. Options granted under the Nonstatutory Plan are non-
qualified stock options and will generally have a term of five years from the
date of grant, unless otherwise specified in the option agreement. The
exercise prices under the Nonstatutory Plan will be at 100% of the fair market
value of the Company's common stock on the date of grant. The maximum number
of shares of the Company's common stock which may be optioned and sold under
the Nonstatutory Plan is 1,035,000, of which 50,000 options remained available
for granting as of August 31, 1997. As of August 31, 1997, stock options to
purchase 985,000 shares at exercise prices ranging from $0.94 to $4.50 were
granted and outstanding under the Nonstatutory Plan and none of the granted
options were exercised.
A summary of the status of the Company's stock option plans and changes
during the periods is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at August 31, 1995....................... 744,171 $1.54
Options granted................................ 290,000 $2.53
Options canceled............................... (250) $ .94
Options exercised (at $.94).................... (11,000) $ .94
---------
Balance at August 31, 1996....................... 1,022,921 $1.83
Options granted................................ 346,500 $2.70
Options canceled............................... (59,029) $3.14
Options exercised (at $.94 to $3.00)........... (52,400) $2.91
---------
Balance at August 31, 1997....................... 1,257,992 $1.96
=========
</TABLE>
The weighted average fair value of options granted during the years ended
August 31, 1997 and August 31, 1996 was $2.26 and $.93, respectively.
The following table summarizes information about the stock options
outstanding at August 31, 1997:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------------------ -----------------
WEIGHTED- WEIGHTED-
WEIGHTED-AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISES PRICES NUMBER CONTRACTUAL LIFE PRICE NUMBER PRICE
---------------- --------- ---------------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.94-$1.38............. 759,492 5.1 $1.30 330,513 $1.30
$1.38-$3.00............. 390,000 4.0 $2.59 167,708 $2.57
$3.00-$4.50............. 108,500 4.3 $4.34 21,531 $4.32
--------- -------
1,257,992 $1.96 519,752 $1.84
========= =======
</TABLE>
F-12
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCKHOLDERS' EQUITY--(CONTINUED)
Stock Option Plans--(continued)
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
August 31, 1995 under the fair value method of that Statement. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions for the
years ended August 31, 1996 and 1997, respectively; dividend yield of zero;
volatility factors of the expected market price of the Company's common stock
ranged from 1.052 to 1.125 for both years; risk-free interest rate of 6%; and
a weighted-average expected life of 5 years.
The Black-Scholes option valuation, model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Pro forma net loss............................ $(2,326,390) $(1,453,678)
=========== ===========
Pro forma net loss per share.................. $ (.65) $ (.66)
=========== ===========
</TABLE>
During the year ended August 31, 1997, the Company recorded deferred
compensation of approximately $395,000 for financial reporting purposes to
reflect the deemed fair value of the certain options granted to non-employees.
Deferred compensation is being amortized over the vesting period of the
related options. For the year ended August 31, 1997, the amortized deferred
compensation expense was approximately $88,000.
Since SFAS 123 is applicable only to options granted subsequent to August
31, 1995, its pro forma effect will not be fully realized until 2000.
F-13
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
There was no provision (benefit) for income taxes during the years ended
August 31, 1997 or 1996.
The significant components of the Company's deferred tax assets and
liabilities as of August 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $ 1,310,000
Inventory reserves.......................................... 549,000
Accrued warrant appreciation right.......................... 99,000
Payroll related accruals.................................... 98,000
Warranty accrual............................................ 67,000
Sales and accounts receivable reserves...................... 39,000
Uniform capitalization...................................... 29,000
Other....................................................... 3,000
-----------
Total deferred tax assets..................................... 2,194,000
Valuation allowance........................................... (2,192,000)
-----------
Net deferred tax assets....................................... 2,000
Deferred tax liabilities:
Depreciation................................................ 2,000
-----------
Total deferred tax liabilities................................ 2,000
-----------
Net deferred taxes............................................ $ --
===========
</TABLE>
The valuation allowance as of August 31, 1996 was approximately $1,473,000
resulting in a net increase in the allowance of approximately $719,000 for the
year.
The principal reasons for the difference between the effective tax rate and
the federal statutory income tax rate are presented in the following table:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST
31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Federal benefit expected at statutory rates......... $(718,000) $(480,000)
Net operating loss with no current benefit.......... 718,000 480,000
--------- ---------
$ -- $ --
========= =========
</TABLE>
In connection with the Company's private placement of common stock (Note 7)
a change of ownership (as defined in Section 382 of the Internal Revenue Code
of 1986, as amended) occurred. As a result of this change, the Company's
federal and state net operating loss carryforwards generated through November
21, 1996 (approximately $4,800,000 and $2,500,000, respectively) and the
Company's federal and state Research and Development credits (approximately
$126,000 and $79,000, respectively) will be subject to a total annual
limitation in the amount of approximately $107,000.
As a consequence of the limitation, as discussed the Company has at August
31, 1997 a net operating loss carryover of approximately $3,580,000 for
federal income tax purposes which expires between 2007 and 2011, and a net
operating loss carryforward of approximately $1,521,000 for state income tax
purposes which expires between 1997 and 2002.
F-14
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. 401(k) PLAN
The Company has a tax deferred investment plan (the "401(k) Plan"). All
full-time employees are eligible to participate in the 401(k) Plan. The 401(k)
Plan originally required mandatory employer contributions of 10% of the
participants contributions. The 401(k) Plan was subsequently amended to
provide for discretionary employer contributions. The Company did not make any
matching contributions during either of the years ended August 31, 1997 or
1996.
10. SUBSEQUENT EVENT
On November 18, 1997, the Company entered into an accounts receivable credit
agreement (the "Agreement") with the Bank, and all amounts outstanding under
the Credit Agreement were considered to be the initial advance under the
Agreement. The Agreement allows for up to an 80% advance rate on eligible
accounts receivable balances, and the maximum borrowing base under the
Agreement is $1.2 million. The Bank has full recourse against the Company. The
Agreement expires in November 1998. Borrowings under the Agreement bear
interest at the Bank's prime lending rate plus 4%. In addition, the Bank will
charge monthly an administrative fee equal to the greater of .5% of the
average daily balance for the month or $1,200. Under the terms of the
Agreement, borrowings are secured by substantially all of the Company's
assets.
F-15
<PAGE>
EXHIBIT 10. (i)
IMPERIAL BANK
2460 Sand Hill Road, Suite 102
Menlo Park, California 94025 (415) 233-3000
August 28, 1997
OPHTHALMIC IMAGING SYSTEMS
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: Mr. Steven R. Verdooner, President
Mr. Steven C. Lagorio, Director of Finance
Re: Imperial Bank Loan No. 700000559
Gentlemen:
With reference to the Credit Terms and Conditions ("CTC") dated April 12,
1995 with addendum dated April 10, 1995 between Imperial Bank ("Bank") and
Ophthalmic Imaging Systems ("Borrower"), the Bank hereby modifies the
following numbered terms and conditions of the addendum attached to the CTC
(hereinafter referred to as the "Addendum"):
1. Paragraph 2 of the Addendum, as previously modified, is deleted in its
entirety and is replaced with the following:
"2. Term and Repayment
The line of credit will require monthly payments of interest through and
including October 5, 1997, at which time all outstanding principal, accrued
but unpaid interest and other charges thereinafter shall be due and payable
in full."
2. Paragraph 3 of the Addendum, is deleted in its entirety and is replaced
with the following:
"3. Borrowing Base
Advances will be limited to the lesser of: (i) 70% of Eligible Accounts
(as hereinafter defined); or (ii) $750,000. As used herein, "Eligible
Accounts" shall only include such accounts as Bank in its sole discretion
shall from time to time determine are eligible. Eligible Accounts shall
also not include any of the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
b. Accounts due from a customer if more than twenty-five percent (25%) or
more of the aggregate amount of accounts of such customer have at that time
remained unpaid for more than ninety (90) days from the invoice date.
(CROSS AGE)
c. Accounts representing billings for service or maintenance contracts or
for inventory or equipment on rent to the account debtor.
d. Accounts with respect to international transactions unless insured or
covered by a letter of credit in a manner and form acceptable to the Bank.
e. Salesman's accounts for promotional purposes.
f. The amount by which any one account exceeds fifteen percent (15%) of
the total accounts receivable balance. (CONCENTRATION)
1
<PAGE>
g. Accounts where the account debtor is a seller to borrower, to the
extent that a potential offset exists. (CONTRA)
h. Accounts due from customers that remain unpaid after ninety (90) days
from the invoice date.
i. United States government accounts unless properly documented."
3. Paragraph 5 of the Addendum, as previously modified, is deleted in its
entirety and is replaced with the following:
"5. Pricing
Interest Rate: Bank's Prime Rate + 3% per annum. Rate shall be reduced
to Bank's Prime Rate + 2% per annum following the
achievement of two consecutive fiscal quarters of
operating and after-tax profitability in excess of
$100,000 each.
Facility Fee: $1,875
4. Sub-section B of Paragraph 6 of the Addendum is deleted in its entirety
and is replaced with the following:
"B. Borrower to provide to Bank:
1) Unqualified audited financial statements within 90 days after each
fiscal year end.
2) Company prepared monthly financial statements and Compliance
Certificate within 25 days after the end of each month.
3) Borrower to provide Bank with agings of accounts receivable and
accounts payable, along with a Borrowing Base Certificate, Bank forms
AC1-AR and Inventory Transaction Report; AC11-Computation of Ineligible
AR; and AC12-Monthly AR Reconciliation upon such a schedule as
determined by Bank in Bank's sole discretion. All customer collections
(wire transfer, checks, cash) shall be applied to the outstanding loan
balance, and such collections shall reduce the gross AR availability as
calculated on the Borrowing Base Certificate by the amounts collected.
New invoices during the same period shall increase the gross A/R
availability as calculated on the Borrowing Base Certificate by the
amounts involved.
4) Budgets, sales projections, operating plan, or other financial
exhibits which Bank may reasonably request.
In addition to the modifications above, Borrower shall be subject to the
following additional conditions:
1. Concurrently with execution hereof, Borrower shall pay Bank the $7,375.80
in fees that are due to the Bank per the Invoice dated May 5, 1997 (these are
in addition to the "Facility Fee" in Paragraph 3 above).
2. Bank and Borrower agree that Borrower is subject to following obligations
under the stock appreciation right set forth in Section 1.3 of the Warrant to
Purchase Stock issued November 1, 1995 ("SAR"):
A. The principal amount due from Borrower to Bank under the SAR is
$219,750.00, which represents the spread between the closing price of
Borrower's stock on Friday May 24, 1996 ($6.125) and the exercise price per
the Warrant to Purchase Stock ($1.73) multiplied by 50,000 warrant shares
(reduced from 67,500 pursuant to the occurrence of certain events
stipulated in the letter agreement dated November 1, 1995). Interest due on
the principal balance is accruing at the Bank's prime rate and has been
accruing from the exercise date of the SAR which was May 28, 1996.
(Principal and accrued interest due on the SAR shall hereinafter be
referred to as the "SAR Balance").
2
<PAGE>
B. Borrower shall pay to Bank the SAR Balance as detailed in the following
schedule:
1. Within 5 days after the receipt of any new equity or subordinated
debt up to $300,000, Borrower shall apply 20% of such equity or
subordinated debt amounts to the SAR Balance. Within 5 days after the
receipt of any new equity for amounts in excess of $300,000, Borrower
shall apply 30% of such equity amounts to the remaining SAR Balance. In
any event, the SAR Balance shall be due and payable in full November
30, 1997.
3. Borrower shall provide Bank with a revised annual forecast by September
30, 1997.
Except for the above-described modifications, the Addendum shall remain
unaltered and in full force and effect.
Please acknowledge your approval by signing and returning the original of
this letter to me.
Sincerely,
/s/ Thomas D. Jorgensen
By: _________________________________
Thomas D. Jorgensen
Assistance Vice President
Special Markets Group
Accepted and agreed to:
OPHTHALMIC IMAGING SYSTEMS
By: STEVEN R. VERDOONER
Title: Chief Executive Officer
Date: September 19, 1997
End of Document
3
<PAGE>
EXHIBIT 10. (j)
IMPERIAL BANK
2460 Sand Hill Road, Suite 102
Menlo Park, California 94025 (415) 233-3000
October 24, 1997
OPHTHALMIC IMAGING SYSTEMS
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: Mr. Steven R. Verdooner, President
Mr. Steven C. Lagorio, Director of Finance
Re: Imperial Bank Loan No. 700000559
Gentlemen:
With reference to the Credit Terms and Conditions dated April 12, 1995 (as
previously amended the "CTC") with addendum dated April 10, 1995 (as
previously amended the "Addendum") between Imperial Bank ("Bank") and
Ophthalmic Imaging Systems ("Borrower"), (the CTC and the Addendum herein
jointly referred to as the "Agreement") defaults have occurred in the
following covenants of the of the Agreement:
Pursuant to Section 6, A, 2 of the Addendum the Borrower is required to
maintain Working Capital of not less than $750,000. As shown on the financial
statement for the fiscal quarter ending 8/31/97 the Working Capital was
$579,000.
Pursuant to Section 6, A, 3 of the Addendum the Borrower is required to
maintain Tangible Net Worth of not less than $1,000,000. As shown on the
financial statement for the fiscal quarter ending 8/31/97 the Tangible Net
Worth was $715,000.
Pursuant to Section 6, A, 3 of the Addendum the Borrower is required to
maintain Total Liabilities to Tangible Net Worth of not more than 2.25 to
1.00. As shown on the financial statement for the fiscal quarter ending
8/31/97 this ratio was 3.29 to 1.00.
As a result of the above breaches the Bank has certain rights and remedies
pursuant to the Agreement and law. The Bank will forebear from enforcing those
rights, provided the Bank my revoke this forbearance at any time.
Section 2 of the Addendum deleted in its entirety and is replaced with the
following:
"2. TERM AND REPAYMENT
The line of credit will require monthly payments of interest through and
including October 30, 1997, at which time all outstanding principal,
accrued but unpaid interest and other charges thereinafter shall be due and
payable in full."
1
<PAGE>
The above forbearance and amendment are specific as to content and time, and
other than the forbearance and amendment mentioned above this letter is not a
forbearance, waiver or modification of any other rights or remedies that the
Bank may have pursuant to any agreement or law as a result of the above
defaults or of any other violations past, present, or future of any agreement
between the Borrower and the Bank, and the Bank reserves all rights, powers
and remedies available to it. The Bank and the Borrower hereby agree that
except as modified herein the Agreement remains in full force and effect.
Sincerely,
/s/ Thomas D. Jorgensen
By: _________________________________
Thomas D. Jorgensen
Assistance Vice President
Special Markets Group
Accepted and agreed to:
OPHTHALMIC IMAGING SYSTEMS
By: STEVEN R. VERDOONER
Title: Chief Executive Officer
Date: October 27, 1997
End of Document
2
<PAGE>
EXHIBIT 10. (k)
IMPERIAL BANK
2460 Sand Hill Road, Suite 102
Menlo Park, California 94025 (415) 233-3000
November 3, 1997
OPHTHALMIC IMAGING SYSTEMS
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: Mr. Steven R. Verdooner, President
Mr. Steven C. Lagorio, Director of Finance
Re: Imperial Bank Loan No. 700000559
Gentlemen:
With reference to the Credit Terms and Conditions dated April 12, 1995 (as
previously amended the "CTC") with addendum dated April 10, 1995 (as
previously amended the "Addendum") between Imperial Bank ("Bank") and
Ophthalmic Imaging Systems ("Borrower"), (the CTC and the Addendum herein
jointly referred to as the "Agreement"), Bank hereby modifies the Addendum as
follows:
Section 2 of the Addendum deleted in its entirety and is replaced with the
following:
"2. TERM AND REPAYMENT
The line of credit will require monthly payments of interest through and
including November 7, 1997, at which time all outstanding principal,
accrued but unpaid interest and other charges thereinafter shall be due and
payable in full."
This amendment is specific as to content and time, and other than the
amendment mentioned above this letter is not a forbearance, waiver or
modification of any other rights or remedies that the Bank may have pursuant
to any agreement or law as a result of the above defaults or of any other
violations past, present, or future of any agreement between the Borrower and
the Bank, and the Bank reserves all rights, powers and remedies available to
it. The Bank and the Borrower hereby agree that except as modified herein the
Agreement remains in full force and effect.
Sincerely,
/s/ Thomas D. Jorgensen
By: _________________________________
Thomas D. Jorgensen
Assistance Vice President
Special Markets Group
Accepted and agreed to:
OPHTHALMIC IMAGING SYSTEMS
By: STEVEN R. LAGORIO
Title: Director of Finance
Date: November 6, 1997
End of Document
1
<PAGE>
EXHIBIT 10. (l)
IMPERIAL BANK
2460 Sand Hill Road, Suite 102
Menlo Park, California 94025 (415) 233-3000
November 21, 1997
OPHTHALMIC IMAGING SYSTEMS
221 Lathrop Way, Suite I
Sacramento, CA 95815
Attention: Mr. Steven R. Verdooner, President
Mr. Steven C. Lagorio, Director of Finance
Re: Imperial Bank Loan No. 700000559
Gentlemen:
With reference to the Credit Terms and Conditions dated April 12, 1995 (as
previously amended the "CTC") with addendum dated April 10, 1995 (as
previously amended the "Addendum") between Imperial Bank ("Bank") and
Ophthalmic Imaging Systems ("Borrower"), (the CTC and the Addendum herein
jointly referred to as the "Agreement"), Bank and Borrower hereby agree to the
following modification:
With reference to Paragraph 2, Section B, Sub-Section 1 of Page 3 of the
letter agreement dated August 28, 1997, the due date for the SAR Balance is
extended to April 1, 1998, at which time the SAR Balance shall be due and
payable in full.
The above modification is specific as to content and time, and other than
the modification mentioned above this letter is not a forbearance, waiver or
modification of any other rights or remedies that the Bank may have pursuant
to any agreement or law as a result of the above defaults or of any other
violations past, present, or future of any agreement between the Borrower and
the Bank, and the Bank reserves all rights, powers and remedies available to
it. The Bank and the Borrower hereby agree that except as modified herein the
Agreement remains in full force and effect.
Sincerely,
/s/ Thomas D. Jorgensen
By: _________________________________
Thomas D. Jorgensen
Assistance Vice President
Special Markets Group
Accepted and agreed to:
OPHTHALMIC IMAGING SYSTEMS
By: STEVEN R. VERDOONER
Title: Chief Executive Officer
Date: November 24, 1997
End of Document
1
<PAGE>
EXHIBIT 10.19(m)
IMPERIAL BANK
AGREEMENT FOR PURCHASE OF RECEIVABLE
(FULL RECOURSE)
THIS AGREEMENT is made on November 18, 1997 by and between Ophthalmic
Imaging Systems having its principal place of business at 221 Lathrop Way,
Suite I, Sacramento, CA 95825, County of Sacramento, State of CA, 95815, (the
"Seller") and Financial Accounts Management Services, a division of Imperial
Bank, having a place of business at 226 Airport Parkway, San Jose, California
95110 (the "Purchaser").
1. DEFINITIONS. The following terms shall have the meanings stated:
1.1 "Account Balance"--on any given day, the gross amount of all Purchased
Receivable and other Obligations unpaid on that day.
1.2 "Account Debtor"--the Obligor on a Purchased Receivable.
1.3 "Adjustments"--all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments asserted by or on behalf of any Account
Debtor with respect to any Purchased Receivable.
1.4 "Advance"--the dollar amount computed with respect to each Purchased
Receivable, equal to the Advance Rate multiplied by the face amount of the
Purchased Receivable.
1.5 "Advance Rate"--80%
1.6 "Collateral"--
1.6.1 All now owned and hereafter acquired right title and interest in, to
and in respect of all accounts, interests in goods represented by accounts,
returned, reclaimed or repossessed goods with respect thereto and rights as an
unpaid vendor; contract rights; chattel paper; general intangibles (including
but not limited to, tax refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, customer lists, licenses, whether as
licenser or licensee, chooses in action and other claims, and existing and
future leasehold interests in equipment, real estate and fixtures); documents;
instruments; letters of credit, bankers' acceptances or guaranties; deposits,
securities, bank accounts, deposit accounts, credits and other property now or
hereafter held in any capacity by Purchaser, or its affiliates;
1.6.2 All now owned and hereafter acquired right, title and interest in,
to and in respect of all goods, including but not limited to:
1.6.2.1 All inventory, wherever located, whether no owned or hereafter
acquired, of whatever kind, nature or description, including all raw
materials, work-in-process, finished goods;
1.6.2.2 All equipment and fixtures, wherever located, whether now owned
or hereafter acquired, and any and all additions, substitutions, replacements
(including spare parts), and accessions thereof and thereto;
1.6.2.3 All present and future books and records relating to any of the
above including, without limitation, all computer programs, printed output and
computer readable data in the possession or control of the Seller, any
computer service bureau or other third party;
1.6.2.4 All products and proceeds of the foregoing in whatever form and
wherever located, including, without limitation, all insurance proceeds, all
claims against third parties for loss or destruction of or damage to any of
the foregoing, and all income from the lease or rental of any of the
foregoing.
1
<PAGE>
1.7 "Customer Payments"--all good funds received by Purchaser from or on
behalf of an Account Debtor with respect to Purchased Receivables.
1.8 "Face Amount of Purchased Receivables"--the gross amount due from the
Account Debtor, less all discounts allowed to the Account Debtor, computed on
the shortest selling terms stated in the invoice evidencing the Purchased
Account.
1.9 "Factor Fee"--rate of Imperial Bank's Prime Rate plus 4% calculated on
the daily net funds employed.
Insert A
1.10 "Administrative Fee"--rate of 0.5% of the average daily balance for
each monthly period. The minimum monthly fee is $1,200.00.
Insert B
1.11 "Obligations"--all obligations now or hereafter owed by the Seller to
the Purchaser, including but not limited to the obligations created hereunder.
1.12 "Obligor"--the Seller and all guarantors and other entities who may be
obligated to pay the Obligations.
1.13 "Purchased Receivables"--all those accounts, chattel paper,
instruments, contract rights, documents, general intangibles, and rights to
payment, and proceeds thereof, arising out of the invoices and other
agreements identified on or delivered with any Transmittal Sheet provided by
Seller to Purchaser.
1.14 "Receivables"--all present and future accounts and general intangibles
of the Seller.
Insert C
1.15 "Remittance"--the amount, if any, which Purchaser owes to Seller at
each Settlement Date, according to the accounting prepared by Purchaser equal
to:
1.15.1 The sum of:
1.15.1.1 The Reserve as of the beginning of the last Settlement Date,
Plus
1.15.1.1.1 The Reserve created for each Purchased Receivable purchase
during since last Settlement Date, minus
1.15.2 The total since the last Settlement Date of:
1.15.2.1 The Administrative Fees on paid Purchased Receivables,
1.15.2.2 Factor Fee on paid Purchased Receivables;
1.15.2.3 Adjustments;
1.15.2.4 Repurchase Amounts (to the extent Purchaser has agreed to
accept payment thereof by deduction from the Remittance); and
1.15.2.5 The Reserve based on the Account Balance as of the Settlement
Date.
1.16 "Repurchase Amount"--see 4.1 below.
1.17 "Reserve"--a percentage of the Account Balance, computed as the
difference between the Face Amount of Purchased Receivables and the Advance,
which shall be determined by Purchaser in its reasonable sole discretion,
based on the nature and quality of the Purchased Receivables, and which shall
not be less than
2
<PAGE>
30% less all fees on unpaid Purchased Receivables. The Reserve shall be the
book balance maintained in the records of Purchaser and shall not be a
segregated fund.
Insert C
1.18 "Settlement Date"--the day that remittance is calculated and paid.
1.19 "Transmittal Sheet"--the forms supplied by Purchaser to Seller which
identify the receivables of Seller which it requests that Purchaser purchase.
2. Purchase of Receivables.
2.1 Seller for and in consideration of the Advances and other valuable
consideration, does hereby absolutely sell, assign and transfer to Purchaser,
its successors and assigns, all of Seller's right, title and interest in and
to the Purchased Receivables and all moneys due or which may become due upon
such Purchased Receivables.
2.2 Purchaser is not obligated to purchase any Receivables from Seller.
2.3 Purchaser may exercise its sole discretion in approving the credit of
each Account Debtor before buying any Receivables.
2.4 Purchaser shall have with respect to the Purchased Receivables, all the
rights and remedies of an unpaid seller under the Uniform Commercial Code and
other applicable law, including the rights of replevin, claim and delivery,
reclamation, and stoppage in transit.
Insert D
3. Terms of Purchase.
3.1 Each Transmittal Sheet shall reasonably identify the Purchased
Receivables, correctly state the amount owed by the Account Debtor, and shall
be signed by an authorized signatory of Seller.
3.2 Seller hereby authorizes Purchaser to insert in the Transmittal Sheet
information to describe the Purchased Receivables.
3.3 Purchaser is entitled to rely on the contents of any Transmittal Sheet
delivered by Seller, to treat the Receivables described therein as Purchased
Receivables, and to rely on the signature as an authorized signatory of
Seller.
3.4 Upon acceptance and purchase by Purchaser of the Receivables described
on each Transmittal Sheet and upon Seller's request, Purchaser shall pay the
Advance to Seller.
3.5 Should Purchaser determine at any time in the reasonable exercise of its
discretion that the nature and quality of the Purchased Receivables has
deteriorated, Purchaser may change the Advance Rate with respect to all future
purchases of Receivables.
Insert E
3.6 As Purchaser collects Customer Payments from or on behalf of Account
Debtors, Purchaser shall promptly credit the Customer Payments to the Account
Balance on a daily basis as funds clear, as determined by Seller in its
reasonable discretion. In the alternative, Purchaser shall have the right to
delay credit to the Account Balance for a fixed number of days with respect to
all Customer Payments, to allow for clearance and collection of funds.
3.7 If Seller is in default under this Agreement, all Customer Payments will
be applied to any Obligations in such order and manner as Purchaser shall
determine, irrespective of contrary instructions which may be received from
Seller or the payor.
3
<PAGE>
3.8 Purchaser shall charge and be entitled to, and Seller shall pay on each
Settlement Date the Administrative Fee and the Factor Fee on all paid
Purchased Receivables.
3.9 Purchaser shall prepare and send to Seller, after close of business each
month, an accounting of the transactions for that month. The accounting shall
be deemed correct and conclusive, and shall constitute an account stated
between the parties unless Seller makes written objection to Purchaser within
30 days after mailing of the accounting to the Seller.
3.10 Purchaser shall pay the Remittance to Seller within ten days after the
Settlement Date.
3.11 In the event the calculation of the Remittance results in an amount due
to Purchaser from Seller, Seller shall make such payment in the same manner as
set forth in Section 4.2.
4. Repurchase and Recourse. Purchaser's purchase of Purchased Receivables
from Seller shall be with full recourse.
4.1 Purchaser may increase the Reserve, and Seller agrees to pay to
Purchaser on demand, the full amount or any unpaid portion thereof, of any
Purchased Receivable (the "Repurchase Amount"):
4.1.1 Which remains unpaid ninety (90) calendar days after invoice date;
4.1.2 Which is owed by an Account Debtor which has filed, or has had filed
against it, any bankruptcy case or insolvency proceeding or who has become
insolvent (as defined in the Federal Bankruptcy Code) or who is generally not
paying its debts as such debts become due;
4.1.3 With respect to which there has been any breach of warranty set
forth in Section 6 hereof or any breach of any covenant contained in this
Agreement; or
4.1.4 With respect to which the account debtor asserts any discount,
allowance, return, dispute, counterclaim, offset, defense, right of
recoupment, right of return, warranty claim, or short payment, together with
all reasonable attorneys' and professional fees and expenses and all court
costs incurred by Purchaser in collecting the Purchased Receivable and/or
enforcing its rights under this Agreement.
4.2 Purchaser may, in its sole discretion, demand that the Repurchase Amount
be paid by Seller (A) in cash immediately upon demand therefor; (B) by
delivery of substitute invoices acceptable to Purchaser which shall thereupon
become Purchased Receivables; or (C) by deduction from the Remittance which
would otherwise be due to Seller, or by any combination of the foregoing as
Purchaser may from time to time choose.
5. Power of Attorney. Seller hereby irrevocably appoints Purchaser and its
successors and assigns as Seller's true and lawful attorney in fact, with
respect to Purchased Receivables and Collateral, (A) to sell, assign,
transfer, pledge, compromise, or discharge the whole or any part of such
Receivables; (B) to demand, collect, receive, sue and give releases for moneys
due or which may become due upon such receivables and to compromise,
prosecute, or defend any action, claim, case, or proceeding relating to such
Receivables, including the filing of a claim or the voting of such claims in
any bankruptcy case, all in Purchaser's name or Seller's name, as Purchaser
may choose; (C) to prepare, file and sign Seller's name on any notice, claim,
assignment or satisfaction of lien or mechanics' lien or similar document; (D)
to notify all account debtors to pay Purchaser directly; (E) to receive, open,
and dispose of all mail addressed to Seller for the purpose of collecting such
Receivables; (F) to endorse Seller's name on any checks or other forms of
payment on receivables; (G) to sign Seller's name to any form UCC-1 or other
document necessary to perfect any security interest granted by Seller to
Purchaser; (H) to complete, execute and file any franchise tax return or other
documents necessary to qualify Seller to do business in any state which
Purchaser deems necessary to enforce collection of Receivables, and to pay, on
Seller's behalf any taxes or fees which may be due by Seller in connection
therewith (all such fees and taxes shall be added to the Account Balance) and
(I) to do all acts and things necessary or expedient, in furtherance of any
such purpose.
Insert D
Insert F
4
<PAGE>
6. Representations, Warranties & Covenants. To induce Purchaser to render
its services available to Seller, and with full knowledge that the truth and
accuracy of the following are being relied upon by the Purchaser in
determining whether to accept purchase Receivables the Seller represents,
warrants, covenants and agrees, with respect to each Transmittal Sheet
delivered to Purchaser, that:
6.1 The Seller is the absolute owner of each receivable set forth in each
Transmittal Sheet and has full legal right to make said sale, assignment and
transfer thereof;
6.2 The correct amount of each Receivable is as set forth in the Transmittal
Sheet and is not in dispute;
6.3 The payment of each receivable is not contingent upon the fulfillment of
any obligation or contract, past or future, and any and all obligations
required of the Seller have been fulfilled as of the date of each Transmittal
Sheet;
6.4 Each Receivable set forth in a Transmittal Sheet is based on an actual
sale and delivery of goods and/or services actually rendered, is presently due
and owing to Seller, is not past due or in default, has not been previously
sold, assigned, transferred, or pledged, and is free of any encumbrance or
lien except to Purchaser;
6.5 There are no defenses, offsets, or counterclaims against any of the
Receivables, and no agreement has been made under which the Account Debtor may
claim any deduction or discount, except as otherwise stated on each invoice
submitted to Purchaser which is listed on the Transmittal Sheet;
6.6 Each Purchased Receivable shall be the property of the Purchaser and
shall be paid directly to Purchaser, but if for any reason it should be paid
to Seller, Seller shall promptly notify Purchaser of such payment, shall hold
any checks, drafts, or moneys so received in trust for the benefit of
Purchaser, and shall promptly transfer and deliver the same to the Purchaser;
6.7 Purchaser shall have the right to endorse, and also the right to require
endorsement by Seller, on all payments received in connection with each
Purchased Receivable and any proceeds of Collateral;
6.8 The Seller, and to Seller's best knowledge, each Account Debtor set
forth in the Transmittal Sheet, are and shall remain solvent as that term is
defined in the Federal Bankruptcy Code;
6.9 Each Account Debtor named in the Transmittal Sheet will not object to
the payment for or the quality or the quantity of the subject matter of the
Receivable and is liable for the amount set forth on the Transmittal Sheet;
6.10 Each Account Debtor shall be promptly notified after acceptance by
Purchaser that the Purchased Receivable has been transferred to and is payable
to Purchaser, and Seller shall not take or permit any action to countermand
such notification;
6.11 The Seller's place of business, and the place where records concerning
all Receivables herein referred to are kept, is the one set forth at the
beginning of this Agreement, and Seller will promptly advise Purchaser in
writing if such place of business or record keeping is changed or a new place
of business or record keeping is added;
6.12 Seller is not and will not hold any letter of credit or negotiable
instrument as support for or in payment of any Purchased Receivable, and any
such documentation received by Seller will be immediately turned over to
Purchaser, with any necessary assignment or endorsement;
6.13 Seller will not assign, transfer, sell or grant any lien or security
interest in the Collateral to any other party without Purchaser's prior
written consent; and
6.14 No Account Debtor is affiliated with Seller, either by common ownership
or family relationship.
6.15 All Receivables forwarded to and accepted by Purchaser after the date
hereof, and thereby becoming Purchased Receivables, shall comply with each and
every one of the foregoing representations, warranties, covenants and
agreements referred to above in this section 6.
5
<PAGE>
7. Adjustments. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall promptly
advise Purchaser and shall, subject to the Purchaser's approval, resolve such
disputes and advice Purchaser of any adjustment. Unless reassigned to Seller,
Purchaser shall remain the absolute owner of any Purchased Receivable, which
is subject to Adjustment or Repurchase under Sections 1.3 or 4 hereof, and any
rejected, returned, or recovered personal property, with the right to take
possession thereof at any time. If such possession is not taken by Purchaser,
Seller is to resell it for Purchaser's account at Seller's expense with the
proceeds made payable to Purchaser. While Seller retains possession of said
returned goods, Seller shall segregate said goods and mark them "property of
Financial Accounts Management Services."
Insert F
8. Security Interest
8.1 This Agreement for Purchase of Receivables is the security agreement
referred to in the Transmittal Sheet.
8.2 In order to secure the Obligations Seller hereby grants to Purchaser a
continuing lien upon and security interest in all Seller's now existing or
hereafter arising rights and interest in the Collateral.
8.3 Seller is not authorized to sell, transfer or otherwise convey any
Collateral without Purchaser's consent, except for the sale of finished goods
inventory in the Seller's ordinary course of business. Purchaser shall have
the right, upon default by Seller hereunder, to withdraw its consent to
Seller's sale of finished goods inventory, and Seller agrees that Purchaser
may notify the Account Debtors of this withdrawal of consent.
8.4 Seller agrees to sign all UCC financing statements required by and in a
form satisfactory to Purchaser.
8.5 Purchaser shall have the right at any time to notify Seller's Account
Debtors of its security interest. Said notification may be in the form of
Exhibit A hereto.
9. Default
9.1 The following shall constitute Events of Default:
9.1.1 Seller fails to pay as when due any Obligations owed to Purchaser.
9.1.2 There shall be commenced by or against any Obligor any voluntary or
involuntary case under the Federal Bankruptcy Code, or any assignment for the
benefit of creditors, or appointment of a receiver or custodian for a
substantial portion of its assets;
9.1.3 Any Obligor shall become insolvent, in that its debts are greater
than the fair value of its assets, or such entity is generally not paying its
debts as they become due;
9.1.4 Any involuntary lien, levy, garnishment, attachment or the like is
issued against or attaches to the Purchased Receivables or the Collateral and
the same is not released within fifteen (15) days; or
9.1.5 Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Purchaser's
satisfaction within ten (10) days after Purchaser has given Seller written
notice thereof.
9.2 Upon the occurrence of an Event of Default
9.2.1 Without implying the existence of any obligation to Purchaser to buy
receivables, which implication is specifically negated by the terms hereof,
Purchaser may cease buying Receivables;
9.2.2 Purchaser may immediately exercise its rights and remedies with
respect to the Purchased Receivables and the Collateral, as a secured party
under this Agreement, the Uniform Commercial Code, and applicable law;
6
<PAGE>
9.2.3 Purchaser shall have the rights as set forth in Section 8 hereof.
10. Nonpayment of Obligations. If any Obligation is not paid when due
(including amounts due under section 3.11, Repurchase Amounts due under
section 4, or professional fees and expenses under section 11), such amount
may be added to the Account Balance and shall be subject to the Factor Fee
rate until payment in full.
Insert G
11. Professional Fees. The Seller will pay all reasonable fees and expenses
of attorneys and other professionals that Purchaser incurs in negotiating,
amending, and enforcing this Agreement and protecting or enforcing its
interest in the Purchased Receivables or the Collateral, in collecting
Purchased Receivables, or in the representation of Purchaser in connection
with any bankruptcy case or insolvency proceeding involving Seller, the
Collateral, any Account Debtor, or any Purchased Receivable.
12. Severability and Choice of Law. In the event that any provision of this
Agreement is deemed invalid by reason of law, this Agreement will be construed
as not containing such provision and the remainder of the Agreement shall
remain in full force and effect. This Agreement has been transmitted by Seller
to Purchaser at Purchaser's office in the State of California and has been
executed and accepted by Purchaser in the State of California. This Agreement
shall be governed by and interpreted in accordance with the laws of the State
of California without reference to choice of law.
13. Account Collection Service. In the event that Purchaser requires that
all of Seller's Receivables be paid to Purchaser, subject to Purchaser's
rights in the Collateral, Purchaser agrees to remit the amount of collections
on the Receivables it receives and does not own to Seller after deducting a
handling fee of 0% of such amount received. It is understood and agreed by
Seller that this Section does not impose any affirmative duty on Purchaser to
do any act other than to turn over such amounts. All such Receivables and
collections are Collateral and in the event of Seller's Default hereunder,
Purchaser shall have no duty to remit collections of Collateral and may apply
same to the Obligations until said Default is cured.
Insert H
14. Term and Termination. The term of this Agreement shall be for one (1)
year from the date hereof, and from year to year thereafter unless terminated
in writing by Purchaser or Seller. Seller and Purchaser each have the right to
terminate at any time provided that there is no outstanding Account Balance
and no fees, charges or other obligations owed to Purchaser at the time of
termination. Any termination of this Agreement shall not affect Purchaser's
security interest in the Collateral and Purchaser's ownership of the Purchased
Receivables, and this Agreement shall continue to be effective, until all
transactions entered into and Obligations incurred hereunder have been
completed and satisfied in full.
IN WITNESS WHEREOF, the Seller has executed this Agreement on the date and
year above written, and the Purchaser has accepted by its authorized
representative.
SELLER: Ophthalmic Imaging Systems
/s/ Steven R. Verdooner
By: _________________________________
Steven R. Verdooner
Chief Executive Officer
ACCEPTED AT SAN JOSE, CALIFORNIA
FINANCIAL ACCOUNTS MANAGEMENT
SERVICES, a division of Imperial
Bank
/s/ Gary Hanson
By: _________________________________
Gary Hanson
President
7
<PAGE>
IMPERIAL BANK
AGREEMENT FOR PURCHASE OF RECEIVABLE
NOVEMBER 18, 1997
Insert A
Section 1.9
"Daily Net Funds Employed" refers to the amount advanced against factored
receivables that remains unpaid.
Insert B
Section 1.10
The "monthly period" is the number of days in the month. The "average daily
balance" is the average amount of unpaid factored invoices outstanding during
the monthly period.
Insert C
Section 1.15 and Section 1.18
It is our understanding that the Purchaser generally pays excess reserves
bi-monthly, on the 1st day and the 15th day of the month, and, if requested by
the Seller and in the sole discretion of the Purchaser, the Purchaser may pay
excess reserves on an as requested basis.
Insert D
Section 3 (inclusive)
Section 6 (inclusive)
For receivables pending installation, the advance rate is reduced to 50%
from 80%. This is subject to all other TERMS OF PURCHASE as outlined in
Section 3 of the Agreement for Purchase of Receivable.
Insert E
Section 3.6
It is our understanding that the Purchaser normally credits the Account
Balance on the date that Purchaser receives payment, with a maximum delay of 1
day for in-state checks and 3 days for out-of-state checks.
Insert F
Section 6 (inclusive)
Section 8 (inclusive)
It is our understanding that the Purchaser will subordinate its security
position in vendor-financed equipment or inventory exclusive of Accounts
Receivable, provided Seller is not in default.
Reference facsimile dated 11/18/97 (FileName: IMP1118A.DOC) attached hereto
and included as a part hereof.
Insert G
Section 11
All reasonable fees and expenses of attorneys and other professionals will
be paid to the prevailing party.
Insert H
Section 14
There is no pre-payment penalty.
Insert I
Section 15
Insert I has been deleted.
8
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
221 LATHROP WAY, SUITE I
SACRAMENTO, CA 95815 (916) 646-2020
18 November, 1997
VIA FACSIMILE
Gary Hanson
Imperial Bank
Financial Accounts Management Services
Dear Gary:
This letter is intended to confirm the salient points our conversation today
regarding a third party loaning funds to Ophthalmic Imaging Systems ("OIS" or
the "Company"), and the potential ramifications of said transaction in light
of the factoring relationship and related agreements currently contemplated
between the Company and Imperial Bank (the "Bank").
. It is our understanding that Imperial Bank will allow this third party to
loan funds to the Company and the Company will not be in violation of any
agreements in accepting such loans.
. It is the Bank's intention to allow the Company to accept the loan for use
as general working capital for purposes of assisting the Company in fulfilling
its obligations to deliver products to its customers.
. The Bank will subordinate to the third party, receivables specifically
identified in a schedule to be submitted to the Bank by the Company, the funds
received in payment therefore which will be used to repay the third party in
accordance with said schedule.
. The Bank will exclude from its collateral the receivables specifically
identified in said schedule and, with regard to said receivables, will
subordinate to the third party under all circumstances.
If the foregoing accurately reflects our understanding, then please so note
by signing below and returning to my attention via return facsimile.
Thank you again for your flexibility in working with OIS and I look forward
to a continued positive business relationship with Imperial Bank.
Sincerely,
/s/ Steven R. Verdooner
By: _________________________________
Steven R. Verdooner
Chief Executive Officer
SRV/s
IMPERIAL BANK
BY:
TITLE:
DATE:
While it is Bank's intention "in principle" to agree to a future
subordination of some specific invoices, any future subordination agreement
must in a form that is acceptable to Bank's legal counsel.
9
<PAGE>
(TO BE MAILED ONLY IN THE EVENT OF DEFAULT)
EXHIBIT A
(Letterhead of Financial Accounts Management Services)
(Date)
(Name and Address of Customer)
Re: Ophthalmic Imaging Systems ("Debtor")
Gentlepersons:
Please be advised that the Ophthalmic Imaging Systems has assigned all its
present and future accounts to FAMS. To the extent that you are now indebted
or may in the future become indebted to Debtor on an account, any payments
must be made to FAMS and not to Debtor or any other entity. The payments
should be mailed to us at the above address.
PAYMENTS MADE IN ANY OTHER MANNER MAY EXPOSE YOU TO MULTIPLE LIABILITY.
We also hereby notify you that we have revoked Debtor's right to sell
inventory free and clear of our security interest therein. Consequently, any
inventory of the Debtor (or proceeds thereof) which you receive subsequent to
your receipt of this letter shall be subject to our security interest therein,
and we hereby demand that you turn over any such inventory and/or proceeds to
us at the address set forth above.
This letter may only be revoked by a writing signed by one of our officers
the authenticity of which you have verified by telephone or facsimile.
Thank you.
Sincerely yours,
Financial Accounts Management
Services
By:
Title:
10
<PAGE>
CERTIFICATE OF RESOLUTIONS
I, Steven R. Verdooner, do hereby certify that:
1. I am the duly elected Chief Executive Officer of Ophthalmic Imaging
Systems (the "Corporation").
2. At a meeting of the Board of Directors of the Corporation, duly convened
and held in accordance with the Corporation's By-Laws and the laws of the
state of incorporation, at which a quorum was present and acting throughout or
by unanimous written consent of all the Directors if permitted by law, the
following resolutions were adopted:
RESOLVED that the Corporation be and hereby is authorized to sell the
Corporation's accounts receivable to Financial Accounts Management Services, a
division of Imperial Bank, and to grant to Financial Accounts Management
Services a security interest in the Corporation's personal property.
RESOLVED FURTHER that the officers of the Corporation be and hereby are
authorized and directed to execute and deliver certain agreements in
connection with the sale of accounts receivable, and the grant of security
interests in the Corporation's personal property to Financial Accounts
Management Services, including, without limitation, Agreement for Purchase of
Accounts, Certification of Officers, Certification of Resolutions, [other
Agreements that might be needed] and UCC Financing Statements.
RESOLVED FURTHER that the following named officers of the Corporation
("Authorized Officers") be, and any of them hereby are, authorized, empowered,
and directed to execute and deliver to Financial Accounts Management Services
on behalf of the Corporation, the agreements listed in the foregoing
resolution, and to do or cause to be done all such acts and things and make,
execute, and deliver or cause to be made, executed and delivered, on behalf of
the Corporation, all such further agreements and instruments as may be deemed
necessary or advisable in order fully effectuate the purposes and intent of
the foregoing resolutions.
STEVEN R. VERDOONER, CHIEF EXECUTIVE OFFICER
WILLIAM L. MINCE, PRESIDENT
(Names of Authorized Officers)
RESOLVED FURTHER that any one of the Corporate Officers shall execute and
deliver to Financial Accounts Management Services a certificate of these
resolutions.
3. The foregoing resolutions have not been modified, amended or rescinded in
any respect and are in full force as of today's date.
IN WITNESS WHEREOF, I have hereunder signed my name on November 18, 1997.
/s/ Steven R. Verdooner
By: _________________________________
Steven R. Verdooner
Chief Executive Officer
11
<PAGE>
CERTIFICATION OF OFFICERS
The undersigned, being all Officers of Ophthalmic Imaging Systems, a CA
corporation, (the "Corporation") hereby certify to Financial Accounts
Management Services that:
1. The correct name of the Corporation is as set forth in the Articles of
Incorporation.
2. The Corporation was incorporated on 7/14/86 under the laws of the State
of CA and is in good standing under such laws.
3. The chief place of the Corporation, being the place at which the
Corporation maintains its books and records pertaining to accounts, accounts
receivable, contract rights, chattel paper, general intangibles, instruments,
documents, inventory, and equipment, is located at:
221 Lathrop Way, Suite I
Sacramento, CA 95815
4. The Corporation has other places of business at the following addresses:
5. There is no provision in the Certificate of Incorporation, Articles of
Incorporation, or Bylaws of the Corporation, or in the laws of the state of
its incorporation, requiring any vote or consent of shareholders to authorize
the sale of accounts receivable or the grant of security interest in any
assets of the Corporation. Such power is vested exclusively in the
Corporation's Board of Directors.
6. The officers of the Corporation, and their respective titles are as
follows:
CHIEF EXECUTIVE OFFICER: Steven R. Verdooner Other:
VICE PRESIDENT: Other:
SECRETARY: Steven R. Verdooner Other:
Other: Other:
7. Except as indicated in this paragraph 7, each of the officers listed in
paragraph six has signatory powers with respect to all the Corporation's
transactions with Financial Accounts Management Services, a division of
Imperial Bank.
8. The undersigned shall give Imperial Bank Financial Accounts Management
Services prompt written notice of any change or amendment with respect to any
of the foregoing. Until further notice is received by Financial Accounts
Management Services, it shall be entitled to rely upon the foregoing in all
respects.
IN WITNESS WHEREOF, the undersigned have executed this Certification of
Officers on 11/18/97.
/s/ Steven R. Verdooner Other
- ---------------------------------
Steven R. Verdooner
Chief Executive Officer
Vice President Other
/s/ Steven R. Verdooner Other
- ---------------------------------
Steven R. Verdooner
Secretary
12
<PAGE>
SIGNATURE AUTHORIZATION
Date: November 18, 1997
Each person whose specimen signature appears below is hereby authorized and
empowered to transact any and all business with the Financial Accounts
Management Services division of Imperial Bank, San Jose, California, which the
undersigned could in any way transact and is further authorized to execute,
acknowledge and/or deliver on behalf of the undersigned any and all
assignments, documents, instruments and agreements which he may deem necessary
or convenient in transaction of such business of the undersigned.
Signatures and titles are as follows:
<TABLE>
<CAPTION>
NAME (PRINT OR TYPEWRITE) TITLE SPECIMEN OF SIGNATURE
------------------------- ----- ---------------------
<S> <C> <C>
Steven R. Verdooner.............. CEO /s/ Steven R. Verdooner
William L. Mince................. President /s/ William L. Mince
Steven C. Lagorio................ Director of Finance /s/ Steven C. Lagorio
</TABLE>
OPHTHALMIC IMAGING SYSTEMS
/s/ Steven R. Verdooner
By: _________________________________
13
<PAGE>
VALIDITY INDEMNIFICATION
Financial Accounts Management Services (FAMS)
a division of Imperial Bank
226 Airport Blvd.
San Jose, California 95110
Re: Ophthalmic Imaging Systems ("Seller") and Financial Accounts Management
Services ("Purchaser") Agreement for Purchase of Receivables and related
documents ("Agreements") dated 11/18/97.
The undersigned is the CEO of the Seller. In order to induce Purchaser to
purchase accounts receivable from the Seller, pursuant to the Agreements
between Purchaser and Seller, the undersigned hereby represents and warrants
to Purchaser, on behalf of the Seller, as follows:
1. All Seller accounts which have been or will be reported to Purchaser by
or on behalf of the Seller and in which Purchaser holds a security interest
("Accounts"), whether such reports are in the form of agings, borrowing base
certificates, collateral reports, transmittals or financial statements, are
genuine and in all respects what they purport to be, represent bonafied
obligations of delivery of merchandise and or services sold by the Seller (the
"Sold Goods/Services") in the ordinary course of its business and in
accordance with and in full and complete performance of customer's (each, an
"Account Debtor") order therefore.
2. All original checks, drafts, notes, letters of credit, acceptances and
other proceeds of the Accounts, received by the Seller, will be held in trust
for Purchaser and will immediately be forwarded to Purchaser upon receipt, in
kind, in accordance with the terms of Agreements.
3. None of the Accounts are or will be the subject of any offsets, defenses
or counterclaims of any nature whatsoever, and Seller will not in any way
impede or interfere with the normal collection and payment of the Accounts.
4. Seller is presently solvent.
5. The sold Goods/Services are and will be up to the point of sales, the
sole and absolute property of the Seller, and the Accounts and sold
Goods/Services will be free and clear of all liens and security interests,
except your security interest.
6. The due dates of the Accounts will be as reported to Purchaser by or on
behalf of the Seller.
7. Seller will promptly report to Purchaser all disputes, rejections,
returns and resales of sold Goods/Services and all credits allowed by the
Seller upon all accounts.
8. All reports which Purchaser receives from the Seller, including BUT NOT
LIMITED TO those concerning its Accounts and its inventory, will be true and
accurate except for minor inadvertent errors.
9. Seller will not sell its inventory except in the ordinary course of
business.
The undersigned, on behalf of the Seller, hereby indemnifies Purchaser and
holds Purchaser harmless from any direct, indirect, or consequential damage or
loss which Purchaser may sustain as a result of the breach of any
representation or warranty contained herein, (all of which are continuing and
irrevocable for so long as the Seller is indebted to Purchaser), or of
Purchaser's reliance (whether such reliance was reasonable) upon any
misstatement (whether or not intentional), fraud, deceit or criminal act on
the part of any officer, employee, or agent of the Seller, or any costs
(including reasonable attorney's fees and expenses) incurred by Purchaser in
the enforcement of any rights granted Purchaser hereunder. All such sums will
be paid by the undersigned to Purchaser on demand.
14
<PAGE>
Nothing herein contained shall be in any way impaired or affected by any
change in or amendment of any of the Agreements. This indemnification shall be
binding upon the undersigned corporation, its successors and assigns.
Very truly yours,
INDEMNITOR'S INFORMATION
Name OPHTHALMIC IMAGING SYSTEMS Address 221 Lathrop Way,
Suite I
Signature /s/ Steven R. Verdooner City State Sacramento, CA 95815
CEO
Dated Signed November 18, 1997 SS# 94-3035367
It is the sole intent that this indemnification be made by Ophthalmic
Imaging Systems, a corporation, and not by any individual.
15
<PAGE>
IMPERIAL BANK
TRANSMITTAL SHEET
(SCHEDULE A)
Trans#
Date Page
Relationship
Seller Name Ophthalmic Imaging Systems
Account Customer Name Invoice Invoice Purchase Net
Code (Detail if Needed)** Number Date Order # Sale
Special Instructions: This section to be completed by FAMS.
Gross Total 100%
Reserve %
Detail of Charges/Reason Charges/
for Adjustment: Adjustments
Net Advance
** Please include contact person, Method of Disbursement
phone number, fax number and Check #, Account #, Other
address for all new Customers,
or when needed. Include location
for customers with multiple
billing/processing centers.
The undersigned hereby sells and assigns to Financial Accounts Management
Services, a division of Imperial Bank, a security interest in the accounts
listed in the above schedule, monies due and to become due upon the same, and
all merchandise returned or rejected. The undersigned, to the best of his/her
knowledge, represents that the above schedule correctly sets forth accounts
now owing the undersigned for bonafide sales and deliveries of merchandise
and/or service; that there are no offsets or counterclaims of any nature
whatsoever against any of the accounts; that none of said accounts are past
due; that proper entries have been made on the books of the undersigned
disclosing the sale and assignment of such accounts to Financial Accounts
Management Services; that none of said accounts have been sold or assigned to
any other party; that said accounts are sold and assigned pursuant to and in
accordance with all the terms and provisions of the Agreement for Purchase of
Receivable executed by Financial Accounts Management Services and the
undersigned relating to advances made by Financial Accounts Management
Services on such accounts and the assignment thereof; and that all such
accounts are eligible accounts as defined in said Agreement for Purchase of
Receivable.
Authorized signer Signature
16
<PAGE>
(LETTERHEAD OF SELLER)
(PLEASE COMPLETE ONE FOR ALL DBA'S)
All future advances under the "Agreement for Purchase of Receivable" are
subject to Bank's receipt of an Assignment letter that is acceptable to Bank.
End of Document
17
<PAGE>
EXHIBIT 10.23
OPHTHALMIC IMAGING SYSTEMS
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 14 day of July
1997, by and between OPHTHALMIC IMAGING SYSTEMS, a California corporation
("Employer") and WILLIAM L. MINCE ("Employee").
NOW, THEREFORE, in consideration of the mutual promises set forth below, the
parties to this Agreement mutually agree as follows:
AGREEMENTS
1. EMPLOYEE'S DUTIES AND AUTHORITY. Employer hereby employs Employee, and
Employee hereby accepts employment with Employer, as President/Chief Operating
Officer of Employer. Employee's duties shall be as provided in Employer's
bylaws and/or as specified by Employer's board of directors from time to time.
2. LIMITATIONS ON OUTSIDE ACTIVITIES. During the term of this Agreement,
Employee shall devote his best efforts, full energies, abilities and
productive time to the performance of his duties under this Agreement and
shall not, without Employer's prior written consent, render to others services
of any kind for compensation, or engage in any other business activities that
would materially interfere with the performance of his duties under this
Agreement.
3. COMPETITION, SOLICITATION.
A. During the term of this Agreement, Employee shall not, directly or
indirectly, whether as a partner, employee, creditor, shareholder or
otherwise, promote, participate or engage in any activity or other business
competitive with Employer's business.
B. Because of his employment by Employer, Employee will have access to
trade secrets, customer lists and customers and its methods of doing
business. Employee agrees not to use or disclose, directly or indirectly,
to any person, organization or entity:
(1) any confidential information or knowledge concerning the business
and affairs of the company or
(2) any inventions, discoveries, improvements, products, processes,
technology, trade secrets, customer lists or any other confidential
materials whether acquired before or after the effective date of this
Agreement is disclosure or use would adversely affect the business of
the company or accord to a competitor of Employer a material commercial
advantage. This paragraph does not restrict Employee from disseminating
or using any information which is published or available to the general
public, except where such publication or availability results from
Employee's acts.
C. Employee agrees that for a period of three (3) years after expiration
or earlier termination of this Agreement, he will not, directly or
indirectly, solicit any of the customers of Employer's to transact business
with any other firm or enterprise which is engaged in competition with
Employer.
4. TERM OF AGREEMENT. Subject to earlier termination as provided in this
Agreement, the term of this Agreement shall be two (2) years from the date of
this Agreement.
1
<PAGE>
5. COMPENSATION. Employer makes no representations and provides no advice
concerning the treatment by taxing authorities of any Employee compensation
set forth in this Agreement. Employer strongly urges Employee to consult with
his own independent tax advisers. Employer shall compensate Employee according
to the terms of this Agreement as follows:
A. In consideration for the services to be rendered by Employee under
this Agreement, the Employer agrees to pay, and Employee agrees to accept
as compensation, an annual salary of ONE HUNDRED FORTY THOUSAND DOLLARS
($140,000) per year, payable in accordance with the Company's standard
payroll policies.
B. Employee shall be eligible for an annual bonus in an amount not to
exceed FORTY TWO THOUSAND DOLLARS ($42,000), which amount is equal to 30%
of Employee's annual salary. The criteria and/or formulae by which the
actual bonus amount is calculated will be determined pursuant to a separate
agreement. With respect to 50% of the actual bonus amount Employee agrees
to accept as payment thereof, and Employer agrees to issue as payment,
unregistered shares of the Company's Common Stock, which includes customary
transfer restrictions, the fair market value ("FMV") of which at the date
of issuance, is equal to 50% of the actual bonus payment. FMV of each share
so issued shall be the closing price on the applicable national securities
exchange on the date of issuance.
C. Employer agrees to grant, and Employee agrees to accept, a stock
option to purchase 100,000 shares of the Company's Common Stock at the
closing market price of the stock on the date duly granted by the Company's
Board of Directors, which date will not be before the date of this
Agreement, nor later than the minimum period practicable after the date of
this Agreement and in any event no later than the day before any public
announcement of Employee's hiring. The option shall vest and become
exercisable with respect to TWENTY FIVE THOUSAND (25,000) of the shares at
the completion of Employee's sixth month of employment and with respect to
TWO THOUSAND FIVE HUNDRED (2,500) of the shares at the completion of each
of the subsequent 30 months thereafter for a total vesting period of 36
months, subject to the terms and conditions of the Stock Option Agreement
pursuant to which stock option is granted.
D. In consideration for relocation expenses to be incurred by the
Employee, including, but not limited to temporary housing, meals, moving
and other related expenses, Employer agrees to pay, and Employee agrees to
accept as a relocation allowance, up to THIRTY THOUSAND DOLLARS ($30,000),
with such allowance to be used at the sole discretion of the Employee.
E. Employee shall be entitled to up to five (5) days of professional
development during the first year of employment for which time the Employer
agrees to pay the Employee's salary. Employee shall be entitled to be
reimbursed for expenses incurred in connection with such development,
including, but not limited to, expenses of travel and entertainment, meals,
lodgings and other expenses of a business nature, upon presentation of
appropriate vouchers.
F. Employee shall be reimbursed for ordinary and necessary business
expenses incurred in connection with his employment, including, but not
limited to, expenses of travel and entertainment, meals, lodgings and other
expenses of a business nature, upon presentation of appropriate vouchers.
G. Employee shall be entitled to such fringe benefits, including life,
disability, accident, health, wage continuation and other insurance and
contributions to retirement plans, employee benefits plans, savings or
profit-sharing plans, deferred compensation plans, supplemental retirement
or excess-benefit plans stock option, incentive or other bonus plans, paid
vacations and other similar plans or programs, if any, subject in each case
to the generally applicable terms and conditions of the plan or program in
question and to the determination of any committee administering such plan
or program.
H. Salary increases, if any, will be made only at the sole discretion of
Employer during the term of this Agreement.
I. Employee shall receive full compensation and benefits for any period
of illness or incapacity during the term of this Agreement, provided,
however, Employer shall have the right to terminate this agreement if
2
<PAGE>
such illness or incapacity shall be of such a character as to totally
disable Employee from rendering any services to Employer for a period of
more than sixty (60) days, by giving at least twenty-one (21) days' written
notice of its intention to do so. If Employee shall resume his duties
within the twenty-one (21) day period following receipt of such notice, and
shall perform such duties on a regular basis for sixty (60) days
thereafter, this Agreement and Employee's employment hereunder shall
continue in full force and effect, and Employer's notice of intention to
terminate shall have no further force or validity.
J. Employee shall be entitled to severance pay if Employer terminates
Employee's employment under this Agreement, except as set forth in Section
7, below, or if Employee resigns because of Employer's breach of this
Agreement or because of a reduction in scope of Employee's responsibilities
or corresponding change in title.
Employer agrees to pay, and Employee agrees to accept, as full and
complete severance, if applicable, an amount equal to the greater of: (i)
SEVENTY THOUSAND DOLLARS ($70,000); or (ii) one twelfth of Employee's
annual salary for each month of employment, not to exceed ONE HUNDRED FORTY
THOUSAND DOLLARS ($140,000). The severance pay is deemed to be a reasonable
estimate of Employee damages, the exact amount of which cannot be
ascertained.
6. INDEMNIFICATION BY EMPLOYER. Employer shall, to the maximum extent
permitted by law, indemnify and hold Employee harmless against expenses,
including reasonable attorney's fees, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding
arising by reason of Employee's employment by Employer. Employer shall advance
to Employee any expenses incurred in defending any such proceeding to the
maximum extent permitted by law.
7. TERMINATION. Employer shall be entitled at its option to terminate
Employee's employment under this Agreement at any time, for the following
reasons:
A. Because of Employee's fraud, misappropriation, embezzlement or theft;
B. Because of Employee's conviction of a felony;
C. Because Employee has engaged in competitive activities in breach of
his covenants under Section 3 above;
D. Because Employee has abandoned his duties; or
E. As provided in Section 5I, above.
F. Without cause, and for any reason, provided that in such event
Employer shall pay to Employee, and Employee shall accept, severance pay as
provided in Section 5J, above.
Such a termination of Employee's employment shall not constitute a breach of
this Agreement by Employer. Upon a termination under subsection 7A, 7B, 7C or
7D, Employer shall be obligated to pay only compensation which has accrued due
to actions to Employee before such termination. Employee shall not be entitled
to severance pay or continuing benefits of any kind upon such termination,
other than such benefits mandated by law.
8. PROPRIETARY INFORMATION AND INVENTIONS. All processes, inventions,
patents, copyrights, trademarks and other intangible rights that may be
conceived or developed by Employee, either alone or with others, during the
term of Employee's employment, whether or not conceived or developed during
Employee's working hours, and with respect to which the equipment, supplies,
facilities or trade secret information of Employer was used, or that relate to
the ocular health care business of Employer, or that result from any work
performed by Employee for Employer, shall be the sole property of Employer.
Employee shall disclose to Employer all inventions conceived during the term
of employment, whether or not the property of Employer under the terms of
preceding sentence provided that such disclosure shall be received by Employer
in confidence. Employee shall execute all documents, including patent
applications and assignments, required by Employer to establish Employer's
rights under this section. This section does not apply to any invention that
3
<PAGE>
qualifies fully under the provisions of section 2870 of the California Labor
Code, a copy of which attached hereto as Exhibit A.
9. VACATION. Employee shall be entitled to vacation benefits as made
available by the Company in accordance with standard Company vacation policy,
except that Employee shall be entitled to 15 vacation days per year during the
term of this Agreement, during which time his compensation shall be paid in
full.
10. DEATH DURING EMPLOYMENT. If Employee dies during the term of this
Agreement, this Agreement shall terminate immediately, and Employer shall pay
to the estate of Employee the basic annual salary and expense requirement
which would otherwise be payable to Employee through the last day of the
calendar year in which his death shall have occurred, provided that the salary
payment shall not, in any event, represent less than one (1) month salary.
11. MISCELLANEOUS.
A. NO CONFLICT. Employee hereby warrants that he is not now under any
legal or contractual obligation that would conflict in any manner
whatsoever with the obligations and duties by him herein undertaken, and
that the execution of this Agreement will not breach any agreement to which
Employee is presently a party.
B. CONSTRUCTION. This Agreement shall be governed by, and shall be
construed in accordance with, the laws of the State of California and shall
be binding upon, and shall inure to the benefit of the heirs, executors,
assigns, transferees and successors in interest of the parties hereto,
notwithstanding the reorganization, merger, consolidation or change in
personnel or Employer.
C. NOTICES. Any notice to Employer required or permitted under this
Agreement shall be given in writing to Employer, either by personal service
or by registered or certified mail, postage prepaid, addressed to Employer
at its then principal place of business. Any such notice to Employee shall
be given in a like manner, and if mailed, shall be addressed to Employee at
his home address then shown in Employer's files. For the purpose of
determining compliance with any time limit in this Agreement, a notice
shall be deemed to have been duly given (a) on the date of service, if
personally served on the party to whom notice is to be given, or (b) on the
second business day after mailing, if mailed to the party to whom the
notice is to be given in the manner provided in his section.
D. WAIVER OF BREACH. The waiver of either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver
of any provision or of any subsequent breach of the same provision or of
any subsequent breach of
E. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties and supersedes all prior and contemporaneous, oral or written,
agreements, understandings and the like between the parties. It may not be
changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
F. SEVERABILITY. If any portion of this Agreement is held by a court of
competent jurisdiction to conflict with any federal, state or local law,
such portion or portions of this Agreement are hereby declared to be of no
force or effect in such jurisdiction, and this Agreement shall otherwise
remain in full force and effect and be construed as if such portion had not
been included herein.
G. SECTION HEADINGS. The section headings used herein are provided for
informational purposes only and shall effect neither the meaning of the
terms nor the intent of the parties.
H. ATTORNEYS' FEES. If any action is commenced to enforce or interpret
the terms of this Agreement, the prevailing party is such action shall be
entitled to recover his or its attorneys' fees and other costs incurred.
4
<PAGE>
I. ASSIGNABILITY; SUCCESSORS AND MERGERS. Neither party hereunder shall
have the right to assign this Agreement or any rights or obligations
hereunder without the consent of the other party; provided, however, that
upon the sale of all or substantially all the assets, business and goodwill
of Employer to another corporation, or upon the merger or consolidation of
Employer with another corporation or corporations, this Agreement shall
inure to the benefit of and be binding upon, both Employee and the
corporation purchasing such assets, business or goodwill or surviving such
merger or resulting from such consolidation, as the case may be, in the
same manner and to the same extent as though such other corporation were
Employer.
J. REMEDIES. If any of the covenants or agreements contained in
paragraphs 3 or 8 here of are violated, Employee agrees and acknowledges
that such violation or threatened violation will cause irreparable injury
to Employer and that the remedy at law for such violation or threatened
violation will be inadequate and that Employer will be entitled to
injunctive relief without the necessity of proving actual damages.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
EMPLOYER:
OPHTHALMIC IMAGING SYSTEMS,
a California corporation
/s/ Steven R. Verdooner
By: _________________________________
Its: Chief Executive Officer
EMPLOYEE:
/s/ William L. Mince
_____________________________________
William L. Mince
End of Document
5
<PAGE>
EXHIBIT 11.1
OPHTHALMIC IMAGING SYSTEMS
CALCULATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net loss............................................. $(2,110,554) $(1,413,183)
=========== ===========
Weighted average common shares outstanding........... 3,597,879 2,204,506
Common stock equivalents(1).......................... -- --
----------- -----------
3,597,879 2,204,506
=========== ===========
Net loss per share................................... $ (.59) $ (.64)
=========== ===========
</TABLE>
- --------
(1) No amounts are included, as amounts are anti-dilutive.
End of Document
1
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-57518 and Form S-8 No. 333-0461) pertaining to the Stock
Option Plan and the 1995 Nonstatutory Stock Option Plan of Ophthalmic Imaging
Systems of our report dated October 21, 1997 (except for Note 10, as to which
the date is November 18, 1997), with respect to the financial statements of
Ophthalmic Imaging Systems included in the Annual Report (Form 10-KSB) for the
year ended August 31, 1997.
Ernst & Young LLP
Sacramento, California
November 25, 1997
End of Document
1
<PAGE>
APPENDIX E
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997
COMMISSION FILE NUMBER: 1-11140
----------------
OPHTHALMIC IMAGING SYSTEMS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
CALIFORNIA 94-3035367
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
221 LATHROP WAY, SUITE I, SACRAMENTO, CA 95815
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(916) 646-2020
(ISSUER'S TELEPHONE NUMBER)
----------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [_]
As of January 12, 1998, 3,905,428 shares of common stock, at no par value,
were outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
OPHTHALMIC IMAGING SYSTEMS
CONDENSED BALANCE SHEET
NOVEMBER 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and equivalents............................................ $ 227,513
Accounts receivable, net........................................ 1,662,224
Inventories, net................................................ 936,309
Prepaid expenses and other current assets....................... 60,073
-----------
Total current assets.............................................. 2,886,119
Furniture and equipment, net of accumulated depreciation and
amortization of $804,290......................................... 369,849
Other assets...................................................... 9,216
-----------
$ 3,265,184
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit................................. 397,932
Accounts payable................................................ 687,326
Accrued liabilities............................................. 1,185,215
Accrued warrant appreciation right.............................. 251,497
Deferred extended warranty revenue.............................. 127,673
Customer deposits............................................... 315,743
Current portion of notes payable................................ 700
-----------
Total current liabilities......................................... 2,966,086
Notes payable, less current portion............................... --
Commitments
Stockholders' equity:
Preferred stock, no par value, 20,000,000 shares authorized;
none issued or outstanding..................................... --
Common stock, no par value, 20,000,000 shares authorized;
3,905,428 issued and outstanding............................... 10,278,615
Deferred compensation........................................... (312,213)
Accumulated deficit............................................. (9,667,304)
-----------
Total stockholders' equity........................................ 299,098
-----------
3,265,184
===========
</TABLE>
See accompanying notes.
E-2
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Net revenues............................................ $1,901,877 $ 884,246
Cost of sales........................................... 1,181,996 621,532
---------- ----------
Gross profit............................................ 719,881 262,714
Operating expenses:
Sales and marketing................................... 572,418 496,978
General and administrative............................ 323,418 282,768
Research and development.............................. 212,268 264,781
---------- ----------
Total operating expenses............................ 1,108,104 1,044,527
---------- ----------
Loss from operations.................................... (388,223) (781,813)
Other expense, net...................................... (9,129) (13,722)
---------- ----------
Net loss................................................ (397,352) (795,535)
========== ==========
Shares used in the calculation of net loss per share.... 3,905,428 3,320,969
========== ==========
Net loss per share...................................... (0.10) (0.24)
========== ==========
</TABLE>
See accompanying notes.
E-3
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
---------------------
1997 1996
--------- ----------
<S> <C> <C>
Operating activities:
Net loss.............................................. $(397,352) $ (795,535)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization....................... 29,459 31,622
Stock option compensation expense................... 28,681 --
Net (increase) decrease in current assets other than
cash and equivalents............................... (126,605) 190,107
Net increase in current liabilities other than
short-term borrowings.............................. 485,991 247,986
--------- ----------
Net cash provided by (used in) operating activities..... 20,174 (325,820)
Investing activities:
Purchases of furniture and equipment.................. (18,526) (104,668)
Net (increase) decrease in other assets............... (1,831) 23,462
--------- ----------
Net cash used in investing activities................. (20,357) (81,206)
Financing activities:
Principal payments on notes payable................... (1,534) (1,386)
Net proceeds from (repayments of) line-of-credit
borrowings........................................... 86,930 (269,000)
Net proceeds from sale of common stock................ -- 85,491
--------- ----------
Net cash provided by (used in) financing activities... 85,396 (184,895)
--------- ----------
Net increase (decrease) in cash and equivalents....... 85,213 (591,921)
--------- ----------
Cash and equivalents at beginning of period........... 142,300 1,051,325
--------- ----------
Cash and equivalents at end of period................. $ 227,513 $ 459,404
========= ==========
</TABLE>
See accompanying notes.
E-4
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTH PERIODS ENDED NOVEMBER 30, 1997 AND 1996
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed balance sheet as of November 30, 1997,
condensed statements of operations for the three month periods ended November
30, 1997 and 1996 and the condensed statements of cash flows for the three
month periods ended November 30, 1997 and 1996 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements. It is suggested that these condensed financial
statements be read in conjunction with the audited financial statements and
notes thereto included in the registrant's (the Company's) annual report for
the fiscal year ended August 31, 1997 on Form 10-KSB. In the opinion of
management, the accompanying condensed financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and results of
operations for the periods presented. The results of operations for the period
ended November 30, 1997 are not necessarily indicative of the operating
results for the full year.
Certain amounts in the fiscal 1997 financial statements have been
reclassified to conform with the presentation in the fiscal 1998 financial
statements.
NOTE 2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation of net loss per share because their
effect is antidilutive.
NOTE 3. LINE OF CREDIT
In April 1995, the Company entered into a revolving line of credit agreement
(the "Credit Agreement") with a bank (the "Bank") which, after several
amendments, expired on November 7, 1997. The maximum amount available under
the terms of the Credit Agreement was $750,000 and was based upon eligible
outstanding accounts receivable balances. Borrowings under the Credit
Agreement bore interest at the Bank's prime lending rate plus three percent
and were secured by virtually all assets of the Company. The Credit Agreement
also contained certain restrictive covenants which provided for, among other
things, certain working capital and net worth balance and ratios. The Credit
Agreement was subsequently converted to a full recourse Accounts Receivable
Credit Agreement.
On November 18, 1997, the Company entered into an Accounts Receivable Credit
Agreement (the "Agreement") with the Bank, and all amounts outstanding under
the Credit Agreement were considered to be the initial advance under the
Agreement. The Agreement allows for up to an 80% advance rate on eligible
accounts receivable balances, and the maximum borrowing base under the
Agreement is $1.2 million. The Bank has full recourse against the Company and
the Agreement expires in November 1998. Borrowings under the Agreement bear
interest at the Bank's prime lending rate plus 4%. In addition, the Bank will
charge monthly an administrative fee equal to the greater of 1/2% of the
average daily balance for the month or $1,200. Under the terms of the
Agreement, borrowings are secured by substantially all of the Company's
assets.
NOTE 4. PRIVATE PLACEMENT
In November 1995, the Company completed a private placement of 1,368,421
shares of its common stock with detachable warrants. The net proceeds from
this offering was approximately $1,075,000. Along with each
E-5
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
share of common stock issued, the purchasers were given an "A Warrant" and "B
Warrant" to purchase shares of the Company's common stock. The A and B
Warrants per share exercise prices were $1.25 and $1.75, respectively. The A
and B Warrants expired on February 19, 1997 as amended and November 21, 1997,
respectively.
The private placement underwriter was issued a warrant to purchase 250,000
shares of the Company's common stock at $.95 per share. The number of shares
exercisable as well as the per share exercise price are subject to adjustment
upon the occurrence of certain events. This warrant expires on November 21,
1999. In addition, the underwriter will receive as a commission, 10% of the
proceeds received by the Company upon exercise of the A and B Warrants
described above.
NOTE 5. NONSTATUTORY STOCK OPTION PLAN
In October 1997, the Company's Board of Directors approved the 1997
nonstatutory stock option plan (the "Plan") under which all officers,
employees, directors and consultants may participate. The Plan expires in
October 2002. Options granted under the Plan are non-qualified stock options
and will have a term of not longer than ten (10) years from the date of grant,
unless otherwise specified in the Option Agreement. The exercise prices under
the Plan will generally be at 100% of the fair market value of the Company's
common stock on the date of grant. The maximum number of shares of the
Company's common stock which may be optioned and sold under the Plan is
1,000,000, of which 861,500 options remained available for granting as of
November 30, 1997. As of November 30, 1997, stock options to purchase 138,500
shares at exercise prices of $1.09 were granted and outstanding under the Plan
and none of the granted options were exercised.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements below include statements that are "forward looking
statements" within the meaning of Section 21A of the Securities Act of 1933,
as amended, in Section 21E of the Securities Act of 1934, as amended, and is
subject to the safe harbor created thereby. Future operating results may be
adversely effected as a result of a number of factors enumerated in the
Company's public reports.
OVERVIEW
To date, the Company has designed, developed, manufactured and marketed
ophthalmic digital imaging systems and has derived substantially all of its
revenues from the sale of such products. The Company has a reputation within
the ophthalmic community for producing high quality, reliable, easy to use
equipment and believes itself to be an acknowledged industry leader in the
technology and sales of digital ophthalmic imaging systems.
The Company believes, however, that as the U.S. healthcare system moves
toward managed care the needs of the managed care providers are changing the
nature and demand for medical imaging equipment and services. New
opportunities in telemedicine are emerging that may allow managed care
organizations to reduce costs while maintaining their quality of patient care.
OIS plans to leverage its digital imaging technology and established customer
base to develop product features and services targeting telemedicine/managed
care applications for the ocular health care industry.
Since its inception, the Company's products have addressed primarily the
needs of the ophthalmic fluorescein angiography market, and more recently the
indocyanine green ("ICG") market. While the Company believes that the overall
angiography market has modest growth potential, sustaining growth in its
traditional angiography equipment business may become increasingly difficult
due to increased competition. In recognition
E-6
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
of this, the Company is expanding its product capabilities to address the
emerging telemedicine market. The Company will continue to support and expand
its entire line of digital angiography products, and will focus its future
efforts on developing product enhancements and pursuing viable opportunities
in this market, particularly as they relate to telemedicine applications.
The Company's objective is to become a leading provider of ophthalmic
diagnostic products and services in the ocular health care industry, while
maintaining its position as a market leader in its existing digital imaging
products and telemedicine.
In this regard, during fiscal 1996 and 1997, the Company expended
significant resources in developing a Reading and Documentation Center through
which it originally intended to provide documentation services of
electronically transmitted digital images acquired at remote locations. The
Company has recently redefined the scope of the Reading and Documentation
Center, however, to support research and development efforts surrounding its
existing products. The Reading and Documentation Center is presently being
utilized in the validation of diabetic retinopathy screening through
electronically transmitted digital images acquired at remote locations. The
Company is currently conducting a pilot program with a major managed care
provider to evaluate remote image interpretation for diabetic retinopathy
screening and intends to utilize this validation study to help expand the use
of the Company's digital imaging products for such screening.
The Company also recently has refocused its resources on the marketing and
sales of its WinStation digital imaging systems. The Company's products are
currently being utilized in a variety of ophthalmic settings for the
telemedicine application of remote consultation. The Company is currently
focusing its product development efforts on features and enhancements to its
existing products targeting various other telemedicine applications.
Additionally, in the near-term, the Company intends to utilize its Reading and
Documentation Center to develop and assess viable opportunities for the
Company's digital imaging products in screening, remote consultation, distance
learning and other telemedicine applications.
During the recently completed fall meeting of the American Academy of
Ophthalmology ("AAO"), the Company introduced new models of its digital
angiography products incorporating enhanced telemedicine features, with the
Company receiving significantly more purchase commitments for its products as
compared to previous AAO meetings.
The Company no longer actively markets for the sale of its Glaucoma-
Scope(R)(TM) but continues to assess market opportunities for this product.
The Company's results of operations have historically fluctuated from
quarter to quarter due to a number of factors and are not necessarily
indicative of the results to be expected for any future period or expected for
the fiscal year ending August 31, 1998. There can be no assurance that revenue
growth or profitability can be achieved or sustained in the future.
The following discussion should be read in conjunction with the unaudited
interim financial statements and the notes thereto which are set forth
elsewhere in this Report on Form 10-QSB. In the opinion of management, the
unaudited interim period financial statements include all adjustments, all of
which are of a normal recurring nature, that are necessary for a fair
presentation of the results of the periods.
RESULTS OF OPERATIONS
The Company incurred a net loss of $397,352, or $.10 per share, for the
first quarter of fiscal 1998 as compared to a net loss of $795,535, or $.24
per share, for the first quarter of fiscal 1997.
E-7
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The Company's revenues for the first quarter of fiscal 1998 were $1,901,877
representing an increase of approximately 215% from revenues of $884,246 for
the first quarter of fiscal 1997. The primary factor contributing to the
increased 1998 revenue levels was the significantly increased unit sales of
the Company's digital angiography products during the first quarter of 1998,
including lower-priced digital imaging systems targeted to the general
ophthalmology and retinal specialty practice markets introduced at the 1996
fall meeting of the American Academy of Ophthalmology ("AAO"), the initial
deliveries of which were made during the latter half of 1997. The Company also
made initial deliveries during the first quarter of 1998 of new models of its
digital angiography products introduced at the recently completed 1997 fall
meeting of the AAO, at which the Company received significantly more purchase
commitments for its products as compared to previous AAO meetings. In
addition, the reduced 1997 first quarter revenue level reflects the adverse
impact of the reallocation of the Company's resources to pursue sales of its
Reading and Documentation Center services, which selling activities have since
ceased. During 1998, the Company intends to continue to direct the majority of
its resources to both support the demand for its digital imaging products and,
more recently, to pursue opportunities in the telemedicine/managed care
market.
Gross margins were approximately 38% during the first quarter ended November
30, 1997 versus approximately 30% for the comparable quarter of 1997. This
increase in gross margin percentage was attributable primarily to the
significantly increased revenue levels during 1998. The Company continues to
evaluate its expenses in this area consistent with current and anticipated
business conditions and management anticipates that near-term margin
improvement, if any, would result principally from reduced material costs
associated with current deliverable system configurations, outsourcing
additional manufacturing and assembly operations and related fixed cost
reduction measures implemented during the latter half of 1997, including
personnel cutbacks, economies of scale from increased unit production and
other manufacturing efficiencies.
Sales and marketing and general and administrative expenses accounted for
approximately 47% of total revenues during the first quarter of fiscal 1997 as
compared with approximately 88% during the first quarter of fiscal 1996.
Expense levels increased, however, to $895,836 during the first quarter of
1998 versus $779,747 during the first quarter of 1997. The primary factors
contributing to the increase were increased commissions and other costs
associated with increased revenue levels during the first quarter of 1998
versus the comparable period 1998, as well as the costs related to additional
senior management level personnel hired during the fourth quarter of fiscal
1997. The Company anticipates expenses in this area will continue to run above
historical levels.
Research and development expenses, as a percentage of revenues, was
approximately 11% in the first quarter of 1998 versus approximately 30% during
the same period of 1997. Expense levels also decreased in actual dollar terms
to $212,268 during the first quarter of 1998 from $264,781 in 1997. The
Company intends to focus its research and development efforts on current
product enhancements and reducing cost configurations for its current
products. The Company anticipates that research and development expense will
be maintained at current levels in the near term.
Other expense was $9,129 during the first quarter of fiscal 1998 versus
$13,722 during the same period of 1997. The primary contributing factor to
this change was a decrease in interest expense during 1998 versus 1997
associated with reduced average daily borrowings against existing credit lines
during the first quarter of 1998 versus 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated cash of $20,174 in the first
quarter of fiscal 1998 and used cash of $325,820 in the first quarter of
fiscal 1997. Cash generated from operating activities in the first quarter of
1998 resulted principally from the collection of accounts receivable,
significantly increased revenue levels and
E-8
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
increases in customer deposits from orders generated at the 1997 AAO fall
meeting, the aggregate impact of which more than offset the net loss for the
quarter. Cash used by operations in the 1997 first quarter resulted primarily
from the net loss during the period and the decrease in accounts receivable
associated with significantly reduced revenue levels during the period, which
amount was partially offset by increases in customer deposits from orders
generated at the 1996 AAO meeting and other current liabilities, excluding
borrowings under the Credit Agreement.
Cash used in investing activities was $20,357 during the first quarter of
1998 as compared to $81,206 during the same period for 1997. The Company's
primary investing activities consist of equipment and other capital asset
acquisitions. The Company does not currently have any pending material
commitments regarding capital expenditures. The Company, however, will
continue to upgrade its existing management information and corporate
communications systems, which may result in increased near-term capital
expenditures. In addition, the Company anticipates certain capital
expenditures to support efforts to expand its technology to
telemedicine/managed care applications. The Company anticipates that related
expenditures, if any, will be financed from one or more of the following
sources: (i) working capital; (ii) borrowings under an existing credit
agreement, if available; or (iii) debt, equity or other financing
arrangements, if any, available to the Company.
The Company generated cash of $85,396 from financing activities during the
first quarter of fiscal 1998 as compared to using cash in the amount of
$184,895 during the same period of fiscal 1997. The source of cash from
financing activities in 1998 was proceeds from increased borrowings under the
Credit Agreement. The use of cash in financing activities during the 1997
period was principally repayments of borrowings under the Credit Agreement,
which amount was partially offset by net proceeds from the exercise of stock
options issued to employees. Principal repayments on notes payable was
negligible in both 1997 and 1996.
As indicated in Note 3 of the Notes to Condensed Financial Statements, on
November 18, 1997, the Company entered into an accounts receivable credit
agreement (the "Agreement") with the Bank, and all amounts outstanding under
the Credit Agreement were considered to be the initial advance under the
Agreement. The Agreement allows for up to an 80% advance rate on eligible
accounts receivable balances, and the maximum borrowing base under the
Agreement is $1.2 million. The Bank has full recourse against the Company and
the Agreement expires in November 1998. Borrowings under the Agreement bear
interest at the Bank's prime lending rate plus 4%. In addition, the Bank will
charge monthly an administrative fee equal to the greater of 1/2% of the
average daily balance for the month or $1,200. Under the terms of the
Agreement, borrowings are secured by substantially all of the Company's
assets.
The Company believes that its existing cash balances together with ongoing
collections of its accounts receivable and recently increased available
borrowing capacity under the Agreement will be adequate to meet its liquidity
and capital requirements in the near term. The Company does not expect to
experience collection difficulties with respect to its accounts receivable
that would have a material adverse effect on its liquidity. In addition,
principal and interest amounts due under the alternative stock appreciation
right with the Bank, which amounts were approximately $251,000 as of November
30, 1997, and were originally payable on November 30, 1997, have recently been
extended to April 1, 1998. The Company will, however, continue to evaluate
alternative sources of capital to meet its cash requirements, including other
debt financing, issuing equity securities and entering into other financing
arrangements and/or strategic alliances. There can be no assurance, however,
that additional financing will be available and, if available, can be obtained
on terms favorable to the Company. Additional capital could also be made
available to the Company pursuant to the exercise of Series C Warrants issued
to JB Oxford & Company ("JBO") in connection with a November 1995 private
placement of the Company's common stock, as well as from other outstanding
stock options; however, there can be no assurance any such warrants or options
will be exercised in the near-term, if at all. In this regard, there can be no
assurance that the SEC investigation of JBO discussed immediately below may
not adversely affect JBO's ability to exercise the Series C Warrants.
E-9
<PAGE>
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
On or about August 17, 1997, the Company was advised that JB Oxford &
Company ("JBO"), one of several market makers in the Company's common shares
which trade over the counter on the NASDAQ Small-Cap Market, was being
investigated by the Securities and Exchange Commission ("SEC"). In connection
with this investigation, the Company, and Mr. Verdooner, in his capacity as
Chief Executive Officer of the Company, were served by the SEC with a subpoena
on or about August 18, 1997. These subpoenas require the submission to the SEC
of various documents, predominantly relating to JBO.
The Company has cooperated with the SEC investigation and is making every
effort to produce the documents requested. The Company does not believe, nor
has it any reason to believe, it is a subject of the SEC inquiries.
In addition, the Company faces the possibility of its common stock being
delisted from NASDAQ unless it meets the Minimum Closing Price Requirement as
stipulated by NASDAQ. Under the NASDAQ rules, one prerequisite to continued
listing on NASDAQ, is maintenance by a company of a minimum closing bid price
of $1.00 per share. If a company's closing bid price per share is below $1.00
per share for ten (10) consecutive trading days, the company may be subject to
having its shares delisted from NASDAQ.
In September 1997, the Company's closing bid price per share fell below
$1.00 per share for ten (10) consecutive trading days. Accordingly, the
Company received a letter from NASDAQ which indicated that although the
Company's closing bid price per share did not meet the minimum $1.00
requirement, NASDAQ was not going to commence any delisting action at that
time. Instead, NASDAQ stated that the Company would be in compliance with its
minimum listing price rules, if at any time during the next 90 calendar days
from September 23, 1997, the closing bid price per share of the Company's
common stock is at least $1.00 for ten consecutive trading days ("Minimum
Closing Price Requirement").
Although the bid price of the Company's shares has closed at or above $1.00
per share for well in excess of ten (10) consecutive trading days since
September 23, 1997, the Company did not meet the Minimum Closing Price
Requirement during the 90 calendar day period from September 23, 1997. While
the Company remains listed and has not been notified that NASDAQ will commence
delisting action, there can be no assurance that the Company may not become
subject to delisting from the NASDAQ Small-Cap Market in the future.
Another prerequisite to continued listing on NASDAQ is maintenance of
capital and surplus of at least $1 million. At August 31, 1997, the Company's
capital and surplus balance was below $1 million and, in December 1997, the
Company received a letter from NASDAQ which indicated that, although the
Company's capital and surplus balance did not meet the $1 million requirement,
NASDAQ was not going to commence any delisting action at that time, pending
receipt by NASDAQ from the Company of proposal(s) for achieving compliance.
The Company is currently in discussion with NASDAQ regarding this issue.
If the Company's common stock is delisted, it may be difficult for the
Company to raise capital through the sale of its common stock.
E-10
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In October 1997, the Company's board of directors approved the 1997
Nonstatutory Stock Option Plan (the "Plan") under which all officers,
employees directors and consultants may participate. The Plan expires in
October 2002. Options granted under the Plan are non-qualified stock options
and will generally have a term of ten (10) years from the date of grant,
unless otherwise specified in the option agreement. The exercise prices under
the Plan will generally be at 100% of the fair market value of the Company's
common stock on the date of grant. The maximum number of shares of the
Company's common stock which may be optioned and sold under the Plan is
1,000,000, of which 861,500 options remained available for granting as of
November 30, 1997. As of November 30, 1997, stock options to purchase 138,500
shares at exercise prices of $1.09 were granted and outstanding under the Plan
and none of the granted options were exercised.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
None.
ITEM 5. OTHER INFORMATION
The Board of Directors currently is considering the long range strategic
plan for the Company and intends to engage the services of an investment
banker or other financial advisor to assist it in evaluating and analyzing the
strategic alternatives and potential business prospects available to the
Company, including possible joint venture arrangements, acquisitions, third
party investments, or the sale of the Company. Although the Company from time
to time has considered and evaluated, and has engaged in informal and formal
discussions concerning, certain business combination transaction or other
joint business arrangements with unaffiliated third parties, the Company has
not entered into any such transactions. The Company, however, recently has
received inquiries from third parties regarding possible investments in the
Company or other business ventures and opportunities which could involve,
among other things, the sale of the Company or other business combination
transactions. The Company intends to evaluate these opportunities with its
investment banker or financial advisor as part of its long range strategic
planning. Presently, the Company does not have any current understandings,
arrangements, or agreements, whether written or oral, with respect to any
specific transaction and, to date, has had only preliminary discussions with
third parties relating thereto. Upon completion of the Board of Directors'
determination of the appropriate strategic plan for the Company and its
shareholders, it will attempt to implement the plan. However, there can be no
assurance that the Company will be able to successfully implement such plan,
or if implemented, that such plan will be successful.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the accompanying Index to Exhibits below are
filed as a part hereof and are incorporated by reference as noted.
(b) A Form 8-K was filed on January 2, 1998, to report under Item 5 thereof
the Company's adoption of a Rights Agreement, dated as of December 31, 1997,
between Ophthalmic Imaginng Systems and American Securities Transfer, Inc., a
copy of which Form 8-K will be made available upon request to the Company at
its principal offices.
E-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPHTHALMIC IMAGING SYSTEMS
(Registrant)
/s/ Steven R. Verdooner
By: _________________________________
Steven R. Verdooner,
Chief Executive Officer and Chief
Financial
Officer (principal executive
officer and principal
financial and accounting officer)
/s/ William L. Mince
By: _________________________________
William L. Mince,
President and Chief Operating
Officer
Dated: January 14, 1998
E-12
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT FOOTNOTE
NUMBER DESCRIPTION OF EXHIBIT REFERENCE
------- ---------------------- ---------
<C> <S> <C>
3.1 Articles of Incorporation of the Registrant, as amended. *
3.1(a) Amendment to Articles of Incorportation (Certificate of
Determination of Preferences of Series A Junior
Participating Preferred Stock of Ophthalmic Imaging
Systems). (11)
3.2 Amended Bylaws of the Registrant. *
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation, as amended, and the amended Bylaws of the
Registrant defining the rights of holders of Common Stock
of the Registrant. *
4.2 Specimen of Stock Certificate. *
4.3 Rights Agreement, dated as of December 31, 1997, between
Registrant and American Securities Transfer, Inc.,
including form of Rights Certificate attached thereto. (10)
10.1 Lease Agreement, dated as of July 10, 1987, between the
Registrant (as tenant) and Transamerica/Emkay Income
Properties I, as amended on July 23, 1990 and June 11,
1991. *
10.1(a) Seventh Amendment to lease effective as of July 18, 1996. (7)
10.2 Employment Agreement, dated March 27, 1992, between the
Registrant and Dennis J. Makes. *
10.2(a) Amendment dated June 30, 1993 to the Employment Agreement
between the Registrant and Dennis J. Makes dated March
27, 1992. (1)
10.3 Confidentiality Agreement, dated March 27, 1992 between
the Registrant and Dennis J. Makes. *
10.4 Confidentiality Agreement, dated March 27, 1992 between
the Registrant and Steven R. Verdooner. *
10.5 Confidentiality Agreement, dated March 27, 1992 between
the Registrant and Richard Wullaert. *
10.6 Consulting Agreement, dated January 23, 1992, between the
Registrant and G. Peter Halberg, M.D. *
10.7 Assignment dated October 23, 1990 of U.S. Patent
Application for Apparatus and Method for Topographical
Analysis of the Retina to the Registrant by Steven R.
Verdooner, Patricia C. Meade, and Dennis J. Makes (as
recorded on Reel 5490, Frame 423 in the Assignment Branch
of the U.S. Patent and Trademark Office). *
10.8 Form of International Distribution Agreement used by the
Registrant and sample form of End User Software License
Agreement. *
10.9 Original Equipment Manufacturer Agreement, dated April 1,
1991, between the Registrant and SONY Medical
Electronics, a division of SONY Corporation of America. *
10.10 Original Equipment Manufacturer/Value Added Reseller
Agreement, dated May 7, 1991, between the Registrant and
Eastman Kodak Company. *
10.11 The Registrant's 1992 Nonstatutory Stock Option Plan and
sample form of Nonstatutory Stock Option Agreement. *
10.12 Common Stock and Warrant Purchase Agreement ("Stock
Purchase Agreement"), dated as of February 8, 1992, among
the Registrant, Jonnie R. Williams, Kathleen M.
O'Donnell, as Trustee of Irrevocable Trust No. 6, FBO
F.E. O'Donnell, Jr., M.D., Steven R. Verdooner and Dennis
J. Makes. *
</TABLE>
E-13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT FOOTNOTE
NUMBER DESCRIPTION OF EXHIBIT REFERENCE
------- ---------------------- ---------
<C> <S> <C>
10.12(a) Amendment No. 1 to Stock Purchase Agreement, dated March
25, 1992, among the Registrant, Jonnie R. Williams,
individually, Jonnie R. Williams, as Trustee of
Irrevocable Trust No. 1, Rambert Simmons, and Kathleen
M. O'Donnell, as Trustee of Irrevocable Trust No. 6, FBO
F.E. O'Donnell, Jr., M.D. *
10.13 Cross-Indemnification Agreement, dated February 14, 1991,
among Dennis Makes, Steven Verdooner, and Richard
Wullaert. *
10.14 Key Man Life Insurance Policies in the amount of
$1,000,000 for each of Dennis J. Makes and Steven R.
Verdooner, with the Registrant as the named beneficiary. *
10.15 Warrant dated February 12, 1993 issued by the Registrant
to Steven R. Verdooner to purchase 50,000 shares of
Common Stock. (1)
10.16 Stock Option Plan. (1)
10.17 Promissory Note dated January 4, 1993 from the Registrant
to Western Financial Savings Bank in the amount of
$25,209.83 due in full by January 4, 1998. (1)
10.18 Rental Agreement dated May 1, 1994 by and between the
Registrant and Robert J. Rossetti. (2)
10.19 Security and Loan Agreement (with Credit Terms and
Conditions) dated April 12, 1995 by and between the
Registrant and Imperial Bank. (3)
10.19(a) General Security Agreement dated April 12, 1995 by and
between the Registrant and Imperial Bank. (3)
10.19(b) Warrant dated November 1, 1995 issued by the Registrant
to Imperial Bank to purchase 67,500 shares of Common
Stock. (4)
10.19(c) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated November 1, 1995. (4)
10.19(d) Registration Rights Agreement dated November 1, 1995
between the Registrant and Imperial Bank. (4)
10.19(e) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated April 4, 1996. (6)
10.19(f) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated July 12, 1996. (7)
10.19(g) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated November 21, 1996. (7)
10.19(h) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated June 3, 1997. (8)
10.19(i) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated August 28, 1997. (9)
10.19(j) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated October 24, 1997. (9)
10.19(k) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated November 3, 1997. (9)
10.19(l) Amended Loan and Security Agreement (with Credit Terms
and Conditions) dated November 21, 1997. (9)
10.19(m) Agreement of Purchase of Receivable (Full Recourse) dated
November 18, 1997 between Registrant and Imperial Bank. (9)
</TABLE>
E-14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT FOOTNOTE
NUMBER DESCRIPTION OF EXHIBIT REFERENCE
------- ---------------------- ---------
<C> <S> <C>
10.20 Purchase Agreements dated November 21, 1995 between the
Registrant, JB Oxford & Company and certain Investors. (4)
10.20(a) Warrant Agreement dated November 21, 1995 between the
Registrant, JB Oxford & Company and certain Investors. (4)
10.20(b) First Amendment Warrant Agreement dated November 21, 1996
between the Registrant, JB Oxford & Company and certain
Holders. (7)
10.20(c) Registration Rights Agreement dated November 21, 1995
between the Registrant, JB Oxford & Company and certain
Investors. (4)
10.21 Employment Agreement dated November 20, 1995 between the
Registrant and Steven R. Verdooner. (4)
10.22 Employment Agreement dated November 20, 1995 between the
Registrant and R. Michael Clark. (4)
10.23 Employment Agreement dated July 14, 1997 between the
Registrant and William L. Mince. (9)
10.25 The Registrant's 1995 Nonstatutory Stock Option Plan and
sample form of Nonstatutory Stock Option Agreement. (5)
10.26 The Registrant's 1997 Nonstatutory Stock Option Plan and
sample form of Nonstatutory Stock Option Agreement. (12)
</TABLE>
- --------
* Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-18, Number 33-46864-lA.
(1) Incorporated by reference to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended August 31, 1993 filed on November 26, 1993.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended August 31, 1994 filed on November 29, 1994.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form
10-GSB for the quarterly period ended May 31, 1995 filed on July 14,
1995.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended August 31, 1995 filed on November 29, 1995.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 filed on May 28, 1996, Number 333-0461.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form
10-GSB for the quarterly period ended May 31, 1996 filed on July 15,
1996.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended August 31, 1996 filed on November 29, 1996.
(8) Incorporated by reference to the Registrant's Quarterly Report on Form
10-GSB for the quarterly period ended May 31, 1997 filed on July 15,
1997.
(9) Incorporated by reference to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended August 31, 1997 filed on December 1, 1997.
(10) Incorporated by reference to Exhibit 1 of the Registrant's Form 8-k filed
on January 2, 1998.
(11) Incorporated by reference to Exhibit A of Exhibit 1 of the Registrant's
Form 8-K filed on January 2, 1998.
(12) Exhibit filed herewith.
End of Document
E-15
<PAGE>
OPHTHALMIC IMAGING SYSTEMS, INC.
1997 STOCK OPTION PLAN
1. PURPOSE; DEFINITIONS.
1.1 Purpose. The purpose of the Plan is to attract, retain, and motivate the
officers and employees of the Company, as well as the consultants to and
directors of the Company, by giving all of them the opportunity to acquire
Stock ownership in the Company and thereby instilling in them the same goals
as the Company's other equity owners.
1.2 Definitions. For purposes of the Plan, the following terms shall have
the following meanings:
1.2.1 "Administrator" shall mean the Compensation Committee referred to
in Section 4 in its capacity as administrator of the Plan in accordance
with Section 4.
1.2.2 "Board" shall mean the Board of Directors of the Company.
1.2.3 "Company" shall mean Ophthalmic Imaging Systems, Inc., a California
corporation.
1.2.4 "Director" shall mean a member of the Board.
1.2.5 "Effective Date" shall have the meaning set forth in Section 2.
1.2.6 "Eligible Person" shall mean any director (including a director who
is also a member of the Compensation Committee), officer, consultant, or
employee of the Company.
1.2.7 "Fair Market Value" shall mean the value established by the
Administrator for purposes of granting Options under the Plan.
1.2.8 "Grant Date" shall mean the date of grant of any Option.
1.2.9 "Option" shall mean an option to purchase common stock under this
Plan. All Options under the Plan shall be non-qualified stock options.
1.2.10 "Option Agreement" shall mean the written option agreement with
respect to an Option.
1.2.11 "Optionee" shall mean the holder of an Option.
1.2.12 "Plan" shall mean this Ophthalmic Imaging Systems, Inc. 1997 Stock
Option Plan, as amended from time to time.
1.2.13 "Stock" shall mean the common stock of the Company, no par value,
and any successor entity to the Company.
1.2.14 "Vesting Date" shall mean the date on which an Option becomes
wholly or partially exercisable, as determined by the Administrator in its
sole discretion.
2. EFFECTIVE DATE; TERM OF PLAN.
The Effective Date of this Plan shall be upon the date the Board of
Directors approve this Plan. This Plan, but not Options already granted, shall
terminate automatically five (5) years after its adoption by the Board, unless
terminated earlier by the Board under Section 12. No Options shall be granted
after termination of this Plan but all Options granted prior to termination
shall remain in effect in accordance with their terms.
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<PAGE>
3. NUMBER AND SOURCE OF SHARES OF STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 7, the total number of shares of Stock
with respect to which Options may be granted under this Plan is 1 million
(1,000,000) shares of Stock. The shares of Stock covered by any canceled,
expired, or terminated Option or the unexercised portion thereof shall become
available again for grant under this Plan. The shares of Stock to be issued
hereunder upon exercise of an Option may consist of authorized and unissued
shares or treasury shares.
4. ADMINISTRATION OF THE PLAN.
This Plan shall be administered by a committee of at least two (2) non-
employee members of the Board to which administration of this Plan is
delegated by the Board (the "Compensation Committee"). The "Administrator"
shall mean the "Compensation Committee" referred to in this Section 4 in its
capacity as administrator of the Plan in accordance with this Section 4. The
Administrator may delegate nondiscretionary administrative duties to such
employees of the Company as it deems proper.
Subject to the express provisions of this Plan, the Administrator shall have
the authority to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Optionees under this Plan; to
further define the terms used in this Plan; to prescribe, amend, and rescind
rules and regulations relating to the administration of this Plan; to
determine the duration and purposes of leaves of absence which may be granted
to Optionees without constituting a termination of their employment for
purposes of this Plan; and to make all other determinations necessary or
advisable for the administration of this Plan.
Any decision or action of the Administrator in connection with this Plan or
Options granted or shares of Stock purchased under this Plan shall be final
and binding. The Administrator shall not be liable for any decision, action,
or omission respecting this Plan, or any Options granted or shares of Stock
sold under this Plan. The Board at any time may abolish the Compensation
Committee and revest in the Board the administration of the Plan.
To the extent permitted by applicable law in effect from time to time, no
member of the Compensation Committee or the Board of Directors shall be liable
for any action or omission of any other member of the Compensation Committee
or the Board of Directors, nor for any act or omission on the member's own
part, excepting only the member's own willful misconduct or gross negligence,
arising out of or related to the Plan. The Company shall pay expenses incurred
by, and satisfy a judgment or fine rendered or levied against, a present or
former director or member of the Compensation Committee or Board in any action
against such person (whether or not the Company is joined as a party
defendant) to impose liability or a penalty on such person for an act alleged
to have been committed by such person while a director or member of the
Compensation Committee or Board arising with respect to the Plan or
administration thereof, or out of membership on the Compensation Committee or
Board, or by the Company, or all or any combination of the preceding;
provided, the director or Compensation Committee member was acting in good
faith, within what such director or Compensation Committee member reasonably
believed to have been within the scope of his or her employment or authority,
and for a purpose which he or she reasonably believed to be in the best
interests of the Company or its shareholders. Payments authorized hereunder
include amounts paid and expenses incurred in settling any such action or
threatened action. The provisions of this section shall apply to the estate,
executor, administrator, heirs, legatees, or devisees of a director or
Compensation Committee member, and the term "person" as used in this section
shall include the estate, executor, administrator, heirs, legatees, or
devisees of such person.
5. GRANT OF OPTIONS; TERMS AND CONDITIONS OF GRANT.
5.1 Grant of Options. One or more Options may be granted to any Eligible
Person. Subject to the express provisions of the Plan, the Administrator shall
determine from the Eligible Persons those individuals to whom Options under
the Plan may be granted. Each Option so granted shall be a non-qualified stock
option.
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<PAGE>
Subject to the express provisions of this Plan, the Administrator shall
specify the Grant Date, the number of shares of Stock covered by the Option,
the exercise price, and the terms and conditions for exercise of the Option.
If the Administrator fails to specify the Grant Date, the Grant Date shall be
the date of the action taken by the Administrator to grant the Option. As soon
as practicable after the Grant Date, the Company shall provide the Optionee
with a written Option Agreement in the form approved by the Administrator,
which sets out the Grant Date, the number of shares of Stock covered by the
Option, the exercise price, and the terms and conditions for exercise of the
Option.
The Administrator may, in its absolute discretion, grant Options under this
Plan to an Eligible Person at any time and from time to time before the
expiration of five (5) years from the Effective Date.
5.2 General Terms and Conditions. Except as otherwise provided herein, the
Options shall be subject to the following terms and conditions and such other
terms and conditions not inconsistent with this Plan as the Administrator may
impose.
5.3 Exercise of Option. In order to exercise all or any portion of any
Option granted under this Plan, an Optionee must remain as an officer or
employee, or as a consultant to or director of the Company, until the Vesting
Date. The Vesting period shall not be less than one year from the Grant Date.
The Option shall be exercisable on or after each Vesting Date in accordance
with the terms set forth in the Option Agreement.
5.4 Option Term. Each Option and all rights or obligations thereunder shall
expire on such date as shall be determined by the Administrator, but not later
than ten (10) years after the grant of the Option, and shall be subject to
earlier termination as hereinafter provided.
5.5 Exercise Price. Unless otherwise specified by the Administrator, the
exercise price of any option shall be one hundred percent (100%) of the fair
market value of the Company's common stock on the date of option grant.
5.6 Method of Exercise. To the extent the right to purchase shares of Stock
has accrued, Options may be exercised, in whole or in part, from time to time
in accordance with their terms by written notice from the Optionee to the
Company stating the number of shares of Stock with respect to which the Option
is being exercised and accompanied by payment in full of the exercise price.
5.7 Payment For Option Shares.
5.7.1 General Rule. The entire Exercise Price of Stock issued upon
exercise of Options shall be payable in cash, wire transfer, certified
check, or, at the absolute discretion of the Administrator, by non-
certified check, at the time when such Stock is purchased.
5.7.2 Surrender of Stock. To the extent that this Section 5.7.2 is
applicable, payment for all or any part of the exercise price, but not the
payment of withholding taxes, may be made with Stock which has already been
owned by the Optionee for more than six (6) months. Such Stock shall be
valued at its fair market value on the date of exercise of the new Stock
being purchased under the Plan.
5.7.3 Exercise/Sale. To the extent that this Section 5.7.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company)
of an irrevocable direction to a securities broker approved by the Company
to sell Stock and to deliver all or part of the sales proceeds to the
Company in payment of all or part of the exercise price and/or any
withholding taxes.
5.7.4 Exercise/Pledge. To the extent that this Section 5.7.4 is
applicable, payment may be made by the delivery (on a form prescribed by
the Company) of an irrevocable direction to pledge Stock to a securities
broker or lender approved by the Company, as security for a loan, and to
deliver all or part of the loan proceeds to the Company in payment of all
or part of the exercise price and/or any withholding taxes.
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5.8 Restrictions on Stock; Option Agreement. At the time it grants Options
under this Plan, the Company may retain, for itself or others, rights to
repurchase the shares of Stock acquired under the Option or impose other
restrictions on such shares. The terms and conditions of any such rights or
other restrictions shall be set forth in the Option Agreement evidencing the
Option. No Option shall be exercisable until after execution of the Option
Agreement by the Company and the Optionee.
5.9 Non-Assignability of Option Rights. No Option shall be transferable
other than by will or by the laws of descent and distribution. During the
lifetime of an Optionee, only the Optionee may exercise an Option.
5.10 Exercise After Certain Events.
5.10.1 Termination as an Employee, Director, or Consultant. If for any
reason other than permanent and total disability or death (as defined
below) an Optionee ceases to be employed by or to be a consultant to or
director of the Company, Options held on the date of such termination (to
the extent then exercisable) may be exercised, in whole or in part, at any
time within three (3) months after such date, or such lesser period
specified in the Option Agreement (but in no event after the earlier of (i)
the expiration date of the Option as set forth in the Option Agreement, and
(ii) ten (10) years from the Grant Date).
5.10.2 Permanent Disability and Death. If an Optionee becomes permanently
and totally disabled (within the meaning of Section 22(e)(3) of the
Internal Revenue Code), or dies while employed by the Company, or while
acting as an officer, consultant, or director of the Company (or if the
Optionee dies within the period that the Option remains exercisable after
termination of employment or affiliation), Options then held (to the extent
then exercisable) may be exercised by the Optionee, by the Optionee's
personal representative, or by the person to whom the Option is transferred
by will or the laws of descent and distribution, in whole or in part, at
any time within one (1) year after the disability or death or any lesser
period specified in the Option Agreement (but in no event after the earlier
of (i) the expiration date of the Option as set forth in the Option
Agreement, and (ii) ten (10) years from the Grant Date).
5.11 Compliance with Securities Laws. The Company shall not be obligated to
issue any shares of Stock upon exercise of an Option unless such shares are at
that time effectively registered or exempt from registration under the federal
securities laws and the offer and sale of the shares of Stock are otherwise in
compliance with all applicable securities laws. Upon exercising all or any
portion of an Option, an Optionee may be required to furnish representations
or undertakings deemed appropriate by the Company to enable the offer and sale
of the shares of Stock or subsequent transfers of any interest in such shares
to comply with applicable securities laws. Evidences of ownership of shares of
Stock acquired upon exercise of Options shall bear any legend required by, or
useful for purposes of compliance with, applicable securities laws, this Plan,
or the Option Agreement evidencing the Option.
6. PAYMENT OF TAXES.
Upon the exercise of an Option, the Company shall have the right to require
such Optionee or such other person to pay by cash, or by check payable to the
Company, the amount of any taxes which the Company may be required to withhold
with respect to such transactions. Any such payment must be made promptly when
the amount of such obligation becomes determinable and may be a condition
prior to the delivery of any certificate for shares or registration of the
transfer of such shares.
7. ADJUSTMENT FOR CHANGES IN CAPITALIZATION.
The existence of outstanding Options shall not affect the Company's right to
effect adjustments, recapitalizations, reorganizations, or other changes in
its or any other corporation's capital structure or business, any merger or
consolidation, any issuance of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Stock, the dissolution or
liquidation of the Company's or any other corporation's assets or business, or
any other corporate act, whether similar to the events described above or
otherwise. Subject to Section 8, if the outstanding shares of the Stock are
increased or decreased in number or changed into or exchanged for a
E-19
<PAGE>
different number or kind of securities of the Company or any other corporation
by reason of a recapitalization, reclassification, stock split, combination of
shares, stock dividend, or other event, an appropriate adjustment of the
number and kind of securities with respect to which Options may be granted
under this Plan, the number and kind of securities as to which outstanding
Options may be exercised, and the exercise price at which outstanding Options
may be exercised, will be made.
8. DISSOLUTION, LIQUIDATION, OR MERGER.
8.1 Company not the Survivor. In the event of a dissolution or liquidation
of the Company, a merger, consolidation, combination, or reorganization in
which the Company is not the surviving corporation, or a sale of substantially
all of the assets of the Company, any outstanding Options shall become fully
vested immediately upon the Company's public announcement of any one of the
foregoing. The Board of Directors shall determine, in its sole and absolute
discretion, when the Company shall be deemed to survive for purposes of this
paragraph. If the Optionee does not exercise the entire Option within ninety
(90) days, the Administrator, in its sole and absolute discretion, may, with
respect to the unexercised portion of the Option:
8.1.1 cancel the Option upon payment to the Optionee of an amount equal
to the difference between the closing price of the stock underlying the
Option quoted the date before such liquidation, dissolution, merger,
consolidation, combination, or reorganization, and the exercise price of
the Option; or
8.2.1 assign the Option and all rights and obligations under it to the
successor entity, with all such rights and obligations being assumed by the
successor entity.
8.2 Company is the Survivor. In the event of a merger, consolidation,
combination, or reorganization in which the Company is the surviving
corporation, the Board of Directors shall determine the appropriate adjustment
of the number and kind of securities with respect to which outstanding Options
may be exercised, and the exercise price at which outstanding Options may be
exercised. The Board of Directors shall determine, in its sole and absolute
discretion, when the Company shall be deemed to survive for purposes of this
Plan.
9. CHANGE OF CONTROL.
If there is a "change of control" in the Company, all outstanding Options
shall fully vest immediately upon the Company's public announcement of such a
change. A "change of control" shall mean an event involving one transaction or
a related series of transactions in which any one of the following occurs: (i)
the Company issues securities equal to twenty-five percent (25%) or more of
the Company's issued and outstanding voting securities, determined as a single
class, to any individual, firm, partnership, limited liability company, or
other entity, including a "group" within the meaning of SEC Exchange Act Rule
13d-3, (ii) the Company issues voting securities equal to twenty-five percent
(25%) or more of the issued and outstanding voting stock of the Company in
connection with a merger, consolidation, or other business combination, (iii)
the Company is acquired in a merger or other business combination transaction
in which the Company is not the surviving company, or (iv) all or
substantially all of the Company's assets are sold or transferred. See Section
8 with respect to Options vesting upon the occurrence of either of the events
described in (iii) or (iv) of this Section 9 and the result upon the non-
exercise of the Options.
10. SUSPENSION AND TERMINATION.
In the event the Board or the Administrator reasonably believes an Optionee
has committed an act of misconduct specified below, the Administrator may
suspend the Optionee's right to exercise any Option granted hereunder pending
final determination by the Board or the Administrator. If the Administrator
determines that an Optionee has committed an act of embezzlement, fraud,
breach of fiduciary duty, or deliberate disregard of the Company rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential
information, engages in any conduct constituting unfair competition, is
involved in the spreading of rumors or misinformation about the Company,
induces or attempts
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<PAGE>
to induce an employee to leave the employment of the Company, induces any
Company customer to breach a contract with the Company or induces any
principal for whom the Company acts as agent to terminate such agency
relationship, neither the Optionee nor his estate shall be entitled to
exercise any Option hereunder. In making such determination, the Board or the
Administrator shall act fairly and in good faith and shall give the Optionee
an opportunity to appear and present evidence on the Optionee's behalf. The
determination of the Board or the Administrator shall be final and conclusive.
11. NO RIGHTS AS SHAREHOLDER OR TO CONTINUED EMPLOYMENT.
An Optionee shall have no rights as a shareholder with respect to any shares
of Stock covered by an Option. An Optionee shall have no right to vote any
shares of Stock, or to receive distributions of dividends or any assets or
proceeds from the sale of Company assets upon liquidation until such Optionee
has effectively exercised the Option and fully paid for such shares of Stock.
Subject to Sections 7 and 8, no adjustment shall be made for dividends or
other rights for which the record date is prior to the date title to the
shares of Stock has been acquired by the Optionee. The grant of an Option
shall in no way be construed so as to confer on any Optionee the rights to
continued employment by the Company.
12. TERMINATION; AMENDMENT.
The Board may amend, suspend, or terminate this Plan at any time and for any
reason, but no amendment, suspension, or termination shall be made which would
impair the right of any person under any outstanding Options without such
person's consent not unreasonably withheld. Further, the Board may amend this
Plan to comply with Federal and State securities laws.
13. GOVERNING LAW.
This Plan and the rights of all persons under this Plan shall be construed
in accordance with and under applicable provisions of the laws of the State of
California.
Dated: October 23, 1997 OPHTHALMIC IMAGING SYSTEMS, INC.
By the Board of Directors
STEVEN R. VERDOONER
By Steven R. Verdooner, Secretary
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<PAGE>
DATE OF GRANT:
OPHTHALMIC IMAGING SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THE GRANT OF THIS OPTION SHALL NOT IMPOSE AN OBLIGATION UPON THE OPTIONEE TO
EXERCISE THIS OPTION.
THIS OPTION AGREEMENT (the "Agreement") is made by and between Ophthalmic
Imaging Systems, Inc., a California corporation (the "Corporation") and
("Optionee"), as of , .
In consideration of the mutual covenants contained herein and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Grant of Option. The Company hereby grants to Optionee, in the manner and
subject to the conditions hereinafter provided, the right, privilege, and
option to purchase (the "Option") an aggregate of ( ) shares of the
Company's Common Stock, no par value, (the "Shares"). This Option is
specifically conditioned on compliance with the terms and conditions set forth
herein.
2. Term of Option. Subject to the terms, conditions, and restrictions set
forth herein, the term of this Option shall be ten (10) years from the date of
grant (the "Expiration Date"). Any portion of this Option not exercised prior
to the Expiration Date shall thereupon become null and void.
3. Exercise of Option.
4. Vesting of Option. This Option shall become exercisable as follows:
<TABLE>
<CAPTION>
NUMBER OF VESTING
SHARES DATE
--------- ----------
<S> <C>
/ /
/ /
/ /
/ /
</TABLE>
Each of the foregoing dates shall be referred to as a "Vesting Date" for
that portion of this Option vested on such date ("Vested Portion").
All or any portion of the shares underlying a Vested Portion of this Option
may be purchased during the term of this Option, but not as to less than 100
shares (unless the remaining shares then constituting the Vested Portion of
this Option is less than 100 shares) at any time.
5. Manner of Exercise. The Vested Portion of this Option may be exercised
from time to time, in whole or in part, by presentation of a "Request To
Exercise Form", substantially in the form attached hereto, to the Company at
its principal office, which Form must be duly executed by Optionee and
accompanied by payment, in cash, to the Company, in the aggregate amount of
the Exercise Price (as defined below), multiplied by the number of Shares the
Optionee is purchasing at such time, subject to reduction for withholding for
tax obligations as provided in Section 13.
Upon receipt and acceptance by the Company of such Form accompanied by the
payment specified, the Optionee shall be deemed to be the record owner of the
Shares purchased, notwithstanding that the stock transfer books of the Company
may then be closed or that certificates representing the Shares purchased
under this Option may not then be actually delivered to the Optionee.
6. Exercise Price. The exercise price (the "Exercise Price") payable upon
exercise of this Option shall be $ . per share.
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<PAGE>
7. Exercise After Certain Events.
8. Termination of Relationship. If for any reason other than permanent and
total disability (as defined below) or ceases to be employed by, a director
of, or provide consulting services to, the Company, Options held at the date
of such termination (to the extent then exercisable) may be exercised, in
whole or in part, at any time within three months after the date of such
termination (but in no event after the expiration date of the Option).
9. Permanent Disability and Death. If an Optionee becomes permanently and
totally disabled (within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended), or dies while employed by the Company, or
while acting as an officer, director, or consultant of the Company (or, if the
Optionee dies within the period that the Option remains exercisable after
termination of employment or affiliation), Options then held (to the extent
then exercisable) may be exercised by the Optionee, the Optionee's personal
representative, or by the person to whom the Option is transferred by will or
the laws of descent and distribution, in whole or in part, at any time within
one year after the disability or death (but in no event after the expiration
date of the Option).
10. Restrictions on Transfer of Option. This Option is not transferable by
Optionee other than by will or the laws of descent and distribution and is
exercisable only by the Optionee during his lifetime except as provided in
Section 4.2. above. The Option and the Shares underlying the Option shall not
be available for the debts or obligations of the Optionee, nor shall it be
subject to disposition by transfer, alienation, pledge, or other means of
disposition, whether voluntary or involuntary or by operation of law through
judgment, levy, attachment, garnishment, or other legal proceeding (including
bankruptcy).
11. Adjustment for Changes in Capitalization. The existence of this Option
shall not affect the Company's right to effect adjustments, recapitalizations,
reorganizations, or other changes in its or any other corporation's capital
structure or business, any merger or consolidation, any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the
Shares, the dissolution or liquidation of the Company's or any other
corporation's assets or business or any other corporate act, whether similar
to the events described above or otherwise. If the outstanding shares of the
Company's Common Stock are increased or decreased in number or changed into or
exchanged for a different number or kind of securities of the Company or any
other corporation by reason of a recapitalization, reclassification, stock
split, reverse stock split, combination of shares, stock dividend, or other
similar event, an appropriate adjustment of the number and kind of securities
with respect to which this Option may be exercised and the exercise price at
which this Option may be exercised will be made.
12. Dissolution, Liquidation, Merger.
13. Company not the Survivor. In the event of a dissolution or liquidation
of the Company, a merger, consolidation, combination, or reorganization in
which the Company is not the surviving corporation, or a sale of substantially
all of the assets of the Company (as determined in the sole discretion of the
Board of Directors), and the Optionee does not exercise the entire option
within ninety days, the Administrator, in its absolute discretion, may (i)
cancel each outstanding Option upon payment in cash to the Optionee of the
amount by which any cash and the fair market value of any other property which
the Optionee would have received as consideration for the shares of Stock
covered by the Option if the Option had been exercised before such
liquidation, dissolution, merger, consolidation, or sale, exceeds the exercise
price of the Option or (ii) assign the Option and all rights and obligations
under it to the succession entity. In addition to the foregoing, in the event
of a dissolution or liquidation of the Company, or a merger, consolidation,
combination, or reorganization in which the Company is not the surviving
corporation, any outstanding Option pursuant to this Agreement shall vest.
14. Company is the Survivor. In the event of a merger, consolidation,
combination, or reorganization in which the Company is the surviving
corporation, the Board of Directors shall determine the appropriate adjustment
of the number and kind of securities with respect to which outstanding Options
may be exercised, and the exercise price at which outstanding Options may be
exercised. The Board of Directors shall determine, in its sole and absolute
discretion, when the Company shall be deemed to survive for purposes of this
Agreement.
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<PAGE>
15. Reservation of Shares. The Company agrees that prior to the earlier of
the expiration of this Option or the exercise and purchase of the total number
of Shares represented by this Option, there shall be reserved for issuance and
delivery upon exercise of this Option such number of the Company's authorized
and unissued Shares as shall be necessary to satisfy the terms and conditions
of this Agreement.
16. No Rights as Shareholder. The Optionee shall have no rights as a
shareholder with respect to any Shares covered by this Option unless the
Optionee shall have exercised this Option, and then only with respect to the
shares underlying the portion of the Option exercised. The Optionee shall have
no right to vote any Shares, or to receive distributions of dividends or any
assets or proceeds from the sale of Company assets upon liquidation, until the
Optionee has effectively exercised this Option and fully paid for such Shares.
Subject to Section 6, no adjustment shall be made for dividends or other
rights for which the record date is prior to the date title to the Shares has
been acquired by the Optionee.
17. No Rights to Employment or Continued Employment. The grant of this
Option shall in no way be construed so as to confer on Optionee the rights to
employment or continued employment by the Company. Nothing hereunder shall
confer upon any Optionee any right to employment or to continue in the employ
of the Company, or to interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to terminate or discharge any
Optionee at any time for any reason whatsoever, with or without cause.
18. Suspension and Termination. In the event the Board reasonably believes
that the Optionee has committed an act of misconduct specified below, the
Board may suspend the Optionee's right to exercise any Option pending final
determination by the Board, which final determination shall be made within
five (5) business days of such suspension. If the Board determines that an
Optionee has committed an act of embezzlement, fraud, breach of fiduciary
duty, or deliberate disregard of the Company rules resulting in loss, damage,
or injury to the Company, or if an Optionee makes an unauthorized disclosure
of any Company trade secret or confidential information, engages in any
conduct constituting unfair competition, induces any Company customer to
breach a contract with the Company, or induces any principal for whom the
Company acts as agent to terminate such agency relationship, neither the
Optionee nor his estate shall be entitled to exercise any Option hereunder. In
making such determination, the Board shall act fairly and in good faith and
shall give the Optionee an opportunity to appear and present evidence on the
Optionee's behalf.
19. Participation in Option Plans. The grant of this Option shall not
prevent Optionee from participating or being granted other options under any
option plans.
20. Payment of Taxes. Unless the Board permits otherwise, the Optionee shall
pay the Company in cash all local, state, and federal withholding taxes
applicable, in the Board's absolute discretion, to the grant or exercise of
this Option, or the transfer or other disposition of Shares acquired upon
exercise of this Option. Any such payment must be made promptly when the
amount of such obligation becomes determinable. The Board may, in lieu of such
cash payment, withhold that number of Shares sufficient to satisfy such
withholding.
21. Issue and Transfer Tax. The Company will pay all issuance taxes, if any,
attributable to the initial issuance of Shares upon the exercise of the
Option; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue or delivery of any certificates for Shares in a name other than that of
the Optionee.
22. Representatives; Restricted Securities. The Optionee represents that he
or she is purchasing the options for his or her own account and not with a
view to or for sale in connection with any distribution of the Option.
Further, the Optionee understands that this Option may not be transferred
except in compliance with Section 5, and that upon the exercise of the Option
the Optionee will receive "restricted securities" subject to a certain holding
period unless such Common Stock is purchased pursuant to a Registration
Statement filed with the Securities and Exchange Commission and registered or
exempt under state law.
23. Arbitration. Any controversy, dispute, or claim arising out of or
relating to this Option which cannot be amicably settled including, but not
limited to, the suspension or termination of Optionee's right in accordance
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<PAGE>
with Section 11 above, shall be settled by arbitration. Said arbitration shall
be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association at a time and place as selected by the
arbitrator(s).
24. Initiation of Arbitration. After seven (7) days prior written notice to
the other, either party hereto may formally initiate arbitration under this
Agreement by filing a written request therefor, and paying the appropriate
filing fees, if any.
25. Hearing and Determination Dates. The hearing before the arbitrator shall
occur within thirty (30) days from the date the matter is submitted to
arbitration. Further, a determination by the arbitrator shall be made within
forty-five (45) days from the date the matter is submitted to arbitration.
Thereafter, the arbitrator shall have fifteen (15) days to provide the parties
with his or her decision in writing. However, any failure to meet the
deadlines in this section will not affect the validity of any decision or
award.
26. Binding Nature of Decision. The decision of the arbitrator shall be
binding on the parties. Judgment thereon shall be entered in a court of
competent jurisdiction.
27. Injunctive Actions. Nothing herein contained shall bar the right of
either party to seek to obtain injunctive relief or other provisional remedies
against threatened or actual conduct that will cause loss or damages under the
usual equity rules including the applicable rules for obtaining preliminary
injunctions and other provisional remedies.
28. Costs. The cost of arbitration, including the fees of the arbitrator,
shall be borne equally by the parties.
29. Notices. All notices to be given by either party to the other shall be
in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; provided, however, that notices of
change of address or telex or facsimile number shall be effective only upon
actual receipt by the other party. Notices shall be delivered at the following
addresses, unless changed as provided for herein.
To the Optionee:
-----------------------------
-----------------------------
-----------------------------
To the Company:
Steven R. Verdooner
Secretary
Ophthalmic Imaging Systems, Inc.
221 Lathrop Way, Suite I
Sacramento, California 95815
Telephone: 916-646-2020
Facsimile: 916- -
30. Applicable Law. This Agreement and the relationship of the parties in
connection with its subject matter shall be governed by, and construed under,
the laws of the state of California.
31. Binding Effect. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective heirs, executors, and
successors.
E-25
<PAGE>
32. Tax Effect. The federal tax consequences of stock options are complex
and subject to change. Each person should consult with his or her tax advisor
before exercising any option or disposing of any shares acquired upon the
exercise of an option.
IN WITNESS WHEREOF, this Agreement has been executed as of the day of
, , at Sacramento, California.
OPHTHALMIC IMAGING SYSTEMS, INC.
Steven R. Verdooner,
Chief Executive Officer
E-26
<PAGE>
REQUEST TO EXERCISE FORM
Dated:
The undersigned hereby irrevocably elects to exercise all or part, as
specified below, of the Vested Portion of the option ("Option") granted to him
pursuant to a certain stock option agreement ("Agreement") effective
, between the undersigned and Ophthalmic Imaging Systems, Inc. (the
"Company") to purchase an aggregate of ( ) shares of the Company's
Common Stock, no par value (the "Shares").
The undersigned hereby tenders cash in the amount of $ per share
multiplied by ( ), the number of Shares he is purchasing at this
time, for a total of $ , which constitutes full payment of the total
Exercise Price thereof.
INSTRUCTIONS FOR REGISTRATION OF
SHARES
IN COMPANY'S TRANSFER BOOKS
Name:
(Please typewrite or print in
block letters)
Address:
-----------------------------
-----------------------------
Signature:
----------------------------
Accepted by Ophthalmic Imaging Systems, Inc.:
By:
-------------------------------
-------------------------------
Name
-------------------------------
Title
End of Document
E-27
<PAGE>
APPENDIX F
OPINION OF COWEN & COMPANY, FINANCIAL ADVISOR TO OPHTHALMIC
February 24, 1998
Board of Directors
Ophthalmic Imaging Systems, Inc.
221 Lathrop Way
Sacramento, CA 95815
Gentlemen:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders (other than Premier Laser
Systems, Inc. ("Premier") and its affiliates) of the outstanding shares of
Common Stock, no par value per share (the "Company Common Stock"), of
Ophthalmic Imaging Systems, Inc. (the "Company"), of the financial terms of
the Offer (as hereinafter defined) by Premier. For the purposes of this
opinion, the "Offer" means the exchange offer described below pursuant to that
certain Stock Purchase Agreement between the Company and Premier to be dated
as of February 25, 1998 (including the exhibits and schedules thereto, the
"Agreement").
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, Premier will commence the Offer to exchange each
outstanding share of the Common Stock of the Company ("Company Common Stock")
for an aggregate of (a) $1.75 net in cash, (b) that number of shares of
Premier Class A Common Stock, no par value (the "Premier Common Stock"), equal
to the Exchange Ratio (defined below), (c) one Premier Class C Warrant (a
"Class C Warrant"), and (d) one Premier Class D Warrant (a "Class D Warrant").
The "Exchange Ratio" means the quotient determined by dividing $0.25 by the
average closing sales prices for Premier Common Stock as reported on The
Nasdaq Stock Market, for either (i) the fifteen trading days ending five
trading days immediately preceding the expiration date of the Offer (the
"Expiration Date") or (ii) the thirty trading days ending twenty trading days
prior to the Expiration Date, whichever yields the fewer number of shares of
Premier Common Stock.
Each Class C Warrant entitles the holder to purchase a number of shares of
Premier Common Stock equal to $0.25 divided by the greater of the (i) the
average closing price of Premier Common Stock for the fifteen trading days
prior to August 31, 1998 or (ii) the average closing price of Premier Common
Stock for the thirty trading days ending fifteen trading days prior to August
31, 1998, at an exercise price of $0.01 per share, provided that no Class C
Warrant shall be exercisable unless the net sales of the Company or any
successor to the Company's operations of certain products for the twelve month
period ended August 31, 1998 equals or exceeds $7,000,000.
Each Class D Warrant entitles the holder to purchase a number of shares of
Premier Common Stock equal to $0.25 divided by the greater of (i) the average
closing price of Premier Common Stock for the fifteen trading days prior to
December 31, 1999 or (ii) the average closing price of Premier Common Stock
for the thirty trading days ending fifteen trading days prior to December 31,
1999, at an exercise price of $0.01 per share, provided that no Class D
Warrant shall be exercisable unless the net sales of the Company or any
successor to the Company's operations of certain products for the twelve month
period ended December 31, 1999 equals or exceeds $11,600,000.
In the ordinary course of its services, Cowen & Company ("Cowen") is
regularly engaged in the valuation and pricing of businesses and their
securities and in advising corporate securities issuers on related matters.
In arriving at our opinion, Cowen has, among other things:
(1) reviewed the Company's financial statements for the fiscal years
ended August 31, 1995, 1996, 1997 and for the fiscal quarter ended November
30, 1997, certain publicly available filings with the Securities and
Exchange Commission and certain other relevant financial and operating data
of the Company;
F-1
<PAGE>
(2) reviewed the February 24, 1998 draft of the Agreement;
(3) held meetings and discussions with management and senior personnel of
the Company to discuss the business, operations, historical financial
results and future prospects of the Company;
(4) reviewed financial projections furnished to us by the management of
the Company, including, among other things, the capital structure, sales,
net income, cash flow, capital requirements and other data of the Company
we deemed relevant;
(5) compared the financial terms of the Offer with certain other
transactions in which control of an entity was acquired;
(6) reviewed certain financial and stock market information regarding the
Company, in comparison with similar information regarding certain other
publicly traded companies;
(7) conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
Cowen was not requested to, and did not, solicit third party indications of
interest in acquiring all or substantially all of the stock or assets of the
Company.
On February 24, 1998, the closing price of the Company in the last
transaction reported by Nasdaq National Market was $1.5625 per share.
In rendering our opinion, we relied upon the Company's management with
respect to the accuracy and completeness of the financial and other
information furnished to us as described above. With respect to the financial
projections furnished to us by management of the Company, we also assumed,
with your consent, that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the Company's
management. We also assumed, with your consent, that such projections provide
a reasonable basis for our opinion and, with your consent, we have relied upon
such projections in preparing our opinion. We have not assumed any
responsibility for independent verification of such information, including
financial information, nor have we made an independent evaluation or appraisal
of any of the properties or assets of the Company or Premier. Cowen was not
provided with any financial projections for Premier.
Our opinion is necessarily based on general economic, market, financial and
other conditions as they exist on, and can be evaluated as of, the date
hereof, as well as the information currently available to us. It should be
understood that, although subsequent developments may affect our opinion, we
do not have any obligation to update, revise or reaffirm our opinion. Our
opinion does not imply any conclusion as to the likely trading range for the
Company or Premier Common Stock following consummation of the Offer or
otherwise, which may vary depending on numerous factors that generally
influence the price of securities. Our opinion is limited to the fairness,
from a financial point of view, of the financial terms of the Offer to the
holders of Company Common Stock (other than Premier and its affiliates). We
express no opinion with respect to any other reasons, legal, business or
otherwise, that may support the decision of the Board of Directors to approve
the Offer or to enter into the Agreement. We have not been asked to, and do
not, opine with respect to any consideration that may be paid in any
transaction other than the Offer, including any merger or other transaction
subsequent to the Offer. Our opinion does not constitute a recommendation to
any holders of Company Common Stock to tender or not to tender their shares in
the Offer.
With respect to all legal matters relating to the Company and the Offer, we
have relied on the advice of legal counsel to the Company. We also have
assumed that the Offer will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Act of 1933, as
amended, and all other applicable federal and state statutes, rules and
regulations.
For purposes of rendering our opinion, we have assumed in all respects
material to our analysis that the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all of the covenants and agreements required to be performed by it under the
Agreement and that all conditions to the consummation of the Offer will be
satisfied without waiver thereof. We have also assumed that
F-2
<PAGE>
all governmental, regulatory or other consents and approvals contemplated by
the Agreement will be obtained and that in the course of obtaining any of
those consents no restrictions will be imposed or waivers made that would have
an adverse effect on the contemplated benefits of the Offer.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Offer and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Offer.
We will also receive a fee for rendering this opinion. In addition, in the
ordinary course of its business, Cowen trades the equity securities of Premier
for its own account and for the accounts of its customers, and, accordingly,
it may at any time hold a long or short position in such securities. Moreover,
Cowen and its affiliates own 23,159 shares of Premier Common Stock.
On the basis of our review and analysis, as described above, it is our
opinion as investment bankers that, as of the date hereof, the financial terms
of the Offer are fair, from a financial point of view, to the holders of the
Company Common Stock (other than Premier and its affiliates).
Very truly yours,
Cowen & Company
F-3
<PAGE>
THE EXCHANGE AGENT FOR THE OFFER IS:
AMERICAN STOCK TRANSFER & TRUST COMPANY
BY MAIL/HAND/OVERNIGHT DELIVERY:
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
BY FACSIMILE:
(718) 234-5001
CONFIRM BY TELEPHONE:
(212) 936-5100
Questions or requests for assistance may be directed to the Information Agent
or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer, the Letter of Transmittal and
the Notice of Guaranteed Delivery may be obtained from the Information Agent. A
shareholder may also contact brokers, dealers, commercial banks or trust
companies for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
ALLEN & CARON INC.
2010 MAIN STREET, SUITE 220
IRVINE, CALIFORNIA 92614
BANKS AND BROKERS CALL COLLECT (714) 252-8440
OR
ALL OTHERS CALL TOLL-FREE (800) 452-1346
THE DEALER MANAGER FOR THE OFFER IS:
JOSEPHTHAL & CO. INC.
200 PARK AVENUE
NEW YORK, NEW YORK 10166
CALL TOLL-FREE (800) 285-6200
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The California General Corporations Law provides that California
corporations may include provisions in their articles of incorporation
relieving directors of monetary liability for breach of their fiduciary duty
as directors, except for the liability of a director resulting from (i) any
transaction from which the director derives an improper personal benefit, (ii)
acts or omissions involving intentional misconduct or a knowing and culpable
violation of law, (iii) acts or omissions that a director believes to be
contrary to the best interests of the Registrant or its shareholders or that
involves the absence of good faith on the part of the director (iv) acts or
omissions constituting an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its shareholders, (v)
acts or omissions showing a reckless disregard for the director's duty to the
Registrant or its shareholders in circumstances in which the director was
aware or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the Registrant or its
shareholders, (vi) any improper transaction between a director and the
Registrant in which the director has a material financial interest, or (vii)
the making of an illegal distribution to shareholders or an illegal loan or
guaranty. The Registrant's Articles of Incorporation provide that the
Registrant's directors are not liable to the Registrant or its shareholders
for monetary damages for breach of their fiduciary duties to the fullest
extent permitted by California law.
The inclusion of the above provision in the Articles of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted the Registrant and
its shareholders. At present, there is no litigation or proceeding pending
involving a director of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any director.
The Registrant's Articles of Incorporation provide that the Registrant shall
indemnify its directors and officers to the fullest extent permitted by
California law, including circumstances in which indemnification is otherwise
discretionary under California law. Since the California statute is
nonexclusive, it is possible that certain claims beyond the scope of the
statute may be indemnifiable. Accordingly, the Registrant has also entered
into an indemnification agreement (the "Indemnification Agreement") with
certain of its directors and officers that requires the Registrant to
indemnify such directors and officers to the fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant, 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.
It is intended that the Indemnification Agreements provide a scheme of
indemnification which may be broader than that specifically provided by the
California statute. It has not yet been determined, however, the degree to
which the indemnification expressly permitted by the California statute may be
expanded.
Set forth below is a description of the principal provisions of the
Indemnification Agreement:
First, the Indemnification Agreement imposes upon Premier the burden of
proving that the Indemnified Party has not met the applicable standard of
conduct required for indemnification. The California statute requires a
finding by the Board of Directors, independent legal counsel, or the
stockholders that the applicable standard of conduct has been met.
Second, the Indemnification Agreement provides that litigation expenses
shall be advanced to an Indemnified Party at his or her request, against an
undertaking to repay the amount advanced if it is ultimately determined that
he is not entitled to indemnification for such expenses. The California
statute provides that such expenses may be advanced against such an
undertaking, upon authorization by the Board of Directors.
II-1
<PAGE>
Third, in the event Premier does not pay a requested indemnification amount,
the Indemnification Agreement allows such Indemnified Party to contest this
determination by petitioning a court to make an independent determination of
whether such indemnified Party is entitled to indemnification under the
Indemnification Agreement. The California statute does not set forth the
procedure for contesting a corporation's determination of a party's right to
indemnification.
Finally, the Indemnification Agreement explicitly provides that actions by
an Indemnified Party at the request of Premier as a director, officer or agent
of an employee benefit plan, corporation, partnership, joint venture or other
enterprise owned or controlled by Premier shall be covered by the
indemnification. The California statute does not specifically address this
issue. It does, however, provide that to the extent that an Indemnified Party
has been successful on the merits, he shall be entitled to such
indemnification.
Premier is not aware of any threatened litigation or proceeding which may
result in a claim for indemnification under the Indemnification Agreement by
any director or officer.
ITEM 21. EXHIBITS.
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<C> <S>
2.1 Stock Purchase Agreement, dated as of February 25, 1998(1)
3.1 Amended and Restated Articles of Incorporation (incorporated herein by
this reference to Exhibit 4.8 to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1994)(2)
3.2 By-Laws (incorporated herein by this reference to the Registrant's
Registration Statement on Form SB-2 (Registration No. 33-83984)(2)
4.1 Form of Common Stock Certificate (Incorporated by reference to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
4219)(2)
4.2 Warrant Agreement (including form of Class B Warrant Certificate)
(incorporated herein by this reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form SB-2, registration
no. 33-83984)(2)
4.3 Amendment to Warrant Agreement (incorporated herein by this reference to
Exhibit 4.3 to Amendment No. 3 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-4219)(2)
4.4 Form of Series C Warrant to Purchase Common Stock(3)
4.5 Form of Series D Warrant to Purchase Common Stock(4)
4.6 Purchase Agreement dated as of February 25, 1998 by and between Premier
and JB Oxford & Company (incorporated herein by this reference to
Exhibit 99.12 to the Registrant's Current Report on
Form 8-K, filed on March 9, 1998)(2)
4.7 Registration Rights Agreement dated as of February 25, 1998 by and
between Premier and JB Oxford & Company (incorporated herein by this
reference to Exhibit 99.18 to the Registrant's Current Report on Form 8-
K, filed on March 9, 1998)(2)
4.8 Class C Warrant, issued to JB Oxford & Company on February 25, 1998
(incorporated herein by this reference to Exhibit 99.13 to the
Registrant's Current Report on Form 8-K, filed on March 9, 1998)(2)
4.9 Class D Warrant, issued to JB Oxford & Company on February 25, 1998
(incorporated herein by this reference to Exhibit 99.14 to the
Registrant's Current Report on Form 8-K, filed on March 9, 1998)(2)
4.10 Consent to Transfer of JB Oxford & Company Warrant, dated February 25,
1998 (incorporated herein by this reference to Exhibit 99.16 to the
Registrant's Current Report on Form 8-K, filed on March 9, 1998)(2)
4.11 Warrant Agreement dated November 21, 1995 between Ophthalmic and JB
Oxford & Company (incorporated herein by this reference to Exhibit 99.17
to the Registrant's Current Report on Form 8-K, filed on March 9,
1998)(2)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.12 Purchase Agreement dated as of February 25, 1998 by and between Premier
and Stanley Chang (incorporated herein by this reference to Exhibit
99.8 to the Registrant's Current Report on Form 8-K, filed on March 9,
1998)(2)
4.13 Registration Rights Agreement dated as of February 25, 1998 by and
between Premier and Stanley Chang (incorporated herein by this
reference to Exhibit 99.11 to the Registrant's Current Report on Form
8-K, filed on March 9, 1998)(2)
4.14 Class C Warrant, issued to Stanley Chang on February 25, 1998
(incorporated herein by this reference to Exhibit 99.9 to the
Registrant's Current Report on Form 8-K, filed on March 9, 1998)(2)
4.15 Class D Warrant, issued to Stanley Chang on February 25, 1998
(incorporated herein by this reference to Exhibit 99.10 to the
Registrant's Current Report on Form 8-K, filed on March 9, 1998)(2)
4.16 Purchase Agreement dated as of February 25, 1998 by and between Premier
and Mark and Recia Blumenkranz, M.D. (incorporated herein by this
reference to Exhibit 99.4 to the Registrant's Current Report on Form 8-
K, filed on March 9, 1998)(2)
4.17 Registration Rights Agreement dated as of February 25, 1998 by and
between Premier and Mark and Recia Blumenkranz, M.D. (incorporated
herein by this reference to Exhibit 99.7 to the Registrant's Current
Report on Form 8-K, filed on March 9, 1998)(2)
4.18 Class C Warrant, issued to Mark and Recia Blumenkranz, M.D. on February
25, 1998 (incorporated herein by this reference to Exhibit 99.5 to the
Registrant's Current Report on Form 8-K, filed on March 9, 1998)(2)
4.19 Class D Warrant, issued to Mark and Recia Blumenkranz, M.D. on February
25, 1998 (incorporated herein by this reference to Exhibit 99.6 to the
Registrant's Current Report on Form 8-K, filed on March 9, 1998)(2)
4.20 Standstill Agreement dated as of February 12, 1998 by and between
Premier and Ophthalmic(5)
4.21 Confidentiality Agreement dated February 12, 1998 by and between
Ophthalmic and Premier(5)
4.22 Confidentiality Agreement dated February 20, 1998 by and between Premier
and Ophthalmic(5)
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP(6)
10.1 1998 Rollover Stock Option Plan(6)
23.1 Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit
5.1)
23.2 Consent of Price Waterhouse LLP(5)
23.3 Consent of Ernst & Young LLP(5)
23.4 Consent of Coopers & Lybrand L.L.P.(5)
23.5 Consent of Cowen & Company(5)
23.6 Consent of Ernst & Young LLP(5)
24 Power of Attorney (included on signature page hereof)
</TABLE>
- --------
(1) Incorporated by reference to Appendix A of this Prospectus/Offer to
Exchange.
(2) Previously filed.
(3) Incorporated by reference to Appendix B of this Prospectus/Offer to
Exchange.
(4) Incorporated by reference to Appendix C of this Prospectus/Offer to
Exchange.
(5) Filed herewith.
(6) To be filed by amendment.
ITEM 22. UNDERTAKINGS.
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
II-3
<PAGE>
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
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 that are incorporated by reference in the Registration Statement.
(2) That for the purpose of determining liability under the Securities
Act of 1933, the Registrant will treat each post-effective amendment as a
new Registration Statement of the securities offered, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To file a post-effective amendment or remove from registration any of
the securities that remain unsold at the end of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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 as the time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes: (i) to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means; and (ii) to arrange or provide for a facility in
the U.S. for the purpose of responding to such requests. The undertaking in
subparagraph (i) above include information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, 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 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 Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on the 10th day of
March, 1998.
PREMIER LASER SYSTEMS, INC.
/s/ Colette Cozean
By: _________________________________
Colette Cozean, Ph.D.
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Colette
Cozean his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, at
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith or in
connection with the registration of the Common Stock under the Securities
Exchange Act of 1934, as amended, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary in connection
with such matters and hereby ratifying and confirming that said attorney-in-
fact and agent, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
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
--------- ----- ----
<S> <C> <C>
/s/ Colette Cozean Chairman of the Board, March 10, 1998
____________________________________ President and Chief
Colette Cozean, Ph.D. Executive Officer
(Principal Executive
Officer)
/s/ Michael Hiebert Vice President of Finance March 10, 1998
____________________________________ and Chief Financial Officer
Michael Hiebert (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Patrick J. Day Director March 10, 1998
____________________________________
Patrick J. Day
/s/ Grace Ching-Hsin Lin Director March 10, 1998
____________________________________
Grace Ching-Hsin Lin
/s/ G. Lynn Powell Director March 10, 1998
____________________________________
G. Lynn Powell, D.D.S.
/s/ E. Donald Shapiro Director March 10, 1998
____________________________________
E. Donald Shapiro
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
------- ----------- ------------
<C> <S> <C>
2.1 Stock Purchase Agreement, dated as of February 25,
1998(1)
3.1 Amended and Restated Articles of Incorporation
(incorporated herein by this reference to Exhibit 4.8
to the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended December 31, 1994)(2)
3.2 By-Laws (incorporated herein by this reference to the
Registrant's Registration Statement on Form SB-2
(Registration No. 33-83984)(2)
4.1 Form of Common Stock Certificate (Incorporated by
reference to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-4219)(2)
4.2 Warrant Agreement (including form of Class B Warrant
Certificate) (incorporated herein by this reference to
Exhibit 4.1 to the Registrant's Registration Statement
on Form SB-2, registration no. 33-83984)(2)
4.3 Amendment to Warrant Agreement (incorporated herein by
this reference to Exhibit 4.3 to Amendment No. 3 to
the Registrant's Registration Statement on Form SB-2,
Registration No. 33-4219)(2)
4.4 Form of Series C Warrant to Purchase Common Stock(3)
4.5 Form of Series D Warrant to Purchase Common Stock(4)
4.6 Purchase Agreement dated as of February 25, 1998 by and
between Premier and JB Oxford & Company (incorporated
herein by this reference to Exhibit 99.12 to the
Registrant's Current Report on Form 8-K, filed on
March 9, 1998)(2)
4.7 Registration Rights Agreement dated as of February 25,
1998 by and between Premier and JB Oxford & Company
(incorporated herein by this reference to
Exhibit 99.18 to the Registrant's Current Report on
Form 8-K, filed on March 9, 1998)(2)
4.8 Class C Warrant, issued to JB Oxford & Company on
February 25, 1998 (incorporated herein by this
reference to Exhibit 99.13 to the Registrant's Current
Report on
Form 8-K, filed on March 9, 1998)(2)
4.9 Class D Warrant, issued to JB Oxford & Company on
February 25, 1998 (incorporated herein by this
reference to Exhibit 99.14 to the Registrant's Current
Report on
Form 8-K, filed on March 9, 1998)(2)
4.10 Consent to Transfer of JB Oxford & Company Warrant,
dated February 25, 1998 (incorporated herein by this
reference to Exhibit 99.16 to the Registrant's Current
Report on Form 8-K, filed on March 9, 1998)(2)
4.11 Warrant Agreement dated November 21, 1995 between
Ophthalmic and JB Oxford & Company (incorporated
herein by this reference to Exhibit 99.17 to the
Registrant's Current Report on Form 8-K, filed on
March 9, 1998)(2)
4.12 Purchase Agreement dated as of February 25, 1998 by and
between Premier and Stanley Chang (incorporated herein
by this reference to Exhibit 99.8 to the Registrant's
Current Report on Form 8-K, filed on March 9, 1998)(2)
4.13 Registration Rights Agreement dated as of February 25,
1998 by and between Premier and Stanley Chang
(incorporated herein by this reference to Exhibit
99.11 to the Registrant's Current Report on Form 8-K,
filed on March 9, 1998)(2)
4.14 Class C Warrant, issued to Stanley Chang on February
25, 1998 (incorporated herein by this reference to
Exhibit 99.9 to the Registrant's Current Report on
Form 8-K, filed on March 9, 1998)(2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
------- ----------- ------------
<C> <S> <C>
4.15 Class D Warrant, issued to Stanley Chang on February
25, 1998 (incorporated herein by this reference to
Exhibit 99.10 to the Registrant's Current Report on
Form 8-K, filed on March 9, 1998)(2)
4.16 Purchase Agreement dated as of February 25, 1998 by and
between Premier and Mark and Recia Blumenkranz, M.D.
(incorporated herein by this reference to Exhibit 99.4
to the Registrant's Current Report on Form 8-K, filed
on March 9, 1998)(2)
4.17 Registration Rights Agreement dated as of February 25,
1998 by and between Premier and Mark and Recia
Blumenkranz, M.D. (incorporated herein by this
reference to Exhibit 99.7 to the Registrant's Current
Report on Form 8-K, filed on March 9, 1998)(2)
4.18 Class C Warrant, issued to Mark and Recia Blumenkranz,
M.D. on February 25, 1998 (incorporated herein by this
reference to Exhibit 99.5 to the Registrant's Current
Report on Form 8-K, filed on March 9, 1998)(2)
4.19 Class D Warrant, issued to Mark and Recia Blumenkranz,
M.D. on February 25, 1998 (incorporated herein by this
reference to Exhibit 99.6 to the Registrant's Current
Report on Form 8-K, filed on March 9, 1998)(2)
4.20 Standstill Agreement dated as of February 12, 1998 by
and between Premier and Ophthalmic(5)
4.21 Confidentiality Agreement dated February 12, 1998 by
and between Ophthalmic and Premier(5)
4.22 Confidentiality Agreement dated February 20, 1998 by
and between Premier and Ophthalmic(5)
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP(6)
10.1 1998 Rollover Stock Option Plan(6)
23.1 Consent of Paul, Hastings, Janofsky & Walker LLP
(included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP(5)
23.3 Consent of Ernst & Young LLP(5)
23.4 Consent of Coopers & Lybrand L.L.P.(5)
23.5 Consent of Cowen & Company(5)
23.6 Consent of Ernst & Young LLP(5)
24 Power of Attorney (included on signature page hereof)
</TABLE>
- --------
(1) Incorporated by reference to Appendix A of this Prospectus/Offer to
Exchange.
(2) Previously filed.
(3) Incorporated by reference to Appendix B of this Prospectus/Offer to
Exchange.
(4) Incorporated by reference to Appendix C of this Prospectus/Offer to
Exchange.
(5) Filed herewith.
(6) To be filed by amendment.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Premier Laser
Systems, Inc. of our report dated May 17, 1996 appearing on page 26 of the
Company's Amendment No. 1 to Annual Report on Form 10-K for the year ended
March 31, 1997. We also consent to the application of such report to the
Financial Statement Schedule for the two years ended March 31, 1996 listed in
the accompanying index when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report are also included this schedule. We also consent to the references to
us under the headings "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
Price Waterhouse LLP
Costa Mesa, California
March 10, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Premier Laser Systems, Inc. Summary Selected Consolidated Financial
Information" in the Registration Statement (Form S-4) and related
Prospectus/Offer to Exchange of Premier Laser Systems, Inc. for the
registration of 182,550 shares of its Class A Common Stock, 2,691,610 Class C
Warrants and 2,691,610 Class D Warrants and to the incorporation by reference
therein of our report dated May 1, 1997, with respect to the consolidated
financial statements and schedules of Premier Laser Systems, Inc. included in
its Annual Report (Form 10-K) for the year ended March 31, 1997, as amended,
filed with the Securities and Exchange Commission.
Ernst & Young LLP
Orange County, California
March 10, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
Form S-4 of our report, which includes an explanatory paragraph concerning
EyeSys' ability to continue as a going concern, dated March 21, 1997, except
for Notes 5 and 15 as to which the date is June 3, 1997, of our audits of the
financial statements of EyeSys Technologies, Inc. as of December 31, 1996 and
1995, and for the three years in the period ended December 31, 1996, appearing
in the registration statement on Form S-4 (File No. 333-29573) of Premier
Laser Systems, Inc. filed with the Securities and Exchange Commission pursuant
to the Securities Act of 1933. We also consent to the incorporation by
reference of our report in the registration statements on Form S-8 (File No.
333-01680), Form S-8 (File No. 333-27151), and Form S-8 (File No. 333-29497).
We also consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Houston, Texas
March 10, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF COWEN & COMPANY
We hereby consent to the inclusion of our opinion, dated February 24, 1998, in
the Prospectus/Offer to Exchange of Premier Laser Systems, Inc., which is part
of this Registration Statement on Form S-4. In executing this consent, we do
not admit or acknowledge that Cowen & Company is within the class of persons
whose consent is required by Section 7 of Securities Act of 1933, as amended,
or the rules and regulations promulgated thereunder.
Date: March 10, 1998
COWEN & COMPANY
By: /s/ Duncan T. Weaver
___________________________________
Name: Duncan T. Weaver
Title: Director
<PAGE>
EXHIBIT 23.6
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated October 21, 1997, except for Note
10 as to which the date is November 18, 1997, with respect to the financial
statements of Ophthalmic Imaging Systems, included in the Registration
Statement (Form S-4) pertaining to Premier Laser Systems, Inc. for the
registration of 182,550 shares of Class A Common Stock, 2,691,610 Class C
Warrants and 2,691,610 Class D Warrants, and to the incorporation by reference
therein of our reports dated October 21, 1997, except for Note 10 as to which
the date is November 18, 1997, and October 11, 1996, except for Note 10 as to
which the date is November 21, 1996, with respect to the financial statements
of Ophthalmic Imaging Systems included in its Annual Reports (Form 10-KSB) for
the years ended August 31, 1997 and 1996, respectively, and included in the
Current Report on Form 8-K of Premier Laser Systems, Inc. dated February 25,
1998, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Sacramento, California
March 4, 1998
