<PAGE>
As Filed with the Securities and Exchange Commission on May 17, 1999
Registration No. 333-_________
================================================================================
Washington, D.C. 20549
FORM S-1
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 3845 33-0472684
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
Colette Cozean, Ph.D.
Chief Executive Officer
3 Morgan
Irvine, California 92618
(949) 859-0656
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
Copies to:
THOMAS G. BROCKINGTON, ESQ.
NATALIE DUNDAS, ESQ.
RUTAN & TUCKER, LLP
611 Anton Boulevard, Suite 1400
Costa Mesa, California 92626
(714) 641-5100
------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
------------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
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(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If 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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [_]
Pursuant to Rule 416, there are also being registered such additional securities
as may become issuable pursuant to the antidilution provisions of the warrants
and debentures, as described herein.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered(/2/) per share (/1/) offering price registration fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value.... 4,278,146 $2.625 $11,230,133 $3,121.98
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
TOTAL.....................
=========================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee as of May 12, 1999.
(2) Shares of common stock being registered for resale by certain security
holders. Includes shares issuable upon exercise of presently outstanding
warrants and shares issuable upon conversion of presently outstanding
debentures.
------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Subject to Completion May 17, 1999
PREMIER LASER SYSTEMS, INC.
4,278,146 Shares
Class A Common Stock
<TABLE>
<CAPTION>
The Company The Offering
----------- ------------
<S> <C>
. We design, manufacture and sell lasers and . Shareholders of Premier Laser Systems,,
diagnostic equipment for dental, surgical Inc. are offering 4,278,146 shares of Class
and ophthalmic procedures. A Common Stock.
. Premier Laser Systems, Inc. . The 4,278,146 shares of common stock
3 Morgan which are being offered by the selling
Irvine, California 92618 shareholders will be acquired by such
(949) 859-0656 shareholders upon the exercise of certain
. The Nasdaq Stock Market National Market outstanding warrants to purchase our
Symbol: PLSIA common stock and upon the conversion of
outstanding convertible debentures.
. We will not receive any of the proceeds
from the sale of the shares.
. The price of the common stock offered by
the selling shareholders will vary,
depending on market conditions.
. There is an existing trading market for these
shares. The last reported sale price on
May 14, 1999 was $2.563 per share.
</TABLE>
This investment involves risk. See "Risk Factors" beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
2
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. Neither we nor the selling shareholders are
offering to sell, or seeking offers to buy, shares of common stock in
jurisdictions where offers and sales are not permitted. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of our
common stock. In this prospectus, when we refer to "Premier," we mean Premier
Laser Systems, Inc. and when we use the words "we," "us" and "our," we mean
Premier Laser Systems, Inc., its wholly owned subsidiary EyeSys-Premier, Inc.,
and its majority owned subsidiary Ophthalmic Imaging Systems, Inc., except where
context requires otherwise. The term "OIS" refers in this prospectus to
Ophthalmic Imaging Systems, Inc., and the term "EyeSys" refers to EyeSys-
Premier, Inc.
___________________
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY........................................... 4
RISK FACTORS................................................. 6
USE OF PROCEEDS.............................................. 14
PRICE RANGE OF CLASS A COMMON STOCK AND CLASS B WARRANTS..... 14
DIVIDEND POLICY.............................................. 15
DILUTION..................................................... 16
CAPITALIZATION............................................... 17
SELECTED FINANCIAL DATA...................................... 18
BUSINESS..................................................... 26
MANAGEMENT................................................... 47
EXECUTIVE COMPENSATION....................................... 51
CERTAIN TRANSACTIONS......................................... 54
PRINCIPAL AND SELLING SHAREHOLDERS........................... 55
DESCRIPTION OF CAPITAL STOCK................................. 57
SHARES ELIGIBLE FOR FUTURE SALE.............................. 61
PLAN OF DISTRIBUTION......................................... 62
LEGAL MATTERS................................................ 63
EXPERTS...................................................... 63
AVAILABLE INFORMATION........................................ 64
INDEX TO FINANCIAL STATEMENTS................................ F-1
"Premier Laser Systems," "Premier-EyeSys," "EyeSys Technologies,"
"Centauri," "Aurora," "Arago," "Orion," "Sirius," "Pegasus," "Polaris," "MOD,"
"Dentalaser," "Arcturus," "Vista," "WinStation," "Digital Fundus Imager,"
"Digital Slit Lamp," "TouchTIP," "AngleTIPS," "Altair," "Dermium," "The SAFE
Systems," "LTM," "Laser Tissue Melding," and "Proclosure" are federally
registered trademarks of Premier. All other trademarks and trade names referred
to in this prospectus are the property of their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in our common stock. You should read the
entire prospectus carefully. This prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act of 1934 which involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this prospectus.
Our Business:
We develop and manufacture medical laser systems, ophthalmic diagnostic
systems and related equipment. Our primary focus is on the dental and
ophthalmic markets. In the dental market, we sell our laser systems to dentists
and periodontists for cavity preparation, the treatment of gum disease,
composite curing and teeth whitening. In the ophthalmic market, we market our
laser systems and diagnostic products to ophthalmologists for use in cataract
removal procedures, skin procedures and eyelid surgery. We are conducting
clinical trials on the use of our laser systems for cavity prevention
procedures, lens emulsification in cataract procedures and tissue melding.
Our ophthalmic diagnostic products include a noninvasive imaging system
that permits ophthalmologists and optometrists to evaluate corneal diseases,
plan for eye surgery procedures and fit contact lenses. Our majority owned
subsidiary, OIS, sells several digital imaging systems that are primarily used
to image the retina in order to diagnose and monitor diseases of the eye.
Our Strategy:
Our strategy is to seek to increase our market penetration in the dental,
ophthalmic and surgical markets by: (1) expanding our marketing and
distribution efforts; (2) creating market awareness through increased publicity
and the education of dentists and physicians; (3) pursuing clearances for
additional laser applications; (4) capitalizing on disposable aftermarket
related products; and (5) expanding domestically and internationally through
strategic alliances or acquisitions of companies with additional distribution
channels, complementary products or an international presence.
Our Marketing:
We market our dental and ophthalmic products through an in-house sales
force of 10 persons, a network of manufacturer's representatives, domestic
distributors, educational courses and through our attendance at trade shows. In
international markets, we sell our products through international distributors.
Our History:
Premier Laser Systems, Inc. was created in 1991 to acquire a division of
Pfizer, Pfizer Laser Systems, which had developed earlier versions of our
technology. We introduced a dental laser system in 1992, and an ophthalmic
laser system in 1993. We completed our initial public offering in 1994, and
received the first FDA clearance for dental hard tissue procedures in May 1997.
In September 1997 we acquired EyeSys, which has developed and now markets
diagnostic systems used in ophthalmic procedures.
4
<PAGE>
THE OFFERING
Type of security......................... Class A Common Stock(/1/)
Shares to be offered..................... 4,278,146(/2/)
Common stock to be outstanding after
the offering (/3/)..................... 19,239,582
The Nasdaq Stock Market National
Market symbol........................... PLSIA
____________________
(1) Our authorized and outstanding capital stock includes Class A Common Stock,
which is publicly traded and Class E-1 and E-2 Common Stock, which are not
publicly traded. All references to our "common stock" in this prospectus
mean our Class A Common Stock, unless the context otherwise requires.
(2) On May 17, 1999, we sold to two private investors $4,000,000 principal
amount of 6% Secured Convertible Debentures due 2002 (the "debentures"), and
warrants to purchase 60,000 shares of our common stock. In connection with
this transaction, we issued to persons that facilitated the transaction
additional warrants to purchase 40,000 shares of our common stock. In this
prospectus, we refer to all of these warrants as the "warrants." The common
stock that is being offered for resale under this prospectus is the common
stock issuable upon the conversion of the debentures, and the exercise of
the warrants, in accordance with their terms.
(3) Based on shares outstanding on May 12, 1999. Excludes: (a) 7,591,760
shares of Class A Common Stock issuable upon exercise of Class B Warrants;
(b) approximately 4,320,000 shares of Class A Common Stock issuable upon
exercise of other warrants and stock options; (c) 2,250,000 shares of Class
A Common Stock reserved for issuance upon the settlement of certain class
action lawsuits; and (d) 1,257,461 shares of Class E-1 Common Stock and
1,257,461 shares of Class E-2 Common Stock, which are convertible in certain
circumstances into Class A Common Stock. See "Capitalization," and
"Description of Capital Stock-Class E Common Stock."
5
<PAGE>
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all the other information included or
incorporated by reference in this prospectus, before you decide whether to
purchase shares of our common stock.
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You
should read statements that contain these words carefully because they (1)
discuss our future expectations; (2) contain projections of our future results
of operations or of our financial condition; or (3) state other "forward-
looking" information. We believe it is important to communicate our
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or over which we have no control. The
risk factors listed in this section, as well as any cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should
be aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, results of operations and financial condition.
We have incurred net losses since inception and expect future losses
We incurred net losses of approximately $72,770,000 from April 1, 1995
through December 31, 1998, and approximately $22,279,800 for the nine months
ended December 31, 1998. As of December 31, 1998, we had an accumulated deficit
of approximately $85,634,000. We expect to continue to incur net losses until
product sales generate sufficient revenues to fund our continuing operations.
We may not be able to achieve profitability
Our ability to achieve profitability in the future will depend in part on
our ability to continue to successfully develop clinical applications, obtain
regulatory approvals for our products and sell these products on a wide scale.
These risks apply to both our laser products and our ophthalmic diagnostic
products. In turn, our future sales and profitability depend in part on our
ability to demonstrate to dentists, ophthalmologists, optometrists and other
physicians the potential cost and performance advantages of our laser systems,
diagnostic products and other products over traditional methods of treatment and
over competitive products. To date, commercial sales of our lasers and
diagnostic products have been limited, and we do not know if these products can
be successfully commercialized on a broad basis.
Our products may not be accepted by the medical or dental community or by
patients. The acceptance of dental lasers may be adversely affected by their
high cost, concerns by patients and dentists relating to their safety and
efficacy, and the substantial market acceptance and penetration of alternative
dental tools such as the dental drill. Current economic pressure may make
doctors and dentists reluctant to purchase substantial capital equipment or
invest in new technology. We currently have a limited sales force and will need
to hire additional sales and marketing personnel to increase the general
acceptance of our products. The failure of our products to achieve broad market
acceptance would injure our business, financial condition and results of
operations.
6
<PAGE>
We are subject to pending litigation and a regulatory investigation
We have been sued in a number of related securities class action matters,
generally relating to allegations of misrepresentations during the period May 7,
1997 to April 15, 1998. In addition, the Securities and Exchange Commission has
commenced an investigation of our practices and procedures relating to revenue
recognition issues and related matters. The costs of our continuing defense of
the litigation matters and responses to the regulatory investigations, including
accounting and legal fees as well as management time and effort, will be
substantial, and we expect these costs to materially and adversely affect our
results of operations for the foreseeable future. We have reached an agreement
in principle to settle this litigation and recorded an expense in the quarter
ended December 31, 1998, relating to this settlement. However, this settlement
is subject to several conditions, and it is possible that it may not be
completed, in which case the litigation would continue. An adverse judgment
entered in this litigation could materially and adversely affect our business
and results of operations.
In addition, the Securities and Exchange Commission is empowered to assess
substantial penalties against us in connection with its findings in the pending
investigation. The imposition of any of such penalties could materially and
adversely affect our business, financial condition and results of operations.
We may have difficulty integrating the OIS businesses
We acquired a majority of the outstanding common stock of OIS in 1998, and
in March 1999 we agreed to manufacture OIS's products on an outsourcing basis.
We are not sure if the synergies of the two entities will allow us to reduce
expenses in such a way as to make OIS profitable. In addition, members of our
management will have to continue to expend time and effort on new activities
relating to the OIS operations, which will detract from their time available to
attend to our other activities. We cannot assure you that the expenses or
dislocations that we may suffer as a result of the coordination of these
businesses will not be material.
We are dependent on a small number of suppliers
We purchase some of the raw materials, components and subassemblies
included in our products from a limited group of qualified suppliers and do not
maintain long-term supply contracts with any of our key suppliers. While we
believe that alternative suppliers could be found for all of our components, we
cannot assure you that any supplier could be replaced in a timely manner. Any
interruption in the supply of key components could materially harm our ability
to manufacture our products and our business, financial condition and results of
operations.
Certain computer components used by EyeSys and OIS are manufactured by a
sole vendor. These components are subject to rapid innovation and obsolescence.
The discontinuance of the manufacturing of these components may require us to
redesign some of the hardware and software used in our products to accommodate a
replacement component. We cannot assure your that such an event would not prove
costly or cause a disruption in sales of corneal topography and digital imaging
systems.
Our foreign sales are subject to risks
A substantial portion of our sales are made in foreign markets. Foreign
sales expose us to certain risks, including:
. the difficulty and expense of maintaining foreign sales distribution
channels
7
<PAGE>
. barriers to trade
. potential fluctuations in foreign currency exchange rates
. political and economic instability in the foreign market
. availability of suitable export financing
. difficulty in collecting accounts receivable
. tariff regulations
. governmental quotas and other regulations
. shipping delays
. foreign taxes
. export licensing requirements
The regulation of medical devices worldwide also continues to develop, and
it is possible that new laws or regulations could be enacted which would have an
adverse effect on our business. In addition, we may experience additional
difficulties in providing prompt and cost effective service of our medical
lasers in foreign countries. We do 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 our business, financial condition
and results of operations.
Our products may become technologically obsolete
The markets in which our medical products compete are subject to rapid
technological change as well as the potential development of alternative
surgical techniques or new pharmaceutical products. These changes could render
our products uncompetitive or obsolete. We will be required to invest in
research and development to attempt to maintain and enhance our existing
products and develop new products. We do not know if our research and
development efforts will result in the introduction of new products or product
improvements.
We are dependent on patents and proprietary technology
Our success will depend in part on our ability to obtain patent protection
for products and processes, to preserve our trade secrets and to operate without
infringing the proprietary rights of third parties. While we hold a number of
U.S. and foreign patents and have other patent applications pending in the
United States and foreign countries, we cannot assure you that any additional
patents will be issued, that the scope of any patent protection will exclude
competitors or that any of our patents will be held valid if subsequently
challenged. Further, other companies may independently develop similar
products, duplicate our products or design products that circumvent our patents.
We are aware of certain patents which, along with other patents that may exist
or be granted in the future, could restrict our right to market certain of our
technologies without a license, including, among others, patents relating to our
lens emulsification product and ophthalmic probes for the Er:YAG laser.
In the past, we have received allegations that certain of our laser
products infringe on other patents. There has been significant patent
litigation in the medical laser industry. Adverse determinations in litigation
or other patent proceedings to which we may become a party could subject us to
significant legal judgments or other liabilities to third parties and could
require us to seek licenses from third parties that may or may not be
economically viable. We cannot assure you that any licenses required under these
or any other patents or proprietary rights would be available on terms
acceptable to us. If we do not obtain such licenses, we could encounter delays
in product introductions while we attempt to design around such patents, or we
could find that the development, manufacture or sale of products requiring such
licenses could be enjoined.
8
<PAGE>
We also rely upon unpatented trade secrets, and we cannot assure you that
others will not independently develop or otherwise acquire substantially
equivalent trade secrets. In addition, at each balance sheet date, we are
required to review the value of our 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 our operating results in the future.
Our business is subject to governmental regulation
Our products are regulated as medical devices by the Federal Drug
Administration. As such, these devises require either Section 510(k) premarket
clearance or approval of a premarket approval application by the FDA prior to
commercialization. Satisfaction of regulatory requirements is expensive and may
take several years to complete. We cannot assure you that further clinical
trials of our medical products 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 we may develop in the
future may require substantial filing fees which could limit the number of
applications we seek 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, we have made
modifications to certain of our existing products which we do not believe
require the submission of a new 510(k) notification to the FDA. However, we
cannot assure you that the FDA would agree with our determination. If the FDA
did not agree with our determination, they could require us to cease marketing
one or more of the modified devices until the devices have been cleared.
We are also required to adhere to a wide variety of other regulations
governing the operation of our business. Noncompliance with state, local,
federal or foreign requirements can result in serious penalties that could harm
our business.
We are dependent on key personnel
We depend to a considerable degree on a limited number of key personnel,
including Colette Cozean, Ph.D., our Chairman of the Board, President, Chief
Executive Officer and Director of Research. Dr. Cozean is also an inventor of a
number of our patented technologies. During our limited operating history, many
key responsibilities have been assigned to a relatively small number of
individuals. The loss of Dr. Cozean's services or those of certain other
members of management could harm our business. We carry key person life
insurance in excess of $3 million on Dr. Cozean. Our success will also depend,
among other factors, on the successful recruitment and retention of qualified
technical and other personnel.
Our business is highly competitive
We are, and will continue to be, subject to intense competition in our
targeted markets, principally from businesses providing other traditional
surgical and nonsurgical treatments, including existing and developing
technologies, and competitive products. Many of our competitors have
substantially greater financial, marketing and manufacturing resources and
experience than us. Furthermore, we expect that other companies will enter the
laser market, particularly as medical lasers
9
<PAGE>
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 ophthalmic diagnostic market is also highly competitive. There are
many companies engaged in this market, some with significantly greater resources
than us. Our competitors may be able to develop technologies, procedures or
products that are more effective or economical than ours, or that would render
our products obsolete or noncompetitive.
To continue to remain competitive, we must develop new software and
hardware meeting the needs of ophthalmologists and optometrists. Our future
revenues will depend, in part, on our ability to develop and commercialize these
new products as well as on the success of development and commercialization
efforts of our competitors.
Our quarterly operating results can fluctuate
Due to the relatively high sales price of our products and 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 our 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 us or our competitors
. notices of product suspension or recall
. our ability to manage product transitions
. sales prices
. market conditions
We may need additional capital in the future
In the future, we will require substantial additional funds for research
and development programs, preclinical and clinical testing, development of our
sales and distribution force, operating expenses, regulatory processes and
manufacturing and marketing programs. Our capital requirements may vary, and
will depend on numerous factors, including:
. the progress of 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 our existing research
. licensing and other relationships
. the terms of any new collaborative, licensing and other arrangements
that we may establish.
10
<PAGE>
. the amount of legal, accounting and administrative costs incurred in
connection with pending litigation
We believe that our available short-term assets and investment income will be
sufficient to meet our operating expenses and capital expenditures through the
next 12 months. We do not know if additional financing will be available when
needed, or if it is available, if it will be available on acceptable terms.
Insufficient funds may prevent us from implementing our business strategy or may
require us to delay, scale back or eliminate research and product development
programs or to license to third parties rights to commercialize products or
technologies that we would otherwise seek to develop our self.
Our stock price is volatile
Our common stock was first publicly traded in December 1994 and has had
last reported closing sale prices ranging from a low of $1.875 per share to a
high of $14.00 per share. The market price of our common stock could continue
to fluctuate substantially due to a variety of factors, including:
. quarterly fluctuations in results of operations
. the commencement of or major developments in litigation
. announcement of key developments or new products by competitors
. changes in regulatory environment or market conditions affecting the
medical laser industry
. developments with respect to patents or proprietary rights
. announcement and market acceptance of acquisitions
. changes in earnings estimates by analysts
. press coverage of favorable or unfavorable developments in our business
. loss of key personnel
. changes in accounting principles or policies
. sales of common stock by existing stockholders
. economic and political conditions
The market price for our common stock may also be affected by our ability
to meet analysts' expectations. Any failure to meet such expectations, even
slightly, could have an adverse effect on the market price of our common stock.
In addition, the market prices of securities issued by many companies may change
for reasons unrelated to the operating performance of these companies. In the
past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
the company. If similar litigation were instituted against us, it could result
in substantial costs and a diversion of our management's attention and
resources, which could have an adverse effect on our business, results of
operations and financial condition.
Defects in our products would harm our business
The sale of our medical products involves the inherent risk of product
liability claims against us. We currently maintain product liability insurance
coverage in the amount of $5 million per occurrence and $5 million in the
aggregate, but such insurance is expensive, subject to various coverage
exclusions and may not be obtainable in the future on terms acceptable to us.
We do not know whether claims against us arising with respect to our products
will be successfully defended or that our insurance will be sufficient to cover
liabilities arising from such claims. A successful claim against us in excess
of our insurance coverage could materially harm our business.
11
<PAGE>
There are limitations on third party reimbursement for our products
Our laser systems and other products are generally purchased by physicians,
dentists and surgical centers which then bill various third party payors, such
as government programs and private insurance plans, for the procedures conducted
using these products. Third-party payors carefully review and are increasingly
challenging the prices charged for medical products and services, and
scrutinizing whether to cover new products and evaluating the level of
reimbursement for covered products. While we believe that the laser procedures
using our products have generally been reimbursed, payors may deny coverage and
reimbursement for our products if they determine that the device was not
reasonable and necessary for the purpose for which it was used, was
investigational or not cost-effective. As a result, we cannot assure you that
reimbursement from third party payors for these procedures will be available or
if available, that reimbursement will not be limited, thereby adversely
affecting our ability to sell our products on a profitable basis. Moreover, we
are 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 us.
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 our business,
financial condition and results of operations.
A significant number of shares are eligible for sale, and their sale could
depress our stock price
Sales of a substantial number of our shares of common stock in the public
market could adversely affect the market price for our common stock. At this
time, approximately 7.6 million shares of our common stock are issuable upon the
full exercise of our outstanding Class B Warrants, and over 4.3 million shares
of our common stock are issuable upon exercise of other outstanding warrants and
options. The existence of these outstanding warrants and options could
adversely affect our ability to obtain future financing. We have also reserved
2,250,000 shares of our common stock for issuance in connection with the
proposed settlement of outstanding litigation. The consummation of this
settlement is subject to a number of conditions, and we cannot assure you that
the settlement will be completed.
The price which we may receive for our common stock issued upon exercise of
such options and warrants will likely be less than the market price of our
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 we would, in all likelihood, be able to obtain needed capital by a new
offering of our securities on terms more favorable than those provided for by
the options and warrants.
Our preferred stock may delay or prevent a takeover of our company
Our articles of incorporation authorize the issuance of 8,850,000 shares of
"blank check" preferred stock, which will have terms as may be determined from
time to time by the board of directors. Accordingly, the board of directors is
empowered, without stockholder approval, to issue preferred stock with terms
which could adversely affect the rights of the holders of the common stock. The
preferred stock could also be utilized, under certain circumstances, as a method
of discouraging, delaying or preventing a change in control of Premier.
12
<PAGE>
In March 1998, we adopted a Shareholder Rights Plan, which entitles certain
of our shareholders to purchase our Series A Junior Participating Preferred
Stock. These rights are not exercisable until the acquisition by a person or
affiliated group of 15% or more of the outstanding shares of our common stock,
or the commencement or announcement of a tender offer or exchange offer which
would result in the acquisition of 15% or more of our outstanding shares. Upon
request, we will provide you with a copy of the Shareholder Rights Plan. The
Shareholder Rights Plan may have the effect of discouraging, delaying or
preventing a change of control of Premier.
Short selling of our common stock could adversely affect our stock price
Downward pressure on the market price of the common stock may result from
sales of common stock issued upon conversion of the debentures and payment of
interest thereon. Such downward pressure could encourage short sales of common
stock by the selling shareholders or others. Material amounts of such short
selling could place further downward pressure on the market price of the common
stock.
Uncertainties Regarding the Year 2000 Issue
We have not developed a formal assessment of all potential impacts of the
year 2000. We design, manufacture and sell medical products which contain
computer chips and we utilize software developed by other companies. While our
engineers are developing new software which they expect to complete by mid-1999,
there can be no assurance that their efforts will be successful. We rely on
external business partners. As such, there can be no assurance that our
business will not be negatively affected by Year 2000 problems experienced by
these business partners.
13
<PAGE>
USE OF PROCEEDS
The selling securityholders are not obligated to convert the debentures or
exercise the warrants. No payments are required to be made upon the conversion
of the debentures. If all of the warrants are exercised, the proceeds to us
would be approximately $313,500.
We intend to use the net proceeds from the exercise of the warrants, if
any, for general corporate purposes and working capital to support anticipated
growth, including research and development programs and continuing development
of a distributor network.
PRICE RANGE OF CLASS A COMMON STOCK
AND CLASS B WARRANTS
Our Class A Common Stock and Class B Warrants trade on the Nasdaq National
Market System under the symbols PLSIA and PLSIZ, respectively. At May 12, 1999,
the approximate number of holders of record of Class A Common Stock were 787 and
were 48 for our Class B Warrants. We also have outstanding Class E-1 Common
Stock and Class E-2 Common Stock, for which there is no market. The number of
record holders of Class E-1 Common Stock and Class E-2 Common Stock at May 12,
1999 was 323.
Prior to January 6, 1998, Premier had Class A Warrants outstanding which
were listed on the Nasdaq Stock Market National Market under the symbol "PLSIW,"
and "Units," each consisting of one share of Class A Common Stock, one Class A
Warrant and one Class B Warrant, which were listed on the Nasdaq Stock Market
SmallCap Market. We redeemed the Class A Warrants under the terms of the
Warrant Agreement on January 6, 1998, and as a result there have been no
outstanding Class A Warrants or Units since that date.
The following table sets forth the price range of the high and low closing
sale prices per share of Class A Common Stock and Class B Warrants for the
calendar quarters indicated.
Class A Class B
Low High Low High
------- -------- ------ -------
1997
- ----
First Quarter 5 3/16 8 1/8 27/32 1 11/16
Second Quarter 5 1/4 14 3/4 5 3/4
Third Quarter 8 1/2 11 17/32 2 5/16 3 27/32
Fourth Quarter 7 3/16 10 1/2 1 3/16 3
1998
- ----
First Quarter 7 11/16 11 11/16 1 5/8 3 7/8
Second Quarter(/1/) 4 3/16 10 7/16 25/32 2 7/8
Third Quarter(/1/) -- -- -- --
Fourth Quarter(/1/) 1 7/8 4 7/16 1/8 13/16
1999
- ----
First Quarter 1 15/16 4 3/16 5/32 1/2
Second Quarter
(through May 14, 1999) 2 3/8 3 3/8 5/32 11/32
(1) From May 26, 1998 to October 22, 1998, the trading in our Class A Common
Stock and Class B Warrant was suspended by the Nasdaq Stock Market.
14
<PAGE>
On May 14, 1999, the last reported sale price as reported by The Nasdaq
Stock Market for our Class A Common Stock was $2.563 and the last reported sale
price for our Class B Warrants was $0.219. The majority of the outstanding
shares of our Class A Common Stock are held of record by nominee holders on
behalf of an unknown number of ultimate beneficial owners.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock, and
for the foreseeable future we intend to follow a policy of retaining all of our
earnings, if any, to finance the development and continued expansion of our
business. We cannot assure you that we will ever pay cash dividends. Any
future decisions concerning the payment of dividends will depend upon our
financial condition, results of operations and such other factors as the board
of directors deems relevant.
15
<PAGE>
DILUTION
The following discussion and table treats the Class A Common Stock, the
Class E-1 Common Stock and the Class E-2 Common Stock as a single class.
As of December 31, 1998, we had a net tangible book value of $5,123,000, or
$0.263 per share of common stock. Net tangible book value per share represents
the amount of total tangible assets less the amount of our total liabilities,
divided by the number of shares of common stock outstanding. After giving effect
to the conversion of the debentures and exercise of the warrants, our adjusted
pro forma net tangible book value as of December 31, 1998 would have been
$9,065,000 or $0.382 per share of common stock. This amount represents an
immediate increase in pro forma net tangible book value of $0.119 per share to
our existing shareholders and an immediate dilution to the persons converting
the debentures and exercising the warrants of approximately $0.629 per share.
The following table illustrates this dilution on a per share basis and assumes
that all of the warrants will be exercised:
Assumed average price per share............................... $1.011
Net tangible book value per share before exercise.......... $0.263
Increase per share attributable to the conversion of the
Debentures and exercise of the Warrants................. 0.119
------
Pro forma net tangible book value per share after conversion
and exercise............................................... 0.382
------
Dilution of net tangible book value(/1/)...................... $0.629
======
____________________
(1) Dilution is determined by subtracting pro forma net tangible book value per
share of common stock after this offering from the price paid by new
investors for a share of our common stock.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at December 31, 1998, and
as adjusted, to reflect the conversion of the debentures into Class A Common
Stock and the full exercise of the warrants. The following table should be read
in conjunction with our financial statements and related notes appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
At December 31, 1998
-----------------------
(in thousands)
--------------
Actual As Adjusted
-------- -----------
<S> <C> <C>
Shareholders' equity:
Common stock, no par value;
35,600,000 shares authorized; 16,962,278 shares
outstanding, which includes 2,250,000 shares subject to
issuance for shareholder litigation settlement; 21,240,424
shares outstanding, as adjusted (1)............................. $ 91,550 $ 94,692
Class E-1 Common stock, no par value;
2,200,000 shares authorized;
1,257,461 shares outstanding, and as adjusted................... 4,770 4,770
Class E-2 Common Stock, no par value;
2,200,000 shares authorized;
1,257,461 shares outstanding, and as adjusted................... 4,770 4,770
Preferred Stock, no par value; 8,850,000 shares authorized;
0 shares outstanding, and as adjusted........................... 0 0
Warrants and options...................................................... 1,724
Accumulated deficit....................................................... (85,634) (85,634)
-------- --------
Total shareholders' equity........................................... 17,180 21,122
-------- --------
Total capitalization................................................. $ 17,180 $ 21,122
======== ========
</TABLE>8
____________________________________________
(1) Does not include: (i) 7,591,760 shares of common stock issuable upon
exercise of outstanding Class B Warrants; and (ii) 4,319,522 shares of
common stock issuable upon the exercise of outstanding options and
warrants. See "Management--Stock Option Plans" and "Description of
Securities."
17
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following table contains certain selected consolidated financial data
of Premier and is qualified by the more detailed financial statements and notes
thereto of Premier included herein. The balance sheet and statement of
operations data for the periods ended March 31, 1996, 1997 and 1998, have been
derived from our financial statements, audited by Haskell & White LLP,
independent accountants. The balance sheet and statement of operations data for
the periods ended March 31, 1994 and 1995 have been derived from our financial
statements, audited by Price Waterhouse, LLP, independent accountants. The
following information should be read in conjunction with Premier's financial
statements and related notes thereto included herein and the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended March 31, December 31
-------------------------------------------------------------- --------------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- ----------- ------------ ------------ -----------
(Restated) (Restated)
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statement of (In thousands)
Operations Data:
Net sales.......................... $ 2,079 $ 1,249 $ 1,704 $ 5,091 $ 10,418 $ 8,726 $ 10,275
Cost of sales...................... 1,753 1,298 3,324 3,649 17,394 5,391 10,315
-------- ------- ------- ---------- ---------- -------- --------
Gross profit (loss)................ 326 (49) (1,620) 1,442 (6,976) 3,335 (40)
Selling and marketing expenses..... 1,088 1,036 1,309 2,415 5,398 3,183 6,516
Research and development expenses.. 678 1,036 1,214 1,563 3,379 2,016 3,853
General and administrative
expenses.......................... 1,323 1,747 1,709 2,050 3,942 1,848 4,651
Shareholder litigation settlement
expense........................... -- -- -- -- -- -- 7,832
Write-off of investment............ -- -- -- 881 -- -- --
Termination of strategic alliance
with IBC.......................... -- -- -- 331 -- -- --
In process research and develop-
ment acquired in acquisitions..... -- -- -- 250 12,800 9,200 --
Merger related and integration
costs............................. -- -- -- -- 7,617 2,147 --
------- ------- ------- ---------- ---------- -------- --------
Loss from operations............... (2,763) (3,868) (5,852) (6,048) (40,112) (15,059) (22,892)
Interest income (expense), net..... (434) (322) 99 15 1,074 726 293
Minority interest in loss of
consolidated subsidiary........... -- -- -- 60 274 -- 319
Extraordinary gains................ -- 382 -- -- -- -- --
------- ------- ------- ---------- ---------- -------- --------
Net loss........................... (3,197) (3,808) (5,753) (5,973) (38,764) (14,333) (22,280)
Other comprehensive income......... -- -- -- -- -- -- --
------- ------- ------- ---------- ---------- -------- --------
Comprehensive loss................. $(3,197) $(3,808) $(5,753) $ (5,973) $ (38,764) $(14,333) $(22,280)
======= ======= ======= ========== ========== ======== ========
Selected Per Share Data:
Loss per share before extraordinary
item(/2/)......................... $ (2.45) $ (1.59) $ (1.26) $ (1.02) $ (3.39) $ (1.34) $ ( 1.48)
Extraordinary gain from
extinguishment of indebtedness.... -- .15 -- -- -- -- --
------- ------- ------- ---------- ---------- -------- --------
Net loss per share............ $ (2.45) $ (1.44) $ (1.26) $ (1.02) $ (3.39) $ (1.34) $ (1.48)
======= ======= ======= ========== ========== ======== ========
Weighted average shares
outstanding(/2/)(/3/)............. 1,289 2,585 4,557 5,833 11,444 10,726 15,062
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------------------- At December 31,
1994 1995 1996 1997 1998 1998
-------- -------- -------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Cash and cash equivalents.......... $ 309 $ 5,888 $ 35 $ 174 $ 9,723 $ 349
Working capital.................... 1,288 6,756 5,818 7,526 19,017 4,202
Total assets....................... 12,325 16,884 15,675 21,079 47,708 26,532
Long-term debt(/4/)................ 4,304 -- -- -- -- --
Shareholders' equity............... 6,022 15,002 13,797 16,249 31,456 17,180
</TABLE>
- ----------------------------------------
(1) 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 our common shares outstanding during the fiscal years ended March 31,
1995 and 1994 after giving retroactive adjustment for recapitalization and
conversion of debentures into Units upon completion of our initial public
offering.
(2) Does not include shares of Class E-1 or Class E-2 Common Stock, which are
subject to cancellation in certain circumstances.
(3) Amounts for long-term debt at March 31, 1994 include $285,000 in mandatorily
redeemable warrants.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Read the following discussion together with the financial statements and
related notes included elsewhere in this prospectus. The results discussed
below are not necessarily indicative of the results to be expected in any future
periods. This discussion contains forward-looking statements based on current
expectations and which involve risks and uncertainties. Actual results and the
timing of certain events may differ significantly from those projected in such
forward-looking statements due to a number of factors, including those set forth
herein, in the section entitled "Risk Factors" and elsewhere in this prospectus.
General
Premier develops, manufactures and markets several lines of proprietary
medical lasers, fiber optic delivery systems, diagnostic imaging systems and
associated products for a variety of dental, ophthalmic and surgical
applications. Premier commenced operations in August 1991, after acquiring
substantially all of the assets of Pfizer Laser Systems, a division of Pfizer
HPG which is a wholly-owned subsidiary of Pfizer, Inc. The assets we acquired
included the proprietary rights to a broad base of laser and fiber optic
technologies developed by Pfizer Laser Systems. This acquisition was led by our
current Chief Executive Officer.
While we have received FDA clearance to market laser products covering a
variety of medical applications, to date we have focused our research,
development and marketing efforts on a limited number of products or
applications. These applications principally consist of specific dental and
more recently, ophthalmic applications. As future resources permit, we may
introduce products for applications for which we already have all necessary
approvals or may seek strategic alliances to develop, market and distribute
these products.
We have recorded operating losses in each of the fiscal years since our
formation, resulting in large part from substantial sales and marketing and
general and administrative expenses, business acquisition costs and costs
incurred in research and development activities and in obtaining regulatory
approvals. Although sales increased significantly during fiscal 1998, operating
results worsened due to the impacts of expensed business acquisition costs and a
failed distribution agreement.
As discussed in Note 6 to the accompanying financial statements, Premier
and several of our officers and directors have been named in a number of
securities class action lawsuits which allege violations of the Securities
Exchange Act or the California Corporations Code. We have also been named in a
shareholders' derivative action. Any significant uninsured judgment or
settlement amount associated with these claims would seriously affect our
ability to satisfy our working capital requirements.
Nine Months Ended December 31, 1998 and 1997
Our net sales for the nine months ended December 31, 1998 (the "1998
Period") increased by 18% to $10,275,000 for the nine month period as compared
to the nine month period ended December 31, 1997 (the "1997 Period"). The
increase in our net sales for the nine months ended December 31, 1998 was
primarily attributable to sales of ophthalmic products manufactured by our 51%-
owned subsidiary, OIS, which was not included in the 1997 Period.
20
<PAGE>
Cost of sales increased 91% to $10,315,000 during the nine months ended
December 31, 1998 from $5,391,000 during the corresponding 1997 Period. This
increase was attributable to the higher sales volume and under-absorption of
manufacturing personnel and overhead costs at our Irvine facility, and included
reserves recorded for additional excess inventory quantities of $1,090,000
during the nine months ended December 31, 1998.
Selling and marketing expenses increased 105% to $6,516,000 during the nine
months ended December 31, 1998 from $3,184,000 reported for the corresponding
1997 Period. Selling and marketing expenses of OIS which were not included in
the 1997 Period, accounted for approximately one-half of the increase during the
1998 Period. Other factors which contributed to the increases during the 1998
Periods included the expense of conferences and seminars associated with our
product offerings.
Research and development expenses increased 91% to $3,853,000 during the
nine months ended December 31, 1998 as compared to the corresponding 1997
Period. Research and development expenses of OIS accounted for approximately
one-third of the increase during the nine months ended December 31, 1998 as
compared to the corresponding 1997 Period. The balance of the increases arose
from personnel additions, professional services, and component costs associated
with development of new dental and ophthalmic products at our Irvine facility.
General and administrative expenses increased 152% to $4,651,000 during the
nine months ended December 31, 1998 from $1,848,000 for the corresponding 1997
Period. General and administrative expenses of OIS accounted for approximately
one-third of the increase during the nine months ended December 31, 1998 as
compared to the corresponding 1997 Period. Legal and accounting fees also
contributed to the increases during the 1998 Period as compared to the 1997
Period. These increases ensued from the resignation of our former auditors and
the resulting need to have audits performed for two fiscal years, as well as
class action litigation and inquiries by the Securities and Exchange Commission
and the Nasdaq Stock Market that arose during the quarter ended June 30, 1998.
Hiring of additional accounting, human resources, and other administrative
personnel at our Irvine facility further contributed to the increases during the
1998 Period.
In September 1997, Premier acquired EyeSys and wrote-off $9,200,000 of in-
process research and development and $2,147,000 of merger related and
integration costs. No business acquisitions occurred during the 1998 Period.
The $9,200,000 was increased to an aggregate $10,200,000 for the year ended
March 31, 1998.
In November 1998, we reached an agreement in principle with lead plaintiffs
and their counsel to settle the class and derivative actions. Under the terms
of the agreement in principle, in exchange for a release of all claims, we would
issue 2,250,000 shares of common stock and pay $4,600,000 in cash. The cash
portion of the settlement would be paid by our insurance carrier. Completion of
the settlement is subject to the execution of the final settlement agreement,
court approval and other conditions. Under the terms of the agreement in
principle to settle class and derivative actions, we recorded an expense during
the three months ended December 31, 1998 relating to the proposed issuance of
2,250,000 shares of common stock. These shares were valued at a price of $3.31
per share which was the closing price of our common stock on November 18, 1998,
the effective date of the proposed settlement agreement. We have included
approximately $384,000 of associated legal and professional fees in this
reserve, but have not included in the reserve approximately $4,600,000 in cash
that would be paid by our insurers.
Net interest income decreased by 60% to $294,000 for the nine month period
ended December 31, 1998 as compared to the corresponding 1997 Period. The
decline in interest income for the nine months ended December 31, 1998 reflects
the decreased cash available for us to invest, following
21
<PAGE>
the declines in sales levels for laser products, the higher operating expenses
discussed above, business acquisitions, and inventory increases.
Fiscal Year Ended March 31, 1998 Compared to Fiscal Year Ended March 31, 1997
Net sales increased 105% to $10,418,000 for the year ended March 31, 1998
("fiscal 1998") from $5,091,000 for the year ended March 31, 1997 ("fiscal
1997") . This increase was primarily attributable to an increase in sales to the
dental market including sales resulting from the introduction of the Er:YAG
laser for cavity preparation and ophthalmic sales from the EyeSys product line
during the latter half of fiscal 1998. Dental sales during the last two
quarters of fiscal 1998 were adversely affected by an impasse reached with
dental distributor Henry Schein, Inc. over the nature of a relationship between
the parties initiated with a letter of intent executed in December 1997. We
believed that Henry Schein obligated itself to accept an initial shipment of
product, and that the relationship was being expanded. Henry Schein subsequently
notified us that it did not agree with our understanding of the terms of the
relationship. Sales during the last two quarters of fiscal 1997 were also
adversely affected by a disruption in our supply of Arago argon laser and vendor
supply problems with the MOD (Multi Operatory Dentalaser) argon laser.
Cost of sales increased 377% to $17,394,000 in fiscal 1998 from $3,649,000
in fiscal 1997, due to an increase in sales, excess inventory reserves of
$7,500,000 associated with the failure of the Henry Schein relationship,
substantially higher warranty costs, and start-up and training expenses
associated with Er:YAG laser and fiber and EyeSys product manufacture.
Selling and marketing expenses increased 124% to $5,398,000 in fiscal 1998
from $2,415,000 in fiscal 1997. This increase was primarily attributable to
significant increases in marketing personnel, introduction of the Er:YAG laser,
increased commissions and associated selling expenses, and from consolidation of
the expenses of new subsidiaries.
Research and development expenses increased 116% to $3,379,000 in fiscal
1998 from $1,563,000 in fiscal 1997. This increase resulted primarily from
increases in Premier's research and development personnel, an additional
$510,000 of clinical trial costs and associated samples, travel expenditures for
Premier and EyeSys, and $710,000 of expense for all other new subsidiaries. The
expense in fiscal 1997 was offset by a $450,000 payment received by Premier
under a Small Business Innovative Research grant. We also recognized $225,000
and $190,000 as a research and development expense from the issuance of stock
options to clinical evaluators and medical directors in fiscal 1998 and fiscal
1997 respectively.
General and administrative expenses increased 92% to $3,941,000 in fiscal
1998 from $2,050,000 in fiscal 1997. This increase was partially due to
$459,000 of expenses from new subsidiaries, $400,000 for litigation expense
related to a supply agreement for optical fibers, and $250,000 for issuance of
stock options.
Net interest income increased to $1,073,000 in fiscal 1998 from $15,000 in
fiscal 1997. This increase reflected our higher cash balances following the
completion of our secondary offering in October 1996 and the exercise of
outstanding warrants in January 1998. The net proceeds from these capital stock
transactions were $10,401,000 from the secondary offering and $41,735,000 from
the warrant exercises.
In fiscal 1998, Premier expensed $12,800,000 for in process research and
development and $7,617,000 in merger and integration costs related to the
acquisitions of 51% ownership in OIS and
22
<PAGE>
100% of EyeSys. Approximately $180,000 of losses were attributable to the
minority shareholder interest of OIS. However 100% of the loss was absorbed by
Premier due to the capital deficiency position of OIS. We recorded $349,000 of
losses attributable to our minority shareholder interest of Data.Site compared
with $60,000 during 1997.
In summary, the operating results for 1998 were negatively impacted by
$20,417,000 of acquisition expenses (including $16,500,000 of non-cash costs),
$7,500,000 of inventory write-downs, $1,100,000 of warranty cost, $480,000 of
non-cash stock option expense, bad debt expense of $600,000, and litigation
costs of $400,000.
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996
Net sales increased 199% to $5,091,000 for fiscal 1997 from $1,704,000 for
the year ended March 31, 1996 ("fiscal 1996"). This increase was primarily
attributable to an increase in sales to the dental market of the Aurora diode
laser and argon lasers which were introduced in the latter half of fiscal 1996.
Ophthalmic sales also increased significantly as the Er:YAG laser was purchased
by key ophthalmic industry leaders in several countries. Sales during the last
two quarters of fiscal 1997 were adversely affected by a disruption in our
supply of Arago argon laser and vendor supply problems with the MOD argon laser.
Cost of sales increased 10% to $3,649,000 in fiscal 1997 from $3,325,000 in
fiscal 1996, due to an increase in sales. Cost of sales as a percentage of net
sales decreased due to reduced material costs, manufacturing efficiencies, our
ability to spread fixed indirect costs over a larger revenue base, and favorable
warranty experience.
Selling and marketing expenses increased 85% to $2,415,000 in fiscal 1997
from $1,309,000 in fiscal 1996. This increase was primarily attributable to
increased commissions and associated selling expenses, expenses associated with
our attendance at two ophthalmic shows and from the consolidation of Premier's
expenses with those of Data.Site.
Research and development expenses increased 29% to $1,563,000 in fiscal
1997 from $1,213,000 in fiscal 1996. This increase resulted primarily from
increases in our research and development personnel, partially offset by a
$450,000 payment which Premier received under a Small Business Innovative
Research grant. Premier also recognized $190,000 in fiscal 1997 as a research
and development expense from our issuance of stock options to clinical
evaluators and medical directors.
General and administrative expenses increased 20% to $2,050,000 in fiscal
1997 from $1,709,000 in fiscal 1996. This increase was the combined result of
higher bad debt expense and additional expenses from the consolidation of
Data.Site.
Net interest income decreased to $15,000 in fiscal 1997 from $99,000 in
fiscal 1996. This reduction reflected Premier's limited cash balances prior to
the completion of our secondary offering in October 1996.
In fiscal 1997, we wrote off an investment in a laser surgical center
company of $881,000 when the shares of that company ceased being traded on the
public market. In addition, Premier expensed $250,000 of in-process research
and development incurred in connection with the formation of Data.Site. During
fiscal year 1997 Premier also wrote off $332,000 as a settlement of our joint
marketing relationship with International Biolaser Corporation since it is
unlikely that IBC will repay its debt to us.
23
<PAGE>
Liquidity and Capital Resources
Our operations have been financed through the proceeds from the sale of our
equity securities, including an initial public offering in December 1994, and a
secondary public offering in October 1996, the exercise of publicly traded
warrants and stock options, revenues from operations, and proceeds from a Small
Business Innovative Research Grant. Further, in May of 1999, we received $2
million in gross proceeds from a private offering and sale of convertible
debentures and will receive an additional $2 million in gross proceeds from this
financing upon the effectiveness of this registration statement.
Our principal capital requirements include the financing of inventory,
accounts receivable, research and development activities, the development of
ophthalmic, dental and surgical sales forces, the development of marketing
programs and the acquisition and/or licensing of patents.
At December 31, 1998, we had unrestricted cash and short-term investments
of $1,508,000 and working capital of $4,202,000. The decrease in cash and
short-term investments since March 31, 1998 was primarily the result of the
losses for the 1998 Periods, increased by working capital changes during the
period, including the continued receipt of inventory purchases commitments that
had been made during the prior fiscal year. Cash flow during the 1997 Periods
was positive as the net result of capital stock transactions, reduced by
operating requirements and investing activities.
Our future capital requirements will depend on many factors, including:
. the progress of our research and development activities
. the scope and results of pre-clinical studies and clinical trials
. the costs and timing of regulatory approvals
. the rate of technology advances
. competitive conditions within the medical laser industry
. the maintenance of manufacturing capacity
. the outcome of the class action lawsuits
. the establishment of collaborative marketing and other relationships which
may either involve cash infusions to us, or require additional cash from us
Our ability to meet our working capital needs will depend on our ability to
achieve sales targets, profitability and a positive cash flow from operations.
We cannot assure you that we will be able to achieve sales targets, profitable
operations or a positive cash flow from operations.
We believe that our present liquid assets and cash to be generated through
the operation of our business will be sufficient to meet our working capital
requirements through at least March 31, 2000. Any significant uninsured
settlement or judgment associated with the class action litigation would
materially adversely affect our ability to satisfy our working capital
requirements. If additional capital is required, we would consider several
financing alternatives including the issuance of securities, licensing of
technology and marketing rights, and/or bank financing. We cannot assure you
that we would be successful in obtaining additional financing.
Year 2000 Issues
During the quarter ended September 30, 1998, we upgraded our computerized
accounting system to a release that is compliant with Year 2000 dating
sensitivities. The costs of this upgrade were minimal. We have not prepared a
formal assessment of the internal and external Year 2000 issues that would have
a significant impact on our products. Our laser products are not date
sensitive. Diagnostic
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<PAGE>
products, on the other hand, contain date sensitive data bases. Our software
engineers are developing new software to be available by mid-1999 which will
address the Year 2000 dating issues. The costs of software modification are not
expected to be material. Any diagnostic products currently in the market that
are covered by a warranty will be upgraded at no charge to the customer at an
insignificant cost to the company. We plan to charge upgrade fees for previously
sold products that are outside of the warranty period. We expect that our
existing warranty reserves will be adequate to absorb the upgrade costs.
Seasonality
To date, our revenues have typically been significantly higher in the
second and fourth calendar quarters. This seasonality reflects the timing of
major medical and dental industry trade shows in these quarters, significantly
reduced sales during the summer and the effect of year-end tax planning
influencing the purchasing of capital equipment for depreciation during the
fourth calendar quarter.
25
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BUSINESS
Overview
Premier develops, manufactures and markets several lines of proprietary
medical lasers, fiberoptic delivery systems and associated products for a
variety of dental, ophthalmic and surgical applications. In addition, through
EyeSys, we develop, manufacture and market diagnostic systems which provide
ophthalmic practitioners with images of the shape and curvature of the human
cornea. Premier's majority owned subsidiary, OIS, 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. When referred to in the following discussion, the term "Premier"
refers to Premier Laser Systems, Inc. while references to "us," "our" and "we"
mean collectively Premier, EyeSys and OIS.
Premier commenced operations in August 1991 after acquiring substantially
all of the assets of Pfizer Laser Systems, a division of Pfizer HPG which is a
wholly-owned subsidiary of Pfizer, Inc. In 1993, Premier acquired from
Proclosure, Inc. technology, assets and proprietary rights relating to a laser
system for tissue fusion, and completed its initial public offering of
securities in 1994. In September 1997, Premier acquired EyeSys in exchange for
cash and securities. Premier acquired a majority of the outstanding common
stock of OIS in several transactions commencing in October 1997 and ending in
February 1998. As of this date, Premier remains a majority shareholder of OIS.
OIS held its annual shareholders' meeting on January 18, 1999. At such meeting,
Premier's proposed slate of board of directors was elected. On March 7, 1999,
Premier and OIS entered into a Letter Agreement pursuant to which Premier
committed to undertake OIS' manufacturing operations.
Laser Business
Our lasers and related products use the controlled application of thermal,
acoustic and optical energy to allow the physician or dentist to perform
selected minimally invasive procedures which in some cases, compared to
conventional techniques not involving the use of lasers, vaporize or sever
tissue with minimal blood loss and scarring, increase patient comfort and reduce
patient treatment time and treatment costs. We currently market certain of
these lasers for dentistry, ophthalmology and surgery.
In our laser business, we participate in three market segments: dentistry,
ophthalmology and surgery. Some of our innovations include:
. the first laser cleared for use on hard tissue (teeth) in dentistry
. the first diode laser in dentistry
. the first laser in clinical trials for cataract removal
. the first Erbium:YAG laser for smoothing of skin
. the first laser in clinical trials for tissue melding
Although we have received more than 100 clearances from the FDA in multiple
specialty areas to market our laser products for a variety of medical
applications, due to limited financial resources we have initially focused our
marketing efforts on dental lasers which we believe have the most promise for
commercial success. We initiated marketing efforts in ophthalmology in 1997. As
resources permit, we plan to commence marketing efforts with respect to other
medical applications which we believe may also be commercially viable.
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Corneal Topography Business
EyeSys designs, develops and markets a line of noninvasive diagnostic
imaging systems for use by ophthalmologists and optometrists in surgical
planning and evaluation, diagnosis of corneal diseases and contact lens fitting.
Founded in 1986, EyeSys has installed more than 3,500 systems.
The EyeSys System 2000 and Vista combine proprietary hardware used for
capturing an image and a personal computer to control the hardware and to run
the software. The output of these systems is a color-coded map of the shape and
curvature of the human cornea that vision care professionals can easily
interpret and utilize for treatments such as vision correction and cataract
surgery and corneal transplants, for diagnosis of astigmatisms and corneal
diseases, and for contact lens fitting and custom lens manufacturing.
Ocular Imaging Business
OIS, which commenced business in 1986, is engaged in the business of
designing, manufacturing, and marketing digital imaging systems and image
enhancement and analysis software for use by practitioners in the ocular health
field. OIS's current flagship products 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. OIS's
WinStation systems are primarily used by ophthalmologists to perform a
diagnostic test of the blood flow in the patient's retina. This procedure is
used to diagnose and monitor diseases and provide important information in
making treatment decisions. OIS also recently showed a digital fundus imager,
which provides similar diagnostic capabilities at a lower price. In addition,
OIS markets a Digital Slit Lamp which is used to obtain live motion images of
the surface of the eye.
OIS has experienced operating losses for each fiscal year since its initial
public offering in 1992. OIS expects to continue to incur operating losses for
the foreseeable future and while a goal of the combined ophthalmic businesses is
to achieve profitability through consolidation, we cannot assure you that OIS
will be able to achieve or sustain significant revenues or profitability in the
future.
Market Overview
Dental and Periodontal Laser Market
The current market for laser equipment in dental procedures is comprised of
hard and soft tissue procedures, composite curing and teeth whitening.
Hard Tissue Procedures, including Cavity Preparation. Potential dental
laser applications for procedures on teeth, also known as hard tissue
procedures, include pit and fissure sealing, etching, caries removal and cavity
preparation. Based on user feedback from our clinical sites, we believe that
the use of a laser in dentistry reduces the pain associated with various
traditional procedures performed with a dental drill. On May 7, 1997, our
Er:YAG laser was cleared to market for tooth etching, caries removal and cavity
preparation. This laser was the first to be cleared by the FDA for such
procedures. We commenced marketing of the Er:YAG laser for these procedures
shortly after receipt of FDA clearance. Today, it is the only system cleared for
these procedures on patients of all ages.
Soft Tissue. The dental laser can be used for certain periodontal
procedures and to treat early gum disease, postponing or in some cases
eliminating the need for conventional periodontal surgery and providing the
opportunity for overall cost savings. While we have clearance to market six
lasers for soft
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tissue dental procedures, including the Aurora diode laser and Centauri Er:YAG
laser, we focus our marketing efforts on our Aurora diode laser in this area.
The Aurora also is the only diode laser with clearance for procedures involving
removal of the pulp of the tooth.
Composite Curing. Composites are rapidly replacing gold and silver
fillings as the material of choice for restoration of cavities, because they
more closely match the color of teeth and because gold and silver fillings have
drawn increasing worldwide concern over safety due to the toxic gases which may
be released when they are removed from teeth. Composite fillings are typically
cured using a curing light which provides a broad spectrum of wavelengths. The
use of the argon laser for this application has been shown to frequently result
in a stronger restoration than composites cured by traditional curing lights.
Our argon lasers can also be used to cure the resins used in placing veneers or
bonding orthodontic brackets. Our Arago and MOD argon lasers have received FDA
clearance for use in these applications.
Teeth Whitening. A large number of dentists use light accelerated
bleaching materials for teeth whitening. These materials are traditionally
applied at night over a six to eight week period to whiten a patient's teeth
while he or she sleeps. Lasers have been shown to facilitate the use of these
light sensitive materials in the dentist's office by accelerating this process
and resulting in an approximately three shade change in less than one hour. Our
MOD and Arago lasers have been cleared to market for this procedure.
Cavity Prevention. We are currently conducting research and initiating
clinical trials to use our lasers for cavity prevention applications. Our
clinical trials are at an early stage and we cannot assure you that FDA
clearance will be obtained for these applications.
Ophthalmic Laser and Diagnostic Market
Because of the importance of the cornea to visual performance, virtually
all ophthalmologists and optometrists have historically used a measuring
instrument known as a keratometer to quantify corneal curvature, in a procedure
called keratometry. This instrument obtains only four measurement points,
therefore it cannot accurately measure asymmetrical curvatures. A more precise
instrument, called a corneal topographer, was developed to measure the curvature
of the front of the eye.
Applications of this device include:
. important applications in selecting the appropriate procedure for each
refractive patient, preoperative surgical planning, postoperative
evaluation and patient follow-up
. improved pre-surgical planning for removal of a cloudy lens in cataract
surgery, assess and correct surgically induced astigmatism, which is the
most frequent complication caused by intraocular lens surgery,
potentially improve the calculation of the implanted intraocular lens
power, and support combination cataract/refractive surgical procedures
. improved surgical outcomes in corneal transplants allowing the
practitioner to evaluate surgical technique and adjust postoperative
treatment
. analysis and diagnosis of astigmatism and various corneal diseases
. several applications in contact lens fitting and manufacturing
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The WinStation market consists of current owners of fundus cameras and
anticipated purchasers of fundus cameras suitable for interfacing with the OIS's
digital imaging system products. A fundus camera is a camera that produces
photographs of the retina of the eye.
Retinal specialists who number approximately 3,000 in the U.S., comprise
the primary target market for digital angiography systems, which allow the
visualization of the blood flow in the retina. For the past two years OIS
digital imaging system sales have been driven in this segment to a large extent
by a procedure known as indocyanine green angiography. This new diagnostic test
procedure yields new clinically significant information that is helpful in the
treatment of patients with macular degeneration, a leading cause of blindness
which afflicts over 13 million people in the U.S. This procedure can only be
performed using a digital imaging system. OIS introduced a digital fundus
imager and Digital Slit Lamp which allow full motion video of the eye at a
relatively low cost.
The total available market for diagnostic ophthalmic equipment consists of
16,000 ophthalmologists in the United States, 100,000 additional
ophthalmologists in international markets and 36,000 optometrists in the United
States.
Following diagnostic procedures, laser systems have been used for the
treatment of eye disorders for many years and are widely accepted in the
ophthalmic community. Lasers have traditionally been sold for extra-ocular
procedures and procedures in the back of the eye. We do not promote our lasers
for this market, which we believe is approaching saturation, but instead focus
on intraocular, refractive (vision correction) and aesthetic procedures
including anterior capsulotomy, cataract removal, glaucoma treatment, corneal
sculpting and cosmetic or aesthetic skin procedures. We have developed the
Centauri Er:YAG laser which is capable of performing all of these procedures,
which previously typically have been performed by several different types of
medical lasers. To date, however, the Centauri laser has only been cleared for
some of these procedures. A summary of the procedures for which the Centauri
laser has been cleared appears under "Products-Laser Products."
Cataract Removal Procedures. We believe that no medical lasers have been
approved to date for cataract extraction procedures, and that medical lasers may
result in less trauma and inflammation than traditional surgical methods,
providing more comfort to the patient. Our Centauri Er:YAG laser has been
cleared to market for anterior capsulotomy, a procedure which opens the capsule
of the eye prior to the removal of the cataract. We have also completed Phase
II clinical trials on the Centauri laser for the breakup of the cataract itself,
as an alternative to the emulsification of the cataract by ultrasonic energy. We
believe that this patented technology for use in cataract removal may provide an
easier and safer method.
Treatment of Glaucoma. Glaucoma, a disease of the eye characterized by
increased pressure within the eyeball and progressive loss of vision, has
traditionally been treated with drug therapy. When drug therapy is ineffective,
periodic invasive surgery may be required. In these cases, lasers may be used
to open a pathway into the eye in order to relieve pressure in the eye. This
procedure, which may be repeated periodically, can be performed under local
anesthesia with a self closing incision on an outpatient basis. We are
currently conducting clinical trials prior to seeking clearance to market our
Centauri Er:YAG laser for several alternative techniques for this procedure. We
do not know whether the FDA will grant clearance these techniques, however.
Corneal Sculpting. We believe that the approval of excimer lasers has
resulted in greater acceptance and recognition of laser refractive surgery in
the ophthalmic market. Medical lasers may be used for corneal sculpting, a
procedure in which the laser is used to sculpt the cornea of the eye to a
desired curvature to correct nearsightedness, farsightedness or astigmatism. We
plan to seek approval to
29
<PAGE>
market the Centauri laser for corneal sculpting and have initiated studies in
preparation for regulatory submittal for this application. We do not know
whether the FDA will grant clearance for this procedure, however.
Aesthetic Surgical Procedures. We have received clearance for the use of
our lasers in certain aesthetic procedures such as skin resurfacing and eyelid
surgery. We plan to begin marketing certain of these products for aesthetic
applications during the current year.
Surgical Laser Market
Laser systems have been approved for and are currently being used in a
variety of surgical applications including orthopedics, neurosurgery, urology,
gastroenterology, ophthalmology, cardiology, dermatology, gynecology and plastic
surgery. Although our products are cleared to market in a number of specialty
areas within the surgical market, we have specifically targeted tissue melding,
also known as tissue fusion, and aesthetic applications within the surgical
market.
Tissue Melding. We believe a significant number of wound closure
procedures may be addressed with surgical lasers in conjunction with or
independent of traditional sutures or staples. The clinically demonstrated
benefits of the use of surgical lasers for tissue melding, as compared to
sutures and staples, include fluid-static seals, immediate strength of the
closure and reduced surgical time. Along with our strategic partner, we have
conducted animal tests to support regulatory submittals for the use of our
Polaris Nd:YAG laser in the areas of arteries, veins, blood vessels and ducts,
and are currently conducting clinical studies for skin and hypospadias. We have
also completed clinical trials for vasovasotomy, which is the reversal of
vasectomies. These trials demonstrated a success rate of approximately 89%. We
are also beginning Phase I clinical trials for the treatment of hypospadias, the
lengthening of the urethra to the end of the penis in infants, in which it is
anticipated that the laser's fluid-static seal may minimize post-surgical
complications such as the leakage of urine which results in secondary surgical
procedures. We have clearance for Phase II clinical trials for skin closure
following mastectomies and eyelid surgery at five clinical sites. Artery and
vein melding has been tested in animals by our strategic partner in preparation
for clinical studies.
Aesthetic Surgical Procedures. The market for aesthetic surgery is growing
rapidly worldwide. We have a number of approvals for lasers to be used in
aesthetic applications and will devote further efforts in the future to entering
into and capitalizing on this market.
We have regulatory clearance to market our products for a variety of
additional applications, including in urology, orthopedics, gynecology,
gastroenterology, podiatry, pulmonary and neurosurgery, among other areas. In
areas where our technology is not being fully utilized, we may seek agreements
to supply our products under private label for other manufacturers or may enter
into strategic alliances to develop and market our lasers for other
applications.
Products
Laser Products
The use of laser technology in dentistry, ophthalmology and surgery
involves the controlled application of laser light to hard or soft tissue
causing an optical, thermal, acoustic or plasma interaction with the tissue.
When applied to tissue, the laser light is partially absorbed. This process of
absorption converts the light to heat, which in turn alters the state of the
tissue. The degree of tissue absorption varies with the choice of wavelength
and is an important variable in the application of laser technology
30
<PAGE>
in treating various tissues. The laser energy can also form a gas bubble in a
water medium which provides an acoustic cutting effect as it bursts.
Our lasers often use proprietary delivery systems to control the relative
proportions of acoustic, thermal and optical energy applied to tissue resulting
in enhanced cutting effects. These delivery systems include flexible
fiberoptics, waveguides, articulated arms and micromanipulators or scanners
which are used on a disposable or limited reuse basis, and which we expect will
provide a recurring revenue stream. Our strategy is to target specific
applications in the dental, ophthalmic and surgical markets, where we believe
that our technology and products have competitive strengths.
Our line of portable lasers is specifically designed for use in outpatient
surgical centers and medical offices. We believe that our lasers are also well
suited for the international market, particularly in facilities with many
surgical suites where easy transportation of equipment is necessary. By
employing techniques developed in the computer industry, we have designed a
laser system that:
. is modularly designed and uses similar components for multiple laser
systems thereby reducing their overall cost
. allows for efficient and inexpensive repair by replacing a board or
assembly in the field or through the mail, reducing the need for a field
service force
. can be easily moved from the office to surgical centers because of its
compact size and limited voltage requirements
Our Er:YAG lasers are currently priced from $37,000 to $126,000 and our Nd:YAG
lasers are currently priced from $25,000 to $80,000. Our diode lasers are
currently priced from $22,000 to $35,000 and our argon lasers are priced from
$5,500 to $22,000. The prices of lasers within these ranges depend upon each
model's power capability and the features offered.
The following table presents, in summary form, our principal lasers and
delivery systems, the principal applications for which we intend to use them,
and the FDA status of such products.
<TABLE>
<CAPTION>
Product Medical Application FDA Regulatory Status
- -------------------- ------------------------------------------------- ---------------------
<S> <C> <C>
Centauri (Er:YAG) Dental--Soft Tissue.............................. Cleared to market
Dental--Hard Tissue.............................. Cleared to market
Ophthalmology (e.g. Anterior Capsulotomy)........ Cleared to market
Ab-externo and Ab-interno Sclerostomy, Laser
Lens Emulsification............................. Clinical Trials
Corneal Sculpting................................ Clinical Trials
General Surgery, Neurosurgery, Orthopedics,
Gastrointestinal and Genitourinary Procedures,
Urology, Gynecology and Oral Surgery............ Cleared to market
Polaris (1.32 Tissue Melding................................... Clinical trials
Nd:YAG)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Product Medical Application FDA Regulatory Status
- -------------------- --------------------------------------------------- ---------------------
<S> <C> <C>
General Surgery, Ophthalmology, Arthroscopic
Surgery, Gastrointestinal and Genitourinary
Procedures, Urology, Gynecology and Oral Surgery.. Cleared to market
Aurora (diode) Dental--Soft Tissue................................ Cleared to market
Dental-Hygiene..................................... Cleared to market
Dental-Endodontics................................. Cleared to market
Dental and General Surgery, Ophthalmology,
Arthroscopic Surgery, Gastrointestinal and
Genitourinary Procedures, Urology, Dermatology,
Plastic Surgery, Podiatry, Neurosurgery,
Gynecology, Pulmonary Surgery and Oral Surgery.... Cleared to market
MOD and Arago Dental--Composite Curing........................... Cleared to market
(argon)
Dental--Teeth Whitening............................ Cleared to market
</TABLE>
Centauri ER:YAG Laser. Our Centauri Er:YAG laser is a portable Er:YAG
pulsed solid state laser which generates high frequencies (up to 30Hz) at
relatively low peak power. These high frequencies allow faster cutting at lower
energies. The 2.9 micron wavelength of the Er:YAG is highly absorbed by water,
producing a cut similar to the scalpel. The Er:YAG wavelength is delivered
through a fiber optic delivery system which enables the beams to be focused and
angled. These fiberoptic catheters are difficult to produce and we have
invested heavily in the technology to develop fibers which can handle adequate
power. We have experienced difficulties in securing a consistent and reliable
source for these fibers in the past. We presently have two sources for these
fibers. See "--Manufacturing and Materials" and "Legal Proceedings."
Polaris Nd:YAG Lasers. The energy of Nd:YAG lasers is absorbed by blood in
tissue and as a result these systems are the preferred lasers to limit bleeding
during surgery and for procedures requiring fiberoptic delivery, such as
laparoscopic surgery. The Nd:YAG fiberoptic delivery system allows the surgeon
to perform surgery through small incisions, providing minimally invasive surgery
to patients and usually reducing treatment costs and the length of hospital
stays.
This laser also uses our disposable unique TouchTIPS, AngleTIPS and
sculptured fibers. By using the Polaris laser with TouchTIPS, the surgeon is
allowed direct contact with tissue and the tactile feeling of the scalpel or
other surgical instruments. We believe that the availability of these
technologies permits the use of a lower power laser system.
With the exception of Japan, China and Taiwan, we hold the proprietary
rights, including several patents, to manufacture and sell the Polaris laser, a
1.32 micron Nd:YAG laser, together with specialized software and delivery
systems, for tissue melding. We are developing the Polaris laser for use in
cosmetic skin closures, vascular surgeries and minimally invasive surgical
procedures normally performed with sutures and staples. Although the use of the
Polaris laser for tissue melding is still in the clinical trial stage, and no
clearance for this application has been received, we believe that tissue melding
offers clinical advantages over traditional sutures and staples including fluid-
static seals, immediate strength of the closure and reduced surgical time.
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Aurora Diode Laser. The Aurora diode laser is our first semiconductor
laser and is the first truly portable diode laser designed for dentistry. The
Aurora diode laser replaced the 20 watt Pegasus laser for periodontal
procedures, and is approximately one-fourth the size and one-half of the cost of
that system. The diode wavelength is absorbed by blood and pigmentation and has
been cleared for use in multiple specialties such as general surgery,
ophthalmology, urology and plastic surgery. The Aurora laser, which was
introduced for soft tissue dental applications in February 1996, is designed to
utilize the Nd:YAG delivery systems, including TouchTIPS, AngleTIPS and
sculptured fibers, for soft tissue surgery with minimal bleeding or anesthesia.
The dental laser can also be used to treat early stage gum disease, postponing
or in some cases eliminating the need for periodontal surgery and providing the
opportunity for overall cost savings. We believe the Aurora laser compares
favorably with competitive products including pulsed Nd:YAG lasers, which cannot
produce the required laser settings for use with TouchTIPs, or in the new
technique for the treatment of periodontal disease, as well as with CO\\2\\
lasers, which cannot be delivered through a fiber, and argon lasers, which tend
to be slower in cutting and may produce charring.
Arago and MOD Argon Lasers. The Arago and the MOD are gas lasers which
have been cleared to market in dentistry to accelerate the composite curing
process. Composites are rapidly replacing gold and silver fillings as the
material of choice for the restoration of cavities. The argon wavelength
penetrates through the composite and has been shown to frequently result in a
stronger restoration than composites cured by traditional curing lights. Our
argon lasers can also be used to cure the resins used in placing veneers or
bonding orthodontic brackets.
The argon laser can also be used to enhance teeth whitening procedures
using light activated bleaching materials which have traditionally been applied
at night over a six to eight week period. Lasers have been shown to facilitate
the use of these light activated products in a dentist's office by accelerating
this process and resulting in an approximately three shade change in less than
one hour. The argon laser has been cleared to market for this procedure. We
cannot assure you that the use of the argon laser for teeth whitening will
become a widely accepted practice in the dental industry. We plan to bundle our
lasers with light activated whitening materials and co-market these products
with the manufacturers of these materials. We are currently manufacturing the
MOD lasers in-house. The Arago laser is currently being supplied by a third
party manufacturer.
Other Lasers. We have developed other solid state pulsed lasers including
the Sirius .532 Nd:YAG laser, Pegasus Nd:YAG, Orion Ho:YAG laser and the
Arcturus alexandrite:YAG laser, and other applications for our existing lasers,
but are not actively marketing these lasers at the present time. The following
table briefly describes additional lasers owned by us which we do not currently
market, and the principal applications for which we have clearance to market
such lasers.
<TABLE>
<CAPTION>
Product Medical Application FDA Regulatory Status
- ------------------------ -------------------------------------------- ---------------------
<S> <C> <C>
Altair (CO\\2\\) Orthopedics General and Plastic Surgery,
Dermatology, Podiatry Ear, Nose and Throat,
Gynecology Pulmonary Procedures;
Neurosurgery and Ophthalmology............. Cleared to market
Pegasus (Nd YAG) General Surgery, Urology, Gastrointestinal
40W/60W Procedures, Pulmonary Procedures,
Gastroenterology, Gynecology and
Ophthalmology.............................. Cleared to market
Pegasus (Nd:YAG 20W) Dental-Soft Tissue.......................... Cleared to market
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Product Medical Application FDA Regulatory Status
- ------------------------ -------------------------------------------- ---------------------
<S> <C> <C>
Dental-Endodontics.......................... Cleared to market
Pegasus (Nd:YAG) Oral, Arthroscopic and General Surgery,
100W Gastroenterology, Gastrointestinal and
Genitourinary Procedures, Pulmonary
Procedures, Gynecology, Neurosurgery and
Ophthalmology.............................. Cleared to market
Sirius (.532 Nd:YAG) Dermatology, General and Plastic Surgery,
Podiatry and Orthopedic Applications....... Cleared to market
Orion (Ho:YAG) General Surgery, Orthopedics, Ear, Nose and
Throat, Ophthalmology, Gastroenterology,
Pulmonary Procedures and Urology........... Cleared to market
Er:YAG/Nd:YAG Various specialties......................... Cleared to market
(Combination)
</TABLE>
Laser Delivery Systems and Disposable Products
While each laser system we market consists of a laser and an integral
fiber, the fibers and other products, such as tubing sets and tips, are used by
surgeons on a disposable or limited reuse basis for each clinical procedure. We
believe that expansion into this market could provide us with a recurring
revenue stream.
Corneal Topography Products
EyeSys 2000 Corneal Analysis System. The EyeSys System 2000 corneal
topography instrument and associated Microsoft Windows(C) based software is
targeted at refractive surgeons, general ophthalmologists and optometrists for
diagnostic, surgical and contact lens fitting applications. The primary
function of the instrument is to position a patient for corneal image capture,
acquire the image of reflected rings and send the image to a personal computer
for further processing. The System 2000 is modular and we market it as a
proprietary computer peripheral and software. The System 2000 hardware
interfaces to the computer via a parallel port connection, allowing EyeSys to
unbundle the computer, monitor, printer, tables and other third party items.
This can significantly lower the price to the customer by allowing physicians to
utilize hardware they already own.
Last year we introduced what we believe to be the smallest hand-held
topography system currently available. The Vista(TM) incorporates much of the
same reliable and accurate software as the System 2000, but its portability
facilitates its use in the operating room or by the optometrist.
Ocular Imaging Products
OIS currently offers four products to the ophthalmic market: the WinStation
640, the WinStation 1024, a digital fundus imager and a Digital Slit Lamp.
OIS's WinStation systems are used by ophthalmologists to produce images of blood
vessels within the eye. Whereas the traditional methods of obtaining these
images utilize photographic film which requires special processing and printing,
the WinStation systems allow for immediate diagnosis and treatment of the
patient.
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<PAGE>
The WinStation products enable the ophthalmologist 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.
Another of OIS's imaging products, the Digital Slit Lamp, allows the
ophthalmologist to obtain full motion video images of the surface of the eye.
Marketing, Sales and Service
Marketing and Sales
We market our products to the dental market in the United States directly
to dentists through our direct sales force consisting of two area sales
managers, manufacturer's representative network consisting of approximately 15
manufacturer's representatives or companies and our distributor network. The
dental market includes approximately 129,000 practicing dentists in the United
States. We believe that in order to reach this market we must expand our U.S.
distribution capabilities. We market our products primarily through
conventions, educational courses, direct mail, telemarketing and other dental
training programs. Through an active program of educational courses and
preceptorships, we have trained dentists in many countries during the past two
years using industry recognized dentists and periodontists.
We market our products in the ophthalmic market jointly with OIS through a
sales manager and five territory managers who focus their efforts on key
ophthalmologists worldwide. We plan to expand our ophthalmic sales force both
by enlarging our domestic sales force, either internally or through acquisition
or distribution, by acquiring or engaging additional international manufacturing
representatives, and by having existing international distributors carry our
full product line. On June 2, 1997, EyeSys entered into an agreement with Marco
Ophthalmic Inc. under which that company was appointed as a nonexclusive
distributor in the United States of the System 2000 and the exclusive
distributor of the Vista portable corneal topography system for a three-year
period following commercialization of that system. Sales and marketing efforts
for ophthalmic products are managed out of Sacramento, California.
In the surgical market, we intend to form strategic alliances in any
specialty area where the partner has an established presence in the market
selling to either the physician or the hospital. We have entered into such a
strategic alliance with Nippon Shoji Kaisha, Ltd., which is one of the leading
suppliers of sutures in the Pacific Rim. Under our Exclusive Marketing
Agreement with NSK, Proclosure granted to NSK, in exchange for a license fee,
the exclusive rights to market and distribute the Polaris Nd:YAG laser in Japan,
China and Taiwan. In addition, under this agreement we granted to NSK an option
to manufacture the Polaris, which if exercised would require NSK to pay us a
$1.5 million fee and royalties. NSK has not yet indicated whether it intends to
manufacture these products. We do not know if we will receive any payments
under this agreement.
We have entered into distribution agreements with distributors in many
countries for sales of our dental and ophthalmic products. We typically grant
exclusive distribution rights in select territories to our distributors who
usually must maintain certain distribution minimums in order to retain their
exclusive rights. These agreements are managed by three directors of
distribution marketing and sales for the Pacific Rim; Europe, the Middle East
and Africa; and Canada and South America.
No customer accounted for more than 10% of our net sales, on a consolidated
basis, in fiscal 1999 or fiscal 1998. During fiscal 1997, three customers each
accounted for more than 10% of the sales of
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EyeSys: Marco accounted for 13% of sales, Newtech accounted for 14% of sales and
Vistatek accounted for 15% of sales.
Customer Service and Support
We seek to create a group of loyal customers by focusing on customer
service, quality and reliability. In addition to our educational courses, we
perform a complete installation of our products and train the customers' staff
in its proper use. Educational videos and papers are available upon request.
We conduct service training courses for the representatives of our distributors.
Prior to shipping, every product is subjected to an extensive battery of quality
control tests. We generally provide a one year warranty with all products and
extended warranties are available at an additional cost. If service is
required, a product owner is either sent a loaner product by overnight carrier,
returns his product for service or a service representative visits the owner to
repair the unit. International service is provided either by the foreign
distributor or by return of the product to us. We have experienced and may
continue to experience difficulties in providing prompt and cost-effective
service of our products in foreign countries. We are working to improve the
service training of our international distributors.
Competition
We are, and will continue to be, subject to competition in our targeted
markets, principally from businesses providing other traditional surgical and
nonsurgical treatments, including existing and developing technologies or
therapies, some of which include medical lasers manufactured by competitors. In
the dental market, we compete primarily with dental drills, traditional curing
lights and other existing technologies, and to a lesser extent competitors'
CO\\2\\, argon, Er:YAG and Nd:YAG lasers. In the ophthalmic market, we are
subject to competition principally from:
. traditional surgical treatments using a tearing needle in anterior
capsulotomy
. phacoemulsification, an ultrasound device used to break up cataracts in
cataract removal procedures;
. corrective eyewear (such as eyeglasses and contact lenses) and surgical
treatments for refractive disorders using either an excimer laser or a
scalpel
. drug therapy or surgical treatment of glaucoma
In the surgical market, wound closure procedures are usually performed
using sutures and staples, and traditional cosmetic surgical procedures may be
performed with a scalpel or other lasers.
The medical laser industry in particular is also subject to intense
competition and rapid technological change. There are approximately 30
competitors in different sectors of the medical laser industry. We believe that
the principal competitive factors for medical laser products are the products'
technological capabilities, proven clinical ability, patent protection, price
and scope of regulatory approval, as well as industry expert endorsements.
We believe that for many applications, our patented or patent pending
methods and fiberoptic delivery systems provide clinical benefits over other
currently known technologies and our competitors' laser products.
EyeSys' primary competitors in the corneal topography market are Tomey
Technology, Alcon Surgical, Inc., a subsidiary of Nestle, Humphrey Instruments,
a subsidiary of Carl Zeiss and Orbtek, a subsidiary of Bausch and Lomb.
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Competition for products that can diagnose and evaluate eye disease is
intense and is expected to increase. We are aware of three primary OIS
competitors in the U.S.: Topcon, Humphrey Instruments and Tomey Technology.
Four other companies are known to have systems in the international market, each
with lesser market penetration.
We believe that our ability to compete successfully against traditional
treatments, competitive laser systems and treatments that may be developed in
the future will depend on our ability to create and maintain advanced
technology, develop proprietary products, obtain required regulatory approvals
and clearances for our products, attract and retain scientific personnel, obtain
patent or other proprietary protection for our products and technologies, and
manufacture and successfully market products either alone or through other
parties. Certain of our competitors have substantially greater financial,
technical and marketing resources than us. We cannot assure you that such
competition will not adversely affect our results of operations or our ability
to maintain or increase market share.
Seasonality
To date, our revenues have typically been significantly higher in the
second and fourth calendar quarters. This seasonality reflects the timing of
major medical and dental industry trade shows in these quarters, significantly
reduced sales during the summer and the effect of year end tax planning
influencing the purchasing of capital equipment for depreciation during the
fourth calendar quarter. We expect that this seasonality will continue
indefinitely.
Research and Development
Laser Business
In the past three fiscal years (1996-1998), Premier has invested in excess
of $5.8 million in research and development programs. This amount includes
approximately $700,000 received under a Small Business Innovative Research Grant
in fiscal 1996 and 1997 but excludes a $10.2 million noncash charge for in-
process research and development related to the EyeSys acquisition in fiscal
1998. This investment in research and development has resulted in the
development of 20 models of lasers, reusable accessories such as smoke
evacuators and irrigation aspiration systems, more than 1,000 types of custom
delivery systems and approximately 20 types of surgical tips and accessories.
Our current research is focused on expanding the clinical applications of
our existing products, reducing the size and cost of current laser systems,
developing custom delivery systems and developing new innovative products. For
our laser products, our in-house research and development efforts have focused
on the development of a systems approach with proprietary delivery systems
designed to allow the laser to interact with tissue by a number of different
mechanisms (e.g., acoustic, ablative and thermal) for unique laser/tissue
effects. These disposable fiberoptic delivery systems, developed specifically
for niche surgical applications, demonstrate the principal focus of our research
efforts. Examples of patented or patent pending products resulting from these
research efforts include: TouchTIPS, AngleTIPS, Er:YAG fiberoptics and CO\\2\\
waveguides. Clinical research has also yielded several new surgical procedures.
Corneal Topography Business
EyeSys' research and development efforts are focused on further development
of corneal topography systems, advanced applications software development,
internationalization of software, minimization, simplification and optimization
of the instrument and development of the next generation ophthalmic
instrumentation.
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Ocular Imaging Business
OIS intends to devote significant resources to the development of
telemedicine/managed care applications, the improvement of optics, new fundus
camera interfaces for a green dye, software development (including the continued
enhancement of WinStation), hardware optimization, and the patient/doctor
interface. OIS's research and development expenditures in the year ended August
31, 1998 were $866,745 and in the year ended August 31, 1997, were $1,070,192.
Patents and Patent Applications
Patent protection is an important part of our business strategy, and our
success depends, in part, on our ability to maintain patents and trade secret
protection and on our ability to operate without infringing on the rights of
third parties. We have sought to protect our unique technologies and clinical
advances through the use of the patent process. Patent applications filed in
the United States are frequently also filed in selected foreign countries. We
focus our efforts on filing only for those patents which we believe will provide
us with key defensible features instead of filing for all potential minor device
features. In the United States, we hold 33 patents and have an additional 24
pending patent applications, including divisional applications. In addition, we
hold 23 foreign patents and have at least 44 foreign patent applications. We
also have a nonexclusive license to a number of basic laser technologies which
are commonly licensed on such basis in the laser industry. OIS holds one patent
covering one of its products.
We cannot assure you that our patents or trademarks 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 us. In addition, we
cannot assure you that we will have the financial or other resources necessary
to enforce or defend a patent or trademark infringement or proprietary rights
violation action. Although we currently carry insurance that might cover some
of the amounts we could be liable for in patent litigation, if our products
infringe patents, trademarks or proprietary rights of others, we could become
liable for damages, which also could have a material adverse effect on us.
We are aware of certain patents which, along with other patents that may
exist or be granted in the future, could restrict our right to market certain of
our technologies without a license, including, without limitation, patents
relating to our lens emulsification product and ophthalmic probes for our Er:YAG
laser. In the past, we have received allegations that certain of our laser
products infringe other patents. There has been significant patent litigation
in the medical and medical device laser industry. Adverse determinations in
litigation or other patent proceedings in which we may become a party could
subject us to significant legal judgments or liabilities to third parties, and
could require us to seek licenses from third parties. We cannot assure you that
any licenses required under these or any other patents or proprietary rights
would be available on terms acceptable to us, if at all. If we do not obtain
such licenses, we could encounter delays in product introductions while we
attempt to design around such patents, or we could find that the development,
manufacture or sale of products requiring such licenses could be enjoined.
We also rely on unpatented proprietary technology, trade secrets and know-
how. Certain components of some of our products are proprietary and constitute
trade secrets, but others are purchased from third parties. There is no
assurance that other parties will not independently develop substantially
equivalent proprietary information or techniques, or otherwise gain access to
our trade secrets or disclose such technology, or that we can meaningfully
protect our rights to our unpatented trade secrets.
We seek to protect our unpatented proprietary technology, in part, through
proprietary confidentiality and nondisclosure agreements with employees,
consultants and other parties. We cannot assure you that proprietary
information agreements with employees, consultants and others will not be
breached, that we
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would have adequate remedies for any breach or that our trade secrets will not
otherwise become known to or independently developed by competitors.
Government Regulation
FDA Regulation
The products that we manufacture are regulated as medical devices by the
FDA under the Food, Drug and Cosmetics Act (the "FDC Act"). Satisfaction of
applicable regulatory requirements may take several years and requirements vary
substantially based upon the type, complexity and novelty of such devices as
well as the clinical procedure. Under the FDC Act and the applicable
regulations, the FDA regulates the preclinical and clinical testing,
manufacture, labeling, distribution, and promotion of medical devices.
Noncompliance with applicable requirements can result in a variety of serious
penalties. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device which we manufacture or
distribute.
The FDA classifies medical devices in commercial distribution into one of
three classes: Class I, II or III. This classification is based on the
controls the FDA deems necessary to reasonably ensure the safety and
effectiveness of medical devices. Class I devices are subject to general
control, such as labeling, premarket notification and adherence to applicable
requirements for Good Manufacturing Practices, known as "GMP's." Class II
devices are subject to general and special controls, such as performance
standards, postmarket surveillance, patient registries, and FDA guidelines.
Generally, Class III devices are those which must receive premarket approval by
the FDA to ensure their safety and effectiveness. Class III devices include,
for example, life-sustaining, life-supporting and implantable devices, or new
devices which have been found not to be substantially equivalent to legally
marketed devices. Our laser and diagnostic products typically are classified as
Class II devices, but the FDA may classify certain indications or technologies
into Class III and require a premarket approval application. OIS's products are
classified as Class II devices which require, among other things, annual
registration, listing of devices, good manufacturing practices and labeling, and
prohibition against misbranding and adulteration.
If a manufacturer or distributor of a medical device can establish that a
proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to a pre-1976 Class III medical device for which the
FDA has not called for a premarket approval application, that manufacturer or
distributor may seek FDA clearance for the device by filing a Section 510(k)
premarket notification. If a manufacturer or distributor of a medical device
cannot establish that a proposed device is substantially equivalent to another
legally marketed device, the manufacturer or distributor will have to seek
premarket approval for the proposed device. A 510(k) notification and the claim
of substantial equivalence will likely have to be supported by various types of
data and materials, possibly including test results or the results of clinical
studies in humans. A premarket approval application would have to be submitted
and be supported by extensive data, including preclinical and clinical study
data, to prove the safety and effectiveness of the device. We cannot assure you
that some of our products will not require the more rigorous and time consuming
premarket approval application approval, including laser uses for vasovasotomy
or other tissue melding procedures, cavity prevention, cosmetic surgery,
sclerostomy and lens emulsification, among others.
If human clinical studies of a proposed device are required, whether for a
510(k) or a premarket approval application, and the device presents a
"significant risk," the manufacturer or the distributor of the devices will have
to file an application for an investigational device exemption ("IDE") with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically including the results of animal and mechanical
laboratory testing. If the IDE application is approved by the FDA and one or
more appropriate Institutional Review Boards, human clinical trials may begin at
a specific number
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of investigational sites with a specific number of patients, as approved by the
FDA. The FDA does not approve all IDE's that are submitted. Even if an IDE is
approved, the FDA may determine that the data derived from these studies do not
support the safety and efficacy of the device or warrant the continuation of
clinical studies. Sponsors of clinical studies are permitted to charge for those
devices distributed in the course of the study provided such compensation does
not exceed recovery of the costs of manufacture, research, development and
handling. Clinical studies of nonsignificant risk devices may be performed
without prior FDA approval, but various regulatory requirements still apply,
including the requirement for approval by an Institutional Review Board, conduct
of the study according to applicable portions of the IDE regulations, and
prohibitions against commercialization of an investigational device.
The manufacturer or distributor may not place the device into interstate
commerce until an order is issued by the FDA granting premarket clearance for
the device. The FDA has no specific time limit by which it must respond to a
510(k) premarket notification. The FDA has recently been requiring more
rigorous demonstration of substantial equivalence in connection with 510(k)
notifications and the review time can take four to 12 months or longer for a
510(k). If a premarket approval application submission is filed, the FDA has by
statute 180 days to review it; however, the review time is often extended
significantly by the FDA asking for more information or clarification of
information already provided in the submission. During the review period, an
advisory committee may also evaluate the application and provide recommendations
to the FDA as to whether the device should be approved. In addition, the FDA
will inspect the manufacturing facility to ensure compliance with the FDA's good
manufacturing practice requirements prior to approval of a premarket approval
application.
Devices are cleared by 510(k) or approved by premarket approval application
only for the specific intended uses claimed in the submission and agreed to by
the FDA. Labeling and promotional activities are also subject to scrutiny by
the FDA and, in certain instances, by the Federal Trade Commission. Marketing
or promotion of products for medical applications other than those that are
cleared or approved could lead to enforcement action by the FDA.
We cannot assure you that we will be able to obtain necessary regulatory
approvals or clearances for our products on a timely basis or at all, and delays
in receipt of or failure to receive such approvals or clearances, the loss of
previously received approvals or clearances, limitations on intended use imposed
as a condition of such approvals or clearances, or failure to comply with
existing or future requirements would have a material adverse effect on our
business, financial condition and results of operations. FDA or other
governmental approvals of products we develop in the future may require
substantial filing fees which could limit the number of applications we seek 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.
Regulatory Status of Products
We have received 510(k) clearance to market the following lasers in an
aggregate of more than 100 specialty areas: CO\\2\\ (four models: 10W, 20W, 35W,
65W); Nd:YAG (four models: 20W, 40W, 60W, 100W); Ho:YAG (one model); Er:YAG (two
models); 1.32 micron Nd:YAG (two models: 15W, 25W); .532 micron Nd:YAG (one
model); Argon (three models); diode (four models); Nd:YAG/Er:YAG combination
laser (one model). Each of these lasers has clearances in multiple specialty
areas. We have also received 510(k) clearance to market a scanner, sculptured
fiber contact tip fibers, bare fibers, TouchTIPS, AngleTIPS and focusing tips
for all cleared wavelengths of our lasers. If a device for which we have
already received 510(k) premarket clearance is changed or modified in design,
components, method of manufacture or
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intended use, such that the safety or effectiveness of the device could be
significantly affected, a new 510(k) premarket notification is required before
the modified device can be marketed in the United States. We have made
modifications to certain of our products which we believe do not require the
submission of new 510(k) notifications. However, we cannot assure you that the
FDA will agree with our determinations. If they did not, they could require us
to discontinue marketing one or more of the modified devices until they have
been cleared. There also can be no assurance that any such clearance of
modifications would be granted should clearance be necessary.
OIS has received 510(k) clearance for its digital angiography products and
Digital Slit Lamp, and EyeSys has received 510(k) clearance for its System 2000
and Vista corneal topography systems.
We are currently conducting preclinical animal studies and clinical trials,
both under approved IDEs and as nonsignificant risk studies. We do not know if
the results of any of these clinical studies will be successful or if the FDA
will require us to discontinue any of these studies in the interest of the
public health or due to any violations of the FDA's IDE regulations. We cannot
assure you that we will receive approval from the FDA to conduct any of the
significant risk studies for which we seek IDE approval, or that the FDA will
not disagree with our determination that any of its studies are "nonsignificant
risk" studies and require us to obtain approval of an IDE before the study can
continue.
Additional Regulatory Requirements
Any products manufactured or distributed by us under a 510(k) premarket
clearance notification or premarket approval application are or will be subject
to pervasive and continuing regulation by the FDA. The FDC Act also requires us
to manufacture our products in registered establishments and in accordance with
current GMP regulations, which include testing, control and documentation
requirements. We must also comply with Medical Device Reporting requirements
that a firm report to the FDA any incident in which its product may have caused
or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, would be likely to cause or
contribute to a death or serious injury. Our facilities in the United States
are subject to periodic inspections by the FDA. The FDA may require
postmarketing surveillance with respect to our products. The export of medical
devices is also subject to regulation in certain instances.
All lasers that we manufacture are subject to the Radiation Control for
Health and Safety Act administered by the Center for Devices and Radiological
Health of the FDA. The law requires laser manufacturers to file new product and
annual reports and to maintain quality control, product testing and sales
records, to incorporate certain design and operating features in lasers sold to
end users under a performance standard, and to comply with labeling and
certification requirements. Various warning labels must be affixed to the
laser, depending on the class of the product under the performance standard.
In addition, the use of our products may be regulated by various state
agencies. For instance, we are required to register as a medical device
manufacturer with certain state agencies. In addition to being subject to
inspection by the FDA, we also will be routinely inspected by the State of
California for compliance with GMP regulations and other requirements.
Although we believe that we currently comply in all material respects and
will continue to comply with the applicable regulations regarding the
manufacture and sale of medical devices, these regulations are always subject to
change and depend heavily on administrative interpretations. OIS has recently
outsourced its manufacturing operations to Premier, and therefore OIS also
depends on Premier's continuing compliance with these regulations.
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It is possible that future changes in law, regulations, review guidelines
or administrative interpretations by the FDA or other regulatory bodies, with
possible retroactive effect, could adversely affect our business, financial
condition and results of operations. In addition to the foregoing, we are
subject to numerous federal, state and local laws relating to such matters as
safe working conditions, manufacturing practices, environmental protection, fire
hazard control and disposal of hazardous or potentially hazardous substances.
There can be no assurance that we will not be required to incur significant
costs to comply with these laws and regulations in the future, or that such laws
or regulations will not have a material adverse effect upon our ability to
conduct business.
Furthermore, the introduction of our products in foreign countries often
requires obtaining foreign regulatory clearances, and additional safety and
effectiveness standards are required in certain other countries. We believe
that only a limited number of foreign countries currently have extensive
regulatory requirements. These countries include the European Union countries,
Canada, Mexico and Japan. Domestic manufacturing locations of American
companies doing business in certain foreign countries, including European Union
countries, may be subject to inspection. The time required for regulatory
approval in foreign countries varies and can take a number of years. During the
period in which we will be attempting to obtain the necessary regulatory
approvals, we expect to market our products on a limited basis in certain other
countries that do not require regulatory approval. We cannot assure you that
our products will be cleared or approved by the FDA or other governmental
agencies for additional applications in the United States or in other countries
or that countries that do not now require regulatory approval will not require
such approval in the future.
Manufacturing and Materials
Manufacturing of our products consists of component assembly and systems
integration of electronic, mechanical and optical components and modules. Our
product costs are principally related to the purchase of raw materials while
labor and overhead have been reduced due to the use of customized tooling and
automated test systems. We believe that our customized tooling and automated
systems improve quality and manufacturing reliability resulting in lower overall
manufacturing costs. We believe that these systems will allow us to expand
production rapidly.
Recently, OIS has outsourced the assembly of its products to Premier.
We purchase certain raw materials, components and subassemblies included in
our products and OIS's products from a limited group of qualified suppliers and
do not maintain long-term supply contracts with any of our key suppliers. While
multiple sources of supply exist for most critical components used in our laser,
corneal topography and fiberoptic delivery systems, the disruption or
termination of these sources could prevent us from being able to ship products,
which would materially harm our business. Vendor delays or quality problems
could also result in production delays of up to six months as several components
have long production lead times. These long lead times, as well as the need for
demonstration units, require a significant portion of working capital to fund
inventory growth. We have in the past experienced, and may continue to
experience, shortages in raw materials and certain supplies.
We own the molds used to produce certain proprietary parts of the devices.
We also design and develop the software necessary for the operation of our laser
systems. We design and assemble our own fiberoptic delivery systems and laser
accessory equipment such as laser carts and associated disposable supplies. We
believe that our manufacturing practices comply with GMP regulations.
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Backlog of Orders
We typically ship to order and therefore have no material backlog.
Product Liability and Insurance
Since our products are intended for use in the treatment of human medical
conditions, we are subject to an inherent risk of product liability and other
liability claims which may involve significant claims and defense costs. We
currently have product liability insurance with coverage limits of $5.0 million
per occurrence and $5.0 million in the aggregate per year. Product liability
insurance is expensive and subject to various coverage exclusions, and in the
future may not be available in acceptable amounts, on acceptable terms, or at
all. Although we do not have any outstanding product liability claims, in the
event we were to be held liable for damages exceeding the limits of our
insurance coverage or outside of the scope of our coverage, our business and
results of operations could be materially adversely affected. Our reputation
and business could also be adversely affected by product liability claims,
regardless of their merit or eventual outcome.
Employees
As of May 11, 1999, Premier (including EyeSys, but excluding OIS) employed
78 people, 4 of whom are employed on a part-time basis. None of these employees
are represented by a union. Twenty employees perform sales, marketing and
customer support activities. The remaining employees perform manufacturing,
financial, administration, regulatory, research and development and quality
control activities. We also engage the services of many independent contractors
and temporary personnel. We believe that our relationship with our employees is
good.
OIS Employees
As of May 11, 1999, OIS had 25 employees, 23 of which were full time
employees. These include 12 persons engaged in sales, marketing and customer
support activities. OIS also engages the services of consultants from time to
time to assist it 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. OIS 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. OIS
considers its relationship with its employees to be good.
Legal Proceedings
Lease Litigation
In February, 1999, we were sued by Telephone Real Estate Equity Trust,
Inc., a company that had leased office space to EyeSys, under a lease that has
now terminated. The case is pending in the District Court of Harris County,
Texas. The former lessor contends that EyeSys did not validly exercise its
rights to terminate the lease, and that it is therefore liable for amounts
specified in the lease. This case is presently in the discovery stage. We intend
to vigorously defend this case.
Optical Fiber Litigation
In March 1994, we instituted litigation (the "Fiber Litigation") in the
U.S. District Court, Central District of California, against Infrared Fiber
Systems, Inc., a Delaware corporation ("IFS") which contracted
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to supply optical fiber to us for our ER:YAG laser. Two of IFS's senior officers
are also named as defendants. Our complaint in this matter alleges that IFS and
two of its officers made misrepresentations to us and that IFS breached its
agreement to supply fibers and certain warranties concerning the quality of the
fiber to be provided. We are seeking damages and an injunction requiring IFS to
subcontract the production of optical fiber to a third party, as provided in the
supply agreement. In April 1994, IFS filed a general denial and a cross-
complaint against us alleging breach of contract and intentional interference
with prospective economic advantage, seeking compensatory damages "in excess of
$500,000," punitive damages and a judicial declaration that the contract has
been terminated and that IFS is free to market its fibers to others. In
September 1996, IFS filed a new cross-complaint alleging the same causes of
action and seeking substantially the same relief in the Orange County California
Superior Court. We have filed an answer to the complaint, denying the
allegations and asserting several affirmative defenses.
IFS has agreed to license certain fiber technologies, to which we claim
exclusive license rights, to Coherent, Inc. ("Coherent"), a competitor of ours.
Coherent joined the above federal litigation on behalf of IFS, seeking a
declaration that IFS had the legal right to enter into this license and supply
the fiber covered by that agreement, and then subsequently filed a new complaint
in the Orange County California Superior Court for declaratory relief, seeking
an order that our original agreement with IFS applies only to a specific type of
optical fiber. We have answered this complaint. We have reached an agreement
in principle with IFS to settle the litigation between us and are in the process
of preparing a written settlement agreement. Although we are hopeful that the
formal settlement agreement will be successfully negotiated, we cannot assure
you that the agreement will actually be completed. The settlement agreement
under discussion does not terminate the litigation as between Premier and
Coherent.
In May 1995, we instituted litigation concerning this dispute in the Orange
County, California Superior Court against Coherent, Westinghouse Electric
Corporation ("Westinghouse") and an individual employee of Westinghouse who was
an officer of IFS from 1986 to 1993, when the events involved in the federal
action against IFS took place and while Westinghouse owned a substantial
minority interest in IFS. The complaint charges that Coherent conspired with IFS
in the wrongful conduct which is the subject of the federal lawsuit described
above and interfered with our contracts and relations with IFS and with
prospective contracts and advantageous economic relations with third parties.
The complaint asserts that Westinghouse is liable for its employee's wrongful
acts as an IFS executive while acting within the scope of his employment at
Westinghouse. The lawsuit seeks injunctive relief and compensatory damages. In
October 1995, the federal action was stayed by order of the court in favor of
the California state court action, in which the pleadings have been amended to
include all claims asserted by us in the federal action.
In July 1996, the court in the California state court action granted
demurrers by Westinghouse and the employee of Westinghouse to all causes of
action against them, as well as all but one of our claims against Coherent. As
a result, the claims that were the subject of the granted demurrer have been
dismissed, subject to our right to appeal. We have appealed these decisions as
they relate to Westinghouse and the Westinghouse employee. Oral arguments have
been heard, and we are awaiting a decision. No trial date has been set as to
the remaining outstanding causes of action.
Securities Class Action
On May 1, 1998, a class action suit (the "Valenti Litigation") was
commenced in the United States District of Court for the Central District of
California under the federal securities laws on behalf of purchasers of our
securities during the period from February 12, 1998 through April 15, 1998. The
complaint alleges that Premier and certain of our officers and directors
violated the federal securities laws by issuing false and misleading statements
and omitting material facts regarding our financial results and operations
during such period. Among other things, the complaint alleges that the
defendants materially misstated our financial results for the fiscal quarter
ended December 31, 1998 and that as a result of such
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misstatements, the plaintiff suffered damages as a result of a decrease in the
market price of our publicly traded securities.
After the filing of this complaint, a number of similar complaints were
also filed in the United States District Court for the Central District of
California, seeking certification as class actions, and covering class periods
commencing as early as May 7, 1997. These complaints alleged facts similar to
those described above with respect to the Valenti Litigation, as well as
allegations that we artificially inflated the price of our outstanding publicly
traded securities as a result of misrepresentations relating to the market and
prospects for sale of our Centauri ER:YAG laser. All of the above described
complaints seek monetary damages in unspecified amounts, together with attorneys
fees, interest, costs and related remedies. All of these class action lawsuits
have now been consolidated into a single action.
We have also been named as a nominal defendant in a shareholder derivative
lawsuit filed in the Orange County, California Superior Court, in a case
captioned Eskeland vs. Cozean, et al. The complaint was filed by a shareholder
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of ours, on behalf of Premier, against certain of our officers and directors,
including Colette Cozean, Michael Hiebert, Richard Roemer, Ronald Higgins,
Patrick Day, Grace Chin-Hsin Lin, G. Lynn Powell, and E. Donald Shapiro. The
complaint alleges, among other things, that these persons violated their
fiduciary duty to Premier by exposing Premier to liability under the securities
laws, failing to ensure that Premier maintained adequate accounting controls,
and related alleged actions and omissions. Although Premier is a named
defendant, the lawsuit seeks to recover damages from the individual defendants
on behalf of Premier. Accordingly, it is not clear whether Premier will have
any liability or incur any material loss as a result of being named as a
defendant in this matter.
Investigations and Other Matters
We have been notified that the Securities and Exchange Commission has
instituted an investigation concerning matters pertaining to our revenue
reporting practices, and related management issues. We are cooperating with the
Securities and Exchange Commission in connection with this investigation. This
investigation, we believe, generally relates to whether Premier, in Securities
and Exchange Commission filings and press releases issued prior to the end of
the 1998 fiscal year, properly recognized revenues for transactions occurring
during fiscal 1997, and at interim periods in fiscal 1998. To date, the
Securities and Exchange Commission has not indicated that it is seeking to
impose any penalties on Premier or that it is made any specific findings with
respect to our accounting practices.
In May 1998, the Nasdaq Stock Market suspended the trading of our
securities and notified us that they intended to delist these securities. We
appealed this proposed action, and in October 1998 our appeal was granted.
Trading of our securities on the Nasdaq Stock Market National Market recommenced
on October 22, 1998.
We are also involved in various disputes and other lawsuits from time to
time arising from its normal operations. The litigation process is inherently
uncertain and it is possible that the resolution of the IFS litigation,
securities class actions, disputes and other lawsuits may adversely affect us.
OIS Litigation
On September 6, 1996, a former employee of OIS filed an action in Superior
Court in the County of Sacramento, California against OIS by alleging that he
was wrongfully terminated by OIS in retaliation for filing a grievance against a
co-employee for harassment and creation of a hostile work environment. The suit
seeks, among other things, lost wages, $150,000 in compensatory damages, and
punitive damages. OIS believes that this action is without merit and intends to
defend this action vigorously.
45
<PAGE>
On or about August 17, 1997, OIS was advised that J.B. Oxford &
Company, one of several market makers in OIS's common shares which trade over
the counter on the Nasdaq Stock Market Small-Cap Market, was being investigated
by the SEC. OIS is cooperating with the Securities and Exchange Commission
investigation of J.B. Oxford & Company. OIS does not believe that it is a
subject of such Securities and Exchange Commission inquiries.
46
<PAGE>
MANAGEMENT
Management of the Company
Our executive officers and directors as of May 12, 1999 were as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Colette Cozean 41 Chairman, Chief Executive Officer
President and Director of Research
Jeffrey A. Anderson 32 Vice President, Regulatory Affairs and
Quality Assurance
Tom Hazen 57 Executive Vice President, Operations
Robert V. Mahoney 57 Chief Financial Officer, Executive
Vice President, Finance
Judith A. McCall 58 Vice President, Human Resources,
Administration and Special Projects
and Secretary
Lawrence D. Ashcroft(/1/)(/2/) 70 Director
Patrick J. Day 72 Director
Fredric J. Feldman, Ph.D.(/1/)(/2/) 59 Director
John Hunkeler, M.D., F.A.C.S.(/1/) 57 Director
G. Lynn Powell(/1/) 57 Director
Lewis H. Stanton(/2/) 45 Director
</TABLE>
_____________________________
(1) Member of the compensation committee.
(2) Member of the audit committee.
All directors hold office until the next Annual Meeting of Shareholders or
the election and qualification of their successors. Officers are elected
annually by the board of directors and serve at the discretion of the board.
The following provides information concerning the business experience,
principal occupations and employment, as well as periods of service, of each of
our directors and executive officers during at least the last five (5) years.
Colette Cozean, Ph.D. is a founder of Premier and has been its Chairman of
the Board of Directors, President and Director of Research since it commenced
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 Systems, a
division of Pfizer Hospital Products Group, Inc. and in such capacities managed
the development of the laser technologies which we acquired from Pfizer Laser
Systems. Prior to April 1987, Dr. Cozean held various research positions at
Baxter Edwards, a division of Baxter Healthcare Corporation, and American
Technology and Ventures, a division of American Hospital Supply Company. Baxter
Healthcare Corporation and American Hospital Supply Company are manufacturers
and suppliers of advanced medical products. Dr. Cozean holds
47
<PAGE>
several patents, has published many articles and has served as a member of the
National Institutes of Health grant review committee. Dr. Cozean received 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.
Jeffrey A. Anderson has been Vice President, Regulatory Affairs and Quality
Assurance since September 1997 when he joined Premier. Prior to such time and
since November 1995, Mr. Anderson had served as Regulatory Affairs Manager of
Medtronic. From December 1993 to November 1995, Mr. Anderson served as
Regulatory Affairs Specialist of Sybron Dental Specialties and from December
1991 to December 1993, he served as Regulatory Affairs/Quality Assurance Manager
of Laser Medical Technology, Inc. Mr. Anderson received a B.S. in Physics from
California State University Fullerton.
Tom Hazen has been the Executive Vice President, Operations of Premier
since October 1997. Prior to joining Premier and since 1992, Mr. Hazen served as
Vice President of Operations of Imagyn Medical, Inc. In addition, Mr. Hazen has
served in various executive offices with several companies in the medical field
specializing in product development and manufacturing. These positions include
Vice President Operations at MICA Technology Services in Buffalo Grove, Illinois
and President and Chief Executive Officer of California based Dolphin Imaging
Systems. Mr. Hazen received a BSME degree from the University of Arizona and an
MBA from UCLA.
Robert V. Mahoney joined Premier in December 1998 as the Chief Accounting
Officer, and became Chief Financial Officer and Executive Vice President-Finance
in January 1999. Before then and since February 1997, Mr. Mahoney served as
Director, Strategy and New Ventures of Tandem Computers, Inc. From August 1996
until November 1996, Mr. Mahoney was an employee of Superstill Technology, Inc.
Before his employment at Superstill Technology, from January 1996 until July
1996, Mr. Mahoney served as the Chief Financial Officer and Senior Vice
President, Finance of Interactive Network, Inc. Mr. Mahoney received a MBA from
Stanford University and holds a B.S. in Public Policy from the United States Air
Force Academy.
Judith A. McCall has been with Premier since April 1993 and became Vice
President, Human Resources, Administration and Special Projects and Secretary in
January 1998. For the past three years, Ms. McCall has headed our human
resources department. Prior to joining Premier, Ms. McCall held various senior
operations and administrative positions with firms in Southern California and
served as Director of Training and Development for API Security. Ms. McCall
received a M.A. in Marriage, Family and Child Psychology from Azusa Pacific
College in Azusa, California and a B.A. in Christian Education from St. Andrews
Presbyterian College in Lauringburg, North Carolina.
Lawrence D. Ashcroft joined the board of directors in December 1998. Mr.
Ashcroft has held a number of senior management and directorial posts in both
the United States and Europe. Before his retirement, from 1988 to 1995, Mr.
Ashcroft served as Chairman of the Board of Directors of Cardiopet, Inc., a
company which specialized in reading animal electrocardiograms worldwide via
telephone. Mr. Ashcroft currently serves on the board of directors of Leading
Edge Technologies and is a non-executive director of Tatatech Inc., Westergaard
Broadcasting Inc. and Comstock and Madison Systems Inc.
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. Mr. Day 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, our Chairman of the Board and President. Mr. Day
received a B.A. in accounting from the University of Idaho.
Fredric J. Feldman, Ph.D. joined the board of directors in December 1998.
Dr. Feldman has been a consultant to start up healthcare companies, investment
banks and venture capital groups since 1992.
48
<PAGE>
Before and during that period, Dr. Feldman served as Chief Executive Officer of
Biex, Inc., a company specializing in womens' health; as Chief Executive Officer
and Chairman of the Board of Directors of Oncogenetics, Inc., a cancer
diagnostics company; and as President and Chief Executive Officer of Microgenics
Corporation, a biotechnology company. Currently, Dr. Feldman serves as a
director for Ostex International, Inc., SangStat Medical Corporation and
Orthologic Corp. and several private companies. Dr. Feldman received a Ph.D. in
Analytical Chemistry and a M.S. in Inorganic Chemistry from the University of
Maryland and a B.S. in Chemistry from the City University of New York.
John D. Hunkeler, M.D., F.A.C.S. joined the board of directors in December
1998. Dr. Hunkeler is a board certified ophthalmologist who has been in private
practice in Kansas City, Missouri since 1973. He is also a professor and
Chairman of the Department of Ophthalmology at the University of Kansas Medical
Center, the President of Hunkeler Eye Centers and the former President of the
American Society of Cataract and Refractive Surgery. Dr. Hunkeler is the former
Medical Director and is currently the Vice President of the Kansas City Eye
Bank. Dr. Hunkeler holds a B.A. from Harvard College and received his medical
degree from the University of Kansas in 1973.
G. Lynn Powell, D.D.S. 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 years.
Lewis H. Stanton joined the board of directors in December 1998. Mr.
Stanton has been the Executive Vice President, Chief Operating Officer and Chief
Financial Officer of MAI Systems Corporation since he joined that company in
1997. From 1996 until he joined MAI Systems in 1997, Mr. Stanton was the
President of Stanton & Associates, a consulting company. From September 1996
until January 1997, Mr. Stanton served as acting Chief Executive Officer of
Worldwide Networks, Inc., an Internet access provider. From 1988 until 1996,
Mr. Stanton served as Chief Financial Officer of Data Analysis Inc., the parent
company of Investor's Business Daily, a national daily newspaper; William O'Neal
& Co. Inc., an institutional research firm and database company; and other
companies. From 1976 until 1988, Mr. Stanton was with the international
accounting firm Arthur Andersen & Co., specializing in financial services. Mr.
Stanton is a member of the AICPA and was chair of the California Society of
CPAs, Los Angeles, Members in Industry Committee for four years.
Director Compensation
All directors are elected annually and hold office until the next annual
meeting of shareholders and until their successors are duly elected and
qualified. We pay all nonemployee directors $1,000 per board meeting attended,
$1,000 per committee meeting attended which is not in conjunction with a board
meeting, $500 per committee meeting attended in conjunction with a board
meeting, and $500 per telephonic board or committee meeting. In addition, we
reimburse directors for their out-of-pocket expenses incurred in attending
meetings of the board of directors and its committees. During the fiscal year
ended March 31, 1999, Dr. Powell received a cash bonus of $5,000 for his efforts
in obtaining FDA clearance for endodontic applications. We may also
periodically award options or warrants to our directors, under our existing
stock option plans and otherwise.
49
<PAGE>
Our articles of incorporation and indemnification agreements entered
into between us and certain of our directors and officers require us to
indemnify these officers and directors to the fullest extent permitted by
applicable law against liabilities incurred in connection with their duties as
officers and directors of Premier. These indemnification rights may extend to
liabilities under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of Premier, we have been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable.
50
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning compensation paid to
our Chief Executive Officer and each other executive officer of Premier who
received an annual salary and bonus of more than $100,000 for services rendered
to us during the fiscal year ended March 31, 1999.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
-------------
Annual Compensation(/1/) Securities
Fiscal ------------------------ Underlying All Other
Name and Principal Position Year Salary Bonus Stock Options Compensation
--------------------------- ------ ------------------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Colette Cozean, President, 1999 $250,000 $ 25,000 -0- $38,950(/2/)
Chief Executive Officer and 1998 $165,000 $100,000 1,000,000 $16,704(/3/)
Director of Research 1997 $151,064 $ -- 217,500 $32,300(/4/)
Tom Hazen 1999 $150,000 $ 20,000 -0- --
Executive Vice President,
Operations
</TABLE>
_____________________________
(1) Excludes perquisite and other personal benefits, securities and properties
otherwise categorized as salary or bonuses which in the aggregate, for each
of the named persons did not exceed the lesser of either $50,000 or 10% of
the total annual salary reported for such person. The board has authorized
Premier to enter into Termination Agreements with the above executive
officer which will provide, when executed, that in the event of a
termination of employment following a change in control of Premier, as
defined in such agreement, the named executive officer will receive (1) a
lump sum cash payment equal to two times the highest annual level of total
cash compensation paid to that officer during the three calendar years
before the termination; (2) immediate vesting of all previously granted
stock options; and (3) continuing health benefits for a period of 24 months.
We have also entered into Employment Agreements with the named persons which
provide for two to four months of severance benefits upon their termination
of employment. Based upon salary levels as of March 31, 1999, these
severance benefits would be approximately $83,334 for Dr. Cozean and $37,500
for Mr. Hazen.
(2) Represents $32,500 of premiums incurred by Premier for a split-dollar life
insurance policy in the amount of $2 million on the life of Dr. Cozean and
an auto allowance of $6,450.
(3) Represents $5,000 of premiums paid by Premier for a split-dollar life
insurance policy in the amount of $2 million on the life of Dr. Cozean and
an auto allowance of $11,704.
(4) Represents $27,500 of premiums paid by Premier for a split-dollar life
insurance policy in the amount of $2 million on the life of Dr. Cozean and
an auto allowance of $4,800.
Options Granted in Last Fiscal Year
During the fiscal year ended March 31, 1999, Premier did not grant any
stock options to either of the executive officers named in the Summary
Compensation Table above.
Aggregated Option Exercises and Fiscal Year-End Option Values
The following table provides information regarding stock options exercised
by the named executive officers during the fiscal year ended March 31, 1999, as
well as the number of exercisable and unexercisable
51
<PAGE>
in-the-money stock options and their values at fiscal year-end. An option is in-
the-money if the fair market value for the underlying securities exceeds the
exercise price of the option.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised Options In-the-Money Options at
Shares at March 31, 1999 March 31, 1999(1)
Acquired Value ------------------------- ----------------------------
on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Colette Cozean, Ph.D. ... 0 0 1,043,650/1,716,150 $0/$0
Tom Hazen ............... 0 0 50,000/150,000 $0/$0
</TABLE>
____________________
(1) Represents the Nasdaq Stock Market last sale price of underlying securities
at fiscal year end, minus the exercise price of the options.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended March 31, 1999, the members of the
compensation committee were Dr. Feldman, Dr. Hunkeler, Dr. Powell and Mr.
Ashcroft, all of whom are non-employee directors of Premier. No member of the
compensation committee has a relationship that would constitute an interlocking
relationship with executive officers and directors of another entity.
Board Compensation Committee Report on Executive Compensation
The compensation committee of the board of directors hereby submits its
report concerning the compensation of Premier's executive officers, including
the Chief Executive Officer. The compensation committee is responsible for
setting and administering the compensation policies of Premier with respect to
our executive officers.
Our executive compensation program is designed to align executive
compensation with our business strategy and performance. The goals of the
executive compensation program are: (i) to attract and retain key executives
critical to the success of Premier; (ii) to provide levels of compensation which
are competitive with other entities in the industry of similar size; and (iii)
to motivate executives to enhance long-term shareholder value by building
appropriate ownership in Premier.
We have postponed our consideration of the annual compensation for the
executive officers, including Dr. Colette Cozean, our President and Chief
Executive Officer, including base salaries, coupled with stock options and other
incentives until our next meeting which is scheduled for June 1999. Base
salaries are the fixed component of the executive officers' compensation
package. Salaries are set and adjusted based upon competitive standards and
individual performance. During fiscal 1998, we also engaged Ernst & Young, LLP
to perform a survey of compensation packages for Chief Executive Officers of
comparable companies.
We have agreed to implement a new bonus plan to replace the current system
on which bonuses are awarded. The award of bonuses under the new plan will be
based on the achievement of clearly established performance objectives to be
determined by the committee and members of management. We intend to adopt the
bonus plan at our next meeting which is scheduled for June 1999.
A substantial portion of the compensation of executive officers is based
upon the award of stock options which rely on increases in the value of our
common stock. The issuance of options is intended to encourage such employees
to establish a meaningful, long-term ownership interest in Premier consistent
with
52
<PAGE>
the interests of our shareholders. Under our stock option plans, options
are granted from time to time to certain officers, directors and key employees
of Premier and its subsidiaries at the fair market value of our common stock at
the time of grant. Because the compensation element of options is dependent on
increases over time in the market value of such shares, stock options represent
compensation that is tied to our long-term performance.
COMPENSATION COMMITTEE:
Fredric J. Feldman, Ph.D., Chairman
Lawrence D. Ashcroft
John D. Hunkeler, M.D., F.A.C.S.
G. Lynn Powell, D.D.S.
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE COMPANIES, PEER GROUPS,
INDUSTRY INDEXES AND/OR BROAD MARKETS
<TABLE>
<CAPTION>
------------------------FISCAL YEAR ENDING-----------------------
COMPANY/INDEX/MARKET 11/30/1994 3/31/1995 3/29/1996 3/31/1997 3/31/1998 3/31/1999
<S> <C> <C> <C> <C> <C> <C>
Premier Laser Syst 100.00 80.00 172.50 110.00 210.00 46.88
Electromedical Equipment 100.00 116.74 190.35 171.13 242.41 302.03
NASDAQ Market Index 100.00 103.04 138.60 155.06 234.33 306.23
</TABLE>
Note: Base price date is 11/30/1994
SOURCE: MEDIA GENERAL FINANCIAL SERVICES
P.O. BOX 85333
RICHMOND, VA 23293
PHONE: 1-(800) 446-7922
FAX: 1-(804) 649-6826
53
<PAGE>
CERTAIN TRANSACTIONS
On April 3, 1999, the board of directors extended the expiration date of an
option to purchase 4,522 shares of common stock until April 22, 2000. The
options had previously been granted to T. Daniel Caruso (a former executive
officer of Premier who passed away in October 1998) and were subsequently
inherited by is widow.
In December 1998, we granted options to purchase 40,000 shares of common
stock to three newly elected directors: Dr. Feldman, Dr. Hunkeler and Mr.
Stanton. In January 1999, we granted an option to purchase 40,000 shares of
common stock to Mr. Ashcroft when he came on the board. All of these options
vest over four years beginning on March 31, 1999. These options have an exercise
price of $2.00 per share, the fair market value of our common stock on the date
of grant. In January 1999, we also granted an option to purchase 225,000 shares
of common stock to Mr. Robert Mahoney, our Chief Financial Offer. This option
has an exercise price of $1.906 per share.
In fiscal 1998, we issued options to purchase the following numbers of
shares to our directors: (1) Colette Cozean - 1,000,000 shares vesting over 5
years; (2) Patrick J. Day, Grace Ching - Hsin Lin, G. Lynn Powell, and E. Donald
Shapiro - 40,000 shares each vesting over 4 years. All of these options have an
exercise price of $7.98 per share, the fair market value of our common stock on
the date of grant. In addition to the above, Mr. Shapiro and Dr. Powell were
each granted options to purchase 30,000 shares at $10.31 per share vesting over
3 years in connection with services rendered by them. All of the above options
have a term of ten years.
In fiscal 1997, we issued options to purchase the following numbers of
shares to our officers and directors: (1) Colette Cozean - 217,500 shares,
vesting over 3 years; (2) each of Patrick J. Day, Grace Lin and E. Donald
Shapiro - 40,000 shares vesting over 4 years; (3) G. Lynn Powell - 62,500 shares
vesting over 8 years; (4) Michael Hiebert - 72,000 shares vesting over 4 years;
and (5) Judith McCall - 60,000 shares vesting over 3 years. All of these options
had an exercise price of $6.125 per year.
On February 21, 1998, the board of directors extended the terms of two
warrants which it had previously granted to Patrick J. Day, one of our
directors, as follows:
Before our initial public offering in 1994, we issued to Mr. Day a warrant
to purchase 9,044 shares of Class A Common Stock, 8,008 shares of Class E-1
Common Stock and 8,008 shares of Class E-2 Common Stock at an aggregate exercise
price of $100,000. Such warrant initially provided for an expiration date of
August 7, 1996. The board extended the expiration of this warrant on May 20,
1996 until March 31, 1997, again on February 21, 1997 until March 31, 1998, and
again in February 1998 until August 7, 2000.
We have also previously granted to Mr. Day another warrant to purchase
9,948 shares of Class A Common Stock, 8,008 shares of Class E-1 Common Stock and
8,008 shares of Class E-2 Common Stock at an aggregate exercise price of $9,948.
This warrant initially provided for an expiration date of April 26, 1998. In
February 1998, the board extended the term of this warrant for an additional two
years expiring on April 26, 2000.
54
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table provides information as of May 12, 1999, regarding the
beneficial ownership of our common stock by: (1) all persons known by us to
beneficially own more than 5% of our common stock, (2) each of our directors and
executive officers, (3) all directors and executive officers as a group, and (4)
the selling shareholders. The following table treats the common stock, the
Class E-1 Common Stock and the Class E-2 Common Stock as a single class.
<TABLE>
<CAPTION>
Amount and Shares Beneficially
Nature of Percent of Owned After Offering(12)
Name and Address Beneficial Common Shares Being ---------------------
of Beneficial Owner(/1/) Ownership Stock Offered(/11/) Number Percent
- ------------------------ ---------- ----------- -------------------- --------- --------
<S> <C> <C> <C> <C> <C>
Colette Cozean, Ph.D.(/2/).................. 1,187,145 6.4% 0 1,187,145 6.4%
Patrick J. Day(/3/)......................... 279,993 1.6% 0 279,993 1.6%
G. Lynn Powell, D.D.S.(/4/)................. 91,501 * 0 91,501 *
Lawrence D. Ashcroft (/5/).................. 10,000 * 0 10,000 *
Fredric J. Feldman, Ph.D.(/5/).............. 10,000 * 0 10,000 *
John D. Hunkeler, M.D., F.A.C.S.(/5/)....... 10,000 * 0 10,000 *
Lewis H. Stanton (/5/)...................... 10,000 * 0 10,000 *
Robert V. Mahoney (/6/)..................... 17,308 * 0 17,308 *
Tom Hazen (/7/)............................. 52,006 * 0 52,006 *
Jeffrey Anderson (/8/)...................... 42,551 * 0 42,551 *
Judith A. McCall(/9/)....................... 85,696 * 0 85,696 *
All directors and executive
officers as a group (11 persons)(/10/)...... 1,796,140 9.5% 0 1,796,140 9.5%
Selling Shareholders
- --------------------
Strong River Investments, Inc.(/13/)(/14/).. 787,278 4.999% 2,119,073 0 0%
Herkimer, LLC(/13/)(/14/)................... 787,278 4.999% 2,119,073 0 0%
Wharton Capital Marketing, Ltd.............. 20,000 * 20,000 0 0%
The Olmstead Group, LLC..................... 10,000 * 10,000 0 0%
I.F. Bodkin................................. 10,000 * 10,000 0 0%
</TABLE>
__________________
* Less than 1%.
(1) The address of each of the individuals listed (other than the selling
shareholders) is 3 Morgan, Irvine, California 92618. Unless otherwise
noted, we believe that all persons named in the table have sole investment
and voting power with respect to all shares of Class A Common Stock
beneficially owned by such person, such shares, subject to community
property laws where applicable.
(2) Includes 52,049 shares of Class A Common Stock, 43,514 shares of Class E-1
Common Stock and 43,514 shares of Class E-2 Common Stock held by Dr. Cozean
and 1,594 shares of Class A Common Stock, 1,412 shares of Class E-1 Common
Stock and 1,412 shares of Class E-2 Common Stock held by Dr. Cozean as
custodian for her two minor children. Also includes 1,043,650 of Class A
Common Stock subject to options exercisable within 60 days.
(3) Includes 54,263 shares of Class A Common Stock, 24,023 shares of Class E-1
Common Stock and 24,023 shares of Class E-2 Common Stock. Also includes
143,992 shares of Class A Common Stock, 16,816 shares of Class E-1 Common
Stock and 16,816 shares of Class E-2 Common Stock subject to warrants and
options exercisable within 60 days.
55
<PAGE>
(4) Includes 91,501 shares of Class A Common Stock subject to warrants and
options exercisable within 60 days.
(5) Consists of 10,000 shares of Class A Common Stock subject to options
exercisable within the next 60 days.
(6) Consists of 17,308 shares of Class A Common Stock subject to options
exercisable within 60 days.
(7) Includes 2,006 shares of Class A Common Stock and 50,000 shares of Class A
Common Stock subject to options exercisable within 60 days.
(8) Includes 885 shares of Class A Common Stock and 41,666 shares of Class A
Common Stock subject to options exercisable within 60 days.
(9) Includes 1,339 shares of Class A Common Stock and 84,357 shares of Class A
Common Stock subject to options exercisable within 60 days.
(10) Includes 112,136 shares of Class A Common Stock, 68,949 shares of Class E-1
Common Stock and 68,949 shares of Class E-2 Common Stock. Also includes
1,512,474 shares of Class A Common Stock, 16,816 shares of Class E-1 Common
Stock and 16,816 shares of Class E-2 Common Stock subject to warrants and
options exercisable within 60 days.
(11) We will not receive any of the proceeds from the sale of these securities.
Except as described below, there are no material relationships between any
of the selling shareholders and us, nor have any such material
relationships existed within the past three years.
(12) Assumes resale of all shares of common stock offered hereby.
(13) The debentures prohibit the holder thereof from converting a principal
amount thereunder (or receiving shares of common stock as payment of
interest thereunder) to the extent that such conversion would result in the
holder of debentures, together with any affiliate thereof, beneficially
owning in excess of 4.999% of the outstanding shares of common stock
following such conversion (or issuance of interest). Such restriction may
be waived by a holder of the debentures as to itself upon not less than 75
days' notice to Premier. The number of shares of common stock listed as
beneficially owned by each selling shareholder represents the number of
shares of common stock issuable to such selling shareholder (i) subject to
the limitation set forth in the first sentence of this footnote, upon
conversion of such selling shareholder's portion of the principal amount of
the debentures, at an assumed conversion price of $2.2594 (which price
will fluctuate from time to time based on changes in the market price of
the common stock and provisions in the formula for determining the
conversion price), and (ii) upon exercise of the warrant issued to such
selling shareholder in conjunction with the sale of debentures for the
purchase of 40,000 shares of common stock. Since the number of shares of
common stock issuable upon conversion of the debentures and as payment of
interest thereon is dependent in part upon the market price of the common
stock prior to a conversion, the actual number of shares of common stock
that will then be issued in respect of such conversions or interest
payments, and consequently the number of shares of common stock that will
then be beneficially owned by a selling shareholder, will fluctuate daily
and cannot be determined at this time.
(14) Represents (i) 200% of the shares of common stock issuable to the selling
shareholders upon conversion of the debentures and as payment of interest
thereunder, and (ii) the shares of common stock issuable to selling
shareholders upon exercise of the warrants issued to the selling
shareholders. Since the number of shares of common stock issuable upon
conversion of the debentures and as payment of interest thereon is
dependent in part upon the market price of the common stock prior to a
conversion, the actual number of shares of common stock that will then be
issued in respect of such conversions or interest payments and,
consequently, offered for sale under this Registration Statement, cannot be
determined at this time. Premier has contractually agreed to include
herein 4,278,146 shares of common stock issuable upon conversion of the
debentures, payment of interest thereunder and exercise of the warrants
issued to the selling shareholders.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and selected provisions of
our articles of incorporation and bylaws is a summary and is qualified in its
entirety by the terms of our articles of incorporation and bylaws, copies of
which have been filed with the Securities and Exchange Commission as exhibits to
the registration statement of which this prospectus is a part.
Common Stock
Premier is authorized to issue 35,600,000 shares of 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 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 when, as and if declared by the board of directors. See
"Dividend Policy." Shareholders have no preemptive rights and no right to
convert their common stock into any other securities. The holders 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 nonassessable and legally issued. The board of directors is authorized
to issue additional shares of common stock within the limits authorized by our
charter and without shareholder action. As of May 12, 1999, there were
14,961,436 shares of common stock outstanding held by approximately 787 holders
of record.
Class E Common Stock
As of May 12, 1999, there were outstanding 1,257,461 shares of Class E-1
Common Stock and 1,257,461 shares of Class E-2 Common Stock, held by
approximately 323 holders of record. The Class E-1 Common Stock and Class E-2
Common Stock is not transferrable but may be voted, and each share will
automatically convert into one share of Class A Common Stock and be released to
the owners thereof upon the achievement of the objectives described below. On
June 30, 2000, all shares of these securities which have not been converted into
Class A Common Stock will be cancelled. This arrangement was required by the
representative of the underwriters for our initial public offering.
All of the shares of Class E-1 Common Stock will be automatically converted
into Class A Common Stock if our net income before provision for income taxes,
including earnings from joint ventures, distribution agreements and licensing
agreements, but exclusive of any other earnings that are classified as an
extraordinary item, and exclusive of any charges to income that may result from
the conversion of the Class E-1 Common Stock and Class E-2 Common Stock into
common stock (as stated in our financial statements audited by our independent
accountants) amounts to at least $9,900,000 for the fiscal year ending
March 31, 2000 (which amount is based on the number of shares of common stock
currently outstanding or deemed outstanding, and is subject to adjustment based
on the weighted average number of shares outstanding during fiscal 2000).
All of the shares of Class E-2 Common Stock will be automatically converted
into Class A Common Stock if our net income before provision for income taxes,
calculated in the manner described above, amounts to at least $26,750,000
during the fiscal year ending March 31, 2000 (which amount is based on the
number of shares of common stock currently outstanding or deemed outstanding,
and is subject to adjustment based on the weighted average number of shares
outstanding during fiscal 2000).
Any money, securities, rights or property distributed in respect of the
Class E-1 Common Stock and Class E-2 Common Stock, including any property
distributed as dividends or pursuant to any stock split, merger,
recapitalization, dissolution or total or partial liquidation of Premier, shall
be held by Premier in
57
<PAGE>
escrow until conversion of these shares. If the conditions for conversion of the
Class E-1 and Class E-2 Common Stock are not attained, these shares, as well as
any dividends or other distributions made with respect thereto, will be
cancelled. The earnings levels set forth above were determined by negotiation
between us and the representative of the underwriter in our initial public
offering and should not be construed to imply or predict any level of future
earnings. We do not know if these levels will be attained.
Preferred Stock
Our articles of incorporation provide that our authorized preferred stock
consists of 20,000,000 shares, no value. There are no shares of our preferred
stock presently outstanding, however, previously we had an aggregate of
11,150,000 shares of preferred stock issued and outstanding, which shares were
subsequently converted into common stock. The board of directors has the
authority, without further action by the shareholders, to issue from time to
time up to 8,850,000 additional shares of preferred stock in one or more series
and to fix the terms, applicable to each series of preferred stock. The purpose
of authorizing the board of directors to determine such terms 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, reduce 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. The
issuance of preferred stock could also reduce the amounts otherwise available
for distribution to the holders of the common stock by creating more series of
preferred stock with distribution or liquidation preferences senior to the
common stock. We have no present plan to issue any shares of preferred stock.
Redeemable Class B Warrants
We have outstanding redeemable Class B Warrants which are currently listed
on the Nasdaq Stock Market National Market. The Class B Warrants are in fully
registrable form under a Warrant Agreement between us and American Stock
Transfer and Trust Company, and are evidenced by warrant certificates. These
warrants may be exercised upon surrender of the warrant certificate on or before
the expiration date or earlier redemption date, 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 warrants are being exercised.
Holders of the warrants do not have any voting or other rights of a shareholder
of Premier. Upon notice to the holders of the warrants, we have the right to
unilaterally reduce the exercise price or extend the expiration date of the
warrants. The 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 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 our employees,
directors and consultants.
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 before
November 30, 1999. As of May 12, 1999, there were outstanding 7,591,760 Class B
Warrants held by 48 holders of record. We have 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 the 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 before 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.
Shareholder Rights
On April 14, 1998, we paid a dividend of one preferred share purchase right on
each outstanding share of our common stock. Such rights entitle the holder to
purchase from Premier one one-hundredth of a share of
58
<PAGE>
Series A Junior Participating Preferred Stock, no par value of Premier at a
price of $50 per one one-hundredth of a preferred share (subject to adjustment).
These rights are not exercisable until the acquisition by a person or affiliated
group of 15% or more of the outstanding shares of our common stock, or the
commencement or announcement of a tender offer or exchange offer which would
result in the acquisition of 15% or more of our outstanding shares. These rights
expire on April 13, 2008, unless extended or unless the rights are redeemed or
exchanged by Premier before the expiration date. The preferred shares
purchasable upon exercise of the rights will not be redeemable. These shares
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 common share. In the event of a liquidation, the holders
of the preferred shares purchasable upon exercise of the rights 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 common share.
Each of these preferred shares will have 100 votes and will vote together with
the common shares. Additionally, in the event of any merger, consolidation or
other transaction in which common shares are exchanged, each of these preferred
shares will be entitled to receive 100 times the amount received per common
share. Until the rights are exercised, the holders will have no rights as a
shareholder of Premier, including, without limitation, the to vote or receive a
dividend.
Limitation of Liability of Directors and Indemnification of Directors and
Officers
Our bylaws provide that we will indemnify our directors and officers to the
fullest extent permitted by California law. We are also empowered under our
bylaws to enter into indemnification contracts with our directors and officers
and certain others and to purchase insurance on behalf of any person we are
required or permitted to indemnify. Under this provision, we have entered into
indemnity agreements with each of our directors and executive officers and
certain key consultants.
In addition, our articles of incorporation provide that, to the fullest
extent permitted by California law, our directors will not be liable for
monetary damages for breach of the directors' fiduciary duty of care to Premier
or our shareholders. This provision does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of nonmonetary relief would remain available under California law. Each
director will continue to be subject to liability for breach of the director's
duty of loyalty to Premier, for:
. acts or omissions involving intentional misconduct or knowing and culpable
violations of law
. acts or omissions that the director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director
. any transaction from which the director derived an improper personal
benefit
. acts or omissions involving a reckless disregard for the director's duty to
or our shareholders when the director was aware or should have been aware
of a risk of serious injury to Premier or its shareholders
. acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to Premier or our
shareholders
. improper transaction between the director and Premier
. improper distributions to shareholders and loans to directors and officers
or
. acts or omissions by the director as an officer
This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
Premier is currently engaged in class action litigation in which certain
current and former directors are seeking indemnification, and for which Premier
has agreed to provide indemnification. See "Business-Legal Proceedings."
59
<PAGE>
We believe the foregoing provisions are necessary to attract and retain
qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Premier's directors, officers and controlling persons under
the foregoing provisions, or otherwise, we have 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.
Transfer and Warrant Agent
The transfer and warrant agent for Premier's securities is American Stock
Transfer & Trust Company, New York, New York.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Premier will have 19,239,582 shares of
common stock outstanding (excluding 7,591,760 shares of Class A Common Stock
issuable upon exercise of outstanding Class B Warrants and approximately
4,320,000 shares of common stock issuable upon exercise of other outstanding
stock options). The 4,278,146 shares sold by the selling shareholders in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, unless held by an "affiliate" of Premier within the
meaning of Rule 144 adopted under the Securities Act. Any such affiliate would
be subject to the resale limitations of Rule 144.
Sales of a substantial number of shares of common stock in the public
market could adversely affect the market price for the common stock. The
existence of the outstanding warrants and options to purchase Premier's Class A
Common Stock could adversely affect our ability to obtain future financing. We
have also reserved 2,250,000 shares for issuance in connection with the proposed
settlement of outstanding litigation. The consummation of this settlement is
subject to a number of conditions, and we cannot assure you that the settlement
will be completed.
The price which we may receive for the common stock issued upon exercise of
such options and warrants will likely be less than the market price of the
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 we would, in all likelihood, be able to obtain needed capital by a new
offering of our securities on terms more favorable than those provided for by
the options and warrants.
61
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of our common stock on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed
or negotiated prices. The selling shareholders may use any one or more of the
following methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers
. block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction
. purchases by a broker-dealer as principal and resale by the broker-dealer
for its account
. an exchange distribution in accordance with the rules of the applicable
exchange
. privately negotiated transactions
. short sales
. broker-dealers may agree with the selling shareholders to sell a specified
number of such shares at a stipulated price per share
. a combination of any such methods of sale
. any other method permitted pursuant to applicable law
The selling shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling shareholders may also engage in short sales against the box,
puts and calls and other transactions in securities of Premier or derivatives of
Premier securities and may sell or deliver shares in connection with these
trades. The selling shareholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling shareholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers engaged by the selling shareholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling shareholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
Premier is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling shareholders. Premier has agreed to indemnify the selling shareholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
62
<PAGE>
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for Premier
by Rutan & Tucker, LLP of Costa Mesa, California.
EXPERTS
The consolidated financial statements as of March 31, 1998 and 1997, and
for each of the three years in the period ended March 31, 1998 included in this
prospectus, and the related financial statement schedule included elsewhere in
the registration statement, have been audited by Haskell & White LLP,
independent auditors, as stated in their report appearing herein, and elsewhere
in the registration statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
63
<PAGE>
AVAILABLE INFORMATION
Premier has filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form S-1 under the Securities Act
with respect to the shares offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to Premier and the
shares offered hereby, reference is made to the registration statement, and the
exhibits and schedules filed as part thereof through the Electronic Data
Gathering, Analysis and Retrieval system. Statements contained in this
prospectus concerning the content of any contract or other document referred to
are not necessarily complete, and, in each instance, if such contract or
documents is filed as an exhibit, reference is made to the copy of such contract
or document filed as an exhibits to the registration statement. Each statement
is qualified in all respects by such reference to such exhibit. A copy of the
registration statement, and the exhibits and schedules thereto, may be inspected
without charge at the public reference facilities maintained by the Commission
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13/th/ Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from such offices upon the payment of
the fees prescribed by the Commission. The public may obtain information on the
operation of the Commission's public facilities by calling 1 (800) SEC-0330.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's Web site is www.sec.gov.
------------
Premier intends to furnish its shareholders with annual reports containing
audited financial statements.
Premier's recent Securities and Exchange Commission reports may also be
accessed through Premier's Web site at www.premierlaser.com.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Auditors............................................................. F-2
Consolidated Balance Sheets at March 31, 1997 and 1998 and December 31, 1998 (unaudited)... F-3
Consolidated Statements of Operations for the Years Ended March 31, 1996, 1997 and 1998
and nine months ended December 31, 1997 and 1998 (unaudited)........................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended March 31, 1996,
1997 and 1998 and nine months ended December 31, 1998 (unaudited)....................... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1996, 1997 and
1998 and nine months ended December 31, 1997 and 1998 (unaudited)....................... F-7
Notes to Financial Statements.............................................................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Premier Laser Systems, Inc.
We have audited the accompanying consolidated balance sheets of Premier Laser
Systems, Inc. as of March 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1998. Our audits also included the
financial schedule of valuation and qualifying accounts. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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.
As discussed in Note 2, the Company has restated its previously issued 1997
consolidated financial statements.
In our opinion, the 1998, 1997, and 1996 consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Premier Laser Systems, Inc. at March 31, 1998 and 1997,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended March 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
HASKELL & WHITE LLP
Newport Beach, California
March 30, 1999
F-2
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------ -----------------------------
1998 1998 1997
(unaudited) (Restated)
------------ -----------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 349,022 $ 9,722,514 $ 173,610
Short-term investments 1,159,426 9,666,918 3,968,288
Restricted cash 50,000 2,150,000 1,050,000
Accounts receivable, net of an
allowance for doubtful accounts of
$1,475,625, $1,224,845 and $613,263,
respectively 2,261,413 4,952,892 1,052,312
Inventories 6,980,049 4,482,698 3,284,632
Prepaid expenses and other current assets 1,308,042 2,528,996 774,319
------------ ------------ ------------
Total current assets 12,107,952 33,504,018 10,303,161
Property and equipment, net 2,360,700 1,778,423 780,945
Intangible assets, net 12,056,866 11,991,679 9,988,753
Other asset 6,432 434,300 6,477
------------ ------------ ------------
Total assets $ 26,531,950 $ 47,708,420 $ 21,079,336
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,572,042 $ 5,510,692 $ 1,305,256
Line of credit 139,700 2,068,163 800,000
Accrued compensation and related costs 692,497 964,691 318,000
Other accrued liabilities 4,501,940 5,943,685 353,645
------------ ------------ ------------
Total current liabilities 7,906,179 14,487,231 2,776,901
------------ ------------ ------------
Commitments and contingencies
Minority interest 1,445,839 1,764,736 2,053,725
------------ ------------ ------------
Shareholders' equity
Preferred stock, no par value:
Authorized shares - 8,850,000
Issued and outstanding shares - none - - -
Common stock, Class A, no par value:
Authorized shares -35,600,000
Issued and outstanding shares
16,962,278 including 2,250,000
subject to issuance for shareholder
litigation settlement at December 31,
1998, 14,649,421 at March 31, 1998
and 7,313,841 at March 31, 1997 91,550,135 83,546,913 27,320,449
Common stock, Class E-1, no par value:
Authorized shares -2,200,000
Issued and outstanding shares - 1,257,499
at December 31, 1998, 1,257,461 at March
31, 1998 and 1,257,178 at March 31, 1997 4,769,878 4,769,878 4,769,878
Common stock, Class E-2, no par value:
Authorized shares - 2,200,000
Issued and outstanding shares - 1,257,499
at December 31, 1998, 1,257,461 at March 31,
1998 and 1,257,178 at March 31, 1997 4,769,878 4,769,878 4,769,898
Warrants and options 1,723,842 1,723,842 3,978,276
Accumulated deficit (85,633,801) (63,354,058) (24,589,771)
------------ ------------ ------------
Total shareholders' equity 17,179,932 31,456,453 16,248,710
------------ ------------ ------------
Total liabilities and shareholders'
equity $ 26,531,950 $ 47,708,420 $ 21,079,336
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, YEAR ENDED MARCH 31,
------------------------------ ------------------------------------------------
1998 1997 1998 1997 1996
(Unaudited) (Unaudited) (Restated)
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 10,274,645 $ 8,726,170 $ 10,417,841 $ 5,090,861 $ 1,704,390
Cost of sales 10,314,851 5,390,809 17,394,290 3,648,539 3,324,757
------------ ------------ ------------ ------------ -----------
Gross (loss) profit (40,206) 3,335,361 (6,976,449) 1,442,322 (1,620,367)
Selling and marketing expenses 6,516,347 3,183,717 5,398,162 2,415,010 1,308,767
Research and development expenses 3,853,120 2,015,907 3,378,600 1,563,228 1,213,471
General and administrative expenses 4,650,980 1,848,165 3,941,456 2,050,184 1,709,327
Shareholder litigation settlement expense 7,831,770 - - - -
Write off of investment in Mattan
Corporation - - - 881,010 -
Termination of strategic alliance with IBC - - - 331,740 -
In process research and development acquired
in connection with business acquisitions - 9,200,000 12,800,000 250,000 -
Merger related to integration costs - 2,146,912 7,616,924 - -
------------ ------------ ------------ ------------ -----------
Loss from operations (22,892,423) (15,059,340) (40,111,591) (6,048,850) (5,851,932)
Interest income, net 293,783 726,346 1,073,493 15,493 99,037
Minority interest in loss of
consolidated subsidiary 318,897 - 273,811 60,000 -
------------ ------------ ------------ ------------ -----------
Net loss (22,279,743) (14,332,994) (38,764,287) (5,973,357) (5,752,895)
Other comprehensive income - - - - -
------------ ------------ ------------ ------------ -----------
Comprehensive loss $(22,279,743) $(14,332,994) $(38,764,287) $ (5,973,357) $(5,752,895)
============ ============ ============ ============ ===========
Net loss per share, basic and diluted $ (1.48) $ (1.34) $ (3.39) $ (1.02) $ (1.26)
============ ============ ============ ============ ===========
Weighted average shares used in
computation of net loss per share 15,061,581 10,725,769 11,444,123 5,833,326 4,556,959
============ ============ ============ ============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
AND NINE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Common Stock Common Stock
Class A Class E-1 Class E-2
-------------------------- ------------------------- ------------------------ Class A
Shares Amount Shares Amount Shares Amount Warrants
------------ ----------- ------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995 4,501,899 $15,436,178 1,256,549 $4,769,820 1,256,549 $4,769,820 $ 2,321,057
Common stock issued for
investment in Mattan 200,000 881,010 - - - - -
Exercise of stock options 304 188 269 58 269 58 -
Increase in unrealized holding
gain on short-term investments - - - - - - -
Net loss for the year - - - - - - -
---------- ----------- ------------ ---------- ----------- ---------- ----------
Balance at March 31, 1996 4,702,203 16,317,376 1,256,818 4,769,878 1,256,818 4,769,878 2,321,057
Common stock and B warrants
issued in connection with
secondary public offering 2,403,500 9,363,298 - - - - -
Common stock issued in
connection with the formation
of the Data.Site joint venture 159,787 1,200,000 - - - - -
Exercise of stock options and
warrants 48,351 249,774 360 - 360 - (25,729)
Stock options issued to Advisory
Board members, clinical evaluators,
and medical directors - 190,001 - - - - -
Decrease in unrealized holding gain
on short-term investments - - - - - - -
Net loss for the year (restated) - - - - - - -
---------- ----------- ------------ ---------- ----------- ---------- ----------
Balance at March 31, 1997 (restated) 7,313,841 27,320,449 1,257,178 4,769,878 1,257,178 4,769,878 2,295,328
Common stock and options issued
in connection with business
acquisitions 1,065,266 11,757,426 - - - - -
Exercise of stock options and
warrants 6,270,314 43,989,418 283 - 283 - (2,295,328)
Stock options issued to Advisory
Board members, clinical evaluators,
medical directors and other
consultants - 479,620 - - - - -
Net loss for the year - - - - - - -
---------- ----------- ------------ ---------- ----------- ---------- ----------
Balance at March 31, 1998 14,649,421 83,546,913 1,257,461 4,769,878 1,257,461 4,769,878 -
Common stock issued in connection
with litigation settlement 2,250,000 7,447,500 - - - - -
Exercise of stock option and
warrants 62,857 210,722 38 - 38 - -
Stock options issued to Advisory
Board members, clinical evaluators,
directors and other consultants - 345,000 - - - - -
Net loss for the nine months - - - - - - -
---------- ----------- ------------ ---------- ----------- ---------- ----------
Balance at December 31, 1998 16,962,278 $91,550,135 1,257,499 $4,769,878 1,257,499 $4,769,878 $ -
========== =========== ============ ========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
AND NINE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Unrealized
Class B Stock Holdings Accumulated
Warrants Warrants Gains Deficit Total
---------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995 $ 376,774 $192,130 $ - $(12,863,519) $15,002,260
Common stock issued for
investment in Mattan - - - - 881,010
Exercise of stock options - - - - 304
Increase in unrealized holding
gain on short-term investments - - 3,666,367 - 3,666,367
Net loss for the year - - - (5,752,895) (5,752,895)
---------- -------- ---------- ------------ -----------
Balance at March 31, 1996 376,774 192,130 3,666,367 (18,616,414) 13,797,046
Common stock and B warrants
issued in connection with
secondary public offering 1,037,514 - - - 10,400,812
Common stock issued in
connection with the formation
of the Data.Site joint venture - - - - 1,200,000
Exercise of stock options and
warrants 76,530 - - - 300,575
Stock options issued to Advisory
Board members, clinical evaluators,
and medical directors - - - - 190,001
Decrease in unrealized holding gain
on short-term investments - - (3,666,367) - (3,666,367)
Net loss for the year (restated) - - - (5,973,357) (5,973,357)
---------- -------- ---------- ------------ -----------
Balance at March 31, 1997 (restated) 1,490,818 192,130 - (24,589,771) 16,248,710
Common stock and options issued
in connection with business
acquisitions - - - - 11,757,426
Exercise of stock options and
warrants 40,894 - - - 41,734,984
Stock options issued to Advisory
Board members, clinical evaluators,
medical directors and other
consultants - - - - 479,620
Net loss for the year - - - (38,764,287) (38,764,287)
---------- -------- ---------- ------------ -----------
Balance at March 31, 1998 1,531,712 192,130 - (63,354,058) 31,456,453
Common stock, issued in connection
with litigation settlement - - - - 7,447,500
Exercise of stock option and
warrants - - - - 210,722
Stock options issued to Advisory
Board members, clinical evaluators,
directors and other consultants - - - - 345,000
Net loss for the nine months - - - (22,279,743) (22,279,743)
---------- -------- ---------- ------------ -----------
Balance at December 31, 1998 $1,531,712 $192,130 $ - $(85,633,801) $17,179,932
========== ======== ========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31 YEAR ENDED MARCH 31
----------------------------- --------------------------------------------
1998 1997 1998 1997 1996
(Unaudited) (Unaudited) (Restated)
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net loss $(22,279,743) $(14,332,994) $(38,764,287) $(5,973,357) $(5,752,895)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,333,875 955,095 1,637,941 841,467 814,401
Shareholder litigation settlement 7,447,500 - - - -
Write off of investment in Mattan
Corporation - - - 881,010 -
Acquired in-process research and
development - 9,200,000 12,800,000 250,000 -
Minority interest in loss of
consolidated subsidiary (318,897) - (273,811) (60,000) -
Non-cash component of merger related
and integration costs - - 2,332,238 - -
Stock options issued to advisors
and consultants 345,000 1,010,200 479,620 190,001 -
Termination of strategic alliance
with IBC - - - 125,000 -
Changes in operating assets and
liabilities:
Accounts receivable 2,691,479 (2,185,517) (2,253,457) (539,045) (244,467)
Inventories (2,497,351) (4,499,442) 392,992 (1,099,277) (14,665)
Prepaid expenses and other
current assets 1,220,954 (4,897,036) (1,555,257) (342,438) (110,565)
Accounts payable (2,938,650) 598,295 2,190,093 (184,769) 594,654
Accrued liabilities (1,713,939) 486,282 4,882,097 319,936 (598,847)
------------ ------------ ------------ ---------- ----------
Net cash used in operating activities (16,709,772) (13,665,117) (18,131,831) (5,591,472) (5,312,384)
------------ ------------ ------------ ---------- ----------
Investing Activities:
Sale (purchase) of short-term
investments 8,507,492 (4,886,999) (5,698,630) (3,968,288) -
Patent and intangible expenditures (649,441) (103,305) (87,989) (178,139) (195,971)
Business acquisitions - (831,287) (5,002,172) (96,028) -
Purchase of property and equipment (904,030) (249,880) (888,294) (24,477) (219,723)
Note receivable pursuant to strategic
alliance with IBC - - - - (125,000)
Other - - (410,179) - -
------------ ------------ ------------ ---------- ----------
Net cash provided by (used in)
investing activities 6,954,021 (6,071,471) (12,087,264) (4,266,932) (540,694)
------------ ------------ ------------ ---------- ----------
Financing Activities:
Proceeds from equity offerings - - - 10,400,812 -
Net borrowings (repyaments) under
line of credit (1,928,463) (811,195) (695,340) 800,000 -
Proceeds from exercise of stock
options and warrants 210,722 28,724,819 41,734,984 300,575 304
Decrease (increase) in restricted cash 2,100,000 (1,100,000) (1,100,000) (1,050,000) -
Proceeds from notes payable and
capital lease obligations - 231,669 - - -
Other - - (171,645) (454,836) -
------------ ------------ ------------ --------- ----------
Net cash provided by financing activities 382,259 27,045,293 39,767,999 9,996,551 304
------------ ------------ ------------ ---------- ----------
</TABLE>
See accompanying notes.
F-7
<PAGE>
PREMIER LASER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31 YEAR ENDED MARCH 31
----------------------------- --------------------------------------------
1998 1997 1998 1997 1996
(Unaudited) (Unaudited) (Restated)
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net (decrease) increase in cash
and cash equivalents (9,373,492) 7,308,705 9,548,904 138,147 (5,852,774)
Cash and cash equivalents
at beginning of period 9,722,514 173,610 173,610 35,463 5,888,237
------------ ------------ ------------ ---------- ----------
Cash and cash equivalents
at end of period $ 349,022 $ 7,482,315 $ 9,722,514 $ 173,610 $ 35,463
============ ============ ============ ========== ==========
Supplemental disclosures of cash
flow information
Cash paid for interest $ 114,929 $ 111,771 $ 120,000 $ 115,283 $ 52,129
============ ============ ============ ========== ==========
</TABLE>
See accompanying notes.
F-8
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
1. Organization and Nature of Operations
Premier Laser Systems, Inc. (the Company) was incorporated in July 1991 and
commenced operations in August 1991 after acquiring substantially all of
the assets and certain liabilities of Pfizer Laser Systems (Pfizer), a
division of Pfizer Hospital Products Group, Inc. The Company designs,
develops, manufactures and markets several lines of lasers for surgical and
other medical purposes, laser waveguides and fiber optic devices,
disposables and associated accessory products for the medical and dental
market. The Company also designs, develops, manufactures and markets
digital imaging systems and image enhancement and analysis software for use
by practitioners in the ocular health field. The accompanying consolidated
financial statements include the accounts of the Company and its majority
owned subsidiaries. All significant intercompany transactions and balances
have been eliminated.
The Company has suffered recurring losses from operations and may continue
to incur losses for the foreseeable future due to the significant costs
anticipated to be incurred in connection with manufacturing, marketing and
distributing its laser and imaging products. In addition, the Company
intends to conduct continuing research and development activities,
including regulatory submittals and clinical trials to develop additional
applications for its technology. The Company operates in a highly
competitive environment and is subject to all of the risks inherent in a
new business enterprise. During 1996 the Company completed a public
offering of its securities which generated net proceeds aggregating $10.4
million. Proceeds of $41,735,000 were generated by fiscal 1998 capital
transactions. As discussed in Note 6, the Company has been named in class
action lawsuits alleging violations of federal and state securities laws.
The Company believes that its present liquid assets will be sufficient to
meet its working capital requirements through at least fiscal 2000. Any
significant uninsured judgment or settlement amount associated with the
class action litigation would seriously affect the Company's ability to
satisfy its working capital requirements.
Basis of Presentation - Nine Months Ended December 31, 1998 and 1997
The unaudited interim financial statements for the nine month periods ended
December 31, 1998 and 1997 included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and, in the opinion of the Company,
reflect all adjustments (consisting only of normal recurring adjustments)
and disclosures which are necessary for a fair presentation. The results of
operations for the nine month period ended December 31, 1998 is not
necessarily indicative of the results for the full year.
2. Summary of Significant Accounting Policies
Restatement of Amounts Previously Reported
The Company's independent auditors unexpectedly resigned during May 1998
and withdrew their opinion on the Company's fiscal year 1997 financial
statements. Accordingly, it became necessary to retain new auditors to re-
examine the 1997 financial statements. Because of the extended period of
time that had passed since the initial report was issued, a number of
matters were identified of which the Company was not aware when it
initially issued the 1997 financial statements. Although the Company
believes that the initially issued 1997 financial statements were not
materially misstated in terms of net loss, total assets and shareholders'
equity, the statements have nonetheless been restated in the interest of
full disclosure.
F-9
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
2. Summary of Significant Accounting Policies (continued)
The following is a summary of the impact of the restatement on the 1997
consolidated statement of operations.
1. Reduction of previously reported sales,
net of related cost of sales $(280,000)
2. Revision to inventory valuation allowances 160,000
3. Additional bad debts expense (313,000)
4. Minority interest in loss of consolidated subsidiary 60,000
5. Other, net (10,000)
---------
Net increase in 1997 loss $(383,000)
=========
The effects on the Company's previously issued 1997 financial statements
are summarized as follows:
<TABLE>
<CAPTION>
Previously Increase
Reported (Decrease) Restated
----------- ---------- -----------
<S> <C> <C> <C>
Consolidated balance sheet as of March 31, 1997:
Current assets $10,658,161 $ (355,000) $10,303,161
Other assets 8,662,450 2,113,725 10,776,175
----------- ---------- -----------
Total assets $19,320,611 $1,758,725 $21,079,336
=========== ========== ===========
Current liabilities $ 2,688,901 $ 88,000 $ 2,776,901
Minority interest - 2,053,725 2,053,725
Net shareholders' equity 16,631,710 (383,000) 16,248,710
----------- ---------- -----------
Total liabilities and shareholders' equity $19,320,611 $1,758,725 $21,079,336
=========== ========== ===========
Consolidated Statement of Operations
Net sales $ 5,530,861 $ (440,000) $ 5,090,861
Cost of sales 3,968,539 (320,000) 3,648,539
----------- ---------- -----------
Gross profit 1,562,322 (120,000) 1,442,322
Selling and marketing expenses 2,406,010 9,000 2,415,010
General and administrative expenses 1,736,184 314,000 2,050,184
All other expenses 3,025,978 - 3,025,978
----------- ---------- -----------
Loss from operations (5,605,850) (443,000) (6,048,850)
Interest income, net 15,493 - 15,493
Minority interest in loss of consolidated subsidiary - 60,000 60,000
----------- ---------- -----------
Net loss $(5,590,357) $ (383,000) $(5,973,357)
=========== ========== ===========
Net loss per share $ (0.96) $ (0.07) $ (1.02)
=========== ========== ===========
</TABLE>
Revenue Recognition
Revenues are recognized when products are shipped to customers. Allowances
for returns are provided based upon actual experience and identified risks.
F-10
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
2. Summary of Significant Accounting Policies (continued)
Short-Term Investments and Restricted Cash
The Company invests excess cash in United States Treasury securities and
commercial paper generally with maturities of less than one year. Short-
term investments with a maturity of less than three months when purchased
are classified as cash equivalents. Investments with maturities in excess
of three months are presented as short-term investments in the accompanying
financial statements. Pursuant to Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, the Company's short-term investments are classified as
available-for-sale and are reported at fair market value with unrealized
gains and losses reflected as an adjustment to shareholders' equity. There
were no material unrealized gains or losses at December 31, 1998, March 31,
1997 or 1998.
Restricted cash consists of certificates of deposits held to secure
borrowings under the Company's line of credit, and is classified as a
current asset since it is collateral for a current liability.
Concentration of Credit Risk and Foreign Sales
The Company generates revenues principally from sales in the medical field.
As a result, the Company's accounts receivable are concentrated primarily
in this industry. In addition, sales to one customer represented 10% of the
Company's sales in fiscal 1996. Sales in foreign countries accounted for
approximately 13%, 25% and 40% of the Company's total sales in fiscal 1998,
1997 and 1996, respectively. These foreign sales related almost entirely to
sales in Asia and Europe.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Generally, letters of credit are
obtained on international sales. The Company maintains reserves for
potential credit losses.
Long Lived Assets
In fiscal 1997, the Company adopted 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 No. 121). The adoption of
SFAS No. 121 had no impact on the Company's financial position or results
of operations during 1997 or 1998.
F-11
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
2. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market, and are comprised of the following:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1998 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Raw materials $ 6,754,340 $ 5,980,793 $ 2,042,100
Work-in-process 1,622,042 1,313,974 101,802
Finished goods 8,958,034 5,876,710 2,344,054
------------ ----------- -----------
17,334,416 13,171,477 4,487,956
Less: Reserve for slow moving
inventory and excess purchase
commitments (10,354,367) (8,688,779) (1,203,324)
------------ ----------- -----------
$ 6,980,049 $ 4,482,698 $ 3,284,632
============ =========== ===========
</TABLE>
Property and Equipment
Property and equipment are stated at cost. Expenditures for replacements
and improvements are capitalized and expenditures for repairs and
maintenance are charged to operating expense as incurred.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1998 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Machinery, equipment, molds
and tooling $ 2,816,974 $ 1,948,560 $ 1,041,574
Furniture, fixtures, and office
equipment 2,942,974 3,004,906 596,347
Software 260,173 375,000 250,000
----------- ----------- -----------
6,020,121 5,328,466 1,887,921
Less accumulated depreciation (3,659,421) (3,550,043) (1,106,976)
----------- ----------- -----------
$ 2,360,700 $ 1,778,423 $ 780,945
=========== =========== ===========
</TABLE>
F-12
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
2. Summary of Significant Accounting Policies (continued)
Depreciation of furniture, machinery and equipment is calculated on a
straight-line basis over the following estimated useful lives:
Machinery and equipment......... 5-10 years
Furniture and fixtures.......... 10 years
Software........................ 3 years
Leasehold improvements.......... Shorter of estimated useful
life or term of lease
Intangible Assets
Intangible assets consist primarily of patents and technology rights,
goodwill and license agreements. The costs assigned to acquired intangible
assets, partially based upon independent appraisals, are being amortized on
a straight-line basis over the estimated useful lives of the assets ranging
from 2 to 15 years.
Intangibles consist of the following:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1998 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Patents and technology rights $13,882,689 $13,062,710 $ 9,581,230
Goodwill 2,893,179 2,839,570 3,156,004
License agreements 110,000 110,000 265,000
----------- ----------- -----------
16,885,868 16,012,280 13,002,234
Less accumulated amortization (4,829,002) (4,020,601) (3,013,481)
----------- ----------- -----------
$12,056,866 $11,991,679 $ 9,988,753
=========== =========== ===========
</TABLE>
Research and Development Costs
Research and development costs are expensed as incurred. A substantial
portion of the Company's research and development expense is related to
developing new products, improving existing products or processes, and
clinical research programs.
The Company enters into agreements with certain doctors to exchange a
portion of a product's sales price for services related to the completion
of certain portions of clinical studies necessary for obtaining product
approval from the U.S. Food and Drug Administration. Typically, the amounts
consist of a portion of the product sales price which is equal to the cost
of the services to be rendered by the doctor. Pursuant to the agreements,
in the event the doctor is unable to complete the agreed upon clinical
study, the doctor is required to remit a cash payment for the entire
amount. The amounts are capitalized as prepaid clinical testing expense and
are amortized upon completion of certain milestones of the clinical study.
These studies are generally completed within one year. Clinical testing
expenses included in prepaid expenses totaled $6,000, $405,000 and $204,000
at March 31, 1998, 1997 and 1996, respectively.
F-13
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes in accordance with statement of
Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
Accounting for Income Taxes. SFAS 109 requires the liability method of
accounting for income taxes. No credits for tax benefits have been
recognized, since realization of them is not reasonably assured. (See
Note 7.)
Statements of Cash Flows
The Company invests its excess cash in money market funds. The Company
considers all highly liquid investments with an original maturity of three
months or less and money market funds to be cash equivalents.
Significant noncash investing and financing activities excluded from the
accompanying statements of cash flows are as follows:
In fiscal 1996, the Company issued 200,000 shares of Class A common stock
in connection with the acquisition of 1,150,000 shares of Mattan
Corporation's common stock. The value of the Mattan Corporation common
stock shares was $881,010 on the date of the transaction.
Concurrent with the completion of the Company's initial public offering,
certain notes payable to shareholders totaling $66,500 and convertible
debentures totaling $1,500,000, plus related accrued interest, were
converted into 7,072 shares of Class A common stock and 6,260 shares of
each Class E-1 and E-2 common stock, and 321,099 Units, respectively.
In fiscal 1998 and 1997, the Company issued Class A common stock valued at
$11,757,426 and $1,200,000 respectively, in connection with business
acquisitions.
Net Loss Per Share
Net loss per share has been computed based on the weighted average number
of the Company's common shares outstanding during each presented period and
excludes all shares of Class E-1 and Class E-2 common stock, outstanding or
subject to option, because all such shares of stock are subject to escrow
and the conditions for the release of shares from escrow have not been
satisfied. Common stock equivalents were not considered in the net loss per
share calculation because the effect would be antidilutive.
In February 1997, Statement of Financial Accounting Standards No. 128,
Earnings Per Share was issued and is effective for interim and annual
periods ending after December 15, 1997. The statement requires presentation
of both basic and diluted earnings per share. As of the result of the
Company's net loss, basic and diluted loss per share do not differ
materially from the per share amounts previously reported for fiscal years
1997 and 1996.
F-14
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
2. Summary of Significant Accounting Policies (continued)
Accounting for Stock-Based Compensation
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 employee stock option grants. Options
granted to consultants and other non-employees are accounted for under the
fair value method in accordance with Statement of Financial Accounting
Standards No. 123 (SFAS 123), Accounting for Stock Based Compensation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Significant estimates and assumptions include inventory valuation and the
realizability of certain intangible assets. The Company's inventory and
intangibles largely relate to technologies which have yet to gain
widespread market acceptance. Inventory reserves have been established
based upon sales forecasts and the Company believes that no further losses
will be incurred on the disposition of its inventory and that the remaining
economic life of the Company's tangible assets is reasonable. If wide-
spread market acceptance of the Company's products is not achieved, the
carrying amount of inventory and intangible assets could be materially
affected. Conversely, better than expected sales could yield improved
margins.
3. Business Acquisitions
Effective January 31, 1997, the Company entered into a joint venture with
Refractive Surgical Services, LLC (RSS), a Kansas City based company
engaged in the development of certain medical outcomes software. Under this
joint venture, the Company and RSS formed Data.Site. LLC, ("Data.Site").
Data.Site acquired and assumed substantially all of the assets and
liabilities of RSS. The Company acquired a 51 percent interest in
Data.Site, which was accounted for under the purchase method of accounting,
and issued 159,787 shares of its Class A common stock to RSS. In connection
with the acquisition the Company recorded goodwill in the amount of
$2,893,179 and a minority interest of $2,113,725. The Company has funded
Data.Site's operations with an additional $1,135,919 in cash or equivalent
services through March 31, 1998 and an aggregate of $1,985,872 through
December 31, 1998. As of December 31, 1998 and March 31, 1998, RSS owed the
Company an additional $266,000.
F-15
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
3. Business Acquisitions (continued)
On September 30, 1997, the Company acquired all of the equity interests
of EyeSys Technologies, Inc. (EyeSys), a manufacturer and distributor of
a specialized line of diagnostic ophthalmic equipment, for approximately
$12.5 million, in the form of 1,236,668 shares of the Company's common
stock (including 319,684 are being held in an escrow account pending the
outcome of certain warranties to be determined at the end of 12 and 18
months), and $470,000 in cash. 216,761 of the escrowed shares have been
excluded from the determination of the purchase price. If and when they
are released, the allocation of the adjusted purchase price will be re-
assessed. Options to purchase 210,000 shares of the Company's common stock
were also issued in connection with the acquisition. These options were
valued in accordance with SFAS 123 and included in the acquisition cost.
The acquisition was accounted for as a purchase and the total acquisition
cost allocated among net liabilities assumed ($2,183,429), intangibles
($2,600,000), and in process research and development ($10,200,000). Merger
related and integration expenses ($2,147,224) were also recorded as of the
acquisition date. EyeSys has been consolidated commencing with the
acquisition date. Goodwill arising from the acquisition ($2,298,784) was
written-off due to uncertainty as to its recoverability.
During the final four months of fiscal 1998 the Company acquired a
controlling interest in Ophthalmic Imaging Systems, Inc. ("OISI") for $3.3
million in cash. OISI 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.
Equity accounting was used during the period in which the Company owned at
least 20% but less than 50% of the OISI stock (December 1997 through
February 1998). Commencing with the date at which the controlling interest
was obtained (late February 1998), OISI has been consolidated with the
Company in the accompanying financial statements. The OISI acquisition has
been accounted for as a purchase and the total acquisition cost allocated
among net liabilities of OISI ($996,835), intangibles ($1,687,407) and in
process research and development ($2,600,000). Merger related and
integration expenses of $1,687,407 were also recorded as of the date at
which the controlling interest was obtained. The Company is in the process
of negotiating an agreement for the purchase of the minority interests of
OISI.
The following unaudited pro forma consolidated results of operations give
effect to the EyeSys and OISI acquisitions as if they had occurred at the
beginning of fiscal 1998:
1998
------------
Net sales................... $ 17,975,000
Net loss.................... (42,885,000)
Net loss per share.......... (3.58)
The unaudited pro forma information is not necessarily indicative of the
combined results of operations that would have occurred during the periods
presented nor for future results of operations.
During fiscal 1998 three other business acquisitions occurred, which were
not individually or collectively significant to the financial condition or
operating results of the Company.
F-16
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
4. Grants
In September 1995, the Company obtained a Small Business Innovative
Research Grant totaling approximately $750,000 for the study of laser
emulsification. Pursuant to the terms of the grant, the Company is eligible
to receive reimbursement for research and development costs incurred in
connection with the laser emulsification study up to $750,000 upon the
achievement of certain milestones, as defined. During fiscal 1997 and 1996,
the Company received approximately $450,000 and $250,000 under the grants,
respectively. The amounts received under the grant were offset against
research and development costs incurred in the study.
5. Lines of Credit
The Company has a credit facility with a bank which provides for borrowings
of up to $2,100,000. As of March 31, 1998, total borrowings under this
agreement were $1,936,000, bearing interest at the bank's prime rate (8.50%
at March 31, 1998). Borrowings under the agreement are secured by a
certificate of deposit. The agreement expires in September 1998. The
Company's OISI subsidiary has an accounts receivable financing agreement
which allows for advances of up to 80% of eligible accounts, with a maximum
limit of $960,000. As of March 31, 1998, $132,634 was outstanding under
that agreement. As of December 31, 1998, $99,209 was outstanding under OIS'
line of credit agreement which is subject to annual renewal in November of
each year unless terminated by either party.
6. Commitments and Contingencies
Commitments
The Company leases its facilities and certain equipment under
noncancellable operating leases. Total rental expense for operating leases
was $251,000, $296,000 and $348,000 for the fiscal years ended March 31,
1998, 1997 and 1996, respectively. At March 31, 1998, future minimum lease
payments under noncancellable operating leases are as follows:
1999....................... $238,644
2000....................... 245,412
2001....................... 187,866
--------
$671,922
========
Pursuant to the Company's facility lease, effective January 1997, the
Company becomes guarantor of a lease agreement between the Company's lessor
and a third party lessee. The guaranteed future minimum lease payments
relating to the third party are $86,000 for the year ended March 31, 1999.
Litigation
The Company entered into an agreement with Infrared Fiber Systems, Inc.
(IFS), as a supplier of certain fiber optics that expires in the fiscal
year ending March 31, 2002. The agreement requires the supplier to sell
exclusively to the Company fiber optics for medical and dental applications
as long as the Company purchases defined minimum amounts.
F-17
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
6. Commitments and Contingencies (continued)
In March 1994, the Company initiated litigation against IFS. The Company's
complaint alleges that IFS and two of its officers misrepresented IFS'
ability to supply optical fibers, and that IFS breached its supply
agreement and certain warranties. In April 1994, IFS filed a cross-
complaint alleging breach of contact and intentional interference with
prospective economic advantage, seeking declaratory relief that the
contract has been terminated and that IFS is free to market its fiber
optics to others. In July 1994, Coherent, Inc., a major shareholder of IFS
and a manufacturer of medical lasers which employ IFS optical fibers,
joined the lawsuit for the express purpose of defending their rights to the
IFS optical fibers. In May 1995, the Company instituted litigation
concerning this dispute in Orange County, California Superior Court against
Coherent, Westinghouse Electric Corporation ("Westinghouse") and an
individual employee of Westinghouse who was an officer of IFS from 1986 to
1993, when the events involved in the federal action against IFS took place
and while Westinghouse owned a substantial minority interest in IFS. The
complaint charges that Coherent conspired with IFS in the wrongful conduct
which is the subject of the federal lawsuit and interfered with the
Company's contracts and relations with IFS and with prospective contracts
and advantageous economic relations with third parties. The complaint
asserts that Westinghouse is liable for its employee's wrongful acts as an
IFS executive while acting within the scope of his employment at
Westinghouse. The lawsuit seeks injunctive relief and compensatory damages.
In October 1995 the federal action was stayed by order of the court in
favor of the California state court action, in which the pleadings have
been amended to include all claims asserted by the Company in the federal
action.
In July 1996, the court in the California state court action granted
demurrers by Westinghouse and the employee of Westinghouse to all causes of
action against them, as well as all but one of the Company's claims against
Coherent. As a result, the claims that were the subject of the granted
demurrers have been dismissed, subject to the Company's right to appeal.
The Company has filed an appeal of these decisions as they relate to
Westinghouse and the Westinghouse employee, and briefs have been submitted.
No date has been set for a hearing of this appeal. No trial date has been
set as to the remaining outstanding causes of action.
The Company and certain of the officers and directors have been named in a
number of securities class action lawsuits which allege violations of the
Securities Exchange Act or the California Corporations Code. The plaintiffs
seek damages on behalf of classes of investors who purchased the Company's
stock between May 7, 1997 and April 15, 1998. The complaints allege that
the Company misled investors by failing to disclose material information
and making material misrepresentations regarding the Company's business
operations and projections. The Company has also been named in a
shareholder derivative action purportedly filed on its behalf against
certain officers and directors arising out of the same alleged acts. The
Company has reached an agreement in principle with lead plantiffs and their
counsel to settle the class and derivative actions. Under the terms of the
agreement in principle, in exchange for a release of all claims, the
Company would pay 2,250,000 shares of common stock and $4,600,000 in cash.
The cash portion of the settlement would be paid by the Company's insurance
carrier. Completion of the settlement is subject to execution of the final
settlement agreement, court approval and certain other conditions. If the
settlement is not completed, is not approved, or is not consummated for any
reason, the parties would continue to litigate the
F-18
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
6. Commitments and Contingencies (continued)
actions. Although the Company intends to vigorously defend itself in the
actions, the ultimate outcome is uncertain and no provision for any
settlement has been reflected in the accompanying financial statements. Any
significant adverse resolution of the actions would seriously impact the
Company's financial condition. The Company maintains insurance coverage for
these types of actions and has filed claims with the carrier. The policy
has a limit of $5 million and a $250,000 deductible amount.
In accordance with the terms of the agreement in principle to settle class
and derivative actions, the Company established a reserve during the period
ended December 31, 1998 for the issuance of 2,250,000 shares of common
stock. These shares were valued at a price of $3.31 per share which was the
closing price of the Company's stock on November 18, 1998, the effective
date of the proposed settlement agreement. The Company has included
approximately $384,000 of associated legal and professional fees in this
reserve, but has not included in the reserve approximately $4,600,000 in
cash that would be paid by the Company's insurers.
The Company is involved in various other disputes and lawsuits arising from
its normal operations. The litigation process is inherently uncertain and
it is possible that the resolution of these disputes and other lawsuits may
adversely affect the Company, however, it is the opinion of management,
that the outcome of such other matters will not have a material adverse
impact on the Company's financial position, results of operations, or cash
flows.
7. Income Taxes
The Company has incurred operating losses since its inception and as a
result, no provision for or benefit from income tax has been recorded.
Deferred tax assets consist of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Tax operating loss carryforwards $ 14,502,970 $ 7,116,277
Inventory and receivable reserves and related
temporary differences 1,705,050 1,115,696
Depreciation and amortization 890,215 705,293
Research and development credit carryforwards 424,494 349,494
Accruals not currently deductible 193,255 70,687
------------ -----------
Total deferred tax assets 17,715,984 9,357,447
Valuation allowance for deferred tax assets (17,715,984) (9,357,447)
------------ -----------
Net deferred taxes $ - $ -
============ ===========
</TABLE>
F-19
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
7. Income Taxes (continued)
The Company has approximately $39 million of federal net operating loss
carryforwards at March 31, 1998 ($19 million for state purposes), which
will begin to expire in 2006. A valuation allowance has been established
for the entire deferred tax asset.
The Tax Reform Act of 1986 contains provisions which could substantially
limit the availability of the net operating loss carryforwards if there is
a greater than 50% change in ownership during a three year period. As a
result of the Company's public offerings the Company experienced an
ownership change of more than 50%, resulting in a limitation on the
utilization of their net operating loss carryforwards. The limitation is
based on the value of the Company on the date that the change in ownership
occurred. The ultimate realization of the loss carryforwards is dependent
on the future profitability of the Company.
8. Shareholders' Equity
Initial and Secondary Public Offerings
On December 7, 1994, the Company completed an initial public offering of
2,400,000 Units of the Company's securities, each unit consisting of one
share of Class A common stock, one redeemable Class A warrant and one
redeemable Class B warrant (the Units). The Company realized net proceeds
of $9,542,000 from this offering. Each Class A warrant consists of the
right to purchase one share of Class A common stock and one Class B warrant
through November 30, 1999 at an exercise price of $6.50. Each Class B
warrant consists of the right to purchase one share of Class A common stock
at an exercise price of $8.00. The Company has the right to redeem the
Class A and Class B warrants after November 30, 1997 at a price of $.05 per
warrant subject to certain conditions regarding the bid price of the Class
A common stock. On January 12, 1995, the underwriter in the initial public
offering exercised its over allotment option to purchase 360,000 Units at
the public offering price, resulting in additional net proceeds of
$1,411,000.
On October 18, 1996, the Company completed a public offering of 11,000
Units of the Company's securities, each Unit consisting of 190 shares of
Class A common stock and 95 redeemable Class B warrants (the "Units"). The
Company realized net proceeds of $10,401,000 from this offering and the
related exercise of the underwriters over allotment option. Each Class B
warrant consists of the right to purchase one share of Class A common stock
through November 30, 1999 at an exercise price of $8.00.
During fiscal 1998, the Company received approximately $41,735,000 from the
exercise of options and warrants. As a result of such exercises, the
Company issued an additional 4,176,000 Class B Warrants and 6,270,000
shares of Class A Common Stock.
F-20
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
8. Shareholders' Equity (continued)
Stock Options
The Company has adopted several stock option plans that authorize the
granting of options to employees, officers and/or consultants to purchase
shares of the Company's Class A common stock. The stock option plans are
administered by the Board of Directors or a committee appointed by the
Board of Directors, which determines the terms of the options, including
the exercise price, the number of shares subject to option and the
exercisability of the option. The options are generally granted at the fair
market value of the shares underlying the options at the date of the grant
and expire within ten years of the grant date.
In addition to options granted pursuant to the stock option plans, the
Company has issued options to purchase shares of the Company's Class A
common stock to certain members of the Board of Directors, consultants and
former notes payable holders.
The Company has elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations in accounting for its
employee stock option grants. Accordingly, no compensation expense has been
recognized for its employee stock option awards and its employee stock
purchase plan because the exercise price of the Company's stock options
equals the market price of the underlying stock on the date of grant. The
Company recognizes expense related to grants of options to non-employees in
accordance with the fair value provision of SFAS No. 123. Such expense was
$479,620 in 1998, $190,001 in 1997 and none during 1996. Additional option
expense of $1,110,904 was recorded in 1998 in connection with the EyeSys
acquisition. That amount is included in merger related and integration
costs in the accompanying consolidated statement of operations. FASB
Statement No. 123, Accounting for Stock-Based Compensation, requires pro
forma information regarding net income (loss) and net income (loss) per
share using compensation that would have been incurred if the Company had
accounted for its employee stock options under the fair value method of
that Statement. The fair value of options granted have been estimated at
the date of grant using a Black-Scholes option pricing model using the
following assumptions:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Risk free interest rate 6.00% 6.00%
Stock volatility factor 0.64 0.58
Weighted average expected option life 4 years 4 years
Expected dividend yield 0% 0%
</TABLE>
F-21
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
8. Shareholders' Equity (continued)
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 compensation expense used in determining the pro forma
information ($1,947,458, $974,469, and $367,490 for fiscal years 1998, 1997
and 1996, respectively) may not be indicative of such expense in future
periods as the 1997 and 1996 amounts are based only on option grants after
December 15, 1994. Proforma information is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Pro forma net loss $(40,711,745) $(6,947,826) $(6,135,000)
Pro forma net loss per share $ (3.56) $ (1.19) $ (1.35)
</TABLE>
A summary of the Company's stock option activity, and related information
for the years ended March 31 follows (excluding option grants that are
subject to shareholder approval):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- ----- ---------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 2,308,049 $5.51 1,423,949 $ 5.58 788,157 $6.14
Granted 1,899,500 9.22 1,042,756 6.16 704,700 4.89
Exercised (395,271) 6.20 (1,899) 1.00 (1,722) 1.00
Forfeited (325,609) 8.40 (156,757) 10.53 (67,186) 4.96
--------- ----- --------- ------ --------- -----
Outstanding- end of year 3,486,669 $6.84 2,308,049 $ 5.51 1,423,949 $5.58
========= ===== ========= ====== ========= =====
Exercisable at end of year 1,707,502 6.33 775,629 5.18 782,999 6.15
Weighted-average fair value of options
granted during the year $4.74 $ 2.98 $2.46
===== ====== =====
</TABLE>
The weighted average remaining contractual life of options as of March 31,
1998 was as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------- ------------------------------
Weighted-Average
Number of Remaining Weighted Weighted-Average
Options Contractual Life Average Exercise Options Exercise
Range of Exercise Prices Outstanding (years) Price Exercisable Price
------------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 26,038 5 $ 1.00 26,038 $ 1.00
$4.50 - $8.85 2,415,971 8 5.87 1,323,971 5.31
Greater than $10.00 1,044,660 9 10.24 357,493 10.53
</TABLE>
F-22
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
8. Stockholders' Equity (continued)
Class E-1 and Class E-2 Common Stock
The Company's Class E-1 and Class E-2 common stock is held in escrow, is
not transferable, can be voted and will be converted into Class A common
stock only upon the occurrence of specified events. All of the Class E-1
common stock will be automatically converted into Class A common stock in
the event that the Company's net income before provision for income taxes,
as defined, exceeds certain amounts. These amounts were originally
$8,425,000 and $9,900,000 for the fiscal years ending March 31, 1999 and
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 (as defined) in the relevant year, as compared
to the number of shares outstanding immediately after the Company's initial
public offering. In addition, the Class E-1 common stock will be converted
if the closing price, as defined, of the Company's Class A common stock
shall average in excess of $19.25 for any 30 consecutive trading days
during the period May 1, 1996 to November 30, 1997. If none of the above
events occur, the Class E-1 common stock will be canceled on June 30, 2000.
All of the Class E-2 common stock will be automatically converted into
Class A common stock in the event that: (1) the Company'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) or (2) the closing price, as defined,
of the Company's Class A common stock shall average in excess of $24.00 for
any 30 consecutive trading days during the period May 1, 1996 to November
30, 1997. If none of the above events occur, the Class E-2 common stock
will be canceled on June 30, 2000.
The Company will, in the event of the release of the Class E-1 and Class E-
2 common stock, recognize during the period in which the earnings
thresholds are met or such minimum bid prices are achieved, a substantial
noncash charge to earnings equal to the fair value of such shares on the
date of their release, which would have the effect of significantly
increasing the Company's loss or reducing or eliminating earnings, if any,
at such time.
9. Employee Benefit Plan
The Company adopted a Defined Contribution 401(k) Profit Sharing Plan,
effective January 1, 1997 covering substantially all of its employees. The
Plan permits eligible employees to contribute a portion of their
compensation to the Plan, on a tax deferred basis. The Company may make
matching contributions, in amounts determined by the Company's Board of
Directors. The Company's contributions are in the form of shares of the
Company's common stock. During 1997, no amounts were contributed by the
Company to the Plan. For 1998, 3,752 shares have been approved for
contribution by the Company.
F-23
<PAGE>
Premier Laser Systems, Inc.
Notes to Consolidated Financial Statements
March 31, 1998
10. Subsequent Event
Premier entered into a Stock Purchase Agreement, dated February 25, 1998,
pursuant to which it agreed, subject to certain conditions, to commence an
exchange offer to acquire all of the outstanding common stock of OIS not
owned by Premier. This Stock Purchase Agreement was terminated as of August
21, 1998. In connection with this termination, Premier may be liable to pay
OIS a $500,000 break-up fee, which could be satisfied by the reduction of
indebtedness of OIS to Premier which arose after March 31, 1998. In
addition, in purchasing 51% of OIS' outstanding stock, Premier entered into
an agreement with one of OIS' selling shareholders which contemplates that
Premier's purchase of approximately 10% of OIS' outstanding shares will be
rescinded if Premier does not complete the exchange offer. If the
rescission is implemented, Premier will own less than a majority of the
outstanding shares of OIS and would no longer include the financial
performance of OIS on a consolidated basis. In addition, as part of the
rescission, Premier would receive approximately $730,000 in cash. The
parties are currently negotiating various issues relating to the
termination of the Purchase Agreement and their future business
relationship.
The consolidated balance sheet at March 31, 1998 includes current assets of
$1,897,000, total assets of $2,348,000, current liabilities of $3,320,000
and accumulated deficit of $369,000, as a result of consolidating the
assets and liabilities of OIS. The consolidated statement of operations for
the year ended March 31, 1998 includes sales of $356,000 and net loss of
$369,000 as a result of consolidating the operations of OIS for the portion
of the year for which Premier owned a controlling interest in OIS.
The consolidated balance sheet at December 31, 1998 includes current assets
of $1,756,000, total assets of $2,134,000, current liabilities of
$2,736,000 and accumulated deficit of $1,409,000, as a result of
consolidating the assets and liabilities of OIS. The consolidated statement
of operations for the nine months ended December 31, 1998 includes sales of
$4,940,000 and net loss of $1,040,000 as a result of consolidated the
operations of OIS for the period.
F-24
<PAGE>
Premier Laser System, Inc.
Schedule II--Valuation and Qualifying Accounts
Years ended March 31, 1998, 1997 (Restated) and 1996
<TABLE>
<CAPTION>
Balance at Deductions/ Balance
beginning Recoveries at end of
Description of period Additions and Write-off Other* period
----------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful accounts
receivable $ 613,263 $ 385,407 $(149,801) $ 375,976 $1,224,845
Inventory reserves 1,203,324 5,704,455 - 1,781,000 8,688,779
1997
Allowance for doubtful accounts
receivable $ 154,677 $ 403,515 $(119,054) $ 174,125 $ 613,263
Inventory reserves 950,325 252,999 - - 1,203,324
1996
Allowance for doubtful accounts
receivable $ 306,428 $ 254,962 $(406,713) $ - $ 154,677
Inventory reserves 699,269 838,968 (587,912) - 950,325
</TABLE>
* Allowance amounts added in connection with business acquisitions.
F-25
<PAGE>
Until ___________, 1999 (25 days after the date of this prospectus) all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
It is estimated that the following expenses will be incurred in connection
with the proposed offering hereunder. All of such expenses will be borne by
Premier:
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
Securities and Exchange Commission filing fee........ $ 3,121.98
Legal fees and expenses.............................. $ 80,000.00
Accounting fees and expenses......................... $ 60,000.00
Blue sky fees and expenses (including counsel fees).. $ 3,000.00
Printing expenses.................................... $ 5,000.00
Miscellaneous........................................ $ 20,000.00
-----------
TOTAL $171,121.98
===========
</TABLE>
Item 14. Indemnification of Directors and Officers
The California General Corporation 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 (a) any transaction from
which the director derives an improper personal benefit, (b) acts or omissions
involving intentional misconduct or a knowing and culpable violation of law, (c)
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 party of the director (d) 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, (e) 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, (f) any improper transaction between a
director and the registrant in which the director has a material financial
interest, or (g) 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 is
authorized to indemnify its directors and officers to the fullest extent
permitted by California law, including circumstances in which indemnification is
otherwise discretionary under California law. The registrant has entered into
indemnification agreements with certain of its directors and officers that
require 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,
II-1
<PAGE>
and is, therefore, unenforceable. 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.
Item 15. Recent Sales of Unregistered Securities
Since May 15, 1996, Premier has sold the following unregistered
securities:
1. From May 1996 to the date hereof the Registrant has issued options
to purchase an aggregate of 3,361,256 shares of Class A Common Stock, to
officers, directors and employees of the Registrant. No consideration was
paid for such options, and there were no underwriters for these issuances.
These transactions did not involve a "sale" of securities as such term is
used in Section 2(3) of the Securities Act.
2. On May 17, 1999, the Registrant sold to two private investors
$4,000,000 principal amount of Secured Convertible Debentures due 2002,
together with options to purchase an aggregate of 60,000 shares of the
Registrant's Class A Common Stock. The purchase price for these securities
was $4,000,000. There was no underwriter for this transaction, but the
Registrant paid to a placement agent a commission of $200,000, and issued
to that agent warrants to purchase 40,000 shares of the Registrant's Class
A Common Stock. These securities were sold to accredited investors, without
general advertising or solicitation, and were exempt from registration
under the Securities Act pursuant to Rule 506.
3. On September 5, 1997, the Registrant sold an aggregate of 20,625
shares of its Class A Common Stock to CRS-USA, Inc., a Nevada corporation,
in connection with the acquisition of the assets of that corporation. There
were no underwriters for this transaction. The assets consisted principally
of office equipment and intellectual property. The Registrant also paid
cash consideration in connection with the acquisition. These securities
were exempt from registration under the Securities Act pursuant to Section
4(2) of the Act.
4. On January 31, 1997, the Registrant sold 159,787 shares of Class A
Common Stock to RSS, LLC, in connection with the formation of a joint
venture between the Registrant and such purchaser. The consideration
received by the Registrant consisted of an undivided interest in intangible
assets held by the purchaser. There was no underwriter for this
transaction. This transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.
5. In June 1996 the Registrant issued to Silicon Valley Bank options
to purchase 9,756 shares of the Registrant's Class A Common Stock, as
partial consideration for debt financing made available by Silicon Valley
Bank. The purchaser was an accredited investor, and the issuance of these
securities was exempt from registration pursuant to Rule 506 under the
Securities Act.
6. In March 1997, the Registrant issued options to purchase 325,000
shares of Class A Common Stock, at $6.50 per share, to an investment
banking firm, in consideration of investment banking services provided to
Premier. There was no underwriter in this transaction, and the transaction
was exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933.
7. In January 1998, the Registrant issued options to purchase 120,000
shares of Class A Common Stock, at $9.875 per share, to an investment
banking firm, in consideration of investment banking services provided to
Premier. There was no underwriter in this transaction, and the transaction
was exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933.
8. In July, 1997, the Registrant issued options to purchase 150,000
shares of Class A Common Stock, at $10.50 per share, to an investment
banking firm, in consideration of investment banking services provided to
Premier. There was no underwriter in this transaction, and the transaction
was exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger dated as of April 24, 1997 among the
Registrant, EyeSys Technologies, Inc. and Premier Acquisition of
Delaware, Inc. (incorporated herein by this reference to Exhibit 2.1 to
the Registrant's Registration Statement on Form S-4, Registration No.
33-29573).
2.2 First Amendment to Agreement and Plan of Merger dated as of August 6,
1997, among the Registrant, EyeSys Technologies, Inc. and Premier
Acquisition of Delaware, Inc. (incorporated herein by this reference to
Exhibit 2.2 to the Registrant's Current Report of Form 8-K filed
October 15, 1997).
2.3 Second Amendment to Agreement and Plan of Merger dated as of September
16, 1997 among the Registrant, EyeSys Technologies, Inc. and Premier
Acquisition of Delaware, Inc., EyeSys Technologies, Inc. and Premier
Acquisition of Delaware, Inc. (incorporated herein by this reference to
Exhibit 2.3 to the Registrant's Current Report on Form 8-K filed
October 15, 1997).
2.4 Stock Purchase Agreement dated February 25, 1998 between the Registrant
and Ophthalmic Imaging Systems (incorporated herein by this reference
to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed
March 9, 1998).
2.5 Purchase Agreement dated February 25, 1998 between the Registrant and
Mark S. Blumenkranz, M.D. 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 March 9, 1998).
2.6 Purchase Agreement dated February 25, 1998 between the Registrant and
Stanley Chang, M.D. (incorporated herein by this reference to Exhibit
99.8 to the Registrant's Current Report on Form 8-K filed March 9,
1998).
II-2
<PAGE>
Exhibit
Number Description
- ------ -----------
2.7 Purchase Agreement dated February 25, 1998 between the Registrant and
J.B. Oxford & Company (incorporated herein by this reference to Exhibit
99.12 to the Registrant's Current Report on Form 8-K filed March 9,
1998).
3.1 Amended and Restated Articles of Incorporation filed with the
California Secretary of state on November 23, 1994 (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).
3.2 Bylaws (incorporated herein by this reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
4.1 Rights Agreement dated as of March 31, 1998 between Premier Laser
Systems, Inc. and American Stock Transfer and Trust Company acting as
rights agent (incorporated herein by this reference to Exhibit 4.1 to
the Registrant's Current Report on Form 8-K filed April 2, 1998).
10.1 Letter Agreement and Patent License Agreement dated August 29, 1991
among the Registrant, Patlex Corporation and Gordon Gould (incorporated
herein by this reference to Exhibit 1.1 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-83984).
10.2 Assignment Agreement dated July 27, 1992 between the Registrant and
Michael Colvard, M.D. (incorporated herein by this reference to Exhibit
10.2 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-83984).
10.3 Form of International Distribution Agreement (incorporated herein by
this reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.4 Letter of Intent between the Registrant and Richard Leaderman, D.D.S.,
together with related Patent Assignments as filed in the U.S. Patent
and Trademark Office on February 22, 1994 (incorporated herein by this
reference to Exhibit 10.13 to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-83984).
10.5 Exclusive Marketing Agreement dated July 26, 1994 between the
Registrant, Proclosure, Inc. and Nippon Shoji Kaisha, Ltd.
(incorporated herein by this reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.6 Form of Indemnification Agreement (incorporated herein by this
reference to Exhibit 10.23 to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-83984).
10.7 Purchase/Supply Agreement dated January 13, 1987 between Infrared
Fiber Systems, Inc. and Pfizer Hospital Products Group, Inc., as
amended (incorporated herein by this reference to Exhibit 10.26 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
II-3
<PAGE>
Exhibit
Number Description
- ------ -----------
10.8 Form of Warrant Agreement (including forms of Class B Warrant
Certificates) (incorporated herein by this reference to Exhibit 4.1 to
the Registrant's Registration Statement on Form SB-2, Registration No.
33-83984).
10.9 Form of Underwriter's Unit Purchase Option (incorporated herein by
this reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.10 1992 Stock Option Plan, together with form of Nonstatutory Stock
Option Agreement and form of Incentive Stock Option Agreement
(incorporated herein by this reference to Exhibit 4.5 to the
Registrant's Registration statement on Form SB-2, Registration No. 33-
83984).
10.11 Employee Bonus Stock Plan, together with form of Bonus Stock
Agreement (incorporated herein by this reference to Exhibit 4.6 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-
83984).
10.12 Letter agreement dated October 13, 1987 between Pfizer Laser Systems,
Inc. and Duke University, together with patent assignment as filed in
the U.S. Patent and Trademark Office on October 23, 1993 (incorporated
herein by this reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-83984).
10.13 Industrial Lease dated December 6, 1995 between the Registrant and
The Irvine Company (incorporated herein by this reference to Exhibit
10.22 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1996).
10.14 Form of Consulting Agreement (incorporated herein by this reference
to Exhibit 10.30 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1996).
10.15 Form of Termination Agreement between the Registrant and certain of
the Registrant's executive officers (incorporated herein by this
reference to Exhibit 10.33 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1996).
10.16 1995 Employee Stock Option Plan, together with form of Nonqualified
Stock Option Agreement and form of Incentive Stock Option Agreement
(incorporated herein by this reference to Exhibit 10.34 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1996).
10.17 February 1996 Stock Option Plan (incorporated herein by this
reference to Exhibit 10.35 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1996).
10.18 1996 Stock Option Plan (incorporated herein by this reference to
Exhibit 10.36 to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1996).
10.19 Warrant to Purchase Stock dated June 3, 1996 issued to Silicon
Valley Bank (incorporated herein by this reference to Exhibit 10.38 to
the Registrant's Registration Statement on Form SB-2 Registration No.
333-04219).
II-4
<PAGE>
Exhibit
Number Description
- ------ -----------
10.20 Registration Rights Agreement dated June 3, 1996 between the
Registrant and Silicon Valley Bank (incorporated herein by this
reference to Exhibit 10.39 to the Registrant's Registration Statement
on Form SB-2 Registration No. 333-04219).
10.21 Antidilution Agreement dated June 3, 1996 between the Registrant and
Silicon Valley Bank (incorporated herein by this reference to Exhibit
10.40 to the Registrant's Registration Statement on Form SB-2
Registration No. 33-04219).
10.22 Joint Venture Agreement dated January 31, 1997 between the
Registrant, RSS, LLC and Data.Site (incorporated herein by this
reference to Exhibit 10.39 to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1997).
10.23 Operating Agreement of Data.Site dated January 31, 1997 (incorporated
herein by this reference to Exhibit 10.40 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997).
10.24 Agreement and Plan of Merger dated April 24, 1997 between the
Registrant, Premier Acquisition of Delaware, Inc. and EyeSys
Technologies, Inc. (incorporated herein by this reference to Exhibit
10.41 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended March 31, 1997).
10.25 Loan Agreement dated September 24, 1997 between Silicon Valley Bank
and EyeSys Technologies, Inc. (incorporated herein by this reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed
November 14, 1997, as amended by an amendment thereto filed on November
26, 1997).
10.26 Third Party Security Agreement dated September 24, 1997, between
Silicon Valley Bank and the Registrant (incorporated herein by this
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q filed November 14, 1997, as amended by an amendment thereto filed
on November 26, 1997).
10.27 1997 Stock Option, together with form of Nonqualified Stock Option
Agreement (incorporated herein by the reference to Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K filed August 26, 1998).
10.28 1998 Stock Option Plan (incorporated herein by this reference to
Exhibit 10.34 to the Registrant's Annual Report on Form 10-K filed
August 26, 1998).
10.29 Rights Agreement dated March 31, 1998 between the Registrant and
American Stock Transfer and Trust Company. (incorporated herein by this
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
filed April 2, 1998).
10.30 Secured Convertible Debenture Purchase Agreement dated May 17, 1999
between the Registrant and the investors signatory thereto.**
10.31 Registration Rights Agreement dated May 17, 1999 between the
Registrant and the investors signatory thereto.**
II-5
<PAGE>
Exhibit
Number Description
- ------ -----------
10.32 Form of Warrant dated May 17, 1999 issued by the Registrant to
certain investors.**
10.33 Intellectual Property Security Agreement dated May 17, 1999 between
the Registrant and the secured parties signatory thereto.**
10.34 Security Agreement dated May 17, 1999 between the Registrant and the
secured parties signatory thereto.**
10.35 Form of 6% Secured Convertible Debenture dated May 17, 1999 issued by
the Registrant to certain investors.**
16 Letter dated June 11, 1998 from Ernst & Young, LLP (incorporated herein
by this reference to Exhibit 16 to the Registrant's Current Report on
Form 8-K filed June 1, 1998, and as amended June 15, 1998).
21 Subsidiaries (incorporated herein by this reference to Exhibit 21 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998).
23.1 Consent of Haskell & White LLP.*
27 Financial Data Schedule. (omitted because all information has been
previously filed)
99.1 Form of Class D Warrant (OIS transaction) (incorporated herein by this
reference to Exhibit 99.3 to the Registrant's Current Report on From 8-
K filed March 9, 1998).
99.2 Class D Warrant dated February 25, 1998 issued by the Registrant to
Mark S. Blumenkranz, M.D. and Recia Blumenkranz, M.D. (OIS transaction)
(incorporated herein by this reference to Exhibit 99.6 to the
Registrant's Current Report on Form 8-K filed March 9, 1998).
99.3 Registration Rights Agreement dated February 25, 1998 issued by the
Registrant and Mark S. Blumenkranz, M.D. and Recia Blumenkranz, M.D.
(OIS transaction) (incorporated herein by this reference to Exhibit 997
to the Registrant's Current Report on Form 8-K filed March 9, 1998).
99.4 Class D Warrant dated February 25, 1998 issued by the Registrant to
Stanley Chang, M.D. (OIS transaction) (incorporated herein by this
reference to Exhibit 99.10 to the Registrant's Current Report on Form
8-K filed March 9, 1998).
99.5 Registration Rights Agreement dated February 25, 1998 issued by
Registrant to Stanley Chang, M..D. (OIS transaction) (incorporated
herein by this reference to Exhibit 99.11 to the Registrant's Current
Report on Form 8-K filed March 9, 1998).
99.6 Class D Warrant dated February 25, 1998 issued by the Registrant to
J.B. Oxford & Company (OIS transaction) (incorporated herein by this
reference to Exhibit 99.14 to the Registrant's Current Report on From
8-K filed March 9, 1998).
II-6
<PAGE>
Exhibit
Number Description
- ------ -----------
99.7 Registration Rights Agreement dated February 25, 1998 between the
Registrant and J. B. Oxford & Company (OIS transaction) (incorporated
herein by this reference to Exhibit 99.18 to the Registrant's Current
Report on Form 8-K filed March 9, 1998).
+99.8 Agreement dated July 23, 1997 between Nidek Co., Ltd. and EyeSys
Technologies, Inc. (incorporated herein by this reference to Exhibit
99.1 to the Registrant's Registration Statement on Form S-4
Registration No. 333-29573).
+99.9 Exclusive Distribution Agreement dated June 2, 1997 between EyeSys
Technologies, Inc. and Marco Ophthalmic Inc. (incorporated herein by
this reference to Exhibit 99.3 to the Registrant's Registration
Statement on Form S-4 Registration No. 333-29573).
____________________
* Filed herewith.
** To be filed by amendment.
+ Confidential treatment has been granted with respect to portions of this
Exhibit.
II-7
<PAGE>
(b) Financial Statement Schedules.
Item 17. 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;
(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 registration
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 registration 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.
(4) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form or prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(5) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
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 registration 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 registration 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-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, California, on
May 14, 1999.
By: /s/ COLETTE COZEAN
-------------------
Colette Cozean, Ph.D.
Chief Executive Officer
II-10
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Colette
Cozean, Ph.D. and Robert V. Mahoney his true and lawful attorneys-in-fact and
agents, each acting alone, 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, or any registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents 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 each of said attorneys-in-fact and agents, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ COLETTE COZEAN Chief Executive Officer and May 14, 1999
- ------------------------ Director (Principal Executive
Colette Cozean, Ph.D. Officer)
/s/ ROBERT V. MAHONEY Executive Vice President, May 14, 1999
- ------------------------ Finance and Chief Financial
Robert V. Mahoney Officer (Principal Financial
and Accounting Officer)
/s/ LAWRENCE ASHCROFT Director May 17, 1999
- ------------------------
Lawrence D. Ashcroft
/s/ PATRICK J. DAY Director May 14, 1999
- ------------------------
Patrick J. Day
/s/ FREDRIC FELDMAN Director May 14, 1999
- ------------------------
Fredric J. Feldman
/s/ JOHN HUNKELER, M.D. Director May 15, 1999
- ------------------------
John Hunkeler, M.D.
/s/ G. LYNN POWELL Director May 14, 1999
- ------------------------
G. Lynn Powell
/s/ LEWIS H. STANTON Director May 14, 1999
- ------------------------
Lewis H. Stanton
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
2.1 Agreement and Plan of Merger dated as of April 24, 1997 among the
Registrant, EyeSys Technologies, Inc. and Premier Acquisition of
Delaware, Inc. (incorporated herein by this reference to Exhibit
2.1 to the Registrant's Registration Statement on Form S-4,
Registration No. 33-29573).
2.2 First Amendment to Agreement and Plan of Merger dated as of August
6, 1997, among the Registrant, EyeSys Technologies, Inc. and
Premier Acquisition of Delaware, Inc. (incorporated herein by this
reference to Exhibit 2.2 to the Registrant's Current Report of Form
8-K filed October 15, 1997).
2.3 Second Amendment to Agreement and Plan of Merger dated as of
September 16, 1997 among the Registrant, EyeSys Technologies, Inc.
and Premier Acquisition of Delaware, Inc., EyeSys Technologies,
Inc. and Premier Acquisition of Delaware, Inc. (incorporated herein
by this reference to Exhibit 2.3 to the Registrant's Current Report
on Form 8-K filed October 15, 1997).
2.4 Stock Purchase Agreement dated February 25, 1998 between the
Registrant and Ophthalmic Imaging Systems (incorporated herein by
this reference to Exhibit 99.1 to the Registrant's Current Report
on Form 8-K filed March 9, 1998).
2.5 Purchase Agreement dated February 25, 1998 between the Registrant
and Mark S. Blumenkranz, M.D. 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 March 9, 1998).
2.6 Purchase Agreement dated February 25, 1998 between the Registrant
and Stanley Chang, M.D. (incorporated herein by this reference to
Exhibit 99.8 to the Registrant's Current Report on Form 8-K filed
March 9, 1998).
2.7 Purchase Agreement dated February 25, 1998 between the Registrant
and J.B. Oxford & Company (incorporated herein by this reference to
Exhibit 99.12 to the Registrant's Current Report on Form 8-K filed
March 9, 1998).
3.1 Amended and Restated Articles of Incorporation filed with the
California Secretary of state on November 23, 1994 (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).
3.2 Bylaws (incorporated herein by this reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form SB-2, Registration
No. 33-83984).
4.1 Rights Agreement dated as of March 31, 1998 between Premier Laser
Systems, Inc. and American Stock Transfer and Trust Company acting
as rights agent (incorporated herein by this reference to Exhibit
4.1 to the Registrant's Current Report on Form 8-K filed April 2,
1998).
<PAGE>
Exhibit
No. Description
- ------- -----------
10.1 Letter Agreement and Patent License Agreement dated August 29, 1991
among the Registrant, Patlex Corporation and Gordon Gould
(incorporated herein by this reference to Exhibit 1.1 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-83984).
10.2 Assignment Agreement dated July 27, 1992 between the Registrant and
Michael Colvard, M.D. (incorporated herein by this reference to
Exhibit 10.2 to the Registrant's Registration Statement on Form SB-
2, Registration No. 33-83984).
10.3 Form of International Distribution Agreement (incorporated herein
by this reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.4 Letter of Intent between the Registrant and Richard Leaderman,
D.D.S., together with related Patent Assignments as filed in the
U.S. Patent and Trademark Office on February 22, 1994 (incorporated
herein by this reference to Exhibit 10.13 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-83984).
10.5 Exclusive Marketing Agreement dated July 26, 1994 between the
Registrant, Proclosure, Inc. and Nippon Shoji Kaisha, Ltd.
(incorporated herein by this reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-83984).
10.6 Form of Indemnification Agreement (incorporated herein by this
reference to Exhibit 10.23 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.7 Purchase/Supply Agreement dated January 13, 1987 between Infrared
Fiber Systems, Inc. and Pfizer Hospital Products Group, Inc., as
amended (incorporated herein by this reference to Exhibit 10.26 to
the Registrant's Registration Statement on Form SB-2, Registration
No. 33-83984).
10.8 Form of Warrant Agreement (including forms of Class B Warrant
Certificates) (incorporated herein by this reference to Exhibit 4.1
to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-83984).
10.9 Form of Underwriter's Unit Purchase Option (incorporated herein by
this reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-83984).
10.10 1992 Stock Option Plan, together with form of Nonstatutory Stock
Option Agreement and form of Incentive Stock Option Agreement
(incorporated herein by this reference to Exhibit 4.5 to the
Registrant's Registration statement on Form SB-2, Registration No.
33-83984).
10.11 Employee Bonus Stock Plan, together with form of Bonus Stock
Agreement (incorporated herein by this reference to Exhibit 4.6 to
the Registrant's Registration Statement on Form SB-2, Registration
No. 33-83984).
10.12 Letter agreement dated October 13, 1987 between Pfizer Laser
Systems, Inc. and Duke University, together with patent assignment
as filed in the U.S. Patent and Trademark Office on October 23,
1993 (incorporated herein by this reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form SB-2, Registration No.
33-83984).
<PAGE>
Exhibit
No. Description
- ------- -----------
10.13 Industrial Lease dated December 6, 1995 between the Registrant and
The Irvine Company (incorporated herein by this reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1996).
10.14 Form of Consulting Agreement (incorporated herein by this reference
to Exhibit 10.30 to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1996).
10.15 Form of Termination Agreement between the Registrant and certain of
the Registrant's executive officers (incorporated herein by this
reference to Exhibit 10.33 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1996).
10.16 1995 Employee Stock Option Plan, together with form of Nonqualified
Stock Option Agreement and form of Incentive Stock Option Agreement
(incorporated herein by this reference to Exhibit 10.34 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1996).
10.17 February 1996 Stock Option Plan (incorporated herein by this
reference to Exhibit 10.35 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1996).
10.18 1996 Stock Option Plan (incorporated herein by this reference to
Exhibit 10.36 to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1996).
10.19 Warrant to Purchase Stock dated June 3, 1996 issued to Silicon
Valley Bank (incorporated herein by this reference to Exhibit 10.38
to the Registrant's Registration Statement on Form SB-2
Registration No. 333-04219).
10.20 Registration Rights Agreement dated June 3, 1996 between the
Registrant and Silicon Valley Bank (incorporated herein by this
reference to Exhibit 10.39 to the Registrant's Registration
Statement on Form SB-2 Registration No. 333-04219).
10.21 Antidilution Agreement dated June 3, 1996 between the Registrant
and Silicon Valley Bank (incorporated herein by this reference to
Exhibit 10.40 to the Registrant's Registration Statement on Form
SB-2 Registration No. 33-04219).
10.22 Joint Venture Agreement dated January 31, 1997 between the
Registrant RSS, LLC and Data.Site (incorporated herein by this
reference to Exhibit 10.39 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997).
10.23 Operating Agreement of Data.Site dated January 31, 1997
(incorporated herein by this reference to Exhibit 10.40 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997).
10.24 Agreement and Plan of Merger dated April 24, 1997 between the
Registrant, Premier Acquisition of Delaware, Inc. and EyeSys
Technologies, Inc. (incorporated herein by this reference to
Exhibit 10.41 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1997).
10.25 Loan Agreement dated September 24, 1997 between Silicon Valley Bank
and EyeSys Technologies, Inc. (incorporated herein by this
reference to Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q filed November 14, 1997, as amended by an amendment
thereto filed on November 26, 1997).
<PAGE>
Exhibit
No. Description
- ------- -----------
10.26 Third Party Security Agreement dated September 24, 1997, between
Silicon Valley Bank and the Registrant. (incorporated herein by
this reference to Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-Q filed November 14, 1997, as amended by an amendment
thereto filed on November 26, 1997).
10.27 1997 Stock Option, together with form of Nonqualified Stock Option
Agreement (incorporated herein by this reference to Exhibit 10.33
to the Registrant's Annual Report on Form 10-K filed August 26,
1998).
10.28 1998 Stock Option Plan (incorporated herein by this reference to
Exhibit 10.34 to the Registrant's Annual Report on Form 10-K filed
August 26, 1998).
10.29 Rights Agreement dated March 31, 1998 between the Registrant and
American Stock Transfer and Trust Company (incorporated herein by
this reference to Exhibit 4.1 to the Registrant's Current Report on
Form 8-K filed April 2, 1998).
10.30 Secured Convertible Debenture Purchase Agreement dated May 17, 1999
between the Registrant and the investors signatory thereto.**
10.31 Registration Rights Agreement dated May 17, 1999 between the
Registrant and the investors signatory thereto.**
10.32 Warrant dated May 17, 1999 issued by the Registrant to certain
investors.**
10.33 Intellectual Property Security Agreement dated May 17, 1999 between
the Registrant and the secured parties signatory thereto.**
10.34 Security Agreement dated May 17, 1999 between the Registrant and
the secured parties signatory thereto.**
10.35 Form of 6% Secured Convertible Debenture dated May 17, 1999 issued
by the Registrant to certain investors.**
16 Letter dated June 11, 1998 from Ernst & Young, LLP (incorporated
herein by this reference to Exhibit 16 to the Registrant's Current
Report on Form 8-K filed June 1, 1998, and as amended June 15,
1998).
21 Subsidiaries (incorporated herein by this reference to Exhibit 21
to the Registrant's Annual Report on form 10-K for the fiscal year
ended March 31, 1998).
23.1 Consent of Haskell & White LLP.*
27 Financial Data Schedule. (omitted because all information has been
previously filed)
99.1 Form of Class D Warrant (OIS transaction) (incorporated herein by
this reference to Exhibit 99.3 to the Registrant's Current Report
on From 8-K filed March 9, 1998).
<PAGE>
Exhibit
No. Description
- ------- -----------
99.2 Class D Warrant dated February 25, 1998 issued by the Registrant to
Mark S. Blumenkranz, M.D. and Recia Blumenkranz, M.D. (OIS
transaction) (incorporated herein by this reference to Exhibit 99.6
to the Registrant's Current Report on Form 8-K filed March 9,
1998).
99.3 Registration Rights Agreement dated February 25, 1998 issued by the
Registrant and Mark S. Blumenkranz, M.D. and Recia Blumenkranz,
M.D. (OIS transaction) (incorporated herein by this reference to
Exhibit 997 to the Registrant's Current Report on Form 8-K filed
March 9, 1998).
99.4 Class D Warrant dated February 25, 1998 issued by the Registrant to
Stanley Chang, M.D. (OIS transaction) (incorporated herein by this
reference to Exhibit 99.10 to the Registrant's Current Report on
Form 8-K filed March 9, 1998).
99.5 Registration Rights Agreement dated February 25, 1998 issued by
Registrant to Stanley Chang, M..D. (OIS transaction) (incorporated
herein by this reference to Exhibit 99.11 to the Registrant's
Current Report on Form 8-K filed March 9, 1998).
99.6 Class D Warrant dated February 25, 1998 issued by the Registrant to
J.B. Oxford & Company (OIS transaction) (incorporated herein by
this reference to Exhibit 99.14 to the Registrant's Current Report
on From 8-K filed March 9, 1998).
99.7 Registration Rights Agreement dated February 25, 1998 between the
Registrant and J. B. Oxford & Company (OIS transaction)
(incorporated herein by this reference to Exhibit 99.18 to the
Registrant's Current Report on Form 8-K filed March 9, 1998).
+99.8 Agreement dated July 23, 1997 between Nidek Co., Ltd. and EyeSys
Technologies, Inc. (incorporated herein by this reference to
Exhibit 99.1 to the Registrant's Registration Statement on Form S-4
Registration No. 333-29573).
+99.9 Exclusive Distribution Agreement dated June 2, 1997 between EyeSys
Technologies, Inc. and Marco Ophthalmic Inc. (incorporated herein
by this reference to Exhibit 99.3 to the Registrant's Registration
Statement on Form S-4 Registration No. 333-29573).
____________________
* Filed herewith.
** To be filed by amendment.
+ Confidential treatment has been granted with respect to portions of this
Exhibit.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Premier Laser Systems,
Inc. on Form S-1 of our report dated March 30, 1999, appearing in the
prospectus, which is part of this Registration Statement, and of our report
dated March 30, 1999 relating to the consolidated financial statement schedule
appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
HASKELL & WHITE LLP
Newport Beach, California
May 14, 1999
