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As filed with the Securities and Exchange Commission on December 6, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PREMIER LASER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0472684
(State or other jurisdiction or (I.R.S. Employer Identification No.)
incorporation or organization)
3 MORGAN
IRVINE, CALIFORNIA 92618
(949) 859-0656
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
ROBERT V. MAHONEY WITH COPIES TO:
CHIEF FINANCIAL OFFICER THOMAS G. BROCKINGTON, ESQ.
PREMIER LASER SYSTEMS, INC. ALISON M. BARBAROSH, ESQ.
3 MORGAN RUTAN & TUCKER, LLP
IRVINE, CALIFORNIA 92618 611 ANTON BOULEVARD, 14TH FLOOR
(949) 859-0656 COSTA MESA, CALIFORNIA 92626
(Name, address, including zip code, and (714) 641-5100
telephone number, including area code, of agent
for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE (2) PRICE (2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Class A common stock, no par 862,667 shares(3) $1.78125 $1,536,625.50 $405.67
value
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(1) In the event of a stock split, stock dividend or similar transaction
involving Premier's common stock, in order to prevent dilution, the number
of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act
of 1933, as amended.
(2) The aggregate offering price of shares of Premier's common stock is
estimated solely for purposes of calculating the registration fee payable
pursuant hereto, as determined in accordance with Rule 457(c) as of
December 3, 1999.
(3) Represents shares of common stock issuable following conversion of
presently outstanding convertible debentures held by the registered
security holders.
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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.
SUBJECT TO COMPLETION DATED DECEMBER 6, 1999
PROSPECTUS
PREMIER LASER SYSTEMS, INC.
3 MORGAN
IRVINE, CALIFORNIA 92618
(949) 859-0656
862,667 shares of (no par value) common stock
The securityholders listed in this Prospectus under the section
"Registered Securityholders" may offer and sell a total of 862,667 shares of our
company's common stock, no par value, which shares are issuable upon conversion
of convertible debentures (the "Debentures") previously issued to such
securityholders. This Prospectus has been prepared for the purposes of
registering the shares under the Securities Act of 1933, as amended (the
"Securities Act"), and to allow the Registered Securityholders to make future
sales to the public without restriction. To our knowledge, the Registered
Securityholders have made no arrangement with any brokerage firm for the sale of
the shares.
The Registered Securityholders may sell their shares of common stock
described in this Prospectus for their own benefit in public or private
transactions, on or off the Nasdaq National Market, at prevailing market prices,
or at privately negotiated prices. The Registered Securityholders may sell the
shares directly to purchasers or through brokers or dealers. Brokers or dealers
may receive compensation in the form of discounts, concessions or commissions
from the Registered Securityholders. The compensation to a particular
underwriter, broker-dealer or agent may be in excess of customary commissions.
The Registered Securityholders will pay all commissions, transfer taxes and
other expenses associated with their sales of the shares. We will pay the
expenses of the preparation of this Prospectus. We have also agreed to indemnify
certain Registered Securityholders against certain liabilities, including,
without limitation, liabilities arising under the Securities Act. We will not
receive any of the proceeds from the Registered Securityholders' sales of the
shares. In addition to sales under this Prospectus, the Registered
Securityholders may also engage in other sales of shares under Rule 144 or other
exempt resale transactions. There can be no assurance that any or all of the
Registered Securityholders will sell any or all of the shares offered pursuant
this Prospectus. More information is provided in the section titled "Plan of
Distribution."
Our common stock is listed on the Nasdaq National Market under the
symbol "PLSIA." On December 3, 1999, the last reported sale price of our common
stock on the Nasdaq National Market was $1.75 per share.
__________
SEE "RISK FACTORS" BEGINNING ON PAGE 2, FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY INVESTORS.
__________
This Prospectus is dated December __, 1999
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The information in this Prospectus is not complete and may be changed.
The securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is declared effective. This Prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
__________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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 in
this prospectus, before you decide whether to purchase shares of our common
stock.
THERE ARE RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS MADE BY US AND ACTUAL
RESULTS MAY DIFFER.
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:
o discuss our future expectations
o contain projections of our future results of operations or of
our financial condition
o 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.
RISKS RELATED TO OUR BUSINESS
IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING IN THE FUTURE, WE WILL HAVE
SEVERE DIFFICULTIES FINANCING OUR BUSINESS.
In the future, we will require substantial additional funds for
operating expenses, 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 both internal and external factors.
Internal factors affecting our capital requirements include:
o our ability to generate profits and cash flow from operations
o the progress of research and development programs
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o results of preclinical and clinical testing
o the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights
o developments and changes in our existing research
o licensing and other relationships
o the terms of any new collaborative, licensing and other
arrangements that we may establish
o the amount of legal, accounting and administrative costs
incurred in connection with pending litigation
External factors affecting our capital requirements include:
o competing technological and market developments
o the time and cost involved in obtaining regulatory approvals
Our available short-term assets and investment income will not be
sufficient to meet our operating expenses and capital expenditures through the
current fiscal year, and we are currently seeking additional financing. 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 internally.
WE HAVE INCURRED NET LOSSES IN THE PAST AND EXPECT TO INCUR FUTURE LOSSES WHICH
MAY NEGATIVELY IMPACT OUR ABILITY TO SUSTAIN OUR OPERATIONS.
We incurred net losses of approximately $76,343,000 from April 1, 1995
through March 31, 1999, and approximately $30,841,000 for the year ended March
31, 1999. As of September 30, 1999, we had an accumulated deficit of
approximately $94,301,996. We expect to continue to incur net losses until
product sales generate sufficient revenues to fund our continuing operations. We
may fail to achieve significant revenues from sales or achieve or sustain
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.
THE HIGH COST OF DENTAL LASERS, SAFETY AND EFFICACY CONCERNS OF DENTISTS AND
PATIENTS AND THE SUBSTANTIAL MARKET ACCEPTANCE OF DENTAL DRILLS MAY PREVENT US
FROM ACHIEVING THE BROAD MARKET ACCEPTANCE WHICH IS NECESSARY FOR OUR SUCCESS.
Our products may not be accepted by the medical or dental community or
by patients. We do not know if these products can be successfully commercialized
on a broad basis. 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. 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. Current economic pressure
may make doctors and dentists reluctant to purchase substantial capital
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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. Of all the factors impacting our
profitability, the failure of our products to achieve broad market acceptance
would have the greatest negative impact on our business, financial condition and
results of operations and our profitability.
WE ARE INVOLVED IN PENDING LITIGATION AND A REGULATORY INVESTIGATION AND MAY BE
ADVERSELY AFFECTED BY AN ADVERSE OUTCOME IN THE LAWSUIT OR BY THE COSTS OF
DEFENDING THIS LAWSUIT.
We have been sued in a number of related securities class action
matters, generally relating to allegations of misrepresentations during the
period from May 7, 1997 to April 15, 1998. 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. In the quarter ended March 31,
1999, we recorded an additional expenses of $250,000 to cover continuing legal
fees incurred in connection with 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 has commenced an
investigation of our practices and procedures relating to revenue recognition
issues and related matters. The Securities and Exchange Commission has begun
taking depositions of past and present employees as well as our outside
accountants. 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 until these
matters are resolved. We do not know when these matters will be resolved.
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 these penalties could materially
and adversely affect our business, financial condition and results of
operations.
IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE THE OPHTHALMIC IMAGING SYSTEMS
("OIS") BUSINESS WITH OUR OTHER OPERATIONS, WE MAY INCUR SUBSTANTIAL AND
UNANTICIPATED EXPENSES AND OPERATING INEFFICIENCIES.
We acquired a majority of the outstanding common stock of OIS in 1998.
In March 1999, we agreed to manufacture OIS's products on an outsourcing basis.
In addition, we have agreed with OIS to acquire the remaining outstanding stock
of OIS, subject to satisfaction of certain conditions. 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.
BECAUSE SOME OF THE COMPONENTS WE USE ARE NOT WIDELY AVAILABLE, THERE IS A RISK
THAT WE MAY NOT ALWAYS BE ABLE TO OBTAIN THESE COMPONENTS, WHICH COULD PREVENT
US FROM FILLING ORDERS ON TIME AND REDUCE OUR SALES.
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. Some of the
components used by OIS are manufactured by a sole vendor, including Foresight
Imaging for its prism card and Kodak for its 12 bit camera. In addition, our
Arago laser product is manufactured for us by one supplier, LaserMed, Inc.
Further, our 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
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replacement component. While we believe that suppliers could be found for all of
our components and products, 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.
IN ORDER TO CONTINUE TO SELL OUR PRODUCTS IN FOREIGN MARKETS, WE MUST DEVELOP
AND MAINTAIN FOREIGN SALES DISTRIBUTION CHANNELS AND MANAGE POLITICAL AND
ECONOMIC INSTABILITY IN FOREIGN MARKETS AND DEAL WITH GOVERNMENTAL QUOTAS AND
OTHER REGULATIONS.
A substantial portion of our sales are made in foreign markets. The
primary risks to which we are exposed due to our foreign sales are the
difficulty and expense of maintaining foreign sales distribution channels,
political and economic instability in foreign markets and governmental quotas
and other regulations.
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 these
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.
IF WE CANNOT ADAPT TO TECHNOLOGICAL ADVANCES, OUR PRODUCTS MAY BECOME
TECHNOLOGICALLY OBSOLETE AND OUR PRODUCT SALES COULD SIGNIFICANTLY DECLINE.
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.
IF WE ARE UNABLE TO PROTECT OUR PATENTS AND PROPRIETARY TECHNOLOGY WE MAY NOT BE
ABLE TO COMPETE EFFECTIVELY.
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 some
of our technologies without a license, including, among others, patents relating
to our lens emulsification product and ophthalmic probes for the Er:YAG laser.
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 the value of our
intangible assets may result in a write-off of the intangible asset and a
substantial charge to earnings, which would adversely affect our operating
results in the future.
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IN OUR BUSINESS, WE COULD BECOME INVOLVED IN PATENT AND INTELLECTUAL PROPERTY
LITIGATION, IN WHICH AN ADVERSE DETERMINATION COULD SUBJECT US TO SIGNIFICANT
LIABILITIES AND RESTRICT OUR MANUFACTURING RIGHTS.
In the past, we have received allegations that some of our laser and
diagnostic products infringe on other patents. There has been significant patent
litigation in the medical device 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 these licenses, we could encounter delays
in product introductions while we attempt to design around these patents, or we
could find that the development, manufacture or sale of products requiring such
licenses could be enjoined.
OUR BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATION WHICH IMPOSES SIGNIFICANT
COSTS ON US AND IF NOT COMPLIED WITH COULD LEAD TO THE ASSESSMENT OF PENALTIES.
Our products are regulated as medical devices by the United States Food
& Drug Administration. As such, these devices 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
our 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 some 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.
THE INTENSE COMPETITION WE FACE COULD RESULT IN REDUCED SALES AND DOWNWARD
PRESSURE ON THE PRICES OF OUR PRODUCTS.
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. In addition, we expect that other companies will enter the
laser market, particularly as medical lasers gain increasing market acceptance.
Significant competitive factors which will affect future sales in the
marketplace include regulatory approvals, performance, pricing and general
market acceptance.
The ophthalmic diagnostic market is also highly competitive. There are
many companies engaged in this market, some with significantly greater resources
than ours. 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.
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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.
A SUCCESSFUL PRODUCT LIABILITY CLAIM ASSERTED AGAINST US DUE TO A DEFECT IN ONE
OF OUR PRODUCTS IN EXCESS OF OUR INSURANCE COVERAGE 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 this 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 these claims. A successful claim against us in excess
of our insurance coverage could materially harm our business.
THERE IS UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT WHICH IS CRITICAL TO
MARKET ACCEPTANCE OF 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
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. If third party
reimbursement of these procedures is not available, it will be more difficult
for us 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 legislation or regulation may have on us.
THE COVERAGE AND SPENDING LIMITATIONS CONTAINED IN HEALTH CARE REFORM PROPOSALS
WOULD, IF ADOPTED, REDUCE DEMAND FOR OUR PRODUCTS.
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.
IF WE EXPERIENCE PROBLEMS WITH YEAR 2000 COMPLIANCE OUR OPERATIONS MAY BE
DISRUPTED.
Many existing computer programs use only two digits to identify the
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. As a result, any
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in system
failure or miscalculations, causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
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We are heavily dependent upon the proper functioning of our own
computer and data-dependent systems. This includes, but it not limited to, our
support/administrative and operational/production systems. Any failure or
malfunctioning on the part of these or other systems could harm our business in
ways that we currently do not know and cannot discern, quantify or otherwise
anticipate. In addition, if our key vendors experience Year 2000 compliance
issues, then our business could be harmed. Due to the interrelated nature of
international commerce, if there is a failure in Year 2000 compliance by us or
one of our direct or indirect business partners, we could suffer major
disruptions in our ability to call on customers, obtain orders from customers,
obtain parts from suppliers, manufacture products for sale, ship products to our
customers, or receive payment for our sales.
We are currently in the final phase of identifying and evaluating the
potential impacts of the Year 2000 on our systems. We design, manufacture and
sell medical products which contain computer chips and we utilize software
developed by other companies. 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.
RISKS RELATED TO THIS OFFERING
CHANGES IN REVENUE AND OPERATING RESULTS MAY CAUSE THE MARKET PRICE OF OUR STOCK
TO FLUCTUATE, WHICH MAY ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL
CAPITAL.
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. The important factors
which may cause our quarterly results to fluctuate are seasonality and
production delays. During the past four fiscal quarters, our net loss has
fluctuated from a low of $2.1 million to a high of $12.9 million. Such
fluctuations may cause our stock price to decline and adversely affect our
ability to raise additional capital.
THE VOLATILITY OF OUR STOCK PRICE MAKES THESE SECURITIES RISKY FOR THOSE SEEKING
A STABLE INVESTMENT.
The market price of our common stock is very volatile, and our common
stock therefore may not be a suitable investment for those who seek stable
investment prices over the short or long term. Our common stock was first
publicly traded in December 1994 and has had last reported closing sale prices
ranging from a low of $1.38 per share in August 1999 to a high of $14.00 per
share in May 1997. The market price of our common stock could continue to
fluctuate substantially due to a variety of risk factors, including those
described elsewhere in this prospectus. The market price for our common stock
may also be affected by our ability to meet analysts' expectations. Any failure
to meet these 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.
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A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR SALE, AND IF SOLD, THESE SHARES
MAY CREATE EXCESS SUPPLY IN THE MARKET CAUSING OUR STOCK PRICE TO DECLINE.
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 7.4 million
shares of our common stock are issuable upon exercise of other outstanding
warrants and options and conversion of outstanding debentures. 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 will require satisfaction of 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 outstanding options and warrants will likely be less than the market
price of our common stock at the time these 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 POSSIBLY
PREVENTING YOU FROM OBTAINING HIGHER SHARE PRICES.
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 shareholder 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. This could have the effect of preventing others from seeking
to acquire your shares in transactions at premium prices.
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.
If a significant number of shares of common stock which are issued upon
conversion of the debentures and payment of interest thereon are then sold in
the market, the price of our common stock could be depressed due to the presence
of these additional shares in the market. This downward pressure could encourage
short sales of common stock by the selling shareholders or others. By increasing
the number of shares offered for sale, material amounts of short selling could
place further downward pressure on the market price of the common stock.
9
<PAGE>
ABOUT THIS PROSPECTUS
This Prospectus is part of a Registration Statement we filed with the
Securities and Exchange Commission (the "SEC"). You should rely only on the
information incorporated by reference or provided in this Prospectus. We have
not authorized anyone else to provide you with different information. The
Registered Securityholders will not make an offer of the shares in any state
where the offer is not permitted. You should not assume that the information in
this Prospectus is accurate as of any date other than the date on the front of
the document.
USE OF PROCEEDS
The Registered Securityholders will directly receive the proceeds from
the sale of the shares. We will not receive any proceeds from the sale of the
shares offered by this Prospectus.
DILUTION
The following discussion and table treats our Class A Common Stock,
Class E-1 Common Stock and Class E-2 Common Stock as a single class.
As of September 30, 1999, we had a net tangible book value of
$(2,600,000), or $(0.15) 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 issuance and conversion of the debentures and
exercise of the warrants, our adjusted pro forma net tangible book value as of
September 30, 1999 would have been $(1,317,000), or $(0.07) per share of common
stock. This amount represents an immediate increase in pro forma net tangible
book value of $0.08 per share to our existing shareholders and an immediate
dilution to the persons converting the debentures and exercising the warrants of
approximately $1.57 per share. Dilution is determined by subtracting pro forma
net tangible book value per share of common stock after this offering from the
price paid by new investors for a share of our common stock. The following table
illustrates this dilution on a per share basis and assume that all of the
warrants will be exercised:
<TABLE>
<CAPTION>
<S> <C>
Assumed average price per share(1)...................................................$ 1.50
Net tangible book value per share before exercise ..................$(0.15)
Increase per share attributable to the conversion of the
debentures and exercise of the warrants ..........................$ 0.08
Pro forma net tangible book value per share after conversion and exercise............$(0.07)
-------
Dilution of net tangible book value..................................................$ 1.57
=======
</TABLE>
- -----------
(1) The debentures are convertible into common stock based on the closing
sale price of the common stock on the day the debenture is converted.
Accordingly, the conversion price for the debentures will fluctuate on
a daily basis. For purposes of this dilution table, we have assumed a
conversion price of $1.50 per share and, based on such assumed price,
the outstanding debentures would be convertible into approximately
862,667 shares of common stock. The assumed average price per share
equals the total amount that would be received upon conversion of the
debentures and exercise of the warrants, divided by this assumed number
of shares into which the debentures would have been convertible plus
the number of shares issuable upon exercise of the warrants.
10
<PAGE>
REGISTERED SECURITYHOLDERS
The following table sets forth certain information as of December 3,
1999, with respect to each Registered Securityholder . The securities registered
under the Registration Statement of which this Prospectus is a part include
securities issuable upon the conversion of convertible debentures. The holders
of such debentures are entitled to determine whether and when to convert such
debentures, except that under certain conditions we may require the Registered
Securityholders to convert the debentures into common stock, in accordance with
their terms.. We will not receive any of the proceeds from the sale of the
shares by the Registered Securityholders. None of the Registered Securityholders
will beneficially own more than 1% of our outstanding shares after the sale of
the securities offered hereby.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
NAME OF REGISTERED BENEFICIALLY OWNED BEING OFFERED PURSUANT BENEFICIALLY
SHAREHOLDER PRIOR TO THIS OFFERING(1) TO THIS PROSPECTUS(1) OWNED AFTER OFFERING(2)
------------------ ------------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Big Sky Laser 400,000 400,000 0
Technologies, Inc.
Knobbe, Martens, Olson 233,333 233,333 0
& Bear, LLP
Paul, Hastings, Janofsky 88,667 88,667 0
& Walker LLP
Rutan & Tucker, LLP 140,667 140,667 0
</TABLE>
-----------------------
(1) Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to
securities. All of the securities being registered consist of shares of
Class A Common Stock. The number of shares of common stock issuable
upon conversion of the debentures is calculated by dividing the amount
of the debenture by the closing sale price of the common stock on the
day before the debenture is converted. For purposes of this Prospectus
and the Registration Statement, we have assumed a closing sale price of
$1.50 per share. For each of the Registered Securityholders, the number
of shares of common stock beneficially owned and being offered under
the Prospectus represents the number of shares of our common stock
issuable upon conversion of convertible debentures within 60 days.
(2) Assumes that all of the shares are sold pursuant to this Prospectus.
Other than broker discounts and commissions, if any, we have agreed to
pay the expenses in connection with this Prospectus.
11
<PAGE>
PLAN OF DISTRIBUTION
The Registered Securityholders have advised us that they will offer for
sale, from time to time, all or a portion of the shares offered by this
Prospectus in one or more private or negotiated transactions, in open market
transactions on the Nasdaq National Market, in settlement of short sale
transactions, in settlement of option transactions, or otherwise, or a
combination of these methods, at prices and terms then obtainable, at fixed
prices, at prices then prevailing at the time of sale, at prices related to such
prevailing prices, or at negotiated prices or otherwise. The Registered
Securityholders may effect these transactions by selling the shares (i) to or
through underwriters; (ii) through broker-dealers or agents, which may include
underwriters, including: (a) in a block trade in which the broker or dealer so
engaged will attempt to sell the shares of common stock as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) in purchases by a broker or dealer and resale by such broker or
dealer as a principal for its account pursuant to this Prospectus; (c) in
ordinary brokerage transactions and (d) in transactions in which the broker
solicits purchasers; or (iii) directly to one or more purchasers. THE REGISTERED
SECURITYHOLDERS AND ANY UNDERWRITERS, DEALERS, BROKERS OR AGENTS EXECUTING
SELLING ORDERS ON BEHALF OF THE REGISTERED SECURITYHOLDERS MAY BE DEEMED TO BE
"UNDERWRITERS" WITHIN THE MEANING OF THE SECURITIES ACT AND ANY PROFITS ON THE
SALE OF THE SHARES BY THEM AND ANY DISCOUNTS, COMMISSIONS OR CONCESSIONS
RECEIVED BY SUCH UNDERWRITERS, DEALERS, BROKERS OR AGENTS MAY BE DEEMED TO BE
UNDERWRITING DISCOUNTS AND COMMISSIONS UNDER THE SECURITIES ACT. The
compensation to a particular underwriter, broker-dealer or agent may be in
excess of customary commissions. To our knowledge, the Registered
Securityholders have made no arrangement with any brokerage firm for the sale of
the shares.
Any broker-dealer participating in such transactions as agent may
receive commissions from the Registered Securityholders and, if they act as
agent for the purchaser of such shares, from such purchaser. Broker-dealers may
agree with the Registered Securityholders to sell a specified number of shares
at a stipulated price per share and, to the extent such a broker-dealer is
unable to do so acting as agent for the Registered Securityholder, to purchase
as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to the Registered Securityholder. Broker-dealers who
acquire shares as principal may thereafter resell such shares from time to time
in transactions, which may involve crosses and block transactions and which may
involve sales to and through other broker-dealers, including transactions of the
nature described above, in the over-the-counter market, in negotiated
transactions or otherwise at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
from the purchasers of such shares commissions computed as described above. To
the extent required under the Securities Act, a supplemental prospectus will be
filed, disclosing (a) the name of any such broker-dealers; (b) the number of
shares involved; (c) the price at which such shares are to be sold; (d) the
commissions paid or discounts or concessions allowed to such broker-dealers,
where applicable; (e) that such broker-dealers did not conduct any investigation
to verify the information set out or incorporated by reference in this
Prospectus, as supplemented; and (f) other facts material to the transaction.
The Registered Securityholders will act independently from Premier in
making decisions concerning the sale of the shares, provided, however, that
Premier and each of the Registered Securityholders have agreed to a maximum
value of shares of common stock that each Registered Securityholder may sell in
any calendar month.
12
<PAGE>
Under applicable rules and regulations under the Securities Exchange
Act of 1934, as amended, any person engaged in a distribution of the shares may
not simultaneously engage in market making activities with respect to the shares
for a period beginning when such person becomes a distribution participant and
ending upon such person's completion of participation in the distribution,
including stabilization activities in the common stock to effect covering
transactions, to impose penalty bids or to effect passive marketing making bids.
In addition to and without limiting the foregoing, in connection with
transactions in the shares, the Registered Securityholders and any underwriters,
dealers, brokers or agents executing selling orders on behalf of the Registered
Securityholders may be subject to applicable provisions of the Securities
Exchange Act of 1934,as amended, and the rules and regulations thereunder,
including, without limitation, Rule 10b-5 thereof and, insofar as Premier and
the Registered Securityholders are distribution participants, Regulation M and
Rules 100, 101, 102, 103, 104 and 105 thereof. All of the foregoing may affect
the marketability of the shares.
The Registered Securityholders will pay all commissions, transfer taxes
and other expenses associated with their sales of the shares. The shares offered
hereby are being registered pursuant to our contractual obligations, and we have
agreed to pay the expenses of the preparation of this Prospectus and the filing
of the Registration Statement. We have also agreed to indemnify certain
Registered Securityholders against certain liabilities, including, without
limitation, liabilities arising under the Securities Act. We will not receive
any of the proceeds from the sale of the shares by the Registered
Securityholders.
Total expenses incurred in connection with the preparation of this
Prospectus, consisting primarily of legal, accounting, and filing fees, are
estimated to be approximately $10,900.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless the shares have been registered or qualified for
sale in these states or an exemption from registration or qualification is
available and complied with.
Our common stock is currently traded on the Nasdaq National Market
under the symbol "PLSIA." Concurrently with sales under this Prospectus, the
Registered Securityholders may effect other sales of shares under Rule 144 or
other exempt resale transactions. There can be no assurance that the Registered
Securityholders, or any of them, will sell any or all of the shares offered
hereunder.
DESCRIPTION OF CONVERTIBLE DEBENTURES
The securities being offered by the Registered Securityholders consist
of shares of our Class A Common Stock which are issuable upon the conversion of
convertible debentures. We are not required to pay interest on the principal sum
of the debentures.
The debentures are convertible, at the option of the holder, into
shares of our Class A Common Stock at any time and from time to time from the
date they were issued. In addition, under certain circumstances, we may require
the Registered Securityholders to convert their debentures into shares of common
stock. The number of shares of our common stock issuable upon conversion is
13
<PAGE>
determined by dividing the outstanding principal amount of the debenture to be
converted by the closing sale price of the common stock on the date the
conversion is to be effective, which date may not be prior to the date the
notice of conversion is deemed to have been delivered to us under the terms of
the debenture agreement. However, under certain circumstances the conversion
price may not be less than $1.50. Notwithstanding the foregoing, we may not
issue upon conversion a number of shares that exceeds 19.999% of the number of
shares of common stock outstanding immediately prior to the issuance of the
debenture, unless the common stock is then listed for trading on the Nasdaq or
the Nasdaq SmallCap Market and we have obtained shareholder approval for such
issuance.
Since the number of shares of common stock issuable upon conversion of
the debentures is dependent in part upon the market price of the common stock
prior to the conversion, the actual number of shares of common stock that will
then be issued in respect of such conversions and, consequently, offered for
sale pursuant to this Prospectus, cannot be determined at this time. Therefore,
for purposes of this Prospectus, we have assumed a conversion rate of $1.50 per
share and, therefore, based upon an aggregate principal amount of the debentures
of $1,294,000, we are registering an aggregate of 862,667 shares of our common
stock.
Each of the Registered Securityholders has agreed to a maximum value of
shares of common stock that each Registered Securityholder may sell in any
calendar month.
LEGAL MATTERS
The validity of the shares offered pursuant to this Prospectus will be
passed upon for us by Rutan & Tucker, LLP, Costa Mesa, California. As of
December 3, 1999, Rutan & Tucker, LLP held convertible debentures issued by
Premier in the aggregate amount of $211,000. Based upon an assumed closing sale
price of our common stock of $1.50 per share, such debentures would be
convertible into approximately 140,667 shares of our common stock, and Rutan &
Tucker, LLP would be deemed to beneficially own approximately 140,667 shares of
our common stock.
EXPERTS
The consolidated financial statements and related consolidated
financial statement schedule, incorporated in this Prospectus by reference from
our Annual Report on Form 10-K for the year ended March 31, 1999, as amended,
have been audited by Haskell & White LLP, independent auditors, as stated in
their report, which is incorporated in this Prospectus by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a public company. We file annual, quarterly and special reports,
proxy statements and other information with the SEC. Our SEC filings are
available to the public over the Internet at the SEC's website at
HTTP://WWW.SEC.GOV. You may also read and copy any document we file with the SEC
at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Midwest Regional Offices at 500 West Madison Street,
Chicago, Illinois 60606 and Northeast Regional Office at 7 World Trade Center,
New York, New York 10048. You can also obtain copies of such material at
prescribed rates from the Public Reference Section of the SEC at its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1- 800-SEC-0330 for further information on the operation of the public
references facilities.
Our common stock is traded on the Nasdaq National Market under the
symbol "PLSIA." You may inspect reports, proxy statements and other information
concerning us at the National Association of Securities Dealers, Inc., at 1735 K
Street, N.W., Washington D.C. 2006.
14
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this Prospectus and information that we file subsequently
with the SEC will automatically update this Prospectus. We incorporate by
reference the documents listed below:
o Annual Report on Form 10-K for the fiscal year ended March 31,
1999, as filed with the SEC on June 29, 1999 pursuant to the
Securities Exchange Act of 1934, as amended, and amended by
Form 10-K/A filed with the SEC on October 12, 1999.
o Quarterly Report on Form 10-Q for the quarter ended September
30, 1999, as filed with the SEC on November 15, 1999.
o Quarterly Report on Form 10-Q for the quarter ended June 30,
1999, as filed with the SEC on August 16, 1999, as amended by
Form 10-Q/A filed with the SEC on October 12, 1999.
o Current Report on Form 8-K, as filed with the SEC on November
30, 1999.
o Current Report on Form 8-K, as filed with the SEC on November
5, 1999.
o Current Report on Form 8-K, as filed with the SEC on June 1,
1999.
o The description of our common stock contained in our
Registration Statement on Form 8-A filed under the Securities
Exchange Act of 1934, as amended, on December 7, 1994, as
amended January 30, 1995, together with any amendment or
report filed to amend or update such description.
o All other reports filed by us pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended,
since the end of our fiscal year ended March 31, 1999.
We also incorporate by this reference any future filings we make with
the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended. Documents filed with the SEC after the date of
this Prospectus are made a part of this Prospectus as of the date such documents
are filed with the SEC.
Any statement in a document incorporated or deemed to be incorporated
by reference in this Prospectus is deemed to be modified or superseded to the
extent that a statement contained in this Prospectus, or in any other document
we subsequently file with the SEC, modifies or supersedes such statement. If any
statement is so modified or superseded, it does not constitute a part of this
Prospectus, except as so modified or superseded.
You may request a copy of the documents incorporated by reference in
this Prospectus, other than exhibits to such documents, at no cost, by writing
to or telephoning us at the following address:
15
<PAGE>
Premier Laser Systems, Inc.
Attention: Robert V. Mahoney, Chief Financial Officer
3 Morgan
Irvine, California 92618
(949) 859-0656
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California General Corporations Law provides that California
corporations may include provisions in their articles of incorporation relieving
directors of monetary liability for breach of their fiduciary duty as directors,
except for the liability of a director resulting from (i) any transaction from
which the director derives an improper personal benefit, (ii) acts or omissions
involving intentional misconduct or a knowing and culpable violation of law,
(iii) acts or omissions that a director believes to be contrary to the best
interests of the registrant or its shareholders or that involves the absence of
good faith on the part of the director, (iv) acts or omissions constituting an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the registrant or its shareholders, (v) acts or omissions showing a
reckless disregard for the director's duty to the registrant or its shareholders
in circumstances in which the director was aware or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to the registrant or its shareholders, (vi) any improper transaction
between a director and the registrant in which the director has a material
financial interest, or (vii) the making of an illegal distribution to
shareholders or an illegal loan or guaranty. Our Articles of Incorporation
provide that our directors are not liable to us or our 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 us and our shareholders.
Our Articles of Incorporation and bylaws provide that we will indemnify
our directors and officers to the fullest extent permitted by California law,
including circumstances in which indemnification is otherwise discretionary
under California law. Since the California statute is nonexclusive, it is
possible that certain claims beyond the scope of the statute may be
indemnifiable. Accordingly, we have also entered into an indemnification
agreement (the "Indemnification Agreement") with certain of our directors and
officers that requires us to indemnify such directors and officers to the
fullest extent permitted by law.
Set forth below is a description of the principal provisions of the
Indemnification Agreement:
First, the Indemnification Agreement imposes upon us the burden of
proving that the indemnified party has not met the applicable standard of
conduct required for indemnification. The California statute requires a finding
by the Board of Directors, independent legal counsel, or the shareholders that
the applicable standard of conduct has been met.
Second, the Indemnification Agreement provides that litigation expenses
shall be advanced to an indemnified party at his request, against an undertaking
to repay the amount advanced if it is ultimately determined that he is not
entitled to indemnification for such expenses. The California statute provides
that such expenses may be advanced against such an undertaking, upon
authorization by the Board of Directors.
16
<PAGE>
Third, in the event we do not pay a requested indemnification amount,
the Indemnification Agreement allows such indemnified party to contest this
determination by petitioning a court to make an independent determination of
whether such indemnified party is entitled to indemnification under the
Indemnification Agreement. The California statute does not set forth the
procedure for contesting a corporation's determination of a party's right to
indemnification.
Finally, the Indemnification Agreement explicitly provides that actions
by an Indemnified Party at our request as a director, officer or agent of an
employee benefit plan, corporation, partnership, joint venture or other
enterprise owned or controlled by us shall be covered by the indemnification.
The California statute does not specifically address this issue. It does,
however, provide that to the extent that an indemnified party has been
successful on the merits, he shall be entitled to such indemnification.
We are currently engaged in class action litigation in which certain
current and former directors are seeking indemnification, and for which we have
agreed to provide indemnification.
We are also empowered under our bylaws to purchase insurance on behalf
of any person we are required or permitted to indemnify.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons pursuant to
the foregoing provisions, or otherwise, Premier 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.
17
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations in connection with the offering
described in this Prospectus other than those contained in this Prospectus, and,
if given or made, such information or representations must not be relied upon as
having been authorized by Premier or any of the Registered Securityholders. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy, nor shall there be any sale of these securities by any person in any
jurisdiction in which such an offer, solicitation or sale would be unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of Premier since the date of this Prospectus or that the information
contained in this Prospectus is correct as of any time subsequent to the date of
this Prospectus.
------------------------
TABLE OF CONTENTS
PAGE
----
Risk Factors..................................................................2
About this Prospectus........................................................10
Use of Proceeds..............................................................10
Dilution.....................................................................10
Registered Securityholders...................................................11
Plan of Distribution.........................................................12
Description of Convertible Debentures........................................13
Legal Matters................................................................14
Experts ....................................................................14
Where You Can Find More Information..........................................14
Incorporation of Certain Documents by
Reference.................................................................15
Indemnification of Directors and Officers....................................16
------------------------
862,667 Shares
PREMIER LASER SYSTEMS, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
DECEMBER , 1999
================================================================================
18
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the Offering described in this Registration Statement:
SEC registration fee........................ 406
Printing and engraving expenses............. 500
Legal fees and expenses..................... 5,000
Blue Sky fees and expenses.................. 500
Accounting fees and expenses................ 3,500
Miscellaneous............................... 1,000
-------
Total............................... $10,906
=======
All of the above expenses will be paid by Premier.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California General Corporations Law provides that California
corporations may include provisions in their articles of incorporation relieving
directors of monetary liability for breach of their fiduciary duty as directors,
except for the liability of a director resulting from (i) any transaction from
which the director derives an improper personal benefit, (ii) acts or omissions
involving intentional misconduct or a knowing and culpable violation of law,
(iii) acts or omissions that a director believes to be contrary to the best
interests of the Registrant or its shareholders or that involves the absence of
good faith on the part of the director, (iv) acts or omissions constituting an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Registrant or its shareholders, (v) acts or omissions showing a
reckless disregard for the director's duty to the Registrant or its shareholders
in circumstances in which the director was aware or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to the Registrant or its shareholders, (vi) any improper transaction
between a director and the Registrant in which the director has a material
financial interest, or (vii) the making of an illegal distribution to
shareholders or an illegal loan or guaranty. The Registrant's Articles of
Incorporation provide that the Registrant's directors are not liable to the
Registrant or its shareholders for monetary damages for breach of their
fiduciary duties to the fullest extent permitted by California law.
The inclusion of the above provision in the Articles of Incorporation
may have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefitted the Registrant and its
shareholders.
The Registrant's Articles of Incorporation and bylaws provide that the
Registrant shall indemnify its directors and officers to the fullest extent
permitted by California law, including circumstances in which indemnification is
otherwise discretionary under California law. Since the California statute is
nonexclusive, it is possible that certain claims beyond the scope of the statute
may be indemnifiable. Accordingly, the Registrant has also entered into an
indemnification agreement (the "Indemnification Agreement") with certain of its
directors and officers that requires the Registrant to indemnify such directors
and officers to the fullest extent permitted by law.
II-1
<PAGE>
Set forth below is a description of the principal provisions of the
Indemnification Agreement:
First, the Indemnification Agreement imposes upon the Registrant the
burden of proving that the indemnified party has not met the applicable standard
of conduct required for indemnification. The California statute requires a
finding by the Board of Directors, independent legal counsel, or the
shareholders that the applicable standard of conduct has been met.
Second, the Indemnification Agreement provides that litigation expenses
shall be advanced to an indemnified party at his request, against an undertaking
to repay the amount advanced if it is ultimately determined that he is not
entitled to indemnification for such expenses. The California statute provides
that such expenses may be advanced against such an undertaking, upon
authorization by the Board of Directors.
Third, in the event the Registrant does not pay a requested
indemnification amount, the Indemnification Agreement allows such indemnified
party to contest this determination by petitioning a court to make an
independent determination of whether such indemnified party is entitled to
indemnification under the Indemnification Agreement. The California statute does
not set forth the procedure for contesting a corporation's determination of a
party's right to indemnification.
Finally, the Indemnification Agreement explicitly provides that actions
by an Indemnified Party at the request of the Registrant as a director, officer
or agent of an employee benefit plan, corporation, partnership, joint venture or
other enterprise owned or controlled by the Registrant shall be covered by the
indemnification. The California statute does not specifically address this
issue. It does, however, provide that to the extent that an indemnified party
has been successful on the merits, he shall be entitled to such indemnification.
We are currently engaged in class action litigation in which certain
current and former directors are seeking indemnification, and for which we have
agreed to provide indemnification.
The Registrant is also empowered under its bylaws to purchase insurance
on behalf of any person it is required or permitted to indemnify
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.
II-2
<PAGE>
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
4.1 Form of Convertible Debenture issued to Big Sky Laser
Technologies, Inc.*
4.2 Form of Convertible Debenture issued to each of Rutan
& Tucker, LLP, Paul, Hastings, Janofsky & Walker LLP
and Knobbe, Martens, Olson & Bear, LLP*
5 Opinion of Rutan & Tucker, LLP*
10.1 Settlement Agreement between Big Sky Laser
Technologies, Inc. and Premier Laser Systems, Inc.*
10.2 Form of Exchange Agreement with each of Rutan &
Tucker, LLP, Paul, Hastings, Janofsky & Walker, LLP
and Knobbe, Martens, Olson & Bear LLP*
23.1 Consent of Haskell & White LLP*
23.2 Consent of Rutan & Tucker, LLP (included in Exhibit
5)*
- ------------------------
* Filed herewith
ITEM 17. UNDERTAKINGS
(a) 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:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total value of securities offered would not exceed
that which was registered) and any deviation from the
low or high end of the estimated maximum offering
range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price present no
more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
II-3
<PAGE>
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 with or
furnished to the SEC by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities of 1934, as amended, that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
of 1934, as amended (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 at the time shall be deemed to be
the initial BONA FIDE offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities of 1934, as
amended; and, where interim financial information requires to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California, on November 30,
1999.
PREMIER LASER SYSTEMS, INC.
By: /S/ Michael J. Quinn
-------------------------------------
Michael J. Quinn, Chief Executive
Officer (Principal Executive Officer)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ Michael J. Quinn Chief Executive Officer November 30, 1999
- ------------------------------ and President (Principal
Michael J. Quinn Executive Officer)
/S/ Colette Cozean Chairman of the Board of November 30, 1999
- ------------------------------ Directors, Director
Colette Cozean
/S/ Robert B. Mahoney Executive Vice President, November 30, 1999
- ------------------------------ Finance and Chief
Robert B. Mahoney Financial Officer
(Principal Financial and
Accounting Officer)
/S/ Lawrence D. Ashcroft Director November 30, 1999
- ------------------------------
Lawrence D. Ashcroft
/S/ Patrick J. Day Director November 30, 1999
- ------------------------------
Patrick J. Day
II-5
<PAGE>
/S/ G. Lynn Powell, D.D.S. Director November 30, 1999
- ------------------------------
G. Lynn Powell, D.D.S.
/S/ Frederic J. Feldman Director November 30, 1999
- ------------------------------
Frederic J. Feldman
/S/ John Hunkeler, M.D. Director November 30, 1999
- ------------------------------
John Hunkeler, M.D.
/S/ Lewis H. Stanton Director November 30, 1999
- ------------------------------
Lewis H. Stanton
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
4.1 Form of Convertible Debenture issued to Big Sky Laser
Technologies, Inc.
4.2 Form of Convertible Debenture issued to each of Rutan &
Tucker, LLP, Paul, Hastings, Janofsky & Walker LLP and Knobbe,
Martens, Olson & Bear, LLP
5 Opinion of Rutan & Tucker, LLP
10.1 Settlement Agreement between Big Sky Laser Technologies, Inc.
and Premier Laser Systems, Inc.
10.2 Form of Exchange Agreement with each of Rutan & Tucker, LLP,
Paul, Hastings, Janofsky & Walker, LLP and Knobbe, Martens, Olson
& Bear, LLP*
23.1 Consent of Haskell & White LLP
23.2 Consent of Rutan & Tucker, LLP (included in Exhibit 5)
Exhibit 4.1
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
[$MONTHLY AMOUNT]
NO. _____
PREMIER LASER SYSTEMS, INC.
CONVERTIBLE DEBENTURE
DATED NOVEMBER 22, 1999
FOR VALUE RECEIVED, Premier Laser Systems, Inc., a California
corporation, having a principal place of business at 3 Morgan, Irvine,
California 92618 (the "COMPANY") promises to pay to [Creditor], a [State of
Incorporation] corporation (the "HOLDER"), the principal sum of [Monthly Amount]
on the later of December 31, 1999 or the date of effectiveness of a registration
statement filed with the Securities and Exchange Commission which registers the
resale of the Common Stock into which this Debenture is convertible, but no
later than February 21, 2000 (the "MATURITY DATE"). The Company shall not be
required to pay interest to the Holder on such principal sum. This Debenture is
one of [Required Number] debentures in the aggregate amount of [Total Amount]
(hereinafter collectively or individually the "DEBENTURES").
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain investment
representations of the Holder set forth in a separate agreement being entered
into concurrently with this Debenture, and may be transferred or exchanged only
in compliance with applicable securities laws. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the Company
may treat the Person (as defined in Section 7) in whose name this Debenture is
duly registered on the Company's books as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
<PAGE>
(i) any default in the payment of the principal of
any Debentures, free of any claim of subordination, as and
when the same shall become due and payable (whether on the
Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any
other covenant, agreement or warranty contained in, or
otherwise commit any breach of any of, this Debenture, and
unless otherwise provided herein such failure or breach shall
not have been remedied within 10 days after the date on which
notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries (for
purposes of this subsection (iii), "subsidiary" shall mean a
subsidiary of the Company representing 5% or more of the
consolidated revenues of the Company and its consolidated
subsidiaries for the last fiscal year of the Company prior to
any of the events contemplated in this paragraph) shall
commence, or there shall be commenced against the Company or
any such subsidiary a case under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, or the Company commences any other proceeding under
any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is
commenced against the Company or any subsidiary thereof any
such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary
thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the
Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the
Company or any subsidiary thereof shall call a meeting of its
creditors with a view to arranging a composition, adjustment
or restructuring of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence
in any of the foregoing; or any corporate or other action is
taken by the Company or any subsidiary thereof for the purpose
of effecting any of the foregoing;
(iv) the Common Stock shall be either delisted from
the NASDAQ or suspended from trading on the NASDAQ without
resuming trading and/or being relisted thereon or on a
Subsequent Market or having such suspension lifted for five
(5) consecutive Trading Days or eight (8) Trading Days in the
aggregate (which need not be consecutive days);
(v) the Company shall fail for any reason to deliver
certificates to a Holder prior to the twelfth (12th) day after
a Conversion Date pursuant to and in accordance with Section
4(b) or the Company shall provide notice to the Holder,
including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of any
Debentures in accordance with the terms hereof;
2
<PAGE>
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all
other Debentures then held by such Holder), together with other amounts
owing in respect thereof, to the date of acceleration shall become,
immediately due and payable in cash. The aggregate amount payable upon
an Event of Default shall be equal to the entire unpaid principal
amount of this Debenture. The Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder
and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Holder at any time prior
to payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
(c) If the Company has not registered the resale by Holder of
the Common Stock into which this Debenture is convertible under the
Securities Act of 1933, as amended, on or prior to that date ninety
(90) days from the date of this Debenture, the Holder will have the
option to require the Company to immediately repay upon expiration of
such ninety (90) day period or refusal of registration by the SEC,
whichever is earlier, the outstanding principal balance of the
Debentures in monthly installments. Such payments will be made
retroactively to July 1, 1999, with the first monthly payment being
[Monthly Amount] and the remainder being [Monthly Amount] per month,
i.e., the amounts for monthly payments between July 1, 1999 and the
date of such obligation to pay the outstanding balance in monthly
installments shall be immediately due and payable with the remainder of
such payments to be made on the first of the following months until the
principal balance of the Debentures has been fully paid.
SECTION 4. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER. This Debenture shall
be convertible into shares of Common Stock at the option of
the Holder, in whole or in part at any time and from time to
time, after the Original Issue Date (subject to the
limitations on conversion set forth in Section 4(a)(ii)
hereof). The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be
converted, by the Conversion Price. The Holder shall effect
conversions by surrendering the Debentures (or such portions
thereof) to be converted, together with the form of conversion
notice attached hereto as EXHIBIT A (a "CONVERSION NOTICE") to
the Company. Each Conversion Notice shall specify the
principal amount of Debentures to be converted and the date on
which such conversion is to be effected, which date may not be
prior to the date such Conversion Notice is deemed to have
been delivered hereunder (a "CONVERSION DATE"). If no
Conversion Date is specified in a Conversion Notice, the
Conversion Date shall be the date that such Conversion Notice
is deemed delivered hereunder. Subject to Section 4(b), each
Conversion Notice, once given, shall be irrevocable. If the
Holder is converting less than all of the principal amount
represented by the Debenture(s) tendered by the Holder with
the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall
promptly deliver to such Holder (in the manner and within the
time set forth in Section 4(b)) a new Debenture for such
principal amount as has not been converted.
3
<PAGE>
(ii) CERTAIN CONVERSION RESTRICTIONS
(A) If the Common Stock is then listed for
trading on the NASDAQ or the Nasdaq SmallCap Market
and the Company has not obtained the Shareholder
Approval (as defined below), then the Company may not
issue in excess of 3,184,676 shares of Common Stock
upon conversions of Debentures or as payment of
interest thereon in shares of Common Stock, which
number shall be subject to adjustment pursuant to
Sections 4(c)(ii), (iii), (v), (vi) and (x) (such
number of shares, the "ISSUABLE MAXIMUM"). The
Issuable Maximum equals 19.999% of the number of
shares of Common Stock outstanding immediately prior
to the issuance of this Debenture. If on any
Conversion Date (A) the Common Stock is listed for
trading on the NASDAQ or the Nasdaq SmallCap Market,
(B) the Conversion Price then in effect is such that
the aggregate number of shares of Common Stock that
would then be issuable upon conversion in full of all
then outstanding Debentures held by Holder, together
with any shares of Common Stock previously issued
upon conversion of Debentures would exceed the
Issuable Maximum, and (C) the Company shall not have
previously obtained any vote of shareholders that may
be required by the applicable rules and regulations
of the Nasdaq Stock Market (or any successor entity)
applicable to approve the issuance of shares of
Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof (the "SHAREHOLDER
APPROVAL"), then the Company shall issue to the
Holder requesting a conversion a number of shares of
Common Stock equal to the Issuable Maximum and, with
respect to the remainder of the principal amount of
Debentures then held by such Holder for which a
conversion in accordance with the Conversion Price
would result in an issuance of shares of Common Stock
in excess of the Issuable Maximum (the "EXCESS
PRINCIPAL"), the converting Holder shall have the
option to require the Company to pay cash to the
converting Holder in an amount equal to the
Conversion Price for all shares of Common Stock
constituting the Excess Principal (the "MANDATORY
PREPAYMENT AMOUNT"). If the Company fails to pay the
Mandatory Prepayment Amount in full pursuant to this
Section, the Company will pay interest thereon at a
rate of 15% per annum to the converting Holder,
accruing daily from the Conversion Date until such
amount, plus all such interest thereon, is paid in
full.
(b) (i) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a
certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required
under applicable securities laws) representing the number of
shares of Common Stock being acquired upon the conversion of
Debentures (subject to the limitations set forth in Section
4(a)(ii) hereof), and (ii) Debentures in a principal amount
equal to the principal amount of Debentures not converted;
PROVIDED, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable
upon conversion of the principal amount of Debentures until
Debentures are delivered for conversion to the Company, or the
Holder notifies the Company that such Debentures have been
lost, stolen or destroyed and provides a bond (or other
adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in
connection therewith. The Company shall, upon request of the
Holder, if available, use its best efforts to deliver any
certificate or certificates required to be delivered by the
Company under this Section electronically through the
4
<PAGE>
Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of
any Conversion Notice such certificate or certificates are not
delivered to or as directed by the applicable Holder by the
third (3rd) Trading Day after the Conversion Date, the Holder
shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing
the principal amount of Debentures tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i),
by the third (3rd) Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, $5,000 for each Trading Day
after such third (3rd) Trading Day until such certificates are
delivered. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to deliver
certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at
law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of
any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under
applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures
by the third (3rd) Trading Day after the Conversion Date, the
Holder may, by notice to the Company, require the Company to
issue shares of Common Stock pursuant to Section 4(c), except
that for such purpose the Conversion Price applicable thereto
shall be the lesser of the Conversion Price on the Conversion
Date and the Conversion Price on the date of such Holder
demand. Any such shares will be subject to the provision of
this Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i), by
the third (3rd) Trading Day after the Conversion Date, and if
after such third (3rd) Trading Day the Holder purchases (in an
open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying
Shares which the Holder anticipated receiving upon such
conversion (a "BUY-IN"), then the Company shall (A) pay in
cash to the Holder (in addition to any remedies available to
or elected by the Holder) the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any)
for the Common Stock so purchased exceeds (y) the product of
(1) the aggregate number of shares of Common Stock that such
Holder anticipated receiving from the conversion at issue
multiplied by (2) the market price of the Common Stock at the
time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder, either reissue Debentures in
principal amount equal the principal amount of the attempted
conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company
timely complied with its delivery requirements under Section
4(b)(i). For example, if the Holder purchases Common Stock
having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted conversion of Debentures with
respect to which the market price of the Underlying Shares on
the date of conversion was a total of $10,000 under clause (A)
of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to
the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the
5
<PAGE>
Company to make payment in respect of a Buy- In for the
failure to timely deliver certificates hereunder and the
Company timely pays in full such payment, the Company shall
not be required to pay such Holder liquidated damages under
Section 4(b)(ii) in respect of the certificates resulting in
such Buy-In.
(c) (i) The conversion price (the "CONVERSION PRICE") in
effect on any Conversion Date shall be the closing sale price
of the Common Stock on the Conversion Date which must be a
Trading Day. Notwithstanding the foregoing, the Conversion
Price shall not be less than the Floor (as defined in Section
7) for so long as the Floor remains in effect in accordance
with Section 6; PROVIDED, that the Floor shall be subject to
reduction due to operation of this Section 4(c).
(ii) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or
property, the Holders shall have the right thereafter to, at
their option, (A) convert the then outstanding principal
amount only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or
share exchange, and the Holders of the Debentures shall be
entitled upon such event to receive such amount of securities,
cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount could
have been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal
amount of Debentures. The entire prepayment price shall be
paid in cash. This provision shall similarly apply to
successive reclassifications or share exchanges.
(iii) All calculations under this Section 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as
the case may be.
(iv) If (A) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common
Stock; (B) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of
any rights; (C) the approval of any stockholders of the
Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or
merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (D) the
Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall give notice to
the Holders as provided in subsection (g) below at least 20
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record
is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; PROVIDED, HOWEVER, that the
6
<PAGE>
failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. The failure to
provide such notice shall constitute an Event of Default under
Section 3(a)(ii) above unless the Holder is otherwise provided
the opportunity, upon conversion, to receive the dividend,
redemption rights, subscription rights or warrants, voting or
approval rights, securities or other consideration that would
be payable or provided to Holder had Holder converted the
Debentures into Common Stock prior to the consummation of any
of the actions or events identified in clauses (A) through (D)
above. Holders are entitled to convert Debentures during the
20-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(v) In case of any (1) merger or consolidation of the
Company with or into another Person that would constitute a
Change of Control Transaction, or (2) sale by the Company of
more than one-half of the assets of the Company (on an as
valued basis) in one or a series of related transactions, or
(3) tender or other offer or exchange (whether by the Company
or another Person) pursuant to which holders of Common Stock
are permitted to tender or exchange their shares for other
securities, stock, cash or property of the Company or another
Person; then a Holder shall have the right to (A) convert its
aggregate principal amount of Debentures then outstanding into
the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common
Stock following such merger, consolidation or sale, and such
Holder shall be entitled upon such event or series of related
events to receive such amount of securities, cash and property
as the shares of Common Stock into which such aggregate
principal amount of Debentures could have been converted
immediately prior to such merger, consolidation or sales would
have been entitled, (B) in the case of a merger or
consolidation, (x) require the surviving entity to issue
convertible debentures in a principal amount equal to the
aggregate principal amount of Debentures then held by such
Holder, which newly issued debentures shall have terms
identical (including with respect to conversion) to the terms
of this Debenture and shall be entitled to all of the rights
and privileges of a Holder of Debentures set forth herein, and
(y) simultaneously with the issuance of such convertible
debentures, shall have the right to convert such instrument
only into shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of
Common Stock following such merger or consolidation, or (C) in
the event of an exchange or tender offer or other transaction
contemplated by clause (3) of this Section, tender or exchange
its aggregate principal amount of Debentures for such
securities, stock, cash and other property receivable upon or
deemed to be held by holders of Common Stock that have
tendered or exchanged their shares of Common Stock following
such tender or exchange, and such Holder shall be entitled
upon such exchange or tender to receive such amount of
securities, cash and property as the shares of Common Stock
into which such aggregate principal amount of Debentures could
have been converted immediately prior to such tender or
exchange would have been entitled as would have been issued.
In the case of clause (B), the conversion price applicable for
the newly issued convertible debentures shall be based upon
the amount of securities, cash and property that each share of
Common Stock would receive in such transaction and the
Conversion Price in effect immediately prior to the
effectiveness or closing date for such transaction. The terms
of any such merger, sale, consolidation, tender or exchange
shall include such terms so as to continue to give the Holders
of Debentures the right to receive the securities, cash
and property set forth in this Section upon any conversion or
redemption following such event. This provision shall
similarly apply to successive such events.
7
<PAGE>
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of the
Debentures, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders, not less than such
number of shares of the Common Stock as shall be issuable (taking into
account the adjustments and restrictions of Section 4(b)) upon the
conversion of the outstanding principal amount of the Debentures and
payment of interest hereunder. The Company covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if a
Registration Statement has been declared effective under the Securities
Act, registered for public sale in accordance with such Registration
Statement.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares
of the Common Stock, but may if otherwise permitted, make a cash
payment in respect of any final fraction of a share based on the market
value of a share of Common Stock at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to
the Holders thereof for any documentary stamp or similar taxes that may
be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than
that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including,
without limitation, any Conversion Notice, shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to the Company, at 3 Morgan, Irvine,
California 92618 (facsimile number (949) 859-5241), attention Chief
Financial Officer, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders
delivered in accordance with this Section, with a copy to Rutan &
Tucker, LLP, 611 Anton Boulevard, Costa Mesa, CA 92626 (facsimile
number (714) 546-9035), attention Thomas G. Brockington, Esq. Any and
all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service or
sent by certified or registered mail, postage prepaid, addressed to
each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal
place of business of the holder, with a copy to [Name and Address]
(facsimile number [___________]). Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 4:00 p.m. (California time),
(ii) the date after the date of transmission, if such notice or
8
<PAGE>
communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 4:00 p.m. (California time)
on any date and earlier than 11:59 p.m. (California time) on such date,
(iii) four days after deposit in the United States mail, (iv) the
Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (v) upon actual receipt by the
party to whom such notice is required to be given. The addresses and
facsimile numbers for any notices or copies of notices required under
this section (g) may be changed by a written notice conforming to the
requirements of this subsection (g).
SECTION 5. OPTIONAL PREPAYMENT.
(a) The Company shall have the right, exercisable at any time
and from time to time in accordance with the terms hereof, upon five
(5) business day's notice to the Holder, to prepay all or any portion
of the outstanding principal amount of this Debenture which have not
previously been repaid or for which Conversion Notices have not
previously been delivered. The prepayment price shall be paid in cash.
Any such prepayment shall be free of any claim of subordination. The
Holder shall have the right to tender, and the Company shall honor,
Conversion Notices delivered prior to the expiration of such one day
period.
SECTION 6. MANDATORY PREPAYMENT/ELIMINATION OF FLOOR.
(a) If the Conversion Price for twenty-one (21) consecutive
days shall be equal to or below $1.50, the Holder may, at any time
thereafter, deliver a notice to the Company (the "HOLDER NOTICE")
requiring the Company to act in accordance with the immediately
following sentence. Within three (3) Business Days after delivery of
the Holder Notice under this Section 6(a), the Company shall notify the
Holder of its election to either (i) prepay the entire outstanding
principal amount of the Debentures which have not previously been
repaid or for which Conversion Notices have not previously been
delivered no later than ten (10) Business Days from such election, or
(ii) discontinue and remove permanently the Floor. The Company shall
honor Conversion Notices delivered prior to the expiration of the three
(3) Business Day period contemplated by this Section 6(a), provided,
that such conversions shall be subject to the Floor. A failure of the
Company to timely elect under this Section 6(a) shall be deemed an
election to discontinue permanently the Floor.
SECTION 7. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking
institutions in the State of Montana or the State of California are
authorized or required by law or other government action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 3d-5(b)(1) promulgated under
the Exchange Act) of in excess of 40% of the voting securities of the
Company, (ii) a replacement of more than one-half of the members of the
Company's board of directors which is not approved by those individuals
who are members of the board of directors on the date hereof in one or
a series of related transactions, (iii) the merger of the Company with
or into another entity, consolidation or sale of all or substantially
all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the
Company's securities continue to hold at least 60% of such securities
following such transaction or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).
9
<PAGE>
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Class A Common Stock, no par value
per share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FLOOR" means $1.50.
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be
issued to evidence such Debenture.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRADING DAY" means (a) a day on which the Common Stock is
traded on the NASDAQ or on such Subsequent Market on which the Common
Stock is then listed or quoted, or (b) if the Common Stock is not
listed on the NASDAQ or a Subsequent Market, a day on which the Common
Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC
Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); PROVIDED, HOWEVER, that in the event
that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday,
Sunday and any day which shall be a legal holiday or a day on which
banking institutions in the State of New York are authorized or
required by law or other government action to close.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of Debentures.
SECTION 8. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This Debenture is a
direct obligation of the Company. This Debenture ranks PARI PASSU with all other
Debentures now or hereafter issued under the terms set forth herein. The Company
may only voluntarily prepay the outstanding principal amount on the Debentures
in accordance with Section 5 hereof. The Company represents and warrants that
the issuance of the Debentures to BSLT is not now, and will not be in the
future, a fraudulent conveyance as defined by applicable law and that the
issuance of the Debentures will not otherwise give rise to a claim by any other
of the creditors of PLSI or affiliated entities to set aside and/or recover the
Debentures for the benefit of such creditors.
10
<PAGE>
SECTION 9. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
SECTION 10. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
SECTION 11. This Debenture shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submit
to the exclusive jurisdiction of the state and federal courts sitting in the
County of Orange, California for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
SECTION 12. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
SECTION 13. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
SECTION 14. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
SECTION 15. In the event either the Holder or Company commences
litigation to enforce the provisions of this Debenture, the prevailing party in
such litigation shall be entitled to be reimbursed for all of its reasonable
attorneys' fees and costs incurred in connection with such action.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
PREMIER LASER SYSTEMS, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
ATTEST:
By:__________________________________
Name:________________________________
Title:_______________________________
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
Class A Common Stock, no par value per share (the "Common Stock"), of Premier
Laser Systems, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
______________________________________________
Date to Effect Conversion
______________________________________________
Principal Amount of Debentures to be Converted
______________________________________________
Number of shares of Common Stock to be Issued
______________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
Exhibit 4.2
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
[$MONTHLY AMOUNT]
NO. ____
PREMIER LASER SYSTEMS, INC.
CONVERTIBLE DEBENTURE
FOR VALUE RECEIVED, Premier Laser Systems, Inc., a California
corporation, having a principal place of business at 3 Morgan, Irvine,
California 92618 (the "COMPANY") promises to pay to [CREDITOR], a [STATE OF
INCORPORATION] corporation (the"HOLDER"), the principal sum of [MONTHLY AMOUNT]
on December 15, 1999 (the "MATURITY DATE"). The Company shall not be required to
pay interest to the Holder on such principal sum. This Debenture is one of
[REQUIRED NUMBER] debentures in the aggregate amount of [TOTAL AMOUNT]
(hereinafter collectively or individually the "DEBENTURES").
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
SECTION 2. This Debenture has been issued subject to certain investment
representations of the Holder set forth in a separate agreement being entered
into concurrently with this Debenture, and may be transferred or exchanged only
in compliance with applicable securities laws. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the Company
may treat the Person (as defined in Section 7) in whose name this Debenture is
duly registered on the Company's books as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
Section 3. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court, or any order, rule or
regulation of any administrative or governmental body):
<PAGE>
(i) any default in the payment of the principal of
any Debentures, free of any claim of subordination, as and
when the same shall become due and payable (whether on the
Maturity Date or by acceleration or otherwise);
(ii) the Company shall fail to observe or perform any
other covenant, agreement or warranty contained in, or
otherwise commit any breach of any of, this Debenture, and
unless otherwise provided herein such failure or breach shall
not have been remedied within 10 days after the date on which
notice of such failure or breach shall have been given;
(iii) the Company or any of its subsidiaries (for
purposes of this subsection (iii), "subsidiary" shall mean a
subsidiary of the Company representing 5% or more of the
consolidated revenues of the Company and its consolidated
subsidiaries for the last fiscal year of the Company prior to
any of the events contemplated in this paragraph) shall
commence, or there shall be commenced against the Company or
any such subsidiary a case under any applicable bankruptcy or
insolvency laws as now or hereafter in effect or any successor
thereto, or the Company commences any other proceeding under
any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is
commenced against the Company or any subsidiary thereof any
such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or the Company or any
subsidiary thereof is adjudicated insolvent or bankrupt; or
any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary
thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the
Company or any subsidiary thereof makes a general assignment
for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the
Company or any subsidiary thereof shall call a meeting of its
creditors with a view to arranging a composition, adjustment
or restructuring of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence
in any of the foregoing; or any corporate or other action is
taken by the Company or any subsidiary thereof for the purpose
of effecting any of the foregoing;
(iv) the Common Stock shall be either delisted from
the NASDAQ or suspended from trading on the NASDAQ without
resuming trading and/or being relisted thereon or on a
Subsequent Market or having such suspension lifted for five
(5) consecutive Trading Days or eight (8) Trading Days in the
aggregate (which need not be consecutive days);
(v) the Company shall fail for any reason to deliver
certificates to a Holder prior to the twelfth (12th) day after
a Conversion Date pursuant to and in accordance with Section
4(b) or the Company shall provide notice to the Holder,
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<PAGE>
including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of any
Debentures in accordance with the terms hereof.
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all
other Debentures then held by such Holder), together with other amounts
owing in respect thereof, to the date of acceleration shall become,
immediately due and payable in cash. The aggregate amount payable upon
an Event of Default shall be equal to the entire unpaid principal
amount of this Debenture. The Holder need not provide and the Company
hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any
grace period enforce any and all of its rights and remedies hereunder
and all other remedies available to it under applicable law. Such
declaration may be rescinded and annulled by Holder at any time prior
to payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
(c) If the Company has not registered the resale by Holder of
the Common Stock into which this Debenture is convertible under the
Securities Act of 1933, as amended, on or prior to that date ninety
(90) days from the date of this Debenture, the Holder will have the
option to require the Company to immediately repay upon expiration of
such ninety (90) day period or refusal of registration by the SEC,
whichever is earlier, the outstanding principal balance of the
Debentures in monthly installments. Such payments will be made monthly
commencing ____________, 2000, with each monthly payment being [MONTHLY
AMOUNT] until the principal balance of the Debentures has been fully
paid.
SECTION 4. CONVERSION.
(a) (i) CONVERSION AT OPTION OF HOLDER. This Debenture shall
be convertible into shares of Common Stock at the option of
the Holder, in whole or in part at any time and from time to
time, after the Original Issue Date (subject to the
limitations on conversion set forth in Section 4(a)(ii)
hereof). The number of shares of Common Stock issuable upon a
conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be
converted, by the Conversion Price. The Holder shall effect
conversions by surrendering the Debentures (or such portions
thereof) to be converted, together with the form of conversion
notice attached hereto as EXHIBIT A (a "CONVERSION NOTICE") to
the Company. Each Conversion Notice shall specify the
principal amount of Debentures to be converted and the date on
which such conversion is to be effected, which date may not be
prior to the date such Conversion Notice is deemed to have
been delivered hereunder (a "CONVERSION DATE"). If no
Conversion Date is specified in a Conversion Notice, the
Conversion Date shall be the date that such Conversion Notice
is deemed delivered hereunder. Subject to Section 4(b), each
Conversion Notice, once given, shall be irrevocable. If the
Holder is converting less than all of the principal amount
represented by the Debenture(s) tendered by the Holder with
the Conversion Notice, or if a conversion hereunder cannot be
effected in full for any reason, the Company shall honor such
conversion to the extent permissible hereunder and shall
promptly deliver to such Holder (in the manner and within the
time set forth in Section 4(b)) a new Debenture for such
principal amount as has not been converted.
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<PAGE>
(ii) CERTAIN CONVERSION RESTRICTIONS
(A) If the Common Stock is then listed for
trading on the NASDAQ or the Nasdaq SmallCap Market
and the Company has not obtained the Shareholder
Approval (as defined below), then the Company may not
issue in excess of ___________ shares of Common Stock
upon conversions of Debentures or as payment of
interest thereon in shares of Common Stock, which
number shall be subject to adjustment pursuant to
Sections 4(c)(ii), (iii), (v), (vi) and (x) (such
number of shares, the "ISSUABLE MAXIMUM"). The
Issuable Maximum equals 19.999% of the number of
shares of Common Stock outstanding immediately prior
to the issuance of this Debenture. If on any
Conversion Date (A) the Common Stock is listed for
trading on the NASDAQ or the Nasdaq SmallCap Market,
(B) the Conversion Price then in effect is such that
the aggregate number of shares of Common Stock that
would then be issuable upon conversion in full of all
then outstanding Debentures held by Holder, together
with any shares of Common Stock previously issued
upon conversion of Debentures would exceed the
Issuable Maximum, and (C) the Company shall not have
previously obtained any vote of shareholders that may
be required by the applicable rules and regulations
of the Nasdaq Stock Market (or any successor entity)
applicable to approve the issuance of shares of
Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof (the "SHAREHOLDER
APPROVAL"), then the Company shall issue to the
Holder requesting a conversion a number of shares of
Common Stock equal to the Issuable Maximum and, with
respect to the remainder of the principal amount of
Debentures then held by such Holder for which a
conversion in accordance with the Conversion Price
would result in an issuance of shares of Common Stock
in excess of the Issuable Maximum (the "EXCESS
PRINCIPAL"), the converting Holder shall have the
option to require the Company to pay cash to the
converting Holder in an amount equal to the
Conversion Price for all shares of Common Stock
constituting the Excess Principal (the "MANDATORY
PREPAYMENT AMOUNT"). If the Company fails to pay the
Mandatory Prepayment Amount in full pursuant to this
Section, the Company will pay interest thereon at a
rate of 15% per annum to the converting Holder,
accruing daily from the Conversion Date until such
amount, plus all such interest thereon, is paid in
full.
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<PAGE>
(b) (i) Not later than three (3) Trading Days after
any Conversion Date, the Company will deliver to the Holder
(i) a certificate or certificates which shall be free of
restrictive legends and trading restrictions (other than those
required under applicable securities laws) representing the
number of shares of Common Stock being acquired upon the
conversion of Debentures (subject to the limitations set forth
in Section 4(a)(ii) hereof), and (ii) Debentures in a
principal amount equal to the principal amount of Debentures
not converted; PROVIDED, that the Company shall not be
obligated to issue certificates evidencing the shares of
Common Stock issuable upon conversion of the principal amount
of Debentures until Debentures are delivered for conversion to
the Company, or the Holder notifies the Company that such
Debentures have been lost, stolen or destroyed and provides a
bond (or other adequate security) reasonably satisfactory to
the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of
the Holder, if available, use its best efforts to deliver any
certificate or certificates required to be delivered by the
Company under this Section electronically through the
Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of
any Conversion Notice such certificate or certificates are not
delivered to or as directed by the applicable Holder by the
third (3rd) Trading Day after the Conversion Date, the Holder
shall be entitled by written notice to the Company at any time
on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing
the principal amount of Debentures tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 4(b)(i),
by the third (3rd) Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated
damages and not as a penalty, $1,000 for each Trading Day
after such third (3rd) Trading Day until such certificates are
delivered. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to deliver
certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder
shall have the right to pursue all remedies available to it at
law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of
any such rights shall not prohibit the Holders from seeking to
enforce damages pursuant to any other Section hereof or under
applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures
by the third (3rd) Trading Day after the Conversion Date, the
Holder may, by notice to the Company, require the Company to
issue shares of Common Stock pursuant to Section 4(c), except
that for such purpose the Conversion Price applicable thereto
shall be the lesser of the Conversion Price on the Conversion
Date and the Conversion Price on the date of such Holder
demand. Any such shares will be subject to the provision of
this Section.
(iii) In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 4(b)(i), by
the third (3rd) Trading Day after the Conversion Date, and if
after such third (3rd) Trading Day the Holder purchases (in an
open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying
Shares which the Holder anticipated receiving upon such
conversion (a "BUY-IN"), then the Company shall (A) pay in
cash to the Holder (in addition to any remedies available to
or elected by the Holder) the amount by which (x) the Holder's
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<PAGE>
total purchase price (including brokerage commissions, if any)
for the Common Stock so purchased exceeds (y) the product of
(1) the aggregate number of shares of Common Stock that such
Holder anticipated receiving from the conversion at issue
multiplied by (2) the market price of the Common Stock at the
time of the sale giving rise to such purchase obligation and
(B) at the option of the Holder, either reissue Debentures in
principal amount equal the principal amount of the attempted
conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company
timely complied with its delivery requirements under Section
4(b)(i). For example, if the Holder purchases Common Stock
having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted conversion of Debentures with
respect to which the market price of the Underlying Shares on
the date of conversion was a total of $10,000 under clause (A)
of the immediately preceding sentence, the Company shall be
required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to
the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the
Company to make payment in respect of a Buy-In for the failure
to timely deliver certificates hereunder and the Company
timely pays in full such payment, the Company shall not be
required to pay such Holder liquidated damages under Section
4(b)(ii) in respect of the certificates resulting in such
Buy-In.
(c) (i) The conversion price (the "CONVERSION PRICE") in
effect on any Conversion Date shall be the closing sale price
of the Common Stock on the Conversion Date which must be a
Trading Day. Notwithstanding the foregoing, the Conversion
Price shall not be less than the Floor (as defined in Section
7) for so long as the Floor remains in effect in accordance
with Section 6; PROVIDED, that the Floor shall be subject to
reduction due to operation of this Section 4(c).
(ii) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or
property, the Holders shall have the right thereafter to, at
their option, (A) convert the then outstanding principal
amount only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by
holders of the Common Stock following such reclassification or
share exchange, and the Holders of the Debentures shall be
entitled upon such event to receive such amount of securities,
cash or property as the shares of the Common Stock of the
Company into which the then outstanding principal amount could
have been converted immediately prior to such reclassification
or share exchange would have been entitled or (B) require the
Company to prepay the aggregate of its outstanding principal
amount of Debentures. The entire prepayment price shall be
paid in cash. This provision shall similarly apply to
successive reclassifications or share exchanges.
(iii) All calculations under this Section 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as
the case may be.
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<PAGE>
(iv) If (A) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common
Stock; (B) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of
any rights; (C) the approval of any stockholders of the
Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or
merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, of
any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (D) the
Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company; then, in each case, the Company shall give notice to
the Holders as provided in subsection (g) below at least 20
calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record
is not to be taken, the date as of which the holders of the
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of
record shall be entitled to exchange their shares of the
Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; PROVIDED, HOWEVER, that the
failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. The failure to
provide such notice shall constitute an Event of Default under
Section 3(a)(ii) above unless the Holder is otherwise provided
the opportunity, upon conversion, to receive the dividend,
redemption rights, subscription rights or warrants, voting or
approval rights, securities or other consideration that would
be payable or provided to Holder had Holder converted the
Debentures into Common Stock prior to the consummation of any
of the actions or events identified in clauses (A) through (D)
above. Holders are entitled to convert Debentures during the
20-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(v) In case of any (1) merger or consolidation of the
Company with or into another Person that would constitute a
Change of Control Transaction, or (2) sale by the Company of
more than one-half of the assets of the Company (on an as
valued basis) in one or a series of related transactions, or
(3) tender or other offer or exchange (whether by the Company
or another Person) pursuant to which holders of Common Stock
are permitted to tender or exchange their shares for other
securities, stock, cash or property of the Company or another
Person; then a Holder shall have the right to (A) convert its
aggregate principal amount of Debentures then outstanding into
the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common
Stock following such merger, consolidation or sale, and such
Holder shall be entitled upon such event or series of related
events to receive such amount of securities, cash and property
as the shares of Common Stock into which such aggregate
-7-
<PAGE>
principal amount of Debentures could have been converted
immediately prior to such merger, consolidation or sales would
have been entitled, (B) in the case of a merger or
consolidation, (x) require the surviving entity to issue
convertible debentures in a principal amount equal to the
aggregate principal amount of Debentures then held by such
Holder, which newly issued debentures shall have terms
identical (including with respect to conversion) to the terms
of this Debenture and shall be entitled to all of the rights
and privileges of a Holder of Debentures set forth herein, and
(y) simultaneously with the issuance of such convertible
debentures, shall have the right to convert such instrument
only into shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of
Common Stock following such merger or consolidation, or (C) in
the event of an exchange or tender offer or other transaction
contemplated by clause (3) of this Section, tender or exchange
its aggregate principal amount of Debentures for such
securities, stock, cash and other property receivable upon or
deemed to be held by holders of Common Stock that have
tendered or exchanged their shares of Common Stock following
such tender or exchange, and such Holder shall be entitled
upon such exchange or tender to receive such amount of
securities, cash and property as the shares of Common Stock
into which such aggregate principal amount of Debentures could
have been converted immediately prior to such tender or
exchange would have been entitled as would have been issued.
In the case of clause (B), the conversion price applicable for
the newly issued convertible debentures shall be based upon
the amount of securities, cash and property that each share of
Common Stock would receive in such transaction and the
Conversion Price in effect immediately prior to the
effectiveness or closing date for such transaction. The terms
of any such merger, sale, consolidation, tender or exchange
shall include such terms so as to continue to give the Holders
of Debentures the right to receive the securities, cash and
property set forth in this Section upon any conversion or
redemption following such event. This provision shall
similarly apply to successive such events.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common
Stock solely for the purpose of issuance upon conversion of the
Debentures, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders, not less than such
number of shares of the Common Stock as shall be issuable (taking into
account the adjustments and restrictions of Section 4(b)) upon the
conversion of the outstanding principal amount of the Debentures and
payment of interest hereunder. The Company covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if a
Registration Statement has been declared effective under the Securities
Act, registered for public sale in accordance with such Registration
Statement.
-8-
<PAGE>
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares
of the Common Stock, but may if otherwise permitted, make a cash
payment in respect of any final fraction of a share based on the market
value of a share of Common Stock at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to
the Holders thereof for any documentary stamp or similar taxes that may
be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than
that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
(g) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including,
without limitation, any Conversion Notice, shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to the Company, at 3 Morgan, Irvine,
California 92618 (facsimile number (949) 859-5241), attention Chief
Financial Officer, or such other address or facsimile number as the
Company may specify for such purposes by notice to the Holders
delivered in accordance with this Section, with a copy to Rutan &
Tucker, LLP, 611 Anton Boulevard, Costa Mesa, CA 92626 (facsimile
number (714) 546-9035), attention Thomas G. Brockington, Esq. Any and
all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service or
sent by certified or registered mail, postage prepaid, addressed to
each Holder of the Debentures at the facsimile telephone number or
address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal
place of business of the holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 4:00 p.m. (California time),
(ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 4:00 p.m. (California time)
on any date and earlier than 11:59 p.m. (California time) on such date,
(iii) four days after deposit in the United States mail, (iv) the
Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (v) upon actual receipt by the
party to whom such notice is required to be given. The addresses and
facsimile numbers for any notices or copies of notices required under
this section (g) may be changed by a written notice conforming to the
requirements of this subsection (g).
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<PAGE>
SECTION 5. OPTIONAL PREPAYMENT.
(a) The Company shall have the right, exercisable at any time
and from time to time in accordance with the terms hereof, upon five
(5) business day's notice to the Holder, to prepay all or any portion
of the outstanding principal amount of this Debenture which have not
previously been repaid or for which Conversion Notices have not
previously been delivered. The prepayment price shall be paid in cash.
Any such prepayment shall be free of any claim of subordination. The
Holder shall have the right to tender, and the Company shall honor,
Conversion Notices delivered prior to the expiration of such one day
period.
SECTION 6. MANDATORY PREPAYMENT/ELIMINATION OF FLOOR.
(a) If the Conversion Price for twenty-one (21) consecutive
days shall be equal to or below $1.50, the Holder may, at any time
thereafter, deliver a notice to the Company (the "HOLDER NOTICE")
requiring the Company to act in accordance with the immediately
following sentence. Within three (3) Business Days after delivery of
the Holder Notice under this Section 6(a), the Company shall notify the
Holder of its election to either (i) prepay the entire outstanding
principal amount of the Debentures which have not previously been
repaid or for which Conversion Notices have not previously been
delivered no later than ten (10) Business Days from such election, or
(ii) discontinue and remove permanently the Floor. The Company shall
honor Conversion Notices delivered prior to the expiration of the three
(3) Business Day period contemplated by this Section 6(a), provided,
that such conversions shall be subject to the Floor. A failure of the
Company to timely elect under this Section 6(a) shall be deemed an
election to discontinue permanently the Floor.
SECTION 7. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking
institutions in the State of California are authorized or required by
law or other government action to close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 3d-5(b)(1) promulgated under
the Exchange Act) of in excess of 40% of the voting securities of the
Company, (ii) a replacement of more than one-half of the members of the
Company's board of directors which is not approved by those individuals
who are members of the board of directors on the date hereof in one or
a series of related transactions, (iii) the merger of the Company with
or into another entity, consolidation or sale of all or substantially
all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the
Company's securities continue to hold at least 60% of such securities
following such transaction or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).
"COMMISSION" means the Securities and Exchange Commission.
-10-
<PAGE>
"COMMON STOCK" means the Class A Common Stock, no par value
per share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FLOOR" means $1.50.
"ORIGINAL ISSUE DATE" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be
issued to evidence such Debenture.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRADING DAY" means (a) a day on which the Common Stock is
traded on the NASDAQ or on such Subsequent Market on which the Common
Stock is then listed or quoted, or (b) if the Common Stock is not
listed on the NASDAQ or a Subsequent Market, a day on which the Common
Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the OTC
Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); PROVIDED, HOWEVER, that in the event
that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday,
Sunday and any day which shall be a legal holiday or a day on which
banking institutions in the State of New York are authorized or
required by law or other government action to close.
"UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of Debentures.
SECTION 8. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This Debenture is a
direct obligation of the Company. This Debenture ranks PARI PASSU with all other
Debentures now or hereafter issued under the terms set forth herein. The Company
may only voluntarily prepay the outstanding principal amount on the Debentures
in accordance with Section 5 hereof. The Company represents and warrants that
the issuance of the Debentures to [CREDITOR] is not now, and will not be in the
future, a fraudulent conveyance as defined by applicable law and that the
issuance of the Debentures will not otherwise give rise to a claim by any other
of the creditors of PLSI or affiliated entities to set aside and/or recover the
Debentures for the benefit of such creditors.
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<PAGE>
SECTION 9. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Company, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof. The Company represents and warrants that the
issuance of the Debentures to [CREDITOR] is not now, and will not be in the
future, a fraudulent conveyance as defined by applicable law and that the
issuance of the Debentures will not otherwise give rise to a claim by any other
of the creditors of PSLI or affiliated entities to set aside and/or recover the
Debentures to the benefit of such creditors.
SECTION 10. If this Debenture shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Debenture, or in lieu of or in
substitution for a lost, stolen or destroyed debenture, a new Debenture for the
principal amount of this Debenture so mutilated, lost, stolen or destroyed but
only upon receipt of evidence of such loss, theft or destruction of such
Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
SECTION 11. This Debenture shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
conflicts of laws thereof. The Company and the Holder hereby irrevocably submit
to the exclusive jurisdiction of the state and federal courts sitting in the
County of Orange, California for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
SECTION 12. Any waiver by the Company or the Holder of a breach of any
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Debenture. Any waiver
must be in writing.
SECTION 13. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
SECTION 14. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
SECTION 15. In the event either the Holder or Company commences
litigation to enforce the provisions of this Debenture, the prevailing party in
such litigation shall be entitled to be reimbursed for all of its reasonable
attorneys' fees and costs incurred in connection with such action.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
PREMIER LASER SYSTEMS, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
ATTEST:
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert the attached Debenture into shares of
Class A Common Stock, no par value per share (the "Common Stock"), of Premier
Laser Systems, Inc. (the "Company") according to the conditions hereof, as of
the date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
______________________________________________
Date to Effect Conversion
______________________________________________
Principal Amount of Debentures to be Converted
______________________________________________
Number of shares of Common Stock to be Issued
______________________________________________
Applicable Conversion Price
______________________________________________
DTC# (for electronic transfers)
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
Exhibit 5
December 6, 1999
Premier Laser Systems, Inc.
3 Morgan
Irvine, California 92618
Re: REGISTRATION STATEMENT ON FORM S-3
--- ----------------------------------
Ladies and Gentlemen:
At your request, we have examined the form of Registration Statement on
Form S-3 (the "Registration Statement") to be filed by Premier Laser Systems,
Inc. (the "Company") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, for the purpose of registering the sale of
certain shares of Class A Common Stock of the Company (the "Common Stock") by
the securityholders set forth therein. We are familiar with the proceedings
taken and proposed to be taken in connection with the issuance and sale of the
securities in the manner set forth in the Registration Statement. Subject to
completion of the proceedings contemplated in connection with the foregoing
matters, we are of the opinion that all of the Common Stock to be sold pursuant
to the Registration Statement has been duly authorized and, when issued and sold
in the manner set forth in the Registration Statement will, upon such issuance
and sale, be validly and legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement or any amendment thereto.
Respectfully submitted,
/s/ RUTAN & TUCKER, LLP
Exhibit 10.1
SETTLEMENT AGREEMENT
--------------------
This Settlement Agreement (the "Agreement") entered into as of the last
date written below by and between Big Sky Laser Technologies, Inc. ("BSLT"), a
Montana Corporation with its principal place of business at 601 Haggarty Lane,
Bozeman, Montana, and Premier Laser Systems, Inc. ("PLSI"), a California
corporation, having its principal place of business at 3 Morgan, Irvine,
California
WITNESSETH:
WHEREAS, PLSI entered into various agreements with BSLT to purchase OEM
laser components (the "Goods") from BSLT destined to be integrated into dental
lasers produced by PLSI;
WHEREAS, pursuant to such agreements, PLSI has not yet paid for all of
the Goods manufactured by, or manufactured and shipped to PLSI by, BSLT within
the time agreed previously by the parties; and
WHEREAS, PLSI and BSLT wish to agree upon a payment mechanism that
would permit PLSI to pay for the Goods and to settle the difference among
themselves over the payment for the Goods in order to avoid further discussions,
potential litigation, and the additional expense of further time and money by
the parties to resolve these issues;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, IT IS HEREBY AGREED:
1. LIQUIDATION OF DEBT. The parties hereby agree that, as of the date
of this Agreement, the total amount due and owing by PLSI to BSLT in connection
with the purchase of the Goods is the sum of Five Hundred Ninety-One Thousand
Nine Hundred Sixteen and 6/100 Dollars ($591,916.06) (hereafter the "Liquidated
Debt"). This sum may not be reduced by any claim for reduction or set-off that
PLSI may have had, has now, or will have against BSLT other than as set forth
herein; and PLSI agrees to pay this sum to BSLT pursuant to, and only pursuant
to, the terms and conditions set forth in this Agreement
2. ISSUANCE OF CONVERTIBLE DEBENTURES.
2.1. AMOUNT OF DEBENTURES ISSUED. Simultaneously with the
execution of this Agreement, PLSI shall issue to BSLT
a series of six debentures (the "Debentures") as
follows: five debentures in the amount of One Hundred
Thousand Dollars and 00/100 U.S. Dollars (US$
100,000.00) and one debenture in the amount of
Ninety-One Thousand Nine Hundred Sixteen and 06/100
U.S. Dollars (US$ 91,916.00) each in the form set
forth in Exhibit A.
<PAGE>
The Debentures shall be convertible into the Common
Stock of PLSI (the "Underlying Shares" or "Shares")
pursuant to the terms and conditions set forth in the
Debentures. Following the issuance of the Debentures,
the Debentures shall thereafter represent the
Liquidated Debt, and thereafter there shall be no
independent debt from PLSI to BSLT with respect to
the payment of the purchase price of the Goods.
2.2. REGISTRATION OF THE DEBENTURES. Within five (5)
Business Days of the execution of this Agreement and
issuance of the Debentures (or in the case of
issuance of New Debentures as provided in
subparagraph 2.3 below, within five (5) days of the
issuance of the New Debentures), PLSI agrees to file
the necessary documentation with the SEC to register
the Underlying Shares under the Act, and to
thereafter prosecute such application in good faith
and with its best efforts. A copy of all filings by
PLSI with respect to the Underlying Shares shall be
provided to BSLT by the notice procedures set forth
in subparagraph 10.1 below within two (2) Business
Days on which the filing was made with the SEC. In
addition, Notice of the effectiveness of such
registration shall be given by PLSI to BSLT within
two (2) Business Days of the effectiveness of such
Registration.
2.3. APPLICABLE PROCEDURES IF LIQUIDATED DEBT IS NOT
SATISFIED. If, after the conversion of all the
Debentures and sale of all the Underlying Shares, the
Liquidated Debt, as reduced by the price received by
BSLT from the sale of the Underlying Shares and any
cash payments made by PLSI to BSLT in lieu of
conversion or under the terms of the Debentures, is
not reduced to an amount less than $50,000 (Fifty
Thousand Dollars), BSLT shall have the option, at its
sole discretion and after Notice as provided in
subparagraph 10.1 below, (a) to require PLSI to issue
immediately new Debentures (in the form of the
Debenture attached as Exhibit A) to satisfy the
remainder of the Liquidated Debt, (b) to pay
immediately in cash to BSLT the remainder of the
Liquidated Debt, or (c) both to issue immediately new
Debentures (the "New Debentures") and to pay
immediately in cash the Liquidated Debt, with the
amounts to be allocated between the new Debentures
and cash payments in a proportion determined at the
sole discretion of BSLT and as set forth in the
Notice. The procedure set forth in this subparagraph
2.3 may be repeated as many times as necessary until
the Liquidated Debt has been satisfied or paid in
full. For purposes of computing whether or not the
Liquidated Debt has been satisfied through the sale
of the Debentures, any sales of the Underlying Shares
more than two (2) trading days after the conversion
of such Underlying Shares (other than sales that were
made later than such period because of causes beyond
BSLT's control) shall be deemed to have been made at
the higher of (a) the closing price of the Underlying
Shares two (2) days after conversion or (b) the
actual sale price of the Underlying Shares.
2
<PAGE>
2.4. ABSENCE OF RESTRICTIONS ON THE NEW DEBENTURES.
Underlying Shares obtained by BSLT as a result of the
conversion of New Debentures shall not be subject to
the limitation set forth in paragraph 3 below.
3. LIMITATION ON SALE OF SHARES Commencing on the effective date of the
registration of the Underlying Shares, BSLT agrees that it will not sell on any
public exchange an amount of the Underlying Shares for a sales price in excess
of Two Hundred Thousand U.S. Dollars (US$ 200,000) in any calendar month, except
as provided in subparagraph 2.4 above. For purpose of this paragraph 3, the
value of Shares sold in any calendar month shall be calculated by multiplying
the number of Shares sold during such month times the sale price of one share in
the last sale of the Shares by BSLT during that calendar month.
4. MANDATORY CONVERSION. PLSI shall have the option, but not the
obligation, to require BSLI, upon five (5) business days notice, to convert any
or all of the Debentures, provided that
4.1. The Underlying Shares are covered by a registration
statement freely permitting BSLI to sell the
Underlying Shares on a public market;
4.2. The Underlying Shares shall not have been delisted
from NASDAQ or any other securities exchange;
4.3. The Underlying Shares, at the time of conversion,
shall have a bid value no less than $1.50;
4.4. The conversion of the Debentures will not result in
BSLI having sold more than $200,000 of the Underlying
Shares in any calendar month;
5. RELEASES AND WAIVERS.
5.1. GENERAL RELEASE BY PLSI. PLSI, its parents,
subsidiaries, affiliates, their officers, directors,
shareholders, employees. agents, successors in
interest, and predecessors in interests (hereafter
the "PLSI Releasors") hereby release BSLT, its
parents, subsidiaries, affiliates, their officers,
directors, shareholders, employees. agents,
successors in interest, and predecessors in interest
(hereafter the "BSLT Releasees") from (i) any and all
claims for damages, suits, causes of action,
liability, or obligations of any kind or nature
whatsoever which the PLSI Releasors may have hade
against the BSLT Releasees from the beginning of time
up to an including the date of this Release and (ii)
any and all claims for damages, suits, causes of
action, liability, or obligations of any kind or
nature whatsoever which the PLSI Releasors may have,
in the past, present or future, against the BSLT
Releasees arising from the BSLT's sale of the Goods
to PLSI (the "PLSI Claims"). Notwithstanding the
foregoing, this release shall not affect: (A) any
obligations that BSLT may have under any product
liability theories (including indemnification or
contribution obligations to PLSI) with respect to any
Goods that BSLT has previously delivered to PLSI, or
which it may deliver in the future; (B) any
obligations to replace or repair the Goods under
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warranties provided by BSLT where by their terms such
warranties have not yet expired; or (C) any
obligations BSLT may have to PLSI under any
agreement, under the Uniform Commercial Code, or
otherwise, with respect to Goods which have not yet
been delivered. For purposes of determining the
warranty period under clause (B) above, the warranty
period shall be deemed to have commenced upon
delivery of the goods to PLSI.
5.2. RELEASE BY BSLT. Upon issuance of the Debentures to
BSLT (the fulfillment of this condition to be
hereafter referred to as the ("Release Event"), BSLT,
its parents, subsidiaries, affiliates, their
officers, directors, shareholders, employees. agents,
successors in interest, and predecessors in interests
(hereafter the "BSLT Releasors") hereby release PLSI,
its parents, subsidiaries, affiliates, their
officers, directors, shareholders, employees, agents,
successors in interest, and predecessors in interest
(hereafter the "PLSI Releasees") from any and all
claims for damages, suits, causes of action,
liability, or obligations of any kind or nature
whatsoever which the BSLT Releasors may have, in the
past, present or future, against the PLSI Releasees
arising from BSLT's sale of the Goods to PLSI (the
"BSLT Claims").
5.3. ACKNOWLEDGMENTS AND WAIVERS. The parties each
acknowledge their joint intention that this Agreement
shall be effective as a full and final accord and
satisfaction, and settlement of, and as a bar to,
each and every of the BSLT Claims and the PLSI Claims
(the "Claims") which each of the BSLT Releasors or
the PLSI Releasors (the "Releasing Parties") now has
or has had in the past, or might have in the future
against any of the BSLT Releasees and the PSLI
Releasees (the "Releasing Parties"). In connection
with such waiver and relinquishment, on behalf of
each other, the parties acknowledge that they or
their attorneys now know or believe to be true with
respect to the subject matters of this Agreement, but
that it is their intention that the general releases
herein given shall be and remain in full force and
effect, notwithstanding the discovery of any such
different or additional facts. Therefore, they
severally acknowledge that they have been informed by
their attorneys of, and that they are familiar with,
Section 1542 of the CIVIL CODE of the State of
California, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
The parties, on behalf of themselves, and each other,
hereby waive and relinquish all rights and benefits
they have or might have under Section 1542 of the
CIVIL CODE of the State of California, to the full
extent that they may lawfully waive all such rights
and benefits pertaining to the subject matters of
this Agreement.
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<PAGE>
6. REMEDIES. Prior to the Release Event, and in the event of any
default by PLSI under this Agreement or under Section 3 of the Debentures, BSLT
will be entitled to seek against PLSI any or all available legal or equitable
remedies arising from such default . It is further agreed that, if BSLI or PLSI
shall prevail in any suit against the other , this Agreement, and or the
Debentures, the prevailing party shall be entitled to its costs and attorneys
fees.
7. REPRESENTATIONS AND WARRANTIES OF PLSI. PLSI hereby represents and
warrants to BSLT as follows:
7.1. CORPORATE QUALIFICATIONS. PLSI is a California
corporation in good standing, is qualified to do
business in the State of California, and is subject
to no legal disability which would prevent it from
entering into this Agreement
7.2. CORPORATE APPROVALS. PLSI has taken all steps
necessary to receive, and has received, all approvals
of shareholders, officers and directors required by
its Articles, By-Laws, and any other understandings
among its shareholders, officers and directors in
order to enter into this Agreement and to issue the
Convertible Debentures as provided herein.
7.3. BREACH OF OTHER AGREEMENTS. Entry by PLSI into this
Agreement and issuance by PLSI of the Convertible
Debentures as provided herein will not breach any
rights of any third parties by law or agreement and
will not breach any understandings or agreements,
whether oral or written, by and among PLSI, its
parents, subsidiaries, affiliates and any third
parties.
7.4. ABSENCE OF UNDISCLOSED LIABILITIES. PLSI does not
have any material liability, claim or obligation of
any nature (whether accrued contingent or otherwise)
which (a) as of the date of the latest PLSI financial
statements, is not disclosed or reserved for in the
latest PLSI financial statements and which is
required to be disclosed or reserved for in
accordance with accounting principles applied by PLSI
on a consistent basis in past years or (b) arose
after the date of latest PLSI financial statements
other than in the ordinary course of business.
7.5. FRAUDULENT CONVEYANCE. PLSI represents and warrants
that neither the issuance of the Debentures to BSLT
nor the payment of any sums to BSLT is now, or will
be in the future, a fraudulent conveyance as defined
by applicable law and that neither the transfer of
the Debentures nor the payment of any sums to BSLT
will otherwise give rise to a claim by any other of
the creditors of PSLI or affiliated entities to set
aside and/or recover the Debentures or payments to
BSLT to the benefit of such creditors.
7.6. COMPLIANCE WITH THE ACT. PLSI has been, is now, and
will continue to remain in compliance with the Act in
connection with the issuance of the Debentures and
all other actions required to be taken by it under
this Agreement. PLSI does not know of any fact or
condition that has not already been reported to
the Commission in its public filings and that would
have any bearing upon the ability of PLSI to register
Underlying Shares under the Act.
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<PAGE>
7.7. OPINION OF COUNSEL. Simultaneously with the execution
of this Settlement Agreement, Rutan and Tucker will
provide its legal opinion, which shall be binding on
Rutan and Tucker as to BSLT, that the representations
and warranties of PSLI as set forth in sections 7.1
and 7.2 above, to the best of its knowledge, after
the exercise of due diligence, are true, accurate and
are not rendered misleading by the omission of PLSI
to disclose any additional material fact to BSLT in
connection with said warranties and representations
and that said Debentures are exempt from registration
under the Act.
8. REPRESENTATIONS AND WARRANTIES OF BSLT. BSLT hereby represents and
warrants to PLSI as follows:
8.1. CORPORATE QUALIFICATIONS. BSLT is a Delaware
corporation in good standing, is qualified to do
business in the State of California, and is subject
to no legal disability which would prevent it from
entering into this Agreement
8.2. CORPORATE APPROVALS. BSLT has taken all steps
necessary to receive, and has received, all approvals
of shareholders, officers and directors required by
its Articles, By-Laws, and any other understandings
among its shareholders, officers and directors in
order to enter into this Agreement.
8.3. BREACH OF OTHER AGREEMENTS. Entry by BSLT into this
Agreement will not breach any rights of any third
parties by law or agreement and will not breach any
understandings or agreements, whether oral or
written, by and among BSLT, its parents,
subsidiaries, affiliates and any third parties.
8.4. KNOWLEGE OF, AND CAPACITY TO ASSUME, ECONOMIC RISK.
BSLT acknowledges and represents that:
8.4.1. BSLT is an "accredited investor" as defined
in 17 U.S.Css.230.501(a);
8.4.2. BSLT has reviewed the annual report on form
10-K/A for the fiscal year ended March 31,
1999, and the quarterly report on form 10-Q
for the quarter ended June 30, 1999;
8.4.3. BSLT is in a financial position to hold the
Shares for an indefinite period of time, is
able to bear the economic risk of an
investment in the Shares and is able to
withstand a complete loss of its investment
in the Shares;
8.4.4. BSLT has the knowledge and experience in
business and financial matters that make it
capable of evaluating the merits and risks
of an investment in the Shares;
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<PAGE>
8.4.5. BSLT understands that an investment in the
Shares is highly speculative and involves a
high degree of risk but believes that an
investment in the Shares is suitable based
upon its investment objectives and financial
needs, and that it has adequate means to
undertake the risk and for providing for its
current financial needs and has no need for
liquidity of investment with respect to the
Shares;
8.4.6. BSLT has been given access to full and
complete information regarding PLSI and has
utilized that access to its satisfaction for
the purpose of obtaining information
concerning PLSI, an investment in the Shares
and the terms and conditions of this
offering of the Shares, and has had the
opportunity to ask questions of, and receive
answers from, representatives of PLSI, for
the purpose of obtaining any additional
information to the extent reasonably
available that is necessary to verify the
information provided;
8.4.7. BSLT recognizes that an investment in the
Shares involves significant risks, including
but not limited to, the risk of economic
loss from the operations of PLSI due to the
limited operating history of PLSI and the
risk of economic loss from the operations of
PLSI;
8.4.8. BSLT understands that the Shares may be sold
only (i) upon registration of the Shares
pursuant to the Securities Act of 1933 (the
"Act") or (ii) in a transaction either (a)
not subject to the Act or (b) in compliance
with the terms and conditions of an
exemption from the Act.
9. DEFINITIONS. In addition to the capitalized terms (such as
"Liquidated Debt") defined elsewhere, the below terms, whether capitalized or
not, will have the meanings ascribed to them in this paragraph 9 as follows.
9.1. "Business Day" means any day except Saturday, Sunday
and any day which shall be a legal holiday or a day
on which banking institutions in the State of Montana
or the State of California are authorized or required
by law or other government action to close.
9.2. "Commission" means the Securities and Exchange
Commission.
9.3. "Common Stock" means the Class A Common Stock, no par
value per share, of PLSI and stock of any other class
into which such shares may hereafter have been
reclassified or changed.
9.4. "Person"means a corporation, an association, a
partnership, organization, a business, an individual,
a government or political subdivision thereof or a
governmental agency.
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<PAGE>
9.5. "Act" means the Securities Act of 1933, as amended.
9.6. "Underlying Shares" means the shares of Common Stock
issuable upon conversion of any or all of the
Debentures.
10. MISCELLANEOUS.
10.1. NOTICE. Whenever notice is permitted or required by
this Agreement, it shall be deemed given as of the
date of receipt if sent by facsimile transmission to
the numbers shown below, or by a nationally
recognized overnight courier, signature required, and
addressed to the party at such address shown below,
or at such other address or facsimile numbers as the
party may time to time give by written notice.
For notice to PLSI:
Premier Laser Systems, Inc
Attn: Chief Financial Officer.
3 Morgan
Irvine, California 92618
Fax: 949.859.5241
with a copy to
Rutan & Tucker, LLP
611 Anton Boulevard
Costa Mesa, CA 92626
Fax: 714-546-9035
For notice to BSLT
Ed Teppo
Big Sky Laser International, Inc.
601 Haggarty Lane, Suite C
Bozeman, MT 59715
Fax: 406-586-1797
with a copy to
Robert Clifton Burns
Barkats & Associates, Chartered
1250 Eye Street, N.W.
Washington, D.C. 20005
Fax: 202-789-0895
8
<PAGE>
Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at
the facsimile telephone number specified in this
subparagraph prior to 4:00 p.m. (P.S.T, or P.D.S.T
when applicable), (ii) the date after the date of
transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone
number specified in this Section later than 4:00 p.m.
(P.S.T, or P.D.S.T when applicable) on any date and
earlier than 11:59 p.m. (P.S.T, or P.D.S.T when
applicable) on such date, (iii) the Business Day
following the date of sending, if sent by a
nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such
notice is required to be given.
10.2. ASSIGNMENT. This Agreement may not be assigned in
whole or part by either party without the prior
written approval by the other party; provided that
the Agreement may be assigned, in the case of
corporate reorganization, to an entity controlled by
the assigning party or under common control with the
assigning party.
10.3. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement among the parties and is intended
expressly to supercede the letter agreement signed by
the parties on September 1, 1999. In addition, this
Agreement may not be modified except by a subsequent
writing duly executed by all parties.
10.4. GOVERNING LAW. The internal law, without regard to
conflicts of laws principles, of the State of
California will govern all questions concerning the
construction, validity and interpretation of this
Agreement and the performance of the obligations
imposed by this Agreement.
10.5. VENUE AND JURISDICTION. All actions brought against
PLSI under this Agreement, including any of the
actions set forth in paragraph 6 above, may be
brought in the state or federal courts located in the
State of Montana. PLSI hereby irrevocably waives
personal service of process and consents to process
being served in any such suit, action or proceeding
by receiving a copy thereof sent to PLSI at the
address in effect for notices to it in subparagraph
10.1 above and agrees that such service shall
constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be
deemed to limit in any way any right by BSLT to serve
process in any manner permitted by law.
10.6. COUNTERPARTS. This Agreement may be executed in
counterparts with any two counterparts signed by each
party having the full force, effect and authority of
an original document signed by all parties.
10.7. NO WAIVER. No failure or delay by any party in the
exercise of any of its rights hereunder will be
deemed to be a waiver of any of its rights.
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<PAGE>
10.8. SEVERANCE. In the event that any provision or
provisions are found by any tribunal of competent
jurisdiction to be null or void, such provisions will
be deemed to be severed from this Agreement and the
remainder of the Agreement will remain in full force
and effect.
10.9. HEADINGS. The headings contained in this Agreement
are for reference only and shall not be used to
resolve any questions of interpretation or
construction.
10.10. RULES OF CONSTRUCTION. All parties have entered into
this Agreement upon the advice of counsel and with
full participation in the drafting of this Agreement.
Accordingly, the parties agree that the principle
that would construe a contract strictly against the
party who drafted such contract shall have no
application to this Agreement.
IN WITNESS WHEREOF, the undersigned officers of the party, having been
duly authorized to bind their respective parties, have executed this Agreement
on behalf of their respective parties as of the date last below written.
BIG SKY LASER INTERNATIONAL, INC. PREMIER LASER SYSTEMS, INC.
By:________________________________ By:_____________________________
Ed Teppo Colette Cozeen
President President
Dated: Dated:
10
Exhibit 10.2
EXCHANGE AGREEMENT
------------------
This Exchange Agreement (the "AGREEMENT") entered into as of the last
date written below by and between ___________________ ("CREDITOR"), a California
limited liability partnership with its principal place of business at __________
________________________________________, and Premier Laser Systems,
Inc. ("PLSI"), a California corporation, having its principal place of business
at 3 Morgan, Irvine, California.
WITNESSETH:
WHEREAS, PLSI is indebted to Creditor in an amount in excess of
____________ as a result of products or services provided by Creditor to PLSI;
WHEREAS, PLSI and Creditor wish to agree upon a payment mechanism that
would permit PLSI to pay a portion of such debt;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, IT IS HEREBY AGREED:
1. LIQUIDATION OF DEBT.
The parties hereby agree that, as of the date of this Agreement, the
total amount due and owing by PLSI to Creditor is at least equal to the sum of
_________________________ (___________) (such sum being hereafter referred to as
the "LIQUIDATED DEBT"). PLSI agrees to pay the Liquidated Debt to Creditor
pursuant to the terms and conditions set forth in this Agreement. As used
herein, the term "Liquidated Debt" does NOT refer to any amount of debt in
excess of __________________________ (___________).
2. ISSUANCE OF CONVERTIBLE DEBENTURES.
2.1 AMOUNT OF DEBENTURES ISSUED. Simultaneously with the execution
of this Agreement, PLSI shall issue to Creditor a series of
____ (_) convertible debentures (the "DEBENTURES") in the
amount of __________________ Dollars and 00/100 U.S. Dollars
(US$______) each in the form set forth in EXHIBIT A. The
Debentures shall be convertible into the Common Stock of PLSI
(the "UNDERLYING SHARES" or "SHARES") pursuant to the terms
and conditions set forth in the Debentures. Following the
issuance of the Debentures, the Debentures shall thereafter
represent the Liquidated Debt, and thereafter there shall be
no independent debt from PLSI to Creditor with respect to the
Liquidated Debt. The parties acknowledge, however, that the
total indebtedness of PLSI to Creditor may exceed the
Liquidated Debt, and the exchange of the Debentures for the
Liquidated Debt shall not extinguish or otherwise affect any
additional indebtedness that PLSI may have to Creditor.
<PAGE>
2.2 REGISTRATION OF THE UNDERLYING SHARES. Within ten (10)
Business Days of the execution of this Agreement and issuance
of the Debentures, PLSI agrees to file a Registration
Statement with the Commission to register the resale of the
Underlying Shares under the Act, and to thereafter prosecute
such application in good faith and with its best efforts. PLSI
will keep such Registration Statement effective until the
earlier of that date 18 months from its effective date or the
date that the selling securityholders named therein have
converted all of the Debentures held by them AND sold all of
the Common Stock received by them upon conversion. During this
period, PLSI shall amend the Registration Statement and the
prospectus included therein, and any documents incorporated by
reference therein, as necessary to ensure that it does include
any misstatement of a material fact or omit to state a fact
necessary to make the other statements contained therein not
misleading. A copy of all filings by PLSI with respect to the
Underlying Shares shall be provided to Creditor by the notice
procedures set forth in subparagraph 8.1 below within five (5)
Business Days on which the filing was made with the
Commission. In addition, Notice of the effectiveness of such
registration shall be given by PLSI to Creditor within five
(5) Business Days of the effectiveness of such Registration.
2.3 INDEMNIFICATION. PLSI agrees to indemnify and hold harmless
Creditor and its officers, directors, agents, partners and any
person who may be deemed to control Creditor under the Act or
the Securities Exchange Act of 1934, to the fullest extent
permitted by law, from and against any and all losses, claims,
damages, liabilities, costs and expenses (including without
limitation attorneys' fees), as incurred, arising out or
relating to any untrue or alleged untrue statement of a
material fact contained in the Registration Statement or the
prospectus contained therein, or arising out of or relating to
any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements
therein not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based
solely upon information regarding the Creditor furnished in
writing by the Creditor to PLSI expressly for use therein.
3. LIMITATION ON SALE OF SHARES.
Commencing on the effective date of the registration of the Underlying
Shares, Creditor agrees that it will not sell on any public exchange (including
without limitation the Nasdaq National Market) an amount of the Underlying
Shares for an aggregate sales price in excess of ______________ U.S. Dollars
(US$________) in any calendar month.
4. MANDATORY CONVERSION.
PLSI shall have the option, but not the obligation, to require
Creditor, upon five (5) business days notice, to convert any or all of the
Debentures, provided that:
4.1 The Underlying Shares are covered by an effective registration
statement freely permitting Creditor to sell the Underlying
Shares on a public market;
4.2 The Common Stock of PLSI is listed on the NASDAQ National
Market or Nasdaq Small Cap Market;
2
<PAGE>
4.3 The Underlying Shares, at the time of conversion, shall have a
bid price no less than $1.50; AND
4.4 The conversion of the Debentures in accordance with such
notice from PLSI will not result in Creditor having converted
more that $______ of the Debentures in any calendar month.
5. REPRESENTATIONS AND WARRANTIES OF PLSI.
PLSI hereby represents and warrants to Creditor as follows:
5.1 CORPORATE QUALIFICATIONS. PLSI is a California corporation in
good standing, is qualified to do business in the State of
California, and is subject to no legal disability which would
prevent it from entering into this Agreement.
5.2 CORPORATE APPROVALS. PLSI has received all approvals of
shareholders, officers and directors required by its Articles,
Bylaws, and applicable law in order to enter into this
Agreement and to issue the Debentures as provided herein. The
Debentures, when issued in accordance herewith, shall be the
valid and binding obligations of PLSI, enforceable in
accordance with their terms. The issuance of the Underlying
Shares upon the conversion of the Debentures in accordance
with their terms has been approved by all necessary corporate
action on the part of PLSI, and upon such conversion the
Underlying Shares shall be duly and validly authorized, fully
paid and nonassessable
6. REPRESENTATIONS AND WARRANTIES OF CREDITOR.
Creditor hereby represents and warrants to PLSI as follows:
6.1 CORPORATE QUALIFICATIONS. Creditor is a limited liability
partnership in good standing, is qualified to do business in
the State of California, and is subject to no legal disability
which would prevent it from entering into this Agreement.
6.2 CORPORATE APPROVALS. Creditor has received all approvals of
partners required by its partnership agreement and applicable
law and any other understandings among its partners in order
to enter into this Agreement.
6.3 KNOWLEDGE OF, AND CAPACITY TO ASSUME, ECONOMIC RISK. Creditor
acknowledges and represents that:
6.3.1 Creditor is an "accredited investor" as defined in
Exhibit B hereto;
6.3.2 Creditor has received and reviewed PLSI's Annual
Report on Form 10-K/A for the fiscal year ended March
31, 1999, and its quarterly reports on Form 10-Q for
the quarters ended June 30, 1999 and September 30,
1999;
6.3.3 Creditor is in a financial position to hold the
Shares for an indefinite period of time, is able to
bear the economic risk of an investment in the Shares
and is able to withstand a complete loss of its
investment in the Shares;
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6.3.4 Creditor has such knowledge and experience in
business and financial matters that make it capable
of evaluating the merits and risks of an investment
in the Shares;
6.3.5 Creditor understands that an investment in the Shares
is highly speculative and involves a high degree of
risk but believes that an investment in the Shares is
suitable based upon its investment objectives and
financial needs, and that it has adequate means to
undertake the risk and to provide for its current
financial needs and has no need for liquidity of
investment with respect to the Shares; Creditor has
reviewed and understands the Risk Factors attached
hereto as EXHIBIT A;
6.3.6 Creditor has had the opportunity to ask questions of,
and receive answers from, representatives of PLSI,
for the purpose of obtaining any additional
information to the extent reasonably available that
is necessary to verify the information provided;
6.3.7 Creditor understands that the Shares may be resold by
it only (i) upon registration of the Shares pursuant
to the Act or (ii) in a transaction that is exempt
from registration under the Act. Creditor understands
that until the resale of the Underlying Shares is
registered under the Act, the certificates
representing the Underlying Shares will bear a legend
restricting the sale or other disposition thereof.
6.3.8 Creditor is acquiring the Debentures and the
Underlying Shares for purposes of investment, and
without a view to the distribution or resale thereof
except where such distribution or resale is
registered under the Act or otherwise permitted by
applicable securities laws.
6.3.9 Creditor is a resident of or domiciled in the state
set forth under its name in Section 8.1 hereof.
7. DEFINITIONS.
In addition to the capitalized terms (such as "LIQUIDATED DEBT")
defined elsewhere, the below terms, whether capitalized or not, will have the
meanings ascribed to them in this paragraph 9 as follows.
7.1 "BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking
institutions in the State of California are authorized or
required by law or other government action to close.
7.2 "COMMISSION" means the Securities and Exchange Commission.
7.3 "COMMON STOCK" means the Class A Common Stock, no par value
per share, of PLSI and stock of any other class into which
such shares may hereafter have been reclassified or changed.
7.4 "PERSON"means a corporation, an association, a partnership,
organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
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7.5 "ACT" means the Securities Act of 1933, as amended.
7.6 "UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of any or all of the Debentures.
8. MISCELLANEOUS.
8.1 NOTICE. Whenever notice is permitted or required by this
Agreement, it shall be deemed given as of the date of receipt
if sent by facsimile transmission to the numbers shown below,
or by a nationally recognized overnight courier, signature
required, and addressed to the party at such address shown
below, or at such other address or facsimile numbers as the
party may time to time give by written notice.
For notice to PLSI:
Premier Laser Systems, Inc
Attn: Chief Financial Officer.
3 Morgan
Irvine, California 92618
Fax: 949.859.5241
For notice to Creditor:
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this subparagraph prior to 4:00 p.m. (California
time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 4:00 p.m. (California time) on any date and
earlier than 11:59 p.m. (California time) on such date, (iii) the Business Day
following the date of sending, if sent by a nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
8.2 ASSIGNMENT. This Agreement may not be assigned in whole or
part by either party without the prior written approval by the
other party.
8.3 ENTIRE AGREEMENT. This Agreement and the Debentures referred
to herein constitutes the entire agreement among the parties
with respect to the subject matter hereof. In addition, this
Agreement may not be modified except by a subsequent writing
duly executed by all parties.
8.4 GOVERNING LAW. The internal law of the State of California,
without regard to conflicts of laws principles, will govern
all questions concerning the construction, validity and
interpretation of this Agreement and the performance of the
obligations imposed by this Agreement.
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8.5 COUNTERPARTS. This Agreement may be executed in counterparts
with any two counterparts signed by each party having the full
force, effect and authority of an original document signed by
all parties.
8.6 NO WAIVER. No failure or delay by any party in the exercise of
any of its rights hereunder will be deemed to be a waiver of
any of its rights.
8.7 SEVERANCE. In the event that any provision or provisions are
found by any tribunal of competent jurisdiction to be null or
void, such provisions will be deemed to be severed from this
Agreement and the remainder of the Agreement will remain in
full force and effect.
8.8 HEADINGS. The headings contained in this Agreement are for
reference only and shall not be used to resolve any questions
of interpretation or construction.
8.9 ATTORNEYS' FEES. If either party commences litigation to
enforce or interpret this Agreement or the Debentures, the
nonprevailing party in such litigation shall reimburse the
prevailing party for the prevailing party's expenses in
connection with such litigation, including without limitation
the prevailing party's attorneys' fees.
8.10 WAIVER OF CONFLICT OF INTEREST. PLSI ACKNOWLEDGES THAT THE
CREDITOR IS ITS LEGAL COUNSEL, AND THAT AS A RESULT THE
CREDITOR HAS A CONFLICT OF INTEREST INSOFAR AS IT HAS
PARTICIPATED IN THE NEGOTIATION AND PREPARATION OF THIS
AGREEMENT AND THE DEBENTURES REFERRED TO HEREIN. PLSI
IRREVOCABLY AND PERMANENTLY WAIVES ANY SUCH CONFLICT ON
INTEREST ON THE PART OF CREDITOR, AND ACKNOWLEDGES THAT IT HAS
BEEN ADVISED TO OBTAIN SEPARATE LEGAL REPRESENTATION IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the undersigned officers of the party, having been
duly authorized to bind their respective parties, have executed this Agreement
on behalf of their respective parties as of the date last below written.
"CREDITOR"
___________________________ PREMIER LASER SYSTEMS, INC.
By:________________________ By:___________________________
Its:_________________ Its:___________________
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EXHIBIT A
FORM OF DEBENTURE
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EXHIBIT B
DEFINITION OF ACCREDITED INVESTOR
(A) Any bank as defined in Section 3(a)(2) of the Securities Act of
1933 (the "Act"), or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Act whether acting in its individual or
fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in Section
2(13) of the Act; any investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
the Investment Company Act of 1940; any Small Business Investment Company
licensed by the U.S. Small Business Administration under section 301(c) or (d)
of the Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivision, or any agency or
instrumentality of a state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; any employee
benefit plan as defined in ERISA (i) for which the investment decision is made
by a plan fiduciary which is a bank, savings and loan association, insurance
company or registered investment adviser, or (ii) where the plan has total
assets in excess of $5,000,000 or, (iii) which is a self-directed plan
(including an individual retirement account), with investment decisions made
solely by "accredited investors" as defined in this Exhibit B;
(B) Any private business development company as defined in Section
202(a)(22) of the Investment Advisors Act of 1940;
(C) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar trust, or partnership, not
formed for the specific purpose of acquiring the Debentures or the Shares, with
total assets in excess of $5,000,000;
(D) Any director or executive officer of the Company;
(E) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(F) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(G) Any trust with total assets in excess of $5,000,000 not formed for
the specific purpose of acquiring the Debentures or the Shares, whose purchase
is directed by a person who, either alone or with his purchaser representative
has such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective investment;
(H) Any entity in which all the equity owners are accredited investors
as defined in subparagraphs (A) through (G) above.
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EXHIBIT C
RISK FACTORS
RISKS RELATED TO OUR BUSINESS
IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING IN THE FUTURE, WE WILL HAVE TO
DELAY OR HALT OUR PRODUCT DEVELOPMENT PROGRAMS.
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 both internal and external factors. Internal factors affecting
our capital requirements include:
o the progress of research and development programs
o results of preclinical and clinical testing
o the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights
o developments and changes in our existing research
o licensing and other relationships
o the terms of any new collaborative, licensing and other
arrangements that we may establish.
o the amount of legal, accounting and administrative costs
incurred in connection with pending litigation
External factors affecting our capital requirements include:
o competing technological and market developments
o the time and cost involved in obtaining regulatory approvals
OUR AVAILABLE SHORT-TERM ASSETS AND INVESTMENT INCOME WILL NOT BE
SUFFICIENT TO MEET OUR OPERATING EXPENSES AND CAPITAL EXPENDITURES THROUGH THE
CURRENT FISCAL YEAR. WE ARE CURRENTLY IN THE PROCESS OF SEEKING ADDITIONAL
FINANCING. 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 INTERNALLY.
WE HAVE INCURRED NET LOSSES IN THE PAST AND EXPECT TO INCUR FUTURE LOSSES WHICH
MAY NEGATIVELY IMPACT OUR ABILITY TO SUSTAIN OUR OPERATIONS.
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We incurred net losses of approximately $76,343,000 from April 1, 1995
through March 31, 1999, and approximately $30,841,000 for the year ended March
31, 1999. As of March 31, 1999, we had an accumulated deficit of approximately
$89,207,000. We have incurred additional losses since that date, and expect to
continue to incur net losses until product sales generate sufficient revenues to
fund our continuing operations. We may fail to achieve significant revenues from
sales or achieve or sustain 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.
THE HIGH COST OF DENTAL LASERS, SAFETY AND EFFICACY CONCERNS OF DENTISTS AND
PATIENTS AND THE SUBSTANTIAL MARKET ACCEPTANCE OF DENTAL DRILLS MAY PREVENT US
FROM ACHIEVING THE BROAD MARKET ACCEPTANCE WHICH IS NECESSARY FOR OUR SUCCESS.
Our products may not be accepted by the medical or dental community or
by patients. We do not know if these products can be successfully commercialized
on a broad basis. 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. 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. 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. Of all the factors impacting our
profitability, the failure of our products to achieve broad market acceptance
would have the greatest negative impact on our business, financial condition and
results of operations and our profitability.
WE ARE INVOLVED IN PENDING LITIGATION AND A REGULATORY INVESTIGATION AND MAY BE
ADVERSELY AFFECTED BY AN ADVERSE OUTCOME IN THE LAWSUIT OR BY THE COSTS OF
DEFENDING THIS LAWSUIT.
We have been sued in a number of related securities class action
matters, generally relating to allegations of misrepresentations during the
period from 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 until these matters
are resolved. We do not know when these matters will be resolved. We have
reached an agreement in principle to settle the class action litigation and
recorded an expense in the quarter ended December 31, 1998, relating to this
settlement. We have recorded substantial additional expense since that date to
cover continuing legal fees incurred in connection with 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 these penalties could materially
and adversely affect our business, financial condition and results of
operations.
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IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE THE OPHTHALMIC IMAGING SYSTEMS
("OIS") BUSINESS WITH OUR OTHER OPERATIONS, WE MAY INCUR SUBSTANTIAL AND
UNANTICIPATED EXPENSES AND OPERATING INEFFICIENCIES.
We acquired a majority of the outstanding common stock of OIS in 1998.
In March 1999, we agreed to manufacture OIS's products on an outsourcing basis.
In addition, we have agreed with OIS to acquire the remaining outstanding stock
of OIS, subject to satisfaction of certain conditions. 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.
BECAUSE SOME OF THE COMPONENTS WE USE ARE NOT WIDELY AVAILABLE, THERE IS A RISK
THAT WE MAY NOT ALWAYS BE ABLE TO OBTAIN THESE COMPONENTS, WHICH COULD PREVENT
US FROM FILLING ORDERS ON TIME AND REDUCE OUR SALES.
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. Some of the
components used by OIS are manufactured by a sole vendor, including Foresight
Imaging for its prism card and Kodak for its 12 bit camera. In addition, our
Arago laser product is manufactured for us by one supplier, LaserMed, Inc.
Further, our 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. While we believe that suppliers could be found for all of
our components and products, 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.
IN ORDER TO CONTINUE TO SELL OUR PRODUCTS IN FOREIGN MARKETS, WE MUST DEVELOP
AND MAINTAIN FOREIGN SALES DISTRIBUTION CHANNELS AND MANAGE POLITICAL AND
ECONOMIC INSTABILITY IN FOREIGN MARKETS AND DEAL WITH GOVERNMENTAL QUOTAS AND
OTHER REGULATIONS.
A substantial portion of our sales are made in foreign markets. The
primary risks to which we are exposed due to our foreign sales are the
difficulty and expense of maintaining foreign sales distribution channels,
political and economic instability in foreign markets and governmental quotas
and other regulations.
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 these
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.
IF WE CANNOT ADAPT TO TECHNOLOGICAL ADVANCES, OUR PRODUCTS MAY BECOME
TECHNOLOGICALLY OBSOLETE AND OUR PRODUCT SALES COULD SIGNIFICANTLY DECLINE.
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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.
IF WE ARE UNABLE TO PROTECT OUR PATENTS AND PROPRIETARY TECHNOLOGY WE MAY NOT BE
ABLE TO COMPETE EFFECTIVELY.
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 some
of our technologies without a license, including, among others, patents relating
to our lens emulsification product and ophthalmic probes for the Er:YAG laser.
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 the value of our
intangible assets may result in a write-off of the intangible asset and a
substantial charge to earnings, which would adversely affect our operating
results in the future.
IN OUR BUSINESS, WE COULD BECOME INVOLVED IN PATENT AND INTELLECTUAL PROPERTY
LITIGATION, IN WHICH AN ADVERSE DETERMINATION COULD SUBJECT US TO SIGNIFICANT
LIABILITIES AND RESTRICT OUR MANUFACTURING RIGHTS.
In the past, we have received allegations that some of our laser and
diagnostic products infringe on other patents. There has been significant patent
litigation in the medical device 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 these licenses, we could encounter delays
in product introductions while we attempt to design around these patents, or we
could find that the development, manufacture or sale of products requiring such
licenses could be enjoined.
OUR BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATION WHICH IMPOSES SIGNIFICANT
COSTS ON US AND IF NOT COMPLIED WITH COULD LEAD TO THE ASSESSMENT OF PENALTIES.
Our products are regulated as medical devices by the United States Food
& Drug Administration. As such, these devices 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.
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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
our 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 some 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.
THE INTENSE COMPETITION WE FACE COULD RESULT IN REDUCED SALES AND DOWNWARD
PRESSURE ON THE PRICES OF OUR PRODUCTS.
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. In addition, we expect that other companies will enter the
laser market, particularly as medical lasers gain increasing market acceptance.
Significant competitive factors which will affect future sales in the
marketplace include regulatory approvals, performance, pricing and general
market acceptance.
The ophthalmic diagnostic market is also highly competitive. There are
many companies engaged in this market, some with significantly greater resources
than ours. 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.
A SUCCESSFUL PRODUCT LIABILITY CLAIM ASSERTED AGAINST US DUE TO A DEFECT IN ONE
OF OUR PRODUCTS IN EXCESS OF OUR INSURANCE COVERAGE 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 this 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 these claims. A successful claim against us in excess
of our insurance coverage could materially harm our business.
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THERE IS UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT WHICH IS CRITICAL TO
MARKET ACCEPTANCE OF 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. If third party
reimbursement of these procedures is not available, it will be more difficult
for us 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 legislation or regulation may have on us.
THE COVERAGE AND SPENDING LIMITATIONS CONTAINED IN HEALTH CARE REFORM PROPOSALS
WOULD, IF ADOPTED, REDUCE DEMAND FOR OUR PRODUCTS.
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.
IF WE EXPERIENCE PROBLEMS WITH YEAR 2000 COMPLIANCE OUR OPERATIONS MAY BE
DISRUPTED.
Many existing computer programs use only two digits to identify the
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. As a result, any
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in system
failure or miscalculations, causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
We are heavily dependent upon the proper functioning of our own
computer and data- dependent systems. This includes, but it not limited to, our
support/administrative and operational/production systems. Any failure or
malfunctioning on the part of these or other systems could harm our business in
ways that we currently do not know and cannot discern, quantify or otherwise
anticipate. In addition, if our key vendors experience Year 2000 compliance
issues, then our business could be harmed. Due to the interrelated nature of
international commerce, if there is a failure in Year 2000 compliance by us or
one of our direct or indirect business partners, we could suffer major
disruptions in our ability to call on customers, obtain orders from customers,
obtain parts from suppliers, manufacture products for sale, ship products to our
customers, or receive payment for our sales.
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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 December
31, 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.
RISKS RELATED TO THIS OFFERING
CHANGES IN REVENUE AND OPERATING RESULTS MAY CAUSE THE MARKET PRICE OF OUR STOCK
TO FLUCTUATE, WHICH MAY ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL
CAPITAL.
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. The important factors
which may cause our quarterly results to fluctuate are seasonality and
production delays. During the past four fiscal quarters, our net loss has
fluctuated from a low of $2.1 million to a high of $12.9 million. Such
fluctuations may cause our stock price to decline and adversely affect our
ability to raise additional capital.
THE VOLATILITY OF OUR STOCK PRICE MAKES THESE SECURITIES RISKY FOR THOSE SEEKING
A STABLE INVESTMENT.
The market price of our common stock is very volatile, and our common
stock therefore may not be a suitable investment for those who seek stable
investment prices over the short or long term. Our common stock was first
publicly traded in December 1994 and has had last reported closing sale prices
ranging from a low of $1.38 per share in August 1999 to a high of $14.00 per
share in May 1997. The market price of our common stock could continue to
fluctuate substantially due to a variety of risk factors, including those
described elsewhere in this prospectus. The market price for our common stock
may also be affected by our ability to meet analysts' expectations. Any failure
to meet these 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.
A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR SALE, AND IF SOLD, THESE SHARES
MAY CREATE EXCESS SUPPLY IN THE MARKET CAUSING OUR STOCK PRICE TO DECLINE.
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 6.4 million
shares of our common stock are issuable upon exercise of other outstanding
warrants and options and conversion of outstanding debentures. 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 will require satisfaction of a
number of conditions, and we cannot assure you that the settlement will be
completed.
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The price which we may receive for our common stock issued upon
exercise of outstanding options and warrants will likely be less than the market
price of our common stock at the time these 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 POSSIBLY
PREVENTING YOU FROM OBTAINING HIGHER SHARE PRICES.
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 shareholder 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. This could have the effect of preventing others from seeking
to acquire your shares in transactions at premium prices.
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.
If a significant number of shares of common stock which are issued upon
conversion of the debentures and payment of interest thereon are then sold in
the market, the price of our common stock could be depressed due to the presence
of these additional shares in the market. This downward pressure could encourage
short sales of common stock by the selling shareholders or others. By increasing
the number of shares offered for sale, material amounts of short selling could
place further downward pressure on the market price of the common stock.
16
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Premier Laser Systems, Inc. of our report dated June 9, 1999, except
for notes 2, 3 and 8, as to which the date is October 4, 1999, appearing in the
prospectus, which is part of this Registration Statement, and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ HASKELL & WHITE LLP
Newport Beach, California
December 3, 1999
