Filed pursuant to Rule 424(b)(3)
File No. 333-25237
PROSPECTUS SUPPLEMENT NO. 4 Dated December 12, 1997
(To Prospectus dated May 20, 1997)
(as supplemented by Prospectus Supplements dated August 19, 1997, October 15,
1997 and November 25, 1997)
82,593 Shares
LASERSIGHT INCORPORATED
Common Stock ($.001 par value)
This Prospectus Supplement updates the Prospectus dated May 20, 1997
("Prospectus") of LaserSight Incorporated, a Delaware corporation (the
"Company") and replaces Prospectus Supplement No. 3 to the Prospectus.
All of the text under the caption "The Offering" remains unchanged except
those items presented below:
Common Stock outstanding as of December 10, 1997 9,984,672 shares
All of the text under the caption "Risk Factors--Company-Related
Uncertainties" remains unchanged except those items presented below:
Potential Obligation to Redeem Preferred Stock if Stockholder Approval Not
Obtained. If for any reason the Company's shareholders do not approve, by
December 26, 1997, (or such later date as may be approved by all of the holders
of the Series B Preferred Stock) the possible issuance of an indefinite number
of shares of Common Stock upon the conversion of the Company's outstanding
Series B Preferred Stock, any holder of Series B Preferred Stock may elect to
require the Company to redeem a portion of such holder's Series B Preferred
Stock for cash in an amount equal to the Special Redemption Price. For this
purpose, the Special Redemption Price means a cash payment equal to the greater
of (i) the liquidation preference of $10,000 multiplied by 125% or (ii) the
current value of the Common Stock, using the price per share of Common Stock,
which the holders of such shares of Series B Preferred Stock would otherwise be
entitled to receive upon conversion. A holder could elect to require the Company
to redeem whatever portion of its Series B Preferred Stock is necessary to cause
the aggregate number of shares of Common Stock that would be issuable if such
holder were to convert all of its remaining Series B Preferred Stock and
exercise all of its 1997 Warrants to equal no more than 50% of such holder's
allocable portion of the 1,995,534 shares of Common Stock that a listing rule of
the NASDAQ National Market allows the Company to issue without prior shareholder
approval. The lower the price of the Company's Common Stock at the time of a
holder's conversion of its Series B Preferred Stock, the greater would be the
number of shares of Common Stock that would be issuable to such holder upon such
conversion and thus the greater the percentage of such holder's Series B
Preferred Stock that such holder could elect to require the Company to redeem.
Accordingly, the Company has requested that each of the four holders of Series B
Preferred Stock waive their right to require a redemption until February 28,
1998. To avoid such adverse consequences, such a waiver would need to be
unanimous. There can be no assurance as to whether, when or on what terms such a
unanimous waiver can be obtained.
If all of the holders of Series B Preferred Stock were to elect to require such
a redemption at a time when the average of three lowest daily closing bid prices
of the Common Stock during the 20-trading day period preceding the conversion
were to equal the average of such prices computed as of December 10, 1997
($3.40625), the Company estimates that the aggregate amount of its redemption
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obligation would equal at least $15,312,500, including a premium of 25% or
approximately $3,062,500. These amounts would be greater to the extent that (A)
the highest closing bid price of the Common Stock during the period beginning 10
trading days before the redemption event and ending five business days after
such event exceeds the Conversion Price that would have been applicable if the
preferred shares had been converted instead of redeemed or to the extent that
the required redemption were to occur more than five business days after the
Company's receipt of a conversion request. The Company does not have sufficient
cash or marketable securities to satisfy this contingent obligation if it were
to arise, and there can be no assurance that the Company will have sufficient
cash or other resources to satisfy any such future redemption obligation. Such
redemption would result in a default in the Company's credit facility with
Foothill Capital Corporation and would have a material adverse effect on the
Company's financial position and liquidity.
Potentially Unlimited Number of Common Shares Issuable Upon Conversion of
Preferred Stock. The number of shares of Common Stock issuable upon each
conversion of the Series B Preferred Stock will depend on the average of the
three lowest closing bid prices of the Common Stock during the period
immediately preceding such conversion and will increase as the market price of
the Common Stock declines below $6.68 per share (the maximum conversion price of
the Series B Preferred Stock). There is no limit on the number of shares of
Common Stock issuable in connection with the conversions of Series B Preferred
Stock, except that the issuance of more than 1,995,534 shares of Common Stock in
connection with such conversions is subject to the approval of the Company's
shareholders at a special meeting of shareholders scheduled for January 1998.
The following table illustrates how changes in the market price of the Common
Stock could effect the number of shares issuable upon such conversions:
Assumed Number of As % of Common Shares
Conversion Conversion Assumed Outstanding
Price(1) Shares Issuable After Conversion(2)
$1.00 12,950,000 56.5%
$2.00 6,475,000 39.3%
$3.00 4,316,667 30.2%
$3.40625 (3) 3,801,835 27.6%
$4.00 3,237,500 24.5%
$5.00 2,590,000 20.6%
$6.00 2,158,333 17.8%
$6.68 1,938,622 16.3%
(maximum conversion price)
(1) Such Conversion Price is based on the lesser of $6.68 per share or the
Variable Conversion Price. For this purpose, "Variable Conversion Price" means
the average of the three lowest closing bid prices per share of the Common
during the Lookback Period (as defined) (subject to equitable adjustment for any
stock splits, stock dividends, reclassifications or similar events during the
Lookback Period). For this purpose, "Lookback Period" means the 20 consecutive
trading days (or, under certain circumstances, 30 trading days) immediately
preceding the applicable conversion date.
(2) Assumes that the aggregate number of shares outstanding at the time of
conversion equals the 9,984,672 shares of Common Stock outstanding on December
9, 1997 plus the number of shares issuable in connection with such conversion.
Also assumes that all shares of Preferred Stock are converted at the conversion
price indicated.
(3) Equals the Conversion Price that would have been applicable if all of
the Series B Preferred Stock had been converted as of December 10, 1997.
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In addition, in the event of a liquidation of the Company, the holders of the
Series B Preferred Stock would be entitled to receive distributions in
preference to the holders of the Common Stock.
Past Losses and Operating Cash Flow Deficits; No Assurance of Future Profits or
Positive Operating Cash Flows. The Company incurred losses of $4.1 million and
$5.5 million during 1996 and the first nine months of 1997, respectively. During
such 1996 and 1997 periods, the Company had a deficit in cash flow from
operations of $4.2 million and $3.0 million, respectively. Although the Company
achieved profitability during 1994 and 1995, it had a deficit in cash flow from
operations of $1.9 million during 1995. In addition, the Company incurred losses
in 1991 through 1993. As of September 30, 1997, the Company had an accumulated
deficit of $10.1 million. There can be no assurance that the Company can regain
or sustain profitability or positive operating cash flow.
Uncollectible Receivables Could Exceed Reserves. At September 30, 1997, the
Company's trade accounts and notes receivable aggregated approximately
$11,090,000, net of total allowances for collection losses and returns of
approximately $1,650,500. Approximately 87% of net receivables at September 30,
1997 relate to international accounts. Accrued commissions, the payment of which
generally depends on the collection of such net trade accounts and notes
receivable, aggregated approximately $1,551,000 at September 30, 1997. Exposure
to collection losses on technology-related receivables is principally dependent
on its customers ongoing financial condition and their ability to generate
revenues from the Company's laser systems. The Company's ability to evaluate the
financial condition and revenue generating ability of prospective customers
located outside of the United States is generally more limited than for
customers located in the United States. The Company monitors the status of its
receivables and maintains a reserve for estimated losses. The Company's
operating history has been relatively short. There can be no assurance that the
Company's reserves for estimated losses ($1,393,000 at September 30, 1997) will
be sufficient to cover actual write-offs over time. Actual write-offs that
materially exceed amounts reserved could have a material adverse effect on the
Company's financial condition, liquidity and results of operations.
Possible Dilutive Issuance of Common Stock--LaserSight Centers. The Company has
agreed, based on a previously-reported acquisition agreement (the "Centers
Agreement") entered into in 1993 and modified in July 1995 and March 1997, to
issue to the former shareholders and option holders (including two trusts
related to the Chairman of the Board of the Company and certain former officers
and directors of the Company) of LaserSight Centers, the Company's
development-stage subsidiary, up to 600,000 unregistered shares of Common Stock
(the "Centers Earnout Shares") based on the Company's future pre-tax operating
income through March 2002 from performing PRK, PTK or other refractive laser
surgical procedures. The Centers Earnout Shares are to be issued at the rate of
one share per $4.00 of such operating income. As of September 30, 1997, the
Company had not accrued any amount of such pre-tax operating income. There can
be no assurance that the issuance of Centers Earnout Shares will be accompanied
by an increase in the Company's per share operating results. The Company is not
obligated to pursue strategies that may result in the issuance of Centers
Earnout Shares. It may be in the interest of the Chairman of the Board for the
Company to pursue business strategies that maximize the issuance of Centers
Earnout Shares.
Possible Dilutive Issuance of Common Stock--Florida Laser Partners. Based on a
previously-reported royalty agreement entered into in 1993 and modified in July
1995 and March 1997, the Company is obligated to pay to a partnership whose
partners include the Chairman of the Board of the Company and certain former
officers and directors of the Company a royalty of up to $43 (payable in cash or
shares of Common Stock based on its then-current market value (the "Royalty
Shares")), for each eye on which laser refractive optical surgical procedure is
conducted on an excimer laser system owned or operated by LaserSight Centers or
its affiliates. No such payment obligation has arisen as of September 30, 1997
because royalties do not begin to accrue until the earlier of March 2002 or the
delivery of an additional 600,000 Centers Earnout Shares (none of which had
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accrued as of such date). There can be no assurance that the issuance of Royalty
Shares will be accompanied by an increase in the Company's per share operating
results. It may be in the interest of the Chairman of the Board for the Company
to pursue business strategies that maximize the issuance of Royalty Shares.
Possible Dilutive Issuance of Common Stock--The Farris Group. To the extent that
an earnout provision relating to the Company's acquisition of The Farris Group
in 1994 is satisfied based on certain annual pre-tax income targets through
December 31, 1998, the Company would be required to issue to the former owner of
such company (Mr. Michael R. Farris, the President and Chief Executive Officer
of the Company) an aggregate of up to 750,000 shares of Common Stock
(collectively, the "Farris Earnout Shares"). To date, 406,700 Farris Earnout
Shares have been issued based on the operating results of the Farris Group
through December 31, 1995. As a result of the loss incurred by The Farris Group
during 1996, no Farris Earnout Shares became issuable for such year. If
additional Farris Earnout Shares become issuable, goodwill and the resulting
amortization expense will increase. There can be no assurance that the issuance
of Farris Earnout Shares will be accompanied by an increase in the Company's per
share operating results.
Acquisition- and Financing-Related Contingent Commitments to Issue Additional
Common Shares. The Company has agreed in connection with its acquisition of the
assets of the Northern New Jersey Eye Institute in July 1996 to issue up to
102,798 additional shares of Common Stock if the fair market value of the Common
Stock in July 1998 is less than $15 per share. The Company may from time to time
include similar provisions in future acquisitions and financings. The factors to
be considered by the Company in including such provisions may include the
Company's cash resources, the trading history of the Company's common stock, the
negotiating position of the selling party or the investors as applicable, and
the extent to which the Company determines that the expected benefit from the
acquisition or financing exceeds the potential dilutive effect of the
price-protection provision. Persons who are the beneficiaries of such provisions
effectively receive limited protection from declines in the market price of the
Common Stock, but other shareholders of the Company can expect to incur
additional dilution of their ownership interest in the event of a decline in the
price of the Common Stock.
Potential Liquidity Constraints. During the quarter ended September 30, 1997,
the Company experienced a $2.2 million deficit in cash flow from operations (73%
of the year-to-date deficit), largely resulting from the low level of laser
system sales and the increase in the Company's research, development and
regulatory expenses. During the quarter, the Company also experienced
significant decreases in the amount of working capital (from $6.4 million to
$4.5 million) and cash and cash equivalents (from $3.1 million to $1.2 million).
Although the Company expects cash flow from operations to improve somewhat in
the fourth quarter of 1997 and first quarter of 1998 relative to the level for
the third quarter of 1997, such improvement will depend on, among other things,
the Company's ability to sell and produce its new LaserScan LSX laser systems
and its Automated Disposable Keratome (ADK) product. See "--Technology-Related
Uncertainties--New Products". Subject to these factors, the Company believes
that its balances of cash and cash equivalents, together with expected operating
cash flows and the availability of its revolving credit facility with Foothill
Capital Corporation ("FCC") will be sufficient to fund its anticipated working
capital requirements for the next 12-month period based on modest growth and
anticipated collection of receivables. However, a failure to collect timely a
material portion of current receivables or unexpected delays in the shipment of
the Company's LaserScan LSX or ADK products could have a material adverse effect
on the Company's liquidity.
Uncertainty Regarding Availability or Terms of Capital to Satisfy Possible
Additional Needs. The Company may need additional capital, including to fund the
following:
(i) any future negative cash flow from operations,
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(ii) the amounts payable to the holders of the Series B Preferred Stock
as a result the failure of the Company to cause the registration of the
Conversion Shares and the Warrant Shares by November 27, 1997 (based on
the amount of Series B Preferred Stock outstanding as of the date of
this Prospectus, the aggregate amount of such payments is $129,500
during the first month (or $4,317 per day) and $259,000 per month
($8,633 per day) thereafter).
(iii) the introduction of its laser systems into the United States
market after receiving FDA approval (the Company believes the earliest
these expenses might occur is the latter half of 1998), and
(iv) certain cash payment obligations under its PMA acquisition
agreement of July 1997. (Such cash payment obligations under the PMA
acquisition agreement include $1.75 million payable in the event the
FDA approves the PMA before July 29, 1998 and $1.0 million payable in
the event that the FDA approves the Company's scanning laser for
commercial sale in the U.S. before April 1, 1998.)
In addition, the Company may seek alternative sources of capital to fund its
product development activities, to consummate future strategic acquisitions, and
to accelerate its implementation of managed care strategies. Except for up to
$3.2 million of additional borrowing available under its credit facility with
FCC (subject to the reduction of such availability amount in monthly
installments of $1.333 million commencing in August 1998 and to the Company's
continued compliance with financial and other covenants), the Company has no
present commitments to obtain such capital, and no assurance can be given that
the Company will be able to obtain additional capital on terms satisfactory to
the Company. The $4 million outstanding principal amount of the FCC term loan is
payable in monthly installments of $1.333 million between May and July 1998. To
the extent that future financing requirements are satisfied through the sale of
equity securities, holders of Common Stock may experience significant dilution
in earnings per share and in net book value per share. The FCC financing or
other debt financing could result in a substantial portion of the Company's cash
flow from operations being dedicated to the payment of principal and interest on
such indebtedness and may render the Company more vulnerable to competitive
pressures and economic downturns.
Risks Associated with Past and Possible Future Acquisitions. The Company has
made several significant corporate acquisitions in the last four years,
including MRF in 1994, MEC in 1995, the assets of NNJEI in 1996, Photomed in
1997, and the IBM laser patents in 1997. These prior acquisitions, as well as
any future acquisition, may not achieve adequate levels of revenue,
profitability or productivity or may not otherwise perform as expected.
Acquisitions involve special risks, including risks associated with
unanticipated liabilities and contingencies, diversion of management attention
and possible adverse effects on earnings resulting from increased goodwill
amortization, increased interest costs, the issuance of additional securities
and difficulties related to the integration of the acquired business. Although
the Company is currently focusing on its existing operations, the future ability
of the Company to achieve growth through acquisitions will depend on a number of
factors, including the availability of attractive acquisition opportunities, the
availability of funds needed to complete acquisitions, the availability of
working capital needed to fund the operations of acquired businesses and the
effect of existing and emerging competition on operations. Should additional
acquisitions be sought, there can be no assurance that the Company will be able
to successfully identify additional suitable acquisition candidates, complete
additional acquisitions or integrate acquired businesses into its operations.
Amortization of Significant Intangible Assets. Of the Company's total assets at
September 30, 1997, approximately $31.1 million (57%) represents intangible
assets, of which approximately $14.8 million reflects goodwill which is being
amortized using an estimated life ranging from 12 to 25 years, approximately
$11.5 million reflects the cost of patents which are being amortized over a
period ranging from 8 to 17 years, and approximately $4.8 million reflects the
<PAGE>
cost of licenses and technology acquired which is being amortized over a period
ranging from 31 months to 12 years. Goodwill is an intangible asset that
represents the difference between the total purchase price of an acquisition and
the amount of such purchase price allocated to the fair value of the net assets
acquired. Goodwill and other intangibles are amortized over a period of time,
with the amount amortized in a particular period constituting a non-cash expense
that reduces the Company's operating results in that period. A reduction in net
income resulting from the amortization of goodwill and other intangibles may
have an adverse impact upon the market price of the Company's Common Stock. In
addition, in the event of a sale or liquidation of the Company or its assets,
there can be no assurance that the value of such intangible assets would be
recovered.
In accordance with SFAS 121, the Company reviews intangible assets for
impairment whenever events or changes in circumstances, including a history of
operating or cash flow losses, indicate that the carrying amount of an asset may
not be recoverable. In such cases, the carrying amount of the asset is compared
to the estimated undiscounted future cash flows expected to result from the use
of the asset and its eventual disposition. If the sum of the expected
undiscounted future cash flows is less than the carrying amount of the asset, an
impairment loss will be computed and recognized in accordance with SFAS 121.
Expected cash flows are based on factors including historical results, current
operating budgets and projections, industry trends and expectations, and
competition.
Year 2000 Concerns. The Company believes that it has prepared its computer
systems and related applications to accommodate date-sensitive information
relating to the Year 2000. The Company expects that any additional costs related
to ensuring such systems to be Year 2000 compliant will not be material to the
financial condition or results of operations of the Company. Such costs will be
expensed as incurred. In addition, the Company is discussing with its vendors
and customers the possibility of any interface difficulties which may affect the
Company. To date, no significant concerns have been identified. However, there
can be no assurance that no Year 2000-related operating problems or expenses
will arise with the Company's computer systems and software or in their
interface with the computer systems and software of the Company's vendors and
customers.
All of the text under the caption "Risk Factors--Health Care
Services-Related Uncertainties" remains unchanged except those items presented
below:
Risks Associated with Managed Care Contracts. As an increasing percentage of
optometric and ophthalmologic patients are coming under the control of managed
care entities, the Company believes that its success will, in part, depend on
the Company's ability to negotiate contracts with HMOs, employer groups and
other private third-party payors pursuant to which services will be provided on
a risk-sharing or capitated basis. Under some of such agreements, the eye care
provider accepts a predetermined amount per month per patient in exchange for
providing all necessary covered services to the enrolled patients. Such
contracts pass much of the risk of providing care from the payer to the
provider. The proliferation of such contracts in markets served by the Company
could result in greater predictability of revenues, but greater unpredictability
of expenses. There can, however, be no assurance that the Company will be able
to negotiate satisfactory arrangements on a risk-sharing or capitated basis. In
addition, to the extent that patients or enrollees covered by such contracts
require more frequent or extensive care than anticipated, operating margins may
be reduced or, in the worst case, the revenues derived from such contracts may
be insufficient to cover the costs of the services provided. As a result, the
Company may incur additional costs, which would reduce or eliminate anticipated
earnings under such contracts and could have a material adverse affect on the
Company's results of operations.
Ultimately, the success of the Company's MEC strategy will be dependent on its
ability to maintain and expand its managed care contract relationships with
HMOs, employee groups and other private third party payors. These managed care
contract relationships will depend largely on MEC's ability to recruit and
retain optometrists and ophthalmologists, who are committed to providing
<PAGE>
quality, cost-effective care, to participate in MEC's contract provider network
as well as to market such provider network to third party payors. The inability
to effectively maintain MEC's provider network and third party payor contracts
could have a material adverse effect on the Company's results of operations,
financial condition and liquidity.
Reimbursement: Trends and Cost Containment. The Company's revenues derived from
LSIA are derived principally from management fees payable to LSIA from NNJEI.
Because the amount of management fees payable to LSIA is generally determined
with reference to the practice revenues of NNJEI, any reduction in the practice
revenues generated by NNJEI could adversely effect the Company. There can be no
assurance that NNJEI will continue to maintain a successful practice, that the
management agreement between LSIA and NNJEI will not be terminated, or that the
ophthalmologists will continue to be employed by NNJEI.
A substantial portion of the revenues of NNJEI are derived from government
sponsored health care programs (principally, the Medicare and Medicaid programs)
or private third party payors. The health care industry is experiencing a trend
toward cost containment as government and private third-party payors seek to
impose lower reimbursement and utilization rates and negotiate reduced payment
schedules with service providers. The Company believes that these trends will
continue to result in a reduction from historical levels in per-patient revenue
for such ophthalmic practices. Further reductions in payments to
ophthalmologists or other changes in reimbursement for health care services
would have an adverse effect on the Company's operations unless the Company is
otherwise able to offset such payment reductions through cost reductions,
increased volume, introduction of new procedures or otherwise.
Rates paid by private third-party payors are based on established physician, ASC
and hospital charges and are generally higher than Medicare reimbursement rates.
Any decrease in the relative number of patients covered by private insurance
could have a material adverse effect on NNJEI's results of operations. The
federal government has implemented, through the Medicare program, the
resource-based relative value scale ("RBRVS") payment methodology for physician
services. This methodology went into effect in 1992 and was implemented during a
transition period in annual increments through December 31, 1995. RBRVS is a fee
schedule that, except for certain geographical and other adjustments, pays
similarly situated physicians the same amount for the same services. The RBRVS
is adjusted each year, and is subject to increases or decreases at the
discretion of Congress. RBRVS-type of payment systems have also been adopted by
certain private third-party payors and may become a predominant payment
methodology. Wider-spread implementation of such programs would reduce payments
by private third-party payors and could reduce the NNJEI's practice revenues
and, in turn, reduce the amount of management fees paid by NNJEI to LSIA. There
can be no assurance that any or all of these reduced practice revenues could be
offset by the NNJEI through cost reductions, increased volume, introduction of
new procedures or otherwise.
Health Care Regulation - General. The Company is subject to extensive state,
federal and local regulations. The Company is also subject to laws and
regulations relating to business corporations in general. The Company believes
its operations are in substantial compliance with applicable law. However, there
can be no assurance that review of the Company's business, its affiliates, and
contractual arrangements by courts or health care, tax, labor, and other
regulatory authorities will not result in determinations that could adversely
affect the operations of the Company. Also, there can be no assurance that the
health care regulatory environment will not change and restrict the Company's
existing operations or limit the expansion of the Company's business. The health
care industry is presently experiencing sweeping and dynamic change. Much of
this change has been prompted by market forces. Numerous legislative proposals
and laws also have prompted other changes in the industry. In recent years a
number of governmental and other public initiatives have developed to reform the
health care system in the United States. If adopted, certain of these
initiatives could substantially alter the method of delivery and reimbursement
for medical care services in this country. There can be no assurance that
current or future legislative initiates or governmental regulation will not
adversely affect the business of the Company.
<PAGE>
More generally, in recent years there have been changes in statutes and
regulations regarding the provision of health care services and the Company
anticipates that such statutes and regulations will continue to be the subject
of future modification. The Company cannot predict what changes may be enacted,
and what effect changes in these regulations might have upon the Company and its
prospects. It is possible that federal or state legislation could contain
provisions resulting in governmental price ceilings (even on procedures for
which government health insurance is not available) which may adversely affect
the ophthalmic laser market or otherwise adversely affect the Company's business
in the United States. The uncertainty regarding additional health care statutes
or regulations, and the enactment of reform legislation, could have an adverse
affect on the development and growth of the Company's business and might result
in additional volatility in the market price of the Company's securities.
Health Care Regulation - Referrals. The health care industry is subject to
"anti-referral" and "anti-kickback" laws governing patient referrals, and other
laws concerning fee splitting with non-physicians. Although the Company believes
that its operations are in substantial compliance with existing applicable laws,
the Company's business operations have not been the subject of judicial or
regulatory review. There can be no assurance that the Company's business will
not be reviewed in the future, and if reviewed or challenged that the Company
would prevail. Any such review or challenge of the Company's business could
result in determinations that could adversely affect the operations of the
Company. There can be no assurance that the health care regulatory environment
will not change so as to restrict the Company's existing operations or their
expansion. Aspects of certain health care reforms as proposed in the past, such
as further reductions in Medicare and Medicaid payments and additional
prohibitions on physician ownership, directly or indirectly, of facilities to
which they refer patients, if adopted, could adversely affect the Company.
Corporate Practice of Medicine. The laws of many states prohibit business
corporations or other non-professional corporations such as the Company from
practicing medicine and employing physicians to practice medicine. The Company
intends to perform only non-medical administrative services, does not intend to
represent to the public or patients of participating providers that it offers
medical services, and does not intend to exercise influence or control over the
practice of medicine by the participating providers with whom it affiliates
pursuant to contractual arrangements. Accordingly, the Company believes that its
intended operations will not be in violation of applicable state laws relating
to the practice of medicine. However, the laws in most states regarding the
corporate practice of medicine have been subjected to limited judicial and
regulatory interpretation and, therefore, no assurances can be given that the
Company's activities will be found to be in compliance, if challenged. The laws
of many states also prohibit non-professional corporations such as the Company
and other entities that are not owned entirely by physicians from employing
physicians, optometrists and other similar professionals having control over
clinical decision-making, or engaging in other activities that are deemed to
constitute the practice of medicine. Some states also prohibit non-professional
corporations from owning, maintaining or operating an office or facility for the
practice of medicine. Some states also prohibit non-professional corporations
from owning, maintaining or operating an office or facility for the practice of
medicine. These laws may be construed to permit arrangements under which the
physicians are not employed by or otherwise controlled as to clinical matters by
the party supplying such facilities and non-professional services but provide
services under contract with such an entity.
Professional Liability. Although the Company does not intend to engage in the
practice of medicine, there can be no assurance that the Company will not have
liability arising from the medical services, utilization review, peer review, or
other similar activities, of the participating providers. Under its contractual
arrangements, the Company requires all participating providers to carry
professional liability insurance and other insurance necessary to insure against
such risks, and, where possible, to add the Company as an additional insured
under such professional liability insurance policies and other applicable
policies of the participating provider. It is unlikely that such insurers will
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add the Company as an additional insured. The Company carries general liability
and casualty insurance, but there can be no assurance that claims in excess of
any insurance coverage will not be asserted against the Company. The
availability and cost of such insurance is beyond the control of the Company,
and the cost of such insurance to the Company may have an adverse effect on the
Company's operations. Additionally, successful claims of liability asserted
against the Company that exceed applicable policy limits could have a material
adverse effect on the Company's results of operations and financial condition.
Competition. The Company will compete with other companies which seek to acquire
the business assets of, provide management and other services to, and affiliate
with existing provider practices. Other companies are actively engaged in
businesses similar to that of the Company, some of which have substantially
greater financial resources and longer operating histories than the Company and
are located in areas where the Company may seek to expand in the future. The
Company assumes that additional companies with similar objectives may enter the
Company's markets and compete with the Company and there can be no assurance
that the Company will be able to compete effectively with such companies.
Additionally, the market for vision care is becoming increasingly competitive.
The Company's participating providers may compete with many other providers.
Competition is based on many factors including marketing and financial strength,
public image and the strength of established relationships in the industry.
There can be no assurance that the Company's participating providers can
successfully compete in their respective markets. (See "Business -
Competition").
Dependence on Major Customer. Blue Cross and Blue Shield of Maryland ("BC/BS")
accounted for 44.4% and 49.1% of the revenues of the Company's health care
services segment during the year ended 1996 and the nine months ended September
30, 1997, respectively. Such revenues represented 22.5% and 26.4% of the
Company's consolidated revenues during such 1996 and 1997 periods, respectively.
A termination of or failure to renew the agreements between BC/BS and the
Company could have a material adverse effect on the Company's results of
operations and financial condition.
All of the text under the caption "Risk Factors--Technology-Related
Uncertainties" remains unchanged except those items presented below:
Government Regulation. The Company's laser products are subject to strict
governmental regulations which materially affect the Company's ability to
manufacture and market these products and directly impact the Company's overall
prospects. All laser devices to be marketed in interstate commerce are subject
to the laser regulations required by the Radiation Control for Health and Safety
Act, as administered by the U.S. Food and Drug Administration (the "FDA"). Such
Act imposes design and performance standards, labeling and reporting
requirements, and submission conditions in advance of marketing for all medical
laser products. The Company's laser systems produced for medical use require
pre-market approval by the FDA before they can be marketed in the United States.
Each separate medical device requires a separate FDA submission, and specific
protocols have to be submitted to the FDA for each claim made for each medical
device. In addition, laser products marketed in foreign countries are often
subject to local laws governing health product development processes which may
impose additional costs for overseas product development. The Company cannot
determine the costs or time it will take to complete the approval process and
the related clinical testing for its medical laser products. Future legislative
or administrative requirements in the United States, or elsewhere, may adversely
affect the Company's ability to obtain or retain regulatory approval for its
laser products. The failure to obtain required approvals on a timely basis could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has completed clinical studies in Phase 2a and 2b for PRK. Such data
were presented to the FDA and on September 17, 1997 the Company was granted
permission to expand into Phase 3 Myopic PRK studies. The Phase 3 PRK clinical
investigation is now under way. The Company is also conducting a Phase 2 trial
for PARK (Photo-Astigmatic Refractive Keratectomy). The FDA has informed the
<PAGE>
Company that it may combine the results from all its studies in its PMA
application. That application is being prepared for submission in late 1997 or
early 1998. The Company also has an Investigational Device Exemption approved by
the FDA for the treatment of glaucoma by laser trabeculodissection. The Company
has recently completed a Phase 1 study in blind eyes and will be submitting the
results to the FDA to request expansion into a small population of sighted
glaucoma patients.
Uncertainty Concerning Patents. Should LaserSight Technologies' lasers infringe
upon any valid and enforceable patents in international markets, or by Pillar
Point Partners (a partnership of which the general partners are subsidiaries of
Visx and Summit Technologies) in the U.S., then LaserSight Technologies may be
required to license such technology from them. In connection with its settlement
of litigation with Pillar Point Partners, the Company agreed to notify Pillar
Point Partners before the Company begins manufacturing or selling its laser
systems in the United States. Should such licenses not be obtained, LaserSight
Technologies might be prohibited from manufacturing or marketing its PRK-UV
lasers in these countries where patents are in effect. The Company's revenues
from international sales for 1996 and the nine months ended September 30, 1997
were 47% and 42%, respectively, of the total revenues.
New Products. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of its new LaserScan LSX excimer laser and other new
products and enhancements, or that its new products and enhancements will be
accepted in the marketplace, including the disposable keratome product licensed
in September 1997. As is typical in the case of new and rapidly evolving
industries, demand and market acceptance for recently introduced technology and
products are subject to a high level of uncertainty. In addition, announcements
of new product offerings may cause customers to defer purchasing existing
Company products.
Uncertainty of Market Acceptance of Laser-Based Eye Treatment. The Company
believes that its achievement of profitability and growth will depend in part
upon broad acceptance of PRK or LASIK (Laser In Situ Keratomileusis) in the
United States and other countries. There can be no assurance that PRK or LASIK
will be accepted by either the ophthalmologists or the public as an alternative
to existing methods of treating refractive vision disorders. The acceptance of
PRK and LASIK may be affected adversely by their cost, possible concerns
relating to safety and efficacy, general resistance to surgery, the
effectiveness and lower cost of alternative methods of correcting refractive
vision disorders, the lack of long-term follow-up data, the possibility of
unknown side effects, the lack of third-party reimbursement for the procedures,
any future unfavorable publicity involving patient outcomes from use of PRK or
LASIK systems, and the possible shortages of ophthalmologists trained in the
procedures. The failure of PRK or LASIK to achieve broad market acceptance could
have a material adverse effect on the Company's business, financial condition
and results of operations.
International Sales. International sales may be limited or disrupted by the
imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs, difficulties in staffing
and coordinating communications among and managing international operations.
Additionally, the Company's business, financial condition and international
results of operations may be adversely affected by increases in duty rates,
difficulties in obtaining export licenses, ability to maintain or increase
prices, and competition. To date, all sales made by the Company have been
denominated in U.S. dollars. Due to its export sales, however, the Company is
subject to currency exchange rate fluctuations in the U.S. dollar, which could
increase the price in local currencies of the Company's products. This could in
turn result in longer payment cycles and greater difficulty in collection of
receivables. See "--Receivables" above. Although the Company has not experienced
any material adverse effect on its operations as a result of such regulatory,
<PAGE>
political and other factors, there can be no assurance that such factors will
not have a material adverse effect on the Company's operations in the future or
require the Company to modify its business practices.
Potential Product Liability Claims; Limited Insurance. As a producer of medical
devices, the Company may face liability for damages to users of such devices in
the event of product failure. The testing and use of human care products entails
an inherent risk of negligence or other action. An award of damages in excess of
the Company's insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations. While the
Company maintains product liability insurance, there can be no assurance that
any such liability of the Company will be included within its insurance coverage
or that damages will not exceed the limits of its coverage. The Company's
insurance coverage is limited to $6,000,000, including up to $5,000,000 of
coverage under an excess liability policy.
No Backlog; Concentration of Sales at End of Quarter. The Company has
historically operated with little or no backlog because its products are
generally shipped as orders are received. Historically, the Company has received
and shipped a significant portion of its orders for a particular quarter near
the end of the quarter. As a result, the Company's operating results for any
quarter often depend on orders received and laser systems shipped late in that
quarter. Any delay in such orders or shipments may cause a significant
fluctuation in period-to-period operating results.
Purchase of Patent Rights from IBM. Deleted.
All of the text under the caption "Description of Securities" should be
replaced with the following:
The following description of the Company's capital stock is not complete and is
subject in all respects to the Delaware General Corporation Law (the "DGCL") and
to the provisions of the Company's Certificate of Incorporation, as amended (the
"Charter"), and By-Laws.
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock, $.001 par value, issuable
in series. As of December 10, 1997, 9,984,672 shares of Common Stock were
outstanding (not including shares issuable upon the exercise of outstanding
stock options or upon the conversion of outstanding preferred stock). As of
December 10, 1997, the only shares of preferred stock outstanding were 1,295
shares of the Series B Preferred Stock.
Common Stock
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to share pro rata in
such dividends and other distributions, if any, as may be declared by the Board
of Directors out of funds legally available therefor, subject to any prior
rights accruing to any holders of preferred stock. Upon the liquidation or
dissolution of the Company, the holders of Common Stock are entitled to share
proportionally in all assets available for distribution to such holders. Holders
of Common Stock have no preemptive, redemption or conversion rights. The
outstanding shares of Common Stock issued are fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is American Stock Transfer
& Trust Company.
<PAGE>
Preferred Stock
The Board of Directors is authorized, subject to certain limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
an aggregate of 10,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series, including the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The rights, preferences and privileges of holders
of Common Stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock which the Company may
designate and issue.
Series A Convertible Preferred Stock
On January 10, 1996, the Company issued 116 shares of Series A Convertible
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"). All
of such shares had been converted into Common Stock.
Series B Convertible Participating Preferred Stock
On August 29, 1997, the Company issued 1,600 shares of Series B Preferred Stock.
On October 28, 1997, the Company completed an optional redemption of 305 of such
shares by paying $3,172,000 (including a 4% redemption premium).
The Series B Preferred Stock is convertible in whole or in part into Common
Stock at the option of any holder of Series B Preferred Stock on any date or
dates until August 29, 2000, on which date all Series B Preferred Stock
remaining outstanding will automatically be converted into Common Stock. As of
any applicable conversion date, the conversion price will equal the lesser of
$6.68 per share of Common Stock or the average of the three lowest closing bid
prices of the Common Stock during the 20 trading days preceding such conversion
date (during the 30 trading days preceding the conversion date if the five-day
average price of the Common Stock on February 25, 1998 is less than $5.138 per
share).
Following its redemption of 305 shares of Series B Preferred Stock in October
1998, the Company has the option (but only after its sale or license of the IBM
patents to third parties and subject to the absence of any mandatory redemption
events or defaults having occurred, and subject to certain procedures) to redeem
up to an additional 335 shares of the Series B Preferred Stock (for a total of
640 shares, or 40% of the number issued) for cash by giving notice to the
holders of the Series B Preferred Stock at least 10 business days before the
redemption and, in any event, no later than January 12, 1998. The redemption
price payable by the Company in the event of such a voluntary redemption would
include a premium equal to 10% (for redemptions completed on or before December
27, 1997) or 14% (for redemptions completed between December 28 and January 26,
1998). Dividends on the Series B Preferred Stock are payable only to the extent
that dividends are payable on the Company's Common Stock. Each outstanding share
of Series B Preferred Stock entitles the holder thereof to a liquidation
preference equal to the sum of $10,000 plus the amount of unpaid dividends, if
any, accrued on such share.
In addition, the Series B Preferred Stock is subject to redemption at the option
of its holders should the Company default on certain obligations. Under these
provisions, if for any reason the Company's shareholders do not approve by
December 26, 1997 (or such later date as may be approved by all of ther holders
of the Series B Preferred Stock) the possible issuance of an indefinite number
of shares of Common Stock upon conversion of the Series B Preferred Stock, the
Company will be obligated to redeem, at the Special Redemption Price (as defined
below), a number of shares of Series B Preferred Stock sufficient to cause the
<PAGE>
aggregate number of Warrant Shares and Conversion Shares issuable after giving
effect to such partial redemption to equal no more than 50% of the aggregate
number of common shares that could then be issued without breaching the
1,995,534 share limitation resulting from a listing rule of the Nasdaq National
Market. For this purpose, the "Special Redemption Price" means a cash payment
equal to the greater of (i) the liquidation preference of $10,000 multiplied by
125% or (ii) the current value of the Common Stock, using the price per share of
Common Stock, which the holders of such shares of Series B Preferred Stock would
otherwise be entitled to receive upon conversion. Such redemption must be
completed within five business days of the event which required such redemption.
Any delay in payment beyond such five business days will cause such redemption
amount to accrue interest at the rate of 1% per month during the first 30 days,
pro rated daily (2% monthly, pro rated daily, thereafter).
Delaware Law and Certain Charter Provisions
The Company is subject to the provisions of Section 203 of the DGCL. Subject to
certain exceptions, Section 203 prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the corporation's board of directors or unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder which is not shared pro rata
with the other stockholders of the Company. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of a corporation's
voting stock.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. In
addition, the By-Laws of the Company may, subject to the provisions of DGCL, be
amended or repealed by a majority vote of the Company's Board of Directors.
The Charter contains certain provisions permitted under the DGCL relating to the
liability of directors. These provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving certain wrongful acts, such as the breach of a director's duty of
loyalty or acts or omissions which involve intentional misconduct or a knowing
violation of law. The Charter contains provisions indemnifying the directors and
officers of the Company to the fullest extent permitted by the DGCL. The Company
also has a directors' and officers' liability insurance policy which provides
for indemnification of its directors and officers against certain liabilities
incurred in their capacities as such. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors.
Warrants
In connection with the private placement of Series A Preferred Stock on January
10, 1996, the Company issued to its placement agent, Spencer Trask Securities
Incorporated ("Spencer Trask") and to an assignee of Spencer Trask, the 1996
Warrants to purchase an aggregate of 17,509 shares of Common Stock at an
exercise price of $13.25 per share. The 1996 Warrants may be exercised at any
time through January 10, 1999.
In connection with the establishment of its FCC credit facility in April 1997,
the Company issued to FCC the 1997 FCC Warrants to purchase an aggregate of
500,000 shares of Common Stock at an exercise price of $6.0667 per share. In
<PAGE>
addition, the 1997 FCC Warrants have certain anti-dilution features which
provide for approximately 50,000 additional shares pursuant to the issuance of
the Series B Preferred Stock. The 1997 FCC Warrants may be exercised after March
31, 1998 and then prior to April 1, 2002.
In connection with the 1997 Private Placement, the Company agreed to issue to
the holders and the Placement Agent the Series B Warrants to purchase 750,000
and 40,000 shares, respectively, of Common Stock at a price of $5.91 per share
at any time before August 29, 2002. The Company is obligated to register the
shares of Common Stock issuable upon exercise and conversion of the Series B
Warrants for resale under the Securities Act.
All of the text under the caption "Plan of Distribution" remains
unchanged except the following:
The Company will maintain the effectiveness of the Registration Statement until
the earlier of (i) such time as all of the Shares have been disposed of in
accordance with the intended methods of disposition set forth in the
Registration Statement or (ii) 210 days after its effective date. In the event
that any Shares remain unsold at the end of such period, the Company may file a
post-effective amendment to the Registration Statement for the purpose of
deregistering the Shares.
