SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended September 30, 1997.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the Transition period from ______________ to _____________.
Commission File Number: 0-19671
LASERSIGHT INCORPORATED
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0273162
-------- ----------
(State of Incorporation) (IRS Employer Identification No.)
12161 Lackland Road, St. Louis, Missouri 63146
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 469-3220
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The Number of shares of the registrant's Common Stock outstanding as of
November 13, 1997 is 9,984,672.
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
Except for the historical information contained herein, the discussion in this
Report contains forward-looking statements (within the meaning of Section 21E of
the Exchange Act) that involve risks and uncertainties. The Company's actual
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in the sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Uncertainties and Other Issues"
in this report and in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
1997 and December 31, 1996
Condensed Consolidated Statements of Operations for the Three
Month Periods and Nine Month Periods Ended September 30, 1997
and 1996
Condensed Consolidated Statements of Cash Flows for the Nine
Month Periods Ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1997 1996
---------------- --------------
CURRENT ASSETS ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $1,164,158 $2,003,501
Accounts receivable - trade, net 3,840,332 5,458,153
Notes receivable - current portion, net 3,711,675 3,159,575
Inventories 3,991,541 3,328,903
Deferred tax assets 570,296 667,998
Income taxes recoverable 22,404 803,154
Other current assets 577,019 221,922
---------------- --------------
TOTAL CURRENT ASSETS 13,877,425 15,643,206
Restricted cash 3,200,000 -
Notes receivable, less current portion, net 3,538,268 2,620,375
Property and equipment, net 2,214,293 1,936,220
Deferred financing costs, net 392,043 -
Goodwill, net 14,783,566 12,099,032
Patents, net 11,462,339 94,946
Pre-market approval application, net 2,666,708 -
License agreement, net 800,000 -
Other assets, net 1,860,807 1,856,434
---------------- --------------
$54,795,449 $34,250,213
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $2,525,677 $2,216,792
Note payable, less discount of $322,222 3,677,778 -
Note payable - related party - 1,000,000
Current portion of capital lease obligation 224,549 206,139
Accrued expenses 1,748,266 764,084
Accrued commissions 1,110,529 1,214,235
Dividends payable - 39,000
Other current liabilities 63,998 182,155
---------------- --------------
TOTAL CURRENT LIABILITIES 9,350,797 5,622,405
Refundable deposits 203,000 240,000
Accrued expenses, less current portion 590,369 309,656
Deferred income taxes 570,296 667,998
Long-term obligations 971,018 641,623
Commitments and contingencies
Redeemable convertible preferred stock:
Series B - par value $.001 per share; authorized 10,000,000 shares;
1,600 and 0 issued at September 30, 1997 and December 31, 1996 14,374,027 -
Stockholders' equity:
Convertible preferred stock, Series A - par value $.001 per share; authorized
10,000,000 shares; 0 and 8 shares issued and outstanding at
September 30, 1997 and December 31, 1996, respectively - -
Common stock - par value $.001 per share; authorized 20,000,000 shares;
10,149,872 and 8,454,266 shares issued at September 30, 1997 and
December 31, 1996, respectively 10,150 8,454
Additional paid-in capital 40,018,241 30,080,560
Paid-in capital - warrants 592,500 -
Obligation to issue common stock - 3,065,056
Stock subscription receivable (1,140,000) (1,140,000)
Accumulated deficit (10,112,240) (4,612,830)
Less treasury stock, at cost; 170,200 shares (632,709) (632,709)
----------------- ---------------
28,735,942 26,768,531
----------------- --------------
$54,795,449 $34,250,213
================= ===============
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -----------------------------------
1997 1996 1997 1996
----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES, Net $6,156,359 $4,494,232 $18,083,073 $15,070,482
COST OF SALES 1,068,498 794,982 2,934,001 2,259,527
PROVIDER PAYMENTS 1,630,616 1,069,184 4,450,855 2,998,680
----------------- --------------- --------------- ---------------
GROSS PROFIT 3,457,245 2,630,066 10,698,217 9,812,275
RESEARCH, DEVELOPMENT AND REGULATORY
EXPENSES 816,522 325,925 1,729,153 1,373,547
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 4,660,208 4,504,162 13,568,380 12,598,430
----------------- --------------- --------------- ---------------
LOSS FROM OPERATIONS (2,019,485) (2,200,021) (4,599,316) (4,159,702)
OTHER INCOME AND EXPENSES
Interest and dividend income 94,401 42,195 292,272 132,109
Interest expense (483,794) (54,480) (911,966) (102,068)
Other - (300,107) (280,400) (300,107)
------------------ ----------------- ---------------- ----------------
NET LOSS BEFORE INCOME TAXES (2,408,878) (2,512,413) (5,499,410) (4,429,768)
INCOME TAX BENEFIT - (458,727) - (1,119,378)
------------------ ----------------- --------------- ----------------
NET LOSS $ (2,408,878) $(2,053,686) $(5,499,410) $(3,310,390)
================== ================= ================ ================
LOSS PER COMMON SHARE
Primary: $(0.25) $(0.28) $(0.59) $(0.51)
================== ================= ================ ================
Assuming full dilution: $(0.25) $(0.27) $(0.59) $(0.47)
================== ================= ================ ================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Primary: 9,812,000 7,639,000 9,342,000 7,238,000
================= =============== =============== ===============
Assuming full dilution: 9,812,000 8,017,000 9,390,000 7,848,000
================= =============== =============== ===============
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(5,499,410) $(3,310,390)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,814,587 711,528
Decrease in accounts and notes receivable 292,828 1,714,377
Increase in inventories (879,348) (1,430,642)
Increase (decrease) in accounts payable 308,885 (300,472)
Increase (decrease) in accrued liabilities 724,447 (36,682)
Decrease (increase) in income taxes 780,750 (1,404,967)
Other (498,467) 440,532
------------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (2,955,728) (3,616,716)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment, net (517,206) (250,862)
Acquisition of other intangible assets (15,379,988) -
Proceeds from exclusive license of patents 4,000,000 -
Transfer to restricted cash account (3,200,000) -
Purchase of managed care contract (150,000) -
Purchase of businesses, net of cash acquired - (179,607)
Proceeds from sale and leaseback transaction - 957,180
------------------ ------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (15,247,194) 526,711
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of note payable, net 3,414,142 -
Proceeds from exercise of stock options and warrants 98,363 260,289
Repayments of capital lease obligation (152,195) (61,735)
Repayments of notes payable - acquisition related (1,000,000) (1,139,100)
Repayments of notes payable - officer - (465,000)
Proceeds from issuance of preferred stock, net 15,003,269 5,342,151
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,363,579 3,936,605
------------------ ------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (839,343) 846,600
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,003,501 1,598,339
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,164,158 $2,444,939
================== ==================
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Month Periods Ended September 30, 1997 and 1996
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial statements
of LaserSight Incorporated and subsidiaries (the Company) as of
September 30, 1997, and for the three month periods and nine month
periods ended September 30, 1997 and 1996 have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and note disclosures required by generally accepted
accounting principles for complete financial statements. These
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1996. In the opinion of management, the
condensed consolidated financial statements include all adjustments
necessary for a fair presentation of consolidated financial position
and the results of operations and cash flows for the periods presented.
The results of operations for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of the operating
results for the full year.
NOTE 2 PER SHARE INFORMATION
Net loss per common share is computed using the weighted average number
of common shares and common share equivalents outstanding during each
period. Common share equivalents include options and warrants to
purchase Common Stock and are included in the computation using the
treasury stock method if they would have a dilutive effect. Fully
diluted loss per share for the three and nine month periods ended
September 30, 1997 were anti-dilutive and therefore, except for the
impact of Preferred Stock converted to Common Stock during the period,
are the same as primary loss per share.
In February 1997, Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share," was issued establishing new standards
for computing and presenting earnings per share. The historical
measures of earnings per share (primary and fully diluted) are replaced
with two new computations of earnings per share (basic and diluted).
The Company will adopt SFAS 128 as of December 31, 1997. Loss per
share, on a pro forma basis, for the three and nine month periods ended
September 30, 1997 and 1996, computed pursuant to the provisions of
SFAS 128, would have been as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Basic loss per share $(0.25) $(0.26) $(0.59) $(0.48)
Diluted loss per share $(0.25) $(0.25) $(0.59) $(0.41)
<PAGE>
NOTE 3 INVENTORIES
Inventories, which consist primarily of laser systems, parts and
components, are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. The components of
inventories at September 30, 1997 and December 31, 1996 are summarized
as follows:
September 30, 1997 December 31, 1996
------------------ -----------------
Raw materials $2,772,585 $2,008,610
Work-in-process 107,110 448,906
Finished goods 821,447 664,646
Test equipment-clinical trials 290,399 206,741
----------- ------------
$3,991,541 $3,328,903
============ ============
NOTE 4 BUSINESS COMBINATIONS
LaserSight Centers Incorporated (Centers)
-----------------------------------------
In March 1997, the Company amended the purchase and royalty agreements
related to the 1993 acquisition of Centers. The amended purchase
agreement provided for the Company to issue 625,000 unregistered common
shares (valued at $3,320,321) with 600,000 additional shares
contingently issuable based upon future operating profits. This
replaces the provision calling for 1,265,333 contingently issuable
shares based on cumulative revenues or other future events and the
uncertainties associated therewith. The amended royalty agreement
reduces the royalty from $86 to $43 per refractive procedure and delays
the obligation to pay such royalties until the sooner of five years or
the issuance of all contingently issuable shares as described above.
NOTE 5 COMMITMENTS AND CONTINGENCIES
Shareholder vote
----------------
Shareholder approval is required in connection with the private
placement of 1,600 shares of Series B Convertible Participating
Preferred Stock (Series B Preferred Stock) (see Note 6). If for any
reason the Company's shareholders do not approve, by December 26, 1997,
the possible issuance of an indefinite number of shares issued upon
conversion, the Company may be obligated to redeem, at the Special
Redemption Price (as defined below), a sufficient number of shares of
Series B Preferred Stock which will permit conversion of 200% of the
remaining shares of Series B Preferred Stock without breaching any
obligation of the Company under the Company's listing agreement with
the Nasdaq National Market. 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 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).
<PAGE>
FDA approval
------------
In conjunction with acquisitions from Photomed, Inc. (as described in
Note 7), several contingent payments included in the transaction are
subject to FDA approval. If the FDA approves the acquired Pre-Market
Approval (PMA) application by July 29, 1998, the Company will be
obligated to pay $1.75 million. If the FDA approves the use of any
Company laser for the treatment of hyperopia, the Company will be
obligated to pay unregistered Common Stock valued at $1 million. If the
Company's scanning laser is approved by the FDA for commercial sale in
the U.S. on or before April 1, 1998, the Company will be obligated to
pay $1 million. Approval after such date will result in a
correspondingly smaller obligation until January 1, 1999, when no
payment will be required.
NOTE 6 FINANCING
Foothill Capital Corporation
----------------------------
On April 1, 1997, the Company entered into a loan agreement with
Foothill Capital Corporation (FCC) for a loan, currently consisting of
a term loan in the amount of $4 million and a revolving loan in an
amount of 80% of the eligible receivables of LaserSight Technologies,
but not in excess of $3.2 million. The term loan bears interest at an
annual rate of 12.50% and requires repayment of principal in monthly
installments of $1.33 million beginning on May 1, 1998. The revolving
loan bears interest at a variable annual rate of 1.50% above the base
rate of Norwest Bank Minnesota. The $3.2 million maximum amount of the
revolving loan declines by $1.33 million per month beginning on August
1, 1998. In connection with the loan, the Company paid an origination
fee of $150,000 and issued warrants to purchase 500,000 shares of
Common Stock. The warrants are exercisable at any time from April 1,
1998 through April 1, 2002 at an exercise price per share of $6.0667.
Subject to certain conditions based on the market price of the Common
Stock, up to half of the warrants are eligible for repurchase by the
Company. Any warrants that remain outstanding and unexercised on April
1, 2002 are subject to mandatory repurchase by the Company at an
original price of $1.50 per warrant. The warrants have certain
anti-dilution features which provide for approximately 50,000
additional shares pursuant to the issuance of the Series B Preferred
Stock and a corresponding reduction in the exercise price to $5.52 per
share and repurchase price to $1.36 per warrant. The warrants were
valued at $500,000 and are classified as long-term obligations at
September 30, 1997. The recorded amount of the obligation will change
with the value of the warrants. The loan is secured by a pledge of
substantially all of the Company's accounts receivable and other
assets. The terms of the financing agreement contain financial
covenants with respect to, among other things, current ratio, laser
system sales, revenue, earnings before interest, taxes, depreciation
and amortization (EBITDA), and capital expenditures. Due to the
operating results of the quarter ended June 30, 1997, certain financial
covenants were waived by FCC for the three months ended June 30, 1997.
The Company revised the covenants effective July 1, 1997. These
covenants were met for the three months ended September 30, 1997.
The Company used a portion of the net proceeds of the term loan to pay
in full the balance due under its note to the former owners of MEC
Health Care, Inc., a wholly owned subsidiary of the Company acquired in
October 1995.
<PAGE>
Private Placement
-----------------
On August 29, 1997, the Company completed a private placement of 1,600
shares of Series B Preferred Stock, yielding net proceeds after related
costs of approximately $15 million. The proceeds were used to purchase
certain patents from International Business Machines Corporation (IBM)
(see Note 7). The Company also issued to the investors and placement
agent warrants to purchase 790,000 shares of the Company's Common Stock
at a price of $5.91 per share at any time during the next five years.
The Series B Preferred Stock is convertible into Common Stock at any
time at a conversion price equal to the lower of $6.68 per share or the
average of the three lowest closing bid prices during a 20- or
30-trading day period preceding the conversion date. Prior to
shareholder approval of the transaction, the number of shares issued
upon conversion will be limited by Nasdaq rule and contract terms and
contract terms to approximately 1,995,500. Any Series B Preferred Stock
remaining unconverted on the third anniversary of the closing will
automatically be converted into Common Stock on that date. Up to 70
percent of the Series B Preferred Stock is redeemable by the Company at
a premium over its face amount. All of the Series B Preferred Stock is
redeemable at a 25 percent premium over its face amount at the option
of the holders but only in certain events of default by the Company,
including if the Company does not receive shareholder approval of the
transaction within 120 days (see Note 5). At September 30, 1997, 1,600
shares of Series B Preferred Stock were outstanding. However, the
Company redeemed 305 shares of Series B Preferred Stock on October 28,
1997 (see Note 8). The Series B Preferred Stock is recorded at the
amount of gross proceeds less the costs of the financing and the fair
value of the warrants and classified as mezzanine financing above the
stockholders' equity section on the balance sheet. A redemption is at
the option of the holder upon the occurrence of an event of redemption,
some of which are outside the Company's control. The financing costs
and warrants will be accreted against APIC - common stock if an event
of redemption is assessed as probable at a balance sheet date. The
calculated conversion price on August 29, 1997, the first available
conversion date, was approximately $4.98. In accordance with EITF Topic
D-60, the difference between this conversion price and the market price
of $5.00 is reflected as incremental yield to preferred stockholders on
the Company's loss per share calculation for the quarter ended
September 30, 1997.
NOTE 7 ACQUISITIONS
Photomed, Inc.
--------------
In July 1997, the Company acquired the rights to a PMA application
filed with the Food and Drug Administration (FDA) for a laser to
perform Laser In-Situ Keratomileusis (LASIK), a refractive surgery
alternative to surface Photorefractive Keratectomy (PRK) from Photomed,
Inc. In addition, the Company purchased from a shareholder of Photomed,
Inc. U.S. patent number 5,586,980 for a keratome, the instrument
necessary to create the corneal "flap" in the LASIK procedure. The
Company issued a combination of 535,515 unregistered shares of Common
Stock (valued at $3,416,700) and $333,300 as consideration for the PMA
application and the keratome patent. The seller will also receive a
percentage of any licensing fees or sale proceeds related to the
patent. The total value was capitalized as the cost of PMA application
and patents and is being amortized over 5 and 15 years, respectively.
If the FDA approves the PMA so as to allow the Company to commercialize
a laser to perform LASIK in the U.S., the Company will pay an
<PAGE>
additional $1.75 million to the sellers. If such FDA approval is not
obtained by July 29, 1998, the Company has the option to unwind the PMA
transaction and receive from Photomed, Inc. 274,285 shares of the
Company's Common Stock. If the transaction is unwound, the Company's
investment will be reduced by that portion of the PMA value applicable
to the proportionate ratio of shares returned. The remaining portion of
the PMA value will be assessed as to impairment. Additionally, if the
FDA approves the use of the laser for the treatment of hyperopia
(farsightedness), the Company will pay unregistered Common Stock valued
at $1 million to the sellers. If the Company's scanning laser is
approved by the FDA for commercial sale in the United States on or
before April 1, 1998, the Company will pay $1,000,000 to the sellers.
Approval after such date will result in lesser payments until January
1, 1999, when no payment will be required. Additional consideration
paid, if any, will be recorded as additional purchase price.
Patents
-------
On August 29, 1997, the Company finalized an agreement with IBM, in
which the Company acquired certain patents relating to ultraviolet
light ophthalmic products and procedures for ultraviolet ablation for
$14,900,000. Under the agreement, IBM transferred to the Company all of
IBM's rights under its patent license agreements with certain
licensees. The Company received all royalties accrued on or after
January 1, 1997, under such patent license agreements. The acquisition
was financed through the private placement of Preferred Stock (see Note
6).
On September 23, 1997, the Company sold an exclusive worldwide
royalty-free patent license covering the vascular and cardiovascular
rights included in the patents acquired from IBM for $4 million,
reducing the Company's basis in the patents acquired. No gain or loss
was recognized as a result of this sale. Approximately $3.2 million of
these funds were placed in a restricted cash account in accordance with
the private placement agreements and were subsequently used to
voluntarily redeem a portion of the Preferred Stock issued to finance
the purchase of the IBM patents (see Note 8).
Keratome License
----------------
In September 1997, the Company acquired worldwide distribution rights
to the Ruiz disposable keratome for the refractive surgery LASIK
procedure in addition to entering into a limited exclusive license
agreement for intellectual property for the keratome products known as
Automated Disposable Keratomes (ADK). In exchange, the Company paid
$400,000 at closing and agreed to supply to the sellers at no cost one
excimer laser. Six months after the first shipment of the disposable
keratome product, the Company will pay an additional $150,000 to the
sellers with another installment of $150,000 due twelve months after
the initial shipment date. The Company will also share the product's
gross profit with the sellers with minimum quarterly royalties of
$400,000 beginning six months after the initial shipment date. Under
the arrangement, gross profit is defined as the selling price less
certain costs of goods and costs of sales.
NOTE 8 SUBSEQUENT EVENT
On October 28, 1997, the Company voluntarily redeemed 305 shares of the
Preferred Stock (approximately 19 percent). The Company paid a total of
$3,172,000 including a four percent redemption premium.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
Net Sales. The following tables present the Company's net sales by major
operating segments: technology products and services and health care services
for the three and nine month periods ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Net Sales % of Total Net Sales % of Total
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Technology $2,677,831 43% $1,783,577 40%
Health care services 3,478,528 57% 2,810,613 62%
Intercompany revenues -- -- (99,958) (2%)
----------- ---- ---------- ----
Total net sales $6,156,359 100% $4,494,232 100%
=========== ==== ========== ====
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Net Sales % of Total Net Sales % of Total
--------- ---------- --------- ----------
Technology $8,362,374 46% $7,246,984 48%
Health care services 9,720,699 54% 8,158,263 54%
Intercompany revenues -- -- (334,765) (2%)
---------- ---- ---------- ----
Total net sales $18,083,073 100% $15,070,482 100%
=========== ==== =========== ====
</TABLE>
Net sales in the third quarter of 1997 were $6,156,359, compared to $4,494,232
(for an increase of 37%) over the same period in 1996. Net sales for the nine
month period ended September 30, 1997, increased by $3,012,591 to $18,083,073
from the same period in 1996. The increase in health care service revenue for
the nine month period ended September 30, 1997, was attributable to increased
revenues generated by MEC Health Care, Inc. (MEC) and LSI Acquisition, Inc.
(LSIA), offset by a substantial reduction in revenues generated by MRF Inc.
d/b/a The Farris Group (The Farris Group). Net sales for The Farris Group for
the nine month period ended September 30, 1997 decreased by $1,879,931 to
$1,010,298 from the same period in 1996. This decrease was due primarily to a
reduction in consulting services provided and was accompanied by an expense
reduction of $1,837,739 for the nine month period ended September 30, 1997. The
decrease in revenues generated by The Farris Group was partially offset by
increased revenues generated by MEC in the amount of $1,821,030. The increase in
technology revenues in the third quarter of 1997 was attributed to a slight
increase in net sales of the Company's LaserScan 2000 excimer laser system in
overseas markets and improved pricing resulting from the Company's limited sales
of the LS 300 model, a lower priced system. Ten laser systems were sold in the
third quarter of 1997 compared to nine systems, net of return allowances, sold
<PAGE>
over the same period in 1996. Thirty-three laser systems were sold during the
nine month period ended September 30, 1997, compared to twenty-nine systems, net
of return allowances, sold over the same period in 1996. The Company believes a
contributing factor to the lower than expected number of laser sales is the
anticipation, particularly in Europe, of the introduction of the LaserScan LSX
announced in April 1997. Technology revenues in 1996 included higher allowances
for sales returns, reflecting differences between actual experience and
previously estimated amounts. There were no system returns recognized during the
first three quarters of 1997. Based on the expected timing of the commercial
introduction of its newest laser system, the LaserScan LSX, the Company expects
laser system sales to remain below 1996 levels for the remaining quarter of
1997, although it expects such sales to exceed the levels attained on average in
the second and third quarters of 1997.
Cost of Goods Sold and Gross Profits. The following tables present a comparative
analysis of cost of goods sold, gross profit and gross profit margins for three
and nine month periods ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1997 Percent Change September 30, 1996
------------------ -------------- ------------------
<S> <C> <C> <C>
Cost of goods sold $ 1,068,498 34% $ 794,982
Provider payments 1,630,616 53% 1,069,184
Gross profit 3,457,245 31% 2,630,066
Gross profit percentage 56% 59%
Technology related only 1,609,333 63% 988,595
60% 55%
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1997 Percent Change September 30, 1996
------------------ -------------- ------------------
Cost of goods sold $2,934,001 30% $2,259,527
Provider payments 4,450,855 48% 2,998,680
Gross profit 10,698,217 9% 9,812,275
Gross profit percentage 59% 65%
Technology related only 5,428,373 9% 4,987,457
65% 69%
</TABLE>
Gross profit margins were 56% of net sales in the third quarter of 1997 compared
to 59% for the same period in 1996. For the nine-month period ended September
30, 1997 and 1996, gross profit margins were 59% and 65%, respectively. For the
nine-month period ended September 30, 1997, the gross profit margin decrease was
attributable to (i) the decrease in revenues generated by The Farris Group,
which has no associated cost of sales, (ii) a significant increase in MEC
revenues with a corresponding increase in provider payments, which historically
have ranged from approximately 68 to 72% of MEC revenues, and (iii) a general
increase in the operating costs of the Company's Costa Rican manufacturing
facility, which were spread over fewer sales during the nine month period ended
September 30, 1997.
<PAGE>
Research, Development and Regulatory Expenses. The following tables present a
comparative analysis of research, development and regulatory expenses for the
three and nine month periods ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1997 Percent Change September 30, 1996
------------------ -------------- ------------------
<S> <C> <C> <C>
Research, development
and regulatory $ 816,522 151% $ 325,925
As a percentage of technology
net sales 30% 18%
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1997 Percent Change September 30, 1996
------------------ -------------- ------------------
Research, development
and regulatory $ 1,729,153 26% $1,373,547
As a percentage of technology
net sales 21% 19%
</TABLE>
Research, development and regulatory expenses for the third quarter of 1997 were
$816,522, an increase of $490,597, or 151% from such expenditures during the
same period in 1996. Research, development and regulatory expenses for the nine
month period ended September 30, 1997 increased by $355,606 from $1,373,547 for
the same period in 1996 or 26%. The increase in research, development and
regulatory expenses during the third quarter of 1997 can primarily be attributed
to ongoing research and development of new refractive laser systems, including
development of the LaserScan LSX and added features for the LaserScan-2000, and
continued software development for the excimer lasers. Initial shipments of the
LaserScan LSX are anticipated during the later part of the fourth quarter of
1997. Since the initial announcement of the development of the LaserScan LSX,
the Company has solicited and received input from clinical users and prospective
customers. This has resulted in modifications to the system, necessitating
additional development and testing for clinical validation. As a result of
focusing its efforts on having the LaserScan LSX available for limited
commercial production and shipment in the later part of the fourth quarter of
1997, the Company expects research and development expenses to remain at levels
consistent with or higher than third quarter 1997 levels throughout the
remainder of 1997. Regulatory expenses for the three month period ended
September 30, 1997 have increased in comparison to the same period in the prior
year although for the nine month period ended September 30, 1997 there has been
a decrease in comparison to the same period in the prior year. Regulatory
expenses are expected to continue to increase for the remaining portion of 1997
and into 1998 as a result of the Company's continuation of current FDA clinical
trials, protocols added during 1997 related to the potential use of the
Company's laser systems for treatment of glaucoma, the possible development of
additional future protocols for submission to the FDA and the PMA acquired in
July 1997 (see Note 7).
<PAGE>
Selling, General and Administrative Expenses. The following tables present a
comparative analysis of selling, general and administrative expenses for the
three and nine month periods ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1997 Percent Change September 30, 1996
------------------ -------------- ------------------
<S> <C> <C> <C>
Selling, general and
administrative $4,660,208 3% $4,504,162
Percentage of net sales 76% 100%
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1997 Percent Change September 30, 1996
------------------ -------------- ------------------
Selling, general and
administrative $13,568,380 8% $12,598,430
Percentage of net sales 75% 84%
</TABLE>
Selling, general and administrative expenses increased by $156,046 and $969,950
for the third quarter of 1997 and the first nine months of 1997, respectively,
over comparable periods in 1996. The primary reasons for these increases include
the continued growth of MEC, increased amortization costs resulting from
acquired patents, license agreements and other intangibles, and a general
increase in personnel and costs necessary to fund the strategic initiatives of
the Company and the development of its products and services. These increases in
operating costs were partially offset by a substantial reduction in the
operating costs of The Farris Group. Legal and accounting expenditures continue
to be incurred as a result of ongoing regulatory filings, general corporate
issues, litigation and patent issues.
Loss From Operations. There was an operating loss of $2,019,485 in the third
quarter of 1997 compared to an operating loss of $2,200,021 for the same period
in 1996. The operating loss for the nine month period ended September 30, 1997
was $4,599,316 compared to an operating loss of $4,159,702 for the same period
in 1996. The improved operating results during the third quarter of 1997
compared to 1996 resulted from increased revenues and gross profit, partially
offset by increases primarily in research, development and regulatory expenses.
The decline in operating results for the nine month period ended September 30,
1997 compared to the same period in 1996 can be attributed primarily to the
combination of improved overall revenues and gross profit, offset by increases
in operating expenses.
Other Income and Expenses. Interest and dividend income was $94,401 in the third
quarter of 1997 compared to $42,195 for the same period in 1996. Interest and
dividend income for the nine month period ended September 30, 1997 was $292,272
compared to $132,109 for the same period in 1996. Interest and dividend income
was earned from the Company's cash deposits and short-term investments and the
collection of long-term receivables related to laser system sales. Interest
expense incurred was $483,794 in the third quarter of 1997 compared to interest
expense of $54,480 for the same period in 1996. Interest expense for the nine
month period ended September 30, 1997 was $911,966 compared to interest expense
of $102,068 for the same period in 1996. Interest expense incurred by the
Company during the second and third quarters of 1997 related primarily to the
credit facility established with FCC on April 1, 1997. In addition to interest
<PAGE>
paid on the outstanding note payable balance, included in interest expense is
the amortization of deferred financing costs, the accretion of the discount on
the note payable and, in the third quarter of 1997, fees associated with
amendments to the original loan agreement. Included in other expense in 1997 and
1996 are costs related to settling patent and other filed and threatened
litigation.
Income Taxes. For the three and nine months ended September 30, 1997, the
Company recorded no income tax benefit or expense compared to an income tax
benefit of $1,119,378 for the nine month period ended September 30, 1996. The
lack of income tax benefit for the first three quarters of 1997 has been based
on the lack of availability of loss carrybacks.
Net Loss. Net loss for the third quarter of 1997 was $2,408,878 compared to a
net loss of $2,053,686 for the same period in 1996. Net loss for the nine month
period ended September 30, 1997 was $5,499,410 compared to a net loss of
$3,310,390 for the same period in 1996. The loss is attributed to a combination
of increased revenues from technology products and MEC services, losses
generated from The Farris Group and higher operating expenses as previously
described for the first three quarters of 1997.
Loss Per Common Share. Loss per primary and fully diluted share decreased to
$0.25 during the third quarter of 1997 compared to $0.28 and $0.27,
respectively, for the same period in 1996. Loss per primary and fully diluted
share increased to $0.59 for the nine month period ended September 30, 1997
compared to $0.51 and $0.47, respectively, for the same period in 1996. Weighted
average shares outstanding increased as a result of the conversion into Common
Stock of 18 shares of convertible Preferred Stock issued in January 1996, the
exercise of options and warrants, the 1997 amendment to the purchase agreement
related to LaserSight Centers, the issuance of shares under the earnout
provisions of the 1994 acquisition of The Farris Group and the issuance of
shares in conjunction with the 1997 acquisition of rights to a PMA and keratome
patent.
Liquidity and Capital Resources.
- --------------------------------
Working capital decreased $5,494,173 from $10,020,801 at December 31, 1996 to
$4,526,628 as of September 30, 1997. This decrease in working capital resulted
primarily from the net loss previously mentioned, purchases of furniture and
equipment and investments in PMA rights, a keratome patent and license agreement
and a vision managed care contract.
Operating activities used net cash of $2,955,728 during the first nine months of
1997, compared to $3,616,716 of net cash used during the same period in 1996.
This decrease in cash used is primarily attributable to a substantial decrease
in income tax assets during the first nine months of 1997. Other factors
resulting in this decrease include an increase in amortization and depreciation
costs, a decrease in net receivables and an increase in accrued expenses,
partially offset by an increase in the net loss for the first nine months of
1997. The Company used $15,247,194 in cash related to investing activities
during the first nine months of 1997 compared to $526,711 of cash being provided
by investing activities over the same period in 1996. Net cash used in investing
activities during the first three quarters of 1997 can be primarily attributed
to the acquisition of certain patents and license agreements from IBM and
others, the purchase of office and computer equipment, and the purchase of a
vision managed care contract, partially offset by the proceeds from the
exclusive licensure of such patents. Net cash provided by financing activities
during the first nine months of 1997 was $17,363,579 and consisted of net
proceeds from the issuance of Preferred Stock to finance the acquisition of the
IBM patents, the credit facility with FCC and the exercise of stock options,
offset by the repayment of a note payable to former owners of MEC and cost
related to the repayment of a capital lease obligation. That compares to cash
provided by financing activities in the first nine months of 1996 of $3,936,605,
consisting of net proceeds from the sale of common and preferred stock totaling
$5,602,440 net of a repayment of $1,665,835 in notes payable and capital lease
obligations.
<PAGE>
The Company experienced a significant increase in negative cash flow from
operations in the third quarter of 1997, largely resulting from the level of
laser system sales and the increase in research, development and regulatory
expenses resulting from the development of the LaserScan LSX and other efforts
as previously described. The Company expects cash flow from operations to show
improvement in the fourth quarter of 1997 and first quarter of 1998 as a result
of the expected shipment of the LaserScan LSX and ADKs as previously discussed.
Based on these factors, the Company believes that its balances of cash and cash
equivalents along with expected operating cash flows and the availability of the
FCC revolver will be sufficient to fund its anticipated working capital
requirements for the next twelve month period based on modest growth and
anticipated collection of receivables. A failure to collect timely a material
portion of current receivables or unexpected delays in the shipment of the
LaserScan LSX or ADK products could have a material adverse effect on the
Company's liquidity. The Company, which implemented more stringent sales
criteria during 1996, may from time to time reassess its credit policy and the
terms it will make available to individual customers. As a result of a growing
presence in a number of countries and continued acceptance of the Company's
laser systems, the Company intends to internally finance a proportionately
smaller number of sales over periods exceeding eighteen months than in 1996 and
preceding years. There can be no assurance as to the terms or amount of
third-party financing, if any, that the Company's customers may obtain in the
future. The Company is placing greater emphasis on the terms and collection
timing of future sales.
During the third quarter of 1997, the Company and FCC modified the financial
covenants related to the FCC credit facility. The Company has complied with such
covenants for the quarter ended September 30, 1997. Some covenants are
cumulative in nature and meeting them will require continuous improvement in the
Company's operating performance. Should such operating levels not be achieved,
the Company would be in default of its agreement and FCC would have the right to
accelerate the Company's repayment obligation. In addition, such default would
entitle the holders of Series B Preferred Stock to have the right to redeem at a
premium over the face amount.
The Company expects to continue a variety of research and development activities
on its excimer and solid-state laser systems over the next twelve months and it
is anticipated that such research and development as well as regulatory efforts
in the United States will be the most significant technology related expenses in
the foreseeable future. In addition, the Company expects to aggressively pursue
vision managed care contracts with HMOs, insurers and employer groups during the
next 12 months. The Company anticipates that such efforts will be the most
significant health care services-related expenses in the foreseeable future.
On November 13, 1996, the Company announced that it had engaged the investment
banking firm of A.G. Edwards & Sons to explore and evaluate strategic business
opportunities. Such efforts were put on hold in June 1997.
In October 1996, the Company announced an agreement in principle with Laser
Vision Centers, Inc. ("Laser Vision") to create a joint venture to make excimer
laser technology available to the participating physicians of LaserSight
Centers. Although the Company and Laser Vision have to date not executed any
written agreement or resolved pricing and other issues, they occasionally
discuss various possible joint ventures involving the two companies. There can
be no assurance that such discussions will lead to a definitive agreement or as
to the terms of any such agreement.
<PAGE>
On March 4, 1997, the Company announced a tentative agreement to acquire
Intermountain Managed Eyecare, of Salt Lake City, Utah, a third-party
administrator of managed vision care contracts with a business strategy similar
to the Company's MEC Health Care subsidiary. The Company originally anticipated
closing this transaction on March 15, 1997. The Company has determined not to
proceed with this transaction at this time.
The Company is receptive to joint venture discussions with compatible companies
for the development and operation in international markets of surgical centers
that will utilize the Company's products or provide synergies to the development
of managed networks. In addition to cash contributions that may be available
from joint venture partners, the Company is also seeking complementary strengths
and other synergies that may provide strategic advantages. The Company has no
present commitments for joint venture relationships, and no assurance can be
given that any such relationship will be secured on terms satisfactory to the
Company.
UNCERTAINTIES AND OTHER ISSUES
The Company's business, results of operations and financial conditions may also
be affected by a variety of factors, including the ones noted below and under
the same caption in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
Company-Related Uncertainties
- -----------------------------
Redemption Consequences if Stockholder Approval is Not Obtained. If for any
reason the Company's shareholders do not approve, by December 26, 1997, the
possible issuance of an indefinite number of shares issued upon conversion, the
Company will be obligated to redeem, at the Special Redemption Price (as defined
below), a sufficient number of shares of Series B Preferred Stock which will
permit conversion of 200% of the remaining shares of Series B Preferred Stock
without breaching any obligation of the Company under the Company's listing
agreement with the Nasdaq National Market. 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 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).
Unlimited Number of Shares Issuable to Series B Holders, Subject to Shareholder
Approval and Based on the Conversion Formula. Although the holders of the Series
B Preferred Stock have voting rights only under the limited circumstances
required by Delaware corporate law and are not entitled to receive any dividends
unless dividends are concurrently paid on the Common Stock, there is no limit on
the number of shares which the holders of the Series B Preferred Stock would be
entitled to receive upon the conversions thereof, subject to the approval of the
Company's shareholders of the issuance of more than 1,995,532 shares of Common
Stock in connection with such conversions. 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.
Uncollectible Receivables Could Potentially Exceed Reserves for Estimated
Losses. 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 percent of net
<PAGE>
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 the Company's 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 current 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 consolidated
financial condition and results of operations.
Possible Issuance of 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.
Contingent Commitments to Issue Additional Shares. The Company has agreed in
connection with its acquisition of the assets of the Northern New Jersey Eye
Institute by LSIA 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 in the future include
similar provisions in other acquisitions. Investors who benefit from such
provisions effectively receive limited protection from declines in the market
price of the Common Stock, but other investors can expect to incur dilution of
their ownership interest in the event of a decline in the price of the Common
Stock.
Possible Need for Additional Capital. 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. The Company may also need additional capital to introduce its laser
systems into the United States market after receiving FDA approval and to
satisfy certain contingent payment obligations under its PMA acquisition
agreement of July 1997. In addition, the Company may have additional capital
requirements upon certain FDA approvals and other events. Except for up to $3.2
million of additional borrowing available under its credit facility with FCC,
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. 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 Acquisitions. The Company has made four significant
corporate acquisitions in the last four years (The Farris Group, MEC, LSIA's
acquisition of the assets of NNJEI, and Photomed), as well as other asset
acquisitions including the IBM patents. Although the Company is currently
focusing on existing operations, the future ability of the Company to achieve
growth through acquisitions will depend on a number of factors, including the
<PAGE>
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. These prior acquisitions, as well as any
future acquisitions, may not achieve adequate levels of revenue, profitability
or productivity or may not otherwise perform as expected. Acquisitions also
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. 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 business into its operations.
Significant Intangible Assets. Approximately $31.1 million of the Company's
total assets as of September 30, 1997 represents intangible assets arising from
acquisitions, of which approximately $14.8 million is goodwill which is being
amortized using an estimated life ranging from 12 to 25 years, approximately
$11.5 million is the cost of patents which are being amortized over a period
ranging from 8 to 17 years, and approximately $4.8 million is the 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 the acquisitions 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 net income 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.
Health Care Services-Related Uncertainties
- ------------------------------------------
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.
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
<PAGE>
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 initiatives or governmental regulation will not
adversely affect the business of the Company.
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, or 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 represent
to the public or patients or 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 provessionals 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.
<PAGE>
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
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.
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.
Insurance Regulation. Federal and state laws regulate insurance companies, HMOs
and other managed care organizations. Many states also regulate the
establishment and operation of networks of health care providers. Generally,
these laws do not apply to the hiring and contracting of physicians by other
health care providers. There can be no assurance that regulators in the states
in which the Company operates would not apply these laws to require licensure of
the Company's health care operations as an HMO, an insurer or a provider
network. The Company believes that it is in compliance with these laws in the
states in which it presently does business, but there can be no assurance that
interpretations of these laws by the regulatory authorities in these states or
in the states in which the Company may expand its managed care operations, or
that if licensing is required, that the Company could complete such licensing in
a timely manner. In addition, there can be no assurance that the Company's
strategy to expand its managed vision care business will not subject it to
regulation in other states.
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.
<PAGE>
Technology-Related Uncertainties
- --------------------------------
Uncertainty Concerning Patents. Should LaserSight Technologies' lasers be found
to infringe upon any valid and enforceable patents in international markets, or
by Pillar Point Partners in the U.S., then LaserSight Technologies may be
required to license such technology from them. 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.
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 currently planned or other new product offerings may cause customers to defer
purchasing existing Company products.
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
current insurance coverage limitation is $6,000,000, including up to $5,000,000
of coverage under an excess liability policy effective July 1, 1997.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Pillar Point Partners
---------------------
On March 25, 1997, the Company entered into an agreement with Pillar
Point Partners and each co-plaintiff to resolve this litigation. Under
the agreement, Pillar Point Partners and each co-plaintiff granted a
release from liability under any of their patents for certain of the
Company's ultraviolet laser corneal surgery systems and any service or
procedure performed with such systems before the effective date of the
agreement. The Company paid a nominal fee in April 1997 and agreed to
notify Pillar Point Partners and the co-plaintiffs before LaserSight
begins manufacturing or selling in the United States in the future. The
action was dismissed without prejudice in the United States District
Court for the District of Delaware on March 26, 1997.
VISX
----
On May 27, 1997, the Company entered into a License Agreement with
VISX, Incorporated to settle this litigation as well as any and all
potential claims related to patent infringement prior to May 1, 1997.
The agreement calls for an aggregate of $230,400 to be paid in eight
quarterly installments of $28,800 each.
Euro Pacific Securities Services
--------------------------------
To collect a $1,140,000 stock subscription receivable, the Company
initiated a lawsuit that is presently pending before the United States
District Court for the Middle District of Florida-Orlando Division in
June 1996 against Euro Pacific Securities Services GMBH & Co., KG and
Wolf Wiese (the "defendants"). In July 1997, after failing to timely
file a counterclaim, the defendants filed a separate lawsuit in the
same court against the Company and its LaserSight Technologies, Inc.
subsidiary, without obtaining leave from the court, claiming breach of
contract, coercion to enter a contract, misrepresentation, and other
charges and seeking an unspecified amount of monetary damages. The
Company believes that the charges are without merit and procedurally
flawed. A motion for summary judgment is currently on file with the
court, but has not been acted upon.
Northern New Jersey Eye Institute
---------------------------------
In October 1997, the Company received a request for
mediation/arbitration from Northern New Jersey Eye Institute, P.A.
(NNJEI) which relates to the services agreement between LSIA (a wholly
owned subsidiary of the Company) and NNJEI. This services agreement was
entered into as part of the Company's July 1996 acquisition of the
assets of NNJEI. The request for mediation alleges breach of contract
and fraud which the Company denies and intends to vigorously defend.
The mediation is scheduled for mid-November and will be followed by
binding arbitration if a resolution cannot be reached.
<PAGE>
ITEM 2 CHANGES IN SECURITIES
a) As previously reported, the Company completed a private placement
of its Series B Preferred Stock on August 29, 1997. Although the
holders of the Series B Preferred Stock have voting rights only
under the limited circumstances required by Delaware corporate law
and are not entitled to receive any dividends unless dividends are
concurrently paid on the Common Stock, there is no limit on the
number of shares which the holders of the Series B Preferred Stock
would be entitled to receive upon the conversions thereof, subject
to the approval of the Company's shareholders of the issuance of
more than 1,995,532 shares of Common Stock in connection with such
conversions. 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. See Note 6 of Notes to Condensed Consolidated
Financial Statements.
b) Not applicable.
c) During the third quarter ended September 30, 1997, the Company has
sold or issued the following unregistered securities:
(1) In July 1997, the Company issued 535,515 shares of Common Stock
to Frederic B. Kremer as partial consideration for acquisition of
PMA application. For further information, see Note 7 of Notes to
Condensed Consolidated Financial Statements.
(2) In August 1997, the Company granted investors and the placement
agent warrants to purchase 790,000 shares of Common Stock. The
warrants are exerciseable at a price of $5.91 per share at any time
during the next five years.
The issuance and sale of all such shares was intended to be exempt
from registration and prospectus delivery requirements under the
Securities Act of 1933, as amended (the "Securities Act") by virtue
of Section 4(2) thereof due to, among other thing, (i) the limited
number of persons to whom the shares were issued, (ii) the
distribution of disclosure documents to all investors, (iii) the
fact that each such person represented and warranted to the
Company, among other things, that such person was acquiring the
shares for investment only and not with a view to the resale or
distribution thereof, and (iv) the fact that certificates
representing the shares were issued with a legend to the effect
that such shares had not been registered under the Securities Act
or any state securities laws and could not be sold or transferred
in the absence of such registration or an exemption therefrom.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
EXHIBIT INDEX
-------------
Exhibit 2 - Plans of Acquisition, Reorganization
2.1 See Exhibits 10.1, 10.6, 10.13, 10.17, 10.20, 10.21, 10.26, 10.35 and
10.36.
Exhibit 3 - Articles of Incorporation and Bylaws
3.1 Certificate of Incorporation, as amended (filed as Exhibit 1 to the
Company's Form 8-A/A filed on September 29, 1997*).
3.2 Bylaws, as amended (filed as Exhibit 3 to the Company's Form 10-K for
the year ended December 31, 1992*).
Exhibit 4 - Instruments Defining the Rights of Security Holders
4.1 See Exhibits 3.1 and 3.2.
Exhibit 10 - Material Contracts
10.1 Agreement for Purchase and Sale of Stock by and among LaserSight
Centers Incorporated, its stockholders and LaserSight Incorporated
dated January 15, 1993 (filed as Exhibit 2 to the Company's Form 8-K/A
filed on January 25, 1993*).
10.2 Amendment to Agreement for Purchase and Sale of Stock by and among
LaserSight Centers Incorporated, its stockholders, and LaserSight
Incorporated dated April 5, 1993 (filed as Exhibit 2 to the Company's
Form 8-K/A filed on April 19, 1993*).
10.3 Royalty Agreement by and between LaserSight Centers Incorporated and
LaserSight Partners dated January 15, 1993 (filed as Exhibit 10.5 to
the Company's Form 10-K for the year ended December 31, 1995*).
10.4 Exchange Agreement dated January 25, 1993 between LaserSight Centers
Incorporated and Laser Partners (filed as Exhibit 10.6 to the Company's
Form 10-K for the year ended December 31, 1995*).
10.5 Stipulation and Agreement of Compromise, Settlement and Release dated
April 18, 1995 among James Gossin, Francis E. O'Donnell, Jr., J.T. Lin,
Wen S. Dai, Emanuela Dobrin-Charlton, C.H. Huang, W. Douglas Hajjar,
and LaserSight Incorporated (filed as Exhibit 10.7 to the Company's
Form 10-K for the year ended December 31, 1995*).
<PAGE>
10.6 Agreement for Purchase and Sale of Stock dated December 31, 1993, among
LaserSight Incorporated, MRF, Inc., and Michael R. Farris (filed as
Exhibit 2 to the Company's Form 8-K filed on December 31, 1993*).
10.7 First Amendment to Agreement for Purchase and Sale of Stock by and
among MRF, Inc., Michael R. Farris and LaserSight Incorporated dated
December 28, 1995 (filed as Exhibit 10.9 to the Company's Form 10-K for
the year ended December 31, 1995*).
10.8 Technology Transfer Agreement dated July 25, 1995 between LaserSight
Technologies, Inc., J.T. Lin, Ph.D. and Photon Data, Inc. (filed as
Exhibit 10.4 to the Company's Form 10-Q for the quarter ended September
30, 1995*).
10.9 LaserSight Incorporated 1995 Stock Option Plan (filed as Exhibit 10.5
to the Company's Form 10-Q for the quarter ended September 30, 1995*).
10.10 Modified Promissory Note between LaserSight Incorporated, EuroPacific
Securities Services, GmbH and Co. KG and Wolf Wiese (filed as Exhibit
10.6 to the Company's Form 10-Q for the quarter ended September 30,
1995*).
10.11 Employment Agreement by and between LaserSight Incorporated and Michael
R. Farris dated December 28, 1995 (filed as Exhibit 10.17 to the
Company's Form 10-K for the year ended December 31, 1995*).
10.12 Employment Agreement dated December 1995 by and between LaserSight
Incorporated and David Pieroni (filed as Exhibit 10.18 to the Company's
Form 10-K for the year ended December 31, 1995*).
10.13 Agreement and Plan of Merger by and among LaserSight Incorporated, MEC
Health Care, Inc., Dr. Mark B. Gordon, O.D. and Dr. Howard M. Levin,
O.D., dated August 28, 1995 as amended as of October 5, 1995 (filed as
Exhibit 2 to the Company's Form 8-K filed on October 19, 1995*).
10.14 Patent License Agreement dated December 21, 1995 by and between Francis
E. O'Donnell, Jr. and LaserSight Centers, Inc. (filed as Exhibit 10.21
to the Company's Form 10-K for the year ended December 31, 1995*).
10.15 LaserSight Incorporated 1996 Equity Incentive Plan (filed as Exhibit A
to the Company's definitive proxy statement dated April 30, 1996*).
10.16 LaserSight Incorporated Amended and Restated Non-Employee Directors
Stock Option Plan (filed as Exhibit B to the Company's definitive proxy
statement dated May 19, 1997*).
10.17 Agreement and Plan of Merger dated April 18, 1996 among LaserSight
Incorporated, Eye Diagnostics & Surgery, P.A., LSI Acquisition, Inc.,
John W. Norris, M.D. and Bernard Spier, M.D. (filed as Exhibit 2 (i) to
the Company's Form 8-K dated July 18, 1996*).
10.18 Amendment to the Agreement and Plan of Merger dated June 17, 1996
(filed as Exhibit 2 (ii) to the Company's Form 8-K dated July 18,
1996*).
<PAGE>
10.19 Second Amendment to the Agreement and Plan of Merger dated July 3, 1996
(filed as Exhibit 2 (iii) to the Company's Form 8-K dated July 18,
1996*).
10.20 Agreement and Plan of Merger dated June 17, 1996 among LaserSight
Incorporated, LaserSight Acquisition, Inc., Cataract Hotline, Inc. and
Michael R. Norris (filed as Exhibit 2 (iv) to the Company's Form 8-K
dated July 18, 1996*).
10.21 Asset Purchase Agreement dated April 18, 1996 between LaserSight
Incorporated and John W. Norris, M.D. (filed as Exhibit 2 (vi) to the
Company's Form 8-K dated July 18, 1996*).
10.22 Amendment to Asset Purchase Agreement dated June 17, 1996 (filed as
Exhibit 2 (vii) to the Company's Form 8-K dated July 18, 1996*).
10.23 Agreement dated January 8, 1997 to amend Agreement and Plan of Merger
by and among LaserSight Incorporated, Mark B. Gordon, O.D. and Howard
M. Levin, O.D. (filed as Exhibit 10.34 to the Company's Form 10-K for
the year ended December 31, 1996*).
10.24 Agreement dated September 18, 1996 between David T. Pieroni and
LaserSight Incorporated (filed as Exhibit 10.35 to the Company's Form
10-K for the year ended December 31, 1996*).
10.25 Agreement dated December 17, 1996 between Public Company Publishing,
Inc., Samuel S. Duffey and LaserSight Incorporated (filed as Exhibit
10.36 to the Company's Form 10-K for the year ended December 31,
1996*).
10.26 Agreement dated January 1, 1997, between International Business
Machines Corporation and LaserSight Incorporated (filed as Exhibit
10.37 to the Company's Form 10-K for the year ended December 31,
1996*).
10.27 Addendum dated March 7, 1997 to Agreement between International
Business Machines Corporation and LaserSight Incorporated (filed as
Exhibit 10.38 to the Company's Form 10-K for the year ended December
31, 1996*).
10.28 Second Amendment to Agreement for Purchase and Sale of Stock by and
among LaserSight Centers Incorporated, its stockholders and LaserSight
Incorporated dated March 14, 1997 (filed as Exhibit 99.1 to the
Company's Form 8-K filed on March 27, 1997*).
10.29 Amendment to Royalty Agreement by and between LaserSight Centers
Incorporated, Laser Partners and LaserSight Incorporated dated March
14, 1997 (filed as Exhibit 99.2 to the Company's Form 8-K filed on
March 27, 1997*).
10.30 Employment Agreement dated September 16, 1996 by and between LaserSight
Incorporated and Richard L. Stensrud (filed as Exhibit 10.41 to the
Company's Form 10-Q filed on May 9, 1997*).
<PAGE>
10.31 Loan and Security Agreement dated March 31, 1997 by and between
LaserSight Incorporated and certain of its subsidiaries and Foothill
Capital Corporation (filed as Exhibit 10.42 to the Company's Form 10-Q
filed on August 14, 1997*).
10.32 Consent and Amendment Number One to Loan and Security Agreement dated
July 28, 1997 by and between LaserSight Incorporated and Foothill
Capital Corporation (filed as Exhibit 10.43 to the Company's Form 10-Q
filed on August 14, 1997*).
10.33 Warrant to purchase 500,000 shares of Common Stock dated March 31, 1997
by and between LaserSight Incorporated and Foothill Capital Corporation
(filed as Exhibit 10.44 to the Company's Form 10-Q filed on August 14,
1997*).
10.34 License Agreement dated May 20, 1997 by and between VISX, Incorporated
and LaserSight Incorporated (filed as Exhibit 10.45 to the Company's
Form 10-Q filed on August 14, 1997*).
10.35 Patent Purchase Agreement dated July 15, 1997 by and between LaserSight
Incorporated and Frederic B. Kremer, M.D. (filed as Exhibit 2.(i) to
the Company's Form 8-K filed on August 13, 1997*).
10.36 Agreement and Plan of Merger dated July 15, 1997 by and among
LaserSight Incorporated, Photomed Acquisition, Inc., Photomed, Inc.,
Frederic B. Kremer, M.D., Linda Kremer, Robert Sataloff, Trustee for
Alan Stewart Kremer and Robert Sataloff, Trustee for Mark Adam Kremer
(filed as Exhibit 2.(ii) to the Company's Form 8-K filed on August 13,
1997*).
10.37 Securities Purchase Agreement dated August 29, 1997 by and between
LaserSight Incorporated and purchasers of Series B Convertible
Participating Preferred Stock of LaserSight Incorporated.
10.38 Registration Rights Agreement dated August 29, 1997 by and between
LaserSight Incorporated and purchasers of Series B Convertible
Participating Preferred Stock of LaserSight Incorporated.
10.39 Warrant to purchase 750,000 shares of Common Stock dated August 29,
1997 by and between LaserSight Incorporated and purchasers of Series B
Convertible Participating Preferred Stock of LaserSight Incorporated.
10.40 Consent and Amendment Number Two to Loan and Security Agreement dated
August 29, 1997 by and between LaserSight Incorporated and Foothill
Capital Corporation.
10.41 Consent and Amendment Number Three to Loan and Security Agreement dated
September 10, 1997 by and between LaserSight Incorporated and Foothill
Capital Corporation.
10.42 Independent Contractor Agreement by and between Byron Santos, M.D. and
LaserSight Technologies, Inc.
- ----------------------
*Incorporated herein by reference. File No. 0-19671.
<PAGE>
Exhibit 11 Statement of Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
On July 1, 1997, the Company filed with the Commission a Current
Report on Form 8-K regarding conversion of the last of the
Series A Convertible Preferred Stock and a press release issued
by the Company dated July 1, 1997, regarding an update on the
patent purchase agreement with IBM.
On July 31, 1997, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued by
the Company dated July 31, 1997, regarding an update on the
patent purchase agreement with IBM.
On August 13, 1997, the Company filed with the Commission a
Current Report on Form 8-K regarding the acquisition of the
rights to a Pre-Market Approval application with the Food and
Drug Administration for a laser dedicated to perform LASIK and a
keratome patent.
On September 2, 1997, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued by
the Company dated September 2, 1997, announcing completion of
the patent acquisitions from IBM.
On September 11, 1997, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued by
the Company dated September 9, 1997, announcing that LaserSight
acquired a license and the rights to a disposable keratome.
On September 15, 1997, the Company filed with the Commission a
Current Report on Form 8-K regarding the purchase of the patent
portfolio from IBM on August 29, 1997.
On September 24, 1997, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued by
the Company dated September 23, 1997, announcing that LaserSight
received $4 million for an exclusive license covering the
vascular and cardiovascular rights included in the patents
purchased from IBM.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the undersigned have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LaserSight Incorporated
Dated: November 14, 1997 By: /s/ Michael R. Farris
---------------------------- --------------------------
Michael R. Farris,
Chief Executive Officer
Dated: November 14, 1997 By: /s/ Gregory L. Wilson
---------------------------- --------------------------
Gregory L. Wilson,
Chief Financial Officer
SECURITIES PURCHASE AGREEMENT
-----------------------------
This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
August 29, 1997, by and between LaserSight Incorporated, a Delaware corporation
(the "Company"), with headquarters located at 12161 Lackland Road, St. Louis,
Missouri and the purchasers ("Purchasers") set forth on the execution pages
hereof, with regard to the following:
RECITALS
--------
A. The Company and Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").
B. Purchasers desire to (a) purchase, upon the terms and conditions
stated in this Agreement, Series B Convertible Participating Preferred Stock of
the Company set forth in the Certificate of Designations, Preferences and Rights
(the "Certificate of Designation") attached hereto as Exhibit A (the "Preferred
Stock" or the "Convertible Securities"), which shall be convertible into shares
of the Company's Common Stock, par value $.001 per share (the "Common Stock"),
and (b) to receive, in consideration for such purchase, Stock Purchase Warrants
(the "Warrants"), in the form attached hereto as Exhibit B, to acquire shares of
Common Stock. The shares of Common Stock issuable upon conversion of or
otherwise pursuant to the Preferred Stock are referred to herein as the
"Conversion Shares" and the shares of Common Stock issuable upon exercise of or
otherwise pursuant to the Warrants are referred to herein as "Warrant Shares".
The Preferred Stock, the Warrants, the Warrant Shares and the Conversion Shares
are collectively referred to herein as the "Securities."
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Purchasers hereby agree as
follows:
<PAGE>
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
I.1 Purchase of Preferred Stock. Subject to the terms and conditions of
this Agreement, the issuance, sale and purchase of the Preferred Stock shall be
consummated in a "Closing". The purchase price (the "Purchase Price") per share
of Preferred Stock shall be $10,000. On the date of the Closing, subject to the
satisfaction or waiver of the conditions set forth in Articles VI and VII, the
Company shall issue and sell to each Purchaser, and each Purchaser severally
agrees to purchase from the Company, the number of shares of Preferred Stock set
forth on the signature page executed by such Purchaser. Each Purchaser's
obligation to purchase Preferred Shares hereunder is distinct and separate from
each other Purchaser's obligation to purchase, and no Purchaser shall be
required to purchase hereunder more than the number of Preferred Shares set
forth on such Purchaser's signature page. The obligations of the Company with
respect to each Purchaser shall be separate from the obligations of each other
Purchaser and, except as provided in Section 6.1(iii) hereof, shall not be
conditioned as to any Purchaser upon the performance of obligations of any other
Purchaser.
I.2 Form of Payment. Each Purchaser shall pay the aggregate Purchase
Price for the Preferred Stock being purchased by such Purchaser by wire transfer
to the account designated pursuant to the Escrow Agreement by and among the
Company, each Purchaser and the escrow agent ("Escrow Agent") designated therein
in the form attached hereto as Exhibit D ("Escrow Agreement") upon delivery to
the Escrow Agent of the Preferred Stock and the Warrants, all in accordance with
the terms of the Escrow Agreement.
I.3 Closing Date. Subject to the satisfaction (or waiver) of the
conditions set forth in Articles VI and VII below, and further subject to the
terms and conditions of the Escrow Agreement, the date and time of the issuance,
sale and purchase of the Convertible Securities and Warrants pursuant to this
Agreement shall be at 10:00 a.m. Chicago time, on August 29, 1997.
I.4 Warrants. In consideration of the purchase by Purchasers of the
Convertible Securities, the Company shall at the Closing issue to Purchasers, in
the aggregate, Warrants to acquire seven hundred fifty thousand (750,000) shares
of Common Stock (in an amount proportionate to each Purchaser's purchase of
Convertible Securities).
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants, solely with respect to itself
and its purchase hereunder and not with respect to any other Purchaser or the
purchase hereunder by any other Purchaser (and no Purchaser shall be deemed to
make or have any liability for any representation or warranty made by any other
Purchaser), to the Company as set forth in this Article II. No Purchaser makes
any other representations or warranties, express or implied, to the Company in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by a Purchaser
to the Company in connection with the transactions contemplated hereby shall be
deemed to have been merged in this Agreement and any such prior representations
and warranties, if any, shall not survive the execution and delivery of this
Agreement.
<PAGE>
II.1 Investment Purpose. Purchaser is purchasing the Convertible
Securities and the Warrants for Purchaser's own account for investment only and
not with a view toward or in connection with the public sale or distribution
thereof. Purchaser will not, directly or indirectly, offer, sell, pledge or
otherwise transfer the Convertible Securities or Warrants or any interest
therein except pursuant to transactions that are exempt from the registration
requirements of the Securities Act and/or sales registered under the Securities
Act. Purchaser understands that Purchaser must bear the economic risk of this
investment indefinitely, unless the Securities are registered pursuant to the
Securities Act and any applicable state securities laws or an exemption from
such registration is available, and that the Company has no present intention of
registering any such Securities other than as contemplated by the Registration
Rights Agreement. By making the representations in this Section 2.1, the
Purchaser does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption from
registration under the Securities Act and any applicable state securities laws.
II.2 Accredited Investor Status. Purchaser is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D and Purchaser has
indicated on the signature page hereto under which item of Schedule 1 attached
hereto it qualifies as an "accredited investor."
II.3 Reliance on Exemptions. Purchaser understands that the Convertible
Securities and Warrants are being offered and sold to Purchaser in reliance upon
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the truth and
accuracy of, and Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set forth herein in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Convertible Securities and Warrants.
II.4 Information. Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
specifically requested by Purchaser, including without limitation the Company's
Annual Report on Form 10-K for the Year ended December 31, 1997, Quarterly
Reports on Form 10-Q for the periods ended March 31, 1997 and June 30, 1997,
Current Reports on Form 8-K filed with the Securities and Exchange Commission
("SEC") on February 25, March 18, March 27, April 8, April 25, July 1, July 31
and August 13, 1997, the description of the Common Stock contained in the
Company's Form 8-A/A (Amendment No. 2) filed with the SEC on April 26, 1996, and
Proxy Statement dated May 21, 1997 (such documents collectively, the "Furnished
SEC Documents"). Purchaser has been afforded the opportunity to ask questions of
<PAGE>
the Company and has received what Purchaser believes to be complete and
satisfactory answers to any such inquiries. Neither such inquiries nor any other
due diligence investigation conducted by Purchaser or any of its representations
shall modify, amend or affect Purchaser's right to rely on the Company's
representations and warranties contained in Article III. Purchaser understands
that Purchaser's investment in the Securities involves a high degree of risk,
including without limitation the risks and uncertainties disclosed under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Uncertainties and Other Issues" in the Furnished SEC Documents.
II.5 Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
II.6 Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be offered, sold, pledged or otherwise transferred unless
subsequently registered thereunder or an exemption from such registration is
available (which exemption the Company expressly agrees may be established as
contemplated in clauses (b) and (c) of Section 5.1 hereof); (ii) any sale of
such Securities made in reliance on Rule 144 under the Securities Act (or a
successor rule) ("Rule 144") may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of such
Securities without registration under the Securities Act under circumstances in
which the seller may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption under the
Securities Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the Securities Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder (in each case,
other than pursuant to this Agreement or the Registration Rights Agreement).
II.7 Legends. Purchaser understands that, subject to Article V hereof,
the certificates for the Preferred Stock and Warrants and, until such time as
the Conversion Shares and Warrant Shares have been registered under the
Securities Act as contemplated by the Registration Rights Agreement or otherwise
may be sold by Purchaser pursuant to Rule 144 (subject to and in accordance with
the procedures specified in Article V hereof), the certificates for the
Conversion Shares and Warrant Shares will bear a restrictive legend (the
"Legend") in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
<PAGE>
II.8 Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their respective terms.
II.9 Residency. Purchaser is a resident of the jurisdiction set forth
under Purchaser's name on the signature page hereto executed by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser that:
III.1 Organization and Qualification. Each of the Company and its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
where the failure so to qualify or be in good standing would have a Material
Adverse Effect. "Material Adverse Effect" means any material adverse effect on
the business, operations, properties, financial condition, operating results or
prospects of the Company and its subsidiaries, taken as a whole on a
consolidated basis or on the transactions contemplated hereby.
III.2 Authorization; Enforcement. (a) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and the
Registration Rights Agreement, and to issue, sell and perform its obligations
with respect to the Preferred Stock and Warrants in accordance with the terms
hereof and the terms of the Certificate of Designation and Warrants, to issue
the Conversion Shares in accordance with the terms and conditions of the
Certificate of Designation and to issue Warrant Shares in accordance with the
terms and conditions of the Warrants; (b) the execution, delivery and
performance of this Agreement and the Registration Rights Agreement by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation the issuance of the Preferred Stock and
the issuance and reservation for issuance of the Conversion Shares and Warrant
<PAGE>
Shares) have been duly authorized by all necessary corporate action and, except
as set forth on Schedule 3.2 hereof or except as contemplated by Section 4.12
hereof, no further consent or authorization of the Company, its board of
directors, or its stockholders or any other person, body or agency is required
with respect to any of the transactions contemplated hereby or thereby (whether
under rules of the Nasdaq National Market ("Nasdaq"), the National Association
of Securities Dealers or otherwise); (c) this Agreement, the Registration Rights
Agreement, certificates for the Preferred Stock, and the Warrants have been duly
executed and delivered by the Company; and (d) this Agreement, the Registration
Rights Agreement, the Preferred Stock, and the Warrants constitute legal, valid
and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except (i) to the extent that such
validity or enforceability may be subject to or affected by any bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights or remedies of
creditors generally, or by other equitable principles of general application,
and (ii) as rights to indemnity and contribution under the Registration Rights
Agreement may be limited by Federal or state securities laws.
III.3 Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Preferred Stock and the Warrants)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares to be reserved for issuance upon conversion of
the Preferred Stock and exercise of the Warrants is set forth on Schedule 3.3.
All of such outstanding shares of capital stock have been, or upon issuance will
be, validly issued, fully paid and nonassessable. No shares of capital stock of
the Company (including the Preferred Stock, the Conversion Shares and the
Warrant Shares) are subject to preemptive rights or any other similar rights of
the stockholders of the Company or any liens or encumbrances. Except as
disclosed in Schedule 3.3, as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement). The Company has furnished to
Purchaser true and correct copies of the Company's Certificate of Incorporation
as in effect on the date hereof ("Certificate of Incorporation"), and the
Company's By-laws as in effect on the date hereof (the "By-laws"). The Company
has set forth on Schedule 3.3 all instruments and agreements (other than the
Certificate of Incorporation and By-laws) governing securities convertible into
or exercisable or exchangeable for Common Stock of the Company (and the Company
shall provide to Purchaser copies thereof upon the request of Purchaser). The
Company shall provide Purchaser with a written update of this representation
signed by the Company's Chief Executive Officer or Chief Financial Officer on
behalf of the Company as of the date of the Closing.
<PAGE>
III.4 Issuance of Shares. The Conversion Shares and Warrant Shares are
duly authorized and (except for the issuance of shares of Common Stock in excess
of twenty percent (20%) of the Common Stock outstanding at the Closing, which is
subject to the completion of the actions to be taken by the Company and its
stockholders after the Closing pursuant to Section 4.12) reserved for issuance,
and, upon conversion of the Preferred Stock in accordance with the terms of the
Certificate of Designation or the exercise of the warrants in accordance with
the terms thereof, as applicable, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances imposed
or suffered by the Company and will not be subject to preemptive rights or other
similar rights of stockholders of the Company. The Preferred Stock and Warrants
are duly authorized and validly issued, fully paid and nonassessable, and free
from all liens, claims and encumbrances imposed or suffered by the Company and
will not be subject to preemptive rights or other similar rights of stockholders
of the Company.
III.5 No Conflicts. Except for the issuance of shares of Common Stock
in excess of twenty percent (20%) of the outstanding Common Stock, which is
subject to the completion of the actions to be taken by the Company and its
stockholders after the Closing pursuant to Section 4.12, the execution, delivery
and performance of this Agreement and the Registration Rights Agreement by the
Company, and the consummation by the Company of transactions contemplated hereby
and thereby (including, without limitation, the issuance and reservation for
issuance, as applicable, of the Preferred Stock, Warrants, Warrant Shares and
Conversion Shares) will not (a) result in a violation of the Certificate of
Incorporation or By-laws or (b) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries, or by which any property or asset of the Company or any of its
subsidiaries, is bound or affected (except for such possible conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect).
Neither the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation or other organizational documents, and neither the
Company nor any of its subsidiaries, is in default (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would put
the Company or any of its subsidiaries in default) under, nor has there occurred
any event giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, except for possible violations, defaults or rights as would not,
<PAGE>
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its subsidiaries are not being conducted, and shall not be
conducted so long as a Purchaser owns any of the Securities, in violation of any
law, ordinance or regulation of any governmental entity, except for possible
violations the sanctions for which either singly or in the aggregate would not
have a Material Adverse Effect. Except as set forth on Schedule 3.5, or except
(A) such as may be required under the Securities Act in connection with the
performance of the Company's obligations under the Registration Rights
Agreement, (B) such as may be required to be made from time to time with the
Secretary of State of the State of Delaware in connection with the performance
of the Company's contingent obligations under the Certificate of Designation to
increase the number of the authorized shares of Common Stock, (C) filing of a
Form D with the SEC, and (D) compliance with the state securities or Blue Sky
laws of applicable jurisdictions, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or the Registration Rights Agreement or to perform its obligations in
accordance with the terms hereof or thereof. The Company is not in violation of
the listing requirements of Nasdaq and does not reasonably anticipate that the
Common Stock will be delisted by Nasdaq for the foreseeable future.
III.6 SEC Documents. Except as disclosed in Schedule 3.6, since
December 31, 1995, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (all of the foregoing filed after December 31, 1995 and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being referred to herein as the
"SEC Documents"). The Company has delivered to each Purchaser true and complete
copies of the Furnished SEC Documents, except for exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents which is
required to be updated or amended under applicable law has not been so updated
or amended. The financial statements of the Company included in the SEC
Documents have been prepared in accordance with U.S. generally accepted
accounting principles, consistently applied, and the rules and regulations of
the SEC during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they do not include footnotes or are condensed
or summary statements) and present accurately and completely the consolidated
financial position of the Company and its consolidated subsidiaries as of the
<PAGE>
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, immaterial year-end audit adjustments). Except as set forth in a manner
clearly evident to a sophisticated institutional investor in the financial
statements or the notes thereto of the Company included in the SEC Documents or
in the Company's Current Report on Form 8-K as filed with the SEC on August 13,
1997, the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, in each case of clause (i) and (ii) next above which, individually
or in the aggregate, are not material to the financial condition, business,
operations, properties, operating results or prospects of the Company and its
subsidiaries. To the extent required by the rules of the SEC applicable thereto,
the SEC Documents contain a complete and accurate list of all material
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties or assets of the Company
or any subsidiary is subject (each a "Contract"). Except as set forth in
Schedule 3.6, none of the Company, its subsidiaries or, to the best knowledge of
the Company, any of the other parties thereto, is in breach or violation of any
Contract, which breach or violation would have a Material Adverse Effect. No
event, occurrence or condition exists which, with the lapse of time, the giving
of notice, or both, would become a default by the Company or its subsidiaries
thereunder which would have a Material Adverse Effect.
III.7 Absence of Certain Changes. Since December 31, 1996, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of operations or
prospects of the Company, except as disclosed in Schedule 3.7 or clearly evident
to a sophisticated institutional investor from the Furnished SEC Documents.
III.8 Absence of Litigation. Except as disclosed in Schedule 3.8 or as
clearly evident to a sophisticated institutional investor from the Furnished SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, or self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company, any of its
subsidiaries, or any of their respective directors or officers in their
capacities as such, which could reasonably be expected to result in an
unfavorable decision, ruling or finding which would have a Material Adverse
Effect or would adversely affect the transactions contemplated by this Agreement
or any of the documents contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
There are no facts known to the Company which, if known by a potential claimant
or governmental authority, could reasonably be expected to give rise to a claim
or proceeding which, if asserted or conducted with results unfavorable to the
Company or any of its subsidiaries, could reasonably be expected to have a
Material Adverse Effect.
<PAGE>
III.9 Disclosure. No information relating to or concerning the Company
set forth in this Agreement or contains an untrue statement of a material fact.
No information relating to or concerning the Company set forth in any of the
Furnished SEC Documents contains a statement of material fact that was untrue as
of the date such Furnished SEC Document was filed with the SEC. The Company has
not omitted to state a material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. Except for the execution and performance of this
Agreement, no material fact (within the meaning of the federal securities laws
of the United States and of applicable state securities laws) exists with
respect to the Company which has not been publicly disclosed.
III.10 Acknowledgment Regarding Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between each Purchaser
and the Company, are "arms-length", and that any statement made by Purchaser
(except as set forth in Article II), or any of its representatives or agents, in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation, is merely incidental to Purchaser's purchase of the
Securities and has not been relied upon as such in any way by the Company, its
officers or directors. The Company further represents to Purchaser that the
Company's decision to enter into this Agreement and the transactions
contemplated hereby have been based solely on an independent evaluation by the
Company and its representatives.
III.11 S-3 Registration. The Company is currently eligible to register
the resale by Purchaser of the Warrant Shares and the Conversion Shares on a
registration statement on Form S-3 under the Securities Act.
III.12 No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as described in Rule 502(c) under
Regulation D, with respect to any of the Securities being offered hereby.
III.13 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the Securities Act pursuant to the provisions of Regulation
<PAGE>
D. The transactions contemplated hereby are exempt from the registration
requirements of the Securities Act, assuming the accuracy of the representations
and warranties herein contained of each Purchaser and of Shoreline Pacific,
Financial West Group ("Shoreline") in its agreement with the Company dated as of
August 29, 1997 (a copy of which is attached as Schedule 3.13 hereto) to the
extent relevant for such determination.
III.14 No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Shoreline the fees of which shall
be paid in full by the Company. The Company will indemnify each Purchaser from
and against any fees and expenses sought or other claims made by Shoreline.
III.15 Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Preferred Stock may increase substantially in
certain circumstances, including the circumstance wherein the trading price of
the Common Stock declines. All of the appropriate executive officers of the
Company, who are the President and Chief Executive Officer and the Chief
Financial Officer, and the directors of the Company understand and have studied
the nature of the securities being sold hereunder and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded
in its good faith business judgment that such issuance is in the best interests
of the Company. The Company acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Stock is binding upon it and enforceable
regardless of the dilution that such issuance may have on the ownership
interests of other stockholders.
III.16 Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all material patents,
patent applications, trademarks, trademark applications, trade names, service
marks, copyrights, copyright applications, licenses, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") used or necessary for the conduct of its
business as now being conducted and as described in the Company's Annual Report
on Form 10-K for its most recently ended fiscal year. Neither the Company nor
any subsidiary of the Company infringes on or is in conflict with any right of
any other person with respect to any Intangibles nor is there any claim of
infringement made by a third party against or involving the Company or any of
its subsidiaries, which infringement, conflict or claim, individually or in the
aggregate, could reasonably be expected to result in an unfavorable decision,
ruling or finding which would have a Material Adverse Effect.
<PAGE>
III.17 Foreign Corrupt Practices. To the Company's knowledge, the
Company has no notice and neither the Company, nor any of its subsidiaries, nor
any director, officer, agent, employee or other person acting on behalf of the
Company or any subsidiary has violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended. To the Company's
knowledge, the Company has no notice and neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
III.18 Key Employees. Each Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in Schedule 3.18. No Key Employee,
to the best of the knowledge of the Company and its subsidiaries, is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its subsidiaries to any liability with respect to any of the
foregoing matters. No Key Employee has, to the best of the knowledge of the
Company and its subsidiaries, any intention to terminate his employment with, or
services to, the Company or any of its subsidiaries. "Key Employee" means each
of Michael R. Farris and J. Richard Crowley.
ARTICLE IV
COVENANTS
IV.1 Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Articles VI and VII of this
Agreement.
IV.2 Securities Laws. The Company agrees to file a Form D with respect
to the Securities with the SEC as required under Regulation D and to provide a
copy thereof to each Purchaser within fifteen (15) days after the date of
Closing. The Company agrees to file a Form 8-K disclosing this Agreement and the
transactions contemplated hereby with the SEC within three (3) business days
following the date of Closing. The Company shall, on or prior to the date of
Closing, take such action as is necessary to sell the Securities to each
Purchaser under applicable securities laws of the states of the United States,
and shall provide evidence of any such action so taken to each Purchaser on or
prior to the date of the Closing.
IV.3 Reporting Status. So long as any Purchaser beneficially owns any
of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.
<PAGE>
IV.4 Use of Proceeds. The Company shall use the proceeds from the sale
of the Preferred Stock to satisfy its payment obligations under the agreement
between the Company and International Business Machines Corporation dated as of
January 1, 1997, as amended by an addendum dated March 7, 1997, to pay the
expenses of such sale, and for working capital.
IV.5 Restriction on Below Market Issuance of Securities. (a) For a
period of one hundred eighty (180) days following the date of Closing, the
Company shall not issue or agree to issue, (except (i) to Purchasers pursuant to
this Agreement, (ii) pursuant to any employee stock option, stock purchase or
restricted stock plan of the Company in effect on the date hereof up to the
aggregate amounts set forth on Schedule 4.5 hereto, (iii) pursuant to any
existing security, option, warrant, scrip, call or commitment or right in each
case or disclosed on Schedule 3.3 hereof or (iv) beginning ninety (90) days
following the date of the Closing, pursuant to a strategic joint venture or
partnership entered into by the Company, undertaken at the reasonable discretion
of the Board of Directors of the Company, the primary purpose of which is not to
raise equity capital), any equity securities of the Company (or any security
convertible into or exercisable or exchangeable, directly or indirectly, for
equity securities of the Company) if such securities are issued at a price (or
in the case of securities convertible into or exercisable or exchangeable,
directly or indirectly, for Common Stock such securities provide for a
conversion, exercise or exchange price) which may be less than the current
market price for Common Stock on the date of issuance (in the case of Common
Stock) or the date of conversion, exercise or exchange (in the case of
securities convertible into or exercisable or exchangeable, directly or
indirectly, for Common Stock).
IV.6 Right of First Offer. From the date hereof until the day following
the first anniversary of the date of the Closing, the Company shall not issue or
sell, or agree to issue or sell any equity securities of the Company or any of
its subsidiaries (or any security convertible into or exercisable or
exchangeable, directly or indirectly, for equity securities of the Company or
any of its subsidiaries) ("Future Offerings") unless the Company shall have
first delivered to each Purchaser at least ten (10) business days prior to the
closing of such Future Offering, written notice describing the proposed Future
Offering, including the terms and conditions thereof, and providing each
Purchaser and its affiliates an option during the ten (10) business day period
following delivery of such notice to purchase the full amount of the securities
being offered in the Future Offering on the same terms as contemplated by such
Future Offering (the limitations referred to in this sentence are collectively
referred to as the "Capital Raising Limitations"). The Capital Raising
Limitations shall not apply to any transaction involving issuances of securities
in connection with a merger, consolidation, joint venture, asset acquisition,
license agreement or exercise of options by employees, consultants or directors.
In addition, the Capital Raising Limitations also shall not apply to (a) the
issuance of securities upon exercise or conversion of the Company's options,
<PAGE>
warrants or other convertible securities outstanding as of the date hereof, the
grant of additional options or warrants, or the issuance of additional
securities, under any employee or director stock option, stock purchase or
restricted stock plan of the Company or any firm commitment underwritten public
offering. This Section 4.6 shall not limit the Company's obligations under
Section 4.5 above. The Company shall prohibit any Common Stock or other security
issued by the Company subject to the Capital Raising Limitations but not
purchased by any Purchaser from being converted, exercised or resold until the
day following the first anniversary of the date of the Closing and shall take
all actions necessary (including, without limitation, the issuance of a stop
transfer order) to effect such prohibition.
IV.7 Expenses. The Company shall pay to each Purchaser, or at its
direction, at the Closing reimbursement for the expenses reasonably incurred by
it and its affiliates and advisors in connection with the negotiation,
preparation, execution, and delivery of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, such
Purchaser's and its affiliates' and advisors' due diligence and attorneys' fees
and expenses (the "Expenses"), which may be netted against the Purchase Price;
provided, however, that no Purchaser's Expenses shall exceed $5,000, except for
the reasonable fees and expenses of Altheimer & Gray. In addition, from time to
time thereafter, upon any Purchaser's written request, the Company shall pay to
such Purchaser such additional Expenses, if any, not covered by such payment, in
each case to the extent reasonably incurred by such Purchaser prior to the
Closing.
IV.8 Information. The Company agrees to send the following reports to
each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (a) within three (3) business days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any
proxy statements and any Current Reports on Form 8-K; and (b) within one (1)
business day after release, copies of all press releases issued by the Company
or any of its subsidiaries. The Company further agrees to promptly provide to
any Holder any information with respect to the Company, its properties, or its
business or Holder's investment as such Holder may reasonably request; provided,
however, that the Company shall not be required to give any Holder any material
nonpublic information. If any information requested by a Holder from the Company
contains material nonpublic information, the Company shall inform the Holder in
writing that the information requested contains material nonpublic information
and shall in no event provide such information to Holder without the express
written consent of such Holder after being so informed.
IV.9 Listing. The Company shall continue the listing and trading of its
Common Stock on the Nasdaq, the New York Stock Exchange or American Stock
Exchange; and comply in all respects with the Company's reporting, filing and
other obligations under the by-laws or rules of the Nasdaq or such Exchange, as
applicable.
<PAGE>
IV.10 Prospectus Delivery Requirement. Each Purchaser understands that
the Securities Act may require delivery of a prospectus relating to the Common
Stock in connection with any sale thereof pursuant to a registration statement
under the Securities Act covering the resale by such Purchaser of the Common
Stock being sold, and each Purchaser shall comply with the applicable prospectus
delivery requirements of the Securities Act in connection with any such sale.
IV.11 Corporate Existence. So long as any Purchaser beneficially owns
any Warrants or Preferred Stock, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to effect
the conversion of all Preferred Stock and exercise of all Warrants outstanding
as of the date of such transaction and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the NASDAQ, the Nasdaq Small Cap
Market, the New York Stock Exchange or the American Stock Exchange.
IV.12 Share Authorization. The Company covenants and agrees that it
shall (i) solicit by proxy the authorization (the "Shareholder Approval") of the
Rule 4460(i) Authorization by the stockholders of the Company as well as the
authorization of additional shares of Common Stock required by Section V.A. of
the Certificate of Designation not later than 60 days following the date of the
Closing, and (ii) use its best efforts to obtain the Shareholder Approval not
later than 120 days following the date of the Closing.
IV.13 Hedging Transactions. The Company understands that some or all of
the Purchasers are so-called "hedge" funds and the Company hereby expressly
agrees that each Purchaser shall not in any way be prohibited or restricted by
the Company from any purchases or sales of any securities of, or related to, the
Company, including, without limitation, short sales and hedging and arbitrage
transactions. Each Purchaser acknowledges that such purchases, sales and other
transactions may be subject to various Federal and state securities laws and
agrees to comply with all such applicable securities laws.
ARTICLE V
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
V.1 Removal of Legend. The Legend shall be removed and the Company
shall issue a certificate without such Legend to the holder of any Security upon
which it is stamped, and a certificate for a security shall be originally issued
without the Legend, if, unless otherwise required by state securities laws, (a)
the sale of such Security is registered under the Securities Act, (b) such
holder provides the Company with an opinion of counsel, in form, substance and
scope customary for opinions of counsel in comparable transactions and
<PAGE>
reasonably satisfactory to the Company and its counsel (the reasonable cost of
which shall be borne by the Company if neither an effective registration
statement under the Securities Act or Rule 144 is available in connection with
such sale) to the effect that a public sale or transfer of such Security may be
made without registration under the Securities Act pursuant to an exemption from
such registration requirements or (c) such Security can be sold pursuant to Rule
144 and a registered broker dealer provides to the Company's transfer agent and
counsel copies of (i) a "will sell" letter satisfying the guidelines established
by the SEC and its staff from time to time and (ii) a customary seller's
representation letter with respect to such a sale to be made pursuant to Rule
144 and (iii) a Form 144 in respect of such Security executed by such holder and
filed (or mailed for filing) with the SEC or (d) such Security can be sold
pursuant to Rule 144(k). Each Purchaser agrees to sell all Securities, including
those represented by a certificate(s) from which the Legend has been removed, or
which were originally issued without the Legend, pursuant to an effective
registration statement, in accordance with the manner of distribution described
in such registration statement and to deliver a prospectus in connection with
such sale or in compliance with an exemption from the registration requirements
of the Securities Act. In the event the Legend is removed from any Security or
any Security is issued without the Legend and the Security is to be disposed of
other than pursuant to the registration statement or pursuant to Rule 144, then
prior to, and as a condition to, such disposition such Security shall be
relegended as provided herein in connection with any disposition if the
subsequent transfer thereof would be restricted under the Securities Act. Also,
in the event the Legend is removed from any Security or any Security is issued
without the Legend and thereafter the effectiveness of a registration statement
covering the resale of such Security is suspended or the Company determines that
a supplement or amendment thereto is required by applicable securities laws,
then upon reasonable advance notice to Purchaser holding such Security, the
Company may require that the Legend be placed on any such Security that cannot
then be sold pursuant to an effective registration statement or Rule 144 or with
respect to which the opinion referred to in clause (b) next above has not been
rendered, which Legend shall be removed when such Security may be sold pursuant
to an effective registration statement or Rule 144 or such holder provides the
opinion with respect thereto described in clause (b) next above.
V.2 Transfer Agent Instructions. The Company shall instruct its
transfer agent to issue certificates, registered in the name of each Purchaser
or its nominee, for the Conversion Shares and Warrant Shares in such amounts
determined in accordance with the terms of the Preferred Stock or the Warrants,
as applicable. Such certificates shall bear the Legend only to the extent
provided by Section 5.1 above or as in the opinion of the Company's counsel may
be required by a change in any applicable statute or rule or administrative
interpretation thereof after the date of this Agreement. The Company covenants
that, except as in the opinion of Company's counsel may be required by a change
in any applicable statute or rule or administrative interpretation thereof after
the date of this Agreement, no instruction other than such instructions referred
to in this Article V, and stop transfer instructions to give effect to Section
2.6 hereof in the case of the Conversion Shares and Warrant Shares prior to
<PAGE>
registration of the Conversion Shares and Warrant Shares under the Securities
Act, will be given by the Company to its transfer agent and that the Securities
shall otherwise be freely transferable on the books and records of the Company.
Nothing in this Section shall affect in any way each Purchaser's obligations and
agreement set forth in Section 5.1 hereof to resell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. If (a) a Purchaser provides the
Company with an opinion of counsel, which opinion of counsel shall be in form,
substance and scope customary for opinions of counsel in comparable transactions
and reasonably satisfactory to the Company and its counsel (the reasonable cost
of which shall be borne by the Company if neither an effective registration
statement under the Securities Act or Rule 144 is available in connection with
such sale), to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from registration or (b) a
Purchaser transfers Securities to an affiliate which is an accredited investor
(within the meaning of Regulation D under the Securities Act) and which delivers
to the Company in written form the same representations, warranties and
covenants made by Purchaser hereunder or pursuant to Rule 144, the Company shall
permit the transfer, and, in the case of the Conversion Shares and Warrant
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denomination as specified by such Purchaser. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Purchaser by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Article V will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Article V, that a Purchaser shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
VI.1 Conditions to the Company's Obligation to Sell. The obligation of
the Company hereunder to issue and sell the Convertible Securities to a
Purchaser at the Closing is subject to the satisfaction, as of the date of the
Closing and with respect to such Purchaser, of each of the following conditions
thereto, provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion:
(i) Such Purchaser shall have executed the signature page to
this Agreement, the Registration Rights Agreement and the Escrow
Agreement and delivered the same to the Company.
<PAGE>
(ii) Such Purchaser shall have wired to the account of the
Escrow Agent pursuant to the Escrow Agreement the applicable Purchase
Price for the Convertible Securities purchased at the Closing.
(iii) The Purchase Price delivered by all Purchasers for the
aggregate amount of Convertible Securities purchased at the Closing
shall equal at least $16,000,000.
(iv) The representations and warranties of such Purchaser
shall be true and correct as of the date when made and as of the
Closing as though made at that time (except for representations and
warranties that speak as of a specific date), and such Purchaser shall
have performed, satisfied and complied in all material respects with
the covenants, agreements and conditions required by this Agreement to
be performed, satisfied or complied with by the applicable Purchaser at
or prior to the Closing.
(v) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which restricts or prohibits the
consummation of any of the transactions contemplated by this Agreement.
(vi) All Purchasers shall have executed an Intercreditor
Agreement between such Purchasers and Foothill Capital Corporation.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
VII.1 The obligation of each Purchaser hereunder to purchase the
Convertible Securities to be purchased by it on the date of the Closing is
subject to the satisfaction of each of the following conditions, provided that
these conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in such Purchaser's sole discretion:
(i) The Company shall have executed the signature page to this
Agreement, the Registration Rights Agreement and the Escrow Agreement
and delivered the same to Purchaser.
(ii) The Company shall have delivered to the Escrow Agent duly
executed certificates for the Preferred Stock (in such denominations as
Purchaser shall request) being so purchased by Purchaser and Warrants
being issued to such Purchaser at the Closing.
<PAGE>
(iii) The Common Stock shall be listed on the Nasdaq and
trading in the Common Stock shall not have been suspended by the Nasdaq
or the SEC or other regulatory authority.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Closing as
though made at that time and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing.
Purchaser shall have received a certificate, executed by the Chief
Executive Officer or Chief Financial Officer of the Company, dated as
of the Closing to the foregoing effect.
(v) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any
of the transactions contemplated by this Agreement.
(vi) Purchaser shall have received the officer's certificate
described in Section 3.3, dated as of the Closing.
(vii) Purchaser shall have received opinions of Sonnenschein
Nath & Rosenthal, dated as of the Closing, in the form attached hereto
as Exhibit F.
(viii) The Company shall have entered into an agreement with
Michael R. Farris restricting dispositions of Common Stock beneficially
owned by him and in the form attached hereto as Exhibit G.
(ix) The Company shall have received from each of Michael R.
Farris and Gregory L. Wilson an irrevocable proxy in the form attached
hereto as Exhibit H.
(x) The Company shall have entered into the Security Agreement
between the Company and Purchaser in the form attached hereto as
Exhibit I, to effect the security interest of Purchaser in the IBM
Patents.
(xi) The Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of Delaware and
reasonable evidence thereof shall have been delivered to Purchaser or
Altheimer & Gray.
<PAGE>
(xii) The Purchase Price delivered by all Purchasers for the
aggregate amount of Convertible Securities purchased at the Closing
shall equal at least $16,000,000.
(xiii) Each of the other Purchasers shall have executed an
Intercreditor Agreement between the Purchasers and Foothill Capital
Corporation.
(xiv) The Company shall have delivered evidence reasonably
satisfactory to Purchaser that the purchase of the IBM Patents is shall
be consummated upon the payment of the purchase price under the
agreement with IBM.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
VIII.1 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the Delaware General Corporation Law (in
respect of matters of corporation law) and the laws of the State of New York (in
respect of all other matters) applicable to contracts made and to be performed
in the State of New York. The parties hereto irrevocably consent to the
jurisdiction of the United States federal courts and state courts located in the
County of New Castle in the State of Delaware or the Borough of Manhattan in the
State of New York in any suit or proceeding based on or arising under this
Agreement or the transactions contemplated hereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
The Company and each Purchaser irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The Company and each
Purchaser further agrees that service of process upon the Company or such
Purchaser, as applicable, mailed by the first class mail shall be deemed in
every respect effective service of process upon the Company in any suit or
proceeding arising hereunder. Nothing herein shall affect Purchaser's right to
serve process in any other manner permitted by law. The parties hereto agree
that a final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.
VIII.2 Counterparts. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties.
VIII.3 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
<PAGE>
VIII.4 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
VIII.5 Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the maters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and each Purchaser.
VIII.6 Notice. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by
nationally-recognized overnight courier or by facsimile-machine confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
LaserSight Incorporated
12161 Lackland Road
St. Louis, Missouri 63146
Telecopy: (314) 576-1073
Attention: Chief Financial Officer
with a copy to:
Sonnenschein Nath & Rosenthal
One Metropolitan Square
Suite 3000
St. Louis, Missouri 63102
Telecopy: (314) 259-5959
Attention: Alan B. Bornstein
<PAGE>
If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
with a copy to:
Castle Creek Partners, LLC
333 West Wacker Drive
Suite 1410
Chicago, IL 60606
Telecopy: (312) 435-2636
Attention: John D. Ziegelman
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, IL 60606
Telecopy: (312) 715-4800
Attention: Kenneth M. Crane
If to Societe Generale:
Societe Generale
c/o Societe Generale Securities Corp.
1221 Avenue of the Americas
6th Floor
New York, NY 10020
Telecopy: (212) 278-5467
Attention: Guillaume Pollet
<PAGE>
with a copy to:
Dorsey & Whitney LLP
250 Park Avenue
New York, NY 10177
Telecopy: (212) 953-7201
Attention: Eric Maki
If to Sheperd Investments International, Ltd.:
Shepherd Investments International, Ltd.
c/o Staro Asset Management, LLC
1500 West Market Street
Mequon, WI 53092
Telecopy: (414) 241-7704
Attention: Brian Davidson
with a copy to:
Schulte Roth & Zabel LLP
900 3rd Avenue
New York, NY 10022
Telecopy: (212) 593-5955
Attention: Ele Klein
If to Stark International:
Stark International
c/o Staro Asset Management, LLC
1500 West Market Street
Mequon, WI 53092
Telecopy: (414) 241-7704
Attention: Brian Davidson
<PAGE>
with a copy to:
Schulte Roth & Zabel LLP
900 3rd Avenue
New York, NY 10022
Telecopy: (212) 593-5955
Attention: Ele Klein
If to any other Purchaser, to such address set forth under such Purchaser's name
on the signature page hereto executed by such Purchaser. Each party shall
provide notice to the other parties of any change in address.
VIII.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, each Purchaser may assign its rights and
obligations hereunder to any of its "affiliates," as that term is defined under
the Securities Act, without the consent of the Company so long as such affiliate
is an accredited investor (within the meaning of Regulation D under the
Securities Act) and agrees in writing to be bound by this Agreement. This
provision shall not limit each Purchaser's right to transfer the Securities
pursuant to the terms of this Agreement or to assign such Purchaser's rights
hereunder to any such transferee.
VIII.8 Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
VIII.9 Survival. The representations and warranties of the Company and
the agreements and covenants set forth in Articles III, IV, V and VIII shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of Purchaser. The Company agrees to indemnify and hold
harmless each Purchaser and each of each Purchaser's officers, directors,
employees, partners, agents and affiliates for loss or damage arising as a
result of or related to any breach or alleged breach by the Company of any of
its representations or covenants set forth herein, including advancement of
expenses as they are incurred. The representations and warranties of the
Purchasers pursuant to Article II of this Agreement shall survive the Closing
hereunder and each Purchaser shall indemnify and hold harmless the Company and
each of its officers, directors, employees, partners, agents and affiliates for
any loss or damage arising as a result of the breach of such Purchaser's
representations and warranties as set forth in Article II.
<PAGE>
VIII.10 Public Filings; Publicity. As soon as practicable following
Closing, the Company shall issue a press release with respect to the
transactions contemplated hereby. The Company and each Purchaser shall have the
right to approve before issuance any press releases, SEC or NYSE filings, or any
other public statements with respect to the transactions contemplated hereby
(which approval shall not be unreasonably withheld or delayed); provided,
however, that the Company shall be entitled, without the prior approval of any
Purchaser, to make any press release or SEC, NASDAQ, NASD or exchange filings
with respect to such transactions as is required by applicable law and
regulations (although the Company shall make all reasonable efforts to consult
with each Purchaser in connection with any such press release prior to its
release and shall provide each Purchaser with a copy thereof).
VIII.11 Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
VIII.12 Remedies. No provision of this Agreement providing for any
remedy to a Purchaser shall limit any remedy which would otherwise be available
to such Purchaser at law or in equity. Nothing in this Agreement shall limit any
rights a Purchaser may have with any applicable federal or state securities laws
with respect to the investment contemplated hereby.
VIII.13 Termination. In the event that the Closing shall not have
occurred on or before August 29, 1997, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER: Stark International
Purchaser elects to have 9.9% limitation applied to its holdings of shares of
Common Stock: [X]
AGGREGATE NUMBER OF PREFERRED SHARES: 400
-----
By: /s/ Michael A. Roth
----------------------------
Its:
----------------------
LASERSIGHT INCORPORATED:
By: /s/ Michael R. Farris
----------------------------
Michael R. Farris
President and Chief Executive Officer
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER: Shepherd Investments International, Ltd.
Purchaser elects to have 9.9% limitation applied to its holdings of shares of
Common Stock: [X]
AGGREGATE NUMBER OF PREFERRED SHARES: 400
-----
By: /s/ Michael A. Roth
----------------------------
Its:
----------------------
LASERSIGHT INCORPORATED:
By: /s/ Michael R. Farris
----------------------------
Michael R. Farris
President and Chief Executive Officer
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER: Societe Generale
Purchaser elects to have 9.9% limitation applied to its holdings of shares of
Common Stock: [X]
AGGREGATE NUMBER OF PREFERRED SHARES: 300
-----
By: /s/ Giullaume Pollet
----------------------------
Its: First Vice President
----------------------
LASERSIGHT INCORPORATED:
By: /s/ Michael R. Farris
----------------------------
Michael R. Farris
President and Chief Executive Officer
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER: CC Investments, LDC
Purchaser elects to have 9.9% limitation applied to its holdings of shares of
Common Stock: [X]
AGGREGATE NUMBER OF PREFERRED SHARES: 500
-----
By: /s/ John Ziegelman
----------------------------
Its: Director
----------------------
LASERSIGHT INCORPORATED:
By: /s/ Michael R. Farris
----------------------------
Michael R. Farris
President and Chief Executive Officer
EXHIBIT C
to Securities Purchase Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
August 29, 1997, by and among LaserSight Incorporated, a Delaware corporation
(the "Company"), with headquarters located at 12161 Lackland Road, St. Louis,
Missouri and the undersigned (the "Initial Purchasers" ).
RECITALS
--------
A. In connection with the Securities Purchase Agreement dated of even
date herewith by and between the Company and the Initial Purchasers (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue and sell to the Initial
Purchasers (a) shares of Series B Convertible Participating Preferred Stock of
the Company (the "Preferred Stock") that is convertible into shares (the
"Conversion Shares") of the Company's common stock, par value $.001 per share
(the "Common Stock"), upon the terms and subject to the limitations and
conditions set forth in the Certificate of Designations, Preferences and Rights
with respect to such Preferred Stock (the "Certificate of Designations"), in the
form attached as Exhibit A to the Securities Purchase Agreement, and (b)
warrants ("Warrants"), in the form attached as Exhibit B to the Securities
Purchase Agreement, to acquire shares (the "Warrant Shares") of Common Stock.
B. To induce the Initial Purchasers to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
AGREEMENTS
----------
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, and the
Initial Purchasers hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Purchasers" means the Initial Purchasers and any transferees
or assignees who agree to become bound by the provisions of this Agreement in
accordance with Article IX hereof.
<PAGE>
(b) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(c) "Registrable Securities" means the Conversion Shares and
Warrant Shares (including any Conversion Shares issuable with respect to
conversion default payments under the Certificate of Designation or with respect
to any redemption of any Preferred Stock and including Shares of Common Stock
received pursuant to Section 2.3 hereof) issued or issuable with respect to the
Preferred Stock and Warrants and any shares of capital stock issued or issuable,
from time to time (with any adjustments), on or in exchange for or otherwise
with respect to any of the foregoing, except that these shares shall cease to be
Registered Securities when sold pursuant to an effective registration statement
or Rule 144 or may be sold to the public under Rule 144(k) or such securities
shall have been otherwise transferred by such Purchaser and new certificates for
such securities not bearing a legend restricting further transfer shall have
been delivered by the Company or its transfer agent to the transferee and
subsequent disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in force.
(d) "Registration Statement" means a registration statement of the
Company under the Securities Act.
1.2 Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
ARTICLE II
REGISTRATION
------------
2.1 Mandatory Registration. The Company shall prepare, and, on or prior
to twenty (20) business days after the date of the Closing (the "Filing Date"),
file with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not
then available, on such form of Registration Statement as is then available to
effect a registration of all of the Registrable Securities, subject to the
consent of the Initial Purchasers (as determined pursuant to Section 11.10
hereof)) covering the resale of all of the Registrable Securities, which
Registration Statement, to the extent allowable under the Securities Act and the
Rules promulgated thereunder (including Rule 416), shall state that such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Preferred
Stock and exercise of the Warrants (i) to prevent dilution resulting from stock
splits, stock dividends or similar transactions or (ii) by reason of changes in
<PAGE>
the Conversion Price of the Preferred Stock or the Exercise Price of the
Warrants in accordance with the respective terms thereof, or the number of
shares of Common Stock purchasable thereunder, in accordance with the terms
thereof. The Registrable Securities included in the Registration Statement shall
be allocated among the Purchasers as set forth in Section 11.11 hereof. The
Registration Statement (and each amendment or supplement thereto) shall be
provided to (and subject to the approval of (which approval shall not be
unreasonably withheld or delayed)) the Initial Purchasers and their counsel
prior to its filing or other submission, except to the extent that a
post-effective amendment of such Registration Statement, or supplement to the
related prospectus, is required by applicable securities law to be filed before
such approval can reasonably be obtained, in which case the Company shall
provide a copy of such amendment or supplement, as applicable, to such Initial
Purchasers and their counsel as soon as practicable after such filing.
2.2 Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2.1 hereof involves an underwritten offering, the
Purchasers who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of the Initial Purchasers, shall
have the right to select a total of one legal counsel to represent the
Purchasers and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
2.3 Payments by the Company. The Company shall cause the registration
statement to become effective as soon as practicable, but in no event later than
the ninetieth (90th) day following the date of the Closing (the "Registration
Deadline"). If (i) the registration statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 2.1 hereof is
not declared effective by the SEC on or before the Registration Deadline, or
(ii) after the registration statement has been declared effective by the SEC,
sales of all the Registrable Securities (including any Registrable Securities
required to be registered pursuant to Section 3.2 hereof) cannot be made
pursuant to the registration statement (by reason of a stop order or the
Company's failure to update the registration statement or any other reason
outside the control of the Purchasers), then the Company will make payments to
the Purchasers in such amounts and at such times as shall be determined pursuant
to this Section 2.3 as partial relief for the damages to the Purchasers by
reason of any such delay in or reduction of their ability to sell the
Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity). The Company shall pay to each Purchaser
an amount equal to (i) (A) .01 per month (prorated daily during the first 30
days after the Registration Deadline) and .02 per month, prorated daily
(thereafter) times (B) the aggregate purchase price of the Preferred Stock and
Warrants held by such Purchaser (including, without limitation, shares of
Preferred Stock that have been converted into Conversion Shares and Warrants
that have been exercised for Warrant Shares then held by such Purchaser but
excluding any Preferred Stock or Warrants as to which the Conversion Shares or
Warrant Shares received upon conversion or exercise, as the case may be, have
been sold) times (ii) the sum of: (A) the number of months (prorated per day for
<PAGE>
partial months) following the Registration Deadline prior to the date the
Registration Statement filed pursuant to Section 2.1 is declared effective by
the SEC plus (B) the number of months (prorated per day for partial months)
following the Registration Deadline but prior to the termination of the
Registration Period that sales cannot be made pursuant to the Registration
Statement after the Registration Statement has been declared effective. Such
amounts shall be paid in cash or, at each Purchaser's option, may be convertible
into Common Stock at the "Conversion Price" (as defined in the Certificate of
Designation). Any shares of Common Stock issued upon conversion of such amounts
shall be Registrable Securities. If the Purchaser desires to convert or exercise
the amounts due hereunder into Registrable Securities it shall so notify the
Company in writing within two (2) business days prior to the date on which such
amounts are first payable in cash and such amounts shall be so convertible
(pursuant to the terms of the Certificate of Designation), beginning on the last
day upon which the cash amount would otherwise be due in accordance with the
following sentence. Payments of cash pursuant hereto shall be made within five
(5) business days after the end of each period that gives rise to such
obligation, provided that, if any such period extends for more than thirty (30)
days, payments shall be made for each such thirty (30) day period within five
(5) business days after the end of such thirty (30) day period.
2.4 Piggy-Back Registrations. If at any time prior to the expiration of
the Registration Period (as hereinafter defined) the Company shall file with the
SEC a Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any exchange offer or
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), then the Company
shall send to each Purchaser who is entitled to registration rights under this
Section 2.4 written notice of such determination and, if within fifteen (15)
days after the date of such notice, such Purchaser shall so request in writing,
the Company shall include in such Registration Statement all or any part of the
Registrable Securities such Purchaser requests to be registered, except that if,
in connection with any underwritten public offering the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common Stock which
may be included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Purchaser has requested inclusion
hereunder as the underwriter shall permit. Any exclusion of Registrable
Securities shall be made pro rata among the Purchasers seeking to include
Registrable Securities, in proportion to the number of Registrable Securities
then owned by such Purchasers; provided, however, that the Company shall not
exclude any Registrable Securities unless the Company has first excluded all
outstanding securities, the holders of which are not entitled to inclusion of
such securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
<PAGE>
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2.4 shall be construed
to limit any registration required under Section 2.1 or 3.2 hereof. If an
offering in connection with which a Purchaser is entitled to registration under
this Section 2.4 is an underwritten offering, then each Purchaser whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
2.5 Eligibility for Form S-3. The Company represents and warrants that
it meets the requirements for the use of Form S-3 for registration of the sale
by the Initial Purchasers and any other Purchaser of the Registrable Securities
and the Company shall file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility for the use of
Form S-3.
ARTICLE III
OBLIGATIONS OF THE COMPANY
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2.1, and cause such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, but in no event later than the Registration
Deadline, and keep the Registration Statement effective pursuant to Rule 415 at
all times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold (and no further Registrable Securities may
be issued in the future) and (ii) the date on which all of the Registrable
Securities may be immediately sold to the public without registration
conditions, or limitations, whether pursuant to Rule 144(k) or otherwise (the
"Registration Period"). The Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein and all documents
incorporated by reference therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
<PAGE>
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until the termination of the Registration Period or, if earlier, such time as
all of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement. In the event the number of shares available under a
Registration Statement filed pursuant to this Agreement is, without giving
effect to the possible effect to the registration of the indefinite number of
shares contemplated by Section 2.1 hereof, for any three (3) consecutive trading
days (the last of such three (3) trading days being the "Registration Trigger
Date"), insufficient to cover one hundred seventy-five percent (175%) of the
Registrable Securities issued or issuable upon conversion of the Preferred Stock
and exercise of the Warrants held by any Purchaser, the Company shall amend, if
permissible, the Registration Statement, or file a new Registration Statement
(on the short form available therefor, if applicable), or both, so as to cover
two hundred percent (200%) of the Registrable Securities issued or issuable to
such Purchaser, in each case, as soon as practicable, but in any event within
ten (10) business days in the case of an amendment and twenty (20) business days
in the case of a Registration Statement after the Registration Trigger Date
(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof.
3.3 The Company shall furnish to each Purchaser whose Registrable
Securities are included in the Registration Statement and its legal counsel (a)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2.1, each comment or response letter written by or on behalf of
the Company to the SEC or the staff of the SEC, and each other material item of
correspondence from the SEC or the staff of the SEC, in each case relating to
such Registration Statement (other than any portion, if any, thereof which
contains information for which the Company has sought confidential treatment),
and (b) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents
as such Purchaser may reasonably request in order to facilitate the disposition
of the Registrable Securities owned (or to be owned) by such Purchaser.
3.4 The Company shall use all commercially reasonable efforts to (a)
register and qualify the Registrable Securities covered by the Registration
Statement under securities laws of such jurisdictions in the United States as
each Purchaser who holds (or has the right to hold) Registrable Securities being
offered reasonably requests, (b) prepare and file in those jurisdictions such
<PAGE>
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (c) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (d) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (i) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3.4, (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that cause the Company material
expense or burden, or (v) make any change in its charter or by-laws, which in
each case the board of directors of the Company determines to be contrary to the
best interests of the Company and its stockholders.
3.5 In the event the Purchasers who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
select underwriters for the offering, the Company shall enter into and perform
its obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering; provided, however, that the
Company shall not be required to enter into any underwriting agreement in
respect of (a) Registrable Securities with an aggregate value (based on the
closing price of the Common Stock on the date of the Company's receipt of the
Purchasers' selection of underwriters) of less than $2,500,000 or (b) more than
one underwritten offering.
3.6 As soon as practicable after becoming aware of such event, the
Company shall notify each Purchaser of the happening of any event, of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly (but in any event within five (5) business days) to prepare a
supplement or amendment to the Registration Statement to correct such untrue
statement or omission, and deliver such number of copies of such supplement or
amendment to each Purchaser as such Purchaser may reasonably request.
3.7 The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable moment and to notify each Purchaser who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.
<PAGE>
3.8 The Company shall permit a single firm of counsel designated by the
Initial Purchasers to review and comment on the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and not file any document in a form to which such counsel
reasonably objects, except to the extent that a post-effective amendment of such
Registration Statement, or supplement to the related prospectus, is required by
applicable securities law to be filed before such review and opportunity to
comment can reasonably be provided, in which case the Company shall provide a
copy of such amendment or supplement, as applicable, to such counsel as soon as
practicable after such filing.
3.9 The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
3.10 In the case of an underwriting, the Company shall furnish, on the
date of the closing of such underwritten offering (a) an opinion, dated as of
such applicable date, from counsel representing the Company addressed to the
underwriters and the Purchasers and in form, scope and substance as is
customarily given in an underwritten public offering and (b) a letter, dated as
of such applicable date, from the Company's independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters and the Purchasers.
3.11 The Company shall make available for inspection by (i) any
underwriter participating in any disposition pursuant to the Registration
Statement, (ii) one firm of attorneys and one firm of accountants or other
agents retained by the Purchasers, and (iii) one firm of attorneys retained by
all such underwriters (collectively, the "Inspectors") all pertinent financial
and other records, and pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably deemed necessary
by each Inspector to enable each Inspector to conduct such investigation as it
deems appropriate, and cause the Company's officers, directors and employees to
supply all information which any Inspector may reasonably request for purposes
of such due diligence; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to a Purchaser) of any
Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records (x) to the extent that
the Company certifies in writing that it has requested, or in good faith intends
<PAGE>
to request, confidential treatment of such Records by the SEC and that such
disclosure would, based on the advice of the Company's outside securities
counsel, materially impair the ability of the Company to obtain or preserve such
confidential treatment (in which case the Company shall supply a redacted
version of such Records in the form included, or proposed to be included, in the
Company's filings with the SEC) or (y) to any Inspector until and unless such
Inspector shall have entered into confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3.11. Each Purchaser agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein shall be deemed to limit a
Purchaser's ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
3.12 The Company shall hold in confidence and not make any disclosure
of information concerning a Purchaser provided to the Company unless (a)
disclosure of such information is necessary to comply with federal or state
securities laws, (b) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (c) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (d) such
information has been made generally available to the public other than by
disclosure by the Company in violation of this or any other agreement, or (e)
such Purchaser consents to the form and content of any such disclosure. The
Company agrees that it shall, upon learning that disclosure of such information
concerning a Purchaser is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to such
Purchaser (whenever reasonably possible, prior to making such disclosure) and
allow the Purchaser, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
3.13 The Company shall cause the listing and the continuation of
listing of all the Registrable Securities covered by the Registration Statement
on the Nasdaq National Market or the NASDAQ Small Cap Market and cause the
Registrable Securities to be quoted or listed on each additional national
securities exchange or quotation system upon which the Common Stock is then
listed or quoted.
3.14 The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
3.15 The Company shall cooperate with the Purchasers who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
<PAGE>
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Purchasers may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Purchasers may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchasers whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as Exhibit 1; provided that such an opinion
shall be required only in respect of Registrable Securities owned by Purchasers
who have agreed in writing to sell such Registrable Securities only in
accordance with the plan of distribution set forth in such Registration
Statement and who have agreed in writing to comply with any applicable
prospectus delivery requirements under the Securities Act.
3.16 Subject to Section 3.5, at the request of any Purchaser, the
Company shall promptly prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary in order to change the plan of distribution set forth in such
Registration Statement to conform to written information supplied to the Company
by such Purchaser for such purpose.
3.17 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC).
3.18 The Company shall take all such other actions as any Purchaser or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities not inconsistent with the terms
and conditions hereof.
3.19 From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement or any amendment
or supplement thereto under Section 2.1 or 3.2 hereof without the consent of the
holders of a majority of the Registrable Securities.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
-----------------------------
In connection with the registration of the Registrable Securities, the
Purchasers shall have the following obligations:
<PAGE>
4.1 It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Purchaser that such Purchaser shall from
time to time furnish to the Company (in writing and expressly stated to be for
inclusion in a Registration Statement relating to such Registrable Securities)
such information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required by the rules of the SEC to effect or maintain the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least five (5) business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Purchaser of the
information the Company requires from each such Purchaser.
4.2 Each Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each such Purchaser shall comply with the
applicable prospectus delivery requirements of the Securities Act in connection
with any such sale.
4.4 Each Purchaser agrees to notify the Company promptly, but in any
event within three (3) business days, after the date on which all Registrable
Securities owned by such Purchaser have been sold by such Purchaser, if such
date is prior to the expiration of the Registration Period, so that the Company
may comply with its obligation to terminate the Registration Statement in
accordance with Item 512 of Regulation S-K or Regulation S-B, as the case may
be.
4.5 [Intentionally Deleted]
4.6 Each Purchaser agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.6 or
3.7, such Purchaser will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Purchaser's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3.6 or 3.7 and, if so directed by the
Company, such Purchaser shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Purchaser's possession, of the prospectus covering such
Registrable Securities at the time of receipt of such notice, provided that each
Purchaser may retain a limited number of file copies of such prospectuses.
<PAGE>
4.7 Without limiting a Purchaser's rights under Section 2.1 or 3.2
hereof, no Purchaser may participate in any underwritten distribution hereunder
unless such Purchaser (a) agrees to sell such Purchaser's Registrable Securities
on the basis provided in any underwriting arrangements in usual and customary
form entered into by the Company, (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (c)
agrees to pay its pro rata share of all underwriting discounts and commissions
and any expenses in excess of those payable by the Company pursuant to Article
V.
ARTICLE V
EXPENSES OF REGISTRATION
------------------------
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Articles II and III, including, without limitation,
all registration, listing and qualification fees, printers and accounting fees,
the fees and disbursements of counsel for the Company, and the reasonable fees
and disbursements of one counsel selected by the Purchasers pursuant to Section
2.2 hereof shall be borne by the Company.
ARTICLE VI
INDEMNIFICATION
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold
harmless and defend (a) each Purchaser who holds such Registrable Securities,
(b) each underwriter of Registrable Securities and (c) the directors, officers,
partners, members, employees, agents and persons who control any Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any, (each,
an "Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
<PAGE>
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any other Federal or state law, including, without limitation,
any state securities law, or any rule or regulation thereunder relating to the
offer or sale of the Registrable Securities (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 6.3 with respect to the number of legal
counsel, the Company shall reimburse the Purchasers and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6.1: (x) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by such Indemnified Person
expressly for use in the Registration Statement or any such amendment thereof or
supplement thereto; (y) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (z) with respect
to any preliminary prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, if such corrected prospectus was timely made
available by the Company pursuant to Section 3.3 hereof, and the Indemnified
Person failed to use such corrected prospectus. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Purchasers pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser
is participating, each such Purchaser agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6.1, the
Company, each of its directors, each of its officers who signs the Registration
Statement, its employees, agents and persons, if any, who control the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the Securities
Act or the Exchange Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such
<PAGE>
Purchaser expressly for use in connection with such Registration Statement; and
subject to Section 6.3 such Purchaser will reimburse any legal or other expenses
(promptly as such expenses are incurred and are due and payable) reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6.2
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Purchaser, which consent
shall not be unreasonably withheld; provided, further, however, that a Purchaser
shall be liable under this Agreement (including this Section 6.2 and Article
VII) for only that amount as does not exceed the net proceeds actually received
by such Purchaser as a result of the sale of Registrable Securities pursuant to
such Registration Statement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Purchasers pursuant to Article IX. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6.2
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented, and the Indemnified Party failed to utilize
such corrected prospectus.
6.3 Promptly after receipt by an Indemnified Person or Indemnified
Party under this Article VI of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to made against any indemnifying
party under this Article VI, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Purchasers holding a majority-in-interest of the Registrable Securities included
<PAGE>
in the Registration Statement to which the Claim relates (with the approval of
the Initial Purchasers if they hold Registrable Securities included in such
Registration Statement), if the Purchasers are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Article VI, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Article VI shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
ARTICLE VII
CONTRIBUTION
------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Article VI to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Article VI, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
------------------------------
With a view to making available to the Purchasers the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Purchasers to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
8.1 File with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Exchange Act
so long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4.3 of
the Securities Purchase Agreement) and the filing and availability of such
reports and other documents is required for the applicable provisions of Rule
144; and
<PAGE>
8.2 Furnish to each Purchaser so long as such Purchaser holds Preferred
Stock, Warrants or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144 and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Purchasers to sell such securities pursuant to Rule 144 without
registration.
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
---------------------------------
The rights of the Purchasers hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Purchaser to any transferee of all or any
portion of the Preferred Stock, Warrants or the Registrable Securities with
respect to the securities so transferred if: (a) the Purchaser agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee, and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) following such
transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act or applicable
state securities laws, (d) at or before the time the Company receives the
written notice contemplated by clause (b) of this sentence, the transferee or
assignee agrees in writing for the benefit of the Company to be bound by all of
the provisions contained herein, and (e) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
--------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company,
two-thirds in interest of the Initial Purchasers (but not an Initial Purchaser
who no longer owns any Preferred Stock, Warrants or Registrable Securities) and
Purchasers who hold a majority interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Article X shall be binding
upon each Purchaser and the Company.
<PAGE>
ARTICLE XI
MISCELLANEOUS
-------------
11.1 A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
11.2 Any notices herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
LaserSight Incorporated
12161 Lackland Road
St. Louis, Missouri 63146
Telecopy: (314) 576-1073
Attention: Chief Financial Officer
with a copy to:
Sonnenschein Nath & Rosenthal
One Metropolitan Square
Suite 3000
St. Louis, Missouri 63102
Telecopy: (314) 259-5959
Attention: Alan B. Bornstein
If to CC Investments, LDC:
CC Investments, LDC
Corporate Centre, West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
<PAGE>
with a copy to:
Castle Creek Partners, LLC
333 West Wacker Drive
Suite 1410
Chicago, IL 60606
Telecopy: (312) 435-2636
Attention: John D. Ziegelman
and with a copy to:
Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, IL 60606
Telecopy: (312) 715-4800
Attention: Peter H. Lieberman and Kenneth M. Crane
If to Societe Generale:
Societe Generale
c/o Societe Generale Securities Corp.
1221 Avenue of the Americas
6th Floor
New York, NY 10020
Telecopy: (212) 278-5467
Attention: Guillaume Pollet
with a copy to:
Dorsey & Whitney LLP
250 Park Avenue
New York, NY 10177
Telecopy: (212) 953-7201
Attention: Eric Maki
<PAGE>
If to Shepherd Investments International, Ltd.:
Shepherd Investments International, Ltd.
c/o Staro Asset Management, LLC
1500 West Market Street
Mequon, WI 53092
Telecopy: (414) 241-7704
Attention: Brian Davidson
with a copy to:
Schulte Roth & Zabel LLP
900 3rd Avenue
New York, NY 10022
Telecopy: (212) 593-5955
Attention: Ele Klein
If to Stark International:
Stark International
c/o Staro Asset Management, LLC
1500 West Market Street
Mequon, WI 53092
Telecopy: (414) 241-7704
Attention: Brian Davidson
with a copy to:
Schulte Roth & Zabel LLP
900 3rd Avenue
New York, NY 10022
Telecopy: (212) 593-5955
Attention: Ele Klein
and if to any other Purchaser, at such address as such Purchaser, shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11.2.
11.3 Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
<PAGE>
11.4 This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed in the State of New York. The Company irrevocably consents to the
jurisdiction of the United States federal courts and State courts located in the
County of New Castle in the State of Delaware, or the Borough of Manhattan in
the State of New York, in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The parties hereto further agree that service of process upon the parties hereto
mailed by first class mail shall be deemed in every respect effective service of
process upon each such party in any such suit or proceeding. Nothing herein
shall affect either party's right to serve process in any other manner permitted
by law. The parties hereto agree that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
11.5 This Agreement, the Preferred Stock, the Warrants, the Certificate
of Designation, the Securities Purchase Agreement, the Patent Security Agreement
and Escrow Agreement (including all schedules and exhibits thereto and all
certificates and opinions required thereby) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the Preferred
Stock, the Warrants and the Securities Purchase Agreement supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
11.7 The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
11.8 This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto, by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
11.9 Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
<PAGE>
11.10 All consents and other determinations to be made by the
Purchasers or the Initial Purchasers pursuant to this Agreement shall be made by
the Purchasers or the Initial Purchasers holding a majority of the Registrable
Securities (determined as if all Preferred Stock and Warrants then outstanding
had been converted into or exercised for Registrable Securities) held by all
Purchasers or Initial Purchasers, as the case may be.
11.11 The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Purchasers based on the
number of Registrable Securities held by each Purchaser at the time of such
establishment or increase, as the case may be. In the event a Purchaser shall
sell or otherwise transfer any of such Purchaser's Registrable Securities in
accordance with Article IX hereof, each transferee shall be allocated a pro rata
portion of the number of Registrable Securities included on a Registration
Statement for such transferor. Any shares of Common Stock included on a
Registration Statement and which remain allocated to any person or entity which
ceases to hold any Registrable Securities (other than by a transfer thereof in
accordance with Article IX hereof) shall be allocated to the remaining
Purchasers, pro rata based on the number of shares of Registrable Securities
then held by such Purchasers. Without implication that the contrary would
otherwise be true, for purposes of this paragraph, all Preferred Stock and
Warrants then outstanding shall be assumed converted into or exercised for
Registrable Securities.
11.12 If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
LASERSIGHT INCORPORATED
By: /s/ Michael R. Farris
-----------------------------
Name: Michael R. Farris
Title: President
Initial Purchasers:
CC INVESTMENTS, LDC
By: /s/ John Ziegelman
-----------------------------
John Ziegelman
Director, CSS Corporation Ltd.
Secretary, CC Investments, LDC
SHEPHERD INVESTMENTS INTERNATIONAL, LTD.
By: /s/ Michael A. Roth
-----------------------------
Name: Michael A. Roth
Managing Member, Staro Asset Management, LLC
Investment Manager, Shepherd Investments
International, Ltd.
SOCIETE GENERALE
By: /s/ Guillaume Pollet
-----------------------------
Name: Guillaume Pollet
Title: First Vice President
STARK INTERNATIONAL
By: /s/ Michael A. Roth
-----------------------------
Name: Michael A. Roth
Managing Member, Staro Asset Management, LLC
Investment Manager, Stark International
EXHIBIT B
to Securities Purchase Agreement
VOID AFTER 5:00 P.M. ST. LOUIS
TIME ON AUGUST 29, 2002
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 234,375 Shares of
Common Stock, par value $.001 per share
Date: August 29, 1997
LASERSIGHT INCORPORATED
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, CC Investments, LDC or its
registered assigns, is entitled to purchase from LaserSight Incorporated, a
Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Section 2 hereof, two hundred thirty-four thousand three
hundred seventy-five (234,375) fully paid and nonassessable shares of the
Company's common stock, par value $.001 per share (the "Common Stock"), at an
exercise price of $5.91 per share (the "Exercise Price") (equal to 115% of the
average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive trading days ending on the trading day immediately preceding the
date of the Closing (as defined in that certain Securities Purchase Agreement
dated August 29, 1997 between the Company and the signatories thereto (the
"Securities Purchase Agreement")). The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other warrants of the Company issued pursuant to the terms of
the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
<PAGE>
EXHIBIT B
to Securities Purchase Agreement
VOID AFTER 5:00 P.M. ST. LOUIS
TIME ON AUGUST 29, 2002
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 187,500 Shares of
Common Stock, par value $.001 per share
Date: August 29, 1997
LASERSIGHT INCORPORATED
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Shepherd Investments
International, Ltd. or its registered assigns, is entitled to purchase from
LaserSight Incorporated, a Delaware corporation (the "Company"), at any time or
from time to time during the period specified in Section 2 hereof, one hundred
eighty-seven thousand five hundred (187,500) fully paid and nonassessable shares
of the Company's common stock, par value $.001 per share (the "Common Stock"),
at an exercise price of $5.91 per share (the "Exercise Price") (equal to 115% of
the average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive trading days ending on the trading day immediately preceding the
date of the Closing (as defined in that certain Securities Purchase Agreement
dated August 29, 1997 between the Company and the signatories thereto (the
"Securities Purchase Agreement")). The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other warrants of the Company issued pursuant to the terms of
the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
<PAGE>
EXHIBIT B
to Securities Purchase Agreement
VOID AFTER 5:00 P.M. ST. LOUIS
TIME ON AUGUST 29, 2002
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 187,500 Shares of
Common Stock, par value $.001 per share
Date: August 29, 1997
LASERSIGHT INCORPORATED
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Stark International or its
registered assigns, is entitled to purchase from LaserSight Incorporated, a
Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Section 2 hereof, one hundred eighty-seven thousand five
hundred (187,500) fully paid and nonassessable shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), at an exercise price of
$5.91 per share (the "Exercise Price") (equal to 115% of the average of the
Closing Bid Prices of the Common Stock for the five (5) consecutive trading days
ending on the trading day immediately preceding the date of the Closing (as
defined in that certain Securities Purchase Agreement dated August 29, 1997
between the Company and the signatories thereto (the "Securities Purchase
Agreement")). The number of shares of Common Stock purchasable hereunder (the
"Warrant Shares") and the Exercise Price are subject to adjustment as provided
in Section 4 hereof. The term "Warrants" means this Warrant and the other
warrants of the Company issued pursuant to the terms of the Securities Purchase
Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
<PAGE>
EXHIBIT B
to Securities Purchase Agreement
VOID AFTER 5:00 P.M. ST. LOUIS
TIME ON AUGUST 29, 2002
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 140,625 Shares of
Common Stock, par value $.001 per share
Date: August 29, 1997
LASERSIGHT INCORPORATED
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Societe Generale or its
registered assigns, is entitled to purchase from LaserSight Incorporated, a
Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Section 2 hereof, one hundred forty thousand six hundred
twenty-five (140,625) fully paid and nonassessable shares of the Company's
common stock, par value $.001 per share (the "Common Stock"), at an exercise
price of $5.91 per share (the "Exercise Price") (equal to 115% of the average of
the Closing Bid Prices of the Common Stock for the five (5) consecutive trading
days ending on the trading day immediately preceding the date of the Closing (as
defined in that certain Securities Purchase Agreement dated August 29, 1997
between the Company and the signatories thereto (the "Securities Purchase
Agreement")). The number of shares of Common Stock purchasable hereunder (the
"Warrant Shares") and the Exercise Price are subject to adjustment as provided
in Section 4 hereof. The term "Warrants" means this Warrant and the other
warrants of the Company issued pursuant to the terms of the Securities Purchase
Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
<PAGE>
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 7(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 11(e) hereof),
together with a completed exercise agreement in the Form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon payment to the
Company in cash, by certified or official bank check or by wire transfer for the
account of the Company, of the Exercise Price for the Warrant Shares specified
in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be
issued to the Holder or Holder's designees, as the record owner of such shares,
as of the date on which this Warrant shall have been surrendered, the completed
Exercise Agreement shall have been delivered, and payment (or notice of an
election to effect a Cashless Exercise) shall have been made for such shares as
set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates for
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding four (4) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be requested by the Holder and shall be
registered in the name of Holder or such other name as shall be designated by
such Holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the Holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
<PAGE>
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a "Big Six" independent accounting firm (selected by the
Company) via facsimile within three (3) business days of receipt of the Exercise
Agreement. The accounting firm shall audit the calculations and notify the
Company and the converting Holder of the results no later than two (2) business
days from the date it receives the disputed calculations. The accounting firm's
calculation shall be deemed conclusive, absent manifest error. The Company shall
then issue the appropriate number of shares of Common Stock in accordance with
this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(e) Buy-In. If (i) the Company fails for any reason to deliver during
the Delivery Period shares of Common Stock to Holder upon an exercise of this
Warrant and (ii) after the applicable Delivery Period with respect to such an
exercise, Holder purchases (in an open market transaction or otherwise) shares
of Common Stock to make delivery upon a sale by Holder of the shares of Common
Stock (the "Sold Shares") which Holder was entitled to receive upon such
exercise (a "Buy-in"), the Company shall pay Holder (in addition to any other
remedies available to Holder) the amount by which (x) Holder's total purchase
price (including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the net proceeds received by Holder from the sale of the
Sold Shares. For example, if Holder purchases shares of Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to shares of
Common Stock sold for $10,000, the Company will be required to pay such Holder
$1,000. Holder shall provide the Company written notification indicating any
amounts payable to Holder pursuant to this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 P.M., St. Louis time on
the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, claims and encumbrances.
<PAGE>
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon the Nasdaq
National Market ("NASDAQ") as required by Section 4.9 of the Securities Purchase
Agreement and upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed or become
listed and shall maintain, so long as any other shares of Common Stock shall be
so listed, such listing of all shares of Common Stock from time to time issuable
upon the exercise of this Warrant; and the Company shall so list on each
national securities exchange or automated quotation system, as the case may be,
and shall maintain such listing of any other shares of capital stock of the
Company issuable upon the exercise of this Warrant is and so long as any shares
of the same class shall be listed on such national securities exchange or
automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such actions as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without limiting
the generality of the foregoing, the Company (i) will not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof, if
and whenever after the initial issuance of this Warrant, the Company issues or
sells, or in accordance with Section 4(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
<PAGE>
share less than the Market Price (as herein defined) on the date of issuance (a
"Dilutive Issuance"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
E' = E x O + P/M
-------
CSDO
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section
4(b) hereof, received by the Company upon such Dilutive
Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding
(as herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
exercisable, convertible into or exchangeable for Common Stock ("Convertible
Securities"), but not to include the grant or exercise of any stock or options
which may hereafter be granted or exercised under any employee or Director
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options"), and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance ("Below Market Options"),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as of the date of the
issuance or grant of such Below Market Options, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For
purposes of the preceding sentence, the price per share for which Common Stock
is issuable upon the exercise of such Below Market Options is determined by
dividing (i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or granting of such Below Market Options, plus
the minimum aggregate amount of additional consideration, if any, payable to the
<PAGE>
Company upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Market Price on the date of issuance, then the maximum total number of shares of
Common Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of the preceding sentence,
the price per share for which Common Stock is issuable upon such exercise,
conversion or exchange is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or sale
of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of issuance of such Convertible Security was 80% of the Market
Price on such date (the "Assumed Variable Market Price").
<PAGE>
(iii) Change in Option Price or Conversion Rate. Except for the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of such change will be readjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Options or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair market
value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
<PAGE>
(vi) Exceptions to Adjustment of Exercise Price. No adjustment to
the Exercise Price will be made (i) upon the exercise of any warrants, options
or convertible securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee or Director benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Series B Convertible Preferred Stock, par value $.001 per share, of the
Company (the "Preferred Stock") or Warrants in accordance with terms of the
Securities Purchase Agreement; or (iv) upon the exercise of the Warrants or
conversion of the Preferred Stock.
(c) Subdivision or Combination of Common Stock. If the Company, at any
time after the initial issuance of this Warrant, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then, after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time after the initial issuance of this Warrant, combines (by
reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Major Transactions. If the Company shall consolidate with or merge
into any corporation or reclassify its outstanding shares of Common Stock (other
than by way of subdivision or reduction of such shares) (each a "Major
Transaction"), then each holder of a Warrant shall thereafter be entitled to
receive consideration, in exchange for such Warrant, equal to the greater of, as
determined in the sole discretion of such holder: (i) a warrant to purchase (at
the same aggregate exercise price and on the same terms and conditions as the
Warrant surrendered) the number of shares of stock or securities or property of
the Company, or of the entity resulting from such consolidation or merger (the
"Major Transaction Consideration"), to which a holder of the number of shares of
Common Stock delivered upon exercise of such Warrant would have been entitled
upon such Major Transaction had the holder of such Warrant exercised (without
regard to any limitations on exercise herein contained) the Warrant on the
trading date immediately preceding the public announcement of the transaction
<PAGE>
resulting in such Major Transaction and had such Common Stock been issued and
outstanding and had such holder been the holder of record of such Common Stock
at the time of such Major Transaction, and the Company shall make lawful
provision therefor as a part of such consolidation, merger or reclassification;
and (ii) cash paid by the Company in immediately available funds, in an amount
equal to the Black-Scholes Amount (as defined herein) times the number of shares
of Common Stock for which this Warrant was exercisable (without regard to any
limitations on exercise herein contained) on the date immediately preceding the
date of such Major Transaction. No sooner than ten (10) days nor later than five
(5) days prior to the consummation of the Major Transaction, but not prior to
the public announcement of such Major Transaction, the Company shall deliver
written notice ("Notice of Major Transaction") to each holder of Warrants, which
Notice of Major Transaction shall be deemed to have been delivered one (1)
business day following the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Major Transaction. Such Notice of Major
Transaction shall indicate the amount and type of the Major Transaction
Consideration which such holder would receive under clause (i) of this paragraph
(e). If the Major Transaction Consideration does not consist entirely of United
States currency, such holder may elect to receive United States currency in an
amount equal to the value of the Major Transaction Consideration in lieu of the
Major Transaction Consideration by delivering notice of such election to the
Company within five (5) days of the holder's receipt of the Notice of Major
Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(f) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including any dividend or distribution to the Company's shareholders
of cash or shares (or rights to acquire shares) of capital stock of a
subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
<PAGE>
(g) Notices of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the Holder, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease in
the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the Exercise
Price shall be made in an amount of less than 1% of the Exercise Price in effect
at the time such adjustment is otherwise required to be made, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock; provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution to the
holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all of its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
<PAGE>
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in case of any adjustment
required by Section 4(a) resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise of the Options
for which the adjustment is required (including any Common Stock issuable upon
the conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of the
Closing Bid Prices for the shares of Common Stock as reported to Nasdaq for the
trading day immediately preceding such date, or (ii) if the Nasdaq is not the
principal trading market for the Common Stock, the average of the last reported
bid prices on the principal trading market for the Common Stock during the same
period, or, if there is no bid price for such period, the last reported sales
price for such period, or (iii) if market value cannot be calculated as of such
date on any of the foregoing bases, the Market Price shall be the average fair
market value as reasonably determined by an investment banking firm selected by
the Company and reasonably acceptable to the Holders of a majority in interest
of the Warrants, with the costs of the appraisal to be borne by the Company. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
<PAGE>
(iii) "Common Stock," for purposes of this Section 4, includes the
Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Stock in
respect of which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights granted to
the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of Assignment
attached hereto as Exhibit 2, at the office or agency of the Company referred to
in Section 7(e) below, provided, however, that any transfer or assignment shall
be subject to the to the provisions of Section 5.1 and 5.2 of the Securities
Purchase Agreement. Until due presentment for registration of transfer on the
books of the Company, the Company may treat the registered holder hereof as the
owner and holder hereof for all purposes, and the Company shall not be affected
by any notice to the contrary. Notwithstanding anything to the contrary
contained herein, the registration rights described in Section 8 hereof are
assignable only in accordance with the provisions of that certain Registration
Rights Agreement, dated as of August 29, 1997, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement"). Upon exercise
of this Warrant, the Holder will make such representations and warranties
substantially equivalent to those securities law representations and warranties
contained in Article II of the Securities Purchase Agreement; provided that any
such representations and warranties will not cover any investment intent which
<PAGE>
may or may not exist with respect to the resale of the Common Stock upon a
registration pursuant to the Registration Rights Agreement. No transfer of this
Warrant to any investor who is not an accredited investor will be permitted and
each Holder agrees that such Holder will remain an accredited investor.
b. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the office or agency of
the Company referred to in Section 7(e) below, for new Warrants, in the form
hereof, of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the Holder of at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrants, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all issuance taxes (other than securities transfer taxes) and
charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 7.
e. Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. (i)
Notwithstanding anything to the contrary contained herein, the Warrants shall
not be exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 4.9% (9.9% if
the applicable box on the signature page of the Securities Purchase Agreement
for such Holder is marked) (the "Applicable Percentage") of the shares of Common
Stock. To the extent the above limitation applies, the determination of whether
the Warrants shall be exercisable (vis-a-vis other securities owned by Holder)
and of which Warrants shall be exercisable (as among Warrants) shall be in the
sole discretion of the Holder and submission of the Warrants for exercise shall
be deemed to be the Holder's determination of whether such Warrants are
exercisable (vis-a-vis other securities owned by Holder) and of which warrants
are exercisable (among Warrants), in each case subject to such aggregate
percentage limitation. No prior inability to exercise Warrants pursuant to this
<PAGE>
paragraph shall have any effect on the applicability of the provisions of this
paragraph with respect to any subsequent determination of exercisability. For
the purposes of this paragraph, beneficial ownership and all determinations and
calculations, including without limitation, with respect to calculations of
percentage ownership, shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation 13D and G
thereunder. The provisions of this paragraph may be waived and/or implemented in
a manner otherwise than strictly in conformity with the foregoing provisions of
this paragraph (i) with the approval of the Board of Directors of the Company
and the Holders: (i) with respect to any matter to cure any ambiguity herein, to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Applicable Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Applicable Percentage limitation; and
(ii) with respect to any other matter, with the further consent of the holders
of a majority of the then outstanding shares of Common Stock. In addition, the
provisions of this paragraph (i) may be waived by Holder upon ninety (90) days
prior written notice from Holder to the Company. The limitations contained in
this paragraph shall apply to a successor holder of Warrants if, and to the
extent, elected by such successor holder concurrently with its acquisition of
such Warrants, such election to be promptly confirmed in writing to the Company
(provided no transfer or series of transfer to a successor holder or holders
shall be used by a Holder to evade the limitations contained in this paragraph).
(ii) Prior to Stockholder Approval (as defined in the Securities
Purchase Agreement), unless otherwise permitted by the Nasdaq National Market
System, in no event shall the total number of shares of Common Stock issued upon
exercise of the Warrants, when taken together with Common Stock to be issued
upon conversion of the Preferred Stock, exceed the maximum number of shares of
Common Stock that the Company can without stockholder approval issue pursuant to
Nasdaq Rule 4460(i) (or any successor rule) (the "Cap Amount"), which, as of the
date of issuance of the Warrant, shall be 2,785,534 shares. The Cap Amount shall
be allocated pro-rata to the Holders.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
9. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
<PAGE>
If to the Company:
LaserSight Incorporated
12161 Lackland Road
St. Louis, Missouri 63146
Telecopy: (314) 576-1073
Attention: Chief Financial Officer
with copy to:
Alan B. Bornstein
Sonnenschein, Nath & Rosenthal
One Metropolitan Square, Suite 3000
St. Louis, Missouri 63102
Telecopy: (314) 259-5803
Attention: (314) 259-5959
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of New Castle in the State of Delaware in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that a final
nonappealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
11. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder.
b. Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
c. Assignability. This Warrant shall be binding upon the Company and
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the assignment
of this Warrant.
* * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
LASERSIGHT INCORPORATED
By: /s/ Michael R. Farris
----------------------------
Name: Michael R. Farris
--------------------------
Title: President
-------------------------
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
_______ of the shares of common stock of LaserSight Incorporated, a Delaware
corporation (the "Company"), evidenced by the attached Warrant, and [herewith
makes payment of the Exercise Price with respect to such shares in full/ elects
to effect a Cashless Exercise pursuant to the terms of the Warrant], all in
accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below, in which case Holder's signature shall be Medallion
guaranteed) and delivered to the undersigned (or designee(s) at the address (or
addresses) set forth below:
Date:
Signature of Holder
Name of Holder (Print)
Address:
CONSENT AND AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT
---------------------------
THIS CONSENT AND AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT
(this "Consent and Amendment") is entered into as of August 29, 1997 (but
effective only in accordance with the terms and conditions of Section 4 of this
Consent and Amendment), by and among FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), LASERSIGHT INCORPORATED, a Delaware corporation
("LaserSight"), LASERSIGHT TECHNOLOGIES, INC., a Delaware corporation
("Technologies"), MEC HEALTH CARE, INC., a Maryland corporation ("MEC"), LSI
ACQUISITION, INC., a New Jersey corporation ("LSI"), LASERSIGHT CENTERS
INCORPORATED, a Delaware corporation ("Centers"), and MRF, INC., a Missouri
corporation ("MRF," together with LaserSight, Technologies, MEC, LSI, and
Centers, individually and collectively, jointly and severally, "Borrower"), with
reference to the following facts:
A. Foothill and Borrower heretofore have entered into that certain
Loan and Security Agreement, dated as of March 31, 1997, as amended
by that certain Consent and Amendment Number One to Loan and
Security Agreement, dated as of July 28, 1997 (as amended, the
"Loan Agreement");
B. Borrower has requested that Foothill consent to the following
transactions (collectively, the "Transactions") being contemplated
by Borrower and to the amendment of the Loan Agreement as required
thereby: (i) the sale of securities by LaserSight as contemplated
by that certain Securities Purchase Agreement, dated as of August
29, 1997, between LaserSight and the purchasers signatory thereto,
which agreement shall be in form and substance satisfactory to
Foothill, and (ii) the formation by LaserSight of its wholly-owned
Subsidiary, LaserSight Patents, Inc., a Delaware corporation, for
the purpose of acquiring the patents and related rights
contemplated under the IBM Option Agreement;
C. Borrower also has requested that Foothill amend Section 7.20 of the
Loan Agreement to modify certain financial covenants set forth
therein;
D. Foothill is willing to consent to the Transactions and to amend the
Loan Agreement in accordance with the terms and conditions hereof;
and
E. All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Loan Agreement, as amended hereby.
<PAGE>
NOW, THEREFORE, in consideration of the above recitals and the mutual
premises contained herein, Foothill and Borrower hereby agree as follows:
1. Amendments to the Loan Agreement.
a. Section 1.1 of the Loan Agreement hereby is amended to include
the following defined terms:
"Investor Intercreditor Agreement" means that certain Intercreditor
Agreement between Foothill as the Investors, dated as of August 29, 1997.
"Investors" means those Persons identified on Schedule P-2 attached
hereto.
"LPI" means LaserSight Patents, Inc., a Delaware corporation.
"Series B Certificate of Designation" means that certain Certificate
of Designations, Preferences and Rights of Series B Convertible
Participating Preferred Stock of LaserSight as filed with the Delaware
Secretary of State on August 29, 1997 and as attached hereto as Exhibit
S-1.
"Series B Preferred Stock" means the 1,600 shares of Series B
Convertible Participating Preferred Stock of LaserSight acquired by the
Investors pursuant to the Securities Purchase Agreement.
"Securities Purchase Agreement" means that certain Securities Purchase
Agreement, dated as of August 29, 1997, by and among LaserSight and the
Investors.
"Transactions" is defined in the recitals to this Consent and
Agreement.
"Utilization" means, on the date of any determination thereof, the sum
of: (a) the aggregate outstanding principle balance of the Advances made
pursuant to Section 2.1; plus (b) the aggregate amount of all reserves in
Borrower's Loan Account made by Foothill; plus (c) the aggregate amount of
all accrued and unpaid Consolidated Current Liabilities that Foothill
determines that, in accordance with its past practice, Borrower would
normally have paid by such date of determination.
b. Section 1.1 of the Loan Agreement is hereby amended to revise
the following defined term:
"Change of Contract" shall be deemed to have occurred at such time as
a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) other than an Investor becomes the
<PAGE>
"beneficial owner" (as defined in Rule 13d-3 under the Securities-Exchange
Act of 1934), directly or indirectly, of more than 20% (30% with respect to
the initial transferee of an Investor) of the total voting power of all
classes of stock then outstanding of any Borrower entitled to vote in the
election of directors.
c. Section 7.11 of the Loan Agreement hereby is amended in its
entirety to read as follows:
7.11 Distributions. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any of any Borrower's capital stock,
of any class, whether now or hereafter outstanding; provided, however,
that, so long as (a) no Default or Event of Default has occurred and is
continuing or would result therefrom and (b) after giving effect to the
payment of such dividends, the lesser of the Borrowing Base and the Maximum
Revolving Amount exceeds the Utilization by $1,000,000, LaserSight may
declare and pay dividends on the Series A Preferred Stock as required under
the Series A Certificate of Designation; and provided further, however,
Borrower may redeem shares of the Series B Preferred Stock out of the net
proceeds received by Borrower of the sale of any of the "Investor
Collateral" as defined in the Investor Intercreditor Agreement, provided
that any such sale does not adversely effect the rights of Foothill in the
IBM License Rights pursuant to the Investor Intercreditor Agreement and the
documents and agreements associated therewith.
d. Clauses (a), (b), and (c) of Section 7.20 of the Loan
Agreement hereby are amended in their entirety to read as follows:
(a) Current Ratio. A ratio of Consolidated Current Assets divided by
Consolidated Current Liabilities, as measured on a fiscal quarter-end
basis, of not less than the ratio set forth below for the period
corresponding thereto:
Fiscal Quarter Ended Ratio
-------------------- -----
September 30, 1997 1.40:1.00
December 31, 1997 1.30:1.00
March 31, 1997 1.10:1.00
June 30, 1998 1.30:1.00
September 30, 1998 1.50:1.00
(b) Unit and Revenue Volume. Minimum unit sales of ophthalmic laser
systems and consolidated revenue (after laser commissions) during the
following periods, as measured on a cumulative basis at the end of each
fiscal quarter:
<PAGE>
Fiscal Quarter Minimum Consolidated
Ended Minimum Unit Net Revenue
----- ------------ -----------
September 30, 1997 7 $ 4,950,000
December 31, 1997 18 $10,750,000
March 31, 1998 34 $19,000,000
June 30, 1998 58 $30,000,000
September 30, 1998 84 $42,000,000
(c) Consolidated EBITDA. Minimum consolidated EBITDA during the
following periods, as measured on a cumulative basis at the end of each
fiscal quarter:
Fiscal Quarter Minimum Consolidated EBITDA
-------------- ---------------------------
September 30, 1997 -$1,500,000
December 31, 1997 -$2,250,000
March 31, 1998 -$1,350,000
June 30, 1998 $1,000,000
September 30, 1998 $3,800,000
e. Schedule 5.8 of the Loan Agreement hereby is deleted in its
entirety and the replacement Schedule 5.8 attached hereto as Exhibit A is
substituted in lieu therefor.
2. Foothill's Consent. Foothill hereby consents to the Transactions,
and agrees that the Transactions shall be deemed not to cause any Default or
Event of Default under the Loan Agreement, as amended by this Consent and
Amendment.
3. Representations and Warranties. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Consent and Amendment and of the Loan Agreement, as amended by this Consent and
Amendment, are within its corporate powers, have been duly authorized by all
necessary corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any contract or undertaking to which it is a party or by which any
of its properties may be bound or affected, and (b) this Consent and Amendment
and the Loan Agreement, as amended by this Consent and Amendment, constitute
Borrower's legal, valid, and binding obligation, enforceable against Borrower in
accordance with its terms.
4. Conditions Precedent to the Effectiveness of this Consent and
Amendment. The effectiveness of this Consent and Amendment is subject to the
fulfillment, to the satisfaction of Foothill and its counsel, of each of the
following conditions:
<PAGE>
a. Foothill shall have received each of the following documents,
duly executed, and each such document shall be in full force and effect:
(1) a General Continuing Guaranty, in form and substance
satisfactory to Foothill, executed and delivered by LPI in favor of
Foothill (the "LPI Guaranty");
(2) a Security Agreement, in form and substance satisfactory
to Foothill, executed and delivered by LPI and Foothill;
(3) a Patent Security Agreement, in form and substance
satisfactory to Foothill, executed and delivered by LPI and Foothill;
(4) a Pledge Amendment in the form of Exhibit B attached
hereto;
(5) an Intercreditor Agreement, in form and substance
satisfactory to Foothill, executed and delivered by the Investors and
Foothill; and
(6) an amendment to the Warrants, in form and substance
satisfactory to Foothill, executed and delivered by Foothill and
LaserSight.
b. Foothill shall have received the original certificates
representing or evidencing all of the Pledged Shares (as defined in the Stock
Pledge Agreement) of LPI, together with stock powers or equivalent assignments
with respect thereto duly endorsed in blank;
c. Foothill shall have received a certificate from the Secretary
or other officer acceptable to Foothill of LPI attesting to the resolutions of
LPI's Board of Directors authorizing its execution, delivery, and performance of
the LPI Guaranty and the other Loan Documents to which LPI is a party and
authorizing specific officers of LPI to execute the same;
d. Foothill shall have received copies of LPI's Governing
Documents, as amended, modified, or supplemented to the date hereof, certified
by the Secretary or other officer acceptable to Foothill of LPI;
e. Foothill shall have received a certificate of status with
respect to LPI, dated within 30 days of the date hereof, such certificate to be
issued by the appropriate officer of the State of Delaware, which certificate
shall indicate that LPI is in good standing in such jurisdiction;
<PAGE>
f. Foothill shall have received certificates of status with
respect to LPI, each dated within 30 days of the date hereof, such certificates
to be issued by the appropriate officer of the jurisdictions in which its
failure to be duly qualified or licensed would constitute a Material Adverse
Change, which certificates shall indicate that LPI is in good standing in such
jurisdictions;
g. LPI shall have executed and delivered to Foothill such UCC-1
Financing Statements as Foothill may require;
h. Foothill shall have received copies, certified by an
appropriate officer of LaserSight, as being true, complete, and correct, of the
Securities Purchase Agreement and any other documents or agreement executed
and/or delivered in connection therewith, each of which shall be in form and
substance satisfactory to Foothill;
i. The Licensing Condition as defined in the Investor
Intercreditor Agreement shall have been completed to the satisfaction of
Foothill;
j. No Material Adverse Change in the financial condition of
Borrower or in the value of the Collateral shall have occurred;
k. The representations and warranties in this Consent and
Amendment, the Loan Agreement as amended by this Consent and Amendment, and the
other Loan Documents shall be true and correct in all respects on and as of the
date hereof, as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date);
l. No Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default shall have occurred and
be continuing on the date hereof, nor shall result from the consummation of the
transactions contemplated herein; and
m. No injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the consummation of the transactions
contemplated herein shall have been issued and remain in force by any
governmental authority against Borrower, Foothill, or any of their Affiliates.
5. Effect on Loan Agreement. The Loan Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Consent and Amendment shall not operate as a
<PAGE>
waiver of or, except as expressly set forth herein, as an amendment, of any
right, power, or remedy of Foothill under the Loan Agreement, as in effect prior
to the date hereof.
6. Further Assurances. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time, to perfect and maintain the perfection and priority of Foothill's security
interests in the Collateral and to fully consummate the transactions
contemplated under this Consent and Amendment and the Loan Agreement, as amended
by this Consent and Amendment.
7. Miscellaneous.
a. Upon the effectiveness of this Consent and Amendment, each
reference in the Loan Agreement to "this Agreement," "hereunder," "herein,"
"hereof," or words of like import referring to the Loan Agreement shall mean and
refer to the Loan Agreement as amended by this Consent and Amendment.
b. Upon the effectiveness of this Consent and Amendment, each
reference in the Loan Documents to the "Loan Agreement," "thereunder,"
"therein," "thereof," or words of like import referring to the Loan Agreement
shall mean and refer to the Loan Agreement as amended by this Consent and
Amendment.
c. This Consent and Amendment shall be governed by and construed
in accordance with the laws of the State of California.
d. This Consent and Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Consent and Amendment
by signing any such counterpart.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent and
Amendment to be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Albert R. Joseph
----------------------------
Title: Vice President
-------------------------
LASERSIGHT INCORPORATED,
a Delaware corporation
By: /s/ Michael R. Farris
-----------------------------
Title: President
--------------------------
LASERSIGHT TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Gregory L. Wilson
-----------------------------
Title:
--------------------------
MEC HEALTH CARE, INC.,
a Maryland corporation
By: /s/ Gregory L. Wilson
-----------------------------
Title:
--------------------------
<PAGE>
LSI ACQUISITION, INC.,
a New Jersey corporation
By: /s/ Gregory L. Wilson
-----------------------------
Title:
--------------------------
LASERSIGHT CENTERS INCORPORATED,
a Delaware corporation
By: /s/ Gregory L. Wilson
-----------------------------
Title:
--------------------------
MRF, INC.,
a Missouri corporation
By: /s/ Gregory L. Wilson
-----------------------------
Title:
--------------------------
CONSENT AND AMENDMENT NUMBER THREE TO
LOAN AND SECURITY AGREEMENT
---------------------------
THIS CONSENT AND AMENDMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT
(this "Consent and Amendment") is entered into as of September 10, 1997 (but
effective only in accordance with the terms and conditions of Section 4 of this
Consent and Amendment), by and among FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), LASERSIGHT INCORPORATED, a Delaware corporation
("LaserSight"), LASERSIGHT TECHNOLOGIES, INC., a Delaware corporation
("Technologies"), MEC HEALTH CARE, INC., a Maryland corporation ("MEC"), LSI
ACQUISITION, INC., a New Jersey corporation ("LSI"), LASERSIGHT CENTERS
INCORPORATED, a Delaware corporation ("Centers"), and MRF, INC., a Missouri
corporation ("MRF," together with LaserSight, Technologies, MEC, LSI, and
Centers, individually and collectively, jointly and severally, "Borrower"), with
reference to the following facts:
A. Foothill and Borrower heretofore have entered into that certain
Loan and Security Agreement, dated as of March 31, 1997, as amended
by that certain Consent and Amendment Number One to Loan and
Security Agreement dated as of July 28, 1997, and as further
amended by that certain Consent and Amendment Number Two to Loan
and Security Agreement dated as of August 29, 1997 (as amended, the
"Loan Agreement");
B. Borrower has requested that Foothill consent to the acquisition by
Borrower of a worldwide, limited license in certain U.S. letters
patent and foreign patents from Luis A. Ruiz, M.D. and Sergio
Lenchig (the "Transaction") and to the amendment of the Loan
Agreement to permit Borrower to incur the Indebtedness associated
with the acquisition of such patent license rights;
C. Foothill is willing to consent to the Transactions and to amend the
Loan Agreement, in each case, in accordance with the terms and
conditions hereof; and
D. All capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Loan Agreement, as amended hereby.
NOW, THEREFORE, in consideration of the above recitals and the mutual
premises contained herein, Foothill and Borrower hereby agree as follows:
<PAGE>
1. Amendments to the Loan Agreement.
a. Section 1.1 of the Loan Agreement hereby is amended to include
the following defined terms:
"Lenchig" means Sergio Lenchig, an individual.
"License Agreement" means that certain License and Royalty Agreement,
dated as of September 10, 1997, among Technologies, Ruiz and Lenchig, in
form and substance satisfactory to Foothill.
"Ruiz" means Luis A. Ruiz, M.D., an individual.
"Ruiz/Lenchig Reserve" means a reserve of $800,000 against the
Borrowing Base, which reserve shall remain in effect until the earlier to
occur of: (i) the indefeasible termination, without any continuing recourse
of Ruiz or Lenchig against Borrower or liability of Borrower to Ruiz or
Lenchig, of the License Agreement, or (ii) Ruiz and Lenchig entering into a
revised Consent Agreement with Foothill in form and substance acceptable to
Foothill in its sole discretion permitting the encumbrance and further
assignment of the rights, title and interest of Technologies under the
License Agreement.
b. Section 1.1 of the Loan Agreement is hereby amended to revise
the following defined terms:
"Change of Contract" is amended to read "Change of Control" to correct
a typographical error.
"Guarantor" means, collectively, LST Laser, S.A. (Costa Rica), a
corporation organized under the laws of Costa Rica, Photomed Acquisition,
Inc., a Delaware corporation, and LaserSight Patents, Inc., a Delaware
corporation.
c. The second sentence of Section 2.1 (a) of the Loan Agreement
is hereby amended to read as follows:
For purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean the result of:
(x) 80% of Eligible Contract Receivables, minus
(y) the Ruiz/Lenchig Reserve, if applicable, minus
(z) the aggregate amount of reserves, if any, established by
Foothill under Section 2.1(b).
<PAGE>
d. Section 7.1 of the Loan Agreement hereby is amended to add the
following as a new clause (e):
"(e) Indebtedness evidenced by the License Agreement."
e. Section 7.8 of the Loan Agreement hereby is amended to add a
reference to Section 7.1(e) in the Section 7.1 references in subsection (b)
thereof.
2. Foothill's Consent. Foothill hereby consents to the Transaction,
and agrees that the Transactions shall be deemed not to cause any Default or
Event of Default under the Loan Agreement, as amended by this Consent and
Amendment.
3. Representations and Warranties. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Consent and Amendment and of the Loan Agreement, as amended by this Consent and
Amendment, are within its corporate powers, have been duly authorized by all
necessary corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any contract or undertaking to which it is a party or by which any
of its properties may be bound or affected, and (b) this Consent and Amendment
and the Loan Agreement, as amended by this Consent and Amendment, constitute
Borrower's legal, valid, and binding obligation, enforceable against Borrower in
accordance with its terms.
4. Conditions Precedent to the Effectiveness of this Consent and
Amendment. The effectiveness of this Consent and Amendment is subject to the
fulfillment, to the satisfaction of Foothill and its counsel, of each of the
following conditions:
a. Foothill shall have received each of the following documents,
duly executed, and each such document shall be in full force and effect:
(1) Consent Agreement, in form and substance satisfactory to
Foothill, executed and delivered by Ruiz and Lenchig in favor of Foothill
(the "Ruiz/Lenchig Consent");
b. Ruiz and Lenchig shall have executed and delivered to Foothill
such additional documents, instruments and agreements as Foothill shall require;
c. Foothill shall have received a copy, certified by an
appropriate officer of Technologies as being true and correct, of the License
Agreement, and any other documents or instruments executed and/or delivered in
connection therewith, each of which shall be in form and substance satisfactory
to Foothill;
<PAGE>
d. No Material Adverse Change in the financial condition of
Borrower or in the value of the Collateral shall have occurred;
e. The representations and warranties in this Consent and
Amendment, the Loan Agreement as amended by this Consent and Amendment, and the
other Loan Documents shall be true and correct in all respects on and as of the
date hereof, as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date);
f. No Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default shall have occurred and
be continuing on the date hereof, nor shall result from the consummation of the
transactions contemplated herein; and
g. No injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the consummation of the transactions
contemplated herein shall have been issued and remain in force by any
governmental authority against Borrower, Foothill, or any of their Affiliates.
5. Effect on Loan Agreement. The Loan Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Consent and Amendment shall not operate as a
waiver of or, except as expressly set forth herein, as an amendment, of any
right, power, or remedy of Foothill under the Loan Agreement, as in effect prior
to the date hereof.
6. Further Assurances. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time, to perfect and maintain the perfection and priority of Foothill's security
interests in the Collateral and to fully consummate the transactions
contemplated under this Consent and Amendment and the Loan Agreement, as amended
by this Consent and Amendment.
7. Miscellaneous.
a. Upon the effectiveness of this Consent and Amendment, each
reference in the Loan Agreement to "this Agreement," "hereunder," "herein,"
"hereof," or words of like import referring to the Loan Agreement shall mean and
refer to the Loan Agreement as amended by this Consent and Amendment.
<PAGE>
b. Upon the effectiveness of this Consent and Amendment, each
reference in the Loan Documents to the "Loan Agreement," "thereunder,"
"therein," "thereof," or words of like import referring to the Loan Agreement
shall mean and refer to the Loan Agreement as amended by this Consent and
Amendment.
c. This Consent and Amendment shall be governed by and construed
in accordance with the laws of the State of California.
d. This Consent and Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Consent and Amendment
by signing any such counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Consent and
Amendment to be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Albert R. Joseph
-----------------------------
Title: Vice President
-------------------------
LASERSIGHT INCORPORATED,
a Delaware corporation
By: /s/ Gregory L. Wilson
----------------------------
Title: Chief Financial Officer
-------------------------
LASERSIGHT TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Gregory L. Wilson
----------------------------
Title: Vice President
-------------------------
MEC HEALTH CARE, INC.,
a Maryland corporation
By: /s/ Gregory L. Wilson
----------------------------
Title: Vice President
-------------------------
<PAGE>
LSI ACQUISITION, INC.,
a New Jersey corporation
By: /s/ Gregory L. Wilson
----------------------------
Title: Secretary/Treasurer
--------------------------
LASERSIGHT CENTERS INCORPORATED,
a Delaware corporation
By: /s/ Gregory L. Wilson
----------------------------
Title: Vice President
-------------------------
MRF, INC.,
a Missouri corporation
By: /s/ Gregory L. Wilson
----------------------------
Title: Secretary/Treasurer
-------------------------
INDEPENDENT CONTRACTOR AGREEMENT
--------------------------------
THIS INDEPENDENT CONTRACTOR AGREEMENT (this "Agreement") is made and
entered into as of the ____ day of May 1997, and is effective as of January 1,
1997 (the "Effective Date"), by and between LASERSIGHT TECHNOLOGIES, INC., a
Delaware corporation ("LaserSight"), and Byron A. Santos, M.D. ("Physician").
W I T N E S E T H
-----------------
WHEREAS, Physician offers and LaserSight desires the services of
Physician for the provision of certain consulting services as more fully
described hereunder;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein set forth, the parties hereto agree as follows:
1. Consulting Services. Physician shall be available for a minimum of
forty (40) hours each month in order to perform the following consulting
services (the "Services"), the Services to be performed in St. Louis, Missouri:
(a) assist LaserSight in the development of clinical protocols for
utilization in connection with Laser Trabeculodissection;
(b) assist LaserSight in the development of the LaserScan-2000 excimer
laser system;
(c) assist in the start-up and training of Dr. Zimmerman in connection
with his Phase I FDA clinical study;
(d) provide such other consulting services as LaserSight may reasonably
request;
(e) supervision of clinical research and development programs in PRK
and PARK to quantify the proposed advantages of:
(i) energy stabilization;
(ii) infrared tracking;
(iii) 200 hz pulse repetition;
(iv) topography-guided PARK; and
(v) simulated PRK.
<PAGE>
2. Consideration. As consideration for the Services to be performed by
Physician hereunder, LaserSight shall pay to Physician the sum of Eight Thousand
Dollars ($8,000.00) per month during the Term (as hereinafter defined).
3. Term. The term of this Agreement shall commence on the Effective
Date and shall continue for a period of sixty (60) months thereafter ("Term"),
unless earlier terminated as provided herein.
4. Termination. LaserSight may terminate this Agreement at any time if
Physician fails to perform the Services.
5. Nondisclosure of Confidential Information. Physician acknowledges
and agrees that he may have access to LaserSight's confidential business plans,
patents, copyrights, trademarks, tradenames, trade secrets, methods of
operations, performance standards, pricing policies, marketing strategies,
records and other information about LaserSight's operations and business of a
confidential nature ("Confidential Information"), and that Physician shall not
in any manner, directly or indirectly, disclose or divulge to any person or
other entity whatsoever whether directly or indirectly in competition with
LaserSight the Confidential Information to any other person, firm, corporation
or other third party for any use or purpose, except as required by law or with
the express written authorization of LaserSight.
6. Intellectual Property Rights. Physician acknowledges and agrees that
in consideration for the payments to be received hereunder all creative works
Physician produces in connection with the Services which relate to LaserSight's
actual or demonstrably anticipated research or development, including, without
limitation, any invention, formula, pattern, compilation, computer program (and
related documentation and source code), device, method, technique, drawing,
process or other intellectual property or property right, shall be considered to
have been prepared for LaserSight as a part of and pursuant to this Agreement.
Physician shall disclose to LaserSight the existence of such works when he
becomes aware of their existence, and Physician agrees that any such work shall
be owned by LaserSight regardless of whether it would otherwise be considered a
work made for hire. Physician agrees to execute any documents which LaserSight
deems necessary to protect LaserSight's interest, including assignments, and
further agrees to give evidence and testimony and take any other reasonable
actions as may be necessary, to secure and enforce LaserSight's rights.
7. Remedies. In the event of a breach by Physician of any of the
provisions of this Agreement, LaserSight, in addition and as a supplement to
such other rights and remedies as may exist in its favor, may apply to any court
of law or equity having jurisdiction to enforce the specific performance of this
Agreement to the extent traditionally available and/or may apply for injunctive
relief against any act which would violate any of the provisions of this
Agreement. If LaserSight shall breach this Agreement, Physician shall have all
rights and remedies available at law or in equity.
<PAGE>
8. Costs and Expenses. In the event of any dispute among any of the
parties hereto involving the failure to perform or breach of any obligation
under this Agreement, the prevailing party in any litigation shall, in addition
to amounts determined to be owed hereunder, be entitled to the reasonable
attorneys' fees, court costs, cost of an investigation and other costs incurred
in connection with the dispute.
9. Notice. Any notice required or permitted hereunder shall be given in
writing and shall be effective for all purposes if hand delivered to the party
designated below, or placed in the United States mail, postage prepaid,
addressed to the addresses set forth below such party's signature, or to such
other address and persons as shall be designated from time to time by any party
hereto in a written notice to the other in the manner provided for in this
paragraph. The notice shall be deemed to have been given upon deposit in the
United States mail, postage prepaid, or at the time of delivery if hand
delivered. A party receiving notice which does not comply with the technical
requirements for notice under this paragraph may elect to waive any deficiencies
and treat the notice as having been properly given.
10. Independent Contractors. LaserSight and Physician are independent
contractors and this Agreement shall not constitute the formation of a
partnership, joint venture, employment or master/servant relationship. The
parties shall not exercise control over the performance of the other hereunder.
11. Amendment. This Agreement may only be amended or modified in whole
or in part by an instrument in writing executed in the same manner as this
Agreement and making specific reference thereto.
12. Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with respect to Physician's consulting obligations,
covenants not to compete and the consideration therefor. Nothing herein shall
limit either of the parties' rights or remedies available in law or equity.
13. Waivers. The failure of any party to enforce at any time any of the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement, or
any part hereof, or the right of such party thereafter to enforce each and every
provision in accordance with the terms of this Agreement.
14. Controlling Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, determined without
reference to conflict of laws principles.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed effective as of the day and year first above written.
LASERSIGHT TECHNOLOGIES, INC. BYRON A. SANTOS, M.D.
By: /s/ William K. Kern /s/ Byron A. Santos, M.D.
------------------------- --------------------------
Its: Byron A. Santos, M.D.
Address: Address:
LaserSight Technologies, Inc. 1028 S. Kirkwood
12249 Science Drive St. Louis, MO 63122
Orlando, Florida 32826
Attn: President
With a Copy To:
LaserSight Incorporated
12161 Lackland Road
St. Louis, Missouri 63146
Attn: Chief Executive Officer
<TABLE>
EXHIBIT 11
LASERSIGHT INCORPORATED
COMPUTATION OF PER SHARE EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 9,812,000 7,639,000 9,342,000 7,238,000
Net effect of dilutive stock options and warrants -- -- -- --
---------------------------- -----------------------------
9,812,000 7,639,000 9,342,000 7,238,000
============================ =============================
Net loss $(2,408,878) $(2,053,686) $(5,499,410) $(3,310,390)
Dividends and accretion on preferred stock (41,573) (77,674) (54,923) (345,694)
---------------------------- -----------------------------
Adjusted loss $(2,450,451) $(2,131,360) $(5,554,333) $(3,656,084)
============================ =============================
Primary loss per share $(0.25) $(0.28) $(0.59) $(0.51)
============================ =============================
Additional Primary Calculation:
Net loss, as adjusted per computation above $(2,450,451) $(2,131,360) $(5,554,333) $(3,656,084)
============================ =============================
Additional adjustment to weighted average # of shares:
Weighted average # of shares as adjusted per above 9,812,000 7,639,000 9,342,000 7,238,000
Dilutive effect of contingently issuable shares and
stock options and warrants 151,000 603,000 161,000 574,000
---------------------------- -----------------------------
Weighted average # of shares, as adjusted 9,963,000 8,242,000 9,503,000 7,812,000
============================ =============================
Primary loss per share, as adjusted $(0.25) $(0.26)(A) $(0.58) $(0.47)(A)
============================ =============================
FULLY DILUTED
Weighted average shares outstanding 9,812,000 7,639,000 9,342,000 7,238,000
Net effect of dilutive stock options and warrants -- -- -- --
Effect of converted preferred stock and dividends from
beginning of period -- 378,000 48,000 610,000
---------------------------- -----------------------------
9,812,000 8,017,000 9,390,000 7,848,000
============================ =============================
Net loss $(2,408,878) $(2,053,686) $(5,499,410) $(3,310,390)
Dividends and accretion on preferred stock, net of
dividends on preferred stock converted during period (41,573) (77,674) (41,573) (345,694)
---------------------------- -----------------------------
Adjusted loss $(2,450,451) $(2,131,360) $(5,540,983) $(3,656,084)
============================ =============================
Fully diluted loss per share $(0.25) $(0.27) $(0.59) $(0.47)
============================ =============================
Additional Fully Diluted Calculation:
Net loss, as adjusted per computation above $(2,450,451) $(2,131,360) $(5,540,983) $(3,656,084)
============================ =============================
Additional adjustment to weighted average # of
shares:
Weighted average # of shares as adjusted per above 9,812,000 8,017,000 9,390,000 7,848,000
Dilutive effect of contingently issuable shares, stock
options and warrants and convertible preferred stock 867,000 766,000 403,000 730,000
---------------------------- -----------------------------
Weighted average # of shares, as adjusted 10,679,000 8,783,000 9,793,000 8,578,000
============================ =============================
Fully diluted loss per share, as adjusted $(0.23) $(0.24)(A) $(0.57) $(0.43)(A)
============================ =============================
(A) - This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No.
15 because it produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,164,158
<SECURITIES> 0
<RECEIVABLES> 8,732,150
<ALLOWANCES> 1,180,143
<INVENTORY> 3,991,541
<CURRENT-ASSETS> 13,877,425
<PP&E> 3,488,252
<DEPRECIATION> 1,273,959
<TOTAL-ASSETS> 54,795,449
<CURRENT-LIABILITIES> 9,350,797
<BONDS> 0
14,374,027
0
<COMMON> 10,150
<OTHER-SE> 28,735,942
<TOTAL-LIABILITY-AND-EQUITY> 54,795,449
<SALES> 18,083,073
<TOTAL-REVENUES> 18,083,073
<CGS> 7,384,856
<TOTAL-COSTS> 7,384,856
<OTHER-EXPENSES> 15,377,846
<LOSS-PROVISION> 200,087
<INTEREST-EXPENSE> 911,966
<INCOME-PRETAX> (5,499,410)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,499,410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,499,410)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
</TABLE>
