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, 1998.
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.)
3300 University Blvd., Suite 140, Winter Park, Florida 32792
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(407) 678-9900
--------------
(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, 1998 is 13,157,635.
1
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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 section entitled "Risk Factors" in the Company's
Registration Statement on Form S-3/A (file no. 333-59369) filed on August 31,
1998. The Company undertakes no obligation to update any such factors or to
publicly announce the results of any revisions to any of the forward-looking
statements contained herein to reflect any future events or developments.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September
30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations for
the Three Month Periods and Nine Month Periods Ended
September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for
the Nine Month Periods Ended September 30, 1998 and
1997
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
2
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<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
--------------- --------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 9,272,460 $ 3,858,400
Marketable equity securities -- 7,475,000
Accounts receivable - trade, net 5,073,299 2,649,202
Notes receivable - current portion, net 5,364,823 3,762,341
Inventories 7,222,769 4,348,235
Deferred tax assets 401,379 571,009
Other current assets 222,759 219,723
--------------- --------------
TOTAL CURRENT ASSETS 27,557,489 22,883,910
Restricted cash 194,000 200,000
Notes receivable, less current portion, net 3,176,357 2,380,193
Property and equipment, net 1,497,316 1,354,168
Patents, net 4,590,426 11,275,289
Pre-market approval application, net 3,890,734 2,571,682
Goodwill, net 6,684,020 7,077,491
Other assets, net 2,006,822 2,718,340
--------------- --------------
$ 49,597,164 $ 50,461,073
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,113,421 $ 2,142,979
Note payable, less discount -- 1,758,333
Accrued expenses 2,504,799 2,782,521
Accrued commissions 1,601,095 1,230,474
Income tax payable 11,409 1,255,491
Deferred royalty revenue, current portion 400,000 --
Other current liabilities 1,057,235 984,412
--------------- --------------
TOTAL CURRENT LIABILITIES 7,687,959 10,154,210
Refundable deposits 194,000 200,000
Accrued expenses, less current portion 636,965 518,730
Deferred royalty revenue, less current portion 533,333 --
Deferred income taxes 401,379 571,009
Long-term obligations 500,000 500,000
Commitments and contingencies
Redeemable convertible preferred stock:
Series B - par value $.001 per share; authorized 1,600 shares: 0 and 1,295
issued and outstanding at September 30, 1998 and December 31, 1997, -- 11,477,184
respectively
Stockholders' equity:
Convertible preferred stock:
Series C - par value $.001 per share; authorized 2,000,000 shares; 2,000,000 and
zero issued and outstanding at September 30, 1998 and December 31, 1997,
respectively 2,000
Series D - par value $.001 per share; authorized 2,000,000 shares; 2,000,000 and
zero issued and outstanding at September 30, 1998 and December 31, 1997,
respectively 2,000
Common stock - par value $.001 per share; authorized 40,000,000 shares;
13,312,835 and 10,149,872 shares issued at September 30, 1998 and 13,313 10,150
December 31, 1997, respectively
Additional paid-in capital 59,073,323 40,045,564
Stock subscription receivable (1,140,000) (1,140,000)
Accumulated deficit (17,730,224) (11,865,914)
Accumulated other comprehensive income - unrealized gain -- 604,500
Less treasury stock, at cost; 155,200 and 165,200 common shares at
September 30, 1998 and December 31, 1997, respectively (576,884) (614,360)
--------------- --------------
39,643,528 27,039,940
--------------- --------------
$ 49,597,164 $ 50,461,073
=============== ==============
See accompanying notes to the condensed consolidated financial statements.
3
</TABLE>
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- ------------------------------------
1998 1997 1998 1997
--------------- ---------------- ---------------- ----------------
REVENUES:
<S> <C> <C> <C> <C>
PRODUCTS $ 5,121,834 $ 2,677,831 $13,947,836 $ 8,362,374
SERVICES 138,780 3,478,528 504,977 9,720,699
--------------- ---------------- ---------------- ----------------
5,260,614 6,156,359 14,452,813 18,083,073
COST OF REVENUE:
PRODUCT COST 1,444,653 1,068,498 4,334,274 2,934,001
COST OF SERVICES 61,063 2,421,783 222,190 6,725,488
--------------- ---------------- ---------------- ----------------
GROSS PROFIT 3,754,898 2,666,078 9,896,349 8,423,584
RESEARCH, DEVELOPMENT AND REGULATORY
EXPENSES 923,850 816,522 2,485,194 1,729,153
SELLING RELATED EXPENSES 1,421,818 623,060 3,385,971 1,982,269
OTHER GENERAL AND ADMINISTRATIVE
EXPENSES 3,239,836 2,746,800 8,073,145 8,324,327
AMORTIZATION 542,577 499,181 1,677,598 987,151
--------------- ---------------- ---------------- ----------------
5,204,231 3,869,041 13,136,714 11,293,747
--------------- ---------------- ---------------- ----------------
LOSS FROM OPERATIONS (2,373,183) (2,019,485) (5,725,559) (4,599,316)
OTHER INCOME AND EXPENSES
Interest and dividend income 224,525 94,401 450,823 292,272
Interest expense (1,272) (483,794) (721,813) (911,966)
Gain on sale of investments and
subsidiaries
and other -- -- 364,452 (280,400)
--------------- ---------------- ---------------- ----------------
NET LOSS BEFORE INCOME TAXES (2,149,930) (2,408,878) (5,632,097) (5,499,410)
INCOME TAX PROVISION -- -- 232,213 --
--------------- ---------------- ---------------- ----------------
NET LOSS (2,149,930) (2,408,878) (5,864,310) (5,499,410)
CONVERSION DISCOUNT ON
PREFERRED STOCK -- (41,573) (858,872) (41,573)
PREFERRED STOCK ACCRETION
AND DIVIDEND REQUIREMENTS -- -- (2,751,953) (13,350)
--------------- ---------------- ---------------- ----------------
LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $(2,149,930) $(2,450,451) $(9,475,135) $(5,554,333)
=============== ================ ================ ================
LOSS PER COMMON SHARE
Basic and Diluted: ($0.17) ($0.25) ($0.79) ($0.59)
=============== ================ ================ ================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic and Diluted: 12,935,000 9,812,000 11,969,000 9,342,000
=============== ================ ================ ================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (5,864,310) $ (5,499,410)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,559,904 1,814,587
Gain on sale of investments and subsidiaries (364,452) --
Decrease (increase) in accounts and notes receivable (4,676,783) 292,828
Increase in inventories (1,647,853) (879,348)
Increase (decrease) in accounts payable (95,132) 308,885
Increase (decrease) in accrued expenses (88,520) 724,447
Income taxes (873,582) 780,750
Deferred royalties 933,333 --
Other 466,003 (498,467)
----------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (9,651,392) (2,955,728)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net (459,753) (517,206)
Acquisition of other intangible assets (989,874) (15,379,988)
Net proceeds from exclusive and non-exclusive license of patents 6,170,000 4,000,000
Proceeds from sale of investments 6,527,452 --
Transfer to restricted cash account (4,200,000) (3,200,000)
Proceeds from restricted cash account 4,228,000 --
Purchase of managed care contract -- (150,000)
----------------- ------------------
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES 11,275,825 (15,247,194)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants 482,072 98,363
Repurchase of preferred stock (10,512,000) --
Proceeds from issuance of notes payable, net -- 3,414,142
Repayments of notes payable (2,000,000) (1,000,000)
Repayments of capital lease obligation -- (152,195)
Proceeds from issuance of preferred stock, net 15,819,555 15,003,269
----------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,789,627 17,363,579
----------------- ------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,414,060 (839,343)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,858,400 2,003,501
----------------- ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,272,460 $ 1,164,158
================= ==================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Month Periods Ended September 30, 1998 and 1997
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial statements
of LaserSight Incorporated and subsidiaries (the Company) as of
September 30, 1998, and for the three and nine month periods ended
September 30, 1998 and 1997 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,
1997. 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,
1998 are not necessarily indicative of the operating results for the
full year.
NOTE 2 PER SHARE INFORMATION
Basic loss per common share is computed using the weighted average
number of common shares and contingently issuable shares (to the extent
that all necessary contingencies have been satisfied). Diluted loss per
common share is computed using the weighted average number of common
shares, contingently issuable shares, and common share equivalents
outstanding during each period. Common share equivalents include
options, warrants to purchase Common Stock, and convertible Preferred
Stock and are included in the computation using the treasury stock
method if they would have a dilutive effect.
NOTE 3 ADOPTION OF NEW ACCOUNTING STANDARD
The Company adopted the provisions of the Statement of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income" on
January 1, 1998. SFAS No. 130 requires companies to classify items
defined as "other comprehensive income" by their nature in a financial
statement and to display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital
in the equity section of the balance sheet. The Company has presented
information for all periods reported below to conform to this standard.
6
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(2,149,930) $(2,408,878) $(5,864,310) $(5,489,410)
Other comprehensive loss:
Reversal of unrealized
gain on marketable
securities (net of tax
of $353,675) -- -- (577,048) --
Reclassification
adjustment for
gains included in net
loss (net of tax of
$16,825)
-- -- (27,452) --
------------ ------------ ------------ -------------
Comprehensive loss $(2,149,930) $(2,408,878) $(6,468,810) $(5,489,410)
============ ============ ============ ============
</TABLE>
NOTE 4 INVENTORIES
Inventories, which consist primarily of excimer and erbium laser
systems and related 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, 1998 and
December 31, 1997 are summarized as follows:
<TABLE>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Raw materials - excimer related $4,391,985 $3,058,782
Raw materials - erbium related 816,114 --
Work-in-process - excimer related 292,426 263,353
Work-in-process - erbium related 459,424 --
Finished goods - excimer related 1,024,180 862,775
Finished goods - erbium related 99,000 --
Test equipment - clinical trials 187,497 263,325
Training/show units - erbium related 273,395 --
--------------- --------------
7,544,021 4,448,235
Less reserve for obsolescence 321,252 100,000
=============== ==============
$7,222,769 $4,348,235
=============== ==============
</TABLE>
NOTE 5 MARKETABLE EQUITY SECURITIES
Through September 30, 1998, the Company received net proceeds of
$6,527,452 in exchange for the sale of shares of Vision Twenty-One,
Inc. (Vision 21) common stock received in connection with the December
1997 sale of MEC Health Care, Inc. (MEC) and LSI Acquisition, Inc.
(LSIA) to Vision 21. Through September 30, 1998, the Company realized a
gain on the sale of such stock of $27,452. The Company is pursuing
additional amounts believed due from Vision 21 pursuant to the Stock
Distribution Agreement between the companies.
7
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NOTE 6 SALE OF INTERNATIONAL PATENT RIGHTS
In February 1998, the Company closed a transaction for the sale of
certain rights in certain patents to Nidek Co., Ltd. (Nidek) in
exchange for $6.3 million in cash (of which $200,000 was withheld for
the payment of Japanese taxes). The Company transferred all rights in
those patents issued in countries outside of the United States (U.S.)
but retained the exclusive right to use and sublicense the non-U.S.
patents in all fields other than ophthalmic, cardiovascular and
vascular. The Company received a non-exclusive license to the non-U.S.
patents in the ophthalmic field. In addition, the Company has granted a
non-exclusive license to use those patents issued in the U.S., which
resulted in $1.2 million of deferred royalties that are being amortized
to income over three years. The transaction did not result in any
current gain or loss, but reduced the Company's amortization expense
over the remaining useful life (approximately 8 years) of the U.S.
patents.
NOTE 7 COMMITMENTS AND CONTINGENCIES
Photomed Amendment
------------------
On September 11, 1998, the Company entered into an amendment with
Photomed, Inc. (Photomed) amending the Agreement and Plan of Merger
dated July 15, 1997 by which the Company acquired a laser in situ
keratomileusis (LASIK) Pre-Market Approval (PMA) application. The
amended terms of the agreement follow. In September 1998, based on a
U.S. Food and Drug Administration (FDA) approval received in July 1998,
the Company paid Photomed a total of $1,740,000, of which $990,000 was
paid in cash and the balance paid through the issuance of 187,500
shares of Common Stock. Upon receipt of FDA approval of a laser for the
treatment of hyperopia, utilizing part or all of the know how of the
laser acquired, the Company is required to issue up to $1 million in
Common Stock with the obligation decreasing approximately $2,740 per
day beginning June 1, 1999 and terminating June 1, 2000. Upon receipt
of FDA approval of equivalency of the Company's refractive scanning
laser to the laser acquired, payment of up to $1 million in cash is due
if the approval is obtained within four months after Photomed takes
delivery of the Company's refractive scanning laser. Such obligation
decreases approximately $2,740 per day after such four month period.
If, prior to August 1, 1999, the Company's gross sales of refractive
lasers for final use within the United States exceeds $14 million,
Photomed is to receive 25% of gross sales in excess of $14 million.
Litigation
----------
On August 3, 1998, Mercacorp, Inc. filed an action in the U. S.
District Court for the Eastern District of New York against the
Company, the President and Chief Executive Officer of the Company, Wall
& Broad Equities, Inc., a "purported investment banking establishment"
and Isaac Weinhouse, the principal of such purported investment banking
establishment, asserting violations of Section 10(b) of the Securities
and Exchange Act of 1934 and common law fraud in connection with the
alleged issuance of false press releases, misrepresentations and
omissions by all of the defendants on which the plaintiff allegedly
relied in purchasing the Company's Common Stock. The action seeks both
actual and punitive monetary damages from the Company in the amounts of
$5 million and $50 million, respectively. On November 11, 1998, the
plaintiff dismissed the action, with prejudice, and the parties agreed
to a release of all claims. In connection with the dismissal and
release of claims the Company issued the plaintiff two separate
warrants to purchase Common Stock. Under the first warrant, the
plaintiff is entitled to purchase up to 750,000 shares of Common Stock
at an exercise price of $4.00 per share, the closing bid price on
8
<PAGE>
November 10, 1998, and under the second warrant, the plaintiff is
entitled to purchase up to 750,000 shares of Common Stock at an
exercise price of $5.00 per share. Both of the warrants contain certain
prohibitions against assignment and transfer to third parties as well
as other terms and conditions. No provision has been made in the
condensed consolidated financial statements with respect to this matter
as of September 30, 1998.
NOTE 8 STOCKHOLDERS' EQUITY
TLC Private Placement
In June 1998, the Company entered into a Securities Purchase Agreement
with TLC The Laser Center Inc. (TLC), pursuant to which the Company
issued 2,000,000 shares of newly-created Series C Convertible
Participating Preferred Stock (Series C Preferred Stock) with a face
value of $4.00 per share, resulting in an aggregate offering price of
$8 million. The Series C Preferred Stock is convertible by TLC on a
fixed, one-for-one basis into 2,000,000 shares of Common Stock at any
time until June 2001, on which date all shares of Series C Preferred
Stock then outstanding will automatically be converted into an equal
number of shares of Common Stock.
The net proceeds to the Company, after deduction of costs of issuance,
was approximately $7.9 million. The net proceeds were partially used to
repurchase all 525 outstanding shares of the Company's Series B
Convertible Participating Preferred Stock (Series B Preferred Stock) on
June 5, 1998 for approximately $6.3 million, including a 20% premium.
Pequot Private Placement
In June 1998, the Company entered into a Securities Purchase Agreement
with Pequot Private Equity Fund, L.P., Pequot Scout Fund, L.P., and
Pequot Offshore Private Equity Fund, Inc. (Pequot Funds), pursuant to
which the Company issued, collectively, 2,000,000 shares of the
newly-created Series D Convertible Participating Preferred Stock
(Series D Preferred Stock) with a face value of $4.00 per share,
resulting in an aggregate offering price of $8 million. The Series D
Preferred Stock is convertible by the Pequot Funds on a one-for-one
basis into 2,000,000 shares of Common Stock at any time until June
2001, on which date all shares of Series D Preferred Stock then
outstanding will automatically be converted into an equal number of
shares of Common Stock. The Series D Preferred Stock is subject to
certain anti-dilution adjustments if the Company issues or sells shares
of Common Stock before June 2001 at a price per share less than $4.00.
The net proceeds to the Company, after deduction of costs of issuance,
was approximately $7.9 million.
Series B Preferred Stock Repurchase
In June 1998, the Company repurchased the remaining 525 shares of
Series B Preferred Stock, representing an aggregate face amount of
$5,250,000, using proceeds from the issuance of Series C Preferred
Stock, at a 20% premium. Prior to such date, the holders of Series B
Preferred Stock had converted 419 shares of Series B Preferred Stock
into 2,392,220 shares of Common Stock. In February 1998, the holders of
the Series B Preferred Stock had exercised an option to require the
Company to repurchase 351 shares of Series B Preferred Stock, also at a
20% premium, using proceeds from the sale of international patent
rights (see Note 6).
9
<PAGE>
The amount of the repurchase price in excess of the carrying value of
the Series B Preferred Stock repurchased and a pro rata portion of
Series B Preferred Stock-related financing costs increased the loss
attributable to common shareholders for the nine month period ended
September 30, 1998.
Issuance of Common Stock
In July 1998, the Company issued 102,798 shares of Common Stock in
connection with its acquisition of the assets of the Northern New
Jersey Eye Institute (NNJEI) in July 1996. The shares were issuable as
of July 3, 1998 because the Company's quoted stock price was lower than
$15.00 per share on that date. Because the fair value of the purchase
consideration was determinable at the date of acquisition and was
recorded at that time, the entry upon the issuance of the shares was to
record the par value of the shares of Common Stock issued with the
offset to additional paid-in capital.
NOTE 9 ACQUISITION
In April 1998, the Company and Schwartz Electro-Optics, Inc. (SEO)
completed an acquisition whereby the Company purchased substantially
all of the assets, and assumed certain liabilities, of SEO's medical
products division (the Division) in exchange for 305,820 shares of the
Company's Common Stock. The Company is contingently obligated to issue
up to 223,280 additional shares on April 15, 1999 if its five day
average Common Stock price is not then $5.00 or greater. The value of
the acquisition was $1,250,000. The Division develops, tests,
manufacturers, assembles, and sells lasers and their related equipment,
accessories, parts, and software for medical and medical research
applications. The Division's primary focus is erbium lasers, which are
primarily used to perform dermatology procedures.
The acquisition was accounted for using the purchase method.
Accordingly, the Division's results of operations are included in the
Company's consolidated financial statements subsequent to the
acquisition date. The fair value of the purchase consideration was
determined at the date of acquisition and was recorded at that time. If
and when the additional shares of Common Stock are issued in April
1999, the entry will be to record the par value of the shares of Common
Stock with the offset to additional paid-in capital. The acquisition
did not have a material effect on the assets or operations of the
Company.
NOTE 10 NOTES PAYABLE
In June 1998, the Company repaid its note payable to Foothill Capital
Corporation (Foothill) of $2,000,000 and also terminated its line of
credit arrangement with Foothill.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenue. The following tables present the Company's revenue by major operating
segments: technology related and health care services for the three and nine
month periods ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Revenue % of Total Revenue % of Total
<S> <C> <C> <C> <C>
Technology $5,121,834 97% $2,677,831 43%
Health care services 138,780 3% 3,478,528 57%
---------- --- ----------- ---
Total revenue $5,260,614 100% $6,156,359 100%
=========== ==== =========== ====
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Revenue % of Total Revenue % of Total
Technology $13,947,836 97% $8,362,374 46%
Health care services 504,977 3% 9,720,699 54%
------------ --- ---------- ---
Total revenue $14,452,813 100% $18,083,073 100%
============ ==== =========== ====
</TABLE>
Revenue in the third quarter of 1998 was $5,260,614, compared to $6,156,359 (for
a decrease of $895,745) over the same period in 1997. Revenue for the nine-month
period ended September 30, 1998, decreased by $3,630,260 to $14,452,813 from the
same period in 1997. Technology revenues increased $2,444,003 and $5,585,462
during the three and nine-month periods ended September 30, 1998, respectively,
compared to the same periods in 1997. These technology revenue increases were
primarily a result of (i) a higher level of laser system sales during the three
and nine month periods ended September 30, 1998; (ii) a fourteen percent
increase in the average selling price of laser systems resulting from increased
sales of the Company's higher-priced LSX model and fewer sales of the
lower-priced LS-300 model; (iii) an increase in revenues generated from the sale
of service contracts; and (iv) revenues generated from royalty payments earned
on intellectual property agreements. Thirteen laser systems were sold in the
third quarter of 1998 compared to ten system sales during the third quarter of
1997. Forty-two laser systems were sold during the nine month period ended
September 30, 1998, compared to thirty-three systems sold during the same period
in 1997.
More than offsetting the increases in technology revenues were decreases in
health care services revenue ($3,339,748 and $9,215,722 for the three and nine
month periods ended September 30, 1998, respectively, compared to the same
periods in 1997), which was attributable to the sale of MEC and LSIA to Vision
21 in a transaction effective as of December 1, 1997. These two subsidiaries
contributed $3,120,298 and $8,710,401 in revenues during the three and
nine-month periods ended September 30, 1997, respectively. All of the Company's
health care services revenue for the first nine months of 1998 was provided by
MRF, Inc., d/b/a The Farris Group (TFG). Net revenue for TFG in the third
quarter of 1998 was $138,780 compared to $358,230 (for a decrease of $219,450)
over the same period in 1997. This decrease was accompanied by a $339,227
11
<PAGE>
reduction in expenses over the same three-month period in 1997. Net revenue for
TFG during the nine-month period ended September 30, 1998, was $504,977 compared
to $1,010,298 (for a decrease of $505,321) for the same period in 1997. That
decrease was accompanied by a $709,805 reduction in expenses over the same
period in 1997.
Cost of Revenue; Gross Profits. The following tables present a comparative
analysis of cost of revenue, gross profit and gross profit margins for three and
nine month periods ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1998 Percent Change September 30, 1997
------------------ -------------- ------------------
<S> <C> <C> <C>
Product cost $1,444,653 35% $1,068,498
Cost of services 61,063 (97%) 2,421,783
Gross profit 3,754,898 41% 2,666,078
Gross profit percentage 71% 43%
Products only 3,677,181 128% 1,609,333
72% 60%
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1998 Percent Change September 30, 1997
------------------ -------------- ------------------
Product cost $4,334,274 48% $2,934,001
Cost of services 222,190 (97%) 6,725,488
Gross profit 9,896,349 17% 8,423,584
Gross profit percentage 68% 47%
Products only 9,613,562 77% 5,428,373
69% 65%
</TABLE>
Gross profit margins were 71% of net sales in the third quarter of 1998 compared
to 43% for the same period in 1997. For the nine-month periods ended September
30, 1998 and 1997, gross profit margins were 68% and 47%, respectively. The
gross margin increase is primarily attributable to the sale of MEC and LSIA to
Vision 21 in a transaction effective as of December 1, 1997. Those two
subsidiaries operated at a gross margin of 26% for the three and nine month
periods ended September 30, 1997.
Research, Development and Regulatory Expense. The following tables present a
comparative analysis of research, development and regulatory expenses for the
three and nine month periods ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1998 Percent Change September 30, 1997
------------------ -------------- ------------------
<S> <C> <C> <C>
Research, development
and regulatory $ 923,850 13% $ 816,522
As a percentage of technology
Revenues 18% 30%
</TABLE>
12
<PAGE>
<TABLE>
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1998 Percent Change September 30, 1997
------------------ -------------- ------------------
<S> <C> <C> <C>
Research, development
and regulatory $2,485,194 44% $1,729,153
As a percentage of technology
Revenues 18% 21%
</TABLE>
Research, development and regulatory expenses for the third quarter of 1998 were
$923,850, an increase of $107,328 or 13% from such expenditures during the same
period in 1997. Research, development and regulatory expenses for the nine-month
period ended September 30, 1998 increased by $756,041 from $1,729,153 for the
same period in 1997, or 44%. The increase in research, development and
regulatory expenses during the three and nine month periods ended September 30,
1998, can primarily be attributed to ongoing research and development of new
scanning refractive laser systems, including continued development of the LSX
and add-on features for the LaserScan 2000, and continued software development
for the laser systems. Additionally, the Company has incurred increased costs
related to the FDA regulatory approval process, both for its own scanning laser
system and the LASIK laser system (for which the Company purchased the rights to
manufacture and commercialize if FDA approval is received--see Note 7 of Notes
to Condensed Consolidated Financial Statements). Additional costs have been
incurred in the clinical and manufacturing validation of the Automated
Disposable Keratome ("A*D*K"). Since the initial announcement of the development
of the A*D*K and LSX, the Company has solicited and received input from clinical
users and prospective customers. This has resulted in modifications to the
products, necessitating additional development and testing for clinical
validation. As a result of a continuation of the efforts described plus the
anticipated development of new product ideas, the Company expects research and
development expenses during the remainder of 1998 and 1999 to remain at levels
consistent with those incurred during the third quarter of 1998. Regulatory
expenses may increase 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 LASIK PMA acquired
in July 1997.
Selling Related Expenses. The following tables present a comparative analysis of
selling related expenses for the three and nine month periods ended September
30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1998 Percent Change September 30, 1997
------------------ -------------- ------------------
<S> <C> <C> <C>
Selling related expenses $1,421,818 128 % $ 623,060
Percentage of revenues 27 % 10 %
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1998 Percent Change September 30, 1997
------------------ -------------- ------------------
Selling related expenses $3,385,971 71 % $1,982,269
Percentage of revenues 23 % 11 %
</TABLE>
Selling related expenses consist of those items directly related to sales
activities, including commissions on sales, royalty or license fees, warranty
expenses, and costs of shipping and installation. Commissions and royalties, in
13
<PAGE>
particular, can vary significantly from sale to sale or period to period
depending on the location and terms of each sale.
Selling related expenses increased by $798,758 for the third quarter of 1998
compared to the same period in 1997. The primary reasons for this increase
include a higher level of laser system sales with an associated distributor
commission ($482,000), a higher level of royalty fees ($117,000) and higher
warranty expenses resulting from increased system sales.
Selling related expenses increased by $1,403,702 for the nine months ended
September 30, 1998 compared to the same period in 1997. The primary reasons for
this increase include a higher level of laser system sales with an associated
distributor commission ($519,000), a higher level of royalty fees ($473,000) and
higher warranty expenses resulting from increased system sales.
Other General and Administrative Expenses. The following tables present a
comparative analysis of other general and administrative expenses for the three
and nine month periods ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
September 30, 1998 Percent Change September 30, 1997
------------------ -------------- ------------------
<S> <C> <C> <C>
Other General and
Administrative $ 3,239,836 18% $ 2,746,800
Percentage of revenues 62% 45%
For the Nine Month For the Nine Month
Period Ended Period Ended
September 30, 1998 Percent Change September 30, 1997
------------------ -------------- ------------------
Other General and
Administrative $8,073,145 (3%) 8,324,327
Percentage of revenues 56% 46%
</TABLE>
Other general and administrative expenses increased by $493,036 for the third
quarter of 1998 compared to the same period in 1997. These increases were
necessary to fund the strategic initiatives of the Company and the development
of its products and services. Such efforts included enhancements to the customer
support, quality assurance, manufacturing and engineering departments
($397,000), costs of the aesthetic laser product acquired in April 1998
($218,000) and bad debt expense ($212,000). The total increase was partially
offset by the sale of MEC and LSIA ($491,000) and a reduction in the other
general and administrative expenses of TFG ($299,000).
Other general and administrative expenses decreased by $251,182 for the nine
months ended September 30, 1998 compared to the same period in 1997. This
decrease primarily resulted from the sale of MEC and LSIA ($1,504,000) and a
reduction in the other general and administrative expenses of TFG ($619,000).
Such decreases were partially offset by other increases, including to the
customer support, quality assurance, manufacturing and engineering departments
($656,000), costs of the aesthetic laser product acquired in April 1998
($424,000), bad debt expense ($275,000) and patent related expenses ($149,000),
which were nominal before August 1997.
Loss From Operations. There was an operating loss of $2,373,183 in the third
quarter of 1998 compared to an operating loss of $2,019,485 for the same period
in 1997, including TFG's losses (including goodwill amortization) of $101,980
and $221,757, respectively. The results are attributed to the sale of MEC and
LSIA, which generated income from operations of $199,052 during the third
quarter of 1997, and the increases in operating expenses previously described.
14
<PAGE>
The operating loss for the nine month period ended September 30, 1998 was
$5,725,559 compared to an operating loss of $4,599,316 for the same period in
1997, including TFG's losses (including goodwill amortization) of $442,759 and
$647,243 respectively. The decrease in operating results for the nine month
period ended September 30, 1998, can be attributed to the sale of MEC and LSIA,
which generated income from operations of $481,922 during the 1997 period, and
the increases in operating expenses previously described. These reductions were
partially offset by the increase in technology generated revenues.
Other Income and Expense. Interest and dividend income was $224,525 in the third
quarter of 1998 compared to interest and dividend income of $94,401 for the same
period in 1997. Interest and dividend income for the nine month period ended
September 30, 1998 was $450,823 compared to interest and dividend income of
$292,272 for the same period in 1997. Interest and dividend income was earned
from the investment of cash and cash equivalents and the collection of long-term
receivables related to laser system sales. Interest expense incurred was $1,272
in the third quarter of 1998 compared to interest expense of $483,794 for the
same period in 1997. Interest expense for the nine month period ended September
30, 1998 was $721,813 compared to interest expense of $911,966 for the same
period in 1997. Interest expense incurred by the Company during the three and
nine month periods ended September 30, 1998 and 1997 related primarily to the
credit facility established with Foothill on April 1, 1997 and repaid in full in
June 1998. In addition to interest paid on the outstanding note payable balance,
interest expense includes the amortization of deferred financing costs, the
accretion of the discount on the note payable, and fees associated with
amendments to the original loan agreement. The Company also recorded a gain on
the sale of investments and subsidiaries resulting from the sale of Vision 21
common stock and MEC and LSIA.
Income Taxes. For the three months ended September 30, 1998 and 1997, the
Company recorded no income tax expense. For the nine months ended September 30,
1998, the Company recorded income tax expense of $232,213 compared to no income
tax expense over the same period in 1997. The net expense for the nine month
period is primarily the result of realized gains and the payment of Japanese
taxes (see Note 6 of Notes to Condensed Consolidated Financial Statements).
Net Loss. Net loss for the third quarter of 1998 was $2,149,930 compared to a
net loss of $2,408,878 for the same period in 1997. Net loss for the nine month
period ended September 30, 1998, was $5,864,310 compared to a net loss of
$5,499,410 for the same period in 1997. The decrease in net loss for the third
quarter of 1998 can be attributed to the decrease in interest expense and an
increase in technology revenues, partially offset by the higher technology
operating expenses and the effect of the sale of MEC and LSIA. The increase in
net loss for the nine month period ended September 30, 1998, can be attributed
the sale of MEC and LSIA, increases in research, development and regulatory
expenses, general and administrative expenses, and income tax expense. These
reductions were partially offset by an increase in technology revenues and a
decrease in interest expense and gain on sale of investments and MEC and LSIA.
Loss Attributable to Common Shareholders. For the nine months ended September
30, 1998, the Company's loss attributable to common shareholders was impacted by
the following events, which occurred in the first and second quarters of 1998:
premiums paid on the repurchase of shares of Series B Preferred Stock
($1,752,000), accretion of the financing costs related to such shares ($999,953)
and the value of the conversion discount on Series B Preferred Stock ($25,372)
and on Series C Preferred Stock and Series D Preferred Stock ($833,500).
Loss Per Share. Loss per basic and diluted share decreased to ($0.17) for the
third quarter of 1998 compared to ($0.25) for the same period in 1997. The loss
per basic and diluted share increased to ($0.79) for the nine month period ended
September 30, 1998, compared to ($0.59) for the same period in 1997. Of the
basic and diluted losses per share for the nine month period ended September 30,
1998, ($0.30), was a result of the value of the conversion discount on preferred
stock in accordance with EITF Topic D-60 and accretion and dividend requirements
on the Series B Preferred Stock. The weighted average shares of Common Stock
15
<PAGE>
outstanding increased primarily due to the exercise of stock options and
warrants, the conversion of Series B Preferred stock, and the additional
issuance of Common Stock related to the acquisition of the Division from SEO,
the assets of NNJEI, and to Photomed during the nine months ended September 30,
1998.
Liquidity and Capital Resources.
Working capital increased $7,139,830 from $12,729,700 at December 31, 1997 to
$19,869,530 as of September 30, 1998. This increase in working capital resulted
primarily from the private placement of Series C Preferred Stock and Series D
Preferred Stock and an increase in trade accounts and notes receivable offset by
accrued commissions. Operating activities used net cash of $9,651,392 during the
first nine months of 1998, compared to $2,955,728 of net cash used during the
same period in 1997. This increase is primarily the result of an increase in
accounts and notes receivable (primarily the result of slow collections of
outstanding receivables and higher selling prices resulting from more sales of
the Company's LSX system), increases in inventory levels and a significant
decrease in income taxes payable, partially offset by an increase in deferred
royalty revenue and amortization and depreciation costs. Net cash provided by
investing activities during the first nine months of 1998 was $11,275,825
compared to $15,247,194 in net cash used in investing activities over the same
period in 1997. Net cash provided by investing activities during the first nine
months of 1998 can be primarily attributed to proceeds generated from the
exclusive licensing of patents and from the sale of Vision 21 common stock
resulting from the Company's December 1997 sale of MEC & LSIA, partially offset
by the purchase of furniture, equipment and leasehold improvements. Net cash
provided from financing activities was $3,789,627 during the first nine months
of 1998, compared to $17,363,579 over the same period in 1997. Net cash provided
from financing activities during the first nine months of 1998 resulted from the
exercise of stock options and warrants and net proceeds from the Series C
Preferred Stock and Series D Preferred Stock issuances, offset by the repurchase
of Series B Preferred Stock and the repayment of the note payable to Foothill.
Net cash provided by financing activities during the first nine months of 1997
consisted of net proceeds from the issuance of Series B Preferred Stock, net
proceeds from the credit facility with Foothill and the exercise of stock
options, offset by the repayment of a note payable to the former owners of MEC
and repayment of a capital lease obligation.
The Company believes that its balances of cash and cash equivalents along with
operating cash flows will be sufficient to fund its anticipated working capital
requirements for the next twelve month period based on modest growth and
anticipated timely collection of receivables and entry into the U.S. marketplace
with keratome related products and/or the LSX system. A failure to timely
collect a material portion of current receivables or further delays to entering
the U.S. market, could have a material adverse effect on the Company's
liquidity. 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 expects to increase the level of manufacturing and distribution of
its laser systems and 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 U.S. will be the most significant technology related
expenses in the foreseeable future.
The Company is receptive to joint venture discussions with compatible companies
for the further development of international markets for the Company's products.
The Company has no present commitments for joint venture relationships, and no
assurance can be given that any such relationships will be secured on terms
satisfactory to the Company.
16
<PAGE>
RISK FACTORS AND UNCERTAINTIES
The business, results or operations and financial condition of the Company and
the market price of the Common Stock may be adversely affected by a variety of
factors, including the ones listed under the caption "Risk Factors" in the
Company's Registration Statement on Form S-3/A (file no. 333-59369) filed on
August 31, 1998, and the additional or updated factors listed below:
Shares Eligible For Future Sale. Except as provided below, substantially all of
the Company's outstanding Common Stock (13,157,635 shares as of November 13,
1998) is freely tradable without restriction or further registration under the
Securities Act, unless such shares are held by "affiliates" of the Company as
that term is defined in Rule 144 under the Securities Act. The shares of Common
Stock listed below are "restricted securities." Restricted securities may be
sold in the public market only if they have been registered under the Securities
Act or if their sales qualify for Rule 144 or another available exemption from
the registration requirements of the Securities Act.
o A warrant to purchase 40,673 shares of Common Stock (with an
exercise price of $5.81) has been issued to four individuals
associated with its placement agent in connection with the placement
of the Series B Preferred Stock and shares issuable under such
warrant (the "Shoreline Shares") will be freely saleable following
such exercise, subject only to the satisfaction of a prospectus
delivery requirement.
o Warrants to purchase an aggregate of 762,616 shares of Common Stock
(with an exercise price of $2.71 per share) has been issued to the
former holders of the Series B Preferred Stock and shares issuable
under such warrant (the "Series B Shares") will be freely saleable
following such exercise, subject only to the satisfaction of a
prospectus delivery requirement. As of November 13, 1998, 140,625
such warrants have been exercised.
o The 535,515 shares issued in an unregistered acquisition transaction
in July 1997 (the "Photomed Shares") have become freely tradable,
subject only to a prospectus delivery requirement.
o The 187,500 shares issued in an unregistered acquisition transaction
in September 1998 (the "Photomed Amendment Shares") are the subject
of certain demand and piggyback registration rights.
o The 581,825 shares of Common Stock (the "Foothill Shares") issuable
upon the exercise (at an exercise price of $5.21 per share) of the
warrants issued to Foothill Capital Corporation ("Foothill") are the
subject of certain demand and piggyback registration rights.
o Other shares of Common Stock (the "Other Shares") which the Company
may be required to issue in the future may become eligible for
resale pursuant to Rule 144, the exercise of registration rights, or
otherwise. See "Possible Dilutive Issuance of Common
Stock--LaserSight Centers and Florida Laser Partners; --SEO Medical;
--Series D Preferred Stock."
Sales, or the possibility of sales, of the Shoreline Shares, Series B Shares,
Photomed Shares, Photomed Amendment Shares, Foothill Shares, or Other Shares,
whether pursuant to a prospectus, Rule 144 or otherwise, could depress the
market price of the Common Stock.
Past and Expected Future Losses and Operating Cash Flow Deficits; No Assurance
of Future Profits or Positive Operating Cash Flows. The Company incurred losses
of $5.9 million for the nine months ended September 30, 1998 and $7.3 million
and $4.1 million during 1997 and 1996, respectively. During such periods, the
Company had a deficit in cash flow from operations of $9.7 million, $4.4
million, and $4.2 million, respectively. Although the Company achieved
profitability during 1995 and 1994, it had a deficit in cash flow from
operations of $1.9 million during 1995. In addition, the Company incurred losses
in 1991 through 1993. As of September 30, 1998, the Company had an accumulated
17
<PAGE>
deficit of $17.7 million. As a result of the Company's sale of MEC and LSIA in
December 1997, the Company's losses and deficits in cash flow from operations in
future periods may be greater than if the Company had not sold MEC and LSIA. The
Company expects to report a loss and deficit in cash flow from operations for
the fourth quarter of 1998. The Company recently resolved its outstanding
litigation with Mercacorp and expects to record a non-cash charge to earnings
during the fourth quarter of 1998 equal to the fair value of the warrants issued
to Mercacorp (approximately $300,000) in connection with resolution of the
litigation. There can be no assurance that the Company can regain or sustain
profitability or positive operating cash flow.
Uncollectible Receivables Could Exceed Reserves. At September 30, 1998, the
Company's trade accounts and notes receivable aggregated approximately $13.6
million net of allowances for collection losses and returns of approximately
$2.1 million. Accrued commissions, the payment of which generally depends on the
collection of such net trade accounts and notes receivable, aggregated
approximately $2.1 million at September 30, 1998. Exposure to collection losses
on receivables is principally dependent on the Company's customer's ongoing
financial condition and their ability to generate revenues from the Company's
laser systems. In addition, approximately 94% and 90% of net receivables at
September 30, 1998 and December 31, 1997, respectively, related to international
accounts. The Company's ability to evaluate the financial condition and revenue
generating ability of its prospective customers located outside of U.S. is
generally more limited than for customers located in the U.S. Although the
Company monitors the status of its receivables and maintains a reserve for
estimated losses, there can be no assurance that the Company's reserves for
estimated losses (approximately $1.9 million at September 30, 1998) 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.
Restructuring of Receivables. At September 30, 1998, the Company had
restructured laser customer accounts in the aggregate amount of approximately
$963,466 (7% of the net receivables as of such date), resulting in the extension
of the original payment terms by periods ranging from 12 to 60 months. The
Company's liquidity and operating cash flow may be adversely affected if
additional extensions become necessary in the future. In addition, it may be
more difficult to collect laser system receivables if the payment schedule
extends beyond the expected economic life of the laser system.
Potential Liquidity Problems. During the three months ended September 30, 1998,
the Company experienced a $2.5 million deficit in cash flow from operations
largely resulting from the loss incurred during the period and increases in
inventory and receivables, partially offset by depreciation and amortization and
increases in liabilities. Of this amount, the Company expects that any
improvements in cash flow from operations will depend on, among other things,
the Company's ability to market, produce and sell its new LSX laser systems in
larger quantities and its A*D*K product on a commercial basis. In the third
quarter of 1998, the LSX laser system represented the majority of systems sold
and is expected to make a more significant contribution to the Company's
operating results in the future. Based on the status of clinical validation and
refinement of the manufacturing processes, the Company does not expect
significant commercial shipments of the A*D*K in the fourth quarter of 1998.
Subject to these factors, the Company believes that its balances of cash and
cash equivalents, will be sufficient to fund its anticipated working capital
requirements for a 12-month period based on modest growth and anticipated timely
collection of receivables and entry into the U.S. marketplace with keratome
related products and/or the LSX system. However, if the Company does not collect
a material portion of current receivables in a timely manner, or if the Company
experiences significant further delays in the shipment of its A*D*K product, or
experiences less market demand for its products than it anticipates, the
Company's liquidity could be materially adversely affected.
Uncertainty Regarding Availability or Terms of Capital to Satisfy Possible
Additional Needs. The Company may need additional capital, including to fund the
following:
o Any future negative cash flow from operations.
18
<PAGE>
o Certain cash payment obligations under the Company's LASIK PMA
application acquisition agreement of July 1997 with Photomed as
amended in September 1998. Such contingent cash payment obligations
are outlined in Note 7 in the Notes to Condensed Consolidated
Financial Statements.
o Additional working capital necessary to develop a production line
for the LASIK laser system and to obtain the GMP (Good Manufacturing
Practices) clearance from the FDA that is required for the
commercial sale of the LASIK laser system.
o Additional working capital necessary to support the commercial
introduction of its laser systems into the U.S. market upon FDA
approval. (The Company began incurring such expenses in the second
half of 1998.)
o Additional working capital necessary to more fully develop the
Company's mobile refractive laser business plan and other possible
business lines and products.
In addition, the Company may seek alternative sources of capital to fund its
product development activities and to consummate future strategic acquisitions.
The Company has no commitments from third parties to supply additional capital,
and there can be no assurance as to whether or on what terms the Company could
obtain additional capital.
To the extent that the Company satisfies its future financing requirements
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. Such
dilution may be more significant if the Company sells Common Stock at a price
below current market prices or sells additional preferred stock with a
conversion price linked to the market price of the Common Stock at the time of
conversion. 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. If the Company needs but cannot
obtain additional capital on satisfactory terms, it may be required to sell
additional assets.
Possible Dilutive Issuance of Common Stock--LaserSight Centers and Florida Laser
Partners. Based on previously-reported agreements entered into in 1993 in
connection with the Company's acquisition of LaserSight Centers (the Company's
development-stage subsidiary) and modified in July 1995 and March 1997, the
Company is obligated as follows:
o To issue to the former stockholders and option holders (including
two trusts related to the Chairman of the Board of the Company and
certain former officers and directors of the Company) of LaserSight
Centers, up to 600,000 unregistered shares of Common Stock ("Centers
Contingent Shares") based on the Company's pre-tax operating income
through March 2002 from utilizing a fixed or mobile excimer laser to
perform photorefractive keratectomy (PRK), arranging for the
delivery of PRK or receiving license or royalty fees associated with
patents held by LaserSight Centers. The Centers Contingent Shares
are issuable at the rate of one share per $4.00 of such operating
income.
o To pay to a partnership whose partners include the Chairman of the
Board of the Company and certain former officers and directors of
the Company a royalty of up to $43 (payable in cash or shares of
Common Stock ("Royalty Shares")), for each eye on which PRK is
performed on a fixed or mobile excimer laser system owned or
operated by LaserSight Centers or its affiliates. Royalties do not
begin to accrue until the earlier of March 2002 or the delivery of
all of the 600,000 Centers Contingent Shares.
19
<PAGE>
As of November 13, 1998, the Company had not accrued any obligation to issue
Centers Contingent Shares or Royalty Shares. There can be no assurance that any
issuance of Centers Contingent Shares or Royalty Shares will be accompanied by
an increase in the Company's per share operating results. The Company is not
obligated to pursue strategies that may result in the issuance of Centers
Contingent Shares or Royalty Shares. It may be in the interest of the Chairman
of the Board for the Company to pursue business strategies that maximize the
issuance of Centers Contingent Shares and Royalty Shares.
Possible Dilutive Issuance of Common Stock--Photomed. If the FDA approves a
LaserSight-manufactured laser system for general commercial use in the treatment
of hyperopia (farsightedness), utilizing part or all of the know-how of the
laser acquired from Photomed, the Company would be required to issue additional
shares of Common Stock with a market value of up to $1.0 million (based on the
average closing price of the Common Stock during the preceding 10-day period) to
the former Photomed stockholders. Such obligation will decrease by approximately
$2,740 per day beginning June 1, 1999 if such approval is not received by that
date, and will be eliminated entirely on June 1, 2000. If such market value had
been computed as of November 16, 1998, the number of additional shares issuable
would have been approximately 222,000. Depending on whether and when such FDA
approval is received and on the market price of the Common Stock at the time of
any such approval, the actual number of additional shares of Common Stock
issuable could be more (but not more than permitted under the listing rules of
The NASDAQ Stock Market) or less than this number.
Possible Dilutive Issuance of Common Stock--SEO. In connection with the
acquisition of certain assets of SEO in April 1998, the Company agreed to issue
up to 223,280 additional shares of Common Stock if the average of the bid and
ask prices of Common Stock for the five trading day period immediately prior to
April 15, 1999 is less than $5.00 per share. All 223,280 shares of Common Stock
will be issuable unless such price is more than $2.36 per share.
Possible Dilutive Issuance of Common Stock--Foothill Warrant. In April 1996, the
Company issued to Foothill a warrant to purchase 500,000 shares of Common Stock
(the "Foothill Warrant") at a price of $6.067 per share. The Company is required
to make anti-dilution adjustments to both the number of warrant shares and the
warrant exercise price in the event the Company sells Common Stock or Common
Stock-equivalents (such as convertible securities or warrants) at a price per
share that is (or could be) less than the fair market value of the Common Stock
at the time of such sale. In connection with its sale of Series B Preferred
Stock in August 1997 and subsequent conversion of such preferred shares into
Common Stock, the sale of the Series C Preferred Stock and the Series D
Preferred Stock such anti-dilution adjustments have resulted in (i) an increase
in the number of Foothill Warrant shares to 581,825, and (ii) a reduction to the
exercise price of the Foothill Warrant shares to $5.21 per share. Additional
anti-dilution adjustments to the Foothill Warrant could also result from any
future below-market sales of Common Stock by the Company.
Possible Dilutive Issuance of Common Stock--Series B Warrant. In connection with
its sale of the Series B Preferred Stock in August 1997, the Company issued to
the former holders of the Series B Preferred Stock warrants to purchase 750,000
shares of Common Stock (the "Series B Warrant") at a price of $5.91 per share at
any time before August 29, 2002. In connection with a March 1998 agreement
whereby the Company obtained the option to repurchase the Series B Preferred
Stock and a lock-up on conversions, the exercise price of the Series B Warrant
shares was reduced to $2.753 per share. The Company is required to make
anti-dilution adjustments to both the number of warrant shares and the warrant
exercise price in the event the Company sells Common Stock or Common
Stock-equivalents (such as convertible securities or warrants) at a price per
share that is (or could be) less than the fair market value of the Common Stock
at the time of such sale. As a result of the Company's sale of the Series C
Preferred Stock and the Series D Preferred Stock such anti-dilution adjustments
and other agreements among the former holders of the Series B Preferred Stock
and the Company have resulted in (i) an increase in the number of Series B
Warrant shares to approximately 762,616, and (ii) a reduction to the exercise
price of Series B Warrant shares to approximately $2.71 per share. Additional
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anti-dilution adjustments to the Series B Warrants could also result from any
future below-market sales of Common Stock by the Company. As of November 13,
1998, 140,625 of such warrants had been exercised.
Possible Dilutive Issuance of Common Stock--Shoreline Warrant. In connection
with its sale of the Series B Preferred Stock in August 1997, the Company issued
to four individuals associated with its placement agent warrants to purchase
40,000 shares of Common Stock (the "Shoreline Warrant") at a price of $5.91 per
share at any time before August 29, 2002. The Company is required to make
anti-dilution adjustments to both the number of warrant shares and the warrant
exercise price in the event the Company sells Common Stock or Common
Stock-equivalents (such as convertible securities or warrants) at a price per
share that is (or could be) less that the fair market value of the Common Stock
at the time of such sale. In connection with the Company's sale of the Series C
Preferred Stock and the Series D Preferred Stock such anti-dilution adjustments
have resulted in (i) an increase in the number of Shoreline Warrant shares to
approximately 40,673, and (ii) a reduction to the exercise price of Shoreline
Warrant shares to approximately $5.81 per share. Additional anti-dilution
adjustments to the Shoreline Warrants could also result from any future
below-market sales of Common Stock by the Company.
Possible Dilutive Issuance of Common Stock--Series D Preferred Stock. In
accordance with the terms of the Company's Certificate of Designation,
Preferences and Rights of the Series D Preferred Stock, the holders of the
Series D Preferred Stock are entitled to certain anti-dilution adjustments if
the Company issues its Common Stock or Common Stock-equivalents (such as
convertible securities or warrants) at a price per share (or having a conversion
or exercise price per share) less than $4.00 per share.
Acquisition- and Financing-Related Contingent Commitments to Issue Additional
Common Shares. The Company may from time to time include in future acquisitions
and financings, provisions that would require the Company to issue additional
shares of its Common Stock at a future date based on the market price of the
Common Stock at such date. Persons who are the beneficiaries of such provisions
effectively receive some protection from declines in the market price of the
Common Stock, but other stockholders of the Company will incur additional
dilution of their ownership interest in the event of a decline in the price of
the Common Stock. Such dilution may be increased by the anti-dilution protection
provisions in the Foothill Warrant, the Series B Warrant and the Shoreline
Warrant that may increase the number of shares issuable under each of such
warrants and decrease the exercise price of such warrants. The factors to be
considered by the Company in including such provisions may include the Company's
cash resources, the trading history of Common Stock, the negotiating position of
the selling party or the investors, as applicable, and the extent to which the
Company estimates that the expected benefit from the acquisition or financing
exceeds the expected dilutive effect of the price-protection provision.
Dependence on Key Personnel. The Company is dependent on its executive officers
and other key employees, especially Michael R. Farris, its President and Chief
Executive Officer, and J. Richard Crowley, the President and Chief Operating
Officer of the Company's LaserSight Technologies subsidiary. A loss of one or
more such officers or key employees, especially of Mr. Farris or Mr. Crowley,
could have a material adverse effect on the Company's business. The Company does
not carry "key man" insurance on Mr. Farris, Mr. Crowley or any other officers
or key employees.
As the Company continues the clinical development of its excimer lasers and
other products and prepares for regulatory approvals and other commercialization
activities, it will need to continue to implement and expand its operational,
financial and management resources and controls. The failure of the Company to
attract and retain experienced individuals for necessary positions, as well as
any inability of the Company to effectively manage growth in its domestic and
international operations could have a material adverse effect on the Company's
business, financial condition and results of operations.
Risks Associated with Past and Possible Future Acquisitions. The Company has
made several significant acquisitions since 1994, including TFG in 1994,
Photomed in 1997 and 1998, the patents purchased from International Business
Machines Corporation in August 1997 and its acquisition of SEO Medical in April
1998. These acquisitions, as well as any future acquisition, may not achieve
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adequate levels of revenue, profitability or productivity or may not otherwise
perform as expected. Acquisitions involve special risks, including unanticipated
liabilities and contingencies, diversion of management attention and possible
adverse effects on operating results resulting from increased goodwill
amortization, increased interest costs, the issuance of additional securities
and difficulties related to the integration of the acquired businesses. Although
the Company is currently focusing on its existing operations, the future ability
of the Company to achieve growth through acquisitions will depend on a number of
factors, including the availability of attractive acquisition opportunities, the
availability of funds needed to complete acquisitions, the availability of
working capital needed to fund the operations of acquired businesses and the
effect of existing and emerging competition on operations. Should additional
acquisitions be sought, there can be no assurance that the Company will be able
to successfully identify additional suitable acquisition candidates, complete
additional acquisitions or integrate acquired businesses into its operations.
Amortization of Significant Intangible Assets. Of the Company's total assets at
September 30, 1998, approximately $16.9 million (34%) were intangible assets, of
which approximately $6.7 million reflects goodwill (which is being amortized
using an estimated life ranging from 12 to 20 years), approximately $4.5 million
reflects the cost of patents (which is being amortized over a period ranging
from approximately 8 to 17 years), and approximately $5.7 million reflects the
cost of acquired licenses and technology (which is being amortized over a period
ranging from 31 months to 12 years). The 12-year life of acquired technology was
determined based on the Company's best judgment at the time of the most likely
life span of a solid-state laser product and related patent. The major factors
involved in the Company's ongoing assessment are its judgment whether there will
be a market for solid-state as an improvement to existing excimer laser
technology and that there is an industry and marketplace interest in such
development that can be successfully pursued by the Company or others that will
result in revenue from the associated patent. 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 (or increases the
Company's net loss) 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 Common Stock. In addition, in the event of a sale or
liquidation of the Company or its assets, there can be no assurance that the
value of such intangible assets would be recovered.
In accordance with SFAS 121, the Company reviews intangible assets for
impairment whenever events or changes in circumstances, including a history of
operating or cash flow losses, indicate that the carrying amount of an asset may
not be recoverable. In such cases, the carrying amount of the asset is compared
to the estimated undiscounted future cash flows expected to result from the use
of the asset and its eventual disposition. If the sum of the expected
undiscounted future cash flows is less than the carrying amount of the asset, an
impairment loss will be computed and recognized in accordance with SFAS 121.
Expected cash flows are based on factors including historical results, current
operating budgets and projections, industry trends and expectations, and
competition.
The Company continues to assess the current results and future prospects of TFG
in view of the substantial reduction in the subsidiary's operating results in
1996 and 1997. TFG's operation results have improved in 1998 from 1996 and 1997
performance. If TFG is unsuccessful in continuing to improve its financial
performance, some or all of the carrying amount of goodwill recorded ($3,790,000
at September 30, 1998) may be subject to an impairment adjustment.
Year 2000 Compliance. The company understands the material nature of the
business issues surrounding computer processing of dates into and beyond the
Year 2000 ("Y2K"). Any computer program or computer chip controlled device could
harbor a Y2K processing issue. Typically, Y2K issues arise from systems or
software processing only two digits representing a date. The century digits, if
not present ("19" for years 1900-1999, or "20" for years beginning in 2000),
usually lead to false results from computer controlled systems and are the most
pervasive issue.
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The Company recognizes that these issues exist within its computer programs and
computer chip controlled devices and is taking corrective action. The Company's
actions to address Y2K issues began with the development of a comprehensive plan
to assess the actual and potential impact of the issues on the Company, both in
information technology ("IT") areas and non-information technology ("Non-IT")
areas, which include its manufacturing and operating systems and the readiness
of vendors and other third parties upon whom the Company relies.
The Company's IT systems are microcomputer-based and consist of standard
software purchased from outside vendors. All software is being identified and
assessed to determine the extent of remediation required in order to be Y2K
compliant. The Company believes that all software will be made Y2K compliant
before the end of June 1999 through vendor-provided updates or replacement with
other Y2K compliant hardware and software. The Company, as has been planned for
some time, is also replacing its financial and accounting software, and expects
to have the majority of such new software implemented by the end of January
1999. Such software has been represented to be Y2K compliant by the vendors. The
Company's IT inventory related to Y2K compliance is approximately 50% complete,
the remediation assessment of problem areas is approximately 25% complete, and
testing, including validation of compliance, is expected to begin in January
1999 and be completed by the end of April 1999.
For its Non-IT systems, the Company is in the process of identifying third
parties with which it has a significant relationship that, in the event of a Y2K
failure, could have a material impact on the Company's financial position or
operating results. The third parties include utility suppliers, material and
supply vendors, communication vendors and the Company's significant
distributors. Some of these relationships, especially those associated with
certain suppliers and distributors, are material to the Company and a Y2K
failure by one or more of these parties could result in a material adverse
effect on the Company's operating results and financial position. The Company is
corresponding with these business partners and service providers to assess their
ability to support the Company's operations with respect to their individual Y2K
issues. The issues that are identified as part of this process will be
prioritized in order of significance to the Company's operations and corrective
action taken as appropriate. The Company estimates that correspondence has been
initiated with approximately 90% of the Company's vendors, business partners and
service providers. Approximately 40% have responded to date, and the Company is
in the process of assessing their responses. The Company expects that this
process will continue throughout the current and subsequent fiscal year.
For Y2K issues which, if not timely resolved, could have a significant impact on
the Company's operations, the Company intends to develop contingency plans.
Those plans will be designed to minimize the impact of failure to achieve Y2K
compliance. Such contingency plans are expected to be developed by the end of
March 1999.
The Company estimates that costs to address Y2K issues will total approximately
$150,000, of which approximately $20,000 has been incurred to date. Such costs
will be expensed as incurred, and exclude the costs of the Company's new
financial and accounting software. Y2K compliance related costs are estimated to
be approximately 50% of the Company's total IT expense budget through the end of
1999. No material IT projects are expected to be delayed.
Due to the general uncertainty inherent in the Company's Y2K compliance, mainly
resulting from the Company's dependence upon the Y2K compliance of the
government agencies, suppliers, vendors and distributors with whom the Company
and its service providers deal, the Company is unable to determine at this time
its most reasonably likely worst case scenario. While costs related to the lack
of Y2K compliance of third parties, business interruptions, litigation and other
liabilities related to Y2K issues could materially and adversely affect the
company's business, results of operations and financial condition, the Company
expects its Y2K compliance efforts to reduce significantly the Company's level
of uncertainty about the impact of Y2K issues affecting both its IT and Non-IT
systems.
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Government Regulation. The Company's laser products are subject to strict
governmental regulations which materially affect the Company's ability to
manufacture and market these products and directly impact the Company's overall
prospects. All laser devices to be marketed in interstate commerce are subject
to the laser regulations required by the Radiation Control for Health and Safety
Act, as administered by the FDA. Such Act imposes design and performance
standards, labeling and reporting requirements, and submission conditions in
advance of marketing for all medical laser products. The Company's laser systems
produced for medical use require PMA approval by the FDA before the Company can
ship its laser systems for use in the U.S. Each separate medical device requires
a separate FDA submission, and specific protocols have to be submitted to the
FDA for each claim made for each medical device.
If and when the Company's laser systems receive PMA approval by the FDA, the
Company will be required to obtain GMP clearance with respect to its
manufacturing facilities. These regulations impose certain procedural and
documentation requirements upon the Company with respect to its manufacturing
and quality assurance activities. The Company's facilities will be subject to
inspections by the FDA, and if any noncompliance with GMP guidelines is noted
during facility inspections, the marketing of the Company's laser products may
be adversely affected. In addition, if any of the Company's suppliers of
significant components or sub-assemblies cannot meet the quality requirements of
the Company, the Company could be delayed in producing commercial systems for
the U.S.
market.
Additionally, product and procedure labeling and all forms of promotional
activities are subject to examination by the FDA, and current FDA enforcement
policy prohibits the marketing of approved medical devices for unapproved uses.
Noncompliance with these requirements may result in warning letters, fines,
injunctions, recall or seizure of products, suspension of manufacturing, denial
or withdrawal of PMAs, and criminal prosecution.
Laser products marketed in foreign countries are often subject to local laws
governing health product development processes which may impose additional costs
for overseas product development. In particular, all member countries of the
European Economic Union ("EU") require CE Mark certification of compliance with
the EU medical directives as the standard for regulatory approval for sale of
laser systems in EU member countries. Both the Company's LSX and LaserScan 2000
laser systems have received CE Mark certification, the former of which was
received in September 1998.
The Company cannot determine the costs or time it will take to complete the
approval process and the related clinical testing for its medical laser
products. Future legislative or administrative requirements in the U.S., or
elsewhere, may adversely affect the Company's ability to obtain or retain
regulatory approval for its laser products. The failure to obtain required
approvals on a timely basis could have a material adverse effect on the
Company's business, financial condition and results of operations.
Uncertainty Concerning Patents--International. Should the Company's lasers
infringe upon any valid and enforceable patents in international markets, then
the Company may be required to obtain licenses for such patents. Should such
licenses not be obtained, LaserSight Technologies might be prohibited from
manufacturing or marketing its excimer lasers in those countries where patents
are in effect. The Company's international sales accounted for 88% and 42%,
respectively, of the Company's total revenues during the nine months ended
September 30, 1998 and 1997, respectively. In the future, until the Company
receives necessary regulatory approvals and enters the U.S. market (or with
respect to those products that do not require regulatory approval, otherwise
enters the U.S. market) in a significant way with its products, the Company
expects its percentage of international sales to be more comparable to the sales
percentages which were reported for the nine months ended September 30, 1998.
Uncertainty Concerning Patents--U.S. Two of the Company's competitors, Summit
Technology, Inc. ("Summit") and Visx, Inc. ("Visx") formed a U.S. partnership,
Pillar Point Partners ("Pillar Point"), in 1992 to pool certain of their
respective patents related to corneal sculpting technologies. On June 9, 1998,
Summit and Visx announced that they had reached agreement on the dissolution of
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Pillar Point to be effected as soon as possible. As a part of this dissolution,
Summit and Visx granted each other a worldwide, royalty free cross-license
whereby each party will have full rights to license all existing patents owned
by either company relating to laser vision correction for use with their
systems.
Should the Company's lasers infringe upon any valid and enforceable patents held
by Visx or Summit in the U.S., then the Company may be required to obtain a
license for such patents and pay royalties and per procedure fees to Visx or
Summit for all revenues generated in the U.S. If such licenses are required but
not obtained, the Company might be prohibited from manufacturing or marketing
its excimer lasers in the U.S. In connection with its March 1996 settlement of
litigation with Pillar Point Partners, the Company agreed to notify Pillar Point
Partners before the Company begins manufacturing or selling its laser systems in
the U.S. As of this date, the Company has not obtained a U.S. license from
either of Summit or Visx, and the actual per procedure fee and other terms of
any license, if such license is granted, have yet to be determined.
In addition, there may be other U.S. and foreign patents for which the Company
will need to negotiate licenses in order to sell, lease or use the excimer
lasers in certain markets. There can be no assurance that the Company or its
customers will be successful in securing licenses, including any necessary
licenses from Summit or Visx, or that if the Company does obtain licenses, such
licenses will be on terms acceptable to the Company. The failure to either
obtain required licenses or to obtain licenses on terms favorable to the Company
could have a material adverse effect on the business of the Company.
Competition. The vision correction industry is subject to intense, increasing
competition. The Company competes against both alternative and traditional
medical technologies (such as eyeglasses, contact lenses and radial keratotomy
(RK) and other laser manufacturers. Many of the Company's competitors have
existing products and distribution systems in the marketplace and are
substantially larger, better financed, and better known. A number of lasers
manufactured by other companies have either received, or are much further
advanced in the process of receiving, FDA approval for specific procedures, and,
accordingly, may have or develop a higher level of acceptance in some markets
than the Company's lasers. The entry of new competitors into the markets for the
Company's products could cause downward pressure on the prices of such products
and a material adverse effect on Company's business, financial condition and
results of operations.
Technological Change. Technological developments in the medical and laser
industries are expected to continue at a rapid pace. Newer technologies and
surgical techniques could be developed which may offer better performance than
the Company's laser systems. The success of any competing alternatives to PRK
and LASIK could have a material adverse effect on the Company's business,
financial condition and results of operations.
New Products. The Company may experience difficulties that could further delay
or prevent the successful development, introduction and marketing of its
recently-announced A*D*K, and other new products and enhancements, or that its
new products and enhancements will be accepted in the marketplace. As is typical
in the case of new and rapidly evolving industries, demand and market acceptance
for recently-introduced technology and products are subject to a high level of
uncertainty. In addition, announcements of new products (whether for sale in the
near future or at some later date) may cause customers to defer purchasing
existing Company products.
Minimum Payments Under A*D*K License Agreement. In addition to the risks
relating to the introduction of any new product (see "--New Products" above),
the Company's A*D*K is subject to the risk that the Company is required to make
certain minimum payments to the licensors under its limited exclusive license
agreement relating to the A*D*K. Under that agreement, the Company is required
to pay a total of $300,000 in two installments due six and 12 months after the
date of the Company's receipt of completed limited production molds for the
A*D*K and provide an excimer laser (such laser was provided during the quarter
ended June 30, 1998). The Company expects to receive such molds during the
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fourth quarter of 1998. In addition, commencing seven months after such date,
the Company's royalty payments (50% of its defined gross profits from A*D*K
sales) will become subject to a minimum of $400,000 per calendar quarter for a
period of eight quarters.
Uncertainty of Market Acceptance of Laser-Based Eye Treatment. The Company
believes that its achievement of profitability and growth will depend in part
upon broad acceptance of PRK or LASIK in the U.S. and other countries. There can
be no assurance that PRK or LASIK will be accepted by either the
ophthalmologists or the public as an alternative to existing methods of treating
refractive vision disorders. The acceptance of PRK and LASIK may be affected
adversely by their cost, possible concerns relating to safety and efficacy,
general resistance to surgery, the effectiveness and lower cost of alternative
methods of correcting refractive vision disorders, the lack of long-term
follow-up data, the possibility of unknown side effects, the lack of third-party
reimbursement for the procedures, any future unfavorable publicity involving
patient outcomes from use of PRK or LASIK systems, and the possible shortages of
ophthalmologists trained in the procedures. The failure of PRK or LASIK to
achieve broad market acceptance could have a material adverse effect on the
Company's business, financial condition and results of operations.
International Sales. International sales may be limited or disrupted by the
imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs, difficulties in staffing
and coordinating communications among and managing international operations.
Additionally, the Company's business, financial condition and international
results of operations may be adversely affected by increases in duty rates,
difficulties in obtaining export licenses, ability to maintain or increase
prices, and competition. To date, all sales made by the Company have been
denominated in U.S. dollars. Therefore, the Company does not have exposure to
typical foreign currency fluctuation risk. Due to its export sales, however, the
Company is subject to currency exchange rate fluctuations in the U.S. dollar,
which could increase the effective price in local currencies of the Company's
products. This could in turn result in reduced sales, longer payment cycles and
greater difficulty in collection of receivables. See "--Receivables" above.
Although the Company has not experienced any material adverse effect on its
operations as a result of such regulatory, political and other factors, such
factors may have a material adverse effect on the Company's operations in the
future or require the Company to modify its business practices.
Potential Product Liability Claims; Limited Insurance. As a producer of medical
devices, the Company may face liability for damages to users of such devices in
the event of product failure. The testing and use of human care products entails
an inherent risk of negligence or other action. An award of damages in excess of
the Company's insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations. While the
Company maintains product liability insurance, there can be no assurance that
any such liability of the Company will be included within its insurance coverage
or that damages will not exceed the limits of its coverage. The Company's
"claims made" product liability insurance coverage is limited to $10 million and
its general liability insurance coverage is limited to $6 million, including up
to $5 million of coverage under an excess liability policy. The Company has in
the past agreed, and is likely in the future to agree, to indemnify certain
medical institutions and personnel thereof conducting and participating in the
Company's clinical studies.
Supplier Risks. The Company contracts with third parties for certain components
used in its lasers. Certain key components are provided by a single vendor. If
any of these sole-source suppliers were to cease providing components to the
Company, the Company would have to locate and contract with a substitute
supplier, and there can be no assurances that such substitute supplier could be
located and qualified in a timely manner or could provide required components on
commercially reasonable terms. An interruption in the supply of critical laser
components could have a material adverse effect on the Company's business,
financial condition and results of operations.
No Backlog; Concentration of Sales at End of Quarter. The Company has
historically operated with little or no backlog because its products are
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generally shipped as orders are received. Historically, the Company has received
and shipped a significant portion of its orders for a particular quarter near
the end of the quarter. As a result, the Company's operating results for any
quarter often depend on orders received and laser systems shipped late in that
quarter. Any delay in such orders or shipments may cause a significant
fluctuation in period-to-period operating results.
Anti-takeover Measures; Potential Adverse Effect on Common Stock Price. The
Company's Certificate of Incorporation authorizes the Company's Board of
Directors to issue shares of the Company's Preferred Stock and to determine the
rights, preferences, privileges and restrictions of such shares without any vote
or action by the stockholders. The issuance of Preferred Stock under such
circumstances could have the effect of delaying or preventing a change in
control of the Company. The rights of the holders of the Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be created and issued in the future. On July 2, 1998,
the Company adopted a stockholder rights agreement and declared a dividend
distribution of one Preferred Share Purchase Right ("Right") on each outstanding
share of the Company's Common Stock. The Rights will be exercisable only if a
person or group (other than certain exempt persons) acquires 15% or more of the
Company's Common Stock. One of the effects of the provisions described above may
be to discourage a future attempt to acquire control of the Company that is not
presented to and approved by the Board of Directors, but which a substantial
number, and perhaps even a majority of the Company's stockholders, might believe
to be in their best interests or in which stockholders might receive a
substantial premium for their shares over the current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so.
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PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Visx, Incorporated
------------------
In May 1998, Visx asserted that the Company was underpaying
royalties due under an international license agreement (the
"License Agreement") and submitted the dispute for binding
arbitration, which is likely to be scheduled in early 1999.
The Company has denied Visx's allegations and intends to
vigorously defend its position under the terms of the License
Agreement. Management believes that its obligations under the
License Agreement will not result in a material adverse effect
on the Company's financial condition or results of operations.
Mercacorp, Inc.
---------------
On August 3, 1998, Mercacorp, Inc. commenced an action in the
U.S. District Court for the Eastern District of New York
against the Company, Michael R. Farris (the President and
Chief Executive Officer of the Company), Wall & Broad
Equities, Inc., a "purported investment banking establishment"
and Isaac Weinhouse, the principal of such purported
investment banking establishment. This action asserted
violations of Section 10(b) of the Securities and Exchange Act
of 1934 and common law fraud in connection with the alleged
issuance of false press releases, misrepresentations and
omissions by all of the defendants on which the plaintiff
allegedly relied in purchasing the Company's Common Stock and
later holding (rather than selling) such Common Stock. The
plaintiff asked that they be awarded $5 million in actual
damages and $50 million in punitive damages.
On November 11, 1998, the plaintiff dismissed the action, with
prejudice, and the parties agreed to a release of all claims.
In connection with the dismissal and release of claims the
Company issued the plaintiff two separate warrants to purchase
Common Stock. Under the first warrant, the plaintiff is
entitled to purchase up to 750,000 shares of Common Stock at
an exercise price of $4.00 per share, the closing bid price on
November 10, 1998, and under the second warrant, the plaintiff
is entitled to purchase up to 750,000 shares of Common Stock
at an exercise price of $5.00 per share. Both of the warrants
contain certain prohibitions against assignment and transfer
to third parties as well as other terms and conditions. For a
more complete description of the terms and conditions of the
warrants, reference is hereby made to the warrants which are
attached to this Report as Exhibits 10.33 and 10.34, and are
incorporated in this Item 1 by this reference.
Certain legal proceedings against the Company are described in
Item 3 (Legal Proceedings) of the Company's Form 10-K for the
year ended December 31, 1997.
ITEM 2 CHANGES IN SECURITIES
a) Not applicable.
b) On July 2, 1998, the Company adopted a stockholder rights
agreement and declared a dividend distribution of one
Preferred Share Purchase Right ("Right") on each
outstanding share of the Company's Common Stock. Each
Right will entitle stockholders to buy one one-thousandth
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of a share of a new series of junior participating
preferred stock at an exercise price of $20.00. The Rights
will be exercisable only if a person or group (other than
certain exempt persons) acquires 15% or more of the
Company's Common Stock. Reference is made to the Form 8-K
filed by the Company on July 8, 1998, for a more complete
description of the stockholder rights agreement.
c) During the third quarter ended September 30, 1998, the
Company has sold or issued the following unregistered
securities:
(1) In July 1998, the Company issued a total of
102,798 shares of Common Stock to John W. Norris,
Bernard Spier and Michael R. Norris in connection
with its acquisition of the assets of the
Northern New Jersey Eye Institute in July 1996.
For further information, see Note 8 of Notes to
Condensed Consolidated Financial Statements.
(2) In September 1998, the Company issued 187,500
shares of Common Stock to Frederic B. Kremer as
partial consideration for the acquisition, as
amended, of the LASIK PMA application. For
further information, see Note 7 of Notes to
Condensed Consolidated Financial Statements.
On November 11, 1998, subsequent to the end of the third
quarter, the Company granted Mercacorp, Inc. ("Mercacorp")
two separate warrants to purchase Common Stock. Under the
first warrant, Mercacorp is entitled to purchase up to
750,000 shares of Common Stock at an exercise price of
$4.00 per share, and under the second warrant, Mercacorp
is entitled to purchase up to 750,000 shares of Common
Stock at an exercise price of $5.00 per share. Both of
these warrants will terminate if the first warrant is not
exercised in full within fourteen days after the effective
date of a registration statement covering the shares of
common stock to be issued upon exercise of the warrants.
Prior to the exercise of the second warrant, the Company
has the option, but not the obligation, to repurchase the
second warrant by paying $1.00 per share. The second
warrant will expire if not exercised prior to November
2001. For a more complete description of the warrants,
reference is hereby made to Exhibits 10.33 and 10.34 to
this Report which are incorporated in this Item 5 by this
reference.
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 things, (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.
29
<PAGE>
ITEM 5 OTHER INFORMATION
Any stockholder desiring to submit a proposal or director
nomination not for inclusion in the management proxy statement
and form of proxy for the 1999 Annual Meeting of Stockholders
must submit such proposal or nomination to the Company no
later than March 13, 1999.
In July 1998, Juliet Tammenoms Bakker, an executive with
Dawson Samberg Capital Management, Inc., joined the Board of
Directors of the Company as the representative of the holders
of Series D Preferred Stock. In August 1998, Gary F. Jonas, an
executive with TLC, joined the Board of Directors of the
Company as the representative of the holder of Series C
Preferred Stock.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
INDEX TO EXHIBITS
Exhibit
Number Number Description
- ------ ------------------
2.1 See Exhibits 10.1, 10.6, 10.23, 10.26 and 10.31.
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 1 of Form 8-A/A (Amendment No. 4) filed
by the Company on June 25, 1998*).
3.2 Bylaws, as amended (filed as Exhibit 3 to the Company's Form
10-K for the year ended December 31, 1992*).
3.3 Rights Agreement, dated as of July 2, 1998, between LaserSight
Incorporated and American Stock Transfer & Trust Company, as
Rights Agent, which includes (i) as Exhibit A thereto the form
of Certificate of Designation of the Series E Junior
Participating Preferred Stock, (ii) as Exhibit B thereto the
form of Right Certificate (separate certificates for the
Rights will not be issued until after the Distribution Date)
and (iii) as Exhibit C thereto the Summary of Stockholder
Rights Agreement (incorporated by reference to Exhibit 99.1 to
the Form 8-K filed by the Company on July 8, 1998*).
4.1 See Exhibits 3.1,3.2 and 3.3.
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*).
30
<PAGE>
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*).
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 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*).
10.9 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*).
10.10 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*).
10.11 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*).
10.12 LaserSight Incorporated Amended and Restated 1996 Equity
Incentive Plan (filed as Exhibit 10.12 to the Company's Form
10-Q/A for the quarter ended June 30, 1998*).
10.13 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*).
10.14 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*).
10.15 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*).
10.16 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*).
10.17 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*).
31
<PAGE>
10.18 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*).
10.19 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*).
10.20 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*).
10.21 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*).
10.22 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*).
10.23 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*).
10.24 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 (filed as Exhibit 10.39 to
the Company's Form 10-Q filed on November 14, 1997*).
10.25 Independent Contractor Agreement by and between Byron Santos,
M.D. and LaserSight Technologies, Inc. (filed as Exhibit 10.42
to the Company's Form 10-Q filed on November 14, 1997*).
10.26 Stock Purchase Agreement, dated December 30, 1997, by and
among LaserSight Incorporated, LSI Acquisition, Inc., MEC
Health Care, Inc. and Vision Twenty-One, Inc. (filed as
Exhibit 2.(i) to the Company's Form 8-K filed on January 14,
1998*).
10.27 Stock Distribution Agreement, dated December 30, 1997, by and
among LaserSight Incorporated, LSI Acquisition, Inc., MEC
Health Care, Inc. and Vision Twenty-One, Inc. (filed as
Exhibit 2.(ii) to the Company's Form 8-K filed on January 14,
1998*).
10.28 Agreement dated April 1, 1992 between International Business
Machines Corporation and LaserSight Incorporated (filed as
Exhibit 10.1 on Form 10-K for the year ended December 31,
1995*).
10.29 Securities Purchase Agreement, dated June 5, 1998, by and
between LaserSight Incorporated and TLC The Laser Center, Inc.
(filed as Exhibit 99.1 to the Company's Form 8-K filed on June
25, 1998*).
32
<PAGE>
10.30 Securities Purchase Agreement, dated June 12, 1998, by and
between LaserSight Incorporated and Pequot Funds (filed as
Exhibit 99.5 to the Company's Form 8-K filed on June 25,
1998*).
10.31 Letter Agreement, dated September 11, 1998, amending the
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.
10.32 Exclusive License Agreement, dated August 20, 1998, by and
between LaserSight Technologies, Inc. and TLC The Laser Center
Patents Inc.
10.33 Warrant to Purchase Common Stock, dated November 11, 1998, by
and between LaserSight Incorporated and Mercacorp, Inc.
10.34 Warrant to Purchase Common Stock, dated November 11, 1998, by
and between LaserSight Incoporated and Mercacorp, Inc.
Exhibit 11 Statement of Computation of Loss Per Share
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
On July 8, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the adoption of a
Stockholder Rights Plan by the Company.
On August 4, 1998, the Company filed with the commission a
Current Report on Form 8-K regarding the press release issued
by the Company dated August 4, 1998, reporting a lawsuit filed
against the Company by Mercacorp, Inc.
- ----------------------
*Incorporated herein by reference. File No. 0-19671.
33
<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 16, 1998 By: /s/ Michael R. Farris
---------------------
Michael R. Farris,
Chief Executive Officer
Dated: November 16, 1998 By: /s/ Gregory L. Wilson
---------------------
Gregory L. Wilson,
Chief Financial Officer
34
LASERSIGHT INCORPORATED
3300 University Boulevard
Suite 140
Orlando, Florida 32792
September 11, 1998
VIA FACSIMILE
Frederic B. Kremer, M.D.
200 Mall Boulevard
King of Prussia, Pennsylvania 19406
Re: Revised Agreements
Dear Dr. Kremer:
As we recently discussed, we have agreed that the terms and conditions
of the various agreements among LaserSight Incorporated ("LaserSight"), you,
PhotoMed, Inc. ("PhotoMed") and various other parties, dated as of July 15,
1997, need to be amended based on the Food and Drug Administration's (the "FDA")
recent approval of the LASIK Pre-Market Approval ("PMA") application.
We have agreed as follows:
1. Within 10 business days after the date on which all parties to
this letter have signed a copy of this letter (the "Payment
Date"), LaserSight will pay you $1,500,000.00, 50% of which
shall be paid in cash in immediately available funds to an
account or accounts designated by you, and 50% of which shall
be paid (in LaserSight's sole discretion) in either cash or
shares of unregistered LaserSight common stock, $.001 par
value per share ("Common Stock"), the number of shares of
which shall be calculated using the closing price of a share
of Common Stock for the ten (10) trading days immediately
preceding the Payment Date. Such shares shall have the same
registration rights as are contained in Section 6.4 of the
Agreement and Plan of Merger, dated July 15, 1997(the
"Agreement and Plan of Merger"), among LaserSight, PhotoMed
Acquisition, Inc. ("Photomed-A"), you, Photomed, Linda Kremer
("LK"), Robert Sataloff, Trustee for Alan Stewart Kremer,
u/t/d December 27, 1991 ("ASK"), and Robert Sataloff, Trustee
for Mark Adam Kremer, u/t/d December 27, 1991 ("MAK, and
together with you, Photomed, LK and ASK the "Kremer Parties"),
provided that such Common Stock shall be deemed Closing Shares
for purposes of Section 6.4, the Demand Registration Statement
shall remain effective for at least one (1) year, no demand
for registration shall be deemed to have already occurred
under Section 6.4 and references in Sections 6.4(a) and 6.4
(b) to the "first anniversary of the Closing Date" shall be
revised to be "the second anniversary of the Closing Date."
<PAGE>
The payment described in this paragraph 1 shall be in lieu of
the $1,750,000.00 payment described in Section 2.2(a) of the
Agreement and Plan of Merger and LaserSight shall have no
further obligations pursuant to such Section so long as the
payment described in the immediately preceding paragraph is
made on the Payment Date. Subject to the full and timely
performance of the obligations described in the immediately
preceding paragraph the rights and obligations associated with
the unwind of the transaction described in Section 2.2(b) of
the Agreement and Plan of Merger are of no further force or
effect and to your actual knowledge PhotoMed-A holds full
right, title and interest to the PMA, free and clear of any
claims by you and your affiliates. The parties also agree that
in consideration of the receipt of the payment described in
this paragraph 1, to your actual knowledge, LaserSight shall
have the sole discretion to pursue commercialization of the
Kremer Laser (as defined in the Agreement and Plan of Merger)
and related PMA and therefore the parties acknowledge that
LaserSight has discharged its obligations under Section 6.5 of
the Agreement and Plan of Merger as it relates to Section
2.2(a).
2. If a laser manufactured by or for LaserSight which uses part
or all of the know how of the Kremer Laser is approved by the
FDA for general commercial use for the treatment of hyperopia
(the "Hyperopia Approval") prior to June 1, 1999, then within
thirty (30) days after the date of such approval, LaserSight
will pay to the Kremer Parties that number of shares of Common
Stock which results from dividing (A) $1,000,000.00 by (B) the
average closing price of a share of Common Stock for the ten
(10) day period immediately preceding the date of the
Hyperopia Approval (the "Hyperopia Consideration"). The number
of shares to be issued pursuant to this paragraph 2 shall be
limited by the terms of Section 2.3 of the Agreement and Plan
of Merger. The last sentence of Section 2.2(c) is hereby
deleted. If Hyperopia Approval is granted on or after June 1,
1999 but prior to June 1, 2000, then the $1,000,000.00 amount
utilized to calculate the Hyperopia Consideration shall be
reduced by the number resulting from multiplying $2,739.73 by
the number of days which have elapsed since June 1, 1999. If
Hyperopia Approval is granted on or after June 1, 2000 no
payment shall be due pursuant to this paragraph 2. If between
the date hereof and June 1, 2000 another entity which is
seeking Hyperopia Approval (the "Third Party") either
purchases substantially all of LaserSight's assets or acquires
at least eighty-five percent (85%) of LaserSight's outstanding
Common Stock or LaserSight purchases substantially all of the
Third Party's assets or acquires at least eighty-five percent
(85%) of the Third Party's outstanding common stock, and
subsequent to the closing of such transaction either ceases to
actively pursue or abandons Hyperopia Approval, then upon the
date the relevant party ceases to actively pursue or abandons
Hyperopia Approval it shall be deemed that Hyperopia Approval
has been obtained.
<PAGE>
The payment described in this section shall be in lieu of the
payment described in Section 2.2(c) of the Agreement and Plan
of Merger and upon making such payment (or if Hyperopia
Approval is not obtained prior to June 1, 2000) LaserSight
shall have no further obligation pursuant to such Section
other than its indemnification obligations contained in
Section 8 of the Agreement and Plan of Merger.
You agree, as your time permits, to assist LaserSight in
obtaining the Hyperopia Approval described in this paragraph 2
by (i) performing clinical trials, (ii) providing LaserSight
with the results of such trials in a form which may be used
for preparation for submission to the FDA, and (iii)
performing such other services as are agreed to by the parties
from time to time. In connection with such assistance you
agree to only utilize the services of current LaserSight
employees, which shall be provided to you promptly upon your
request, and not to retain any third parties without
LaserSight's prior approval. LaserSight shall comply with
Section 6.5 (other than 6.5(iii)) of the Agreement and Plan of
Merger and all references to FDA Approval shall be deemed to
refer to Hyperopia Approval, references to the PMA application
shall be deemed to refer to the hyperopia application and
references to PMA shall be deemed to refer to a PMA for
Hyperopia Approval. You shall not have liability of any nature
whatsoever based on LaserSight's failure to obtain Hyperopia
Approval.
3. Within two weeks after the Payment Date, LaserSight shall
provide you with a scanning laser which, as further described
below, you shall utilize to pursue FDA equivalency approval of
LaserSight's refractive scanning laser system (which is
currently in clinical trials) as compared to the FDA approval
granted to the Kremer Laser on July 29, 1998 in connection
with the PMA (the "FDA Equivalence Approval").
You directly or indirectly agree to utilize, as your time
permits, the scanning laser provided by LaserSight, together
with such other resources which you deem necessary, to
generate clinical data for submission to the FDA in order to
facilitate receipt of FDA Equivalence Approval. LaserSight
shall be responsible for reasonable out-of-pocket costs and
expenses actually incurred in amounts not to exceed
$150,000.00 in connection with your pursuit of the FDA
Equivalence Approval and any expenses in excess of such amount
shall be borne by you, unless approved in advance by
LaserSight. LaserSight shall reimburse you within thirty (30)
days after it receives proper documentation of expenses
incurred pursuant to the terms of the previous sentence. By
the tenth day after the end of each month, LaserSight shall
provide to you a written report setting forth in detail the
amount of costs and expenses incurred in the immediately prior
month and cumulatively from the date the scanning laser has
been received by you in connection with the LaserSight
resources you have utilized. Within five (5) days after your
<PAGE>
receipt of such report from LaserSight you will provide
LaserSight with a report that sets forth all costs and
expenses (on a monthly and cumulative basis) you have incurred
in connection with the pursuit of the FDA Equivalence
Approval. LaserSight shall have the right to terminate your
involvement in this process and the above-described funding if
LaserSight determines that you have failed to satisfy your
obligations in connection with this paragraph 3. In the event
of such a termination by LaserSight, LaserSight will reimburse
you for costs and expenses incurred (pursuant to the terms of
this paragraph) prior to the date of such termination. You
shall not have any liability of any nature whatsoever based on
LaserSight's failure to obtain FDA Equivalence Approval.
If on or prior to the date which is four (4) months after the
date on which LaserSight delivers to you the scanning laser
described in this paragraph (the "Equivalency Approval Date")
FDA grants the FDA Equivalence Approval, then LaserSight will
pay the Kremer Parties $1,000,000.00. If such approval is
received after the Equivalency Approval Date but prior to the
first year anniversary of the Equivalency Approval Date, then
LaserSight shall pay the Kremer Parties $1,000,000.00 less the
number resulting from multiplying $2,739.73 times the number
of days which have elapsed since the Equivalency Approval
Date. If FDA Equivalence Approval is granted on or after the
first year anniversary of the Equivalency Approval Date no
payment shall be due pursuant to this paragraph 3. Any payment
required by the terms of this paragraph shall be made within
10 days after the receipt of FDA Equivalence Approval by wire
transferring, in immediately available funds, the required
payment amount to an account or accounts designated by you as
agent for the Kremer Parties.
The payment described in this section shall be in lieu of the
payment described in Section 2.2(d) of the Agreement and Plan
of Merger and upon making such payment (or if FDA Equivalence
Approval is not obtained prior to the first year anniversary
of the Equivalency Approval Date) LaserSight shall have no
further obligation pursuant to such Section other than its
indemnification obligations contained in Section 8 of the
Agreement and Plan of Merger.
4. If LaserSight acquires (through license, with the ability to
sublicense, or otherwise) the rights to utilize the patents
previously held by Pillar Point Partners, Summit Technology,
Inc. or Visx, Inc. (collectively, the "PP Patents") and as a
result of such acquisition is not required in connection with
such acquisition to pay a per procedure fee or royalty, then
LaserSight agrees that it will not assert against you, Eyes of
the Future, P.C., a Pennsylvania professional corporation
("EOTF"), Frederic B. Kremer, M.D., P.C., a Pennsylvania
professional corporation ("PC"), or a Kremer Affiliate (as
defined in the Patent Purchase Agreement, dated July 15, 1997,
between you and LaserSight) for so long as you maintain an
<PAGE>
ownership interest of at least 25% in EOTF and PC and satisfy
such definition of Kremer Affiliate, as applicable, any claim
for infringement of such Pillar Point patents based on your or
such entities' use of up to three (3) excimer lasers. The
non-assertion clauses of this section do not constitute a
license or convey any right or interest in the PP Patents and
is not assignable or otherwise transferable by you or such
entities. In addition, LaserSight agrees that it will license
lasers purchased (in excess of the three (3) lasers mentioned
immediately above) by you, EOTF and/or PC (as long as you
maintain an ownership interest of at least 25% in such
entities) and/or a Kremer Affiliate on terms and conditions
then utilized by LaserSight for licenses of a similar scope
(e.g., number of lasers covered by such license, volume of
procedures performed by the licensee, patents covered by the
license, etc.) and that if subsequent to the grant of such
license to you, EOTF, PC or a Kremer Affiliate LaserSight
grants a license of a similar scope (taking into account the
number of lasers covered by such license, volume of procedures
performed by the licensee, patents covered by the license,
etc.) except at more favorable per procedure or royalty rate
than those previously provided to you, EOTF, PC or a Kremer
Affiliate, LaserSight shall notify the relevant party and such
party will be entitled to receive the more favorable per
procedure or royalty rate subject to the same terms and
conditions under which such more favorable rates have been
granted.
Notwithstanding the foregoing, if in connection with
LaserSight acquiring (through licensure or otherwise) the
right to utilize the PP Patents, LaserSight is required to pay
a per procedure fee or other royalty, then the terms of this
section will not preclude LaserSight from charging you, EOTF,
PC or a Kremer Affiliate such fees or royalties (but no amount
in addition to such fees or royalties) for up to fifteen (15)
lasers. In addition, LaserSight agrees that it will license
lasers purchased (in excess of the fifteen (15) lasers
mentioned immediately above) by you, EOTF and PC (as long as
you maintain an ownership interest of at least 25% in such
entities) and a Kremer Affiliate on terms and conditions then
utilized by LaserSight for licenses of a similar scope (e.g.,
number of lasers covered by such license, volume of procedures
performed by the licensee, patents covered by the license,
etc.) and that if subsequent to the grant of such license to
you, EOTF, PC or a Kremer Affiliate LaserSight grants a
license of a similar scope (taking into account the number of
lasers covered by such license, volume of procedures performed
by the licensee, patents covered by the license, etc.) except
at more favorable per procedure or royalty rates than those
previously provided to you, EOTF, PC or a Kremer Affiliate,
LaserSight shall notify the relevant party and such party will
be entitled to receive the more favorable per procedure or
royalty rate subject to the same terms and conditions under
which such more favorable rates have been granted.
<PAGE>
5. The right to receive royalties described in Section 2(c) of
your Consulting Agreement with LaserSight dated July 15, 1997
shall end on August 1, 1999 rather than as currently stated in
such agreement.
6. Except as modified hereby the agreements referenced in this
letter shall remain in full force and effect.
7. You and the parties hereto agree to execute any and all
agreements, including, without limitation, certain amendments
to the Agreement and Plan of Merger, which may be necessary to
fully and accurately document and carry out the terms of this
letter.
8. LaserSight hereby acknowledges and agrees that (i) the 25,000
stock options previously granted to Dr. Kremer did not
terminate thirty (30) days after the termination of his
Consulting Agreement with LaserSight, (ii) such options vest
pursuant to the following schedule, and (iii) such options
expire on July 29, 2002:
<TABLE>
<CAPTION>
Number of Cumulative
Year Percentage Vested Shares Vested Number of Shares
---- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
0-1 0 0 0
1-2 25% 6,250 6,250
2-3 25% 6,250 12,500
3-4 25% 6,250 18,750
4-5 25% 6,250 25,000
</TABLE>
Since this letter shall serve as an amendment to the various agreements
it will only be valid upon execution by all the parties indicated below.
Please review the enclosed and contact me with any questions you may
have. If none, please have this letter executed by all parties and return to my
attention. LaserSight, intending to be legally bound, has signed this letter
agreement.
<PAGE>
If the LaserSight Board does not approve this letter agreement on or
before September 17, 1998, this letter agreement shall be void and the Kremer
Parties and LaserSight may exercise any rights under the Agreement and Plan of
Merger, including, but not limited to, the unwind.
Very truly yours,
LASERSIGHT INCORPORATED
/s/Michael R. Farris
By: ----------------------------------
Michael R. Farris
President and Chief Executive Officer
Dated: September 15, 1998
PHOTOMED, INC. PHOTOMED ACQUISITION, INC.
/s/Frederic B. Kremer, M.D. /s/ Michael R. Farris
By:--------------------------- By: ----------------------------------
Its:-------------------------- Michael R. Farris
Dated: September 15, 1998 President and CEO
Dated: September 15, 1998
/s/Frederic B. Kremer, M.D. /s/Robert Sataloff
- --------------------------------- ----------------------------------
Frederic B. Kremer, M.D. Robert Sataloff, Trustee for Alan Stewart
Dated: September 15, 1998 Kremer, u/t/d December 27, 1991
Dated September 15, 1998
/s/Linda Kremer /s/ Robert Sataloff
- --------------------------------- ----------------------------------
Linda Kremer Robert Sataloff, Trustee for Mark Adam
Dated September 15, 1998 Kremer, u/t/d December 27, 1991
Dated: September 15, 1998
EXCLUSIVE LICENSE AGREEMENT
EXCLUSIVE LICENSE AGREEMENT, effective as of August 20, 1998,
is by and between TLC THE LASER CENTER PATENTS INC., a Canadian corporation
having an address of 5600 Explorer Drive, Suite 301, Mississauga, Ontario,
Canada (hereinafter referred to as "TLC") and LASERSIGHT TECHNOLOGIES, INC., a
Delaware corporation, having an address of 3300 University Boulevard, Suite 140,
Orlando, Florida 32792 (hereinafter referred to as "LASERSIGHT")
BACKGROUND:
A. TLC owns certain rights in a patent related to ophthalmological surgery;
and
B. LASERSIGHT desires to acquire, and TLC desires to grant, an exclusive
license to all rights in the aforementioned patent.
The parties hereto agree as follows:
ARTICLE I. DEFINITIONS
-----------
As used above and throughout this Exclusive License Agreement,
the definitions of the following terms have the meanings set forth below:
(a) "Affiliated Company" shall mean any person or entity
controlling, controlled by or under common control with another person. For
purposes of this definition, "control" (including, with correlative meaning, the
terms "controlled by" and "under common control with"), as used with respect to
any person or entity, shall mean the possession, directly or indirectly, of the
power to direct and cause the direction of the management and policies of such
person or entity, whether through the ownership of voting securities, by
contract or otherwise.
(b) "Agreement" shall mean this Exclusive License Agreement.
(c) "Effective Date" shall mean the date set forth in the first
paragraph of this Agreement.
(d) "LASERSIGHT Patents" shall mean those patents and patent
applications listed in Exhibit A attached hereto together with all reissues,
reexaminations, divisions, continuations, continuations-in-part, renewals,
extensions of, and additions thereto.
(e) "Licensed Patents" shall mean those patents and patent
applications listed in Exhibit B attached hereto together with all reissues,
reexaminations, divisions, continuations, continuations-in-part, renewals,
extensions of, and additions thereto and any patent obtained in a country other
than the United States that is based on an application that claims a priority,
in whole or in part, based on the filing date of U.S. Patent No. 5,630,810.
(f) "Licensed Procedure" shall mean any method or procedure that
would, except for this Agreement, infringe a claim in a Licensed Patent.
(g) "Licensed Product" shall mean any apparatus that is capable of
performing a Licensed Procedure and that would, except for this Agreement,
infringe a claim in a Licensed Patent, either directly or contributorily, or
which would induce infringement of a Licensed Patent, and all additional
apparatus which is associated therewith wherein the sale of such additional
apparatus is normally anticipated with the sale of the Licensed Product.
<PAGE>
(h) "Net Recovery" shall mean the excess of all amounts received by
LASERSIGHT pursuant to an action for infringement of the Licensed Patents
against an unrelated third party over the sum of (a) all direct and indirect
costs and expenses incurred by LASERSIGHT to recover the damages for
infringement of the Licensed Patents, plus (b) all litigation, arbitration or
other dispute resolution costs and expenses, including attorney fees, expert
fees and court related expenses incurred by LASERSIGHT in connection with
pursuing the recovery of damages for infringement of the Licensed Patents.
(i) "Net Royalties" shall mean the excess of all royalties received
by a licensor pursuant to a license agreement over the sum of (a) all direct and
indirect costs and expenses incurred by the licensor following the Effective
Date to obtain, maintain or enforce the applicable patent, plus, (b) all
litigation, arbitration or other dispute resolution costs and expenses,
including attorney fees, expert fees and court related expenses incurred by the
licensor following the Effective Date in connection with the enforcement of the
applicable patent, plus, (c) all taxes withheld on such royalties plus (d) all
fees payable to licensing agents in connection with the licensing of the
applicable patent, plus, (e) all direct and indirect costs and expenses incurred
in connection with the licensing of the applicable patent, including but not
limited to costs of any licensing program, fees and expenses of consultants or
other professionals, and salary and related expenses of employees involved in
licensing or marketing the applicable patent. In determining the amount of Net
Royalties under this Agreement, LASERSIGHT shall not deduct its internal salary
and benefit expenses incurred to pay its own employees to the extent those
expenses exceed 2% of the aggregate gross royalties received by LASERSIGHT
during any applicable period.
ARTICLE II. WARRANTY
--------
2.01. TLC warrants that it is the sole owner of the entire right, title
and interest in the Licensed Patents, free and clear of all liens, security
interests, charges, encumbrances, equities and other adverse claims, and it has
the unencumbered right to grant the exclusive license to the Licensed Patents
provided in this Agreement to LASERSIGHT.
2.02. TLC warrants that it has not previously granted and will not grant
any rights to any third party that are inconsistent with the rights granted to
LASERSIGHT herein and that TLC has full power, right and authority to enter into
and carry out its obligations under this Agreement.
2.03. TLC warrants that, except for situations where public policy
considerations in a country may limit the enforceability of patent claims for
medical procedures, it is not aware of any reason why any of the Licensed
Patents is invalid or unenforceable and it has disclosed to representatives of
LASERSIGHT each assertion by another person at any time prior to the execution
of this Agreement that any of the Licensed Patents is invalid, unenforceable or
not infringed.
2.04. TLC warrants that it has taken all reasonable and customary action
to maintain and protect the Licensed Patents and that all fees to maintain TLC's
rights in the Licensed Patents, including without limitation, registration and
prosecution fees and all professional fees in connection therewith pertaining to
the Licensed Patents, have been paid.
<PAGE>
2.05. With respect to each of Licensed Patents, TLC warrants that:
(a) the Licensed Patent is not, nor has it ever been, subject to any
injunction, judgment, order, decree, ruling or charge; and
(b) to the knowledge of TLC and each of its employees or agents with
responsibility for intellectual property matters, no action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand (collectively, an
"Action") is or ever has been pending or is threatened which challenges the
legality, validity, enforceability, or ownership of the Licensed Patent; and
(c) to the knowledge of TLC and each of its employees and agents
with responsibility for intellectual property matters, there is no basis for any
such Action and TLC has received no notice asserting that any proposed
development, manufacturing, use, sale, license or disposition of products
covered by the Licensed Patent or any performance of a Licensed Procedure
infringes or would infringe the rights of any other party, and
(d) to the knowledge of TLC and each of its employees and agents
with responsibility for intellectual property matters, no person has made a
written or oral assertion that challenges the legality, validity,
enforceability, or ownership of the Licensed Patent during any license
negotiation or otherwise.
2.06. TLC warrants that it has full power, right and authority to enter
into and carry out its obligations under this Agreement and that this Agreement
constitutes the valid and legally binding obligation of TLC, enforceable in
accordance with its terms and conditions.
2.07. TLC warrants that prior to the date of the execution of this
Agreement, no license, agreement or other permission has been granted to any
third party with respect to the Licensed Patents.
2.08. TLC warrants that the execution and delivery of this Agreement and
the licensing of the Licensed Patents pursuant to this Agreement by TLC does not
and will not (i) conflict with or violate any law, rule or regulation, or (ii)
result in the creation of any lien or other encumbrance on any of the Licensed
Patents or result in any material breach of or constitute a material default (or
event which with notice or lapse of time, or both, would become a material
default) under any agreement or other instrument related to the Licensed
Patents.
2.09. LASERSIGHT warrants that it has full power, right and authority to
enter into and carry out its obligations under this Agreement and that this
Agreement constitutes the valid and legally binding obligations of LASERSIGHT,
enforceable in accordance with its terms and conditions.
<PAGE>
ARTICLE III. DISCLOSURE
----------
3.01. The parties understand and agree that no license or other right is
granted herein to either party, directly or by implication, estoppel or
otherwise, with respect to any trade secrets or know-how, and that no such
license or other right shall arise from the consummation of this Agreement or
from any acts, statements or dealings leading to such consummation. Except as
specifically provided herein, neither party is required hereunder to furnish or
to disclose to the other any technical or other information.
ARTICLE IV. CONFIDENTIALITY
---------------
4.01. LASERSIGHT and TLC realize that some information received by one
party from the other pursuant to this Agreement may be confidential. It is
therefore agreed that any information received by one party from the other, and
clearly designated in writing as "CONFIDENTIAL", shall not be disclosed by the
receiving party to any third party and shall not be used by the receiving party
for purposes other than those contemplated by this Agreement for a period of
three (3) years from the date this Agreement is terminated for any reason,
unless or until:
(a) such information shall become publicly known through no fault of
the receiving party, or
(b) such information was already in the receiving party's possession
by lawful means prior to the disclosure of such information to the receiving
party, or
(c) such information shall be subsequently disclosed to the
receiving party by a third party who is not under any obligation of
confidentiality to the disclosing party, or (d) such information is
independently developed by the receiving party, or (e) the receiving party has
been advised by its counsel that disclosure is
required by applicable law.
4.02. It is to be understood that specific information which has been
disclosed to the receiving party shall not be deemed to be available to the
public or in the receiving party's prior possession merely because it was
embraced by more general information available to the public or in the prior
possession of the receiving party.
ARTICLE V. GRANT OF LICENSE TO LASERSIGHT IN THE LICENSED FIELD
----------------------------------------------------
5.01. TLC grants to LASERSIGHT and its Affiliated Companies an exclusive
license under the Licensed Patents to:
(a) make, have made, import, use, lease, offer to sell, sell, and/or
otherwise dispose of Licensed Products;
(b) perform and/or have performed Licensed Procedures;
(c) enforce the Licensed Patents including but not limited to,
initiating legal proceedings against unrelated third parties for infringement of
the Licensed Patents; and
(d) recover damages for infringement of the Licensed Patents by
unrelated third parties occurring before or after the Effective Date.
<PAGE>
5.02. TLC further grants to LASERSIGHT and its Affiliated Companies the
right to sublicense to unrelated third parties under the exclusive license
granted hereunder. The granting of sublicenses by LASERSIGHT and its Affiliated
Companies shall be at the discretion of LASERSIGHT and its Affiliated Companies
and they shall have the sole power to determine whether or not to grant
sublicenses, the identity of the sublicensee, and the terms and conditions of
such sublicenses.
5.03. TLC grants to the users of Licensed Products leased, sold and/or
otherwise transferred by LASERSIGHT, its Affiliated Companies and their
sublicensees an immunity from suit under the Licensed Patents for the
performance of Licensed Procedures which involve the use of the Licensed
Products.
ARTICLE VI. CONSIDERATION
-------------
6.01. In consideration for the rights granted under Article V of this
Agreement, LASERSIGHT shall pay to TLC an amount equal to the product of twenty
percent (20%) times the sum of (A) the aggregate Net Royalties received during
the term of this Agreement by LASERSIGHT or its Affiliated Companies from any
present or future licensee under any of the LASERSIGHT Patents (listed in
Exhibit A) or the Licensed Patents payable on sales made or procedures
undertaken during the term of this Agreement, plus, (B) the aggregate Net
Royalties received during the term of this Agreement by LASERSIGHT or its
Affiliated Companies from any present or future licensee under United States
Patent No. 4,784,135 or United States Patent No. 4,925,523 (collectively the
"Blum/Brarren Patents") in excess of Two Million Five Hundred Thousand Dollars
($2,500,000) during any year beginning on the Effective Date or each anniversary
of the Effective Date, plus, (C) the aggregate Net Royalties received during the
term of this Agreement by LASERSIGHT or its Affiliated Companies from any
present or future licensee under any patent issued subsequent to the Effective
Date of this Agreement that is invented or acquired by LASERSIGHT in order to
replace the inventions claimed in the LASERSIGHT Patents or the Licensed Patents
("Replacement Patents") payable on sales made or procedures undertaken during
the Term of this Agreement, plus, (D) the aggregate Net Royalties received
during the Term of this Agreement by LASERSIGHT, its Affiliated Companies or any
successor to LASERSIGHT or its Affiliated Companies pursuant to a currently
existing patent license between Summit Technology, Inc. and TLC, plus, (E) the
Net Recovery of damages received during the Term of this Agreement by LASERSIGHT
pursuant to any action based on infringement (including infringement prior to
the Effective Date) of the Licensed Patents brought by LASERSIGHT pursuant to
Section 5.01 (c) or (d).
6.02. LASERSIGHT shall pay all amounts due hereunder in United States
dollars. All amounts due for an accounting period computed in other currencies
shall be converted into United States dollars at the exchange rate for bank
transfers from such currency to United States dollars as quoted by the head
office of Citibank N.A., New York, at the close of banking on the last day of
such accounting period (or the business day thereafter if such last day shall be
a non-business day).
<PAGE>
6.03. A semiannual accounting period shall end on the last day of each
June and December during the term of this Agreement. Within sixty (60) days
after the end of each such period, LASERSIGHT shall furnish to TLC a written
report containing the information specified in Section 6.04 below and shall pay
to TLC all unpaid amounts accrued hereunder to the end of each such period.
6.04. LASERSIGHT shall keep records in sufficient detail to permit the
determination of amounts payable hereunder and at the request and expense of TLC
will permit an independent auditor selected by TLC, or any other person
acceptable to both TLC and LASERSIGHT to examine, during ordinary business hours
once in each calendar year, such records and other materials as may be required
by the auditor or other person to verify or determine the amounts paid or
payable under this Agreement. Such auditor or other person shall be instructed
to report to TLC only the amount due and payable. If no request for examination
of such records and materials for a particular semiannual accounting period has
been made by TLC within two (2) years after the end of said period, the right to
examine such records and materials for said period, and the obligation to keep
such records and materials for said period shall terminate.
ARTICLE VII. TREATMENT OF LICENSE RIGHTS UNDER BANKRUPTCY CODE; BREACH OF
AGREEMENT -----------------------------------------------------------------
- ---------
7.01. All rights and licenses granted under this Agreement by either party
to the other including the license itself, are, for purposes of section 365 of
the Bankruptcy Code, licenses to "intellectual property" as defined under the
Bankruptcy Code. The parties agree that both parties shall retain and may
exercise any of their rights under the Bankruptcy Code in the event of a
bankruptcy filing by or against LASERSIGHT or TLC, as the case may be.
7.02. If either party is in breach of any obligation hereunder (other than
an obligation under Article IV), the nonbreaching party shall be entitled solely
to money damages plus costs of recovery and collection (including but not
limited to attorney fees) plus interest at the rate of 8% per annum from the
date such payment was due and payable until paid. Except with respect to a
breach under Article IV, both parties expressly waive all rights for injunctive
and other equitable relief, including but not limited to the right to bring a
claim for patent infringement.
ARTICLE VIII. PATENT MAINTENANCE
------------------
8.01. TLC shall be obligated to pay all fees and costs necessary to
maintain the Licensed Patents for the respective full term of the Licensed
Patents; provided however, LASERSIGHT shall monitor the payment of all fees and
costs related to the Licensed Patents and shall advance on TLC's behalf, all
such fees and costs, which aggregate amount advanced by LASERSIGHT shall be
deducted from the amounts due to TLC under Article VI. If TLC is unwilling at
any time to reimburse LASERSIGHT fully for all fees and costs advanced by
LASERSIGHT necessary to maintain the Licensed Patents, LASERSIGHT shall have an
option to pay such costs on its own behalf. If LASERSIGHT exercises its option
to make such payments on its own behalf, TLC agrees to assign to LASERSIGHT all
of TLC's right, title and interest in the Licensed Patents.
8.02. In the event any of the Licensed Patents is subject to a legal or an
administrative proceeding concerning patent validity, patentability,
enforceability or a related issue, each party to this Agreement shall inform the
other party of such a proceeding and keep the other party regularly apprised of
such proceedings. If feasible in connection with any proceeding, each party
shall, at its own expense, be entitled to submit its comments on the other
party's submission; provided, however, that submission of such comments by the
party not directly involved in the proceeding shall not interfere with the party
directly participating in the proceedings.
<PAGE>
ARTICLE IX. PATENT ENFORCEMENT
------------------
9.01. Enforcement. Upon learning of the infringement of any of the
Licensed Patents by third parties, each party shall inform the other in writing
of that fact, and shall supply the other with any evidence available pertaining
to the infringement. Pursuant to the rights granted under Section 5.01(c),
LASERSIGHT may, at its own discretion and at its own expense, take whatever
steps are necessary to stop the infringement of such Licensed Patent and, with
respect to such Licensed Patent which LASERSIGHT is enforcing, LASERSIGHT shall
have the sole right to recover damages and/or settlement proceeds from the
resolution of such an infringement claim; provided, however, that
notwithstanding anything to the contrary herein that in any enforcement action
brought by LASERSIGHT involving its rights under this Agreement, TLC shall, in
its sole discretion, be entitled to enter such action as a third party solely in
order to defend any counterclaim, cross claim or other claim against TLC. If TLC
elects to enter such action, TLC shall pay all of its legal costs and expenses,
including attorneys' fees and costs and experts' fees. Prior to the assignment
of the Licensed Patents to LASERSIGHT pursuant to Section 8.01, LASERSIGHT will
not compromise or settle any claim, action or proceeding involving the Licensed
Patents, where such action would impact the validity or enforceability of the
Licensed Patents, without the approval of TLC, which approval shall not be
unreasonably withheld. This Section 9.01 shall survive expiration or other
termination, for any reason, of this Agreement.
9.02. TLC as Party. In the event of the initiation of legal proceedings
under either Sections 5.01(c), 6.01(c) and/or Section 9.01, TLC or TLC's
assignee of the applicable Licensed Patent, at LASERSIGHT's request and at
LASERSIGHT's expense, shall agree to become a named party in such litigation if,
in LASERSIGHT's sole discretion and opinion, TLC's or TLC's assignee's
appearance in such action is necessary and prudent to adjudicate the disputed
rights in such action. In the event TLC or TLC's assignee appears in such action
pursuant to this Section 9.02, LASERSIGHT shall indemnify TLC and TLC's assignee
for its participation and shall reimburse TLC or TLC's assignee for all
reasonable attorney fees paid by TLC or TLC's assignee provided however, that
LASERSIGHT shall be entitled, at its sole cost and expense to prosecute, contest
or defend the action on behalf of TLC or TLC's permitted assignee with counsel
of LASERSIGHT's choosing and TLC or TLC's permitted assignee shall not admit any
liability with respect thereto or settle, compromise or discharge the action
without the prior written consent of LASERSIGHT so long as LASERSIGHT is
prosecuting, contesting or defending the action in good faith and TLC or TLC's
permitted assignee shall cooperate with LASERSIGHT in the action and shall
accept any settlement thereof recommended by LASERSIGHT so long as TLC is fully
indemnified by LASERSIGHT.
<PAGE>
ARTICLE X. GOVERNING LAW; DISPUTE RESOLUTION
---------------------------------
All parties to this Agreement, including the undersigned parties, their
successors and permitted assigns and all others who may hereafter become bound
by this Agreement by assuming it or otherwise (all collectively, the "Parties")
do hereby reciprocally and irrevocably agree to the following matters, all of
which shall also apply fully to anyone else who has or asserts any rights under
this Agreement as third party beneficiary or otherwise (all of whom are also
"Parties" as used herein):
(a) Choice of Law. This Agreement shall in all respects be construed
and enforced in accordance with the law of the State of Delaware.
(b) Claims as to Subject Matter to be Determined in Delaware Courts.
All judicial cases or proceedings involving Parties and involving subject matter
that includes any claims, demands or disputes that now exist or may hereafter
arise (all collectively called "Claims" herein) arising from or relating to any
aspect of, (1) the negotiation or execution of this Agreement, (2) any question
as to the validity or effect of this Agreement, (3) anything done by anyone in
the performance of this Agreement, (4) any alleged breach of this Agreement, or
(5) any alleged modification, extension or continuation of this Agreement (all
collectively called the "Subject Matter" herein), shall, whether or not such
proceedings or cases also involve other parties or matters, proceed and be
determined only in the state and/or federal courts located in New Castle County,
State of Delaware (all collectively, "Delaware Courts") and in the courts having
appellate jurisdiction over them, and not elsewhere.
(c) Claims as to Subject Matter to be Determined by Superior Court
in Summary Proceedings if they Qualify. All Claims arising from or relating to
the Subject Matter (whether or not such Claims also involve other matters or
parties), which by their nature and by the amount in controversy qualify as a
matter of right to be determined in the Superior Court of the State of Delaware
in and for New Castle County (the "Superior Court") under its Rules governing
Summary Proceedings for Commercial Disputes (the "Rules" as to "Summary
Proceedings"), shall proceed and be determined in such Summary Proceedings only.
As to all such Claims which may be determined in such Summary Proceedings only
in the discretion of the Superior Court, if any party applies for such
discretionary Summary Proceedings all Parties shall support, and no Party shall
oppose, such application. In either case, all Parties hereby agree to submit to
the Superior Court's jurisdiction for Summary Proceedings, and all Parties do
hereby submit to such jurisdiction. Any such Claims which cannot be determined
in such Summary Proceedings as a matter of right, or as to which discretionary
Summary Proceedings are not sought or are denied, shall proceed and be
determined in whichever Delaware Court has jurisdiction of such Claims.
(d) No Proceedings Elsewhere. No Party shall initiate or pursue any
case or proceeding of any kind against any other Party as to any Claim arising
from or relating to any aspect of the Subject Matter, in any forum other than a
Delaware Court. No Party shall initiate or pursue any case or proceeding seeking
damages against any Party in any forum other than the Superior Court, as to any
Claim which, by its nature and by the amount in controversy, qualifies to be
determined as a matter of right by the Superior Court in Summary Proceedings,
nor as to any Claim for which discretionary Summary Proceedings are permitted by
the Superior Court's Rules, where any Party has applied for such discretionary
Summary Proceedings and the Superior Court has granted them, or has not yet
refused to grant them.
(e) Waiver of Objections to Forum; Waiver of Change of Forum
Remedies. All Parties hereby reciprocally and irrevocably waive in advance any
and all objections to the Delaware Courts as forums based upon any of: venue,
the doctrine of forum non conveniens, the present or future pendency of any
other case or proceeding elsewhere, any compulsory counterclaim rule, or any
other doctrine, statute, rule, practice or fact. No such case or proceeding that
is pending in a Delaware Court shall be dismissed, stayed or delayed based on
any such objection to the forum, nor transferred nor removed to any other forum
on any ground, including without limitation removal from any state Delaware
Court to a federal court. All Parties reciprocally and irrevocably waive in
advance all rights they might otherwise have to cause or seek any such
dismissal, stay, delay, transfer or removal, and also waive all rights they
might otherwise have to assert in any forum that any Party's right to proceed in
any Delaware Court under this Agreement is subject to any such objection,
dismissal, stay, delay, transfer or removal.
<PAGE>
(f) Submission to In Personam Jurisdiction; Service of Process. For
purposes of all actions or proceedings that involve Claims arising from or
relating to the Subject Matter (whether or not they also involve other matters
or parties), all Parties do hereby irrevocably submit themselves to the personal
jurisdiction of each and all of said Delaware Courts, and do hereby irrevocably
agree for purposes of all such actions or proceedings that service of such
Delaware Courts' process upon them may be duly perfected by any of the following
three methods, each of which, in itself, shall constitute due and sufficient
service of such process:
(1) Hand delivery to a Party at its address stated in the first
paragraph of this Agreement.
(2) Effective immediately Delaware Corporate Organizers, Inc., and
its successors (the "Registered Agent") is hereby irrevocably appointed as the
registered agent of all Parties to receive service of process under this
Agreement in Delaware. LASERSIGHT shall promptly make appropriate arrangements
with the Registered Agent and shall pay its fees on a timely and regular basis,
so there will be no break in its service as such Registered Agent for all
Parties. If due to non-payment or for any other reason the Registered Agent does
not serve as such, or ceases to do so, and no successor has been appointed,
anyone desiring to serve process on a Party hereunder by serving such Registered
Agent may pay its fees, and may take any other reasonable steps to obtain its
commencement or resumption of service as such Registered Agent for the Parties,
whereupon any Party may then be served with process by service upon such
Registered Agent, as fully as if such Registered Agent had duly served as such
without interruption from the date of this Agreement. Alternatively, any Party
may appoint for all Parties a new Registered Agent in New Castle County,
Delaware, and shall within three business days of such appointment give written
notice of such appointment to all Parties at the addresses stated in subsection
(f)(1), above. Regardless of any defect in such notice or any failure to give
it, service on such new Registered Agent shall be valid if the Party thus served
receives actual notice of such service within three business days of such
service.
(3) By any other lawful method.
ARTICLE XI. ASSIGNMENT
----------
Neither this Agreement nor any interest hereunder shall be
assignable by any party by operation of law or otherwise without the prior
written consent or agreement of the other party, except LASERSIGHT may assign
all of its interests under this Agreement in connection with a sale or transfer
of all or substantially all of its business and assets to which this Agreement
relates. This Agreement shall inure to the benefit of and shall be binding upon
the parties and their successors and permitted assigns, and the name of a party
appearing herein shall be deemed to include the names of such party's successors
and permitted assigns to the extent necessary to carry out the intent of this
Agreement.
ARTICLE XII. INVENTION DOCUMENTATION
-----------------------
12.01. Upon LASERSIGHT's request at any time, including but not limited
to, if it becomes a party to litigation in which the validity or enforceability
of any of the Licensed Patents is challenged, TLC shall provide to LASERSIGHT
all files and records related to the applicable Licensed Patent in its
possession, custody or control and further agrees to fully exercise, on behalf
of LASERSIGHT, (1) TLC's rights to obtain all files and records in Jeffrey J.
Machat's possession at such time pertaining to the conception and reduction to
practice of the inventions claimed in the Licensed Patents, and (2) TLC's rights
to obtain access to any inventors who are employees of TLC at such time.
LASERSIGHT shall reimburse TLC and Jeffrey J. Machat for any reasonable
out-of-pocket expenses associated with the actions taken pursuant to this
section.
12.02. TLC shall give LASERSIGHT prompt written notice of its information
of any intention by any party to destroy any records pertaining to the
conception and reduction to practice of the inventions claimed in the Licensed
Patents, and, in the event TLC chooses not to exercise its rights to take
possession of such records, LASERSIGHT shall then have the right to take
possession of such records. In the event TLC does exercise its rights to obtain
such records, TLC shall provide a copy of such records to LASERSIGHT at
LASERSIGHT's expense and subject to any applicable confidentiality restrictions.
<PAGE>
ARTICLE XIII. MISCELLANEOUS
-------------
13.01. TLC agrees that there shall be no public disclosures, including but
not limited to, press releases, concerning this Agreement or activities
occurring pursuant to this Agreement without LASERSIGHT's prior written
approval.
13.02. No variation or amendment of this Agreement shall bind either party
unless made in writing and agreed to in writing by duly authorized officers of
TLC and LASERSIGHT.
13.03. If any of the provisions of this Agreement are held void or
unenforceable, the remaining provisions shall nevertheless be effective, the
intent being to effectuate this Agreement to the fullest extent possible.
13.04. If either party fails to fulfill its obligations (other than any
payment obligation) hereunder, when such failure is due to an act of God, or
other event such as fire, flood, civil commotion, riot, war (declared and
undeclared), revolution, action by government including delays in obtaining
governmental approvals, embargoes, then said failure shall be excused for the
duration of said event. This provision shall not apply where the failure to
fulfill an obligation results solely from the action or inaction of a party. If
either party fails to fulfill a payment obligation hereunder, the other party's
exclusive remedy will be to seek monetary damages directly caused by the delay
of payment.
13.05. The headings in this Agreement are for convenience only and are not
intended to have any legal effect.
13.06. A failure by any party hereto to exercise or enforce any rights
conferred upon it by this Agreement shall not be deemed to be a waiver of any
such rights or operate so as to bar the exercise or enforcement thereof at any
subsequent time or times.
13.07. Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, employer-employee or joint venture
relationship between the parties. All activities by the parties hereunder shall
be performed by them as independent contractors. No party shall incur any debts
or make any commitments for or on behalf of the other party, unless specifically
authorized in writing by TLC or by an officer of LASERSIGHT.
13.08. Unless otherwise terminated hereunder, the term of this Agreement
shall expire simultaneously with the last to expire of the Licensed Patents,
provided however that LASERSIGHT shall have the unilateral right to terminate
this Agreement on thirty (30) days advance written notice.
13.09. This Agreement constitutes the entire agreement between the parties
as to the subject matter hereof, and all prior negotiations, representations,
agreements and understandings are merged into, extinguished by and completely
expressed by this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the 20th day of August, 1998.
LASERSIGHT TECHNOLOGIES, INC.
a Delaware corporation
/s/Michael R. Farris
---------------------------------
Michael R. Farris
Chief Executive Officer
TLC The Laser Center Patents Inc.
By:/s/R.J. Kelly
------------------------------
Name: Ronald J. Kelly
Title: General Counsel
Void after 5:00 p.m., New York, New York time, on November 11, 2001
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
---------------------------------------
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
Mercacorp, Inc. ("Mercacorp") or its permitted assigns (individually, "Holder"
and collectively, "Holders") are entitled, subject to the terms set forth below,
to purchase from LaserSight Incorporated, a Delaware corporation (the "Company")
or its successors or assigns, seven hundred fifty thousand (750,000), fully
paid, validly issued and non-assessable shares of common stock, $0.001 par
value, of the Company ("Common Stock") at any time during the period beginning
on the date hereof and ending at 5:00 p.m. New York, New York time, on November
11, 2001 (such period, the "Exercise Period") at an initial exercise price equal
to $4.00 per share. The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for each share of Common Stock
may be adjusted from time to time as provided in Section 18. The shares of
Common Stock deliverable upon such exercise, and as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares" and the exercise price
per share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price."
2. Exercise of Warrant. This Warrant may only be exercised during the
Exercise Period, in whole or in increments of 50,000 shares of Common Stock.
This Warrant may be exercised, subject to the provisions hereof, by presentation
and surrender hereof to the Company at its principal office (or such other
office or agency of the Company as it may from time to time designate by notice
in writing to Holder at the address of Holder appearing on the books of the
Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than five (5) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, unless such date is not a day on which
<PAGE>
banks are open for business in New York, New York, in which case this Warrant
shall be deemed to have been exercised on the first succeeding day on which
banks are open for business in New York, New York (such date, the "Exercise
Date"). The person entitled to receive the shares of Common Stock issuable upon
such exercise shall be deemed to be the holder of record thereof from and after
the Exercise Date, notwithstanding that certificates representing such Warrant
Shares shall not then have been physically delivered.
3. Option to Compel Exercise. The Company shall have the right to
compel the Holder to exercise this Warrant, in whole, at any time during the
fourteen (14) day period immediately following the date the Shelf Registration
Statement (as defined herein) is declared effective (the "Option Period"). If at
any time during the Option Period the Company provides written notice (the
"Company Notice") to the Holder in accordance with Section 25 that the Company
has elected to exercise its right to compel the exercise of the Warrants under
this Section 3, the Holder shall, within five (5) days of its receipt of the
Company Notice, present and surrender this Warrant to the Company at its
principal office or Other Office, as applicable, with the Notice of Exercise
annexed hereto duly completed and executed on behalf of Holder, with Holder's
signature guaranteed by an eligible guarantor institution that is a member of a
recognized medallion signature guarantee program, and accompanied by payment of
the Exercise Price by wire transfer, certified or official bank check reasonably
acceptable to the Company. If after its receipt of the Company Notice, the
Holder fails to perform its obligations pursuant to this Section 3, this Warrant
shall be immediately cancelled and the Holder will have no further rights under
this Warrant, and the Company will have no further obligations under this
Warrant.
4. Reservation of Shares. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall from time to time be required for issuance and
delivery upon exercise of the Warrant in full.
5. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. Any
fractional share to which Holder would otherwise be entitled shall be rounded to
the nearest whole share.
6. Warrant Register. The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Holder or Holders. Any
Holder may change his address as shown on the Warrant Register by written notice
to the Company requesting such change. Any notice or written communication
required or permitted to be given to the Holder may be delivered or given by
mail to such Holder as named in the Warrant Register and at the address shown on
the Warrant Register in accordance with Section 25. Until this Warrant is
transferred on the Warrant Register of the Company in accordance with the
provisions hereof, the Company may treat the Holder named in the Warrant
Register as the absolute owner of this Warrant for all purposes, notwithstanding
any notice to the contrary. If this Warrant is transferred in accordance with
the provisions hereof or a Holder's address as shown on the Warrant Register
changes and the Company is provided notice thereof in accordance with the
provision hereof, the Company shall record such transfer or change of address on
the Warrant Register as soon as practicable after receiving such notice.
7. Warrant Agent. The Company may, by written notice to all Holders,
appoint an agent ("Warrant Agent") who may at the option of the Company be the
Company's transfer agent or an individual employed by the Company for the
purpose of maintaining the Warrant Register, issuing the Common Stock or other
<PAGE>
securities then issuable upon the exercise of this Warrant, exchanging this
Warrant, or replacing this Warrant. Thereafter, any such registration, issuance,
exchange, or replacement shall be made at the office of the Warrant Agent. The
Warrant Agent shall be bound by all terms and conditions of this Warrant, and
the Company shall at all times compel the Warrant Agent to perform all of its
obligations under this Warrant.
8. Transfer, Exchange or Replacement.
(a) Transferability and Non-Negotiability of Warrant. Neither
this Warrant nor any interest therein may be transferred or assigned in whole or
in part without compliance with all applicable federal and state securities laws
by Holder and the transferee or assignee thereof, including delivery of
investment intent representation letters and a legal opinion in the form annexed
hereto from counsel reasonably satisfactory to the Company, to the effect that
such transfer or assignment is exempt from the registration requirements of the
Securities Act of 1933 and the rules and regulations promulgated thereunder, or
any similar successor statute (collectively, the "Securities Act"), and any
applicable state securities laws. Subject to the preceding sentence and the
requirements of Section 8(b) below, this Warrant may be transferred by
endorsement (by Holder executing the Assignment Form annexed hereto with
Holder's signature guaranteed by an eligible guarantor institution that is a
member of a recognized medallion signature guarantee program) and delivery
thereof to the Company or the Warrant Agent, as applicable, together with
payment of any applicable transfer taxes.
(b) Notwithstanding anything set forth in this Section 8 to
the contrary, Holder acknowledges and agrees that it shall not transfer this
Warrant in whole or in Lots to (i) any individual, firm, corporation, limited
liability company, partnership, trust or other entity, including any successor
(by merger or otherwise) of such entity (collectively, "Person"), other than the
Company, who or which, together with all Affiliates and Associates (as defined
in Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act")) of
such Person, beneficially owns at the time of such transfer, or beneficially
owned at any time during the ninety (90) day period immediately prior to such
transfer, more than one percent (1%) of the then issued and outstanding Common
Stock, or securities convertible or exercisable into, or exchangeable for,
Common Stock, immediately prior to any proposed transfer of the Warrant, or (ii)
Summit Technology, Inc., Visx, Incorporated, Autonomous Technologies
Corporation, Chiron Corporation, or Bausch & Lomb Incorporated or any their
respective Affiliates or successors (by merger or otherwise).
For purposes of this Section 8(b) a Person shall be deemed to
"beneficially own" any securities (i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly; (ii) which
such Person or any of such Person's Affiliates or Associates has (A) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding (other
than customary agreements with and among underwriters and selling group members
with respect to a bona fide public offering of securities), whether or not in
writing, or upon the exercise of conversion rights, exchange rights, rights,
warrants or options, or otherwise; or (B) the right to vote (whether such right
is exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding; or (iii) which are beneficially owned,
directly or indirectly, by any other Person (or any Affiliate or Associate of
such other Person) with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and among underwriters and selling group members with respect to
a bona fide public offering of securities), whether or not in writing, for the
<PAGE>
purpose of acquiring, holding, voting (other than pursuant to a revocable proxy
or consent as described in the proviso to clause (ii)(B) hereof) or disposing of
any securities of the Company.
(c) Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form with Holder's
signature guaranteed by an eligible guarantor institution that is a member of a
recognized medallion signature guarantee program, and subject to Section 8(a),
the Company at its expense shall issue to Holder a new warrant or warrants of
like tenor, in the name of Holder or as Holder (on payment by Holder of any
applicable transfer taxes) may direct, for the number of shares issuable upon
exercise hereof.
(d) Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in case of loss, theft or destruction, on delivery of a
third-party indemnity agreement reasonably satisfactory in form and substance to
the Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
9. Compliance with Securities Laws.
(a) Holder, by acceptance of this Warrant, acknowledges that
neither this Warrant nor the Warrant Shares have been registered under the
Securities Act and represents and warrants to the Company that this Warrant is
being acquired for investment and not for distribution or resale, solely for
Holder's own account and not as a nominee for any other person, and that Holder
will not offer, sell, pledge or otherwise transfer this Warrant or any Warrant
Shares except as may be permitted under this Warrant and then only (i) in
compliance with the requirements for an available exemption from the Securities
Act and any applicable state securities laws, or (ii) pursuant to an effective
registration statement or qualification under the Securities Act and any
applicable state securities laws.
(b) Certificates for all Warrant Shares shall bear a legend in
substantially the following form:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED, UNLESS SUCH SHARES ARE REGISTERED
UNDER SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL TO THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED, SUCH
OPINION TO BE IN THE FORM OF OPINION PREVIOUSLY AGREED TO BY THE
COMPANY.
10. Rights of the Holder. Subject to Sections 18 and 19, and until the
Warrant shall have been exercised as provided herein, Holder shall not be
entitled to vote, receive dividends or other distributions on, or be deemed the
holder for any purpose of, any Warrant Shares or any other securities of the
Company that may from time to time be issuable upon the exercise hereof, nor
shall Holder, in such capacity, enjoy any of the rights of a stockholder of the
Company or any right to vote on, or consent (or withhold consent) to, the
election of directors of the Company or any other matter submitted to the
stockholders of the Company, or to receive notice of meetings thereof.
<PAGE>
11. Registration of Warrant Shares.
(a) The Company shall:
(i) prepare and, on or prior to thirty (30) days
after the date hereof, file with the Securities and Exchange Commission
("SEC") a Registration Statement on Form S-3 or any successor form
promulgated by the SEC in respect of all the Warrant Shares on an
appropriate form for a secondary offering to be made on a continuous
basis by the Company pursuant to Rule 415 (the "Shelf Registration
Statement"); and
(ii) subject to Section 12 hereof, use its best
efforts to cause the Shelf Registration Statement to become effective
as soon as practicable after such filing.
In addition to the Warrant Shares, the Company may include in the Shelf
Registration Statement shares of Common Stock held by any holder of equity
securities of the Company or any securities convertible into or exercisable or
exchangeable for such equity securities, which holder is entitled by written
agreement with the Company to have some or all of such securities included in
the Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective at all times until such date as is
the earlier of: (i) the date on which all of the Warrant Shares have been sold,
(ii) the date on which all of the Warrant Shares may be immediately sold to the
public without registration conditions or limitations, whether pursuant to Rule
144 or otherwise, and (iii) the date which is the one year anniversary of the
date hereof; provided that such one-year period shall be extended by the number
of days during which a Blackout Period (as defined herein) or a Holdback Period
(as defined herein) is in effect or invoked. (The period of time commencing on
the date the Shelf Registration Statement is declared effective and ending on
the earliest of the foregoing dates shall be referred to as the "Registration
Period"). Such best efforts shall include, but not be limited to, promptly
responding to all comments received from the staff of the SEC. Should the
Company receive notification from the SEC that the Shelf Registration Statement
will receive no action or no review from the SEC, subject to Section 12 hereof,
the Company shall cause such Shelf Registration Statement to become effective
within seven (7) business days of such SEC notification. Subject to Section 12
hereof, the Company shall use its best efforts to amend and supplement the
prospectus contained in the Shelf Registration Statement (the "Prospectus") in
order to permit such Prospectus to be lawfully delivered until the end of the
Registration Period.
(c) In connection with the Shelf Registration Statement, the
Company shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Shelf Registration Statement;
(ii) otherwise comply in all material respects with all
applicable federal securities laws, rules and regulations.
<PAGE>
(d) Upon the occurrence of a Blackout Event (as defined
herein) or the triggering of a Holdback Period, the Company shall notify Holder
of such occurrence in accordance with Section 25. Upon such notice being
provided Holder agrees not to sell any Warrant Shares pursuant to the Shelf
Registration Statement until the Company has notified Holder that the Blackout
Period or Holdback Period, as applicable, is no longer in effect.
(e) Subject to Section 12 hereof, the Company shall promptly
supplement and amend the Shelf Registration Statement if required by the
Securities Act or if reasonably requested by the Holders of a majority of the
Warrant Shares then transferable pursuant to such Shelf Registration Statement.
(f) Each Holder agrees to notify the Company promptly, but in
any event within three (3) business days, after the date on which all Warrant
Shares owned by such Holder have been sold by such Holder so that the Company
may comply with its obligation to terminate the Shelf Registration Statement in
accordance with Item 512 of Regulation S-K.
(g) The Company hereby represents and warrants that it meets
the requirements for the use of Form S-3 for registration of the sale by the
Holders of the Warrant Shares, 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.
12. Blackout Period and Holdback Events.
(a) During any period of up to 90 days' duration following the
occurrence of a Blackout Event (a "Blackout Period"), the Company shall not be
required to file, or cause to be declared effective, under the Securities Act
the Shelf Registration Statement, or, if applicable, the Holders will
discontinue the offer and sale of Warrant Shares pursuant to the Shelf
Registration Statement.
(b) The Holders shall not, if requested by the managing
underwriter or underwriters of an underwritten offering and if all affiliates of
the Company (as defined in Rule 144(a)(1) under the Securities Act) have been
likewise required, effect any public or private sale of any Common Stock,
including a sale pursuant to Rule 144, during the period ("Holdback Period")
beginning 14 days prior to, and ending 90 days after, the effective date of the
registration statement relating to a public offering of Common Stock, or other
securities convertible into, or exercisable or exchangeable for, Common Stock
that is underwritten on a firm commitment basis.
(c) The aggregate number of days during which one or more
Blackout Periods or Holdback Periods are in effect shall not exceed 180 days
during the Registration Period, provided that the aggregate number of days
during which one or more Blackout Periods or Holdback Periods are in effect
shall not exceed 90 days in any 12 month period during the Registration Period.
(d) The Company shall promptly notify the Holders in writing
of any decision not to file the Shelf Registration Statement or not to cause the
Shelf Registration Statement to be declared effective or to discontinue sales of
Warrant Shares pursuant to this Section 12, which notice shall set forth the
reason for such decision (but not disclosing any nonpublic material information)
and shall include an undertaking by the Company promptly to notify the Holders
as soon as sales may resume.
<PAGE>
(e) For purposes of this Warrant "Blackout Event" shall mean a
determination by the Company made in good faith, after consulting with outside
securities counsel, that the registration of Warrant Shares under the Securities
Act or the continuation of the disposition of Warrant Shares pursuant to the
Shelf Registration Statement at such time (i) would have a material adverse
effect upon a proposed material sale of all (or substantially all) of the assets
of the Company or a proposed material merger, reorganization, recapitalization
or similar current transaction materially affecting the capital structure or
equity ownership of the Company, or (ii) would require the Company to make a
public disclosure of information, which disclosure has been determined by the
Company, after consultation with outside securities counsel, not to be in the
best interests of the Company.
(f) Other holders of Common Stock, or securities convertible
or exercisable into, or exchangeable for, Common Stock (the "Other Blackout
Holders") have agreed that trading pursuant to an effective Company registration
statement may be suspended due to the occurrence of events the same as or
substantially similar to the events described in Section 12(e). Therefore,
notwithstanding anything else to the contrary herein, the Holders will not be
subject to a Blackout Event unless the Company notifies all Other Blackout
Holders that such holders must suspend trading pursuant to an effective Company
registration statement due to such Blackout Event.
13. Registration Procedures. In connection with the filing of the Shelf
Registration Statement, the Company shall effect such registrations to permit
the sale of the Warrant Shares covered thereby in accordance with the intended
method or methods of disposition thereof, and in connection with the Shelf
Registration Statement the Company shall:
(a) Notify the selling Holders of Warrant Shares promptly (but
in any event within five business days), and confirm such notice in writing: (i)
when the Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to the Shelf Registration Statement or any
post-effective amendment, when the same has become effective under the
Securities Act, (ii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Shelf Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation or
threatening of any proceedings for that purpose, and (iii) any request by the
SEC for the amending or supplementing of such registration statement, prospectus
or prospectus supplement.
(b) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of the Shelf Registration Statement or of any order
preventing or suspending the use of the Prospectus or suspending the
qualification (or exemption from qualification) of any of the Warrant Shares for
sale in any jurisdiction and, if any such order is issued, to use its reasonable
best efforts to obtain the withdrawal of any such order or suspension of
qualification or exemption from qualification at the earliest practicable time.
(c) Furnish to each selling Holder of Warrant Shares and to
any underwriter participating in such registration at the sole expense of the
Company at least one conformed copy of the Shelf Registration Statement
including financial statements and schedules thereto and each post-effective
amendment thereto and, if requested, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits as soon as practicable after
such Holder or underwriter so requests.
<PAGE>
(d) Deliver to each selling Holder of Warrant Shares and to
any underwriter participating in such registration at the sole expense of the
Company as many copies of the Prospectus (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Holder may reasonably request; and,
subject to the last paragraph of this Section 13, the Company consents to the
use of such Prospectus and each amendment or supplement thereto by each of the
selling Holders of Warrant Shares and the underwriters, if any, in connection
with the offering and sale of the Warrant Shares covered by such Prospectus and
any amendment or supplement thereto.
(e) Prior to the effectiveness of the Shelf Registration
Statement and thereafter, to use its reasonable best efforts to register or
qualify, and to cooperate with the selling Holders of Warrant Shares in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Warrant Shares for offer and sale under
the securities or blue sky laws of such jurisdictions within the United States
as any selling Holder reasonably requests; keep each such registration or
qualification (or exemption therefrom) effective during the period the Shelf
Registration Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Warrant Shares covered by the Shelf Registration
Statement; provided, however, that the Company shall not be required to (i)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 13(e), (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 Company's Board of Directors determines to be
contrary to the best interests of the Company and its stockholders.
(f) Cooperate with the selling Holders of Warrant Shares to
facilitate the timely preparation and delivery of certificates representing
Warrant Shares to be sold, which certificates shall not bear any restrictive
legends and shall be in a form in compliance with any applicable rules of a
stock exchange on which the Common Stock is then listed; and enable such Warrant
Shares to be in such denominations and registered in such names as Holders may
reasonably request.
(g) Upon the occurrence of any event or any information
becoming known to the Company that makes any statement made in the Shelf
Registration Statement or the Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect, as
promptly as practicable prepare and file with the SEC, at the sole expense of
the Company, a supplement or post-effective amendment to the Shelf Registration
Statement or a supplement to the Prospectus or any document incorporated or
deemed to be incorporated therein by reference, or file any other required
document so that, as thereafter delivered to the purchasers of the Warrant
Shares being sold thereunder, any such Prospectus will not contain an 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, in light of the
circumstances under which they were made, not misleading.
(h) Prepare and file with the SEC, promptly upon the request
of any Holder, any amendments or supplements to the Shelf Registration Statement
or prospectus which, in the judgment of counsel for the Company, is required
<PAGE>
under the Securities Act in connection with the distribution of the Warrant
Shares by such Holders.
(i) Comply with all applicable rules and regulations of the
SEC and make generally available to its security holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 90 days after the end of any 12-month period (or 120 days after the end of
any 12-month period if such period is a fiscal year) commencing on the first day
of the first fiscal quarter of the Company after the effective date of the Shelf
Registration Statement, which statements shall cover said 12-month periods.
(j) Cooperate with each seller of Warrant Shares covered by
the Shelf Registration Statement in connection with any filings required to be
made with the National Association of Securities Dealers, Inc.
(k) Use its reasonable best efforts to cause, at its own
expense, all Warrant Shares relating to the Shelf Registration Statement to be
listed on each securities exchange, if any, or quoted on any broker-dealer
quotation system on which similar securities issued by the Company are then
listed.
(l) Furnish an opinion, dated as of the effective date of the
Shelf Registration Statement, of the counsel representing the Company for the
purpose of such registration addressed to the underwriters, if any, making such
request, covering such matters as are customarily covered by such opinions and
as such underwriters may reasonably request. Use its reasonable best efforts to
furnish letters dated as of the effective date of the Shelf Registration
Statement, from independent certified public accountants of the Company
addressed to the underwriters, if any, making such request, covering such
matters as are customarily covered by such letters and as such underwriters may
reasonably request.
The Company may require each seller of Warrant Shares as to which any
registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Warrant Shares as the Company
may, from time to time, reasonably request. The Company may exclude from such
registration the Warrant Shares of any seller so long as such seller fails to
furnish such information within a reasonable time after receiving such request.
Each seller as to which the Shelf Registration Statement is being effected
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such seller not materially misleading.
Each Holder of Warrant Shares understands that the Securities Act may
require delivery of the Prospectus in connection with any sale thereof pursuant
to the Shelf Registration Statement, and each such Holder shall comply with the
applicable Prospectus delivery requirements of the Securities Act in connection
with any such sale.
Each Holder of Warrant Shares agrees by acquisition of such Warrant
Shares that, upon actual receipt of any notice from the Company of the happening
of any event of the kind described in Section 13(a)(ii) hereof or any
information becoming known that makes any statement made in the Shelf
Registration Statement or the Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect, such
Holder will forthwith discontinue disposition of such Warrant Shares covered by
<PAGE>
the Shelf Registration Statement or the Prospectus to be sold by such Holder
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 13(d) hereof, or until it is advised in
writing (the "Advice") by the Company that the use of the Prospectus may be
resumed, and has received copies of any amendments or supplements thereto. In
the event the Company shall give any such notice, the Registration Period shall
be extended by the number of days during such period from and including the date
of the giving of such notice to and including the date when each seller of
Warrant Shares covered by the Shelf Registration Statement, as the case may be,
shall have received (i) the copies of the supplemented or amended Prospectus
contemplated by Section 13(d) hereof or (ii) the Advice.
14. Expenses. With respect to such registration, the Company shall bear
all fees, costs and expenses, including without limitation all registration,
filing and NASD fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, all internal Company expenses, and all legal fees
and disbursements and other expenses of complying with state securities or blue
sky laws of any jurisdiction in which the Warrant Shares are to be registered or
qualified, but excluding any underwriting discounts and commissions and transfer
taxes and any other related selling expenses incurred by the selling Holders.
The selling Holders will be responsible for fees and disbursements of such
parties' counsel and accountants.
15. Indemnification By the Company. With respect to such registration,
the Company will indemnify and hold harmless each Holder of Warrant Shares which
are included in a registration statement pursuant to the provisions of this
Warrant, its directors and officers, and any underwriter (as defined in the
Securities Act) for such Holders and each person, if any, who controls such
Holder or such underwriter within the meaning of the Securities Act, from and
against, and will reimburse such Holder and each such underwriter and
controlling person with respect to, any and all loss, claim, damage, liability,
cost (including without limitation the reasonable cost of investigation of any
claim) and expense, joint or several, to which such Holder or any such
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities, costs or
expenses arise out of or are based on (i) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; or (iii) any violation or
alleged violation by the Company of the Exchange Act, any state securities law,
or any rule or regulation promulgated under any of the aforementioned statutes,
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, liability, cost or expense arises out
of or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by such
Holder, such underwriter or such controlling person in writing specifically for
use in the preparation thereof.
16. Indemnification By Holders. With respect to such registration, each
Holder of Warrant Shares which are included in a registration statement pursuant
to the provisions of this Warrant will, jointly and severally, indemnify and
hold harmless the Company, its directors and officers and each person, if any,
who controls the Company within the meaning of the Securities Act, from and
against, and will reimburse the Company and each such controlling person, with
respect to, any and all loss, claim, damage, liability, cost (including without
limitation the reasonable cost of investigation of any claim) and expense, joint
or several, to which the Company or any such controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
<PAGE>
damages, liabilities, costs or expenses arise out of (i) any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto made in conformity with information furnished by such Holder
specifically for use in the preparation thereof, or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading made in conformity with information furnished by
such Holder specifically for use in the preparation thereof; or (iii) any
violation or alleged violation by the Company of the Exchange Act, any state
securities law, or any rule or regulation promulgated under any of the
aforementioned statutes, provided that any such loss, claim, damage, liability,
cost or expense arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such Holder specifically for use in the preparation
thereof.
17. Rule 144. From the effective date of the Shelf Registration
Statement, the Company shall use its reasonable best efforts to timely prepare
and file all documents required to be filed with the SEC as shall be necessary
to enable the Holders to sell unregistered Warrant Shares in accordance with
Rule 144 under the Securities Act. Upon the request of any Holder, the Company
shall deliver to such Holder a written statement as to whether it has complied
with such requirements.
18. Anti-Dilution Provisions. So long as this Warrant, or any portion
thereof, shall remain outstanding and unexpired, the Exercise Price in effect
from time to time and the number and kind of securities purchasable upon the
exercise of the Warrants shall be subject to adjustment from time to time as
follows:
(a) If the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares (any of the foregoing, a
"Dilutive Event"), the Exercise Price in effect at the time of the record date
for such Dilutive Event shall be adjusted so that it shall equal the price
determined by multiplying the Exercise Price by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such Dilutive Event, and the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
Dilutive Event (such fraction, the "Adjustment Factor"). Such adjustment shall
be made successively whenever any Dilutive Event shall occur.
(b) If the Company shall issue rights or warrants to all, but
not less than all, of the holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
Current Market Price (as defined below) of the Common Stock on the record date
specified below, the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at the Current Market Price per share of the Common
Stock, and the denominator of which shall be the sum of the of the number of
<PAGE>
shares of Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants, the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered. The
"Current Market Price" per share of Common Stock at any date shall be deemed to
be the average of the daily closing prices for the thirty (30) consecutive
business days immediately before such date.
(c) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Section 18(a) or 18(b), the number of shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by
dividing the number of shares issuable upon exercise of this Warrant by the
Adjustment Factor.
(d) If at any time, as a result of an adjustment made pursuant
to this Section 18(e) or 18(f), the Holder of this Warrant shall thereafter
become entitled to receive any shares of the Company, other than Common Stock or
shares of any issuer other than the Company, thereafter the Exercise Price and
the number of such other shares so receivable upon exercise of this Warrant
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Sections 18(a), 18(b) and 18(c).
(e) If the Company by reclassification of securities or
otherwise, shall change any of the securities as to which purchase rights under
this Warrant exist into the same or a different number of securities of any
other class or classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such reclassification or
other change and the Exercise Price therefor shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 18.
(f) If at any time there shall be (i) a reorganization (other
than a subdivision, combination, reclassification, or other change of shares
otherwise provided for herein), (ii) a merger or consolidation of the Company
with or into another corporation in which the Company is not the surviving
entity, or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding immediately
prior to the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash, or otherwise, or (iii) a sale or
transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a Holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
<PAGE>
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 18. The
foregoing provisions of this Section 18(f) shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporate that are at the time receivable upon the
exercise of this Warrant. In all events, appropriate adjustment (as determined
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after the event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
(g) Whenever the Exercise Price shall be adjusted as required
by the provisions of Section 18, the Company shall promptly file in the custody
of its Secretary or an Assistant Secretary at its principal office or Other
Office and with the Warrant Agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock or other securities, if any,
issuable upon exercise of this Warrant and such other facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Each such certificate shall be made available at all reasonable times for
inspection by Holder and the Company shall forthwith after each such adjustment
mail a copy of such certificate to Holder at its address last appearing in the
Warrant Register.
19. Notices to Warrant Holders. If at any time while this Warrant, or
any portion thereof, remains outstanding and unexpired, (i) the Company shall
pay any dividend or make any distribution upon the Common Stock (other than
regular quarterly cash dividends or dividends paid in the form of Common Stock),
(ii) the Company shall offer to the holders of Common Stock generally for
subscription or purchase by them any share of the Company of any class or any
other rights issued by the Company, or (iii) the capital reorganization of the
Company, reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, sale of all or
substantially all of the property and assets of the Company to another
corporation or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed to Holder at its address specified in the Warrant Register, at
least 10 days prior to the date specified in (x) or (y) below, as applicable, a
notice containing a brief description of the proposed event described in (i),
(ii) or (iii) above and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the date, if any, is be fixed, as
of which the holders of the Common Stock or other securities shall receive cash
or other property deliverable upon such event. Notwithstanding the above, the
failure to give such notice shall not affect the validity of any transaction for
which the notice was required to be given.
20. Governing Law. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
such state's conflict of law provisions.
21. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
<PAGE>
22. Standstill. Mercacorp and, if applicable, such other Holder
acknowledges that it is a condition to the Company's agreement to issue this
Warrant to Mercacorp that Mercacorp and, if applicable, such other Holder agree
that it will not, and will direct their respective Affiliates and Associates,
and directors, officers, employees and agents of Mercacorp and, if applicable,
such other Holder and their respective Affiliates and Associates, not to,
directly or indirectly, for a period beginning on the date hereof and ending on
the first to occur of (i) November 10, 2001, or (ii) the expiration of the
twelve (12) month period immediately following the date on which all 750,000
Warrant Shares have been issued under this Warrant (the "Standstill Period"),
unless in any such case specifically invited in writing to do so by the Board of
Directors of the Company:
(a) purchase, acquire or own, or offer or agree to purchase,
acquire or own, directly or indirectly, Common Stock (or securities
convertible or exercisable into, or exchangeable for, Common Stock)
which at any time would result in Mercacorp and, if applicable, such
other Holder in the aggregate owning, directly or indirectly, more than
1,650,000 shares of Common Stock;
(b) make, or in way participate in, directly or indirectly,
any "solicitation" of "proxies" (as such terms are defined or used in
Regulation 14A under the Exchange Act) or become a "participant" in an
"election contest" (as such terms are defined or used in Rule 14a-11
under the Exchange Act) with respect to the Company or seek to advise
or influence any person with respect to the voting of any voting
securities of the Company;
(c) execute any written consent in lieu of a meeting of
holders of securities of the Company or any class thereof unless such
written consent is solicited by the Board of Directors of the Company;
(d) initiate, propose or otherwise solicit stockholders for
the approval of one or more stockholder proposals with respect to the
Company as described in Rule 14a-8 under the Exchange Act or induce or
attempt to induce any other person to initiate any stockholder
proposal;
(e) acquire or affect the control of the Company or directly
or indirectly participate in or encourage the formation of any "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) which owns
or seeks to acquire ownership of voting securities of the Company, or
to acquire or affect control of the Company;
(f) call or seek to have called any meeting of the
stockholders of the Company;
(g) seek election to or seek to place a representative on the
Board of Directors of the Company or seek the removal of any member of
the Board of Directors of the Company;
(h) otherwise act, directly or indirectly, alone or in concert
with others, to seek to control or to influence in any manner the
management, board of directors, policies or affairs of the Company, or
propose or seek to effect or negotiate with or provide financial
assistance (by loan, capital contribution or otherwise) or information
to any party with respect to any form of business combination
transaction (including, without limitation, a merger, consolidation or
acquisition or disposition of significant assets of the Company or any
other entity) with the Company or any affiliate thereof or any
restructuring, recapitalization or similar transaction with respect to
the Company or any affiliate thereof;
<PAGE>
(i) instigate, encourage, assist or render advice to or make
any recommendation or proposal to any person or other entity to engage
in any of the actions covered by clauses (a) through (h) of this
Section 22, or render advice with respect to voting securities of the
Company;
(j) except to the extent required by law, make any public
statement (or make available to any member of the news media any
information) with respect to any of the matters covered by clauses (a)
through (h) of this section 22, or with respect to the terms and
conditions of, or any of the facts related to, this Warrant; or
(k) request any waiver, modification, termination or amendment
of this Section 23 or the relinquishment by the Company of any rights
with respect thereto.
For purposes of this Section 22, the term "voting securities" shall
mean (i) any securities which are entitled to vote upon any matters, whether
such securities are entitled to vote on such matters in all events or only upon
the occurrence of a default or other contingencies, or (ii) any options,
warrants, rights or securities which by their terms may be convertible into or
exchangeable for any security described in clause (i) of this sentence. The
restrictions set forth in this Section 22 shall survive Mercacorp's and, if
applicable, such other Holder's exercise of the last of the Lots and shall
continue until the expiration of the Standstill Period.
23. Authorization. The Company and Mercacorp each represent and warrant
to the other that (i) each such party is duly organized, validly existing and in
good standing under the laws of their respective jurisdiction of incorporation,
(ii) each such party has the requisite corporate power and authority to execute
this Warrant and to carry out and perform the terms and provisions of this
Warrant, and (iii) this Warrant constitutes the valid and legally binding
obligation of such party.
24. Counterparts. This Warrant may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
25. Notice. Any notice 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 to be 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
3300 University Boulevard, Suite 140
Orlando, Florida 32792
Telecopy: (407) 678-9982
Attn: Chief Financial Officer
<PAGE>
With a copy to:
The Lowenbaum Partnership, L.L.C.
222 South Central Avenue, Suite 901
St. Louis, Missouri 63105
Telecopy: (314) 746-4848
Attn: Timothy L. Elliott, Esq.
And:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Telecopy: (312) 876-7934
Attn: Paul J. Miller, Esq.
If to the Holder:
Mercacorp, Inc.
care of:
Ziegler, Ziegler & Altman LLP
750 Lexington Avenue
New York, New York 10022
Telecopy: (212) 319-7605
Attn: Steven Altman, Esq.
<PAGE>
S-1
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized, as of the date below.
Dated as of: November 11, 1998
LASERSIGHT INCORPORATED
/s/Michael R. Farris
By: ----------------------------
Michael R. Farris, President
/s/Gregory L. Wilson
Attest: ----------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
MERCACORP, INC.
By:------------------------
Title:---------------------
Date: November 11, 1998
<PAGE>
FORM OF LEGAL OPINION
_____________, 1998
LaserSight Incorporated
3300 University Blvd.
Suite 140
Orlando, Florida 32792
Re: Warrant Transfer
Gentlemen:
We have acted as counsel to [Mercacorp, Inc. or other holder] , a
corporation organized under the laws of ________________________ (the
"Company"), in connection with the transfer of the Warrant, dated November 11,
1998, to purchase 750,000 shares of common stock, $.001 par value, of LaserSight
Incorporated (the "Warrant") to _________________________ ("Transferee").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Warrant and such
agreements, instruments, certificates, representations, documents and records,
and have made such other investigations, as we have deemed necessary or
appropriate as a basis for the opinions set forth herein. As to any facts
material to the opinions expressed herein, we have relied upon oral or written
statements and representations of officers and other representatives of the
Company and Transferee.
The Transferee has represented that it is acquiring the Warrant (i) for
investment and not for distribution or resale, and (ii) solely for Transferee's
own account and not as a nominee for any other person.
Based upon and subject to the foregoing, we are of the opinion that the
transfer of the Warrant from the Company to Transferee is exempt from the
registration requirements of the Securities Act of 1933 (the "Act").
We express no opinion as to the laws of any jurisdictions other than
the Federal securities laws of the United States of America in effect on the
date hereof, and we assume no obligation to revise or supplement this opinion
should such laws be changed by legislative or administrative action, judicial
decision or otherwise.
This opinion is solely for the benefit of you and your counsel and can
not be relied upon by any other person, corporation or entity.
<PAGE>
NOTICE OF EXERCISE
LaserSight Incorporated Dated: ______________, 199___
(1) The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing shares of Common Stock and hereby makes
payment of in payment of the actual exercise price thereof.
------------------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
Name:_________________________________________________________________________
(Please typewrite or print in block letters)
Name:_________________________________________________________________________
Address: __________________________________________________________
Signature:__________________________________________________________________
(All signatures must be guaranteed by an eligible guarantor institution that is
a member of a recognized medallion signature guaranty program.)
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
Name:_________________________________________________________________________
(Please typewrite or print name of Assignee in block letters)
Address:_______________________________________________________________________
Number of Shares:______________________________________________________________
and does hereby irrevocably constitute and appoint
______________________________, attorney to make such transfer on the books of
LaserSight Incorporated, maintained for the purpose, with full power of
substitution in the premises.
Dated: ___________________________
Signature of Holder: ____________________________
The undersigned ASSIGNEE acknowledges that neither the within Warrant
nor, if the Shelf Registration Statement contemplated by Section 11 of this
Warrant has not been declared effective, any of the Warrant Shares (as defined
in the Warrant) have been registered under the Securities Act of 1933, and the
undersigned ASSIGNEE represents and warrants to the Company that the Warrant and
the Warrant Shares are being acquired for investment and not for distribution or
resale, solely for the undersigned's own account and not as a nominee for any
other person, and that the undersigned ASSIGNEE will not offer, sell, pledge or
otherwise transfer the Warrant or the Warrant Shares except (i) in compliance
with the requirements for an available exemption from such Securities Act and
any applicable state securities laws or (ii) pursuant to an effective
registration statement or qualification under such Securities Act and any
applicable state securities laws.
Dated: ___________________________
Signature of Assignee: ____________________________
(All signatures must be guaranteed by an eligible institution that is a member
of a recognized medallion signature guaranty program.)
Void after 5:00 p.m., New York, New York time, on November 11, 2001
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
---------------------------------------
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
Mercacorp, Inc. ("Mercacorp") or its permitted assigns (individually, "Holder"
and collectively, "Holders") are entitled, subject to the terms set forth below,
to purchase from LaserSight Incorporated, a Delaware corporation (the "Company")
or its successors or assigns, seven hundred fifty thousand (750,000), fully
paid, validly issued and non-assessable shares of common stock, $0.001 par
value, of the Company ("Common Stock") at any time during the period beginning
on the date hereof and ending at 5:00 p.m. New York, New York time, on November
11, 2001 (such period, the "Exercise Period") at an initial exercise price equal
to $5.00 per share. The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for each share of Common Stock
may be adjusted from time to time as provided in Section 19. The shares of
Common Stock deliverable upon such exercise, and as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares" and the exercise price
per share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price."
2. Exercise of Warrant. This Warrant may only be exercised during the
Exercise Period, in whole or in increments of 50,000 shares of Common Stock
(each such increment hereinafter referred to as a "Lot"). This Warrant may be
exercised, subject to the provisions hereof, by presentation and surrender
hereof to the Company at its principal office (or such other office or agency of
the Company as it may from time to time designate by notice in writing to Holder
at the address of Holder appearing on the books of the Company ("Other Office"))
with the Notice of Exercise annexed hereto duly completed and executed on behalf
of Holder, with Holder's signature guaranteed by an eligible guarantor
institution that is a member of a recognized medallion signature guarantee
program, and accompanied by payment of the Exercise Price by wire transfer,
certified or official bank check. As soon as practicable after each such
exercise of the Warrant, but not later than five (5) business days from the date
of such exercise, the Company shall issue and mail to Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
<PAGE>
the name of Holder. This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, unless such date is not a day on which banks are
open for business in New York, New York, in which case this Warrant shall be
deemed to have been exercised on the first succeeding day on which banks are
open for business in New York, New York (such date, the "Exercise Date"). The
person entitled to receive the shares of Common Stock issuable upon such
exercise shall be deemed to be the holder of record thereof from and after the
Exercise Date, notwithstanding that certificates representing such Warrant
Shares shall not then have been physically delivered.
3. Forfeiture of Warrant. By its acceptance of this Warrant, the Holder
acknowledges and agrees that in the event that that certain warrant to purchase
seven hundred fifty thousand shares (750,000) of the Company's Common Stock at
an Exercise Price of $4.00 per share, originally issued to Mercacorp and dated
as of the date hereof, is cancelled in accordance with the terms of Section 3 of
such warrant, this Warrant shall be immediately cancelled and the Holder will
have no further rights under this Warrant, and the Company will have no further
obligations under this Warrant.
4. Option to Repurchase.
(a) At anytime after the date hereof, at the option of the
Company, the Company may repurchase all or any portion of this Warrant at a
price of $1.00 per share, provided that (i) any such repurchase shall be made
in equal Lots, (ii) the option granted under this Section 4(a) shall not be
exercised with respect to any portion of this Warrant that the Holder has
elected to exercise, and (iii) the Holder shall have the right to exercise all
or any portion of this Warrant during the ten (10) day period immediately
following the date the Company provides notice that it has elected to exercise
it option pursuant to this Section 4(a).
(b) At least five (5) business days prior to the repurchase of
any unexercised portion of this Warrant pursuant to Section 4(a), the Company
shall send written notice to the Holder notifying the Holder of the repurchase
to be effected, specifying the number of Lots being repurchased, the date and
time of such repurchase, the place at which payment may be obtained, and
calling upon the Holder to surrender to the Company, in the manner and place
designated, such unexercised portion of this Warrants being repurchased. On or
after the date designated for repurchase, the Holder shall surrender to the
Company certificates or other documents representing such warrants, in the
manner and at the place designated in the repurchase notice, and thereupon (i)
the repurchase price with respect to that portion of this Warrant being
repurchased shall be paid to the Holder, and (ii) that portion of this Warrant
which is repurchased shall be cancelled.
5. Reservation of Shares. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall from time to time be required for issuance and
delivery upon exercise of the Warrant in full.
6. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. Any
fractional share to which Holder would otherwise be entitled shall be rounded to
the nearest whole share.
7. Warrant Register. The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Holder or Holders. Any
Holder may change his address as shown on the Warrant Register by written notice
to the Company requesting such change. Any notice or written communication
<PAGE>
required or permitted to be given to the Holder may be delivered or given by
mail to such Holder as named in the Warrant Register and at the address shown on
the Warrant Register in accordance with Section 26. Until this Warrant is
transferred on the Warrant Register of the Company in accordance with the
provisions hereof, the Company may treat the Holder named in the Warrant
Register as the absolute owner of this Warrant for all purposes, notwithstanding
any notice to the contrary. If this Warrant is transferred in accordance with
the provisions hereof or a Holder's address as shown on the Warrant Register
changes and the Company is provided notice thereof in accordance with the
provision hereof, the Company shall record such transfer or change of address on
the Warrant Register as soon as practicable after receiving such notice.
8. Warrant Agent. The Company may, by written notice to all Holders,
appoint an agent ("Warrant Agent") who may at the option of the Company be the
Company's transfer agent or an individual employed by the Company for the
purpose of maintaining the Warrant Register, issuing the Common Stock or other
securities then issuable upon the exercise of this Warrant, exchanging this
Warrant, or replacing this Warrant. Thereafter, any such registration, issuance,
exchange, or replacement shall be made at the office of the Warrant Agent. The
Warrant Agent shall be bound by all terms and conditions of this Warrant, and
the Company shall at all times compel the Warrant Agent to perform all of its
obligations under this Warrant.
9. Transfer, Exchange or Replacement.
(a) Transferability and Non-Negotiability of Warrant. Neither
this Warrant nor any interest therein may be transferred or assigned in whole or
in part without compliance with all applicable federal and state securities laws
by Holder and the transferee or assignee thereof, including delivery of
investment intent representation letter and a legal opinion in the form annexed
hereto from counsel reasonably satisfactory to the Company, to the effect that
such transfer or assignment is exempt from the registration requirements of the
Securities Act of 1933 and the rules and regulations promulgated thereunder, or
any similar successor statute (collectively, the "Securities Act"), and any
applicable state securities laws. Subject to the preceding sentence and the
requirements of Section 9(b) below, this Warrant may be transferred by
endorsement (by Holder executing the Assignment Form annexed hereto with
Holder's signature guaranteed by an eligible guarantor institution that is a
member of a recognized medallion signature guarantee program) and delivery
thereof to the Company or the Warrant Agent, as applicable, together with
payment of any applicable transfer taxes.
(b) Notwithstanding anything set forth in this Section 9 to
the contrary, Holder acknowledges and agrees that it shall not transfer this
Warrant in whole or in Lots to (i) any individual, firm, corporation, limited
liability company, partnership, trust or other entity, including any successor
(by merger or otherwise) of such entity (collectively, "Person"), other than the
Company, who or which, together with all Affiliates and Associates (as defined
in Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act")) of
such Person, beneficially owns at the time of such transfer, or beneficially
owned at any time during the ninety (90) day period immediately prior to such
transfer, more than one percent (1%) of the then issued and outstanding Common
Stock, or securities convertible or exercisable into, or exchangeable for,
Common Stock, immediately prior to any proposed transfer of the Warrant, or (ii)
Summit Technology, Inc., Visx, Incorporated, Autonomous Technologies
Corporation, Chiron Corporation, or Bausch & Lomb Incorporated or any their
respective Affiliates or successors (by merger or otherwise).
<PAGE>
For purposes of this Section 9(b) a Person shall be deemed to
"beneficially own" any securities (i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly; (ii) which
such Person or any of such Person's Affiliates or Associates has (A) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding (other
than customary agreements with and among underwriters and selling group members
with respect to a bona fide public offering of securities), whether or not in
writing, or upon the exercise of conversion rights, exchange rights, rights,
warrants or options, or otherwise; or (B) the right to vote (whether such right
is exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding; or (iii) which are beneficially owned,
directly or indirectly, by any other Person (or any Affiliate or Associate of
such other Person) with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and among underwriters and selling group members with respect to
a bona fide public offering of securities), whether or not in writing, for the
purpose of acquiring, holding, voting (other than pursuant to a revocable proxy
or consent as described in the proviso to clause (ii)(B) hereof) or disposing of
any securities of the Company.
(c) Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form with Holder's
signature guaranteed by an eligible guarantor institution that is a member of a
recognized medallion signature guarantee program, and subject to Section 9(a),
the Company at its expense shall issue to Holder a new warrant or warrants of
like tenor, in the name of Holder or as Holder (on payment by Holder of any
applicable transfer taxes) may direct, for the number of shares issuable upon
exercise hereof.
(d) Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in case of loss, theft or destruction, on delivery of a
third-party indemnity agreement reasonably satisfactory in form and substance to
the Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
10. Compliance with Securities Laws.
(a) Holder, by acceptance of this Warrant, acknowledges that
neither this Warrant nor the Warrant Shares have been registered under the
Securities Act and represents and warrants to the Company that this Warrant is
being acquired for investment and not for distribution or resale, solely for
Holder's own account and not as a nominee for any other person, and that Holder
will not offer, sell, pledge or otherwise transfer this Warrant or any Warrant
Shares except as may be permitted under this Warrant and then only (i) in
compliance with the requirements for an available exemption from the Securities
Act and any applicable state securities laws, or (ii) pursuant to an effective
registration statement or qualification under the Securities Act and any
applicable state securities laws.
(b) Certificates for all Warrant Shares shall bear a legend
in substantially the following form:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS SUCH SHARES ARE REGISTERED
<PAGE>
UNDER SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL TO THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED, SUCH
OPINION TO BE IN THE FORM OF OPINION PREVIOUSLY AGREED TO BY THE
COMPANY.
.
11. Rights of the Holder. Subject to Sections 19 and 20, and until the
Warrant shall have been exercised as provided herein, Holder shall not be
entitled to vote, receive dividends or other distributions on, or be deemed the
holder for any purpose of, any Warrant Shares or any other securities of the
Company that may from time to time be issuable upon the exercise hereof, nor
shall Holder, in such capacity, enjoy any of the rights of a stockholder of the
Company or any right to vote on, or consent (or withhold consent) to, the
election of directors of the Company or any other matter submitted to the
stockholders of the Company, or to receive notice of meetings thereof.
12. Registration of Warrant Shares.
(a) The Company shall:
(i) prepare and, on or prior to thirty (30) days
after the date hereof, file with the Securities and Exchange Commission
("SEC") a Registration Statement on Form S-3 or any successor form
promulgated by the SEC in respect of all the Warrant Shares on an
appropriate form for a secondary offering to be made on a continuous
basis by the Company pursuant to Rule 415 (the "Shelf Registration
Statement"); and
(ii) subject to Section 13 hereof, use its best
efforts to cause the Shelf Registration Statement to become effective
as soon as practicable after such filing.
In addition to the Warrant Shares, the Company may include in the Shelf
Registration Statement shares of Common Stock held by any holder of equity
securities of the Company or any securities convertible into or exercisable or
exchangeable for such equity securities, which holder is entitled by written
agreement with the Company to have some or all of such securities included in
the Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective at all times until such date as is
the earlier of: (i) the date on which all of the Warrant Shares have been sold,
(ii) the date on which all of the Warrant Shares may be immediately sold to the
public without registration conditions or limitations, whether pursuant to Rule
144 or otherwise, and (iii) the date which is the one year anniversary of the
date hereof; provided that such one-year period shall be extended by the number
of days during which a Blackout Period (as defined herein) or a Holdback Period
(as defined herein) is in effect or is invoked. (The period of time commencing
on the date the Shelf Registration Statement is declared effective and ending on
the earliest of the foregoing dates shall be referred to as the "Registration
Period"). Such best efforts shall include, but not be limited to, promptly
responding to all comments received from the staff of the SEC. Should the
Company receive notification from the SEC that the Shelf Registration Statement
will receive no action or no review from the SEC, subject to Section 13 hereof,
<PAGE>
the Company shall cause such Shelf Registration Statement to become effective
within seven (7) business days of such SEC notification. Subject to Section 13
hereof, the Company shall use its best efforts to amend and supplement the
prospectus contained in the Shelf Registration Statement (the "Prospectus") in
order to permit such Prospectus to be lawfully delivered until the end of the
Registration Period.
(c) In connection with the Shelf Registration Statement, the
Company shall:
(i) mail to each Holder a copy of the Prospectus
forming part of the Shelf Registration Statement;
(ii) otherwise comply in all material respects with
all applicable federal securities laws, rules and regulations.
(d) Upon the occurrence of a Blackout Event (as defined
herein) or the triggering of a Holdback Period, the Company shall notify Holder
of such occurrence in accordance with Section 26. Upon such notice being
provided Holder agrees not to sell any Warrant Shares pursuant to the Shelf
Registration Statement until the Company has notified Holder that the Blackout
Period or Holdback Period, as applicable, is no longer in effect.
(e) Subject to Section 13 hereof, the Company shall promptly
supplement and amend the Shelf Registration Statement if required by the
Securities Act or if reasonably requested by the Holders of a majority of the
Warrant Shares then transferable pursuant to such Shelf Registration Statement.
(f) Each Holder agrees to notify the Company promptly, but in
any event within three (3) business days, after the date on which all Warrant
Shares owned by such Holder have been sold by such Holder so that the Company
may comply with its obligation to terminate the Shelf Registration Statement in
accordance with Item 512 of Regulation S-K.
(g) The Company hereby represents and warrants that it meets
the requirements for the use of Form S-3 for registration of the sale by the
Holders of the Warrant Shares, 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.
13. Blackout Period and Holdback Events.
(a) During any period of up to 90 days' duration following the
occurrence of a Blackout Event (a "Blackout Period"), the Company shall not be
required to file, or cause to be declared effective, under the Securities Act
the Shelf Registration Statement, or, if applicable, the Holders will
discontinue the offer and sale of Warrant Shares pursuant to the Shelf
Registration Statement.
(b) The Holders shall not, if requested by the managing
underwriter or underwriters of an underwritten offering and if all affiliates of
the Company (as defined in Rule 144(a)(1) under the Securities Act) have been
likewise required, effect any public or private sale of any Common Stock,
including a sale pursuant to Rule 144, during the period ("Holdback Period")
beginning 14 days prior to, and ending 90 days after, the effective date of the
registration statement relating to a public offering of Common Stock, or other
securities convertible into, or exercisable or exchangeable for, Common Stock
that is underwritten on a firm commitment basis.
<PAGE>
(c) The aggregate number of days during which one or more
Blackout Periods or Holdback Periods are in effect shall not exceed 180 days
during the Registration Period, provided that the aggregate number of days
during which one or more Blackout Periods or Holdback Periods are in effect
shall not exceed 90 days in any 12 month period during the Registration Period.
(d) The Company shall promptly notify the Holders in writing
of any decision not to file the Shelf Registration Statement or not to cause the
Shelf Registration Statement to be declared effective or to discontinue sales of
Warrant Shares pursuant to this Section 13, which notice shall set forth the
reason for such decision (but not disclosing any nonpublic material information)
and shall include an undertaking by the Company promptly to notify the Holders
as soon as sales may resume.
(e) For purposes of this Warrant "Blackout Event" shall mean a
determination by the Company made in good faith, after consulting with outside
securities counsel, that the registration of Warrant Shares under the Securities
Act or the continuation of the disposition of Warrant Shares pursuant to the
Shelf Registration Statement at such time (i) would have a material adverse
effect upon a proposed material sale of all (or substantially all) of the assets
of the Company or a proposed material merger, reorganization, recapitalization
or similar current transaction materially affecting the capital structure or
equity ownership of the Company, or (ii) would require the Company to make a
public disclosure of information, which disclosure has been determined by the
Company, after consultation with outside securities counsel, not to be in the
best interests of the Company.
(f) Other holders of Common Stock, or securities convertible
or exercisable into, or exchangeable for, Common Stock (the "Other Blackout
Holders") have agreed that trading pursuant to an effective Company registration
statement may be suspended due to the occurrence of events the same as or
substantially similar to the events described in Section 13(e). Therefore,
notwithstanding anything else to the contrary herein, the Holders will not be
subject to a Blackout Event unless the Company notifies all Other Blackout
Holders that such holders must suspend trading pursuant to an effective Company
registration statement due to such Blackout Event.
14. Registration Procedures. In connection with the filing of the Shelf
Registration Statement, the Company shall effect such registrations to permit
the sale of the Warrant Shares covered thereby in accordance with the intended
method or methods of disposition thereof, and in connection with the Shelf
Registration Statement the Company shall:
(a) Notify the selling Holders of Warrant Shares promptly (but
in any event within five business days), and confirm such notice in writing: (i)
when the Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to the Shelf Registration Statement or any
post-effective amendment, when the same has become effective under the
Securities Act, (ii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Shelf Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation or
threatening of any proceedings for that purpose, and (iii) any request by the
SEC for the amending or supplementing of such registration statement, prospectus
or prospectus supplement.
<PAGE>
(b) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of the Shelf Registration Statement or of any order
preventing or suspending the use of the Prospectus or suspending the
qualification (or exemption from qualification) of any of the Warrant Shares for
sale in any jurisdiction and, if any such order is issued, to use its reasonable
best efforts to obtain the withdrawal of any such order or suspension of
qualification or exemption from qualification at the earliest practicable time.
(c) Furnish to each selling Holder of Warrant Shares and to
any underwriter participating in such registration at the sole expense of the
Company at least one conformed copy of the Shelf Registration Statement
including financial statements and schedules thereto and each post-effective
amendment thereto and, if requested, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits as soon as practicable after
such Holder or underwriter so requests.
(d) Deliver to each selling Holder of Warrant Shares and to
any underwriter participating in such registration at the sole expense of the
Company as many copies of the Prospectus (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Holder may reasonably request; and,
subject to the last paragraph of this Section 14, the Company consents to the
use of such Prospectus and each amendment or supplement thereto by each of the
selling Holders of Warrant Shares and the underwriters, if any, in connection
with the offering and sale of the Warrant Shares covered by such Prospectus and
any amendment or supplement thereto.
(e) Prior to the effectiveness of the Shelf Registration
Statement and thereafter, to use its reasonable best efforts to register or
qualify, and to cooperate with the selling Holders of Warrant Shares in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Warrant Shares for offer and sale under
the securities or blue sky laws of such jurisdictions within the United States
as any selling Holder reasonably requests; keep each such registration or
qualification (or exemption therefrom) effective during the period the Shelf
Registration Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Warrant Shares covered by the Shelf Registration
Statement; provided, however, that the Company shall not be required to (i)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 14(e), (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 Company's Board of Directors determines to be
contrary to the best interests of the Company and its stockholders.
(f) Cooperate with the selling Holders of Warrant Shares to
facilitate the timely preparation and delivery of certificates representing
Warrant Shares to be sold, which certificates shall not bear any restrictive
legends and shall be in a form in compliance with any applicable rules of a
stock exchange on which the Common Stock is then listed; and enable such Warrant
Shares to be in such denominations and registered in such names as Holders may
reasonably request.
(g) Upon the occurrence of any event or any information
becoming known to the Company that makes any statement made in the Shelf
<PAGE>
Registration Statement or the Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect, as
promptly as practicable prepare and file with the SEC, at the sole expense of
the Company, a supplement or post-effective amendment to the Shelf Registration
Statement or a supplement to the Prospectus or any document incorporated or
deemed to be incorporated therein by reference, or file any other required
document so that, as thereafter delivered to the purchasers of the Warrant
Shares being sold thereunder, any such Prospectus will not contain an 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, in light of the
circumstances under which they were made, not misleading.
(h) Prepare and file with the SEC, promptly upon the request
of any Holder, any amendments or supplements to the Shelf Registration Statement
or prospectus which, in the judgment of counsel for the Company, is required
under the Securities Act in connection with the distribution of the Warrant
Shares by such Holders.
(i) Comply with all applicable rules and regulations of the
SEC and make generally available to its security holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 90 days after the end of any 12-month period (or 120 days after the end of
any 12-month period if such period is a fiscal year) commencing on the first day
of the first fiscal quarter of the Company after the effective date of the Shelf
Registration Statement, which statements shall cover said 12-month periods.
(j) Cooperate with each seller of Warrant Shares covered by
the Shelf Registration Statement in connection with any filings required to be
made with the National Association of Securities Dealers, Inc.
(k) Use its reasonable best efforts to cause, at its own
expense, all Warrant Shares relating to the Shelf Registration Statement to be
listed on each securities exchange, if any, or quoted on any broker-dealer
quotation system on which similar securities issued by the Company are then
listed.
(l) Furnish an opinion, dated as of the effective date of the
Shelf Registration Statement, of the counsel representing the Company for the
purpose of such registration addressed to the underwriters, if any, making such
request, covering such matters as are customarily covered by such opinions and
as such underwriters may reasonably request. Use its reasonable best efforts to
furnish letters dated as of the effective date of the Shelf Registration
Statement, from independent certified public accountants of the Company
addressed to the underwriters, if any, making such request, covering such
matters as are customarily covered by such letters and as such underwriters may
reasonably request.
The Company may require each seller of Warrant Shares as to which any
registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Warrant Shares as the Company
may, from time to time, reasonably request. The Company may exclude from such
registration the Warrant Shares of any seller so long as such seller fails to
furnish such information within a reasonable time after receiving such request.
Each seller as to which the Shelf Registration Statement is being effected
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such seller not materially misleading.
<PAGE>
Each Holder of Warrant Shares understands that the Securities Act may
require delivery of the Prospectus in connection with any sale thereof pursuant
to the Shelf Registration Statement, and each such Holder shall comply with the
applicable Prospectus delivery requirements of the Securities Act in connection
with any such sale.
Each Holder of Warrant Shares agrees by acquisition of such Warrant
Shares that, upon actual receipt of any notice from the Company of the happening
of any event of the kind described in Section 14(a)(ii) hereof or any
information becoming known that makes any statement made in the Shelf
Registration Statement or the Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect, such
Holder will forthwith discontinue disposition of such Warrant Shares covered by
the Shelf Registration Statement or the Prospectus to be sold by such Holder
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 14(d) hereof, or until it is advised in
writing (the "Advice") by the Company that the use of the Prospectus may be
resumed, and has received copies of any amendments or supplements thereto. In
the event the Company shall give any such notice, the Registration Period shall
be extended by the number of days during such period from and including the date
of the giving of such notice to and including the date when each seller of
Warrant Shares covered by the Shelf Registration Statement, as the case may be,
shall have received (i) the copies of the supplemented or amended Prospectus
contemplated by Section 14(d) hereof or (ii) the Advice.
15. Expenses. With respect to such registration, the Company shall bear
all fees, costs and expenses, including without limitation all registration,
filing and NASD fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, all internal Company expenses, and all legal fees
and disbursements and other expenses of complying with state securities or blue
sky laws of any jurisdiction in which the Warrant Shares are to be registered or
qualified, but excluding any underwriting discounts and commissions and transfer
taxes and any other related selling expenses incurred by the selling Holders.
The selling Holders will be responsible for fees and disbursements of such
parties' counsel and accountants.
16. Indemnification By the Company. With respect to such registration,
the Company will indemnify and hold harmless each Holder of Warrant Shares which
are included in a registration statement pursuant to the provisions of this
Warrant, its directors and officers, and any underwriter (as defined in the
Securities Act) for such Holders and each person, if any, who controls such
Holder or such underwriter within the meaning of the Securities Act, from and
against, and will reimburse such Holder and each such underwriter and
controlling person with respect to, any and all loss, claim, damage, liability,
cost (including without limitation the reasonable cost of investigation of any
claim) and expense, joint or several, to which such Holder or any such
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities, costs or
expenses arise out of or are based on (i) any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; or (iii) any violation or
alleged violation by the Company of the Exchange Act, any state securities law,
or any rule or regulation promulgated under any of the aforementioned statutes,
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, liability, cost or expense arises out
<PAGE>
of or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by such
Holder, such underwriter or such controlling person in writing specifically for
use in the preparation thereof.
17. Indemnification By Holders. With respect to such registration, each
Holder of Warrant Shares which are included in a registration statement pursuant
to the provisions of this Warrant will, jointly and severally, indemnify and
hold harmless the Company, its directors and officers and each person, if any,
who controls the Company within the meaning of the Securities Act, from and
against, and will reimburse the Company and each such controlling person, with
respect to, any and all loss, claim, damage, liability, cost (including without
limitation the reasonable cost of investigation of any claim) and expense, joint
or several, to which the Company or any such controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, liabilities, costs or expenses arise out of (i) any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto made in conformity with information furnished by such Holder
specifically for use in the preparation thereof, or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading made in conformity with information furnished by
such Holder specifically for use in the preparation thereof; or (iii) any
violation or alleged violation by the Company of the Exchange Act, any state
securities law, or any rule or regulation promulgated under any of the
aforementioned statutes, provided that any such loss, claim, damage, liability,
cost or expense arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such Holder specifically for use in the preparation
thereof.
18. Rule 144. From the effective date of the Shelf Registration
Statement, the Company shall use its reasonable best efforts to timely prepare
and file all documents required to be filed with the SEC as shall be necessary
to enable the Holders to sell unregistered Warrant Shares in accordance with
Rule 144 under the Securities Act. Upon the request of any Holder, the Company
shall deliver to such Holder a written statement as to whether it has complied
with such requirements.
19. Anti-Dilution Provisions. So long as this Warrant, or any portion
thereof, shall remain outstanding and unexpired, the Exercise Price in effect
from time to time and the number and kind of securities purchasable upon the
exercise of the Warrants shall be subject to adjustment from time to time as
follows:
(a) If the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares (any of the foregoing, a
"Dilutive Event"), the Exercise Price in effect at the time of the record date
for such Dilutive Event shall be adjusted so that it shall equal the price
determined by multiplying the Exercise Price by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such Dilutive Event, and the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
Dilutive Event (such fraction, the "Adjustment Factor"). Such adjustment shall
be made successively whenever any Dilutive Event shall occur.
<PAGE>
(b) If the Company shall issue rights or warrants to all, but
not less than all, of the holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (or having a conversion price per share) less than the
Current Market Price (as defined below) of the Common Stock on the record date
specified below, the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the Exercise Price in effect
immediately prior to the date of such issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at the Current Market Price per share of the Common
Stock, and the denominator of which shall be the sum of the of the number of
shares of Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants, the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered. The
"Current Market Price" per share of Common Stock at any date shall be deemed to
be the average of the daily closing prices for the thirty (30) consecutive
business days immediately before such date.
(c) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Section 19(a) or 19(b), the number of shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by
dividing the number of shares issuable upon exercise of this Warrant by the
Adjustment Factor.
(d) If at any time, as a result of an adjustment made pursuant
to this Section 19(e) or 19(f), the Holder of this Warrant shall thereafter
become entitled to receive any shares of the Company, other than Common Stock or
shares of any issuer other than the Company, thereafter the Exercise Price and
the number of such other shares so receivable upon exercise of this Warrant
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Sections 19(a), 19(b) and 19(c).
(e) If the Company by reclassification of securities or
otherwise, shall change any of the securities as to which purchase rights under
this Warrant exist into the same or a different number of securities of any
other class or classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such reclassification or
other change and the Exercise Price therefor shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 19.
(f) If at any time there shall be (i) a reorganization (other
<PAGE>
than a subdivision, combination, reclassification, or other change of shares
otherwise provided for herein), (ii) a merger or consolidation of the Company
with or into another corporation in which the Company is not the surviving
entity, or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding immediately
prior to the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash, or otherwise, or (iii) a sale or
transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a Holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 19. The
foregoing provisions of this Section 19(f) shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporate that are at the time receivable upon the
exercise of this Warrant. In all events, appropriate adjustment (as determined
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after the event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
(g) Whenever the Exercise Price shall be adjusted as required
by the provisions of Section 19, the Company shall promptly file in the custody
of its Secretary or an Assistant Secretary at its principal office or Other
Office and with the Warrant Agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock or other securities, if any,
issuable upon exercise of this Warrant and such other facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Each such certificate shall be made available at all reasonable times for
inspection by Holder and the Company shall forthwith after each such adjustment
mail a copy of such certificate to Holder at its address last appearing in the
Warrant Register.
20. Notices to Warrant Holders. If at any time while this Warrant, or
any portion thereof, remains outstanding and unexpired, (i) the Company shall
pay any dividend or make any distribution upon the Common Stock (other than
regular quarterly cash dividends or dividends paid in the form of Common Stock),
(ii) the Company shall offer to the holders of Common Stock generally for
subscription or purchase by them any share of the Company of any class or any
other rights issued by the Company, or (iii) the capital reorganization of the
Company, reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, sale of all or
substantially all of the property and assets of the Company to another
corporation or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed to Holder at its address specified in the Warrant Register, at
least 10 days prior to the date specified in (x) or (y) below, as applicable, a
notice containing a brief description of the proposed event described in (i),
(ii) or (iii) above and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the date, if any, is be fixed, as
<PAGE>
of which the holders of the Common Stock or other securities shall receive cash
or other property deliverable upon such event. Notwithstanding the above, the
failure to give such notice shall not affect the validity of any transaction for
which the notice was required to be given.
21. Governing Law. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
such state's conflict of law provisions.
22. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
23. Standstill. Mercacorp and, if applicable, such other Holder
acknowledges that it is a condition to the Company's agreement to issue this
Warrant to Mercacorp that Mercacorp and, if applicable, such other Holder agree
that it will not, and will direct their respective Affiliates and Associates,
and directors, officers, employees and agents of Mercacorp and, if applicable,
such other Holder and their respective Affiliates and Associates, not to,
directly or indirectly, for a period beginning on the date hereof and ending on
the first to occur of (i) November 10, 2001, or (ii) the expiration of the
twelve (12) month period immediately following the date on which all 750,000
Warrant Shares have been issued under this Warrant (the "Standstill Period"),
unless in any such case specifically invited in writing to do so by the Board of
Directors of the Company:
(a) purchase, acquire or own, or offer or agree to purchase,
acquire or own, directly or indirectly, Common Stock (or securities
convertible or exercisable into, or exchangeable for, Common Stock)
which at any time would result in Mercacorp and, if applicable, such
other Holder in the aggregate owning, directly or indirectly, more than
1,650,000 shares of Common Stock;
(b) make, or in way participate in, directly or indirectly,
any "solicitation" of "proxies" (as such terms are defined or used in
Regulation 14A under the Exchange Act) or become a "participant" in an
"election contest" (as such terms are defined or used in Rule 14a-11
under the Exchange Act) with respect to the Company or seek to advise
or influence any person with respect to the voting of any voting
securities of the Company;
(c) execute any written consent in lieu of a meeting of
holders of securities of the Company or any class thereof unless such
written consent is solicited by the Board of Directors of the Company;
(d) initiate, propose or otherwise solicit stockholders for
the approval of one or more stockholder proposals with respect to the
Company as described in Rule 14a-8 under the Exchange Act or induce or
attempt to induce any other person to initiate any stockholder
proposal;
(e) acquire or affect the control of the Company or directly
or indirectly participate in or encourage the formation of any "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) which owns
or seeks to acquire ownership of voting securities of the Company, or
to acquire or affect control of the Company;
<PAGE>
(f) call or seek to have called any meeting of the
stockholders of the Company;
(g) seek election to or seek to place a representative on the
Board of Directors of the Company or seek the removal of any member of
the Board of Directors of the Company;
(h) otherwise act, directly or indirectly, alone or in concert
with others, to seek to control or to influence in any manner the
management, board of directors, policies or affairs of the Company, or
propose or seek to effect or negotiate with or provide financial
assistance (by loan, capital contribution or otherwise) or information
to any party with respect to any form of business combination
transaction (including, without limitation, a merger, consolidation or
acquisition or disposition of significant assets of the Company or any
other entity) with the Company or any affiliate thereof or any
restructuring, recapitalization or similar transaction with respect to
the Company or any affiliate thereof;
(i) instigate, encourage, assist or render advice to or make
any recommendation or proposal to any person or other entity to engage
in any of the actions covered by clauses (a) through (h) of this
Section 23, or render advice with respect to voting securities of the
Company;
(j) except to the extent required by law, make any public
statement (or make available to any member of the news media any
information) with respect to any of the matters covered by clauses (a)
through (h) of this section 23, or with respect to the terms and
conditions of, or any of the facts related to, this Warrant; or
(k) request any waiver, modification, termination or amendment
of this Section 23 or the relinquishment by the Company of any rights
with respect thereto.
For purposes of this Section 23, the term "voting securities" shall
mean (i) any securities which are entitled to vote upon any matters, whether
such securities are entitled to vote on such matters in all events or only upon
the occurrence of a default or other contingencies, or (ii) any options,
warrants, rights or securities which by their terms may be convertible into or
exchangeable for any security described in clause (i) of this sentence. The
restrictions set forth in this Section 23 shall survive Mercacorp's and, if
applicable, such other Holder's exercise of the last of the Lots and shall
continue until the expiration of the Standstill Period.
24. Authorization. The Company and Mercacorp each represent and warrant
to the other that (i) each such party is duly organized, validly existing and in
good standing under the laws of their respective jurisdiction of incorporation,
(ii) each such party has the requisite corporate power and authority to execute
this Warrant and to carry out and perform the terms and provisions of this
Warrant, and (iii) this Warrant constitutes the valid and legally binding
obligation of such party.
25. Counterparts. This Warrant may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
26. Notice. Any notice required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by confirmed
<PAGE>
telecopy, and shall be deemed to be 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
3300 University Boulevard, Suite 140
Orlando, Florida 32792
Telecopy: (407) 678-9982
Attn: Chief Financial Officer
And:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Telecopy: (312) 876-7934
Attn: Paul J. Miller, Esq.
With a copy to:
The Lowenbaum Partnership, L.L.C.
222 South Central Avenue, Suite 901
St. Louis, Missouri 63105
Telecopy: (314) 746-4848
Attn: Timothy L. Elliott, Esq.
If to the Holder:
Mercacorp, Inc.
care of:
Ziegler, Ziegler & Altman LLP
750 Lexington Avenue
New York, New York 10022
Telecopy: (212) 319-7605
Attn: Steven Altman, Esq.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized, as of the date below.
Dated as of: November 11, 1998
LASERSIGHT INCORPORATED
/s/Michael R. Farris
By: ----------------------------
Michael R. Farris, President
/s/Gregory L. Wilson
Attest: ----------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
MERCACORP, INC.
By: --------------------------
Title: -----------------------
Date: November 11, 1998
<PAGE>
FORM OF LEGAL OPINION
_____________, 1998
LaserSight Incorporated
3300 University Blvd.
Suite 140
Orlando, Florida 32792
Re: Warrant Transfer
Gentlemen:
We have acted as counsel to [Mercacorp, Inc. or other holder] , a
corporation organized under the laws of ________________________ (the
"Company"), in connection with the transfer of the Warrant, dated November 11,
1998, to purchase 750,000 shares of common stock, $.001 par value, of LaserSight
Incorporated (the "Warrant") to _________________________ ("Transferee").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Warrant and such
agreements, instruments, certificates, representations, documents and records,
and have made such other investigations, as we have deemed necessary or
appropriate as a basis for the opinions set forth herein. As to any facts
material to the opinions expressed herein, we have relied upon oral or written
statements and representations of officers and other representatives of the
Company and Transferee.
The Transferee has represented that it is acquiring the Warrant (i) for
investment and not for distribution or resale, and (ii) solely for Transferee's
own account and not as a nominee for any other person.
Based upon and subject to the foregoing, we are of the opinion that the
transfer of the Warrant from the Company to Transferee is exempt from the
registration requirements of the Securities Act of 1933 (the "Act").
We express no opinion as to the laws of any jurisdictions other than
the Federal securities laws of the United States of America in effect on the
date hereof, and we assume no obligation to revise or supplement this opinion
should such laws be changed by legislative or administrative action, judicial
decision or otherwise.
This opinion is solely for the benefit of you and your counsel and can
not be relied upon by any other person, corporation or entity.
<PAGE>
NOTICE OF EXERCISE
TO: LaserSight Incorporated Dated: ______________, 199___
(1) The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______________ shares of Common Stock and
hereby makes payment of ______________ in payment of the actual exercise price
thereof.
------------------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
Name:_________________________________________________________________________
(Please typewrite or print in block letters)
Name:_________________________________________________________________________
Address: __________________________________________________________
Signature:__________________________________________________________________
(All signatures must be guaranteed by an eligible guarantor institution that is
a member of a recognized medallion signature guaranty program.)
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
Name:_________________________________________________________________________
(Please type or print name of Assignee in block letters)
Address:_______________________________________________________________________
Number of Shares:______________________________________________________________
and does hereby irrevocably constitute and appoint
______________________________, attorney to make such transfer on the books of
LaserSight Incorporated, maintained for the purpose, with full power of
substitution in the premises.
Dated: ___________________________
Signature of Holder: ____________________________
The undersigned ASSIGNEE acknowledges that neither the within Warrant
nor, if the Shelf Registration Statement contemplated by Section 12 of this
Warrant has not been declared effective, any of the Warrant Shares (as defined
in the Warrant) have been registered under the Securities Act of 1933, and the
undersigned ASSIGNEE represents and warrants to the Company that the Warrant and
the Warrant Shares are being acquired for investment and not for distribution or
resale, solely for the undersigned's own account and not as a nominee for any
other person, and that the undersigned ASSIGNEE will not offer, sell, pledge or
otherwise transfer the Warrant or the Warrant Shares except (i) in compliance
with the requirements for an available exemption from such Securities Act and
any applicable state securities laws or (ii) pursuant to an effective
registration statement or qualification under such Securities Act and any
applicable state securities laws.
Dated: ___________________________
Signature of Assignee: ____________________________
(All signatures must be guaranteed by an eligible institution that is a member
of a recognized medallion signature guaranty program.)
<TABLE>
EXHIBIT 11
LASERSIGHT INCORPORATED
COMPUTATION OF PER SHARE EARNINGS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------ ------------ ------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
BASIC
<S> <C> <C> <C> <C>
Weighted average shares outstanding 12,935,000 9,812,000 11,969,000 9,342,000
============ ============ ============ ============
Net loss $ (2,149,930) (2,408,878) (5,864,310) (5,499,410)
Conversion discount on preferred stock -- (41,573) (858,872) (41,573)
Preferred stock accretion and dividend requirements -- -- (2,751,953) (13,350)
============ ============ ============ ============
Loss attributable to common shareholders $ 2,149,930) 2,450,451) (9,475,135) (5,554,333)
============ ============ ============ ============
Basic loss per share $ (0.17) (0.25) (0.79) (0.59)
============ ============ =========== ============
DILUTED
Weighted average shares outstanding 12,935,000 9,812,000 11,969,000 9,342,000
============ ============ ============ ============
Net loss $ (2,149,930) (2,408,878) (5,864,310) (5,499,410)
Conversion discount on preferred stock -- (41,573) (858,872) (41,573)
Preferred stock accretion and dividend requirements -- -- (2,751,953) (13,350)
============ ============ ============ ============
Loss attribuble to common shareholders $ 2,149,930) (2,450,451) (9,475,135) (5,554,333)
============ ============ ============ ============
Diluted loss per share $ (0.17) (0.25) (0.79) (0.59)
============ ============ ============ ============
Additional Diluted Calculation:
Loss attributable to common shareholders, above $ (2,149,930) (2,450,451) (9,475,135) (5,554,333)
============ ============ ============ ============
Additional adjustment to weighted average number of
shares:
Weighted average number of shares as adjusted per
above 12,935,000 9,812,000 11,969,000 9,342,000
Dilutive effect of contingently issuable shares, stock
options and convertible preferred stock 4,407,000 867,000 1,913,000 403,000
------------ ------------ ------------ ------------
Weighted average number of shares, as adjusted 17,342,000 10,679,000 13,882,000 9,745,000
============ ============ ============ ============
Diluted loss per share, adjusted $ (0.12) (0.23) (0.68) (0.57)
============ ============ ============ ============
(A) - This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 13-14 of SFAS 128 because
it produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,272,460
<SECURITIES> 0
<RECEIVABLES> 15,735,721
<ALLOWANCES> 2,121,242
<INVENTORY> 7,222,769
<CURRENT-ASSETS> 27,557,489
<PP&E> 2,887,785
<DEPRECIATION> 1,390,469
<TOTAL-ASSETS> 49,597,164
<CURRENT-LIABILITIES> 7,687,959
<BONDS> 0
0
4,000
<COMMON> 13,313
<OTHER-SE> 39,626,215
<TOTAL-LIABILITY-AND-EQUITY> 49,597,164
<SALES> 13,947,836
<TOTAL-REVENUES> 14,452,813
<CGS> 4,334,274
<TOTAL-COSTS> 4,556,464
<OTHER-EXPENSES> 15,253,136
<LOSS-PROVISION> 368,772
<INTEREST-EXPENSE> 721,813
<INCOME-PRETAX> (5,632,097)
<INCOME-TAX> 232,213
<INCOME-CONTINUING> (5,864,310)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,864,310)
<EPS-PRIMARY> (0.79)
<EPS-DILUTED> (0.79)
</TABLE>
