SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 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, Orlando, 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
August 13, 1998 is 12,970,135.
1
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A amends and restates previously filed
information contained in Part I, Items 1 and 2, and Part II, Items 1 through 6.
The amendment and restatement was necessitated due to an inadvertent
administrative error in connection with the preparation of this quarterly report
for filing with the SEC via Edgar.
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 (file no. 333-59369) filed on July 17, 1998.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30,
1998 and December 31, 1997
Condensed Consolidated Statements of Operations for
the Three Month Periods and Six Month Periods Ended
June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for
the Six Month Periods Ended June 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
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
--------------- --------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $12,444,856 $3,858,400
Marketable equity securities 0 7,475,000
Accounts receivable - trade, net 6,149,872 2,649,202
Notes receivable - current portion, net 4,788,872 3,762,341
Inventories 5,965,282 4,348,235
Deferred tax assets 512,813 571,009
Other current assets 216,108 219,723
--------------- --------------
TOTAL CURRENT ASSETS 30,077,803 22,883,910
Restricted cash 194,000 200,000
Notes receivable, less current portion, net 2,197,076 2,380,193
Property and equipment, net 1,463,042 1,354,168
Patents, net 4,745,424 11,275,289
Pre-market approval application, net 2,291,134 2,571,682
Goodwill, net 6,815,177 7,077,491
Other assets, net 2,123,763 2,718,340
--------------- --------------
$49,907,419 $50,461,073
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $1,714,398 $2,142,979
Note payable, less discount 0 1,758,333
Accrued expenses 2,663,575 2,782,521
Accrued commissions 1,358,914 1,230,474
Income tax payable 11,409 1,255,491
Deferred royalty revenue, current portion 400,000 0
Other current liabilities 799,673 984,412
--------------- --------------
TOTAL CURRENT LIABILITIES 6,947,969 10,154,210
Refundable deposits 194,000 200,000
Accrued expenses, less current portion 526,316 518,730
Deferred royalty revenue, less current portion 633,334 0
Deferred income taxes 512,813 571,009
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 June 30, 1998 and December 31, 1997, respectively 0 11,477,184
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 June 30, 1998 and
December 31, 1997, respectively 2,000 0
Series D - par value $.001 per share; authorized 2,000,000 shares;
2,000,000 and zero issued and outstanding at June 30, 1998 and
December 31, 1997, respectively 2,000 0
Common stock - par value $.001 per share; authorized 40,000,000 shares;
12,867,912 and 10,149,872 shares issued at June 30,1998 and December
31, 1997, respectively 12,868 10,150
Additional paid-in capital - common stock 57,873,297 40,045,564
Stock subscription receivable (1,140,000) (1,140,000)
Accumulated deficit ( 15,580,294) (11,865,914)
Accumulated other comprehensive income - unrealized gain 0 604,500
Less treasury stock, at cost; 155,200 and 165,200 common shares at June
30, 1998 and December 31, 1997, respectively (576,884) (614,360)
--------------- --------------
40,592,987 27,039,940
--------------- --------------
$49,907,419 $50,461,073
=============== ==============
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- ------------------------------------
1998 1997 1998 1997
--------------- ---------------- ---------------- ----------------
REVENUES:
<S> <C> <C> <C> <C>
PRODUCTS $4,781,319 2,130,698 8,826,002 5,684,543
SERVICES 167,661 3,277,874 366,197 6,242,171
--------------- ---------------- ---------------- ----------------
4,948,980 5,408,572 9,192,199 11,926,714
COST OF REVENUE:
PRODUCT COST 1,713,301 821,705 2,889,621 1,865,503
COST OF SERVICES 73,771 2,129,318 161,127 4,303,705
--------------- ---------------- ---------------- ----------------
GROSS PROFIT 3,161,908 2,457,549 6,141,451 5,757,506
RESEARCH, DEVELOPMENT AND REGULATORY
EXPENSES 743,788 550,427 1,561,344 912,631
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 4,185,434 3,851,210 7,932,483 7,424,706
--------------- ---------------- ----------------
----------------
LOSS FROM OPERATIONS (1,767,314) (1,944,088) (3,352,376) (2,579,831)
OTHER INCOME AND EXPENSES
Interest and dividend income 111,442 100,507 226,298 197,871
Interest expense (324,020) (368,529) (720,541) (428,172)
Gain on sale of investments and
subsidiaries 150,076 (230,400) 364,452 (280,400)
and other
--------------- ---------------- ---------------- ----------------
NET LOSS BEFORE INCOME TAXES (1,829,816) (2,442,510) (3,482,167) (3,090,532)
INCOME TAX EXPENSE (BENEFIT) (78,943) 0 232,213 0
--------------- ---------------- ---------------- ----------------
NET LOSS (1,750,873) (2,442,510) (3,714,380) (3,090,532)
CONVERSION DISCOUNT ON
PREFERRED STOCK (833,500) 0 (858,872) 0
PREFERRED STOCK ACCRETION
AND DIVIDEND REQUIRED (1,653,832) (3,487) (2,751,953) (13,350)
--------------- ---------------- ---------------- ----------------
LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS ($4,238,205) (2,445,997) (7,325,205) (3,103,882)
=============== ================ ================ ================
LOSS PER COMMON SHARE
Basic: ($0.34) ($0.26) ($0.64) ($0.34)
=============== ================ ================ ================
Diluted: ($0.34) ($0.26) ($0.64) ($0.34)
=============== ================ ================ ================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic: 12,626,000 9,381,000 11,478,000 9,103,000
=============== ================ ================ ================
Diluted: 12,626,000 9,381,000 11,478,000 9,103,000
=============== ================ ================ ================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<CAPTION>
1998 1997
----------------- ------------------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (3,714,380) $ (3,090,532)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,881,290 966,793
Gain on sale of investments and subsidiaries (364,452) 0
Decrease (increase) in accounts and notes receivable (4,198,124) 683,501
Increase in inventories (390,366) (448,155)
Increase (decrease) in accounts payable (494,155) 288,911
Increase (decrease) in accrued expenses (282,712) 418,779
Income taxes (873,582) 742,036
Deferred royalties 1,033,334 0
Other 214,438 (336,414)
----------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (7,188,709) (775,081)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net (289,442) (350,593)
Net proceeds from exclusive and non-exclusive license
of patents 6,170,000 0
Proceeds from sale of investments 6,527,452 0
Transfer to restricted cash account (4,200,000) 0
Proceeds from restricted cash account 4,228,000 0
Purchase of managed care contract 0 (150,000)
----------------- ------------------
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES
12,436,010 (500,593)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 31,600 49,088
Repurchase of preferred stock (10,512,000) 0
Proceeds from issuance of notes payable, net 0 3,414,142
Repayments of notes payable (2,000,000) (1,000,000)
Repayments of capital lease obligation 0 (99,888)
Proceeds from issuance of preferred stock, net 15,819,555 0
----------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,339,515 2,363,342
----------------- ------------------
INCREASE IN CASH AND CASH EQUIVALENTS 8,586,456 1,087,668
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,858,400 2,003,501
----------------- ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,444,856 $ 3,091,169
================= ==================
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
5
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Six Month Periods Ended June 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 June 30, 1998, and for the three and six month
periods ended June 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
six month periods ended June 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
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
<S> <C> <C> <C> <C>
Net loss ($1,750,873) (2,442,510) (3,714,380) (3,090,532)
Other comprehensive loss:
Reversal of unrealized
gain on marketable
securities (net of
tax of $353,675 and
$353,675, respectively) (577,048) 0 (577,048) 0
Reclassification
adjustment for losses
(gains) included in net
loss (net of tax of
$(59,172) and $16,825,
respectively) 96,543 0 (27,452) 0
------------ ----------- ----------- -----------
Comprehensive loss ($2,231,378) (2,442,510) (4,318,880) (3,090,532)
============ =========== =========== ===========
</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
June 30, 1998 and December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Raw materials - excimer related $3,715,488 3,058,782
Raw materials - erbium related 716,114 0
Work-in-process - excimer related 160,579 263,353
Work-in-process - erbium related 459,424 0
Finished goods - excimer related 675,045 862,775
Finished goods - erbium related 99,000 0
Test equipment-clinical trials 187,497 263,325
Training/show units - erbium related 273,395 0
--------------- ---------------
6,286,542 4,448,235
Less reserve for obsolescence 321,260 100,000
--------------- ---------------
$5,965,282 4,348,235
=============== ===============
</TABLE>
NOTE 5 MARKETABLE EQUITY SECURITIES
Through June 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 June 30, 1998, the Company realized a gain on the sale
of such stock of $27,452. The Company is pursuing mediation
and, if necessary, binding arbitration related to additional
amounts believed due from Vision 21 pursuant to the Stock
Distribution Agreement between the companies.
7
<PAGE>
NOTE 6 SALE OF INTERNATIONAL PATENT RIGHTS
On February 10, 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.
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 will be 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
In conjunction with the Company's acquisition of a laser in
situ keratomileusis (LASIK) Pre-Market Approval (PMA)
application from Photomed, Inc. (Photomed), several contingent
payment obligations included in the transaction are based on
U.S. Food and Drug Administration (FDA) approval. If the FDA
approved the acquired PMA application and the commercial sale
in the U.S. of the laser device covered by the PMA by July 29,
1998, the Company would have been obligated to pay $1.75
million to the sellers. The FDA approved the laser for single
site use, though not for commercial sale, on July 30, 1998. If
the FDA approves the use of any Company laser for the
treatment of hyperopia, the Company may be obligated to issue
to the sellers unregistered Common Stock valued at $1 million.
If the Company's scanning laser had been approved by the FDA
for commercial sale in the U.S. on or before April 1, 1998,
the Company would have been obligated to pay $1 million to the
sellers. Approval after such date will result in a
correspondingly smaller obligation until January 1, 1999, when
no payment will be required. Based on the timing and scope of
the FDA approval of the acquired PMA application, the Company
and representatives of Photomed have agreed to discuss
restructuring these payment obligations. Such revised
structure has not been finalized as of August 13, 1998.
NOTE 8 STOCKHOLDERS' EQUITY
TLC Private Placement
On June 5, 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 5, 2001, on which date all shares
of Series C Preferred Stock then outstanding will
automatically be converted into 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 its Series B Convertible Participating Preferred Stock
(Series B Preferred Stock) on June 5, 1998 for approximately
$6.3 million, including a 20% premium.
8
<PAGE>
Pequot Private Placement
On June 12, 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 12, 2001, on which date all shares of
Series D Preferred Stock then outstanding will automatically
be converted into 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 12, 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
On June 5, 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, Series B Preferred
shareholders 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).
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 three and six month periods ended June 30, 1998.
NOTE 9 ACQUISITION
On April 15, 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
9
<PAGE>
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
are issued in April 1999, the entry will be to record the par
value of shares issued in 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
On June 5, 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 six
month periods ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1998 June 30, 1997
------------- -------------
Revenue % of Total Revenue % of Total
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Technology $4,781,319 97% $2,130,698 39%
Health care services 167,661 3% 3,277,874 61%
---------- ---- ---------- ----
Total revenue $4,948,980 100% $5,408,572 100%
========== ==== ========== ====
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1998 June 30, 1997
------------- -------------
Revenue % of Total Revenue % of Total
------- ---------- ------- ----------
Technology $8,826,002 96% $5,684,543 48%
Health care services 366,197 4% 6,242,171 52%
----------- ---- ----------- ----
Total revenue $9,192,199 100% $11,926,714 100%
========== ==== =========== ====
</TABLE>
Revenue in the second quarter of 1998 was $4,948,980, compared to $5,408,572
(for a decrease of $459,592) over the same period in 1997. Revenue for the
six-month period ended June 30, 1998, respectively, decreased by $2,734,515 to
$9,192,199 from the same period in 1997. Technology revenues increased
$2,650,621 and $3,141,459 during the three and six month periods ended June 30,
1998, respectively, compared to the same periods in 1997. These revenue
increases were a result of (i) a higher level of laser system sales during the
three and six month periods ended June 30, 1998; (ii) a seven 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. Fifteen laser systems were sold in the second
quarter of 1998 compared to eight system sales during the second quarter of
1997. Twenty-nine laser systems were sold during the six-month period ended June
30, 1998, compared to 23 systems sold during the same period in 1997.
More than offsetting the increases in technology revenues were decreases in
health care services revenue ($3,110,213 and $5,875,974 for the three and six
month periods ended June 30, 1998 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 $2,857,684
and $5,590,103 in revenues during the three and six month periods ended June 30,
11
<PAGE>
1997, respectively. All of the Company's health care services revenue for the
first six months of 1998 was provided by MRF, Inc., d/b/a The Farris Group
(TFG). Net revenue for TFG in the second quarter of 1998 was $167,661 compared
to $420,190 (for a decrease of $252,529) over the same period in 1997. This
decrease was accompanied by a $224,449 reduction in expenses over the same three
month period in 1997. Net revenue for TFG during the six month period ended June
30, 1998, was $366,197 compared to $652,068 (for a decrease of $285,871) over
the same period in 1997. That decrease was accompanied by a $370,578 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
six month periods ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1998 Percent Change June 30, 1997
------------- -------------- -------------
<S> <C> <C> <C>
Product cost $ 1,713,301 109 % $ 821,705
Cost of services 73,771 (97 %) 2,129,318
Gross profit 3,161,908 29 % 2,457,549
Gross profit percentage 64 % 45 %
Products only 3,068,018 134 % 1,308,993
64 % 61 %
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1998 Percent Change June 30, 1997
------------- -------------- -------------
Product cost $2,889,621 55 % $1,865,503
Cost of services 161,127 (96 %) 4,303,705
Gross profit 6,141,451 (7 %) 5,757,506
Gross profit percentage 67 % 48 %
Products only 5,936,381 55 % 3,819,040
67 % 67 %
</TABLE>
Gross profit margins were 64% of net sales in the second quarter of 1998
compared to 45% for the same period in 1997. For the six month periods ended
June 30, 1998 and 1997, gross profit margins were 67% and 48%, 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 29% and 27% for the three and six
month periods ended June 30, 1998 and 1997, respectively.
12
<PAGE>
Research, Development and Regulatory Expense. The following tables present a
comparative analysis of research, development and regulatory expenses for the
three and six-month periods ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1998 Percent Change June 30, 1997
------------- -------------- -------------
<S> <C> <C> <C>
Research, development
and regulatory $ 743,788 35 % $ 550,427
As a percentage of technology
revenues 16 % 26 %
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1998 Percent Change June 30, 1997
------------- -------------- -------------
Research, development
and regulatory $ 1,561,344 71 % $ 912,631
As a percentage of technology
revenues 18 % 16 %
</TABLE>
Research, development and regulatory expenses for the second quarter of 1998
were $743,788, an increase of $193,361, or 35%, from such expenditures during
the same period in 1997. Research, development and regulatory expenses for the
six month period ended June 30, 1998 increased by $648,713 from $912,631 for the
same period in 1997, or 71%. The increase in research, development and
regulatory expenses during the three and six month periods ended June 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 LSX, the Company has solicited and received input from clinical users and
prospective customers. This has resulted in modifications to the system,
necessitating additional development and testing for clinical validation. As a
result of a continuation of the efforts described, the Company expects research,
development and regulatory expenses during the remainder of 1998 to remain at
levels consistent with those incurred during the first six months 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.
13
<PAGE>
Selling, General and Administrative Expenses. The following tables present a
comparative analysis of selling, general and administrative expenses for the
three and six month periods ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1998 Percent Change June 30, 1997
------------- -------------- -------------
<S> <C> <C> <C>
Selling, general and
Administrative $4,185,434 9 % $3,851,210
Percentage of revenues 85 % 71 %
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1998 Percent Change June 30, 1997
------------- -------------- -------------
Selling, general and
Administrative $7,932,483 7 % $7,424,706
Percentage of revenues 86 % 62 %
</TABLE>
Selling,general and administrative expenses increased by $334,224 for the second
quarter of 1998 compared to the same period in 1997. The primary reasons for
this increase include increased amortization costs resulting from acquired
patents, license agreements and other intangibles ($410,000), related legal fees
and royalty fees based on the higher number of laser systems sold. In addition,
other 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 service, field service, quality assurance and
engineering departments. These increases in operating costs were partially
offset by the sale of MEC and LSIA ($613,000) and a reduction in the selling,
general, and administrative expenses of TFG ($193,000) and corporate offices
($51,000).
Selling, general and administrative expenses increased by $507,777 for the six
months ended June 30, 1998 compared to the same period in 1997. The primary
reasons for this increase include increased amortization costs resulting from
acquired patents, license agreements and other intangibles ($865,000), royalty
fees and a higher level of warranties incurred on the sale of its laser systems.
In addition, other increases were necessary to fund the strategic initiatives of
the Company and the development of its products and services as described above.
These increases in operating costs were partially offset by the sale of MEC and
LSIA ($1,216,000) and a reduction in the selling, general, and administrative
expenses of TFG ($319,000) and corporate offices ($109,000).
Loss From Operations. There was an operating loss of $1,767,314 in the second
quarter of 1998 compared to an operating loss of $1,944,088 for the same period
in 1997, including TFG's losses (including goodwill amortization) of $134,476
and $106,446, respectively. The improved results are attributed to the higher
level of technology sales, partially offset by the sale of MEC and LSIA, which
generated income from operations of $220,007 during the 1997 period. The
operating loss for the six month period ended June 30, 1998 was $3,352,376
compared to an operating loss of $2,579,831 for the same period in 1997,
including TFG's losses (including goodwill amortization) of $340,729 and
$425,486, respectively. The decrease in operating results for the six month
14
<PAGE>
period ended June 30, 1998, can be attributed to the sale of MEC and LSIA, which
generated income from operations of $282,870, 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 $111,442 in the
second quarter of 1998 compared to interest and dividend income of $100,507 for
the same period in 1997. Interest and dividend income for the six month period
ended June 30, 1998 was $226,298 compared to interest and dividend income of
$197,871 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
$324,020 in the second quarter of 1998 compared to interest expense of $368,529
for the same period in 1997. Interest expense for the six month period ended
June 30, 1998 was $720,541 compared to interest expense of $428,172 for the same
period in 1997. Interest expense incurred by the Company during the three and
six month periods ended June 30, 1998 and 1997 related primarily to the credit
facility established with Foothill on April 1, 1997 and repaid in full on June
5, 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 sales of Vision 21
common stock and MEC and LSIA.
Income Taxes. For the three months ended June 30, 1998, the Company recorded an
income tax benefit of $78,943 compared to no income tax benefit or expense for
the same period in 1997. For the six months ended June 30, 1998, the Company
recorded income tax expense of $232,213 compared to no income tax benefit or
expense over the same period in 1997. The net expense for the six month period
is primarily the result of realized gains and $1,200,000 in royalties received
for the non-exclusive license of certain patents, the income from which is
deferred for accounting purposes.
Net Loss. Net loss for the second quarter of 1998 was $1,750,873 compared to a
net loss of $2,442,510 for the same period in 1997. Net loss for the six month
period ended June 30, 1998, was $3,714,380 compared to a net loss of $3,090,532
for the same period in 1997. The decrease in net loss for the second quarter of
1998 can be attributed to an increase in technology revenues, partially offset
by the effects of the sale of MEC and LSIA. The increase in net loss for the six
month period ended June 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.
Loss Attributable to Common Shareholders. For the three months ended June 30,
1998, the Company's loss attributable to common shareholders was impacted by the
premium paid on the repurchase of the 525 remaining shares of Series B Preferred
Stock ($1,050,000), the accretion of the financing costs related to such shares
($603,832), and the value of the conversion discount on the Series C Preferred
Stock and Series D Preferred Stock ($833,500). The loss attributable to common
shareholders for the six months ended June 30, 1998 also includes the impact of
the premium paid on the first quarter 1998 repurchase of 351 shares of Series B
Preferred Stock ($702,000) and the accretion of the financing costs related to
such shares ($396,121).
Loss Per Share. Loss per basic and diluted share increased to ($0.34) for the
second quarter of 1998 compared to ($0.26) for the same period in 1997. The loss
per basic and diluted share increased to ($0.64) for the six month period ended
June 30, 1998, compared to ($0.34) for the same period in 1997. Of the basic and
diluted losses per share for the three and six month periods ended June 30,
1998, ($0.20) and ($0.31), respectively, were a result of the value of the
15
<PAGE>
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 outstanding increased primarily due to the conversion of
419 shares of Series B Preferred Stock into Common Stock during the six months
ended June 30, 1998.
Liquidity and Capital Resources.
Working capital increased $10,400,134 from $12,729,700 at December 31, 1997 to
$23,129,834 as of June 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 $7,188,709 during the
first six months of 1998, compared to $775,081 of net cash used during the same
period in 1997. This increase is primarily attributable to a six month 1998 net
loss of $3,714,380 compared to a net loss of $3,090,532 over the same period in
1997, an increase in accounts receivable and notes receivable (primarily the
result of slower collections of outstanding receivables and increased payments
due at or before installation (including letters of credit) versus upon shipment
on first and second quarter sales), significant decreases in accounts payable,
accrued liabilities, and 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 six months of 1998 was
$12,436,010 compared to $500,593 in net cash used in investing activities over
the same period in 1997. Net cash provided by investing activities during the
first six 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 $3,339,155 during the first six months of
1998, compared to $2,363,342 over the same period in 1997. Net cash provided
from financing activities during the first six months of 1998 resulted from the
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 six months of 1997 consisted of 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 collection of receivables. A failure to timely collect a material
portion of current receivables 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 (file no. 333-59369) filed on July
17, 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 (12,970,135 shares as of August 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 All shares issued from the conversion of Series B Preferred Stock (the
"Series B Shares") are freely saleable, subject only to the
satisfaction of a prospectus delivery requirement.
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 A warrant to purchase 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 prospective delivery
requirement. As of August 13, 1998, 140,625 such shares 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 581,825 shares of Common Stock (the "Foothill Shares") issuable
upon the exercise of the warrants issued to Foothill Capital
Corporation ("Foothill") are the subject of certain demand and
piggy-back registration
o The 581,825 shares of Common Stock (the "Foothill Shares") issuable
upon the exercise of the warrants issued to Foothill Capital
Corporation ("Foothill") are the subject of certain demand and
piggy-back registration.
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; --TFG; --SEO Medical; --Series D
Preferred Stock."
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-LaserSightCenters and Florida Laser Partners;--TFG;--SEO
Medical;--Series D Preferred Stock."
Sales, or the possibility of sales, of the Series B Shares, Shoreline Shares,
Photomed 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 $3.7 million for the six months ended June 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 $7.2 million, $4.4 million, and $4.2
17
<PAGE>
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 June
30, 1998, the Company had an accumulated deficit of $15.6 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. There can be no assurance that the
Company can regain or sustain profitability or positive operating cash flow.
Uncollectible Receivables Could Exceed Reserves. At June 30, 1998, the Company's
trade accounts and notes receivable aggregated approximately $13,135,820 net of
allowances for collection losses and returns of approximately $2,162,000.
Accrued commissions, the payment of which generally depends on the collection of
such net trade accounts and notes receivable, aggregated approximately
$1,735,230 at June 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 93% and 90% of net receivables at June 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 ($1,962,000
at June 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 June 30, 1998, the Company had restructured
laser customer accounts in the aggregate amount of approximately $860,450 (5.6%
of the gross 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 will 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 June 30, 1998, the
Company experienced a $7.2 million deficit in cash flow from operations largely
resulting from the loss incurred during the period, an increase in accounts
receivable and a decrease 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 and its A*D*K product on a commercial basis. Beginning in the third
quarter of 1998, the LSX laser system is expected to make a more significant
contribution to the Company's operating results. 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 third 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 anticipated collection of
receivables. However, if the Company does not collect a material portion of
current receivables in a timely manner, experiences significant further delays
in the shipment of its A*D*K product, experiences less market demand for such
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. Such
contingent cash payment obligations currently include (i) an amount to
be determined payable if the Company decides to pursue the
commercialization of the LASIK laser (Originally, the contingent
obligation was $1.75 million payable if the FDA approved the LASIK PMA
application for commercial sale before July 29, 1998. The FDA, on July
30, 1998, approved the single site PMA, but has not yet approved the
commercial sale of such laser.), and (ii) an amount to be determined
if the FDA approves the Company's scanning laser for commercial sale
in the U.S. before January 1, 1999. (Originally, the contingent
obligation was $3,633 for each day (or approximately $110,000 for each
month) between the date of such approval and January 1, 1999, subject
to a maximum payment of $509,000 (calculated as of August 13, 1998).
The Company is currently assessing the opportunity, cost and timing of
proceeding with the development of the LASIK laser. The Company is
also discussing the restructuring of the payment obligations
associated with commercialization of the LASIK laser and FDA approval
of the Company's scanning laser.
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 after receiving
FDA approval. (The Company believes these expenses may begin to be
incurred in the second half of 1998.)
o Additional working capital necessary to more fully develop the 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 (the "Centers
Contingent Shares") based on the Company's pre-tax operating income
through
19
<PAGE>
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 (the "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.
As of August 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--TFG. To the extent that TFG achieves
certain pre-tax income levels during 1998, the earnout provisions of the
Company's agreement for the acquisition of TFG in 1994 would require the Company
to issue to the former owner of such company (Mr. Michael R. Farris, the
President and Chief Executive Officer of the Company) up to approximately
343,000 shares of Common Stock (the "Farris Contingent Shares"). There can be no
assurance that any issuance of the Farris Contingent Shares will be accompanied
by an increase in the Company's per share operating results.
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) after having approved for commercial sale the
LASIK PMA application to which the Company acquired rights in July 1997, the
Company would be required to issue additional shares of Common Stock with a
market value of $1.0 million (based on the average closing price of the Common
Stock during the preceding 10-day period) to the former Photomed stockholders.
If such market value had been computed as of August 12, 1998, the number of
additional shares issuable would have been approximately 174,000. 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 Medical. In connection with the
acquisition of certain assets of SEO Medical in April 1998, the Company agreed
to issue up to 223,280 additional shares of Common Stock if the five day average
price of Common Stock on 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
20
<PAGE>
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 approximately 581,825, and (ii) a
reduction to the exercise price of the Foothill Warrant shares to approximately
$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
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 August 13, 1998,
140,625 such shares 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 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
21
<PAGE>
the Common Stock. Such dilution may be increased by 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 its 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, 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 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
June 30, 1998, approximately $15.7 million (31 %) were intangible assets, of
which approximately $6.8 million reflects goodwill (which is being amortized
using an estimated life ranging from 12 to 20 years), approximately $4.7 million
reflects the cost of patents (which is being amortized over a period ranging
from approximately 8 to 17 years), and approximately $4.2 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
22
<PAGE>
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. If TFG is unsuccessful in continuing to improve its financial
performance, some or all of the carrying amount of goodwill recorded ($3,852,000
at June 30, 1998) may be subject to an impairment adjustment.
Year 2000 Concerns. The Company believes that, other than its financial and
accounting software already planned to be replaced in late 1998 or early 1999,
it has prepared its computer systems and related applications to accommodate
date-sensitive information relating to the Year 2000; however, the Company
continues to assess its systems and applications. The Company expects that any
additional costs related to ensuring such systems to be Year 2000-compliant will
not be material to the financial condition or results of operations of the
Company. Such costs will be expensed as incurred. In addition, the Company is
discussing with its vendors the possibility of any interface difficulties or
other disruptions that may affect the Company. To date, no significant concerns
have been identified. However, there can be no assurance that no Year
2000-related operating problems or expenses will arise with the Company's
computer systems and software or in their interface with the computer systems
and software of the Company's vendors.
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 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
23
<PAGE>
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. While the Company's LaserScan 2000 laser
system has received CE Mark certification, the Company's LSX laser system is
currently undergoing the CE Mark certification process. Until the Company
receives its CE Mark certification with the respect to its LSX laser system, the
Company is prohibited from placing the LSX laser system for use in EU member
countries. A lengthy delay in CE Mark certification could have a material
adverse effect on the business, financial condition, and results of operations
of the Company. The Company expects to receive CE Mark certification for its LSX
laser system during 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 LaserSight Technologies'
lasers infringe upon any valid and enforceable patents in international markets,
then LaserSight Technologies 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 94%
and 43%, respectively, of the Company's total revenues during the six months
ended June 30, 1998 and 1997, respectively. In the future, the Company expects
its percentage of international sales to be more comparable to the sales
percentages which were reported for the six months ended June 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
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 LaserSight Technologies' lasers infringe upon any valid and enforceable
patents held by VISX or Summit in the U.S., then LaserSight Technologies 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, LaserSight Technologies might be
24
<PAGE>
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 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*oK 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 third
quarter of 1998. In addition, commencing seven months after such date, the
Company's royalty payments (50% of its defined gross profits from AoDoK 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
25
<PAGE>
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
generally shipped as orders are received. Historically, the Company has received
and shipped a significant portion of its orders for a particular quarter near
26
<PAGE>
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. 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.
27
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Visx, Incorporated
In May 1998, Visx, Incorporated ("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 has been scheduled for
[December] 1998. 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 asserts
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 asks that they be awarded $5 million in actual
damages and $50 million in punitive damages.
The Company believes that the allegations made by the
plaintiff against the Company and Mr. Farris are without
merit, and it intends to vigorously defend the action.
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
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.
28
<PAGE>
c) During the second quarter ended June 30, 1998, the Company
has sold or issued the following unregistered securities:
(1) In April 1998, the Company issued 305,820 shares of
Common Stock to Schwartz Electro-Optics, Inc. as
consideration for the purchase of certain assets, and
the assumption of certain liabilities, of its medical
products division. For further information, see Note
9 of Notes to Condensed Consolidated Financial
Statements.
(2) As previously reported, the Company completed private
placements of its Series C Preferred Stock and Series
D Preferred Stock in June 1998. The holders of Series
C Preferred Stock and Series D Preferred Stock have
voting rights equivalent to the number of shares of
Common Stock the outstanding preferred stock is
convertible into and are not entitled to receive any
dividends unless dividends are concurrently paid on
the Common Stock.
The holder of the Series C Preferred Stock has the
right to nominate one candidate to stand for election
as a member of the Company's Board of Directors for
as long as the holder owns at least 7.5% of the
Company's outstanding Common Stock or Series C
Preferred Stock which is convertible into 7.5% of the
Company's outstanding Common Stock.
The holders of the Series D Preferred Stock have the
exclusive right, voting separately as a single class,
to elect one director (the "Series D Preferred
Director") of the Company. The voting rights with
respect to the Series D Preferred Director will
terminate and thereafter be of no force or effect if
on any date the Board of Directors fixes the record
date for a meeting of the Company's stockholders at
which directors will be elected (the "Determination
Date"), that number of full shares of Common Stock
into which all then outstanding shares of Series D
Preferred Stock, if any, could be converted pursuant
to the term of the Series D Preferred Stock is less
than 7.5% of all then outstanding shares of Common
Stock on the Determination Date. Thereafter, so long
as the holders of the Series D Preferred Stock own in
the aggregate at least 7.5% of the outstanding Common
Stock as of any Determination Date (for purposes of
this calculation all shares of Series D Preferred
Stock shall be deemed to be converted to shares of
Common Stock pursuant to the terms of the Series D
Preferred Stock) then the holders of the Series D
Preferred Stock shall have the right to designate a
nominee (who is reasonably acceptable to the
Company's Board of Directors) to stand for election
as a director at the next meeting of the Company's
stockholders at which directors will be elected.
In addition, in the event of a liquidation of the
Company, the holders of the Series C Preferred Stock
and Series D Preferred Stock would be entitled to
receive distributions in preference to the holders of
the Common Stock. See Note 8 of Notes to Condensed
Consolidated Financial Statements. Reference is made
to the Company's Form 8-K filed on June 25, 1998, for
additional information.
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,
29
<PAGE>
(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
On June 30, 1998, at the Company's annual meeting of
shareholders, the following members were elected to the Board
of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
J. Richard Crowley 7,628,694 110,954
Michael R. Farris 7,631,439 108,209
Richard C. Lutzy 7,635,189 104,459
Francis E. O'Donnell, Jr., M.D. 7,635,189 104,459
Thomas Quinn 7,635,189 104,459
David T. Pieroni 7,630,639 109,009
Terry Fuller, Ph.D. 7,631,689 107,959
</TABLE>
Amendment of conversion terms of the Company's Series B
Preferred stock and the reduction of the exercise price of the
warrants issued to the Series B Preferred shareholders was
ratified as follows:
Votes For 7,357,914
Votes Against 276,278
Abstain 105,456
Amendment of the 1996 Equity Incentive Plan was ratified as
follows:
Votes for 7,268,785
Votes Against 386,765
Abstain 84,098
A proposal to appoint KPMG Peat Marwick LLP as auditors was
ratified as follows:
Votes for 7,613,149
Votes Against 73,049
Abstain 53,450
30
<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 The Laser Center Inc., 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 Description
- ------ -----------
2.1 See Exhibits 10.1, 10.6, 10.23 and 10.26.
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 of 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*).
31
<PAGE>
10.3 Royalty Agreement by and between LaserSight Centers
Incorporated and LaserSight Partners dated January 15, 1993
(filed as Exhibit 10.5 to the Company's Form 10-K for the year
ended December 31, 1995*).
10.4 Exchange Agreement dated January 25, 1993 between LaserSight
Centers Incorporated and Laser Partners (filed as Exhibit 10.6
to the Company's Form 10-K for the year ended December 31,
1995*).
10.5 Stipulation and Agreement of Compromise, Settlement and
Release dated April 18, 1995 among James Gossin, Francis E.
O'Donnell, Jr., J.T. Lin, Wen S. Dai, Emanuela
Dobrin-Charlton, C.H. Huang, W. Douglas Hajjar, and LaserSight
Incorporated (filed as Exhibit 10.7 to the Company's Form 10-K
for the year ended December 31, 1995*).
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.
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*).
32
<PAGE>
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*).
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*).
33
<PAGE>
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*).
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*).
Exhibit 11 Statement of Computation of Loss Per Share
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
On June 8, 1998, the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued
by the Company dated June 8, 1998 reporting the issuance of
Series C Preferred Stock.
On June 16, 1998 the Company filed with the Commission a
Current Report on Form 8-K regarding the press release issued
by the Company dated June 16, 1998 reporting the issuance of
Series D Preferred Stock.
On June 25, 1998 the Company filed with the Commission a
Current Report on Form 8-K regarding the Securities Purchase
Agreement and related documents dated June 5, 1998 by and
between LaserSight Incorporated and TLC The Laser Center Inc.
and the Securities Purchase Agreement and related documents
dated June 12, 1998 among LaserSight Incorporated and Pequot
Private Equity Fund, L.P., Pequot Scout Fund, L.P., Pequot
Offshore Private Equity Fund, Inc.
- ----------------------
*Incorporated herein by reference. File No. 0-19671.
34
<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: August 13, 1998 By: /s/ Michael R. Farris
------------------------ -----------------------
Michael R. Farris,
Chief Executive Officer
Dated: August 13, 1998 By: /s/ Gregory L. Wilson
------------------------ -----------------------
Gregory L. Wilson,
Chief Financial Officer
35
Exhibit 10.12
LaserSight Incorporated
Amended and Restated 1996 Equity Incentive Plan
Introduction. The LaserSight Incorporated 1996 Equity Incentive Plan
(the "Plan"), as established by LaserSight Incorporated, a Delaware corporation
(the "Company"), effective as of January 19, 1996 is hereby amended and restated
as set forth herein effective April 29, 1998 (as so amended and restated, the
"Plan"), subject to the approval of the holders of a majority of the shares of
Common Stock (as defined below) present or represented and entitled to vote at
the Company's 1998 annual meeting of stockholders.
1. Purpose. The Plan is intended to allow employees and consultants to
acquire or increase equity ownership in the LaserSight, thereby strengthening
their commitment to the success of the Company and stimulating their efforts on
behalf of the Company, and to assist the Company in attracting new employees and
retaining existing employees.
2. Definitions.
The terms set forth below have the following meanings (such meanings to
be applicable to both the singular and plural forms):
(a) "Award" means options, including incentive stock options,
Restricted Shares, Bonus Shares, stock appreciation rights ("SARs"), limited
stock appreciation rights ("LSARs"), or performance shares granted under the
Plan.
(b) "Award Agreement" means the written agreement by which an Award
shall be evidenced.
(c) "Board" means the Board of Directors of LaserSight.
(d) "Bonus Shares" means shares of Stock that are awarded to a Grantee
without cost (other than a payment of the Minimum Consideration, if applicable)
and without restrictions in recognition of past performance or as an incentive
to become an employee of the Company.
(e) "Cause" means a Grantee's commission of a crime which, in the
judgment of the Committee, is likely to result in material injury to the
Company; the material violation by the Grantee of written policies of the
Company; the habitual neglect by the Grantee in the performance of his or her
duties to the Company; or the action or inaction in connection with his or her
duties to the Company resulting, in the judgment of the Committee, in a material
injury to the Company.
(f) "Change of Control" means any one or more of the following:
(i) the acquisition or holding by any person, entity or
"group" (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act,
other than by the Company or any employee benefit plan of the Company, of
beneficial ownership (within the meaning of SEC Rule 13d-3 under the 1934 Act)
of 25% or more of the then-outstanding Stock; provided, however, that no Change
of Control shall occur solely by reason of any such acquisition by a corporation
with respect to which, after such acquisition, more than 60% of the
then-outstanding common shares of such corporation are then beneficially owned,
directly or indirectly, by the persons who were the beneficial owners of the
Stock immediately before such acquisition in substantially the same proportions
<PAGE>
as their respective ownership, immediately before such acquisition, of the
then-outstanding Stock; or
(ii) individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided that any individual who becomes a director after
the Effective Date whose election or nomination for election by the stockholders
of LaserSight was approved by at least a majority of the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest (as such
terms are used in SEC Rule 14a-11 under the 1934 Act) relating to the election
of the directors of LaserSight ) shall be deemed to be a member of the Incumbent
Board; or
(iii) approval by the stockholders of LaserSight of (A) a
merger, reorganization or consolidation ("Transaction") with respect to which
persons who were the respective beneficial owners of the Stock immediately
before the Transaction do not, immediately thereafter, beneficially own,
directly or indirectly, more than 60% of the then-outstanding common shares of
the corporation resulting from the Transaction, (B) a liquidation or dissolution
of LaserSight or (C) the sale or other disposition of all or substantially all
of the assets of LaserSight.
Notwithstanding the foregoing, a Change of Control not occur with
respect to any executive officer of the Company who is, by agreement or
understanding (written or otherwise), a participant on his or her own behalf in
a transaction which causes the Change of Control to occur.
(g) "Change of Control Value" means the Fair Market Value of a share of
Stock on the date of a Change of Control.
(h) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations and rulings thereunder. References to a particular section of the
Code include references to successor provisions.
(i) "Committee" means the committee of the Board appointed pursuant to
Section 4(a).
(j) "Company" -- see the introductory paragraph.
(k) "Disability" means, for purposes of the exercise of an incentive
stock option after termination of employment, a disability within the meaning of
Section 22(e)(3) of the Code, and for all other purposes, a mental or physical
condition which, in the judgment of the Committee, renders a Grantee unable to
carry out the job responsibilities which such Grantee held or the tasks to which
such Grantee was assigned at the time the disability was incurred, and which
condition is expected to be permanent or for an indefinite duration exceeding
one year.
(l) "Disqualifying Disposition" -- see Section 6(c)(vi);
(m) "Effective Date" means January 19, 1996;
(n) "Eligible Employee" means any employee (including any officer) or
consultant of the Company;
(o) "Fair Market Value" of an equity security as of any date means:
(i) if the security is listed on a national securities
exchange or The NASDAQ Stock Market, the closing price, regular way, of the
security as reported on the consolidated transaction reporting system applicable
to such security, or if no such reported sale of the security have occurred on
such date, on the next preceding date on which there was such a reported sale,
or
(ii) if the security is not listed on a national securities
exchange or The NASDAQ Stock Market, but is listed on The NASDAQ SmallCap
Market, the average of the closing bid and asked prices, regular way, on The
<PAGE>
NASDAQ SmallCap Market or, if no such prices have been so reported for such
date, on the latest preceding date for which such prices were so reported, or
(iii) if the security is not listed on a national securities
exchange, The NASDAQ Stock Market or The NASDAQ SmallCap Market, the fair market
value of the security as determined in good faith by the Committee by whatever
means or method as it, in the good faith exercise of its discretion, shall at
such time deem appropriate.
(p) "Grant Date" -- see Section 6(a)(i).
(q) "Grantee" means an individual who has been granted an Award.
(r) "Immediate Family" means, with respect to a particular Grantee,
such Grantee's spouse, children and grandchildren.
(s) "including" or "includes" means "including, without limitation," or
"includes, without limitation", respectively.
(t) "LaserSight" -- see the introductory paragraph.
(u) "LSARs" -- see Section 2(a).
(v) "Mature Shares" means shares of Stock for which the holder thereof
has good title, free and clear of all liens and encumbrances, and which such
holder either (i) has held for at least six months or (ii) has purchased on the
open market.
(w) "Minimum Consideration" means $.001 per share of Stock or such
other amount that is from time to time considered to be capital for purposes of
Section 154 of the Delaware General Corporation Law.
(x) "1934 Act" means the Securities Exchange Act of 1934. References to
a particular section of, or rule under, the 1934 Act include references to
successor provisions.
(y) "Option Price" means the per share exercise price of an option.
(z) "Performance Percentage" -- see Section 6(f)(i)(C).
`
(aa) "Performance Period" -- see Section 6(f)(i)(B).
(ab) "Plan" -- see the introductory paragraph.
(ac) "Restricted Shares" means shares of Stock that are that are
nontransferable and subject to forfeiture if the Grantee does not satisfy the
conditions specified in the Award Agreement applicable to such shares. Such
shares shall cease to be Restricted Shares to the extent that such conditions
are satisfied.
(ad) "Retirement" means a termination of employment with the Company
other than for Cause at any time after attaining age 65.
(ae) "Rule 16b-3" means SEC Rule 16b-3 under the 1934 Act, as such
Rule may be amended from time to time.
<PAGE>
(af) "SEC" means the Securities and Exchange Commission.
(ag) "Section 16 Person" means a person who is subject to potential
liability under Section 16(b)of the 1934 Act with respect to transactions in
equity securities of LaserSight.
(ah) "Stock" means the common stock, $.001 par value, of LaserSight.
(ai) "Strike Price" -- see Section 6(d)(ii).
(aj) "Subsidiary" means, for purposes of grants of incentive stock
options, a corporation as defined in Section 424(f) of the Code (with LaserSight
being treated as the employer corporation for purposes of this definition) and,
for all other purposes, a United States or foreign corporation with respect to
which LaserSight owns, directly or indirectly, 50% or more of the
then-outstanding common stock.
(ak) "10% Owner" means a person who owns capital stock (including stock
treated as owned under Section 424(d) of the Code) possessing more than 10% of
the total combined voting power of all classes of capital stock of LaserSight or
any Subsidiary.
(al) "Term" means the period beginning on the Grant Date of an option
or SAR and ending on the expiration date of such option or SAR, as specified in
the applicable Award Agreement and as may, in the discretion of the Committee
and consistently with the provisions of the Plan, be extended at any time or
from time to time prior to the expiration date of such option or SAR then in
effect.
3. Scope of the Plan. The aggregate number of shares of Stock available
under the Plan for grants of Awards (including shares of Stock underlying SARs)
is 1,250,000 shares; provided that no more than 250,000 shares of Stock in the
aggregate are available for the grant of Restricted Shares and Bonus Shares
under the Plan. Shares of Stock awarded under the Plan may be treasury shares or
newly-issued shares. If and to the extent an Award expires or terminates for any
reason without having been exercised in full (including a cancellation and
regrant of an option), or shall be forfeited, the shares of Stock or number of
SARs associated with such Award shall again become available for other Awards.
4. Administration.
(a) Subject to Section 4(b), the Plan shall be administered by a
committee ("Committee") consisting of not less than two directors of LaserSight
who qualify as "outside directors" for purposes of the regulations under Code
Section 162(m) and satisfy the conditions of Rule 16b-3. Membership on the
Committee shall from time to time be increased or decreased and shall be subject
to such conditions, in each case as the Board deems appropriate to permit
transactions in Stock pursuant to the Plan to satisfy such conditions of Rule
16b-3 and Code Section 162(m).
(b) The Board may reserve to itself or delegate to another committee of
the Board any or all of the authority of the Committee with respect to Awards to
Grantees who are not Section 16 Persons at the time any such delegated authority
is exercised. Such other committee may consist of two or more directors who may,
but need not be, officers or employees of the Company. To the extent that the
Board has reserved to itself or delegated to such other committee the authority
of the Committee, all references to the Committee in the Plan shall be to the
Board or such other committee.
(c) Subject to the express provisions of the Plan, the Committee has
full and final authority and discretion as follows:
<PAGE>
(i) to determine the terms and conditions applicable to each
Award, and whether or not specific Awards shall be identified with other
specific Awards, and if so whether they shall be exercisable cumulatively with,
or alternatively to, such other specific Awards;
(ii) to interpret the Plan and to make, amend and rescind all
rules and determinations necessary or advisable for the administration of the
Plan, including rules with respect to the treatment of Awards upon the
termination of employment of a Grantee;
(iii) to determine the provisions of all Award Agreements
(which need not be identical) and, with the consent of the Grantee, to amend any
such Award Agreement at any time; provided that the consent of the Grantee shall
not be required for any amendment which (A) does not adversely affect the rights
of the Grantee, or (B) is necessary or advisable (as determined by the
Committee) to carry out the purpose of the Award as a result of any new or
change in existing applicable law;
(iv) to accelerate the exercisability (including
exercisability within a period of less than one year after the Grant Date) of,
and to accelerate or waive any or all of the terms and conditions applicable to,
any Award or any group of Awards for any reason and at any time, including in
connection with a termination of employment (other than for Cause);
(v) subject to Section 6(a)(ii) and 6(c)(ii), to extend the time during
which any Award or group of Awards may be exercised; and
(vi) to make such adjustments or modifications to Awards to
Grantees working outside the United States as are advisable to fulfill the
purposes of the Plan.
The determination of the Committee on all matters relating to the Plan
or any Award or Award Agreement shall be final. No member of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan or any Award.
5. Eligibility. The Committee may in its discretion grant Awards to any
Eligible Employee, whether or not he or she has previously received an Award.
6. Conditions to Grants.
(a) General Conditions.
(i) The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified in advance by the
Committee.
(ii) Any provision of the Plan to the contrary
notwithstanding, the Term of an Award shall under no circumstances extend more
than 10 years after the Grant Date of such Award, and shall be subject to
earlier termination as herein provided.
(iii) To the extent not set forth in the Plan, the terms and
conditions of each Award shall be set forth in an Award Agreement.
<PAGE>
(b) Grant of Options.
(i) No later than the Grant Date of any option, the Committee
shall determine the Option Price of such option. The Option Price of an option
shall not be less than 100% of the Fair Market Value of the Stock on the Grant
Date. An option shall be exercisable for Stock unless the Award Agreement
provides that it is exercisable for Restricted Shares.
(ii) The Committee may, in its discretion, permit an employee
to elect, before earning compensation, to be granted an Award in lieu of
receiving such compensation; provided that, in the judgment of the Committee,
the value of such Award on the Grant Date equals the amount of compensation
foregone by such employee.
(iii) The number of shares for which options may be granted to
any Grantee in any calendar year shall not exceed 250,000.
(c) Grant of Incentive Stock Options. At the time of the grant of any
option, the Committee may in its discretion designate that such option shall be
made subject to additional restrictions to permit it to qualify as an "incentive
stock option" under the requirements of Section 422 of the Code. Any option
designated as an incentive stock option:
(i) shall, if granted to a 10% Owner, have an Option Price not
less than 110% of the Fair Market Value of the Stock on the Grant Date;
(ii) shall be for a period of not more than 10 years (five
years if the Grantee is a 10% Owner) from the Grant Date, and shall be subject
to earlier termination as provided herein or in the applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value
(determined for each incentive stock option at its Grant Date) of Stock with
respect to which incentive stock options are exercisable for the first time by
such Grantee during any calendar year (under the Plan and any other employee
stock option plan of the Grantee's employer or any parent or Subsidiary thereof
("Other Plans")), determined in accordance with the provisions of Section 422 of
the Code, which exceeds $100,000 (the "$100,000 Limit");
(iv) shall, if the aggregate Fair Market Value of Stock
(determined on the Grant Date) with respect to the portion of such grant which
is exercisable for the first time during any calendar year ("Current Grant") and
all incentive stock options previously granted under the Plan and any Other
Plans which are exercisable for the first time during a calendar year ("Prior
Grants") would exceed the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant which would, when added
to any Prior Grants, be exercisable with respect to Stock which would have an
aggregate Fair Market Value (determined as of the respective Grant Date for such
options) in excess of the $100,000 Limit shall, notwithstanding the terms of the
Current Grant, be exercisable for the first time by the Grantee in the first
subsequent calendar year or years in which it could be exercisable for the first
time by the Grantee when added to all Prior Grants without exceeding the
$100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any
portion of a Current Grant could not be exercised under the preceding provisions
of this Section during any calendar year commencing with the calendar year in
<PAGE>
which it is first exercisable through and including the last calendar year in
which it may by its terms be exercised, such portion of the Current Grant shall
not be an incentive stock option, but shall be exercisable as a separate option
at such date or dates as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier of the
date the Plan is adopted or the date the Plan is approved by the stockholders of
LaserSight;
(vi) shall require the Grantee to notify the Committee of any
disposition of any Stock delivered pursuant to the exercise of the incentive
stock option under the circumstances described in Code Section 421(b) (relating
to certain disqualifying dispositions) (any such circumstance, a "Disqualifying
Disposition"), within 10 days of such Disqualifying Disposition; and
(vii) shall by its terms not be assignable or transferable
other than by will or the laws of descent and distribution and may be exercised,
during the Grantee's lifetime, only by the Grantee; provided, however, that the
Grantee may, to the extent provided in the Plan in any manner specified by the
Committee, designate in writing a beneficiary to exercise his or her incentive
stock option after the Grantee's death;
Notwithstanding the foregoing and Section 4(c)(iii), the Committee
may, without the consent of the Grantee, at any time before the exercise of an
option (whether or not an incentive stock option), take any action necessary to
prevent such option from being treated as an incentive stock option.
(d) Grant of Stock Appreciation Rights.
(i) When granted, SARs may, but need not, be identified with a
specific option, specific Restricted Shares, or specific performance shares of
the Grantee (whether granted on or before the Grant Date of the SARs) in a
number equal to or different from the number of such SARs. If SARs are
identified with an option, Restricted Shares, or performance shares, then,
unless otherwise provided in the applicable Award Agreement, the Grantee's
associated SARs shall terminate upon (x) the expiration, termination, forfeiture
or cancellation of such option, Restricted Shares, or performance shares, (y)
the exercise of such option or performance shares or (z) such Restricted Shares
becoming nonforfeitable.
(ii) The Strike Price of any SAR shall equal, for any SAR that
is identified with an option, the Option Price of such option, or for any other
SAR, 100% of the Fair Market Value of the Stock on the Grant Date of such SAR;
provided that the Committee may (x) specify a higher Strike Price in the Award
Agreement, or (y) provide that the benefit payable upon exercise of any SAR
shall not exceed such percentage of the Fair Market Value of a share of Stock on
such Grant Date as the Committee shall specify.
(e) Grant of LSARs. LSARs may in the discretion of the Committee be
granted to each Grantee upon the grant of any option or SAR under the Plan,
except as otherwise provided by the Committee in such grant. Each LSAR shall be
identified with a share of Stock subject to an option or a SAR of the Grantee.
The number of LSARs granted to a Grantee in respect of an option or SAR shall
equal the number of shares of Stock subject to such option or SAR. The Committee
may also grant an LSAR with respect to any share of Stock subject to an option
or SAR previously granted under this Plan or any other employee benefit plan of
the Company. Upon the exercise, expiration, termination, forfeiture, or
cancellation of a Grantee's option or SARs, as the case may be, the Grantee's
associated LSARs shall automatically terminate.
(f) Grant of Performance Shares.
(i) Before the grant of any performance share, the Committee
shall:
<PAGE>
(A) determine objective performance goals (which may consist
of any one or more of the following: the attainment by a share of Stock of a
specified Fair Market Value for a specified period of time, earnings per share,
return to stockholders (including dividends), return on equity, earnings of the
Company, growth in revenues, market share, cash flow or cost reduction goals, or
any combination of the foregoing) and the amount of compensation under the goals
applicable to such grant;
(B) designate a period, of not less than one year nor more
than seven years, for the measurement of the extent to which performance goals
are attained, which period may begin prior to the Grant Date (the "Performance
Period"); and
(C) assign a "Performance Percentage" to each level of
attainment of performance goals during the Performance Period, with the
percentage applicable to minimum attainment being zero percent (0%) and the
percentage applicable to maximum attainment to be determined by the Committee
from time to time, but not in excess of 150%.
(ii) If a Grantee is promoted, demoted or transferred to a
different business unit of the Company during a Performance Period, then, to the
extent the Committee determines the performance goals or Performance Period are
no longer appropriate, the Committee may adjust, change or eliminate the
performance goals or the applicable Performance Period as it deems appropriate
in order to make them appropriate and comparable to the initial performance
goals or Performance Period.
(iii) When granted, performance shares may, but need not, be
identified with shares of Stock subject to a specific option, specific
Restricted Shares or specific SARs of the Grantee granted under the Plan in a
number equal to or different from the number of the performance shares so
granted. If performance shares are so identified, then, unless otherwise
provided in the applicable Award Agreement, the Grantee's associated performance
shares shall terminate upon (A) the expiration, termination, forfeiture or
cancellation of the option, Restricted Shares or SARs with which the performance
shares are identified, (B) the exercise of such option or SARs or (C) the date
Restricted Shares become nonforfeitable.
(iv) The shares of Stock related to the performance shares
awarded to any Grantee for any Performance Period shall not have a Fair Market
Value in excess of 100% of the Grantee's base annual salary in effect at the
time of the grant of the Award multiplied by the number of years in the
Performance Period.
(g) Grant of Restricted Shares.
(i) The Committee shall in its discretion determine the
amount, if any, that a Grantee shall pay for Restricted Shares, subject to the
following sentence. Except with respect to Restricted Shares that are treasury
shares (for which no payment need be required), the Committee shall require the
Grantee to pay at least the Minimum Consideration for each Restricted Share.
Such payment shall be made in full by the Grantee before the delivery of the
shares and in any event no later than 10 days after the Grant Date for such
shares.
(ii) The Committee shall provide in each Award Agreement
relating to an Award of Restricted Shares (including Restricted Shares acquired
upon exercise of an option) that such Restricted Shares shall be forfeited:
(A) upon the Grantee's termination of employment
(other than under circumstances that may be specified in the Award
Agreement) within a specified time period after the Grant Date,
<PAGE>
(B) if, during Grantee's employment with the Company
and within a time period specified in the Award Agreement, the Company
or the Grantee does not achieve the performance goals specified in the
Award Agreement, or
(C) upon failure to satisfy such other conditions as
the Committee may specify in the Award Agreement.
Unless otherwise expressly provided in an Award Agreement, the Committee may in
its discretion waive any or all of the foregoing provisions in accordance with
Section 4(c)(iv).
(iii) If Restricted Shares are forfeited, then the Grantee
shall be deemed to have resold such Restricted Shares to LaserSight at a price
equal to the lesser of (x) the amount, if any, paid by the Grantee for such
Restricted Shares, or (y) the Fair Market Value of a share of Stock on the date
of such forfeiture. LaserSight shall pay to the Grantee the required amount, if
any, as soon as is administratively practical. Such Restricted Shares shall
cease to be outstanding, and shall no longer confer on the Grantee thereof any
rights as a stockholder of LaserSight, from and after the date the event causing
the forfeiture, whether or not the Grantee accepts LaserSight's tender of
payment for such Restricted Shares.
(iv) Certificates for any Restricted Shares shall bear an
appropriate legend restricting the transfer of such Restricted Shares and, if
the Committee in its discretion so determines, shall be held (together with a
stock power executed in blank by the Grantee) in escrow by the Secretary of
LaserSight until such Restricted Shares become nonforfeitable or are forfeited.
If any Restricted Shares become nonforfeitable, LaserSight shall cause
certificates for such shares to be issued without such legend.
(h) Grant of Stock Bonuses. The Committee may grant Bonus Shares to any
Eligible Employee.
7. Non-transferability. Each Award granted hereunder shall not be
assignable or transferable other than by will or the laws of descent and
distribution and may be exercised, during the Grantee's lifetime, only by the
Grantee or his or her guardian or legal representative, except that, subject to
Section 6(c)(vii) in respect of incentive stock options, a Grantee may in a
manner and to the extent permitted by the Committee (a) designate in writing a
beneficiary to exercise an Award after his or her death (provided, however, that
no such designation shall be effective unless received by the office of the
Company designated for that purpose prior to the Grantee's death) and (b) if the
Award Agreement expressly permits, transfer an Option (other than an incentive
stock option), SAR or LSAR for no consideration to any (i) member of the
Grantee's Immediate Family, (ii) trust solely for the benefit of members of the
Grantee or the Grantee's Immediate Family, (iii) partnership whose only partners
are the Grantee or members of the Grantee's Immediate Family, or (iv) revocable
inter vivos trust of which the Grantee is both the settlor and a trustee;
provided, however, that the transferee shall agree to be subject to all of the
terms and conditions applicable to such Award prior to such transfer.
8. Exercise.
(a) Exercise of Options.
(i) Subject to Section 4(c)(iv) and except as otherwise provided in the
applicable Award Agreement, each option shall become exercisable with respect to
25% of the shares of Stock subject thereto on each of the first four
anniversaries of the Grant Date of such option.
(ii) An option shall be exercised by the delivery to the
Company during the Term of such option of (x) written notice of intent to
purchase a specific number of shares of Stock subject to the option and (y)
payment in full of the Option Price of such specific number of shares of Stock.
<PAGE>
(iii) Payment of the Option Price may be made by any one or
more of the following means: personal check or wire transfer or through
simultaneous sale of shares acquired on exercise of the option through a
broker-dealer acceptable to the Company to whom the Grantee has submitted an
irrevocable notice of exercise, as permitted under Regulation T of the Federal
Reserve Board. In addition, with the prior approval of the Committee, the
following may also be used in payment of the Option Price: Mature Shares or
Restricted Shares held by the Grantee for at least six months prior to the
exercise of the option, each such share valued at the Fair Market Value of a
share of Stock on the date of exercise. The Committee may in its discretion
specify that, if any Restricted Shares ("Tendered Restricted Shares") are used
to pay the Option Price, (x) all the shares of Stock acquired on exercise of the
option shall be subject to the same restrictions as the Tendered Restricted
Shares, determined as of the date of exercise of the option, or (y) a number of
shares of Stock acquired on exercise of the option equal to the number of
Tendered Restricted Shares shall be subject to the same restrictions as the
Tendered Restricted Shares, determined as of the date of exercise of the option.
(b) Exercise of Stock Appreciation Rights.
(i) Subject to Sections 4(c)(iv) and 8(e), and except as otherwise
provided in the applicable Award Agreement, (x) each SAR not identified with any
other Award shall become exercisable with respect to 25% of the shares subject
thereto on each of the first four anniversaries of the Grant Date of such SAR
unless the Committee provides otherwise in the Award Agreement and (y) each SAR
which is identified with any other Award shall become exercisable as and to
extent that the option or Restricted Shares with which such SAR is identified
may be exercised or becomes nonforfeitable, as the case may be.
(ii) SARs shall be exercised by delivery to the Company of
written notice of intent to exercise a specific number of SARs. Unless otherwise
provided in the applicable Award Agreement, the exercise of SARs which are
identified with shares of Stock subject to an option or Restricted Shares shall
result in the cancellation or forfeiture of such option or Restricted Shares, as
the case may be, to the extent of such exercise.
(iii) The benefit for each SAR exercised shall be equal to (x)
the Fair Market Value of a share of Stock on the date of such exercise, minus
(y) the Strike Price of such SAR. Such benefit shall be payable in cash, except
that the Committee may provide in the Award Agreement that benefits may be paid
wholly or partly in Stock.
(c) Exercise of LSARs. Within 10 business days after the exercise of
any LSAR, the Company shall pay the Grantee, in cash, an amount equal to the
difference between (x) the Change of Control Value and (y) in the case of an
LSAR identified with an option, the Option Price of such option, or, in the case
of an LSAR identified with a SAR, the Strike Price of such SAR; provided that
the amount determined under this Section shall not exceed any maximum benefit
provided in the applicable Award Agreement.
(d) Payment of Performance Shares. Unless otherwise provided in the
Award Agreement with respect to an Award of performance shares, if the minimum
performance goals applicable to such performance shares have been achieved
during the applicable Performance Period, then the Company shall pay to the
Grantee of such Award that number of shares of Stock equal to the product of:
(i) the sum of (x) number of performance shares specified in
the applicable Award Agreement and (y) the number of shares of Stock that would
have been issuable if such performance shares had been shares of Stock
outstanding throughout the Performance Period and the stock dividends, cash
dividends (except as otherwise provided in the Award Agreement), and other
property paid in respect of such shares had been reinvested in additional shares
of Stock as of each dividend payment date, multiplied by
<PAGE>
(ii) the Performance Percentage achieved during such
Performance Period.
The Committee may in its discretion determine that cash be paid in lieu of some
or all of such shares of Stock. with each such share to be valued at its Fair
Market Value on the business day next preceding the date on which such cash is
to be paid. Payments pursuant to this Section shall be made as soon as
administratively practical after the end of the applicable Performance Period.
Any performance shares with respect to which the performance goals shall not
have been achieved by the end of the applicable Performance Period shall expire.
(e) Accelerated Vesting Upon Change of Control. In the event of a
Change of Control, all unvested Awards shall immediately become fully
exercisable or payable, as applicable, except as otherwise provided in Section
8(f); provided that the benefit payable with respect to any performance share
with respect to which the Performance Period has not ended as of the date of
such Change of Control shall be equal to the product of the Unit Value
multiplied successively by each of the following:
(i) a fraction, the numerator of which is the number of whole
and partial months that have elapsed between the beginning of such Performance
Period and the date of such Change of Control and the denominator of which is
the number of whole and partial months in the Performance Period; and
(ii) a percentage equal to the greater of (x) the target
percentage, if any, specified in the applicable Award Agreement or (y) the
maximum percentage, if any, that would be earned under the terms of the
applicable Award Agreement assuming that the rate at which the performance goals
have been achieved as of the date of such Change of Control would continue until
the end of the Performance Period.
(f) Pooling Considerations. Any provision of the Plan to the contrary
notwithstanding, if the Committee determines, in its discretion exercised prior
to a sale or merger of the Company that in the Committee's judgment is
reasonably likely to occur, that the exercise of SARs or LSARs would preclude
the use of pooling-of-interests accounting ("pooling") after the consummation of
such sale or merger and that such preclusion of pooling would have a material
adverse effect on such sale or merger, the Committee may either unilaterally
cancel such SARs and LSARs prior to the Change of Control or cause the Company
to pay the benefit attributable to such SARs or LSARs in the form of shares of
Stock if the Committee determines that such payment would not cause the
transaction to become ineligible for pooling.
9. Notification under Section 83(b). If the Grantee, in connection
with the exercise of any option, or the grant of Restricted Shares, makes the
election permitted under Section 83(b) of the Code to include in such Grantee's
gross income in the year of transfer the amounts specified in Section 83(b) of
the Code, then such Grantee shall notify the Company of such election within 10
days of filing the notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to regulations issued
under Section 83(b) of the Code. The Committee may, in connection with the grant
of an Award or at any time thereafter, prohibit a Grantee from making the
election described above.
10. Mandatory Tax Withholding.
(a) Whenever shares of Stock are to be delivered in connection with an
Award, the Company shall be entitled to require (i) that the Grantee remit an
amount sufficient to satisfy all federal, state, and local tax withholding
requirements related thereto ("Required Withholding"), (ii) the withholding of
such Required Withholding from compensation otherwise due to the Grantee or from
any shares of Stock or other payment due to the Grantee under the Plan or (iii)
any combination of the foregoing.
<PAGE>
(b) Any Grantee who makes a Disqualifying Disposition or an election is
made under Section 83(b) of the Code shall remit to the Company an amount
sufficient to satisfy all resulting Required Withholding; provided that, in lieu
of or in addition to the foregoing, the Company shall have the right to withhold
such Required Withholding from compensation otherwise due to the Grantee or from
any shares of Stock or other payment due to the Grantee under the Plan.
11. Elective Share Withholding.
(a) With the Committee's prior approval and subject to the following
subsection, a Grantee may elect the withholding ("Share Withholding") by the
Company of a portion of the shares of Stock otherwise deliverable to such
Grantee in connection with an Award (a "Taxable Event") having a Fair Market
Value equal to (i) the minimum amount necessary to satisfy Required Withholding
liability attributable to the Taxable Event, or (ii) a greater amount, not to
exceed the estimated total amount of such Grantee's tax liability with respect
to the Taxable Event.
(b) Each Share Withholding election shall be subject to the following
conditions: (i) any Grantee's election shall be subject to the Committee's
discretion to revoke the Grantee's right to elect Share Withholding at any time
before the Grantee's election if the Committee has reserved the right to do so
in the Award Agreement; and (ii) the Grantee's election must be made before the
date (the "Tax Date") on which the amount of tax to be withheld is determined;
(iii) the Grantee's election shall be irrevocable.
12. Termination of Employment.
(a) For Cause. If a Grantee's employment is terminated for Cause, (i)
the Grantee's Restricted Shares that are forfeitable shall thereupon be
forfeited; and (ii) any unexercised option, SAR, LSAR, or performance share
shall terminate effective immediately upon such termination of employment.
(b) On Account of Death or Disability. Except as otherwise provided by
the Committee in the Award Agreement, if a Grantee's employment terminates on
account of death or Disability, then:
(i) the Grantee's Restricted Shares that were forfeitable
shall thereupon become nonforfeitable;
(ii) any unexercised option or SAR, whether or not exercisable on the
date of such termination of employment, may be exercised, in whole or in part,
within six months after such termination of employment (but only during the
Option Term) by the Grantee or, after his or her death, by (A) his or her
personal representative or by the person to whom the option or SAR, as
applicable, is transferred by will or the applicable laws of descent and
distribution, (B) the Grantee's beneficiary designated in accordance with
Sections 6(c)(vii) or 7, or (C) the then-acting trustee of the trust described
in Section 7; and
(iii) any unexercised performance share may be exercised in whole or in
part, at any time within 180 days after such termination of employment on
account of death or Disability by the Grantee or, after the Grantee's death, by
(A) his personal representative or by the person to whom the performance share
is transferred by will or the applicable laws of descent and distribution, (B)
the Grantee's beneficiary designated in accordance with Section 7, or (C) the
then-serving trustee of the trust described in Section 7; provided that the
benefit payable with respect to any performance share with respect to which the
Performance Period has not ended as of the date of such termination of
employment on account of death or Disability shall be equal to the product of
the Unit Value multiplied successively by each of the following:
<PAGE>
(1) a fraction, the numerator of which is the number
of months (including as a whole month any partial month) that have
elapsed since the beginning of such Performance Period until the date
of such termination of employment and the denominator of which is the
number of months (including as a whole month any partial month) in the
Performance Period; and
(2) a percentage determined in the discretion of the
Committee that would be earned under the terms of the applicable Award
Agreement assuming that the rate at which the performance goals have
been achieved as of the date of such termination of employment would
continue until the end of the Performance Period, or, if the Committee
elects to compute the benefit after the end of the Performance Period,
the Performance Percentage, as determined by the Committee, attained
during the Performance Period for the performance share.
(c) On Account of Retirement. Except as otherwise provided by the
Committee in the Award Agreement, if a Grantee has a termination of employment
on account of Retirement, any unexercised option, whether or not exercisable on
the date of such termination of employment, may be exercised, in whole or in
part, at any time within one year after such Retirement (but only during the
Option Term).
(d) Any Other Reason. Except as otherwise provided by the Committee in
the Award Agreement, if a Grantee's employment terminates for any reason other
than for Cause, Retirement, death, or Disability, then:
(i) the Grantee's Restricted Shares (and any SARs identified
therewith), to the extent forfeitable on the date of the Grantee's termination
of employment), shall be forfeited on such date;
(ii) any unexercised option or SAR (other than a SAR
identified with a Restricted Share or performance share), to the extent
exercisable immediately before the Grantee's termination of employment,
Grantee's termination of employment) may be exercised in whole or in part, not
later than the 30th day after such termination of employment (but only during
the Option Term); and
(iii) the Grantee's performance shares (and any SARs
identified therewith) shall become non-forfeitable and may be exercised in whole
or in part, but only if and to the extent determined by the Committee.
(e) Extended Exercisability. If the Grantee has entered into an
agreement with the Company not to sell any shares of Stock (or the capital stock
of a successor to the Company) for a specified period after the consummation of
a business combination between the Company and another corporation or entity
(the "Specified Period"), such option may be exercised in whole or in part until
the later of the end of the post-termination period specified in subparagraph
(b), (c) or (d) of this Section, as applicable, or 10 business days after the
end of the Specified Period.
(f) Extension of Term. In the event of a termination of the Grantee's
employment other than for Cause, the term of any Award (whether or not
exercisable immediately before such termination) which would otherwise expire
after the Grantee's termination of employment but before the end of the period
following such termination of employment described in subparagraphs (b), (c),
and (d) of this Section may, in the Committee's discretion, be extended so as to
permit any unexercised portion thereof to be exercised at any time within such
period. The Committee may further extend the period of exercisability to permit
any unexercised portion thereof to be exercised within a specified period
provided by the Committee. In no event shall the Term of any Award be extended
beyond the 10th anniversary of such Award.
13. Plans of Foreign Subsidiaries. The Committee may authorize any
foreign Subsidiary to adopt a plan for granting Awards ("Foreign Plan"). All
Awards granted under such Foreign Plan shall be treated as grants under the
<PAGE>
Plan. Such Foreign Plans shall have such provisions as the Committee permits not
inconsistent with the provisions of the Plan. Awards granted under a Foreign
Equity Incentive Plans shall be governed by the terms of the Plan, except to the
extent that the provisions of the Foreign Plan are more restrictive than the
provisions of the Plan, in which case the Foreign Plan shall control.
14. Substituted Awards. If the Committee cancels any Award (whether
granted under this Plan or any plan of any entity acquired by the Company) with
the consent of the applicable Grantee or other holder thereof, the Committee may
in its discretion substitute a new Award therefor upon such terms and conditions
consistent with the Plan as the Committee may determine; provided, that (a) the
Grant Date of the new Award shall be the date on which such new Award is
granted; and (b) the Option Price of any new option, and the Strike Price of any
new SAR, shall not be less than 100% (110% for an incentive stock option granted
to a 10% Owner) of the Fair Market Value of a share of Stock on the Grant Date
of the new Award.
15. Securities Law Matters. If the Committee deems necessary to comply
with applicable securities law, the Committee may require a written investment
intent representation by the Grantee and may require that a restrictive legend
be affixed to certificates for shares of Stock. If, based upon the advice of
counsel to the Company, the Committee determines that the exercise or
nonforfeitability of, or delivery of benefits pursuant to, any Award would
violate any applicable provision of (i) federal or state securities laws or (ii)
the listing requirements of any national securities exchange or national market
system on which are listed any of the Company's equity securities, then the
Committee may postpone any such exercise, nonforfeitability or delivery, as
applicable, but the Company shall use commercially reasonable efforts to cause
such exercise, nonforfeitability or delivery to comply with all such provisions
at the earliest practicable date.
16. No Employment Rights. Neither the establishment of the Plan nor the
grant of any Award shall (a) give any Grantee the right to remain employed by
the Company or to any benefits not specifically provided by the Plan or (b)
modify the right of the Company to modify, amend, or terminate any employee
benefit plan.
17. No Rights as a Stockholder. A Grantee shall not have any rights as
a stockholder of LaserSight with respect to the shares of Stock (other than
Restricted Shares) which may be deliverable upon exercise or payment of such
Award until such shares have been delivered to him. Restricted Shares, whether
held by a Grantee or in escrow by the Secretary of LaserSight, shall confer on
the Grantee all rights of a stockholder of LaserSight, except as otherwise
provided in the Plan. At the time of a grant of Restricted Shares, the Committee
may in its discretion require that cash dividends thereon be deferred (with or
without interest) or the reinvested in additional Restricted Shares. Stock
dividends and deferred or reinvested cash dividends issued with respect to
Restricted Shares shall be subject to the same restrictions and other terms as
apply to the Restricted Shares with respect to which such dividends are issued.
18. Nature of Payments. Awards shall be special incentive payments to
the Grantee and shall not be taken into account in computing the amount of
salary or compensation of the Grantee for purposes of determining any pension,
retirement, death or other benefit under (a) any pension, retirement,
profit-sharing, bonus, insurance or other employee benefit plan of the Company
or (b) any agreement between the Company and the Grantee, except as such plan or
agreement shall otherwise expressly provide.
19. Non-Uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made selectively among persons who
receive, or are eligible to receive, Awards, whether or not such persons are
similarly situated. Without limiting the generality of the foregoing, the
Committee shall be entitled to enter into Award Agreements that are non-uniform
and selective as to (a) the identity of the Grantees, (b) the terms and
provisions of Awards, and (c) the treatment of terminations of employment.
<PAGE>
20. Adjustments. The Committee shall make equitable adjustment of (i)
the aggregate numbers of shares of Stock available under the Plan for Awards in
general and for the grant of incentive stock options, Restricted Shares and
Bonus Shares, (ii) the number of shares of Stock, SARs, or performance shares
covered by an Award, and (iii) the Option Price of all outstanding options and
the Strike Price of all outstanding SARs, to reflect a stock dividend, stock
split, reverse stock split, share combination, recapitalization, merger,
consolidation, spin-off, split-off, reorganization, rights offering, liquidation
or similar event, of or by the Company.
21. Amendments.
(a) The Board may from time to time in its discretion amend the Plan
without the approval of the stockholders of LaserSight, except as such
stockholder approval may be required under the listing requirements of any
securities exchange or national market system on which are listed equity
securities of LaserSight.
(b) Notwithstanding any provision in this Plan or any Award Agreement,
in the event of a Change in Control within the meaning of Section 2(f)(iii) in
connection with which the holders of Stock receive shares of common stock of the
surviving or successor corporation that are registered under Section 12 of the
1934 Act, there shall be substituted for each option and SAR outstanding on the
date of the consummation of corporate transaction relating to such Change of
Control, a new option or SAR, as the case may be, reflecting the number and
class of shares into which each outstanding share of Stock shall be converted
pursuant to such Change in Control and providing each Grantee with rights that
are substantially identical to those under this Plan in all material respects.
In the event of any such substitution, the purchase price per share in the case
of an option and the Strike Price in the case of an SAR shall be appropriately
adjusted by the Committee, such adjustments to be made in the case of
outstanding options and SARs without a change in the aggregate purchase price or
Strike Price.
22. Termination of the Plan. The Plan shall terminate on the tenth
(10th) anniversary of the Effective Date or at such earlier time as the Board
may determine. No termination shall affect any Award then outstanding under the
Plan.
23. No Illegal Transactions. The Plan and all Awards are subject to all
applicable laws and regulations. Notwithstanding any provision of the Plan or
any Award, Grantees shall not be entitled to exercise, or receive benefits
under, any Award, and the Company shall not be obligated to deliver any Stock or
other benefits to a Grantee, if such exercise or delivery would constitute a
violation by the Grantee or the Company of any applicable law or regulation.
24. Controlling Law. The law of Delaware, except its law with respect
to choice of law, shall control all matters relating to the Plan.
25. Severability. If any part of the Plan is declared to be unlawful or
invalid, such unlawfulness or invalidity shall not invalidate any other part of
the Plan. Any Section or part of a Section so declared to be unlawful or invalid
shall, if possible, be construed in a manner which gives effect to the terms of
such Section or part of a Section to the fullest extent possible while remaining
lawful and valid.
<TABLE>
EXHIBIT 11
LASERSIGHT INCORPORATED
COMPUTATION OF PER SHARE EARNINGS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------- --- ------------ ----------- -- ------------
1998 1997 1998 1997
------------- ------------ ----------- ------------
BASIC
<S> <C> <C> <C> <C>
Weighted average shares outstanding 12,626,000 9,381,000 11,478,000 9,103,000
============== ============= ============ =============
Net loss $(1,750,873) (2,442,510) (3,714,380) 3,090,532)
Conversion discount preferred stock (833,500) 0 (858,872) 0
Preferred stock accretion and dividend requirements (1,653,832) (3,487) (2,751,953) (13,350)
Loss attributable to common shareholders -------------- ------------- ------------ -------------
$(4,238,205) (2,445,997) (7,325,205) (3,103,882)
============== ============= ============ =============
Basic loss per share $(0.34) (0.26) (0.64) (0.34)
============== ============= ============ =============
DILUTED
Weighted average shares outstanding 12,626,000 9,381,000 11,478,000 9,103,000
============== ============= ============ =============
Net loss (1,750,873) (2,442,510) (3,714,380) (3,090,532)
Conversion discount on preferred stock (833,500) 0 (858,872) 0
Preferred stock accretion and dividend requirements (1,653,832) (3,487) (2,751,953) (13,350)
-------------- ------------- ------------ --------------
Loss attributable to common shareholders $(4,238,205) (2,445,997) (7,325,205) (3,103,882)
============== ============= ============ =============
Diluted loss per share $(0.34) (0.26) (0.64) (0.34)
============== ============= ============ =============
Additional Diluted Calculation:
Loss attributable to common shareholders, above $(4,238,205) (2,445,997) (7,325,205) (3,103,882)
============== ============= ============ =============
Additional adjustment to weighted average number of
shares:
Weighted average number of shares as adjusted per
above 12,626,000 9,381,000 11,478,000 9,103,000
Dilutive effect of contingently issuable shares, stock
options and convertible preferred stock 1,345,000 164,000 739,000 166,000
-------------- ------------- ------------ -------------
Weighted average number of shares, as adjusted 13,971,000 9,545,000 12,217,000 9,269,000
============== ============= ============ =============
Diluted loss per share, adjusted $(0.30) (0.26) (0.60) (0.33)
============== ============= ============ =============
(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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,444,856
<SECURITIES> 0
<RECEIVABLES> 15,297,820
<ALLOWANCES> 2,162,000
<INVENTORY> 5,965,282
<CURRENT-ASSETS> 30,077,803
<PP&E> 2,717,474
<DEPRECIATION> 1,254,432
<TOTAL-ASSETS> 49,907,419
<CURRENT-LIABILITIES> 6,947,969
<BONDS> 0
0
4,000
<COMMON> 12,868
<OTHER-SE> 40,576,119
<TOTAL-LIABILITY-AND-EQUITY> 49,907,419
<SALES> 8,826,002
<TOTAL-REVENUES> 9,192,999
<CGS> 2,889,621
<TOTAL-COSTS> 3,050,748
<OTHER-EXPENSES> 9,463,292
<LOSS-PROVISION> 30,535
<INTEREST-EXPENSE> 720,541
<INCOME-PRETAX> (3,482,167)
<INCOME-TAX> 232,213
<INCOME-CONTINUING> (3,714,380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,714,380)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
