Filed pursuant to Rule 424(b)(3)
File No. 333-25237
PROSPECTUS SUPPLEMENT NO. 5 Dated January 28, 1998
(To Prospectus dated May 20, 1997)
82,593 Shares
LASERSIGHT INCORPORATED
Common Stock ($.001 par value)
This Prospectus Supplement updates the Prospectus dated May 20, 1997
("Prospectus") of LaserSight Incorporated, a Delaware corporation (the
"Company") and replaces previous supplements.
All of the text under the caption "The Company" should be replaced with the
following:
LaserSight Incorporated and its subsidiaries operate in two major operating
segments: technology and health care services.
The Company's technology segment includes LaserSight Technologies, Inc.
("LaserSight Technologies"), LaserSight Patents, Inc. ("LaserSight Patents") and
LaserSight Centers Incorporated ("LaserSight Centers"). LaserSight Technologies
develops, manufactures and markets ophthalmic lasers with a galvanometric
scanning system primarily for use in performing PRK (photorefractive
keratectomy) which utilizes a one millimeter scanning laser beam to ablate
microscopic layers of corneal tissue in order to reshape the cornea and to
correct the eye's point of focus in persons with myopia (nearsightedness),
hyperopia (farsightedness) and astigmatism. LaserSight Patents licenses various
patents related to the use of excimer lasers to ablate biological tissue and to
keratome design and usage. LaserSight Centers is a developmental-stage company
through which the Company may provide PRK, LASIK (Laser In Situ Keratomileusis)
and other eyecare surgical services.
Since December 31, 1997, the health care services segment has consisted of MRF,
Inc. ("MRF" or "The Farris Group"). The Farris Group provides health care and
vision care consulting services to hospitals, managed care companies and
physicians. Until that date, this segment had also included MEC Health Care,
Inc. ("MEC") and LSI Acquisition, Inc. ("LSIA"). See "Recent Developments--Sale
of MEC and LSIA." Under the Company's ownership, MEC was a vision managed care
company which managed vision care programs for health maintenance organizations
(HMOs) and other insured enrollees and LSIA was a physician practice management
company which managed the ophthalmic practice known as the "Northern New Jersey
Eye Institute" under a management services agreement.
The Company was incorporated in Delaware in 1987, but was inactive until 1991.
In April 1993, the Company acquired LaserSight Centers in a stock-for-stock
exchange with additional shares issued in March 1997 pursuant to an amended
purchase agreement. In February 1994, the Company acquired MRF, Inc. In July
1994, the Company was reorganized as a holding company. In October 1995, the
Company acquired MEC. In July 1996, the Company's LSIA subsidiary acquired the
assets of the Northern New Jersey Eye Institute. On December 30, 1997, the
Company sold MEC and LSIA, effective as of December 1, 1997. See "Recent
Developments--Sale of MEC and LSIA."
As used herein, the term the "Company" refers to LaserSight Incorporated and its
subsidiaries, unless the context otherwise requires. The Company's principal
office and mailing address are 12161 Lackland Road, St. Louis, Missouri 63146,
and its telephone number is (314) 469-3220.
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All of the text under the caption "The Offering" remains unchanged except
those items presented below:
Common Stock outstanding as of January 27, 1998 9,984,672 shares
All of the text under the caption "Risk Factors" should be replaced with
the following:
The Shares offered hereby involve a high degree of risk. In addition, this
Prospectus contains forward-looking statements (within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act) which involve
risks and uncertainties. The following risk factors could affect the Company's
actual results and could cause the Company's actual results to differ in
material respects from the results discussed in any forward-looking statements
made in this Prospectus and the documents incorporated by reference herein. In
addition to the other information contained elsewhere or incorporated by
reference in this Prospectus, purchasers of the Shares should carefully consider
the following risk factors:
Potential Obligation to Redeem Preferred Stock if Stockholder Approvals Not
Obtained. Effective after February 28, 1998, any holder of the Company's Series
B Convertible Participating Preferred Stock, $.001 par value (the "Series B
Preferred Stock") can require the Company to redeem a portion of such holder's
Series B Preferred Stock for cash in an amount per share equal to the Special
Redemption Price (as defined below) if the Company's shareholders have not on or
before such date approved both the possible issuance of an indefinite number of
shares of Common Stock upon the conversion of the Company's Series B Preferred
Stock (such shares of Common Stock, the "Series B Conversion Shares") and the
amendment of the Company's certificate of incorporation to increase the number
of shares of Common Stock that the Company is authorized to issue. (The
shareholder approval deadline had originally been December 26, 1997, but was
extended by all of the holders of Series B Preferred Stock. There can be no
assurance as to whether or on what terms the Company could obtain another
extension of this deadline.) For this purpose, the Special Redemption Price
would equal the liquidation preference of $10,000 per share multiplied by the
greater of (i) 1.25 or (ii) a fraction, the numerator of which would equal the
highest closing bid price of the Common Stock during the period beginning 10
trading days before the redemption date and ending five business days after such
date, and the denominator of which would equal the Conversion Price (as herein
defined) that would have been applicable if the preferred shares had been
converted as of the redemption date. See "Description of Securities--Preferred
Stock." The fraction described in the preceding sentence will depend on market
prices of the Common Stock and could significantly exceed 1.25.
If shares of the Series B Preferred Stock were to become redeemable because the
required shareholder approvals had not been obtained and the preferred holders
were to demand the redemption of such shares to the maximum extent possible, the
Company's estimated redemption obligation would equal at least $15.5 million
(including a premium of 25% or approximately $3.1 million), based on the average
of the three lowest closing bid prices of the Common Stock during the 20-trading
day period preceding January 26, 1998 ($2.677083). The Special Redemption Price
would be greater to the extent that (x) the highest closing bid price of the
Common Stock during the period beginning 10 trading days before the redemption
date and ending five business days after such date is more than 25% greater than
the Conversion Price that would have been applicable if the preferred shares had
been converted instead of redeemed (in which case the Special Redemption Price
would be determined pursuant to clause (ii) of the next-to-last sentence of the
preceding paragraph), or (y) the required redemption were to occur more than
five business days after the Company's receipt of a conversion demand (in which
case interest would begin to accrue on the redemption amount at an annual rate
equal to the prime rate plus 5%). The Company does not have the financial
resources to pay a redemption price of $15.5 million, even after giving effect
to the anticipated closing of its patent transaction with Nidek Co., Ltd. See
<PAGE>
"Recent Developments--Nidek Patent Transactions." In addition, a required
redemption of any shares of Series B Preferred Stock would cause a default under
the Company's credit facility with Foothill Capital Corporation, the Company's
secured lender ("Foothill"), that would result entitle Foothill to accelerate
the otherwise-applicable maturity date (June 15, 1998) of the Company's
indebtedness to Foothill.
Obligation to Redeem Preferred Stock if Series B Conversion Shares and Series B
Warrant Shares Not Registered for Resale. Any holder of Series B Preferred Stock
could require the redemption of all or a portion of its shares for cash at the
Special Redemption Price under either of the following circumstances:
* If the Company fails for any reason to maintain the effectiveness of
its registration statement under the Securities Act relating to the
resale of the Series B Conversion Shares and the Common Stock issuable
upon the exercise of warrants (such shares, the "Series B Warrant
Shares") issued in connection with the Company's private placement of
the Series B Preferred Stock in August 1997 (the "Series B Warrants")
by the holders thereof; or
* If the Company becomes required to register additional Series B
Conversion Shares under the Securities Act, but for any reason fails to
have a registration statement relating to such shares declared
effective by the SEC within 30 days after such requirement first
arises.
Potentially Unlimited Number of Series B Conversion Shares Issuable. There is no
limit on the number of shares of Common Stock issuable in connection with the
conversions of Series B Preferred Stock, subject only to the satisfaction of
certain shareholder approval requirements. The number of Series B Conversion
Shares so issuable will increase in the event of a decline in the market price
of the Common Stock. The table below illustrates how changes in the market price
of the Common Stock could effect the number of Series B Conversion Shares
issuable:
Assumed Number of As % of Common Shares
Conversion Series B Conversion Assumed Outstanding
Price (1) Shares Issuable After Conversion (2)
--------- --------------- --------------------
$0.50 25,900,000 72.2%
$1.00 12,950,000 56.5%
$2.00 6,475,000 39.3%
$2.68 (3) 4,837,354 32.6%
$3.00 4,316,666 30.2%
$4.00 3,237,500 24.5%
$5.00 2,590,000 20.6%
$6.00 2,158,333 17.8%
$6.68 (4) 1,938,622 16.3%
(1) Equals the lesser of (A) $6.68 or (B) the average of the three lowest
closing bid prices of the Common Stock during the 20 trading days (30
trading days after February 25, 1998 under certain conditions)
immediately preceding the applicable conversion date. See "Description
of Securities--Preferred Stock."
(2) Assumes that the number of shares of Common Stock outstanding at the
time of conversion equals the 9,984,672 shares outstanding on January
26, 1998 plus the number of shares issued in connection with such
conversion. Also assumes that all Series B Preferred Stock is converted
at the Conversion Price indicated.
<PAGE>
(3) Equals the Conversion Price that would have been applicable if all
1,295 shares of the Series B Preferred Stock outstanding on January 26,
1998 had been converted as of such date.
(4) The maximum Conversion Price. See "Description of Securities Preferred
Stock."
Shares Eligible For Future Sale. Except as provided below, substantially all of
the Company's outstanding Common Stock (9,984,672 shares as of January 27, 1998)
is freely tradeable 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.
* Any of the Shares offered for sale by this Prospectus are freely
tradeable if sold pursuant to this Prospectus.
* An aggregate of 1,995,534 Series B Conversion Shares and Series B
Warrant Shares will be freely tradeable following their issuance and
their sale pursuant to the prospectus included in the Company's
registration statement that was declared effective on January 26, 1998.
Additional Series B Conversion Shares and Series B Warrant Shares may
become freely tradeable if the Company's stockholders approve certain
proposals to be presented at a special meeting of the Company's
shareholders on February 27, 1998. If, as of January 26, 1998, such
approvals had been obtained and all of the outstanding Series B
Preferred Stock and Series B Warrants had been converted or exercised
(as applicable) as of such date, an additional 3,631,820 shares of
Common Stock would have been issuable and eligible for sale pursuant to
such prospectus. The actual number of such additional shares will
depend on future events, especially the market prices of the Common
Stock and the timing of the conversion decisions of the holders of
Series B Preferred Stock, and will increase if the market price of the
Common Stock decreases relative to its level during the 20- (or under
certain circumstances 30-) trading day period immediately prior to
January 27, 1998 and will decrease if the market price of the Common
Stock increases relative to its level during such period (but only up
to $6.68 per share).
* The 625,000 shares issued in March 1997 to the former shareholders and
option holders of LaserSight Centers (the "Centers Shares") are
expected to become eligible for sale in the public market on or after
March 14, 1998 in accordance with the requirements of Rule 144.
* 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--NNJEI;
--LaserSight Centers; --Florida Laser Partners; --The Farris Group."
Sales, or the possibility of sales, of the Shares, Series B Conversion Shares,
Series B Warrant Shares, Centers Shares, NNJEI 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 $4.1 million and $5.5 million during 1996 and the first nine months of 1997,
respectively. During such 1996 and 1997 periods, the Company had a deficit in
cash flow from operations of $4.2 million and $3.0 million, respectively.
Although the Company achieved profitability during 1995 and 1994, it had a
<PAGE>
deficit in cash flow from operations of $1.9 million during 1995. In addition,
the Company incurred losses in 1991 through 1993. As of September 30, 1997, the
Company had an accumulated deficit of $10.1 million. The Company expects to
report a loss and a deficit in cash flow from operations for the fourth quarter
of 1997. Under the terms of the Company's sale of its MEC and LSIA subsidiaries
on December 30, 1997, the operating income of such subsidiaries ceased to be for
the account of the Company effective after November 30, 1997. As a result, the
Company's loss and deficit in cash flow from operations for the fourth quarter
of 1997 have been, and its 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 September 30, 1997, the
Company's trade accounts and notes receivable aggregated approximately
$11,090,000, net of total allowances for collection losses and returns of
approximately $1,650,500. Accrued commissions, the payment of which generally
depends on the collection of such net trade accounts and notes receivable,
aggregated approximately $1,551,000 at September 30, 1997. At December 31, 1996,
the Company had restructured laser customer accounts in the aggregate amount of
approximately $1,785,000 (14.5% 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.
Exposure to collection losses on technology-related receivables is principally
dependent on the Company's customers ongoing financial condition and their
ability to generate revenues from the Company's laser systems. Approximately 87%
of net receivables at September 30, 1997 relate to international accounts. The
Company expects this percentage to increase in future periods as a result of the
Company's recent sale of its MEC and LSIA subsidiaries (substantially all of
whose receivables related to U.S. accounts). See "Recent Developments--Sale of
MEC and LSIA." The Company's ability to evaluate the financial condition and
revenue generating ability of its prospective customers located outside of the
United States is generally more limited than for customers located in the United
States. 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 ($1,393,000 at September 30, 1997) will
be sufficient to cover actual write-offs over time. Actual write-offs that
materially exceed amounts reserved could have a material adverse effect on the
Company's consolidated financial condition and results of operations.
Potential Liquidity Problems. During the quarter ended September 30, 1997, the
Company experienced a $2.2 million deficit in cash flow from operations (73% of
the year-to-date deficit), largely resulting from the low level of laser system
sales and the increase in the Company's research, development and regulatory
expenses. During the quarter, the Company also experienced significant decreases
in the amount of working capital (from $6.4 million to $4.5 million) and cash
and cash equivalents (from $3.1 million to $1.2 million). As of December 31,
1997, the Company's cash and cash equivalents amounted to approximately $3.8
million. Although the Company believes, based on preliminary estimates, that its
cash flow from operations for the fourth quarter of 1997 improved somewhat
relative to the level for the third quarter of 1997 and expects such improvement
to continue in the first quarter of 1998, the Company expects to continue to
incur deficits in operating cash flow during such quarters. The Company expects
that any such improvements in cash flow from operations will depend on, among
other things, the Company's ability to market, produce and sell its new
LaserScan LSX laser systems and its A.D.K (Automated Disposable Keratome)
product on a commercial basis. See "--New Products" and "--Minimum Payments
Under A.D.K License Agreement" below. As of December 31, 1997, the LSX laser
system had not made any significant contribution to the Company's revenue.
Although the Company had targeted the first A.D.K shipments by the end of
January, the Company now expects to begin to ship the A.D.K on a commercial
basis in February, 1998. Subject to these factors, the Company believes that its
balances of cash and cash equivalents, together with expected operating cash
flows and the availability of up to $2.0 million under its revolving credit
<PAGE>
facility with Foothill will be sufficient to fund its anticipated working
capital requirements for the next six months based on modest growth and
anticipated collection of receivables. However, if the Company does not collect
timely a material portion of current receivables, experiences significant
further delays in the shipment of its LaserScan LSX or A.D.K or 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 or the repayment on or
before June 15, 1998 of any amounts borrowed under the Company's
revolving credit facility with Foothill to finance such negative cash
flow.
o The amount of approximately $388,000 paid or payable to the holders of
the Series B Preferred Stock as a result of the delay in the completion
of registration of the Series B Conversion Shares and the Series B
Warrant Shares under the Securities Act after the November 27, 1997
deadline specified in an agreement between the Company and such
holders.
o Certain cash payment obligations under the Company's LASIK Pre-Market
Approval ("PMA") application acquisition agreement of July 1997 with
Photomed, Inc. ("Photomed"). (Such cash payment obligations include (i)
$1.75 million payable if the FDA approves the LASIK PMA application for
commercial sale before July 29, 1998 and (ii) if the FDA approves the
Company's scanning laser for commercial sale in the U.S. before January
1, 1999, $3,663 for each day (or approximately $110,000 for each month)
between the date of such approval and January 1, 1999, subject to a
maximum of $1.0 million.)
o Additional working capital necessary to develop a production line a
LASIK laser system and to obtain the GMP (Good Manufacturing Practice)
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 the earliest these expenses might
occur is the second half of 1998.)
In addition, the Company may seek alternative sources of capital to fund its
product development activities and to consummate future strategic acquisitions.
Except for additional borrowing available (as of December 31, 1997, up to $2.0
million) under its revolving credit facility with Foothill through June 15, 1998
and an aggregate of approximately $6.5 million (subject to certain post-closing
adjustments) scheduled to be received in increasing monthly installments from
February through May of 1998 from the sale or redemption of shares of the common
stock of Vision Twenty-One, Inc. ("Vision 21") received by the Company in
connection with its December 1997 sale of MEC and LSIA (see "Recent
Developments--Sale of MEC and LSIA"), the Company has no commitments or
proposals 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. On December 30, 1997, the Company and Foothill amended the Foothill
loan facility (i) to make the term loan ($2.0 million at December 31, 1997)
payable in full on June 15, 1998 (rather than in monthly installments of $1.33
million beginning on May 1, 1998) and (b) to make availability of all borrowings
under the revolving loan facility terminate on June 15, 1998 (rather than
declining by $1.33 million per month beginning on August 1, 1998).
<PAGE>
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 were again to sell additional
preferred stock with a conversion price linked to the market price of the Common
Stock at the time of conversion (as is the case with the Series B Preferred
Stock). The Foothill financing or other debt financing could result in a
substantial portion of the Company's cash flow from operations being dedicated
to the payment of principal and interest on such indebtedness and may render the
Company more vulnerable to competitive pressures and economic downturns.
Adverse Consequences if Company Cannot Receive Agreed-Upon Value of Its Vision
21 Shares. As described in more detail under "Recent Developments--Sale of MEC
and LSIA," Vision 21 has agreed to pay to the Company on May 29, 1998 an amount
equal to the amount (the "Shortfall Payment"), if any, by which the gross
proceeds of sales of shares of Vision 21 stock received by the Company in
connection with its sale of MEC and LSIA fall short of $6.5 million (subject to
certain post-closing adjustments). Both the value of the Vision 21 Shares and
the ability of Vision 21 to make the Shortfall Payment (if any is required) is
subject to risks, including without limitation the risks disclosed in Vision
21's filings with the SEC. Such filings are available from the sources described
under "Available Information" below. The Company takes no responsibility for any
information included in or omitted from any SEC filing by Vision 21. Such
filings are not part of this Prospectus and are not incorporated by reference
herein. To the extent that the liquidation of the Company's Vision 21 stock does
not occur according to the schedule specified in the Company's agreement with
Vision 21, or any required Shortfall Payment is not paid when due, the Company's
liquidity and financial condition may be materially adversely affected.
Possible Dilutive Issuance of Common Stock--LaserSight Centers. The Company has
agreed, based on a previously-reported acquisition agreement (the "Centers
Agreement") entered into in 1993 and modified in July 1995 and March 1997, to
issue to the former shareholders and option holders (including two trusts
related to the Chairman of the Board of the Company and certain former officers
and directors of the Company) of LaserSight Centers, the Company's
development-stage subsidiary, up to 600,000 unregistered shares of Common Stock
(the "Centers Contingent Shares") based on the Company's future pre-tax
operating income through March 2002 from performing PRK, PTK or other refractive
laser surgical procedures. The Centers Contingent Shares are to be issued at the
rate of one share per $4.00 of such operating income. As of December 31, 1997,
the Company had not accrued any amount of such pre-tax operating income. There
can be no assurance that any issuance of Centers Contingent 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. 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.
Possible Dilutive Issuance of Common Stock--Florida Laser Partners. Based on a
previously-reported royalty agreement entered into in 1993 and modified in July
1995 and March 1997, the Company is obligated to pay to a partnership whose
partners include the Chairman of the Board of the Company and certain former
officers and directors of the Company a royalty of up to $43 (payable in cash or
shares of Common Stock based on its then-current market value (the "Royalty
Shares")), for each eye on which laser refractive optical surgical procedure is
conducted on an excimer laser system owned or operated by LaserSight Centers or
its affiliates. No such payment obligation had arisen as of December 31, 1997
because royalties do not begin to accrue until the earlier of March 2002 or the
delivery of an additional 600,000 Centers Contingent Shares (none of which had
accrued as of such date). There can be no assurance that any issuance of Royalty
Shares will be accompanied by an increase in the Company's per share operating
results. It may be in the interest of the Chairman of the Board for the Company
to pursue business strategies that maximize the issuance of Royalty Shares.
<PAGE>
Possible Dilutive Issuance of Common Stock--The Farris Group. To the extent that
an earnout provision relating to the Company's acquisition of The Farris Group
in 1994 is satisfied based on certain annual pre-tax income targets through
December 31, 1998, the Company would be required to issue to the former owner of
such company (Mr. Michael R. Farris, the President and Chief Executive Officer
of the Company) up to 750,000 shares of Common Stock (collectively, "Farris
Contingent Shares"). To date, 406,700 Farris Contingent Shares have been issued
based on the operating results of the Farris Group through December 31, 1995. As
a result of the losses The Farris Group incurred during 1996 and 1997, no Farris
Contingent Shares became issuable for 1996 or 1997. If additional Farris
Contingent Shares become issuable, goodwill and the resulting amortization
expense will increase. There can be no assurance that any issuance of Farris
Contingent Shares will be accompanied by an increase in the Company's per share
operating results.
Possible Dilutive Issuance of Common Stock--Photomed. In connection with its
acquisition in July 1997 of the rights to the PMA application filed with the FDA
for a LASIK laser, the Company issued 535,515 shares of Common Stock. The
Company also agreed that, if the FDA approves a LaserSight-manufactured laser
system for general commercial use in the treatment of hyperopia (farsightedness)
after having approved the Company's LASIK PMA application for commercial sale,
then 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). If such market value had been
computed as of January 23, 1998, the number of additional shares issuable would
have been approximately 350,000. 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 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--NNJEI. In connection with the
acquisition of the assets of the Northern New Jersey Eye Institute ("NNJEI") by
the Company's LSIA subsidiary in July 1996, the Company agreed to issue up to
102,798 additional shares of Common Stock if average closing price of the Common
Stock during the 10-day period immediately preceding July 15, 1998 is less than
$15 per share. All 102,798 shares will be issuable unless such average closing
price is more than $10 per share. The Company's recent sale of LSIA (see "Recent
Developments--Sale of MEC and LSIA") does not affect this contingent obligation.
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 which would require the Company to issue additional
shares of its Common Stock 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 shareholders of the Company will incur additional
dilution of their ownership interest in the event of a decline in the price of
the Common Stock. 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 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.
<PAGE>
Risks Associated with Past and Possible Future Acquisitions. The Company has
made several significant acquisitions since 1994, including MRF in 1994,
Photomed in 1997, and its acquisition of certain laser patents (the "IBM
Patents") from International Business Machines Corporation ("IBM") in August
1997. 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
September 30, 1997, approximately $31.1 million (57%) were intangible assets, of
which approximately $14.8 million reflects goodwill (which is being amortized
using an estimated life ranging from 12 to 25 years), approximately $11.5
million reflects the cost of patents (which is being amortized over a period
ranging from 8 to 17 years), and approximately $4.8 million reflects the cost of
licenses and technology acquired (which is being amortized over a period ranging
from 31 months to 12 years). The Company's sale of MEC and LSIA in December 1997
(see "Recent Developments--Sale of MEC and LSIA") reduced such intangible assets
by approximately $7.5 million. Intangible assets will be further decreased by
approximately $6 million upon the closing of the Company's recent patent
agreement with Nidek. See "Recent Developments--Nidek Patent Transactions."
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 Company's Common Stock. In
addition, in the event of a sale or liquidation of the Company or its assets,
there can be no assurance that the value of such intangible assets would be
recovered.
In accordance with SFAS 121, the Company reviews intangible assets for
impairment whenever events or changes in circumstances, including a history of
operating or cash flow losses, indicate that the carrying amount of an asset may
not be recoverable. In such cases, the carrying amount of the asset is compared
to the estimated undiscounted future cash flows expected to result from the use
of the asset and its eventual disposition. If the sum of the expected
undiscounted future cash flows is less than the carrying amount of the asset, an
impairment loss will be computed and recognized in accordance with SFAS 121.
Expected cash flows are based on factors including historical results, current
operating budgets and projections, industry trends and expectations, and
competition.
Year 2000 Concerns. The Company believes that it has prepared its computer
systems and related applications to accommodate date-sensitive information
relating to the Year 2000. The Company expects that any additional costs related
to ensuring such systems to be Year 2000-compliant will not be material to the
financial condition or results of operations of the Company. Such costs will be
expensed as incurred. In addition, the Company is discussing with its vendors
the possibility of any interface difficulties which may affect the Company. To
date, no significant concerns have been identified. However, there can be no
<PAGE>
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 U.S. Food and Drug Administration (the "FDA"). Such
Act imposes design and performance standards, labeling and reporting
requirements, and submission conditions in advance of marketing for all medical
laser products. The Company's laser systems produced for medical use require
pre-market approval (PMA) by the FDA before they can be marketed in the United
States. Each separate medical device requires a separate FDA submission, and
specific protocols have to be submitted to the FDA for each claim made for each
medical device. In addition, laser products marketed in foreign countries are
often subject to local laws governing health product development processes which
may impose additional costs for overseas product development. The Company cannot
determine the costs or time it will take to complete the approval process and
the related clinical testing for its medical laser products. Future legislative
or administrative requirements in the United States, or elsewhere, may adversely
affect the Company's ability to obtain or retain regulatory approval for its
laser products. The failure to obtain required approvals on a timely basis could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has completed clinical studies in Phase 2a and 2b for PRK. Such data
were presented to the FDA and on September 17, 1997 the Company was granted
permission to expand into Phase 3 Myopic PRK studies. The Phase 3 PRK clinical
investigation is now under way. The Company is also conducting a Phase 2 trial
for PARK (Photo-Astigmatic Refractive Keratectomy). The FDA has informed the
Company that it may combine the results from all its studies in its PMA
application. That application is being prepared for submission in early 1998.
The Company also has an Investigational Device Exemption approved by the FDA for
the treatment of glaucoma by laser trabeculodissection. The Company has recently
completed a Phase 1 study in blind eyes and will submit the results to the FDA
to request expansion into a small population of sighted glaucoma patients.
The Company received a 510(k) clearance from the FDA for its recently-announced
A.D.K on January 19, 1998, thereby allowing the A.D.K to be sold and used on a
commercial basis in the U.S.
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 PRK-UV lasers in those countries
where patents are in effect. The Company's international sales accounted for 47%
and 42%, of the Company's total revenues during 1996 and the nine months ended
September 30, 1997, respectively. The Company expects such percentages to
increase in future periods as a result of its recent sales of MEC and LSIA. See
"Recent Developments--Sale of MEC and LSIA."
Uncertainty Concerning Patents--U.S. Should LaserSight Technologies' lasers
infringe upon any valid and enforceable patents held by Pillar Point Partners (a
partnership of which the general partners are subsidiaries of Visx and Summit
Technologies) in the U.S., then LaserSight Technologies may be required to
obtain a license for such patents. 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 United States. Should such licenses be required but not obtained,
LaserSight Technologies might be prohibited from manufacturing or marketing its
PRK-UV lasers in the U.S.
<PAGE>
Competition. The vision correction industry is subject to intense, increasing
competition. The Company competes against both alternative and traditional
medical technologies (such as eyeglasses, contact lenses and radial keratotomy
("RK")) and other laser manufacturers. Many of the Company's competitors have
existing products and distribution systems in the marketplace and are
substantially larger, better financed, and better known. A number of lasers
manufactured by other companies have either received, or are much further
advanced in the process of receiving, FDA approval for specific procedures, and,
accordingly, may have or develop a higher level of acceptance in some markets
than the Company's lasers. The entry of new competitors into the markets for the
Company's products could cause downward pressure on the prices of such products
and a material adverse effect on Company's business, financial condition and
results of operations.
Technological Change. Technological developments in the medical and laser
industries are expected to continue at a rapid pace. Newer technologies and
surgical techniques could be developed which may offer better performance than
the Company's laser systems. The success of any competing alternatives to PRK
could have a material adverse effect on the Company's business, financial
condition and results of operations.
New Products. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of its new LaserScan LSX excimer laser, 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 recently-announced A.D.K is subject to the risk that the Company
is required to make certain minimum payments to the licensors under its limited
exclusive license agreement relating to the A.D.K. Under that agreement, the
Company is required to pay a total of $300,000 in two installments due six and
12 months after the date of the Company's receipt of completed limited
production molds for the A.D.K. The Company expects to receive such molds in the
near future. In addition, commencing seven months after such date, the Company
royalty payments (50% of its gross profits from A.D.K sales) will become subject
to a minimum of $400,000 per quarter.
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 United States and other countries.
There can be no assurance that PRK or LASIK will be accepted by either the
ophthalmologists or the public as an alternative to existing methods of treating
refractive vision disorders. The acceptance of PRK and LASIK may be affected
adversely by their cost, possible concerns relating to safety and efficacy,
general resistance to surgery, the effectiveness and lower cost of alternative
methods of correcting refractive vision disorders, the lack of long-term
follow-up data, the possibility of unknown side effects, the lack of third-party
reimbursement for the procedures, any future unfavorable publicity involving
patient outcomes from use of PRK or LASIK systems, and the possible shortages of
ophthalmologists trained in the procedures. The failure of PRK or LASIK to
achieve broad market acceptance could have a material adverse effect on the
Company's business, financial condition and results of operations.
International Sales. International sales may be limited or disrupted by the
imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs, difficulties in staffing
and coordinating communications among and managing international operations.
<PAGE>
Additionally, the Company's business, financial condition and international
results of operations may be adversely affected by increases in duty rates,
difficulties in obtaining export licenses, ability to maintain or increase
prices, and competition. To date, all sales made by the Company have been
denominated in U.S. dollars. Due to its export sales, however, the Company is
subject to currency exchange rate fluctuations in the U.S. dollar, which could
increase the price in local currencies of the Company's products. This could in
turn result in longer payment cycles and greater difficulty in collection of
receivables. See "--Receivables" above. Although the Company has not experienced
any material adverse effect on its operations as a result of such regulatory,
political and other factors, there can be no assurance that such factors will
not have a material adverse effect on the Company's operations in the future or
require the Company to modify its business practices.
Potential Product Liability Claims; Limited Insurance. As a producer of medical
devices, the Company may face liability for damages to users of such devices in
the event of product failure. The testing and use of human care products entails
an inherent risk of negligence or other action. An award of damages in excess of
the Company's insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations. While the
Company maintains product liability insurance, there can be no assurance that
any such liability of the Company will be included within its insurance coverage
or that damages will not exceed the limits of its coverage. The Company's
insurance coverage is limited to $6,000,000, including up to $5,000,000 of
coverage under an excess liability policy.
Supplier Risks. The Company contracts with third parties for certain components
used in its lasers. Several of these 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 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
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.
All of the text under the caption "Recent Developments" has been added:
RECENT DEVELOPMENTS
Sale of MEC and LSIA. On December 30, 1997, the Company sold its MEC and LSIA
subsidiaries to Vision 21 in a transaction which was effective as of December 1,
1997. The total consideration paid by Vision 21 to the Company consisted of $6.5
million in cash paid at the closing and 820,085 unregistered shares of Vision 21
common stock, subject to certain post-closing adjustments described below (such
shares, the "Vision 21 Shares") and excluding the Company's estimated
transaction costs of approximately $400,000. The Vision 21 Shares are to be
liquidated pursuant to the following schedule (or sooner, at Vision 21's
option):
<PAGE>
Month Approximate
(1998) Percentage
------ ----------
February........ 21%
March........... 21%
April........... 28%
May............. 30%
---
Total........ 100%
====
Vision 21 has agreed to liquidate the Vision 21 Shares by a sale through a
market maker designated by Vision 21 pursuant to a shelf registration statement
or a private placement, or its repurchase of the Vision 21 Shares. The Company
is entitled to receive a minimum of $6,500,000 and a maximum of $7,475,000 from
the liquidation of the Vision 21 Shares. If the Company has not received at
least $6,500,000 (subject to certain post-closing adjustments described below)
from the liquidation of Vision 21 Shares by May 29, 1998, then on such date
Vision 21 is to pay the Company such shortfall in cash.
The Vision 21 Shares represent approximately 6.5% of Vision 21's outstanding
common stock (based on the number of shares that Vision 21 represented to the
Company to be outstanding immediately after giving effect to the issuance of the
Vision 21 Shares). Vision 21's common stock has traded on the Nasdaq Stock
Market since August 18, 1997, the date of Vision 21's initial public offering at
a price of $10.00 per share. Since that date, the market price of Vision 21's
common stock has ranged from $7.00 to $15.00. On January 22, 1998, the closing
price of Vision 21's common stock was $8.50.
Although the Company's agreement with Vision 21 contemplates that the amount of
post-closing adjustments could be as much as $1.5 million, the Company
estimates, as of the date of this Prospectus, that the amount of post-closing
adjustment will be approximately $300,000. This preliminary estimate is subject
to change and reflects the anticipated effect of the following adjustments: The
Company is required to reimburse Vision 21 for operating profits for the month
of December 1997 generated by MEC and LSIA, negative working capital as of
November 30, 1997 of MEC and LSIA less than negative $180,000, if any, and
negative net worth as of November 30, 1997 for MEC and LSIA, if any. In
addition, if prior to December 31, 1998 Vision 21 does not enter into certain
practice management agreements with NNJEI and an affiliated physician, or absent
such agreements, if the benefits Vision 21 derives from existing practice
management agreements for the period ending December 31, 1998 is less than
$133,000, then the Company is required to reimburse Vision 21 for such shortfall
on a dollar-for-dollar basis up to a maximum reimbursement of $500,000.
Reduction in Foothill Borrowings. On December 30, 1997, the Company used $2.0
million of its cash proceeds from the sale of MEC and LSIA to reduce the
principal balance of the Company's term loan with Foothill from $4.0 million to
$2.0 million. The Company also used approximately $1.5 million of cash proceeds
from the sale to repay in full the balance under its revolving loan facility
with Foothill as of December 30, 1997.
Restructuring of Foothill Loan Facility. Effective as of December 30, 1997, the
Company restructured the terms of its agreements with Foothill as follows: The
maximum amount available under its revolving loan facility has been reduced to
$2.0 million. In addition, the Company pledged its Vision 21 Shares to Foothill
as collateral. After the Company has received aggregate gross proceeds of $2.5
million from the liquidation of the Vision 21 Shares, it must first apply any
additional proceeds to repay its term loan with Foothill, and apply any balance
of such proceeds to retire any then-outstanding advances under its revolving
loan with Foothill. In any event, the Company's term loan and revolving loan are
to be paid in full by June 15, 1998. Until June 16, 1998, Foothill has waived
<PAGE>
the Company's compliance with the financial covenants contained in the
agreements between the Company and Foothill.
Nidek Patent Transactions. In January 1998, the Company entered into definitive
agreements with Nidek Co., Ltd., a Japanese surgical and diagnostic products
company ("Nidek"), that provide for the Company to grant to Nidek certain rights
in the IBM Patents in exchange for Nidek's payment of $7.5 million in cash at
the closing, subject to withholding of up to $200,000 for Japanese taxes. The
Company expects the transaction to close prior to the end of January 1998,
subject to the approval of both the holders of the Series B Preferred Stock and
Foothill. Under the agreements, the Company will transfer to Nidek all rights in
those IBM Patents which have been issued in countries outside of the United
States (the "Non-U.S. Patents"). The Company will receive from Nidek an
exclusive license to use and sublicense the Non-U.S. Patents in all fields other
than the ophthalmic, cardiovascular and vascular fields. In addition, the
Company will retain ownership of the IBM Patents issued in the United States,
and will grant Nidek a non-exclusive license to use such patents. The Nidek
transactions will not affect the rights of the Company or other companies to use
the IBM Patents in any country covered by existing license agreements. The Nidek
transactions are not expected to result in any current gain or loss. They will,
however, reduce the Company's amortization expense over the remaining useful
life of the Non-U.S. IBM Patents. The Nidek transactions also will result in
approximately $1.2 million of prepaid royalties that will be amortized to income
over time.
All of the text under the caption "Description of Securities" should be
replaced with the following:
The following description of the Company's capital stock is not complete and is
subject in all respects to the Delaware General Corporation Law (the "DGCL") and
to the provisions of the Company's Certificate of Incorporation, as amended (the
"Charter"), and By-Laws.
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock, $.001 par value, issuable
in series. As of January 27, 1998, 9,984,672 shares of Common Stock were
outstanding (not including shares issuable upon the exercise of outstanding
stock options or upon the conversion of outstanding preferred stock). As of
December 10, 1997, the only shares of preferred stock outstanding were 1,295
shares of the Series B Preferred Stock.
Common Stock
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to share pro rata in
such dividends and other distributions, if any, as may be declared by the Board
of Directors out of funds legally available therefor, subject to any prior
rights accruing to any holders of preferred stock. Upon the liquidation or
dissolution of the Company, the holders of Common Stock are entitled to share
proportionally in all assets available for distribution to such holders. Holders
of Common Stock have no preemptive, redemption or conversion rights. The
outstanding shares of Common Stock issued are fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is American Stock Transfer
& Trust Company.
<PAGE>
Preferred Stock
The Board of Directors is authorized, subject to certain limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
an aggregate of 10,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series, including the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The rights, preferences and privileges of holders
of Common Stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of preferred stock which the Company may
designate and issue.
Series A Preferred Stock
On January 10, 1996, the Company issued 116 shares of Series A Convertible
Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"). All
of such shares had been converted into Common Stock.
Series B Preferred Stock
On August 29, 1997, the Company issued 1,600 shares of Series B Preferred Stock.
On October 28, 1997, the Company completed an optional redemption of 305 of such
shares by paying $3,172,000 (including a 4% redemption premium). The Company's
option to redeem additional shares of Series B Preferred Stock has expired.
The Series B Preferred Stock is convertible in whole or in part into Common
Stock at the option of any holder of Series B Preferred Stock on any date or
dates until August 29, 2000, on which date all Series B Preferred Stock
remaining outstanding will automatically be converted into Common Stock,
provided that all shares of Common Stock issuable upon conversion of all
outstanding shares of Preferred Stock are then (i) authorized and reserved for
issuance, (ii) registered under the Securities Act for resale and (iii) eligible
to be traded on either the Nasdaq National Market, the Nasdaq Small Cap Market,
the New York Stock Exchange or the American Stock Exchange. As of any applicable
conversion date, the Conversion Price will equal the lesser of $6.68 per share
of Common Stock or the average of the three lowest closing bid prices of the
Common Stock during the 20 trading days preceding such conversion date (during
the 30 trading days preceding the conversion date if the five-day average
closing bid price of the Common Stock on February 25, 1998 is less than $5.138
per share). If a conversion occurs when the Common Stock is not listed on the
Nasdaq National Market, the American Stock Exchange or the New York Stock
Exchange, the otherwise-applicable Conversion Price will be multiplied by 0.93.
Dividends on the Series B Preferred Stock are payable only to the extent that
dividends are payable on the Company's Common Stock. Each outstanding share of
Series B Preferred Stock entitles the holder thereof to a liquidation preference
equal to the sum of $10,000 plus the amount of unpaid dividends, if any, accrued
on such share.
In addition, the Series B Preferred Stock is subject to redemption at the option
of its holders should the Company default on certain of its obligations. Under
one of these provisions, if for any reason the Company's shareholders do not
approve by February 28, 1998 the possible issuance of an indefinite number of
shares of Common Stock upon conversion of the Series B Preferred Stock, the
Company will be obligated to redeem, at the Special Redemption Price (as defined
below), a number of shares of Series B Preferred Stock sufficient to cause the
<PAGE>
number of Shares issuable after giving effect to such partial redemption to
equal no more than 50% of the number of common shares that could then be issued
without breaching the 1,995,534 share issuance limitation resulting from a
listing rule of the Nasdaq National Market. Under another provision, any holder
of Series B Preferred Stock will have the right to require the Company to redeem
all or a portion of such holder's Series B Preferred Stock for cash, at the
Special Redemption Price (i) subject to limited exceptions, if the Company's
registration statement under the Securities Act relating to the resale of the
Series B Conversion Shares or Series B Warrant Shares becomes unavailable for
such resales, or (ii) if the Company becomes required to register additional
Series B Conversion Shares, but for any reason fails to cause a registration
statement relating to such shares declared effective by the SEC within 30 days
after such obligation first arises. For this purpose, the "Special Redemption
Price" means a cash payment equal to the greater of (i) the liquidation
preference of $10,000 multiplied by 1.25 or (ii) a fraction, the numerator of
which would equal the highest closing bid price of the Common Stock during the
period beginning 10 trading days before the redemption date and ending five
business days after such date, and the denominator of which would equal the
Conversion Price (as herein defined) that would have been applicable if the
preferred shares had been converted as of the redemption date. Such redemption
must be completed within five business days of the event which required such
redemption. Any delay in payment beyond such five business days will cause such
redemption amount to accrue interest at the rate of 1% per month during the
first 30 days, pro rated daily (2% monthly, pro rated daily, thereafter).
Delaware Law and Certain Charter Provisions
The Company is subject to the provisions of Section 203 of the DGCL. Subject to
certain exceptions, Section 203 prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the corporation's board of directors or unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder which is not shared pro rata
with the other stockholders of the Company. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of a corporation's
voting stock.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. In
addition, the By-Laws of the Company may, subject to the provisions of DGCL, be
amended or repealed by a majority vote of the Company's Board of Directors.
The Charter contains certain provisions permitted under the DGCL relating to the
liability of directors. These provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving certain wrongful acts, such as the breach of a director's duty of
loyalty or acts or omissions which involve intentional misconduct or a knowing
violation of law. The Charter contains provisions indemnifying the directors and
officers of the Company to the fullest extent permitted by the DGCL. The Company
also has a directors' and officers' liability insurance policy which provides
for indemnification of its directors and officers against certain liabilities
incurred in their capacities as such. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors.
<PAGE>
Warrants
In connection with the private placement of Series A Preferred Stock on January
10, 1996, the Company issued to its placement agent and to an assignee of the
placement agent, the 1996 Warrants to purchase an aggregate of 17,509 shares of
Common Stock at an exercise price of $13.25 per share. The 1996 Warrants may be
exercised at any time through January 10, 1999.
In connection with the establishment of its Foothill credit facility in April
1997, the Company issued to Foothill warrants (the "Foothill Warrants") to
purchase 500,000 shares of Common Stock at an exercise price of $6.0667 per
share. In addition, the Foothill Warrants have certain anti-dilution features
which provide for approximately 50,000 additional shares pursuant to the
issuance of the Series B Preferred Stock and corresponding reduction in the
exercise price to $5.52 per share. The Foothill Warrants may be exercised after
March 31, 1998 and then prior to April 1, 2002.
In connection with the 1997 Private Placement, the Company agreed to issue to
the holders and the Placement Agent the Series B Warrants to purchase 750,000
and 40,000 Shares, respectively, of Common Stock at a price of $5.91 per share
at any time before August 29, 2002. The Company is obligated to register the
shares of Common Stock issuable upon exercise and conversion of the Series B
Warrants for resale under the Securities Act.
All of the text under the caption "Plan of Distribution" remains unchanged
except the following:
The Company will maintain the effectiveness of the Registration Statement until
the earlier of (i) such time as all of the Shares have been disposed of in
accordance with the intended methods of disposition set forth in the
Registration Statement or (ii) March 14, 1998. In the event that any Shares
remain unsold at the end of such period, the Company may file a post-effective
amendment to the Registration Statement for the purpose of deregistering the
Shares.
