SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 1999.
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 10, 1999 is 17,530,495.
1
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
Except for the historical information contained herein, the discussion in this
Report contains forward-looking statements (within the meaning of Section 21E of
the Exchange Act) that involve risks and uncertainties. The Company's actual
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in the sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Uncertainties and Other Issues"
in this report. LaserSight undertakes no obligation to update any such factors
or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect any future events or
developments.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998
Condensed Consolidated Statements of Operations for the
Three Month Periods and Six Month Periods Ended June 30,
1999 and 1998
Condensed Consolidated Statements of Comprehensive Loss for
the Three Month Periods and Six Month Periods Ended June 30,
1999 and 1998
Condensed Consolidated Statements of Cash Flows for the
Six Month Periods Ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Management's Quantitative and Qualitative Disclosures about
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
------------- ------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 14,663,888 4,437,718
Accounts receivable - trade, net 5,774,116 4,611,834
Notes receivable - current portion, net 4,047,101 4,805,831
Inventories 8,454,809 8,517,636
Deferred tax assets 167,712 184,997
Other current assets 406,593 159,057
------------- ------------
TOTAL CURRENT ASSETS 33,514,219 22,717,073
Restricted cash 194,000 194,000
Notes receivable, less current portion, net 2,842,944 2,880,358
Property and equipment, net 1,798,792 1,502,339
Patents, net 4,113,432 4,432,428
Pre-market approval application, net 3,208,930 3,663,466
Goodwill, net 6,290,549 6,552,863
Other assets, net 1,820,338 1,930,456
------------- ------------
$ 53,783,204 43,872,983
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,692,763 2,220,045
Capital lease obligation 31,101 -
Accrued expenses 3,401,315 3,224,369
Accrued commissions 1,382,036 1,451,180
Income tax payable 9,239 9,239
Deferred revenue 1,056,217 937,602
------------- ------------
TOTAL CURRENT LIABILITIES 7,572,671 7,842,435
Refundable deposits 194,000 194,000
Accrued expenses, less current portion 662,538 642,880
Deferred royalty revenue, less current portion 233,333 433,333
Deferred income taxes 167,712 184,997
Long-term obligations 552,519 560,000
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock:
Series C - par value $.001 per share; authorized 2,000,000 shares;
2,000,000 issued and outstanding at June 30, 1999 and
December 31, 1998, respectively 2,000 2,000
Series D - par value $.001 per share; authorized 2,000,000 shares;
2,000,000 issued and outstanding at June 30, 1999 and December 31,
1998, respectively 2,000 2,000
Common stock - par value $.001 per share; authorized 40,000,000 shares;
17,397,236 and 13,332,835 shares issued at June 30, 1999 and
December 31, 1998, respectively 17,397 13,333
Additional paid-in capital 76,559,447 59,407,392
Stock subscription receivable (1,140,000) (1,140,000)
Accumulated deficit (30,519,329) (23,748,303)
Less treasury stock, at cost; 140,200 common shares at June 30,
1999 and December 31, 1998 (521,084) (521,084)
------------- ------------
44,400,431 34,015,338
------------- ------------
$ 53,783,204 43,872,983
============= ============
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
3
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
REVENUES:
<S> <C> <C> <C> <C>
PRODUCTS $ 4,834,635 4,507,319 9,235,850 8,304,085
ROYALTIES 330,000 274,000 710,000 521,917
SERVICES 96,922 167,661 204,005 366,197
----------- ----------- ---------- ----------
5,261,557 4,948,980 10,149,855 9,192,199
COST OF REVENUE:
PRODUCT COST 2,294,609 1,713,301 4,326,987 2,889,621
COST OF SERVICES 42,646 73,771 89,763 161,127
----------- ----------- ---------- ----------
GROSS PROFIT 2,924,302 3,161,908 5,733,105 6,141,451
RESEARCH, DEVELOPMENT AND
REGULATORY EXPENSES 708,979 743,788 1,490,170 1,561,344
OTHER GENERAL AND
ADMINSTRATIVE EXPENSES 4,132,062 2,652,268 7,798,283 4,833,309
SELLING RELATED EXPENSES 1,090,086 990,589 2,193,521 1,964,153
AMORTIZATION OF INTANGIBLES 634,071 542,577 1,268,142 1,135,021
----------- ----------- ---------- ----------
5,856,219 4,185,434 11,259,946 7,932,483
----------- ----------- ---------- ----------
LOSS FROM OPERATIONS (3,640,896) (1,767,314) (7,017,011) (3,352,376)
OTHER INCOME AND EXPENSES
Interest and dividend income 192,649 111,442 294,170 226,298
Interest expense (2,415) (324,020) (48,185) (720,541)
Gain on sale of subsidiaries
and securities -- 150,076 -- 364,452
----------- ----------- ---------- ----------
NET LOSS BEFORE INCOME TAXES (3,450,662) (1,829,816) (6,771,026) (3,482,167)
INCOME TAX EXPENSE (BENEFIT) -- (78,943) -- 232,213
----------- ----------- ---------- ----------
NET LOSS (3,450,662) (1,750,873) (6,771,026) (3,714,380)
CONVERSION DISCOUNT ON
PREFERRED STOCK -- (833,500) -- (858,872)
PREFERRED STOCK ACCRETION AND
DIVIDEND REQUIREMENTS -- (1,653,832) -- (2,751,953)
----------- ----------- ---------- ----------
LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $(3,450,662) (4,238,205) (6,771,026) (7,325,205)
=========== =========== ========== ==========
LOSS PER COMMON SHARE
Basic and Diluted: $ (0.21) (0.34) (0.46) (0.64)
=========== =========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic and Diluted: 16,155,000 12,626,000 14,794,000 11,478,000
=========== =========== ========== ===========
See accompanying notes to condensed consolidated financial statements
</TABLE>
4
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NET LOSS $ (3,450,662) (1,750,873) (6,771,026) (3,714,380)
OTHER COMPREHENSIVE LOSS:
Reversal of unrealized gain on marketable
securities (net of tax of $353,675 for the three
and six month periods ended June 30, 1998) -- (577,048) -- (577,048)
Reclassification adjustment for losses
(gains)included in net loss (net of tax of
$(59,172) and $16,825 for the three and six
month periods ended June 30, 1998, respectively) -- 96,543 -- (27,452)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (3,450,662) (2,231,378) (6,771,026) (4,318,880)
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements
</TABLE>
5
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------------- -----------------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(6,771,026) (3,714,380)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on sale of subsidiaries and securities -- (364,452)
Depreciation and amortization 1,625,341 1,881,290
Warrants issued in conjunction with consulting agreement 68,793 --
Increase in accounts and notes receivable (366,138) (4,198,124)
Increase (decrease) in inventories 62,827 (390,366)
Decrease in accounts payable (527,282) (494,155)
Increase (decrease) in accrued expenses 127,460 (282,712)
Income taxes -- (873,582)
Increase (decrease) in deferred revenue (81,385) 1,033,334
Other (347,214) 214,438
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (6,208,624) (7,188,709)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net (345,603) (289,442)
Proceeds from sale of investments -- 6,527,452
Net proceeds from exclusive license of patents -- 6,170,000
Transfer to restricted cash account -- ( 4,200,000)
Proceeds from restricted cash account -- 4,228,000
------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (345,603) 12,436,010
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 8,850,000 --
Repurchase of preferred stock -- (10,512,000)
Net proceeds from exercise of stock options and warrants 7,950,056 31,600
Repayments of notes payable -- (2,000,000)
Repayment of capital lease obligation (19,659) --
Proceeds from issuance of preferred stock -- 15,819,555
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,780,397 3,339,155
------------ -----------
INCREASE IN CASH AND CASH EQUIVALENTS 10,226,170 8,586,456
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,437,718 3,858,400
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,663,888 12,444,856
============ ===========
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
6
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Month Periods Ended June 30, 1999 and 1998
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited, condensed consolidated financial statements
of LaserSight Incorporated and subsidiaries (the Company) as of June
30, 1999, and for the three and six month periods ended June 30, 1999
and 1998, 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, 1998. 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, 1999 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 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, 1999 and December 31,
1998 are summarized as follows:
June 30, 1999 December 31, 1998
------------- -----------------
Raw materials $5,283,061 5,226,146
Work-in process 938,513 1,837,460
Finished goods 1,794,121 1,046,756
Test equipment - clinical trials 439,114 407,274
---------- ---------
$8,454,809 8,517,636
========== =========
7
<PAGE>
NOTE 4 CAPITAL LEASES
During the quarter ended March 31, 1999, LaserSight entered into a
capital lease agreement for manufacturing equipment. All leases with an
initial term greater that one year are accounted for under Statement of
Financial Accounting Standards No. 13, "Accounting for Leases". Leased
property or equipment meeting certain criteria is capitalized and the
present value of the related lease payments is recorded as a liability.
Amortization of capitalized leased assets is computed on the
straight-line method over the five year term of the lease. Assets under
capital leases are capitalized using interest rates appropriate at the
inception of the lease.
Assets under capital leases are included in the consolidated balance
sheets, as follows:
June 30, 1999 December 31, 1998
------------- -----------------
Equipment $308,049 --
Less accumulated amortization 29,539 --
-------- -------
$278,510 --
======== ========
NOTE 5 STOCKHOLDERS' EQUITY
Private Placement
On March 23, 1999, LaserSight closed a transaction for the sale of
2,250,000 shares of Common Stock to a total of six investors, including
Pequot Capital Management, Inc. (Pequot) and TLC The Laser Center, Inc.
(TLC), in exchange for LaserSight receiving $9 million in cash. In
addition, the investors received a total of 225,000 warrants to
purchase Common Stock at $5.125 each, the Common Stock closing price on
March 22, 1999.
During the three months ended June 30, 1999, LaserSight received
approximately $7,950,000 from the exercise of warrants and stock
options, resulting in the issuance of 1,814,401 shares of Common Stock.
NOTE 6 SEGMENT INFORMATION
The Company operates principally in three industries: technology
related (laser equipment) products, patent services and health care
services. Laser equipment operations involve the development,
manufacture, and sale of ophthalmic lasers primarily for use in vision
correction procedures. Patent services involve the revenues and
expenses generated from the ownership of certain refractive laser
procedure patents.
Operating profit is total revenue less operating expenses. In
determining operating profit for industry segments, the following items
have not been considered: general corporate expenses; expenses
attributable to LaserSight Centers, Inc. (Centers), a developmental
stage company; non-operating income; and the income tax expense
(benefit). Identifiable assets by industry segment are those that are
used by or applicable to each industry segment. General corporate
assets consist primarily of cash, marketable equity securities and
income tax accounts.
8
<PAGE>
The table below summarizes information about reported segments as of
and for the three months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Depreciation
Operating Operating and Capital
Revenues Profit (Loss) Assets Amortization Expenditures
-------- ------------- ------ ------------ ------------
1999
Operating profit segments:
<S> <C> <C> <C> <C> <C>
Technology related $4,834,635 (3,118,480) 28,636,111 529,361 202,557
Patent services 330,000 200,670 3,600,144 129,330 --
Health care services 96,922 (138,469) 3,795,721 70,731 --
General corporate (515,443) 14,845,973 1,797 4,496
Developmental stage
company - LaserSight
Centers, Inc. -- (69,174) 2,905,255 69,174 --
---------- ---------- ---------- --------- --------
Consolidated total $5,261,557 (3,640,896) 53,783,204 800,393 207,053
========== ========== ========== ========= ========
1998
Operating profit segments:
Technology related $4,507,319 (1,180,581) 25,802,565 385,090 147,653
Patent services 274,000 98,009 4,115,545 129,990 --
Health care services 167,661 (134,476) 4,170,502 77,561 3,115
General corporate -- (481,092) 12,647,396 687 --
Developmental stage
company - LaserSight
Centers, Inc. -- (69,174) 3,171,411 69,174 --
---------- ---------- ---------- -------- --------
Consolidated total $4,948,980 (1,767,314) 49,907,419 662,502 150,768
========== ========= ========== ======== ========
</TABLE>
Amortization of deferred financing costs and accretion of discount on
note payable of $243,499 for the three months ended June 30, 1998 is
included as interest expense in the accompanying condensed consolidated
statement of operations.
9
<PAGE>
The table below summarizes information about reported segments as of
and for the six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Depreciation
Operating Operating and Capital
Revenues Profit (Loss) Assets Amortization Expenditures
-------- ------------- ------ ------------ ------------
1999
Operating profit segments:
<S> <C> <C> <C> <C> <C>
Technology related $ 9,235,850 (6,024,397) 28,636,111 1,083,277 341,107
Patent services 710,000 451,340 3,600,144 258,660 --
Health care services 204,005 (268,238) 3,795,721 141,462 --
General corporate -- (1,037,368) 14,845,973 3,594 4,496
Developmental stage
Centers, Inc. -- (138,348) 2,905,255 138,348
----------- ----------- ----------- --------- ---------
Consolidated total $10,149,855 (7,017,011) 53,783,204 1,625,341 345,603
=========== =========== =========== ========= =========
1998
Operating profit segments:
Technology related $ 8,304,085 (2,072,846) 25,802,565 742,397 269,465
Patent services 521,917 124,962 4,115,545 308,527 --
Health care services 366,197 (340,779) 4,170,502 154,943 19,977
General corporate -- (925,365) 12,647,396 1,374 --
Developmental stage
company - LaserSight
Centers, Inc. -- (138,348) 3,171,411 138,348 --
----------- ----------- ----------- --------- ---------
Consolidated total $ 9,192,199 (3,352,376) 49,907,419 1,345,589 289,442
=========== =========== =========== ========= =========
</TABLE>
Amortization of deferred financing costs and accretion of discount on
note payable of $535,701 for the six months ended June 30, 1998 is
included as interest expense in the accompanying condensed consolidated
statement of operations.
NOTE 7 LINE OF CREDIT
Revolving Credit Agreement
On June 29, 1999, LaserSight established a $2.5 million revolving line
of credit (Credit Agreement) with The Huntington National Bank
(Huntington). Under the Credit Agreement, LaserSight has the option to
borrow amounts at a rate per annum equal to one half of one percent
(1/2%) above the Prime Rate. Borrowings are intended for short term
working capital needs or such other purposes as may be approved by
Huntington. The Credit Agreement requires LaserSight to maintain a
specific liquidity level and minimum tangible net worth. The terms of
the Credit Agreement extend to June 30, 2000. At June 30, 1999,
LaserSight had no outstanding borrowings under the Credit Agreement.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues. The following tables present the Company's revenue by major operating
segments: technology products and services, patents and health care services for
the three and six month periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1999 June 30, 1998
------------------- -------------------
Revenue % of Total Revenue % of Total
<S> <C> <C> <C> <C>
Technology $ 4,834,635 92% $4,507,319 91%
Patent services 330,000 6% 274,000 6%
Health care services 96,922 2% 167,661 3%
----------- ---- ---------- ----
Total net sales $ 5,261,557 100% $4,948,980 100%
=========== ==== ========== ====
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1999 June 30, 1998
----------------- -----------------
Revenue % of Total Revenue % of Total
Technology $ 9,235,850 91% $8,304,085 90%
Patent services 710,000 7% 521,917 6%
Health care services 204,005 2% 366,197 4%
----------- ---- ---------- ----
Total net sales $10,149,855 100% $9,192,199 100%
=========== ==== ========== ====
</TABLE>
Net sales and revenues in the second quarter of 1999 were $5,261,557 compared to
$4,948,980 (for an increase of $312,577 or 6%) over the comparable period in
1998. Net sales and revenues for the six month period ended June 30, 1999,
increased by $957,656 or 10% to $10,149,855 from the comparable period in 1998.
During the three and six month periods ended June 30, 1999, technology revenues
increased $327,316 to $5,261,557 and $931,765 to $10,149,855, respectively,
compared to the same periods in 1998. These revenue increases were primarily the
result of increased sales of its higher priced LaserScan LSX excimer laser
system, resulting in an increased level of laser system sales. During the second
quarter of 1999, excimer laser system sales accounted for approximately
$4,514,000 in revenues compared to $4,135,000 in revenues over the same period
in 1998. During the three month periods ended June 30, 1999 and 1998, LaserScan
LSX system sales accounted for 94% and 60%, respectively, of total excimer laser
system sales. During the six month period ended June 30, 1999, excimer laser
system sales accounted for approximately $8,224,000 in revenues compared to
$7,365,000 in revenues over the same period in 1998. During the six month
periods ended June 30, 1999 and 1998, LaserScan LSX system sales accounted for
85% and 40%, respectively, of total excimer laser system sales. Additional
improvements in technology related revenues during the three and six month
11
<PAGE>
periods ended June 30, 1999, are attributable to an increase in the level of
service contract revenues and increased revenues generated from LaserSight's
aesthetic product line, which was acquired in the second quarter of 1998. These
increases were slightly offset by a reduction in revenues generated from
miscellaneous part sales for both the three and six month periods ended June 30,
1999 compared to comparable periods in 1998. During the second quarter of 1999,
16 laser systems were sold compared to 15 system sales over the comparable
period in 1998. During the six month period ended June 30, 1999, 33 laser
systems were sold compared to 29 system sales over the comparable period in
1998. The 17 systems classified as sales in the first quarter of 1999 include 13
system sales to new customers and 4 LaserScan LSX excimer laser systems sold to
existing customers to replace older laser systems. The latter systems were sold
at discounted prices at a positive gross margin.
During the three and six month periods ended June 30, 1999, net revenue
from patent services increased approximately $56,000 and $188,000,
respectively, from the comparable periods in 1998, due to increased licensing
fees.
Net revenue from health care services in the second quarter of 1999 was $96,922
compared to $167,661 (for a decrease of $70,739) over the comparable period in
1998. Net revenue from health care services for the six month period ended June
30, 1999, was $204,005 compared to $366,197 (for a decrease of $162,192) over
the comparable period in 1998. These decreases were primarily attributable to a
reduction in consulting services provided and were accompanied by a reduction in
expenses of $35,621 and $163,368 over the three and six month periods ended June
30, 1999, respectively. Such revenue and expense decreases are primarily the
result of staffing reductions during mid-1998 to more closely match their cost
structure with anticipated revenues going forward.
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, 1999 and 1998.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
------------------- -------------- -------------------
<S> <C> <C> <C>
Product cost $ 2,294,609 34% $ 1,713,301
Cost of services 42,646 (42%) 73,771
Gross profit 2,924,302 (8%) 3,161,908
Gross profit percentage 56% 64%
Products only:
Gross profit 2,540,026 (9%) 2,794,018
Gross profit percentage 53% 62%
12
<PAGE>
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
----------------- -------------- -----------------
Product cost $ 4,326,987 50% $ 2,889,621
Cost of services 89,763 (44%) 161,127
Gross profit 5,733,105 (7%) 6,141,451
Gross profit percentage 56% 67%
Products only:
Gross profit 4,908,863 (9%) 5,414,464
Gross profit percentage 53% 65%
</TABLE>
Gross profit margins were 56% of net sales in the second quarter of 1999
compared to 64% for the comparable period in 1998. For the six month periods
ended June 30, 1999 and 1998, gross profit margins were 56% and 67%,
respectively.
The gross margin decrease during the second quarter of 1999 was primarily
attributable to higher raw material costs relating to the LaserScan LSX excimer
laser system ($243,000), an increase in LaserSight's inventory obsolescence
reserve ($313,000) and an increase in raw materials relating to LaserSight's
aesthetics division ($42,000), acquired in April 1998. In addition, each upgrade
resulted in approximately $100,000 less revenue than new sales.
The gross margin decrease during the six month period ended June 30 1999, was
primarily attributable to higher raw material costs relating to the LaserScan
LSX excimer laser system ($651,000), a higher level of manufacturing overhead
($142,000), an increase in LaserSight's inventory obsolescence reserve
($428,000), and an increase in raw materials relating LaserSight's aesthetics
division ($251,000), acquired in April 1998.
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, 1999 and 1998.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
------------------- -------------- -------------------
<S> <C> <C> <C>
Research, development
and regulatory $ 708,979 (5%) $ 743,788
As a percentage of technology
revenues 15% 17%
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
----------------- -------------- -----------------
<S> <C> <C> <C>
Research, development
and regulatory $1,490,170 (5%) $1,561,344
As a percentage of technology
revenues 16% 19%
</TABLE>
Research, development and regulatory expenses for the second quarter of 1999
were $708,979, a decrease of $34,809, or 5%, from such expenditures during the
comparable period in 1998. Research, development and regulatory expenses for the
six month period ended June 30, 1999 decreased by $71,174 from $1,561,344 for
the comparable period in 1998, or 5%.
LaserSight continued to develop its keratome systems, excimer laser systems and
continued to pursue its protocols in its effort to attain FDA approval. As a
result of a continuation of the efforts described plus the anticipated
development of new product ideas, LaserSight expects research and development
expenses during the remainder of 1999 to increase over levels incurred during
the first two quarters of 1999. Regulatory expenses may increase as a result of
LaserSight's continued pursuit of FDA approval, protocols added during 1997 and
1998 related to the potential use of the Company's laser systems for treatment
of glaucoma and LASIK and the possible development of additional future
protocols for submission to the FDA.
Other General and Administrative Expenses. The following tables present a
comparative analysis of other general and administrative expenses for the three
and six month periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
------------------- -------------- -------------------
<S> <C> <C> <C>
Other general and
administrative $4,132,062 56% $2,652,268
Percentage of revenues 79% 54%
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
----------------- -------------- -----------------
Other general and
administrative $7,798,283 61% $4,833,309
Percentage of revenues 77% 53%
</TABLE>
Other general and administrative expenses for the second quarter of 1999 were
$4,132,062, an increase of $1,479,794 or 56% from such expenditures during the
comparable period in 1998. This increase was due to an increase in other general
and administrative expenses incurred at LaserSight's technology subsidiary of
approximately $1,565,000 from second quarter 1998 levels.
These increases were incurred to fund the strategic initiatives of LaserSight
and the development of its products and services. Such efforts included
14
<PAGE>
enhancements to the customer support, quality assurance, marketing, software
development, manufacturing and engineering departments ($419,000), costs
relating to developing LaserSight's blade manufacturing operation ($276,000),
higher depreciation and lease costs (including the second Orlando area facility
and larger office space) ($145,000), salaries ($103,000), primarily resulting
from staffing additions to intellectual property, customer training, accounting,
information systems and human resources departments and bad debt expense
($575,000), which represented a general increase in reserves. While originally
intended to be partially utilized for blade manufacturing, the second Orlando
area facility is expected to be used by other departments. Internal blade
manufacturing costs will no longer be incurred due to the previously announced
manufacturing agreement with Becton Dickinson. See "--Financial and Liquidity
Risks--If Our Uncollectible Receivables Exceed Our Reserves We will Incur
Additional Unanticipated Expenses". The total increase was partially offset by a
reduction in other general and administrative expenses of The Farris Group
("TFG") ($36,000) and patent services ($44,000) from second quarter 1998 levels.
Other general and administrative expenses for the six month period ended June
30, 1999, were $7,798,283, an increase of $2,964,974 or 61% from such
expenditures during the comparable period in 1998. This increase was due to an
increase in other general and administrative expenses incurred at LaserSight's
technology subsidiary of approximately $3,219,000 from 1998 levels.
Similar to the increases during the second quarter, these included enhancements
to the customer support, quality assurance, marketing, software development,
manufacturing and engineering departments ($1,264,000), costs relating to
developing LaserSight's blade manufacturing operation ($440,000), higher
depreciation and lease costs (including the second Orlando area facility and
larger office space) ($310,000), salaries ($241,000), primarily resulting from
staffing additions to intellectual property, customer training, accounting,
information systems and human resources departments and bad debt expense
($662,000), which represented a general increase in reserves. See "--Financial
and Liquidity Risks--If Our Uncollectible Receivables Exceed Our Reserves We
will Incur Additional Unanticipated Expenses". The total increase was partially
offset by a reduction in other general and administrative expenses of TFG
($163,000) and patent services ($83,000) from 1998 levels.
Selling Related Expenses. The following tables present a comparative analysis of
selling related expenses for the three and six month periods ended June 30, 1999
and 1998.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
------------------- -------------- -------------------
<S> <C> <C> <C>
Selling related expenses $1,090,086 10% $ 990,589
As a percentage of technology
revenues 23% 22%
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
----------------- -------------- -----------------
Selling related expenses $2,193,521 12% $1,964,153
As a percentage of technology
revenues 24% 24%
</TABLE>
15
<PAGE>
Selling related expenses consist of those items directly related to sales
activities, including commissions on sales, royalty or license fees, warranty
expenses, and costs of shipping and installation. Commissions and royalties, in
particular, can vary significantly from sale to sale or period to period
depending on the location and terms of each sale.
Selling related expenses for the second quarter of 1999 were $1,090,086, an
increase of $99,497 or 10% from such expenditures during the comparable period
in 1998, generally in line with the increase in revenues. The primary reasons
for this increase include a higher level of warranty estimates being accrued
($215,000) primarily resulting from extended initial warranty coverage on
several second quarter 1999 system sales and a higher level of distributor and
employee commissions being incurred ($126,000). These increases were partially
offset by a reduction in the level of royalty fees incurred ($166,000) and a
reduction in system installation and shipping costs ($75,000).
Selling related expenses for the six month period ended June 30, 1999, were
$2,193,521, an increase of $229,368 or 12% from such expenditures during the
comparable period in 1998. The reason for this increase was a higher level of
warranty estimates being accrued ($338,000) as described above and an increase
in its per system estimate to provide annual warranty coverage. This increase
was partially offset by decreased sales commissions ($30,000), a reduction in
the level of royalty fees incurred ($57,000) and a reduction in system
installation and shipping costs ($21,000).
Amortization of Intangibles. The following tables present a comparative analysis
of amortization costs as related to intangible assets for the three and six
month periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
For the Three Month For the Three Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
------------------- -------------- -------------------
<S> <C> <C> <C>
Amortization of intangibles $ 634,071 17% $ 542,577
For the Six Month For the Six Month
Period Ended Period Ended
June 30, 1999 Percent Change June 30, 1998
----------------- -------------- -----------------
Amortization of intangibles $ 1,268,142 12% $ 1,135,021
</TABLE>
Those items directly related to the amortization of intangible assets are
acquired technology, acquired patents and goodwill. During the second quarter of
1999, costs relating to the amortization of intangible assets increased by
$91,494 over the comparable period in 1998. During the six month period ended
June 30, 1999, costs relating to the amortization of intangible assets increased
by $133,121 over the comparable period in 1998.
Loss From Operations. There was an operating loss of $3,640,896 in the second
quarter of 1999 compared to an operating loss of $1,767,314 for the same period
in 1998. The operating loss for the six month period ended June 30, 1999, was
$7,017,011 compared to an operating loss of $3,352,376 for the same period in
1998. The increase in the loss from operations for both the three and six month
periods ended June 30, 1999, are primarily due to the increases in other general
and administrative expenses incurred by LaserSight's technology subsidiary from
1998 levels. These increases were partially offset by an improvement in the
operating gain generated by the patent services subsidiary.
16
<PAGE>
Other Income and Expense. Interest and dividend income was $192,649 in the
second quarter of 1999 compared to interest and dividend income of $111,442 for
the comparable period in 1998. Interest and dividend income for the six month
period ended June 30, 1999 was $294,170 compared to interest and dividend income
of $226,298 for the comparable period in 1998. 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 $2,415 in the second quarter of 1999 compared to
interest expense of $324,020 for the comparable period in 1998. Interest expense
for the six month period ended June 30, 1999 was $48,185 compared to interest
expense of $720,541 for the comparable period in 1998. Interest expense incurred
during the three and six month periods ended June 30, 1999, related primarily to
an adjustment to the fair value of the warrant issued to Foothill Capital
Corporation (Foothill) and interest paid on a capital lease obligation. Interest
expense incurred by LaserSight during the three and six month periods ended June
30, 1998, related primarily to the credit facility established with Foothill on
April 1, 1997 and repaid in full in June 1998. In addition to interest paid on
the outstanding note payable balance, interest expense in 1998 included 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. During the second quarter of 1998 and the six month period ended June
30, 1998, LaserSight recognized gains on the sale of subsidiaries and securities
of $150,076 and $364,452, respectively, resulting from the sale of marketable
equity securities received in December 1997 in exchange for the sale of two
health care subsidiaries.
Income Taxes. For the three and six month periods ended June 30, 1999,
LaserSight had no income tax expense compared to an income tax benefit of
$78,943 being recorded in the second quarter of 1998 and an income tax expense
of $232,213 being recognized during the six month period ended June 30, 1998.
The net expense for the six month period ended June 30, 1998, 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 1999 was $3,450,662 compared to a
net loss of $1,750,873 for the comparable period in 1998. Net loss for the six
month period ended June 30, 1999, was $6,771,026 compared to a net loss of
$3,714,380 for the same period in 1998. The increase in net loss for the three
and six month periods ended June 30, 1999, can be attributed to the increase in
other general and administrative expenses generated at LaserSight's technology
subsidiary.
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 decreased to ($0.21) for the
second quarter of 1999 compared to ($0.34) for the comparable period in 1998.
The loss per basic and diluted share decreased to ($0.46) for the six month
period ended June 30, 1999, compared to ($0.64) for the same period in 1998. 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 conversion discount on preferred stock in accordance with EITF Topic D-60
17
<PAGE>
and accretion and dividend requirements on the Series B Preferred Stock. During
the three and six month period ended June 30, 1999, the weighted average shares
of Common Stock outstanding increased primarily due to the exercise of options
and warrants and the private placement completed in March 1999.
Liquidity and Capital Resources.
Working Capital. Working capital increased $11,066,910 from $14,874,638 at
December 31, 1998 to $25,941,548 as of June 30, 1999. This increase in working
capital resulted primarily from the March 1999 private placement of common
stock, the exercise of stock options and warrants and increases in accounts
receivable.
Sources and Uses of Funds. Operating activities used net cash of $6,208,624
during the first six months of 1999, compared to $7,188,709 of net cash used
during the same period in 1998. This improvement is primarily the result of a
smaller increase in accounts and notes receivable ($3,832,000) (primarily
resulting from more favorable sales terms being obtained on the sale of our
LaserScan LSX excimer laser system), a reduction in inventory levels ($453,000),
increases in accrued expenses ($410,000) and the lack of change in income taxes
accounts ($874,000), substantially offset by a larger net loss during the first
six months of 1999 ($3,057,000), decreases in deferred revenue ($1,115,000) and
increases in other net assets and liabilities ($561,652).
Net cash used in investing activities during the first six months of 1999 was
$345,603 compared to $12,436,010 in net cash provided by investing activities
over the comparable period in 1998. Net cash used in investing activities during
the first six month of 1999 can be attributed to the purchase of furniture,
equipment and leasehold improvements ($346,000). Net cash provided by investing
activities during the first six months of 1998 can be primarily attributed to
proceeds generated from the licensing of patents ($6,170,000) and from the sale
of investments ($6,527,000), partially offset by the purchase of furniture,
equipment and leasehold improvements ($289,000).
Net cash provided from financing activities was $16,780,397 during the first six
months of 1999, compared to $3,339,155 over the comparable period in 1998. Net
cash provided from financing activities during the first six months of 1999
resulted from the issuance of common stock in a private placement ($8,850,000)
and from the exercise of stock options and warrants ($7,950,056), partially
offset by payments made on a capital lease obligation ($20,000). 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 ($15,820,000) and from the exercise of stock options ($32,000),
partially offset by the repurchase of Series B Preferred Stock ($10,512,000) and
the repayment of the note payable to Foothill ($2,000,000).
We believe that our balances of cash and cash equivalents, together with our
cash flows from operations, should be sufficient to fund our anticipated working
capital requirements for the next 12 months in accordance with our current
business plan. Our belief regarding future working capital requirements is based
on various factors and assumptions including the anticipated entry into the
international marketplace with keratome related products during the third or
fourth quarter of 1999 and the U.S. market with both our keratome related
products in the third or fourth quarter of 1999 and LaserScan LSX excimer laser
system late in 1999, the anticipated timely collection of receivables including
faster anticipated collections and the lack of extended payment terms on
keratome related products, and the absence of unanticipated product development
costs. These factors and assumptions are subject to certain contingencies and
uncertainties, some of which are beyond our control. If we do not collect a
material portion of current receivables in a timely manner, experience
significant further delays in the shipment of our UniShaperTM Single-Use
Keratome product or in the FDA clearance and entry into the U.S. market of our
LaserScan LSX excimer laser system, or experience less market demand for our
18
<PAGE>
products than we anticipate, our liquidity could be materially and adversely
affected. In July 1999, LaserSight began shipment of its UltraEdgeTM keratome
blades, made in conjunction with its previously announced manufacturing
agreement with Becton Dickinson. The consummation of this agreement resulted in
the cessation of internal blade manufacturing operations. We are currently
validating our UniShaper Single-Use Keratome with blades manufactured by Becton
Dickinson, which testing to date indicates are sharper and more uniform than
prior blades, which were also manufactured by a third party. The process of
changing the blade in the keratome and further validation testing has delayed
our anticipated entry to market from what was last reported.
Similarly, our long-term liquidity will be dependent on the successful entrance
into the U.S. market with our laser systems and/or our keratome systems, and our
success in collecting our receivables on a timely basis. We cannot assure you
that we will not seek additional debt or equity financing in the future to
implement our business plan or any changes thereto in response to future
developments or unanticipated contingencies. Other than the $2.5 million credit
facility signed in June 1999 with Huntington, we currently do not have any
commitments for additional financing. As of August 10, 1999, we had no
outstanding borrowings under the credit agreement. We cannot be certain that
additional financing will be available in the future to the extent required or
that, if available, it will be on acceptable terms. If we raise additional funds
by issuing equity or convertible debt securities, the terms of the new
securities could have rights, preferences and privileges senior to those of our
Common Stock. If we raise additional funds through debt financing, the terms of
the debt could require a substantial portion of our cash flow from operations to
be dedicated to the payment of principal and interest and may render us more
vulnerable to competitive pressures and economic downturns.
We expect cash flow from operations to show improvement during the last half of
1999 as a result of the expected shipment of the LaserScan LSX excimer laser
system into the domestic market and keratomes and related products both
domestically and internationally. However, we expect to incur a loss and a
deficit in cash flow from operations for the third quarter of 1999. There can be
no assurance that we can regain or sustain profitability or positive
operating cash flow in any subsequent fiscal period. We may from time to time
reassess our credit policies and the terms we make available to individual
customers. There can be no assurance as to the terms or amount of third-party
financing, if any, that our customers may obtain in the future. We are placing
greater emphasis on the terms and collection timing of future sales.
We expect to begin commercial shipment of our keratome products, increase the
level of manufacturing and distribution of our laser systems and to continue a
variety of research and development activities on our excimer and solid-state
laser systems over the next 12 months and it is anticipated that such keratome,
research and development and regulatory efforts in the U.S. will be the most
significant technology related expenses in the foreseeable future.
LaserSight is receptive to joint venture discussions with compatible companies
for the further development of international markets for our products. We have
no present commitments for joint venture relationships, and no assurance can be
given that any such relationships will be secured on terms satisfactory to us.
19
<PAGE>
Risk Factors and Uncertainties
The business, results or operations and financial condition of LaserSight and
the market price of it's Common Stock may be adversely affected by a variety of
factors, including the factors listed below:
Industry and Competition Risks
WE MAY ENCOUNTER DIFFICULTIES COMPETING IN THE HIGHLY COMPETITIVE VISION
CORRECTION INDUSTRY. The vision correction industry is subject to intense,
increasing competition, and we do not know if we will be able to compete
successfully against our current and future competitors. Many of our competitors
have existing products and distribution systems in the marketplace and are
substantially larger, better financed, and better known. Two of our principal
competitors, Summit Technology, Inc. and Autonomous Technology Corporation,
recently received shareholder approval of a merger agreement. The market
presence, technology base and distribution capabilities of the combined entities
will be substantial. Further, the merger provides Autonomous with licenses to
use certain patents owned by Visx, Inc.
MANY OF OUR COMPETITORS HAVE RECEIVED BROADER REGULATORY APPROVALS AND ARE
CURRENTLY MARKETING COMPETING PRODUCTS WHICH MAY PREVENT US FROM MARKETING OUR
PRODUCTS ONCE WE RECEIVE REGULATORY APPROVAL. On August 9, 1999, we were cleared
on our Good Manufacturing Practices ("GMP") inspection from the FDA, required
for the commercial sale of our LaserScan LSX laser system, with only minor
observations. The final step for PMA clearance by the FDA is labeling. We
believe that it is reasonable to expect such FDA clearance 30 to 60 days
following the GMP clearance. However, we cannot be certain as to the receipt or
the timing of receipt of such clearance. A number of lasers manufactured by
other companies have either received, or are 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 our lasers. In addition to laser
systems of Summit Technology, Inc., Visx, Inc. and others already approved for
commercial sale in the U.S., Nidek Co., Ltd. obtained FDA approval of its
EC-5000 excimer laser system in December 1998. Other manufacturers, including
Bausch & Lomb, are expected to obtain approval during 1999, giving them the
right to market their systems commercially in the U.S. The established market
presence in the U.S. of previously-approved laser systems, as well as the entry
of new competitors into the market upon receipt of regulatory approvals, could
impede our ability to successfully introduce our LaserScan LSX system and have a
material adverse effect on our business, financial condition and results of
operations.
We have developed both a single use, disposable keratome product, the
UniShaper, formerly known as the A*D*K (TM), and a multiple use durable keratome
product, the UltraShaper. The keratome is a surgical instrument used during
LASIK procedures to produce a corneal flap for this procedure. Based on reports
of industry analysts and our observations, we believe that during 1998, LASIK
captured a majority of refractive laser surgery cases and has emerged as many
surgeon's and patient's choice for laser refractive surgery both in the U.S. and
internationally. We believe there are five main competitors in the keratome
business, all of whom have received FDA clearance for and are marketing their
keratomes in the U.S. and elsewhere. FDA clearance for keratome systems is
significantly simpler than the approval process for laser systems and generally
takes 90 days or less. We have received FDA clearance on the UniShaper and,
having responded to questions raised by the FDA, believe it is reasonable to
expect clearance on the UltraShaper in the third quarter or early fourth quarter
of 1999. However, we can not be certain as to the receipt or the timing of
receipt of such clearance. The use of our keratome products is not required to
perform LASIK procedures.
NEW PRODUCTS OR TECHNOLOGIES COULD ERODE DEMAND FOR OUR PRODUCTS OR MAKE
THEM OBSOLETE. In addition to competing with eyeglasses, contact lenses and
radial keratotomy, excimer laser vision correction competes or may compete with
20
<PAGE>
newer technologies such as intraocular lenses, corneal rings and surgical
techniques using different types of lasers. To date, we have not been materially
affected by the introduction of new or advanced technologies in the laser vision
correction industry. Two products that may become competitive within the next
one to three years are intraocular lenses and corneal rings. Both of these
procedures involve lens implants that require an invasive surgical procedure,
unlike an excimer laser, and their ultimate market acceptance is unknown at this
time. To the extent that any of these or other new technologies are perceived to
be clinically superior or economically more attractive than excimer laser vision
correction, they could erode demand for our excimer laser products, cause a
reduction in selling prices of such products or render such products obsolete.
In addition, if one or more competing technologies achieve broader market
acceptance or render our PRK and LASIK laser procedures obsolete, it could have
a material adverse effect on our business, financial condition and results of
operations.
While we do not anticipate that additional technical difficulties will
arise that would further delay or prevent the successful development,
introduction and marketing of the UniShaper, we cannot be certain that new
difficulties will not arise. Unanticipated logistical issues, such as the
manufacturer's failure to meet expected production goals, may arise which could
further delay the commercialization of the product. As is typical in the case of
new and rapidly evolving industries, demand and market for recently-introduced
technology and products is uncertain, and we cannot be certain that our
UniShaper single use product or future new products and enhancements will be
accepted in the marketplace. In addition, announcements of new products, whether
for sale in the near future or at some later date, may cause customers to defer
purchasing our existing products.
BECAUSE THE SALE OF OUR PRODUCTS IS DEPENDENT ON MARKET ACCEPTANCE, THE
LACK OF BROAD MARKET ACCEPTANCE OF LASER-BASED EYE TREATMENT WOULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS. We believe that whether we achieve profitability
and growth will depend, in part, upon broad acceptance of PRK or LASIK in the
U.S. and other countries. We cannot be certain 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 adversely affected by:
o The cost of the procedure
o Possible concerns relating to safety and efficacy
o The public's general resistance to surgery
o The effectiveness and lower cost of alternative methods of
correcting refractive vision disorders
o The lack of long-term follow-up data
o The possibility of unknown side effects
o The lack of third-party reimbursement for the procedures
o Possible future unfavorable publicity involving patient
outcomes from the use of PRK or LASIK systems
o 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 our business, financial condition and results of
operations.
Financial and Liquidity Risks
WE HAVE EXPERIENCED SIGNIFICANT LOSSES AND OPERATING CASH FLOW DEFICITS
AND WE EXPECT THAT OPERATING CASH FLOW DEFICITS WILL CONTINUE THROUGH AT LEAST
THE THIRD QUARTER OF 1999. We experienced significant net losses and deficits in
cash flow from operations for the six month period ended June 30, 1999, and the
fiscal years ended December 31, 1998 and 1997, as set forth in the following
table. We cannot be certain that we will be able to regain or sustain
profitability or positive operating cash flow.
21
<PAGE>
Six Month Period
Ended June 30, Years Ended December 31,
1999 1998 1997
---- ---- ----
Net Loss $ 6.8 million $ 11.9 million $ 7.3 million
Deficit in Cash Flow
from Operations $ 6.2 million $ 14.3 million $ 4.4 million
As of June 30, 1999, we had an accumulated deficit of $30.5 million. We
expect to report a loss and deficit in cash flow from operations for the third
quarter of 1999.
IF OUR UNCOLLECTIBLE RECEIVABLES EXCEED OUR RESERVES WE WILL INCUR
ADDITIONAL UNANTICIPATED EXPENSES. Although we monitor the status of our
receivables and maintain a reserve for estimated losses, we cannot be certain
that our reserves for estimated losses, which were approximately $3.4 million at
June 30, 1999, will be sufficient to cover the amount of our actual write-offs
over time. At June 30, 1999, our trade accounts and notes receivable totaled
approximately $12.7 million, and accrued commissions, the payment of which
generally depends on the collection of such net trade accounts and notes
receivable, totaled approximately $1.8 million. Actual write-offs that
materially exceed amounts reserved could have a material adverse effect on our
consolidated financial condition and results of operations. Total expense
relating to uncollectible accounts during the first six months of 1999 was
approximately $0.9 million. Our total expense related to uncollectible accounts
increased $1.9 million in 1997 to approximately $2.3 million, and related to
accounts that were determined to be uncollectible largely as a result of the
customers' inability to sustain surgery volumes necessary to support the system,
the risks inherent in international sales and additional reserves for
uncollectible accounts. Such expense decreased to approximately $1.2 million in
1998, reflecting our subsequent focus on customers who have historically had
more significant refractive surgery practices, generally improved terms of sales
in 1998 and additional history upon which to estimate levels of reserves. No
material accounts were written off in the first half of 1999. Actual accounts
written off during 1998, 1997 and 1996 were $0.5 million, $1.8 million and zero,
respectively. The amount of any loss that we may have to recognize in connection
with our inability to collect receivables is principally dependent on our
customer's ongoing financial condition, their ability to generate revenues from
our laser systems, and our ability to obtain and enforce legal judgments against
delinquent customers. Approximately 81% of our net receivables at June 30, 1999,
related to international accounts.
Our agreements with our customers typically provide that the contracts are
governed by Florida law. We have not determined whether or to what extent courts
or administrative agencies located in foreign countries would enforce our right
to collect such receivables or to recover laser systems from customers in the
event of a customer's payment default. When a customer is not paying according
to established terms, we attempt to communicate and understand the underlying
causes and work with the customer to resolve any issues we can control or
influence. In most cases, we have been able to resolve the customer's issues and
continue to collect our receivable, either on the original schedule or under
restructured terms. If such issues are not resolved, we evaluate our legal and
other alternatives based on existing facts and circumstances. In most such
cases, we have concluded that the account should be written off as
uncollectible. We have generally been successful in recovering the laser systems
in such cases.
Our ability to evaluate the financial condition and revenue generating
ability of our prospective customers located outside of the United States, and
our ability to obtain and enforce legal judgments against non-U.S. customers, is
generally more limited than for our customers located in the U.S. See "--Company
and Business Risks--We are Subject to Certain Risks Associated with our
International Sales."
IF WE EXPERIENCE DIFFICULTY COLLECTING RESTRUCTURED RECEIVABLES WITH
EXTENDED PAYMENT TERMS WE MAY EXPERIENCE LIQUIDITY PROBLEMS. At June 30, 1999,
22
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we had extended the original payment terms of laser customer accounts totaling
approximately $1.9 million by periods ranging from 12 to 60 months. Such
restructured receivables represent approximately 11 percent of our gross
receivables as of that date. Our liquidity and operating cash flow would be
adversely affected if additional extensions become necessary in the future. In
addition, it would be more difficult to collect laser system receivables if the
payment schedule extends beyond the expected or actual economic life of the
system, which we estimate to be approximately five to seven years. To date, we
do not believe any payment schedules extend beyond the economic life of the
applicable systems.
WE WILL EXPERIENCE LIQUIDITY PROBLEMS IF, AS IN THE PAST, WE ARE UNABLE TO
COLLECT OUR RECEIVABLES IN A TIMELY MANNER AND ADDITIONAL FINANCING MIGHT NOT BE
AVAILABLE IF WE NEED IT. During the six month period ended June 30, 1999, and
the year ended December 31, 1998, we experienced $6.2 million and $14.3 million
in deficits in cash flow from operations, respectively. We expect that any
improvements in cash flow from operations will depend on, among other things,
our ability to market, produce and sell our new LaserScan LSX laser systems in
larger quantities and our ability to market, produce and sell our UniShaper
single use keratome product on a commercial basis. During the first six months
of 1999 and the fourth quarter of 1998, LaserScan LSX laser system sales
accounted for the majority of laser systems sold, and we expect sales of our
LaserScan LSX laser system to make a more significant contribution to our
operating results in the future. We are still in the process of completing the
clinical validation of our UniShaper single use keratome product that utilizes
blades manufactured by Becton Dickinson pursuant to our recently announced
manufacturing agreement with them. See "--Company and Business Risks--
Our Supply of Certain Critical Components and Systems may be Interrupted Because
of Our Reliance on a Limited Number of Suppliers." We believe that regular
commercial shipments of that product will begin in the third or fourth quarter
of 1999. The process of changing the blade in the keratome and further
validation testing has delayed our anticipated entry to market from what was
last reported.
We believe that our balances of cash and cash equivalents, together with
our cash flows from operations, should be sufficient to fund our anticipated
working capital requirements for the next 12 months in accordance with our
current business plan. Our belief regarding future working capital requirements
is based on various factors and assumptions including the anticipated
entry into the international marketplace with keratome related products and the
U.S. market with both our keratome related products and LaserScan LSX system,
the anticipated timely collection of receivables including faster anticipated
collections and the lack of extended payment terms on keratome related products,
and the absence of unanticipated product development costs. These factors and
assumptions are subject to certain contingencies and uncertainties, some of
which are beyond our control. If we do not collect a material portion of current
receivables in a timely manner, experience significant further delays in the
shipment of our UniShaper single use keratome product or in the FDA clearance
and entry into the U.S. market of our LaserScan LSX laser system, or experience
less market demand for our products than we anticipate, our liquidity could be
materially and adversely affected.
Similarly, our long-term liquidity will be dependent on the successful
entrance into the U.S. market with our laser systems and/or our keratome
systems, and our success in collecting our receivables on a timely basis. We
cannot be certain that we will not seek additional debt or equity financing in
the future to implement our business plan or any changes thereto in response to
future developments or unanticipated contingencies. Other than the $2.5 million
credit facility signed in June 1999 with Huntington, we currently do not have
any commitments for additional financing. We cannot be certain that
additional financing will be available in the future to the extent required or
that, if available, it will be on acceptable terms. If we raise additional funds
by issuing equity or convertible debt securities, the terms of the new
securities could have rights, preferences and privileges senior to those of our
common stock. If we raise additional funds through debt financing, the terms of
the debt could require a substantial portion of our cash flow from operations to
be dedicated to the payment of principal and interest and may render us more
vulnerable to competitive pressures and economic downturns.
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Common Stock Risks
THE MARKET PRICE OF OUR COMMON STOCK MAY CONTINUE TO EXPERIENCE EXTREME
FLUCTUATIONS DUE TO MARKET CONDITIONS THAT ARE UNRELATED TO OUR OPERATING
PERFORMANCE. The volatility of our common stock imposes a greater risk of
capital losses on stockholders as compared to less volatile stocks. In addition,
such volatility makes it difficult to ascribe a stable valuation to a
stockholder's holdings of LaserSight common stock. Factors such as announcements
of technological innovations or new products by LaserSight or its competitors,
changes in domestic or foreign governmental regulations or regulatory approval
processes, developments or disputes relating to patent or proprietary rights,
public concern as to the safety and efficacy of the procedures for which the
laser system is used, and changes in reports and recommendations of security
analysts, have and may continue to have a significant impact on the market price
of LaserSight common stock. Moreover, the possibility exists that the stock
market, and in particular the securities of technology companies such as
LaserSight, could experience extreme price and volume fluctuations unrelated to
operating performance.
VARIATIONS IN OUR SALES AND OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO
DECLINE. Our operating results have fluctuated in the past, and may continue to
fluctuate in the future, as a result of a variety of factors, many of which are
outside of our control. For example, we have historically operated with little
or no backlog because our products are generally shipped as orders are received,
and a significant portion of orders for a particular quarter have been received
and shipped near the end of the quarter. As a result, our operating results for
any quarter often depend on orders received and laser systems shipped late in
that quarter. Other factors that may cause our operating results to fluctuate
include:
o timing of regulatory approvals and the introduction of new products;
o reductions, cancellations or fulfillment of major orders;
o the addition or loss of significant customers;
o our relative mix of business;
o changes in pricing by us or our competitors;
o changes in personnel and employee utilization rates;
o costs related to expansion of our business;
o increased competition; and
o budget decisions by our customers.
As a result of these fluctuations, we believe that period-to-period
comparisons of our operating results cannot necessarily be relied upon as
indicators of future performance. In some quarters our operating results may
fall below the expectations of securities analysts and investors due to any of
the factors described above. In such event, the trading price of our common
stock would likely decline.
THE SIGNIFICANT NUMBER OF SHARES FOR FUTURE SALE AND DILUTIVE STOCK
ISSUANCES MAY ADVERSELY AFFECT OUR STOCK PRICE. Sales, or the possibility of
sales, of substantial amounts of our common stock in the public market could
adversely affect the market price of our common stock. As of August 10, 1999, of
LaserSight's 17,530,495 shares of common stock outstanding, substantially all
such shares were freely tradable without restriction or further registration
under the Securities Act, except to the extent such shares are held by
"affiliates" of LaserSight as that term is defined in Rule 144 under the
Securities Act or subject only to the satisfaction of a prospectus delivery
requirement.
Shares of common stock which LaserSight may issue in connection with
future acquisitions or financings or pursuant to outstanding warrants or
agreements could also adversely affect the market price of our common stock and
cause significant dilution in our earnings per share and net book value per
share.
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o We may be required to issue approximately 1.7 million additional shares
of common stock upon the exercise of outstanding warrants and to
satisfy certain contingent contractual obligations.
o In addition, the 4 million outstanding shares of Series C and Series D
Preferred Stock may be converted into common stock at any time.
o The anti-dilution provisions of certain of our existing securities and
obligations require us to issue additional shares if we issue shares of
common stock below specified price levels. If a future share issuance
triggers these adjustments, the beneficiaries of such provisions
effectively receive some protection from declines in the market price
of our common stock, while our other stockholders incur additional
dilution of their ownership interest.
We may include similar anti-dilution provisions in securities issued in
connection with future financings. Some of the factors we consider when we
determine whether to include such provisions are our cash resources, the trading
history of our common stock, the negotiating position of the selling party or
the investors, and the extent to which we estimate that the expected benefit
from the acquisition or financing exceeds the expected dilutive effect of the
price-protection provision.
CERTAIN ANTI-TAKEOVER MEASURES MAY HAVE AN ADVERSE EFFECT ON OUR STOCK
PRICE AND MAY ALSO DISCOURAGE TAKEOVERS THAT MIGHT BE BENEFICIAL TO
STOCKHOLDERS. Certain provisions of our certificate of incorporation, by-laws
and Delaware law could delay or frustrate the removal of incumbent directors,
discourage potential acquisition proposals and delay, defer or prevent a change
in control of LaserSight, even if such events could be beneficial, in the short
term, to the interests of our stockholders. For example, our certificate of
incorporation allows us to issue preferred stock with rights senior to those of
the common stock without stockholder action. LaserSight also is subject to
provisions of Delaware corporation law that prohibit a publicly-held Delaware
corporation from engaging in a broad range of business combinations with a
person who, together with affiliates and associates, owns 15% or more of the
corporation's common stock (an "interested stockholder") for three years after
the person became an interested stockholder, unless the business combination is
approved in a prescribed manner. We also have adopted a stockholder rights
agreement and declared a dividend distribution of one preferred share purchase
right on each outstanding share of common stock. The rights would cause
substantial dilution to a person or group that attempts to acquire 15% or more
of our common stock on terms not approved by our Board of Directors.
Company and Business Risks
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS. Our ability
to maintain our competitive position depends in part upon the continued
contributions of our executive officers and other key employees, especially
Michael R. Farris, our President and Chief Executive Officer, and J. Richard
Crowley, the President and Chief Operating Officer of our 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
our business. We do not carry "key man" insurance on Mr. Farris, Mr. Crowley or
any other officers or key employees.
As we continue the clinical development of our excimer lasers and other
products and prepare for regulatory approvals and other commercialization
activities, we will need to continue to implement and expand our operational,
financial and management resources and controls. While to date we haven't
experienced problems recruiting or retaining the personnel necessary to
implement such actions, we cannot be certain that such problems won't arise in
the future. If we fail to attract and retain qualified individuals for necessary
positions, and if we are unable to effectively manage growth in our domestic and
international operations, it could have a material adverse effect on our
business, financial condition and results of operations.
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FAILURE OF OUR "Y2K" COMPLIANCE EFFORTS, LACK OF COMPLIANCE BY OUR
MATERIAL SUPPLIERS AND OTHER UNCERTAINTIES RELATED TO THE "Y2K ISSUE" COULD
ADVERSELY AFFECT OUR BUSINESS. As many computer systems, software programs and
other equipment with embedded chips or processors use only two digits rather
than four to define the applicable year, they may be unable to process
accurately certain data, during or after the year 2000. As a result, LaserSight
as well as other business and governmental entities are at risk for possible
miscalculations or systems failures which could cause material disruptions in
business operations. This is commonly known as the Year 2000 ("Y2K") issue. The
Y2K issue concerns not only information systems and technology used by
LaserSight, but also concerns third parties, such as our customers, vendors and
distributors, using information systems and technology that may interact with or
affect our operations.
We have implemented a Y2K readiness program with the objective of having
all of our significant information systems and technology functioning properly
with respect to Y2K before January 1, 2000. We have developed a comprehensive
plan to assess the actual and potential Y2K impact on our operations, both in
information technology ("IT") areas and non-information technology ("Non-IT")
areas, as well as our product offerings. Our assessment included our
manufacturing and operating systems and the readiness of vendors and other third
parties upon whom we rely.
o IT Systems. Our IT systems are microcomputer-based and consist of
standard software purchased from outside vendors. All software is being
identified and assessed to determine the extent of modification
required in order to be Y2K compliant. We believe that all software
will be made Y2K compliant before the end of September 1999 through
vendor-provided updates or replacement with other Y2K compliant
hardware and software. We, as has been planned for some time, are also
replacing our financial and accounting software, and expect to have the
majority of such new software implemented in the third quarter of 1999.
The vendors of our financial and accounting software have represented
to us that the software is Y2K compliant. Our IT inventory related to
Y2K compliance is substantially complete, the remediation assessment of
problem areas is substantially complete, and testing, including
validation of compliance, is substantially complete.
o Non-IT Systems. For our Non-IT systems, we have identified third
parties with which we have a significant relationship that, in the
event of a Y2K failure, could have a material impact on our business,
financial condition or results of operations. The third parties include
utility suppliers, material and supply vendors, communication vendors
and our significant distributors. Some of these relationships,
especially those associated with certain suppliers, are material to us
and a Y2K failure by one or more of these parties could have a material
adverse effect on our business, financial condition and results of
operations. We are corresponding with these business partners and
service providers to assess their ability to support our operations
with respect to each of their Y2K issues. The issues that are
identified as part of this process are being prioritized in order of
significance to our operations and we will take corrective action as
appropriate. We have contacted all of our significant vendors, business
partners and service providers. Over 95% have responded to date, and we
are continuing to assess their responses.
o Products. We believe our current production model, the LaserScan LSX
excimer laser system, will not suffer Y2K problems as all applicable
components and the software have been validated and tested. Older
models, generally manufactured in the first half of 1998 and earlier,
may require upgraded software and/or hardware. We are notifying
affected users and generally offer such upgrades at additional cost to
the user. Such upgrades are currently available and, in addition to
resolving potential Y2K problems, also provide for more efficient
system performance.
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We have developed contingency plans for Y2K issues which, if not timely
resolved, could have a significant impact on our operations. These plans are
intended to minimize the impact of failure to achieve Y2K compliance. Such
contingency plans are substantially complete although we will continue to
monitor our plans as a result of future events and circumstances.
We estimate the costs to address Y2K issues will total $150,000, of which
approximately $80,000 has been incurred to date. Such costs will be expensed as
incurred, and will exclude the costs of our new financial and accounting
software. Y2K compliance related costs are estimated to be 50% of our total IT
expense budget through the end of 1999. No material IT projects are expected to
be delayed. The costs and time necessary to complete the Y2K modification and
testing processes are based on our best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors. Our Y2K
readiness program is an ongoing process and the estimates of costs and
completion dates for various components of the Y2K readiness program described
above are subject to change.
Due to the general uncertainty inherent in our Y2K compliance, mainly
resulting from our dependence upon the Y2K compliance of the government
agencies, suppliers, vendors and distributors with whom we and our service
providers deal, we are unable to determine at this time our most reasonably
likely worst case scenario. While we expect our Y2K compliance efforts to reduce
significantly our level of uncertainty about the impact of Y2K issues affecting
IT and Non-IT systems and our product offerings, we cannot be certain that costs
related to the lack of Y2K compliance of third parties, business interruptions,
litigation and other liabilities related to Y2K issues will not have a material
adverse effect on our business, financial condition and results of operations.
GOVERNMENT REGULATION AND REGULATORY DECISIONS MAY RESTRICT OR DELAY THE
MANUFACTURE AND MARKETING OF OUR PRODUCTS. Our laser products are subject to
strict governmental regulations which materially affect our ability to
manufacture and market these products and directly impact our overall prospects.
All laser devices 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. The regulations impose design and performance
standards, labeling and reporting requirements, and submission conditions in
advance of marketing for all medical laser products. Our ophthalmic laser
systems produced for medical use require Pre-Market Approval ("PMA") by the FDA
before we can ship our 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.
After notification from the FDA that our PMA for PRK treatment of
nearsightedness had been accepted for filing in May 1998, the FDA requested
additional information to which we have responded. We underwent an FDA audit of
the clinical research portion of the PMA application in March 1999, completing
that portion of the inspection process, and received GMP clearance with respect
to our manufacturing facilities in August 1999. Before our ophthalmic laser
systems can receive PMA by the FDA, we will be required to agree on final
labeling with the FDA, a process expected to take 30 to 60 days. The GMP
regulations impose certain procedural and documentation requirements with
respect to our manufacturing and quality assurance activities. Our facilities
will be subject to future inspections by the FDA, and if any material
noncompliance with GMP guidelines is noted during facility inspections, the
marketing of our laser products may be adversely affected. In addition, if any
of our suppliers of significant components or sub-assemblies cannot meet our
specification requirements, we 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,
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injunctions, recall or seizure of products, suspension of manufacturing, denial
or withdrawal of PMAs, and criminal prosecution.
Laser products marketed in foreign countries are often subject to local
laws governing health product development processes, which may impose additional
costs for overseas product development. In particular, all member countries of
the European Economic Union ("EU") require CE Mark certification of compliance
with the EU medical directives as the standard for regulatory approval for sale
of laser systems in EU member countries. Both of our LaserScan LSX and LaserScan
2000 laser systems have received CE Mark certification, the former of which was
received in September 1998.
We cannot determine the costs or time it will take to complete the
approval process and the related clinical testing for our medical laser
products. Future legislative or administrative requirements, in the U.S., or
elsewhere, may adversely affect our ability to obtain or retain regulatory
approval for our laser products. The failure to obtain required approvals on a
timely basis could have a material adverse effect on our business, financial
condition and results of operations.
PATENT INFRINGEMENT ALLEGATIONS MAY IMPAIR OUR ABILITY TO MANUFACTURE AND
MARKET OUR PRODUCTS. There are a number of U.S. and foreign patents covering
methods and apparatus for performing corneal surgery that we do not own or have
the right to use. If we were found to infringe a patent in a particular market,
LaserSight and its customers may be enjoined from making, using and selling that
product in the market and be liable for damages for any past infringement of
such rights. In order to continue using such rights, we would be required to
obtain a license, which may require us to make royalty, per procedure or other
fee payments. We cannot be certain if we or our customers will be successful in
securing licenses, or that if we obtain licenses, such licenses will be on
acceptable terms. Alternatively, we might be required to redesign the infringing
aspects of these products. Any redesign efforts that we undertake could be
expensive and might require regulatory review. Furthermore, the redesign efforts
could delay the reintroduction of these products into certain markets, or may be
so significant as to be impractical. If redesign efforts were impractical, we
could be prevented from manufacturing and selling the infringing products, which
would have a material adverse effect on our business, financial and results of
operations.
While we are not currently involved in any material patent litigation, we
have been the subject of patent infringement allegations in the past and such
allegations are common in our industry. In 1992, Summit and Visx formed a U.S.
partnership, Pillar Point Partners, to pool certain of their patents related to
corneal sculpting technologies. As part of their agreement to dissolve Pillar
Point in June 1998, 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. In connection with our March 1996 settlement of litigation with
Pillar Point regarding alleged infringement by our lasers of certain U.S.
patents, we agreed to notify Pillar Point before we begin manufacturing or
selling our laser systems in the U.S. While we are not contractually obligated
to anyone to obtain a license prior to selling our lasers in the U.S., one or
more of our competitors may assert that such a license is required. As of the
date of this prospectus, we have not obtained a U.S. license from either Summit
or Visx, and the terms of any license, if such license is granted, have not been
determined.
REQUIRED MINIMUM PAYMENTS UNDER OUR UNISHAPER LICENSE AGREEMENT MAY EXCEED
OUR GROSS PROFITS FROM SALES OF OUR UNISHAPER PRODUCT. In addition to the risk
that the UniShaper single use keratome will not be accepted in the marketplace,
we are required to make certain minimum payments to the licensors under our
UniShaper single use keratome limited exclusive license agreement. Under the
agreement, we are required to pay a total of $300,000 in two equal installments
due six and 12 months after the date of our receipt of completed limited
production molds and to provide an excimer laser. We provided the laser during
the quarter ended June 30, 1998, and we expect to accept and receive such molds
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once we determine that the product is ready to be commercially shipped. We
currently anticipate regular commercial shipments to commence in the third or
fourth quarter of 1999. In addition, commencing seven months after such date, we
will be required to make royalty payments equal to 50% of our defined gross
profits from UniShaper single use keratome sales, with a minimum royalty of
$400,000 per calendar quarter for a period of eight quarters.
WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES.
Our international sales accounted for 71% and 87% of our total revenues during
the six month period ended June 30, 1999, and the year ended December 31, 1998,
respectively. We expect sales to international accounts will continue to
represent a comparable percentage of our total sales unless and until our laser
systems are cleared for commercial distribution in the U.S., or with respect to
those products that do not require regulatory approval, otherwise enter the U.S.
market. The majority of our international sales for the six month period ended
June 30, 1999, were to customers in Canada, Italy, Spain and the United States
(related to clinical trials) and for the year ended December 31, 1998, were to
customers in Canada, China, Brazil, Mexico, Italy, Argentina, South Africa, and
Turkey. Our business, financial condition and international results of
operations may be adversely affected by recent economic instability in Brazil
and the impact of that instability on other South American countries, future
economic instability in other countries in which we have sold or may sell,
increases in duty rates, difficulties in obtaining export licenses, ability to
maintain or increase prices, and competition. In addition, international sales
may be limited or disrupted by:
o The imposition of government controls
o Export license requirements
o Political instability
o Trade restrictions
o Changes in tariffs
o Difficulties in staffing and coordinating communications
among and managing international operations.
Because all of our sales have been denominated in U.S. dollars, we do not
have exposure to typical foreign currency fluctuation risk. However, due to our
significant export sales, we are subject to currency exchange rate fluctuations
in the U.S. dollar, which could increase the effective price in local currencies
of our products. This could in turn result in reduced sales, longer payment
cycles and greater difficulty in collecting receivables. See "--If Our
Uncollectible Receivables Exceed Our Reserves We will Incur Additional
Unanticipated Expenses" above. Although we have not experienced any material
adverse effect on our operations as a result of such regulatory, political and
other factors, such factors may have a material adverse effect on our operations
in the future or require us to modify our business practices.
INADEQUACY OR UNAVAILABILITY OF INSURANCE MAY EXPOSE US TO SUBSTANTIAL
PRODUCT LIABILITY CLAIMS. Our business exposes us to potential product liability
risks that are inherent in the development, testing, manufacture, marketing and
sale of medical devices for human use. We have agreed in the past, and we will
likely agree in the future, to indemnify certain medical institutions and
personnel who conduct and participate in our clinical studies. While we maintain
product liability insurance, we cannot be certain that any such liability will
be covered by our insurance or that damages will not exceed the limits of our
coverage. Even if a claim is covered by insurance, the costs of defending a
product liability, malpractice, negligence or other action, and the assessment
of damages in excess of insurance coverage, could have a material adverse effect
on our business, financial condition and results of operations. Further, product
liability insurance may not continue to be available, either at existing or
increased levels of coverage, on commercially reasonable terms.
OUR SUPPLY OF CERTAIN CRITICAL COMPONENTS AND SYSTEMS MAY BE INTERRUPTED
BECAUSE OF OUR RELIANCE ON A LIMITED NUMBER OF SUPPLIERS. LaserSight currently
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purchases certain components used in the production, operation and maintenance
of its laser systems and related products from a limited number of suppliers and
certain key components are provided by a single vendor. Any interruption in the
supply of critical laser or keratome components could have a material adverse
effect on our business, financial condition and results of operations. For
example, the UniShaper single use keratome product will be manufactured
exclusively for LaserSight by Frantz Medical Development Ltd., an ISO 9001
company experienced in the manufacture of engineering-grade medical devices.
Currently, while under no obligation to do so, we are buying all keratome blades
from Becton Dickinson. Our manufacturing agreement with Becton Dickinson
requires us to purchase one million blades over a five year period and provides
for further discussions regarding a possible marketing and distribution
arrangement with them. We also have exclusive supply arrangements for certain
key laser system components with TUI Lasertechnik und Laserintegration GmbH. If
any of our key suppliers cease providing us with products of acceptable quality
and quantity in a timely fashion, we would have to locate and contract with a
substitute supplier. We do not know if such substitute suppliers could be
located and qualified in a timely manner or could provide required products on
commercially reasonable terms.
Acquisition Risks
PAST AND POSSIBLE FUTURE ACQUISITIONS THAT ARE NOT SUCCESSFULLY INTEGRATED
WITH OUR EXISTING OPERATIONS MAY ADVERSELY AFFECT OUR BUSINESS. We have made
several significant acquisitions since 1994, including The Farris Group in 1994,
Photomed in 1997 and 1998, IBM Patents in August 1997 and our acquisition of
certain assets of SEO Medical in April 1998. Although we are currently focusing
on our existing operations, we may in the future selectively pursue strategic
acquisitions of, investments in, or enter into joint ventures or other strategic
alliances with, companies whose business or technology complement our business.
We may not be able to identify suitable candidates to acquire or enter into
joint ventures or other arrangements with or we may not be able to obtain
financing on satisfactory terms for such activities. In addition, with respect
to our recent acquisitions as well as any future transactions, we could have
difficulty assimilating the personnel, technology and operations of the acquired
company, which would prevent us from realizing expected synergies, and may incur
unanticipated liabilities and contingencies. This could disrupt our ongoing
business and distract our management and other resources. We cannot be certain
that we would succeed in overcoming these risks or any other problems in
connection with any acquisitions we may make or joint ventures or arrangements
we may enter into.
AMORTIZATION AND CHARGES RELATING TO OUR SIGNIFICANT INTANGIBLE ASSETS
COULD ADVERSELY AFFECT OUR STOCK PRICE AND REPORTED NET INCOME OR LOSS. 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 intangible assets are
amortized over a period of time, with the amount amortized in a particular
period constituting a non-cash expense that reduces our net income or increases
our net loss. Of our total assets at June 30, 1999, approximately $15.1 million
or 28% were intangible assets. The following table presents an overview of our
significant intangible assets and goodwill at June 30, 1999:
Value of Assets Amortization Period
--------------- --------------------
Goodwill $6.3 million 12-20 years
Cost of Patents $4.1 million 8-17 years
Acquired Licenses
and Technology $4.7 million 31 months-12 years
A reduction in net income resulting from the amortization of goodwill and
other intangible assets may have an adverse impact upon the market price of our
common stock. In addition, in the event of a sale or liquidation of LaserSight
or our assets, we cannot be certain that the value of such intangible assets
would be recovered.
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In accordance with SFAS 121, we review 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. If we determine that an intangible asset is impaired, a noncash
impairment charge would be recognized. We continue 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. Though TFG's operating results
improved in 1998 when compared to 1996 and 1997, operating losses similar to
those incurred during the first half of 1998 have continued during the first six
months of 1999. If TFG is unsuccessful in continuing to improve its financial
performance, some or all of the carrying amount of goodwill recorded, $3.6
million at June 30, 1999, may be subject to an impairment adjustment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LaserSight believes that its exposure to market risk for changes in
interest and currency rates is not significant. LaserSight's investments are
limited to highly liquid instruments with maturities of three months or less. At
June 30, 1999, LaserSight had approximately $14.6 million of short-term
investments classified as cash and equivalents. All of LaserSight's transactions
with international customers and suppliers are denominated in U.S. dollars.
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PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Jui-Teng Lin
On June 24, 1999, Jui-Teng Lin, a former president and director of
LaserSight, filed an action in the Circuit Court of the Ninth Judicial
Circuit, in and for Orange County, Florida, against the Company. This
action asserts that LaserSight is currently in default on a promissory
note executed in June 1991, and payable to Mr. Lin in the principal
amount of $1,180,000. LaserSight believes that the allegations made by
the plaintiff against the Company are without merit and it intends to
vigorously defend the action. Management believes that LaserSight has
satisfied its obligations under the promissory note and that this
action will not have a material adverse effect on the Company's
financial condition or results of operations.
Certain other legal proceedings against LaserSight are described
in Item 3 (Legal Proceedings) of LaserSight's Form 10-K for the year
ended December 31, 1998.
ITEM 2 CHANGES IN SECURITIES
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 30, 1999, at the Company's annual meeting of shareholders, the
following members were elected to the Board of Directors:
Votes For Votes Against
--------- -------------
J. Richard Crowley 12,724,241 120,000
Michael R. Farris 12,724,241 120,000
Terry Fuller, Ph.D. 12,721,241 123,000
Gary F. Jonas 12,701,241 143,000
Francis E. O'Donnell, Jr., M.D. 12,487,044 357,197
David T. Pieroni 12,704,241 140,000
Juliet Tammenoms Bakker (1) 2,000,000 --
(1) Elected by the holders of Series D Preferred Stock only.
32
<PAGE>
Amendment to the Company's 1995 Stock Option Plan adjusting the
exercise period of outstanding options following the termination of
service of a director was ratified as follows:
Votes For 12,275,147
Votes Against 370,944
Abstain 198,150
Amendment to the Company's 1996 Non-Employee Directors Plan adjusting,
among other things, the aggregate number of shares available for
isssuance, the point of time when options can be awarded to new
directors, and the time when options can be awarded to existing
directors was ratified as follows:
Votes for 12,482,395
Votes Against 150,096
Abstain 211,750
Amendment to the Company's 1996 Equity Incentive Plan adjusting the
aggregate number of shares available for issuance and the maximum
number of options any one employee may receive in a calendar year was
ratified as follows:
Votes For 12,115,827
Votes Against 506,234
Abstain 222,180
Approval of the Company's 1999 Employee Stock Purchase Plan
was ratified as follows:
Votes For 12,546,181
Votes Against 64,210
Abstain 233,850
A proposal to appoint KPMG LLP as auditors was ratified as
follows:
Votes for 12,616,291
Votes Against 34,500
Abstain 193,450
ITEM 5 OTHER INFORMATION
Not applicable.
33
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.1 See Exhibits 10.1, 10.2, 10.6, 10.7, 10.16, 10.22, 10.25, 10.26,
10.30 and 10.31.
3.1 Certificate of Incorporation, as amended (incorporated by reference
to Exhibit 1 of Form 8-A/A (Amendment No. 4) filed by the Company on
June 25, 1998*).
3.2 Bylaws, as amended (filed as Exhibit 3 to the Company's Form 10-K
for the year ended December 31, 1992*).
3.3 Rights Agreement, dated as of July 2, 1998, between LaserSight
Incorporated and American Stock Transfer & Trust Company, as Rights
Agent, which includes (i) as Exhibit A thereto the form of
Certificate of Designation of the Series E Junior Participating
Preferred Stock, (ii) as Exhibit B thereto the form of Right
Certificate (separate certificates for the Rights will not be issued
until after the Distribution Date) and (iii) as Exhibit C thereto
the Summary of Stockholder Rights Agreement (incorporated by
reference to Exhibit 99.1 to the Form 8-K filed by the Company on
July 8, 1998*).
3.4 First Amendment to Rights Agreement, dated as of March 22, 1999,
between LaserSight Incorporated and American Stock Transfer & Trust
Company, as Rights Agent (incorporated by reference to Exhibit 2 to
Form 8-A/A filed by the Company on March 29, 1999*).
4.1 See Exhibits 3.1, 3.2, 3.3, 3.4, 10.19, 10.23, 10.32, 10.33, 10.39
and 10.40.
10.1 Agreement for Purchase and Sale of Stock by and among LaserSight
Centers Incorporated, its stockholders and LaserSight Incorporated
dated January 15, 1993 (filed as Exhibit 2 to the Company's Form
8-K/A filed on January 25, 1993*).
10.2 Amendment to Agreement for Purchase and Sale of Stock by and among
LaserSight Centers Incorporated, its stockholders, and LaserSight
Incorporated dated April 5, 1993 (filed as Exhibit 2 to the
Company's Form 8-K/A filed on April 19, 1993*).
10.3 Royalty Agreement by and between LaserSight Centers Incorporated and
LaserSight Partners dated January 15, 1993 (filed as Exhibit 10.5 to
the Company's Form 10-K for the year ended December 31, 1995*).
10.4 Exchange Agreement dated January 25, 1993 between LaserSight Centers
Incorporated and Laser Partners (filed as Exhibit 10.6 to the
Company's Form 10-K for the year ended December 31, 1995*).
10.5 Stipulation and Agreement of Compromise, Settlement and Release
dated April 18, 1995 among James Gossin, Francis E. O'Donnell, Jr.,
J.T. Lin, Wen S. Dai, Emanuela Dobrin-Charlton, C.H. Huang, W.
Douglas Hajjar, and LaserSight Incorporated (filed as Exhibit 10.7
to the Company's Form 10-K for the year ended December 31, 1995*).
34
<PAGE>
10.6 Agreement for Purchase and Sale of Stock dated December 31, 1993,
among LaserSight Incorporated, MRF, Inc., and Michael R. Farris
(filed as Exhibit 2 to the Company's Form 8-K filed on December 31,
1993*).
10.7 First Amendment to Agreement for Purchase and Sale of Stock by and
among MRF, Inc., Michael R. Farris and LaserSight Incorporated dated
December 28, 1995 (filed as Exhibit 10.9 to the Company's Form 10-K
for the year ended December 31, 1995*).
10.8 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 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*).
10.11 LaserSight Incorporated Amended and Restated 1996 Equity Incentive
Plan (filed as Exhibit 10.12 to the Company's Form 10-Q/A for the
quarter ended June 30, 1998*).
10.12 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*).
10.13 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*).
10.14 Agreement dated January 1, 1997, between International Business
Machines Corporation and LaserSight Incorporated (filed as Exhibit
10.37 to the Company's Form 10-K for the year ended December 31,
1996*).
10.15 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*).
10.16 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*).
10.17 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*).
35
<PAGE>
10.18 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*).
10.19 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*).
10.20 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*).
10.21 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*).
10.22 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*).
10.23 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*).
10.24 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*).
10.25 Stock Purchase Agreement, dated December 30, 1997, by and among
LaserSight Incorporated, LSI Acquisition, Inc., MEC Health Care,
Inc. and Vision Twenty-One, Inc. (filed as Exhibit 2.(i) to the
Company's Form 8-K filed on January 14, 1998*).
10.26 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*).
10.27 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*).
10.28 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*).
10.29 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*).
36
<PAGE>
10.30 Letter Agreement dated September 11, 1998, amending the Agreement
and Plan of Merger dated July 15, 1997, by and among LaserSight
Incorporated, Photomed Acquisition, Inc., Photomed, Inc., Frederic
B. Kremer, M.D., Linda Kremer, Robert Sataloff, Trustee for Alan
Stewart Kremer and Robert Sataloff, Trustee for Mark Adam Kremer
(filed as Exhibit 10.31 to the Company's Form 10-Q filed on November
16, 1998*).
10.31 Exclusive License Agreement dated August 20, 1998, by and between
LaserSight Technologies, Inc. and TLC The Laser Center Patents Inc.
(filed as Exhibit 10.32 to the Company's Form 10-Q filed on November
16, 1998*).
10.32 Purchase Agreement, dated June 9, 1997, by and between LaserSight
Technologies, Inc. and TUI Lasertechnik Und Laserintegration GmbH
(filed as Exhibit 10.1 to the Company's Form S-3, Pre-Effective
Amendment No. 1 filed on February 1, 1999*).
10.33 License and Royalty Agreement, dated September 10, 1997, by and
between LaserSight Technologies, Inc. and Luis A. Ruiz, M.D. and
Sergio Lenchig (filed as Exhibit 10.2 to the Company's Form S-3,
Pre-Effective Amendment No. 1 filed on February 1, 1999*).
10.34 Manufacturing Agreement, dated September 10, 1997, by and between
LaserSight Technologies, Inc. and Frantz Medical Development Ltd.
(filed as Exhibit 10.3 to the Company's Form S-3, Pre-Effective
Amendment No. 1 filed on February 1, 1999*).
10.35 Employment Agreement by and between LaserSight Incorporated and
Michael R. Farris dated October 30, 1998 (filed as Exhibit 10.37 to
the Company's Form 10-K filed on March 31, 1999*).
10.36 Securities Purchase Agreement by and between LaserSight Incorporated
and purchasers of Common Stock dated March 22, 1999 (filed as
Exhibit 10.38 to the Company's Form 10-K filed on March 31, 1999*).
10.37 Warrant to purchase 225,000 shares of Common Stock dated March 22,
1999 by and between LaserSight Incorporated and purchasers of Common
Stock of LaserSight Incorporated (filed as Exhibit 10.39 to the
Company's Form 10-K filed on March 31, 1999*).
10.38 Warrant to purchase 67,500 shares of Common Stock dated February 22,
1999 by and between LaserSight Incorporated and Guy Numann (filed as
Exhibit 10.40 to the Company's Form 10-Q filed on May 17, 1999*).
10.39 Revolving Credit Agreement, dated June 29, 1999, by and between
LaserSight Incorporated and The Huntington National Bank.
37
<PAGE>
10.40** Manufacturing and Marketing Agreement, and Addendum thereto, dated
May 14, 1999 by and between LaserSight Technologies, Inc. and
Becton, Dickinson and Company.
11 Statement of Computation of Loss Per Share
27 Financial Data Schedule
99.1 Press release dated August 9, 1999
99.2 Press release dated August 11, 1999
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended June 30, 1999.
- ---------------------------
* Incorporated herein by reference. File No. 0-19671.
** Confidential treatment has been requested for portions of this document. The
redacted material has been filed separately with the Commission pursuant to
an application for confidential treatment.
38
<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 11, 1999 By: /s/ Michael R. Farris
----------------------------
Michael R. Farris,
Chief Executive Officer
Dated: August 11, 1999 By: /s/ Gregory L. Wilson
----------------------------
Gregory L. Wilson,
Chief Financial Officer
39
Revolving Credit Agreement
REVOLVING CREDIT AGREEMENT dated as of June 29, 1999 between LASERSIGHT
INCORPORATED, a Delaware corporation (the "Borrower") and THE HUNTINGTON
NATIONAL BANK (the "Bank"). The parties hereto hereby agree as follows:
Article 1
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Defined Terms. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
"Affiliate" means any Person (1) which directly or indirectly controls,
or is controlled by, or is under common control with the Borrower or a
Subsidiary; (2) which directly or indirectly beneficially owns or holds five
percent (5%) or more of any class of voting stock of the Borrower or any
Subsidiary; or (3) five percent (5%) or more of the voting stock of which is
directly or indirectly beneficially owned or held by the Borrower or a
Subsidiary. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"Agreement" means this Revolving Credit Agreement, as amended,
supplemented, or modified from time to time.
"Business Day" means any day other than a Saturday, Sunday, or other
day on which commercial banks in Orlando, Florida are authorized or required to
close under the laws of the State of Florida.
"Capital Lease" means all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations and published interpretations thereof.
"Commitment" means the Bank's obligation to make Loan disbursements to
the Borrower pursuant to Section 2.01 in the amount referred to therein.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Borrower within the meaning
of Section 414(b) or 414(c) of the Code.
<PAGE>
"Consolidated Tangible Net Worth" means the Borrower's stockholder's
equity as shown on the Borrower's consolidated balance sheet (which balance
sheet shall be prepared in accordance with GAAP) for the most recent preceding
calendar quarter less:
(i) intangible assets, such as (without limitation) goodwill
(whether representing the excess of cost over book value of assets
acquired or otherwise), capitalized expenses, patents, trademarks,
trade names, copyrights, franchises, licensdeferred charges, such as
(without limitation) unamortized costs and costs of research and
development, and
(ii) advances to stockholders or Affiliates of the Borrower.
"Debt" means (1) indebtedness or liability for borrowed money; (2)
obligations evidenced by bonds, debentures, notes, or other similar instruments;
(3) obligations for the deferred purchase price of property or services
(including trade obligations); (4) obligations as lessee under Capital Leases;
(5) current liabilities in respect of unfunded vested benefits under Plans
covered by ERISA; (6) obligations under letters of credit; (7) obligations under
acceptance facilities; (8) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business), and other contingent
obligations to purchase, to provide funds for payment, to supply funds to invest
in any Person or entity, or otherwise to assure a creditor against loss; and
(9) obligations secured by any Liens, whether or not the obligations have been
assumed.
"Default" means any of the events specified in Section 8.01, whether or
not any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.
"Event of Default" means any of the events specified in Section 8.01,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"GAAP" means generally accepted accounting principles in the United
States.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction to evidence any of the
foregoing).
"Loan" shall have the meaning assigned to such term in Section 2.01.
"Loan Documents" means this Agreement and the Note.
"Multiemployer Plan" means a Plan described in Section 4001(a)(3)
of ERISA.
<PAGE>
"Non-Material Subsidiary" means those subsidiaries of the Borrower that
are described on Exhibit C-1.
"Note" shall have the meaning assigned to such term in Section 2.05.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, business trust,
joint stock. company, trust, unincorporated association, joint venture,
governmental authority, or other entity of whatever nature.
"Plan" means any pension plan which is covered by Title IV of ERISA and
in respect of which the Borrower or a Commonly Controlled Entity is an
"employer" as defined in Section 3(5) of ERISA.
"Prime Rate" means the rate of interest announced by the Bank from time
to time as its prime commercial lending rate, which rate is not intended to be
the lowest rate of interest charged by the Bank to its borrowers.
"Principal Office" means the Bank's office at 253 North Orlando Avenue,
Maitland, Florida 32751.
"Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, as to the Borrower, a corporation (other than a Non
Material Subsidiary) of which shares of stock having ordinary voting power
(other than stock having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by the Borrower.
"Termination Date" means June 30, 2000.
"TLC" means TLC The Laser Center Inc., an Ontario corporation.
Section 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent With those
applied in the preparation of the financial statements referred to in Section
4.04, and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with such principles.
<PAGE>
Article II
AMOUNT AND TERMS OF THE LOAN
Section 2.01. Revolving Credit. The Bank agrees on the terms and
conditions hereinafter set forth, to the Borrower (the "Loan"), from time to
time during the period from the date of this Agreement up to but not including
the Termination Date an aggregate principal amount not to exceed at any time
outstanding Two Million Five Hundred Thousand Dollars ($2,500,000.00), (the
"Commitment"). Within the limits of the Commitment, the Borrower may borrow,
prepay pursuant to Section 2.07, and reborrow under this Section 2.01.
Section 2.02. Notice and Manner of Borrowing. The Borrower shall give
the Bank at least one (1) Business Days' notice of any Loan draws under this
Agreement, specifying the date and amount thereof. Upon fulfillment of the
applicable conditions set forth in Article III, the Bank will make such Loan
funds available to the Borrower in immediately available funds by crediting the
amount thereof to the Borrower's account with the Bank.
Section 2.03. Interest. The Borrower shall pay interest to the Bank on
the outstanding and unpaid principal amount of the Loan made hereunder at a rate
per annum equal to one half of one percent (1/2%) above the Prime Rate. Any
change in the interest rate resulting from a change in the Prime Rate shall be
effective as of the opening of business on the day on which such change in the
Prime Rate becomes effective. Interest shall be calculated on the basis of a
year of 360 days for the actual number of days elapsed. Interest shall be paid
in immediately available funds on the 30th day of each month and at maturity at
the Principal Office. Any principal amount not paid when due, whether at stated
maturity, by acceleration, or otherwise, shall bear interest from the date when
due until said principal amount is paid in full, payable on demand, at a rate
per annum equal at all times to the highest rate allowed by Florida law.
Section 2.04. Commitment Fee. The Borrower agrees to pay to the Bank a
commitment fee on the average daily unused portion of the Commitment from the
date of this Agreement until the Termination Date at the rate of one quarter of
one percent (1/4%) per annum, payable in arrears on the Termination Date.
Section 2.05. Note. All Loan disbursements made by the Bank under this
Agreement shall be evidenced by, and repaid with interest in accordance with, a
single promissory note of the Borrower in substantially the form of Exhibit A,
duly completed, in the principal amount of Two Million Five Hundred Thousand
Dollars ($2,500,000.00), dated the date of this Agreement, payable to the Bank,
and maturing as to principal on the Termination Date (the "Note").
Section 2.06. Prepayments. The Borrower may prepay the Note in whole or
in part with accrued interest to the date of such prepayment on the amount
prepaid.
Section 2.07. Method of Payment. The Borrower shall make each payment
under this Agreement and under the Note not later than 2:00 P.M. (eastern time)
on the date when due in lawful money of the United States to the Bank at its
Principal Office in immediately available funds. The Borrower hereby authorizes
the Bank, if and to the extent payment is not made when due under this Agreement
or under the Note, to charge from time to time against any account of the
Borrower with the Bank any amount so due. Whenever any payment to be made under
this Agreement or under the Note shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
the payment of interest and the commitment fee, as the case may be.
<PAGE>
Section 2.08. Use of Proceeds. The proceeds of the Loans hereunder
shall be used by the Borrower for short term working capital or such other
purposes as may be approved in writing by the Bank. The Borrower will not,
directly or indirectly, use any part of such proceeds for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System or to extend credit to any
Person for the purpose of purchasing or carrying any such margin stock, or for
any purpose which violates, or is inconsistent with, Regulation X of such Board
of Governors.
Article III
CONDITIONS PRECEDENT
Section 3.01. Condition Precedent to Initial Loan Disbursement. The
obligation of the Bank to make the initial Loan disbursement to the Borrower is
subject to the condition precedent that the Bank shall have received on or
before the day of such Loan disbursement each of the following, in form and
substance satisfactory to the Bank and its counsel:
(1) Note. The Note duly executed by the Borrower;
(2) Evidence of all corporate action by the Borrower. Certified (as of
the date of this Agreement) copies of all corporate action taken by the
Borrower, including resolutions of its Board of Directors, authorizing the
execution, delivery, and performance of the Loan Documents and each other
document to be delivered pursuant to this Agreement;
(3) Incumbency and signature certificate of the Borrower. A certificate
(dated as of the date of this Agreement) of the Secretary of the Borrower
certifying the names and true signatures of the officers of the Borrower
authorized to sign the Loan Documents to which it is a party and the other
documents to be delivered by the Borrower under this Agreement;
(4) Articles of Incorporation and Bylaws. A copy of the Articles of
Incorporation and Bylaws of the Borrower, certified by the Secretary or an
Assistant Secretary of the Borrower as of the date of this Agreement as being
accurate and complete;
(5) Certificates of Good Standing. A certificate of good standing of
the Borrower, from the Secretary of State of Delaware as of a recent date and
certificates of good standing for each of the Subsidiaries (other than LST
Laser, S.A.) from the Secretary of State of the respective states of
incorporation as of a recent date;
(6) Certificate of Authority to do Business. Certificates of authority
and good standing of the Borrower for each state in which the Borrower is
qualified to do business; and
(7) Opinion of counsel for the Borrower. A favorable opinion of The
Lowenbaum Partnership, L.L.C., counsel for the Borrower, in substantially the
form of Exhibit B and as to such other matters as the Bank may reasonably
request;
(8) UCC Searches. UCC Searches on the Borrower and all Subsidiaries in
jurisdictions in which UCC-1 financing statements could be filed to perfect a
security interest in any asset of the Borrower and Subsidiaries;
<PAGE>
(9) Review and Approval of TLC Purchase Order. Definitive contract,
agreement or purchase order or orders pursuant to which TLC commits to purchase
products from the Borrower, such products may consist of excimer lasers,
keratomes, keratome related products, or other products manufactured or marketed
by the Borrower. Said purchase order must be acceptable to Bank in Bank's
reasonable discretion and must in all respects comply with Section 6.10; and
(10) Release of UCC Financing Statements. Release of all UCC Financing
Statements filed against assets of the Borrower and its Subsidiaries other than
UCC Financing Statements filed with respect to the four (4) existing Capital
Leases described on Exhibit "D" and "notice filings" for operating leases filed
prior to the date hereof or subsequent to the date hereof in accordance with the
terms hereof.
Section 3.02. Conditions Precedent to All Loan Disbursements. The
obligation of the Bank to make each Loan disbursement (including the initial
Loan disbursement) shall be subject to the further conditions precedent that on
the date of such Loan disbursement:
(1) The following statements shall be true and the Bank shall
have received a certificate signed by a duly authorized
officer of the Borrower dated the date of such Loan, stating
that
(a) The representations and warranties
contained in Article IV of this Agreement are
correct on and as of the date of such Loan
disbursement as though made on and as of such date;
and
(b) No Default or Event of Default has
occurred and is continuing, or would result from such
Loan disbursement; and
(2) The Bank shall have received such other approvals,
opinions, or documents as the Bank may reasonably request.
Article IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank that:
Section 4.01. Incorporation, Good Standing, and Due Qualification. The
Borrower and its Subsidiaries are corporations duly incorporated, validly
existing, and in good standing under the laws of the jurisdiction of their
respective incorporation; each has the corporate power and authority to own its
assets and to transact the business in which it is now engaged or proposed to be
engaged in; and is duly qualified as a foreign corporation and in good standing
under the laws of each other jurisdiction in which the failure to be so
qualified reasonably could be expected to have a material adverse effect on the
Borrower.
Section 4.02. Corporate Power and Authority. The execution, delivery,
and performance by the Borrower of the Loan Documents has been duly authorized
by all necessary corporate action and does not and will not (1) require any
consent or approval of the stockholders of such corporation; (2) contravene such
corporation's charter or bylaws; (3) violate any provision of any law, rule,
<PAGE>
regulation (including, without limitation, Regulations U. and X of the Board of
Governors of the Federal Reserve System) order, writ, judgment, injunction,
decree, determination, or award presently in effect having applicability to such
corporation; (4) result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease, or
instrument to which such corporation is a party or by which it or its properties
may be bound or affected; (5) result in, or require, the creation or imposition
of any Lien, upon or with respect to any of the properties now owned or
hereafter acquired by such corporation; and (6) cause such corporation to be in
default under any such law, rule, regulation, order, writ, judgment, injunction,
decree, determination, or award or any such indenture, agreement, lease, or
instrument.
Section 4.03. Legally Enforceable Agreement. This Agreement is, and
each of the other Loan Documents when delivered under this Agreement will be,
legal, valid, and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency, and other
similar laws affecting creditors' rights generally.
Section 4.04. Financial Statements. The consolidated balance sheet of
the Borrower and its Subsidiaries as at December 31, 1998, and the related
consolidated statements of operations and retained earnings of the Borrower and
its Subsidiaries for the fiscal year then ended, and the accompanying footnotes,
together with the opinion thereon, dated March 25, 1999 of KPMG, L.L.P.
independent certified public accountants, and the interim condensed consolidated
balance sheet of the Borrower and its Subsidiaries as at March 31, 1999 and the
related condensed consolidated statement of operations and retained earnings for
the three (3) month period then ended, copies of which have been furnished to
the Bank, are complete and correct and fairly present the financial condition of
the Borrower and its Subsidiaries as at such dates and the results of the
operations of the Borrower and its Subsidiaries for the periods covered by such
statements, all in accordance with GAAP consistently applied (subject to
year-end adjustments in the case of the interim financial statements), and since
March 31, 1999 there has been no material adverse change in the condition
(financial or otherwise), business, or operations of the Borrower or any
Subsidiary. There are no liabilities of the Borrower or any Subsidiary, fixed or
contingent, which are material but are not reflected in the financial statements
or in the notes thereto, other than liabilities arising in the ordinary course
of business since March 31, 1999. No written information, exhibit, or written
report furnished by the Borrower to the Bank in connection with the negotiation
of this Agreement contained any material misstatement of fact or omitted to
state a material fact or any fact necessary to make the statement contained
therein not materially misleading.
Section 4.05. Labor Disputes and Acts of God. Neither the business nor
the properties of the Borrower or any Subsidiary are affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy, or other casualty
(whether or not covered by insurance) materially and adversely affecting such
business properties or the operation of the Borrower, when considered on a
consolidated basis.
Section 4.06. Other Agreements. Neither the Borrower nor any Subsidiary
is a party to any indenture, loan, or credit agreement, or to any lease or other
agreement or instrument, or subject to any charter or corporate restriction
which could have a material adverse effect on the business, properties, assets,
operations, or conditions, financial or otherwise, of the Borrower or any
Subsidiary, or the ability of the Borrower to carry out its obligations under
<PAGE>
the Loan Documents. Neither the Borrower nor any Subsidiary is in default in any
respect in the performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement or instrument
material to its business to which it is a party.
Section 4.07. Litigation. There is no pending or, to the best of the
Borrower's knowledge, threatened action or proceeding against or affecting the
Borrower or any of its Subsidiaries before any court, governmental agency, or
arbitrator which may, in anyone case or in the aggregate, materially adversely
affect the financial condition, operations, properties, or business of the
Borrower or any Subsidiary or the ability of the Borrower to perform its
obligations under the Loan Documents.
Section 4.08. No Defaults on Outstanding Judgments or Orders. The
Borrower and its Subsidiaries have satisfied all judgments and neither the
Borrower nor any Subsidiary is in default with respect to any judgment, writ,
injunction, decree, rule, or regulation of any court or arbitrator. Neither the
Borrower nor any Subsidiary is in default with respect to any rule or regulation
of any federal, state, municipal, or other governmental authority, commission,
board, bureau, agency or instrumentality, domestic or foreign where the result
of such default reasonably could be expected to have a material adverse effect
on the Borrower.
Section 4.09. Ownership and Liens. The Borrower and each Subsidiary
have title to, or valid leasehold interests in, all of their properties and
assets, real and personal, including the properties and assets and leasehold
interest reflected in the financial statements referred to in Section 4,04
(other than any properties or assets disposed of in the ordinary course of
business), and none of the properties and assets owned by the Borrower or any
Subsidiary and none of their leasehold interests is subject to any Lien, except
such as may be permitted pursuant to Section 6.01 of this Agreement.
Section 4.10. Subsidiaries and Ownership of Stock. Set forth in Exhibit
C is a complete and accurate list of the Subsidiaries of the Borrower, showing
the jurisdiction of incorporation of each and showing, the percentage of the
Borrower's ownership of the outstanding stock of each Subsidiary. All of the
outstanding capital stock of each Subsidiary has been validly issued, is fully
paid and nonassessable, and is owned by the Borrower free and clear of all
Liens.
Section 4.11. ERISA. The Borrower and each Subsidiary are in compliance
in all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred and is continuing
with respect to any Plan; no notice of intent to terminate a Plan has been
filed, nor has any Plan been terminated; to the best of the Borrower's
knowledge, no circumstances exist which constitute grounds entitling the PBGC to
institute proceedings to terminate, or appoint a trustee to administer, a Plan,
nor has the PBGC instituted any such proceedings; neither the Borrower nor any
Commonly Controlled Entity has completely or partially withdrawn from a
Multiemployer Plan; the Borrower and each Commonly Controlled Entity have met
their minimum funding requirements under ERISA with respect to all of their
Plans, and the present value of all vested benefits under each Plan does not
exceed the fair market value of all Plan assets allocable to such benefits, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA; and neither the Borrower nor any Commonly Controlled
Entity has incurred any liability to the PBGC under ERISA.
<PAGE>
Section 4.12. Operation of Business. Except as is disclosed in the
Borrower's filings with the SEC, and to the best of the Company's knowledge, the
Borrower and its Subsidiaries possess (either through license or ownership), or
has applied for, Subsidiaries possess all licenses, permits, franchises,
patents, copyrights, trademarks, service marks, and trade names, or rights
thereto, to conduct their respective businesses substantially as now conducted
and as presently proposed to be conducted, and the Borrower and its Subsidiaries
are not in violation of any valid rights of others with respect to any of the
foregoing.
Section 4.13. Taxes. The Borrower and each of its Subsidiaries have
filed all tax returns (federal, state, and local) required to be filed and have
paid all taxes, assessments, and governmental charges and levies thereon to be
due, including interest and penalties, except where proper action has been taken
by the Borrower to extend the relevant filing or payment deadline. Such returns
are complete and accurate in all material respects.
Section 4.14. Debt. Exhibit D is a complete and correct list of all
credit agreements, indentures, purchase agreements (other than purchase
agreements entered into in the ordinary course of the Borrower's business),
guaranties, Capital Leases, and other agreements, and arrangements presently in
effect providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for acceptance
financing) in respect of which the Borrower or any Subsidiary is in any manner
directly or contingently obligated; and the maximum principal or face amounts of
the credit in question, which are outstanding and which can be outstanding, are
correctly stated, and all Liens of any nature given or agreed to be given as
security therefor are correctly described or indicated in such Exhibit.
Section 4.15. Environment. The Borrower and each Subsidiary have duly
complied with, and their businesses, operations, assets, equipment, property,
leaseholds, or other facilities are in compliance with, the provisions of all
federal, state, and local environmental, health, and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder where the
failure to so comply reasonably could be expected to have a material adverse
effect on the Borrower. The Borrower and each Subsidiary have been issued and
will maintain all required federal, state, and local permits, licenses,
certificates, and approvals relating to (1) air emissions; (2) discharges to
surface water or groundwater; (3) noise emissions; (4) solid or liquid waste
disposal; (5) the use, generation, storage, transportation, or disposal of toxic
or hazardous substances or wastes (intended hereby and hereafter to include any
and all such materials listed in any federal, state, or local law, code or
ordinance and all rules and regulations promulgated thereunder as hazardous or
potentially hazardous); or (6) other environmental, health, or safety matters.
Neither the Borrower nor any Subsidiary has received notice of, nor knows of, or
suspects facts which might constitute any violations of any federal, state, or
local environmental, health, or safety laws, codes or ordinances, and any rules
or regulations promulgated thereunder with respect to its businesses,
operations, assets, equipment, property, leaseholds, or other facilities. To the
best of the Borrower's knowledge, there has been no emission, spill, release, or
discharge into or upon (1) the air; (2) soils; or any improvements located
thereon; (3) surface water or groundwater; or. (4) the sewer, septic system or
waste treatment, storage or disposal system servicing the premises of any toxic
or hazardous substances or wastes at or from the premises; and accordingly the
premises of the Borrower and its Subsidiaries are free of all such toxic or
hazardous substances or wastes. To the best of the Borrower's knowledge, there
has been no complaint, order, directive, claim, citation, or notice by any
<PAGE>
governmental authority or any person or entity with respect to (1) air
emissions; (2) spills, releases or discharges to soils or improvements located
thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the premises; (3) noise
emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage,
transportation, or disposal of toxic or hazardous substances or waste; or (6)
other environmental, health, or safety matters affecting the Borrower or its
business, operations, assets, equipment, property, leaseholds, or other
facilities. Neither the Borrower nor its Subsidiaries have any indebtedness,
obligation, or liability, absolute or contingent, matured or not matured, with
respect to the storage, treatment, cleanup, or disposal of any solid wastes,
hazardous wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect to any
current regulation, law, or statute regarding such storage, treatment, cleanup,
or disposal).
Section 4.16. Investment Company Act. The Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Borrower Act of 1940, as amended.
Section 4.17. Securities Act. The Borrower has not issued any
unregistered securities in violation of the registration requirements of Section
5 of the Securities Act of 1933, as amended, or any other law, and is not
violating any rule, regulation, or requirement under the Securities Act of 1933,
as amended, or the Securities and Exchange Act of 1934, as amended. The Borrower
is not required to qualify an indenture under the, Trust Indenture Act of 1939,
as amended, in connection with its execution and delivery of the Note.
Section 4.18. Year 2000. The Borrower reasonably anticipates that
Borrower and any Subsidiaries (hereinafter referred to as the "Organization")
will be Year 2000 Compliant on a timely basis. As used herein, "Year 2000
Compliant" shall mean that all software, embedded microchips and other
processing capabilities utilized by the Organization or the Organization s key
suppliers, vendors and customers will correctly process, sequence, and
calculate, without interruption, all date and date related data for all dates
to, through and after January 1, 2000, including leap year calculations, and
shall recognize, store and transmit date data in a format which clearly
indicates the correct century. As used herein, "reasonably anticipates" means
(with respect to its suppliers, vendors and customers) that Borrower has made
inquiry of each of the organization's key suppliers, vendors and customers and
no such party has indicated that it will not be Year 2000 compliant.
Article V
AFFIRMATIVE COVENANTS
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement, the Borrower will:
Section 5.01. Maintenance of Existence. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its corporate existence and good
standing in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each Subsidiary to qualify and remain qualified, as a
foreign corporation in each jurisdiction where the failure to be so qualified
reasonably could be expected to have a material adverse effect on the Borrower.
<PAGE>
Section 5.02. Maintenance of Records. Keep, and cause each Subsidiary
to keep, adequate records and books of account, in which complete entries will
be made in accordance with GAAP consistently applied, reflecting all financial
transactions of the Borrower and its Subsidiaries.
Section 5.03. Maintenance of Properties. Maintain, keep, and preserve,
and cause each Subsidiary to maintain, keep, and preserve, all of its properties
(tangible and intangible) necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted.
Section 5.04. Conduct of Business. Continue, and cause each Subsidiary
to continue, to engage in a business of the same general type as conducted by it
on the date of this Agreement.
Section 5.05. Maintenance of Insurance. Maintain, and cause each
Subsidiary to maintain, insurance with financially sound and reputable insurance
companies or associations in such amounts and covering such risks as are usually
carried by companies engaged in the same or a similar business and similarly
situated, which insurance may provide for reasonable deductibility from coverage
thereof.
Section 5.06. Compliance With Laws. Comply, and cause each Subsidiary
to comply, in all respects with all applicable laws, rules, regulations, and
orders where the failure to so comply reasonably could be expected to have a
material adverse effect on the Borrower. The compliance described in this
Section 5.06 shall include, without limitation, paying before the same become
delinquent all taxes, assessments, and governmental charges imposed upon it or
upon its property.
Section 5.07. Right of Inspection. At any reasonable time (during the
Borrower's normal business hours) and upon at least two (2) days advance notice,
permit the Bank or any agent or representative thereof to examine and make
copies of and abstracts from the records and books of account of, and visit the
properties of, the Borrower and any Subsidiary, and to discuss the affairs,
finances, and accounts of the Borrower and any Subsidiary with any of their
respective officers and directors and the Borrower's independent accountants.
Section 5.08. Reporting Requirements. Furnish to the Bank:
(1) Quarterly financial statements. As soon as available and in any
event within forty five (45) days after the end of each of the first three
quarters of each fiscal year of the Borrower, the Form 10-Q the Borrower files
with the SEC for such quarter;
(2) Annual financial statements. As soon as available and in any event
within one hundred twenty (120) days after the end of each fiscal year of the
Borrower, the Form 10-K the Borrower files with the SEC for such year and
internally prepared consolidating statement of income and retained earnings and
consolidating balance sheets of the Borrower and its Subsidiaries for such
fiscal year;
(3) Management letters. Promptly upon receipt thereof, copies of any
reports submitted to the Borrower or any Subsidiary by independent certified
<PAGE>
public accountants in connection with examination of the financial statements of
the Borrower or any Subsidiary made by such accountants;
(4) Certificate of no Default. Within thirty (30) days after the end of
each of the quarters of each fiscal year of the Borrower during which any Loans
remain unpaid, a certificate of the chief financial officer of the Borrower (a)
certifying that to the best of his knowledge no Default or Event of Default has
occurred and is continuing or, if a Default or Event of Default has occurred and
is continuing, a statement as to the nature thereof and the action which is
proposed to be taken with respect thereto, and (b) with computations
demonstrating compliance with the covenants contained in Article VII;
(5) Projection for next Fiscal Year. A copy of the Borrower's
projections for operations for the next fiscal year, within thirty (30) days
after the Borrower's Board of Directors has approved such projections, such
projections to be in the same form and detail as provided to the Borrower's
Board of Directors;
(6) Notice of litigation. Promptly after the commencement thereof,
notice of all actions, suits, and proceedings before any court or governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, affecting the Borrower or any Subsidiary, which, if determined
adversely to the Borrower or such Subsidiary, could have a material adverse
effect on the financial condition, properties, or operations of the Borrower or
such Subsidiary;
(7) Notice of Defaults and Events of Default. As soon as possible and
in any event within ten (10) days after the occurrence of each Default or Event
of Default, a written notice setting forth the details of such Default or Event
of Default and the action which is proposed to be taken by the Borrower with
respect thereto;
(8) ERISA reports. As soon as possible, and in any event within thirty
(30). days after the Borrower knows or has reason to know that any circumstances
exist that constitute grounds entitling the PBGC to institute proceedings to
terminate a Plan subject to ERISA with respect to the Borrower or any Commonly
Controlled Entity, and promptly but in any event within two (2) Business Days of
receipt by the Borrower or any Commonly Controlled Entity of notice that the
PBGC intends to terminate a Plan or appoint a trustee to administer the same,
and promptly but in any event within five (5) Business Days of the receipt of
notice concerning the imposition of withdrawal liability in excess of $50,000.00
with respect to the Borrower or any Commonly Controlled Entity, the Borrower
will deliver to the Bank a certificate of the chief financial officer of the
Borrower setting forth all relevant details and the action which the Borrower
proposes to take with respect thereto.
(9) Proxy statements, etc. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements, and reports which
the Borrower or any Subsidiary sends to its stockholders, and copies of all
regular, periodic, and special reports, and all registration statements which
the Borrower or any Subsidiary files with the Securities and Exchange Commission
or any governmental authority which may be substituted therefor, or with any
national securities exchange; and
(10) General information. Such other information respecting the
condition or operations, financial or otherwise, of the Borrower or any
Subsidiary as the Bank may from time to time reasonably request.
<PAGE>
Section 5.09. Environment. Be and remain, and cause each Subsidiary to
be and remain, in compliance with the provisions of all federal, state, and
local environmental, health, and safety laws, codes and ordinances, and all
rules and regulations issued thereunder where the failure to so comply
reasonably could be expected to have a material adverse effect on the Borrower;
notify the Bank immediately of any notice of a hazardous discharge or
environmental complaint received by the Borrower or any Subsidiary from any
governmental agency or any other party; notify the Bank immediately of any
hazardous discharge from or affecting its premises for which the Borrower is
responsible and which is in violation of any federal, state, or local
environmental, health, or safety laws, codes or ordinances; immediately contain
and remove the same, in compliance with all applicable laws; promptly pay any
fine or penalty assessed in connection therewith; permit the Bank to inspect the
premises, to conduct tests thereon, and to inspect all books, correspondence,
and records pertaining thereto; and at the Bank's request, and at the Borrower's
expense, provide a report of a qualified environmental engineer, satisfactory in
scope, form, and content to the Bank, and such other and further assurances
reasonably satisfactory to the Bank that the condition has been corrected.
Article VI
NEGATIVE COVENANTS
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement, the Borrower will not:
Section 6.01. Liens. Create, incur, assume, or suffer to exist, or
permit any Subsidiary to create, incur, assume, or suffer to exist, any Lien
upon or with respect to any of its properties, now owned or hereafter acquired,
except:
(1) Liens in favor of the Bank;
(2) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(3) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than thirty (30) days or which are being contested in good
faith by appropriate proceedings and for which appropriate reserves have been
established;
(4) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance, or other similar bonds, or other
similar obligations arising in the ordinary course of business;
(5) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use, and enjoyment by the Borrower or any Subsidiary of the property
<PAGE>
or assets encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto;
(6) A Lien incurred in connection with a Capital Lease; provided that
(a) Any property subject to any of the foregoing is
acquired by the Borrower or any Subsidiary in the ordinary
course of its respective business and the Lien on any such
property attaches to such asset concurrently or within ninety
(90) day after the acquisition thereof;
(b) Each such Lien shall attach only to the asset
leased;
(c) The Debt incurred subsequent to the date of this
Agreement secured by all such Liens shall not exceed Five
Hundred Dollars ($500,000.00) at any time outstanding in the
aggregate; and
Section 6.02. Debt. Create, incur, assume, or suffer to exist, or
permit any Subsidiary to create, incur, assume, or suffer to exist, any Debt,
except:
(1) Debt of the Borrower under this Agreement or the Note;
(2) Debt described in Schedule D or in the Borrower's financial
statements for the period ending March 31, 1999 (a copy of which has been
provided to the Bank) but no voluntary renewals, extensions, or refinancings
thereof;
(3) Accounts payable to trade creditors for goods or services which are
not aged more than ninety (90) days from the billing date and current operating
liabilities (other than for borrowed money) which are not more than ninety (90)
days past due, in each case incurred in the ordinary course of business, as
presently conducted, and paid within the specified time, unless contested in
good faith;
(4) Debt secured by the Liens described in Section 6.01.
Section 6.03. Mergers, Etc. Wind up, liquidate or dissolve itself,
reorganize, merge or consolidate with or into, or convey, sell, assign,
transfer, lease, or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to any Person, or acquire all or substantially all
of the assets or the business of any Person, or permit any Subsidiary to do so,
except that (1) any Subsidiary may merge into or transfer assets to the
Borrower, (2) any Subsidiary may merge into or consolidate with or transfer
assets to any other Subsidiary, and (3) any Subsidiary may merge into or
consolidate with another Person in connection with the acquisition of all or
substantially all of the assets or the business of any Person as long as the
merger or consolidation is approved by a majority of those members of the
Borrower's Board of Directors who are not employees of the Borrower and is in
compliance with the terms of Section 6.01.
Section 6.04. Leases. Create, incur, assume, or suffer to exist, or
permit any Subsidiary to create, incur, assume, or suffer to exist, any
obligation as lessee for the rental or hire of any real or personal property,
except: (1) leases existing on the date of this Agreement and any extensions or
renewals thereof; (2) leases (other than Capital Leases) which are entered into
<PAGE>
in the ordinary course of the Borrower's business; and (3) leases between the
Borrower and any Subsidiary or between any Subsidiaries.
Section 6.05. Sale and Leaseback. Sell, transfer, or otherwise dispose
of, or permit any Subsidiary to sell, transfer, or otherwise dispose of, any
real or personal property to any Person and thereafter directly or indirectly
lease back the same or similar property.
Section 6.06. Dividends. Declare or pay any dividends; or purchase,
redeem, retire, or otherwise acquire for value any of its capital stock now or
hereafter outstanding; or make any distribution of assets to its stockholders as
such whether in cash, assets, or obligations of the Borrower; or allocate or
otherwise set apart any sum for the payment of any dividend or distribution on,
or for the purchase, redemption, or retirement of any shares of its capital
stock; or make any other distribution by reduction of capital or otherwise in
respect of any shares of its capital stock; or permit any of its Subsidiaries to
purchase or otherwise acquire for value any stock of the Borrower or another
Subsidiary, except that the Borrower (1) may declare and deliver dividends and
make distributions payable solely in common stock of the Borrower and (2) may
purchase or otherwise acquire shares of its capital stock by exchange for or out
of the proceeds received from a substantially concurrent issue of new shares of
its capital stock.
Section 6.07. Sale of Assets. Sell, lease, assign, transfer, or
otherwise dispose of, or permit any Subsidiary to sell, lease, assign, transfer,
or otherwise dispose of, any of its now owned or hereafter acquired assets
(including, without limitation, shares of stock and indebtedness of
Subsidiaries, receivables, and leasehold interests), except: (1) inventory
disposed of in the ordinary course of business; (2) the sale or other
disposition of assets no longer used or useful in the conduct of its business;
and (3) that any Subsidiary may sell, lease, assign, or otherwise transfer its
assets to the Borrower.
Section 6.08. Investments. Make, or permit any Subsidiary to make, any
loan or advance to any Person, or purchase or otherwise acquire, or permit any
Subsidiary to purchase or otherwise acquire, any capital stock, assets,
obligations, or other securities of, make any capital contribution to, or
otherwise invest in or acquire any interest in any Person, or participate as a
partner or joint venturer with any other Person, except: (1) direct obligations
of the United States or any agency thereof with maturities of one year or less
from the date of acquisition; (2) commercial paper of a domestic issuer rated at
least "A-1 " by Standard & Poor's Corporation or "P-1 " by Moody's Investors
Service, Inc. or of an issuer who is recommended by the Bank or an affiliate of
the Bank; (3) certificates of deposit with maturities of one year or less from
the date of acquisition issued by any commercial bank; (4) stock, obligations,
or securities received in settlement of debts (created in the ordinary course of
business) owing to the Borrower or any Subsidiary, and (5) acquisitions
described in Section 6.03(3) or acquisitions that require the Borrower to expend
$5,000,000 or less (any debt assumed by the Borrower or a Subsidiary in
connection with such acquisition shall be considered an expenditure).
Section 6.09. Guaranties, Etc. Assume, guaranty, endorse, or otherwise
be or become directly or contingently responsible or liable, or permit any
Subsidiary to assume, guaranty, endorse, or otherwise be or become directly or
contingently responsible or liable (including, but not limited to, an agreement
to purchase any obligation, stock, assets, goods, or services, or to supply or
advance any funds, assets, goods, or services, or an agreement to maintain or
cause such Person to maintain a minimum working capital or net worth, or
otherwise to assure the creditors of any Person against loss) for obligations of
<PAGE>
any Person, except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business.
Section 6.10. Transactions With Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of property or
the rendering of any service, with any Affiliate, or permit any Subsidiary to
enter into any transaction, including, without limitation, the purchase, sale,
or exchange of property or the rendering of any service, with any Affiliate,
except in the ordinary course of and pursuant to the reasonable requirements of
the Borrower's or such Subsidiary's business and upon fair and reasonable terms
no less favorable to the Borrower or such Subsidiary than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate.
Article VII
FINANCIAL COVENANTS
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement:
Section 7.01. Minimum Liquidity. The Borrower will maintain at all
times minimum liquidity (cash or cash equivalents) of not less than Two Million
Dollars ($2,000,000.00) , such liquidity to be measured utilizing the Borrower's
financial statements (a copy of which have been provided to the Bank) as of
March 31, 1999 and each quarter thereafter as of the later of (i) the date the
quarterly or annual financial statement required by Section 5.08 is delivered to
the Bank or (ii) the date the quarterly or annual financial statement is
required to be delivered.
Section 7.02. Minimum Tangible Net Worth. The Borrower will maintain
Consolidated Tangible Net Worth of not less than Seven Million Five Hundred
Thousand Dollars ($7,500,000.00) , Consolidated Tangible Net Worth to be
calculated utilizing the Borrower's financial statements (a copy of which have
been provided to the Bank) as of March 31, 1999 and each quarter thereafter as
of the later of (i) the date the quarterly or annual financial statement
required by Section 5.08 is delivered to the Bank or (ii) the date the quarterly
or annual financial statement is required to be delivered.
Article VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default. If any of the following events shall
occur:
(1) The Borrower should fail to pay the principal of, or interest on,
the Note, or any amount of a commitment or other fee, as and when due and
payable;
(2) Any representation or warranty made or deemed made by the Borrower
in this Agreement or which is contained in any certificate, document, opinion,
or financial or other statement furnished at any time under or in connection
with any Loan Document shall prove to have been incorrect, incomplete, or
<PAGE>
misleading in any material respect on or as of the date made or deemed made and
such incorrectness or incompleteness continues for 15 Business Days;
(3) The Borrower shall fail to perform or observe any term, covenant,
or agreement contained in Articles V, VI, or VII hereof, provided that an Event
of Default will only be deemed to have occurred in connection with Sections
5.02, 5.03, 5.06 or 5.09 if such failure continues for a period of 15 Business
Days;
(4) The Borrower or any of its Subsidiaries shall (a) fail to pay any
Debt (other than the Note) of the Borrower or such Subsidiary, as the case may
be, or any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise), or (b) fail to perform
or observe any term, covenant, or condition on its part to be performed or
observed under any agreement or instrument relating to any such Debt, when
required to be performed or observed, if the effect of such failure to perform
or observe is to accelerate, or to permit the acceleration of, after the giving
of notice or passage of time, or both, the maturity of such indebtedness,
whether or not such failure to perform or observe shall be waived by the holder
of such Debt; or any such indebtedness shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof;
(5) The Borrower or any of its Subsidiaries (a) shall generally not
pay, or shall be unable to pay, or shall admit in writing its inability to, pay
its debts as such debts become due; or (b) shall make an assignment for the
benefit of creditors, or petition or apply to any tribunal for the appointment
of a custodian, receiver, or trustee for it or a substantial part of its assets;
or (c) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution, or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (d) shall have had any
such petition or application filed or any such proceeding commenced against it
in which an order for relief is entered or an adjudication or appointment is
made, and which remains undismissed for a period of thirty (30) days or more; or
(e) shall take any corporate action indicating its consent to, approval of, or
acquiescence in any such petition, application, proceeding, or order for relief
or the appointment of a custodian, receiver, or trustee for all or any
substantial part of its properties; or (f) shall suffer any such custodianship,
receivership, or trusteeship to continue undischarged for a period of thirty
(30) days or more;
(6) One or more judgments, decrees, or orders for the payment of money
in excess of Five Hundred Thousand Dollars ($500,000.00) in the aggregate shall
be rendered against the Borrower or any of its Subsidiaries and such judgments,
decrees, or orders shall continue unsatisfied and in effect for a period of
thirty (30) consecutive days without being vacated, discharged, satisfied, or
stayed or bonded pending appeal;
(7) Any of the following events shall occur or exist with respect to
the Borrower and any Commonly Controlled Entity under ERISA: any Reportable
Event shall occur; complete or partial withdrawal from any Multiemployer Plan
shall take place; any Prohibited Transaction shall occur; a notice of intent to
terminate a Plan shall be filed, or a Plan shall be terminated; or circumstances
shall exist which constitute grounds entitling the PBGC to institute proceedings
to terminate a Plan, or the PBGC shall institute such proceedings;
(8) If the Bank receives its first notice (which is required to be
given pursuant to the terms of this Agreement) of a hazardous discharge or an
environmental complaint from a source other than the Borrower, and the Bank does
<PAGE>
not receive notice (which may be given in oral form, provided same is followed
with all due dispatch by written notice given by Certified Mail, Return Receipt
Requested) of such hazardous discharge or environmental complaint from the
Borrower within twenty-four (24) hours of the time the Bank first receives said
notice from a source other than the Borrower; or if any federal, state, or local
agency asserts or creates a Lien upon any material part of or all of the assets,
equipment, property, leaseholds, or other facilities of the Borrower by reason
of the occurrence of a hazardous discharge or an environmental complaint; or if
any federal, state, or local agency asserts a claim against the Borrower and/or
its assets, equipment, property, leaseholds, or other facilities for damages or
cleanup costs relating to a hazardous discharge or an environmental complaint;
provided, however, that such claim shall not constitute a default if, within
five (5) Business Days of the occurrence giving rise to the claim, (a) the
Borrower can prove to the Bank's satisfaction that the Borrower has commenced
and is diligently pursuing either: (i) a cure or correction of the event which
constitutes the basis for the claim, and continues diligently to pursue such
cure or correction to completion or (ii) proceedings for an injunction, a
restraining order, or other appropriate emergent relief preventing such agency
or agencies from asserting such claim, which relief is granted within ten (10)
Business Days of the occurrence giving rise to the claim and the injunction,
order, or emergent relief is not thereafter resolved or reversed on appeal; and
(b) in either of the foregoing events, the Borrower has posted a bond, letter of
credit, or other security satisfactory in form, substance, and amount to both
the Bank and the agency or entity asserting the claim to secure the proper and
complete cure or correction of the event which constitutes the basis for the
claim;
(9) If there is a change in the persons operating as Chief Executive
Officer, Chief Financial Officer or President of Borrower without Banks written
consent;
then, and in any such event, the Bank may, by notice to the Borrower,
(1) declare its obligation to make Loan disbursements to be terminated,
whereupon the same shall forthwith terminate, and (2) declare the Note, all
interest thereon, and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Note, all such interest, and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest, or further notice of any kind, all of which are hereby
expressly waived by the Borrower.
Upon the occurrence and during the continuance of any Event of Default,
the Bank is hereby authorized at any time and from time to time, without notice
to the Borrower (any such notice being expressly waived by the Borrower), to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Bank to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing under this
Agreement or the Note or any other Loan Document, irrespective of whether or not
the Bank shall have made any demand under this Agreement or the Note or such
other Loan Document and although such obligations may be unmatured. The Bank
agrees promptly to notify the Borrower after any such setoff and application,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of the Bank under this Section 8.01 are
in addition to other rights and remedies (including, without limitation, other
rights of setoff) which the Bank may have.
<PAGE>
Section 8.02. INTEREST INCREASE FOR NON-MONETARY DEFAULTS.
NOTWITHSTANDING ANY PROVISION OF THE NOTE OR THIS AGREEMENT, IN THE EVENT OF ANY
EVENT OF DEFAULT UNDER THE NOTE OR THIS AGREEMENT OTHER THAN A DEFAULT FOR
NON-PAYMENT OF MONIES DUE UNDER THE NOTE OR THIS AGREEMENT, THEN IN ADDITION TO
ALL OTHER REMEDIES AVAILABLE TO LENDER UNDER THE NOTE OR THIS AGREEMENT, AT
LENDER'S OPTION, THE INTEREST RATE UNDER THE NOTE SHALL BE AUTOMATICALLY
INCREASED BY TWO PERCENT (2%) FROM THE DATE OF SUCH DEFAULT UNTIL THE LATER OF
(1) THE DATE DEFAULT IS CURED OR (2) THIRTY (30) DAYS FROM THE DATE THE INTEREST
RATE IS INCREASED; IT BEING THE INTENT HEREOF THAT IF THE INTEREST RATE IS
INCREASED PURSUANT TO THIS PROVISION SUCH INCREASE IN THE INTEREST RATE SHALL
REMAIN IN EFFECT FOR AT LEAST THIRTY (30) DAYS NOTWITHSTANDING A CURE OF THE
DEFAULT PRIOR TO THE END OF THE THIRTY (30) DAY PERIOD. ANY SUCH ADDITIONAL
INTEREST DUE PURSUANT TO THE PRECEDING SENTENCE SHALL BE DUE AND PAYABLE WITH
THE NEXT MONTHLY PAYMENT OR PAYMENTS BECOMING DUE AND SAID MONTHLY PAYMENT OR
PAYMENTS DUE HEREUNDER WILL BE INCREASED BY SAID AMOUNT.
Article IX
MISCELLANEOUS
Section 9.01. Amendments, Etc. No amendment, modification, termination,
or waiver of any provision of any Loan Document to which the Borrower is a
party, nor consent to any departure by the Borrower from any Loan Document to
which it is a party, shall in any event be effective unless the same shall be in
writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 9.02. Notices, Etc. All notices and other communications
provided for under this Agreement and under the other Loan Documents to which
the Borrower is a party shall be in writing (including telegraphic, telex, and
facsimile transmissions) and mailed or transmitted or delivered, if to the
Borrower, at its address at 3300 University Boulevard, Suite 140, Winter Park,
Florida 32792, Attention: Chief Financial Officer, with a copy to The Lowenbaum
Partnership, L.L.C., 222 South Central, Suite 901, St. Louis, Missouri 63105,
Attention: Timothy L. Elliott, Esq., and if to the Bank, at its address at 360
West State Road 436, Altamonte Springs, Florida 32714, Attention: Timothy R.
McLaughlin; or, as to each party, at such other address as shall be designated
by such party in a written notice to the other party complying as to delivery
with the terms of this Section 9.02. Except as otherwise provided in this
Agreement, all such notices and communications shall be effective when deposited
in the mails or delivered to the telegraph company, or sent, answerback
received, respectively, addressed as aforesaid, except that notices to the Bank
pursuant to the provisions of Article 11 shall not be effective until received
by the Bank.
Section 9.03. No Waiver. No failure or delay on the part of the Bank in
exercising any right, power, or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power, or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power, or remedy hereunder. The rights and remedies provided herein
<PAGE>
are cumulative, and are not exclusive of any other rights, powers, privileges,
or remedies, now or hereafter existing, at law or in equity or otherwise.
Section 9.04. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights under any Loan Document to which the Borrower is a party without
the prior written consent of the Bank.
Section 9.05. Costs, Expenses, and Taxes. The Borrower agrees to pay on
demand all costs and expenses incurred by the Bank in connection with the
preparation, execution, delivery, filing, and administration of the Loan
Documents, and of any amendment, modification, or supplement to the Loan
Documents, including, without limitation, the fees and out-of-pocket expenses of
counsel for the Bank incurred in connection with advising the Bank as to its
rights and responsibilities hereunder. The Borrower also agrees to pay all such
costs and expenses, including court costs, incurred in connection with
enforcement of the Loan Documents, or any amendment, modification, or supplement
thereto, whether by negotiation, legal proceedings, or otherwise. In addition,
the Borrower shall pay any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing, and
recording of any of the Loan Documents and the other documents to be delivered
under any such Loan Documents, and agrees to hold the Bank harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes and fees. This provision shall survive
termination of this Agreement.
Section 9.06. Integration. The Loan Documents contain the entire
agreement between the parties relating to the subject matter hereof and
supersede all oral statements and prior writings with respect thereto.
Section 9.07. Indemnity. The Borrower hereby agrees to defend,
indemnify, and hold the Bank harmless from and against any and all claims,
damages, judgments, penalties, costs, and expenses (including reasonable
attorney fees and court costs now or hereafter arising from the aforesaid
enforcement of this clause) arising directly or indirectly from the activities
of the Borrower and its Subsidiaries, its predecessors in interest, or third
parties with whom it has a contractual relationship, or arising directly or
indirectly from the violation of any environmental protection, health, or safety
law, whether such claims are asserted by any governmental agency or any other
person. This indemnity shall survive termination of this Agreement.
Section 9.08. Governing Law. This Agreement and the Note shall be
governed by, and construed in accordance with, the laws of the State of Florida.
Section 9.09. Severability of Provisions. Any provision of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.
Section 9.10. Headings. Article and Section headings in the Loan
Documents are included in such Loan Documents for the convenience of reference
only and shall not constitute a part of the applicable Loan Documents for any
other purpose.
<PAGE>
Section 9.11. Consent to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF FLORIDA OR OF THE UNITED STATES FOR THE MIDDLE DISTRICT
OF FLORIDA AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER
AND THE LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NONEXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER AND THE LENDER
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE BORROWER AND THE LENDER
EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT, OR OTHER PROCESS, THAT
MAY BE MADE BY ANY OTHER MEANS PERMITTED BY APPLICABLE LAW.
Section 9.12. Jury Trial Waiver. THE BANK AND THE BORROWER HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO
THIS AGREEMENT OR THE LOAN DOCUMENTS. NO OFFICER OF THE BANK HAS AUTHORITY TO
WAIVE, CONDITION, OR MODIFY THIS PROVISION.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
LASERSIGHT INCORPORATED, a Delaware corporation
By: /s/ Gregory L. Wilson
-------------------------------------------
Gregory L. Wilson, Chief Financial Officer
and Secretary
THE HUNTINGTON NATIONAL BANK
By: /s/ Daniel J. Weng
-------------------------------------------
Title: Vice President
STATE OF GEORGIA
COUNTY OF Clayton
-------
<PAGE>
The foregoing instrument was acknowledged before me this
29th day of June, 1999, by GREGORY L. WILSON, Chief Financial Officer and
Secretary, on behalf of LASERSIGHT INCORPORATED, a Delaware corporation. Said
person (check one) ___ is personally known to me, X produced a drivers license
(issued by a state of the United States within the last five (5) years) as
identification, or ___ produced other identification, to
wit:___________________________.
/s/ Saundra G. Smith
Print Name: Saundra G. Smith
-------------------------------
Notary Public, State of Georgia
Commission No.: [Notary Public Stamp]
----------------------------
My Commission Expires: --------------------
COUNTY OF Clayton
-------
The foregoing instrument was acknowledged before me this 29th
day of June, 1999, by Daniel J. Weng, as a Vice President of THE HUNTINGTON
NATIONAL BANK, on behalf of the Bank. Said person (check one) ___ is personally
known to me, X produced driver's license (issued by a state of the United States
within the last five (5) years) as identification, or ___ produced other
identification, to wit:______________________.
/s/ Saundra G. Smith
Print Name: Saundra G. Smith
-------------------------------
Notary Public, State of Georgia
Commission No.: [Notary Public Stamp]
----------------------------
My Commission Expires: --------------------
CONFIDENTIAL TREATMENT REQUESTED
MANUFACTURING AND MARKETING AGREEMENT
-------------------------------------
This Manufacturing and Marketing Agreement is dated May 14, 1999 (the
"Effective Date") between Becton Dickinson Ophthalmic Systems, a division of
Becton, Dickinson and Company, a New Jersey corporation ("BD") and LASERSIGHT
TECHNOLOGIES, INC., a Delaware corporation ("LASERSIGHT").
RECITALS
A. BD and LASERSIGHT desire to work together to enhance the
development and sale of microkeratome products and refractive surgery
accessories which are to be branded and sold utilizing the names of both BD and
LASERSIGHT.
B. BD is engaged in the business of and possesses the
expertise to perform the manufacturing, processing and packaging of ophthalmic
and other specialty surgical products including without limitation,
microkeratome blades.
C. BD and LASERSIGHT desire to enter into this Agreement
providing for BD to manufacture, on behalf of LASERSIGHT, those products
described on Exhibit A (the "Products") pursuant to the specifications described
on Exhibit B (the "Specifications") and certain other refractive surgery
accessories to be identified by BD and LASERSIGHT.
ARTICLE I
OBLIGATIONS OF PARTIES
----------------------
1.1 Nature of LASERSIGHT's Obligations. LASERSIGHT agrees during the
term of this Agreement to purchase from BD at least that number of the Products
set forth on Exhibit C (the "Purchase Minimum"), all pursuant to the terms of
this Agreement.
1.2 Nature of BD's Obligations. BD agrees that during the term of this
Agreement BD will:
1.2.1 Manufacture the Products in accordance with the
Specifications;
1.2.2 Manufacture and supply the Purchase Minimum in
accordance with purchase orders submitted by
LASERSIGHT;
1.2.3 Maintain quality systems in compliance with ISO
9002, CE and FDA/GMP requirements, as applicable;
1.2.4 Participate with LASERSIGHT quality assurance
employees in periodic quality and regulatory reviews
to determine if enhancements to the Specifications
are necessary, and if so to adopt such enhanced
specifications in BD's manufacturing process; as are
jointly agreed to by the parties in writing.
** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT. THE
REDACTED MATERIAL HAS BEEN INDICATED WITH A DOUBLE ASTERISK AND FILED
SEPARATELY WITH THE COMMISSION.
<PAGE>
1.3 BD Product Warranty. BD warrants that Products manufactured
pursuant to this Agreement shall meet the Specifications and be free from
defects in material and workmanship. The foregoing warranty shall not extend to
any Products which have been subject to accident or abuse or which are not used,
operated or maintained in the manner prescribed in the Products' instructions or
with respect to which unauthorized repair or alteration has taken place. Subject
to the foregoing and during the term of this warranty, BD shall replace
defective Products or parts thereof without charge within 30 days following
receipt of such defective Products by BD. BD shall bear all shipping costs for
the return of defective Products to BD and of shipping replacement Products to
LASERSIGHT or LASERSIGHT's customers, as applicable. BD shall have the right to
designate the carrier for the return of defective Products. BD makes no other
warranties either express or implied concerning the Products.
1.4 Other Manufacturing Activities. During the term of this Agreement,
without LASERSIGHT'S prior written consent, which shall not be unreasonably
withheld, BD agrees not to manufacture any other products or items which are the
same as or substantially similar to the Products.
1.5 CE Mark of BD. During the term of this Agreement, to the extent
permitted by applicable laws and regulations, BD will allow LASERSIGHT to
utilize BD's CE Mark in connection with the sale of the Products. BD and
LASERSIGHT will take all actions reasonably necessary to allow the Products to
be sold under BD's CE Mark.
1.6 Joint Activities of the Parties. The parties agree to undertake the
following activities:
1.6.1 Develop the branding under which the Products will be
sold, such branding to incorporate the names of BD
and LASERSIGHT. The parties will execute such
licensing agreements as may be reasonably necessary
to authorize such joint branding.
1.6.2 Develop and market a "kit" of instruments and supplies
(the "LASIK Kit") to be utilized in connection with
the performance of laser in situ keratomileusis
("LASIK") which will include the Products, other
supplies and products manufactured by BD and
supplies and products from other manufactures
mutually agreed to by the parties. The parties
acknowledge that BD has certain existing customer
agreements that are in effect as of the date of this
Agreement and which may not allow BD to comply with
the terms of this Section 1.6.2, therefore these
existing customer agreements will not be deemed a
violation of the terms of this Section 1.6.2
provided that at the time such agreements are renewed
such agreements will be made to comply with
the terms of this Section 1.6.2.
1.6.3 LASERSIGHT and BD will work together to market and
sell Products and LASIK Kits to entities that operate
refractive clinics/centers.
1.6.4 Initially all Products will be sold through
LASERSIGHT'S distribution channels. LASERSIGHT and BD
will work together to determine the most effective
method for distributing the Products. If LASERSIGHT
<PAGE>
desires to market and sell Products directly or
through BD's distribution channels, BD and LASERSIGHT
will enter into a mutually acceptable agreement
addressing pricing, commission and such other terms
deemed necessary by either party.
1.6.5 Within 90 days after the date of this Agreement, and
then periodically thereafter, BD and LASERSIGHT will
meet to discuss joint marketing and sales efforts for
the Products and other products manufactured by
LASERSIGHT both domestically and internationally. In
addition, BD agrees to use commercially reasonable
efforts to assist LASERSIGHT in marketing the
Products by making available data that may be used to
demonstrate product superiority.
1.6.6 If during the term of this Agreement BD develops new
technology or enhances existing technology in the
refractive surgery field, then such new technology or
enhancement will be marketed by the parties in
accordance with the terms of this Agreement.
1.7 Term of Agreement. The term of this Agreement shall be five (5)
years from the Effective Date, unless otherwise sooner terminated as provided
herein. This Agreement may be renewed thereafter upon mutual written agreement
of the parties.
ARTICLE II
PRICING, ORDERING, DELIVERY, PAYMENT
------------------------------------
2.1 Pricing. The price per Product that will be utilized in
LASERSIGHT's UniShaper(TM) microkeratome is $**, the price per Product for
all other microkeratome blades is $**. These prices are based on LASERSIGHT
purchasing the Purchase Minimum. If LASERSIGHT purchases more than 200,000
Products in any twelve month period then BD and LASERSIGHT will negotiate in
good faith to reduce the per Product price for the following 12 months provided
that the prior 12 months' purchases become the new purchase minimum going
forward.
2.2 Shipment and Delivery. All Products delivered by BD under this
Agreement shall be shipped F.O.B. Waltham, Massachusetts to LASERSIGHT's
facility in Winter Park Florida. If LASERSIGHT designates any other location for
the delivery of Products, LASERSIGHT shall bear all shipping costs and
LASERSIGHT shall designate the carrier.
2.3 Payment. Payment shall be net 30 days upon shipment. All
payments shall be made in United States Dollars.
<PAGE>
ARTICLE III
BD's REPRESENTATIONS AND WARRANTIES
-----------------------------------
3.1 Authority. BD has full power and authority to enter into
this Agreement and to perform its obligations hereunder. None of the
obligations to be performed by BD for other persons will limit in any way BD's
performance of its obligations hereunder.
3.2 Enforceable Obligation. This Agreement has been duly authorized
and executed by BD and constitutes a valid and enforceable obligation of BD.
3.3 Good Standing. BD has been duly incorporated, and is in good
standing, under laws of New Jersey.
ARTICLE IV
LASERSIGHT'S REPRESENTATIONS AND WARRANTIES
-------------------------------------------
4.1 Authority. LASERSIGHT has full power and authority to enter
into this Agreement and to perform its obligations hereunder. None of the
obligations to be performed by LASERSIGHT for other persons will limit
in any way LASERSIGHT's performance of its obligations hereunder.
4.2 Enforceable Obligation. This Agreement has been duly authorized
and executed by LASERSIGHT and constitutes a valid and enforceable obligation of
LASERSIGHT.
4.3 Good Standing. LASERSIGHT has been duly incorporated, and is in
good standing, under laws of Delaware.
ARTICLE V
INDEMNITIES AND WARRANTIES
--------------------------
5.1 BD's Indemnity. BD agrees to indemnify, defend and hold
LASERSIGHT, its officers, directors, shareholders and employees harmless against
any and all liability, loss, damages, cost or expenses (including reasonable
attorneys' fees and legal disbursements) that LASERSIGHT may incur, suffer or be
required to pay as a consequence of a third party claim or suit brought
against LASERSIGHT or its subsidiaries, divisions, affiliates, officers,
directors, shareholders or employees arising out of or with respect to (i) BD's
breach of the terms of this Agreement, or (ii) defects in the manufacture of the
Products.
5.2 LASERSIGHT'S Indemnity. LASERSIGHT agrees to indemnify, defend
and hold BD, its officers, directors, shareholders and employees harmless
against any and all liability, loss, damages, cost or expenses (including
reasonable attorneys' fees and legal disbursements) that BD may incur,
suffer or be required to pay as a consequence of a third party claim or suit
brought against BD or its subsidiaries, divisions, affiliates, officers,
directors, shareholders or employees arising out of or with respect to (i)
LASERSIGHT's breach of the terms of this Agreement, defects in products
manufactured by or for LaserSight(other than the Products), or (ii) any alleged
violation by Products of patents, trademarks or tradenames of a third party,
or arising from the promotion, labeling, distribution or sale of Products.
<PAGE>
5.3 Indemnification Process. The obligations of the indemnifying
party under this Article V are conditioned upon (i) written notice given
to the indemnifying party of a written claim or lawsuit which is alleged to be
covered by this indemnity, such notice to be given within 15 days after the
indemnified party has received written notice of such claim or lawsuit;
and (ii) full cooperation of the indemnified party with the indemnifying party
in any regard in the investigation and defense of any threatened claim or
lawsuit alleged to be covered by this indemnity.
Any indemnity shall be void as to any claim or lawsuit for which settlement is
made without the prior written consent of the indemnifying party; such consent
shall not be unreasonably withheld.
ARTICLE VI
COVENANTS
---------
6.1 Obligations Surviving Termination. Termination of this
Agreement for any reason shall not release either party from any payment or
liability which at the time of termination had already accrued to the other
party or which thereafter may accrue with respect to any error or omission prior
thereto.
6.2 Confidentiality. Both during and after the term of this
Agreement, each party shall maintain in confidence all proprietary
information obtained from the other party, and all information concerning the
other party, except a party may disclose:
(i) information which is available to
the public through no fault of the disclosing party;
(ii) information which is required to be
disclosed or divulged by law; and
(iii) information which the parties hereto
mutually agree in writing to disclose.
Upon the expiration or termination of this Agreement, each party shall promptly
return to the other all documents and materials proprietary to it.
6.3 Product Recalls. If (i) any governmental authority issues
a request, directive or order that Products be recalled, (ii) a court of
competent jurisdiction orders such a recall, or (iii) LASERSIGHT and
BD, after consultation, reasonably determine that Products should be recalled
or otherwise returned, the parties agree to take all appropriate corrective
action. If such recall results from any cause or event solely attributable to
BD's negligence or breach of the terms of this Agreement, BD shall be
responsible for all expenses of the recall. In all other cases, LASERSIGHT
shall be responsible for the expenses of recall. For the purposes of this
Agreement, the expenses of recall shall include, without limitation, the
expenses associated with (i) providing notice of recall to purchasers of the
Products, (ii) destruction or return of the recalled or returned Products,
and (iii) LASERSIGHT's costs for the Products recalled, but not any direct and
normal recurring expenses of LASERSIGHT or BD.
<PAGE>
ARTICLE VII
TERMINATION
-----------
7.1 Termination Due to Breach. Either party may terminate
this Agreement by providing at least 30 days notice to the other party if such
other party is in material breach of this Agreement unless such other party,
within such 30 day period, remedies such breach to the reasonable satisfaction
of the non-defaulting party.
7.2 Termination Due to Insolvency. If either party goes
into liquidation, has a receiver appointed for all or any portion of its
property or estate, is adjudged bankrupt or insolvent, files a voluntary
petition or insolvency, has a petition in bankruptcy filed against it or makes
an assignment for the benefit of its creditors, and whether any such event is
the outcome of the voluntary act of such party or otherwise, the other party,
at its option, may terminate this Agreement immediately by providing
notice of such termination.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Force Majeure. Neither party shall be liable to the other for
any failure to perform any obligation hereunder by reasons of events outside
the reasonable control of such party, including without limitation, acts of
God, regulations or laws of any government, war, civil commotion,
destruction or production facilities or materials by fire, earthquake or
storm, labor disturbances, epidemic and general failure of public
utilities or common carriers. The party claiming the benefit of this Section
shall give immediate notice to the other party, shall use its best efforts
to avoid or remove such cause or causes of non-performance, and shall
otherwise continue to perform hereunder. Either party may terminate this
Agreement upon 10 days advance written notice given to the other party, if
the other party has invoked this Section to excuse its performance for a
continuous period of at least 30 days. Suspension of a party's performance for
such cause as described herein shall not affect the running of the term of this
Agreement.
8.2 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of Massachusetts, without regard
to conflict of laws principals.
8.3 No Partnership. The relationship established hereby is in
all respects a commercial relationship. Nothing herein shall be construed
as imposing any fiduciary obligations on either party, or as establishing
any partnership or joint venture between the parties, or as rendering one
party an agent of the other.
8.4 Assignment. This Agreement shall not be assignable by either
party without the prior written consent of the other, except that either
party may assign this Agreement in whole or in part, to any affiliate and
that either party may assign this Agreement, in whole or part, to the successor
(including the surviving company in any acquisition, consolidation,
reorganization or merger) or assignee of all or substantially all of its
business.
<PAGE>
8.5 Successors. This Agreement shall be binding on BD and
LASERSIGHT and their respective successors.
8.6 Headings. The section headings contained in this Agreement
have been inserted for identification and reference purposes and shall not
determine the construction or interpretation of this Agreement.
8.7 Notices. Any notice or other communication required or
permitted hereunder shall be deemed given on the date delivered if delivered
personally or by facsimile with proper evidence of transmission, or five
(5) days after deposit in the United States mail, by registered or certified
mail, postage prepaid, addressed:
if to BD: Becton Dickinson Ophthalmic Systems
411 Waverly Oaks Road
Building 2, Suite 229
Waltham, Massachusetts 02452-8405
Attention:__________________
Facsimile: (781) 891-7210
if to LASERSIGHT: LaserSight Technologies, Inc.
3300 University Boulevard, Suite 140
Winter Park, Florida 32792
Attention: President
Facsimile: (407) 678-9982
or at such other address as any party may designate by 10 days advance written
notice to the other party.
8.8 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with reference to the subject matter hereof,
supersedes any prior agreements with respect to such subject matter and may
not be changed or modified orally, but only by a subsequent instrument in
writing, signed by the parties, which states that it is an amendment to this
Agreement. The invalidity or unenforceability of any term or provision of this
Agreement shall not affect the validity or enforceability of any other term or
provision.
8.9 Waiver. The failure of any of the parties hereto to at any
time enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof or the right of any of the
parties hereto to thereafter enforce each and every provision of this
Agreement. No waiver of any breach of any of the provisions of this Agreement
shall be effective unless set forth in a written instrument executed by the
party or parties against whom or which enforcement of such waiver is sought,
and no waiver of any such breach shall be construed or deemed to be a waiver of
any other or subsequent breach.
8.10 Public Announcements. This Agreement and the terms and
transactions contemplated hereby shall be kept confidential until the parties
hereto mutually agree upon the language and timing of a press release or until
such time as one such party determines, based on the advice of outside
securities counsel, that a public announcement is required by law, in which case
<PAGE>
the parties hereto shall use reasonable best efforts to agree on any public
announcements or public statements with respect thereto. If the parties are
unable to so agree, a party will not be deemed in violation of this section for
subsequent public announcements or public statements.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in multiple counterparts, each of which shall be deemed an original
instrument but all of which together shall constitute one and the same document,
by their duly authorized representatives as of the Effective Date.
BECTON DICKINSON OPHTHALMIC
SYSTEMS, a division of:
BECTON, DICKINSON AND COMPANY
By: /s/George J. Kozlowski
--------------------------------------------------
Name: George J. Kozlowski
--------------------------------------------------
Title Vice President/General Manager
--------------------------------------------------
LASERSIGHT TECHNOLOGIES, INC.
By: /s/Michael R. Farris
--------------------------------------------------
Name: Michael R. Farris
--------------------------------------------------
Title: Chief Executive Officer/President
--------------------------------------------------
<PAGE>
Manufacturing and Marketing Agreement
Becton Dickinson - LaserSight Technologies
ADDENDUM TO MANUFACTURING AND MARKETING AGREEMENT
-------------------------------------------------
This addendum to the Manufacturing and Marketing Agreement, dated May
14, 1999, between Becton Dickinson Ophthalmic Systems ("BD") and LaserSight
Technologies, Inc. ("LASERSIGHT") is intended accommodate LaserSight's Quality
Systems Requirements under 21 CFR, Part 820 regulations and ISO9002 / EN46002
standards. This addendum incorporates all defined terms used in The Agreement.
It is agreed by the parties that the following requirements be adhered
to during the term of the Agreement:
1.1 Change Control. All changes in the Specifications, shall be
documented through BD's change control process, as well as LaserSight's change
control process, where approval authorization by LASERSIGHT's management is
required by at least the following departments: Engineering, Quality
Assurance, Regulatory Affairs. All changes must be approved by LaserSight and
BD's management prior to change implementation.
1.2 Facilities Inspection. BD agrees that during the term of this
Agreement:
1.2.1 LASERSIGHT shall have the right during normal business
hours, and providing BD with at least twenty-four (24)
hours notice, to enter BD's facilities and inspect the
quality records and quality systems of any of the Products
pursuant to 21 CFR 820 regulations and ISO 9001 /
EN 46001 standards. Should LASERSIGHT reasonably find
objectionable conditions as related to these standards,
LASERSIGHT shall notify BD in writing and BD shall take
action to correct such objectionable conditions
within ten (10) working days of such notice. Failure to
take adequate actions necessary to eliminate the
objectionable conditions within ten (10) working days shall
give LASERSIGHT the right to terminate this Agreement
without further obligation to BD, except as provided, after
thirty (30) days of LaserSight's original notice to BD.
1.2.2 In the event that BD facilities are inspected by employees
of the US Food and Drug Administration as relates to the
Products (See Exhibit A), BD agrees to provide LASERSIGHT
with copies of all FDA Form 483, or other regulatory
notifications, received by BD resulting from such
inspections.
<PAGE>
1.3 Certificate of Compliance. BD will prepare a certificate of
compliance (CoC) for each lot / batch of Product manufactured for and shipped to
LASERSIGHT. A copy of said certificate shall be maintained by BD for the life of
the Product manufactured by BD. The information contained within the CoC shall
include at least the following information: (1) Production Lot / Batch No., (2)
declaration that the Product was manufactured in accordance with LASERSIGHT
specifications (see "Exhibits B(1) and B(2)"), and (3) declaration that no
changes in Product components have occurred without prior authorization by
LASERSIGHT (See Amendment Section 1.1, "Change Control"), and (4) each CoC shall
be signed and dated by BD Quality Assurance personnel. Said original of the CoC
shall be supplied with each lot / batch of product shipped to LASERSIGHT.
IN WITNESS WHEREOF, the parties have caused this Amendment to the
Agreement to be executed in multiple counterparts, each of which shall be deemed
an original instrument but all of which together shall constitute one and the
same document, by the duly authorized representatives as the Effective Date.
BECTON DICKINSON OPHTHALMIC
SYSTEMS, a division of:
BECTON DICKINSON AND COMPANY
By: /s/Mark C. Throdahl
----------------------------------------
Name: Mark C. Throdahl
----------------------------------------
Title: Senior Vice President
----------------------------------------
LASERSIGHT TECHNOLOGIES, INC.
By: /s/Michael R. Farris
----------------------------------------
Name: Mike Farris
----------------------------------------
Title: Chief Executive Officer
----------------------------------------
<PAGE>
EXHIBIT C
---------
Purchase Minimum
The following will be considered the "Purchase Minimum:"
Except as provided elsewhere in this Agreement, during each year of
this Agreement LASERSIGHT agrees to purchase at least an average of
16,667 of the Products per month or a total of at least 200,000 blades
for each such year.
The parties acknowledge that (i) the actual purchase and shipment of
Products will be made in accordance with the terms of purchase orders
delivered to BD from LASERSIGHT quarterly, and (ii) the volume of
Products purchased may vary from time to time but that over the five
year term of this Agreement LASERSIGHT commits to purchase at least
1,000,000 units of the Products.
<TABLE>
EXHIBIT 11
LASERSIGHT INCORPORATED
COMPUTATION OF PER SHARE EARNINGS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ----------- ------------
BASIC
<S> <C> <C> <C> <C>
Weighted average shares outstanding 16,155,000 12,626,000 14,794,000 11,478,000
============ ============ =========== ============
Net loss $ (3,450,662) (1,750,873) $(6,771,026) (3,714,380)
Conversion discount on preferred stock -- (833,500) -- (858,872)
Preferred stock accretion and
dividend requirements -- (1,653,832) -- (2,751,953)
============ ============ =========== ===========
Loss attributable to common shareholders $ (3,450,662) (4,238,205) $(6,771,026) (7,325,205)
============ ============ =========== ===========
Basic loss per share $ (0.21) (0.34) (0.46) (0.64)
============ ============ =========== ===========
DILUTED
Weighted average shares outstanding 16,155,000 12,626,000 14,794,000 11,478,000
============ ============ =========== ===========
Net loss $ (3,450,662) (1,750,873) $(6,771,026) (3,714,380)
Conversion discount on preferred stock -- (833,500) -- (858,872)
Preferred stock accretion and
dividend requirements -- 1,653,832) -- (2,751,953)
============ ============ =========== ===========
Loss attributable to common shareholders $ (3,450,662) (4,238,205) $(6,771,026) (7,325,205)
============ ============ =========== ===========
Diluted loss per share $ (0.21) (0.34) (0.46) (0.64)
============ ============ =========== ===========
Loss attributable to common shareholders,
above $(3,450,662) (4,238,205) (6,771,026) (7,325,205)
============ ============ =========== ===========
Additional adjustment to weighted average
number of shares:
Weighted average number of shares as
adjusted per above 16,155,000 12,626,000 14,794,000 11,478,000
Dilutive effect of contingently issuable
shares, stock options, warrants and
convertible preferred stock 6,066,000 1,345,000 5,485,000 739,000
------------ ------------ ----------- -----------
Weighted average number of shares, 22,221,000 13,971,000 20,279,000 12,217,000
as adjusted
============ ============ =========== ===========
Diluted loss per share, adjusted (A) $ (0.16) (0.30) (0.33) (0.60)
============ ============ =========== ===========
(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
<LEGEND>
This schedule contains summary information extracted from the accompanying
financial statements and is qualified in it entirety by reference to such
financial statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,663,888
<SECURITIES> 0
<RECEIVABLES> 12,631,552
<ALLOWANCES> 2,810,335
<INVENTORY> 8,454,809
<CURRENT-ASSETS> 33,514,219
<PP&E> 3,730,160
<DEPRECIATION> 1,931,368
<TOTAL-ASSETS> 53,783,204
<CURRENT-LIABILITIES> 7,572,671
<BONDS> 0
0
4,000
<COMMON> 17,397
<OTHER-SE> 44,379,034
<TOTAL-LIABILITY-AND-EQUITY> 53,783,204
<SALES> 4,834,635
<TOTAL-REVENUES> 5,261,557
<CGS> 2,294,609
<TOTAL-COSTS> 2,337,255
<OTHER-EXPENSES> 5,950,974
<LOSS-PROVISION> 614,224
<INTEREST-EXPENSE> 2,415
<INCOME-PRETAX> (3,450,662)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,450,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,450,662)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
LASERSIGHT ANNOUNCES SECOND QUARTER 1999 RESULTS
-Provides Update on FDA Approval Process-
Winter Park, FL. (August 9, 1999) - LaserSight Incorporated (NASDAQ: LASE) today
announced financial results for the second quarter and six months ended June 30,
1999. Technology related and total revenues increased over the quarters ended
March 31, 1999 and June 30, 1998.
Revenues for the second quarter increased approximately 8% to $5.3
million from $4.9 million in the second quarter of 1998. The Company reported a
net loss of $3.5 million, or $0.21 per share, compared to a net loss of $1.8
million reported for the second quarter of 1998 before the additional $2.4
million loss attributable to common shareholders for that quarter of 1998,
reflecting the effects of premiums, accretion and conversion discounts on the
redemption of Series B Preferred Stock and the issuance of Series C and D
Preferred Stock. The loss per share in the second quarter of 1998 was $0.34. The
average common shares outstanding were 16,155,000 during the second quarter of
1999 compared to 12,626,000 in the second quarter of 1998.
Compared to the first quarter of 1999, revenues increased approximately
8% from $4.9 million. The Company's net loss for the second quarter of 1999 was
comparable to the net loss reported in the first quarter of 1999, of $3.3
million, or $0.25 per share.
Revenues for the six months ended June 30, 1999 increased approximately
11% to $10.2 million from $9.2 million in the comparable period of 1998. The
Company reported a net loss of $6.8 million for the six months ended June 30,
1999, or $0.46 per share, compared to a net loss of $3.7 million reported for
the six months ended June 30, 1998 before the additional $3.6 million loss
attributable to common shareholders for that period of 1998, reflecting the
effects of premiums, accretion and conversion discounts on the redemption of
Series B Preferred Stock and the issuance of Series C and D Preferred Stock. The
loss per share for the six months ended June 30, 1998 was $0.64. The average
<PAGE>
common shares outstanding were 14,794,000 during the six months ended June 30,
1999 and 11,478,000 in the comparable period of 1998.
During the three months ended June 30, 1999 the Company sold 16
refractive laser systems, compared to 15 systems sold during the second quarter
of 1998. Terms of sales continued to improve, with an increase in average
selling price of the LaserScan LSX excimer laser system of approximately 20 %
net of commissions over the first quarter of 1999. In addition, the Company
began shipment of its UltraEdge (TM) Keratome Blades in the U.S., Canada and
other international markets in late July. The blades are manufactured for the
Company by Becton Dickinson (NYSE: BDX) as part of a joint venture first
announced in May.
Michael R. Farris, chief executive officer, commented, " We are pleased
to report an increase in revenues for the second quarter, along with the recent
shipment of our UltraEdge Keratome Blades". Mr. Farris continued, "Through our
joint venture with Becton Dickinson, our manufacturing partner, we have
increased our available manufacturing capacity to meet the refractive market's
growing demand for these products".
Separately, the Company provided an update on the status of the FDA
approval process for its excimer laser technology. The Company stated that its
PMA application is on track for third or fourth quarter approval. The FDA has
waived review by its Ophthalmic Devices Advisory Panel, as the Company's
clinical data was found to meet or exceed the requirements of the FDA's Guidance
Document. The review of the clinical data and a biomonitoring audit have been
successfully completed. The FDA's Good Manufacturing Practices (GMP) inspection
is currently underway. Final FDA approval is expected within 30 - 60 days
following successful completion of the GMP audit, during which the approved
labeling is defined.
LaserSight Incorporated provides quality technology solutions for laser
refractive surgery and other innovative applications, mainly in the vision
correction industry. The Company sells its products in more than 30 countries.
In the United States, LaserSight's refractive scanning laser system has a
pending pre-market approval application with the U.S. Food and Drug
Administration and is not yet commercially available in this market.
<PAGE>
This press release contains forward-looking statements regarding future
events and future performance of the Company, including statements with respect
to anticipated sales revenue, which involves risks and uncertainties that could
materially affect actual results. Investors should refer to documents that the
Company files from time-to-time with the Securities and Exchange Commission for
a description of certain factors that could cause the actual results to vary
from current expectations and the forward looking statements contained in this
press release. Such filings include, without limitation, the company's Form
10-K, Form 10-Q and Form 8-K reports.
Following are selected LaserSight financial results:
(in 000s except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Total Revenues $ 5,261 4,949 10,150 9,192
Cost of Revenues 2,337 1,787 4,417 3,051
Gross Profit 2,924 3,162 5,733 6,141
Research, Development and Regulatory 709 744 1,490 1,561
Selling, General & Administrative 5,856 4,185 11,260 7,932
Loss from Operations (3,641) (1,767) (7,017) (3,352)
Other Income (Expense) 190 (62) 246 (130)
Income tax (Benefit) Expense -- (78) -- 232
Net Loss (3,451) (1,751) (6,771) (3,714)
Preferred Stock Accretions / Dividends
and Conversion Discounts -- (2,487) -- (3,611)
Loss Attributable to Common Shareholders (3,451) (4,238) (6,771) (7,325)
Loss per Common Share - Basic and Diluted (0.21) (0.34) (0.46) (0.64)
Weighted Average Number of Shares Outstanding 16,155 12,626 14,794 11,478
SELECTED BALANCE SHEET DATA (in 000s):
June 30, 1999 December 31, 1998
Cash and Cash Equivalents $ 14,664 $ 4,438
Accounts and Notes Receivable (Current), Net 9,821 9,418
Total Current Assets 33,514 22,717
Total Current Liabilities 7,573 7,842
Long-Term Obligations 553 560
Stockholders' Equity 44,400 34,015
</TABLE>
LASERSIGHT SUCCESSFULLY COMPLETES
QS/GMP INSPECTION -On track with FDA approval
of LaserScan LSX(TM) Excimer Laser System-
Winter Park, FL (August 11, 1999) - LaserSight Incorporated (NASDAQ:
LASE) today announced it successfully completed the Quality System/Good
Manufacturing Practices Inspection (QS/GMP) following the FDA's field inspection
of its manufacturing facilities for the LaserScan LSX (TM) excimer laser system.
Completion of the QS/GMP inspection clears the way for the last step in the
pre-market approval (PMA) process, agreeing on final labeling. After receiving
pre-market approval the Company plans to offer its excimer laser system for
laser vision correction in the U.S., The Company has already delivered
approximately 300 excimer laser systems worldwide.
On August 9, 1999 the FDA concluded that there were no significant
deficiencies at the Company's manufacturing facility. The last step in the
pre-market approval process is expected to take 30 - 60 days from that date.
Following completion of this last step initial approval for the Company's
excimer laser system would be for treatment of myopia, with approval for
astigmatism to follow shortly thereafter.
LaserSight Incorporated provides quality technology solutions for laser
refractive surgery and other innovative applications, mainly in the vision
correction industry. The Company sells its products in more than 30 countries.
In the United States, LaserSight's refractive scanning laser system has a
pending pre-market approval application with the U.S. Food and Drug
Administration and is not yet commercially available in this market.
This press release contains forward-looking statements regarding future
events and future performance of the Company, including statements with respect
to anticipated sales revenue, which involves risks and uncertainties that could
materially affect actual results. Investors should refer to documents that the
Company files from time-to-time with the Securities and Exchange Commission for
a description of certain factors that could cause the actual results to vary
from current expectations and the forward looking statements contained in this
press release. Such filings include, without limitation, the company's Form
10-K, Form 10-Q and Form 8-K reports.
