SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-19671
LASERSIGHT INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 65-0273162
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(State of incorporation) (I.R.S. Employer
Identification No.)
3300 University Blvd, Suite 140, Winter Park, Florida 32792
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 678-9900
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Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None N/A
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Preferred Share Purchase Rights
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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
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the closing sale price on March 29, 1999 was
approximately $64,039,264. Shares of Common Stock held by each officer and
director and by each person who has voting power of 10% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
Number of shares of Common Stock outstanding as of March 29, 1999:
15,442,635.
DOCUMENTS INCORPORATED BY REFERENCE
The information required to be included in Part III is incorporated
herein by reference to the Company's definitive proxy materials to be filed with
the Securities and Exchange Commission on or before April 30, 1999.
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LASERSIGHT INCORPORATED
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters
Item 6. Selected Consolidated Financial Data
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplemental Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relations and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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The information in this Annual Report on Form 10-K contains forward
looking-statements, as indicated by words such as "anticipates," "expects,"
"believes," "estimates," "intends," "projects," and "likely," by statements of
the Company's plans, intentions and objectives, or by any statements as to
future economic performance. Forward-looking statements involve risks and
uncertainties that could cause the Company's actual results to differ materially
from those described in such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in the section entitled "Management's Discussion and Analysis--Risk
Factors and Uncertainties" as well as those discussed elsewhere in this Report.
PART I
Item 1. Business
OVERVIEW
LaserSight Incorporated and its subsidiaries (collectively,
"LaserSight" (TM) or the "Company") operate in three major operating segments:
technology, patents and health care services. The Company's principal
wholly-owned subsidiaries include: LaserSight Technologies, Inc. ("LaserSight
Technologies"), LaserSight Patents, Inc. ("LaserSight Patents"), and MRF, Inc.
("The Farris Group" or "TFG").
TECHNOLOGY SEGMENT. The Company's technology segment includes LaserSight
Technologies and LaserSight Centers Incorporated ("LaserSight Centers").
LaserSight Technologies develops, manufactures and markets ophthalmic lasers
with a galvanometric scanning system primarily for use in performing PRK
(photorefractive keratectomy) which uses a one millimeter scanning laser beam to
ablate microscopic layers of corneal tissue to reshape the cornea and to correct
the eye's point of focus in persons with myopia (nearsightedness), hyperopia
(farsightedness) and astigmatism. LaserSight Technologies also has a license and
owns patents related to keratome design and usage, a new product line the
Company started developing in late 1997 and expects to commercialize during the
second quarter of 1999. LaserSight Centers is a developmental-stage company
through which the Company may in the future provide PRK, LASIK (Laser In-Situ
Keratomileusis) and other vision care surgical services.
In 1994, the Company shifted its emphasis from research and development of
its laser systems to the manufacture and international sale of its lasers. The
Company's Compak-200 Mini-Excimer laser ("Compak-200") was introduced
internationally in 1994. The LaserScan 2000 Excimer Laser PhotoPolishing System
("LaserScan 2000") was introduced in late 1995 to replace the Compak-200. The
LaserScan 2000 incorporates improvements that were developed and implemented as
the result of the Company's worldwide clinical experience with the Compak-200.
In 1997, the Company developed the LaserScan LSXTM excimer laser system with a
new laser head, an active eye-tracking system, and advanced engineering.
The Company's lasers are currently being marketed commercially in over 30
countries around the world. The Company enjoys having among the largest
installed bases of scanning lasers in the industry. The Company intends to
continue to develop and improve upon its technology and to aggressively continue
the process of gaining regulatory approval for its laser products in order to
access the domestic market for refractive procedures, with such approval
presently anticipated during 1999. The Company currently is also pursuing
domestic regulatory approval to market its excimer laser for glaucoma treatment.
With glaucoma affecting over six million people in the United States ("U.S."),
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the Company believes that its laser will provide a therapeutic alternative for
treating this leading cause of blindness. Therefore, the Company intends to
continue to build upon its leadership position internationally by expanding its
product line, entering the domestic market for refractive surgery, and expanding
the applicability of its technology to the therapeutic treatment of glaucoma.
While LaserSight generally does not need approvals of its technology to treat
glaucoma in international markets, we will need to obtain the CE Mark before
systems can be used in Europe with the glaucoma software, requiring limited
clinical trial data. The LaserScan LSX excimer laser system has already received
the CE Mark for refractive procedures.
LaserSight Technologies' patent portfolio covers scanning technology,
infrared technology, solid-state technology, calibration technology, keratome
design and glaucoma treatment, all related to the Company's existing or planned
technology related products.
PATENT SEGMENT. Since August 29, 1997, the patents segment has consisted
of LaserSight Patents, which licenses various patents related to the use of
excimer lasers to ablate biological tissue.
HEALTH CARE SERVICES SEGMENT. Since December 31, 1997, the health care
services segment has consisted of TFG. TFG provides health care and vision care
consulting services to hospitals, managed care companies and physicians. Until
that date, this segment also included MEC Health Care, Inc. ("MEC") and LSI
Acquisition, Inc. ("LSIA"). Under the Company's ownership, MEC was a vision
managed care company that managed vision care programs for health maintenance
organizations (HMOs) and other insured enrollees. LSIA was a physician practice
management company that managed the ophthalmic practice known as the "Northern
New Jersey Eye Institute" under a management services agreement.
TFG works with representatives of health care manufacturers and the chief
executive officers and strategic planning personnel of hospitals, integrated
delivery systems and medical groups. The core business of TFG is two-fold:
developing and maintaining physician databases for clients needs and providing
customized strategic plans. Services included are physician recruitment tools,
competitive intelligence, demand studies, community health analyses and
distribution channel mapping.
GENERAL. For information regarding the Company's export sales and
operating revenues, operating profit (loss) and identifiable assets by industry
segment, see Note 14 of the Notes to Consolidated Financial Statements.
As of December 31, 1998, the Company had 108 full-time and five part-time
employees. The Company considers its employee relations to be good.
The Company was incorporated in Delaware in 1987, but was inactive until
1991. In April 1993, the Company acquired LaserSight Centers in a
stock-for-stock exchange with additional shares issued in March 1997 pursuant to
an amended purchase agreement. In February 1994, the Company acquired TFG. In
July 1994, the Company was reorganized as a holding company. In October 1995,
the Company acquired MEC. In July 1996, the Company's LSIA subsidiary acquired
the assets of the Northern New Jersey Eye Institute, P.A. ("NNJEI"). On December
30, 1997, the Company sold MEC and LSIA in connection with a transaction which
was effective as of December 1, 1997.
The Company's principal offices and mailing address are 3300 University
Boulevard, Suite 140, Winter Park, Florida 32792, and its telephone number is
(407) 678-9900.
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LASERSIGHT TECHNOLOGIES
LaserScan LSX Excimer Laser System
The LaserScan LSX excimer laser system was introduced for international
sale at the American Society of Cataract and Refractive Surgeons meeting in
April 1997. The LaserScan LSX, with its patented optical scanning system, was
designed to be the Company's premier excimer laser product, and incorporates
improvements developed and implemented as the result of the Company's worldwide
experience with clinical use of its laser products. The LaserScan LSX integrates
the Company's new surgeon-intuitive software, a new high-reliability ultraviolet
laser source and AccuTrack "TM" eye tracking, into an ergonomically designed
system enclosure and control console, to supply its international customers with
a complete refractive surgical workstation intended to meet current clinical
requirements with capabilities for adapting to future innovations.
The Version 9.0 software incorporates an easy to use graphical user
interface with expanded treatment capabilities for its international users that
include myopia, hyperopia and astigmatism, true spherical ablation profiles and
a patient record database. The new higher-reliability ultraviolet-laser source
was developed to satisfy the demanding clinical requirements of refractive
surgical systems and offers operation at a pulse repetition rate of up to 100 Hz
(pulses per second), long reliable lifetime, ease of day to day operation and
simplified maintenance. The Company's AccuTrack eye-tracking technology,
incorporated internationally as a standard feature in the LaserScan LSX,
includes enhancements in lighting and image contrast to improve tracking and
surgical centration accuracy. In the international market, the Company's
LaserScan LSX is a fully integrated ophthalmic surgical workstation designed for
use by ophthalmologists to perform PRK and LASIK refractive laser procedures.
These procedures are recognized by most ophthalmologists to be clinically
predictable.
In September 1998 the Company received approval to sell the LaserScan LSX
excimer laser system in the European Community through its certification to
apply the CE Mark. CE Marking was made possible by receipt of a Certificate of
Conformity to the European Medical Device Directive, 93/42/EEC. The first
LaserScan LSX unit was shipped into the international market during December
1997 and regular commercial shipments to non-U.S. customers commenced during the
first calendar quarter of 1998. The LaserScan LSX is now the Company's primary
excimer laser product in the international market.
Presently, the LaserScan LSX is restricted to investigational use in the
U.S. as it is the subject of clinical trial research for LASIK treatment of
myopic astigmatism and hyperopic astigmatism. The LaserScan LSX is also in
clinical studies in Canada for LASIK treatment of myopic astigmatism.
LaserScan 2000Plus Excimer Laser System
The LaserScan 2000Plus laser system was introduced to the international
market in March 1998 as an enhanced version of the LaserScan 2000. The LaserScan
2000Plus was designed to replace the Company's LS 300 as a lower-cost
alternative excimer laser product. Its improvements include the Company's new
surgeon-intuitive Version 9.0 software, energy stabilization, and a new patient
alignment/fixation system. This surgical workstation is also designed for use by
ophthalmologists to perform PRK and LASIK refractive laser procedures.
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LaserScan 2000 and LS-300 Excimer Laser Systems
The LaserScan 2000 laser system was introduced to the international market
at the Annual Meeting of the American Academy of Ophthalmology in October 1995.
The LaserScan 2000 was designed as a fully integrated ophthalmic surgical
workstation for use by ophthalmologists, to perform PRK and LASIK refractive
laser procedures. The system was introduced as a replacement for the Company's
first excimer laser product, the Compak-200 laser system, and incorporated
improvements developed and implemented as the result of the Company's worldwide
experience with the clinical use of the Compak-200.
In June 1996, LaserSight Technologies introduced the LS 300 Excimer Laser
System for international sales at the Annual Meeting of the American Society of
Cataract and Refractive Surgeons. The LS 300 was introduced to offer a
lower-cost alternative to the LaserScan 2000. As a modified version of the
Compak-200, it allowed the Company to utilize its remaining Compak-200
inventory. The modifications to the original system included upgraded optics and
illumination and automatic gas exchange. The Compak-200 laser system, with its
patented optical scanning system, established the industry's standard for high
repetition rate, small diameter beam, galvanometer controlled scanning laser
systems. That system was improved upon with the introduction of the LaserScan
2000 and LS 300 systems. Production of the LS 300 for the international market
was phased out during 1997 in favor of the LaserScan 2000 and LaserScan 2000Plus
systems, for which production plans have now been scaled back with the Company's
emphasis on the LaserScan LSX excimer laser system.
All of the Company's excimer laser systems incorporate a scanning device
that utilizes a pair of galvanometer controlled mirrors that reflect and scan
the laser beam directly onto the corneal surface without the use of discs,
masks, diaphragms, or rotating elements used by other excimer laser systems. The
advantages of this patented scanning technique include: (i) use of a lower
energy, higher frequency laser with a smaller diameter beam that dramatically
increases power density thereby permitting smaller, more compact systems; (ii)
greater scanning pattern flexibility, through system software, for refractive
procedures, including the correction of myopia, hyperopia, and astigmatism;
(iii) smoother surface quality without transition zones; and (iv) an ability to
scan much larger optical zones (up to 9mm). The actual corneal ablation profile
is controlled by a computer that adjusts the beam overlap and diameters of the
scanning system. The source code for the scanning software is proprietary
technology of the Company (copyright) and has been developed and tested by a
series of verification and validation procedures utilizing both PMMA (plastic),
human cadaver and living rabbit eye tissue, and at international and domestic
clinical trial sites.
Keratome Systems
During 1997, the Company began design and engineering activities to expand
its keratome product line to include durable keratomes and replacement blades in
addition to its single use disposable keratome. The keratome is a surgical
instrument used during LASIK procedures to produce the corneal flap required for
this procedure. The Company anticipates that it will have the opportunity to
generate recurring revenues on a per procedure basis through sales of the
single-use keratomes and the blades necessary to perform each refractive
procedure. The Company believes that its complete keratome system, known as the
LaserSight "MicroShape"(TM) keratome system, is the first of its kind that,
because of the keratome consoles compatibility, offers surgeons the option to
utilize either a single use or durable keratome based on their clinical
preference.
The Company acquired rights to manufacture and sell the single use
disposable keratome, formerly known as the Automated Disposable Keratome "A*D*K"
(TM), in September 1997 from inventors Luis A. Ruiz, M.D. ("Ruiz"), and
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engineer Sergio Lenchig ("Lenchig") of Bogota, Colombia. The trade name for this
single use keratome is now the LaserSight "UniShaper" (TM) single use
keratome. See "Management's Discussion and Analysis - Risk Factors and
Uncertainties - Company and Business Risks-"Required Minimum Payments Under Our
UniShaper License Agreement may Exceed Our Gross Profits From Sales of Our
UniShaper Product." Ruiz and Lenchig had earlier invented the Automated Corneal
Shaper ("ACS") distributed by another company. The UniShaper single use keratome
incorporates the market proven features found in the ACS with new enhancements
and features, including pre-assembly, factory inspection, single use,
transparent components for improved visibility while cutting the flap, and a
dual drive mechanism with covered gears. The enhanced device was designed in
response to the accumulated experience and feedback after several years of
operation with the market leader ACS device. Early single use keratome
prototypes were shown at the American Academy of Ophthalmology conference held
in San Francisco in October 1997. Section 510(k) clearance from the U.S. Food
and Drug Administration ("FDA") was applied for in October 1997 and received in
January 1998, thereby allowing it to be sold and used on a commercial basis in
the U.S.
Manufacturing validation began in late 1997 and continued together with
clinical testing and further validation throughout 1998. The Company believes
that commercial shipment of any keratome product should not commence until the
instrument or consumable, and their related manufacturing processes, have been
clinically validated through carefully controlled testing that includes both in
vitro and in vivo evaluations and until previously established criteria for
clinical use have been met. The UniShaper single use keratome is currently in
the process of final clinical validation. The Company had originally expected to
begin commercial sales of the single use device in early 1998, but now expects
such sales to begin during the second quarter of 1999 due to unanticipated
complexities in the manufacturing and clinical validation processes. During
initial validation in late 1997 and early 1998, it was determined that the
product didn't meet the performance requirements set by LaserSight. The product
then underwent a number of additional rounds of design and clinical validations.
We now believe that performance issues relevant to the product have been
resolved.
The UniShaper single use keratome is manufactured for LaserSight under an
exclusive agreement with Frantz Medical Development Ltd. ("Frantz Medical"),
located in Cleveland, Ohio, which is an ISO 9001 certified company experienced
in the manufacture of engineering-grade medical devices. Frantz Medical was
chosen for its experience with OEM manufacturing for other large medical
companies, and its reputation for consistent delivery of quality products. Under
the agreement, LaserSight is responsible for providing product specifications
and for the cost of mold revisions and certain special tooling and equipment
required. Frantz Medical is responsible for production in accordance with
product specifications, as amended, and maintaining their facility in compliance
with ISO 9002 requirements and Good Manufacturing Practices ("GMP") as required
by the FDA. Upon final product approval, the Company is obligated to purchase
50,000 units during each year of the contract.
The Company's "UltraShaper" (TM) durable keratome is a fabricated
stainless steel surgical instrument that was designed utilizing the same
clinical criteria applied to its single use counterpart. The decision to
commercialize a durable keratome, in addition to the single use version,
resulted from the company's marketing activities and surgeon feedback. The
UltraShaper durable keratome is expected to be manufactured exclusively for the
Company by specialized Medical Devices, Inc. ("SMD") located in Lancaster,
Pennsylvania. SMD is ecperienced in the machining and assembly of precision
instruments having previously manufactured their own vesion of a keratome for
several years. The UltraShaper durable keratome requires replacement of a
precision manufactured blade for each procedure.
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The Company intends to manufacture its own "UltraEdge" (TM) blades for
its durable instruments, as well as for keratomes manufactured by its
competition. In preparation for the commercial launch of its keratome blades,
the Company added several employees with experience in manufacturing similar
products to its staff, entered into a lease for additional manufacturing space
in Winter Park, Florida, and procured the equipment necessary to establish its
blade manufacturing capability. Approximately 9,000 square feet have been
dedicated to UltraEdge blade production, with the remaining space secured for
additional manufacturing or distribution needs.
The Company has developed a feature-enhanced control console that will
provide power and control for its keratomes. The console will be interchangeable
between the UniShaper single use keratome and the Company's new durable model.
The new console incorporates suction monitoring functions with visual and
auditory alarms to indicate a caution state; an ergonomic design with quiet
operating performance; a digital display reading suction in either inches or
millimeters of mercury; an elapsed time indicator to show the amount of time the
eye has been exposed to high suction; and a new low suction setting that offers
the surgeon the option to use the keratome's suction ring as a globe fixation
device. The control console is being manufactured for the Company by Humphrey
Instruments, a division of Carl Zeiss, Inc., San Leandro, California.
The keratome systems will be marketed both through the Company's existing
international distributor network and direct sales. Sales in the domestic market
will be handled through: (i) direct contact (telephone, mail, fax and internet)
to refractive surgeons; (ii) a direct marketing effort that targets national
Laser Center accounts; and (iii) educational wet lab seminars to introduce the
product in key metropolitan areas.
The Company expects to benefit from the favorable payment terms associated
with keratome products. Direct sales will be handled with payment in cash or by
credit card at time of shipment of product. Distributor orders will be secured
with letters of credit, prepayment, or up to 30-day terms. The relatively low
product price and the prospect of repeat orders necessitates such payment terms,
rather than extended terms often offered for higher cost capital equipment.
The keratome market is developing globally with the emergence of LASIK
rather than PRK as both the surgeon and patient's procedure of choice for laser
refractive surgery. This trend first became evident in markets which were among
the first to embrace laser refractive surgery, and appears to be spreading to
other global markets, including the U.S. where LASIK captured a majority of
refractive surgery cases during 1998. The Company believes there are five main
competitors in the keratome business, but the Company has the first FDA
510(k)-cleared disposable keratome and, it believes, the only keratome product
line that includes both single use and durable instruments that utilize a single
control console design. Other instruments are manual devices, rather than
automated. While the Company believes that its single use and durable keratomes
have significant advantages over the keratomes manufactured by its principal
competitors, some of these competitors are larger, more established, and have
greater financial strength than the Company.
The Company believes that the major competitive factors for its keratome
products will include quality, safety, availability, automation, simplicity and
price.
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Aesthetic and Scientific Laser Products
Based on the Company's desire to broaden its technology product line and
offer expanded laser applications in the medical field, during April 1998, the
Company and Schwartz Electro-Optics, Inc. ("SEO") entered into an agreement
under which the Company purchased substantially all of the assets, and assumed
certain liabilities, of SEO's medical products division. The aesthetic and
scientific laser product division of LaserSight Technologies develops,
manufacturers, and sells lasers and related equipment for medical, medical
research, and scientific research applications. The division's primary focus has
been on its erbium laser, the Crystalase, which is primarily used to perform
dermatological procedures. The division also manufactures and sells its
scientific product, the Laser 1-2-3.
Ancillary Products
The majority of ancillary revenues are part of the same class of products
and services as excimer laser system sales and, in total, such revenues are less
than 5% of Technology revenues.
Certain ancillary products (such as the video display camera) are offered
as a convenience to customers and are not manufactured by the Company. The more
significant ancillary products are listed below.
AccuTrack (TM) Eye Tracking System. The Company continues to offer its
international customers an active eye tracking system as an option to the
LaserScan 2000Plus. The system is integrated into the laser system and
automatically detects slight saccadic movements of the patient's eye and adjusts
the position of the laser beam to ensure that the eye remains centered during
the laser procedure. During 1998, the Company continued its engineering and
development of the system to optimize the eye tracking system's functions, and
to extend the capability of the tracking system hardware and software.
Video Display Camera. The Company offers, as an option, a video display
system for observation or recording of procedures. This camera can be installed
on the LaserScan 2000Plus, either at the manufacturing facility or as an upgrade
on site. The video display system includes a beam splitter, video adapter, and a
single chip video camera.
Version 9.0 Software. The Company offers its newest version software for
installation as an upgrade to its earlier laser systems. The Version 9.0
software upgrade provides international users with features including expanded
treatment options and patient databases.
Intellectual Property
Numerous patents have been applied for by, or have been issued to, other
companies related to the broad categories of lasers and laser devices,
refractive surgical procedures using laser devices, and delivery systems for
using laser devices in refractive surgical procedures.
The Company maintains a portfolio of strategically important patents,
patent applications, and licenses, covering its laser scanning method,
solid-state technology, glaucoma and retinal treatments, corneal topography
development, calibration methods, treatment techniques for myopia and hyperopia,
and keratomes.
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The Company continues to take actions to secure patent rights in its
field. See "Management's Discussion and Analysis--Risk Factors and
Uncertainties-Company and Business Risks-Patent Infringement Allegations May
Impair Our Ability to Manufacture and Market Our Products."
Purchase of Certain Patents from IBM
In 1992, LaserSight signed a License Agreement with International Business
Machines Corporation ("IBM") for IBM's patents relating to ultraviolet light
ophthalmic products and procedures for ultraviolet ablation. Under this license,
LaserSight paid a royalty fee of 2% of the sales of its ultraviolet lasers in
those countries in which IBM had such a patent. Sales of excimer lasers in other
countries were not subject to such royalty payments.
In August 1997, the Company purchased from IBM, two patents related to
ultraviolet light ophthalmic products and procedures for ultraviolet ablation.
These patents (the "IBM Patents"), U.S. Patent No. 4,787,135 (Blum Patent) and
U.S. Patent No. 4,925,523 (Braren Patent) relate to the use of ultraviolet light
for laser vision correction, as well as for all non-ophthalmic applications.
With the purchase of these patents the Company also acquired related patent
license agreements, and the rights to all royalties accrued after January 1,
1997 under license agreements with Summit Technologies, Inc. and VISX,
Incorporated. A license to the IBM Patents is necessary for companies desiring
to enter the laser vision correction market in the U.S. and certain other
countries. In addition to the royalties from licenses acquired and potential new
licenses with other excimer laser manufacturers and users, the Company also has
the right to pursue claims for all past infringement of the IBM Patents. Sale of
Patent Rights and Licenses
In September 1997, the Company received a one-time lump sum payment of $4
million from a third party in exchange for an exclusive worldwide, royalty-free
license covering the vascular and cardiovascular rights covered in the IBM
Patents.
In February 1998, the Company entered into an agreement with Nidek Co.,
Ltd. ("Nidek") under the terms of which the Company retained all patent
ownership rights within the U.S. to the IBM Patents, and transferred to Nidek
ownership of the non-U.S. counterparts related to those patents, in exchange for
$7.5 million in cash. The foreign counterpart rights to the IBM Patents include
Australia, Austria, Belgium, Brazil, Canada, France, Germany, Italy, Japan,
Spain, Sweden, Switzerland, and the United Kingdom. The Company also granted
Nidek a non-exclusive license to utilize the U.S. patents on terms comparable
with existing licensees. The agreement with Nidek does not affect any
outstanding license agreements related to non-U.S. patents that have been
previously granted to the Company or any other companies. The agreement with
Nidek also provides for the Company to continue to have exclusive right to use
and sublicense the non-U.S. patents in all fields other than ophthalmic,
cardiovascular and vascular.
The Company intends to negotiate additional license agreements relating to
the IBM Patents with other companies. However, there can be no assurance as to
whether, when or on what terms the Company may be able to do so. As of the date
of this Annual Report, the Company had not entered into any other agreements
relating to the IBM Patents other than those described herein.
Scanning and Solid-State Laser-Related Patents for Refractive Surgery
In May 1996, a patent (U.S. Patent No. 5,520,679) for an "Ophthalmic
Surgery Method Utilizing Non-Contact Scanning Laser" was granted to the Company
by the U.S. Patent Office. This patent includes claims that cover ultraviolet
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and infrared wavelengths wherein the purposeful overlapping of sequential
small-diameter laser pulses achieves a "photopolishing" of the corneal surface.
Another patent (U.S. Patent No. 5,144,630) has been granted covering the
apparatus and use of the solid-state (ultraviolet and infrared) LaserHarmonic
System. The extent of protection that may be afforded to the Company, or whether
any claim embodied in these patents will be challenged or found to be invalid,
cannot be determined at this time. These patents and other pending applications
may not afford a significant advantage or product protection to LaserSight
Technologies.
In July 1995, the Company exercised its option to acquire technology of a
solid-state UV-laser operating at 213 nm and 200 Hz developed by Dr. J.T. Lin
pursuant to Dr. Lin's Research and Development Agreement with the Company. Dr.
Lin is a former president and chief executive officer of the Company. This laser
system employs harmonic wavelength mixing schemes different from those described
in the Company's 1992 solid-state patent (U.S. Patent No. 5,144,630), Dr. Lin's
patent application, which has been assigned to the Company, has been filed
covering this new technology. Efforts continued on this project during 1998, but
at a priority level lower than excimer-related activities within the Company's
engineering and research and development departments.
In November 1995, the Company obtained an exclusive license for
patent-pending technology developed by Dr. Peter McDonnell, Professor of
Ophthalmology, Doheny Eye Institute, University of Southern California. This
technology for epithelial boundary determination may allow for full automation
(Auto-PRK) of the PRK procedure using the Company's patented delivery system. In
February 1998, the Company ended this licensing arrangement with the University
of Southern California based on its perception that the LASIK procedure has
become the dominant refractive surgical technique.
In October 1995, Francis E. O'Donnell, Jr., M.D., Chairman of the Board of
the Company was granted a patent (U.S. Patent No. 5,460,627) for a method and
apparatus for calibration of PRK lasers. Dr. O'Donnell licensed this patent to
LaserSight Centers in exchange for a 6% royalty on the net sales or uses of the
patented technology. In January 1996, the Company announced a joint venture with
PAR Vision Systems to develop the Ex-Caliper calibration system. It uses a
rastersterographic topography system to measure the effects of a simulated PRK
on a single-use, disposable target. Under the terms of the agreement, the joint
venture partners share in software licensing income and in the sale of
disposable targets for the Ex-Calipar system.
In October 1998, the Company entered into an agreement with a subsidiary
of TLC The Laser Center Inc. ("TLC"), Toronto, Ontario, Canada, that grants the
Company an exclusive license under U.S. Patent No. 5,630,810 relating to a
treatment method for preventing formation of central islands during laser
surgery. Central islands are a problem generally associated with laser
refractive surgery performed with broad beam laser systems used to ablate
corneal tissue. The Company has agreed during the term of the patent license
agreement to pay TLC 20% of the aggregate net royalties it receives in the
future from licensing of the TLC patent and certain other patents owned by the
Company.
In January 1999, the Company received Notice of Allowance from the U.S.
Patent and Trademark Office for its patent application covering a multizone,
multipass, treatment method for refractive surgery, and expects that the
corresponding patent will be issued in the near future.
11
<PAGE>
Keratome Patents and Licenses
In July 1997, the Company completed an agreement under which it purchased
U.S. Patent No. 5,586,980 from Dr. Frederic B. Kremer. The Kremer patent covers
a pivoting head in a keratome, the instrument required to create the corneal
"flap" in the LASIK procedure.
In September 1997, the Company entered into a limited exclusive license
agreement with Ruiz and Lenchig for U.S. Patent No. 5,133,726/RE35421 and its
foreign counterparts. The limited license agreement includes worldwide
distribution rights to the single use A*D*K keratome. The license has also
provided the technology necessary for the Company to design its durable
keratome.
Treatment of Glaucoma and Other Ophthalmic Indications
Dr. O'Donnell was independently granted two patents (U.S. Patent No.
5,370,641) for the Laser Trabeculodissection for treatment of glaucoma, and
(U.S. Patent No. 5,217,452) for Transscleral Laser Treatment of Subretinal
Neovascularization for macular degeneration. These patents were assigned by Dr.
O'Donnell to LaserSight Centers in January 1995 for $6,121 as reimbursement for
attorney's fees and costs to prosecute the patent applications.
Trade and Service Marks
The Company has independently developed the trademarks "MicroShape",
"UniShaper", "UltraShaper", "UltraEdge", "A*D*K", "LaserScan LSX", "AccuTrack",
"ScanLink" (TM), "OnSite" (TM), and "Crystalase" (TM) and intends to enforce its
prior appropriation of these trademarks and to seek registration thereof.
"LaserSight" is a service mark developed by the Company.
Manufacturing
In late 1995, the Company opened a new manufacturing facility in San Jose,
Costa Rica to manufacture its lasers for international sales, and for delivery
to U.S. investigational sites under its Investigational Device Exemption ("IDE")
protocols. Beginning in 1996, all lasers sold to international customers were
manufactured at this facility, as well as laser systems delivered to U.S.
clinical investigators. This facility, located in a free trade zone, has
produced all laser units sold internationally since that time.
As exports of laser products not approved for sale in the U.S. are closely
regulated by the FDA, the Company's establishment of an offshore manufacturing
facility permits it to sell products to any international customer without prior
FDA approval. Many countries, however, have their own regulatory requirements.
For example, the CE Mark is required for sale into member countries of the
European Economic Union ("EU").
The manufacturing process is mainly an assembly operation in which
LaserSight Technologies acquires components of its system and assembles them
into a complete unit. Components include both "off-the-shelf" materials and
assemblies, as well as various key components which are produced by others to
the Company's design and specifications. In general, the cost of the Company's
lasers predominantly relate to hardware; the labor component of cost is
relatively small. The proprietary computer software operating the scanning
system has been developed internally.
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A number of key components necessary to produce the Company's laser
products are obtained from single vendors. Should these suppliers become unable
or unwilling to supply these components, the Company would be required to seek
other qualified suppliers. See "Management's Discussion and Analysis--Risk
Factors and Uncertainties--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."
During 1996 the Company completed implementation of an international
system of quality assurance under ISO 9002, that was initiated during 1995. In
October 1996 the Company received certification under ISO 9002 for its
manufacturing and quality assurance activities in Orlando, Florida and San Jose,
Costa Rica. Since that time the Company has maintained its ISO 9002
certification through a series of periodic surveillance audits by its "Notified
Body". During November 1996 the Company completed all requirements necessary to
obtain authority to apply the CE Mark to its LaserScan 2000 System. In September
1998, the Company received similar certification to apply the CE Mark to its
LaserScan LSX excimer laser system. The CE Mark, certifying that the LaserScan
Models 2000 and LaserScan LSX meet all requirements of the European Community's
medical directives, gives the Company access to market its products into all
member countries of the EU. Although during 1997 and the first half of 1998 only
certain member countries of the EU required compliance with the EU Medical
Directives (including France and Germany), after June 1998 all countries in the
EU required the CE Mark certification of compliance with the EU Medical
Directives as the standard for regulatory approval for sale of laser systems.
The EU Medical Directives include all the requirements under EU laws
regarding the placement of various categories of medical devices on the EU
market. This includes a "directive" that an approved "Notified Body" will review
technical and medical requirements for a particular device. All clinical testing
of medical devices in the EU must be done under the Declaration of Helsinki,
which means that companies must have ethics committee approval prior to
starting, they must obtain informed consent from each patient tested and the
studies must be monitored and audited. Patient records must be maintained for 15
years. Companies must also obey the Medical Device Vigilance reporting
requirements. In obtaining the CE Mark for its excimer laser system, the Company
had its manufacturing processes and controls evaluated by a Notified Body
(Semko) for maintenance of ISO 9002 conditions, demonstrated that it satisfied
all engineering and electro-mechanical requirements of the EU, and conducted a
clinical study in France to confirm the safety and efficacy of the excimer laser
system on patients.
Availability of Components
LaserSight Technologies purchases the vast majority of components for its
laser systems from commercial suppliers. These include both standard,
"off-the-shelf" items, as well as components produced to the Company's unique
designs and specifications. While most are acquired from single sources, the
Company believes that in many cases there are multiple sources available to it
in the event a supplier is unable or unwilling to perform. As the Company is
dependent upon an uninterrupted supply of components to produce its lasers, it
is dependent upon these suppliers to provide a continuous supply of integral
components and sub-assemblies.
The Company has contracted under an exclusive supply arrangement with a
single source, MPB Technologies Inc., Dorval, Quebec, Canada, for the laser head
used in the LaserScan 2000. Under this exclusive arrangement, the supplier of
the laser head is restricted from providing this relatively low energy, high
repetition rate laser head to any company that would use the laser head in an
excimer laser system for corneal refractive surgery. The Company historically
experienced higher than anticipated warranty service costs associated with this
component, and accordingly, during 1995 the Company began certain measures to
address this issue which have continued through 1998. These measures include
100% incoming inspection of all laser heads at time of receipt from the
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<PAGE>
supplier, modification and upgrading of certain critical components, development
and testing of new techniques for handling the laser heads, and procurement of
an alternate component from another supplier.
During 1996, the Company contracted with a new supplier for the laser head
component, TUI Lasertechnik und Laserintegration GmbH, Munich, Germany, to
develop an improved performance laser head based on this supplier's innovative
technology and the Company's performance specification and laser lifetime
requirements. In 1997, the Company began its engineering evaluation and testing
and determined that with some modifications the new laser head satisfied all
engineering requirements. The Company began to incorporate this new laser head
into its products, notably the LaserScan LSX, in the fourth quarter of 1997.
Further development on new variations of this technology continue and the
Company has a limited exclusive license to this technology in the field of
ophthalmic surgery as long as minimum purchase requirements are satisfied.
Currently, TUI is a single source for this improved performance laser head. The
agreement is for a term of 18 months, renewable for consecutive 18 month terms
at the Company's option.
The Company continues to evaluate potential supplier relationships with
other laser manufacturers.
Marketing
The use of the Company's medical laser systems in the U.S. requires FDA
approval. The Company has been marketing these systems in the international
market where approval is either not required or has been obtained. These
international sales require LaserSight to comply with the regulatory
requirements of the importing nation and export requirements of the U.S.
During 1998, the Company continued to market its LaserScan 2000 and
LaserScan LSX excimer laser systems in Europe, Russia, the Pacific Rim, Asia,
South and Central America, and the Middle East. The Company sells its excimer
laser systems and accessories using a multi-tiered marketing strategy directed
toward ophthalmologists throughout the world. A combination of directly-employed
sales representatives and independent international distributors and
representatives is used to market directly to individual ophthalmologists,
ophthalmic clinics, and hospitals.
The Company directly employs two territorial managers who are responsible
for sales, both direct and through distributors and representatives, within
their respective territories. The Company's distributors and representatives
have been selected based on their experience in the market for ophthalmic
equipment and their capability for technical support. Distributor and
representative agreements either provide for exclusive territories, with
continuing exclusivity dependent upon mutually-agreed levels of annual sales, or
nonexclusive agreements without sales minimums. Currently, separate distributor
and representative agreements are in place for all major market areas. During
1998, approximately 86% of sales of the Company's product sales resulted from
distributors and representatives with the balance from sales made by employees
of the Company. No one customer or distributor was responsible for generating
sales in excess of 10% of consolidated revenues.
In conjunction with its sales activities, the Company continues to
participate in a number of foreign and domestic ophthalmology meetings, exhibits
and seminars. Historically, two large U.S. meetings, the American Academy of
Ophthalmology and the American Society of Cataract and Refractive Surgery, have
yielded substantial interest in the Company's laser and keratome products.
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<PAGE>
The Company is exploring potential clinical trial advisors and
distribution agents in Japan.
In certain countries, clinical trials of lasers are required before
commercial sales can take place. As a result, the Company has historically
placed from three to six lasers with clinical investigators at no cost to the
physician. At the conclusion of these clinical trials, the lasers are to be
returned to the Company.
While the focus of the Company's sales activities is on the international
market, the Company has sold lasers in the U.S. to ophthalmologists
participating in the Company's FDA clinical trials. Pricing of these units has
generally been lower than for those sold in foreign markets as the FDA requires
that these sales be based on specific manufacturing costs, which can include an
allocation of research, development and other expenses. If the Company continues
to establish additional clinical sites in the U.S. during 1999, these sites
could represent an additional source of revenue for the Company as well as
additional regulatory costs. Approximately 250 LaserSight excimer laser systems
are now in place worldwide.
Meetings and Technical Exhibits
LaserSight Technologies' strategy for international meetings and technical
exhibits is for Company personnel to attend appropriate national and regional
meetings, and to encourage its clinical investigators and clinical users to
present clinical papers to promote sales of the Company's laser systems. When
possible, Company personnel participate in, or provide, wet lab or hands on
demonstrations of the Company products. All distributor and representative
agreements contain provisions for the agent to participate in national and
regional meetings and exhibits.
Attendance at meetings and exhibits held in the U.S. is limited to those
meetings where a large attendance of foreign ophthalmologists is anticipated.
These meetings include the Annual Meeting of the American Academy of
Ophthalmology (most recently held in November 1998 in New Orleans) and the
American Society of Cataract and Refractive Surgery (most recently held in April
1998 in San Diego). During these U.S. meetings, the Company limits its
activities for its excimer laser refractive systems to the distribution of
technical information without making any offer to sell.
Seasonality
Based on historical activity, the Company does not believe seasonal
fluctuations have a material impact on its financial performance.
Payment Terms; Receivables
The Company may from time to time reassess its credit policy and the terms
it will make available to individual customers. As a result of a growing
presence in a number of countries and continued acceptance of the Company's
laser systems, the Company's internally-financed sales with repayment periods
exceeding 18 months (measured from the installation date) decreased from 13
systems in both 1996 and 1997, to 10 systems in 1998. There can be no assurance
as to the terms or amount of third-party financing, if any, that the Company's
customers may obtain in the future. In the Company's experience, sales of major
capital equipment such as excimer laser systems in certain areas, including much
of South and Central America, often require payment terms from 12 to 18 months.
Since 1996, the Company has been placing greater emphasis on the terms and the
timing of collections of future sales.
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Laser sales are generally to hospitals or established and licensed
ophthalmologists. Unless a letter of credit or other acceptable security has
been obtained, a significant down payment or deposit is generally required at or
before installation, and LaserSight Technologies maintains regular contact with
customers as routine maintenance work must be provided by LaserSight personnel.
Maintenance services can be withheld should payment terms not be met. LaserSight
Technologies' agreements with its customers typically provide that the contracts
are governed by Florida law. The Company has not determined whether or to what
extent courts or administrative agencies located in foreign countries would
enforce its right to collect such receivables or to recover laser systems from
customers in the event of a customer's payment default.
At December 31, 1998, the Company was the payee on letters of credit with
foreign financial institutions aggregating approximately $2.5 million (compared
to $0.2 million at December 31, 1997). On occasion, it is necessary to meet a
competitor's more liberal terms of payment. In those and other cases, the
Company may provide term financing. See "Management's Discussion and
Analysis--Risk Factors and Uncertainties-Financial and Liquidity Risks-If Our
Uncollectible Receivables Exceed Our Reserves We will Incur Additional
Unanticipated Expenses."
The Company's sales have historically been and are expected to continue to
be denominated in U.S. dollars. The EU's conversion to a common currency, the
Euro, is not expected to have a material impact on the Company's pricing,
financial condition or results of operations.
Backlog
To date, the Company has been able to ship laser units as orders are
received, therefore order backlog is not a meaningful factor in its business.
Competition
Competition in the medical and laser industries is intense, and
technological developments are expected to continue at a rapid pace. The Company
competes against both alternative and traditional medical technologies and other
laser manufacturers. Many of the Company's competitors are substantially larger,
better financed, and better known, with existing products and distribution
systems in the marketplace. A number of lasers manufactured by other companies
have either already received, or are much farther advanced in the process of
receiving, FDA approval for specific procedures, and, accordingly, may have a
higher level of acceptance in some markets than the Company's lasers.
PRK and LASIK techniques for treatment of refractive vision disorders
compete with eyeglasses, contact lenses, and RK (radial keratotomy), and
recently introduced corneal implants. In addition, medical companies, academic
and research institutions and others could develop new therapies, including new
medical devices or surgical procedures (such as new designs of corneal implants
and surgery utilizing other types of lasers), for the conditions targeted by the
Company, which therapies could be more medically effective and less expensive
than PRK and LASIK, and could potentially render PRK and LASIK obsolete. Any
such development could have a material adverse effect on the business, financial
condition, and results of operations of the Company.
LaserSight Technologies is targeting the LaserScan LSX and the LaserScan
2000 to the PRK and LASIK refractive correction market that utilizes a
UV-wavelength (currently excimer) laser. The Company believes that there are
currently six major competitors in the worldwide UV-wavelength market, including
three major U.S. companies. LaserSight Technologies believes that in the market
for refractive surgery its scanning laser technology, software-based flexibility
and eye tracking technology have significant advantages over the excimer lasers
manufactured by its principal competitors. Many of these competitors are larger,
more established, and have greater financial strength than the Company.
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<PAGE>
Competitive factors such as performance, price, warranty, and royalty
issues play an important role in the customer's decision to purchase an excimer
laser system. Regulatory issues also play a significant role in determining the
markets accessible to the Company. As the Company must obtain approval from the
FDA prior to marketing in the U.S., the Company must presently focus its
marketing efforts on international markets. Both U.S. and foreign competitors
may enter the excimer laser business or acquire existing companies. These
competitors may be able to offer their products at a lower cost or may develop
procedures that involve lower per procedure costs. Competition from new entrants
may be prevalent in those countries where significant regulatory approval is not
required.
Food and Drug Administration
The Company's laser products are subject to strict governmental
regulations which affect the Company's ability to manufacture and market these
products. All laser devices to be marketed in interstate commerce are subject to
the laser regulations required by the Radiation Control for Health and Safety
Act, as administered by the FDA. Such Act imposes design and performance
standards, labeling and reporting requirements, and submission conditions in
advance of marketing for all medical laser products. The Company's laser systems
produced for medical use require PMA approval by the FDA before the Company can
ship its laser systems for commercial 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.
During 1994, the Company began the clinical studies required for approval
and commercialization of its laser scanning systems in the U.S. In April 1998,
the Company filed its Pre-Market Approval ("PMA") application for PRK treatment
of myopia using its scanning laser system. The Company continues to enroll
patients into a Phase 3 PRK study for the purpose of post-market surveillance.
In May 1998, the Company received notification from the FDA that its PMA
application had been accepted for filing. If and when the Company's laser
systems receive PMA approval by the FDA, the Company will be required to obtain
GMP clearance with respect to its manufacturing facilities. These regulations
impose certain procedural and documentation requirements upon the Company with
respect to its manufacturing and quality assurance activities. The Company's
facilities will be subject to inspections by the FDA, and compliance with GMP
guidelines is required before the Company can begin marketing its laser
products. In addition, the Company's suppliers of significant components or
sub-assemblies must meet the quality requirements of the Company. There can be
no assurance as to whether or when the FDA will approve this PMA or that the PMA
will not require review before an FDA Advisory Panel.
During 1996, the Company began clinical trials for PARK (photo-astigmatic
refractive keratectomy) in the U.S.
During 1998, the Company submitted and received approval to begin U.S.
clinical trials of its scanning laser for treatment of myopia and hyperopia,
with and without astigmatism, utilizing the LASIK procedure (in which the stroma
beneath the cornea is ablated rather than the surface of the cornea). The
Company also began a clinical trial of its scanning laser system for LASIK
treatment of myopia and myopia astigmatism in Canada in late 1998.
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In July 1997, as amended in September 1998, the Company acquired the
rights to a PMA application filed with the FDA for a laser to perform LASIK, a
refractive surgery alternative to surface PRK, from Photomed. In July 1998, the
FDA approved the PMA application for the Kremer Excimer Laser to perform LASIK
for correction of myopia and myopic astigmatism. This is the only laser to
receive FDA approval for LASIK in the United States. Dr. Kremer's PMA is for a
single-site usage (rather than general commercial usage) and encompasses the
treatment of myopia and myopic astigmatism, specifically using LASIK. The
commercial sale of the Photomed laser in the United States would require, in
addition to the approval of Dr. Kremer's PMA, certain additional FDA approvals,
including GMP clearance and the development and validation of a manufacturing
process for the Photomed laser. The FDA's approval is unrelated to the PMA for
the Company's scanning laser systems that the Company submitted to the FDA.
The Company also has an IDE approved by the FDA for the treatment of
glaucoma by laser trabeculodissection. The Company has completed a feasibility
study in blind eyes and intends to continue its efforts in this area.
Research and Development
During 1998, the Company continued its research and development activities
related to new laser products, laser systems, product upgrades, its keratome
products, and ancillary product lines. Excluding regulatory expenses, research
and development expense was $2,813,461 in 1998 compared to $1,836,151 in 1997,
an increase of 53%. In 1996, these expenses were $948,520. Considerable research
and development effort was directed towards continued development and expansion
of the complete keratome product line (representing $1,031,751 of the increased
costs between 1997 and 1998) and development costs of a mobile laser platform,
partially offset by reduced expenses related to the LaserScan LSX excimer laser
system, which was substantially completed during the year.
Other research and development efforts have been focused on the continued
development of the new solid-state laser. The solid-state is the first true
non-gas laser capable of delivering a laser beam in the ultraviolet spectrum
(common to all excimer lasers used for refractive surgery). The Company directed
additional efforts during 1998 toward the production of a commercial design for
this product. In addition, the solid-state laser could be capable of generating
multiple wavelengths, thus permitting its use for other ophthalmic procedures
which now require separate lasers.
The solid-state research and development effort has already resulted in
the identification of many features that have been subsequently incorporated
into the Company's excimer laser systems. Further efforts will continue to be
directed at an appropriate level towards production of a clinical design for
this product to ensure that a commercial version is available to meet the
market's demand for such a system. There are no assurances that these activities
will be successful.
Upon completion of a clinical design for the solid-state system,
pre-clinical trials and formal clinical trials are anticipated. Once sufficient
clinical and safety data have been gathered, the Company intends to initially
market the solid-state system for medical uses outside of the U.S. The Company
continues to assess numerous issues related to manufacturing and marketing of
the solid-state system. As is the case with many new technology products, the
commercialization of the solid-state laser is subject to potential delays.
During 1998, the Company continued development of its advanced
eye-tracking system that is standard on the LaserScan LSX and offered as an
option to LaserScan 2000 purchasers. The LaserSight AccuTrack eye tracker is an
"Active + Passive" system that is capable of following even fine saccadic eye
movements. The tracking system eliminates most error normally introduced by
gross and fine eye movements during untracked laser refractive surgery, and does
not require dilation of the pupil or any apparatus to be in contact with the
eye. Additionally, a larger margin of safety may be achieved for patients with
above average eye movement.
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The Company's research and development activities continue to include
efforts to develop completely new designs for solid-state laser heads that are
not currently available or produced anywhere in the world marketplace. While the
risk of failure of these specific activities may be significant, the Company
believes that if developed, these products could provide it with a leading edge
technology that would differentiate its products from other companies in the
industry. There is no assurance these efforts will be successful.
In conjunction with the University of Southern California, the Company
entered into agreements for the development of an epithelial boundary
determination device and for a method of preventing keratocyte loss. Such
agreements did not result in material revenues or expenses and, in February
1998, the Company terminated its license to the method of preventing keratocyte
loss.
HEALTH CARE CONSULTING SERVICES (TFG)
Introduction
TFG is a national provider of consulting services in strategy development
and implementation and provision of critical decision support information for
health care provider organizations, managed care organizations and
manufacturers/distributors of health care products. In 1998, as a result of
losses incurred in previous years, TFG reduced staffing substantially, tightened
it business focus and began outsourcing certain services such as teleresearch
and physician recruiting. TFG clients include multi-hospital health systems,
community hospitals, academic medical centers, specialty health care providers
and manufacturers and distributors of health care products.
The senior consulting staff of TFG includes individuals with 10 to 20
years of health care experience. These individuals have held executive positions
in market research, hospital operations, strategic planning and turnaround
management.
Industry projections indicate continued turbulence in the health care
industry as prices paid by government and managed care organizations continue to
decrease. Consolidation, diversification, divestiture and downsizing are among
the actions many health care providers are being forced to consider in order to
solidify a position in the fast changing market place. TFG believes it is
positioned to assist health care managers in understanding the range of
available options and selecting an appropriate course of action. See
"Management's Discussion and Analysis -- Results of Operations -- Revenues."
Principal Services
Decision Support Information. TFG draws upon the experience of the
consulting staff to characterize the decisions health care executives are facing
and develop methodologies to gather information to clarify the issues. Demand
for health services and the corresponding supply of health care providers are
fundamental components of Decision Support Information. TFG consultants add
value by studying available information to discern previously unidentified or
unquantified patterns of supply and demand. The product of TFG Decision Support
studies is information which will move market share or otherwise impact the
bottom line of clients. This category of consulting services include
Benchmarking, Competitive Intelligence, Distribution Channel Mapping, Entry
Point Analysis, Environmental Assessment, Market Demand Studies, Physician
Resource Studies, and Portfolio Analysis.
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Strategic Planning. TFG created a strategic planning model which stresses
implementable goals and objectives, realistic time tables, and the profiles of
the human resources needed for implementation. The segments of the strategic
planning process include determining mission, vision setting, alternative
futures and strategy formulation. Other services such as conducting executive
retreats, board room consultation and executive support, are also provided.
Marketing
Most of TFG's business comes from new projects for existing and former
clients and through favorable referrals from such clients. The Company believes
that new business will increase in 1999 as a result of existing business
relationships and leads developed during 1998.
In addition to working with former clients, sales efforts are in
development to generate new clients in the hospital, academic medical center,
hospital system and other health care provider categories.
TFG served approximately 10 clients in 1998.
Payment Terms
Clients are generally asked to pay a certain amount at the commencement of
the engagement and at the point where predefined milestones are reached, but no
less than monthly. Certain clients pay a monthly retainer.
Projects may be priced on an hourly rate or at a fixed project price,
exclusive of out of pocket expenses.
Competition
The Company believes that the key competitive factors it brings to its
health care services segment is the experience of consultants, contacts within
the industry, pricing of services and satisfied clients. Primary competitors are
national consulting firms and small health care consulting firms. TFG believes
it holds advantage over many of the competitors based upon (i) its commitment to
bring measurable value to each engagement; (ii) experience of the consultants in
the environment in which the client competes; and (iii) a recognized expertise
in developing unique provider databases geared to decisions which result in
improving the financial performance of the client organization.
Recently, TFG completed a consulting engagement with a nationally
recognized academic medical center. The work consisted of a number of the
information gathering services utilized in a typical planning process. Since the
successful completion of this engagement, the services provided by TFG have been
featured in a telemarketing sales effort to similar organizations throughout the
mid-west U.S.
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Item 2. Properties
The table below describes the Company's present facilities. All such
facilities are leased from independent third parties.
<TABLE>
<CAPTION>
Square Monthly Expiration
Location Description Footage Payment Date
-------- ----------- ------- ------- ----
<S> <C> <C> <C>
Winter Park, Florida Principal offices of Company and
LaserSight Technologies 22,700 $21,600 6/14/2002
Winter Park, Florida LaserSight Technologies-additional space 15,600 $13,900 1/31/2004
St. Louis, Missouri The Farris Group office 3,900 $5,150 7/31/2001
Near San Jose, Costa Rica Manufacturing facility 6,400 $4,198 11/30/2000
</TABLE>
Item 3. Legal Proceedings
Euro Pacific Securities Service. In June 1996, the Company filed a lawsuit
in a Florida state court against Euro Pacific Securities Service and Mr. Wolf
Wiese (collectively, the "Wiese Defendants") to collect the $1,140,000 balance
due on a promissory note executed by the Wiese Defendants in 1995 relating to a
stock subscription receivable. In September 1996, the Wiese Defendants removed
the lawsuit to the U.S. District Court for the Middle District of
Florida-Orlando Division. In July 1997, after missing the deadline for filing
counterclaims against the Company, and without having obtained permission from
the Court to do so, the Wiese Defendants filed a separate lawsuit in the same
U.S. District Court against the Company and its LaserSight Technologies
subsidiary. In their lawsuit, the Wiese Defendants alleged the Company's breach
of contract, coercion to enter into a contract, misrepresentation, together with
other charges and sought an unspecified amount of monetary damages. On October
20, 1997, the Company filed a motion to dismiss the Wiese Defendants' lawsuit.
On February 10, 1998, the Court dismissed the Wiese Defendants' lawsuit without
prejudice.
The Company's lawsuit against the Wiese Defendants was tried on December
15 and 16, 1997 and resulted in the issuance on December 29, 1997 of a final
judgment in favor of the Company in the amount of $1,140,000, together with
interest in the amount of $526,809 and costs and attorneys' fees of $85,952. The
Wiese Defendants appealed the judgment to the U.S. Court of Appeals for the
Eleventh Circuit, Atlanta, Georgia. On November 30, 1998, the District Courts
decision was affirmed by the U.S. Court of Appeals. The Company is taking steps
to collect on the judgment, but there can be no assurance as to whether, when or
in what amount it will be able to do so. Any recovery on the portion of the
judgment representing the $1,140,000 amount due on the Wiese Defendants'
promissory note will be credited to stockholders' equity, but will have no
effect on the Company's results of operations.
Northern New Jersey Eye Institute. In October 1997, the Company received a
written request for mediation and, if necessary, arbitration from the physicians
at NNJEI. The request related to the services agreement (the "Services
Agreement") between LSIA and NNJEI that was entered into as part of LSIA's
acquisition of NNJEI's assets in July 1996. The request alleged breach of
contract and fraud by LSIA in connection with the Services Agreement and
requested termination of the Services Agreement, "several hundred thousand
dollars in lost income damages" and punitive damages in an amount to be
determined.
21
<PAGE>
The Company has denied NNJEI's allegations. The Company and NNJEI
discussed a possible restructuring of the relationship between LSIA and NNJEI at
a mediation session held on November 16, 1997 and in subsequent correspondence,
but did not reach an agreement. Thereafter, the Company sold LSIA to Vision
Twenty-One, Inc. ("Vision 21") on December 30, 1997 in a transaction which was
effective as of December 1, 1997. In connection with the LSIA sale, the Company
agreed to indemnify Vision 21 from certain claims related to the Services
Agreement arising before December 30, 1997. Management believes that the
Company's indemnification obligations under the Services Agreement should not
have a material adverse effect on the Company's financial condition or results
of operations.
Visx, Incorporated. In May 1998, Visx asserted that the Company was
underpaying royalties due under an international license agreement (the "License
Agreement") and submitted the dispute for binding arbitration, which is
currently scheduled in mid-1999. The Company has denied Visx's allegations and
intends to vigorously defend its position under the terms of the License
Agreement. Management believes that its obligations under the License Agreement
will not result in a material adverse effect on the Company's financial
condition or results of operations.
Mercacorp, Inc. On August 3, 1998, Mercacorp, Inc. commenced an action in
the U.S. District Court for the Eastern District of New York against the
Company, Michael R. Farris (the President and Chief Executive Officer of the
Company), Wall & Broad Equities, Inc., a "purported investment banking
establishment" and Isaac Weinhouse, the principal of such purported investment
banking establishment. This action asserted violations of Section 10(b) of the
Securities and Exchange Act of 1934 and common law fraud in connection with the
alleged issuance of false press releases, misrepresentations and omissions by
all of the defendants on which the plaintiff allegedly relied in purchasing the
Company's Common Stock and later holding (rather than selling) such Common
Stock. The plaintiff asked that they be awarded $5 million in actual damages and
$50 million in punitive damages.
On November 11, 1998, the plaintiff dismissed the action, with prejudice,
and the parties agreed to a release of all claims. In connection with the
dismissal and release of claims the Company issued the plaintiff two separate
warrants to purchase Common Stock. Under the first warrant, the plaintiff is
entitled to purchase up to 750,000 shares of Common Stock at an exercise price
of $4.00 per share, the closing bid price on November 10, 1998, and the second
warrant, the plaintiff is entitled to purchase up to 750,000 shares of Common
Stock at an exercise price of $5.00 per share. Both of the warrants contain
certain prohibitions against assignment and transfer to third parties as well as
other terms and conditions. Both of these warrants will terminate if the first
warrant is not exercised in full within 14 days after the effective date of a
registration statement covering the shares of common stock to be issued upon
exercise of the warrants. For a more complete description of the terms and
conditions of the warrants, reference is hereby made to the warrants which are
attached to this Report as Exhibits 10.32 and 10.33, and are incorporated in
this Item 3 by this reference.
Former NNJEI Owners. On March 22, 1999, the Company received notice of an
action filed on March 15, 1999 by the former owners of NNJEI and related assets
and entities against the Company in U.S. District Court - District of New
Jersey. The complaint alleges breach of contract in connection with a provision
in the Company's July 1996 acquisition agreements related to the assets of NNJEI
and related assets and entities. Such provision provided for additional issuance
of the Company's Common Stock if its stock price was not at certain levels in
July 1998. The Company issued the additional Common Stock in July 1998 in
accordance with the provisions of the agreements. The plaintiffs allege that,
based on the price of the Company's Common Stock in July 1998, additional
payments are required of approximately $540,000. Management disagrees with the
plaintiffs' interpretation of the NNJEI agreements and believes that its
22
<PAGE>
obligations under the agreements will not result in a material adverse effect on
the Company's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "LASE." The table below sets forth the high and low sales prices for the
Common Stock during 1998 and 1997, as reported by The Nasdaq Stock Market. As of
March 15, 1999, there were approximately 215 holders of record of the Common
Stock and, as far as the Company can determine, approximately 2,800 total
shareholders, including shareholders of record and shareholders in "street
name."
<TABLE>
<CAPTION>
Fiscal 1998 High Low Fiscal 1997 High Low
- ----------- ----- ----- ----------- ---- -----
<S> <C> <C> <C> <C> <C>
First Quarter $3.38 $1.56 First Quarter $6.63 $5.19
Second Quarter 5.38 2.25 Second Quarter 7.31 3.38
Third Quarter 8.03 3.38 Third Quarter 6.94 4.19
Fourth Quarter 6.00 2.75 Fourth Quarter 5.25 2.56
</TABLE>
On March 29, 1999, the last sale price of the Common Stock on The Nasdaq
Stock Market was $4.78.
The Company has not paid any cash dividends on the Common Stock since its
inception. The Company currently does not anticipate paying cash dividends on
Common Stock in the foreseeable future.
Possible Dilutive Issuances of Common Stock.
Each of the following issuances of Common Stock may depress the market
price of the Common Stock. See "Management's Discussion and Analysis - Risk
Factors and Uncertainties - Common Stock Risks--The Significant Number of Shares
Eligible for Future Sale and Dilutive Stock Issuances may Adversely Affect Our
Stock Price."
LaserSight Centers and Florida Laser Partners. Based on
previously-reported agreements entered into in 1993 in connection with our
acquisition of LaserSight Centers (our development-stage subsidiary) and
modified in July 1995 and March 1997, we may be obligated as follows:
o To issue up to 600,000 unregistered shares of Common Stock ("Centers
Contingent Shares") to the former stockholders and option holders of
LaserSight Centers (including two trusts related to our Chairman of the
Board and certain of our former officers and directors). The Centers
Contingent Shares will be issued only if we achieve certain pre-tax
operating income levels through March 2002. Such income levels must be
related to our use of a fixed or mobile excimer laser to perform PRK,
the arranging for the delivery of PRK or receipt of license or royalty
23
<PAGE>
fees associated with patents held by LaserSight Centers. The Centers
Contingent Shares are issuable at the rate of one share per $4.00 of
such operating income.
o To pay to a partnership whose partners include our Chairman of the
Board and certain of our former officers and directors a royalty of up
to $43 (payable in cash or in shares of Common Stock ("Royalty
Shares")), for each eye on which PRK is performed on a fixed or mobile
excimer laser system owned or operated by LaserSight Centers or its
affiliates.
o Royalties do not begin to accrue until the earlier of March 2002 or the
delivery of all of the 600,000 Centers Contingent Shares.
As of March 29, 1999, we have not accrued any obligation to issue Centers
Contingent Shares or Royalty Shares. We cannot assure you that any issuance of
Centers Contingent Shares or Royalty Shares will be accompanied by an increase
in our per share operating results. We are not obligated to pursue strategies
that may result in the issuance of Centers Contingent Shares or Royalty Shares.
It may be in the interest of our Chairman of the Board for us to pursue business
strategies that maximize the issuance of Centers Contingent Shares and Royalty
Shares.
Photomed. If the FDA approves (for general commercial use) a
LaserSight-manufactured laser system in the treatment of farsightedness that
uses part or all of the know-how of the laser technology we acquired from
Photomed, we would be required to issue additional shares of Common Stock with a
market value of up to $1.0 million (based on the average closing price of the
Common Stock during the preceding 10-day period) to the former Photomed
stockholders. If such approval is not received by June 1, 1999, this obligation
will decrease by approximately $2,740 per day each day thereafter, and the
obligation will be eliminated entirely on June 1, 2000. As of March 29, 1999,
the number of additional shares issuable would have been approximately 200,000.
Depending on whether and when such FDA approval is received and on the market
price of the Common Stock at the time of any such approval, the actual number of
additional shares of Common Stock issuable could be more (but not more than
permitted under the listing rules of The NASDAQ Stock Market) or less than this
number.
SEO. In connection with our acquisition of SEO Medical in April 1998, we
agreed to issue up to 223,280 additional shares of Common Stock if the average
of the bid and ask prices of Common Stock for the five trading day period
immediately prior to April 15, 1999 is less than $5.00 per share. All 223,280
shares of Common Stock will be issuable unless such price is more than $2.36 per
share.
Foothill Warrant. In April 1997, we issued to Foothill a warrant to
purchase 500,000 shares of Common Stock (the "Foothill Warrant") at a price of
$6.067 per share. We are required to make anti-dilution adjustments to both the
number of warrant shares and the warrant exercise price if we sell Common Stock
or Common Stock-equivalents (such as convertible securities or warrants) at a
price per share that is (or could be) less than the fair market value of the
Common Stock at the time of such sale (a "Below-Market issuance"). To date, such
anti-dilution adjustments have resulted in (1) an increase in the number of
Foothill Warrant shares to 594,525, and (2) a reduction to the exercise price of
the Foothill Warrant shares to $5.10 per share. Additional anti-dilution
adjustments to the Foothill Warrant could also result from any future
Below-Market Issuance.
Series B Warrant. In connection with our issuance of the Series B
Preferred Stock in August 1997, we issued to the former holders of the Series B
Preferred Stock warrants to purchase 750,000 shares of Common Stock (the "Series
B Warrant") at a price of $5.91 per share at any time before August 29, 2002. In
24
<PAGE>
connection with a March 1998 agreement whereby we obtained the option to
repurchase the Series B Preferred Stock and a lock-up on conversions, the
exercise price of the Series B Warrant shares was reduced to $2.753 per share.
We are required to make anti-dilution adjustments to both the number of warrant
shares and the warrant exercise price in the event we make a Below-Market
Issuance. To date, these anti-dilution adjustments and other agreements among
the former holders of the Series B Preferred Stock and us have resulted in (1)
an increase in the number of Series B Warrant shares to 641,611, excluding
warrants previously exercised, and (2) a reduction to the exercise price of
Series B Warrant shares to $2.62 per share. Additional anti-dilution adjustments
to the Series B Warrants could also result from any future Below-Market
Issuance. As of March 29, 1999, 140,625 of such warrants had been exercised.
Shoreline Warrant. In connection with our sale of the Series B Preferred
Stock in August 1997, we issued to four individuals associated with our
placement agent warrants to purchase 40,000 shares of Common Stock (the
"Shoreline Warrant") at a price of $5.91 per share at any time before August 29,
2002. We are required to make anti-dilution adjustments to both the number of
warrant shares and the warrant exercise price in the event we make a
Below-Market Issuance. To date, these anti-dilution adjustments have resulted in
(1) an increase in the number of Shoreline Warrant shares to 41,956, and (2) a
reduction to the exercise price of Shoreline Warrant shares to $5.63 per share.
Additional anti-dilution adjustments to the Shoreline Warrants could also result
from any future Below-Market Issuance of Common Stock.
Series D Preferred Stock. In accordance with the terms of our Certificate
of Designation, Preferences and Rights of the Series D Preferred Stock, the
holders of the Series D Preferred Stock are entitled to certain anti-dilution
adjustments if we issue Common Stock or Common Stock-equivalents (such as
convertible securities or warrants) at a price per share (or having a conversion
or exercise price per share) less than $4.00 per share. To date, no
anti-dilution adjustments have been made.
Mercacorp Warrants. In connection with the dismissal and release of
certain claims, the Company issued Mercacorp two separate warrants to purchase
Common Stock. Under the first warrant, they are entitled to purchase up to
750,000 shares of Common Stock at an exercise price of $4.00 per share, the
closing bid price on November 10, 1998, and the second warrant, they are
entitled to purchase up to 750,000 shares of Common Stock at an exercise price
of $5.00 per share. Both of the warrants contain certain prohibitions against
assignment and transfer to third parties as well as other terms and conditions.
Both of these warrants will terminate if the first warrant is not exercised in
full within 14 days after the effective date of a registration statement
covering the shares of Common Stock to be issued upon exercise of the warrants.
March 1999 Private Placement Warrants. In connection with our sale of
Common Stock in March 1999, we issued the purchasers warrants to purchase a
total of 225,000 shares of Common Stock at an exercise price of $5.125 per
share, the closing price of the Company's Common Stock on March 22, 1999. The
warrants have a term of five years.
25
<PAGE>
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The summary financial information as of
and for each of the years in the five-year period ended December 31, 1998 is
derived from the Company's consolidated financial statements for such years.
<TABLE>
<CAPTION>
(In thousands, except for per share amounts)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $17,756 $24,389 $21,504 $25,988 $9,594
Gross profit 11,410 11,687 11,381 18,895 6,484
Income (loss) from operations (11,461) (9,262) (4,960) 4,552 1,140
Gain on sale of subsidiaries 364 4,129 -- -- --
Net income (loss) (11,882) (7,253) (4,074) 4,592 1,018
Conversion discount
on preferred stock (859) (42) (1,011) -- --
Dividends and accretion
on preferred stock (2,752) (298) (359) -- --
Income (loss) attributable
to common stockholders (15,493) (7,593) (5,444) 4,592 1,018
Basic earnings
(loss) per common share (1.26) (0.80) (0.69) 0.68 0.18
Diluted earnings
(loss) per share (1.26) (0.80) (0.69) 0.64 0.16
Working capital 14,875 12,730 10,021 7,272 3,570
Total assets 43,873 50,461 34,250 29,102 8,641
Long-term obligations 560 500 642 -- --
Redeemable convertible
preferred stock -- 11,477 -- -- --
Stockholders' equity 34,015 27,040 26,769 20,420 6,118
</TABLE>
26
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All yearly references are to the Company's fiscal years ended December 31,
1998, 1997 and 1996, unless otherwise indicated.
Adoption of New Accounting Standard
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." They are effective for financial statements
for periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated.
SFAS No. 130 requires companies to classify terms defined as "other
comprehensive income" by their nature in a financial statement, and to display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The Company adopted SFAS 130 as of January 1, 1998.
SFAS No. 131 requires companies to report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
also requires that public companies report certain information about their
products and services, the geographic areas in which they operate and their
major customers. The Company adopted SFAS 131 as of December 31, 1998.
Overview
The Company's net loss for 1998 was $11,882,389 and its loss attributable
to common stockholders was $15,493,214, or $1.26 per basic and diluted common
share, on net sales of $17,756,116. The net loss is primarily attributable to
increased expenses generated by the Company's technology segment. The difference
between the net loss and the loss attributable to common stockholders resulted
from preferred stock dividends, accretion, premiums on repurchases and the
conversion discount on preferred stock.
On March 23, 1999, the Company received $9 million from the sale of
2,250,000 shares of Common Stock. The purchasers also received a total of
225,000 warrants to purchase Common Stock for a period of five years at $5.125
each, the closing price of the Common Stock on March 22, 1999. See "Management's
Discussion and Analysis - Liquidity and Capital Resources -- Financings."
On December 30, 1997, the Company sold its MEC and LSIA subsidiaries to
Vision 21 in a transaction effective as of December 1, 1997. Under the Company's
ownership, MEC was a vision managed care company which managed vision care
programs for health maintenance organizations (HMOs) and other insured enrollees
and LSIA was a physician practice management company which managed the
ophthalmic practice known as NNJEI under a management services agreement.
27
<PAGE>
The following pro forma information has been prepared assuming that the
disposition of both MEC and LSIA had occurred as of the beginning of the years
ended December 31, 1997 and 1996. The pro forma adjustments serve to eliminate
revenues and expenses related to MEC and LSIA for the periods presented and do
not include any overhead allocations. The unaudited pro forma condensed
consolidated revenues, gross profit and net loss are not necessarily indicative
of results that would have occurred had the disposition been consummated as of
the beginning of the years ended December 31, 1997 and 1996, or that which might
be attained in the future.
For the Year Ended December 31, 1997
(Unaudited)
Pro Forma Adjustments
---------------------
Historical MEC LSIA Pro Forma
---------- --- ---- ---------
Revenues, net $ 24,388,833 $(7,988,419) $(3,021,304) $13,379,110
Gross profit 11,686,993 (2,229,356) (607,517) 8,850,120
Net loss (7,253,084) (450,700) (214,420) (7,918,204)
For the Year Ended December 31, 1996
(Unaudited)
Pro Forma Adjustments
---------------------
Historical MEC LSIA Pro Forma
---------- --- ---- ---------
Revenues, net $ 21,503,990 $ (6,179,419) $(1,703,524) $13,621,047
Gross profit 11,381,406 (1,957,820) (352,270) 9,071,316
Net loss (4,074,369) (546,352) (236,006) (4,856,727)
Results of Operations
Revenues. The following table presents the Company's net sales by major
operating segments: technology products and services, patents and health care
services for the previous three years.
<TABLE>
<CAPTION>
1998 1997 1996
Net Sales % of Total Net Sales % of Total Net Sales % of Total
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Technology $15,968,035 90 % $11,925,018 49 % $10,634,663 49 %
Patent services 1,111,917 6 % 245,000 1 % -- --
Health care services 676,164 4 % 1,209,092 5 % 3,380,456 16 %
Subsidiaries sold -- -- 11,009,723 45 % 7,882,943 37 %
Intercompany revenues -- -- -- -- (394,072) (2 %)
----------- ----- ----------- ----- ------------ -----
Total net sales $17,756,116 100 % $24,388,833 100 % $21,503,990 100%
Change from prior year (27%) 13%
</TABLE>
Net sales and revenues decreased by $6,632,717 between 1997 and 1998 as a
result of the subsidiaries sold in 1997. Net sales and revenues increased by
$2,884,843 between 1996 and 1997.
28
<PAGE>
1998 vs. 1997. The improvement in technology related revenues can be
primarily attributed to increased sales of the Company's newer LaserScan LSX
excimer laser system during 1998 at a higher average selling price, resulting in
$3,420,000 of the total revenue increase. The average system selling price
increased by approximately 11 percent from 1997 levels. Fifty laser systems were
sold during 1998 compared to forty-six systems being sold in 1997. Of these
total system sales, thirty LaserScan LSX models were sold in 1998 compared to
nine LaserScan LSX models being sold in 1997. Other contributing factors leading
to the increase in technology related revenues were a higher level of service
contract revenues ($264,000) and revenues generated from the Company's aesthetic
product line ($359,000). Patent related revenues also increased by $867,000.
More than offsetting the increases in technology and patent revenues were
decreases in health care services revenues, which was attributable to the sale
of MEC and LSIA effective December 1, 1997. These two subsidiaries contributed
$7,988,419 and $3,021,304, respectively, in revenues during the year ended 1997.
All of the Compan's health care services revenue was generated by TFG during
1998. Net sales for TFG for the year ended 1998 decreased by $532,928 from the
same period in 1997. This decrease was due primarily to a reduction in
consulting services provided and was accompanied by a total expense reduction,
including cost of services, of $957,456 for the year ended 1998. Such revenue
and expense decreases are primarily the result of further staffing reductions
during 1998 to more closely match their cost structure with anticipated revenues
going forward.
1997 vs. 1996. The increase in health care services revenue was primarily
attributable to increased revenues generated by MEC (an increase of $1,809,000)
and LSIA (an increase of $1,317,780), offset by a substantial reduction in
revenues generated by TFG. Of the total net sales and revenues for 1997, MEC,
LSIA and TFG accounted for revenues of $7,988,419 (33% of total revenues),
$3,021,304 (12%) and $1,211,700 (5%), respectively. Net sales for TFG for the
year ended 1997 decreased by $2,171,364 from the same period in 1996. This
decrease was due primarily to a reduction in consulting services provided and
was accompanied by a total expense reduction, including costs of services, of
$2,055,959 for the year ended 1997. Such revenue decrease is primarily a result
of that subsidiary's primary revenue producer, Michael R. Farris, being named as
president of the Company in late 1995, eliminating his day-to-day participation
in the consulting business. Other consultants employed were unable to maintain
revenues at historical levels. The increase in revenues generated by MEC
resulted from new contracts entered into during 1997 and increased enrollments
in existing contracts. The increase in revenues generated by LSIA in 1997 is
primarily a result of LSIA being acquired in July 1996. The increase in revenues
generated by the Company's technology subsidiary is primarily attributable to
the phasing out of the LS 300 laser system which had a lower selling price than
the LaserScan 2000 and LaserScan LSX. Forty-six laser systems were sold during
1997 compared to 46 systems, net of returns, sold in 1996. Technology revenues
include the impact of 12 sales returns in 1996 and one system return in 1997.
The financial impact of systems sold in 1995 and returned in 1996 in excess of
previously estimated amounts was approximately $1.8 million, broken down as
follows: Net revenues were decreased by $2.7 million, offset by reductions in
corresponding cost of sales ($0.6 million) and commissions and warranty-related
costs ($0.3 million).
29
<PAGE>
Cost of revenues; gross profits. The following table presents a three-year
comparative analysis of cost of revenues, gross profit and gross profit margins.
<TABLE>
<CAPTION>
1998 % Change 1997 % Change 1996
---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Product cost $ 6,048,730 47% $4,127,908 21% $3,415,276
Cost of services 297,512 (97%) 8,573,932 28% 6,707,308
Gross profit 11,409,874 11,686,993 11,381,406
Gross profit percentage 64% 48% 53%
Products only:
Gross profit $ 9,919,305 $7,797,110 $7,219,387
Gross profit percentage 62% 65% 68%
</TABLE>
Gross profit margins were 64% of net sales in 1998 compared to 48% in 1997
and 53% in 1996. Gross Profit decreased $277,119 in 1998 from 1997 and increased
$305,587 in 1997 from 1996.
1998 vs. 1997. The gross profit margin percentage increase was primarily
attributable to the sale of MEC and LSIA effective December 1, 1997. MEC and
LSIA operated at gross margins of 28% and 20% for the year ended 1997,
respectively. An additional contributing factor leading to the improvement in
the gross profit on products was a higher level of LaserScan LSX laser system
sales.
1997 vs. 1996. The gross profit margin decrease was attributable to a
significant increase in MEC revenues with a corresponding increase in provider
payments, which historically have ranged from approximately 68 to 72% of MEC
revenues, and a general increase in the operating costs of the Company's Costa
Rican manufacturing facility due to the doubling of leased space and higher than
average compensation increases paid to Costa Rican employees due to the
competitive environment for engineers in that area, the costs of which are
allocated entirely to cost of goods sold. The gross profit margin decrease was
mitigated in part due to a substantial increase in revenues generated by LSIA.
Research, development and regulatory expenses. The following table
presents a three-year comparative analysis of research, development and
regulatory expenses.
1998 % Change 1997 % Change 1996
---- -------- ---- -------- ----
Research, development
and regulatory $3,840,924 37% $2,807,579 63% $1,720,246
As a percent
of technology
net sales 24% 24% 16%
Research, development and regulatory expenses increased by $1,033,345
between 1997 and 1998. Such expenses increased by $1,087,333 between 1996 and
1997.
1998 vs. 1997. The increase can be primarily attributed to continued
development and validation of the keratome product line and the development of a
new mobile scanning refractive laser system, partially offset by a decrease in
costs relating to the continued development of the LaserScan LSX, which was
substantially completed during 1998. Additionally, the Company incurred minor
increases in costs related to the FDA regulatory approval process, both for its
own scanning laser system and the LASIK laser system. In 1998, approximately
$1.1 million was incurred in the development of and clinical and manufacturing
validation of the UniShaper single use keratome compared to $112,000 in 1997.
During 1998, the Company began a project to develop a mobile platform for an
excimer laser system and incurred approximately $394,000 in related costs.
Expenses related to the development of the LaserScan LSX excimer laser system
30
<PAGE>
decreased approximately $320,000 from 1997 levels to approximately $559,000 in
1998. As a result of a continuation of the efforts described plus the
anticipated development of new product ideas, the Company expects research and
development expense during 1999 to remain at levels consistent with those
incurred during 1998. Regulatory expenses may increase as a result of the
Company'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.
1997 vs. 1996. The increase can primarily be attributed to ongoing
research and development of new scanning refractive laser systems, including
development of the LaserScan LSX and add-on features for the LaserScan 2000
($581,000), and continued software development for the laser systems.
Additionally, the Company incurred increased costs related to the FDA regulatory
process ($200,000), both for its own scanning laser system (the PMA application
for which was filed in March 1998), and the LASIK laser system (for which the
Company purchased the rights to manufacture and commercialize if FDA approval is
received). Additional costs were incurred in the clinical and manufacturing
validation of the UniShaper ($112,000).
Other general and administrative expenses. The following table presents a
three-year comparative analysis of other general and administrative expenses.
<TABLE>
<CAPTION>
1998 % Change 1997 % Change 1996
---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Operating companies $12,156,982 7% $11,325,708 9% $10,390,795
Subsidiaries sold -- (100%) 1,792,581 53% 1,168,861
----------- ------ ----------- --- -----------
Total other general and
administrative expenses 12,156,982 (7%) 13,118,289 13% 11,559,656
As a % of revenues 68% 54% 54%
</TABLE>
Other general and administrative expenses decreased by $961,307 in 1998
from 1997. Such expenses increased by $1,558,633 in 1997 from 1996.
1998 vs. 1997. The primary reason for this decrease was attributable to
the sale of MEC and LSIA effective December 1, 1997. MEC and LSIA incurred
$1,490,910 and $301,671, respectively, in other general and administrative costs
during 1997. An additional factor resulting in this decrease was the reduction
in the operating costs of TFG of $853,905 from 1997 levels. These decreases were
partially offset by an increase in other general and administrative expenses
incurred at the Company's technology subsidiary of $1,471,803 from 1997 levels.
In addition, bad debt expense decreased $1,252,000 from 1997. These decreases
were partially offset by strategic initiatives of the Company and the
development of it products and services. Such strategic efforts included
enhancements to the customer support, quality assurance, marketing, software
development and engineering departments ($1,352,000), costs of the aesthetic
laser product line acquired in April 1998 ($803,000), higher depreciation and
lease costs (including a larger facility in Florida) ($287,000), legal expenses
($214,000), and patent related expenses ($149,000), which were nominal during
1997. Legal and accounting expenditures continue to be incurred as a result of
ongoing regulatory filings, general corporate issues, litigation and patent
issues.
31
<PAGE>
1997 vs. 1996. The primary reasons for this increase include the continued
growth of MEC and LSIA ($623,720), additional provisions for uncollectible
accounts ($1,902,432), and a general increase in personnel costs necessary to
fund the strategic initiatives of the Company and the development of its
products and services. Such strategic efforts included enhancements to the
customer support, marketing, manufacturing, software development and engineering
departments and the pursuit during 1997 of vision managed care contracts with
HMOs, insurers and employer groups. These increases were partially offset by the
substantial reduction in other general and administrative costs of TFG
($1,062,927).
Selling related expenses. The following table presents a three-year
comparative analysis of selling related expenses.
<TABLE>
<CAPTION>
1998 % Change 1997 % Change 1996
---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Selling related expense $4,562,740 39% $3,286,600 35% $2,430,335
As a percent of
technology net sales 29% 28% 23%
</TABLE>
Selling related expenses consist of those items directly related to sales
activities, including commissions on sales, royalty or license fees, warranty
expenses, and costs of shipping and installation. Commissions and royalties, in
particular, can vary significantly from sale to sale or period to period
depending on the location and terms of each sale. Selling related expenses
increased by $1,276,140 in 1998 from 1997. Such expenses increased by $856,265
in 1997 from 1996.
1998 vs. 1997. The primary reasons for this increase include a higher
level of laser system sales with an associated distributor commission
($223,000), a higher level of royalty fees ($508,000), an increase in warranty
expenses accrued ($453,000) based on more sales of the LaserScan LSX, and higher
shipping and installation expenses resulting from increased system sales.
1997 vs. 1996. The primary reasons for this increase include a higher
level of laser system sales with an associated distributor commission
($350,000), a higher level of royalty fees ($359,000) based on a license
agreement entered into during the second quarter of 1997, and higher warranty
expenses resulting from increased system sales.
Amortization of intangibles. The following table presents a three-year
comparative analysis of amortization costs as related to intangible assets.
<TABLE>
<CAPTION>
1998 % Change 1997 % Change 1996
---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C>
Amortization of intangibles $2,310,169 33% $1,736,679 175% $631,518
</TABLE>
32
<PAGE>
Those items directly related to the amortization of intangible assets are
acquired technology, acquired patents and goodwill. Costs relating to the
amortization of intangible assets increased by $573,490 in 1998 from 1997. Such
costs increased by $1,105,161 in 1997 from 1996.
1998 vs. 1997. The primary reasons for this increase include a higher
level of amortization costs relating to patent acquisitions as a result of 1998
being the first full year for patents acquired in 1997 ($234,000), a higher
level of amortization costs relating to acquired technology as a result of 1998
being the first full year that the acquired LASIK PMA application and keratome
license were amortized ($653,000), partially offset by a reduction in goodwill
amortization resulting from the sale of MEC and LSIA ($385,000).
1997 vs. 1996. The primary reasons for this increase include a higher
level of amortization costs relating to patent acquisitions in 1997 ($400,000),
a higher level of amortization costs relating to acquired technology as a result
of the acquisition of the LASIK PMA application and keratome license ($313,000)
and an increase in amortization costs relating to goodwill ($375,000).
Loss from operations. The Company recognized a loss from operations of
$11,460,941 in 1998 compared to $9,262,154 in 1997 and $4,960,349 in 1996.
1998 vs. 1997. The decrease in operating results can be attributed
primarily to the increases in research, development, regulatory and selling
related expenses and the sale of MEC and LSIA, which generated income from
operations of $414,083 and $244,840, respectively, during 1997, partially offset
by a reduction in the operating loss generated by TFG.
1997 vs. 1996. The decrease in operating results can be attributed
primarily to the increases in research, development, regulatory and general and
administrative expenses partially offset by increased revenues. Effective
December 1, 1997, the Company sold its MEC and LSIA subsidiaries.
Other income and expenses. Interest and dividend income of $591,481 was in
earned in 1998 from the investment of cash and cash equivalents and the
collection of long-term receivables related to laser system sales. This
represents an increase of $207,870 from 1997. Investment earnings in 1997 were
$383,611, an increase of $69,324 from 1996. Interest expense incurred during
1998 was $782,668 and related primarily to the credit facility established with
Foothill Capital Corporation ("Foothill") on April 1, 1997 and repaid in full in
June 1998. In addition to the interest paid on the outstanding note payable
balance, interest expense includes the amortization of deferred financing costs,
the accretion of the discount on the note payable, and fees associated with
amendments to the original loan agreement. Interest expense for 1997 was
$1,343,198 and related primarily to the credit facility established with
Foothill and the note payable to the former owners of MEC which was repaid in
full on April 1, 1997. Included in other expense in 1998, 1997 and 1996 are
costs of $362,500, $280,400 and $415,681, respectively, related to the
settlement of patent and other filed and threatened litigation. Included in
other income in 1998 and 1997 are gains of $364,452 and $4,129,057,
respectively, related to the sale MEC and LSIA. The 1998 total includes $28,148
of gain on the sale of Vision Twenty-One, Inc. stock that was originally
received as partial consideration in the sale of MEC and LSIA.
Income taxes. The Company recorded an income tax provision of $232,213 in
1998 compared to $880,000 in 1997 and an income tax benefit of $1,139,008 in
1996. The 1998 provision for income taxes is primarily the result of realized
gains and the payment of Japanese taxes. The 1997 provision for income taxes
primarily result from the gain on the sale of two of the Company's subsidiaries
after utilization of net operating loss and capital loss carryforwards. The 1996
benefit reflects an effective income tax rate of approximately 22% resulting
from a limitation of available net operating loss carrybacks and the
establishment of a valuation allowance on deferred tax assets.
33
<PAGE>
Net loss. The Company incurred a net loss of $11,882,389 in 1998 compared
to net losses of $7,253,084 in 1997 and $4,074,369 in 1996. The 1998 results are
primarily attributable to a combination of increased revenues generated from the
sale of technology products, an increase in operating loss resulting from the
sale of MEC and LSIA in late 1997, losses generated from TFG and higher
operating expenses as previously described. The 1997 results are primarily
attributable to a combination of increased revenues from technology products and
MEC services, losses generated from TFG and higher operating expenses as
previously described. The loss in 1996 was primarily attributable to the
decrease in net sales of the Company's laser systems combined with the higher
than estimated level of laser system returns, TFG's loss, an overall increase in
expenses as previously described, and settlement expenses.
Loss attributable to common shareholders. During 1998, the Company's loss
attributable to common shareholders was impacted by the following events, which
occurred in the first and second quarters of 1998: premiums paid on the
repurchase of shares of Series B Preferred Stock ($1,752,000), accretion of the
financing costs related to such shares ($999,953) and the value of the
conversion discount on Series B Preferred Stock ($25,372) and on Series C
Preferred Stock and Series D Preferred Stock ($833,500). In 1997, the conversion
discount on Series B Preferred Stock was $41,573 and accretion and dividend
requirements totaled $298,269. In 1996, the conversion discount on Series A
Preferred Stock was $1,010,557 and dividend requirements totaled $358,618.
Loss per share. Loss per basic and diluted common share increased to
($1.26) in 1998 from ($0.80) in 1997. The increases in 1998 are attributable to
the larger net loss incurred and accretion, dividend requirements, and premiums
on the redemption of Series B Preferred Stock. Of the basic and diluted losses
per share in 1998, $0.29 and $0.29, respectively, were a result of the value of
conversion discount on Series B, C and D Preferred Stock in accordance with EITF
Topic D-60 and accretion, dividend requirements and repurchase premiums on the
Series B Preferred Stock. Weighted average shares outstanding increased in 1998
primarily as a result of the conversion of 419 shares of Series B Preferred
Stock in Common Stock. Other increases were from acquisition activity and the
exercise of options and warrants. Weighted average shares outstanding increased
in 1997 as a result of the conversion of eight shares of Series A Preferred
Stock into Common Stock, the 1997 amendment to the purchase agreement related to
LaserSight Centers, the issuance of shares under the earnout provisions of the
1994 acquisition of TFG, the issuance of shares in conjunction with the 1997
acquisition of rights to a PMA and keratome patent, and the exercise of options.
Of the basic and diluted losses per share in 1997, $0.04 and $0.04,
respectively, were a result of the value of conversion discount on preferred
stock in accordance with EITF Topic D-60, and accretion and dividend
requirements on the Series B Preferred Stock.
Of the basic and diluted losses per share in 1996, $0.17 and $0.17,
respectively, were a result of the value of conversion discount on preferred
stock in accordance with EITF Topic D-60, and dividends on the Series A
Preferred Stock.
Liquidity and Capital Resources
Working capital. Working capital increased $2,144,938 from $12,729,700 in
1997 to $14,874,638 in 1998. This increase resulted primarily from a reduction
in liabilities.
34
<PAGE>
Sources and uses of funds. Operating activities used net cash of
$14,329,012 in 1998, compared to $4,352,779 used in 1997 and $4,172,458 used in
1996. The 1998 increase is primarily attributable to the higher 1998 net loss as
compared to the net loss in 1997 and the sale of MEC and LSIA, both of which
generated income in 1997. Other factors contributing to the higher level of cash
used in operating activities were increases in notes and accounts receivable
($4,573,223) and inventory ($2,942,720) and decreases in income taxes payable
($875,752), partially offset by the provision for uncollectible accounts
($1,212,896) and by increases in depreciation and amortization costs ($483,718),
accrued expenses ($541,410) and deferred revenues ($1,156,716) from the
licensing of certain patents.
The Company's receivable turnover ratio for 1998, using technology
revenues and receivables, was 1.43 compared to 1.24 in 1997. This improvement
can be primarily attributed to generally improved terms of sales in 1998. Such
terms also contributed to the reduction in the provision for uncollectible
accounts. Of the Company's gross receivables at December 31, 1998, approximately
12% are considered past due compared to approximately 10% at December 31, 1997.
The Company's inventory turnover ratio for 1998, excluding aesthetic related
inventory acquired in April 1998, was 0.68 compared to 0.75 in 1997. This
decrease can be attributed to an increase in inventory from 1997 levels and
lower than anticipated system sales in the fourth quarter of 1998.
Net cash provided by investing activities in 1998 was $11,087,103 compared
to $5,779,075 of net cash used in investing activities during 1997 and $20,197
of net cash provided in 1996. Net cash provided by investing activities during
1998 can be primarily attributed to proceeds generated from the exclusive
licensing of patents ($6,710,000) and from the sale of Vision 21 common stock
resulting from the Company's sale of MEC and LSIA ($6,527,452), partially offset
by the acquisition of the LASIK PMK application ($989,874) and the purchase of
furniture, equipment and leasehold improvements ($648,475). Net cash used in
investing activities during 1997 can be primarily attributed to the acquisition
of certain patent rights and license agreements from IBM and others
($15,428,961), the purchase of office and computer equipment ($630,550), and the
purchase of a vision managed care contract ($150,000), partially offset by the
proceeds from the sale of two of the Company's subsidiaries ($6,500,000) and
proceeds from the exclusive licensure of such patents ($3,958,436). Net cash
provided by investing activities in 1996 can be primarily attributed to the
proceeds from the sale-leaseback transaction ($957,180) offset by the
acquisition of the assets of NNJEI ($640,463) and the purchase of office and
computer equipment and leasehold improvements ($296,520).
Net cash provided from financing activities during 1998 was $3,821,227 and
resulted from the exercise of stock options and warrants ($513,672) and net
proceeds from the Series C Preferred Stock and Series D Preferred Stock
issuances ($15,819,555), offset by the repurchase of Series B Preferred Stock
($10,512,000) and the repayment of the note payable to Foothill ($2,000,000).
Net cash provided from financing activities during 1997 was $11,986,753 and
consisted of net proceeds from the issuance of the Series B Preferred Stock to
finance the acquisition of the IBM patents ($14,834,219), the credit facility
with Foothill ($3,414,142) and the exercise of stock options ($98,363), offset
by the redemption of Series B Preferred Stock ($3,172,000), the repayment of a
note payable to former owners of MEC ($3,000,000) and repayment of a capital
lease obligation ($187,971). Net cash provided from financing activities during
1996 was $4,557,423, consisting of net proceeds from the issuance of Series A
Preferred Stock totaling $5,342,152, less a payment of $1,373,518 in debt
relating to the Company's acquisitions of TFG in February 1994 and MEC in
October 1995 and repayment of a capital lease obligation ($109,418). The
exercise of stock options and warrants generated cash of $588,789.
As of December 31, 1998, the Company had no material commitments for
capital expenditures.
35
<PAGE>
Financings.
TLC Private Placement. In June 1998, the Company entered into a Securities
Purchase Agreement with TLC The Laser Center Inc. ("TLC"), pursuant to which the
Company issued 2,000,000 shares of newly-created Series C Convertible
Participating Preferred Stock ("Series C Preferred Stock") with a face value of
$4.00 per share, resulting in an aggregate offering price of $8 million. The
Series C Preferred Stock is convertible by TLC on a fixed, one-for-one basis
into 2,000,000 shares of Common Stock at any time until June 2001, on which date
all shares of Series C Preferred Stock then outstanding will automatically be
converted into an equal number of shares of Common Stock.
The net proceeds to the Company, after deduction of costs of issuance, was
approximately $7.9 million. The net proceeds were partially used to repurchase
all 525 outstanding shares of the Company's Series B Convertible Participating
Preferred Stock ("Series B Preferred Stock") on June 5, 1998 for approximately
$6.3 million, including a 20% premium.
Pequot Private Placement. In June 1998, the Company entered into a
Securities Purchase Agreement with Pequot Private Equity Fund, L.P., Pequot
Scout Fund, L.P., and Pequot Offshore Private Equity Fund, Inc. ("Pequot
Funds"), pursuant to which the Company issued, collectively, 2,000,000 shares of
the newly-created Series D Convertible Participating Preferred Stock ("Series D
Preferred Stock") with a face value of $4.00 per share, resulting in an
aggregate offering price of $8 million. The Series D Preferred Stock is
convertible by the Pequot Funds on a one-for-one basis into 2,000,000 shares of
Common Stock at any time until June 2001, on which date all shares of Series D
Preferred Stock then outstanding will automatically be converted into an equal
number of shares of Common Stock. The Series D Preferred Stock is subject to
certain anti-dilution adjustments if the Company issues or sells shares of
Common Stock before June 2001 at a price per share less than $4.00.
The net proceeds to the Company, after deduction of costs of issuance, was
approximately $7.9 million.
Series B Preferred Stock Repurchase. In June 1998, the Company repurchased
the remaining 525 shares of Series B Preferred Stock, representing an aggregate
face amount of $5,250,000, using proceeds from the issuance of Series C
Preferred Stock, at a 20% premium. Prior to such date, the holders of Series B
Preferred Stock had converted 419 shares of Series B Preferred Stock into
2,392,220 shares of Common Stock. In February 1998, the holders of the Series B
Preferred Stock had exercised an option to require the Company to repurchase 351
shares of Series B Preferred Stock, also at a 20% premium, using proceeds from
the sale of international patent rights.
The amount of the repurchase price in excess of the carrying value of the
Series B Preferred Stock repurchased and a pro rata portion of Series B
Preferred Stock-related financing costs increased the loss attributable to
common shareholders for the nine month period ended September 30, 1998.
Loan Repayment. In June 1998, the Company repaid its note payable to
Foothill of $2,000,000 and also terminated its line of credit arrangement with
Foothill.
March 1999 Private Placement. On March 23, 1999, the Company closed a
private placement for the sale of 2,250,000 shares of Common Stock to a total of
six investors (including $2 million each from TLC and Pequot Funds) in exchange
for the Company receiving $9 million in cash before transaction costs, estimated
36
<PAGE>
at $150,000. 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. Within 45 days of the closing, the Company is obligated to file a
registration statement pursuant to a registration rights agreement.
Redemption and Repurchase of Series B Preferred Stock. In addition to the
June 1998 Series B Preferred Stock repurchase describe above, the Company
repurchased 351 shares of Series B Preferred Stock (approximately 22% of the
shares originally issued) in February and March 1998. In exchange for the
consent of the holders of Series B Preferred Stock to the sale of the
international patent rights to the IBM Patents, the Company agreed to deposit
$4.2 million of the sale transaction proceeds into the blocked account. The
Company used such funds to pay the repurchase price of $4,212,000 (including a
20% premium). The Company believes that without the consent of the preferred
shareholders, the transaction would not have been completed. In addition, the
Company believes that the repurchase reduced the dilutive effect of the Series B
Preferred Stock on the Company's common shareholders.
Working capital requirements. The Company experienced a significant
negative cash flow from operations in 1998, largely resulting from fewer laser
system sales and the increase in research, development and regulatory expenses
resulting from the development of the LaserScan LSX and other efforts as
previously described. 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 keratome related products on a
commercial basis. During 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 finalizing the clinical validation of our UniShaper single
use keratome product, and believe that regular commercial shipments of that
product will begin in the second quarter of 1999.
With our $9 million financing that closed in March 1999, 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 through 1999 in accordance with our current business plan. Our
belief regarding future working capital requirements is based on various factors
and assumptions including the anticipated timely 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.
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. 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. The Company expects
cash flow from operations to show improvement during 1999 as a result of the
37
<PAGE>
expected shipment of the LaserScan LSX excimer laser system and UniShaper single
use keratomes as previously discussed. However, the Company expects to incur a
loss and a deficit in cash flow from operations for the first quarter of 1999.
There can be no assurance that the Company can regain or sustain profitability
or positive operative cash flow in any subsequent fiscal period. The Company may
from time to time reassess its credit policy and the terms it will make
available to individual customers. There can be no assurance as to the terms or
amount of third-party financing, if any, that the Company's customers may obtain
in the future. The Company is placing greater emphasis on the terms and
collection timing of future sales.
The Company expects to begin commercial shipment of its keratome products,
increase the level of manufacturing and distribution of its laser systems and to
continue a variety of research and development activities on its excimer and
solid-state laser systems over the next twelve months and it is anticipated that
such keratome, research and development and regulatory efforts in the U.S. will
be the most significant technology related expenses in the foreseeable future.
Possible joint ventures. The Company is receptive to joint venture
discussions with compatible companies for the development and operation in
international markets of surgical centers that will utilize the Company's
products. The Company has no present commitments for joint venture
relationships, and no assurance can be given that any such relationships will be
secured on terms satisfactory to the Company.
Risk Factors and Uncertainties
The business, results of operations and financial condition of the Company
and the market price of the Common Stock may be adversely affected by a variety
of factors, including the ones noted 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 entered into a merger agreement. If the proposed merger is approved by
stockholders, it is anticipated that the merger would be completed during the
first quarter of 1999. If completed, the market presence, technology base and
distribution capabilities of the combined entity would be substantial. Further,
the merger would provide Autonomous with licenses to use certain patents owned
by Visx, Inc.
OUR COMPETITORS MAY HAVE OR RECEIVE BROADER REGULATORY APPROVALS WHICH MAY
PREVENT US FROM MARKETING OUR PRODUCTS. We have not yet received the GMP
clearance from the FDA that is required for the commercial sale of our LaserScan
LSX laser system. Based on the current status of development efforts, we believe
that it is reasonable to expect such FDA clearance in the next four to seven
months. 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
38
<PAGE>
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.
NEW PRODUCTS OR TECHNOLGIES COULD ERODE DEMAND FOR OUR PRODUCTS OR MAKE
THEM OBSOLETE. In addition to competing with eyeglasses, contact lenses and RK,
excimer laser vision correction competes or may compete with 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 lasers 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 our UniShaper single use keratome product, 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.
THE LACK OF BROAD MARKET ACCEPTANCE OF LASER-BASED EYE TREATMENT MAY 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.
39
<PAGE>
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 AND MAY CONTINUE TO EXPERIENCE LOSSES AND OPERATING
CASH FLOW DEFICITS. We experienced significant net losses and deficits in cash
flow from operations for the fiscal years ended December 31, 1996, 1997 and
1998, 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.
<TABLE>
<CAPTION>
For the Twelve Month
Period Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Loss $11.9 million $7.3 million $4.1 million
Deficit in Cash Flow from Operations $14.3 million $4.4 million $4.2 million
</TABLE>
Although we achieved profitability during 1994 and 1995, we had a deficit
in cash flow from operations of $1.9 million during 1995. In addition, we
incurred losses in 1991 through 1993. As of December 31, 1998, we had an
accumulated deficit of $23.7 million. We expect to report a loss and deficit in
cash flow from operations for the first 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 was approximately $2.6 million at
December 31, 1998, will be sufficient to cover the amount of our actual
write-offs over time. At December 31, 1998, our trade accounts and notes
receivable totaled approximately $12.3 million, and accrued commissions, the
payment of which generally depends on the collection of such net trade accounts
and notes receivable, totaled approximately $1.9 million. Actual write-offs that
materially exceed amounts reserved could have a material adverse effect on our
consolidated financial condition and results of operations. 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 91% of our net receivables at December 31, 1998 related to
international accounts. 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 December 31,
1998, we had extended the original payment terms of laser customer accounts
totaling approximately $1,366,000 by periods ranging from 12 to 60 months. Such
restructured receivables represent approximately 11 percent of our net
receivables as of that date. Our liquidity and operating cash flow would be
40
<PAGE>
adversely affected if additional extensions become necessary in the future. In
addition, it may be more difficult to collect laser system receivables if the
payment schedule extends beyond the expected 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 MAY EXPERIENCE LIQUIDITY PROBLEMS AND THERE IS UNCERTAINTY REGARDING
THE TERMS OR AVAILABILITY OF ADDITIONAL CAPITAL. During the year ended December
31, 1998, we experienced a $14.3 million deficit in cash flow from operations.
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
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. Because we are still in the process of completing the clinical
validation of our UniShaper single use keratome product, we do not believe that
regular commercial shipments of that product will begin until the second quarter
of 1999.
With our financing that closed in March 1999, 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 timely 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.
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. 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.
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,
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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 ELIGIBLE 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 March 29, 1999, of
LaserSight's 15,442,635 shares of common stock outstanding, approximately 13.1
million 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 Securities
Act or subject only to the satisfaction of a prospectus delivery requirement.
Shares included in the March 1999 private placement will be freely tradable on a
similar basis once a registration statement covering such shares is filed and
declared effective.
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 more than 4 million additional shares of
common stock upon the exercise of outstanding warrants and to satisfy
certain contingent contractual obligations. See "Market for Company's
Common Equity and Related Stockholder Matters."
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. See
"Market for Company's Common Equity and Related Stockholder Matters."
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. 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 ("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
WE DEPEND ON OUR KEY PERSONNEL FOR OUR FUTURE SUCCESS. 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
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international operations, it could have a material adverse effect on our
business, financial condition and results of operations.
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 June 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 second 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 approximately 90% complete, the
remediation assessment of problem areas is approximately 90% complete,
and testing, including validation of compliance, is expected to be
completed by the end of April 1999.
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 approximately 98% of our vendors,
business partners and service providers. Approximately 95% have
responded to date, and we are continuing to assess their responses.
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o Products. We are not aware of any Y2K problems with our current
production model, the LaserScan LSX, 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 taking steps to promptly
notify affected users and, except for those users under warranty or
service contract, 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.
We intend to develop contingency plans for Y2K issues which, if not timely
resolved, could have a significant impact on our operations. These plans will be
designed 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 $60,000 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 PMA approval 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.
If and when our ophthalmic laser systems receive PMA approval by the FDA,
we will be required to obtain GMP clearance with respect to our manufacturing
facilities. These regulations impose certain procedural and documentation
requirements with respect to our manufacturing and quality assurance activities.
Our facilities will be subject to inspections by the FDA, and if any
noncompliance with GMP guidelines is noted during facility inspections, the
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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
quality 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,
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 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
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selling our laser systems in the U.S. While we are not contractually obligated
to anyone to obtain a license prior to the 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 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 once we
determine that the product is ready to be commercially shipped. We currently
anticipate regular commercial shipments to commence in the second 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 87% of our total revenues during the year
ended December 31, 1998. We expect sales to international accounts will continue
to represent a comparable percentage of our total sales unless and until our
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 twelve months 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 present
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.
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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. Our "claims
made" product liability insurance coverage is limited to $10 million and our
general liability insurance coverage is limited to $6 million, including up to
$5 million of coverage under an excess liability policy. 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
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 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. 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 FUTUTE 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.
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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 December 31, 1998, approximately $16.2
million or 37% were intangible assets. The following table presents an overview
of our significant intangible assets and goodwill at December 31, 1998:
<TABLE>
<CAPTION>
Value of Assets Amortization Period
-------------------------- --------------------------
<S> <C> <C>
Goodwill $6.6 million 12-20 years
Cost of Patents $4.3 million 8-17 years
Acquired Licenses and Technology $5.3 million 31 months-12 years
</TABLE>
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.
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. TFG's operating results have
improved in 1998 when compared to 1996 and 1997. If TFG is unsuccessful in
continuing to improve its financial performance, some or all of the carrying
amount of goodwill recorded, $3.7 million at December 31, 1998, may be subject
to an impairment adjustment.
Other Risks
The risks described above under are not the only risks facing LaserSight.
There may be additional risks and uncertainties not presently known to us or
that we have deemed immaterial which could also negatively impact our business
operations. If any of the foregoing risks actually occur, it could have a
material adverse effect on our business, financial condition and results of
operations. In that event, the trading price of our common stock could decline,
and you may lose all or part of your investment.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company believes that its exposure to market risk for changes in
interest and currency rates is not significant. The Company's investments are
limited to highly liquid instruments with maturities of three months or less. At
December 31, 1998, the Company had less than $3 million of short-term
investments classified as cash and equivalents. All of the Company's
transactions with international customers and suppliers are denominated in U.S.
dollars.
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Item 8. Financial Statements and Supplemental Data
Consolidated financial statements prepared in accordance with Regulation
S-X are listed in Item 14 of Part IV of this Report, are attached to this Report
and incorporated in this Item 8 by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers
Information with respect to the Company's directors and executive officers
is incorporated herein by reference to the definitive form of the Company's
proxy materials to be filed with the Commission on or before April 30, 1999.
Item 11. Executive Compensation
Information with respect to executive compensation is incorporated herein
by reference to the definitive form of the Company's proxy materials to be filed
with the Commission on or before April 30, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to the security ownership of certain beneficial
owners and management is incorporated herein by reference to the definitive form
of the Company's proxy materials to be filed with the Commission on or before
April 30, 1999.
Item 13. Certain Relations and Related Transactions
Information with respect to certain relations and related transactions is
incorporated herein by reference to the definitive form of the Company's proxy
materials to be filed with the Commission on or before April 30, 1999.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements and Schedules.
(a) (1) The following financial statements and related items are attached to
this report:
Independent Auditors' Reports
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Operations for the years ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Comprehensive Loss for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
Schedules not filed:
All schedules have been omitted as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes.
(3) Exhibits required by Item 601 of Regulation S-K.
The Exhibit Index set forth in this Form 10-K is hereby
incorporated herein by this reference.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1998.
51
<PAGE>
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 and
10.39.
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*).
52
<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*).
53
<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*).
54
<PAGE>
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*).
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 Warrant to Purchase Common Stock, dated November 11, 1998 by
and between LaserSight Incorporated and Mercacorp, Inc. (filed
as Exhibit 10.33 to the Company's Form 10-Q filed on November
16, 1998*).
10.33 Warrant to Purchase Common Stock, dated November 11, 1998 by
and between LaserSight Incorporated and Mercacorp, Inc. (filed
as Exhibit 10.34 to the Company's Form 10-Q filed on November
16, 1998*).
10.34 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*).
10.35 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*).
10.36 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*).
10.37 Employment Agreement by and between LaserSight Incorporated
and Michael R. Farris dated October 30, 1998.
55
<PAGE>
10.38 Securities Purchase Agreement by and between LaserSight
Incorporated and purchasers of Common Stock dated March 22,
1999.
10.39 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.
Exhibit 11 Statement of Computation of Loss Per Share
Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of KPMG LLP
Exhibit 27 Financial Data Schedule
Exhibit 99 Press release dated March 29, 1999
- ----------------------
*Incorporated herein by reference. File No. 0-19671.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: March 30, 1999 LASERSIGHT INCORPORATED
By: /s/ Michael R. Farris
--------------------------------
Michael R. Farris, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Michael R. Farris Dated: March 30, 1999
- -------------------------------------------
Michael R. Farris, President,
Chief Executive Officer and Director
/s/ Francis E. O'Donnell, Jr., M.D. Dated: March 30, 1999
- -------------------------------------------
Francis E. O'Donnell, Jr., M.D.,
Chairman of the Board, Director
/s/ Juliet Tammenoms Bakker Dated: March 30, 1999
- -------------------------------------------
Juliet Tammenoms Bakker, Director
/s/ J. Richard Crowley Dated: March 30, 1999
- -------------------------------------------
J. Richard Crowley, Chief Operating Officer
and Director
/s/ Terry A. Fuller, Ph.D. Dated: March 30, 1999
- -------------------------------------------
Terry A. Fuller, Ph.D., Director
/s/ Gary F. Jonas Dated: March 30, 1999
- -------------------------------------------
Gary F. Jonas, Director
/s/ Richard C. Lutzy Dated: March 30, 1999
- -------------------------------------------
Richard C. Lutzy, Director
/s/ David T. Pieroni Dated: March 30, 1999
- -------------------------------------------
David T. Pieroni, Director
/s/ Thomas Quinn Dated: March 30, 1999
- -------------------------------------------
Thomas Quinn, Director
/s/ Gregory L. Wilson Dated: March 30, 1999
- -------------------------------------------
Gregory L. Wilson, Chief Financial Officer
(Principal accounting officer)
57
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
LaserSight Incorporated:
We have audited the accompanying consolidated balance sheets of LaserSight
Incorporated and Subsidiaries (the Company) as of December 31, 1998 and 1997,
and the related consolidated statements of operations, comprehensive loss,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LaserSight
Incorporated and Subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
St. Louis, Missouri
March 25, 1999
F-1
<PAGE>
LASERSIGHT INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,437,718 3,858,400
Marketable equity securities -- 7,475,000
Accounts receivable-trade, net 4,611,834 2,649,202
Notes receivable-current portion, net 4,805,831 3,762,341
Inventories 8,517,636 4,348,235
Deferred tax assets 184,997 571,009
Other current assets 159,057 219,723
----------- ----------
Total current assets 22,717,073 22,883,910
Notes receivable, less current portion, net 2,880,358 2,380,193
Property and equipment, net 1,502,339 1,354,168
Other assets, net 16,773,213 23,842,802
----------- ----------
$43,872,983 50,461,073
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,220,045 2,142,979
Note payable, less discount -- 1,758,333
Accrued expenses 3,224,369 2,782,521
Accrued commissions 1,451,180 1,230,474
Income taxes payable 9,239 1,255,491
Deferred revenue 937,602 214,219
Other current liabilities -- 770,193
----------- -----------
Total current liabilities 7,842,435 10,154,210
Refundable deposits 194,000 200,000
Accrued expenses, less current portion 642,880 518,730
Deferred royalty revenue, less current portion 433,333 --
Deferred income taxes 184,997 571,009
Long-term obligations 560,000 500,000
Commitments and contingencies
Redeemable convertible preferred stock:
Series B - par value $.001 per share; authorized 1,600 shares;
zero and 1,295 shares issued and outstanding at December 31,
1998 and 1997, respectively -- 11,477,184
Stockholders' equity:
Convertible preferred stock:
Series C - par value $.001 per share; authorized 2,000,000
shares; 2,000,000 and zero shares issued and outstanding at
December 31, 1998 and 1997, respectively 2,000 --
Series D - par value $.001 per share; authorized 2,000,000
shares, 2,000,000 and zero shares issued and outstanding at
December 31, 1998 and 1997, respectively 2,000 --
Common stock-par value $0.001 per share; authorized 40,000,000
shares, 13,332,835 and 10,149,872 shares issued and
outstanding at December 31, 1998 and 1997, respectively 13,333 10,150
Additional paid-in capital 59,407,392 40,045,564
Stock subscription receivable (1,140,000) (1,140,000)
Accumulated deficit (23,748,303) (11,865,914)
Accumulated other comprehensive income - unrealized gain -- 604,500
Less treasury stock, at cost; 140,200 and 165,200 common shares
at December 31, 1998 and 1997, respectively (521,084) (614,360)
------------ -----------
Total stockholders' equity 34,015,338 27,039,940
------------ -----------
$ 43,872,983 50,461,073
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
LASERSIGHT INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Products $15,968,035 11,925,018 10,634,663
Royalties 1,111,917 245,000 --
Services 676,164 12,218,815 10,869,327
----------- ---------- ----------
17,756,116 24,388,833 21,503,990
Cost of revenues:
Product cost 6,048,730 4,127,908 3,415,276
Cost of services 297,512 8,573,932 6,707,308
----------- ---------- ----------
Gross profit 11,409,874 11,686,993 11,381,406
Research, development, and regulatory expenses 3,840,924 2,807,579 1,720,246
Other general and administrative expenses 12,156,982 13,118,289 11,559,656
Selling related expenses 4,562,740 3,286,600 2,430,335
Amortization of intangibles 2,310,169 1,736,679 631,518
----------- ---------- ----------
19,029,891 18,141,568 14,621,509
----------- ---------- ----------
Loss from operations (11,460,941) (9,262,154) (4,960,349)
Other income and expenses:
Interest and dividend income 591,481 383,611 314,287
Interest expense (782,668) (1,343,198) (151,634)
Gain on sale of subsidiaries and securities 364,452 4,129,057 --
Other, net (362,500) (280,400) (415,681)
----------- ---------- -----------
Loss before income tax
expense (benefit) (11,650,176) (6,373,084) (5,213,377)
Income tax expense (benefit) 232,213 880,000 (1,139,008)
----------- ---------- ----------
Net loss (11,882,389) (7,253,084) (4,074,369)
Conversion discount on preferred stock (858,872) (41,573) (1,010,557)
Preferred stock accretion and dividend requirements (2,751,953) (298,269) (358,618)
------------ ----------- -----------
Loss attributable to
common stockholders $(15,493,214) (7,592,926) (5,443,544)
============= =========== ===========
Loss per common share - basic and diluted $ (1.26) (0.80) (0.69)
============= =========== ===========
Weighted average number of shares outstanding
- basic and diluted 12,272,000 9,504,000 7,893,000
============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss $(11,882,389) (7,253,084) (4,074,369)
Other comprehensive income (loss), net of tax:
Unrealized gain (reversal) on marketable securities
(net of tax of $(353,675) in 1998 and $370,500 in 1997) (577,048) 604,500 --
Reclassification adjustment for gains included in
net loss (net of tax of $16,825) (27,452) -- --
----------- ---------- ----------
Comprehensive loss $(12,486,889) (6,648,584) (4,074,369)
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Obligation
Common Stock Preferred Stock Additional to Issue Stock Unreal Accu- Total
------------ --------------- Paid-in Common Subscription -ized mulated Treasury Stockholders'
Shares Amount Shares Amount Capital Stock Receivable Gain Deficit Stock Equity
------ ------ ------ ------ ------- ----- ---------- ---- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December
31, 1995 7,186,032 $ 7,186 -- $ -- 21,944,000 780,125 (1,140,000) -- (538,461) (632,709) 20,420,141
Issuance of
shares
from
exercise
of stock
options and
warrants 189,900 190 -- -- 588,599 -- -- -- -- -- 588,789
Tax benefit
of stock
options and
warrants
exercised -- -- -- -- 199,798 -- -- -- -- -- 199,798
Proceeds from
issuance of
Series A
preferred
stock, net
of issuance
costs -- -- 116 -- 5,342,152 -- -- -- -- -- 5,342,152
Conversion of,
and settlements
of dividends
on, Series
A preferred
stock 872,736 873 (108) -- 318,635 -- -- -- -- -- 319,508
Dividends on
Series A
preferred
stock -- -- -- -- (358,618) -- -- -- -- -- (358,618)
Obligation to
issue common
stock related
to 1994
acquisition -- -- -- -- -- 2,284,931 -- -- -- -- 2,284,931
Issuance of
shares in
conjunction
with
acquisition 205,598 205 -- -- 2,045,994 -- -- -- -- -- 2,046,199
Net loss -- -- -- -- -- -- -- -- (4,074,369)
---------- --------- -------- -------- ----------- -------- ---------- ------- ---------- ---------- ---------
Balances at
December 31,
1996 8,454,266 8,454 8 -- 30,080,560 3,065,056 (1,140,000) -- (4,612,830) (632,709) 26,768,531
F-5a
<PAGE>
Issuance of
shares from
exercise of
stock
options 25,875 26 -- -- 98,337 -- -- -- -- -- 98,363
Premium and
other
adjustments
on redemption
of Series B
stock -- -- -- -- (454,866) -- -- -- -- -- (454,866)
preferred
Dividends on
Series A
preferred
stock -- -- -- -- (176,268) -- -- -- -- -- (176,268)
Conversion of,
and settlement
of dividends
on, Series A
preferred
stock 102,525 102 (8) -- 52,240 -- -- -- -- -- 52,342
Issuance of
options and
treasury stock
in conjunction
with
consulting
agreements -- -- -- -- 52,608 -- -- -- -- 18,349 70,957
Adjustment of
marketable equity
securities to
market, net
of tax -- -- -- -- -- -- -- 604,500 -- -- 604,500
Issuance of
shares in
conjunction
with amendment
of
purchase
agreement 624,991 625 -- -- 3,319,640 -- -- -- -- -- 3,320,265
Issuance of
shares in
conjunction
with 1994
acquisition
agreement 406,700 407 -- -- 3,064,649 (3,065,056) -- -- -- -- --
Issuance of
shares in
conjunction
with
acquisition
of intangible
assets 535,515 536 -- -- 3,416,164 -- -- -- -- -- 3,416,700
Issuance of
warrants in
conjunction
with Series B
preferred
stock
offering -- -- -- -- 592,500 -- -- -- -- -- 592,500
Net loss -- -- -- -- -- -- -- -- (7,253,084) -- (7,253,084)
-------- -------- -------- ------- --------- ------- ------- ------- ---------- -------- ----------
Balances at
December 31,
1997 10,149,872 10,150 -- -- 40,045,564 -- (1,140,000) 604,500 (11,865,914)(614,360) 27,039,940
F-5b
<PAGE>
Conversion of
Series B
preferred
stock 2,392,220 2,392 -- -- 3,714,747 -- -- -- -- -- 3,717,139
Issuance of
Series C
and D
preferred
stock -- -- 4,000,000 4,000 15,815,556 -- -- -- -- -- 15,819,556
Issuance of
shares from
exercise of
stock options
and
warrants 194,625 195 -- -- 513,476 -- -- -- -- -- 513,671
Issuance of
warrants in
conjunction
with
settlement -- -- -- -- 250,000 -- -- -- -- -- 250,000
Issuance of
shares in
conjunction
with amendment
of purchase
agreement 187,500 187 -- -- 749,813 -- -- -- -- -- 750,000
Issuance of
shares in
conjunction
with
acquisi-
tion 305,820 306 -- -- 1,249,777 -- -- -- -- -- 1,250,083
Issuance of
shares in
conjunction
with 1996
acquisition
agreement 102,798 103 -- -- (103) -- -- -- -- -- --
Premium and
other
adjustments
on redemption
of Series B
preferred
stock -- -- -- -- (2,969,180) -- -- -- -- -- (2,969,180)
Adjustment of
marketable
equity
securities to
market, net
of tax -- -- -- -- -- -- --(604,500) -- -- (604,500)
Issuance of
options and
shares in
conjunction
with consulting
agreements -- -- -- -- 37,742 -- -- -- -- 93,276 131,018
Net loss -- -- -- -- -- -- -- -- (11,882,389) -- (11,882,389)
------- -------- ------- ------- ---------- --------- --------- ------- ----------- -------- -----------
Balances at
December 31,
1998 3,332,835 $13,333 4,000,000 $4,000 59,407,392 -- (1,140,000) -- (23,748,303) (521,084) 34,015,338
========= ======= ========= ====== ========== ========= ========== ======= =========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5c
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(11,882,389) (7,253,084) (4,074,369)
Adjustments to reconcile net loss to net
cash used in operating activities:
Realized gain on sale of investments and subsidiaries (364,452) (4,129,057) --
Depreciation and amortization 3,376,174 2,892,456 1,004,275
Provision for uncollectible accounts 1,212,896 2,366,995 502,000
Stock, options and warrants issued in conjunction with
consulting agreements and settlement 381,018 -- --
Increase in notes receivable, net (2,357,750) (362,584) (1,832,532)
Increase in accounts receivable, net (2,215,473) (176,029) 3,663,542
Increase in inventories (2,942,720) (1,236,042) (1,492,153)
Increase (decrease) in accounts payable 11,492 859,808 (70,201)
Increase (decrease) in accrued expenses 541,410 1,411,710 (529,449)
Increase (decrease) in income taxes (875,752) 1,688,145 (1,446,053)
Increase in deferred revenue 1,156,716 -- --
Other, net (370,182) (415,097) 102,482
----------- ----------- -----------
Net cash used in operating activities (14,329,012) (4,352,779) (4,172,458)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (648,475) (630,550) (296,520)
Proceeds from sale of subsidiaries 6,527,452 6,500,000 --
Net proceeds from exclusive and non-exclusive
license of patents 6,170,000 3,958,436 --
Proceeds from sale and leaseback transaction -- -- 957,180
Acquisition of other intangible assets (989,874) (15,428,961) --
Purchase of managed care contract -- (150,000) --
Transfer to restricted cash account (4,200,000) (3,200,000) --
Proceeds from restricted cash account 4,228,000 3,172,000
Purchase of businesses, net of cash acquired -- -- (640,463)
----------- ----------- -----------
Net cash provided by (used in)
investing activities 11,087,103 (5,779,075) 20,197
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from preferred stock financings, net 15,819,555 14,834,219 5,342,152
Redemption and repurchase of preferred stock (10,512,000) (3,172,000) --
Proceeds from issuance of note payable, net -- 3,414,142 --
Repayments on notes payable - officer -- -- (465,000)
Repayments on notes payable (2,000,000) (3,000,000) (799,100)
Proceeds from exercise of stock options and warrants 513,672 98,363 588,789
Repayment of capital lease obligation -- (187,971) (109,418)
----------- ----------- -----------
Net cash provided by financing activities 3,821,227 11,986,753 4,557,423
----------- ----------- -----------
Increase in cash and cash equivalents 579,318 1,854,899 405,162
Cash and cash equivalents:
Beginning of year 3,858,400 2,003,501 1,598,339
----------- ----------- -----------
End of year $ 4,437,718 3,858,400 2,003,501
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
LASERSIGHT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1 - BUSINESS
- -----------------
LaserSight Incorporated (the Company) is the parent company of three major
wholly-owned operating subsidiaries: LaserSight Technologies, Inc., which
develops, manufactures and sells ophthalmic lasers and related products
primarily for use in photorefractive keratectomy (PRK) and laser in-situ
keratomileusis (LASIK) procedures; LaserSight Patents, Inc., which owns and
licenses various patents related to refractive surgical procedures; and MRF,
Inc. d/b/a The Farris Group, a consulting firm servicing health care providers.
In December 1997, the Company sold two operating subsidiaries: MEC Health Care,
Inc. (MEC), a managed care intermediary that contracted with various health
maintenance organizations (HMOs) and eye care providers to provide comprehensive
vision services to the HMO subscribers; and LSI Acquisition, Inc. (LSIA), which
managed ophthalmic practices and ambulatory surgery centers (see note 4).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
- -------------------------
For financial reporting purposes, the Company considers short-term, highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Marketable Securities
- ---------------------
The Company classifies all of its marketable securities as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of income taxes, reported as a component of stockholders'
equity.
Credit Risk
- -----------
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade accounts and notes receivable. The
Company sells products to customers, at times extending credit for such sales.
Exposure to losses on receivables is principally dependent on each customer's
financial condition and their ability to generate revenue from the Company's
products. The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses. To mitigate a portion of the Company's
exposure on certain sales, the Company has obtained letters of credit to be
drawn on foreign financial institutions in the event a customer should default.
At December 31, 1998 and 1997, the Company was the payee on letters of credit
with foreign financial institutions aggregating approximately $2.5 million and
$0.2 million, respectively.
F-7
<PAGE>
Income Taxes
- ------------
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the consolidated
financial statements or tax returns. Deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
Inventory
- ---------
Inventory, which consists primarily of laser systems parts and components, is
stated at the lower of cost or market. Cost is determined using the first-in,
first-out method.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Furniture and equipment are
depreciated using the straight-line method over the estimated lives (three to
seven years) of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or estimated useful life
of the asset. Capital leases were amortized on a straight-line basis over the
term of the leases. Such depreciation and amortization is included in other
general and administrative expenses on the consolidated statements of
operations.
Patents
- -------
Costs associated with obtaining patents are capitalized as incurred and are
amortized over their remaining useful lives (generally 17 years or less).
Goodwill and Acquired Technology
- --------------------------------
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over estimated useful lives
up to 20 years. Management evaluates the carrying value of goodwill using
projected future undiscounted operating cash flows of the acquired businesses.
Acquired technology was recorded as an intangible asset and is amortized over a
period of 12 years based on the Company's estimate of the lifespan of the
solid-state laser product and the useful life of a related patent acquired. The
Company continually assesses the potential market for solid-state as an
improvement to existing excimer laser technology.
Research and Development
- ------------------------
Research and development costs are charged to operations in the year incurred.
The cost of certain equipment used in research and development activities which
have alternative uses is capitalized as equipment and depreciated using the
straight-line method over the estimated lives (five to seven years) of the
assets. Total expenditures on research and development for the years ended
December 31, 1998, 1997, and 1996 were approximately $2,813,000, $1,836,000, and
$949,000, respectively.
Product Warranty Costs
- ----------------------
Estimated future warranty obligations related to the Company's products,
typically for a period of one year, are provided by charges to operations in the
period in which the related revenue is recognized.
F-8
<PAGE>
Extended Service Contracts
- --------------------------
The Company sells product service contracts covering periods beyond the initial
warranty period. Revenues from the sale of such contracts are deferred and
amortized on a straight-line basis over the life of the contracts. Service
contract costs are charged to operations as incurred.
Revenue Recognition
- -------------------
The Company recognizes revenue from the sale of its products in the period that
the products are shipped to the customers.
Royalty revenues from the license of patents owned are recognized in the period
earned.
Service revenues from consulting clients are recognized in the period that the
services are provided.
The Company recognized premiums from HMOs and other payors as income in the
period to which vision care coverage related.
Substantially all premiums are collected on a monthly basis and relate to vision
care coverage during that month. Capitation revenue for the years ended December
31, 1998, 1997, and 1996 was approximately $0, $7,955,000 and $6,095,000,
respectively (see note 4).
Revenues from managing an ophthalmic practice and an ambulatory surgery center
were recognized when earned in accordance with the practice services agreement
(see note 4).
Cost of Revenues
- ----------------
Cost of revenues consist of product cost and cost of services. Product cost
relates to the cost from the sale of its products in the period that the
products are shipped to the customers.
Cost of services consists of the costs related to servicing consulting clients,
managing an ophthalmic practice and an ambulatory surgery center and provider
payments. Provider payments consist of benefit claims and capitation payments
made to providers.
Loss Per Share
- --------------
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), if dilutive. 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. Diluted loss per
share for the years ended December 31, 1998, 1997 and 1996 is the same as basic
loss per share.
Pursuant to Emerging Issue Task Force (EITF) Announcement No. D-60, the value of
the conversion discount on the Series C and D Convertible Participating
Preferred Stock (Series C and D Preferred Stock) issued in June 1998
(approximately $834,000), the Series B Convertible Participating Preferred Stock
(Series B Preferred Stock) issued in August 1997 (approximately $42,000 in 1997
and $25,000 in 1998) and the Series A Convertible Participating Preferred Stock
F-9
<PAGE>
(Series A Preferred Stock) issued in January 1996 (approximately $1,011,000) has
been reflected as an increase to the loss attributable to common stockholders
for the years ended December 31, 1998, 1997, and 1996, respectively. The value
of the conversion discounts, ($0.07) basic and diluted in 1998, and ($0.13)
basic and diluted in 1996, have been reflected as an adjustment to the loss
attributable to common shareholders. The value of the conversion discount in
1997 had no per share effect.
The following is the reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the years ended December 31, 1998, 1997,
and 1996:
1998 1997 1996
---- ---- ----
Numerator:
Net loss $(11,882,389) (7,253,084) (4,074,369)
Conversion discount
on preferred stock (858,872) (41,573) (1,010,557)
Preferred stock
accretion
and dividends (2,751,953) (298,269) (358,618)
------------ ---------- ----------
Loss attributable
to common
stockholders $(15,493,214) (7,592,926) (5,443,544)
============ ========== ==========
Denominator, basic and diluted:
Weighted average
shares
outstanding 12,272,000 9,504,000 7,486,300
Issuable shares,
acquisition
of The Farris
Group -- -- 406,700
------------ ---------- ----------
12,272,000 9,504,000 7,893,000
============ ========== ==========
Basic and diluted
loss per share $ (1.26) (0.80) (0.69)
============ ========== ==========
Common share equivalents, including contingently issuable shares, options,
warrants, and convertible Preferred Stock totaling 2,530,000, 4,722,000 and
317,000 common stock equivalents at December 31, 1998, 1997, and 1996,
respectively, are not included in the computation of diluted loss per share
because they have an antidilutive effect.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
- -----------------------------------------------------------------------
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
F-10
<PAGE>
Stock Option Plans
- ------------------
Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price. On January 1,
1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure pursuant to the provisions
of SFAS No. 123.
Comprehensive Loss
- ------------------
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income", on January 1, 1998. SFAS No. 130 requires companies to classify items
defined as "other comprehensive income" by their nature in a financial statement
and to display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the consolidated balance sheet.
Operating Segments
- ------------------
The Company adopted the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", on December 31, 1998. SFAS No. 131
requires companies to report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise for which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. This statement also requires
that public companies report certain information about their products and
services, the geographic areas in which they operate and their major customers.
Reclassifications
- -----------------
Certain reclassifications have been made to prior years' consolidated financial
statements to conform to the 1998 consolidated financial statement presentation.
NOTE 3 - ACQUISITIONS
- ---------------------
Aesthetic Product
- -----------------
In April 1998, the Company acquired from Schwartz Electro-Optics, Inc. (SEO)
substantially all the assets, and assumed certain liabilities, of SEO's medical
products division (the Division) in exchange for 305,820 shares of the Company's
Common Stock. The Company is contingently obligated to issue up to 223,280
additional shares on April 15, 1999 if its five day average Common Stock price
is not then $5.00 or greater. The value of the acquisition was $1,250,000. The
Division develops, tests, manufactures, assembles, and sells lasers and their
related equipment, accessories, parts, and software for medical and medical
research applications. The Division's primary focus is erbium lasers, which are
primarily used to perform dermatology-related procedures.
F-11
<PAGE>
The acquisition was accounted for using the purchase method. Accordingly, the
Division's results of operations are included in the Company's consolidated
financial statements subsequent to the acquisition date. The fair value of the
purchase consideration was determined at the date of acquisition and was
recorded at that time. If and when the additional shares are issued in April
1999, the entry will be to record the par value of shares issued in Common Stock
with the offset to additional paid-in capital. The acquisition did not have a
material effect of the assets or operations of the Company.
Photomed, Inc.
- --------------
In July 1997, the Company acquired from Photomed, Inc. the rights to a
Pre-Market Approval (PMA) application filed with the Food and Drug
Administration (FDA) for a laser to perform LASIK, a refractive surgery
alternative to surface PRK. In addition, the Company purchased from a
stockholder of Photomed, Inc. U.S. patent number 5,586,980 for a keratome, the
instrument necessary to create the corneal "flap" in the LASIK procedure. The
Company issued a combination of 535,515 unregistered shares of Common Stock
(valued at $3,416,700) and $333,300 in cash as consideration for the PMA
application and the keratome patent. The seller will also receive a percentage
of any licensing fees or sale proceeds related to the patent. The total value
was capitalized as the cost of PMA application and patent and is being amortized
over 5 and 15 years, respectively. In September 1998, the Company entered into
an amendment with Photomed based on a FDA approval received in July 1998, and
paid Photomed a total of $1,740,000, of which $990,000 was paid in cash and the
balance paid through the issuance of 187,500 shares of Common Stock. Upon
receipt of FDA approval of a laser for general commercial use for the treatment
of hyperopia by June 1, 1999, utilizing part or all of the know how of the laser
acquired, the Company is required to issue $1 million in Common Stock. Approval
after such date will result in lesser payments until June 1, 2000, and after
such date no payment will be required. Upon receipt of FDA approval of
equivalency of the Company's refractive scanning laser to the laser acquired,
payment of up to $1 million in cash is due if the approval is obtained within
four months after Photomed takes delivery of the Company's refractive scanning
laser. Such obligation decreases approximately $2,740 per day after such four
month period. If, prior to August 1, 1999, the Company's gross sales of
refractive lasers for final use within the United States exceeds $14 million,
Photomed is to receive 25% of gross sales in excess of $14 million. Additional
consideration paid, if any, will be recorded as additional purchase price. As of
December 31, 1998 and 1997, the unamortized carrying values of the LASIK PMA
application and the keratome patent were included in other assets.
Patents
- -------
In August 1997, the Company finalized an agreement with IBM, in which the
Company acquired certain patents (IBM Patents) relating to ultraviolet light
ophthalmic products and procedures for ultraviolet ablation for $14.9 million.
The total value was capitalized and is being amortized over approximately 8
years. Under the agreement, IBM transferred to the Company all of IBM's rights
under its patent license agreements with certain licensees. Royalties from such
assigned patent licenses totaled approximately $1,112,000 and $803,000 for the
years ended December 31, 1998 and 1997, respectively. Royalties accrued on or
after January 1, 1997 but before September 1997, totaling approximately
$581,000, reduced the Company's cost of the IBM Patents. The acquisition was
financed through the private placement of Series B Preferred Stock (see note
11).
In September 1997, the Company sold an exclusive worldwide royalty-free patent
license covering the vascular and cardiovascular rights included in the IBM
Patents for $4 million, reducing the Company's basis in the IBM Patents. No gain
or loss was recognized as a result of this sale. Approximately $3.2 million of
F-12
<PAGE>
these funds were placed in a restricted cash account and in October 1997 were
used to voluntarily redeem 305 shares of the Series B Preferred Stock issued to
finance the purchase of the IBM Patents. In connection with such redemption, the
Company paid a total of $3,172,000 including a four percent premium (see note
11).
In February 1998, the Company sold certain rights in certain patents to Nidek
Co., Ltd. for $6.3 million in cash (of which $200,000 was withheld for the
payment of Japanese taxes). The Company transferred all rights in those patents
issued in countries outside of the U.S. but retained the exclusive right to use
and sublicense the non-U.S. patents in all fields other than ophthalmic,
cardiovascular and vascular. The Company received a non-exclusive license to the
non-U.S. patents in the ophthalmic field. In addition, the Company has granted a
non-exclusive license to use those patents issued in the U.S., which resulted in
$1.2 million of deferred royalties that are being amortized to income over three
years. The transaction did not result in any current gain or loss, but reduced
the Company's amortization expense over the remaining useful life of the U.S.
patents. As of December 31, 1998 and 1997, the unamortized carrying value of the
patents was included in other assets.
Keratome License
- ----------------
In September 1997, the Company acquired worldwide distribution rights to the
Ruiz-Lenchig disposable keratome for the LASIK procedure and entered into a
limited exclusive license agreement for intellectual property related to the
keratome products formerly known as Automated Disposable Keratomes (A*D*K). The
trade name for this single use keratome is now the LaserSight "UniShaper" (TM)
single use keratome. In exchange, the Company paid $400,000 in cash at closing
and supplied to the licensors one excimer laser. Six months after the first
shipment of the disposable keratome product, the Company will pay an additional
$150,000 to the licensors with another installment of $150,000 due twelve months
after the initial shipment date. The total value was capitalized, including the
net book value of the laser, and is being amortized over 31 months. The Company
will also share the product's gross profit with the sellers with minimum
quarterly royalties of $400,000 beginning approximately seven months after the
initial shipment date. Under the arrangement, gross profit is defined as the
selling price less certain costs of sales and commissions. As of December 31,
1998, the unamortized carrying value of the keratome license was included in
other assets. No UniShaper shipments were made through December 31, 1998.
Assets of Northern New Jersey Eye Institute
- -------------------------------------------
In July 1996, the Company acquired the assets of the Northern New Jersey Eye
Institute (NNJEI) and contracted with the practice to provide ongoing management
services through its LSIA subsidiary.
The acquisition was accounted for using the purchase method. Accordingly, the
Company's results of operations resulting from LSIA's service agreement with
NNJEI were included in the Company's consolidated financial statements
subsequent to the acquisition date. The total purchase cost, including
acquisition costs, of $2,576,882, was comprised of a 5.05% promissory note in
the amount of $340,000 and 205,598 unregistered shares of the Company's Common
Stock. The Company issued 102,798 additional shares on July 3, 1998 because the
Company's quoted stock price was lower than $15.00 per share at that date. The
fair value of the purchase consideration was determinable at the date of
acquisition and was recorded at that time. When the additional shares were
issued in July 1998, the entry was to record the par value of shares issued in
Common Stock with the offset to additional paid-in capital. The promissory note
was repaid in September 1996. Cost to enter into the management services
agreement, totaling $1,606,774, was recognized as a result of the acquisition,
and was being amortized over 25 years.
In December 1997, the Company sold LSIA to an unrelated company (see note 4).
F-13
<PAGE>
MEC Health Care, Inc.
- ---------------------
In October 1995, the Company acquired all of the issued and outstanding shares
of common stock of MEC. The acquisition was accounted for using the purchase
method. Accordingly, MEC's results of operations are included in the Company's
consolidated financial statements subsequent to the acquisition date. The total
purchase cost, including acquisition costs, of $6,579,087 was comprised of an
8.75% promissory note in the total amount of $1,799,100 (see note 10) and
543,464 unregistered shares of the Company's Common Stock. Goodwill recognized
as a result of the acquisition, totaling $6,667,918, was being amortized over 20
years.
In December 1997, the Company sold MEC to an unrelated company (see note 4).
The Farris Group
- ----------------
In February 1994, the Company acquired MRF, Inc. d/b/a The Farris Group. The
acquisition was accounted for using the purchase method. Accordingly, The Farris
Group's results of operations are included in the Company's consolidated
financial statements subsequent to the acquisition date. The terms of the
acquisition provided, among other things, for the Company to pay $2 million and
up to 750,000 unregistered shares of the Company's Common Stock issuable if The
Farris Group achieved certain future performance objectives. Based on The Farris
Group's pre-tax profits for each of the years ended December 31, 1996, 1995, and
1994, 406,700 shares were issued in April 1997 (see note 11). These earn-out
shares were valued at $3,065,056 and accounted for as additional purchase price
since there are a maximum number of shares issuable, termination of the former
owner's employment does not impact the agreement, and the agreement is entirely
separate from compensation agreements. No additional shares will be issued.
LaserSight Centers Incorporated
- -------------------------------
In April 1993, the Company acquired all of the outstanding stock of LaserSight
Centers Incorporated (Centers), a privately held corporation, whose former
owners include two of the Company's former presidents and its chairman. Centers
is a development stage corporation which intends to provide services for
ophthalmic laser surgical centers using excimer and other lasers. The terms for
the closing of this transaction provided for the issuance of 500,000
unregistered shares of the Company's Common Stock and the agreement of the
Company to issue up to an additional 1,265,333 unregistered shares of its Common
Stock based on the outcome of certain future events and whether Centers achieves
certain performance objectives.
In March 1997, the Company amended the purchase and royalty agreements related
to the 1993 acquisition of Centers. The amended purchase agreement provided for
the Company to issue approximately 625,000 unregistered common shares with
600,000 additional shares contingently issuable based upon future operating
profits. This replaced the provision calling for 1,265,333 contingently issuable
shares based on cumulative revenues or other future events and the uncertainties
associated therewith. The amended royalty agreement reduced the royalty from $86
to $43 per refractive procedure and delayed the obligation to pay such royalties
until the sooner of five years or the issuance of all contingently issuable
shares as described above. The value of shares issued in March 1997, $3,320,321,
was accounted for as additional purchase price based upon historical and
expected growth in the excimer laser industry and undiscounted projected cash
flows.
F-14
<PAGE>
NOTE 4 - DIVESTITURES
- ---------------------
In December 1997, the Company sold all of the outstanding stock of MEC and LSIA
to Vision Twenty-One, Inc. (Vision 21) in a transaction which was effective as
of December 1, 1997. The total consideration paid by Vision 21 to the Company
consisted of $6.5 million in cash paid at closing and 820,085 unregistered
shares of Vision 21 common stock. The final number of the Vision 21 shares to be
received by the Company was subject to certain post-closing adjustments, for
which a portion of the unregistered Vision 21 shares, valued at $1 million at
the closing date, were placed in escrow. The Vision 21 shares were to be
liquidated pursuant to the agreement from February through May 1998. The Company
was to receive a minimum of $6.5 million and a maximum of $7.475 million from
the liquidation of the Vision 21 shares. The Company received a total of
approximately $6.5 million through June 1998. A portion of the proceeds was used
to repay the Foothill loan. The Company believes Vision 21 owes it approximately
$800,000 in additional proceeds, an amount in dispute at this time. At December
31, 1997, the market value of the Vision 21 shares was approximately $7,586,000
(see notes 10 and 16).
The Company recorded a current liability in the amount of approximately $770,000
as of December 31, 1997, representing the maximum potential post-closing
adjustments. The post-closing adjustments were resolved during 1998 and no
liability is recorded at December 31, 1998.
As a result of this transaction, the Company recorded gains before income taxes
of $364,452 and $4,129,057 in the years ended December 31, 1998 and 1997,
respectively. Approximately $191,000 of the gain in 1998 related to the sale of
Vision 21 securities.
The following pro forma unaudited information has been prepared assuming that
the disposition of both MEC and LSIA had occurred as of the beginning of the
years ended December 31, 1997 and 1996. The pro forma adjustments serve to
eliminate revenues and expenses related to MEC and LSIA for the periods
presented and do not include any overhead allocations. The unaudited pro forma
condensed consolidated revenues, gross profit and net loss are not necessarily
indicative of results that would have occurred had the disposition been
consummated as of the beginning of the years ended December 31, 1997 and 1996,
or that which might be attained in the future.
For the Year Ended December 31, 1997
(Unaudited)
Subsidiaries
Historical Sold Pro Forma
---------- ---- ---------
Revenues, net $24,388,833 (11,009,723) 13,379,110
Gross profit 11,686,993 (2,836,873) 8,850,120
Net loss $(7,253,084) (665,120) (7,918,204)
=========== =========== ==========
F-15
<PAGE>
For the Year Ended December 31, 1996
(Unaudited)
Subsidiaries
Historical Sold Pro Forma
---------- ---- ---------
Revenues, net $21,503,990 (7,882,943) 13,621,047
Gross profit 11,381,406 (2,310,090) 9,071,316
Net loss $(4,074,369) (782,358) (4,856,727)
=========== ========== ===========
NOTE 5 - ACCOUNTS AND NOTES RECEIVABLE
- --------------------------------------
Accounts and notes receivable at December 31, 1998 and 1997 were net of
allowance for uncollectibles of approximately $2,576,000 and $1,825,000,
respectively. During 1998 and 1997, approximately $462,000 and $1,892,000,
respectively, net of associated commissions, in accounts and notes receivable
were written off as uncollectible. Accounts and notes receivable write-offs were
not significant for the year ended December 31, 1996.
The Company currently provides internal financing for sale of its laser systems.
Sales for which there is no stated interest rate are discounted at a rate of
eight percent, an estimate of the prevailing market rate for such purchases.
Note receivable payments due within one year are classified as current. At
December 31, 1998 and 1997, notes receivable maturity dates ranged from 1999 to
2002 and from 1998 to 2002, respectively.
Notes receivable at December 31, 1998 and 1997 primarily represent unpaid
balances due on laser equipment sales. Notes receivable balances, less an
allowance for uncollectibles, consisted of the following at December 31, 1998
and 1997:
1998 1997
---- ----
Notes receivable $9,690,749 7,814,773
Less: Discount 282,422 315,968
Allowance for uncollectible notes 1,722,138 1,356,271
---------- ---------
7,686,189 6,142,534
Less current portion 4,805,831 3,762,341
--------- ---------
$2,880,358 2,380,193
========== =========
NOTE 6 - INVENTORIES
- --------------------
The components of inventories at December 31, 1998 and 1997 are summarized as
follows:
1998 1997
---- ----
Raw materials $5,266,146 2,958,782
Work in process 1,837,460 263,353
Finished goods 1,046,756 862,775
Test equipment-clinical trials 407,274 263,325
---------- ---------
$8,517,636 4,348,235
========== =========
F-16
<PAGE>
As of December 31, 1998, the Company had three laser systems being used under
arrangements for clinical trials in various countries. At December 31, 1997, six
laser systems were in use under similar arrangements.
As described in Note 3, in April 1998, the Company acquired an aesthetic product
line. Included in these assets at acquisition was approximately $1,230,000 of
inventory. At December 31, 1998, inventory related to the aesthetic products
division was approximately $1,545,000.
NOTE 7 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment at December 31, 1998 and 1997 are as follows:
1998 1997
---- ----
Leasehold improvement $ 213,622 70,883
Furniture and equipment 1,429,413 947,032
Laboratory equipment 1,372,473 1,354,086
---------- ---------
3,015,508 2,372,001
Less accumulated
depreciation 1,513,169 1,017,833
---------- ---------
$1,502,339 1,354,168
========== =========
NOTE 8 - OTHER ASSETS
- ---------------------
Other assets at December 31, 1998 and 1997 are as follows:
1998 1997
---- ----
Restricted cash $ 194,000 200,000
Goodwill, net of accumu-
lated amortization of
$1,274,371 in 1998 and
$749,739 in 1997 6,552,863 7,077,491
Acquired technology, net
of accumulated amorti-
zation of $501,612 in 1998
and $355,608 in 1997 1,250,388 1,396,392
Ultraviolet patents, net of
accumulated amortization of
$939,093 in 1998 and
$371,906 in 1997 3,448,804 10,185,993
LASIK PMA application,
net of accumulated
amortization of $881,884
in 1998 and $233,790 in 1997 3,663,466 2,571,682
Other assets, net of accumu-
lated amortization of $571,776
in 1998 and $456,529 in 1997 1,663,692 2,411,244
----------- -----------
$16,773,213 23,842,802
=========== ==========
Restricted cash represents deposits in connection with service contracts with
approximately 95 and 100 ophthalmologists at December 31, 1998 and 1997,
respectively, granting them exclusive market areas to perform specific services
as set forth in the Center's service contracts.
F-17
<PAGE>
NOTE 9 - EMPLOYEE BENEFIT PLAN
- ------------------------------
Effective January 1, 1996, the Company adopted a 401(k) plan for the benefit of
substantially all of its full-time employees. The plan provides, among other
things, for employer-matching contributions to be made at the discretion of the
Board of Directors. Employer-matching contributions vest over a seven-year
period. Administrative expenses of the plan are paid by the Company. For the
years ended December 31, 1998, 1997 and 1996, expense incurred related to the
401(k) plan, including employer-matching contributions, was approximately
$49,000, $36,000 and $45,000, respectively.
NOTE 10 - NOTES PAYABLE
- -----------------------
In April 1997, the Company entered into a loan agreement with Foothill Capital
Corporation (Foothill) for up to $8 million, consisting of a term loan in the
amount of $4 million and a revolving loan in an amount of 80% of the eligible
receivables of LaserSight Technologies, Inc., but not more than $4 million. In
June 1998, the Company fully repaid its note payable to Foothill and also
terminated its line of credit arrangement with Foothill. In connection with the
loan, the Company issued warrants to purchase 500,000 shares of Common Stock.
The warrants are exercisable at any time from April 1, 1998 through April 1,
2002 at an exercise price per share of $6.0667. Subject to certain conditions
based on the market price of the Common Stock, up to half of the warrants are
eligible for repurchase by the Company. Any warrants that remain outstanding on
April 1, 2002 are subject to mandatory repurchase by the Company at a price of
$1.50 per warrant. The warrants have certain anti-dilution features which
provide for approximately 84,000 additional shares to be issued as a result of
the issuance of the Series B, C & D Preferred Stock and a corresponding
reduction in the exercise price to approximately $5.20 per share and repurchase
price to approximately $1.29 per warrant. The warrants were valued at $560,000
and $500,000 at December 31, 1998 and 1997, respectively, and were classified as
long-term obligations. The recorded amount of the obligation will change with
the fair value of the warrants, with the corresponding adjustment to interest
expense.
At December 31, 1996, the Company owed $1,000,000 to former owners of MEC. The
note payable was secured by stock of MEC, and bore interest at 8.75%. In April
1997, the Company repaid the note in full.
Interest paid during 1998, 1997, and 1996 approximated $199,000, $515,000, and
$172,000, respectively.
In July 1996, the Company entered into an agreement for the sale and leaseback
of certain assets acquired. The lease, with a four-year term, was classified as
a capital lease. The fair market value of the assets financed was approximately
$957,000 and payments under the lease approximated $300,000 annually and
commenced in July 1996. This obligation was assumed by the purchaser as a result
of the sale of LSIA (see notes 4 and 16).
NOTE 11 - STOCKHOLDERS' EQUITY
- ------------------------------
In June 1998, the Company entered into a Securities Purchase Agreement with TLC
The Laser Center Inc. (TLC), pursuant to which the Company issued 2,000,000
shares of newly-created Series C Preferred Stock with a face value of $4.00 per
share, resulting in an aggregate offering price of $8 million. The Series C
Preferred Stock is convertible by TLC on a fixed, one-for-one basis into
2,000,000 shares of Common Stock at any time until June 2001, on which date all
shares of Series C Preferred Stock then outstanding will automatically be
converted into an equal number of shares of Common Stock.
F-18
<PAGE>
The net proceeds to the Company, after deduction of costs of issuance, was
approximately $7.9 million. The net proceeds were partially used to repurchase
all 525 outstanding shares of the Company's Series B Preferred Stock on June 5,
1998 for approximately $6.3 million, including a 20% premium.
In June 1998, the Company entered into a Securities Purchase Agreement with
Pequot Private Equity Fund, L.P., Pequot Scout Fund, L.P., and Pequot Offshore
Private Equity Fund, Inc. (Pequot Funds), pursuant to which the Company issued,
collectively, 2,000,000 shares of the newly-created Series D Preferred Stock
with a face value of $4.00 per share, resulting in an aggregate offering price
of $8 million. The Series D Preferred Stock is convertible by the Pequot Funds
on a one-for-one basis into 2,000,000 shares of Common Stock at any time until
June 2001, on which date all shares of Series D Preferred Stock then outstanding
will automatically be converted into an equal number of shares of Common Stock.
The Series D Preferred Stock is subject to certain anti-dilution adjustments if
the Company issues or sells shares of Common Stock before June 2001 at a price
per share less than $4.00.
The net proceeds to the Company, after deduction of costs of issuance, was
approximately $7.9 million.
In August 1997, the Company completed a private placement of 1,600 shares Series
B Preferred Stock yielding net proceeds, after costs of financing, of $14.83
million. The Company also issued warrants to purchase 790,000 shares of Common
Stock for a period of five years at $5.91 per share to the investors and
placement agent. The warrant price to the investors was reduced to $2.75 in
February 1998 in exchange for certain amendments to the agreement as approved by
the Company's shareholders. The warrants have certain anti-dilution features
which provide for approximately 13,000 additional shares primarily pursuant to
the issuance of the Series C and D Preferred Stock and a corresponding reduction
in the exercise price to approximately $2.71. The Series B Preferred Stock was
convertible into the Company's Common Stock at the option of the holders at any
time through August 29, 2000. The conversion price equaled the lesser of $6.68
per share or the average of the three lowest closing bid prices during a
30-trading day period preceding the conversion date. In October 1997, 305 shares
were voluntarily redeemed with a 4 percent redemption premium totaling $122,000,
which was recorded as a dividend to the Series B Preferred Stock stockholders.
At December 31, 1997, 1,295 shares of Series B Preferred Stock were outstanding.
The Series B Preferred Stock was recorded at the amount of gross proceeds less
the costs of the financing and the fair value of the warrants and classified as
mezzanine financing above the stockholders' equity section on the consolidated
balance sheet. In February 1998, 351 shares were repurchased at a 20 percent
premium totaling $702,000 which was recorded as a dividend to the Series B
Preferred Stock stockholders. In June 1998, 525 shares were repurchased at a 20
percent premium totaling $1,050,000, which was recorded as a dividend to the
Series B Preferred Stock stockholders. Prior to June 1998, the holders of Series
B Preferred Stock had converted 419 shares of Series B Preferred Stock into
2,392,220 shares of common stock. At December 31, 1998, no shares of Series B
Preferred Stock were outstanding.
In January 1996, the Company completed a private placement of 116 shares Series
A Preferred Stock, yielding net proceeds, after costs of financing, of $5.34
million. The Company also issued warrants to purchase 17,509 shares of Common
Stock at $13.25 per share to the placement agent. The conversion price equaled
the lesser of $14.18 per share or 85% of the average closing price of the Common
Stock during the five trading days preceding the conversion date, subject to a
minimum conversion price. At December 31, 1998 and 1997, zero shares of Series A
Preferred Stock were outstanding. The conversion of 116 shares of Series A
Preferred Stock through December 31, 1997 resulted in the issuance of 975,261
shares of Common Stock, including the issuance of Common Stock in settlement of
preferred dividends (at an annual rate of 10%) accrued through the respective
conversion dates.
F-19
<PAGE>
Based on The Farris Group's pre-tax profits for each of the years ended December
31, 1996, 1995, and 1994, 406,700 shares were issued in April 1997. For purposes
of computing earnings per share, issuable shares attributable to historical
performance levels of The Farris Group are included in weighted average shares
outstanding on a basic and diluted basis for 1996. No further shares are
issuable under this agreement.
NOTE 12 - STOCK OPTION PLANS
- ----------------------------
The Company has options outstanding at December 31, 1998 related to five stock
based compensation plans (the Plans). Options are currently issuable by the
Board of Directors only under the 1996 Equity Incentive Employee Plan (1996
Incentive Plan) and the LaserSight Incorporated Non-employee Directors Stock
Option Plan (Directors Plan), both of which were approved by the Company's
stockholders in June 1996, the former of which was amended in June 1998 and the
latter of which was amended in June 1997.
Under the 1996 Incentive Plan, as amended, employees of the Company are eligible
to receive options, although no employee may receive options to purchase greater
than 250,000 shares of Common Stock during any one year. Pursuant to terms of
the 1996 Incentive Plan, 1,250,000 shares of Common Stock may be issued at
exercise prices of no less than 100% of the fair market value at date of grant,
and options generally become exercisable in four annual installments on the
anniversary dates of the grant.
The Directors Plan, as amended, provides for the issuance of up to 300,000
shares of Common Stock to directors of the Company who are not officers or
employees. Grants to individual directors are based on a fixed formula that
establishes the timing, size, and exercise price of each option grant. At the
date of each annual stockholders' meeting, 15,000 options will be granted to
each outside director, and 5,000 options will be granted to each outside
director that chairs a standing committee, at exercise prices of 100% of the
fair market value as of that date, with the options becoming fully exercisable
on the first anniversary date of the grant. The options will expire in ten years
or three years after an outside director ceases to be a director of the Company.
The per share weighted-average fair value of stock options granted during the
years ended December 31, 1998, 1997 and 1996 was $2.16, $3.62 and $4.60,
respectively, on the dates of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions:
1998 1997 1996
---- ---- ----
Expected dividend yield 0% 0% 0%
Volatility 50% 49% 44%
Risk-free interest rate 5.5% 5.70-5.71% 6.04%-6.33%
Expected life (years) 3-10 5-10 3-5
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its Plans. Accordingly, no compensation cost has been recognized for its
fixed stock option plans. Had compensation cost for the Company's stock-based
compensation plans been determined consistent with SFAS No. 123, the Company's
net loss and loss per share would have been reduced to the pro forma amounts
indicated below:
F-20
<PAGE>
1998 1997 1996
---- ---- ----
Net loss
As reported $(11,882,389) (7,253,084) (4,074,369)
Pro forma (12,834,441) (8,012,317) (4,653,040)
Basic and diluted EPS
As reported $ (1.26) (0.80) (0.69)
Pro forma (1.34) (0.88) (0.76)
In accordance with SFAS No. 123, the pro forma net loss reflects only options
granted on or after January 1, 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net loss amounts presented above because compensation cost does not
reflect options granted prior to January 1, 1995, that vested in 1998, 1997 or
1996.
Stock option activity for all plans during the periods indicated is as follows:
Weighted
Shares Average
Under Exercise
Option Price
------ -----
Balance at January 1, 1996 496,260 $ 9.12
Granted 574,000 9.83
Exercised (9,900) 4.93
Terminated (180,510) 11.00
---------
Balance at December 31, 1996 879,850 9.29
Granted 286,000 6.29
Exercised (25,875) 3.80
Terminated (90,975) 7.27
---------
Balance at December 31, 1997 1,049,000 8.75
Granted 750,000 4.16
Exercised (54,000) 2.46
Terminated (88,000) 12.01
---------
Balance at December 31, 1998 1,657,000 6.25
=========
On June 12, 1998, the Company repriced 110,000 shares of stock options
previously granted to employees (excluding executive officers) with option
prices ranging from $7.03 to $12.81 to the market value of the stock on June 12,
1998 of $4.31. All shares repriced were not exercisable until the later of
December 12, 1998 or the original vesting date and expire on the later of June
12, 1999 or the original expiration date.
The following table summarizes the information about stock options outstanding
and exercisable at December 31, 1998:
Range of Exercise Prices
------------------------
$1.58-$5.14 $5.31-$7.03 $9.50-$12.81
----------- ----------- ------------
Options outstanding:
Number outstanding at
December 31, 1998 903,500 412,500 341,000
Weighted average
remaining contractual
life 3.75 years 3.75 years 2.65 years
Weighted average
exercise price $4.17 6.70 $11.20
Options exercisable:
Number exercisable at
December 31, 1998 180,725 263,750 336,000
Weighted average
exercise price $3.99 6.82 11.21
F-21
<PAGE>
The underwriter of the Company's 1991 initial public offering received warrants
to purchase up to 180,000 shares of the Company's Common Stock at an exercise
price of $3.00 per share through November 13, 1996. During 1996, all of the
underwriter's warrants were exercised.
NOTE 13 - INCOME TAXES
- ----------------------
The components of the income tax expense (benefit) for the years ended December
31, 1998, 1997, and 1996 were as follows:
1998 1997 1996
---- ---- ----
Current:
Federal $ 208,992 67,066 (707,130)
State 23,221 812,934 (22,878)
--------- ------- ---------
232,213 880,000 (730,008)
--------- ------- ---------
Deferred:
Federal -- -- (351,677)
State -- -- (57,323)
--------- ------- ---------
-- -- (409,000)
--------- ------- ---------
Total income tax
expense (benefit) $ 232,213 880,000 (1,139,008)
========= ======= ==========
Deferred tax assets and liabilities consist of the following components as of
December 31, 1998 and 1997:
1998 1997
---- ----
Deferred tax liabilities:
Acquired technology $ 425,132 555,764
Change in tax status
of subsidiaries 55,494 134,938
Unrealized gain on
marketable equity
securities -- 370,500
Property and equipment -- 84,768
--------- ---------
480,626 1,145,970
Deferred tax assets:
Intangibles 131,145 69,322
Inventory 400,737 232,512
Receivable allowance 943,873 800,063
Royalty fees 283,333 --
Commissions 167,579 --
Warranty accruals 295,695 157,970
NOL carry forward 2,381,196 --
Other 38,352 58,893
----------- ---------
4,642,910 1,318,960
Valuation allowance (4,162,284) (172,990)
----------- ---------
480,626 1,145,970
----------- ---------
Net deferred tax asset
(liability) $ -- --
=========== =========
F-22
<PAGE>
Realization of deferred tax assets is dependent upon generating sufficient
taxable income prior to their expiration. Management believes that there is a
risk that certain of these deferred tax assets may expire unused and,
accordingly, has established a valuation allowance against them. Although
realization is not assured for the remaining deferred tax assets, management
believes it is more likely than not that they will be realized through future
taxable earnings or alternative tax strategies. However, the net deferred tax
assets could be reduced in the near term if management's estimates of the
taxable income during the carryforward period are significantly reduced or
alternative tax strategies are no longer viable.
Payments for income taxes for the year ended December 31, 1998, 1997 and 1996
were $905,000, $0 and $307,360, respectively. Income taxes paid during 1998
primarily related to the sale of MEC and LSIA.
For the years ended December 31, 1998, 1997 and 1996, the difference between the
Company's effective income tax provision and the "expected" tax provision,
computed by applying the federal statutory income tax rate to income before
provision for income taxes, is reconciled below:
1998 1997 1996
---- ---- ----
"Expected" tax provision
(benefit) $(3,961,060) (2,166,849) (1,772,548)
State income taxes, net
of federal income tax
benefit 48,493 536,536 (29,462)
Tax basis of subsidiaries sold -- 2,478,304 --
Utilization of net operating
loss carry forwards -- -- --
Foreign sales corporation
tax benefit -- -- --
Valuation allowance 3,989,294 (355,036) 528,026
Intangible amortization 417,064 369,210 162,321
Nondeductible expenses 26,594 17,835 18,920
Other items, net (288,172) -- (46,265)
---------- ---------- ----------
Income tax
expense (benefit) $ 232,213 880,000 (1,139,008)
========== ========== ==========
NOTE 14 - SEGMENT INFORMATION
- -----------------------------
The Company operates principally in three segments: technology related (laser
equipment) products, patent services and health care services. Laser equipment
operations involve the development, manufacture, and sale of lasers primarily
for use in vision correction procedures. Patent services generally relate to
LaserSight Patents, Inc., and primarily involves the revenues and expenses
generated from the ownership of certain refractive laser procedure patents.
Subsidiaries sold consist of MEC and LSIA, which were sold in December 1997.
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 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.
F-23
<PAGE>
1998 1997 1996
---- ---- ----
Operating revenues:
Technology related $15,968,035 11,925,018 10,634,663
Patent services 1,111,917 245,000 --
Health care services 676,164 1,209,092 2,986,384
Subsidiaries sold -- 11,009,723 7,882,943
----------- ---------- ----------
Total revenues $17,756,116 24,388,833 21,503,990
=========== ========== ==========
Operating profit (loss):
Technology related $(9,038,922) (6,329,036) (2,148,280)
Patent services 349,673 (163,387) --
Health care services (541,670) (1,121,186) (1,672,516)
Subsidiaries sold -- 658,923 777,335
General corporate (1,953,326) (2,040,328) (1,828,285)
Developmental stage
company-LaserSight
Centers Incorporated (276,696) (267,140) (88,603)
------------ ---------- ----------
Loss from operations $(11,460,941) (9,262,154) (4,960,349)
============ ========== =========
Identifiable assets:
Technology related $28,818,547 20,056,924
Patent services 3,838,804 10,614,652
Health care services 3,910,200 4,398,202
General corporate assets 4,267,269 12,080,776
Developmental stage
company-LaserSight
Centers Incorporated 3,038,163 3,310,519
----------- ----------
Total assets $43,872,983 50,461,073
=========== ==========
Depreciation and amortization:
Technology related $ 1,659,571 751,682 305,190
Patent services 567,187 371,906 --
Health care services 333,205 319,823 185,974
Subsidiaries sold -- 641,501 510,924
General corporate 3,731 2,751 2,187
Development stage
company-LaserSight
Centers Incorporated 276,696 254,634 --
---------- --------- ---------
Total depreciation
and amortization $2,840,390 2,342,297 1,004,275
========== ========= =========
Amortization of deferred financing costs and accretion of discount on note
payable of $545,784 and $550,159 for the years ended December 31, 1998 and 1997,
respectively, are included as interest expense in the table below.
1998 1997 1996
---- ---- ----
Capital expenditures:
Technology related $ 599,873 560,946 234,516
Health care services 30,228 12,154 19,190
Subsidiaries sold -- 57,450 39,469
General corporate 18,374 -- 3,345
----------- ------- -------
Total capital
expenditures $ 648,475 630,550 296,520
=========== ======= =======
F-24
<PAGE>
1998 1997 1996
---- ---- ----
Interest income:
Technology related $ 293,731 267,590 181,939
Patent service 9,377 10,717 --
Health care services -- 150 11,940
Subsidiaries sold -- 65,490 51,432
General corporate 278,033 26,541 59,289
Development stage company
-LaserSight Centers, Inc. 10,340 13,123 9,687
---------- --------- -------
Total interest
income $ 591,481 383,611 314,287
========== ========= =======
Interest expense:
General corporate $ 782,668 1,283,904 113,524
Subsidiaries sold -- 59,294 38,110
---------- --------- -------
Total interest
expense $ 782,668 1,343,198 151,634
========== ========= =======
The following table presents the Company's technology related segment net
revenues by geographic area for the three years ended December 31, 1998. The
individual countries shown generated net revenues of at least ten percent of the
total segment net revenues for at least one of the years presented.
1998 1997 1996
---- ---- ----
Geographic area:
Argentina $ 808,400 1,382,000 1,005,600
Brazil 1,825,000 3,290,000 844,131
Canada 2,512,000 288,000 --
China 1,980,000 1,346,000 523,752
Colombia 510,000 1,245,400 630,780
Japan -- -- 1,340,000
Other 8,332,635 4,373,618 6,290,400
----------- ---------- ----------
Total technology related
revenues $15,968,035 11,925,018 10,634,663
=========== ========== ==========
Export sales are as follows:
North and
Central America $ 3,781,712 1,075,000 --
South America 4,473,156 5,995,000 3,600,637
Asia 3,746,171 2,235,000 2,844,752
Europe 2,735,631 2,526,500 3,378,000
Africa 642,250 -- 295,000
----------- ---------- ----------
$15,378,920 11,831,500 10,118,389
=========== ========== ==========
The geographic areas above include significant sales to the following countries:
North and Central America - Canada, Mexico and Costa Rica; South America -
Argentina, Brazil, Columbia and Venezuela; Asia - China, India and Japan; Europe
- - France, Italy and Spain. In the Company's experience, sophistication of
ophthalmic communities varies by region, and is better segregated by the
geographic areas above than by individual country.
F-25
<PAGE>
As of December 31, 1998 and 1997, the Company had approximately $72,000 and
$117,000, respectively, in assets located at a manufacturing facility in Costa
Rica. The Company does not have any other subsidiaries in countries where it
does business. As a result, substantially all of the Company's operating losses
and assets apply to the U.S.
Revenues from one customer of the technology related segment totaled $900,000,
or 5%, of the Company's consolidated revenues (see note 15).
NOTE 15 - RELATED PARTY TRANSACTIONS
- ------------------------------------
During January 1993, Centers entered into a royalty agreement with Florida Laser
Partners, a Florida general partnership, in which two of the Company's former
presidents and the Company's chairman are partners. The royalty agreement
provides, among other things, for a perpetual royalty payment to Florida Laser
Partners of a number of shares of Centers' common stock, as determined by a
formula defined in the royalty agreement. Also during January 1993, the Company
entered into an exchange agreement with Florida Laser Partners, which provides
among other things, that Laser Partners shall exchange, from time to time,
shares of Centers' common stock that it acquires pursuant to the royalty
agreement for shares of the Company's stock. This agreement was amended in March
1997 (see note 3).
In June 1998, the Company sold three laser systems for a total of $900,000 to
TLC. As previously discussed in Note 11, the Company entered into a Securities
Purchase Agreement with TLC in June 1998. The Company received full payment for
the systems sold in August 1998.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Public Company Publishing, Inc.
- -------------------------------
In May 1996, the Company received a complaint alleging that the Company had
breached a written agreement entered into during 1992 that provided for the
rendering of consulting services to the Company. In December 1996, the action
was settled for payments totaling $100,000 and an agreement to issue 75,000
shares of Common Stock in the event that the plaintiff did not receive 75,000
shares of common stock from the former holders of Centers stock. Such shares
were delivered by the former holders of Centers stock. The settlement expense is
reflected in other expenses in 1996. Of this amount, $50,000 was paid during
1996 and $50,000 was paid in February 1997.
Visx Incorporated
- -----------------
In May 1997, the Company entered into a license agreement with Visx Incorporated
to settle litigation and any and all potential claims related to patent
infringement prior to May 1997. The aggregate amount of $230,400 is reflected in
other expenses in 1997 and was paid in eight quarterly installments.
Northern New Jersey Eye Institute
- ---------------------------------
In October 1997, the Company received a request for mediation/arbitration from
Northern New Jersey Eye Institute, P.A. (NNJEI) which relates to the services
agreement between LSIA and NNJEI. This services agreement was entered into as
part of the Company's July 1996 acquisition of the assets of NNJEI. The request
for mediation alleges breach of contract and fraud which the Company denies and
intends to vigorously defend. The mediation process began in mid-November and
was discontinued following the December 1997 sale of LSIA to an unrelated
company (see note 4). Under the terms of the services agreement, mediation will
be followed by binding arbitration if a resolution cannot be reached. Based on
the Company's legal assessment of the contracts between the parties, the Company
does not expect the outcome of mediation or, if necessary, arbitration to have a
material impact on the Company's consolidated financial position or results of
operations.
F-26
<PAGE>
Mercacorp, Inc.
- ---------------
In August 1998, Mercacorp, Inc. filed an action in the U.S. District Court for
the Eastern District of New York against the Company, the President and Chief
Executive Officer of the Company, Wall & Broad Equities, Inc., a "purported
investment banking establishment" and Isaac Weinhouse, the principal of such
purported investment banking establishment, asserting violations of Section
10(b) of the Securities and Exchange Act of 1934 and common law fraud in
connection with the alleged issuance of false press releases, misrepresentations
and omissions by all of the defendants on which the plaintiff allegedly relied
in purchasing the Company's Common Stock. The action sought both actual and
punitive monetary damages from the Company in the amounts of $5 million and $50
million, respectively. On November 11, 1998, the plaintiff dismissed the action,
with prejudice, and the parties agreed to a release of all claims. In connection
with the dismissal and release of claims the Company issued the plaintiff two
separate warrants to purchase Common Stock. Under the first warrant, the
plaintiff is entitled to purchase up to 750,000 shares of Common Stock at an
exercise price of $4.00 per share, the closing bid price on November 10, 1998,
and under the second warrant, the plaintiff is entitled to purchase up to
750,000 shares of Common Stock at an exercise price of $5.00 per share. Both of
the warrants contain certain prohibitions against assignment and transfer to
third parties as well as other terms and conditions. The fair value of the
warrants and other costs related to the matter are included in other expenses in
1998.
Capital Lease Obligation
- ------------------------
In connection with certain divestitures completed in December 1997 (see note 4),
the Company continues to guarantee a capital lease obligation. The Company is
indemnified for this by the purchaser, and the purchaser is obligated to take
all necessary steps to remove the Company as a guarantor. If the purchaser fails
to pay the lease obligation, an event which the Company believes to be unlikely,
management estimates that it could settle these obligations for approximately
$429,000 at December 31, 1998. In the opinion of management, the ultimate
disposition of these guarantees will not have a material adverse effect on the
Company's consolidated financial condition, results of operations or future cash
flows.
Lease Obligations
- -----------------
The Company leases office space and certain equipment under operating lease
arrangements.
Future minimum payments under non-cancelable operating leases, with initial or
remaining terms in excess of one year, as of December 31, 1998, are approximated
as follows:
1999 $754,000
2000 727,000
2001 670,000
2002 392,000
2003 186,000
Thereafter 14,000
Rent expense during 1998, 1997, and 1996 was approximately $606,000, $755,000
and $781,000, respectively.
NOTE 17 - SUBSEQUENT EVENT
- --------------------------
Private Placement
- -----------------
On March 23, 1999, the Company closed a transaction for the sale of 2,250,000
shares of Common Stock to a total of six investors, including Pequot Funds and
TLC, in exchange for the Company 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.
F-27
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into
effective as of October 30, 1998, by and between LASERSIGHT INCORPORATED, a
Delaware corporation (the "Company"), and MICHAEL R. FARRIS, an individual
residing in the State of Florida (the "Executive").
RECITALS
WHEREAS, the Executive is the President and Chief Executive Officer of
the Company; and
WHEREAS, the Company desires to retain the Executive as President and
Chief Executive Officer of the Company upon the terms and conditions hereafter
set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment of the Executive. Subject to the terms and conditions of
this Agreement, the Company hereby employs the Executive, and the Executive
hereby accepts such employment and agrees to perform the services specified
herein.
2. Duties. The Executive shall hold the titles of and serve as
President and Chief Executive Officer of the Company. The Executive shall report
to and be subject to the direction of the Board of Directors of the Company.
During the term of his employment hereunder, the Executive shall:
(a) Perform those duties assigned to him from time to time by
the Board of Directors of the Company, provided, however, that such
duties shall be reasonably related to the positions held by the
Executive pursuant hereto;
(b) Devote his full time and first priority business efforts
to the Company's business, provided that nothing herein shall prohibit
the Executive from spending reasonable amounts of time for personal
affairs, including, without limitation, managing his personal
investments; and
(c) Carry out Company policies and directives in a manner that
will promote and develop the Company's best interests.
3. Base Salary. In consideration of Executive satisfying his obligation
under this Agreement Executive will receive a base salary (the "Base Salary")
which will be calculated at an annual rate of Two Hundred Fifty Thousand Dollars
($250,000), provided that on January 1, 1999 and on each anniversary of such
date during the term of this Agreement the Base Salary then in effect will be
increased (on a cumulative basis) by five percent (5%). The Base Salary shall be
payable in equal installments in accordance with the Company's customary mode of
salary payments for senior executives of the Company (but not less than monthly)
and shall be subject to the Company's standard withholdings for applicable taxes
and benefit contributions.
4. Additional Compensation.
(a) On an annual basis Executive will be eligible to receive a
cash bonus (the "Performance Bonus") in an aggregate amount of up to
<PAGE>
twenty-five percent (25%) of the Base Salary for the relevant year if
Executive (or the Company, as appropriate) meets all or a portion of
the specific objectives (the "Performance Objectives") which (i) are
established by the Company's Executive Compensation and Stock Option
Committee (the "Committee"), and (ii) are communicated in writing to
Executive. Prior to the expiration of the thirty (30) day period
immediately following the date on which Executive presents the
Company's budget for the next succeeding year to the Board of Directors
of the Company, the Committee shall notify Executive in writing of the
Performance Objectives which relate to the next succeeding year. The
Committee shall award all or the relevant portion of the Performance
Bonus on an annual basis within sixty (60) days after the end of the
relevant year. The payment of the Performance Bonus shall be subject to
the Company's standard withholdings for applicable taxes and benefit
contributions, as applicable.
(b) In addition to the Performance Bonus, on an annual basis
Executive will be eligible to receive a cash bonus (the "Additional
Bonus") in an aggregate amount of twenty percent (20%) of the Base
Salary for the relevant year if all or a portion of certain events or
goals identified from time to time by the Committee (the "Additional
Objectives") occur or are achieved. On or before February 15 of each
year during the term of this Agreement, or on any other earlier date as
may be determined appropriate by the Committee, the Committee shall
review the Additional Objectives for the relevant year and determine if
Executive should receive the Additional Bonus. The payment of the
Additional Bonus shall be subject to the Company's standard
withholdings for applicable taxes and benefit contributions, as
applicable.
(c) To the extent that (i) the Internal Revenue Service or any
similar state or local taxing authority takes the position that any
compensation or benefits, of any kind, provided to Executive pursuant
to this Agreement are "golden parachute payments," "excess parachute
payments" or any similar, excess, parachute-like compensation, and (ii)
to the extent that such taxing authority also takes the position that
any compensation or benefits, of any kind, provided to Executive
pursuant to this Agreement result in Executive being responsible for
the payment of any excise tax described in Internal Revenue Code
Sections 4999 or 280G, or any similar federal, state or local statute,
rule or regulation, and (iii) to the extent that Executive ultimately
pays such excise tax, then the Company will pay Executive a "grossed
up" sum which, after reduction for any appropriate withholdings, will
equal the amount of such excise tax paid by Executive.
5. Stock Options.
(a) Immediately upon execution of this Agreement Executive
will be granted options to purchase 341,250 shares of the Company's
common stock at an option price per share equal to the Fair Market
Value per share, as defined in the Company's Amended and Restated 1996
Equity Incentive Plan (the "1996 Equity Incentive Plan"), on the date
of grant which shall be the effective date of this Agreement (the
"Stock Options"). The Stock Options shall be granted to Employee
pursuant to all terms and conditions of the 1996 Equity Incentive Plan
and the Award Agreement attached hereto as Exhibit A, and incorporated
herein by this reference. The Stock Options shall vest as follows: (i)
the option to purchase 100,000 shares shall vest on January 1, 1999,
(ii) the option to purchase 111,250 shares shall vest on January 1,
2000, (iii) the option to purchase 111,250 shares shall vest on January
1, 2001, and (iv) the option to purchase 18,750 shares shall vest on
January 1, 2002.
<PAGE>
(b) If this Agreement is terminated for Cause (as defined in
Section 11), then the options granted by this Section which have not
previously vested will terminate and be of no further force and effect
and Executive will have ninety (90) days after the date of such
termination to exercise any options which had previously vested. If the
options previously vested are not exercised on or before the ninetieth
(90th) day following the date of termination, then such options will
terminate and be of no further force and effect.
(c) If this Agreement is terminated without Cause, then the
options granted by this Section which have not previously vested will
terminate and be of no further force and effect and Executive will have
twelve (12) months after the date of such termination to exercise any
options which had previously vested. If the options previously vested
are not exercised on or before twelve (12) months following the date of
termination, then such options will terminate and be of no further
force and effect.
(d) If in connection with a Change of Control (as defined in
Section 11) Executive terminates his employment hereunder for Good
Reason, the Stock Options and the Contingent Stock Options (as defined
herein), to the extent granted, will immediately vest and be
exercisable upon the date of such termination of employment; provided,
however, if Executive does not terminate his employment hereunder for
Good Reason in connection with a Change of Control, the Stock Options,
and the Contingent Stock Options, to the extent granted, will vest in
accordance with Section 5(a) and Section 5(f) as applicable.
(e) If not sooner exercised or terminated pursuant to the
terms of this Agreement or the 1996 Equity Incentive Plan, the Stock
Options shall terminate on December 31, 2006.
(f) If during the term of this Agreement the Company amends
the 1996 Equity Incentive Plan such that at least 58,750 additional
shares of the Company's common stock will become available for issuance
under the 1996 Equity Incentive Plan, then as of the date of such
amendment to the 1996 Equity Incentive Plan Executive shall be granted
options to purchase up to an additional 58,750 shares of the Company's
common stock (the "Contingent Stock Options"). If issued, the
Contingent Stock Options shall have an option price per share equal to
the Fair Market Value per share on the date of grant, shall vest on
January 1, 2002 and shall expire on December 31, 2006, unless earlier
exercised.
6. Fringe Benefits. During the term of his employment hereunder, the
Executive shall be entitled to all fringe benefits and perquisites which the
Company from time to time makes available to other senior executives of the
Company, on such terms and levels as are at least commensurate with those
provided to such other senior executives, including, without limitation, those
benefits and perquisites set forth on Exhibit B hereto.
7. Expenses. The Company shall pay all of Executive's reasonable costs
and expenses, including, but not limited to, travel, lodging and meals, incurred
in connection with the performance of his duties hereunder, consistent with the
reimbursement guidelines established and implemented from time to time by the
Company.
<PAGE>
8. Terms of Employment; Severance.
(a) The term of this Agreement shall begin on the date hereof
and shall continue until January 1, 2002, unless sooner terminated as
provided in this Section 8. Unless either party shall give notice of
intent not to renew this Agreement to the other party at least sixty
(60) days prior to January 1, 2002, the term of this Agreement shall,
on such anniversary date, be automatically extended for a term of three
(3) years.
(b) Notwithstanding the foregoing, the Executive's employment
hereunder may be terminated by the Company at any time for Cause upon
not less than seven (7) days' prior written notice to the Executive.
Such notice must specify the nature of the Cause, the manner in which
it can be cured (as reasonably determined by the Company), if any, and
the effective date of termination if not cured.
(c) Notwithstanding the foregoing, the Executive's employment
hereunder shall terminate in the event of his death or Disability (as
defined in Section 11).
(d) Notwithstanding the foregoing, the Executive's employment
hereunder may be terminated by the Executive at any time for Good
Reason (as defined in Section 11) upon prior written notice to the
Company specifying therein the grounds for termination and the
effective date of termination.
(e) In addition to all other rights of Executive and
obligations of the Company described herein which arise or continue
upon termination of Executive's employment, the following shall apply:
(i) Upon termination of the Executive's employment
hereunder for any reason whatsoever, the Company shall pay to
the Executive all salary, benefits, bonuses and other
Compensation (as defined in Section 11) (including
reimbursements) earned through the effective date of
termination.
(ii) If the Executive's employment hereunder is
terminated by the Company without Cause, the Executive shall
be entitled to receive, in addition to all other damages and
remedies available to him at law or in equity, the Base Salary
and health insurance coverage for Executive and his family
through the later of (i) the remaining term of this Agreement,
or (ii) the end of the twelve (12) month period immediately
following the effective date of his termination. If the
Executive's employment is terminated by the Company without
Cause, then all salary owed to the Executive shall be paid
over the relevant period of time in accordance with the
Company's normal payroll practices.
(iii) If the Executive's employment hereunder is
terminated by the Company with Cause, the Executive shall be
entitled to receive, in addition to all other damages and
remedies available to him at law or in equity, a lump sum
severance payment payable within ten (10) business days of
such termination in an amount equal to the Base Salary for one
week for each year that Executive has been employed by the
Company or a Subsidiary.
<PAGE>
(iv) If the Executive's employment hereunder is
terminated by the Executive for Good Reason, or for any reason
within the twelve (12) months immediately after a Change of
Control, the Executive shall be entitled to receive, in
addition to all other damages and remedies available to him at
law or in equity, the Base Salary and health insurance
coverage for Executive and his family through the later of (i)
the remaining term of this Agreement, or (ii) the end of the
twelve (12) month period immediately following the effective
date of his termination. If the Executive's employment is
terminated by the Executive for Good Reason, or for any reason
within twelve (12) months after a Change of Control, then all
salary owed to the Executive, shall, at the Executive's
option, be payable in lump sum within ten (10) business days
of the Executive's written demand therefore.
9. Restriction Against Competition.
(a) In consideration of the Compensation to be received
hereunder, the Executive agrees that while he is employed by the
Company pursuant to this Agreement, and during (A) the two (2) year
period following the effective date of termination of this Agreement by
the Company for Cause or Disability or by the Executive without Good
Reason, or (B) the one (1) year period following the effective date of
termination of this Agreement by the Company without Cause or by the
Executive for Good Reason, the Executive shall not, directly or
indirectly, as a stockholder, partner, officer, director, agent,
consultant, employee, or otherwise:
(i) engage in any business that competes with the
business of the Company ("Company" defined in Sections 9, 10
and 11(b) herein to mean all Subsidiaries, Affiliates,
divisions, successors, and assigns of the Company and any of
their Subsidiaries or Affiliates) anywhere the Company is
conducting its business, except that with respect to the
one-year or two-year period, as applicable, following
termination of this Agreement, such restriction shall apply
only to locations where the Company is conducting business or
actively serving customers or soliciting business on the
effective date of termination of this Agreement; provided,
however, that the foregoing shall not prohibit the Executive's
ownership of up to five percent (5%) of the outstanding shares
of capital stock of any corporation whose securities are
publicly traded on a national or regional stock exchange;
(ii) purposefully interfere or attempt to interfere
with any of the Company's contracts (regardless of whether
these contracts are in writing or verbal) or business
relationships or advantages existing and in effect as of the
effective date of termination of this Agreement;
(iii) solicit for employment, either directly or
indirectly, for himself or for another, any of the technical
or professional employees who are or were employed by the
Company during the one-year or two-year period, as applicable,
following the termination of this Agreement;
(iv) purposefully interfere with the business
relationship of or solicit the business or orders of (a) a
customer of the Company, except that with respect to the
one-year or two-year period, as applicable, following the
<PAGE>
effective date of termination of this Agreement, such
restriction shall apply only to such customers existing on the
effective date of termination of this Agreement, or within
sixty (60) days prior thereto, or (b) a prospective or
potential customer of the Company, except that with respect to
the one-year or two-year period, as applicable, following the
effective date of termination of this Agreement, such
restriction shall apply only to prospective or potential
customers (1) to whom the Company has submitted a formal
quotation within the sixty (60) days prior to the effective
date of termination of this Agreement, or (2) that have been
previously listed or identified by the Company as a business
prospect at any time during the six (6) months preceding the
effective date of termination.
(b) The parties agree that if the Executive commits or
threatens to commit a breach of the covenants of this Section 8, the
Company shall have the right to seek and obtain all appropriate
injunctive and other equitable remedies therefor, in addition to any
other rights and remedies that may be available at law, it being
acknowledged and agreed that any such breach would cause irreparable
injury to the parties and that money damages would not provide an
adequate remedy therefor.
10. Protection of Confidential Information and Trade Secrets of the
Company.
(a) Confidentiality. During the term of this Agreement and for
a period of five (5) years after any termination or expiration thereof,
the Executive agrees that he will not use for himself or others or
divulge or convey to others any secret or confidential information,
knowledge or data of the Company obtained by the Executive during his
employment with the Company. Such information, knowledge or data
includes but is not limited to secret or confidential matters: (i) of a
technical nature such as, but not limited to, methods, know-how,
formulae, compositions, processes, discoveries, machines, inventions,
intellectual property, computer programs and similar items or research
projects; (ii) of a business nature such as, but not limited to,
information about the cost, purchasing, profits, markets, sales or
customers; and (iii) pertaining to future developments such as, but not
limited to, research and development, future marketing or merchandising
plans and future expansion plans. The term "secret or confidential
information, knowledge or data" shall not be deemed to include
information that is published, information that is generally known
throughout the industry, or which generally is available to the
industry without restriction through no fault of the Executive.
(b) Injunctive Relief. The Executive agrees that the Company's
remedies at law for any breach or threat of breach by him of the
provisions of paragraph (a) of this Section 10 will be inadequate, and
that the Company shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of paragraph (a) of this Section 10
and to enforce specifically the terms and provisions thereof, in
addition to any other remedy to which the Company may be entitled at
law or equity.
(c) Return of Documents and Other Property. Upon the
termination of the Executive's employment with the Company, or at any
time upon the request of the Company, the Executive shall deliver to
the Company (i) all documents and materials containing secret or
confidential information, knowledge or data relating to the Company's
business and affairs, and (ii) all documents, materials and other
property belonging to the Company, which in either case are in the
possession or under the control of the Executive.
<PAGE>
11. Certain Defined Terms. For purposes of this Agreement, the
following definitions shall apply:
(a) "Affiliate" shall mean with respect to any Person, (i) any
Person which directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such Person or (ii) any Person who is a director or
executive officer (A) of such Person, (B) of any Subsidiary of such
Person, or (C) of any Person described in the foregoing clause (i). For
purposes of this definition, "control" of a Person shall mean the
power, direct or indirect, (i) to vote or direct the voting of more
than 20% of the outstanding voting securities of such Person, or (ii)
to direct or cause the direction of the management and policies of such
Person, whether by contract or otherwise.
(b) "Cause" shall mean any of the following:
(i) The Executive's conviction of or plea of no
contest to any crime involving moral turpitude, the theft or
willful destruction of money or other property of the Company
or his conviction of or plea of no contest to any felony
crime;
(ii) The Executive's inability to perform his
responsibilities due to his abuse or misuse of alcohol or
prescribed drugs or any use of illegal drugs;
(iii) The Executive's commission of theft,
embezzlement or fraud against the Company;
(iv) The Executive has willfully damaged the
Company's property, business reputation, or good will; or
(v) The Executive's incompetence, deliberate neglect
of duty, or material breach of this Agreement that is not
cured within thirty (30) days after Executive is notified of
such incompetence, neglect or breach.
The term "Cause" shall not mean the Executive's bad judgment or negligence, any
act or omission believed by the Executive to have been in or not opposed to the
best interests of the Company, any act or omission lacking the intent of the
Executive to gain a profit to which he is not legally entitled, or any other
matter not specifically described in clauses (i) through (v) above.
(c) "Change in Control" shall mean any one or more of the
following:
(i) the acquisition or holding by any person, entity
or "group" (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934 (the "1934 Act"), other
than by the Company or any employee benefit plan of the
Company, or beneficial ownership (within the meaning of
Securities and Exchange Commission ("SEC") Rule 13d-3 under
the 1934 Act) of 25% or more of the Company's then outstanding
common stock; provided, however, that no Change of Control
shall occur solely by reason of any such acquisition by a
corporation with respect to which, after such acquisition more
than 60% of the then-outstanding common shares of such
corporation are then beneficially owned, directly or
indirectly, by the persons who were the beneficial owners of
<PAGE>
the Company's common stock immediately before such acquisition
in substantially the same proportions as their respective
ownership, immediately before such acquisition, of the
Company's then-outstanding common stock; or
(ii) individuals who, as of the date of this
Agreement constitute the Company's Board of Directors (the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Company's Board of Directors; provided that
any individual who becomes a director after the date of this
Agreement whose election or nomination for election by the
stockholders of the Company was approved by at least a
majority of the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office
is in connection with an actual or threatened election contest
(as such terms are used in SEC Rule 14a-11 under the 1934 Act)
relating to the election of the directors of the Company)
shall be deemed to be a member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of
(A) a merger, reorganization or consolidation ("Transaction")
with respect to which persons who were the respective
beneficial owners of the Company's common stock immediately
before the Transaction do not, immediately thereafter,
beneficially own, directly or indirectly, more than 60% of the
then-outstanding common shares of the corporation resulting
from the Transaction, (B) a liquidation or dissolution of the
Company or (C) the sale or other disposition of all or
substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have
occurred if Executive is, by agreement or understanding (written or otherwise),
a participant on his own behalf in a transaction which causes the Change of
Control to occur.
(d) "Compensation" shall mean, with respect to any Person, all
payments and accruals, if any, commonly considered to be compensation,
including, without limitation, all wages, salary, deferred payment
arrangements, bonus payments and accruals, profit sharing arrangements,
payments in respect of equity options or phantom equity options or
similar arrangements, equity appreciation rights or similar rights,
incentive payments, pension or employment benefit contributions or
similar payments, made to or accrued for the account of such Person or
otherwise for the direct or indirect benefit of such Person, plus auto
benefits provided to such Person, if any.
(e) "Disability" shall mean the inability, by reason of
illness or other incapacity, of the Executive substantially to perform
the duties of his then regular employment with the Company, which
inability continues for at least ninety (90) consecutive days, or for
shorter periods aggregating one hundred twenty (120) days during any
consecutive twelve-month period.
(f) "Good Reason" shall mean:
(i) any material breach or default by the Company
(and failure to cure within any applicable grace or cure
period) of any material obligation of this Agreement;
<PAGE>
(ii) any material change in the duties to be
performed or titles to be held by the Executive pursuant
hereto either (A) within the twelve (12) month period
immediately after a Change in Control, or (B) without the
Executive's prior written consent, which consent may be
withheld for any reason or for no reason;
(iii) any change in the metropolitan area where the
Executive is required to perform the duties set forth herein
which occurs either (A) within the twelve (12) month period
immediately after a Change in Control, or (B) without the
Executive's consent; which consent may be withheld for any
reason or for no reason; or
(iv) any material reduction in the Executive's
salary, benefits, bonuses or other Compensation pursuant to
this Agreement, unless similar reductions are also made to the
salary, benefits, bonuses or other compensation, as
applicable, payable to other executive officers of the Company
and such reductions are made for justifiable business reasons.
(g) "Person" shall mean an individual or a corporation,
association, partnership, joint venture, organization, business,
individual, trust, or any other entity or organization, including a
government or any subdivision or agency thereof.
(h) "Subsidiary" shall mean as to any Person a corporation,
partnership or other entity of which 25% or more of the outstanding
shares of voting stock or other equity ownership are at the time owned,
directly or indirectly through one or more intermediaries, or both, by
such Person and shall include any such entity which becomes a
Subsidiary of such Person after the date hereof. Consolidated
Subsidiary shall mean any Subsidiary of which 51% or more of the
outstanding shares or voting stock or other equity ownership are at the
time owned, directly or indirectly through one or more intermediaries,
or both, by such Person and shall include any such entity which becomes
a Subsidiary of such Person after the date hereof.
12. Payments. Except as specifically provided herein, all amounts
payable pursuant to this Agreement shall be paid without reduction regardless of
any amounts of salary, compensation or other amounts which may be paid or
payable to the Executive from any source or which the Executive could have
obtained upon seeking other employment; provided that the Company shall be
permitted to make all payments pursuant to this Agreement net of any legally
required tax withholdings. The Executive shall not be required to seek other
employment, and there shall be no offset to amounts due hereunder as a result of
any salary, compensation or other amounts the Executive may be paid from other
sources.
13. Expenses. In the event of any litigation between the parties
relating to this Agreement and their rights hereunder, the prevailing party
shall be entitled to recover all litigation costs and reasonable attorneys' fees
and expenses from the non-prevailing party.
14. Entire Agreement. This Agreement comprises the entire agreement
between the parties hereto and as of the date of this contract, supersedes,
cancels and annuls any and all prior agreements between the parties hereto with
respect to the Executive's employment by the Company.
<PAGE>
15. Severability. If all or any part of this Agreement is declared by
any court or governmental authority to be unlawful or invalid, such unlawfulness
or invalidity shall not serve to invalidate any portion of this Agreement not
declared to be unlawful or invalid. Any portion so declared to be unlawful or
invalid shall, if possible, be construed in a manner that will give effect to
the terms of such portion to the fullest extent possible while remaining lawful
and valid.
16. Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of the parties hereto and their respective heirs,
successors, assigns and personal representatives. The Company may assign this
Agreement to any successor or assignee to its business without the written
consent of the Executive. The Executive may not assign, pledge, or encumber his
interest in this Agreement, or any part thereof, without the written consent of
the Company; provided, however, that Executive may, without the Company's prior
consent, assign his rights to payment hereunder.
17. Notices. Any notice required or permitted pursuant to the
provisions of this Agreement shall be deemed to have been properly given if in
writing and when received by certified or registered United States mail, postage
prepaid, by overnight courier, telecopy or when personally delivered, addressed
as follows:
If to the Company:
LaserSight Incorporated
3300 University Boulevard
Suite 140
Orlando, Florida 32792
Attn: Chairman of the Board
Fax No.: (407) 678-9981
If to the Executive:
Michael R. Farris
6540 Metro West Boulevard
#301
Orlando, Florida 32825
Fax No.: (407) 578-5642
Each party shall be entitled to specify a different address for the receipt of
subsequent notices by giving written notice thereof to the other party in
accordance with this Section. Telecopy notices must be followed up with the
original by certified mail, postmarked within one (1) business day of the date
of the telecopy.
18. Amendments and Waivers. Any provision of this Agreement may be
amended or waived only with the prior written consent of the Company and the
Executive. No failure or delay on the part of either party to this Agreement in
the exercise of any power or right, and no course of dealing between the parties
hereto, shall operate as a waiver of such power or right, nor shall any single
or partial exercise of any power or right preclude any further or other exercise
thereof or the exercise of any other power or right. The remedies provided for
herein are cumulative and not exclusive of any remedies which may be available
to either party at law or in equity. Any waiver of any provision of this
Agreement, and any consent to any departure by either party from the terms of
<PAGE>
any provision hereof, shall be effective only in the specific instance and for
the specific purpose for which given. Nothing contained in this Agreement and no
action or waiver by any party hereto shall be construed to permit any violation
of any other provision of this Agreement or any other document or operate as a
waiver by such party of any of his or its rights under any other provision of
this Agreement or any other document.
19. Controlling Law. This Agreement shall be construed in accordance
with the laws of the State of Florida, except for its choice of law provisions.
The parties do hereby irrevocably submit themselves to the personal jurisdiction
of the United States Federal Court for the Middle District of Florida and do
hereby irrevocably agree to service of such Court's process on them.
20. Headings. Section headings herein are for convenience only and
shall not affect the meaning or interpretation of the contents hereof.
21. Counterparts. This Agreement may be executed in counterparts, each
of which is deemed to be an original and all of which taken together constitute
one and the same agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf by a duly authorized officer and the Executive has executed this
Agreement, all as of the first day and year written above.
LASERSIGHT INCORPORATED
By: /s/Francis E. O'Donnell, Jr.
--------------------------------------
Francis E. O'Donnell, Jr., M.D.
Chairman of the Board
"EXECUTIVE"
/s/Michael R. Farris
----------------------------------------
Michael R. Farris
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
March 22, 1999, by and among LaserSight Incorporated, a Delaware corporation
(the "Company"), with its headquarters located at 3300 University Boulevard,
Suite 140, Orlando, Florida 32792 and the purchasers (collectively, the
"Purchasers" and each individually, a "Purchaser") named on the execution pages
hereof, with regard to the following:
RECITALS
A. The Company and the Purchasers are executing and delivering
this Agreement in reliance upon the exemption from securities
registration afforded by the provisions of Section 4(2) of
the Securities Act of 1933 (the "Securities Act") and
Regulation D ("Regulation D") of the Securities and Exchange
Commission (the "SEC") promulgated under the Securities Act.
B. The Purchasers desire to (i) purchase, upon the terms and
conditions stated in this Agreement, a total of 2,250,000
shares (the "Placement Shares") of the Company's common
stock, $.001 par value per share ("Common Stock"), and (ii)
receive, in consideration for such purchase, Warrants (the
"Warrants") in the form attached hereto as Exhibit A to
acquire a total of 225,000 shares of Common Stock. The shares
of Common Stock issuable upon exercise of or otherwise
pursuant to the Warrants are referred to herein as the
"Warrant Shares." The Placement Shares, the Warrants and the
Warrant Shares are collectively referred to herein as the
"Securities."
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement of even date herewith in the
form attached hereto as Exhibit B (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act
and applicable state securities laws.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing recitals (which are
incorporated into and deemed a part of this Agreement), their respective
promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and the Purchasers
hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
1.1 Purchase of Common Stock. Subject to the terms and conditions
of this Agreement, on March 22, 1999 (the "Closing Date"), the Company agrees to
issue and sell to each Purchaser, and each Purchaser severally agrees to
purchase from the Company (the "Closing"), the number of shares of Common Stock
indicated below at a price which shall be in the aggregate $9,000,000 (the
"Purchase Price"):
<PAGE>
<TABLE>
<CAPTION>
No. of Shares of
Purchaser Common Stock Purchase Price
--------- ------------ --------------
<S> <C> <C>
Pequot Private Equity Fund, L.P. 388,333 $1,553,332
Pequot Scout Fund, L.P. 62,500 250,000
Pequot Offshore Private Equity Fund, Inc. 49,167 196,668
TLC The Laser Center Inc. 500,000 2,000,000
EGS Private Healthcare Partnership, L.P. 218,750 875,000
EGS Private Healthcare Counterpart, L.P. 31,250 125,000
William D. Corneliuson 300,000 1,200,000
Stark International 350,000 1,400,000
Shepherd Investments International, Ltd. 150,000 600,000
Special Situations Private Equity Fund, L.P. 200,000 800,000
Total 2,250,000 $9,000,000
</TABLE>
Each Purchaser's obligation to purchase Common Stock hereunder is
distinct and separate from each other Purchaser's obligation to purchase, and no
Purchaser shall be required to purchase hereunder more than the number of shares
of Common Stock set forth opposite its name immediately above. The obligations
of the Company with respect to each Purchaser shall be separate from the
obligations of each other Purchaser and, except as provided in Section 6.1(c)
hereof, shall not be conditioned as to any Purchaser upon the performance of
obligations of any other Purchaser. The Closing shall take place on the Closing
Date at 10:00 A.M., Eastern Time, at the offices of Sonnenschein Nath &
Rosenthal, 1221 Avenue of the Americas, 24th Floor, New York, New York
10020-1089, or at such other time and place as shall be agreed upon by the
parties.
At the Closing, the Company shall deliver to each Purchaser a (i)
certificate representing the Placement Shares, and (ii) a Warrant issued in
accordance with the terms of Section 1.5, each such certificate and Warrant
registered in the name of such Purchaser or its nominee. Delivery of such
certificate and Warrant to a Purchaser shall be made against receipt at the
Closing by the Company from such Purchaser of the purchase price therefor, which
shall be paid by wire transfer to an account designated at least one business
day prior to the Closing by the Company.
1.2 Form of Payment. Upon satisfaction of the conditions
contained in Section 7.1, each Purchaser shall pay its respective portion of the
Purchase Price by wire transfer to the account designated by the Company.
1.3 Transfer of Securities. The Securities shall, when issued, be
unregistered and therefore subject to the restrictions on sale, distribution and
transfer imposed under the Securities Act and under applicable securities laws
or blue sky laws of any state or foreign jurisdiction.
<PAGE>
1.4 Registration of the Securities. Pursuant to the terms of the
Registration Rights Agreement, the Company shall, at its own expense, prepare,
and within 45 days after the Closing Date, file with the SEC a registration
statement on such form as is then available in order to effect the registration
of the Common Stock purchased pursuant to this Agreement and the Warrant Shares
(the "Registration Statement"). The Company shall use all reasonable best
efforts to have the Registration Statement declared effective as soon as
practicable after the filing thereof and to remain effective for the
Registration Period (as defined in the Registration Rights Agreement).
1.5 Warrants. In consideration of the purchase by Purchasers of
the Placement Shares, the Company shall at the Closing issue to the Purchasers,
in the aggregate, Warrants to acquire 225,000 shares of Common Stock (each
Purchaser shall receive a separate Warrant in an amount proportionate to each
Purchaser's purchase of Common Stock).
ARTICLE 2
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants, solely with respect to itself
and its purchase hereunder and not with respect to any other Purchaser or the
purchase hereunder by any other Purchaser (and no Purchaser shall be deemed to
make or have any liability for any representation or warranty made by any other
Purchaser), to the Company as set forth in this Article 2. No Purchaser makes
any other representations or warranties, express or implied, to the Company in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by a Purchaser
to the Company in connection with the transactions contemplated hereby shall be
deemed to have been merged in this Agreement and any such prior representations
and warranties, if any, shall not survive the execution and delivery of this
Agreement.
2.1 Investment Purpose. Such Purchaser is purchasing the
Securities for Purchaser's own account for investment only and not with a view
toward or in connection with the public sale or distribution thereof. Such
Purchaser will not, directly or indirectly, offer, sell, pledge or otherwise
transfer the Securities or any interest therein except pursuant to transactions
that are exempt from the registration requirements of the Securities Act and/or
sales registered under the Securities Act. Such Purchaser understands that it
must bear the economic risk of this investment indefinitely, unless the
Securities are registered pursuant to the Securities Act and any applicable
securities laws or blue sky laws of any state or foreign jurisdiction an
exemption from such registration is available, and that the Company has no
intention or obligation to register any of the Securities other than as
contemplated by Section 1.4 hereof and the Registration Rights Agreement.
2.2 Accredited Investor Status. Such Purchaser represents and
warrants that it is an Accredited Investor (as that term is defined in Rule 501
promulgated by the SEC under the Securities Act), that it has such knowledge and
experience in business and financial matters as to be capable of evaluating the
merits and risks of the investment contemplated to be made hereunder, and that
it (i) was not formed or organized for the specific purpose of investing in the
Company; (ii) understands that such investment bears a high degree of risk and
could result in a total loss of its investment; and (iii) has sufficient
financial strength to hold the same as an investment and to bear the economic
risks of such investment (including possible loss of such investment) for an
indefinite period of time.
<PAGE>
2.3 Reliance on Exemptions. Such Purchaser acknowledges that the
Securities being sold to it hereunder are being sold pursuant to a private
offering exemption under the Securities Act and are not being registered under
the Securities Act or under the securities laws or blue sky laws of any state or
foreign jurisdiction and understands that the Company is relying upon the truth
and accuracy of, and such Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the Securities.
2.4 Information. Such Purchaser has been furnished all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which it has specifically
requested, including, without limitation, the Company's Annual Report on Form
10-K and 10-K/A for the year ended December 31, 1997, its Quarterly Report on
Form 10-Q for the periods ended March 31, 1998, June 30, 1998, September 30,
1998, its Current Reports on Form 8-K filed with the SEC on January 2, 1998;
January 14, 1998; January 20, 1998; January 22, 1998; February 17; February 27;
March 13, 1998; March 16, 1998; March 18, 1998; June 8, 1998; June 16, 1998;
June 25, 1998; July 8, 1998; and August 4, 1998; the description of the Common
Stock contained in the Company's Form 8-A/A (Amendment No. 4) filed with the SEC
on June 25, 1998; Proxy Statement dated May 28, 1998 and Pre-Effective Amendment
No. 1 to Registration Statement on Form S-3 filed with the SEC on February 2,
1999 (such documents, including any financial statements and related notes
included in such documents, collectively the "Furnished SEC Documents"). In
addition, such Purchaser has received and reviewed the Company's preliminary
non-public financial results for the fourth quarter of 1998 and for the year
ended December 31, 1998 (the "1998 Disclosure"). Such Purchaser and its advisors
have been given the opportunity to obtain information and to examine all
documents referred to herein and to ask questions of, and to receive answers
from, the Company or any person acting on its behalf concerning the Company and
the terms and conditions of this investment, and to obtain any additional
information, to the extent the Company possesses such information or could
acquire it without unreasonable effort or expense, to verify the accuracy of any
information previously furnished. All such questions have been answered to such
Purchasers' full satisfaction, and all information and agreements, documents,
records and books pertaining to this investment which such Purchaser has
requested have been made available to the Purchasers or their advisors. Such
Purchaser understands that its investment in the Securities involves a high
degree of risk. In making its investment decision, such Purchaser has not relied
on any oral or written representation, other than those contained in the
Furnished SEC Documents, the 1998 Disclosure, this Agreement (including the
schedules hereto), the Warrants and the Registration Rights Agreement, with
respect to the Securities, the Company, its business or prospects, or other
matters. In making its decision to invest in the Company, such Purchaser has
relied solely upon independent investigations made by the Purchasers and their
advisors.
<PAGE>
2.5 Governmental Review. Such Purchaser understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
2.6 Transfer or Resale. Such Purchaser understands that (i) the
Securities have not been and are not being registered under the Securities Act
or under the securities laws or blue sky laws of any state or foreign
jurisdiction, and may not be offered, sold, pledged or otherwise transferred
unless subsequently registered thereunder or an exemption from such registration
is available, and neither the Company nor any other person is under any
obligation to register the Securities under the Securities Act or under the
securities laws or blue sky laws of any state or foreign jurisdiction or to
comply with the terms and conditions of any exemption thereunder (in each case,
other than pursuant to this Agreement or the Registration Rights Agreement), and
(ii) any sale of the Securities made in reliance on Rule 144 under the
Securities Act, or a successor rule ("Rule 144"), may be made only in accordance
with the terms of Rule 144 and Article 5 hereof and further, if Rule 144 is not
applicable, any resale of the Securities without registration under the
Securities Act under circumstances in which the seller may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder.
2.7 Authorization. Such Purchaser represents and warrants that as
of the Closing Date the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by it. The fulfillment of and compliance with the terms of this
Agreement will not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, or (iii) result in
a violation of, breach of or default under (A) its partnership agreement or
certificate of limited partnership, or other charter or constituent document,
(B) any law, statute, rule or regulation to which it is subject, or (C any
agreement, instrument, order, judgment or decree to which it is subject or is a
party or by which it is bound.
2.8 Binding Effect. Such Purchaser represents and warrants that
this Agreement constitutes its valid and binding obligation, enforceable in
accordance with its terms, except (i) as limited by bankruptcy, insolvency or
other laws affecting the enforcement of creditors' rights generally or by
equitable principles in any action (legal or equitable), (ii) that the
availability of equitable relief is subject to the discretion of the court
before which any proceeding thereof may be brought, and (iii) that the
enforceability of the indemnification provisions may be limited by applicable
securities laws or public policy.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser, except as
disclosed (including, in the case of financial statements, provided for) in the
disclosure schedules delivered herewith, as set forth in this Article 3. The
Company does not make any other representations or warranties, express or
implied, to Purchasers in connection with the transactions contemplated hereby
<PAGE>
and any and all prior representations and warranties, if any, which may have
been made by the Company to a Purchaser in connection with the transactions
contemplated hereby shall be deemed to have been merged in this Agreement and
any such prior representations and warranties, if any, shall not survive the
execution and delivery of this Agreement.
3.1 Organization and Qualification. Each of the Company and its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted or are presently expected to be conducted during the Company's current
fiscal year. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
where the failure so to qualify or be in good standing would have a Material
Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" means
any material adverse effect on the business, operations, assets, properties,
liabilities, condition (financial or otherwise), the Common Stock price or
operating results of the Company and its subsidiaries, taken as a whole on a
consolidated basis, or on the transactions contemplated hereby.
3.2 Authorization; Enforcement.
(a) The Company has the requisite corporate power and
authority to enter into and perform this Agreement, and to issue, sell and
perform its obligations with respect to the Securities in accordance with the
terms hereof and thereof;
(b) the execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action and, except as set forth
on Schedule 3.2 hereof, no further consent or authorization of the Company, its
board of directors, or its stockholders or any other person, body or agency is
required with respect to any of the transactions contemplated hereby (whether
under rules of The NASDAQ Stock Market (the "NASDAQ"), the National Association
of Securities Dealers, Inc. or otherwise);
(c) this Agreement, the Warrants, the Registration
Rights Agreement, and the certificates for the Securities have been duly
executed and delivered by the Company; and
(d) this Agreement, the Warrants and the Registration
Rights Agreement constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except (i) to the extent that such validity or enforceability may be subject to
or affected by any bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
thereof, creditors' rights or remedies of creditors generally, or by other
equitable principles of general application, (ii) that the availability of
equitable relief is subject to the discretion of the court before which any
proceeding thereof may be brought, and (iii) that the enforceability of
indemnification provisions may be limited by applicable securities laws or
public policy.
<PAGE>
3.3 Capitalization. The capitalization of the Company as of the
date hereof, including the authorized capital stock, the number of shares issued
and outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities exercisable for, or convertible into or exchangeable for
any shares of Common Stock is set forth on Schedule 3.3. All of such shares of
capital stock have been, or upon issuance in accordance with the terms of the
relevant security will be, validly issued, fully paid and nonassessable. Except
as disclosed in Schedule 3.3, no shares of capital stock of the Company
(including the Securities) are subject to preemptive rights or any other similar
rights of the stockholders of the Company or any liens or encumbrances imposed
or suffered by the Company. Except as disclosed in Schedule 3.3, as of the date
of this Agreement, there are no outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries. The Company shall provide each
Purchaser with a written update of this representation signed by the Company's
Chief Executive Officer or Chief Financial Officer on behalf of the Company as
of the Closing Date. Except as set forth in Schedule 3.3, since December 31,
1998, the Company has not declared or paid any dividend or made any other
distribution of cash, stock or other property with respect to the Common Stock.
Except as set forth in Schedule 3.3 or as contemplated by this Agreement or the
Registration Rights Agreement or except for the right to vote its shares of
Common Stock for the election of directors, no person has the right to nominate
or elect one or more directors of the Company.
3.4 Issuance of Shares. As of the Closing the Placement Shares
will be duly authorized, validly issued, fully paid and non-assessable with no
personal liability attaching to the owners thereof, and free from all taxes,
liens, claims and encumbrances imposed or suffered by the Company and except as
disclosed in Schedule 3.3, will not be subject to preemptive rights or other
similar rights of stockholders of the Company. As of the Closing, the Warrant
Shares will be duly and validly reserved and upon exercise of the Warrants in
accordance with the terms thereof the Warrant Shares will be validly issued,
fully paid and non-assessable with no personal liability attaching to the owners
thereof, and free from all taxes, liens, claims and encumbrances imposed or
suffered by the Company and except as disclosed in Schedule 3.3, will not be
subject to preemptive rights or other similar rights of stockholders of the
Company.
3.5 No Conflicts. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company,
and the consummation by the Company of transactions contemplated hereby and
thereby (including, without limitation, the issuance and reservation for
issuance, as applicable, of the Securities) will not (i) result in a violation
of the Company's Certificate of Incorporation or By-laws, or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in any loss of benefit under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any Material Contract (as defined herein) to which the Company or any of its
subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries, or
<PAGE>
by which any property or asset of the Company or any of its subsidiaries, is
bound or affected, or (iv) result in the creation or imposition of an
Encumbrance (as defined herein) upon the Company's properties or assets (except
with respect to items (ii), (iii) and (iv) of this Section 3.5 such possible
conflicts, defaults, terminations, amendments, accelerations, cancellations,
violations and Encumbrances as would not individually or in the aggregate, have
a Material Adverse Effect). Neither the Company nor any of its subsidiaries is
in violation of its Certificate of Incorporation or other organizational
documents, and neither the Company nor any of its subsidiaries, is in default
(and no event has occurred which has not been waived which, with notice or lapse
of time or both, would put the Company or any of its subsidiaries in default)
under, nor has there occurred any event giving others (with notice or lapse of
time or both) any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, except for possible violations, defaults or rights as
would not individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as set forth on
Schedule 3.5, or except (i) as may be required under the Securities Act in
connection with the performance of the Company's obligations pursuant to the
Registration Rights Agreement, (ii) filing of a Form D with the SEC, and (iii)
compliance with the state securities laws or blue sky laws of applicable
jurisdictions, the Company is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or to perform its
obligations in accordance with the terms hereof. The Common Stock is listed on
the NASDAQ, the Company is not in violation of the listing requirements of the
NASDAQ and the Company is not aware of any fact (including any proceedings
pending or, to the best of the Company's knowledge, contemplated) that could
result in the Common Stock being delisted from the NASDAQ. The Company is not
aware of any fact that could result in a refusal by the NASDAQ to approve the
Placement Shares and Warrant Shares for listing.
3.6 SEC Documents. Except as disclosed in Schedule 3.6, since
December 31, 1996, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934 (the
"Exchange Act") (all of the foregoing filed after December 31, 1995 and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being referred to herein as the
"SEC Documents"). The Company has delivered to each Purchaser true and complete
copies of the Furnished SEC Documents, except for exhibits, schedules and
incorporated documents. Each of the SEC Documents as originally filed or as
amended complied in all material respects with the requirements of its
respective report or form and did not on the date of filing contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and as of the date
hereof, there is no fact or facts not disclosed in the SEC Documents or
disclosed in writing to the Purchasers which relate specifically to the Company
which individually or in the aggregate, may have a Material Adverse Effect. The
<PAGE>
consolidated financial statements of the Company (including any related
schedules or notes thereto) included in the SEC Documents were prepared in
accordance with generally accepted accounting principles, consistently applied,
and the applicable rules and regulations of the SEC during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to the
extent they do not include footnotes or are condensed or summary statements) and
present accurately and completely, in all material respects, the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, year-end audit adjustments). To the extent required by the rules of the
SEC applicable thereto, the SEC Documents contain a complete and accurate list
of all material undischarged written or oral contracts, agreements, leases or
other instruments to which the Company or any subsidiary is a party or by which
the Company or any subsidiary is bound or to which any of the properties or
assets of the Company or any subsidiary is subject (each a "Material Contract").
Except as set forth in Schedule 3.6, none of the Company, its subsidiaries or,
to the best knowledge of the Company, any of the other parties thereto, is in
breach or violation of any Material Contract, which breach or violation would
have a Material Adverse Effect. To the best knowledge of the Company, no event,
occurrence or condition exists which, with the lapse of time, the giving of
notice, or both, would become a default by the Company or its subsidiaries
thereunder which would have a Material Adverse Effect. Except as set forth in
Schedule 3.6 or disclosed in writing to the Purchasers, there are no liabilities
or obligations (whether accrued, absolute, contingent, unliquidated or
otherwise, whether due or to become due and regardless of when asserted), except
(i) liabilities and obligations in the respective amounts reserved against in
the 1998 Disclosure or the Company's balance sheet or the footnotes thereto as
of September 30, 1998 included in the Furnished SEC Documents, (ii) liabilities
and obligations incurred after December 31, 1998 in the ordinary course of
business consistent (in amount and kind) with past practice (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit), (iii) liabilities and obligations disclosed in
the Furnished SEC Documents, and (iv) liabilities and obligations which would
not individually or in the aggregate, have a Material Adverse Effect. Since
December 31, 1997, the Company has operated its business only in the ordinary
course and there has not been individually or in the aggregate, any change that
would have a Material Adverse Effect (a "Material Adverse Change") other than
changes disclosed in the SEC Documents or otherwise set forth in Schedule 3.6.
3.7 Absence of Certain Changes. Except as disclosed in Schedule
3.7 or in the 1998 Disclosure, since December 31, 1998, the business of the
Company and its subsidiaries has been conducted in the ordinary course,
consistent with past practice and there has not been (a) any Material Adverse
Change, nor has any event or change occurred which could reasonably result in a
Material Adverse Change, in the condition (financial or otherwise), results of
operations, business, assets, liabilities or prospects of the Company or its
subsidiaries or any event or condition which could reasonably be expected to
have such a Material Adverse Change, (b) any waiver or cancellation of any
valuable right of the Company or its subsidiaries, or the cancellation of any
material debt or claim held by the Company or its subsidiaries, (c) any payment,
discharge or satisfaction of any claim, liability or obligation of the Company
or its subsidiaries other than in the ordinary course of business except where
such payment, discharge or satisfaction would not, individually or in the
aggregate, have a Material Adverse Effect, (d) the placement of any Encumbrance
<PAGE>
upon the assets of the Company or its subsidiaries other than any Permitted
Encumbrance (as defined herein), (e) any declaration or payment of dividends on,
or other distribution with respect to, or any direct or indirect redemption or
acquisition of, any securities of the Company, (f) any issuance of any stock,
bonds or other securities of the Company or its subsidiaries which is not
disclosed in Schedule 3.3 or the Furnished SEC Documents, (g) any sale,
assignment or transfer of any tangible or intangible assets of the Company or
its subsidiaries except in the ordinary course of business, (h) any loan by the
Company or its subsidiaries to any officer, director, employee, consultant or
shareholder of the Company or its subsidiaries (other than advances to such
persons in the ordinary course of business in connection with travel and travel
related expenses), (i) any damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the assets, property, condition
(financial or otherwise), results of operations or prospects of the Company or
its subsidiaries, (j) any increase, direct or indirect, in the compensation paid
or payable to any officer or director of the Company or its subsidiaries, other
than in the ordinary course of business, to any other employee, consultant or
agent of the Company or its subsidiaries, (k) any change in the accounting
methods, practices or policies of the Company or its subsidiaries, (l) any
indebtedness incurred for borrowed money by the Company or its subsidiaries
other than in the ordinary course of business, (m) any amendment to or
termination of any material agreement to which the Company or its subsidiaries
is a party other than the expiration of any such agreement in accordance with
its terms or as disclosed in the Furnished SEC Documents, (n) to the Company's
knowledge, any change in the laws or regulations governing the Company or its
subsidiaries, (o) any Material Adverse Change in the manner of business or
operations of the Company or its subsidiaries (including, without limitation,
material accelerations or material deferrals of the payment of accounts payable
or other current liabilities or material deferrals of the collection of accounts
or notes receivable), (p) any capital expenditures or commitments therefor by
the Company or its subsidiaries other than in the ordinary course of business,
(q) any amendment of the articles of incorporation, bylaws or other
organizational documents of the Company or its subsidiaries which is not
disclosed in the Furnished SEC Documents, (r) any material transaction entered
into by the Company or its subsidiaries other than in the ordinary course of
business or any other material transactions entered into by the Company or its
subsidiaries whether or not in the ordinary course of business which is not
disclosed in the Furnished SEC Documents, or (s) any agreement or commitment
(contingent or otherwise) by the Company or its subsidiaries to do any of the
foregoing. For purposes of this Agreement, "Permitted Encumbrance" shall mean
(i) Encumbrances for unpaid taxes that either (A) are not yet due and payable,
or (B) for which a reserve with respect to such obligation is established on the
books of the Company, (ii) the interests of lessors under operating leases and
purchase money liens of lessors under capital leases, (iii) Encumbrances arising
by operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or other similar encumbrances in the ordinary course of
business of the Company, (iv) Encumbrances arising from deposits made in
connection with obtaining worker's compensation or other unemployment insurance,
(v) with respect to any real property, easements, rights of way, zoning and
similar covenants and restrictions, and similar Encumbrances and that do not
individually or in the aggregate materially impair the property of the Company,
(vi) Encumbrances resulting from any judgment or award that would not result in
a Material Adverse Change, and (vii) other Encumbrances which arise in the
ordinary course of business and which individually and in the aggregate do not
materially impair the Company's use of such property or its ability to obtain
financing by using such asset as collateral.
<PAGE>
3.8 Absence of Litigation. Except as disclosed in Schedule 3.8 or
as disclosed in the Furnished SEC Documents, there is no civil, criminal or
administrative action, suit, proceeding, inquiry, claim, notice, hearing or
investigation at law or in equity (a "Litigation") before or by any court,
arbitrator or similar panel, public board, government agency, or self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company, any of its
subsidiaries, or any of their respective assets (including Intangibles (as
defined herein)) or directors or officers in their capacities as such. There are
no facts known to the Company which, if known by a potential claimant or
governmental authority, could give rise to a claim or proceeding which, if
asserted or conducted with results unfavorable to the Company or any of its
subsidiaries, could reasonably be expected to have a Material Adverse Effect.
Except as set forth in Schedule 3.8, neither the Company nor its subsidiaries is
subject to any order, writ, injunction or decree of any court of any federal,
state, municipal or other domestic or foreign governmental department,
commission, board, bureau, agency or instrumentality which could have a Material
Adverse Effect.
3.9 Disclosure. Neither this Agreement, the SEC Documents nor any
certificate, instrument or written statement furnished or made to the Purchasers
by or on behalf of the Company in connection with this Agreement or the
Registration Rights Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading as of the date such statements were
made. There is no fact which is not disclosed in the Furnished SEC Documents or
fact which the Company has not disclosed to the Purchasers or their counsel and
of which the Company is aware which materially and adversely affects, or which
could materially and adversely affect, the Company or its subsidiaries or the
business, financial condition, operations, property, affairs or prospects of the
Company or its subsidiaries or the ability of the Company or its subsidiaries to
perform its obligations under the Agreement or any of the Registration Rights
Agreement.
3.10 S-3 Registration. The Company is currently eligible to
register the resale of the Placement Shares and Warrant Shares by the Purchasers
pursuant to a registration statement on Form S-3 under the Securities Act.
3.11 No General Solicitation. Neither the Company nor any person
acting for the Company has conducted any "general solicitation," as described in
Rule 502(c) under Regulation D, with respect to any of the Securities being
offered hereby.
3.12 No Integrated Offering. Neither the Company, nor any of its
Affiliates (as defined herein), nor any person acting on its or their behalf,
has directly or indirectly made any offers or sales of any security or solicited
any offers to buy any security under circumstances that would prevent the
parties hereto from consummating the transactions contemplated hereby pursuant
to an exemption from registration under the Securities Act pursuant to the
provisions of Regulation D. The transactions contemplated hereby are exempt from
the registration requirements of the Securities Act, assuming the accuracy of
the representations and warranties herein contained of each Purchaser. For
purposes hereof, "Affiliate" shall mean any entity controlling, controlled by or
under common control with a designated person or entity; for the purposes of
<PAGE>
this definition, "control" shall have the meaning presently specified for that
word in Rule 405 promulgated by the SEC under the Securities Act. With respect
to any entity which is a limited partnership, Affiliate shall also mean any
general or limited partner of such limited partnership, or any person or entity
which is a general partner in a general or limited partnership which is a
general partner of such limited partnership.
3.13 No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Purchasers relating to this Agreement or the
transactions contemplated hereby.
3.14 Intellectual Property. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
material patents, patent applications, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") used or necessary for the
conduct of its business as now being conducted and as described in the Company's
Annual Report on Form 10-K and Form 10-K/A for its most recently ended fiscal
year. To the Company's knowledge, neither the Company nor any subsidiary of the
Company infringes on or is in conflict with any right of any other person with
respect to any Intangibles nor is there any claim of infringement made by a
third party against or involving the Company or any of its subsidiaries, which
infringement, conflict or claim, individually or in the aggregate, could
reasonably be expected to result in an unfavorable decision, ruling or finding
which would have a Material Adverse Effect.
3.15 Employee Benefit Plans.
(a) Identification. Schedule 3.15(a) contains a complete
and accurate list of all employee benefit plans (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) sponsored by the Company or to which the Company contributes on
behalf of its employees (the "Employee Benefit Plans") and each employment,
severance or change in control agreement to which the Company is a party. The
Company has provided or made available to the Purchasers copies of all plan
documents, determination letters, pending determination letter applications, VCR
Submission (as defined below), trust instruments, insurance contracts,
administrative services contracts, annual reports, actuarial valuations, summary
plan descriptions, summaries of material modifications, administrative forms and
other documents that constitute a part of or are incident to the administration
of the Employee Benefit Plans. In addition, the Company has provided or made
available to the Purchasers a written description of all existing practices
engaged in by the Company that constitute Employee Benefit Plans. Except as set
forth on Schedule 3.15(a) and subject to the requirements of the Internal
Revenue Code of 1986, as amended (the "Code") and ERISA, each of the Employee
Benefit Plans can be terminated or amended (without material cost to the
Company) at will by the Company. Except as set forth on Schedule 3.15(a), no
unwritten amendment exists with respect to any Employee Benefit Plan. The
Company has no plan or commitment, whether legally binding or not, to establish
<PAGE>
any new Employee Benefit Plan, to enter into any employment severance or change
in control agreement or to modify or to terminate any Employee Benefit Plan or
agreement.
(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect. To the
best of the knowledge of the Company, the Company has (i) made all necessary
filings with respect to such Employee Benefit Plans, including the timely filing
of Form 5500 if applicable, and (ii) made all necessary filings, reports and
disclosures pursuant to and have complied with all requirements of the Internal
Revenue Service ("IRS") Voluntary Compliance Resolution Program ("VCR
Submission"), if applicable, with respect to all profit sharing retirement plans
and pension plans in which employees of the Company participate.
(c) Examinations. Except as set forth on Schedule
3.15(c), the Company has not received any notice that any Employee Benefit Plan
is currently the subject of an audit, investigation, enforcement action or other
similar proceeding conducted by any state or federal agency.
(d) Prohibited Transactions. To the best of the
knowledge of the Company, no prohibited transactions (within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA) have occurred with
respect to any Employee Benefit Plans.
(e) Claims and Litigation. No pending or, to the actual
knowledge of the Company, threatened claims, suits, or other proceedings exist
with respect to any Employee Benefit Plan other than normal benefit claims filed
by participants or beneficiaries.
(f) Qualification. As set forth in more detail on
Schedule 3.15(f), the Company has applied for a favorable determination letter
or ruling from the IRS for each of the Employee Benefit Plans intended to be
qualified within the meaning of Section 401(a) of the Code and/or tax-exempt
within the meaning of Section 501(a) of the Code. Except as set forth on
Schedule 3.15(f), no proceedings exist or, to the actual knowledge of the
Company has been threatened that could result in the revocation of any such
favorable determination letter or ruling.
(g) Funding Status. Neither the Company nor any member
of a "Controlled Group" (within the meaning of Section 412(n)(6)(B) of the Code)
with the Company sponsors any plans which (i) are subject to the minimum funding
requirements of Code Section 412 or ERISA Section 302, or (ii) are subject to
Title IV of ERISA assumptions.
(h) Excise Taxes. To the best of the knowledge of the
Company, neither the Company nor any member of a Controlled Group has any
liability to pay excise taxes with respect to any Employee Benefit Plan under
applicable provisions of the Code or ERISA.
(i) Multi-Employer Plans. Neither the Company nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multi-employer plan within the meaning of Section 3(37) of ERISA and neither the
<PAGE>
Company nor the Controlled Group has ever contributed to any plan subject to
Title IV of ERISA.
(j) Pension Benefit Guaranty Corporation. None of the
Employee Benefit Plans are subject to the requirements of Title IV of ERISA.
(k) Retirees. The Company has no obligation or
commitment to provide medical, dental or life insurance benefits to or on behalf
of any of its employees who may retire or any of its former employees who have
retired except as may be required pursuant to the continuation of coverage
provisions of Section 4980B of the Code and Sections 601 through 608 of ERISA.
(l) Change in Control. The execution of, and performance
of the transactions contemplated in, this Agreement will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under an Employee Benefit Plan or employment, severance or change in control
agreement that will or may result in any, payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any employee
of the Company. No payment or benefit which will or may be made by the Company,
any of its subsidiaries, Purchasers or any of their respective affiliates by
reason of such execution or performance may be characterized as an "excess
parachute payment," within the meaning of Section 28OG(b)(1) of the Code or
which will not be deductible for federal tax purposes by virtue of Section
162(m) of the Code.
(m) Insurance. With respect to each Employee Benefit
Plan which is an employee welfare benefit plan (within the meaning of Section
3(l) of ERISA), all claims incurred by the Company are (i) insured pursuant to a
contract of insurance whereby the insurance company bears any risk of loss with
respect to such claims, or (ii) covered under a contract with a health
maintenance organization which bears the liability for claims.
(n) Labor Disputes. No work stoppage or labor strike
against the Company is pending or threatened. The Company is not now, nor has
been in the past (i) involved in or threatened with any labor dispute,
grievance, or litigation relating to labor matters, including, without
limitation, violation of any federal, state or local labor, safety or employment
laws (domestic or foreign), charges of unfair labor practices or discrimination
complaints which could have a Material Adverse Effect; (ii) engaged in any
unfair labor practices within the meaning of the National Labor Relations Act or
the Railway Labor Act, or (iii) a party to, or bound by, any collective
bargaining agreement or union contract and no such agreement or contract is
currently being negotiated by the Company or any of its affiliates. No employees
of the Company are currently represented by any labor union for purposes of
collective bargaining and no activities the purpose of which is to achieve such
representation are threatened or ongoing. The Company (i) is in compliance with
all applicable federal, state and local laws, rules and regulations (domestic
and foreign) respecting employment, employment practices, labor, terms and
conditions of employment and wages and hours, except for such possible
non-compliance as would not, individually or in the aggregate, have a Material
Adverse Effect; (ii) has withheld all amounts required by law or by agreement to
be withheld from the wages, salaries and other payments; (iii) is not liable for
<PAGE>
any arrears of wages or any taxes or any penalty for failure to comply with any
of the foregoing; and (iv) is not liable for any payment to any trust or other
fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits.
3.16 Year 2000 Compliance. All computer, network, or other data
processing hardware, software, systems and technology (collectively, "Data
Processing Systems") owned or used by the Company will be Year 2000 Compliant in
all material respects prior to January 1, 2000. The Company has not suffered and
reasonably expects that it will not at any time hereafter suffer any material
interruption of, or interference with, its business operations or activities by
reason of the failure of any Data Processing System owned or used by the Company
to be Year 2000 Compliant. For purposes of this Section 3.16, "Year 2000
Compliant" means, with respect to any data processing system owned or used by
any person, that such data processing system, at all times before as well as on
and after January 1, 2000, (i) will correctly store, represent, and process all
dates, such that errors will not occur when the date being used is in the Year
2000, or in a year preceding or following the Year 2000, and (ii) will operate
and will not cause or result in an abnormal termination or ending.
3.17 Equity Investments; Subsidiaries. Set forth on Schedule 3.17
is a list of all of the Company's subsidiaries. Except as set forth on Schedule
3.17, the Company does not own, whether directly or indirectly, any capital
stock or other proprietary interest directly or indirectly, in any corporation,
association, trust, partnership, joint venture or other entity which is
currently involved in the Company's ordinary course of business.
3.18 Title to Assets and Properties; Insurance.
(a) The Company has good and marketable title, or a
valid leasehold interest in or contractual right to use, all of its assets and
properties, free and clear of any mortgages, judgments, claims liens, security
interests, pledges, escrows, charges or other encumbrances of any kind or
character whatsoever ("Encumbrances") except in each case for Permitted
Encumbrances and such defects in title and such other liens and Encumbrances
which do not individually or in the aggregate materially detract from the value
to the Company of the properties and assets of the Company and its subsidiaries
taken as a whole.
(b) The Company and its subsidiaries maintain insurance
(including D&O insurance) in such amounts (to the extent available in the public
market), including self-insurance, retainage and deductible arrangements, and of
such a character as is reasonable for companies engaged in the same or similar
business.
3.19 Compliance with Laws; Permits. Except as provided in Schedule
3.19, the Company and its subsidiaries are in compliance, and have been
conducted in compliance with, all federal, state, local and foreign laws, rules,
ordinances, codes, consents, authorizations, registrations, regulations,
decrees, directives, judgments and orders applicable to it except where the
failure to comply would not individually or in the aggregate have a Material
Adverse Effect. The Company has all federal, state, local and foreign
governmental licenses, permits, qualifications and authorizations ("Permits")
necessary in the conduct of its business as currently conducted. All such
<PAGE>
Permits are in full force and effect and no violations have been recorded in
respect of any such Permit; no proceeding is pending or, to the best knowledge
of the Company, threatened to revoke or limit any such Permit and no such Permit
will be suspended, cancelled or adversely modified as a result of the execution
and delivery of this Agreement, the Warrants or the Registration Rights
Agreement and the consummation of the transactions contemplated hereby or
thereby, except where failure to have such Permit would not individually or in
the aggregate have a Material Adverse Effect.
3.20 Taxes.
(a) For purposes of this Agreement, (i) "Taxes" shall
mean all taxes, assessments, charges, duties, fees, levies or other governmental
charges (including interest, penalties or additions associated therewith)
(including, without limitation, federal, state, city, county, local, foreign, or
other income, franchise, ad valorem, value added, excise, real or personal
property, asset, franchise taxes withheld, capital, withholding, real or
tangible property, employment, unemployment compensation, transfer, sales, use,
excise and all other taxes of any kind whatsoever imposed by the United States
or any state, city, county, country or foreign government or subdivision or
agency thereof, whether disputed or not, and (ii) "Transaction" means one or
more transactions, acts, events, or omissions of whatever nature.
(b) The Company has filed on a timely basis all returns
and reports, including all estimated returns and reports of every kind and have
timely given all notices, in respect of Taxes required to be filed or given
under applicable law within the applicable statute of limitations period by any
of them, or except where proper action has been taken by the Company to extend
the relevant filing deadline. Such returns, reports and notices are complete and
accurate in all material respects. All Taxes shown on such returns or reports
have been, and all Taxes subsequently assessed with respect to the periods
and/or Transactions to which such returns or reports relate have been or will
be, timely, and fully paid, except for amounts which the Company is contesting
in good faith. The provisions in the financial statements (and the notes and
schedules related thereto) contained in the Furnished SEC Documents for Taxes
currently payable and for deferred Taxes are adequate in all material respects
to provide for such Taxes for which the Company and its Subsidiaries taken as a
whole may be liable in respect of periods or Transactions through the dates
thereof.
(c) No fact or condition relating to any past or present
Transaction, except as set forth in the Company's disclosure schedules delivered
herewith, which, if known to any tax authority having jurisdiction, would likely
result in a successful challenge by such authority of the treatment or omission
of such factor or condition on any tax return, report or notice of the Company
or its subsidiaries, and no issue has arisen in any examination of the Company
by the IRS that, in either case, if raised with respect to any other period not
so examined would result in a proposed material deficiency for any other period
not so examined, if upheld. The Company and its subsidiaries have made all
payments or estimated Taxes required to be made under Section 6655 of the Code
and any comparable provisions of state, local or foreign law. Except as set
forth on Schedule 3.20, there is no pending nor, to the Company's knowledge,
threatened or contemplated action, audit, proceeding or investigation for the
assessment or collection of Taxes from the Company. There are no requests for
<PAGE>
rulings, outstanding subpoenas or requests for information with respect to Taxes
of the Company, proposed reassessments of any property owned or leased by the
Company, or similar matters pending with respect to any taxing authority.
3.21 Environmental Matters. Except as listed in Schedule 3.21:
(a) There are, with respect to the Company and its
subsidiaries, or any predecessor of the foregoing, no present violations of
Environmental Law (as defined herein), any actions, activities, circumstances,
conditions, events, incidents, or contractual obligations which may give rise to
any liability of the Company pursuant to any Environmental Law and neither the
Company nor its subsidiaries has received any notice with respect to any of the
foregoing nor is any Litigation pending or threatened in connection with any of
the foregoing.
(b) To the knowledge of the Company and except in the
normal course of the Company's or its subsidiaries' business, (i) no Hazardous
Materials (as defined herein) are present on or about any real property
currently owned, leased or used by the Company or its subsidiaries, and (ii) no
Hazardous Materials were present on or about any real property previously owned,
leased or used by the Company or its subsidiaries during the period the property
was owned, leased or used by the Company or its subsidiaries.
(c) To the knowledge of the Company, no Hazardous
Materials have been released on or about, or where they may pose a threat of
migration to, any real property currently owned, leased or used by the Company
or its subsidiaries and no Hazardous Materials were released on or about any
real property previously owned, leased or used by the Company or its
subsidiaries during the period the property was owned, leased or used by the
Company or its subsidiaries, except as may be required in the normal course of
business and in material compliance with applicable Environmental Law.
(d) To the knowledge of the Company, no
asbestos-containing materials or PCBs are present on or about any property
currently owned, leased or used by the Company or its subsidiaries.
(e) To the knowledge of the Company, there are not now,
nor have there ever been, any underground storage tanks or similar facilities of
any kind on or under any real property currently or previously owned, leased or
used by the Company or its subsidiaries.
(f) For purposes of this Section 3.21, capitalized terms
used herein shall have the following meanings:
"Environmental Laws" shall mean, at any date, all provisions
of federal, state, local or foreign law (including applicable principles of
common and civil law), statutes, ordinances, rules, regulations, published
standards and directives that have the force and effect of laws, statutes,
regulations, permits, licenses, judgments, writs, injunctions, decrees and
orders enacted, promulgated or issued by any Public Authority, and all indemnity
agreements and other contractual obligations, as in effect at such date,
relating to (i) the protection of the environment, including the air, surface
<PAGE>
and subsurface soils, surface waters, groundwaters and natural resources, and
(ii) occupational health and safety and exposure of persons to Hazardous
Materials. Environmental Laws shall include the Comprehensive Environmental
Response, Compensation and Liability Act 42 U.S.C. Sections 9601 et seq., and
any other laws imposing or creating liability with respect to Hazardous
Materials.
"Environmental Liability" shall mean any liabilities,
obligations, costs, losses, payments or damages, including compensatory and
punitive damages, incurred (i) to contain, remove, clean up, assess, abate or
otherwise remedy any actual or alleged release or threatened release of
Hazardous Materials, any actual or alleged contamination (by Hazardous
Materials) of air, surface or subsurface soil, groundwater or surface water, or
any personal injury or damage to natural resources or property resulting from
any such release or contamination, pursuant to the requirements of any
Environmental Law or in response to any claim by any Public Authority or other
third party under any Environmental Law; (ii) to modify facilities or processes
or take any other remedial action in response to any claim by any Public
Authority of non-compliance with any Environmental Law, (iii) as a result of the
imposition of any civil or criminal fine or penalty by any Public Authority for
the violation or alleged violation of any Environmental Law, or (iv) as a result
of any action, suit, proceeding or claim by any third party under any
Environmental Law. The term "Environmental Liability" shall include: (i)
reasonable fees of counsel and consultants (but not any corporate allocation for
management time or for the use of similar in-house services or facilities), and
(ii) the costs and expenses of any investigation undertaken to ascertain the
existence or extent of any potential or actual Environmental Liability.
"Hazardous Material" shall mean any substance regulated by
any Environmental Law or which may now or in the future form the basis for any
Environmental Liability.
"Public Authority" shall mean any supranational, national,
regional, state or local government court, governmental agency, authority,
board, bureau, instrumentality or regulatory body.
3.22 Suppliers and Customers. Except as set forth on Schedule
3.22, the Company does not have any knowledge of any termination, cancellation
or threatened termination or cancellation or limitation of, or any material
modification or change in, or expressed material dissatisfaction with the
business relationship between the Company or its subsidiaries and any supplier
or vendor of the Company or its subsidiaries, in each case, of materials or
services in an amount in excess of $50,000 per year.
3.23 Holding Company Act and Investment Company Act. Neither the
Company nor its subsidiaries is: (i) a "public utility company" or a "holding
company," or an "affiliate" or a "subsidiary company" of a "holding company," or
an "affiliate" of such a "subsidiary company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended, or (ii) a "public
utility," as defined in the Federal Power Act, as amended, or (iii) an
"investment company" or an "affiliated person" thereof or an "affiliated person"
of any such "affiliated person," as such terms are defined in the Investment
Company Act of 1940, as amended.
<PAGE>
3.24 Foreign Corrupt Practices. To the Company's best knowledge,
the Company has no notice and neither the Company, nor any of its subsidiaries,
nor any director, officer, agent, employee or other person acting on behalf of
the Company or any subsidiary has violated or is in violation of any provision
of the U.S. Foreign Corrupt Practices Act of 1977, as amended. To the Company's
best knowledge, the Company has no notice and neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of his
actions or, on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity, made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; or made any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
3.25 Accounts Receivable. The accounts receivable of the Company
and its subsidiaries reflected in the SEC Documents, to the extent uncollected
on the date hereof, are, and the accounts receivable of the Company and the
subsidiaries relating to the operation of the Company to be reflected on the
books of the Company on the Closing Date (the "Accounts Receivable") will be, in
all material respects, valid, existing and collectible (taking into
consideration the allowance for sales returns and doubtful accounts set forth in
the financial statements) using reasonably diligent collection methods taking
into account the size and nature of the receivable, and represents amounts due
for goods sold and delivered or services performed. There are not, and on the
date of Closing there will not be, any material refunds, discounts, set-offs,
defenses, counterclaims or other adjustments payable or assessable with respect
to the Accounts Receivable.
ARTICLE 4
COVENANTS
4.1 Best Efforts. The parties shall use their best efforts timely
to satisfy each of the conditions described in Articles 6 and 7 of this
Agreement.
4.2 Securities Laws. The Company shall file a Form D with respect
to the Securities with the SEC as required under Regulation D and shall provide
a copy thereof to each Purchaser within 15 days after the Closing Date. The
Company shall file a Form 8-K disclosing this Agreement and the transactions
contemplated hereby with the SEC within five business days following the Closing
Date. The Company shall, on or prior to the Closing Date, take such action as is
necessary to sell the Securities to each Purchaser under applicable securities
laws of the states of the United States, and shall provide evidence of any such
action so taken to each Purchaser on or prior to the Closing Date.
4.3 Reporting Status. So long as any Purchaser beneficially owns
any of the Securities, the Company shall use its best efforts to timely file all
reports required to be filed by it with the SEC pursuant to the Exchange Act,
and make and keep public information available as those terms are defined in
Rule 144 and the Company shall not terminate its status as an issuer required to
<PAGE>
file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination.
4.4 Use of Proceeds. The Company shall use the Purchase Price to
facilitate the development, manufacture and sale of keratome products and laser
systems and for other general corporate purposes.
4.5 Expenses. Except as may otherwise agreed to, the Company and
each Purchaser shall pay all the costs and expenses incurred by it or on its
behalf in connection with this Agreement and the consummation of the
transactions contemplated hereby.
4.6 Listing. The Company shall use its best efforts to continue
the listing and trading of its Common Stock on the NASDAQ, the New York Stock
Exchange or American Stock Exchange; and comply in all respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the NASDAQ or such exchange, as applicable. As of the Closing the Placement
Shares and the Warrant Shares shall be approved for quotation on the NASDAQ.
4.7 Prospectus Delivery Requirement. Each Purchaser understands
that the Securities Act requires delivery of a prospectus relating to the
Placement Shares and the Warrant Shares in connection with any sale or other
disposition thereof pursuant to the Registration Statement, and each Purchaser
shall comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale or other disposition.
4.8 Transactions with Affiliates. The Company will not, and will
not permit any subsidiaries to, engage in any transaction or group of related
transactions (including, without limitation, the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
affiliate (other than the Company), except in the ordinary course and pursuant
to the reasonable requirements of the Company's or the subsidiaries' business
and upon fair and reasonable terms no less favorable to the Company or such
subsidiaries than would be obtainable in a comparable arm's-length transaction
with a person not an affiliate. The Company will not be deemed in default of
this Section 4.8 in connection with carrying out its obligations pursuant to
those agreements or transactions described in the Furnished SEC Documents.
ARTICLE 5
TRANSFER OF SECURITIES
The Securities shall not be transferable except upon the conditions
specified in this Article 5, which conditions are intended to insure compliance
with the provisions of the Securities Act and state securities laws in respect
of the transfer of any such Securities.
5.1 Restrictive Legend.
(a) Unless and until otherwise permitted by this Article
5, each certificate for the Placement Shares and the Warrant Shares issued to
<PAGE>
Purchasers or to any subsequent transferee of the Placement Share or Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"These shares have not been registered under the Securities
Act of 1933 and may not be offered for sale, sold,
transferred or otherwise disposed of unless registered under
such Act or unless an exemption from such registration is
available. Further, such transfer is subject to the
conditions specified in a Securities Purchase Agreement dated
as of March 22, 1999 pursuant to which such shares were
issued and sold by LaserSight Incorporated (the "Company"), a
copy of which Agreement will be furnished by the Company to
the holder hereof upon request and without charge."
(b) The Company may order its transfer agent for the
Common Stock to stop the transfer of any of the Placement Shares or Warrant
Shares bearing the legend set forth in Subsection (a) of this Section 5.1 until
the conditions of this Article 5 with respect to the transfer of such securities
have been satisfied.
5.2 Notice of Proposed Transfer. If, prior to any transfer or
sale of any the Placement Shares or Warrant Shares, Purchaser desiring to effect
such transfer or sale shall deliver a written notice to the Company describing
briefly the manner of such transfer or sale and a written opinion of counsel for
such Purchaser (provided that such counsel, and the form and substance of such
opinion, are reasonably satisfactory to the Company) to the effect that such
transfer or sale may be effected without the registration of such Securities
under the Securities Act, the Company shall thereupon permit or cause its
transfer agent to permit such transfer or sale to be effected; provided,
however, that if in such written notice the transferring Purchaser represents
and warrants to the Company that the transfer or sale is to a purchaser or
transferee whom the transferring Purchaser knows or reasonably believes to be a
"qualified institutional buyer," as that term is defined in Rule 144A
promulgated by the SEC under the Securities Act ("Rule 144A"), no opinion shall
be required unless reasonably requested in writing by the Company within five
days after receipt of such written notice, in which case such Purchaser shall
deliver to Company such a written opinion of counsel.
5.3 Termination of Restrictions.
(a) Notwithstanding the foregoing provisions of this
Article 5, the restrictions imposed by this Article 5 upon the transferability
of the Placement Shares and the Warrant Shares shall terminate as to any
particular share of such securities when (i) such security shall have been
effectively registered under the Securities Act and sold by Purchaser thereof in
accordance with such registration, or (ii) a written opinion to the effect that
such restrictions are no longer required or necessary under any federal or state
securities law or regulation has been received from counsel for Purchaser
thereof (provided that such counsel, and the form and substance of such opinion,
are reasonably satisfactory to the Company) or counsel for the Company, or
(iii) such security shall have been sold without registration under the
Securities Act in compliance with Rule 144, or (iv) the Company is reasonably
satisfied that Purchaser of such security shall, in accordance with the terms of
<PAGE>
Subsection (k) of Rule 144, be entitled to sell such security pursuant to such
Subsection, or (v)a letter or an order shall have been issued to Purchaser
thereof by the staff of the SEC or the SEC stating that no enforcement action
shall be recommended by such staff or taken by the SEC, as the case may be, if
such security is transferred without registration under the Securities Act in
accordance with the conditions set forth in such letter or order and such letter
or order specifies that no subsequent restrictions on transfer are required.
(b) Whenever the restrictions imposed by this Article 5
shall terminate, as hereinabove provided, a Purchaser who then holds any
particular Placement Shares or Warrant Shares then outstanding as to which such
restrictions shall have terminated shall be entitled to receive from the
Company, without expense to such Purchaser, one or more new certificates for
such securities not bearing the restrictive legend set forth in Section 5.1(a)
hereof.
5.4 Compliance with Rule 144 and Rule 144A. At the written
request of any Purchaser who proposes to sell any of the Placement Shares or
Warrant Shares in compliance with Rule 144, the Company shall furnish to such
Purchaser, within 10 days after receipt of such request, a written statement as
to whether or not the Company is in compliance with the filing requirements of
the SEC as set forth in such Rule. For purposes of effecting compliance with
Rule 144A, in connection with any resales of any Placement Shares or Warrant
Shares that hereafter may be effected pursuant to the provisions of Rule 144A,
any Purchaser desiring to effect such resale and each prospective institutional
purchaser of such shares designated by such Purchaser shall have the right, at
any time the Company is not subject to Section 13 or 15(d) of the Securities and
Exchange Act, to obtain from the Company, upon the written request of such
Purchaser and at the Company's expense the documents specified in
Section (d)(4)(i) of Rule 144A, as such rule may be amended from time to time.
5.5 Non-Applicability of Restrictions on Transfer.
Notwithstanding the provisions of Section 5.2 hereof, any record owner of
Placement Shares or Warrant Shares may from time to time transfer all or part of
such record owner's Placement Shares or Warrant Shares (i) to a nominee
identified in writing to the Company as being the nominee of or for such record
owner, and any nominee of or for a beneficial owner of Placement Shares or
Warrant Shares identified in writing to the Company as being the nominee of or
for such beneficial owner may from time to time transfer all or part of the
Placement Shares or Warrant Shares registered in the name of such nominee but
held as nominee on behalf of such beneficial owner, to such beneficial owner,
(ii) to an Affiliate of such record owner, or (iii) if such record owner is a
partnership or limited liability company or the nominee of a partnership or
limited liability company, to a partner, member, retired partner or member, or
estate of a partner, member or retired partner or member, of such partnership or
limited liability company, so long as such transfer is in accordance with the
transferee's interest in such partnership or limited liability company and is
without consideration; provided, however, that (A) such record owner shall
deliver a written notice to the Company describing in reasonable detail the
manner of such transfer or sale prior to the consummation of such transfer or
sale, (B) each such transferee shall remain subject to all restrictions on the
transfer of Placement Shares or Warrant Shares herein contained, and (C) if
reasonably requested in writing by the Company within five days after receipt of
such written notice, such record owner shall deliver to the Company such
additional information requested by the Company or its counsel (in form and
substance satisfactory to the Company and such counsel) that the proposed
<PAGE>
transfer is within the scope of this Section 5.5 or a written opinion of counsel
for such record owner (provided that such counsel, and the form and substance of
such opinion, are reasonably satisfactory to the Company) to the effect that
such transfer or sale may be effected without the registration of such
securities under the Securities Act.
ARTICLE 6
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 Conditions to the Company's Obligation to Sell. The
obligation of the Company hereunder to issue and sell the Placement Shares and
to issue the Warrants to any Purchaser at the Closing is subject to the
satisfaction, as of the Closing Date and with respect to such Purchaser, of each
of the following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:
(a) Such Purchaser shall have executed this Agreement
and the Registration Rights Agreement and delivered the same to the Company.
(b) Such Purchaser shall have wired same-day funds to
the account designated by the Company equal to the applicable portion of the
Purchase Price.
(c) The aggregate Purchase Price delivered by all of the
Purchasers for the Securities purchased at the Closing shall equal at least
$9,000,000.
(d) The representations and warranties of such Purchaser
shall be true and correct as of the date when made and as of the Closing as
though made at that time (except for representations and warranties that speak
as of a specific date), and such Purchaser shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
applicable Purchaser at or prior to the Closing.
(e) No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which restricts or prohibits the consummation of any of the transactions
contemplated by this Agreement.
ARTICLE 7
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
7.1 The obligation of each Purchaser hereunder to purchase the
Placement Shares to be purchased by it on the Closing Date is subject to the
satisfaction of each of the following conditions, provided that these conditions
are for each Purchaser's sole benefit and may be waived by such Purchaser at any
time in such Purchaser's sole discretion:
<PAGE>
(a) The Company shall have executed this Agreement, the
Warrants and the Registration Rights Agreement and delivered the same to
Purchasers.
(b) The Company shall have delivered to each of the
Purchasers duly executed certificates for the Securities being so purchased by
such Purchaser.
(c) The Placement Shares and Warrant Shares shall be
approved for quotation on the NASDAQ and trading in the Common Stock shall not
have been suspended by the NASDAQ or the SEC or other regulatory authority.
(d) The representations and warranties of the Company
shall be true and correct as of the date when made and as of the Closing as
though made at that time and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing. Purchaser shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer of the
Company, dated as of the Closing Date to the foregoing effect.
(e) The Purchasers shall have completed to their
satisfaction all business, legal, accounting and financial due diligence with
respect to the Company.
(f) No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which restricts or prohibits the consummation of any of the transactions
contemplated by this Agreement.
(g) Purchasers shall have received the Officer's
Certificate described in Section 3.3 dated as of the Closing Date.
(h) Purchaser shall have received an opinion of
Sonnenschein Nath & Rosenthal, dated as of the Closing Date, in the form
attached hereto as Exhibit C.
(i) The aggregate Purchase Price delivered by all of the
Purchasers for the Securities purchased at the Closing shall equal $9,000,000.
(j) The Company shall have delivered to the Purchasers
certificates of good standing of the Company and the subsidiaries which are
organized pursuant to the corporate laws of a State within the United States as
of a date no earlier than ten days prior to the Closing.
(k) The Company shall have delivered to the Purchasers a
certificate executed by a duly authorized officer certifying (i) a copy of the
<PAGE>
Company's certificate of incorporation and the by-laws, (ii) resolutions
authorizing the execution of this Agreement, the Warrants and the Registration
Rights Agreement, and (iii) incumbency matters.
(l) Without limiting the generality of Section 7.1(d),
no Material Adverse Effect shall have occurred, nor shall any event or events
have occurred which would reasonably likely to have a Material Adverse Effect.
(m) Purchasers shall have received a fully executed
Lock-Up Agreement from each of the officers and directors of the Company, in the
form of Exhibit D hereto.
ARTICLE 8
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law; Jurisdiction. This Agreement shall be governed
by and construed in accordance with the Delaware General Corporation Law (in
respect of matters of corporation law) and the laws of the State of New York (in
respect of all other matters) applicable to contracts made and to be performed
in the State of New York, without giving effect to the principles of conflicts
of law. The parties hereto irrevocably consent to the jurisdiction of the United
States federal courts and state courts located in the County of New Castle in
the State of Delaware or the County of New York in any suit or proceeding based
on or arising under this Agreement or the transactions contemplated hereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company and each Purchaser irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
Service of process upon the Company or any Purchaser mailed by certified mail,
return receipt requested, shall be deemed in every respect effective service of
process upon the Company in any suit or proceeding arising hereunder. Nothing
herein shall affect Purchaser's right to serve process in any other manner
permitted by law. A final non-appealable judgment in any such suit or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
8.2 Counterparts. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties.
8.3 Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
<PAGE>
8.5 Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and each Purchaser.
8.6 Notice. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by
nationally-recognized overnight courier or by facsimile-machine confirmed
telecopy, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). Each party shall provide
notice to the other party of any change in address. The addresses for such
communications shall be:
If to the Company:
LaserSight Incorporated
3300 University Boulevard
Suite 140
Orlando, Florida 32792
Telecopy: (407) 678-9981
Attention: Chief Executive Officer
with a copy to:
The Lowenbaum Partnership, L.L.C.
222 South Central Avenue
Suite 901
St. Louis, Missouri 63105
Telecopy: (314) 746-4848
Attention: Timothy L. Elliott, Esq.
and
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Telecopy: (312) 876-7934
Attention: Paul Miller, Esq.
If to the Purchasers:
Pequot Private Equity Fund, L.P.
Pequot Scout Fund, L.P.
Pequot Offshore Private Equity Fund, Inc.
<PAGE>
500 Nyala Farm Road
Westport, Connecticut 06880
Telecopy: (203) 429-2420
Attention: Juliet Tammenoms Bakker
TLC The Laser Center, Inc.
5600 Explorer Drive
Suite 301
Mississauga, Ontario L4W4Y2
Canada
Telecopy: (905) 602-7956
Attention: Elias Vamvakas
with a copy to:
Arent, Fox, Kintner, Plotkin & Kahn, P.L.L.C.
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
Telecopy: (202) 857-6395
Attention: Jeffrey E. Jordan, Esq.
EGS Private Healthcare Partnership, L.P.
EGS Private Healthcare Counterpart, LP
c/o EGS Private Healthcare Management, L.L.C.
350 Park Avenue, 11th Floor
New York, New York 10022
Telecopy: (212) 421-5193
Attention: Abhijeet Lele
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Telecopy: (212) 593-5955
Attention: Peter Nussbaum, Esq.
William D. Corneliuson
777 East Wisconsin Avenue
Suite 3020
Milwaukee, Wisconsin 53202
Telecopy: (414) 291-7410
Stark International
Shepherd Investments International, Ltd.
<PAGE>
c/o Staro Asset Management, L.L.C.
1500 West Market Street
Mequon, Wisconsin 53092
Telecopy: (414) 241-7704
Attention: Brian Davidson
Special Situations Private Equity Fund, L.P.
153 East 53rd Street
51st Floor
New York, New York 10022
Telecopy: (212) 832-6141
Attention: Steven R. Becker
8.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Purchaser shall assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other. The
provisions of this Agreement which are for each of the Purchaser's benefit as a
purchaser of holder of Securities are also for the benefit of, and enforceable
by, any subsequent holder of such Securities.
8.8 Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
8.9 Survival. All representations and warranties in this
Agreement shall survive the execution and delivery of this Agreement and the
Closing. All agreements contained herein shall survive the Closing until, by
their respective terms, they are no longer operative.
8.10 Indemnification.
(a) The Company shall indemnify and hold harmless each
Purchaser, their respective officers, directors, partners, employees, attorneys,
agents, representatives, successors and assigns (each a "Purchaser Entity") from
any (a) Losses (as defined herein) insofar as such Losses (or actions in respect
thereof) incurred or suffered by a Purchaser Entity (whether incurred or
suffered directly or indirectly through ownership of capital stock of the
Company) arise out of or are based upon or are incurred as a result of (i) the
breach or falsity or incorrectness as of the Closing Date of any representation
or warranty, covenants or agreements of the Company contained in or made
pursuant to this Agreement, or (ii) the existence of any condition, event or
fact constituting, or which with notice or passage of time, or both, would
constitute a default in the observance of any of the Company's undertakings or
covenants hereunder, under the Warrants, the Registration Rights Agreement or
the Company's Certificate of Incorporation and By-laws. The Company shall also
pay all reasonable attorney's and accountant's fees and costs and court costs
incurred by any Purchaser in enforcing the indemnification provided for in this
Section 8.10. Notwithstanding the foregoing, the Company expressly agrees and
acknowledges that the right of indemnification granted herein to each Purchaser
<PAGE>
of shall not be deemed to be the exclusive remedy available to such Purchaser
for any of the matters described in this Section 8.10.
(b) For purposes of this Section 8.10, "Losses" shall
mean each and all of the following items. claims, losses, (including, without
limitation, losses of earnings) liabilities, obligations, payments, damages
(actual, punitive or consequential), charges, judgments, fines, penalties,
amounts paid in settlement; costs and expenses (including, without limitation,
interest which may be imposed in connection therewith, costs and expenses of
investigation, actions, suits, proceedings, demands, assessments and fees,
expenses and disbursements of counsel, consultants and other experts). Any
payment (or deemed payment) by the Company to a Purchaser pursuant to this
Section 8.10 shall be treated for federal income tax purposes as an adjustment
to the price paid by such Purchaser for the Securities pursuant to this
Agreement.
(c) Within five days after a party seeking
indemnification under this Section 8.10 shall become aware of the facts
indicating that a claim for indemnification may be warranted, such party shall
give to the party from whom indemnification is being sought a claim notice
relating to such Losses (a "Claim Notice"). Each Claim Notice shall specify the
nature of the claim, the applicable provision(s) of this Agreement or other
instrument under which the claim for indemnity arises and, if possible, the
amount or the estimated amount thereof.
8.11 Stamp Tax and Delivery Costs. The Company will pay all stamp
and other taxes, if any, which may be payable in respect of the sale or other
transfer of the Securities to Purchasers and the issuance thereof to the
Purchasers or their nominee, and will save Purchasers harmless against any loss
or liability resulting from nonpayment or delay in payment of any such tax. The
Company will also pay all reasonable costs of delivery to Purchasers, or
Purchasers' nominee, of the Securities to be purchased by Purchasers or
otherwise transferred to Purchasers.
8.12 Public Filings; Publicity. No party hereto shall make any
public statement regarding the transactions contemplated hereby unless the
language and timing of such statement has been approved by both the Company and
Purchasers or unless such party has been advised by its securities counsel to
make such statement. Notwithstanding the foregoing, each of the parties hereto
may, in documents required to be filed by it with the SEC or other regulatory
bodies, make such statements with respect to the transactions contemplated
hereby as each may be advised is legally necessary upon advice of its counsel;
provided, however, that the party making such determination shall immediately
notify the other party that it intends to make a public announcement and the
parties hereto shall, in good faith, attempt to agree on any public
announcements or publicity statements with respect thereto (which approval shall
not be unreasonably withheld or delayed).
8.13 Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
<PAGE>
8.14 Remedies. No provision of this Agreement providing for any
remedy to a Purchaser shall limit any remedy which would otherwise be available
to such Purchaser at law or in equity. Nothing in this Agreement shall limit any
rights a Purchaser may have with any applicable federal or state securities laws
with respect to the investment contemplated hereby.
8.15 Termination. In the event that the Closing shall not have
occurred on or before March 30, 1999, this Agreement shall terminate at the
close of business on such date.
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
LASERSIGHT INCORPORATED PEQUOT OFFSHORE PRIVATE
EQUITY FUND, INC.
By: /s/Michael R. Farris By: /s/David J. Malat
--------------------------------- -----------------------------
Michael R. Farris David J. Malat
President and CEO Name: -----------------------------
CFO
Title: -----------------------------
PEQUOT PRIVATE EQUITY
FUND, L.P.
By: Pequot Capital Management, Inc.
Investment Manager
By: /s/David J. Malat
------------------------------
David J. Malat
Name: -----------------------------
CFO
Title: -----------------------------
PEQUOT SCOUT FUND, L.P.
By: Pequot Capital Management, Inc.
Investment Manager
By: /s/David J. Malat
------------------------------
David J. Malat
Name: ------------------------------
CFO
Title: -----------------------------
SIGNATURE PAGE NO. 1
TO SECURITIES PURCHASE AGREEMENT
<PAGE>
TLC THE LASER CENTER INC.
By: /s/Ronald J. Kelly
--------------------------------
Ronald J. Kelly
Name: --------------------------------
General Cousel
Title: --------------------------------
EGS PRIVATE HEALTHCARE
PARTNERSHIP, L.P.
By: EGS Private Healthcare Associates,
L.L.C.
By: /s/Fred Greenberg
--------------------------------
Fred Greenberg
Name: --------------------------------
Managing Director
Title: --------------------------------
EGS PRIVATE HEALTHCARE
COUNTERPART, L.P.
By: EGS Private Healthcare Associates,
L.L.C.
By: /s/Fred Greenberg
--------------------------------
Fred Greenberg
Name: --------------------------------
Managing Director
Title: --------------------------------
By: /s/William D. Corneliuson
--------------------------------
William D. Corneliuson
Name: --------------------------------
Individually
Title: --------------------------------
SIGNATURE PAGE NO. 2
TO SECURITIES PURCHASE AGREEMENT
<PAGE>
STARK INTERNATIONAL
By: /s/Michael A. Roth
--------------------------------
Michael A. Roth
Name: --------------------------------
Managing Partner
Title: --------------------------------
SHEPHERD INVESTEMENTS
INTERNATIONAL, LTD.
By: /s/Michael A. Roth
--------------------------------
Michael A. Roth
Name: --------------------------------
Managing Partner
Title: --------------------------------
SPECIAL SITUATIONS PRIVATE
EQUITY FUND, L.P.
By: /s/David M. Greenhouse
--------------------------------
Managing General Partner
David M. Greenhouse
Name: --------------------------------
Managing General Partner
Title: --------------------------------
SIGNATURE PAGE NO. 3
TO SECURITIES PURCHASE AGREEMENT
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
TLC The Laser Center, Inc. ("Investor") or its permitted assigns (individually,
"Holder" and collectively, "Holders") are entitled, subject to the terms set
forth below, to purchase from LaserSight Incorporated, a Delaware corporation
(the "Company") or its successors or assigns, fifty thousand (50,000) fully
paid, validly issued and non-assessable shares of common stock, $0.001 par
value, of the Company ("Common Stock") at an initial exercise price equal to
$5.125 per share in the manner and subject to the conditions hereinafter
provided. The number of shares of Common Stock to be received upon the exercise
of this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as provided in Section 12. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price per
share of Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
Pequot Private Equity Fund, L.P. ("Investor") or its permitted assigns
(individually, "Holder" and collectively, "Holders") are entitled, subject to
the terms set forth below, to purchase from LaserSight Incorporated, a Delaware
corporation (the "Company") or its successors or assigns, thirty-eight thousand
eight hundred thirty-three (38,833), fully paid, validly issued and
non-assessable shares of common stock, $0.001 par value, of the Company ("Common
Stock") at an initial exercise price equal to $5.125 per share in the manner and
subject to the conditions hereinafter provided. The number of shares of Common
Stock to be received upon the exercise of this Warrant and the price to be paid
for each share of Common Stock may be adjusted from time to time as provided in
Section 12. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price per share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
Pequot Scout Fund, L.P. ("Investor") or its permitted assigns (individually,
"Holder" and collectively, "Holders") are entitled, subject to the terms set
forth below, to purchase from LaserSight Incorporated, a Delaware corporation
(the "Company") or its successors or assigns, six thousand two hundred fifty
(6,250), fully paid, validly issued and non-assessable shares of common stock,
$0.001 par value, of the Company ("Common Stock") at an initial exercise price
equal to $5.125 per share in the manner and subject to the conditions
hereinafter provided. The number of shares of Common Stock to be received upon
the exercise of this Warrant and the price to be paid for each share of Common
Stock may be adjusted from time to time as provided in Section 12. The shares of
Common Stock deliverable upon such exercise, and as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares" and the exercise price
per share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
Pequot Offshore Private Equity Fund, Inc. ("Investor") or its permitted assigns
(individually, "Holder" and collectively, "Holders") are entitled, subject to
the terms set forth below, to purchase from LaserSight Incorporated, a Delaware
corporation (the "Company") or its successors or assigns, four thousand nine
hundred seventeen (4,917), fully paid, validly issued and non-assessable shares
of common stock, $0.001 par value, of the Company ("Common Stock") at an initial
exercise price equal to $5.125 per share in the manner and subject to the
conditions hereinafter provided. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as provided in Section
12. The shares of Common Stock deliverable upon such exercise, and as adjusted
from time to time, are hereinafter sometimes referred to as "Warrant Shares" and
the exercise price per share of Common Stock in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the "Exercise
Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
Stark International ("Investor") or its permitted assigns (individually,
"Holder" and collectively, "Holders") are entitled, subject to the terms set
forth below, to purchase from LaserSight Incorporated, a Delaware corporation
(the "Company") or its successors or assigns, thirty-five thousand (35,000),
fully paid, validly issued and non-assessable shares of common stock, $0.001 par
value, of the Company ("Common Stock") at an initial exercise price equal to
$5.125 per share in the manner and subject to the conditions hereinafter
provided. The number of shares of Common Stock to be received upon the exercise
of this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as provided in Section 12. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price per
share of Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
Shepherd Investments International, Ltd. ("Investor") or its permitted assigns
(individually, "Holder" and collectively, "Holders") are entitled, subject to
the terms set forth below, to purchase from LaserSight Incorporated, a Delaware
corporation (the "Company") or its successors or assigns, fifteen thousand
(15,000), fully paid, validly issued and non-assessable shares of common stock,
$0.001 par value, of the Company ("Common Stock") at an initial exercise price
equal to $5.125 per share in the manner and subject to the conditions
hereinafter provided. The number of shares of Common Stock to be received upon
the exercise of this Warrant and the price to be paid for each share of Common
Stock may be adjusted from time to time as provided in Section 12. The shares of
Common Stock deliverable upon such exercise, and as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares" and the exercise price
per share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
William D. Corneliuson ("Investor") or its permitted assigns (individually,
"Holder" and collectively, "Holders") are entitled, subject to the terms set
forth below, to purchase from LaserSight Incorporated, a Delaware corporation
(the "Company") or its successors or assigns, thirty thousand (30,000), fully
paid, validly issued and non-assessable shares of common stock, $0.001 par
value, of the Company ("Common Stock") at an initial exercise price equal to
$5.125 per share in the manner and subject to the conditions hereinafter
provided. The number of shares of Common Stock to be received upon the exercise
of this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as provided in Section 12. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price per
share of Common Stock in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
EGS Private Healthcare Partnership, L.P. ("Investor") or its permitted assigns
(individually, "Holder" and collectively, "Holders") are entitled, subject to
the terms set forth below, to purchase from LaserSight Incorporated, a Delaware
corporation (the "Company") or its successors or assigns, twenty-one thousand
eight hundred seventy-five (21,875), fully paid, validly issued and
non-assessable shares of common stock, $0.001 par value, of the Company ("Common
Stock") at an initial exercise price equal to $5.125 per share in the manner and
subject to the conditions hereinafter provided. The number of shares of Common
Stock to be received upon the exercise of this Warrant and the price to be paid
for each share of Common Stock may be adjusted from time to time as provided in
Section 12. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price per share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
EGS Private Healthcare Counterpart, L.P. ("Investor") or its permitted assigns
(individually, "Holder" and collectively, "Holders") are entitled, subject to
the terms set forth below, to purchase from LaserSight Incorporated, a Delaware
corporation (the "Company") or its successors or assigns, three thousand one
hundred twenty-five (3,125), fully paid, validly issued and non-assessable
shares of common stock, $0.001 par value, of the Company ("Common Stock") at an
initial exercise price equal to $5.125 per share in the manner and subject to
the conditions hereinafter provided. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as provided in Section
12. The shares of Common Stock deliverable upon such exercise, and as adjusted
from time to time, are hereinafter sometimes referred to as "Warrant Shares" and
the exercise price per share of Common Stock in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the "Exercise
Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
Void after 5:00 p.m., New York, New York time, on March 22, 2004
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW AND MAY NOT BE EXERCISED, OFFERED FOR SALE,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT AS PERMITTED UNDER THIS
WARRANT AND THEN ONLY IF REGISTERED UNDER SUCH ACT AND ALL APPLICABLE
STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL TO THE EFFECT THAT NO SUCH
REGISTRATION IS REQUIRED, SUCH OPINION TO BE IN THE FORM OF OPINION
ANNEXED TO THIS WARRANT.
_______________________________________
WARRANT TO PURCHASE COMMON STOCK
of
LASERSIGHT INCORPORATED
1. Grant of Warrant. This is to certify that, for value received,
Special Situations Private Equity Fund, L.P. ("Investor") or its permitted
assigns (individually, "Holder" and collectively, "Holders") are entitled,
subject to the terms set forth below, to purchase from LaserSight Incorporated,
a Delaware corporation (the "Company") or its successors or assigns, twenty
thousand (20,000), fully paid, validly issued and non-assessable shares of
common stock, $0.001 par value, of the Company ("Common Stock") at an initial
exercise price equal to $5.125 per share in the manner and subject to the
conditions hereinafter provided. The number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time as provided in Section
12. The shares of Common Stock deliverable upon such exercise, and as adjusted
from time to time, are hereinafter sometimes referred to as "Warrant Shares" and
the exercise price per share of Common Stock in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the "Exercise
Price."
2. Term. This Warrant shall expire in full to the extent not
exercised by 5:00 p.m., New York, New York time, on March 22, 2004.
3. Exercise of Warrant. This Warrant may be exercised in whole or
in increments of 5,000 shares of Common Stock, subject to the provisions hereof,
by presentation and surrender hereof to the Company at its principal office (or
such other office or agency of the Company as it may from time to time designate
by notice in writing to Holder at the address of Holder appearing on the books
of the Company ("Other Office")) with the Notice of Exercise annexed hereto duly
completed and executed on behalf of Holder, with Holder's signature guaranteed
by an eligible guarantor institution that is a member of a recognized medallion
signature guarantee program, and accompanied by payment of the Exercise Price by
wire transfer, certified or official bank check. As soon as practicable after
each such exercise of the Warrant, but not later than ten (10) business days
from the date of such exercise, the Company shall issue and mail to Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of Holder.
<PAGE>
This Warrant shall be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise as provided above,
unless such date is not a day on which banks are open for business in New York,
New York in which case this Warrant shall be deemed to have been exercised on
the first succeeding day on which banks are open for business in New York, New
York (such date, the "Exercise Date"). The person entitled to receive the shares
of Common Stock issuable upon such exercise shall be deemed to be the holder of
record thereof from and after the Exercise Date, notwithstanding that
certificates representing such Warrant Shares shall not then have been
physically delivered.
4. Reservation of Shares. The Company shall at all times reserve
for issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall from time to time be required for issuance and
delivery upon exercise of the Warrant in full.
5. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. Any
fractional share to which Holder would otherwise be entitled shall be rounded to
the nearest whole share.
6. Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder may change his address as shown on the Warrant Register by written
notice to the Company requesting such change. Any notice or written
communication required or permitted to be given to the Holder may be delivered
or given by mail to such Holder as named in the Warrant Register and at the
address shown on the Warrant Register. Until this Warrant is transferred on the
Warrant Register of the Company in accordance with the provisions hereof, the
Company may treat the Holder named in the Warrant Register as the absolute owner
of this Warrant for all purposes, notwithstanding any notice to the contrary.
7. Warrant Agent. The Company may, by written notice to all
Holders, appoint an agent ("Warrant Agent") for the purpose of maintaining the
Warrant Register, issuing the Common Stock or other securities then issuable
upon the exercise of this Warrant, exchanging this Warrant, or replacing this
Warrant. Thereafter, any such registration, issuance, exchange, or replacement
shall be made at the office of the Warrant Agent.
8. Transfer, Exchange or Replacement.
(a) Transferability and Non-Negotiability of Warrant.
Neither this Warrant nor any interest therein may be transferred or assigned in
whole or in part without compliance with all applicable federal and state
securities laws by Holder and the transferee or assignee thereof, including
delivery of investment intent representation letters and a legal opinion
acceptable to the Company and its counsel to the effect that such transfer or
assignment is exempt from the registration requirements of the Securities Act of
1933 and the rules and regulations promulgated thereunder, or any similar
successor statute (collectively, the "Securities Act"), and any applicable state
securities laws. Subject to the preceding sentence and the Company's prior
written approval of any proposed transferee (such approval, if any, being
subject to the Company's sole and absolute discretion), this Warrant may be
transferred by endorsement (by Holder executing the Assignment Form annexed
hereto with Holder's signature guaranteed by an eligible guarantor institution
that is a member of a recognized medallion signature guarantee program) and
<PAGE>
delivery thereof to the Company or the Warrant Agent, as applicable, together
with payment of any applicable transfer taxes.
(b) Exchange of Warrant Upon a Transfer. On surrender of
this Warrant for exchange, properly endorsed on the Assignment Form with
Holder's signature guaranteed by an eligible guarantor institution that is a
member of a recognized medallion signature guarantee program, and subject to
Section 8(a), the Company at its expense shall issue to Holder a new warrant or
warrants of like tenor, in the name of Holder or as Holder (on payment by Holder
of any applicable transfer taxes) may direct, for the number of shares issuable
upon exercise hereof.
(c) Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in case of loss, theft or destruction, on
delivery of a third-party indemnity agreement reasonably satisfactory in form
and substance to the Company or, in the case of mutilation, on surrender and
cancellation of this Warrant, the Company at its expense shall execute and
deliver, in lieu of this Warrant, an new warrant of like tenor and amount.
9. Compliance with Securities Laws.
(a) Holder, by acceptance of this Warrant, acknowledges
that neither this Warrant nor the Warrant Shares have been registered under the
Securities Act and represents and warrants to the Company that this Warrant is
being acquired for investment and not for distribution or resale, solely for
Holder's own account and not as a nominee for any other person, and that Holder
will not offer, sell, pledge or otherwise transfer this Warrant or any Warrant
Shares except (i) in compliance with the requirements for an available exemption
from the Securities Act and any applicable state securities laws, or (ii)
pursuant to an effective registration statement or qualification under the
Securities Act and any applicable state securities laws.
(b) Certificates for all Warrant Shares shall bear a
legend in substantially the following form:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS SUCH SHARES ARE REGISTERED
UNDER SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL TO THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED.
10. Rights of the Holder. Subject to Sections 12 and 13, and until
the Warrant shall have been exercised as provided herein, Holder shall not be
entitled to vote, receive dividends or other distributions on, or be deemed the
holder for any purpose of, any Warrant Shares or any other securities of the
Company that may from time to time be issuable upon the exercise hereof, nor
shall Holder, in such capacity, enjoy any of the rights of a stockholder of the
Company or any right to vote on, or consent (or withhold consent) to, the
election of directors of the Company or any other matter submitted to the
stockholders of the Company, or to receive notice of meetings thereof.
<PAGE>
11. Registration Rights. Holder shall be entitled to the benefit
of such registration rights in respect of the Warrant Shares as are set forth in
that certain Registration Rights Agreement, dated as of the date hereof, by and
among the Company and the other signatories thereto.
12. Anti-Dilution Provisions. So long as this Warrant, or any
portion thereof, shall remain outstanding and unexpired, the Exercise Price in
effect from time to time and the number and kind of securities purchasable upon
the exercise of the Warrants shall be subject to adjustment from time to time as
follows:
(a) If the Company shall (i) declare a dividend or make
a distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares (any of the foregoing, a
"Dilutive Event"), the Exercise Price in effect at the time of the record date
for such Dilutive Event shall be adjusted so that it shall equal the price
determined by multiplying the Exercise Price by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such Dilutive Event, and the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
Dilutive Event (such fraction, the "Adjustment Factor"). Such adjustment shall
be made successively whenever any Dilutive Event shall occur.
(b) Whenever the Exercise Price payable upon exercise of
each Warrant is adjusted pursuant to Section 12(a), the number of shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by
dividing the number of shares issuable upon exercise of this Warrant by the
Adjustment Factor.
(c) If at any time, as a result of an adjustment made
pursuant to Section 12(d) or 12(e), the Holder of this Warrant shall thereafter
become entitled to receive any shares of the Company, other than Common Stock or
shares of any issuer other than the Company, thereafter the Exercise Price and
the number of such other shares so receivable upon exercise of this Warrant
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in Sections 12(a) or 12(b).
(d) If the Company by reclassification of securities or
otherwise, shall change any of the securities as to which purchase rights under
this Warrant exist into the same or a different number of securities of any
other class or classes, this Warrant shall thereafter represent the right to
acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the securities that were subject to the
purchase rights under this Warrant immediately prior to such reclassification or
other change and the Exercise Price therefor shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 12.
(e) If at any time there shall be (i) a reorganization
(other than a subdivision, combination, reclassification, or other change of
shares otherwise provided for herein), (ii) a merger or consolidation of the
Company with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
<PAGE>
property, whether in the form of securities, cash, or otherwise, or (iii)a sale
or transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a Holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 12. The
foregoing provisions of this Section 12(e) shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporate that are at the time receivable upon the
exercise of this Warrant. In all events, appropriate adjustment (as determined
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after the event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
(f) Whenever the Exercise Price shall be adjusted as
required by the provisions of Section 12, the Company shall promptly file in the
custody of its Secretary or an Assistant Secretary at its principal office or
Other Office and with the Warrant Agent, if any, an officer's certificate
showing the adjusted Exercise Price determined as herein provided, setting forth
in reasonable detail the facts requiring such adjustment, including a statement
of the number of additional shares of Common Stock or other securities, if any,
issuable upon exercise of this Warrant and such other facts as shall be
necessary to show the reason for and the manner of computing such adjustment.
Each such certificate shall be made available at all reasonable times for
inspection by Holder and the Company shall forthwith after each such adjustment
mail a copy of such certificate to Holder at its address last appearing in the
Warrant Register.
13. Notices to Warrant Holders. If at any time while this Warrant,
or any portion thereof, remains outstanding and unexpired, (i) the Company shall
pay any dividend or make any distribution upon the Common Stock (other than
regular quarterly cash dividends or dividends paid in the form of Common Stock),
(ii) the Company shall offer to the holders of Common Stock generally for
subscription or purchase by them any share of the Company of any class or any
other rights issued by the Company, or (iii) the capital reorganization of the
Company, reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, sale of all or
substantially all of the property and assets of the Company to another
corporation or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed to Holder at its address specified in the Warrant Register, at
least 10 days prior to the date specified in (x) or (y) below, as applicable, a
notice containing a brief description of the proposed event described in (i),
(ii) or (iii) above and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the date, if any, is be fixed, as
of which the holders of the Common Stock or other securities shall receive cash
or other property deliverable upon such event. Notwithstanding the above, the
failure to give such notice shall not affect the validity of any transaction for
which the notice was required to be given.
<PAGE>
14. Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law.
15. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
16. Authorization. The Company and Investor each represent and
warrant to the other, as applicable, that (i) each such party is duly organized,
validly existing and in good standing under the laws of their respective
jurisdiction of incorporation, (ii) each such party has the requisite corporate
power and authority to execute this Warrant and to carry out and perform the
terms and provisions of this Warrant, and (iii) this Warrant constitutes the
valid and legally binding obligation of such party.
17. Counterparts. This Warrant may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
18. Notice. Any notice required or permitted to be given shall be
in writing and may be personally served or delivered by courier or by confirmed
telecopy, and shall be deemed to be delivered at the time and date of receipt
(which shall include telephone line facsimile transmission). The addresses for
such communications shall be:
If to the Company:
LaserSight Incorporated
3300 University Boulevard, Suite 140
Orlando, Florida 32792
Telecopy: (407) 678-9982
Attn: Chief Financial Officer
With a copy to:
The Lowenbaum Partnership, L.L.C.
222 South Central Avenue, Suite 901
St. Louis, Missouri 63105
Telecopy: (314) 746-4848
Attn: Timothy L. Elliott, Esq.
And:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Telecopy: (312) 876-7934
Attn: Paul J. Miller, Esq.
<PAGE>
If to the Holder:
----------------------------
----------------------------
----------------------------
Telecopy: ( ) -
------ -----------
With a copy to:
----------------------------
----------------------------
----------------------------
Telecopy: ( ) -
------ -----------
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
----------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
------------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
TLC THE LASER CENTER INC.
- -------------------------
By: /s/Ronald J. Kelly
------------------------
Name: Ronald J. Kelly
------------------------
General Counsel
Title:-----------------------
Date: March 22, 1999
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
------------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
------------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
PEQUOT PRIVATE EQUITY FUND, L.P.
- --------------------------------
By: /s/David J. Malat
------------------------
Name: David J. Malat
------------------------
CFO
Title:-----------------------
Date: March 22, 1999
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
-----------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
------------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
PEQUOT SCOUT FUND, L.P.
- -----------------------------
By: /s/David J. Malat
------------------------
Name: David J. Malat
------------------------
CFO
Title:-----------------------
Date: March 22, 1999
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
-----------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
-----------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
- -----------------------------------------
By: /s/David J. Malat
------------------------
Name: David J. Malat
------------------------
CFO
Title:-----------------------
Date: March 22, 1999
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
-----------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
-----------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
STARK INTERNATIONAL
- --------------------------------
By: /s/Michael A. Roth
---------------------------
Name: Michael A. Roth
---------------------------
Managing General Partner
Title:--------------------------
Date: March 22, 1999
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
-----------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
-----------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
SHEPHERD INVESTMENTS INTERNATIONAL, LTD.
- ----------------------------------------
By: /s/Michael A. Roth
---------------------------
Name: Michael A. Roth
---------------------------
Managing General Partner
Title:-------------------------
Date: March 22, 1999
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
-----------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
-----------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
WILLIAM D. CORNELIUSON
- ---------------------------------------
By: /s/William D. Corneliuson
---------------------------
Name: William D. Corneliuson
---------------------------
Individually
Title:-------------------------
Date: March 22, 1999
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
-----------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
-----------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
EGS PRIVATE HEALTHCARE COUNTERPART, L.P.
- ----------------------------------------
By: EGS Private Healthcare Associates, L.L.C.
-------------------------------------------
By: Fred Greenberg
-------------------------------------------
Name: Fred Greenberg
---------------------------
Managing Director
Title:-------------------------
Date: March 22, 1999
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
-----------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
-----------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
EGS PRIVATE HEALTHCARE COUNTERPART, L.P.
- ----------------------------------------
By: EGS Private Healthcare Associates, L.L.C.
----------------------------------------------
By: Fred Greenberg
---------------------------
Name: Fred Greenberg
---------------------------
Manager Director
Title:--------------------------
Date: March 22, 1999
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized, as of the date below.
Dated as of: March 22, 1999
LASERSIGHT INCORPORATED
By: /s/Michael R. Farris
-----------------------------
Michael R. Farris
Attest: /s/Gregory L. Wilson
-----------------------------
Gregory L. Wilson, Secretary
ACCEPTED AND AGREED:
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
- --------------------------------------------
By: /s/David M. Greenhouse
---------------------------
Name: David M. Greenhouse
---------------------------
Managing General Partner
Title:--------------------------
Date: March 22, 1999
<PAGE>
NOTICE OF EXERCISE
TO: LaserSight Incorporated Dated: _________, 199__
(1) The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing _______ shares of Common Stock and
hereby makes payment ______ of in payment of the actual exercise price thereof.
(2) By exercising this Warrant, the undersigned acknowledges that
such shares have not been registered under the Securities Act of 1933, and
represents and warrants to the Company that such shares are being acquired for
investment and not for distribution or resale, solely for the undersigned's own
account and not as a nominee for any other person, and that the undersigned will
not offer, sell, pledge or otherwise transfer such shares except (i) in
compliance with the requirements for an available exemption from such Securities
Act and any applicable state securities laws, or (ii) pursuant to an effective
registration statement or qualification under such Securities Act and any
applicable state securities laws.
INSTRUCTIONS FOR REGISTRATION OF STOCK
(3) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
Name:
------------------------------------------------------------------------
(Please typewrite or print in block letters)
Name:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Signature:
------------------------------------------------------------------------
(All signatures must be guaranteed by an eligible guarantor institution that is
a member of a recognized medallion signature guaranty program.)
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
Name: -----------------------------------------------------------------------
(Please typewrite or print name of Assignee in block letters)
Address:
-----------------------------------------------------------------------
Number of Shares:
-----------------------------------------------------------------------
and does hereby irrevocably constitute and appoint
______________________________, attorney to make such transfer on the books of
LaserSight Incorporated, maintained for the purpose, with full power of
substitution in the premises.
Dated:
--------------------------
Signature of Holder: ---------------------------------------
The undersigned ASSIGNEE acknowledges that neither the within Warrant
nor, if the registration statement contemplated by the Registration Rights
Agreement referenced in Section 11 of this Warrant has not been declared
effective, any of the Warrant Shares (as defined in the Warrant) have been
registered under the Securities Act of 1933, and the undersigned ASSIGNEE
represents and warrants to the Company that the Warrant and the Warrant Shares
are being acquired for investment and not for distribution or resale, solely for
the undersigned's own account and not as a nominee for any other person, and
that the undersigned ASSIGNEE will not offer, sell, pledge or otherwise transfer
the Warrant or the Warrant Shares except (i) in compliance with the requirements
for an available exemption from such Securities Act and any applicable state
securities laws or (ii) pursuant to an effective registration statement or
qualification under such Securities Act and any applicable state securities
laws.
Dated:
--------------------------
Signature of Assignee: ---------------------------------------
(All signatures must be guaranteed by an eligible institution that is a member
of a recognized medallion signature guaranty program.)
EXHIBIT 11
LASERSIGHT INCORPORATED
COMPUTATION OF LOSS PER SHARE
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average shares outstanding 12,272,000 9,504,000 7,486,300
Issuable shares, acquisition of The Farris Group -- -- 406,700
------------ ----------- ---------
12,272,000 9,504,000 7,893,000
============ =========== =========
Net loss $(11,882,389) (7,253,084) (4,074,369)
Conversion discount on preferred stock (858,872) (41,573) (1,010,557)
Dividends on preferred stock (2,751,953) (298,269) (358,618)
------------- ----------- ----------
Loss attributable to common shareholders $(15,493,214) (7,592,926) (5,443,544)
============ =========== ==========
Basic loss per share (1.26) (0.80) (0.69)
============ =========== ==========
DILUTED
Weighted average number of shares,
as adjusted per above 12,272,000 9,504,000 7,893,000
============ =========== ==========
Net loss $(11,882,389) (7,253,084) (4,074,369)
Conversion discount on preferred stock (858,872) (41,573) (1,010,557)
Dividends on preferred stock (2,751,953) (298,269) (358,618)
------------ ----------- -----------
Loss attributable to common shareholders $(15,493,214) (7,592,926) (5,443,544)
Diluted loss per share $ (1.26) (0.80) (0.69)
============ =========== ===========
Loss attributable to common shareholders above $(15,493,214) (7,592,926) (5,443,544)
Additional adjustment to weighted average number
of shares:
Weighted average number of shares as
adjusted per above 12,272,000 9,504,000 7,893,000
Dilutive effect of contingently issuable
shares, stock options and convertible
preferred stock 2,530,000 4,722,000 317,000
------------ ----------- ----------
Weighted average number of shares, as adjusted 14,802,000 14,226,000 8,210,000
============ =========== ==========
Diluted loss per share, as adjusted $ (1.05)(A) (0.53)(A) (0.66)(A)
============ =========== ===========
</TABLE>
---------------------------
(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.
EXHIBIT 21
----------
SUBSIDIARIES OF REGISTRANT
State or jurisdiction
Subsidiary in which incorporated
- ---------- ---------------------
LaserSight Technologies, Inc. . . . . . . . . .. . . . Delaware
LaserSight Patents, Inc. . . . . . . . . . . . . . . . Delaware
. .
MRF, Inc. (d/b/a The Farris Group) . . . . . . . . . . Missouri
Photomed Acquisition, Inc. . . . . . . . . . . . . . Delaware
LaserSight Centers Incorporated . . . . . . . . . . . Delaware
LS Export, Ltd. . . . . . . . . . . . . . . . . . . . U.S. Virgin Islands
. . . .
LST Laser, S.A. . . . . . . . . . . . . . . . . . . . Costa Rica
. . .
LS Japan Company, Limited (Not active) . . . . . . . . Japan
Exhibit 23
Independent Auditors' Consent
The Board of Directors
LaserSight Incorporated:
We consent to incorporation by reference in the registration statement (No.
33-96390) on Form S-8, registration statement (No. 33-52170) on Form S-8,
registration statement (No. 333-16817) on Form S-8, registration statement (No.
333-16823) on Form S-8, registration statement (No. 333-62587) on Form S-8,
registration statement (No. 333-62591) on Form S-8, registration statement (No.
333-2198) on Form S-3, registration statement (No. 333-25237) on Form S-3,
registration statement (No. 333-36655) on Form S-3, registration statement (No.
333-36837) on Form S-3, registration statement (No. 333-59369) on Form S-3 and
registration statement (No. 333-68495) on Form S-3 of LaserSight Incorporated of
our report dated March 25, 1999, relating to the consolidated balance sheets of
LaserSight Incorporated and Subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, comprehensive loss,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, which report appears in the December 31, 1998,
annual report on Form 10-K of LaserSight Incorporated.
/s/ KPMG LLP
St. Louis, Missouri
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,437,718
<SECURITIES> 0
<RECEIVABLES> 11,548,400
<ALLOWANCES> 2,130,735
<INVENTORY> 8,517,636
<CURRENT-ASSETS> 22,717,073
<PP&E> 3,015,508
<DEPRECIATION> 1,513,169
<TOTAL-ASSETS> 43,872,983
<CURRENT-LIABILITIES> 7,842,435
<BONDS> 0
0
4,000
<COMMON> 13,333
<OTHER-SE> 33,998,005
<TOTAL-LIABILITY-AND-EQUITY> 43,872,983
<SALES> 17,079,952
<TOTAL-REVENUES> 17,756,116
<CGS> 6,048,730
<TOTAL-COSTS> 6,346,242
<OTHER-EXPENSES> 22,020,419
<LOSS-PROVISION> 1,212,896
<INTEREST-EXPENSE> 782,668
<INCOME-PRETAX> (11,650,176)
<INCOME-TAX> 232,213
<INCOME-CONTINUING> (11,882,389)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,882,389)
<EPS-PRIMARY> (1.26)
<EPS-DILUTED> (1.26)
</TABLE>
LASERSIGHT ANNOUNCES FOURTH QUARTER AND YEAR END RESULTS
- ANNOUNCES $9 MILLION EQUITY FINANCING TO SUPPORT
LAUNCH OF NEW PRODUCTS -
Winter Park, FL, (March 29,1999) - LaserSight Incorporated (NASDAQ: LASE) today
announced financial results for the fourth quarter and year ended December 31,
1998. The Company also announced the completion of a $9 million equity private
placement. This additional financing strengthens the Company's resources to
support the launch of its new keratome products and its entry into the U.S.
market.
Revenues for the fourth quarter of 1998 were $3.3 million, compared with
approximately $4.0 million in the same period of 1997 adjusted for the sale of
LaserSight's two health care subsidiaries sold in December 1997. Excluding these
adjustments, revenues for the fourth quarter of 1997 were $6.3 million. Revenues
in the fourth quarter of 1998 were lower relative to prior quarters in 1998 and
the fourth quarter in 1997 due to the fact that the Company obtained CE Mark
approval on the LaserScan LSX ("TM") excimer laser system on September 30, 1998,
which resulted in manufacturing and shipping delays to Europe, one of the
Company's key markets since it currently only sells lasers internationally. As a
result, the Company sold 8 lasers compared with an average of 14 in prior
quarters in 1998 because it was unable to ship as many units to Europe as
expected. However, for the year the Company sold 50 laser systems in 1998
compared to 46 systems in 1997. The Company expects that first quarter of 1999
should return to quarterly unit sales levels in the international markets
similar to that of the first three quarters of 1998.
For the fourth quarter of 1998, the Company reported a net loss of $6.0 million,
or $0.46 per share, compared to a net loss of $5.0 million, or $0.53 per share
in the same period of 1997, reflecting adjustments for the gain on the sale of
the two health care subsidiaries sold in December 1997. Excluding these
adjustments, the net loss in the fourth quarter of 1997 was $1.8 million, or
$0.20 per share.
For the year ended December 31, 1998, the Company's revenues were $17.8 million,
compared to $13.3 million in 1997, including adjustments for the sale of the two
health care subsidiaries sold in December 1997. Excluding these adjustments,
total revenues for 1997 were $24.4 million. The Company incurred a net loss for
1998 of $11.9 million, or $1.26 per share, as compared with a net loss of $10.5
million, or $1.14 per share in 1997, adjusting for the gain on the sale of the
two health care subsidiaries sold in December 1997. Excluding these adjustments,
the net loss was $7.3 million, or $0.80 per share. The Company's increased loss
in the fourth quarter of 1998 was the result of lower revenues combined with
higher expense in preparation for the launch in 1999 of its MicroShape ("TM")
family of keratome products and the anticipated introduction of its excimer
laser system in the U.S.
<PAGE>
In addition, 1999 is a significant year for the Company as it has a number of
refractive surgery related product launches planned, allowing the Company to
enter the U.S. market. First, the Company will launch its MicroShape family of
keratome products and blades for sale in the U.S. and internationally. The
Company expects to start shipping its ADK UniShaper ("TM") single use keratome
in April 1999 to international markets with shipments in the U.S. to follow
shortly thereafter. The Company expects to start shipping its UltraShaper ("TM")
reusable keratome in the second quarter internationally and in the U.S.
following anticipated clearance of its 510K filing for the product. The Company
also expects to enter the market with its high quality UltraEdge("TM") blades
used in keratomes. The Company has established a new blade manufacturing
facility with production scheduled to begin in May 1999 and ramp up over the
ensuing months. All the keratome and blade products will be displayed at the
upcoming Annual Meeting of the American Society for Cataract and Refractive
Surgery to be held in Seattle, Washington on April 10-14, 1999.
Second, the Company's PMA application for its scanning excimer laser system,
which was filed in the second quarter of 1998, is under review by the FDA. The
Company has completed the biomonitoring audits with the FDA and awaits the final
stages of review and inspection, including GMP and labeling issues as required
by the FDA. The Company's Laserscan LSX excimer laser system has been received
positively in the international market by some of the world's leading refractive
surgeons.
Indications of customer demand for the Compan's keratome and blade products
have exceeded management's expectations due to the strong growth in refractive
surgery procedures in 1998 and anticipated in 1999. The Company already has a
significant order backlog. With the recent financing and added infrastructure,
the Company is confident that it will successfully meet demand for its products
and achieve significantly higher revenues in 1999 than in 1998.
On March 23, 1999, the Company completed a $9 million equity private placement
with certain existing and new investors. In connection with this financing, the
Company issued 2,250,000 common shares and warrants to purchase 225,000 common
shares at a price of $5.125 per share.
Michael R. Farris, Chief Executive Officer, commented, "1998 was an important
year for LaserSight as we created a number of key strategic alliances and
prepared several products for launch into the U.S. market. These strategic
alliances include an equity investment made by TLC The Laser Center, Inc., the
largest vision correction corporate centers company in North America, and a
joint venture arrangement with Humphrey Systems to develop topography planned
laser vision correction." Mr Farris added, "We believe that the launch in 1999
of our products is very timely given that the refractive eye care industry is
experiencing tremendous growth with U.S. procedure volumes projected to reach
800,000 in 1999 and 1,200,000 in the year 2000. We expect to be a significant
player in this industry."
<PAGE>
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.
###
(tables to follow)
<PAGE>
<TABLE>
The following are selected financial results
LASERSIGHT INCORPORATED
(In thousands, except per share data)
<CAPTION>
Three Months Ended Twelve Months Ended
------------------ -------------------
12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenues $ 3,303 $ 6,306 $17,756 $24,389
Cost of Sales/Provider Payments 1,789 3,043 6,346 12,702
Gross Profit 1,514 3,263 11,410 11,687
Research, Development and Regulatory 1,356 1,079 3,841 2,808
Selling, General
and Administrative expenses 5,893 6,847 19,030 18,141
Operating Loss (5,735) (4,663) (11,461) (9,262)
Other Expense (283) (340) (553) (1,240)
Gain on Sale of Subsidiaries -- 4,129 364 4,129
Income Tax Expense -- (880) (232) (880)
Net Loss (6,018) (1,754) (11,882) (7,253)
Preferred Stock Accretion/Dividends
and Conversion Discounts -- (285) (3,611) (340)
Loss Applicable to Common Shareholders (6,018) (2,039) (15,493) (7,593)
Loss per Common Share
Basic and Diluted (0.46) (0.20) (1.26) (0.80)
Weighted Average Number of Common
Shares and Equivalents Outstanding
Basic and Diluted 13,173 9,985 12,272 9,504
</TABLE>
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET DATA
---------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Cash and Cash Equivalents $ 4,438 $ 3,858
Marketable Equity Securities -- 7,475
Accounts and Notes Receivable (current), net 9,418 6,412
Total Current Assets 22,717 22,884
Total Current Liabilities 7,842 10,154
Long-Term Obligations 560 500
Redeemable Convertible Preferred Stock -- 11,477
Stockholders' Equity 34,015 27,040
</TABLE>
