As filed with the Securities and Exchange Commission on October 30, 1997
Registration Statement No. 333-32477
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
PRE-EFFECTIVE
AMENDMENT NO. 1
TO FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
(Name of Small Business Issuer in Its Charter)
Delaware 5048 94-3123210
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
1265 Naperville Drive
Romeoville, Illinois 60446
(630) 759-7666
(Address and Telephone Number of Principal Executive Offices)
Michael J. Carroll
President
Franklin Ophthalmic Instruments Co., Inc.
1265 Naperville Road
Romeoville, Illinois 60446
(Name, Address and Telephone Number of Agent For Service)
with copies to:
Michael J. Philippi, Esq.
Helen Levin Toal, Esq.
Ungaretti & Harris
3500 Three First National Plaza
Chicago, Illinois 60602
(312) 977-4400
Approximate Date of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the 'Securities Act'), check the following
box.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
Cross Reference Sheet
Registration Statement Item No. Caption or Location in Prospectus
and Caption
1. Front of Registration Statement Cover Page, Cross Reference Sheet
and Outside Front Cover of
Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information and Risk Prospectus Summary; Risk Factors
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page of
Prospectus; Risk Factors
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Selling Security Holders
9. Legal Proceedings Business of the Company
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Security Holders
Beneficial Owners and
Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Not Applicable
Counsel
14. Disclosure of Commission Statement of Indemnification
Position on Indemnification for
Securities Act Liabilities
15. Organization within Last Five Business of the Company
Years
16. Description of Business Business of the Company
17. Management's Discussion and Management's Discussion and
Analysis or Plan of Operation Analysis of Financial Condition
and Results of Operations
18. Description of Property Business of the Company -
Properties
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity and Market for Securities; Dividend
Related Stockholder Matters Policy; Risk Factors
21 Executive Compensation Management - Executive
Compensation
22 Financial Statements Financial Statements
23. Changes in and Disagreements Business of the Company - Legal
with Accountants on Accounting Proceedings; Risk Factors
and Financial Disclosure
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
17,254,673 Shares of Common Stock
2,400,500 Common Stock Purchase Warrants
This Prospectus relates to the sale by certain selling security holders
identified in this Prospectus (the 'Selling Security Holders') of
17,254,673 shares of Common Stock, $0.001 par value per share (the
'Common Stock'), of Franklin Ophthalmic Instruments Co., Inc. (the
'Company') and 2,400,500 Class B and Class C Common Stock Purchase
Warrants exercisable for $1.00 per share (separately referred to as the
'Class B Warrants' and the 'Class C Warrants' and together referred to
as the 'Warrants'). The Common Stock and Warrants are sometimes
together referred to herein as the 'Securities.' The Common Stock
consists of (i) 14,410,054 shares previously issued by the Company; (ii)
2,400,500 shares issuable upon the exercise of the Warrants; and (iii)
444,119 shares issuable upon the exercise of certain warrants held by
Silicon Valley Bank and Prinz-Franklin L.L.C. See 'SELLING SECURITY
HOLDERS' and 'DESCRIPTION OF SECURITIES.'
The Selling Security Holders may sell all or a portion of the Securities
offered hereby from time to time in the over-the-counter market, in
negotiated transactions, directly through brokers or otherwise, and such
Securities will be sold at market prices prevailing at the time of such
sales or at negotiated prices. The Securities have been registered or
are otherwise eligible for sale in the states of New Jersey and New
York, the states in which the market makers in the Company's Common
Stock are located. See 'SELLING SECURITY HOLDERS.' The Company will
not receive any of the proceeds from the sale of the Securities offered
hereby. The Company will, however, bear all expenses in connection with
the preparation and filing of a Registration Statement of which this
Prospectus forms a part. See 'USE OF PROCEEDS' and 'SELLING SECURITY
HOLDERS.'
The Company's Common Stock is traded on a limited basis on the OTC
Electronic Bulletin Board under the symbol 'FKLN' and on October 13,
1997, the closing bid price for the Common Stock was $0.33 per share.
The Warrants are not currently publicly traded, although another class
of the Company's Common Stock Purchase Warrants (the 'Class A Warrants')
and units consisting of one share of Common Stock and one Class A
Warrant (the 'Units') are also traded on the OTC Electronic Bulletin
Board. See 'MARKET FOR SECURITIES.' The Company will undertake to have
the Warrants traded on the OTC Electronic Bulletin Board. See 'RISK
FACTORS.' There can be no assurances that a substantial trading market
for the Securities will develop or be sustained in the future.
The Securities offered hereby involve a high degree of risk. See 'Risk
Factors' beginning on Page 5 for a discussion of certain material
factors that should be considered in connection with
an investment in the securities offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospective investors should see 'SELLING SECURITY HOLDERS' for
restrictions on the states in which these securities may be sold.
The date of this Prospectus is October 30, 1997
<PAGE>
- - AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the 'Exchange Act') pursuant to which
the Company files reports and other information with the Securities and
Exchange Commission (the 'Commission'). Such reports and other
information filed by the Company may be inspected without charge at, or
copies obtained upon payment of prescribed fees from, the Public
Reference Section of the Commission at Judiciary Plaza Office Building,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 13th Floor, 7 World Trade Center, New York, New York
10048, and at Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. The Company files reports and information
statements electronically. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The
address of such Web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement
on Form SB-2 (herein collectively with all amendments and exhibits
referred to as the 'Registration Statement') under the Securities Act of
1933. This Prospectus does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Securities,
reference is made to the Registration Statement, which may be inspected
and copied in the manner and at the sources described above.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and may distribute quarterly
reports containing unaudited summary financial information of each of
the first three quarters of each fiscal year.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should
be read in conjunction with, the detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. Potential investors should carefully consider the
information set forth under the caption 'RISK FACTORS.'
The Company
Franklin Ophthalmic Instruments Co., Inc., a Delaware corporation
(the 'Company'), sells and services high-quality examination instruments
and equipment used in examination rooms of ophthalmologists,
optometrists, medical organizations and clinics. The Company currently
distributes over 2,000 products from over 40 manufacturers. The Company
markets the products through a sales and service force comprised of
representatives located throughout the United States, and during the
first quarter of fiscal 1997, the Company reintroduced the direct
mailing of catalogs to create supplemental sales. The Company's
operations and primary distribution activities are conducted in
Romeoville, Illinois.
The Company was incorporated under the laws of the State of
Delaware in November 1992 for the purpose of merging Franklin Ophthalmic
Instruments Co., Inc., a California corporation ('FOI-California'), into
the Company, thereby reincorporating FOI-California in the State of
Delaware. FOI-California was incorporated in September 1990 to acquire
the ophthalmic instrument distribution division of Franklin Optical
Company, which was incorporated in the State of California in 1932
('Franklin Optical'). Franklin Optical's primary business was operating
retail locations in California and Hawaii which dispensed prescription
eyeglasses and contact lenses. Franklin Optical also operated an
ophthalmic instrument distribution division. In June 1990 and September
1990, respectively, Franklin Optical sold its two lines of business in
separate transactions. The ophthalmic instrument distribution division
was purchased by the Company. The retail dispensing business was sold
by Franklin Optical to a third party and continued to operate in
California as Franklin Optical Company. Franklin Optical Company is not
affiliated with the Company.
The Company intends to grow in the future through the addition of
outside sales/service representatives, particularly in more heavily-
populated markets in which it currently does not have representation,
and the continued distribution of its recently reintroduced direct mail
catalog. Based on the Company's experience in distributing catalogs for
over 10 years (including the experience of an acquired company),
the Company believes that the reintroduction of a catalog will:
(i) supplement the direct sales/service representative(s); (ii) provide
sales in territories not geographically represented by the Company;
(iii) educate the marketplace as to the latest technology; (iv) enhance
the Company's name-recognition in the ophthalmic marketplace; and (v)
provide an overall source of advertising for the Company.
<PAGE>
Based on information contained in competitor marketing materials
(e.g. advertising, catalogs and exhibitions at industry trade shows) and
information generally available in the industry, the Company believes
that it can be characterized as being somewhat 'unique' in the
marketplace because of: (i) its level of high-tech service capability;
(ii) its more than 10 years experience (including the operations of an
acquired company) in developing and integrating digital imaging products
for the ophthalmic marketplace; (iii) its development and integration of
products such as ophthalmic workstations; and (iv) its status as the
only ophthalmic distributor that is a publicly owned U.S. corporation.
The Company's principal address is 1265 Naperville Drive,
Romeoville, Illinois 60446 and its telephone number is (630) 759-7666.
The Offering
The Securities being offered consist of shares of Common Stock and
Warrants exercisable for $1.00 per share of Common Stock. All of the
Securities are being offered by the Selling Security Holders.
Common Stock offered by Selling Security Holders 14,410,054 shares (1)
Common Stock outstanding at September 30, 1997 19,580,879 shares
Class B Warrants offered by Selling Security Holders 2,156,500 Warrants
Class B Warrants outstanding at September 30, 1997 2,156,500 Warrants
Class C Warrants offered by Selling Security Holders 244,000 Warrants
Class C Warrants outstanding at September 30, 1997 244,000 Warrants
Warrants issued to Prinz-Franklin (400,000) and 441,119 Warrants
Silicon Valley Bank (44,119)
(1) Excluding 2,844,619 shares of Common Stock issuable upon exercise
of certain common stock purchase warrants.
The Class B and Class C Warrants have different expiration dates
but are otherwise identical. See 'DESCRIPTION OF SECURITIES.' The
OTC Electronic Bulletin Board symbol for the shares of Common Stock
of the Company is 'FKLN.' The Company will undertake to have the
Warrants traded on the OTC Electronic Bulletin Board. See 'RISK
FACTORS.'
<PAGE>
Summary Financial Information
As of As of
Balance Sheet Data September 30, 1996 June 30, 1997
Working Capital Deficit $(5,603,846) $(406,282)
Total Assets $4,597,412 $5,385,154
Total Liabilities $7,823,624 $3,624,783
Stockholders'Equity (Deficit) $(3,226,212) $1,760,371
Statement of Operations Fiscal Year Ended Nine Months Ended
Data September 30 June 30,
1995 1996 1996 1997
---- ---- ---- ----
Sales $13,316,949 $8,469,994 $6,427,413 $6,901,829
Gross Profit $ 2,653,669 $2,102,251 $1,506,418 $1,901,390
Income(Loss)Before
Extraordinary Item $(4,336,499) $(2,209,199) $(1,180,361 $ (161,228)
Extraordinary Gain $ - $231,260 $ - $2,886,513
Net Income (Loss) $(4,336,499) $(1,977,939) $(1,180,361) $2,725,285
Earnings (Loss) per Share
of Common Stock:
Income (Loss) Before
Extraordinary Item
Per Share $ (0.80) $ (0.28) $ (0.15) $ (0.01)
Extraordinary Gain per
Share $ - $ 0.03 $ - $ 0.18
Net Income (Loss) per
Share of Common Stock $ (0.80) $ (0.25) $ (0.15) $ 0.17
Weighted Average Number of
Common Shares Outstanding
Used in Computation 5,395,162 7,854,393 7,671,150 15,764,727
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
<PAGE>
RISK FACTORS
The purchase of the Securities offered hereby involves a high
degree of risk. Prospective investors should carefully consider the
following risk factors, as well as other matters set forth elsewhere
herein, before deciding whether to invest in such Securities.
Ability to Continue as Going Concern
The Company incurred net losses for fiscal 1995 and fiscal 1996 of
$4,336,499 and $1,977,939, respectively. The report of the Company's
independent certified public accountants on the Financial Statements
included in this Prospectus contains an explanatory paragraph as to the
substantial doubts that exist concerning the Company's ability to
continue as a going concern. The Financial Statements have been
prepared on the assumption that the Company will continue as a going
concern and therefore assume the realization of the Company's assets and
the satisfaction of its liabilities in the normal course of operations.
Since the close of the Company's 1996 fiscal year, the Company has
completed a restructuring of its bank debt, restructured certain of its
trade debt and raised additional equity capital in two private
placements (collectively, along with conversions of certain debtholders
in fiscal 1996, the 'Recapitalization'). The Company believes that the
Recapitalization, coupled with cost reductions and expanded sales and
marketing efforts, will allow the Company to achieve profitability,
however there is no assurance that the Company will be able to do so.
If profitability is not achieved, the Company will experience a
continued depletion of its liquidity and capital resources, which on a
cumulative basis may adversely affect the Company's ability to maintain
its operations as a going concern. See 'MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.' In
addition, the Company will not receive any proceeds from the sale of the
Securities, and therefore, the sale thereof will not improve its capital
position.
Possible Lack of Funds for Working Capital; No Proceeds to the Company
from the Offering
The Company currently has a negative working capital position, and
its operations have been adversely affected by its lack of working
capital and liquidity. In particular, payment delays to suppliers have
resulted in reduced credit limits, which in turn have resulted in
increasing backlogs and delays in supplying customer orders. As a
result of the Recapitalization, these problems have been reduced, and
the Company believes that it will have sufficient cash available to fund
its operations through February 28, 1998, when its bank line of credit
expires. There can be no assurance, however, that the Company's cash
flow from operations, supplemented by borrowings under the line of
credit, will be sufficient to support its working capital needs. The
Company is currently engaged in negotiations with financial institutions
for a new line of credit; however, there is no assurance that the
Company will be able to extend the line of credit or obtain a line of
credit with a new financial institution when it expires. See
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Liquidity and Capital Resources.' In addition, the
Company will not receive any proceeds from the sale of the Securities,
and therefore, the sale thereof will not improve its working capital
position.
<PAGE>
Correction of Errors; Restatement of Financial Results
In January 1995, a special committee of the Board of Directors
initiated an investigation into the circumstances surrounding the timing
and cause of certain inventory allowances, sales and bad debt
provisions, and goodwill provisions recorded in the fourth quarter of
fiscal 1994 and in the first quarter of fiscal 1995 when the Company's
management included Robert A. Davis (who served as the Company's chief
executive officer, chief financial officer and president and a
director). The special committee was initially comprised of Linda S.
Zimdars and was later changed to Michael J. Carroll and James J. Urban,
who became the Company's chief executive officer and chief operating
officer, respectively, upon the resignations of Messrs. Davis and
Dallas Talley, a former director of the Company, see 'MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
_ Comparison of Fiscal 1996 to Fiscal 1995'). As a result of the
investigation, the Company determined that during the years prior to
fiscal 1995, it had: (i) recorded sales for products not actually
ordered by or shipped to customers; (ii) recorded sales in advance of
the actual shipment of products; (iii) failed to provide adequate
allowances for slow moving or obsolete inventories; and (iv) failed to
provide adequate allowances for doubtful accounts receivable. The
Company then retained the services of its current auditor, BDO Seidman,
LLP, and restated its financial statements for the fiscal years ended
September 30, 1993 and 1994, the quarter ended December 31, 1994 and the
nine months ended June 30, 1995 to correct these errors (the
'Restatement').
The Restatement had the effect of increasing the net loss for
fiscal 1993 by $853,013, or $.34 per share, and of decreasing the net
loss for fiscal 1994 by $89,139, or $.02 per share.
Informal Regulatory Inquiry
The Company and its independent auditors have received certain
correspondence from the San Francisco, California Regional Office of the
Commission requesting documents and other information regarding the
Company. As of the date hereof, the Commission's inquiry is informal in
nature and to the best of the Company's information, knowledge and
belief, the Commission has not issued a Formal Order of Private
Investigation ('Formal Order') regarding the Company. However, were the
Commission to issue a Formal Order, the pendency of a formal
investigation by the Commission could impair or prevent the Company from
raising additional capital. Moreover, although the Company believes
that the Restatement has corrected all prior reporting errors, the
Commission could develop information in such an investigation which
could raise additional issues with respect to the Company's prior
reporting possibly giving rise to claims by the Company's stockholders.
<PAGE>
Potential Insufficiency of Authorized Shares
The holders of the Class A Warrants are entitled to certain anti-
dilution rights. See 'DESCRIPTION OF SECURITIES _Warrants to Purchase
Common Stock _ Class A Warrants.' In accordance with such rights the
exercise price has been reduced from its original level of $5.00 per
share of Common Stock to $2.30 per share, and the aggregate number of
shares of Common Stock issuable upon exercise of such warrants has been
increased from 2,062,500 to 4,487,740. As a consequence of the increase
in the number of shares issuable upon the exercise of the Class A
Warrants, the Company no longer had sufficient shares of Common Stock
authorized to provide for the exercise of all of the outstanding common
stock purchase warrants and options. To remedy this situation, the
Company has reached an agreement with Michael J. Carroll and James J.
Urban pursuant to which Messrs. Carroll and Urban have agreed to
surrender to the Company for redemption shares of Common Stock held by
them to the extent necessary to permit the issuances of the shares of
Common Stock underlying common stock purchase warrants or options which
are exercised. See 'CERTAIN TRANSACTIONS.' In any event, the Company
plans at the next annual meeting to seek stockholder approval of an
amendment to the Company's Articles of Incorporation increasing the
authorized number of shares of Common Stock.
Dependence upon Manufacturers and Suppliers
A majority of the Company's revenue is derived from the
distribution of ophthalmic instruments. The Company does not
manufacture the products which it distributes and is therefore dependent
upon the manufacturers of such products. There are approximately 40
manufacturers of the products which the Company distributes. The Company
has, for many years, maintained distribution agreements with several of
the manufacturers of such products. However, such agreements
have been non-exclusive, and the manufacturers offer the same or
substantially similar products to many distributors. In addition,
although most major manufacturers do not typically sell directly to end-
users of the products, the distribution agreements may permit the
manufacturers to sell their products directly to government and teaching
institutions, optical chain stores and the like.
The Company's distribution agreements generally have purchase
commitments, sometimes require the Company, as a distributor, to
maintain a minimum amount of inventory and are subject to cancellation
or termination by either party thereto upon up to 90 days prior written
notice. Given the Company's recent fiscal constraints, its
relationships with some of the manufacturers have been strained. In
connection with the Recapitalization, the Company has provided for
repayment and/or conversion (into shares of Common Stock) of outstanding
debt owed by the Company to certain manufacturers. Notwithstanding
participation by several manufacturers in the Recapitalization and the
indication of their willingness to continue to work with the Company,
there can be no assurance that the manufacturers with whom it has
reached such agreements will otherwise continue to work with the Company
in the future.
<PAGE>
For the fiscal years ended September 30, 1996 and 1995, over 50% of
the Company's revenues were derived from sales of instruments and other
products produced by six manufacturers (or an average of 8.3% of the
Company's revenue per manufacturer). During the nine months ended June
30, 1997, approximately 59% of the Company's revenues were derived from
the sales of instruments and other product by seven manufacturers. A
break down of these seven manufacturer's for the nine months ended June
30, 1997 is a follows: (1) Haag-Streit, Inc = 13.2%; (2) Heine USA Ltd.
= 4.5%; (3) Marco Ophthalmic Inc. = 9%; (4) Nikon, Inc. = 5%; (5)
Reichert Ophthalmic Instruments, Inc. = 10.7%; (6) Reliance Medical
Products (a subsidiary of Haag-Streit A.G.)= 12.8%; and (7) Welch Allyn =4%.
There can be no assurance that such manufacturers will be willing or
able to continue to meet the Company's supply requirements or that the
Company will continue to have access to the equipment and products it
currently offers for sale. The loss of any one of the major
manufacturers may have a material adverse effect on the results of
operations of the Company.
The manufacturers with whom the Company deals are subject to risks
attended any business including being affected by recessions, strikes
and government regulation. Many of the major manufacturers are foreign
corporations or U.S. subsidiaries of foreign corporations, such as Canon
USA, Inc., Leica Inc., Nikon Inc. Instrument Group and Haag-Streit
Services, Inc., whose products are predominently manufactured outside
the United States. Such overseas operations are subject to risks such
as economic or political instability, shipping delays, fluctuations in
foreign currency exchange rates, customs duties and other trade
restrictions.
Reliance on Key Management Personnel
The Company relies heavily upon the services of Michael J. Carroll,
as President, Chief Executive Officer and a director of the Company,
James J. Urban, as Senior Vice President, Chief Operating Officer and a
director of the Company, and Brian M. Carroll, as Vice President and
Chief Financial Officer of the Company. Each of the foregoing
individuals has entered into an employment agreement with the Company.
See 'MANAGEMENT.' While the Company currently maintains relatively
small insurance policies on the lives of each of these individuals, the
loss of any of them may be materially detrimental to the Company.
Company's Customer Base Dependent on Sales Representative Loyalty
Sales representatives in the ophthalmic equipment business
typically develop long-term relationships with their customers. Should
any of the Company's sales representatives leave the employ of the
Company in order to join a competing distributor or to commence his or
her own competing business, the Company could lose some or all of the
customers doing business with the Company through such sales
representative. See 'BUSINESS OF THE COMPANY.'
<PAGE>
Competition
The distribution of non-surgical medical office equipment and
instruments to ophthalmologists and optometrists is highly competitive,
with such distribution historically being accomplished by numerous
small, owner-operated distributors located in significant population
centers in the country. These distributors sell and service most well-
known brands of equipment in relatively small geographical areas and
often have long-established relationships with strong loyalties from
their clientele. The Company's largest competitor is Lombart Instrument
Company ('Lombart') which has representatives located in some regions in
which the Company has sales representatives. In addition, due to the
combination of Southern Optical Company, Duffens Optical Company and
Wisconsin Optical Services as a result of acquisitions by Essilor Inc.
('Essilor'), a French company primarily in the business of lens
fabrication used in the sale of eyewear, a new entity has been formed
that also exceeds the sales of the Company. Based upon information
generally known in the industry (such as sales and dollar volume of
business conducted by the larger distributors) and information provided
by manufacturers, management believes Lombart, Essilor and the Company
are the three largest ophthalmic equipment distributors in the United
States. Notwithstanding the Company's size, competition from Lombart
and Essilor, fragmentation of the industry and the strong loyalty of
customers to distributors may limit the Company's ability to increase
its market penetration. In addition, the Company's business is not
characterized by substantial regulatory or economic barriers to entry,
and there is no assurance that additional companies will not enter the
ophthalmic instrument distribution business. See 'BUSINESS OF THE
COMPANY.'
Absence of Dividends on Common Stock
The Company has not paid any cash dividend on its Common Stock and
does not anticipate paying such dividends in the foreseeable future.
The Company's agreement with Silicon Valley Bank includes a covenant
prohibiting the payment of dividends by the Company. Instead of paying
dividends, the Company intends to retain all working capital and
earnings, if any, for use in the Company's operations and in the
expansion of its business. See 'DIVIDEND POLICY' and 'DESCRIPTION OF
SECURITIES.'
<PAGE>
Possible Resales of Common Stock by Current Stockholders and Depressive
Effect on Market
At September 30, 1997, there were 16,232,723 shares of Common Stock
outstanding which were 'restricted securities' as that term is defined
in Rule 144, promulgated under the Securities Act of 1933, as amended
(the 'Securities Act'), including 14,410,054 shares being registered
pursuant to this Registration Statement of which this Prospectus is a
part. Such shares will be eligible for public sale only if registered
under the Securities Act or sold in accordance with Rule 144. In
general, under Rule 144, a person who has satisfied a one-year holding
period may sell a limited number of such restricted securities in
ordinary brokerage transactions. In addition, Rule 144 permits, under
certain circumstances, the sale of restricted securities without any
quantity limitations by a person who is not an affiliate of the Company
and who has satisfied a two-year holding period. The timing and amount
of any sales of Common Stock covered by the Registration Statement of
which this Prospectus is a part or any future registration statement or
under Rule 144 could have a depressive effect on the market price of the
Company's Common Stock and on the ability of the Company to obtain
additional equity financing. See 'PRINCIPAL SECURITY HOLDERS,' 'CERTAIN
TRANSACTIONS' and 'DESCRIPTION OF SECURITIES.'
Potential Anti-Takeover Effect of Future Stock Issuances by the Company;
Potential Dilution
At September 30, 1997, the Company had authorized 25,000,000 shares
of Common Stock, $0.001 par value per share, of which 19,580,879 shares
were issued and outstanding and an additional 5,419,121 shares had been
reserved for specific purposes, and 1,000,000 shares of preferred stock,
$0.001 par value per share (the 'Preferred Stock'), none of which were
outstanding. The Preferred Stock is not reserved for any purpose and may
be issued without any action or approval by the Company's stockholders.
The Preferred Stock may be issued with such designation, rights and
preferences as may be determined from time to time by the Board of
Directors. Although there are no present plans, agreements or
undertakings with respect to the Company's issuance of any shares of
such stock or related warrants, options or convertible securities, the
issuance of any of such stock or other securities by the Company could
have anti-takeover effects insofar as they could be used as a method of
discouraging, delaying or preventing a change in control of the Company.
Such issuance, as well as the exercise of outstanding options or
warrants, could also dilute the public ownership of the Company and
reduce a stockholder's pro rata ownership interest in the Company. See
'CAPITALIZATION' and 'DESCRIPTION OF SECURITIES.'
No Assurance of Public Market
The Units, Common Stock and Class A Warrants of the Company are
traded on the OTC Electronic Bulletin Board under the symbols, FKLNU,
FKLN and FKLNW, respectively. There currently is not an OTC Electronic
Board symbol for the Warrants. The Company will undertake to have the
Warrants quoted on the OTC Electronic Bulletin Board; however, there is
no assurance that such quotation will occur. As a result of the
Company's securities being quoted on the OTC Electronic Bulletin Board
and the Warrants not being quoted, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the price of, the
Securities offered hereby.
Arbitrary Determination of Exercise Price of Warrants
The exercise price of the Warrants was arbitrarily determined by
the Company and does not necessarily bear any relationship to the
Company's asset or book value, net worth or any other established
criteria of value. The exercise price of the Warrants should therefore
not be regarded as indicative of the actual value of the Company's
Common Stock.
<PAGE>
Possible Redemption of the Warrants
In the event that the average of the closing bid or last reported
sale prices of the Common Stock exceeds $3.00 per share for any period
of 20 consecutive trading days, the Warrants may be redeemed by the
Company for $.10 per Warrant prior to exercise or expiration on 30 days
prior written notice. Although holders of the Warrants will have the
right to exercise their Warrants through the date of redemption, they
may be unable to do so because they lack sufficient funds at the time of
redemption, or they may simply not wish to invest any more money in
shares of the Common Stock at that time. Should a holder of the
Warrants fail to exercise or to sell such Warrants on or prior to the
redemption date, such Warrants will have no value beyond their
redemption value. See 'DESCRIPTION OF SECURITIES.'
Certain Provisions of Certificate of Incorporation and By-Laws Limiting
Director Liability and Discouraging Changes in Control
The Company's Certificate of Incorporation and Bylaws contain
provisions which may discourage certain transactions which involve an
actual or threatened change in control of the Company. These provisions
include classification of the Board of Directors. See 'DESCRIPTION OF
SECURITIES' and 'MANAGEMENT.'
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that a director of the Company
will not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty of care as a director,
except under certain circumstances including breach of the director's
duty of loyalty to the Company or its stockholders or any transaction
from which the director derived an improper personal benefit. See
'STATEMENT OF INDEMNIFICATION.'
Voting Control by Current Officers and Directors
At September 30, 1997, the officers and directors of the Company
owned or controlled the voting of 36.96% of the Company's issued and
outstanding Common Stock. There are no cumulative voting rights, and
directors must be elected by a plurality of the outstanding voting
securities entitled to vote. By virtue of their ownership of the
Company's issued and outstanding Common Stock, the officers and
directors of the Company will have the ability to significantly affect
the composition of the Board of Directors and, consequently, to
influence the Company's business and affairs.
No Underwriter Participation
No underwriter has participated in the preparation of this
Prospectus. Generally, in an underwritten offering, an underwriter
would conduct certain investigations relative to the issuer, its
business and the terms of the offering in order to establish a
reasonable basis for determining the completeness of the disclosures set
forth in any offering documents. Inasmuch as no underwriter has
participated in the preparation of these offering materials, such an
investigation has not been conducted in connection with this offering.
<PAGE>
Unaudited Financial Statements
The Company's unaudited financial statements for the nine month
period ended June 30, 1997 are contained herein. Although management
believes that the unaudited financial statements included herein fairly
present the financial position of the Company as of such date, no
assurance can be given that the Company's independent auditors in
connection with the preparation of an audit of such period may not
recommend adjustments to such financial statements, which adjustments
may be material.
<PAGE>
MARKET FOR SECURITIES
On July 23, 1993, in connection with its initial public offering,
the Company applied for and was granted inclusion of its securities for
quotation on the NASDAQ SMALLCAP MARKETSM ('NASDAQ'), and its Units,
Common Stock and Class A Warrants commenced quotation on NASDAQ. On
April 27, 1995, due to the Company's inability to fulfill the
maintenance criteria for continued quotation of its securities on
NASDAQ, the Company's securities ceased to be quoted on NASDAQ, at which
time the Company's securities began being quoted on the OTC Electronic
Bulletin Board. The Units, Common Stock and Class A Warrants are traded
under the symbols FKLNU, FKLN, and FKLNW, respectively. The Company
will undertake to have the Warrants traded on the OTC Electronic
Bulletin Board. See 'RISK FACTORS.'
The following table sets forth, for the periods indicated, the
reported high and low bid and asked price quotations for the Units,
Common Stock and Class A Warrants for the fiscal years ended September
30, 1995, 1996, and 1997. Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent
actual transactions.
Common Stock Class A Warrants
Bid ($) Asked ($) Bid ($) Asked($)
Period of Quote High Low High Low High Low High Low
Fiscal 1995:
1st Quarter 2-5/8 1-1/4 3-3/8 1-3/8 6/8 2/8 1-1/8 2/8
Second Quarter 1-3/8 3/8 1-5/8 3/8 2/8 1/8 3/8 1/8
Third Quarter 13/16 3/8 3/16 / N/A N/A N/A N/A
Fourth Quarter 3/4 3/8 3/4 3/8 N/A N/A N/A N/A
Fiscal 1996:
First Quarter 5/8 1/8 1 7/32 3/100 1/100 3/50 7/200
Second Quarter 3/4 5/32 7/8 7/32 2/25 1/100 1/10 7/200
Third Quarter 11/16 15/16 27/32 7/16 9/50 7/200 3/10 11/200
Fourth Quarter 1-7/25 1/4 1-3/10 11/25 17/100 6/100 23/100 1/10
Fiscal 1997:
First Quarter 1-3/8 3/8 1-5/8 7/16 1/5 / 13/50 7/100
Second Quarter 7/8 5/16 1 17/50 9/100 3/100 1/10 7/100
Third Quarter 11/25 1/4 47/100 27/100 1/20 1/50 7/100 7/200
Fourth Quarter 1/2 1/2 3/5 7/25 3/100 3/100 2/50 2/50
Units
Bid Asked
High Low High Low
Fiscal 1995:
First Quarter 2-3/48 1-3/8 2-3/4 3/4
Second Quarter 1-3/8 3/4 1-3/8 3/4
Third Quarter 1/2 1/2 1/2 1/2
Fourth Quarter 1/2 1/2 5/8 1/2
Fiscal 1996:
First Quarter 1/4 1/8 7/8 7/16
Second Quarter 9/16 1/8 1-1/2 7/16
Third Quarter 1/2 1/2 5/8 1/2
Fourth Quarter 1 1/4 1-3/4 3/4
Fiscal 1997
First Quarter 1-1/4 1/4 1-15/16 7/8
Second Quarter 13/16 1/4 1-1/4 7/8
Third Quarter 1/2 1/4 1-3/16 1/2
Fourth Quarter 1/2 7/25 22/25 63/100
At September 30, 1997, there were 210 holders of record of Common
Stock, 83 holders of record of Class A Warrants, 45 holders of record of
Class B Warrants and 9 holders of record of Class C Warrants. The
foregoing is based in part upon information furnished by Continental
Stock Transfer and Trust Company, New York, New York, the transfer agent
for the Company's Common Stock and warrant agent for the Class A
Warrants. The Company is the warrant agent for the Class B and Class C
Warrants.
<PAGE>
DIVIDEND POLICY
There have been no cash dividends paid in fiscal years 1995, 1996
or 1997. The Company does not anticipate paying any cash dividend on its
Common Stock in the foreseeable future, but instead intends to retain
all working capital and earnings, if any, for use in the Company's
operations and in the expansion of its business. Also, the Company's
agreement with Silicon Valley Bank includes a covenant prohibiting the
distribution of dividends by the Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Common Stock or Warrants by the Selling Security Holders. See 'SELLING
SECURITY HOLDERS.'
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Going Concern
The report of the Company's independent certified public
accountants contains an explanatory paragraph as to the substantial
doubts that exist concerning the Company's ability to continue as a
going concern.
As discussed in the notes to the financial statements and elsewhere
herein, the Company at the end of fiscal 1996 was in default under the
terms of its revolving credit facility with Silicon Valley Bank, which
is the Company's primary credit facility ('Silicon'). Additionally, in
part because of that default and the resulting inability to obtain
additional working capital, the Company has been unable to make timely
reductions in the amount owed to its product suppliers. As a
consequence, the Company was unable to obtain otherwise customary trade
credit and was limited to purchases of product on limited credit terms
or with payment on delivery. In certain instances, this has prevented
the Company from obtaining products to fill customer orders.
In connection with the Company's financial restructuring efforts,
the Company reached agreements with Silicon, its primary trade creditors
and certain debt-holders during the fourth quarter of fiscal 1996 and
the first quarter of fiscal 1997 (collectively, the 'Debt
Restructuring'). See 'Comparison of Nine Months Ended June 30, 1997 to
Nine Months Ended June 30, 1996' and 'Liquidity and Capital Resources.'
In addition, during the first three quarters of fiscal 1997, the Company
was able to raise $1,780,250 in new capital through the private
placement of equity (together with the Debt Restructuring, the
'Recapitalization').
<PAGE>
The Company believes that with (i) the Recapitalization, (ii) the
increase in trade credit which the Company has received upon the Debt
Restructuring and increases subsequent to the aforementioned Debt
Restructuring; and (iii) the expansion of the Company's marketing
efforts and sales territory, the Company will be able to achieve sales
increases by reducing the limiting effects that the Company's lack of
working capital have had on marketing and the ability to obtain products
necessary to accept and fill customer orders on a timely basis, allow
the Company to refinance outstanding debt when it comes due in fiscal
1998 and ultimately return to profitability and generate positive cash
flows.
The Company's ability to continue as a going concern is ultimately
dependent on its ability to increase its sales to a level that will
allow it to operate profitably and generate positive cash flows, and to
refinance outstanding debt when it comes due. There can be no assurance
that with the Recapitalization that the Company will be able to increase
sales levels that would achieve profitability which could force the
Company to significantly reduce its operations in order to reduce
expenses or take other actions to resolve liquidity constraints that may
arise.
Comparison of Fiscal 1996 to Fiscal 1995.
General. During the first two quarters of fiscal 1995, the Company
underwent significant management, structural and operational changes.
Pursuant to or in connection with an agreement effective April 1, 1995
among the Company, Robert A. Davis (the Company's former chief executive
officer, chief financial officer and president and a director), and
certain partnerships and a trust in which Mr. Davis had an interest (the
'Davis Entities'), and Michael J. Carroll, James J. Urban and Brian M.
Carroll (the 'Separation Agreement'), Mr. Davis and Mr. Dallas Talley
(another director of the Company) resigned their positions with the
Company and Messrs. Michael Carroll and James Urban were elected to fill
the resulting vacancies on the Company's Board of Directors (the 'Board
of Directors'). The Separation Agreement also provided that the Davis
Entities would (i) contribute 800,000 shares of Common Stock back to the
Company and (ii) forgive a $200,000 debt owed by the Company. Under the
Separation Agreement, the Company agreed to release and indemnify Mr.
Davis for any claims, other than claims for fraud and certain types of
negligence, which might be made in connection with Mr. Davis' service as
an officer or director of the Company.
<PAGE>
Until the second quarter of fiscal 1995, the Company operated a
Hayward, California facility, a Lawrenceville, Georgia facility, a
Jacksonville, Florida facility (which was added with the Company's
acquisition of Progressive Ophthalmic Instruments Co., Inc.) and a
Romeoville, Illinois facility (which was added with the Company's
acquisition of Midwest Ophthalmic Instruments, Inc., defined as 'MOI').
See 'BUSINESS OF THE COMPANY - Properties.' During the second quarter
of fiscal 1995, the Company's new management closed all but the
Romeoville, Illinois facility.
In January 1995, the Company commenced restructuring the Company's
operations around the MOI operations acquired by the Company in July
1994, and began operating under the trade name Franklin_MOI. The
Company instituted throughout its sales force compensation structures
and other policies similar to those historically used by MOI, which
included: (i) the use of sales quotas and scheduling requirements; (ii)
a commission structure that contained lower base and higher incentive
components; (iii) greater accountability for expenses and inventory; and
(iv) limits on competitive activities. As a result of the
aforementioned changes, approximately 50% of the Company's prior sales
representatives terminated their representation of the Company or were
dismissed. Some but not all of the these representatives have been
replaced and, as a result, the Company has lost representation in
certain geographic areas or with certain accounts previously serviced by
it. See 'BUSINESS OF THE COMPANY - Marketing.'
As a result of these substantial changes in the Company's
operations, operating results for the fiscal years ended September 30,
1995 and 1996 lack comparability. The results for fiscal 1995 reflect
the transition described above, which was initiated by current
management during the second quarter of fiscal 1995. The results for
fiscal 1996 reflect a full year of operations of the Company under the
MOI structure and under new management and include the results of the
Company's efforts to reduce costs through the consolidation of sales and
operational functions.
Results of Operations. Sales declined by $4,846,955 or 36.4% from
$13,316,949 in fiscal 1995 to $8,469,994 for fiscal 1996. The
previously discussed restructuring of the Company's sales operations,
and the Company's lack of working capital, were the dominant reasons for
the overall decline in sales volume.
The Company's gross margin on sales declined from $2,653,669 for
fiscal 1995 to $2,102,251 for fiscal 1996 as a result of the decline in
sales. Gross margin as a percentage of sales increased from 19.9% in
fiscal 1995 to 24.8% in fiscal 1996. The increase in gross margin as a
percentage of sales for the fiscal year ended September 30, 1996 was
primarily attributable to the predominance of MOI's operations in the
operating results for fiscal 1996. MOI's sales included a greater level
of products designed by MOI, and related technical services, and as a
result generated a higher gross margin than those of the Company's other
operations prior to the integration of MOI.
<PAGE>
Selling, general and administrative ('SG&A') expenses decreased
from $5,315,753 in fiscal 1995 to $3,575,555 in fiscal 1996. The
reduction in expenses related to SG&A was primarily attributed to the
consolidation of all operations into a single facility located in
Romeoville, Illinois, and the reduction in personnel and related
overhead. Approximately $300,000 in SG&A expenses incurred in fiscal
1996 were for professional fees related to restructuring the Company and
the expense associated with the issuance of 600,000 shares to Tiger Eye
Capital.
During the fiscal ended September 30, 1995, the Company recorded an
inventory loss of $770,000. The loss was primarily believed to be as a
result of poor controls over inventories issued to sales representatives
and the transfer of the Company's inventories from Hayward, California
to Jacksonville Florida during fiscal 1994. The Company did not have
an inventory write down for fiscal 1996.
Interest expense increased from $688,345 for fiscal 1995 to
$737,942 in fiscal 1996. Interest expense consisted of: (i)
approximately $515,000 of interest on borrowings under the Company's
line of credit with Silicon Valley Bank ('Silicon'); and (ii)
approximately $187,942 of interest on debt to trade creditors and short
term borrowings. As a result of the conversion of over $3,000,000 owed
to Silicon into equity, as described below, and the conversions to
equity and/or forgiveness of over $700,000 of trade debt, which were
completed subsequent to fiscal 1996, management expects future interest
expense to decline.
As a result of the foregoing factors, the Company reported a loss
of $1,977,939 for fiscal 1996 as compared to a loss of $4,336,499 for
fiscal 1995.
Comparison of Nine Months Ended June 30, 1997 to Nine Months Ended June
30, 1996
General. In the first quarter of fiscal 1997, the Company
completed a financial restructuring that began in fiscal 1996. In
connection with such restructuring, the Company's primary lender,
Silicon, converted $3,175,105 in debt owed by the Company to Silicon
into 2,088,884 shares of the Company's Common Stock, and transferred the
remaining $1.8 million owed to Silicon to a new credit facility with
Silicon. The shares of Common Stock issued to Silicon represented
along with warrants held by Silicon to purchase 44,119 shares of Common
Stock, a 13.17% beneficial ownership in the Company based on 16,193,611
shares of Common Stock outstanding at the time of the conversion in
November 1996. In addition, the Company reached agreements with
certain trade creditors pursuant to which such trade creditors: (i)
converted an aggregate of approximately $533,000 owed to them into
shares of Common Stock at a price of $1.52 per share; (ii) forgave trade
debt in the amount of approximately $201,000; and (iii) accepted certain
promissory notes (having a maturity date up to twenty-four months from
the date thereof and an applicable interest rate of 10%) in payment of
additional trade debt totaling $368,000. The restructuring with
Silicon and the trade creditors and the conversion of promissory notes
by certain debtholders is referred to as the 'Debt Restructuring.'
<PAGE>
In conjunction with the Debt Restructuring, the Company completed a
private placement in the first quarter of fiscal 1997 of 2,400,500 units
comprised of two shares of Common Stock and one common stock purchase
warrant entitling the holder to purchase one share of Common Stock at
$1.00 per share within a specified period (collectively, the
'Warrants'), for an aggregate price of $1,200,250. See 'DESCRIPTION OF
SECURITIES - Class B and Class C Warrants.' In addition, in the third
quarter of fiscal 1997 the Company raised $580,000 through a private
placement of 2,900,000 shares of Common Stock and 400,000 common stock
purchase warrants. The foregoing private placements and the Debt
Restructuring are collectively referred to as the 'Recapitalization.'
Results of Operations. For the nine months ended June 30, 1997,
sales increased by $474,416 to $6,901,829 from $6,427,413 for the nine
months ended June 30, 1996. The Company attributes the increase to the
recent expansion of marketing efforts through the addition of a national
direct mail catalog and the addition of sales personnel in new
territories.
The Company's gross margin on sales increased by $394,792 to
$1,901,390 for the nine months ended June 30, 1997 from $1,506,418 for
the nine months ended June 30, 1996. Gross margin as a percentage of
sales increased to 27.5% for the nine months ended June 30, 1997 from
23.4% for the nine months ended June 30, 1996. The Company attributes
the increase in gross margin as a percentage of sales to the Company
taking advantage of certain manufacturer rebate programs as a result of
the Company's increase in sales volume, and the Company's emphasis on
the sale of technical services, private-label products and refurbished
equipment, which have historically provided the Company with greater
profit margins. In addition, the capital infusion that took place
during the first quarter of fiscal 1997 has allowed the Company to take
advantage of better product purchasing opportunities. Although
manufacturers may offer rebate programs in the future that could
maintain or perhaps increase the Company's profit margin and its profit
as a percentage of sales, there can be no assurance that such programs
will be offered or if they are, that the Company will be able to take
advantage of such programs. In addition although, management believes
that it can continue to increase gross profit margins and gross margins
as a percentage of sales in the future, there can be no assurance that
attempts to increase sales may not require incentive pricing (additional
discounts to create a higher volume of sales to meet or better
competitor pricing that would reduce margins and the margins as a
percentage of sales).
For the nine months ended June 30, 1996 and 1997, selling, general
& administrative expenses decreased by $109,035 from $1,865,628 to
$1,756,593 respectively. The decrease is primarily attributed to the
decrease in professional fees associated with the Company's
restructuring efforts during fiscal 1996.
For the nine months ended June 30, 1996 and 1997, amortization and
depreciation decreased from $320,691 to $222,869, respectively. The
decrease is primarily attributable to the elimination of amortization
expense that the Company incurred during fiscal 1996 pertaining to the
acquisition of certain software rights.
<PAGE>
No extraordinary gain was reported for the nine months ended June
30, 1996 while an extraordinary gain of $2,886,513 was reported for the
nine months ended June 30, 1997. The gain resulted from the Debt
Restructuring.
For the nine months ended June 30, 1996 and 1997, interest expense
decreased from $500,512 to $88,799, respectively. The decrease in
interest expense is primarily a result of the Company's restructuring of
its bank financing with Silicon in which Silicon converted $3,175,105 of
principal and interest into 2,088,884 shares of the Company's Common
Stock.
As a result of the foregoing, the Company reported net income of
$2,725,285 for the nine months ended June 30, 1997 versus a net loss of
$1,180,361 for the same period of the prior year.
Liquidity and Capital Resources
Cash flow from operations improved from negative $390,916 in fiscal
1995 to positive $51,980 in fiscal 1996. The improvement resulted
primarily from management's efforts in reducing costs. Cash flow from
operations was a negative $1,164,233 for the nine months ended June 30,
1997 versus a positive $244,231 for the same period of the prior year.
The negative operating cash flow for the nine months ended June 30, 1997
was primarily due to increases in accounts receivable and inventory to
support the Company's growth. The Company financed the negative cash
flows with the proceeds of private placements of securities during the
quarters ended December 31, 1996 and June 30, 1997.
The Company's principal credit facility is a revolving credit
facility with Silicon. The line of credit, which is secured by
essentially all of the Company's assets, initially provided for
borrowings of up to $4,000,000, limited to (i) 80% of the amount of
eligible accounts receivable; and (ii) the lesser of $1,500,000 or 50%
of the book value of eligible inventories, reduced by trade accounts
payable. The line of credit provided for the payment of interest
monthly at the rate of 1% over Silicon's prime rate for borrowings
collateralized by accounts receivable and 3% over the bank's prime rate
for borrowings collateralized by inventory. The line of credit was
scheduled to mature on February 5, 1995.
During fiscal 1995, the balance outstanding under the line of
credit exceeded the amount available under the borrowing formula and the
Company was otherwise in default with respect to certain provisions of
the line of credit agreement. On April 1, 1995, Silicon agreed to
extend the term of the Company's line of credit through February 6, 1996
(subsequently extended to April 15, 1996), and agreed to forbear in the
exercise of its rights resulting from the Company's past defaults or
defaults in the future compliance with the financial covenants and
advance the Company an additional $500,000, conditioned upon the
Company's agreement to make certain scheduled reductions in both: (i)
the amount of the total borrowings outstanding and (ii) the amount by
which total borrowings exceeded the amount available under the
collateral formula. Under the extended agreement, all borrowings bore
interest, payable monthly, at the annual rate of 3% above Silicon's
<PAGE>
prime rate, subject to reduction as the amount of the Company's over-
formula borrowings decreased. In addition, the Company agreed to modify
the terms of warrants to purchase 44,119 shares of Common Stock to
provide for exercise at a price of $.50 per share through March 31,
2000.
Throughout fiscal 1996, the Company continued to be in default of
the provisions in the amended credit agreement with Silicon. At
September 30, 1996, principal of $4,375,304 and accrued interest of
$443,394 were outstanding under the line of credit. In September 1996,
the Company reached agreement with Silicon on an Amended and Restated
Loan and Security Agreement (the 'Amended Agreement') under which
Silicon agreed to convert approximately $3 million of amounts owed to it
by the Company under its line of credit into shares of the Company's
Common Stock at the rate of $1.52 per share. Silicon further agreed to
extend the maturity date with respect to the remaining $1.8 million
under the line of credit to July 29, 1997. The Amended Agreement was
conditioned on or required, among other things, (i) the Company's
simultaneous receipt of at least $1 million of proceeds from the private
placement of its securities; (ii) the Company's best efforts in
converting certain amounts owed to trade suppliers into equity
securities or long-term notes; and (iii) the personal guarantees of
Messrs. Michael Carroll, James Urban and Brian Carroll for an aggregate
amount not to exceed $200,000. The Company met the conditions of the
Silicon agreement during the first quarter of fiscal 1997 and the new
line of credit became effective in November 1996.
The Amended Agreement provides a line of credit to the Company in
an amount equal to the lesser of $1.8 million or the amount supported by
a formula-derived borrowing base. The borrowing base is equal to (i)
80% of the amount of eligible accounts receivable and (ii) the lesser of
50% of eligible inventories or $1.0 million. Interest under the Amended
Agreement was at the rate of 2% over Silicon's prime rate and was
payable on a monthly basis. In August 1997, the Company and Silicon
agreed to further extend the line of credit which was originally
scheduled to expire on July 29, 1997, until February 28, 1998. The
interest rate charged was increased to 3% over Silicon's prime rate upon
effectiveness of the amendment and increases to 4% over Silicon's prime
lending rate if the Company is still indebted to Silicon at January 31,
1998.
At June 30, 1997, outstanding borrowing under the line of credit totaled
$1,573,191.
The Company is currently unable to raise capital through the
issuance of additional shares of Common Stock or warrants, options or
other securities exercisable for or convertible into shares of Common
Stock because of an insufficiency in the number of available authorized
shares of Common Stock. See 'RISK FACTORS _ Potential Insufficiency of
Authorized Shares' and 'CERTAIN TRANSACTIONS'. As a result of the
Recapitalization, however, the Company believes that it will have
sufficient cash available to fund its operations through February 28,
1998, when its bank line of credit expires. There can be no assurance,
though, that the Company's cash flow from operations, supplemented by
borrowings under the line of credit, will be sufficient to support its
working capital needs. Although the Company is engaged in negotiations
for the refinancing of the line of credit, there is no assurance that
the Company will be able to refinance or extend its bank line of credit
when it expires.
<PAGE>
Inflation
While inflation has not had a material effect on the Company's
operations in the past, there can be no assurance that the Company will
be able to continue to offset the effects of inflation on the costs of
its products or services through price increases to its customers
without experiencing a reduction in the demand for its products; or that
inflation will not have an overall effect on the ophthalmic medical
instruments market that would have a material effect on the Company.
Implementation of New Accounting Standards
In March 1995, the Financial Accounting Standards Board ('FASB')
issued Statement Number 121, 'Accounting for the Impairment of Long
Lived Assets and for Long-Lived Assets to be Disposed Of,' which
requires the Company to review long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The assessment of the impairment is based upon the
estimated undiscounted future cash flows from operating activities
compared with the carrying value of the assets. If the undiscounted
future cash flows of an asset are less than the carrying value, a write-
down would be recorded measured by the amount of the difference between
the carrying value of the asset and the fair value of the asset. The
Statement is required for financial statements for fiscal years
beginning after December 15, 1995. The Company adopted this Statement
during fiscal 1997 and it did not have a significant impact on the
Financial Statements when implemented.
In December 1995, FASB issued Statement Number 123, 'Accounting for
Stock-Based Compensation.' Statement Number 123 is effective for fiscal
years beginning after December 15, 1995, and requires either the
application of an option pricing model measurement for stock
compensation, or, if a company elects to continue to measure stock
compensation based on the difference between the market price of the
Company's common stock and the exercise price of the employee stock
option, disclosure of what the effects of the application of option
pricing model measurement would have been. The Company will initially
apply Statement Number 123 in fiscal 1997 and will elect to disclose the
effect that the application of option pricing model measurement would
have had for options granted from October 1, 1995.
In March 1997, FASB issued Statement Number 128, 'Earnings Per
Share' ('SFAS 128'), which provides a different method of calculating
earnings per share than is currently used in APB Opinion 15. SFAS 128
provides for the calculation of basic and diluted earnings per share.
Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution of securities that could share
in the earnings of an entity, similar to existing fully diluted earnings
per share. The Company believes adopting SFAS 128 will not have a
material effect on its calculation of earnings per share. The Company
will adopt the provisions for computing earnings per share set forth in
SFAS 128 in December 1997.
<PAGE>
Forward Looking Statements
This Prospectus, including 'RISK FACTORS,' 'BUSINESS OF THE
COMPANY' and 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS,' contains forward-looking
statements within the meaning of the 'safe-harbor' provisions of the
Private Securities Litigation Reform Act of 1995. Such statements are
based on management's current expectations and are subject to a number
of factors and uncertainties which could cause actual results to differ
materially from those described in the forward-looking statements. Such
factors and uncertainties include, but are not limited to: (i)
restrictive covenants contained in the Company's bank debt documents;
(ii) the ability of the Company to refinance the line of credit with
Silicon when it comes due; (iii) competitive conditions in the Company's
markets; (iv) the Company's dependence on certain manufacturers; (v)
general economic conditions and conditions in the ophthalmic industry;
(vi) fluctuations in the stock market; and (vii) the ability of the
Company to retain and attract sales/service representatives.
BUSINESS OF THE COMPANY
The Business
The Company sells and services high-quality examination instruments
and equipment used in examination rooms of ophthalmologists,
optometrists, medical organizations and clinics. The Company currently
distributes over 2,000 products from over 40 manufacturers.
The Industry
According to the National Eye Institute, the annual cost to society
of eye disorders, visual impairments and blindness exceeds $5 billion.
Disorders of the eye represent one of the most widespread health care
conditions in the world today. It has been estimated that more than 67%
of the world's population suffers from one or more treatable eye
disorders. The most common of these disorders are cataracts, glaucoma
and refractive error. It has been forecast that by the year 2000 the
number of people aged 65 and older in the United States will approach 35
million, and the rate of eye disease will increase to eight out of ten
people. This is expected to result in a significant growth in the
number of ophthalmologists, optometrists and eye care centers. (Source:
U.S. Ophthalmic Diagnostic Instruments & Intraocular Lens Market, Theta
Corporation, February 1991.).
Based upon information provided by Optometry Today, publishers of
an industry leading trade publication, there are over 50,000
ophthalmologists and optometrists in the United States, engaging in
general practice and a variety of sub-specialties, including retina and
vitreous, glaucoma, neuro, ocularplastics, pediatric, cataract, cornea
and refractive surgery. Practitioners provide services through private
individual practices, private group practices, private multi-specialty
clinics, hospitals, universities and governmental agencies.
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The suppliers of products and services within the ophthalmic
industry fall into the following categories: (i) ophthalmic diagnostic
equipment firms (the category in which the Company falls); (ii) optical
(glasses, frames, and contact lenses) manufacturing/fabricating and
distribution firms; (iii) surgical manufacturing and distribution firms;
and (iv) pharmaceutical manufacturing and distribution firms. Many
firms in the industry do business in more than one of the above
categories.
Based on the Company's experience in distributing catalogs for over
10 years (including the experience of an acquired company), the Company
believes that the reintroduction of a catalog will: (i) supplement the
direct sales/service representative(s); (ii) provide sales in
territories not geographically represented by the Company; (iii) educate
the marketplace as to the latest technology; (iv) enhance the Company's
name-recognition in the ophthalmic marketplace; and (v) provide an
overall source of advertising for the Company.
A majority of the Company's sales are comprised of products that
can be characterized as 'capital purchases,' and users strongly
scrutinize each instrument according to its price and operational
efficiency. Customers often do not expect to pay list price. In
addition, many of the products are very durable, making for a long
replacement cycle. Users also take advantage of refurbished units.
Despite the foregoing, the Company believes that innovations in
equipment development will support growth in the marketplace. According
to a report by Frost & Sullivan, the ophthalmic diagnostic marketplace
is expected to grow at an annualized rate between 5 and 10% per year
through the year 2000. The projected growth is expected as a result of
clinical acceptance of new technologies and such technologies becoming
more affordably priced. In addition, end users that had been postponing
purchases of traditional equipment are expected to replace existing
devices with the latest technology during the period of projected
growth. (Source: U.S. Ophthalmic Diagnostic Equipment Markets, Frost
and Sullivan, 1994.). None of the data sources cited in this section is
associated with the Company.
Principal Products and Services
Chairs and Stands. A mandatory component of any ophthalmic
examination room is the chair in which the patient will sit and/or lie
while being examined. There are several types of chairs, which may
adjust automatically or manually to allow for several patient positions
for different examinations or surgical procedures. Instrument stands
provide for one or an array of examination instruments to be available
to the examiner at the patient examination chair through use of
counterbalanced articulating arms. The Company distributes chairs and
instrument stands manufactured by Reliance Medical Products ('Reliance')
and Marco Ophthalmic Inc. ('Marco Ophthalmic').
Ophthalmic Workstations. The ophthalmic workstation primarily
consists of a station allowing for the adaptation of certain
instrumentation and for the control of electrical functions
(illumination and instrument controls) in an examination room. The
Company currently is a systems integrator of such workstations and
customizes the material for such products to meet the specifications of
the ophthalmic practitioner.
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Slit Lamps. A slit lamp is used for examinations of all portions
of the eye. It projects a slit of light onto the eye itself (slit
illumination), which can then be viewed at variable magnifications and
illuminations. Although the slit lamp is primarily utilized by
ophthalmic practitioners, many emergency rooms in hospitals are also
equipped with slit lamps. The slit lamp can be expanded by adding
photographic adaptations and/or digital applications through the use of
video or digital cameras, which allow the user to receive hard copy
information or transmit data through phone lines. The Company sells
slit lamps manufactured by Haag-Streit Service, Inc. ('Haag-Streit'),
Marco Ophthalmic, Nikon Inc. Instrument Group ('Nikon') and Reichert
Ophthalmic Instruments, a division of Leica Inc. ('Reichert/Leica').
Refractors. A refractor, also known as a phoroptor, is used for
exact diagnosis of a person's 'refraction acuity.' The refractor
determines exactly how well a person sees without glasses and what
prescription lenses are required to correct that person's vision. A
refractor can be categorized as manual (an instrument where lenses are
manually adjusted to the patient's needs) or automated (an instrument
utilizing microprocessor technology and infrared light to determine a
person's refractive error). As automated refractors become more
approachable in price and continue to allow for increased efficiencies
in diagnosing refractive error, there is a gradual tendency to up-grade
to the automated technology. In addition, automated refractors provide
for hard copy print-outs of refractive measurements and/or provide the
ability for the practitioner to transfer refractive measurements to
computers through networking. The Company sells manual phoroptors
manufactured by Reichert/Leica and Marco Ophthalmic, and automated
refractors manufactured by Canon U.S.A., Inc. ('Canon') and Nikon.
Retinal/Fundus Cameras. A retinal or fundus camera is an
instrument with optical components that allows the user to capture
images primarily through the posterior portion of the eye utilizing
various fields of view and magnifications. Retinal cameras are
classified as either mydriatic or non-mydriatic. The non-mydriatic type
is utilized without dilation of the patient's pupil and is primarily
used for general diagnostic purposes. Mydriatic cameras are used in
conjunction with a fluid which causes full dilation of the pupil and
allows for larger fields of view for the observation of problems,
including tissue degeneration and vein enlargement and/or hemorrhages.
Mydriatic cameras offer versatile photographic applications, including
external and color fundus photography, fluorescein photography and
stereo photography. Images are acquired from retinal/fundus cameras by
using film (35mm or Polaroid film), video and/or digital cameras. The
Company sells retinal/fundus cameras manufactured by Canon and Nikon.
Tonometers. The tonometer measures intra-ocular pressure, a
measure for the incidence of glaucoma. Tonometers are either manual or
automated (utilizing micro-processor technology). The Company
distributes manual tonometers manufactured by Clement-Clarke, Inc.,
Haag-Streit and Nikon. The Company distributes automated tonometers
manufactured by Keeler Instruments, Reichert/Leica and Mentor
Corporation ('Mentor').
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Keratometers. A keratometer measures the curvature of a patient's
cornea. Keratometers are either manual or automated. Automated
keratometers utilize micro-processor technology and allow for hard copy
print-outs of measurements and/or the transfer of information digitally
into a computer. Automated keratometers are also available with a
combined autorefraction capability (see 'Refractors'), which allows for
dual functionality. The Company distributes manual keratometers
manufactured by Reichert/Leica and Marco Ophthalmic. The Company
distributes automated keratometers manufactured by Canon and Nikon.
Lensometers. The lensometer is used to measure the curvature of
prescribed lenses in order to verify that the lens is appropriate prior
to dispensing. Lensometers may be manual or automated. Manual
lensometers require greater knowledge of the process and more time for
measurements. Automatic lensometers utilize microprocessor technology
and allow for hard copy print-outs of measurements and/or the transfer
of information digitally. The Company distributes manual and automatic
lensometers manufactured by Marco Ophthalmic, Nikon and Reichert/Leica.
Projection Systems. The Company distributes a range of projection
systems which project acuity testing characters (arrangements of
letters, numbers and/or symbols) onto a screen in an examination room,
including projection systems of standard manual type projectors,
automated projectors which utilize microprocessor technology and
infrared controls, and projection systems utilizing computer monitors to
display the aforementioned testing characters. The Company distributes
projection systems manufactured by Reichert/Leica and Marco Ophthalmic,
and automated systems by Reichert/Leica, Marco Ophthalmic, Mentor and
Nikon.
Used and Refurbished Equipment. The Company also purchases, and
acquires through trade-in, used equipment. After the equipment is
checked and, if required, refurbished, the equipment is then re-
marketed, providing customers with a lower-priced alternative to new
equipment.
Other. In addition to the above, the Company sells other items
such as hand held diagnostic instruments, diagnostic and laser lenses,
charts, disposables and parts.
Technical Service and Support. Approximately 75% of the Company's
personnel are trained to provide technical service and support for
ophthalmic instrumentation. As technology in the ophthalmic marketplace
continues to evolve, the Company believes that its ability to provide
technical service and support will result in a competitive advantage in
the marketplace.
Marketing
Direct Mail. Beginning in October, 1996, the Company reintroduced
its use of direct mailing of catalogs as a method of marketing the
equipment and services that the Company provides. The Company had
ceased using such a catalog in approximately May, 1995 due to the
Company's attention to its reorganization of its operations and its
fiscal constraints.
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Based on the Company's experience in distributing catalogs for over
ten years (including the experience of an acquired company), the Company
believes reintroduction ofa catalog will (i) supplement the efforts of
sales/service representatives; (ii) provide sales in territories not
geographically represented by the Company; (iii) educate the marketplace
as to the latest technology; (iv) enhance the Company's name-recognition
in the ophthalmic marketplace; and (v) provide an overall source of
advertising for the Company. Since its reintroduction, the Company has
mailed approximately 36,000 catalogs to potential customers.
Sales Representatives. At September 30, 1997, the Company
maintained a sales and service force of approximately 22 representatives
in locations throughout the United States. It is the sales/service
representative's responsibility to follow-up on sales leads provided as
a result of past business, marketing efforts and referrals from
manufacturers of the equipment that the Company sells. Sales and
service personnel are required to complete formal training sponsored by
ophthalmic manufacturers and the Company in order to maintain
familiarity with the latest technical developments.
Trade Shows. The Company attends and exhibits at approximately 15
trade shows or conventions per year including regional and national
shows and conventions (including those sponsored by the American Academy
of Ophthalmology, American Academy of Optometry and Vision Expo-East &
West). The Company has recently reduced the number of trade shows it
attends in comparison to past years in response to what the Company
believes is a trend in the industry for its customers to attend fewer of
the local trade shows in favor of the larger meetings that offer more
training sessions, industry updates and larger displays of technology.
Customers
The end-user marketplace in the United States for ophthalmic
instruments is comprised of different classifications of eye
practitioners and a diverse base of institutional private and public
health care providers. Sales of the Company are divided approximately
equally among the following classifications.
The Ophthalmologist. The ophthalmologist is a medical doctor
specializing in the diagnosis, treatment and care of the eye and related
systems. The ophthalmologist may prescribe glasses, contact lenses and
medication and perform surgical procedures.
The Optometrist. An optometrist is a licensed doctor trained in
the diagnosis of refractive errors and the diagnosis (and the treatment
in some procedures) of diseases of the eye.
Other Customers. In addition to the eye-care professionals
described above that work in individual and group practices, the Company
sells to hospitals, hospital groups, medical clinics, health maintenance
organizations, surgical centers, universities, teaching colleges, and
various state and federal agencies. The Company has also sold product
to non-ophthalmic related providers including ear, nose and throat
practitioners, dermatologists and plastic surgeons. Such sales,
however, comprise a small portion of the Company's revenues and the
Company does not, and currently has no plans to, market its products
directly to such providers.
<PAGE>
History and Business Strategy
The Company was incorporated under the laws of the State of
Delaware in November 1992 for the purpose of reincorporating Franklin
Ophthalmic Instruments Co., Inc., a California corporation ('FOI-
California') in the State of Delaware. FOI-California, was incorporated
under the laws of the State of California in September 1990. Effective
January 1993, FOI-California was merged with and into the Company
thereby effecting said reincorporation in the State of Delaware. Unless
otherwise indicated, references made hereinafter to the Company include
FOI-California.
FOI-California was incorporated for the purpose of acquiring the
ophthalmic instrument distribution division of Franklin Optical Company
('Franklin Optical'), which was incorporated in the State of California
in 1932. Franklin Optical's primary business was operating retail
locations in California and Hawaii which dispensed prescription
eyeglasses and contact lenses. Franklin Optical also operated an
ophthalmic instrument distribution division. In June 1990 and September
1990, respectively, Franklin Optical sold its two lines of business in
separate transactions. The ophthalmic instrument distribution division
was purchased by the Company. The retail dispensing business was sold
by Franklin Optical to a third party and continued to operate in
California as Franklin Optical Company. Franklin Optical Company is not
affiliated with the Company.
In July 1993, the Company completed its initial public offering
(the 'Initial Public Offering') of 1,437,500 Units (the 'Units') at an
initial offering price of $4.00 per Unit. Each Unit consisted of one
share of Common Stock and one warrant to purchase a share of Common
Stock at an exercise price of $5.00 per share through July 1998
(collectively, the 'Class A Warrants').
In January 1994, the Company acquired certain of the assets and
assumed certain of the liabilities of Progressive Ophthalmic
Instruments, Inc., a Florida corporation ('POI'). Shortly thereafter,
the Company relocated its operations from Hayward, California to
Jacksonville, Florida, where POI was located. In July 1994, the Company
acquired all of the issued and outstanding shares of common stock of
Midwest Ophthalmic Instruments, Inc., an Illinois corporation ('MOI').
MOI initially operated as a wholly owned subsidiary and was eventually
merged into the Company in March 1995.
Pursuant to or in connection with an agreement dated April 1, 1995
between the Company, Robert A. Davis (the Company's former chief
executive officer, chief financial officer, president and a director),
and certain partnerships and a trust in which Mr. Davis has an interest,
and Michael J. Carroll, James J. Urban and Brian M. Carroll (the
'Separation Agreement'), Mr. Davis and Mr. Dallas Talley (another
director of the Company), resigned their positions with the Company and
Messrs. Michael Carroll and James Urban were elected to fill vacancies
on the Company's Board of Directors (the 'Board of Directors'). See
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Comparison of Fiscal 1996 to Fiscal 1995.'
<PAGE>
In January 1995, the new management of the Company commenced its
attempt to restructure the Company's operations around the MOI
operations acquired by the Company in July 1994, and the Company
commenced operating under the trade name Franklin_MOI. Also as part of
the restructuring efforts, the Hayward, California facility, the
Lawrenceville, Georgia facility and the Jacksonville, Florida facility
were closed. Additionally, the Company instituted throughout its sales
force compensation structures and other policies similar to those
historically used by MOI, which included: (i) the use of sales quotas
and scheduling requirements; (ii) a commission structure that contained
lower base and higher incentive components; (iii) greater accountability
for expenses and inventory; and (iv) limits on competitive activities.
As a result of the aforementioned changes, approximately 50% of the
Company's prior sales representatives terminated their representation of
the Company or were dismissed. Some but not all of these
representatives have been replaced and, as a result, the Company has
lost representation in certain geographic areas or with certain accounts
previously serviced by it.
Since the close of the Company's 1996 fiscal year, the Company has
completed a restructuring of its bank debt, restructured certain of its
trade debt and raised additional equity capital in two private
placements (collectively, along with conversions of certain debtholders
in fiscal 1996, the 'Recapitalization'). See 'MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATION--Comparison of Nine Months Ended
June 30, 1997 to Nine Months Ended June 30, 1996.'
With the completion of the Recapitalization, management of the
Company is shifting its attention from financial restructuring to more
actively seeking sales growth through the reintroduction of a direct
mail catalog and the addition of sales/service personnel. The Company
currently has sales/service representatives primarily located in the
Midwest and Southeast. It is the Company's intention to expand its
representation by seeking sales candidates to represent the Company in
other heavily-populated parts of the United States. The Company intends
to fund its operations and the expansion of its business in part through
the retention of working capital and earnings, if any. See 'DIVIDEND
POLICY.'
Competition
The distribution of ophthalmic instruments is competitive The
Company has historically competed on the basis of price, service,
promptness of delivery, reputation and relationship with customers. The
distribution of ophthalmic instruments has historically been
accomplished by numerous small, owner-operated distributors located in
significant population centers in the country. These distributors sell
and service most well-known brands of equipment in relatively small
geographical areas and often have long-established relationships with
strong loyalties from their clientele. Other than Lombart Instrument
Company (the largest ophthalmic instrument distributor in the United
States) and Essilor Inc., management believes that there is no other
ophthalmic distributor with greater geographical coverage than the
Company.
<PAGE>
A number of consolidations are occurring in the industry,
accelerated by a trend by ophthalmic instrument manufacturers to reduce
the number of their distributors, primarily through the imposition of
sales quotas. The Company has in the past pursued a program of growth
through acquisitions and may one day seek to make additional
acquisitions. However, the Company's current financial position makes
it unlikely that it will be able to pursue any acquisitions in the near
future, if at all, which may adversely affect the Company's competitive
position. See 'RISK FACTORS.'
Backlog
Beginning in fiscal 1995, because of the financial constraints the
Company experienced with regard to cash flow and reduced credit limits
from its suppliers, the Company experienced increasing backlogs and
delays in supplying orders. With the completion of the
Recapitalization, and assuming continuing cooperation from its
suppliers, the Company expects these problems to diminish. See 'RISK
FACTORS.'
Employees
At September 30, 1997, the Company employed 32 full-time employees
(6 of whom were in management positions), including 7 in accounting and
operations, and 22 sales and service representatives. The Company
considers its relationship with its employees satisfactory, and it is
not a party to any collective bargaining agreement.
Government Regulation
The Company has no knowledge of any governmental regulations which
materially adversely affect its business operations.
Environmental Protection Compliance
The Company has no knowledge of any federal, state or local
environmental compliance regulations which affect its business
activities. The Company has not expended any capital to comply with
environmental protection statutes and does not anticipate that such
expenditures will be necessary in the future.
Properties
The Company maintains all executive, administrative, operational
and inventory distribution functions in a 19,000 square foot building
located in Romeoville, Illinois, a suburb of Chicago, Illinois. The
building is rented pursuant to a lease, which will expire on April 2,
2001, at a rate of $10,240 per month. Management believes that the
condition of the property is suitable for its intended purposes. The
Company closed its operations at a facility in Jacksonville, Florida and
subleases such facility to tenants. The lease and the sublease on the
facility in Florida are scheduled to expire in October 1999. The
Company's monthly rental obligation under the lease is $5,425, and the
sublease provides for escalating monthly rent to the Company which is
currently at $4,592 per month.
<PAGE>
The Company owns no real estate and does not intend to invest in
real estate or interests in real estate, real estate mortgages, or
securities of or interests in persons primarily engaged in real estate
activities for the foreseeable future.
Legal Proceedings
On December 5, 1996, the Company filed a complaint against the
accounting and auditing firm of Marinelli & Scott (the Company's
predecessor accounting and auditing firm) in the United States District
Court for the Northern District of Illinois, Eastern Division (Docket
No. 96C 7982), alleging professional malpractice/negligence arising in
connection with auditing and accounting services performed by Marinelli
& Scott. The Company is seeking damages in excess of $50,000.
Except for such lawsuit, the Company is not aware of any material
pending or threatened litigation to which the Company is or would be a
party.
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names, ages and positions held
with respect to each director and executive officer of the Company as of
September 30, 1997:
Name Age Position with the Company
Michael J. Carroll 58 President, Chief Executive
Officer and Director
James J. Urban 60 Senior Vice President, Chief Operating
Officer and Director
Brian M. Carroll 34 Vice-President and Chief
Financial Officer
Philip G. Winters 48 Director
Linda S. Zimdars 35 Secretary and Director
John Prinz 35 Director
Michael J. Carroll was appointed President of the Company effective
January 1, 1995. In April 1995, Mr. Carroll was also appointed Chief
Executive Officer and a director of the Company upon the resignation of
Robert A. Davis, the Company's previous President and Chief Executive
Officer. Prior to joining the Company, Mr. Carroll, along with James J.
Urban, was a stockholder/founder of MOI, until July 1994 when all of the
outstanding capital stock of MOI was acquired by the Company. Mr.
Carroll was Vice President and Sales Manager of MOI. Prior to the
organization of MOI in 1982, Mr. Carroll held various executive
<PAGE>
positions in ophthalmic instrument and optical firms including Vice
President of House of Vision, Inc. (a firm in the business of
manufacturing optical products and the distribution of ophthalmic
instruments with over 150 locations and approximately 1,100 employees).
James J. Urban was appointed Senior Vice President and Chief
Operating Officer effective January 1, 1995 and Chairman of the Board of
Directors upon the resignation of Dallas Talley on April 1, 1995. Prior
to joining the Company, Mr. Urban, along with Mr. Michael Carroll, was
stockholder/founder of MOI, until July 1994 when all of the outstanding
capital stock of MOI was acquired by the Company. Mr. Urban served as
President of MOI from its incorporation in 1982. Prior to the inception
of MOI, Mr. Urban held various executive positions with several
ophthalmic instrument distribution companies.
Brian M. Carroll was appointed Vice President and Chief Financial
Officer effective April 1, 1995. Mr. Carroll was co-founder of MOI's
digital imaging division and Doctors Financial Services, Inc. ('DFS').
DFS was a finance/leasing company concentrating in the ophthalmic
industry. Mr. Carroll holds a B.A. degree in finance from Loyola
University of Chicago, an M.B.A. degree in accounting from DePaul
University and a J.D. degree from The John Marshall Law School. Brian
M. Carroll is the son of Michael J. Carroll.
Philip G. Winters has been a director of the Company since October
1992. Dr. Winters is a dentist and has owned and operated his own
general dentistry practice in San Mateo, California since 1976.
Linda S. Zimdars has been a director and Secretary of the Company
since June 1992. Currently, Ms. Zimdars operates a management
consulting practice specializing in business reorganization and sales
and marketing management. Ms. Zimdars serves as a consultant to the
Company. See 'Consulting and Other Arrangements' below. Prior to 1995,
Ms. Zimdars was Vice President and Branch Manager of Redwood Bank, with
whom the Company had a banking relationship from 1984 until
approximately April 1995.
John Prinz became a director of the Company in May, 1997. Mr.
Prinz is the President of Prinz and Associates, a firm specializing in
the restructuring and capitalization of private and public companies.
From 1994 through 1996, Mr. Prinz was a founder and served as Chief
Financial Officer of Cormark, a designer and manufacturer of interactive
displays. During 1995 Mr. Prinz facilitated a reorganization of Dauphin
Technologies, a manufacturer of hand-held computers, and served as a
director of such company. Between 1988 and 1995, Mr. Prinz worked in
the securities business as a registered person for a subsidiary of
Raymond James Securities and as a broker for Robert W. Baird. Mr. Prinz
graduated from the University of Nebraska with a degree in finance and
received a M.B.A. from Temple University.
<PAGE>
Classification of the Board of Directors
To provide for continuity of management, the Board of Directors is
classified into three classes: Class I (Michael J. Carroll), Class II
(James J. Urban and John Prinz) and Class III (Linda S. Zimdars and
Philip G. Winters). Each member of the Board of Directors serves for a
term of three years or until a successor has been elected and qualified.
When the classified Board was established, it was contemplated that one
class of directors would be elected at each annual meeting of
stockholders. Class I directors were expected to stand for re-election
at the annual meeting of shareholders in 1995, and Class II directors
were expected to stand for re-election in 1996. However, given the
demands on management's time imposed by the Recapitalization, no annual
meetings were held in fiscal 1995, 1996, and 1997.
The Company plans to hold its next annual meeting in the second quarter
of fiscal 1998. When the next annual meeting is scheduled, appropriate
arrangements will need to be made for the election of the various
classes of directors.
Committees
The Board of Directors has established an Audit Committee, an
Executive Compensation Committee and a Stock Option Committee. Mr.
Winters and Ms. Zimdars are the only members of these committees. The
Audit Committee recommends to the Board of Directors the selection of
independent public accountants for the Company and reviews related
matters. The Executive Compensation Committee reviews and recommends
the compensation of executive officers and key employees. The Stock
Option Committee administers the Company's stock option plans. See
'Stock Option Plans.'
Executive Compensation
The following sets forth the aggregate compensation paid to the
Company's Chief Executive Officer for services rendered to the Company
during the fiscal years indicated. None of the Company's executive
officers who served as such at the end of the last fiscal year earned in
excess of $100,000 during the fiscal years ended September 30, 1996,
1995, and 1994.
Annual Compensation Long-Term Compensation
Awards Payouts
Other Restri Securi- All
Annual cted ties Other
Name and Compen- Stock Under LTIP Compen
Position Year Salary Bonus sation Awards Options Payouts sation
SARS (#)
Michael J. 1996 $66,000 -0- $6,000 -0- -0- -0- -0-
Carroll 1995 $78,445 -0- $6,000 -0- -0- -0- -0-
President
and Chief
Executive
Officer
<PAGE>
Stock Option Plans
The Company currently has two stock option plans: (i) the Franklin
Ophthalmic Instruments, Co., Inc. 1993 Stock Option and Appreciation
Rights Plan (the '1993 Stock Option Plan'); and (ii) the Franklin
Ophthalmic Instruments Co., Inc. 1994 Stock Option and Appreciation
Rights Plan (the '1994 Stock Option Plan').
The 1993 Stock Option Plan provides for the grant of options to
officers, directors (including employee and non-employee directors),
employees and consultants to purchase not more than an aggregate of
200,000 shares of common stock of the Company. The 1994 Stock Option
Plan is substantially similar to the 1993 Stock Option Plan except that
it provides for the grant of options to officers, directors (who are
also employees), employees and consultants to purchase not more than an
aggregate of 330,000 shares of common stock. The 1993 Stock Option Plan
and the 1994 Stock Option Plan (collectively the 'Stock Option Plans' )
provide for: (i) the grant of options intended to qualify as 'incentive
stock options' under Section 422 of the Internal Revenue Code of 1986,
as amended; and (ii) the grant of options which do not so qualify. As of
September 30, 1997, there were two employee directors (Messrs. M.
Carroll and J. Urban), three non-employee directors (Dr. Winters, John
Prinz and Ms. Zimdars) and 2 additional employees that are eligible
participants in the 1994 Stock Option Plan. In addition, stock
appreciation rights may be granted in conjunction with the grant of
options under the Stock Option Plans.
Subject to Rule 16b-3 under the Exchange Act, each Stock Option
Plan is administered by: (i) the Board of Directors, if each member of
the Board of Directors is a 'disinterested person' (as defined under
Rule 16b-3); or (ii) a committee (the 'Committee') of not less than two
members of the Board of Directors each of whom is a 'disinterested
person.' The Board of Directors or the Committee generally has the
authority, subject to the provisions of the Stock Option Plans, to
determine the individuals to whom and the date on which discretionary
options and rights are to be granted, the number of shares to be subject
to options and rights, the exercise price of shares subject to options
and rights, the terms of any vesting forfeiture schedule and the other
terms and provisions of options and rights. The 1993 Stock Option Plan
and the 1994 Stock Option Plan are separately administered by the
Committee comprised of Linda S. Zimdars and Philip G. Winters.
While the price at which shares of common stock subject to an
option may be purchased shall be determined by the Board of Directors or
the Committee, as applicable, pursuant to the provisions of the Stock
Options Plans, the purchase price of shares of common stock issuable
upon exercise of an incentive option must not be less than 100% of the
fair market value of such shares on the date such incentive option is
granted, and the exercise price of a non-qualified option must not be
less than 85% of the fair market value of the common stock on the date
of grant thereof.
<PAGE>
The 1993 Stock Option Plan included a formula granting (on a non-
discretionary basis) each director in office, who was not also an
employee, on the third Monday in June of each year in which the 1993
Stock Option Plan was in effect, non-qualified options to purchase
15,000 shares of common stock at price per share determined by a formula
set forth in the provisions of the 1993 Stock Option Plan based on the
trading price of the common stock on the date of grant of such options.
In March, 1997 the 1993 Stock Option Plan was amended to remove such
provision. The 1994 Stock Option Plan does not provide a formula for
non-discretionary grants of options.
Pursuant to the formula contained in the 1993 Stock Option Plan,
non-qualified options to purchase an aggregate of 120,000 shares of
common stock had been issued as of June 1995 to two non-employee
directors (Dr. Winters and Ms. Zimdars) at exercise prices of $4.00,
$4.625, $.75 per share, and $.50 per share. Options previously issued
to Messrs. Davis and Talley expired unexercised during fiscal 1995.
Except as set forth above, no other options or rights were granted
during fiscal 1995 or fiscal 1996 under the Stock Option Plans.
The Board of Directors or the Committee, as applicable, may require
as a condition to the grant of any option or right that the grantee
enter into a stock option agreement requiring, among other things, that
with respect to any options granted to directors or officers, at least
six months must elapse from the date such options are granted to the
date on which any share of common stock underlying such options are sold
or any right associated with such option is exercised, unless the Board
of Directors or the Committee, as applicable, otherwise consents in
writing. No options may be granted under the Stock Option Plans more
than ten years after the date of approval of the Stock Option Plans by
the stockholders. Options granted under the Stock Option Plans are not
transferable except upon death. Except for options granted to non-
employee directors under the non-discretionary formula, options may be
exercised only while the option holder is employed by the Company, or in
some cases, within three months of termination of employment.
Employment Agreements
In connection with the purchase of MOI, the Company entered into
employment agreements with Michael J. Carroll, currently President,
Chief Executive Officer and a director of the Company, James J. Urban,
currently Senior Vice President, Chief Operating Officer and a director
of the Company, and Brian M. Carroll, currently Vice President and Chief
Financial Officer. Each such employment agreement provided for an
initial term of three years ending June 29, 1997; however, in accordance
with the agreements, the terms of each agreement were extended for a
period of two years ending June 29, 1999 where upon the agreements may
be renewed on a year-to-year basis. Such agreements also provided that
Michael Carroll and James Urban were to receive salaries of $78,000 per
year and Brian Carroll was to receive a salary of $60,000. Michael
Carroll and James Urban voluntarily reduced their salaries in fiscal
1996 such that each received an annual salary of $66,000 for such year.
Effective October 1, 1996, their salaries were restored to the amounts
provided under the employment agreements. Each of the employment
agreements provides for bonuses at the discretion of the Company and
reimbursement of business expenses, and each such agreement contains a
non-compete and confidentiality provision. Such agreements may be
terminated by the Company for 'Just Cause' (as such term is defined in
the employment agreements including, without limitation, violations of
the Company's policies and indictment or conviction for criminal acts)
or at the Company's sole discretion (in which case severance payments
must be made by the Company equal to nine months of salary under the
terminated agreement).
Consulting and Other Arrangements
In December 1994, the Company entered into a consulting agreement
with Marketing and Acquisition Concepts ('MAC'), of which Linda S.
Zimdars, a director of the Company, is a principal, providing for
payment by the Company to MAC of consulting fees in exchange for
investor relations and other marketing services. Such agreement, which
had an initial term of one year, is automatically renewed for one year
periods unless terminated by the Company. During fiscal years ended
September 30, 1995 and 1996, and the nine months ended June 30, 1997,
the Company paid MAC consulting fees plus expenses of $15,750, $21,000,
and $18,500, respectively.
Remuneration of Directors
Until March 31, 1995, directors who were not employees of the
Company received compensation of $750 per meeting of the Board of
Directors attended. Since April 1, 1995, non-employee directors have
not been compensated for attendance at such meetings except for expenses
incurred.
CERTAIN TRANSACTIONS
Michael J. Carroll and James J. Urban (each an officer and director
of the Company), along with Linda S. Zimdars (a director) and Dr. Philip
Winters (a director), acquired promissory notes in connection with a
private debt offering commenced by the Company in April 1994. Messrs.
Carroll and Urban each purchased a 5% Convertible Note in the amount of
$12,500 and a 9% Non-Convertible Note in the amount of $12,500. Ms.
Zimdars purchased a 5% Convertible Note and a 9% Non-Convertible Note,
each in the amount of $37,500, and Dr. Winters purchased a 5%
Convertible Note in the principal amount of $300,000. The principal
amount of nearly all of the 5% Convertible Notes was converted into
Common Stock in June, 1995 at a conversion rate of $0.50 per share
resulting in the issuance to Messrs. M. Carroll, Urban and Winters and
Ms. Zimdars of an aggregate of 700,000 shares of Common Stock.The
principal amount of all of the 9% Non-Convertible Notes were converted
into Common Stock in September, 1996 at a conversion rate of $0.25 per
share resulting in the issuance to Messrs. Carroll and Urban and Ms.
Zimdars of an aggregate of 250,000 shares of Common Stock.
In April 1995, Robert A. Davis, formerly an officer and a then
current director of the Company, entered into a Separation Agreement
with the Company pursuant to which Mr. Davis resigned his position with
the Company and had certain entities he controlled surrender shares of
Common Stock to the Company and forgive $200,000 in debt owed by the
Company. See 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Comparison of Fiscal 1996 to
Fiscal 1995.' Also in April 1995, the Company issued to Michael Carroll
and James Urban, based on a price per share of Common Stock of $0.50,
an aggregate of (i) 250,000 shares of Common Stock for cash proceeds of
$125,000; (ii) 600,000 shares of Common Stock for the forgiveness of
$300,000 owed to them in connection with the purchase by the Company of
MOI; and (iii) 1,600,000 shares of Common Stock as a result of the
acceleration of the payment, in shares of Common Stock, of $800,000 owed
in connection with the purchase by the Company of MOI and originally to
be paid in equal amounts in June of 1995 and 1996 In such transaction,
Messrs. Carroll and Urban were each issued in the aggregate 1,225,000
shares of Common Stock, equal to 19.2% of the shares of Common Stock
outstanding immediately after such transaction.
During September 1995, Michael J. Carroll and James J. Urban loaned
an aggregate of $100,000 to the Company in exchange for a demand
promissory note bearing interest at a per annum rate of 15%. In
addition, Linda S. Zimdars loaned an aggregate of $100,000 to the
Company in exchange for a demand promissory note bearing interest at at
per annum rate of 15% which note was personally guaranteed by Michael J.
Carroll and James J. Urban. During September of 1996 the balance due of
$90,000 to Messrs. Carroll and Urban and the balance due to Ms. Zimdars
of $90,000 were converted to Common Stock at the rate of $.25 per share
(the same price per share as offered in the Company's private placement
of equity that was commenced on October 1, 1996) for an aggregate of
720,000 shares of Common Stock, or 7.5% of the total shares of Common
Stock outstanding immediately following such conversions. Each of the
above conversions by Messrs. Carroll and Urban, and Ms. Zimdars provided
for piggyback registration rights.In December 1995, in order to allow
the Company to fill a large order, promissory notes were issued by the
Company in exchange for loans to the Company by: (a) Tiger Eye Capital
for $100,000; (b) Michael J. Carroll for $50,000; (c) James J. Urban for
$50,000; and (d) Linda S. Zimdars for $80,000. The promissory notes had
a term of 30 days and provided for interest at the rate of 6% per annum.
The notes were repaid in February 1996.
In February 1996, the Company borrowed $150,000 from Messrs. M.
Carroll and Urban, and Ms. Zimdars under 24-day promissory notes bearing
interest at the rate of 1% per annum above the prime lending rate in
effect from time to time. A loan origination fee of 6% was also paid.
Of the aggregate of $150,000, $50,000 was borrowed from each of Messrs.
M. Carroll and Urban, and Ms. Zimdars. In March 1996, a payment of
$12,500 was made to each of Messrs. M. Carroll and Urban, and in May
1996, the balance of the notes to Messrs. M. Carroll and Urban were
repaid. The note to Ms. Zimdars was also repaid in May 1996.
On April 11, 1997, the Company entered into an Investment
Agreement, which was amended May 8, 1997, May 9, 1997 and May 11, 1997,
with Prinz-Franklin L.L.C., an Illinois limited liability company
('Prinz-Franklin'), pursuant to which Prinz-Franklin invested $580,000
in the Company in return for an aggregate of 2,900,000 shares of Common
Stock (a price per share of $.20) and common stock purchase warrants to
purchase an additional 400,000 shares of Common Stock at a price of
$1.00 per share for a period up to four years from the issuance of such
warrants. See 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS- Comparison of Nine Months Ended
June 30, 1997 to Nine Months Ended June 30, 1996.' Upon the issuance
of the shares of Common Stock to Prinz-Franklin, Prinz-Franklin owned
14.81% of the total shares of Common Stock outstanding. In accordance
with the Investment Agreement, the Board of Directors was increased to
five members and John Prinz, a member of Prinz-Franklin, was elected to
fill the vacancy created thereby. The Company is required by the
Investment Agreement to nominate John Prinz for election as a director
at each shareholders' meeting occurring while Prinz-Franklin holds at
least 5% of the issued and outstanding shares of Common Stock of the
Company, provided that in the Company's reasonable judgment he is
willing and able to serve in such capacity.
As a result of the increase in the number of shares issuable upon
the exercise of the Class A Warrants in accordance with certain anti-
dilution rights, the Company no longer has sufficient authorized shares
of Common Stock to provide for the exercise of all of the outstanding
common stock purchase warrants and options ('Stock Deficiency'). See
'RISK FACTORS _Potential Insufficiency of Authorized Shares.' To remedy
this situation, Michael J. Carroll and James J. Urban, the Company's
chief executive officer and chief operating officer respectively, have
agreed to surrender to the Company for redemption that number of shares
of Common Stock equal to any such Stock Deficiency up to an aggregate
amount of 2,450,000 shares. The price per share paid to Messrs. Carroll
and Urban will equal the exercise price per share under the common stock
purchase warrants or options the exercise of which results in such
deficiency, with the result that the Company will receive no net benefit
from the exercise of the warrants or options. Until such shares are
redeemed, if at all, they will remain the property of Messrs. Carroll
and Urban, although certificates representing the shares will be held in
the custody of the Company. The agreement terminates upon the earlier
to occur of (i) the effectiveness of any amendment to the Company's
certificate of incorporation increasing the authorized shares of Common
Stock sufficient to eliminate any potential Stock Deficiency or (ii) the
expiration of a sufficient number of common stock purchase warrants
and/or options in an amount sufficient to eliminate any potential Stock
Deficiency.
As a matter of policy, the Company will not permit loans or other
transactions between the Company and the officers, directors, principal
shareholders, or affiliates for other than bona fide business purposes
or on terms less favorable than could be obtained from third parties,
unless approved by a majority of the disinterested directors and the
independent directors, if any, of the Company.
For a discussion of the employment and consulting agreements to
which the Company is a party and payments of consulting and other fees
to executive officers of the Company, see 'MANAGEMENT.'
<PAGE>
PRINCIPAL SECURITY HOLDERS
The following table sets forth, at September 30, 1997, certain
information with respect to stock ownership of (i) all persons known by
the Company to be beneficial owners of 5% or more of its outstanding
Common Stock, (ii) each of the Company's directors and executive
officers, and (iii) all directors and executive officers as a group.
Unless otherwise indicated, the beneficial owners have sole voting and
investment power over the shares of Common Stock listed below.
Name and Address of Number of % of Shares of
Beneficial Owner (1) Shares Common Stock
Beneficially Beneficially Owned
Owned (2)
Michael J. Carroll (3)(4) 1,561,710 (5) 7.98%
James J. Urban (3)(4) 1,561,711 (6) 7.98%
Brian M. Carroll (3) 52,105 (7) 0.27%
Philip G. Winters (4) 660,000 (8) 3.37%
Linda S. Zimdars (4) 682,359 (9) 3.48%
Prinz-Franklin L.L.C. 3,300,000 (10) 16.85%
John Prinz (4) 3,300,000 (11) 16.85%
Mickey Cavuoti 2,460,000 (12) 12.56%
Silicon Valley Bank 2,133,003 (13) 10.89%
All Executive Officers
& Directors as a Group
(6) Persons 7,817,885 39.92%
(1) Michael J. Carroll, James J. Urban, Brian M. Carroll and Linda S.
Zimdars may be contacted at 1265 Naperville Drive, Romeoville,
Illinois 60446. Philip G. Winters may be contacted at 324 North
San Mateo Drive, San Mateo, California 94401. Prinz-Franklin
L.L.C. and John Prinz may be contacted at One Northfield Plaza,
Suite 300, 570 Frontage Road, Northfield, Illinois 60093.
(2) Unless otherwise noted, the Company believes that all of such
shares are owned of record by each individual named as beneficial
owner and that such individual has sole voting and dispositive
power with respect to the shares of Common Stock owned by each of
them. Such person's percentage ownership is determined by assuming
that the options or convertible securities that are held by such
person which are exercisable within 60 days from July 17, 1997 have
been exercised or converted, as the case may be. It does not give
effect to the exercise of: (i) an outstanding option granted to the
underwriter of the Initial Public Offering (or the securities
underlying the same); or (ii) outstanding Class A Warrants.
<PAGE>
(3) The named securityholder is an officer of the Company.
(4) The named securityholder is a director of the Company and is sole
manager of Prinz-Franklin L.L.C.
(5) Includes: (a) 71,710 shares of Common Stock issued by the Company
in connection with the acquisition of MOI; (b) 125,000 shares of
Common Stock issued by the Company in connection with the Company's
execution of a forbearance agreement with Silicon; (c) 1,100,000
shares of Common Stock issued upon conversion of $550,000 in debt
owed to the noted stockholder in connection with the Company's
acquisition of MOI; (d) 255,000 shares of Common Stock issued to
the noted stockholder in connection with the conversion of certain
promissory notes; and (e) 10,000 shares of Common Stock issuable
upon exercise of stock options.
(6) Includes: (a) 71,711 shares of Common Stock issued by the Company
in connection with the acquisition of MOI; (b) 125,000 shares of
Common Stock issued by the Company in connection with the Company's
execution of a forbearance agreement with Silicon; (c) 1,100,000
shares of Common Stock issued upon conversion of $550,000 in debt
owed to the noted stockholder in connection with the Company's
acquisition of MOI; (d) 255,000 shares of Common Stock issued to
the noted stockholder in connection with the conversion of certain
promissory notes; and (e) 10,000 shares of Common Stock issuable
upon exercise of stock options.
(7) Includes: (a) 17,105 shares of Common Stock issued to the noted
stockholder in connection with the acquisition of MOI; (b) 20,000
shares of Common Stock and 10,000 Class B Warrants purchased in a
private placement; and (c) 5,000 shares of Common Stock issuable
upon exercise of stock options.
(8) Includes: (a) 60,000 shares of Common Stock issuable upon exercise
of stock options held by Dr. Winters; and (b) 600,000 shares of
Common Stock issued to Dr. Winters in connection with the
conversion of a certain convertible promissory note.
(9) Includes: (a) 597,359 shares of Common Stock issued in connection
with the conversion of certain promissory notes and otherwise; (b)
60,000 shares of Common Stock issuable upon exercise of stock
options; and (c) 25,000 shares of Common Stock issuable upon
exercise of a warrant.
(10) Includes 2,900,000 shares of Common Stock and 400,000 warrants to
purchase Common Stock at an exercise price of $1.00 per share.
(11) Includes 2,900,000 shares of Common Stock and 400,000 warrants to
purchase Common Stock owned by Prinz-Franklin over which Mr. Prinz
has voting control.
(12) Includes: (a) 1,640,000 shares of Common Stock issued in connection
with the private placement of securities; and (b) 820,000 shares of
Common Stock issuable upon exercise of certain Class B Warrants.
(13) Includes (a) 2,088,884 shares of Common Stock issued in conversion
of debt and (b) 44,119 shares issuable upon conversion of common
stock purchase warrants exercisable at a purchase price of $0.50
per share.
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 25,000,000 shares of Common
Stock, $0.001 par value per share, of which 19,580,879 were issued and
outstanding at September 30, 1997. The holders of the Company's Common
Stock are entitled to receive dividends from funds legally available
therefor at such time and in such amounts as may be determined by the
Company's Board of Directors, and upon liquidation are entitled to share
ratably in the net assets of the Company available for distribution,
subject to the rights of the holders of any shares of preferred stock.
See 'DIVIDEND POLICY.' For a discussion of the potential insufficiency
of authorized Common Stock to provide for the exercise of all
outstanding common stock purchase warrants and options, see 'RISK
FACTORS _ Potential Insufficiency of Authorized Shares' and 'CERTAIN
TRANSACTIONS'.
The holders of the Company's Common Stock are entitled to one vote
per share held of record and do not have cumulative voting rights.
Shares of Common Stock are not subject to redemption or call by the
Company under the Company's Certificate of Incorporation and have no
preemptive or similar rights. All of the Company's issued and
outstanding shares of Common Stock are fully paid and non-assessable.
Warrants to Purchase Common Stock
Class A Warrants. A total of 2,062,500 Class A Warrants were
issued and outstanding at September 30, 1997. The Class A Warrants were
issued as part of the Units in the Company's Initial Public Offering.
See 'BUSINESS OF THE COMPANY--History and Business Strategy.' Each
Class A Warrant originally entitled the holder thereof to purchase one share
of Common Stock at a price of $5.00 per share until July 23, 1998.
However, the warrant agreement pertaining to the Class A Warrants (the
"Warrant Agreement") contains certain anti-dilution provisions, which have
been triggered by subsequent sales by the Company of shares of Common Stock
at less than "fair market value" as defined in the Warrant Agreement.
These anti-dilution provisions both reduce the exercise price of the Class
A Warrants and increase the number of shares of Common Stock that may be
purchased on the exercise of the Class A Warrants. As of the date hereof,
the exercise price of the Class A Warrants is $2.30 per share, and the
total number of shares of Common Stock that may be purchased upon the exercise
of all Class A Warrants is 4,487,740. See "RISK FACTORS--Potential
Insufficiency of Authorized Shares" and CERTAIN TRANSACTIONS." Each
Class A Warrant is redeemable by the Company, at its option, for $0.10
per warrant, at any time upon delivery by the Company of 30 days prior
written notice, if the last sale price, or the average of the bid and
asked prices, per share of Common Stock, as reported by the principal
exchange on which the Common Stock is then traded, NASDAQ, the OTC
Electronic Bulletin Board or the National Quotation Bureau Incorporated,
as the case may be, equals or exceeds $6.00 per share for 20 consecutive
trading days ending within 15 days prior to the date of the notice of
redemption. Upon delivery by the Company of 30 days written notice to
all holders of the Class A Warrants, the Company will have the right,
subject to compliance with Rule 13e-4 under the Securities Exchange act
of 1934, as amended (the 'Exchange Act'), and the filing of Schedule
13E-4, to reduce the exercise price and/or extend the term of the Class
A Warrants.
Class B and Class C Warrants. A total of 2,156,500 Class B
Warrants and 244,000 Class C were issued and outstanding at September
30, 1997. The Class B Warrants were issued on November 25, 1996, and
the Class C Warrants were issued on December 30, 1996, each as part of a
unit offered in a private placement consisting of two shares of Common
Stock and one common stock purchase warrant. See 'MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Comparison of Nine Months Ended June 30, 1997 and Nine
Months Ended June 30, 1996.' Each Class B Warrant and Class C Warrant
entitles the holder thereof to purchase one share of Common Stock at a
price of $1.00 per share between 6 months and 18 months after the
issuance date. Each Class B Warrant and Class C Warrant is redeemable
by the Company, at its option, for $0.10 per warrant, at any time after
September 30, 1997 upon delivery by the Company of 30 days prior written
notice, if the closing bid price per share of Common Stock, as reported
by the principal exchange on which the Common Stock is then traded,
NASDAQ, the OTC Electronic Bulletin Board or the National Quotation
Bureau Incorporated, as the case may be, equals or exceeds $3.00 per
share for 20 consecutive trading days ending within 15 days prior to the
date of the notice of redemption.
Other Warrants. In addition to the Class A Warrants, Class B
Warrants and Class C Warrants, there are also outstanding: (a) 44,119
warrants issued to Silicon in connection with certain renewals or
modifications of the Company's lines of credit, exercisable on or before
March 31, 2000 at a price of $0.50 per share; (b) 400,000 warrants
issued to Prinz-Franklin, L.L.C. in connection with a private placement
(see 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Comparison of Nine Months Ended June 30, 1997 and
Nine Months Ended June 30, 1996'), exercisable on or before May 11, 2001
at a price of $1.00 per share, (c) a warrant to purchase 25,000 shares
of Common Stock issued to Linda S. Zimdars, a director of the Company,
and a warrant to purchase 25,000 shares of Common Stock issued to Dwayne
Podgurski, a former employee of the Company, both exercisable at a price
of $1.00 per share until December 1997 and (d) 125,000 warrants issued
to the underwriter in connection with the initial public offering by the
Company exercisable at a price of $5.00 per share until July 23, 1998.
Options
In addition, the underwriters of the Company's initial public
offering received a warrant to purchase 125,000 units, exercisable at
$6.40 per unit through July 1998. Each unit consists of one share of
common stock and a warrant to purchase one share of Common Stock
exercisable at $5.00 per share through July 1998.
Preferred Stock
The Certificate of Incorporation of the Company authorizes the
issuance of up to 1,000,000 shares of Preferred Stock, $.001 par value
per share. The Board of Directors is authorized to issue shares of
Preferred Stock from time to time in one or more series and, subject to
the limitations contained in the Certificate of Incorporation and any
limitations prescribed by law, to establish and designate any such
series and to fix the number of shares and the relative conversion
rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences. If shares of Preferred Stock
with voting rights are issued by the Company, such issuance could affect
the voting rights of the holders of the Company's Common Stock by
increasing the number of outstanding shares having voting rights, and by
the creation of class or series voting rights. If the Board of
Directors authorizes the issuance of shares of Preferred Stock with
conversion rights, the number of shares of Common Stock outstanding
could potentially be increased by up to the amount which the Company is
authorized to issue. In addition, issuance of Preferred Stock could,
under certain circumstances, have the effect of delaying or preventing a
change in control of the Company and may adversely affect the rights of
holders of Common Stock. Also, Preferred Stock could have preferences
over the Common Stock (and other series of Preferred Stock) with respect
to dividends and liquidation rights.
Registration Rights
From time to time, the Company has granted to the purchasers of its
securities in private offerings the right to have their securities (or
in the case of convertible debt securities and warrants the equity
securities issuable upon conversion or exercise) registered for resale
under the Securities Act of 1933 and applicable state securities laws.
Such offerings included the offering in fiscal 1994 of the Company's
Non-Negotiable 5% Convertible Promissory Notes, substantially all of
which have now been converted into Common Stock (see 'CERTAIN
TRANSACTIONS'); the private placement in the first quarter of fiscal
1997 of Common Stock and Warrants (see 'MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Comparison
of Six Months Ended March 31, 1997 to Six Months Ended March 31, 1996');
and the private placement in the third quarter of fiscal 1997 of Common
Stock to Prinz-Franklin (see 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Comparison of Six Months
Ended March 31, 1997 to Six Months Ended March 31, 1996' and 'CERTAIN
TRANSACTIONS'). The Company has also granted certain piggy-back
registration rights to Michael J. Carroll, James J. Urban and Linda S.
Zimdars in connection with the conversion of 9% Non-Convertible Notes
(see 'CERTAIN TRANSACTIONS') and to certain manufacturers which have
converted their trade debt.
The shares of Common Stock and the Warrants included in this
offering are included as a result of the exercise of such demand and
piggyback registration rights. Pursuant to the piggy-back registration
rights granted to Prinz-Franklin, any shares of Common Stock which Prinz
has elected to include in this offering shall be held in escrow under
the following conditions: (i) 25% of the shares purchased may not be
sold or released from escrow until the closing price of the Company's
Common Stock is equal to or greater than $0.75 per share for five
consecutive trading days; and (ii) the remaining shares may not be sold
or released from escrow until the closing price of the Company's Common
Stock is equal to or greater than $1.25 per share for five consecutive
trading days. After giving effect to the offering, no registration
rights will remain outstanding.
Transfer Agent and Warrant Agent
Continental Stock Transfer & Trust Company, New York, New York is
the Registrar and Transfer Agent for the Units and the Common Stock and
the Registrar and Warrant Agent for the Class A Warrants. The Company
is the Registrar and Warrant Agent for the Class B and Class C Warrants.
<PAGE>
SELLING SECURITY HOLDERS
All of the securities of the Company covered by this Prospectus are
being sold for the account of the Selling Security Holders as identified
in the following table.
The Selling Security Holders are offering for sale an aggregate of
up to 17,254,673 shares of Common Stock and 2,400,500 Warrants. The
shares of Common Stock offered hereby consist of: (i) 14,410,054 shares
previously issued by the Company; and (ii) 2,844,619 shares issuable, if
at all, upon the exercise of certain outstanding common stock purchase
warrants.
The following table sets forth the number of securities being held
of record or beneficially (to the extent known by the Company) by such
Selling Security Holders and identifies (by footnote reference) those
Selling Security Holders having a material relationship with the Company
during the past three years.
COMMON STOCK1:
Number of Number of Number of
Shares of Shares of Shares of
Common Stock Common Stock Common Stock Percen Percen
Stock Stock to be held tage tage
Name Held Before to be Sold After Before After
Offering in Offering Offering Offering Offering
Silicon Valley Bank2 2,133,003 2,133,003 0 10.89% *
Eastman Kodak Company 102,285 102,285 0 * *
Mr. Michael Cavuoti 2,460,000 2,460,000 0 12.56% *
Mr. Douglas Baker 120,000 120,000 0 * *
Mr. Frank Giampa 750,000 750,000 0 3.83% *
Mr. Jesse Rodgers 300,000 300,000 0 1.53% *
Mr. Kenneth Naylor 60,000 60,000 0 * *
Mr. Francis Corvelli 30,000 30,000 0 * *
Mr. William Stevens 30,000 30,000 0 * *
Ms. Kim Filippazzo 60,000 60,000 0 * *
Mr. Jeffrey Milstein 30,000 30,000 0 * *
Mr. & Mrs. Allen 60,000 60,000 0 * *
TeBockhorst
Mr. Brian Carroll4,5 52,105 47,105 5,000 * *
Mr. & Mrs. Greg 60,000 60,000 0 * *
Boudreau
Mr. Kevin McGuinn 90,000 90,000 0 * *
Mr. & Mrs. Anthony 15,000 15,000 0 * *
Pacheco
Mr. & Mrs. Raymond N. 30,000 30,000 0 * *
Wenda
Ms. Margaret M. 30,000 30,000 0 * *
Perfecto
Mr. & Mrs. Mark Wenda 30,000 30,000 0 * *
Paul & Uta Cipriano, 170,000 120,000 50,000 * *
Trustees
Mr. & Mrs. Ronald 377,600 300,000 77,600 1.93% *
Cozzolino
Mr. Matthew McGuinn 30,000 30,000 0 * *
Mr. & Mrs. Edward F. 60,000 60,000 0 * *
Umbricht
Mr. Andrew Whelan 30,000 30,000 0 * *
Mr. Michael Ryan 30,000 30,000 0 * *
Mr. Brendan Deegan 30,000 30,000 0 * *
Mr. & Mrs. William S. 180,000 180,000 0 * *
Chamerlik
Mr. & Mrs. Frank J. 38,500 30,000 8,500 * *
Wenstrup
Mr. & Mrs. Jay P. 315,000 300,000 15,000 1.61% *
Wenstrup
Mr. Tom Kendig 73,500 73,500 0 * *
Mr. Malcolm Gissen 36,000 36,000 0 * *
Mr. & Mrs. Joseph 15,000 15,000 0 * *
Newton
Mr. Dan Tracey 30,000 30,000 0 * *
Mr. & Mrs. Peter 15,000 15,000 0 * *
Lavery
Mr. Marco D'Alonzo 150,000 150,000 0 * *
M.L. Sullivan 30,000 30,000 0 * *
Insurance Agency,
Inc.
Mr. Enrico Vona 30,000 30,000 0 * *
Mr. Howard Schwartz 120,000 120,000 0 * *
Mr. John Dedyo 30,000 30,000 0 * *
Mr. Eugene L. Braun 15,000 15,000 0 * *
Mr. George 60,000 60,000 0 * *
Giannopoulos
Mr. Ronald E. Spooner 60,000 60,000 0 * *
Mr. Fred C. Matthews, 30,000 30,000 0 * *
Mr. Steven Finkelstein 120,000 120,000 0 * *
Ms. Diana TeBockhorst 30,000 30,000 0 * *
Mr. Dermot Kiernan 30,000 30,000 0 * *
Mr. Brian F. Sullivan 72,000 72,000 0 * *
Mr. Chad Marlow 30,000 30,000 0 * *
Mr. Mitchell A. Jackson 30,000 30,000 0 * *
Mr. Mark C. Ristow 90,000 90,000 0 * *
Kahn Family Revocable 30,000 30,000 0 * *
Trust
Mr. Bert Fingerhut 450,000 450,000 0 2.30% *
Mr. William E. 300,000 300,000 0 1.53% *
Johnson
Mr. Marcus T. Kahn 15,000 15,000 0 * *
Mr. Roger Perry Dean 15,000 15,000 0 * *
Linda S. Zimdars4,6 682,359 597,359 85,000 3.48% *
Michael J. Carroll4,7 1,561,710 1,551,710 10,000 7.97% *
Philip G. Winters4,8 660,000 600,000 60,000 3.37% *
Elizabeth G. 200,000 200,000 0 1.02% *
Winters-Trustee
James J. Urban4,7 1,561,711 1,551,711 10,000 7.97% *
Prinz-Franklin L.L.C.3 3,300,000 3,300,000 0 16.85% *
--------- --------- -------
Totals 17,575,773 17,254,673 321,000
<PAGE>
CLASS B WARRANTS:
Number of Number of
Number of Class B Class B
Class B Warrants Warrants Percent Percen
Warrants to be to be age tage
Name Held Before Sold in Held Afte Before After
Offering Offering Offering Offering Offering
Michael Cavuoti 820,000 820,000 0 38.02% *
Mr. Douglas Baker 40,000 40,000 0 1.85% *
Mr. Frank Giampa 250,000 250,000 0 11.59% *
Mr. Jesse Rodgers 100,000 100,000 0 4.64% *
Mr. Kenneth Naylor 20,000 20,000 0 * *
Mr. Francis Corvelli 10,000 10,000 0 * *
Mr. William Stevens 10,000 10,000 0 * *
Ms. Kim Filippazzo 20,000 20,000 0 * *
Mr. Jeffrey Milstein 10,000 10,000 0 * *
Mr. & Mrs. Allen 20,000 20,000 0 * *
TeBockhorst
Mr. Brian Carroll 10,000 10,000 0 * *
Mr. & Mrs. Greg 20,000 20,000 0 * *
Boudreau
Mr. Kevin McGuinn 30,000 30,000 0 1.39% *
Mr. & Mrs. Anthony 5,000 5,000 0 * *
Pacheco
Mr. & Mrs. Raymond N. 10,000 10,000 0 * *
Wenda
Ms. Margaret M. 10,000 10,000 0 * *
Perfecto
Mr. & Mrs. Mark Wenda 10,000 10,000 0 * *
Paul & Uta Cipriano, 40,000 40,000 0 1.85% *
Trustees
Mr. & Mrs. Ronald 100,000 100,000 0 4.64% *
Cozzolino %
Mr. Matthew McGuinn 10,000 10,000 0 * *
Mr. & Mrs. Edward F. 20,000 20,000 0 * *
Umbricht
Mr. Andrew Whelan 10,000 10,000 0 * *
Mr. Michael Ryan 10,000 10,000 0 * *
Mr. Brendan Deegan 10,000 10,000 0 * *
Mr. & Mrs. William S. 60,000 60,000 0 2.78% *
Chamerlik %
Mr. & Mrs. Frank J. 10,000 10,000 0 * *
Wenstrup
Mr. & Mrs. Jay P. 100,000 100,000 0 4.64% *
Wenstrup
Mr. Tom Kendig 24,500 24,500 0 1.14% *
Mr. Malcolm Gissen 12,000 12,000 0 * *
Mr. & Mrs. Joseph 5,000 5,000 0 * *
Newton
Mr. Dan Tracey 10,000 10,000 0 * *
Mr. & Mrs. Peter 5,000 5,000 0 * *
Lavery
Mr. Marco D'Alonzo 50,000 50,000 0 2.32% *
M.L. Sullivan 10,000 10,000 0 * *
Insurance Agency, Inc.
Mr. Enrico Vona 10,000 10,000 0 * *
Mr. Howard Schwartz 40,000 40,000 0 1.85% *
Mr. Bert Fingerhut 100,000 100,000 0 4.64% *
Mr. John Dedyo 10,000 10,000 0 * *
Mr. Eugene L. Braun 5,000 5,000 0 * *
Mr. George 20,000 20,000 0 * *
Giannopoulos
Mr. Ronald E. Spooner 20,000 20,000 0 * *
Mr. Fred C. Matthews, 10,000 10,000 0 * *
Mr. Steven Finkelstein 40,000 40,000 0 1.85% *
Ms. Diana TeBockhorst 10,000 10,000 0 * *
Mr. Dermot Kiernan 10,000 10,000 0 * *
--------- ---------
Totals 2,156,500 2,156,500
<PAGE>
CLASS C WARRANTS:
Number of Number of
Number of Class C Class C
Class C Warrants Warrants Percen Percen
Warrants to be Sol to be Held tage tage
Held Before in Offering After Before After
Offering Offering Offering Offering
Mr. Brian F. Sullivan 24,000 24,000 0 9.82% *
Mr. Chad Marlow 10,000 10,000 0 4.10% *
Mr. Mitchell A. Jackson 10,000 10,000 0 4.10% *
Mr. Mark C. Ristow 30,000 30,000 0 12.30% *
Kahn Family Revocable 10,000 10,000 0 4.10% *
Trust
Mr. Bert Fingerhut 50,000 50,000 0 20.50% *
Mr. William E.Johnson 100,000 100,000 0 40.98% *
Mr. Marcus T. Kahn 5,000 5,000 0 2.05% *
Mr. Roger Perry Dean 5,000 5,000 0 2.05% *
------- -------
Totals 244,000 244,000
1 Includes shares of Common Stock issuable upon exercise of Class B
Warrants and Class C Warrants listed in the following tables.
2 Includes 44,119 shares of Common Stock issuable upon exercise of
warrants held by Silicon Valley Bank.
3 Includes 400,000 shares of Common Stock issuable upon exercise of
warrants held by Prinz-Franklin L.L.C.
4 For a description of the position the Selling Security Holder has
with the Company, see 'MANAGEMENT.'
5 Includes 5,000 shares issuable upon exercise of a certain option.
6 Includes 60,000 shares issuable upon exercise of certain options
and 25,000 shares issuable upon exercise of a certain warrant.
7 Includes 10,000 shares issuable upon exercise of a certain option.
8 Includes 60,000 shares issuable upon exercise of certain options.
* Less than one percent.
The Company has agreed to pay for all costs and expenses incident
to the issuance, offer, sale and delivery of the Securities, including
but not limited to all expenses and fees of preparing, filing and
printing the Registration Statement and Prospectus and related exhibits,
amendments and supplements thereto and mailing of such items. The
Company will not pay selling commissions and expenses associated with
any such sales by the Selling Security Holders.
The securities offered by the Selling Security Holders may be sold
from time to time to purchasers directly by the Selling Security Holders
acting as principal for their own account in one or more transactions in
the over-the-counter market or in negotiated transactions at market
prices prevailing at the time of sale or at prices otherwise negotiated.
Alternatively, the securities may be sold from time to time through
agents, brokers, dealers or underwriters designated from time to time,
and such agents, brokers, dealers or underwriters may receive
compensation in the form of commissions or concessions from the Selling
Security Holders or the purchasers of the securities. However, these
Securities have been registered or are otherwise available for sale only
in the states of New Jersey or New York, the states in which the market
makers in the Company's Common Stock are located. Any Selling Security
Holder proposing to sell any Securities in any other state must comply
with applicable exemptions in such state or request that the Company
register the Securities in such state, which the Company may do in its
reasonable discretion.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the Securities of the Company offered by
this Prospectus may not simultaneously engage in market making
activities with respect to the Securities of the Company during the
applicable 'cooling off' periods prior to the commencement of such
distribution. In addition, and without limiting the foregoing, Selling
Security Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder including without
limitation the Commission's Regulation M, which provisions may limit the
timing of purchases and sales of Securities by the Selling Security
Holder.
The Company will use its best efforts to file, during any period in
which offers or sales are being made, one or more post-effective
amendments to the Registration Statement of which this Prospectus is a
part to describe any material information with respect to the plan of
distribution not previously disclosed in this Prospectus or any material
change to such information in this Prospectus.
STATEMENT OF INDEMNIFICATION
The Company's Certificate of Incorporation adopts the
provisions of Section 102(b)(7) of the Delaware General Corporation Law
which eliminates the personal liability of directors to the Company or
its stockholders for monetary damages for breach of fiduciary duty under
certain circumstances. Furthermore, under the Company's By-laws, and in
accordance with the Company's Certificate of Incorporation and Section
145 of the Delaware General Corporation Law, the Company must indemnify
each of its directors, officers, employees and agents against his
reasonable expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with any proceeding involving
such person by reason of his being or having been a director, officer,
employee or agent to the extent he acted in good faith and in a manner
reasonably believed to be in, or not opposed to the best interest of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the 'Securities Act'), may be
permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
LEGAL MATTERS
Legal matters in connection with the securities being offered
hereby will be passed upon for the Company by Ungaretti & Harris, 3500
Three First National Plaza, Chicago, Illinois 60602.
EXPERTS
The annual financial statements included in this Prospectus and in
the Registration Statement have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the
periods set forth in their reports (which contain an explanatory
paragraph regarding the Company's ability to continue as a going
concern) appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such reports given upon the authority
of said firm as experts in auditing and accounting.
<PAGE>
FINANCIAL STATEMENTS
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
INDEX TO FINANCIAL STATEMENTS
Page
Annual Financial Statements
Report of Independent Certified Public Accountant F-2
Balance Sheets.................................... F-3
Statements of Operations.......................... F-5
Statements of Cash Flow........................... F-6
Statements of Stockholders' Equity (Deficit)...... F-7
Notes to the Financial Statements................. F-8
Interim Financial Statements
Condensed Balance sheets.......................... F-22
Condensed Statements of Operations................ F-24
Condensed Statements of Cash Flows................ F-25
Notes to Condensed Financial Statements........... F-26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
of Franklin Ophthalmic Instruments Co., Inc.
Romeoville, Illinois
We have audited the accompanying balance sheets of Franklin
Ophthalmic Instruments Co., Inc. as of September 30, 1995 and 1996 and
the related statements of operations, stockholders' equity (deficit),
and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these 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 financial statements referred to above present
fairly, in all material respects, the financial position of Franklin
Ophthalmic Instruments Co., Inc. at September 30, 1995 and 1996, and the
results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered recurring losses
from operations and has a deficiency in stockholders' equity. In
addition, notes payable under the Company's bank credit agreement are
due on July 29, 1997. The Company does not have the ability to pay
these debts should the lender demand payment. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
discussed in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
Chicago, Illinois
December 23, 1996
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO, INC.
BALANCE SHEETS
ASSETS
September 30, September 30,
1995 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, less allowance
for doubtful accounts of 349,852 and
$40,135, respectively 1,331,184 720,277
Inventory, less valuation
allowance of $150,000 and $100,000,
respectively 2,545,940 1,356,057
Prepaid expenses 28,296 19,027
--------- ---------
Total current assets 3,905,420 2,095,361
--------- ---------
Property and equipment, at cost:
Furniture and equipment 599,307 605,638
Automobiles and trucks 119,193 119,193
Leasehold improvements 109,408 109,408
------- -------
827,908 834,239
Less: Accumulated depreciation
and amortization 515,042 618,394
------- -------
Total property and equipment 312,866 215,845
------- -------
Other assets:
Deposits 28,298 13,935
Intangible assets, net of accumulated
amortization of $382,019 and $706,623,
respectively 2,596,875 2,272,271
--------- ---------
Total other assets 2,625,173 2,286,206
Total assets $ 6,843,459 $4,597,412
============ ==========
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, September 30,
1995 1996
<S> <C> <C>
Current liabilities:
Bank overdrafts $ 251,078 $ 55,597
Current portion of long-term debt 324,660 567,395
Accounts payable 2,070,526 1,180,475
Notes payable to bank 4,396,126 4,375,304
Current portion of capitalized lease
obligations 14,687 16,125
Deposits 359,762 429,844
Accrued liabilities 666,346 859,279
Notes payable to related parties 207,679 215,188
--------- ---------
Total current liabilities 8,290,864 7,699,207
--------- ---------
Long-term debt:
Long-term debt, less current portion 378,128 93,722
Capitalized lease obligations, less
current portion 53,186 30,695
------- -------
Total long-term debt 431,314 124,417
------- -------
Total liabilities 8,722,178 7,823,624
--------- ---------
Stockholders' equity (deficit):
Common stock: $0.001 par value;
authorized 25,000,000 shares; 7,656,025
issued and outstanding at September 30,
1995 and 9,544,810 issued and outstanding
at September 30, 1996 7,656 9,545
Additional paid-in capital 8,240,020 8,868,577
Accumulated deficit (10,126,395) (12,104,334)
------------ ------------
Total stockholders' equity (deficit) (1,878,719) (3,226,212)
------------ ------------
Total liabilities and
stockholders' equity (deficit) 6,843,459 4,597,412
============ ============
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
STATEMENTS OF OPERATIONS
For the year
ended September 30,
1995 1996
---- ----
<S> <C> <C>
Sales $ 13,316,949 $ 8,469,994
Less:
Cost of sales 10,663,280 6,367,743
Selling, general and
administrative expenses 5,315,753 3,575,555
Inventory loss 770,033 -
Restructuring charge 241,415 -
----------- -----------
Loss from operations (3,673,532) (1,473,304)
----------- -----------
Other income (expense):
Interest income 7,545 54
Interest expense (688,345) (737,942)
Other income (expense) 17,833 1,993
--------- ---------
Other expense, net (662,967) (735,895)
--------- ---------
Loss before extraordinary item (4,336,499) (2,209,199)
Extraordinary item, gain from
debt restructuring - 231,260
----------- -----------
Net loss $ (4,336,499) $(1,977,939)
============= ============
Loss per common share:
Loss before extraordinary item $ (0.80) $ (0.28)
============= ============
Net loss $ (0.80) $ (0.25)
============= ============
Weighted average # of common
shares outstanding 5,395,182 7,854,393
============= ============
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
STATEMENTS OF CASH FLOWS
For the year ended
September 30
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,336,499) (1,977,939)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 117,648 103,351
Amortization 390,526 324,604
Gain from debt restructuring - (231,260)
Professional services performed
in exchange for common stock - 312,374
Loss on sale of equipment 2,720 -
Changes in current assets and
liabilities:
Accounts receivable 1,888,585 610,907
Inventory 2,229,681 1,189,883
Prepaid expenses 148,258 9,269
Other assets 19,609 14,363
Customer deposits 133,530 70,083
Accounts payable, trade and
accrued liabilities (984,974) (373,655)
--------- ---------
Net cash used in operating
activities (390,916) 51,980
--------- --------
Cash flows from investing activities:
Proceeds from sale of equipment 53,790 -
Acquisition of equipment (85,053) (6,331)
Acquisition of software rights (23,252) -
-------- -------
Net cash used in investing
activities (54,515) (6,331)
-------- -------
Cash flows from financing activities:
Loan origination fees (40,848) -
Net change in bank overdrafts (370,549) (195,481)
Payments on capital leases (23,578) (21,053)
Net change in borrowings under
line of credit 20,822 (20,822)
Net proceeds from issuance of
common stock 189,200 -
Proceeds from exercise of bridge
warrants 31,250 -
Increase in long-term debt 200,000 4,198
Repayment of debt (38,747) (27,679)
Proceeds from issuance of promissory
notes to related parties 200,000 215,188
------- -------
Net cash provided by (used in)
financing activities 167,550 (45,649)
------- --------
Net decrease in cash and cash
equivalents (277,881) -
Cash and cash equivalents at
beginning of year 277,881 -
--------- --------
Cash and cash equivalents at end of
year $ - $ -
========== =========
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Common stock
$0.001 Total
par value Additional stockholders'
Number of paid-in equity
shares Amount capital Deficit (deficit)
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1994 4,037,673 $4,037 6,490,688 (5,789,896) $ 704,829
Exercise of bridge unit
warrants 62,500 63 31,188 - 31,251
Sale of stock for cash 81,378 82 64,118 - 64,200
Conversion of MOI
acquisition notes (Note 6) 600,000 600 299,400 - 300,000
Issuance of shares
related to MOI
acquisition notes (Note 6) 1,389,474 1,389 (1,389) - -
Sale of stock to related
parties (Note 6) 250,000 250 124,750 - 125,000
Conversion of 5% notes
(Note 5) 1,975,000 1,975 985,525 - 987,500
Davis separation
agreement (Note 1 (b))
Return of stock (800,000) (800) 800 - -
Contribution of equity - - 200,000 - 200,000
Issuance of stock for
software rights 60,000 60 44,940 - 45,000
Net loss - - - (4,336,499) (4,336,499)
--------- ----- ------- ----------- -----------
BALANCE, September 30, 1995 7,656,025 7,656 8,240,020 (10,126,395) (1,878,719)
Issuance of stock for
services 16,500 17 12,358 - 12,375
Issuance of stock for
services (Note 6) 600,000 600 299,400 - 300,000
Conversion of accounts
payable (Note 5) 102,285 102 25,469 - 25,571
Conversion of
shareholder notes
payable (Note 4) 720,000 720 179,280 - 180,000
Conversion of 9% notes
(Note 5) 450,000 450 112,050 - 112,500
-------- --- -------- ----------- ----------
Net loss - - - (1,977,939) (1,977,939)
-------- --- -------- ------------ -----------
BALANCE, September 30, 1996 9,544,810 $9,545 $8,868,577 $(12,104,334) (3,226,212)
========= ====== ========== ============= ===========
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Nature of Business
Franklin Ophthalmic Instruments Co., Inc. (the 'Company'), located
in Romeoville, Illinois, is engaged in the national retail sale of
ophthalmic instruments which are marketed to doctors, hospitals,
universities and the military through the use of catalogs and outside
sales representatives. The Company's principal markets are located in
the Midwest, Southeast and West Coast of the United States. The
Company's operations involve granting credit to local, regional and
national medical practices, hospitals, universities and to the military.
Concentrations of credit risk are limited by the large number of
entities comprising the Company's customer base and by the geographic
diversity of the Company's customers. The Company operates under the
trade name 'Franklin_MOI'.
(B) Significant Matters Affecting Comparability
During the fiscal year ended September 30, 1995, the Company
underwent significant structural, management and operational changes,
whereas fiscal 1996 reflects the results of the Company operating under
new management and the completion of the aforementioned structural and
operational changes. As a result, the operating results for fiscal 1996
lack, in several respects, comparability to the results of operations
for the fiscal year ended September 30, 1995.
Until the second quarter of fiscal 1995, the Company operated
facilities in Hayward, California and Lawrenceville, Georgia (which
represented the Company's original operations), Jacksonville, Florida
(which was acquired in January 1994 in the Company's acquisition of
certain assets of Progressive Ophthalmic Instruments, Inc., 'POI') and
Romeoville, Illinois (which was added with the Company's July 1994
acquisition of Midwest Ophthalmic Instruments, Inc. 'MOI'). During the
second quarter of fiscal 1995, the Company underwent a change in
management, as described below, and under new management, decided to
close all but the Romeoville, Illinois facility.
Pursuant to or in connection with an agreement, dated April 1,
1995, between the Company, Robert A. Davis (the Company's former Chief
Executive Officer, Chief Financial Officer and President and a
director), certain partnerships and a trust (the 'Davis Entities') in
which Mr. Davis has an interest, Michael J. Carroll, James J. Urban and
Brian M. Carroll (the 'Separation Agreement'), Mr. Davis and Mr. Dallas
Talley (another director of the Company) resigned their positions with
the Company and Messrs. Michael Carroll and James Urban were elected to
fill the vacancies on the Company's Board of Directors. The Separation
Agreement also provided that: (i) the Davis Entities would contribute
800,000 shares of the common stock back to the Company; and (ii) the
Davis Entities would forgive $200,000 owed by the Company. Under the
Separation Agreement , the Company agreed to indemnify Mr. Davis for and
against any claims, other than claims for fraud and certain types of
negligence, which might be made in connection with Mr. Davis' service as
an officer or director of the Company.
Subsequently, new management of the Company decided to attempt to
restructure the Company's operations around the MOI operations acquired
in July 1994. As a result, the California, Florida and Georgia
facilities were closed. A result of these substantial changes in the
Company's operations, is that operating results for fiscal 1995 and
fiscal 1996 lack comparability.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(C) Use of Estimates
The preparation of the 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 and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(D) Inventories
Inventories consisting of new equipment, used equipment and parts
are valued at the lower of cost (using the first-in first-out method) or
market.
(E) Property and Equipment
Property and equipment are recorded at cost. Depreciation is
provided using straight-line and accelerated methods over the estimated
useful lives of three to seven years. Leasehold improvements are
amortized on a straight-line basis over the lesser of the estimated
useful lives of the assets or the related lease terms.
(F) Intangible Assets
Intangible assets consist primarily of goodwill, which
represent the excess of cost over fair market value of net assets
acquired in the purchase of MOI.
It is the Company's policy to periodically evaluate the carrying
value of its operating assets, including goodwill, and to recognize
impairments when the estimated future net operating cash flows to be
generated from the use of the assets are less than their carrying value.
The Company measures impairment of goodwill by the difference between
the carrying value and the estimated discounted cash flows from the
assets.
Effective July 1, 1995, the Company reduced the estimated useful
life for goodwill related to the acquisition of MOI from 30 years to 15
years. This change was made, retroactively to the beginning of fiscal
1995, to reflect management's revised estimate of the useful life of the
MOI goodwill,which was revised to reflect the significance of certain
key personnel at MOI and the rate at which the ophthalmic industry could
change. The effect of this change was a fourth quarter increase in net
loss of approximately $90,000 or $.02 per share for fiscal 1995.
Amortization expense related to intangible assets was $390,526 for
the year ended September 30, 1995 and $324,604 for the year ended
September 30, 1996.
For the fiscal year ended September 30, 1996, the intangible assets of
the Company were as follows:
(G) Income Taxes
The Company provides for deferred taxes on the difference between
the financial reporting and tax bases of assets and liabilities in
accordance with Statement of Financial Accounting Standards No. 109.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(H) Net Loss per Share
Net loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding. Outstanding
common stock options, warrants and shares of common stock issuable upon
the conversion of outstanding convertible debentures have been excluded
from the computation of net loss per share as their effect would be
anti-dilutive.
(I) Cash and Cash Equivalents
The Company considers all highly liquid investments that have
maturity of three months or less on the date of purchase to be cash
equivalents.
(J) Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of risk consist principally of accounts receivable. The
accounts receivable is from numerous entities located throughout the
United States and the associated credit risks are limited. The carrying
values reflected in the balance sheet at September 30, 1996 reasonably
approximate the fair values for accounts receivable and payable.
(K) Advertising
Advertising costs are expensed as incurred and included in
'selling, general and administrative expenses.' Advertising expenses
amounted to approximately $181,000 in fiscal 1995 and approximately
$44,000 in fiscal 1996.
(L) Reclassifications
Certain reclassifications have been made to prior year for
consistency purposes.
2. GOING CONCERN
The accompanying financial statements have been prepared on the
assumption that the Company will continue as a going concern and
therefore assume the realization of the Company's assets and the
satisfaction of its liabilities in the normal course of operations.
As discussed below, the Company was in default under the terms of
its revolving credit facility with Silicon Valley Bank ('Silicon'),
which is the Company's primary credit facility. Additionally, in part
because of that default and the resulting inability to obtain additional
working capital, the Company was unable to make timely reductions in the
amount owed to its product suppliers. As a consequence, the Company was
unable to obtain otherwise customary trade credit and was limited to
purchases of product on limited credit terms or with payment on
delivery.
The Company's ability to continue as a going concern is ultimately
dependent on its ability to increase its sales to a level that will
allow it to operate profitably, to generate positive operating cash
flows, and to refinance outstanding debt when it comes due. Although
the reduction of expenses (which was begun in the last half of fiscal
1995 and continued into fiscal 1996) can contribute to the necessary
return to profitability, achieving profitability without an increase in
sales would require much greater levels of expense reductions and in all
likelihood could only be accomplished through a significant reduction
and restructuring of the nature and scope of the Company's operations.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
In addition, the Company's sales have been adversely affected by
its lack of working capital and liquidity, which has limited its
marketing efforts and in certain instances has prevented it from
obtaining products to fill customer orders. Accordingly, to increase
sales the Company must first resolve its working capital shortage.
In connection with the Company's financial restructuring efforts,
the Company reached agreements with Silicon, its primary trade creditors
and certain debtholders during the fourth quarter of fiscal 1996, and
the first quarter of fiscal 1997. See Note 3 to the Financial
Statements included elsewhere herein. In addition, the Company raised
$1,200,250 in new capital through the private placement of equity in the
first quarter of fiscal 1997.
The restructuring agreement with Silicon provided that Silicon
would convert approximately $3,000,000 owing to Silicon into shares of
the Company's common stock at a conversion rate of $1.52 per share, and
transfer the remaining $1.8 million owing to Silicon into a new credit
facility with Silicon. The $1.52 conversion rate only relates to the
determination of the number of shares issued in the exchange. The shares
which were issued were valued at $.25 per share (the fair value of the
stock). The agreement with Silicon was conditioned on or required,
among other things: (i) the Company's simultaneous receipt of at least
$1 million of proceeds from the private placement of its securities;
(ii) the Company's best efforts in converting certain amounts owed to
trade suppliers into equity securities or long-term notes; and (iii) the
personal guarantees of certain officers of the Company for an amount not
to exceed an aggregate of $200,000. The Company met the conditions of
the Silicon agreement during the first quarter of fiscal 1997 and the
new line of credit became effective in November 1996.
In connection with the restructuring of trade debt during the
fourth quarter of fiscal 1996: (i) $155,473 of trade debt was converted
to stock in the Company at a rate of $1.52 per share which resulted in
a gain from restructuring of $129,902; (ii) $101,358 was forgiven; and
(iii) approximately $106,000 was converted to promissory notes with
terms of up to 24 months. This resulted in an extraordinary gain of
$231,260. Subsequent to the fiscal year ended September 30, 1996, the
Company completed agreements with trade creditors such that (i) $378,000
of trade payables were converted to stock at the rate $1.52 per share;
(ii) $100,000 was forgiven; and (iii) $162,000 was converted to a 24
month promissory note. The $1.52 conversion rates for trade debt during
fiscal 1996 and fiscal 1997 only relate to the determination of the
number of shares issued in the exchange. The shares which were issued
were valued at $.25 per share (the fair value of the stock).
With regard to the restructuring of certain notes payable, $292,500
was converted to shares of the Company's common stock at a rate of $.25
per share (the same pro rata price per share as sold in the Company's
private placement) during the fourth quarter of fiscal 1996. See Notes
4 and 5 to the Financial Statements included herein.
Management believes that with: (i) the completion of the above
mentioned restructuring of its debt; (ii) the equity infusion that it
has received subsequent to the Company's fiscal year end September 30,
996; (iii) the icrease in trade credit which the Company has received
upon the aforementioned debt restructuring; and (iv) the expansion of
the Company's marketing efforts and sales territory expansion, the
Company will be able to achieve sales increases by reducing the limiting
effects that the Company's lack of working capital have had on marketing
and the ability to obtain products necessary to accept and fill customer
orders on a timely basis, and allow the Company to refinance outstanding
debt when it comes due in fiscal 1997. The increases in sales should
ultimately allow the Company to return to profitability and generate
positive cash flows.
There can be no assurance that the Company will be able to increase
sales levels to achieve profitability which could force the Company to
significantly reduce its operations in order to reduce expenses or take
other actions to resolve liquidity constraints that may arise.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. NOTES PAYABLE - BANK
The Company's principal credit facility is a revolving credit
facility with Silicon. The line of credit, which is secured by
essentially all of the Company's assets, initially provided for
borrowings of up to $4,000,000, limited to (i) 80% of the amount of
eligible accounts receivable; and (ii) the lesser of $1,500,000 or 50%
of the book value of eligible inventories, reduced by trade accounts
payable. The line of credit provided for the payment of interest
monthly at the rate of 1% over the bank's prime rate for borrowings
collateralized by accounts receivable and 3% over the bank's prime rate
for borrowings collateralized by inventory. The line of credit was
scheduled to mature on February 5, 1995.
In January 1994, Silicon extended the Company a supplemental
$1,000,000 revolving line of credit facility, $750,000 of which was to
be used solely for the acquisition of POI, with the remaining $250,000
for the use in the future acquisition of a separate distributorship.
Silicon also agreed to increase the limit on inventory borrowings to the
lesser of $2,000,000 or 50% of the book value of eligible inventories,
net of trade accounts payable, upon the Company's repayment of the
supplemental line of credit. The supplemental line of credit was repaid
in August 1994. In March 1994, in connection with the Company's
acquisition of MOI, Silicon increased the overall limit on the line of
credit to $5,500,000.
In connection with the increase in the line of credit and the
extension of a supplemental credit facility, the Company paid loan
origination fees of $2,500 and issued to Silicon warrants to purchase an
aggregate of 40,000 shares of common stock at an exercise price of $5.00
per share exercisable through March 31, 1999. In October 1994, the
Company reduced the exercise price of the warrant to purchase 40,000
shares of common stock and that of the warrant to purchase 4,119 shares
of common stock issued to Silicon in April 1992, to $1.30 per share for
exercises before January 31, 1995. In November 1994, the exercise price
was further reduced to $1.00 per share for exercises before February 28,
1995.
During fiscal 1995, the balance outstanding under the line of
credit exceeded the amount available under the borrowing formula, and
the Company was otherwise in default with respect to certain provisions
of the line of credit agreement. On April 1, 1995, Silicon agreed to
extend the terms of the Company's line of credit, as generally in effect
in the original agreement, through February 6, 1996 (subsequently
extended to April 15, 1996), and agreed to forbear in the exercise of
its rights resulting from the Company's past defaults or defaults in the
future compliance with the financial covenants, and to advance the
Company an additional $500,000 (the 'flat rate loan'), conditioned upon
the Company's agreement to make certain scheduled reductions in both:
(a) the amount of the total borrowings outstanding; and (b) the amount
by which total borrowings exceeded the amount available under the
collateral formula. Under the extended agreement all borrowings bear
interest, payable monthly, at the annual rate of 3% above Silicon's
prime rate, subject to reduction as the amount of the Company's over
formula borrowing decreases. In addition, the Company agreed to modify
the terms of warrants to purchase 44,119 shares of common stock to
provide for exercise at a price of $.50 per share through March 31,
2000.
Throughout fiscal 1996, the Company continued to be in default of
the provisions in the credit agreement with Silicon. At September 30,
1996, principal of $4,375,304 and accrued interest of $443,394 were
outstanding under the line of credit.
In September 1996, the Company reached an agreement with Silicon
on an Amended and Restated Loan and Security Agreement ('Amended
Agreement') such that Silicon agreed to convert approximately $3 million
of amounts owed to it by the Company under its Line of Credit into
shares of the Company's common stock at the rate of $1.52 per share. The
$1.52 conversion rate only relates to the determination of the number of
shares issued in the exchange. The shares which were issued were valued
at $.25 per share (the fair value of the stock). As a result of the
conversion, Silicon further agreed to extend the maturity date with
respect to the remaining $1.8 million under the line of credit to July
1997. The agreement was conditioned on, among other things, the
Company's receipt of at least $1 million in cash and the personal
guarantees (for an amount not to exceed $200,000 in the aggregate) of
certain officers of the Company.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
In November 1996, in connection with a private placement of equity,
the Company exceeded the $1,000,000 receipt of capital requirement and
its officers executed personal guarantees. As a result of the
conversion of $3,160,327, the amount owed to Silicon less the $1.8
million facility, the Company will record an extraordinary gain of
$2,495,412 during the first quarter of fiscal 1997. See Note 11.
The Amended Agreement provides for the Company to receive advances
against the line of credit for the lower of $1.8 million or the amounts
supported by a formula derived borrowing base. The borrowing base is
equal to (i) 80% of the amount of eligible accounts receivable and (ii)
the lesser of 50% of eligible inventories or $1,000,000. The lending
rate on the Amended Agreement is 2% over Silicon's prime rate and is
payable on a monthly basis.
4. SHORT TERM DEBT - RELATED PARTY
In September 1995, Michael J. Carroll and James J. Urban, the
Company's President/Chief Executive Officer and Senior Vice
President/Chief Operating Officer, respectively, loaned an aggregate of
$100,000 to the Company in exchange for 90-day promissory notes. In
addition, Linda Zimdars, a member of the Company's Board of Directors,
loaned $100,000 to the Company in exchange for 90-day promissory notes.
The notes to Ms. Zimdars were personally guaranteed by Messrs. M.
Carroll and Urban. The notes bore interest at 15% per annum. In
December 1995, a payment of $10,000 was made on the note to Messrs.
Carroll and Urban and a payment of $10,000 was made on the note to Ms.
Zimdars. In April 1996, the notes were amended to extend their maturity
to July 1, 1996, and in September 1996, the notes were converted to
common stock in the Company at the conversion rate of $.25 per share.
In December 1995, the Company borrowed an additional $280,000 under
60-day promissory notes bearing interest at 6% per annum and note
origination fees of $17,000 (6%). Of the aggregate of $280,000: (i)
$50,000 was borrowed from each of Michael Carroll and James Urban; (ii)
$80,000 was borrowed from Ms. Zimdars; and (iii) $100,000 was borrowed
from Tiger Eye Capital, L.L.C. ('Tiger Eye'). The notes were repaid in
February 1996. Tiger Eye has consulting agreements with the Company
which provide for the issuance of 600,000 shares of common stock in
connection with the rendering of investor and public relations services.
(see Note 6).
In February 1996, the Company borrowed $150,000 from Messrs. M.
Carroll and Urban, and Ms. Zimdars under 24-day promissory notes bearing
interest at the rate of 1% per annum above the prime lending rate in
effect from time to time. A loan origination fee of 6% was also paid.
Of the aggregate of $150,000, $50,000 was borrowed from each of Messrs.
M. Carroll and Urban, and Ms. Zimdars. In March 1996, a payment of
$12,500 was made to each of Messrs. M. Carroll and Urban, and in May
1996, the balance of the notes to Messrs. M. Carroll and Urban were
repaid. The note to Ms. Zimdars was also repaid in May 1996.
During August 1996, the Company borrowed $215,000 from an
individual under a 30 day promissory note bearing interest at 10% per
annum and a note origination fee of $6,450. In October, the note was
converted to 860,000 shares of common stock in the Company as
participation in the Company's private placement offering which
commenced on October 1, 1996. In addition, warrants exercisable for
$1.00 were also issued as part of the participation in the
aforementioned private placement offering.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. LONG-TERM DEBT
Long-term debt consists of the following:
September 30,
1995 1996
Notes payable collateralized by automobiles
and trucks with interest rates between 4.8%
and 9.3%, principal and interest payable monthly,
due on or before February 1998 $30,288 $16,161
9% notes payable, due on July 1, 1996 137,500 25,000
5% convertible notes payable 25,000 -
6.3% trade creditor promissory note payable monthly
through November 1998 510,000 540,000
10% trade creditor promissory note payable monthly
from December 1996 through November 1998
of which $13,326 represents amounts for
deferred interest - 79,956
Total long-term debt 702,788 661,117
Less current portion 324,660 567,395
-------- --------
Long-term debt, less current portion $378,128 $ 93,722
The aggregate amounts of long term debt mature as follows:
Year ending September 30, Amount
1997 $567,395
1998 90,947
1999 2,775
--------
Total $661,117
During 1994, the Company issued $1,150,000 in principal amount of
5% convertible promissory notes (the '5% Notes') and 9% promissory notes
(the '9% Notes'). The net proceeds were used to fund the cash
consideration paid in connection with the Company's acquisition of MOI.
The outstanding principal of the 5% Notes was convertible into
shares of Common Stock at the rate of $3.00 per share, or $2.50 per
share if the holder elected to extend the maturity date of a note past
December 31, 1995, on an all or none basis, by notice of conversion to
the Company after June 30, 1995 and up to the maturity date, or at any
time within thirty days of issuance of a notice of prepayment by the
Company. In the event that the closing bid price per share of common
stock equaled or exceeded $8.00 for five consecutive trading days, then,
at the Company's election and immediately upon the issuance of a notice
by the Company, the outstanding principal and interest under each 5%
Note would be converted into shares of common stock at the rate of $3.00
per share.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
During fiscal 1995, the Company on three occasions elected to
reduce the conversion rate applicable to the 5% Notes, first in October
1994 to $1.50 per share, then in December 1994 to $1.00 per share, and
then in April 1995 (and to extend the maturity date of the 5% Notes) to
$.50 per share. During the third quarter of fiscal 1995, the holders of
an aggregate of $987,500 of the 5% Notes elected conversion at $.50 per
share and were issued an aggregate of 1,975,000 shares of common stock.
Officers or directors of the Company were purchasers of an
aggregate of $362,500 of 5% Notes (which were subsequently converted
into 725,000 shares of common stock in connection with the third quarter
fiscal 1995 conversion described above) and $62,500 of 9% Notes.
In September 1996, in connection with the Company's debt
restructuring, the Company elected to provide a conversion rate on the
9% Notes such that the amounts outstanding under the 9% Notes could be
converted at the rate of $.25 per share (the rate at which the Company
commenced a private placement of equity in the Company on October 1,
1996).
During August 1996, the Company reached agreement with a trade
creditor in which of the $222,104 owed, $66,631 would be converted to a
24 month promissory note with simple interest at 10%, and the balance,
$155,473, would be converted into 102,285 shares of the Company's common
stock (a conversion rate of $1.52 per share).
The Company believes that the interest rates on its long-term debt
are generally below the rates that would currently be available for
similar debt instruments issued by similar borrowers, and that as a
result, the market value of the Company's long-term debt is less than
the carrying amount. However, a determination of the specific market
value of the Company's long-term debt would involve excessive costs.
6. STOCKHOLDERS' EQUITY (DEFICIT)
(A) Common Stock and Common Stock Warrant Transactions (the
'Securities Transactions')
In addition to the Securities Transactions described in Notes 3, 4
and 5 above, the following occurred during fiscal 1995 and 1996:
In connection with the Company's July 1994 acquisition of MOI, the
Company entered into an agreement with MOI's owners, who are now the
Company's chief executive officer and chief operating officer (Michael
J. Carroll and James J. Urban, respectively), to issue common stock with
an aggregate value of $800,000 ($400,000 in July 1995 and $400,000 in
July 1996) at the then market prices. The agreement was amended in
April, 1995 to provide for immediate settlement, and the Company
satisfied the total obligation issuing 1,600,000 shares of common stock
at a value of $.50 per share, which reflected the then current market
price.
The issuance of 210,526 of such shares at a value of $800,000 had
been reflected in the financial statements at the time of the
acquisition, and in the third quarter of 1995 the Company recorded the
issuance of the 1,389,474 shares.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
The MOI acquisition also resulted in the issuance of a $300,000
note payable, $150,000 due in July, 1995 and $150,000 due July, 1996.
During the third quarter of 1995 the holders of the note (Michael J.
Carroll and James J. Urban), agreed to convert the note into common
stock at the rate of $.50 per share, resulting in the issuance of
600,000 shares.
In April 1995, the Company issued an aggregate of 250,000 shares of
Common Stock to Michael Carroll and James Urban for cash proceeds of
$125,000.
In June 1995, the Company entered into a consulting agreement and a
finders agreement with Tiger Eye, which agreements contemplated the
issuance of an aggregate of 500,000 shares of common stock by the
Company in exchange for the services to be provided by Tiger Eye
thereunder. In April 1995, such agreements were amended to provide for
performance thereunder at such time as the Company became current in its
public reporting under the Securities Exchange Act of 1934 (the
'Exchange Act').
In December 1995, the Company entered into a consulting agreement
with Tiger Eye which provides for the rendering of investor and public
relations services. Pursuant to such agreement, Tiger Eye was entitled
to receive 300,000 shares of common stock: 100,000 of which were
issuable upon execution of the agreement and 33,333 of which were
issuable each month through June 1996. The initial term of the
agreement commenced January 1, 1996. Such agreement was amended to
provide for performance thereunder at such time as the Company became
current in its public reporting under the Exchange Act.
In July, pursuant to the terms of the aforementioned agreements, as
amended, between the Company and Tiger Eye, the Company issued 600,000
shares of the Company's common stock to Tiger Eye. As a result of the
above, the Company recorded an expense of $300,000 during the fourth
quarter of fiscal 1996.
(B) Outstanding Stock Purchase Warrants
The following sets forth the common stock purchase warrants
outstanding which were exercisable as of September 30, 1996:
Shares Obtainable Per Share Exercisable
on Exercise Exercise Price Through
44,119 $.50 March 2000
25,000 $1.00 December 1997
2,187,500 $5.00 July 1998
In addition, the underwriters of the Company's initial public
offering received a warrant to purchase 125,000 units, exercisable at
$6.40 per unit through July 1998. Each unit consists of one share of
common stock and one warrant exercisable at $5.00 per share through July
1998.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(C) Stock Options and Stock Appreciation Rights
In February 1993, the Company adopted the Franklin Ophthalmic
Instruments Co., Inc. 1993 Stock Option and Appreciation Rights Plan
(the '1993 Plan') which provides for the grant of options to officers,
directors, employees and consultants to purchase not more than an
aggregate of 200,000 shares of common stock. The 1993 Plan provides for
the grant of options intended to qualify as 'incentive stock options'
under Section 422 of the Internal Revenue Code, as amended, as well as
options which do not so qualify.
With respect to qualified options, no option may be granted more
than ten years after the effective date of the 1993 Plan or exercised
more than ten years after the date of grant (five years if the optionee
owns more than ten percent of the common stock of the Company). The
option price may not be less than 100 percent of the fair market value
of the common stock on the date of the grant (110 percent if the
optionee owns more than ten percent of the common stock of the Company).
Subject to certain limited exceptions, options may not be exercised
unless, at the time of exercise, the optionee is in the service of the
Company. The options granted under the 1993 Plan included options to
purchase shares of common stock pursuant to a formula by which each non-
employee director is granted non-qualified options to purchase 15,000
shares of common stock each year.
The 1993 Plan was subsequently amended in December 1993 and January
1994 to ensure compliance with federal and state securities laws, and to
permit an option holder to arrange for a 'cashless exercise' wherein an
option may be exercised and the common stock sold on the same day with a
portion of the proceeds from the sale delivered to the Company to pay
the exercise price of the option. These amendments were approved by the
shareholders at the annual shareholders' meeting held on March 11, 1994.
In December 1993, the Company's Board of Directors adopted (subject
to shareholder approval which was subsequently obtained) the Franklin
Ophthalmic Instruments Co., Inc., 1994 Combined Stock Option and
Appreciation Rights Plan (the '1994 Plan'). The 1994 Plan was also
amended to conform with state securities laws. The shareholders
approved the adoption of the 1994 Plan and its amendments at the annual
shareholders' meeting held on March 11, 1994.
The terms and conditions of the 1994 Plan are substantially
identical to those of the 1993 Plan with the following two significant
differences: (i) the number of shares of common stock available to
purchase through the grant of options and rights under the 1994 Plan
aggregates 330,000; and (ii) directors who are not also employees are
not eligible to participate in the 1994 Plan.
The following sets forth the activity for the 1993 Plan and the
1994 Plan for fiscal 1995 and 1996:
1993 Plan 1994 Plan
Shares Exercise Shares Exercise
Price Price
Outstanding at September
30, 1994 120,000 $ 4.00-5.625 249,000 $2.625-3.19
Fiscal 1995
Granted 30,000 $ 75 - -
Forfeited (60,000) $ 4.625-5.625 (153,000) $2.625-3.19
Outstanding at September
30, 1995 90,000 $ .75-4.625 96,000 $2.625-3.19
Fiscal 1996
Granted 30,000 $ .50 - -
Forfeited - - (28,500) $2.625-3.19
Outstanding at September 120,000 $. 50-4.621 67,500 $2.625-3.19
30, 1996
All outstanding options reflected above are currently exercisable.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. INCOME TAXES
The following sets forth the deferred tax assets and liabilities
resulting from temporary differences between the financial reporting and
tax bases of assets and liabilities:
September 30,
1995 1996
Deductible temporary differences
Net operating loss carryforwards $ 3,000,000 $3,700,000
Allowance for doubtful accounts 140,000 16,000
Valuation reserve for inventory obsolescence 60,000 40,000
Valuation allowance for deferred tax asset (3,200,000 (3,756,000)
Net deferred tax asset $ - $ -
Based on recent results, the tax asset has been fully reserved for
and will be periodically be re-evaluated.
As of September 30, 1996, the Company had net operating loss
carryforwards of approximately $9,300,000 which may be used to reduce
taxable income and income taxes in future years. The availability of
certain operating loss carryforwards to offset future years' taxable
income is subject to certain limitations due to changes in the Company's
ownership during the year ended September 30, 1993. The carryforwards
expire from fiscal 2006 to fiscal 2011.
8. COMMITMENTS AND CAPITAL LEASE OBLIGATIONS
The Company leases office, warehouse and service facilities under
operating leases through 2001. Rent expense (net of sublease income)
was $143,523 for the year ended September 30, 1995 and $157,411 for the
year ended September 30, 1996.
Future obligations under the noncancellable operating leases with
initial remaining terms in excess of one year at September 30, 1996 are
as follows:
Year Ending Minimum Minimum
September 30, Rental PaymentsSublease Income Net
1997 $188,100 $54,015 $134,085
1998 188,100 55,464 132,636
1999 182,665 56,907 125,758
2000 122,880 - 122,880
2001 71,680 - 71,680
Total $753,425 $166,386 $587,039
The Company leases equipment under capital lease financing
arrangements. Amortization expense associated with the equipment leases
for the years ended September 30, 1995 and 1996 was $25,964 and $15,974
respectively.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Future minimum capital lease payments are as follows:
Year ending September 30, Amount
1997 $21,079
1998 21,079
1999 15,994
2000 205
Total before interest deduction 58,357
Less amount representing interest 9,729
Capital lease obligations $48,628
9. STATEMENTS OF CASH FLOWS
For the year
ended September 30,
1995 1996
Supplemental disclosure of cash flow information:
Cash paid during the year for
Interest $ 607,840 $ 400,846
Income taxes $ - $ 3,000
Supplemental schedule of non-cash investing and
financing activities:
Contribution to capital (forgiveness of debt) $ 200,000 $ -
Note payable issued to vendor for trade debt
from inventory purchases 510,000 66,631
Common stock issued for software rights 45,000 -
Common stock issued in connection with the
conversion of debt 1,287,500 318,071
Common stock issued for services - 312,374
Total non-cash investing & financing activities $2,042,500 $ 697,076
10. RELATED PARTY TRANSACTIONS
The Company has an agreement with a sole proprietorship, owned by
Linda S. Zimdars, a member of the Board of Directors, to provide
consulting services. Fees paid to this sole proprietorship during
fiscal 1995 and 1996 were $15,750 and $21,000, respectively.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. SUBSEQUENT EVENTS (UNAUDITED)
During the first quarter of fiscal 1997, the Company raised
$1,200,250 of capital through the sale of 2,400,500 Units which were
sold pursuant to a private placement of Units (each Unit consisting of
two shares of common stock and one common stock purchase warrant). The
sale of the 2,400,500 Units exceeded the minimum of 2,000,000 Units
required pursuant to the terms of the private placement, which was
conducted by the Company on a 'best efforts' basis and provides for the
sale and offer of up to a maximum of 3,200,000 Units. With the amount
raised in the aforementioned private placement, the Company met the $1
million capital-raising requirement that was conditioned in its
agreement with Silicon, and together with the effectiveness of personal
guarantees by Messrs. M. Carroll, J. Urban and B. Carroll, the Company
met all remaining conditions necessary for the execution of the
Company's agreement with Silicon. In addition, the Company completed
agreements with trade creditors during November and December 1996 such
that: (i) $378,000 of trade-debt would be converted to common stock at a
price of $1.52 per share; (ii) $162,000 would be converted to a 24 month
promissory note commencing November 15, 1996; and (iii) $100,000 would
be forgiven.
Supplementary earnings per share data to reflect the impact of
these transactions during the year ended September 30, 1996 are as
follows:
Supplementary Loss Before Extraordinary Item $1,826,485
Supplementary Net Loss $1,595,325
Supplementary Loss Before Extraordinary Item Per Share .12
Supplementary Net Loss Per Share .11
Supplementary Weighted Average Shares Outstanding 14,983,240
<PAGE>
INTERIM FINANCIAL STATEMENTS
The following condensed financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
condensed financial statements include all adjustments necessary to
present fairly the financial position, results of operations and cash
flows for the periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. The condensed financial statements
and these notes should be read in conjunction with the foregoing annual
financial statements of the Company. The results of operations for
interim periods are not necessarily indicative of the results to
be expected for a full year.
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, June 30,
1996 1997
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ - $ -
Accounts receivable, less allowance for
doubtful accounts of $40,135 and $25,135 720,277 1,182,748
Inventory, less valuation allowance
of $100,000 1,356,057 1,726,759
Prepaid expenses and other assets 19,027 159,541
--------- ---------
Total current assets 2,095,361 3,069,048
--------- ---------
Property and equipment, at cost:
Furniture and equipment 605,638 633,636
Automobiles and trucks 119,193 119,193
Leasehold improvements 109,408 118,366
------- -------
Property and equipment, at cost:
834,239 871,195
Less: Accumulated depreciation and
amortization 618,394 680,309
------- -------
Total property and equipment 215,845 190,886
------- -------
Other assets:
Deposits 13,935 13,903
Intangible assets, net of accumulated
amortization of $706,623 and 867,577 2,272,271 2,111,317
--------- ---------
Total other assets 2,286,206 2,125,220
--------- ---------
Total assets $ 4,597,412 5,385,154
========= =========
The accompanying notes are an
integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
CONDENSED BALANCE SHEETS
(Continued)
(Unaudited)
September 30, June 30,
1996 1997
<S> <C> <C>
Current liabilities:
Bank overdrafts $ 55,597 $ 160,897
Current portion of long-term debt 567,395 63,676
Accounts payable 1,180,475 1,125,057
Notes payable to bank 4,375,304 1,573,191
Current portion of capitalized lease
obligations 16,125 14,346
Deposits 429,844 259,717
Accrued liabilities 859,279 278,446
Notes payable to related parties 215,188 -
------- -------
Total current liabilities 7,699,207 3,475,330
Long-term debt:
Long-term debt, less current portion 93,722 127,642
Capitalized lease obligations, less
current portion 30,695 21,811
Total long-term debt 124,417 149,453
Total liabilities 7,823,624 3,624,783
Stockholders' equity (deficit):
Common stock: $0.001 par value; authorized
25,000,000 shares; 19,580,879 and 9,544,810
shares issued and outstanding at
June 30, 1997 and September 30,
1996,respectively 9,545 19,582
Additional paid-in capital 8,868,577 11,119,838
Accumulated deficit (12,104,334) (9,379,049)
------------ -----------
Total stockholders' equity (deficit) (3,226,212) 1,760,371
Total liabilities and
stockholder's equity (deficit) $ 4,597,412 $ 5,385,154
============= ============
The accompanying notes are an
integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the nine months ended
June 30,
1996 1997
---- ----
<S> <C> <C>
Sales $ 6,427,413 $ 6,901,829
Cost of Sales 4,920,995 5,000,439
--------- ---------
Gross profit $ 1,506,418 1,901,390
Less:
Selling, general and
administrative expenses 1,865,628 1,756,593
Amortization and depreciation 320,691 222,869
--------- --------
Income (loss) from operations (679,901) (78,072)
Other income (expenses):
Interest income 52 -
Interest expense (500,512) (88,799)
Other income (expense) 1,993 5,643
--------- --------
Other income (expense),net (500,460) (83,156)
--------- --------
Net income (loss) before
extraordinary item (1,180,361) (161,228)
Extraordinary item, gain from
debt restructuring - 2,886,513
----------- ---------
Net income (loss) $(1,180,361) $ 2,725,285
============ ===========
Loss per common share:
Net income ( loss) before
extraordinary item) $ (0.15) $ (0.01)
=========== ============
Net income ( loss) $ (0.15) $ 0.17
=========== ============
Weighted average number of
common shares outstanding 7,671,150 15,764,727
The accompanying notes are an
integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
For the nine months ended
June 30,
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ (1,180,361) $2,725,285
Adjustments to reconcile net
(loss) income to net cash used
in operating activities:
Depreciation 77,237 61,915
Amortization 243,454 160,954
Gain from debt restructuring - (2,886,513)
Changes in current assets and
liabilities:
Accounts receivable 530,391 (462,471)
Inventory 936,442 (370,702)
Prepaid expenses (81,720) (140,514)
Other assets - 32
Deposits 81,714 (170,127)
Accounts payable, trade and
accrued liabilities (362,926) (82,092)
--------- --------
Net cash provided by (used in)
operating activities 244,231 (1,164,233)
--------- -----------
Cash flows from investing activities:
Acquisition of equipment (1,879) (36,956)
--------- ----------
Net cash used in investing activities (1,879) (36,956)
--------- ----------
Cash flows from financing activities:
Net change in bank overdrafts (150,165) 105,300
Decrease in capital leases (14,818) (10,663)
Net change in borrowings under
line of credit (20,822) (228,809)
Net proceeds from issuance of
common stock 12,375 1,462,160
Decrease in long-term debt (41,243) (126,799)
Proceeds from issuance of promissory
notes to related parties (27,679) -
-------- ---------
Net cash provided by (used in)
financing activities (242,352) 1,201,189
--------- ---------
Net decrease in cash and cash equivqlents $ - $ -
Cash and cash equivalents at
beginning of year $ - $ -
--------- ---------
Cash and cash equivalents at end of year $ - $ -
========= =========
The accompanying notes are an
integral part of these financial statements.
</TABLE>
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
condensed financial statements include all adjustments necessary to
present fairly the financial position, results of operations and cash
flows for the periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. The condensed financial
statements and these notes should be read in conjunction with the
financial statements of the Company included in the Company's Annual
Report on Form 10-KSB for the year ended September 30, 1996.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.
2. GOING CONCERN
The accompanying condensed financial statements have been prepared
on the assumption that the Company will continue as a going concern and
therefore assume the realization of the Company's assets and the
satisfaction of its liabilities in the normal course of operations. The
Company's ability to continue as a going concern is ultimately dependent
on its ability to increase its sales to a level that will allow it to
operate profitably, to generate positive operating cash flows, and to
refinance outstanding debt when it comes due. The reduction of
expenses can contribute to the necessary return to profitability;
however achieving profitability without an increase in sales would
require much greater levels of expense reductions and in all likelihood
could only be accomplished through a significant reduction and
restructuring of the nature and scope of the Company's operations.
In addition, the Company's sales have been adversely affected by
its lack of working capital and liquidity, which has limited its
marketing efforts and in certain instances has prevented it from
obtaining products to fill customer orders. Accordingly, to increase
sales the Company must first resolve its working capital shortage.
The Company reached agreements with its primary lender, Silicon
Valley Bank ('Silicon'), certain trade creditors and certain debtholders
for the restructuring of certain of the Company's outstanding debt. See
Notes 3 and 4 to the Financial Statements included elsewhere herein. In
addition, the Company raised $1,200,250 in the first quarter of fiscal
1997 and $580,000 during the quarter ended June 30, 1997 from the
private placements of equity. See Note 5 to the Condensed Financial
Statements included elsewhere herein.
Management believes that with: (i) the completion of the
restructuring of its debt; (ii) the equity infusions that the Company
has received from the private placements during the quarters ended
December 31, 1996 and June 30, 1997; (iii) the increase in trade credit
which the Company has received upon the debt restructuring; and (iv) the
expansion of the Company's marketing efforts and sales territories,
which has already resulted in increased sales, the Company will be able
to continue to increase sales, which should allow the Company to
increase profitability and generate positive cash flows.
Notwithstanding management's belief, there can be no assurance that
the Company will be able to continue to increase sales levels. In
addition, in the event sales levels continue to increase, there can be
no assurance that the Company can maintain or increase profitability.
If profitability is not maintained or increased, the Company could be
forced to significantly reduce its operations in order to reduce
expenses or take other actions to resolve liquidity constraints that may
arise.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
3. NOTES PAYABLE - BANK
The Company's principal credit facility has been a revolving line
of credit facility with Silicon. The line of credit, which is secured
by essentially all of the Company's assets, initially provided for
borrowings of up to $4,000,000, but was eventually increased to provide
borrowings up to $5,500,000 after the Company's acquisitions related to
Progressive Ophthalmic Instruments, Inc. and Midwest Ophthalmic
Instruments Inc. both in the fiscal year ended September 30, 1994. The
line initially provided for borrowing limits equal to the sum of (i)
80% of the amount of eligible accounts receivable; and (ii) the lesser
of $1,500,000 or 50% of the book value of eligible inventories, reduced
by trade accounts payable. The line of credit provided for the payment
of interest monthly at the rate of 1% over the bank's prime rate for
borrowings collateralized by accounts receivable and 3% over the bank's
prime rate for borrowings collateralized by inventory. The line of
credit was scheduled to mature on February 5, 1995.
During fiscal 1995, the balance outstanding under the line of
credit exceeded the amount available under the borrowing formula as
mentioned above and the Company was otherwise in default with respect to
certain provisions of the line of credit agreement. On April 1, 1995,
Silicon agreed to extend the terms of the Company's line of credit, as
generally in effect in the original agreement, through February 6, 1996
(subsequently extended to April 15, 1996), and agreed to forbear in the
exercise of its rights resulting from the Company's past defaults or
defaults in the future compliance with the financial covenants, and to
advance the Company an additional $500,000, conditioned upon the
Company's agreement to make certain scheduled reductions in both: (a)
the amount of the total borrowings outstanding; and (b) the amount by
which total borrowings exceeded the amount available under the
collateral formula. Under the extended agreement all borrowings
incurred interest, payable monthly, at the annual rate of 3% above
Silicon's prime rate, subject to reduction as the amount of the
Company's over formula borrowing decreases. In addition, the Company
agreed to modify the terms of warrants held by Silicon to purchase
44,119 shares of Common Stock to provide for exercise at a price of $.50
per share through March 31, 2000.
In September 1996, the Company reached an agreement with Silicon
on an Amended and Restated Loan and Security Agreement (the 'Amended
Agreement') pursuant to which Silicon agreed to convert approximately
$3.2 million of amounts owed to it by the Company under its line of
credit into shares of the Company's Common Stock at the rate of $1.52
per share. The $1.52 conversion rate only relates to the determination
of the number of shares issued in the exchange, and the shares which
were issued were valued at $.25 per share (the fair value of the stock).
As a result of the conversion, Silicon further agreed to extend the
maturity date with respect to the remaining $1.8 million under the line
of credit to July 29, 1997. The Amended Agreement with Silicon was
conditioned on or required, among other things: (i) the Company's
receipt of at least $1 million of proceeds from the private placement of
its securities; (ii) the Company's best efforts in converting certain
amounts owed to trade suppliers into equity securities or long-term
notes; and (iii) the personal guarantees of certain officers of the
Company for an amount not to exceed an aggregate of $200,000. The
Company met the conditions of the Amended Agreement during the quarter
ended December 31, 1996 and the new line of credit became effective in
November 1996.
In connection with the restructuring of trade debt during
the quarter ended December 31, 1996: (i) $378,000 of trade debt was
converted to stock in the Company at a rate of $1.52 per share; (ii)
$100,000 was forgiven; and (iii) approximately $162,000 was converted to
promissory notes with terms of up to 24 months. The foregoing
transactions resulted in an extraordinary gain of $380,999 for the
quarter ended December 31, 1996. The $1.52 conversion rate for trade
debt only relates to the determination of the number of shares issued in
the exchange and the shares which were issued were valued at $.25 per
share (the fair value of the stock).
As a result of the conversion of $3,175,105, the amount owed to
Silicon less the $1.8 million facility, the Company recorded an
extraordinary gain of $2,505,514 during the first quarter of fiscal
1997. The Amended Agreement provided for the Company to receive
advances against the line of credit for the lower of $1.8 million or the
amounts supported by a formula derived borrowing base. The borrowing
base is equal to the sum of (i) 80% of the amount of eligible accounts
receivable and (ii) the lesser of 50% of eligible inventories or
$1,000,000.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Interest under the Amended Agreement was payable monthly at a rate equal
to 2% over Silicon's prime rate. The Amended Agreement initially
provided for a maturity date of July 29, 1997.
During August 1997, the Company and Silicon agreed to an extension
of the line of credit (the 'Revised Agreement') to September 30, 1997,
which maturity date may be further extended by the Company to February
28, 1998 upon payment of a fee to Silicon and as long as the Company is
not in default under the Amended Agreement. The interest rate charged
on the indebtedness outstanding under the line of credit was increased
to 3% over Silicon's prime lending rate, increasing to 4% over
Silicon's prime lending rate if the Company is still indebted to Silicon
at January 1, 1998. In addition the Revised Agreement provides for a
loan fee that is payable as follows: (i) $4,000 upon effectiveness of
the Revised Agreement; (ii) $6,000 on September 30, 1997 if the Company
elects to extend the maturity of the line of credit to February 28,
1998; and (iii) $8,000 on January 1, 1998 in the event that the Company
remains indebted to Silicon at such date. The Revised Agreement
provides that the Company will be deemed to be in default if it fails to
(i) have a net profit of at least one dollar for each of the Company's
fiscal quarters commencing with the fiscal quarter ending June 30, 1997,
and (ii) have an operating profit of at least one dollar for the
Company's fiscal year ending September 30, 1997. For purposes of the
Revised Agreement only, operating profit shall be defined as the
Company's earnings before interest, taxes, depreciation, and
amortization. While the Company has achieved the aforementioned net and
operating profit requirements as of June 30, 1997, and believes that it
will continue to meet such net and operating profit levels for the term
of the Revised Agreement, there can be no assurance that the Company
will continue to do so.
At June 30, 1997, the Company owed $1,573,191 under the line of
credit.
4. SHORT TERM DEBT - RELATED PARTY
During August 1996, the Company borrowed $215,000 from an
individual under a 30-day promissory note bearing interest at 10% per
annum and a note origination fee of $6,450. In October 1996, the note
was converted to 860,000 shares of common stock in the Company as
participation in the Company's private placement offering which
commenced on October 1, 1996. In addition, warrants to purchase 430,000
shares of common stock at a price of $1.00 per share, exercisable 6-18
months after the date of issuance of such warrants, were also issued as
part of the participation in the aforementioned private placement
offering.
5. STOCKHOLDERS EQUITY
During the first quarter of fiscal 1997, the Company raised
$1,200,250 of capital through the sale of 2,400,500 Units which were
sold pursuant to a private placement of Units (each Unit consisting of
two shares of common stock and one common stock purchase warrant,
exercisable between 6-18 months after the issuance of such common stock
purchase warrant). The sale of the 2,400,500 Units exceeded the minimum
of 2,000,000 Units required pursuant to the terms of the private
placement, which was conducted by the Company on a 'best efforts' basis
and provided for the sale and offer of up to a maximum of 3,200,000
Units. The amount raised in the private placement, together with the
effectiveness of personal guarantees by Messrs. M. Carroll, J. Urban and
B. Carroll, satisfied all remaining conditions with Silicon under the
Amended Agreement.
In March of 1997, the Company's Board of Directors voted to
eliminate the annual automatic granting of options to non-employee
directors that was established under the 1993 Stock Option Rights and
Appreciation Plan.
The Company entered into an agreement on April 11, 1997, which was
amended on May 8, May 9, and May 11, 1997 (the 'Investment Agreement'),
with Prinz-Franklin L.L.C., an Illinois limited liability company
('Prinz-Franklin'), pursuant to which the Company agreed to sell to
Prinz-Franklin up to 3,000,000 shares of Common Stock at a price of
$0.20 per share. The Investment Agreement granted Prinz piggyback
registration rights with respect to the shares of Common Stock so
purchased.
<PAGE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Pursuant to such piggy-back registration rights, any shares of Common
Stock which Prinz elects to include in a registration statement of the
Company shall be held in escrow during the effective period of such
registration statement until the following conditions are met: (i) 25%
of the shares purchased may not be sold or released from escrow until
the closing price of the Company's Common Stock is equal to or greater
than $0.75 per share for five consecutive trading days; and(ii) the
remaining Common Stock may not be sold or released from escrow until the
closing price of the Company's Common Stock is equal to or greater than
$1.25 per share for five consecutive trading days. Such escrow
restrictions shall terminate at the earlier of the time the common stock
sold to Prinz is exempt under Rule 144 as promulgated under the
Securities Act of 1933, as amended, or one year from the date of each
purchase of the respective shares. In addition, the Investment
Agreement provided for the issuance to Prinz _ Franklin of warrants to
purchase up to 400,000 shares of Common Stock within a period of four
years from issuance of the applicable warrants. During the quarter
ended June 30, 1997, Prinz-Franklin had purchased 2,900,000 of the
shares of Common Stock and was granted warrants to purchase 400,000
additional shares of Common Stock. The Investment Agreement also
provided for the appointment of John Prinz to the Board of Directors of
the Company.
In connection with the Company's restructuring of the Silicon debt
during the quarter ended December 31, 1996, the Company agreed to issue
an additional 1,767 shares of Common Stock in August of 1997 to
reconcile the amount of interest that was accrued up to the date of the
effectiveness of the Silicon conversion in November of 1996.
In accordance with anti-dilution rights of Class A Warrants that
were issued during the Company's Initial Public Offering in July 1993,
the exercise price for the Class A Warrants has been reduced from its
original level of $5.00 per share of Common Stock to $2.30 per share,
and the aggregate number of shares of Common Stock issuable upon
exercise of such warrants has been increased from 2,062,500 to
4,487,740. As a consequence of the increase in the number of shares
issuable upon the exercise of the Class A Warrants, the Company no
longer has sufficient shares of Common Stock authorized to provide for
the exercise of all of the outstanding common stock purchase warrants
and options. To remedy this situation, the Company has reached an
agreement with Michael J. Carroll and James J. Urban pursuant to which
Messrs. Carroll and Urban agree to surrender to the Company for
redemption shares of Common Stock held by them if needed to increase the
available authorized shares of Common Stock and allow for any issuances
of Common Stock underlying common stock purchase warrants or options which
are exercised. In any event, the Company plans at the next annual meeting
to seek stockholder approval of an amendment to the Company's Articles of
Incorporation increasing the authorized number of shares of Common Stock.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 5
Market for Securities 9
Dividend Policy 9
Use of Proceeds 9
Management's Discussion and
Ananlysis of Financial Condition
and Results of Operations 10
Business of the Company 14
Management 19
Certain Transactions 22
Principal Security Holders 23
Description of Securities 24
Selling Security Holders 26
Statement of Indemnification 30
Legal Matters 31
Experts 31
No dealer, salesman or any other 17,254,673 Shares of Common Stock
person has been authorized to give and
any information or to make any 2,400,500 Common Stock Purchase
representations other than those Warrants
contained in this Prospectus, and, offered by certain
if given or made, such information Selling Security Holders
or representations must not be
relied upon as having been FRANKLIN OPHTHALMIC INSTRUMENTS CO.,
authorized by the Company. This INC.
Prospectus does not constitute an
offer of any securities other than PROSPECTUS
those to which it relates or an
offer to sell, or a solicitation of _________, 1997
an offer to buy, in any jurisdiction
to any person to whom it is unlawful
to make such an offer in such
jurisdiction. The delivery of this
Prospectus at any time does not
imply that the information herein is
correct as of any time subsequent to
its date.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation adopts the provisions of
Section 102(b)(7) of the Delaware General Corporation Law which
eliminates the personal liability of directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty under
certain circumstances. Furthermore, under the Company's By-laws, and in
accordance with the Company's Certificate of Incorporation and Section
145 of the Delaware General Corporation Law, the Company must indemnify
each of its directors, officers, employees and agents against his
reasonable expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with any proceeding involving
such person by reason of his being or having been a director, officer,
employee or agent to the extent he acted in good faith and in a manner
reasonably believed to be in, or not opposed to the best interest of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Company maintains a directors' and officers' liability
insurance policy with a limit coverage of $1,000,000.
Reference is made to Item 28 for the undertakings of the Registrant
with respect to indemnification of liabilities under the Securities Act.
Item 25. Other Expenses of Issuance and Distribution.
The following is a list of the estimated expenses to be incurred by
the Registrant in connection with the resale of Securities offered
hereby. The Selling Security Holders will not be responsible for any of
such expenses.
Registration Fee ...... $ 3,211.05
Printing Expenses ..... $ 2,500.00
Accountants' Fees and Expenses $15,000.00
Blue Sky Filing Fees and
Expenses .............. $ 2,500.00
Legal Fees and Expenses $35,000.00
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The Company sold 5% Convertible Notes in a private debt offering
commenced in April 1994. In June, 1995, the Company converted most of
the 5% Convertible Notes, with an aggregate principal amount of
$987,500, into 1,975,000 shares of Common Stock at a conversion rate of
$0.50 per share. The conversions were made in reliance upon the
exemption from registration under the Securities Act set forth in
Section 3(a)(9) as the transaction involved an exchange of securities
with existing security holders.
Pursuant to an agreement dated April 20, 1995 (the '1995
Agreement'), the Company issued to Michael J. Carroll and James J. Urban
an aggregate of (i) 250,000 shares of Common Stock for cash proceeds of
$125,000; (ii) 600,000 shares of Common Stock for the forgiveness of
$300,000 owed to them in connection with the purchase by the Company of
MOI; and (iii) 1,600,000 shares of Common Stock as a result of the
acceleration of shares owed in connection with the purchase by the
Company of MOI. The issuances were made in reliance upon the exemption
from registration under the Securities Act set forth in (a) in the case
of the transactions described in clauses (i) and (iii), Section 4(2) as
the issuances did not involve a public offering and (b) in the case of
the transaction described in clause (ii), Section 3(a)(9) as that
transaction involved an exchange of securities with existing security
holders. In claiming such exemptions, the Company relied upon
representations and warranties provided by such persons in the 1995
Agreement. Each of Messrs. Carroll and Urban were officers of the
Company.
Effective as of September 30, 1996, certain promissory notes
bearing interest at 15%, with an aggregate balance due of $180,000, owed
to Michael J. Carroll ($45,000), James J. Urban ($45,000), and Linda
Zimdars ($90,000), and certain 9% Non-Convertible Notes, in the
aggregate principal amount of $112,500, owed to Messrs. Carroll and
Urban, Ms. Zimdars and three other individuals who are not affiliated
with the Company, were converted into an aggregate of 1,170,000 shares
of Common Stock at a price equal to $.25 per share. The notes were
converted pursuant to Debt Conversion Agreements (the 'Debt Conversion
Agreements') dated September 30, 1996 between the Company and each of
such persons.
During the quarter ended December 31, 1996, the Company raised
$1,200,250 of capital through the sale of 2,400,500 Units which were
sold pursuant to a private placement offering. Under such private
placement, the Company sold 2,156,500 Units on November 20, 1996 and
244,000 Units on December 30, 1996. Each Unit consisted of two shares
of common stock, $0.001 per value, and one common stock purchase warrant
(the 'Warrants'). Each Warrant entitles the holder thereof to purchase
one share of Common Stock at a price of $1.00 per share for a period of
one year commencing six months from the date of the Warrant. Each
Warrant is redeemable by the Company for $0.10 per Warrant, at any time
after September 30, 1997, upon 30 days prior written notice, if the
closing price or bid price of the Common Stock, as reported by the
principal exchange on which the common stock is then traded, the OTC
Electronic Bulletin Board or the National Quotation Bureau Incorporated,
as the case may be, equals or exceeds $3.00 per share for 20 consecutive
trading days ending within 15 days prior to the date of the notice of
redemption. The Company may in its sole discretion extend the exercise
date of the Warrants or reduce the exercise price.
Sales under the private placement offering were made to accredited
and 27unaccredited investors pursuant to Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended. The Company
believes that immediately prior to making any sale to an unaccredited
investor, such investor had such knowledge and experience in financial
and business matters that such investor was capable of evaluating the
merits and risks of the investment. The private placement offering was
made to accredited and unaccredited investors pursuant to Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended.
In claiming such exemption, the Company relied upon representations and
warranties in the subscription agreements obtained from the investors
under the private placement.
On April 11, 1997, the Company entered into an Investment
Agreement, which was amended May 8, 1997, May 9, 1997 and May 11, 1997,
with Prinz-Franklin, L.L.C., an Illinois limited liability company
('Prinz-Franklin') pursuant to which Prinz-Franklin invested $580,000 in
the Company in three installments, $200,000 on April 11, 1997, $200,000
on May 11, 1997 and $180,000 on June 27, 1997 in return for an aggregate
of 2,900,000 shares of Common Stock and 400,000 common stock purchase
warrants. See 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS'. The sale was made in reliance
upon the exemption from registration under the Securities Act set forth
in Section 4(2) as the sale did not involve a public offering. In
claiming such exemption, the Company relied upon representations and
warranties provided by Prinz-Franklin in the Investment Agreement.
<PAGE>
Item 27. Exhibits.
Exhibit
Number Title of Exhibit
2.1 Asset Purchase Agreement, dated January 27, 1994, by and
between Franklin Ophthalmic Instruments Co., Inc. and
Progressive Ophthalmic Instruments, Inc. filed with the
Securities and Exchange Commission (the 'Commission') on
February 14, 1994 (File No. 0-21852) as an exhibit to the
Company's Current Report on Form 8-K, dated January 27, 1994,
and incorporated herein by reference.
2.2 Stock Purchase Agreement, dated June 24, 1994, by and among
Franklin Ophthalmic Instruments Co., Inc., Midwest Ophthalmic
Instruments, Inc., Michael J. Carroll and James J. Urban filed
with the Securities and Exchange Commission as an exhibit to
the Company's Current Report on 8-K, dated July 1, 1994 (File
No. 0-21852), and incorporated herein by reference.
2.3 Letter Agreement, dated June 29, 1994, by and among Franklin
Ophthalmic Instruments Co, Inc., Midwest Ophthalmic
Instruments, Inc., Michael J. Carroll and James J. Urban filed
with the Securities and Exchange Commission on July 15, 1994
as an exhibit to the Company's Current Report on Form 8-K
(File No. 0-21852) and incorporated herein by reference.
3.1 Articles of Incorporation of Franklin Ophthalmic Instruments
Co., Inc., Delaware (Registrant) filed with the Securities and
Exchange Commission on March 10, 1993 as an exhibit to the
Company's Registration Statement on Form SB-2 (File
No. 33-59340) and incorporated herein by reference.
3.2 Articles of Incorporation of Franklin Ophthalmic Instruments
Co, Inc. (California) filed with the Securities and Exchange
Commission on March 10, 1993 as an exhibit to the Company's
Registration Statement on Form SB-2 (File No. 33-59340) and
incorporated herein by reference.
3.3 Agreement and Plan of Merger Certificate between Franklin
Ophthalmic Instruments Co., Inc. (Delaware) and Franklin
Ophthalmic Instruments Co., Inc. (California) filed with the
Securities and Exchange Commission on March 10, 1993 as an
exhibit to the Company's Registration Statement on Form SB-2
(File No. 33-59340) and incorporated herein by reference.
3.4 Bylaws of Franklin Ophthalmic Instruments Co., Inc.
(Registrant) filed with the Securities and Exchange Commission
on March 10, 1993 as an exhibit to the Company's Registration
Statement on Form SB-2 (File No. 33-59340) and incorporated
herein by reference.
3.5 Certificate of Stock Designation, Franklin Ophthalmic
Instruments Co., Inc. (Delaware) filed with the Securities and
Exchange Commission on March 10, 1993 as an exhibit to the
Company's Registration Statement on Form SB-2 (File
No. 33-59340) and incorporated herein by reference.
4.1 Specimen Common Stock Certificate filed with the Securities
and Exchange Commission on June 16, 1993 as an exhibit to the
Company's Registration Statement on Form SB-2 (File No
33-59340) and incorporated herein by reference.
4.2 Form of Class A Warrant filed with the Securities and Exchange
Commission on June 16, 1993 as an exhibit to the Company's
Registration Statement on Form SB-2 (File No 33-59340) and
incorporated herein by reference.
4.3 Form of Unit Purchase Option Certificate filed with the
Securities and Exchange on March 10, 1993 as an exhibit to the
Company's Registration Statement on Form SB-2 (File
No. 33-59340) and incorporated herein by reference.
4.4 Form of Bridge Lenders' Unit Purchase Warrant filed with the
Securities and Exchange Commission on March 10, 1993 as an
exhibit to the Company's Registration Statement on Form SB-2
(File No. 33-59340) and incorporated herein by reference.
4.5 Form of Warrant Agreement among the Company, J. Gregory and
Company, Inc. and Continental Stock Transfer and Trust Company
filed with the Securities and Exchange Commission on June 16,
1993 as an exhibit to the Company's Registration Statement on
Form SB-2 (File No. 33-59340) and incorporated herein by
reference.
4.6 Warrant issued by the Company, to Silicon Valley Bank, filed
with the Securities and Exchange Commission on May 10, 1993 as
an exhibit to the Company's Registration Statement on Form
SB 2 (File No. 33-59340) and incorporated herein by reference.
4.7 Warrant, dated January 21, 1994, issued by the Company to
Silicon Valley Bank, filed with the Securities and Exchange
Commission as an exhibit to the Company's Current Report on
Form 8-K, dated January 27, 1994 (File No. 0-21852), and
incorporated herein by reference.
4.8 Warrant, dated March 31, 1994, issued by the Company to
Silicon Valley Bank, and corresponding Registration Rights
Agreement, filed with the Securities and Exchange Commission
as an exhibit to the Company's Current Report on Form 8-K,
dated July 1, 1994 (File No. 0-21852), and incorporated herein
by reference.
4.9 Franklin Ophthalmic Instruments Co, Inc. 1994 Stock Option and
Appreciation Rights Plan, filed with the Securities and
Exchange Commission as an exhibit to the Company's
Registration Statement on Form S-8 (File No. 0-21852) and
incorporated herein by reference.
4.10 Franklin Ophthalmic Instruments Co., Inc. 1993 Stock Option
and Appreciation Rights Plan filed with the Securities and
Exchange Commission on March 10, 1993 as an exhibit to the
Company's Registration Statement on Form SB-2 (File No. 33-
59340) and incorporated herein by reference.
4.11 Promissory Note, dated January 20, 1994, executed by Franklin
Ophthalmic Instruments Co., Inc. in favor of Silicon Valley
Bank filed with the Securities and Exchange Commission on
February 14, 1994 (File No. 0-21852) as an exhibit to the
Company's Current Report on Form 8-K, dated January 27, 1994,
and incorporated herein by reference.
4.12 Warrant to Purchase Common Stock, dated January 21, 1994,
issued by Franklin Ophthalmic Instruments, Inc. to Silicon
Valley Bank and corresponding Antidilution Agreement and
Registration Rights Agreement, filed with the Securities and
Exchange Commission on February 14, 1994 (File No. 0-21852) as
an exhibit to the Company's Current Report on Form 8-K, dated
January 27, 1994, and incorporated herein by reference.
4.13 Form of Non-Negotiable 5% Convertible Promissory Note filed
with the Securities and Exchange Commission on August 12, 1994
as an exhibit to the Company's Post-Effective Amendment No. 1
to the Registration Statement on Form SB-2 (File No. 33-59340)
and incorporated herein by reference.
4.14 Form of Non-Negotiable 9% Promissory Note filed with the
Securities and Exchange Commission on August 12, 1994 as an
exhibit to the Company's Post-Effective Amendment No. 1 to the
Registration Statement on Form SB-2 (File No. 33-59340) and
incorporated herein by reference.
4.15 Common Stock Purchase Warrants issued by Franklin Ophthalmic
Instruments Co., Inc. in December 1994 to each of Linda S.
Zimdars, an officer and director of the Company, and Dwayne
Podgurski, an employee of the Company filed with the
Securities and Exchange Commission as an exhibit to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1994 (File No. 0-21852) and incorporated
herein by reference.
10.1 Loan documents evidencing loans and/or lines of credit
extended to the Company by Silicon Valley Bank, filed with the
Securities and Exchange Commission on March 10, 1993 as an
exhibit to the Company's Registration Statement on Form SB-2
(File No. 33-59340) and incorporated herein by reference.
10.2 Loan Modification Agreement, dated January 20, 1994, between
Franklin Ophthalmic Instruments Co., Inc. and Silicon Valley
Bank filed as an exhibit to the Company's Current Report on
Form 8-K, dated January 27, 1994, filed with the Commission on
February 14, 1994 (File No. 0-21852) and incorporated herein
by reference.
10.3 Loan Modification Agreement, dated March 31, 1994 between
Franklin Ophthalmic Instruments Co., Inc. and Silicon Valley
Bank filed with the Securities and Exchange Commission on July
15, 1994 as an exhibit to the Company's Form 8-K (File
No. 0-21852) and incorporated herein by reference.
10.4 Form of Employment between Franklin Ophthalmic
Instruments Co., Inc. and each of Michael J. Carroll and James
J. Urban included as an exhibit to the Stock Purchase
Agreement identified in exhibit to the Stock Purchase
Agreement identified in Exhibit 2.2 above which was filed with
the Securities and Exchange Commission as an exhibit to the
Company's Current Report on Form 8 K, dated July 1, 1994 (File
No. 0-21852), and incorporated herein by reference.
10.5 Consulting Agreement, dated December 1, 1994, between Franklin
Ophthalmic Instruments, Co., Inc. and Marketing and
Acquisition Concepts, a Wisconsin sole proprietorship of which
Linda S. Zimdars, an officer and director of the Company, is
the sole proprietor, filed with the Securities and Exchange
Commission as an exhibit to the Company's Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1994 (File
No. 0-21852) and incorporated herein by reference.
10.6 Separation Agreement, dated April 1, 1995, by and among the
Company, Robert A. Davis, certain partnerships in which Mr.
Davis is a partner, Michael J. Carroll, and James J. Urban,
filed as an exhibit to the Company's Current Report on Form
8-K (File No. 0 21852) which was filed with the Securities and
Exchange Commission on May 3, 1995 and incorporated herein by
reference.
10.7 Forms of Letters of Notice to Securityholders relating to
modification of the terms of certain of the Company's
securities, filed as an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21852) which was filed with the
Securities and Exchange Commission on May 3, 1995 and
incorporated herein by reference.
10.8 Amended Loan and Forbearance Agreement, dated April 1, 1995,
between the Company and Silicon Valley Bank, filed as an
exhibit to the Company's Current Report on Form 8-K (File No.
0-21852) which was filed with the Securities and Exchange
Commission on May 3, 1995 and incorporated herein by
reference.
10.9 Agreement, dated April 20, 1995, by and among the Company,
Michael J. Carroll and James J. Urban, filed as an exhibit to
the Company's Current Report on Form 8-K (File No. 0-21852)
which was filed with the Securities and Exchange Commission on
May 3, 1995 and incorporated herein by reference.
10.10 Letter of Intent, dated April 27, 1995, between the
Company and Diversified Ophthalmics, Inc., filed as an exhibit
to the Company's Current Report on Form 8-K (File No. 0-21852)
which was filed with the Securities and Exchange Commission on
May 3, 1995 and incorporated herein by reference.
10.11 Forms of notice dismissing the firm of Marinelli and
Scott as the Company's independent public accountants and
Company's retaining the firm of BDO Seidman, LLP to serve as
its independent public accountants, filed as an exhibit to the
Company's Amended and Restated Current Report on Form
8-K/A #1, dated November 27, 1995, which was filed by the
Company with the Securities and Exchange Commission on
December 6, 1995 (File No. 0-21852) and is incorporated herein
by reference.
10.12 Form of notice dated September 4, 1996 relating to
agreement between the Company and Silicon Valley Bank, filed
as an exhibit to the Company's Current Report on Form 8-K
(File No. 0-21852) which was filed with the Securities and
Exchange Commission on September 6, 1996 and incorporated
herein by reference.
10.13 Form of notice dated September 4, 1996 relating to
agreements between the Company and certain trade vendors,
filed as an exhibit to the Company's Current Report on Form
8-K (File No. 0-21852) which was filed with the Securities and
Exchange Commission on September 12, 1996 and incorporated
herein by reference.
10.14 Agreement, dated August 20, 1996, between the Company and
Silicon Valley Bank.
10.15 Investment Agreement, dated May 8, 1997 between the
Company and Prinz-Franklin L.L.C., filed as an exhibit to the
Company's Form 10-QSB which was filed with the Securities and
Exchange Commission on May 15, 1997 and incorporated herein by
reference.
10.16 Amendment to Investment Agreement, dated May 8, 1997
between the Company and Prinz-Franklin L.L.C., filed as an
exhibit to the Company's Form 10-QSB which was filed with the
Securities and Exchange Commission on May 15, 1997 and
incorporated herein by reference.
10.17 Form of Class B Warrant dated November 25, 1996
10.18 Form of Class C Warrant dated December 30, 1996
10.19 Amendment to Investment Agreement, dated May 11, 1997
between the Company and Prinz-Franklin L.L.C. Second Loan
Modification Agreement., dated August 14, 1997 between
the Company and Silicon Valley Bank.
10.20 Second Loan Modification Agreement, dated August 14,
between the Company and Silicon Valley Bank.
10.21. Letter from Silicon Valley Bank dated August 13, 1997
defining default provision.
10.22* Agreement, dated September 30, 1997, among the Company,
Michael J. Carroll and James J. Urban.
10.23* Agreement dated July 1, 1992 by and between the Company
and Marco Equipment Co.
10.24* Agreement dated January 16, 1995 by and between the
Company and Haag-Streit Services, Inc. and Reliance Medical
Products, Inc.
23.1* Consent of Independent Certified Public Accountants
23.2* Consent of Counsel (see Exhibit 5).
24. Power of Attorney
27.1 Financial Data Schedule for fiscal year ended September 30, 1996
27.2 Financial Data Schedule for interim period ended June 30, 1997
*Filed herewith.
<PAGE>
Item 28. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities being made, a post-effective amendment to this
Registration Statement:
(i) To include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities Act of
1933, as amended, to treat each post-effective amendment as a new
registration statement relating to the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3) To file a post-effective amendment to remove any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the 'Act'), may be permitted to
directors, officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-2 and authorized
this Pre-Effective Amendment No. 1 to its Registration Statement to be
signed on its behalf by the undersigned in the City of Romeoville, State
of Illinois on October 30, 1997
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
By: /s/ Michael J. Carroll
-------------------------
Michael J. Carroll
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
/s/ Michael J. Carroll President, Chief October 30, 1997
Michael J. Carroll Executive Officer
and Director
/s/ James J. Urban * Senior Vice President, October 30, 1997
James J. Urban Chief Operating Officer
and Director
/s/ Philip G. WInters * Director October 30, 1997
Philip G. Winters
/s/ Linda S. Zimdars * Secretary and Director October 30, 1997
Linda S. Zimdars
/s/ John Prinz * Director October 30, 1997
John Prinz
/s/ Brian M. Carrol * Vice President and October 30, 1997
Brian M. Carroll Chief Financial Officer
As their attorney-in-fact.
AGREEMENT
THIS AGREEMENT is entered into as of the 30th day of September,
1997 by and among FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC., a Delaware
corporation (the Company), and Michael J. Carroll and James J. Urban
(together, the Stockholders).
RECITALS
A. The Company has outstanding various warrants to purchase
shares of the Company's common stock, $0.001 par value per share (the
Common Stock), including warrants issued in connection with the
Company's initial public offering (the Class A Warrants).
B. Certain sales of Common Stock by the Company occurring after
the issuance of the Class A Warrants have triggered anti-dilution
provisions of the Class A Warrants which have had the effect of
increasing the number of shares issuable upon the exercise of the Class
A Warrants.
C. As a result of such antidilution provisions, the Company lacks
sufficient authorized and unissued shares of Common Stock to be able to
provide for the exercise of all outstanding warrants and options to
purchase Common Stock.
D. The Company intends to propose to the stockholders of the
Company, for approval at the Company's next annual meeting of
stockholders, an amendment to the Company's certificate of incorporation
increasing the number of authorized shares of Common Stock to alleviate
the current potential shortfall.
E. Pending approval of the amendment to the certificate of
incorporation, the Company desires to make adequate provision for the
exercise of all outstanding warrants and options.
F. The Stockholders, as principal stockholders and executive
officers of the Company believe it in their best interest to assist the
Company in making such provision.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual premises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
AGREEMENT
1. Redemption of Shares. If at any time from time to time during
the term of this Agreement, the Company does not have sufficient shares
of Common Stock to provide for the issuance of shares underlying Common
Stock purchase warrants or options which the holders thereof have
elected to exercise (a Stock Deficiency), the Company shall redeem,
and the Stockholders shall surrender to the Company for redemption, a
number of shares equal to their pro rata shares of the Stock Deficiency,
up the maximum aggregate amounts set forth below (such maximum aggregate
amount of shares for each Stockholder being hereinafter referred to as
the Redeemable Shares):
Stockholder Maximum Aggregate Amount
Michael J. Carroll 1,225,000 shares
James J. Urban 1,225,000 shares
Any Redeemable Shares so redeemed by the Company shall be redelivered
from the Company's Treasury to the person or persons exercising the
warrants or options that the Company would otherwise be unable to cover
as a result of the Stock Deficiency.
2. Redemption Price. The redemption price for any Redeemable
Shares redeemed pursuant to paragraph 1 shall be the same as the price
received by the Company upon the exercise of any warrants or options
which the Redeemable Shares are used to cover. The redemption price
shall be paid to the Stockholders by check or wire transfer
contemporaneously with any redemption of Redeemable Shares.
3. Custody.
(a) To facilitate redemptions of the Redeemable Shares, each
Stockholder agrees, promptly upon execution of this Agreement, to
deposit with the Company, (i) certificates representing the Redeemable
Shares and (ii) duly executed stock powers, endorsed in blank, covering
the Redeemable Shares. The Company agrees to hold such certificates and
stock powers in its custody as provided herein.
(b) The Redeemable Shares, while in the custody of the Company,
shall be deemed to be the property of the Stockholders. Accordingly,
the Stockholders shall be entitled to vote the Redeemable Shares, and
any cash dividends paid or other payments made with respect to such
shares while in the Company's custody shall be for the benefit of, and
paid to, the Stockholders in proportion to the number of Redeemable
Shares of each Stockholder held in Escrow on the record date applicable
to such dividends or other payments. The Stockholders shall not,
however, be permitted to transfer or encumber the Redeemable Shares, and
any stock dividends or other payments in the form of securities with
respect to the Redeemable Shares which would be issuable to the holders
of options or warrants upon the exercise thereof shall be held in the
Company's custody and shall be deemed Redeemable Shares.
(c) Within ten (10) business days of the termination of this
Agreement, the Company shall deliver to the Stockholders any remaining
certificates in its custody representing the Redeemable Shares and any
related stock powers.
<PAGE>
4. Stockholders' Representations and Warranties. Each Stockholder
represents and warrants to the Company that:
(a) the Stockholders are the legal and beneficial owner of
the Redeemable Shares;
(b) the Stockholders have good, valid and marketable title to
the Redeemable Shares, free and clear of liens, claims,
restrictions or encumbrances of any kind; and
(c) Upon redemption of any of the Redeemable Shares as
provided herein, the Company shall be the owner of such Redeemable
Shares free and clear of any liens, claims, restrictions or
encumbrances.
5. Covenants of the Company. The Company hereby covenants and
agrees that:
(a) during the term of this Agreement it will not issue any
additional shares of Common Stock, or any warrants, options or
other securities exercisable for or convertible into shares of
Common Stock; and
(b) it will use its best efforts to cause an amendment to the
Company's certificate of incorporation to be approved at the
Company's next annual meeting of stockholders and filed promptly
thereafter, increasing the number of authorized shares of the
Company's Common Stock to an amount sufficient to cover all
outstanding warrants and options.
6. Term. The term of this Agreement shall continue until the
earlier to occur of (a) effectiveness of the amendment to the Company's
certificate of incorporation referred to in paragraph 6(a) or (b) the
expiration of warrants and/or options in an amount sufficient to
eliminate any potential Stock Deficiency.
7. Entire Agreement. This Agreement contains the complete and
entire understanding of the parties with respect to the subject matter
hereof, and no modification hereof shall be recognized as valid unless
in writing, signed by the parties and dated subsequent to the date
hereof. No specific waiver of any of the terms of this Agreement shall
be considered as a general waiver.
8. Assignment. This Agreement may not be assigned by any party
without the consent in writing of the other parties hereto.
9. Governing Law. This Agreement shall be governed by the laws
of the State of Illinois without regard to conflict of law principles
thereof.
10. Notices. Any notice or other communication given shall be in
writing and shall be delivered personally or sent by certified mail,
postage prepaid, addressed as follows, or to such other address as a
party may designate in like manner from time to time: if to the
Company, addressed to its President at the principal office of the
Company; and if to a Stockholder, to the address of the Stockholder as
shown on the books of the transfer agent.
<PAGE>
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
12. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors, heirs and assigns, if any.
13. Captions. Captions to paragraphs herein are for purposes of
reference only and in no way shall limit, define or otherwise affect the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.,
a Delaware corporation
By: /s/ Michael J. Carroll
Michael J. Carroll, President
/s/ Michael J. Carroll
MICHAEL J. CARROLL
/s/ James J. Urban
JAMES J. URBAN
<PAGE>
SSCUH1- 117589-2 -4-
MARCO OPHTHALMIC, INC.
AUTHORIZED DISTRIBUTOR AGREEMENT
This Agreement made effective as of July 1, 1992 (the "Effective
Date") by and between MARCO OPHTHALMIC, INC., a Florida corporation
("Marco") having its principal place of business at 11825 Central
Parkway, Jacksonville, Florida 32216 and the party who has executed this
Agreement as Distributor (the "Distributor") whose address is set forth
following Distributor's signature hereto.
In order to set forth and formalize the understanding between Marco
and the Distributor, and in consideration of the mutual covenants set
forth below and other good and valuable consideration Marco and
Distributor agree as follows:
l. The Distributor and Products Covered by This Agreement. Marco
appoints Distributor as an authorized nonexclusive distributor to
distribute Marco ophthalmic instruments and equipment (the "Products")
in the United States of America and its possessions as well as all other
countries as may be agreed upon between Marco and the Distributor from
time to time (the "Territory"). The Distributor agrees to operate as a
distributor of the Products only at the locations set forth beneath
Distributor's signature, unless Marco otherwise agrees in writing.
2. Minimum Requirements. The Distributor agrees to purchase, from
Marco a minimum of $200,000.00 (but not less than $80,000.00 during any
consecutive six month period) of Products per calendar year at the
appropriate dealer net prices prevailing from time to time. If the
initial term of this Agreement is for less than a full calendar year,
the minimum purchase requirement will be prorated on a monthly basis.
3. Inventory. The Distributor is expected to inventory
sufficient quantities of the Products, representing a cross section of
the Marco product line. To enable Marco to be informed of the current
market situation, the Distributor agrees to furnish to Marco, upon
request, an itemized list of Distributor's inventory of Products.
4. Promotion. Distributor agrees to use best efforts to promote
the sale of Products, to advertise and solicit sales for the Products,
to prominently display and demonstrate the use of the products at trade
shows and conventions and to maintain a designated display area for the
Products at the Distributor's places of business within the Territory.
5. Service Facilities. It is the Distributor's responsibility and
obligation, at Distributor's sole cost and expense, to develop and
maintain service facilities, trained service personnel and maintain an
inventory of service parts adequate to provide service in accordance
with the limited warranties Marco may, but will not be obligated to
provide, and in compliance with normal trade practices for the products
heretofore and hereafter sold by the Distributor. In order to be
familiar with technical characteristics and parameters of the Products,
the Distributor shall, at Distributor's sole cost and expense, send
technical or sales personnel to the Marco sales and service seminars as
required.
<PAGE>
6. Restriction. The Distributor shall not lease or sell the
Products to any non-authorized distributor or sub-dealer for lease or
resale within the Territory.
7. Territorial Limitation. The Distributor will not solicit
business for the Products outside of the limits of the Territory.
8. Distributor Handbook. Marco has published, and will, from time
to time, revise and update a "Distributor Handbook" a copy of which has
been previously furnished to the Distributor. The Distributor agrees to
abide by all of the terms of the Distributor Handbook, and to all
revisions and updates to the same, if provided to the Distributor.
9. Prices. Prices for products on sales by Marco to Distributor
will be as determined from time to time by Marco. All prices are FOB
Marco's principal place of business as set forth above.
10. Payment.
A. Payment for Products purchased will be in accordance with
the terms provided in the Distributor Handbook.
B. Distributor grants Marco a security interest in the
Products, and any proceeds therefrom, to secure payment in full of all
indebtedness of Distributor to Marco, whether now or later created as
well as all sums due by Distributor to Marco under this Agreement and
all obligations of Distributor to Marco pursuant to this Agreement
(including, but not limited to, Paragraph 10C hereof). If the
Distributor defaults under this Agreement, Marco will be entitled to all
the remedies of a secured party under the Uniform Commercial Code of the
State of Florida. Distributor grants Marco an irrevocable power of
attorney to execute, and to file with the appropriate governmental
authority, any and all financing statements (and other documents) on
behalf of Distributor necessary to perfect Macro's security interest in
the Products. In addition to any other remedy available to it, Marco
may, upon Distributor's default in payment, enter upon Distributor's
premises to peaceably take possession of the Products during normal
business hours. If Marco is required to retain possession by judicial
process, Distributor expressly waives any right to require Marco to post
any security as a precondition to securing a judicial order granting
immediate repossession. Marco may, in addition to any other remedies it
may have, retain as rental all payments made pursuant to this Agreement
to the extent such payments do not exceed the fair and reasonable rental
charges for the Products.
C. As Marco has a security interest in the Products, the
Distributor shall keep the same insured against loss by fire, theft and
all insurable risks or physical damage thereto to its full value in such
insurance company as is satisfactory to Marco. All such policies of
insurance shall provide that any loss thereunder shall be payable to the
Distributor and Marco as their respective interests may appear. Copy of
each such policy shall be furnished to Marco upon demand .
<PAGE>
11. Relationship of the Parties and Indemnification.
A. Nothing contained in this Agreement shall be construed to
make the Distributor the agent for Marco for any purpose, and neither
party hereto shall have any right whatsoever to incur any liabilities or
obligations on behalf of or binding upon the other party except as
provided in Paragraph 10B. The Distributor specifically agrees that it
shall have no power or authority to represent Marco in any manner; that
it will solicit orders for Products as an independent contractor in
accordance with the terms and conditions of this Agreement; and that it
will not at any time represent orally or in writing to any person or
corporation or other business entity that it has any right, power or
authority not expressly granted by this Agreement.
B. Distributor agrees to hold Marco free and harmless from
any loss, damage or cost, including legal expenses and counsel fees,that
Marco becomes liable for by reason of (i) acts of the Distributor
in marketing and servicing the products including, but not limited to,
misrepresenting the terms of Macro's limited warranty to end-users,
breach of warranties made by Distributor's personnel or agents and
improper installation, support or maintenance of the Products, (ii)
Distributor's failure to maintain service or pay for outstanding orders
upon termination or cancellation of this Agreement in accordance with
its terms and (iii) acts of third parties, such as the execution of
liens and security interests, in relation to Products sold to the
Distributor hereunder.
12. Term. The term of this Agreement will begin when executed by
all parties and expire on December 31 of such year. This Agreement
shall automatically be renewed for consecutive one year terms unless
either party elects not to renew, in which event written notice must be
given not later than October 1, of the current year. In addition,
either party may terminate this Agreement, with or without cause upon 90
days written notice to the other party.
13. Conditions For Termination of Agreement by Marco. The
Distributor understands that if Distributor becomes unable or unwilling
to comply with the forgoing requirements that it will have made it
impossible to continue a successful business relationship with Marco.
Accordingly, if the Distributor fails to carry out any conditions of
this Agreement then notwithstanding anything herein otherwise provided,
the term of the Agreement is subject to cancellation by Marco effective
upon giving a notice of cancellation.
14. Extension of Credit. Nothing herein contained obligates
Marco to extend credit to the Distributor, it being understood and
agreed that the extension of any credit shall be determined by Marco
from time to time.
15. Integration. The Agreement cancels any other agreement or
understanding which may exist between the Distributor and Marco
affecting this Agreement, or related to the selling or servicing of the
Products.
16. Governing Law. This Agreement shall be governed by the laws of
the State of Florida, except the conflict of laws provisions. Duval County,
Florida will be the proper venue for any action brought hereunder.
<PAGE>
17. Attorney's Fees. In any dispute arising from this Agreement,
the prevailing party will be entitled to recover all costs, including
reasonable attorney's fees (through appeal, if necessary) from the other
party.
18. Notices. Notices required or permitted by this Agreement shall
be in writing and will be deemed given and received (i) upon personal
delivery to the president of the respective parties or if Distributor is
an individual to such individual, or (ii) 3 days after mailing,
certified mail, return receipt requested, postage prepaid to the
addresses set forth in this Agreement or to any other address later
provided, from time to time, by giving notice of the same to the other
party.
19. Misc. This Agreement shall not be construed against the party
causing it to be prepared. The Distributor unconditionally guarantee the
fulfillment of all of the Distributor's obligations under this
Agreement, as the same may be amended or renewed from time to time, and
the repayment of any sums now or later owed by the Distributor to Marco
and with respect to such guarantee waive notice of nonpayment, and
protest and acceptance and agree that Marco will not be required to sue
the Distributor prior to enforcing this guarantee. Said guarantee maybe
terminated only by written cancellation sent to Marco and will be
effective only as to debts incurred subsequent to such notice.
MARCO OPHTHALMIC, INC., (SEAL)
a Florida corporation
By: David Marco
Its President
Distributor Name: Franklin Ophthalmic Instruments Co., Inc.
By: (signature) Robert A. Davis
TITLE: President and CEO
HAAG-STREIT
MANUFACTURER/DISTRIBUTOR AGREEMENT
OPHTHALMIC
This Agreement is made as of this 16TH day of January,1995, by and
between the United States subsidiaries of HAAG-STREIT, A.G., a Swiss
corporation with its principal U.S. operations in Mason, Ohio, such
subsidiaries consisting of HAAG-STREIT SERVICE, INC., RELIANCE MEDICAL
PRODUCTS, INC. and CLEMENT CLARKE INTERNATIONAL, INC. (hereinafter
collectively called "Haag-Streit") and Franklin Ophthalmic Instruments
Co., Inc., a [corporation] with its principal operations located in
Romeoville, Illinois, 60441 [hereinafter called the "Distributor"].
ARTICLE 1. SCOPE OF AGREEMENT.
Haag-Streit hereby appoints the Distributor, on a non-exclusive
basis, to distribute Haag-Streit Products in the United States of America
under the following conditions:
Haag-Streit agrees to sell Products to the Distributor for
Ophthalmic/Optical installations at a price as noted in the applicable
Exhibits here to executed by the parties, in accordance with the terms and
conditions contained in this Agreement and associated Price Lists.
"Products" shall mean those products manufactured or distributed by such
Haag-Streit subsidiaries as have executed this Agreement and as noted in
the appropriate ophthalmic retail price list, which may be amended from
time to time in the future, and related service parts. Such price
discount and other terms and conditions of this Agreement shall supersede,
replace and have priority over any standard terms and conditions on or
attached to any purchase order, quotation, acknowledgement, invoice or
other document issued by either party.
Distributor acknowledges that the Exhibits so executed, including
(without limitation) treatment under Option A or Option B thereunder, have
been freely chosen by Distributor and that any change in status hereafter
is only available with the consent of Haag-Streit (and by execution of
new Exhibits).
<PAGE>
The relationship created between the Distributor and Haag-Streit
under this Agreement shall be non-exclusive as to either party.
Furthermore, Haag-Streit may sell Products directly to other parties,
government institutions, teaching institutions and optical chain stores
that, by government regulation, customary practice or pursuant to customer
preference or insistence, are required or desire to purchase products
directly from manufacturers.
1.1 Prices.
Prices for Products will be in accordance with the appropriate Price
Lists current at the time of the sale, discounted in accord with the
applicable Exhibits executed by the parties. Orders for products are
subject to acceptance by Haag-Streit and its best commercial efforts
to satisfy all such orders, consistent with its interests in
effective promotion and sale of its products and a fair allocation
of same to its distributors. Such prices, terms and conditions are
subject to change, including additions and deletions therefrom, at
any time without prior written notice by sending the Distributor a
new Price List; and such new Dealer Price List shall become effective
as of the date appearing thereon.
1.2 Credit Limits.
Distributors' unpaid open accounts with Haag-Streit and affiliated
companies shall be subject to the Credit Limits specified in the
applicable Exhibits executed by the parties and Haag-Streit may
decline orders which would cause such Credit Limits to be exceeded.
1.3 Terms of Payment.
Terms for payments are net thirty (30) days from the issue date of
invoice. If product deliveries are made in installments, each
product shipment invoice shall be paid for when due without regard to
other scheduled product deliveries. Credit limits are the sole
discretion of Haag-Streit.
1.4 Late Payment.
If the Distributor does not pay an invoice before sixty (60) days
from the issue date of invoice, then:
a. Such invoice shall bear late payment fee on its unpaid
balance from the date of such invoice until
the date of its payment at the lower of (i) the highest
rate allowed by applicable law; or (ii) an annual rate of
one and one-half (1-1/2%) percent per month.
b. Haag-Streit reserves the right, at its sole discretion and
without further notice, to cancel outstanding orders or not
accept further orders of the distributor or delay scheduled
shipments of further Products.
<PAGE>
c. Haag-Streit reserves the right, at its sole discretion and
without further notice, to refuse to extend any further
credit to the distributor, to terminate any then existing
credit arrangements, to accelerate payment for all Products
theretofore delivered or in transit and/or to demand
payment of any or all of the foregoing amounts.
Continuing late payments may subject distributor to termination under
Article 8.1.
1.5 Transfer of Title and Risk of Loss.
All dealer prices are F.O.B. unless otherwise noted. Title and risk
of loss of Products shall pass to Distributor without regard to
delivery method upon consignment to the carrier.
1.6 Schedule of Orders and Deliveries.
Haag-Streit shall promptly acknowledge acceptance of Distribu-tor
purchase orders and agreement to proposed delivery dates or, in the
alternate, propose a revised delivery schedule and other terms. A
firm order shall exist only when a Distributor submits an accepted
order or a modification accepting any such alternate schedule.
Orders requiring shipment by commercial carrier will be directed to
either the corporate headquarters or the recognized regional or local
sales office or office of Distributor. Further:
1.6.1 Unless otherwise agreed to in writing, Haag-Streit
reserves the right to add an additional charge as to
any order requiring changes at the request of
Distributor, depending upon its stage in the
production process.
1.6.2 Orders for Products may only be cancelled by the
Distributor with prior written approval by Haag-
Streit. Such cancellation will be
subject to a charge established by Haag-Streit and
based upon the stage of production, plus expenses
incurred in arranging such cancellation and diversion,
such charge not to exceed the total price of the
original order.
1.7 Annual Purchase Commitment. (APC)
The Distributor shall purchase a specified dollar amount of assembled
Products for the initial period of this Agreement and for each
subsequent calendar year thereafter, the amount of which is shown in
Exhibit I hereto executed by the parties, such purchases to be at
Distributor net prices (based on Haag-Streit invoices and net of any
accepted returns).
Distributors executing Option A Exhibits agree that (a) Forty percent
(40%) of such purchase commitment must be completed, and the Products
shipped and delivered within the first six (6) months of each full
year, and (b) the remaining purchase commitment must be completed and
the Products shipped to the Distributor by the end of the year and in
minimum amounts not less than the equivalent of equal monthly
increments thereof.
<PAGE>
The annual purchase commitment (APC) will be reviewed by both parties
and established by negotiation each year. If no agreement is
reached, Haag-Streit may consider termination under Section 8.1
below.
1.8 Stock of Inventory.
Distributors executing Option A Exhibits agree that the Distributor
will maintain at all times a dollar inventory of assembled Product at
a level which is not less than the amount which is shown in Exhibit
I. Such inventory is intended to be adequate to promptly service
requests for Products. The inventory and Option A Distributor's
records in connection therewith are subject to monitoring by any
designated Haag-Streit representative without advance notice and
Distributor shall fully cooperate with such representative. Option
A Distributors will also submit written monthly reports on inventory
levels in such detail as may be required by Haag-Streit. The annual
Distributor inventory commitment will be reviewed by both parties and
established by negotiation each year. If no agreement is reached,
Haag-Streit may consider termination under Section 8.1 below.
ARTICLE 2. SERVICE PARTS.
Haag-Streit agrees to sell to Distributor such related service parts
as may be required by the Distributor to provide support for Products sold
to the Distributor by Haag-Streit and still in stock and/or currently
manufactured. New or rebuilt service parts which
Distributor may purchase under this Agreement are priced by separate Haag-
Streit quotation or in accord with parts lists which are furnished
Distributor from time to time. All orders, deliveries and payments for
service parts are subject to the same terms and conditions hereof.
ARTICLE 3. RESPONSIBILITIES AND REQUIREMENTS.
3.1 Installation of Products.
The Distributor and Haag-Streit acknowledge that proper installation
of Products is essential to protect the interests of end users and
the goodwill associated with reliable operation of Products. The
Distributor will refrain from selling Products to any other
distributor who is not a uthorized to sell and service Products. Both
parties acknowledge that such sales to unauthorized parties could
jeopardize the reliability and reputation of both Haag-Streit and its
authorized Distributor network.
Accordingly, the Distributor will be responsible for insuring the
proper application and installation of all Products pursuant to
installation instructions provided by Haag-Streit on each Product
line for which Distributor has responsibility hereunder.
The Distributor shall perform all applicable Product installations
and related Products services utilizing only factory certified and
trained Distributor employees. If required by Distributor, Haag-
Streit may provide direct installation and supervision assistance at
Distributor's expense.
3.2 Maintenance and Repair Service.
The Distributor shall provide prompt, efficient and courteous Product
support to all of its customers who properly request such service.
The Distributor will provide its service customers itemized invoices
reflecting the details of all such services performed.
<PAGE>
The Distributor acknowledges that certain repairs as specified from
time to time in training seminars must be made by Haag-Streit service
personnel.
3.3 Warranty.
Haag-Streit warrants its products in accordance with the terms of
written warranties provided with each Product line noted in Exhibit
I. The authorized Haag-Streit Distributor must make the installation
or the warranty will be voided. The parties agree that in the event
the Distributor fails to provide necessary warranty service for said
Product, Haag-Streit may elect to contract with a third party to provide
the warranty service required. The fee for the aforesaid service will be
billed by Haag-Streit to the Distributor, and said bill will be
paid by the Distributor upon presentation.
The Distributor will deliver copies of the applicable Product
warranties and will fully explain the provisions thereof to the
purchasers of Products. The Distributor will maintain complete and
accurate records of all warranty repairs which it performs on
Products and shall submit to Haag-Streit such reports on and
defective components related thereto as Haag-Streit may from time to
time request.
The Haag-Streit warranty extends only to the original purchaser and
is contingent upon completing and returning the Warranty Card to
Haag-Streit within two (2) weeks from the date of installation.
3.4 Disposition of Parts.
The Distributor will comply with Haag-Streit's disposition
instructions as to defective parts or to obsolete assembled products.
If the disposition instructions require that such parts and/or
assembly be returned to Haag-Streit, they shall be packed and
shipped, and transportation charges prepaid by the distributor in
accordance with such instructions. Haag-Streit will reimburse
Distributor for such prepaid transportation charges on authorized
shipments.
3.5 Service and Parts Operations of Distributor.
The Distributor shall perform all service on Products for which
Distributor has responsibility hereunder in a good and workmanlike
manner and in accordance with applicable Haag-Streit maintenance
instructions. The Distributor shall organize and maintain a complete
service and parts facility, including a sufficient number of
competent, trained service and parts personnel to enable the
Distributor to effectively fulfill its service and parts
responsibilities hereunder.
3.6 Training Programs.
Haag-Streit will make available to Distributor general and
specialized sales, service and parts training programs for
Distributor's personnel. The Distributor agrees to have members of
its organization attend such courses as part of its responsibilities
under Article 3.5 above.
<PAGE>
3.7. Handling of Owner/User Complaints.
The Distributor will receive, investigate and handle all complaints
received from end-use customers with a view to securing and
maintaining their goodwill towards the Distributor and Haag-Streit.
All complaints received by the Distributor which cannot be readily
remedied or frequent complaints concerning the same problems shall be
promptly reported in detail to Haag-Streit.
3.8 Compliance to Regulations.
Haag-Streit and the Distributor are subject to Food and Drug
Administration (FDA) regulation of medical devices. Both parties
acknowledge and agree to act hereunder only in full compliance with
the latest revisions of, and practices required by, the Food, Drug &
Cosmetics (FD&C) Act and Safe Medical Devices Act of 1990.
3.9 Stock of Parts.
The Distributor will carry in stock at all times an inventory of
parts adequate to enable Distributor to provide prompt and efficient
service on Products.
3.10 Representation as to Parts.
In connection with its sales (or offering for sale) of parts, the
Distributor will not represent as parts manufactured or marketed by
Haag-Streit any parts that are not in fact parts manufactured or
marketed by Haag-Streit. If the Distributor sells or uses such non-
conforming parts, Distributor will disclose this to the customer.
3.11 Assistance to be Provided by Haag-Streit.
Haag-Streit will maintain a staff of trained personnel to advise and
counsel the Distributor on sales, service, parts and related
subjects, including customer complaints, technical service problems
and personnel training.
<PAGE>
ARTICLE 4. DESIGN CONFIGURATION AND MANAGEMENT.
Haag-Streit shall retain design configuration and management
responsibilities for its Products. All proposed changes in Products which
affect their performance or installation facility will be discussed with
and approved in writing by Haag-Streit prior to implementation by the
Distributor. Such change requests may be initiated by either the
Distributor or Haag-Streit. If design changes are required for products
already in stock or inventory, Haag-Streit will issue service bulletins to
distributors advising what action should be taken in accordance with FDA
regulations.
ARTICLE 5. RECORDS AND EXAMINATIONS.
The Distributor shall prepare, keep up-to-date, and retain at
Distributor's principal place of business for a minimum period of
two (2) years, the following Product records:
1. Haag-Streit Purchase Orders
2. For Option A Distributors Only: Inventory records,
including the dollar value maintained and deleted
3. Warranty Claims
4. Refunds or Credits
5. Service Reports
6. Installation records including equipment model, serial
number, location, owner, date, and installer
Any designated representative of Haag-Streit is authorized to examine
and audit any of the records required to be maintained by the Distributor
under this Agreement. The photocopying of such records by the Haag-Streit
representative will be permitted by the Distributor. Haag-Streit agrees
that all such support information examined by and/or provided by the
Distributor, shall not be disclosed to any third parties unless required
by law. Haag-Streit representatives shall be allowed access to those
portions of Distributor's business and physical facilities or as may be
relevant to the performance of this Agreement.
<PAGE>
ARTICLE 6. PROMOTION.
The Distributor agrees to use every effort to promote and solicit
orders for the sale of Products, to prominently display and demonstrate
the use of Products at trade shows and conventions reasonably assigned by
Haag-Streit, and to maintain a designated display are a for Products at the
Distributor's place (s) of business. The assigned trade shows specified in
Exhibit II will be negotiated by both parties after review and discussion
of Distributor annual trade show commitments.
Haag-Streit will assist Distributor in creating an active demand for
Products , utilizing promotional aids available for use by Distributor,
and by advertising Products directed to the consumer. Distributor further
agrees not to promote and/or solicit orders for product lines competitive
with Products covered hereunder which Distributor does not service as a
distributor at the time this Agreement is executed without first advising
Haag-Streit thereof and consulting with Haag-Streit regarding such
relationship.
Distributor agrees not to disclose either directly or indirectly to
any third party (including other distributors of Products) any information
in the public domain regarding Haag-Streit's business or its Products,
operations or finances.
6.1 Special Promotions.
From time to time, Haag-Streit will offer special promotions to
Distributors in order to stimulate increased product demand and
interest in Haag-Streit products.
ARTICLE 7. PATENT PROTECTION.
Haag-Streit shall defend its customer against any legal action which
may be incurred because of alleged infringement of any United States
patent by reason of the sale of Products furnished hereunder, provided
Haag-Streit is promptly notified in writing of such infringement claims
and given full authority for defense of
such action.
<PAGE>
ARTICLE 8. EXPIRATION AND TERMINATION.
8.1 Failure to Meet Agreement Requirements.
The Distributor acknowledges that it understands and accepts the
terms and conditions of this Agreement and that failure to meet any
of the terms hereof, could result at the sole option of Haag-Streit
and upon notice to Distributor in (a) termination of this Agreement
in its entirety and as applied to all product lines specified in the
Exhibits hereto executed by the parties, or (b) termination of
specific product lines noted in one or more of such Exhibits, or (c)
with the consent of both parties (and the execution of one or more
new Exhibits), a change from Option A to Option B.
8.2 Expiration Term.
This Agreement shall continue in force, subject to termination by
either party for any reason or no reason, with or without cause, by
either party giving the other thirty (30) days prior written notice.
Such termination may apply to the entire agreement or to one or more
specific product lines noticed in one or more of the Exhibits hereto.
It is also understood that the applicable Exhibits executed by the
parties are subject to annual review prior to establishing the
commitments for succeeding full calendar years hereunder and that
expiration notice may be issued by either party in case of no
agreement as to such commitments.
8.3 Insolvency.
Either Haag-Streit or Distributor may, at its sole option, terminate
this Agreement effective immediately with respect to any or all of
the Products covered hereunder in case of any filing by or against
either party under any state or federal insolvency, receivership or
bankruptcy proceeding. In such event, Distributor shall return
immediately to Haag-Streit
(or not oppose any reclamation action as to) products held by
Distributor.
8.4 Transfer of Distributor Business.
The Distributorship hereby created is personal in nature and cannot
be assigned or transferred without the written consent of Haag-Streit
and shall automatically terminate upon such assignment or transfer or
upon the insolvency of the Distributor or upon the transfer of the
Distributor's business or control thereof to parties other than thoe
in control at the time of the execution of this Agreement (including
possession or control assumed as a result of court proceedings of any
nature).
8.5 Effect of Transactions after Termination.
Neither the sale of Products nor any other act of Haag-Streit or the
Distributor after termination of this Agreement will be construed as
a waiver of such termination.
<PAGE>
8.6 Cost of Termination.
In addition to Haag-Streit's right to terminate and any other legal
remedies, Distributor agrees to defend, indemnify, and hold harmless
Haag-Streit against all damages, losses and expenses, including but
not limited to attorney fees, arising out of the Distributor's breach
of any provision set forth in this Agreement or such termination by
Haag-Streit. In the event of bankruptcy, indemnification by the
Distributor to Haag-Streit specifically includes all expenses
incurred by Haag-Streit to have this contract rejected, assumed or
assigned by the applicable Trustee or Court.
ARTICLE 9. EXCUSABLE SHIPMENT DELAY.
Haag-Streit shall not be liable for any failure to deliver or for
delay in delivery arising out of acts of God or other causes beyond its
control and with out its fault or negligence including any labor, material,
acts of a public enemy, transportation or utility shortage or curtailment,
computer or equipment failure, acts of any Government in either its
sovereign or contractual capacity, fires, floods, epidemics, quarantine
restrictions, civil disorders, strikes, freight embargoes, and unusually
severe weather. Haag-Streit will endeavor to notify Distributor in
writing within a reasonable time after Haag-Streit first learns of any
such delay. If Distributor and Haag-Streit within one hundred eighty
(180) days from the beginning of any excusable delay do not agree upon a
solution of the problem involved and revised delivery arrangements, then
Distributor or Haag-Streit may, by written notice, cancel accepted
order(s) to this Agreement, or that portion of accepted order(s) to this
Agreement which is delayed, without any liability arising or remaining on
the part of either party to the other in respect to the Products
effectively canceled as provided herein.
ARTICLE 10. DISTRIBUTOR BUSINESS RESPONSIBILITIES.
Distributor, as a Haag-Streit Distributor, represents and warrants
that (a) it has and can produce evidence of insurability, adequate
facilities and personnel to perform distributor install-ation and after-
sales service for the Products, and (b) has the capability to pay all
costs and expenses to be incurred by the Distributor in the conduct of its
business, including all rentals, salaries, taxes, licenses, telephone and
travelling expenses (Distributor understands and agrees that it shall not
be entitled to reimbursement from Haag-Streit for such costs and
expenses).
<PAGE>
ARTICLE 11. LIMITATION OF LIABILITY.
Neither party here to shall be liable to the other for any incidental,
special, consequential or exemplary damages arising out of any act of
omission referred to herein or related to the performance of this
Agreement, whether occasioned by breach of contract, breach of warranty,
tort (including negligence), strict liability or otherwise. Distributor
agrees to defend, indemnify and hold harmless Haag-Streit for any
liabilities, obligations, causes of actions, losses or damages incurred by
Haag-Streit arising out of (i) Distributor's misrepresentation of the
applicable Product warranties or (ii) improper installation or repair of
Products. The rights granted to the parties under this Agreement are
solely for their benefits and no third party shall have or derive any
rights thereunder.
ARTICLE 12. TAXES.
Any taxes, charges or duties which may be legally assessed by and
payable to the United States Government or any political subdivision
thereof against either party to this Agreement, including but not limited
to any property, sales, purchase, use, turnover, import or export taxes,
and custom duties or charges as the result of any sales, purchase,
delivery or transfer under this Agreement of any of the Products furnished
or delivered hereunder shall be borne and paid for solely by the
Distributor.
ARTICLE 13. APPLICABLE LAW, JURISDICTION AND CONSTRUCTION.
This Agreement shall be governed by and construed according to the
laws of the State of Ohio and the United States of America. The parties
irrevocably agree that any legal action or proceedings against either
party, with respect to this Agreement, shall be brought only in courts of
applicable jurisdiction located in the State of Ohio and Distributor
irrevocably submits to the jurisdiction of such courts, waiving any
objections to such jurisdiction and venue. Any invalidity of a provision
of this Agreement shall not affect any other provision and in the event of
a judicial finding of such invalidity, this Agreement shall remain in
force in all other respects.
ARTICLE 14. DISTRIBUTOR NOT AGENT OR LEGAL REPRESENTATIVE.
This Agreement does not constitute Distributor as the agent or legal
representative of Haag-Streit or its subsidiaries or suppliers for any
purpose whatsoever. Distributor is not granted any express or implied
right or authority to assume or to create any obligation in behalf of or
in the name of Haag-Streit or its subsidiaries or suppliers or to bind
them in any manner whatsoever.
<PAGE>
ARTICLE 15. NO IMPLIED WAIVERS.
The failure of either party at any time to require performance by the
other party of any provision hereof shall in no way affect the full right
to require such performance at any time the reafter. The waiver by either
party of a breach of any provision hereof shall not constitute a waiver of
any succeeding breach of the same or any other provision nor constitute a
waiver of the provision itself.
ARTICLE 16. SOLE AGREEMENT OF PARTIES.
This Agreement, together with the applicable Exhibits executed by the
parties hereunder and theprices, terms and conditions contained in Haag-
Streit's Price List current at the time of sales, constitutes the entire
Agreement between the parties with respect to the subject matter hereof in
connection with the sale of Products and supersedes all prior Agreements,
if any, whether written or oral with respect thereto. There are no other
Agreements or understandings, either oral or written, between the parties
affecting this Agreement or relating to the sale or servicing of Products
except as otherwise specifically provided. This Agreement cancels and
supersedes all previous representations and/or agreements between the
parties relating to the subject matter covered herein. No change or
addition to or erasure of any portion of this Agreement shall be valid or
binding upon Haag-Streit unless the same is approved in writing by an
authorized officer of Haag-Streit or any subsidiary thereof. Distributor
warrants and represents that any signatory to this Agreement is duly
authorized to execute same.
This Agreement must be signed by both the Distributor and by the
particular Haag-Streit companies. This Agreement is valid only for
product lines of the Haag-Streit companies who have signed this Agreement.
This Agreement may be modified from time to time, and at least annually,
by the execution of new applicable Exhibits hereto (including, without
limitation, to add a product line or change an Option), and this Agreement
shall there after continue in full force and effect as modified by such new
Exhibits.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their respective
names to be hereunto subscribed by their duly-authorized representative
effective as of the date first mentioned herein.
Signed for and on behalf of Signed for and on behalf of
DISTRIBUTOR effective as of HAAG-STREIT SERVICE, INC.
the date first noted below effective as of the date first
noted below
By: /s/ Michael J. Carroll By: /s/ W. Inanbnit
President President
TITLE TITLE
January 17, 1995 January 17, 1995
DATE DATE
Signed for and on behalf of Signed for and on behalf of
DISTRIBUTOR effective as of RELIANCE MEDICAL PRODUCTS, INC.
the date first noted below effective as of the date first
noted below
By:/s/ Michael J. Carroll By: /s/ Dennis Imwalle
President President
TITLE TITLE
January 17, 1995 January 17, 1995
DATE DATE
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Franklin Ophthalmic Instruments Co., Inc.
Romeoville, Illinois
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement of our report dated December 23, 1996,
relating to the financial statements of Franklin Ophthalmic Instruments
Co., Inc., which is contained in the Prospectus. Our report contains
an explanatory paragraph regarding the Company's ability to continue
as a going concern.
We also consent to the reference to us under the "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Chicago, Illinois
October 30, 1997
October 30, 1997
Franklin Ophthalmic Instruments Co., Inc.
1265 Naperville Drive
Suite D
Romeoville, Illinois 60446
Ladies and Gentlemen:
We have acted as counsel to Franklin Ophthalmic Instruments Co., Inc., a
Delaware corporation (the Company), in connection with the
preparation of a Pre-Effective Amendment No. 1 to a Registration
Statement on Form SB-2 of the Company filed with the Securities and
Exchange Commission (the Commission) on October 30, 1997 (the
Registration Statement). The Registration Statement relates to the
registration under the Securities Act of 1933, as amended (the
Securities Act), of 17,254,673 shares of the Company's common stock,
$0.001 par value per share (the Common Stock), and 2,400,500
warrants to purchase shares of Common Stock (the Warrants) held by
certain selling security holders.
In this connection, we have examined:
a. the articles of incorporation, by-laws and organizational documents
of the Company;
b. certain resolutions adopted by the Company's Board of Directors;
c. the Registration Statement;
d. an agreement among the Company, James J. Urban (Urban), and
Michael J. Carroll ( Carroll ) dated September 30, 1997 pursuant
to which Messrs. Urban and Carroll agree to surrender for
redemption shares of Common Stock held by them in an aggregate
amount equal to any deficiency in authorized shares of Common Stock
resulting from the exercise of common stock purchase warrants or
options (the Redemption Agreement ); and
e. such other documents as we have deemed relevant for the purpose of
rendering the opinions set forth herein, including certifications
as to certain matters of fact by responsible officers of the
Company.
We have assumed the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents
submitted to us as copies. We have also assumed compliance with the
Redemption Agreement by the parties thereto.
Based upon the foregoing, we are of the opinion that the shares of
Common Stock and the Warrants being sold pursuant to the Registration
Statement are validly issued, fully paid and nonassessable.
We are members of the Bar of the State of Illinois. Our opinion is
limited to the laws of the States of Illinois and Delaware and the
general laws of the United States of America.
<PAGE>
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm in the Prospectus that is
part of the Registration Statement. By giving such consent, we do not
hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act.
Very truly yours,
/s/ Ungaretti & Harris
UNGARETTI & HARRIS
