As filed with the Securities and Exchange Commission on July 30, 1997
Registration Statement No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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. x.
CALCULATION OF REGISTRATION FEE
|==========================================================================|
|Title Of Each | Amount To Be | Proposed | Proposed | Amount Of |
| Class Of | Registered | Maximum | Maximum | Registra- |
|Securities To Be | (1) | Offering | Aggregate | tion Fee |
| Registered | | Price (2) | Offering Price| |
|==========================================================================|
|Common Stock, | 17,254,673 | $0.335 | $5,780,315.46 | $1,751.61|
|0.001 par value | shares | | | |
|Common Stock | 2,400,500 | $1.000 | $2,400,500.00 | $727.42|
|Purchase Warrants | warrants | | | |
| Total | | | $8,180,815.46 | $2,479.03|
|==========================================================================|
<PAGE>
(1) The Securities being registered hereby have been issued and are
being offered for the account of security holders.
(2) Estimated solely for purposes of calculating the registration fee.
Fee with respect to Common Stock is based on the average of the bid
and asked price as reported on the OTC Electronic Bulletin Board as
of July 28, 1997. Fee with respect to Warrants is based on exercise
price of $1.00 per share of Common Stock.
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.
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
Beneficial Owners and Principal Security Holders
Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Not Applicable
Counsel
<PAGE>
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
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 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."
<PAGE>
The Company's Common Stock is traded on a limited basis on the OTC
Electronic Bulletin Board under the symbol "FKLN" and on July 28, 1997,
the closing bid price for the Common Stock was $0.32 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.
These Securities have not been registered under any securities laws of
any state. See "SELLING SECURITY HOLDERS" for considerations that may
affect the sale of these Securities by "control persons" of the Company.
The date of this Prospectus is ____________, 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 the Company
has recently 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. The Company believes that the recent reintroduction of the
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>
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 July 17, 1997 19,583,378 shares
Class B Warrants offered by Selling Security Holders 2,156,500 Warrants
Class B Warrants outstanding at July 17, 1997 2,156,500 Warrants
Class C Warrants offered by Selling Security Holders 244,000 Warrants
Class C Warrants outstanding at July 17, 1997 244,000 Warrants
(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."
Summary Financial Information
As of As of
Balance Sheet September 30, March 31,
Data 1996 1997
----------- -----------
Working Capital Deficit $(5,603,846) $(1,006,048)
Total Assets $ 4,597,412 $ 4,953,672
Total Liabilities $ 7,823,624 $ 3,749,969
Stockholders' $(3,226,212) $ 1,203,703
Equity (Deficit)
<PAGE>
Statement of Operations Fiscal Year Ended Six Months Ended
Data September 30 March 31
----------------------- --------------------
1995 1996 1996 1997
----------------------- --------------------
Sales $13,316,949 $ 8,469,994 $4,572,728 $4,533,757
Gross Profit $ 2,653,669 $ 2,102,251 $1,120,519 $1,212,261
Income(Loss)Before
Extraordinary Item $(4,336,499) $(2,209,199) $ (800,635) $ (81,387)
Extraordinary Gain $ - $ 231,260 $ - $2,886,513
Net Income (Loss) $(4,336,499) $(1,977,939) $ (800,635) $2,723,114
Earnings(Loss)per Share
of Common Stock:
Income(Loss)Before
Extraordinary Item
Per Share $ (0.80) $ (0.28) $ (0.10) $ (0.01)
Extraordinary Gain
Per Share $ - $ 0.03 $ - $ .20
------------------------ ------------------------
Net Income (Loss) per
Share of Common Stock $ (0.80) $ (0.25) $ (0.10) $ 0.19
------------------------ ------------------------
Weighted Average Number
of Common Shares
Outstanding Used in
Computation 5,395,162 7,854,393 7,670,463 14,518,711
======================== ========================
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
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.
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 return to profitability, but
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."
<PAGE>
Ongoing Capital Requirements
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 had sufficient cash available to fund its operations
through July 29, 1997, when its bank line of credit expired. The
Company is currently engaged in negotiations with Silicon for the
extension of the line of credit; however, there is no assurance that the
Company will be able to extend the line of credit. Even if the line of
credit is extended, there can be no assurance that the Company's cash
flow from operations, supplemented by borrowings under the line of
credit, will be sufficient to support its future working capital needs.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
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. As a result of
that investigation, the Company determined that 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").
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.
<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 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 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. Given the substantial amount by which the
current exercise price of the Class A Warrants (which remains the
highest exercise price of all of the Company's outstanding warrants)
exceeds the share price of the Common Stock (the closing bid price of
the Company's Common Stock, as reported on the OTC Electronic Bulletin
Board as of July 28, 1997, was $0.32), the Company does not anticipate
that the Class A Warrants will be exercised prior to such meeting, it at
all. However, there can be no assurance that this will in fact be the
case or that the stockholders of the Company will approve an increase in
the authorized number of shares of Common Stock.
<PAGE>
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, all of such agreements
have been non-exclusive, and many of 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 generally 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 30 days prior written notice
or immediately in the event of insolvency, bankruptcy or receivership of
either party. 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.
During the six months ended March 31, 1997 and 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). 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
attendant 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 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.
<PAGE>
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." The loss of any of such individuals 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."
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 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. See "DIVIDEND POLICY" and "DESCRIPTION OF SECURITIES."
<PAGE>
Future Sales of Common Stock by the Company's Stockholders
At July 17, 1997, there were 16,247,581 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."
Future Issuances of Stock by the Company; Potential Anti-Takeover Effect
At July 17, 1997, the Company had authorized 25,000,000 shares of
Common Stock, $0.001 par value per share, of which 19,583,378 shares
were issued and outstanding and an additional 5,416,622 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."
<PAGE>
No Assurance of Public Market or NASDAQ Listing
On July 23, 1993, the Company was granted inclusion of its
securities for quotation on the NASDAQ SMALLCAP MARKET SM ("NASDAQ"),
and its Units, Common Stock and Class A Warrants commenced quotation on
NASDAQ. On April 27, 1995, upon 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. There currently
is no OTC Electronic Bulletin 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 not being quoted on the
NASDAQ and the Warrants not being quoted on the OTC Electronic Bulletin
Board, an investor may find it difficult to dispose of, or to obtain
accurate quotations as to the price of, the Securities offered hereby.
Should the Company in the future again meet the requirements for
initial quotation, it intends to reapply for inclusion of its securities
on NASDAQ. If the Company is unable to satisfy the requirements for
quotation on NASDAQ, the securities of the Company would continue to be
quoted on the OTC Electronic Bulletin Board. Under the rules of the
National Association of Securities Dealers, Inc. ("NASD"), in order to
qualify for initial quotation on NASDAQ a company, among other things,
must have (i) at least $4,000,000 in total assets, (ii) at least
$2,000,000 in total capital and surplus, and (iii) in the case of common
stock, $1,000,000 in market value of public float and a minimum bid
price of $3.00 per share. For continued listing, a company, among other
things, must have (i) at least $2,000,000 in total assets, (ii)
$1,000,000 in total capital and surplus, and (iii) in the case of common
stock, $200,000 in market value of public float and either (a) a minimum
bid price of $1.00 per share or (b) at least $1,000,000 in market value
of public float and $2,000,000 in total capital and surplus. There can
be no assurance that the Company will be able to meet the initial
requirements or that in the event that the Company meets such
requirements, the Company's securities will be included on NASDAQ or the
Company will be able to continue to meet the requirements for continued
inclusion in any event. In addition, the NASD has proposed rule changes
which would impose more stringent standards for inclusion on the NASDAQ.
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
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 July 17, 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 six month
period ended March 31, 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.
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 and 1996, and for the first two quarters of fiscal 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 Quotation High Low High Low High Low High Low
Fiscal 1995:
First 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 1 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 1/25 13/50 7/100
Second Quarter 7/8 5/16 1 11/32 9/100 3/100 1/10 7/100
Third Quarter 7/16 1/4 5/32 27/100 1/20 1/50 7/100 7/200
<PAGE>
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 Quarte 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
At July 22, 1997, there were 209 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.
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.
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.
<PAGE>
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 Valley Bank, its primary
trade creditors and certain debtholders during the fourth quarter of
fiscal 1996 and the first quarter of fiscal 1997 (collectively, the
"Debt Restructuring"). See "Comparison of Six Months Ended March 31,
1997 to Six Months Ended March 31, 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").
The Company believes that with (i) the Recapitalization, (ii) the
increase in trade credit which the Company has received upon the Debt
Restructuring; and (iii) 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 Company believes that increases in sales
should ultimately allow the Company to 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.
<PAGE>
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.
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.
<PAGE>
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.
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.
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.
<PAGE>
Comparison of Six Months Ended March 31, 1997 to Six Months Ended March
31, 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. In addition, the Company reached agreements with certain trade
creditors pursuant to which such 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 in
payment of additional trade debt (having a maturity date up to twenty-
four months from the date thereof and an applicable interest rate of
10%) 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."
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 six months ended March 31, 1997,
sales decreased by $38,971 to $4,533,757 from $4,572,728 for the six
months ended March 31, 1996. The Company attributes a lack of working
capital at the beginning of the 1997 fiscal year, prior to completion of
the Recapitalization, for the modest decrease.
The Company's gross margin on sales increased by $156,472 to
$1,212,261 for the six months ended March 31, 1997 from $1,120,519 for
the six months ended March 31, 1996. Gross margin as a percentage of
sales increased to 26.5% for the six months ended March 31, 1997 from
24.5% for the six months ended March 31, 1996. The Company attributes
the increase in gross margin as a percentage of sales to 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 also allowed the
Company to take advantage of better purchasing opportunities. The
Company believes that the gross margin levels can be maintained while
efforts are made to increase sales; however, there can be no assurance
that attempts to increase sales may not require incentive pricing that
would adversely affect the gross margin percentage.
For the six months ended March 31, 1996 and 1997, SG&A expenses
decreased by $239,059 from $1,382,253 to $1,143,194, respectively. The
decrease in SG&A expenses primarily resulted from a reduction in
professional fees and other expenses related to the Company's
restructuring of its operations.
<PAGE>
Amortization and depreciation expense decreased from $213,794 for
the six months ended March 31, 1996 to $150,454 for the six months ended
March 31, 1997. The decrease is primarily attributable to the
elimination of amortization expense that the Company incurred during
fiscal 1995 with the acquisition of certain software rights.
No extraordinary gain was reported for the six months ended March
31, 1996 while an extraordinary gain of $2,886,513 was reported for the
six months ended March 31, 1997. This gain resulted from the Debt
Restructuring.
Interest expense decreased from $325,152 for the six months ended
March 31, 1996 to $82,012 for the six months ended March 31, 1997. The
decrease in interest expense is primarily a result of the Company's
restructuring of its bank financing with Silicon.
As a result of the foregoing, for the six months ended March 31,
1997 the Company reported net income of $2,723,114 versus a net loss of
$800,635 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 $735,883 for the six months ended March 31,
1997 versus a positive $130,539 for the same period of the prior year.
The negative operating cash flow for the six months ended March 31, 1997
was due to increases in accounts receivable and inventory, and the
reduction of trade payables and accrued liabilities. The Company
financed the negative cash flow with proceeds of a private placement of
securities during the quarter ended December 31, 1996.
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.
<PAGE>
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
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 is at the rate of 2% over Silicon's prime rate and is payable
on a monthly basis. At June 30, 1997, outstanding borrowing under the
line of credit totaled $1,573,191.
<PAGE>
As a result of the Recapitalization, the Company had sufficient
cash available to fund its operations through July 29, 1997, when its
bank line of credit expired. Although the Company is engaged in
negotiations for the extension of the line of credit, there is no
assurance that the Company will be able to extend its bank line of
credit. Even if the line of credit is extended, there can be no assurance
that the Company's cash flow from operations, supplemented by borrowings
under the line of credit, will be sufficient to support its future
working capital needs.
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.
<PAGE>
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.
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 its line of credit with
Silicon which expired July 29, 1997; (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).
<PAGE>
Based upon information reported in Optometry Today, a leading
industry publication, the Company believes 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.
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.
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 of 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.
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).
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").
<PAGE>
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.
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.
<PAGE>
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").
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
<PAGE>
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.
The Company believes that use of the 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 36,000 catalogs to potential
customers.
Sales Representatives. At July 17, 1997, the Company maintained a
sales and service force of 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.
<PAGE>
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.
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 accordance with certain
anti-dilution rights, the exercise price per share of the Class A
Warrants has been reduced and the number of shares issuable upon the
exercise of the warrants has been increased. See "DESCRIPTION OF
SECURITIES - Warrants to Purchase Common Stock-Class A Warrants" and
"RISK FACTORS--Potential Insufficiency of Authorized Shares."
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.
<PAGE>
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."
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 Six Months Ended
March 31, 1997 to Six Months Ended March 31, 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
<PAGE>
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.
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 July 17, 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.
<PAGE>
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, currently
$4,592 per month.
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
July 17, 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
<PAGE>
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
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 an 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 1995 and 1996, and none is scheduled for 1997.
The Company plans to hold its next annual meeting shortly after the end
of fiscal 1997. 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, 1995
and 1996.
Annual Compensation Long-Term Compensation
Awards Payouts
Other Rest- Secur-
Annual ricted ties All
Compens- Stock Under- LTIP Other
Name and Year Salary Bonus ation Awards lying Payouts Compen-
Position Options 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
July 17, 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 1993 and 1994 Stock Option Plans. In addition, stock appreciation
rights may be granted in conjunction with the grant of options under the
Stock Option Plans.
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 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 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.
<PAGE>
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,
and Brian M. Carroll, currently Vice President and Chief Financial
Officer. Each such employment agreement provides for an initial term of
three years ending June 29, 1997, subject to automatic extension for a
period of two years, unless earlier terminated by the Company.
Thereafter, each employment agreement provides for extension on a year
to year basis. Such agreements 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 was subsequently renewed for a two year
period effective September of 1996. During fiscal years ended September
30, 1995 and 1996, the Company paid MAC consulting fees plus expenses of
$15,750 and $21,000, 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.
<PAGE>
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, and
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.
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 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 issuance of shares owed in connection with
the purchase by the Company of MOI.
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. In addition, Linda S. Zimdars loaned an aggregate of
$100,000 to the Company in exchange for a demand promissory note which
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). 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.
<PAGE>
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 and common stock purchase warrants to purchase an additional
400,000 shares of Common Stock. 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." 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 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."
PRINCIPAL SECURITY HOLDERS
The following table sets forth, at July 17, 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.
<PAGE>
Name and Address of Number of % of Shares of
Beneficial Owner (1) Shares Common Stock
--------------------- Beneficially Beneficially Owned
Owned (2)
------------ ------------------
Michael J. Carroll 1,561,710 (5) 7.97%
(3)(4)
James J. Urban (3)(4) 1,561,711 (6) 7.97%
Brian M. Carroll (3) 52,105 (7) 0.27%
Philip G. Winters (4) 660,000 (8) 3.36%
Linda S. Zimdars (4) 682,359 (9) 3.47%
Prinz-Franklin L.L.C. 3,300,000 (10) 16.51%
John Prinz (4) 3,300,000 (11) 16.51%
Michael Cavuoti 2,460,000 (12) 12.06%
Silicon Valley Bank 2,133,003 (13) 10.88%
All Executive Officers
& Directors 7,817,885 38.77%
As a Group (6 Persons)
(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.
(3) The named securityholder is an officer of the Company.
(4) The named securityholder is a director of the Company.
<PAGE>
(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 19,583,378 were issued and
outstanding at July 17, 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."
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 redeemable and have no preemptive or
similar rights.
Warrants to Purchase Common Stock
Class A Warrants. A total of 2,062,500 Class A Warrants were
issued and outstanding at July 17, 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 holders of the Class A Warrants are entitled to certain
anti-dilution rights. In accordance with such rights, the exercise
price per share of the warrants is required to be reduced, and the
number of shares of Common Stock the holder thereof is entitled to
purchase is required to be increased upon the issuance of shares of
Common Stock by the Company for less than "Fair Market Value" (as such
term is defined in the agreement governing the rights of the holders of
the Class A Warrants). Based on certain transactions occuring subsequent
to the Initial Public Offering, the exercise price per share has been
reduced to $2.30 per share of Common Stock, and the aggregate number of
shares of Common Stock issuable upon exercise of such warrants has been
increased to 4,487,740. See "RISK FACTORS - Potential Insufficiency of
Authorized Sahres."
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.
<PAGE>
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 July 17,
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 Six Months Ended March 31, 1996 and Six Months
Ended March 31, 1995." 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 Six Months Ended March 31, 1996 and
Six Months Ended March 31, 1995"), 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.
<PAGE>
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.
<PAGE>
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.
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.
<PAGE>
COMMMON STOCK1:
Number of Number of Number of
Shares of Shares of Shares of Percent- Percent-
Common Stock Common Stock Common age age
Held Before to be Sold Stock Before After
Name Offering in Offering to be Held Offering Offering
After
Offering
--------- ---------- ---------- ---------- ---------
Silicon Valley 2,133,003 2,133,003 0 10.88% *
Bank2
Eastman Kodak 102,285 102,285 0 * *
Company
Mr. Michael Cavuoti 2,460,000 2,460,000 0 12.06% *
Mr. Douglas Baker 120,000 120,000 0 * *
Mr. Frank Giampa 750,000 750,000 0 3.78% *
Mr. Jesse Rodgers 300,000 300,000 0 1.52% *
Mr. Kenneth Naylor 60,000 60,000 0 * *
Mr. Francis 30,000 30,000 0 * *
Corvelli
Mr. William 30,000 30,000 0 * *
Stevens
Ms. Kim Filippazzo 60,000 60,000 0 * *
Mr. Jeffrey 30,000 30,000 0 * *
Milstein
Mr. & Mrs. Allen 60,000 60,000 0 * *
TeBockhorst
Mr. Brian 52,105 47,105 5,000 * *
Carroll4,5
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 30,000 30,000 0 * *
N. Wenda
Ms. Margaret M. 30,000 30,000 0 * *
Perfecto
Mr. & Mrs. Mark 30,000 30,000 0 * *
Wenda
Paul & Uta 170,000 120,000 50,000 * *
Cipriano, Trustees
Mr. & Mrs. Ronald 377,600 300,000 77,600 1.92% *
Cozzolino
Mr. Matthew 30,000 30,000 0 * *
McGuinn
Mr. & Mrs. Edward 60,000 60,000 0 * *
F. 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 180,000 180,000 0 * *
S. Chamerlik
Mr. & Mrs. Frank 38,500 30,000 8,500 * *
J. Wenstrup
Mr. & Mrs. Jay P. 315,000 300,000 15,000 1.60% *
Wenstrup
<PAGE>
COMMMON STOCK1:
Number of Number of Number of
Shares of Shares of Shares of Percent- Percent-
Common Stock Common Stock Common age age
Held Before to be Sold Stock Before After
Name Offering in Offering to be Held Offering Offering
After
Offering
------------ ----------- ----------- -------- --------
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 120,000 120,000 0 * *
Schwartz
Mr. John Dedyo 30,000 30,000 0 * *
Mr. Eugene L. 15,000 15,000 0 * *
Braun
Mr. George 60,000 60,000 0 * *
Giannopoulos
Mr. Ronald E. 60,000 60,000 0 * *
Spooner
Mr. Fred C. 30,000 30,000 0 * *
Matthews, Jr.
Mr. Steven 120,000 120,000 0 * *
Finkelstein
Ms. Diana 30,000 30,000 0 * *
TeBockhorst
Mr. Dermot Kiernan 30,000 30,000 0 * *
Mr. Brian F. 72,000 72,000 0 * *
Sullivan
Mr. Chad Marlow 30,000 30,000 0 * *
Mr. Mitchell A. 30,000 30,000 0 * *
Jackson
Mr. Mark C. Ristow 90,000 90,000 0 * *
Kahn Family 30,000 30,000 0 * *
Revocable Trust
Mr. Bert Fingerhut 450,000 450,000 0 2.28% *
Mr. William E. 300,000 300,000 0 1.52% *
Johnson
Mr. Marcus T. Kahn 15,000 15,000 0 * *
Mr. Roger Perry 15,000 15,000 0 * *
Dean
Linda S. 682,359 597,359 85,000 3.47% *
Zimdars4,6
Michael J. 1,561,710 1,551,710 10,000 7.97% *
Carroll4,7
Philip G. 660,000 600,000 60,000 3.36% *
Winters4,8
<PAGE>
COMMMON STOCK1:
Number of Number of Number of
Shares of Shares of Shares of Percent- Percent-
Common Stock Common Stock Common age age
Held Before to be Sold Stock Before After
Name Offering in Offering to be Held Offering Offering
After
Offering
---------- ----------- ----------- -------- ---------
Elizabeth G.
Winters-Trustee 200,000 200,000 0 1.02% *
James J. Urban4,7 1,561,711 1,551,711 10,000 7.97% *
Prinz-Franklin 3,300,000 3,300,000 0 16.51% *
L.L.C.3
CLASS B WARRANTS:
Number
Number of Class B of
Class B Warrants Class B Percent- Percent-
Warrants to be Warrants age age
Name Held Before Sold to be Before After
Offering in Held Offering Offering
Offering After
Offering
----------- --------- ---------- ------- -----
Mr. 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 * *
<PAGE>
CLASS B WARRANTS:
Number of Number
Number of Class B of
Class B Warrants Class B Percent- Percent-
Warrants to be Warrants age age
Name Held Before Sold to be Before After
Offering in Held Offering Offering
After
Offering
----------- ---------- -------- -------- -------
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 * *
Jr.
Mr. Steven 40,000 40,000 0 1.85% *
Finkelstein
Ms. Diana TeBockhorst 10,000 10,000 0 * *
Mr. Dermot Kiernan 10,000 10,000 0 * *
<PAGE>
CLASS C WARRANTS:
Number of Number
Number of Class C of
Class C Warrants Class C Percent- Percent-
Warrants to be Sold Warrants age age
Name Held Before in to be Before After
Offering Offering Held Offering Offering
After
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. 10,000 10,000 0 4.10% *
Jackson
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. 100,000 100,000 0 40.98% *
Johnson
Mr. Marcus T. Kahn 5,000 5,000 0 2.05% *
Mr. Roger Perry Dean 5,000 5,000 0 2.05% *
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
arrants held by Prinz-Franklin L.L.C.
4 For a description of the position the Selling Security Holder has
ith 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
nd 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.
<PAGE>
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. These Securities
have not been registered under any securities laws of any state. Any
"control person," as defined under Section 2(11) of the Securities Act
of 1933, who proposes to sell any Securities, other than in an
unsolicited brokers' transaction, must comply with applicable exemptions
in the states in which they sell.
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.
<PAGE>
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.
FINANCIAL STATEMENTS
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
INDEX TO FINANCIAL STATEMENTS
Page
Annual Financial Statements
Report of Independent Certified Public Accountants 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 September
30, 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 September
30, 1995 30, 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 14,687 16,125
obligations
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 53,186 30,695
current portion --------- ---------
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' $ 6,843,459 $ 4,597,412
equity (deficit) ============ ============
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>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
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 $ - $ -
========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Common stock
$0.001 par Total
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 600,000 600 299,400 - 300,000
(Note 6)
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 account
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)
============ ====== ========== ============= ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<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.
<PAGE>
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.
(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.
<PAGE>
(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 include employment contracts and goodwill, which
represents the excess of cost over fair market value of net assets
acquired in the purchase of MOI and in the acquisitions of individual
distributorships.
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.
(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.
(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.
<PAGE>
(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>
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 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.
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.
<PAGE>
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,
1996; (iii) the increase 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.
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.
<PAGE>
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. 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.
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.
<PAGE>
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>
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.
<PAGE>
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.
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:
<PAGE>
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.
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.
<PAGE>
(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.
(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.
<PAGE>
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 Price Shares Exercise 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 30, 1996 120,000 $ 50- 4.621 67,500 $2.625-3.19
======== =========
All outstanding options reflected above are currently exercisable.
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 assets (3,200,000) (3,756,000)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
<PAGE>
Due to the uncertainty of realizing the deferred tax asset in the
future, the Company has recorded a valuation allowance equaling the
deferred tax asset.
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 Payments Sublease 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.
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
=======
<PAGE>
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 and
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.
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.
<PAGE>
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
==========
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
March 31, 1997 September 30,
1996
<S> <C> <C>
Current Assets: $ - $ -
Cash and cash equivalents
Accounts receivable, less allowance 1,075,639 720,277
for doubtful accounts of $26,740 and
$40,135
Inventory, less valuation allowance 1,418,191 1,356,057
of $100,000
Prepaid expenses and other assets 100,637 19,027
--------- ---------
Total current assets 2,594,467 2,095,361
Property and equipment, at cost:
Furniture and equipment 616,287 605,638
Automobiles and trucks 119,193 119,193
Leasehold improvements 114,816 109,408
------- -------
Property and equipment, at cost: 850,296 834,239
Less: Accumulated depreciation and 659,671 618,394
amortization ------- -------
Total Property and equipment 190,625 215,845
------- -------
Other assets:
Deposits 5,487 13,935
Intangible assets, net of accumulated
amortization 2,163,093 2,272,271
of $815,801 and $706,623 --------- ---------
Total other assets 2,168,580 2,286,206
--------- ---------
Total assets $4,953,672 $4,597,412
========= =========
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
CONDENSED BALANCE SHEETS
(CONTINUED)
(UNAUDITED)
March 31, 1997 September 30,
1996
<S> <C> <C>
Current liabilities:
Bank overdrafts $ 162,829 $ 55,597
Current portion of long-term debt 87,309 567,395
Accounts payable 1,003,005 1,180,475
Notes payable to bank 1,648,761 4,375304
Current portion of capitalized lease 18,458 16,125
obligations
Deposits 266,500 429,844
Accrued liabilities 413,654 859,279
Notes payable to related parties - 215,188
--------- ---------
Total current liabilities 3,600,516 7,699,207
--------- ---------
Long-term debt:
Long-term debt, less current portion 127,642 93,722
Capitalized lease obligations, less 21,811 30,695
current portion --------- ---------
Total long-term debt 149,453 124,417
--------- ---------
Total liabilities 3,749,969 7,823,624
--------- ---------
Stockholders' equity (deficit):
Common Stock: $0.001 par value;
authorized 25,000,000 shares;
16,681,611 and 9,544,810
shares issued and outstanding at
March 31, 1997 and September 30, 1996,
respectively 16,682 9,545
Additional paid-in capital 10,568,241 8,868,577
Accumulated Deficit (9,381,220) (12,104,334)
---------- -----------
Total stockholders' equity (deficit) 1,203,703 (3,226,212)
---------- -----------
Total liabilities and stockholders' $4,953,672 $4,597,412
equity (deficit) ========== ===========
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
MARCH 31,
1996 1997
<S> <C> <C>
Sales $4,572,728 $4,533,757
Cost of Sales 3,452,209 3,321,496
--------- ---------
Gross profit $1,120,519 $1,212,261
Less:
Selling, general and
administrative expenses 1,382,253 1,143,194
Amortization and
depreciation 213,794 150,454
--------- ---------
Income (loss) from (475,528) (81,387)
operations --------- ---------
Other income
(expenses):
Interest income 45 -
Interest expense (325,152) (82,012)
--------- ---------
Other income (expense),
net (325,107) (82,012)
--------- ---------
Net income (loss)
before
extraordinary item $(800,635) $(163,399)
Extraordinary item,
gain from
debt restructuring $ - $2,886,513
--------- ---------
Net income (loss) $(800,635) $2,723,114
========== =========
Loss per common share:
Net income (loss)
before
extraordinary item $ (0.10) $ (0.01)
=========== ===========
Net income (loss) $ (0.10) $ 0.19
=========== ===========
Weighted average number
of common shares
outstanding 7,670,463 14,518,711
========== ===========
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
MARCH 31,
1996 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(800,635) $ 2,723,114
Adjustments to reconcile net income
(loss ) to net cash
used in operating activities:
Depreciation 51,491 41,277
Amortization 162,303 109,178
Gain from debt restructuring - (2,886,513)
Changes in current assets and
liabilities:
Accounts receivable 454,531 (355,362)
Inventory 437,606 (62,134)
Prepaid expenses (74,588) (81,610)
Other assets - 8,448
Deposits (136,048) (163,344)
Accounts payable, trade and
accrued liabilities 35,879 (68,937)
--------- --------
Net cash provided by (used in)
operating activities 130,539 (735,883)
--------- ---------
Cash flows from investing activities:
Acquisition of equipment (1,727) (16,056)
--------- ---------
Net cash used in investing activities (1,727) (16,056)
---------- ---------
Cash flows from financing activities:
Net change in bank overdrafts (188,427) 107,232
Increase (decrease) in capital leases (12,408) (6,550)
Net change in borrowings under line
of credit - (151,239)
Net proceeds from issuance of
common stock 12,375 907,662
Increase (decrease) in long-term debt (37,673) (105,166)
Proceeds from issuance of promissory
notes to related parties 97,321 -
--------- ---------
Net cash used in (provided by)
financing activities $(128,812) $751,939
--------- ---------
Net decrease in cash and cash
equivalents $ - $ -
Cash and cash equivalents at beginning
of year $ - $ -
Cash and cash equivalents at end of
year $ - $ -
========= =========
</TABLE> The accompanying notes are an integral
part of these financial statements.
<PAGE>
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 annual financial
statements of the Company for the fiscal year ended September 30, 1996
included elsewhere herein.
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. Although the reduction of
expenses 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.
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 restructuring efforts, the Company
reached agreements with its Silicon, its primary trade creditors and
certain debtholders for the restructuring of certain of the Company's
outstanding debt. See Notes 3 and 4 to the Condensed Financial
Statements included elsewhere herein. In addition, the Company raised
$1,200,250 in the first quarter of fiscal 1997 and $400,000 in April and
May of fiscal 1997 from the private placements of equity. See Note 5 to
the Condensed Financial Statements included elsewhere herein.
<PAGE>
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 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
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 which
resulted in an extraordinary gain of $280,999; (ii) $100,000 was
forgiven; and (iii) approximately $162,000 was converted to a 24-month
promissory note. This resulted in an extraordinary gain of $380,999 for
the quarter ended December 31, 1996.
Management believes that with: (i) the completion of the above
mentioned restructuring of its debt; (ii) the equity infusions that it
has received from private placements during the quarter ended December
31, 1996 and in April and May of 1997; (iii) the increase in trade
credit which the Company has received upon the aforementioned debt
restructuring; (iv) the expansion of the Company's marketing efforts and
sales territory expansion; the Company will be able, if the Company is
able to refinance the Company's debt when it comes due, to achieve sales
increases that could reduce 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.
The increases in sales should ultimately allow the Company to return to
profitability and generate positive cash flows.
Notwithstanding management's belief, there can be no assurance that
the Company will be able to increase sales levels. In addition, in the
event sales levels increase, there can be no assurance that the Company
can achieve profitability. If profitability is not achieved, 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. Finally, there is no assurance that the
Company will be able to refinance its outstanding debt when its comes
due.
<PAGE>
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 banks
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 (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 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 ("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. 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>
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 $3,175,105, 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 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 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. Interest under the
Amended Agreement is payable monthly at a rate equal to 2% over
Silicon's prime rate.
The maturity date on the Company's line of credit with Silicon
Valley Bank expired on July 29, 1997. The Company is currently in
negotiations with Silicon to extend 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, 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.
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.
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.
<PAGE>
During the third quarter of fiscal 1997, the Company raised
$580,000 through the sale to Prinz-Franklin, L.L.C., an Illinois limited
liability company ("Prinz-Franklin"), of Common Stock and warrants to
purchase Common Stock. The sale occurred in three installments:
$200,000 on April 11, 1997 in return for 1,000,000 shares of Common
Stock, $200,000 on May 11, 1997 in return for 1,000,000 shares of Common
Stock and $180,000 on June 27, 1997 in return for 900,000 shares of
Common Stock. The Company granted Prinz piggyback registration rights
with respect to the shares of Common Stock so purchased. 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 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
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. Prinz-Franklin also
received warrants to purchase 400,000 shares of Common Stock: warrants
for 200,000 shares of Common Stock were issued on each of May 9, 1997
and May 11,1997. The warrants allow for the purchase of the shares of
Common Stock within a period of four years from issuance of the
applicable warrant.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 5
Market for Securities 9
Dividend Policy 10
Use of Proceeds 10
Management's Discussion and
Analysis 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 25
Selling Security Holders 27
Statement of Indemnification 30
Legal Matters 31
Experts 31
<PAGE>
No dealer, salesman or any other 17,254,673 Shares of Common Stock
person has been authorized to give and 2,400,500 Common Stock Purchase
any information or to make any Warrants offered by certain
representations other than those Selling Security Holders
contained in this Prospectus, and,
if given or made, such information FRANKLIN OPHTHALMIC INSTRUMENTS CO.,
or representations must not be INC.
relied upon as having been
authorized by the Company. This PROSPECTUS
Prospectus does not constitute an
offer of any securities other than _________, 1997
those to which it relates or an
offer to sell, or a solicitation of
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.
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.
<PAGE>
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 ......$40,000.00
Item 26. Recent Sales of Unregistered Securities.
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.
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.
<PAGE>
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.
<PAGE>
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.
5* Opinion of counsel as to legality of securities.
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.
<PAGE>
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.
<PAGE>
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, filed with the Securities and Exchange
Commission on January 14, 1997 and incorporated by reference
herein.
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 9, 1997 between
the Company and Prinz-Franklin L.L.C.
10.20* Amendment to Investment Agreement dated May 11, 1997 between
the Company and Prinz-Franklin L.L.C.
23.1* Consent of Independent Certified Public Accountants.
23.2 Consent of Counsel (see Exhibit 5).
24 Power of Attorney (see signature page).
27.1* Financial Data Schedule for fiscal year ended September 30,
1996.
<PAGE>
27.1* Financial Data Schedule for interim period ended March 31,
1997.
*Filed herewith.
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 Registration Statement to be signed on its behalf by the
undersigned in the City of Romeoville, State of Illinois on July 30,
1997.
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
By: /s/Michael J. Carroll
----------------------------
Michael J. Carroll
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints MICHAEL J. CARROLL his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority
to do and perform each and every act and this requisite and necessary to
be done in and about the premises, as fully for all intents and purposes
as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
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 July 30, 1997
- ---------------------- Executive Officer
Michael J. Carroll and Director
/s/James J. Urban Senior Vice President, July 30, 1997
- ---------------------- Chief Operating Officer
James J. Urban and Director
/s/Philip G. Winters Director July 30, 1997
- ----------------------
Philip G. Winters
/s/Linda S. Zimdars Secretary and Director July 30, 1997
- ----------------------
Linda S. Zimdars
/s/John Prinz Director July 30, 1997
- ----------------------
John Prinz
/s/Brian M. Carroll Vice President and July 30, 1997
- ---------------------- Chief Financial
Brian M. Carroll Officer
EXHIBIT 5
OPINION OF COUNSEL AS TO LEGALITY OF SECURITIES
<PAGE>
July 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 (i) a Registration Statement on Form SB-2 of the Company filed with
the Securities and Exchange Commission (the "Commission") on July 30,
1997, as amended (the "Registration Statement"), relating 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; and
d. 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.
Based upon the foregoing, and subject to the qualification set forth in
the following paragraph, 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 note that the Company's Class A Warrants (as defined in the
Registration Statement) have certain anti-dilution rights which are
triggered by the issuance of shares of Common Stock for less than "Fair
Market Value" (as such term is defined in the instrument establishing the
terms of the Class A Warrants). Such anti-dilution rights appear to
have been triggered by certain transactions occurring after the date of
issuance of the Class A Warrants, resulting in a reduction of the
exercise price of the Class A Warrants and an increase in the number of
shares issuable upon the exercise of the Class A Warrants. Should the
Class A Warrants and other outstanding warrants and options be exercised,
the Company may not have sufficient shares of authorized and unissued
Common Stock to provide for all of such exercises, and we express no
opinion with respect thereto.
<PAGE>
We are members of the Bar of the State of Illinois. Our opinion is
limited to the laws of the State of Illinois and the general laws of the
United States of America.
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
EXHIBIT 10.17
FORM OF CLASS B WARRANT DATED NOVEMBER 25, 1996
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES UNDERLYING THIS WARRANT HAS BEEN
THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR UNDER
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT HAS BEEN TAKEN BY THE
REGISTERED OWNER FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD
RESALE OR DISTRIBUTION HEREOF. THIS WARRANT MAY NOT BE TRANSFERRED OR
DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
HEREOF THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES
ACT, THE RULES AND REGULATIONS THEREUNDER, OR APPLICABLE STATE
SECURITIES LAWS. IN CONNECTION WITH COMPLIANCE WITH THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS, NO EXERCISE, TRANSFER OR
DISPOSITION OF THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT
SHALL BE MADE UNLESS THE CONDITIONS SPECIFIED HEREIN ARE SATISFIED.
No. WA-<Warrant_No> Number of Shares Purchasable Upon
Issue Date: November 25, 1996 Exercise of Warrant: <Shares_No>
Void after 5:00 p.m. New York time on May 25, 1998
COMMON STOCK PURCHASE WARRANT
OF
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
Franklin Ophthalmic Instruments Co., Inc. (the "Company"), a
Delaware corporation, hereby certifies that for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, [NAME] is (are) entitled, subject to the terms set forth
in this warrant (the "Warrant"), at any time or from time to time
commencing six months from the date hereof, but in no event later than
May 25, 1998, to purchase from the Company shares of common stock of the
Company, par value $.001 per share (the "Common Stock"), at an exercise
price of $1.00 per share, as adjusted from time to time pursuant to the
provisions set forth below (the "Exercise Price"). This Warrant and all
rights hereunder, to the extent such rights shall not have been
exercised, shall terminate and become null and void to the extent the
holder hereof (the "Holder") fails to exercise any portion of this
Warrant prior to 5:00 p.m., New York, New York time, May 25, 1998
("Expiration Date").
1. EXERCISE OF WARRANT. Subject to the provisions of Section 10
below, this Warrant may be exercised in whole or in part at any time or
from time to time commencing six months from the date hereof and until
the Expiration Date; provided, however, that if any such date is a day
on which banking institutions are authorized by law to close (a "Bank
Holiday"), then on the next succeeding day which shall not be a Bank
Holiday.
<PAGE>
This Warrant may be exercised by presentation and surrender
hereof to the Company at its principal office or at the office of its
transfer agent, if any (the "Transfer Agent"). The presentation and
surrender of this Warrant for exercise must be accompanied by: (a) the
form of subscription which is attached hereto as Annex A (the "Form of
Subscription") duly executed with signature guaranteed; and (b) payment
of the aggregate Exercise Price for the number of shares specified in
such form (up to the maximum number of shares of Common Stock subject
hereto). If this Warrant should be exercised in part only, upon
presentation and surrender of this Warrant to the Company or the
Transfer Agent for cancellation, the Company shall execute and deliver a
new warrant evidencing the rights of the Holder to purchase the balance
of the shares purchasable hereunder. Upon receipt of this Warrant by
the Company at its office or by the Transfer Agent at its office, in
proper form for exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise;
provided, however, that if at the date of surrender of such Warrant and
payment of the aggregate Exercise Price, the transfer books for the
Common Stock shall be closed, the certificates representing the shares
of Common Stock or other securities subject to issuance upon such
exercise hereof shall be issuable as of the date on which the Company's
transfer books shall next be opened. Until such date, the Company shall
be under no duty to deliver any certificate representing such shares of
Common Stock or other securities and the Holder shall not be deemed to
have become a holder of record or owner of such shares of Common Stock
or such other securities. The Company reserves the right to pay any
broker-dealer registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") a fee not to exceed ten percent of the
Exercise Price upon the exercise of this Warrant in accordance with
applicable federal and state securities laws and applicable regulations
of the National Association of Securities Dealers, Inc.
2. RESERVATION OF SHARES. There shall at all times be reserved
for issuance upon exercise of this Warrant such number of shares of
Common Stock as shall be subject hereto.
3. FRACTIONAL SHARES. Notwithstanding any other provision
hereof, the Company shall not be required to issue fractional shares of
Common Stock upon the exercise of this Warrant. If any fraction of a
share would, except for the provisions hereof, be issuable upon the
exercise of this Warrant, then: (a) if the fraction of a share
otherwise issuable is equal to or less than one-half, the Company shall
round down and issue only the largest whole number of shares of Common
Stock to which the Holder is otherwise entitled; or (b) if the fraction
of a share otherwise issuable is greater than one-half, the Company
shall round up and issue one additional share of Common Stock in
addition to the largest whole number of shares of Common Stock to which
the Holder is otherwise entitled.
<PAGE>
4. EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT. Subject to the
provisions of this section and of Section 10 below, this Warrant is
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or the Transfer Agent,
for other warrants of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to the provisions of this section
and of Section 10 below, upon surrender of this Warrant to the Company
or the Transfer Agent accompanied by: (a) the form of assignment which
is attached hereto as Annex B (the "Form of Assignment") duly executed;
and (b) funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new warrant in the name of the
assignee named in the Form of Assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other
warrants which carry the same rights upon presentation hereof at the
office of the Company or the Transfer Agent, accompanied by a written
notice signed by the Holder hereof specifying the names and
denominations in which new warrants are to be issued.
Notwithstanding anything herein to the contrary, the Company may,
without any obligation to do so, at its option, at any time and from
time to time prior to the Expiration Date require that the Holder
surrender this Warrant to the Company or the Transfer Agent in exchange
for a warrant certificate in engraved or other form as may be approved
by the board of directors of the Company (the "Board of Directors")
representing this Warrant, bearing such letters, numbers or other marks
of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Board of
Directors may deem appropriate, having terms and conditions
substantially similar to those contained in this Warrant or which, in
the reasonable judgment of the Board of Directors, afford the Holder or
Holders of the outstanding Warrants issued by the Company as a class a
net benefit when considered under the totality of the circumstances or
as may be required to comply with any law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to usage; it
being understood and agreed, however, that the terms and conditions of
this Warrant may be modified, amended or superseded by the Company at
any time hereafter as set forth herein. The term "Warrant" shall
hereinafter be interpreted to include any warrant into which this
Warrant may be divided, exchanged or combined, and any warrant as the
same may be hereafter modified or amended from time to time.
5. THEFT, DESTRUCTION, LOSS OR MUTILATION OF WARRANT. Subject to
the provisions of Section 4, in the event of the theft, destruction,
loss or mutilation of this Warrant, upon receipt by the Company of
evidence satisfactory to it of such theft, destruction, loss or
mutilation and, in the case of loss, theft or destruction, of such
indemnification as the Company may in its discretion impose, and in the
case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver a new warrant of like tenor and date.
6. RIGHTS OF THE HOLDER. Prior to the exercise of this Warrant,
the Holder shall not be entitled by virtue hereof to any rights of a
stockholder in the Company, either at law or equity. The rights of the
Holder are limited to those expressed in this Warrant and are
enforceable against the Company only to the extent set forth herein.
<PAGE>
7. REGISTRATION RIGHTS. The Company hereby covenants and agrees
as follows:
(a) Definitions. As used in this section, the following
terms shall have the meanings set forth below:
(i) The terms "register," "registered" and
"registration" shall refer to a registration
effected by preparing and fling a registration
statement or similar document with the Securities
and Exchange Commission (the "Commission") in
compliance with the Securities Act of 1933 (the
"Securities Act"), and the declaration or ordering
of the effectiveness of such registration statement
or document by the Commission.
(ii) The term "Registrable Securities" shall mean:
(A) this Warrant; (B) the Common Stock issued or
issuable upon exercise of this Warrant; and (C) any
other securities of the Company issued as (or
issuable upon the conversion or exercise of any
warrant, right or other security which is issued as)
a dividend or other distribution with respect to, in
exchange for or in replacement of this Warrant or
the Common Stock referenced in Subsections
7(a)(ii)(A) or 7(a)(ii)(B) immediately above,
excluding in all cases, however, any Registrable
Securities sold to the public pursuant to
registration under the Securities Act or an
applicable exemption therefrom.
(b) Demand Registration Rights. At any time through the
period ending on the Expiration Date, upon the written request (the
"Demand Request") of the Holders of at least a majority of the
outstanding Registrable Securities (the "Initiating Holders"), the
Company shall, on one occasion, afford all of the Holders of Registrable
Securities (as reflected in the records of the Company) the opportunity
to effect the registration of the offer and sale of the Registrable
Securities. In the case of there being more than one Holder, in the
event that the Holders of a majority of the outstanding Registrable
Securities deliver a Demand Request, the Company shall notify all of the
remaining Holders of record of the receipt of such request and shall
file a registration statement relating to the Registrable Securities as
soon as practicable after receipt of the Demand Request. Such
registration statement may, subject to the provisions of this section,
include other securities of the Company whether being offered and sold
for the account of a securityholder or being offered and sold for the
account of the Company.
<PAGE>
If the Initiating Holders intend to distribute the Registrable
Securities covered by the Demand Request by means of an underwriting,
such Holders shall so advise the Company as a part of the Demand Request
and the Company shall include such information in the written notice
referred to in this subsection. The right of any Holder to include its
securities in a registration statement pursuant hereto shall be
conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested (unless otherwise mutually agreed
by a majority in interest of the Initiating Holders and such party) to
the extent provided herein.
If the underwriter (or managing underwriter on behalf of all of the
underwriters) has not limited the number of Registrable Securities to be
underwritten, the Company may include securities for its own account or
for the account of other securityholders in such registration if the
underwriters so agree and if the number of Registrable Securities which
would otherwise have been included in such registration and underwriting
shall not thereby be limited.
(c) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company, at any time through the period ending
on the Expiration Date, proposes to register (including for this purpose
a registration effected by the Company for securityholders other than
the Holder) any of its securities under the Securities Act in connection
with the public offering of such securities solely for cash (other than
a registration on Form S-4, Form S-8 or any form which does not include
substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable
Securities), the Company shall, each such time, promptly give the Holder
or Holders, as the case may be, written notice of such registration (the
"Piggy Back Notice"). Upon the written request of the Holder or
Holders, as the case may be, given within twenty (20) days after any
such Holder's receipt of such Piggy Back Notice from the Company, the
Company shall, subject to the provisions of this section, include in a
registration statement filed with the Commission under the Securities
Act all of the Registrable Securities that the Holder or Holders, as the
case may be, has requested to be registered; provided, however, that the
Company shall have no such obligation if, in the good faith judgment of
the Board of Directors, it would be seriously detrimental to the Company
and its securityholders to include any Registrable Securities in the
subject registration statement or offering or if the managing
underwriter of the subject proposed offering objects in writing to the
inclusion of any Registrable Securities in the subject registration
statement; and provided, further, that the Registrable Securities shall
be subject to restrictions on transfer for ninety (90) days after the
effective date of the subject registration statement. The inclusion of
any of a Holder's Registrable Securities in a registration statement
filed by the Company and declared effective by the Commission shall be
deemed to be the exercise by such Holder of the piggy-back registration
rights granted herein to such Holder; and, thereafter, the Company shall
have no further obligations pursuant to Subsections 7(b) or 7(c) above.
(d) Obligations of the Company. Whenever required hereunder
to effect the registration of any Registrable Securities, the Company
shall, as soon as practicable:
<PAGE>
(i) Prepare and file with the Commission a
registration statement with respect to such
Registrable Securities and use its best efforts to
cause such registration statement to become
effective and to keep such registration statement
effective for at least six (6) months;
(ii) Prepare and file with the Commission such
amendments and supplements to such registration
statement and the prospectus used in connection with
such registration statement as may be necessary to
comply with the provisions of the Securities Act
with respect to the disposition of all securities
covered by such registration statement;
(iii) Furnish to the Holders such numbers of
copies of the prospectus included in the
registration statement, including a preliminary
prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they
may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them;
(iv) Use its best efforts to register and qualify
the securities covered by such registration
statement under the securities laws of such
jurisdictions as shall be reasonably requested by
the Holders for the distribution of the securities
covered by the registration statement; provided,
however, that the Company shall not be required in
connection therewith or as a condition thereto to
qualify to do business or to file a general consent
to service of process in any such jurisdiction;
(v) In the event of any underwritten public
offering, enter into and perform its obligations
under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such
offering;
(vi) Notify the Holders, promptly after the Company
shall have received notice thereof, of the time when
the registration statement becomes effective or any
supplement to any prospectus forming a part of the
registration statement has been filed; and
(vii) Notify the Holders of any stop order
suspending the effectiveness of the registration
statement and use its reasonable best efforts to
remove such stop order.
<PAGE>
(e) Furnish Information. It shall be a condition precedent
to the obligations of the Company to take any action pursuant hereto
that the Holder, having chosen to have its Registrable Securities
included for registration, shall furnish to the Company such information
regarding the Holder, its Registrable Securities and the intended method
of disposition of such securities as shall be required to effect the
registration thereof. The Holder shall be required to represent to the
Company that all such information which is given is complete and
accurate in all material respects. The Holder shall deliver to the
Company a statement in writing from the beneficial owners of such
securities that such beneficial owners bona fide intend to sell,
transfer or otherwise dispose of such securities.
(f) Expenses.
(i) Registration Expenses. All expenses incurred
by the Company in complying with this section,
including without limitation, all registration and
filing fees, printing expenses, fees and
disbursements of counsel for the Company, "Blue Sky"
fees and expenses, and the expense of any special
audits incident to or required by any such
registration (but excluding the compensation of
regular employees of the Company which shall be paid
in any event by the Company) shall be borne by the
Company.
(ii) Selling Expenses. All underwriting discounts,
underwriters' expense allowance and selling
commissions applicable to the sale of Registrable
Securities by the Holders and all fees and
disbursements of any special counsel (other than the
Company's regular counsel) shall be borne by the
Holders of the Registrable Securities so registered
pro rata on the basis of the number of Registrable
Securities so registered.
(g) Underwriting Requirements. All Holders proposing to
distribute their Registrable Securities through an underwriting in which
the Company has proposed or is proposing to participate, shall (together
with the Company and any other Holders distributing their securities
through such underwriting) enter into an underwriting agreement in
customary form with the underwriter (or underwriters) selected for
underwriting by the Company. Notwithstanding any other subsection of
this section, at the request of the managing underwriter, the Holder
shall delay the sale of Registrable Securities which such Holder has
requested be registered hereunder for up to ninety (90) days following
the effective date of the registration statement. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect
to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(h) Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this section.
<PAGE>
(i) Indemnification. In the event that any Registrable
Securities are included in a registration statement pursuant hereto:
(i) To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the
officers, directors and partners of each Holder, any
underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or
several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following
statements, omissions or violations (collectively, a
"Violation"): (A) any untrue statement or alleged
untrue statement of a material fact contained in
such registration statement, including any
preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto;
(B) the omission or alleged omission to state
therein a material fact required to be stated
therein, or necessary to make the statements therein
not misleading; or (C) any violation or alleged
violation by the Company of the Securities Act, the
Exchange Act, any applicable state securities law or
any rule or regulation promulgated under the
Securities Act, the Exchange Act or any applicable
state securities law; and the Company will reimburse
the Holder for any legal or other expenses
reasonably incurred by them in connection with
investigating or defending any such loss, claim,
damage, liability or action; provided, however, that
the indemnity agreement contained in this subsection
shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if
such settlement is effected without the consent of
the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage,
liability or action to the extent that it arises out
of or is based upon a violation which occurs in
reliance upon and in conformity with written
information furnished expressly for use in
connection with such registration by the Holder; and
further provided, however, that the foregoing
indemnity agreement is subject to the condition
that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged
omission made in any preliminary prospectus but
eliminated or remedied in the prospectus, such
indemnity agreement shall not inure to the benefit
of any underwriter or broker, if a copy of the
prospectus was not sent or given to such person with
or prior to the confirmation of the sale of such
securities to such person.
<PAGE>
(ii) To the extent permitted by law, each Holder
will indemnify and hold harmless the Company, its
directors, its officers, any person who controls the
Company within the meaning of the Securities Act or
the Exchange Act, any underwriter (within the
meaning of the Securities Act) for the Company and
any person who controls such underwriter against any
losses, claims, damages or liabilities (joint or
several) to which the Company or any such director,
officer, controlling person, or underwriter or
controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity
with written information furnished by the Holder
expressly for use in connection with such
registration; and the Holder will reimburse any
legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling
person, underwriter or controlling person thereof,
in connection with investigating or defending any
such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement
contained in this subsection shall not apply to
amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is
effected without the consent of the Holder, which
consent shall not be unreasonably withheld.
(iii) Promptly after receipt by an indemnified
party of notice of the commencement of any action
(including any governmental action), such
indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party
hereunder, notify the indemnifying party in writing
of the commencement thereof and the indemnifying
party shall have the right to participate in, and,
to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the
right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying party, if
representation of such indemnified party by the
counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing
interests between such indemnified party and any
other party represented by such counsel in such
proceeding. The failure to notify an indemnifying
party within a reasonable time of the commencement
of any such action, to the extent prejudicial to its
ability to defend such action, shall relieve such
indemnifying party of any liability to the
indemnified party hereunder, but the omission so to
<PAGE>
notify the indemnifying party will not relieve it of
any liability that it may have to any indemnified
party otherwise than under this subsection.
(j) Reports Under Exchange Act. Following registration of
the Company's securities under the Exchange Act and with a view of
making available to the Holders the benefits of Rule 144 under the
Securities Act and any other rule or regulation promulgated by the
Commission that may at any time permit a Holder to sell securities of
the Company to the public without registration, the Company agrees to:
(i) use its best efforts to make and keep public
information available, as those terms are understood
and defined in Rule 144, at all times; and
(ii) use its best efforts to file with the
Commission in a timely manner all reports and other
documents required of the Company under the
Securities Act and the Exchange Act.
(k) Termination of the Company's Obligations.
(i) The Company shall have no obligations pursuant
to Subsections 7(b) or 7(c) with respect to any
request made by the Holder after the Expiration
Date.
(ii) Notwithstanding any provision hereof to the
contrary, the Company shall not be required to
effect any registration under the Securities Act or
under any state securities laws on behalf of any
Holder or Holders if, in the opinion of counsel for
the Company, the offering or transfer by such Holder
or Holders in the manner proposed (including without
limitation, the number of shares proposed to be
offered or transferred and the method of offering or
transfer) is exempt from the registration
requirements of the Securities Act and the
securities or "Blue Sky" laws of applicable states.
(1) Holder's Acceptance of Obligations. Acceptance of this
Warrant by the Holder shall be deemed to constitute the unqualified
acceptance by the Holder of all of the terms and conditions set forth
herein.
8. REDEMPTION. This Warrant is redeemable by the Company for
$.10 per Warrant, at any time after September 30, 1997, upon thirty (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 twenty (20) consecutive trading days ending within
fifteen (15) days prior to the date of the notice of redemption.
9. ADJUSTMENTS.
(a) The number of shares of Common Stock issuable on exercise of
this Warrant and the Exercise Price shall be subject to adjustment from
time to time in the event that the Company shall:
<PAGE>
(i) pay a dividend in, or make a distribution of,
shares of Common Stock
(ii) subdivide its outstanding shares of Common Stock
into a greater number of shares;
(iii) combine its outstanding shares of Common
Stock into a smaller number of shares; or
(iv) spin-off a subsidiary by distributing, as a
dividend or otherwise, shares of the subsidiary to
its stockholders. In any such case, the total number
of shares of Common Stock issuable on exercise
hereof immediately prior thereto shall be adjusted
so that the Holder shall be entitled to receive, at
the same aggregate Exercise Price, the number of
shares of Common Stock that the Holder would have
owned or would have been entitled to receive
immediately following the occurrence of any of the
events described above had this Warrant been
exercised in full immediately prior to the
occurrence (or applicable record date) of such
event. An adjustment made pursuant to this section
shall, in the case of a stock dividend or
distribution, be made as of the record date and, in
the case of a subdivision or combination, be made as
of the effective date thereof. If, as a result of
any adjustment pursuant to this section, the Holder
shall become entitled to receive shares of two or
more classes or series of securities of the Company,
the Board of Directors shall equitably determine the
allocation of the adjusted exercise price between or
among shares or other units of such classes or
series and shall notify the Holder of such
allocation.
(b) In the event of any reorganization or recapitalization of the
Company or in the event the Company consolidates with or merges into or
with another entity or transfers all or substantially all of its assets
to another entity, then and in each such event, the Holder, on exercise
of this Warrant as provided herein, at any time after the consummation
of such reorganization, recapitalization, consolidation, merger or
transfer, shall be entitled, and the documents executed to effectuate
such event shall so provide, to receive the stock or other securities or
property to which the Holder would have been entitled upon such
consummation if the Holder had exercised this Warrant immediately prior
thereto. In such case, the terms of this Warrant shall survive the
consummation of any such reorganization, recapitalization,
consolidation, merger or transfer and shall be applicable to the shares
of stock or other securities or property receivable on the exercise of
this Warrant after such consummation.
(c) Whenever a reference is made in this section to the issue or
sale of shares of Common Stock, the term "Common Stock" shall mean the
Common Stock of the Company of the class authorized as of the date
hereof and any other class of stock ranking on a parity with such Common
Stock.
<PAGE>
(d) Whenever the number of shares of Common Stock purchasable upon
exercise of this Warrant or the Exercise Price shall be adjusted as
required herein, the Company shall forthwith file such information with
its secretary at its principal office, and with the price determined as
herein provided and setting forth in detail the facts requiring such
adjustment. Each such officer's certificate shall be made available at
all reasonable times for inspection by the Holder and the Company shall,
forthwith after such adjustment, deliver a copy of such certificate to
the Holder.
(e) The Company: (i) will not cause the par value of any
securities receivable on exercise of this Warrant to be in excess of the
amount payable therefor on such exercise; and (ii) will take all action
as may be necessary or appropriate so that the Company may validly and
legally issue fully paid and non-assessable shares (or other securities
or property deliverable hereunder) upon the exercise of this Warrant.
This Warrant shall bind the successors and assigns of the Company.
10. TRANSFER TO COMPLY WITH THE SECURITIES ACT AND OTHER
APPLICABLE SECURITIES LAWS. Neither this Warrant nor the shares of
Common Stock (or other securities) issuable upon exercise hereof have
been the subject of registration under the Securities Act or under state
securities laws. Except as provided in Section 4 above: (a) this
Warrant may not be transferred, assigned, pledged, sold or otherwise
disposed of; and (b) the shares of Common Stock (or other securities)
issuable upon exercise of this Warrant may not be transferred, assigned,
pledged, sold or otherwise disposed of in the absence of registration
under or exemption from the applicable provisions of the Securities Act,
unless the Holder provides the Company with an opinion of counsel in
form and substance satisfactory to the Company (together with such other
representations and warranties as the Company may request) that the
shares of Common Stock issued or issuable, as applicable, upon exercise
of this Warrant may be legally transferred without violating the
Securities Act, and any other applicable securities law and then only
against receipt of an agreement of the transferee (in form and substance
satisfactory to the Company) to comply with the provisions of this
section with respect to any resale or other disposition of such
securities.
11. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have
been made when delivered or mailed by first class mail, postage prepaid,
as follows: (a) if to the Holder, at the address of the Holder as shown
on the registry books maintained by the Company or the Transfer Agent;
and (b) if to the Company, at 1265 Naperville Road, Romeoville, Illinois
60446, Attention: President, with a copy by like means to Ungaretti &
Harris, 3500 Three First National Plaza, Chicago, Illinois 60602,
Attention: Michael J. Philippi, Esq.
12. SURVIVAL. All agreements, covenants, representations and
warranties set forth herein shall survive the execution and delivery of
this Warrant and any investigation at any time made by or on behalf of
any parties hereto and the exercise and purchase of this Warrant.
<PAGE>
13. AMENDMENTS. The Company may, in its sole discretion, by
supplemental agreement or pursuant to an amended warrant certificate
issued in exchange for this Warrant make any changes or corrections to
the terms and conditions hereof which it deems appropriate in order to:
(a) reduce the Exercise Price; (b) extend the Expiration Date of this
Warrant; (c) cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained;
(d) modify such other terms and conditions hereof which modification, in
the judgment of the Board of Directors, provides, when considered under
the totality of the circumstances a net benefit to or which, in the
exercise of such judgment, the Board of Directors determines would not
be contrary to the interests of the Holder or the Holders; provided,
however, that no adverse change in the number or nature of the
securities purchasable upon the exercise of this Warrant, or the
Purchase Price therefor, or the acceleration of the Expiration Date,
shall be made without the consent in writing of the Holder. In
addition, the Company may at any time hereafter enter into an agreement
with a qualified warrant agent (a "Warrant Agent") chosen by it in its
sole discretion to act on behalf of the Company in connection with the
issuance, registration, transfer and exchange, the issuance of
certificates representing the Warrants, the exercise of the Warrants and
the rights of the Holders thereof (a "Warrant Agreement"). The
registration rights contained in Section 7 hereof shall survive any such
modification or replacement of this Warrant.
14. AGREEMENT OF HOLDERS. Every Holder, by acceptance hereof,
consents and agrees with the Company, any Warrant Agent, any Transfer
Agent and every other Holder that:
(a) The Warrants are transferable only on the registry books
of the Company, the Transfer Agent or the Warrant Agent by the Holder
thereof in person or by his attorney duly authorized in writing and only
if the warrant certificates representing such Warrants are surrendered
at the office of the Company or the Warrant Agent, if any, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the
Company and the Warrant Agent, if any, in their sole discretion,
together with payment of any applicable transfer taxes;
(b) The Company and any Warrant Agent may deem and treat the
person in whose name the warrant certificate is registered as the Holder
and as the absolute, true and lawful owner of the Warrants represented
thereby for all purposes, and none of the Company, the Transfer Agent or
the Warrant Agent shall be affected by any notice or knowledge to the
contrary, except as otherwise expressly provided in Section 5 hereof;
(c) Each Warrant shall be subject in all respects to the
terms and conditions set forth in any amended warrant certificate upon
the issuance thereof or in any Warrant Agreement entered into by the
Company as permitted pursuant to Section 13 hereof upon the execution
thereof and, in either such case, upon the mailing by the Company of
notice of the amendment of the terms and conditions of this Warrant. In
the event of the execution of any such Warrant Agreement, a true copy
thereof shall be promptly mailed by the Company to the Holder;
(d) Such Holder shall execute all such further instruments
and documents and take such further action as the Company may reasonably
require in order to effectuate the terms and purposes of this Warrant.
<PAGE>
15. SEVERABILITY. The provisions of this Warrant shall be
considered severable in the event that any of such provisions are held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable. Such invalid, void or otherwise unenforceable provisions
shall be automatically replaced by other provisions which are valid and
enforceable and which are as similar as possible in term and intent to
those provisions deemed to be invalid, void or otherwise unenforceable.
Notwithstanding the foregoing, the remaining provisions hereof shall
remain enforceable to the fullest extent permitted by law.
16. ENTIRE AGREEMENT. This Warrant is intended to and does
contain and embody the entire understanding and agreement of the Company
and the Holder with respect to the subject matter hereof and there
exists no oral agreement or understanding, express or implied, whereby
the absolute, final and unconditional character and nature of this
Warrant shall be in any way invalidated, unempowered or affected.
17. HEADINGS. The headings in this Warrant are for convenience of
reference only and are not part of this Warrant.
18. GOVERNING LAW. This Warrant shall be governed by and
construed and interpreted in accordance with the laws of the State of
Delaware without reference to principles of conflict of laws.
* * * * *
IN WITNESS WHEREOF, Franklin Ophthalmic Instruments Co., Inc. has
caused this Warrant to be signed in its name and on its behalf and its
corporate seal to be affixed hereon by its duly authorized officers as
of the date of issuance first above written.
FRANKLIN OPHTHALMIC
INSTRUMENTS CO., INC.
[SEAL]
By:
Michael J. Carroll, President
Attest:
Linda S. Zimdars, Secretary
<PAGE>
Annex to Warrant
FORM OF ASSIGNMENT
(To be executed upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers to __________________________ the right represented by the
within Warrant, together with all rights, title and interest therein,
and does hereby irrevocably constitute and appoint
__________________________ attorney to transfer such Warrant on the
Warrant register of the within named Company, with full power of
substitution.
DATED: ________________, 199__.
Signature:
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
Signature Guaranteed:
<PAGE>
Annex to Warrant
FORM OF SUBSCRIPTION
(To be completed and signed only upon an exercise of the Warrant in
whole or in part)
TO: Franklin Ophthalmic Instruments Co., Inc.
The undersigned, the Holder of the attached Warrant, hereby
irrevocably elects to exercise the purchase right represented by the
Warrant for, and to purchase thereunder, _______ shares of Common Stock
(as such terms are defined in the Warrant, dated November 25, 1996,
issued by Franklin Ophthalmic Instruments Co., Inc. to
_________________) (or other securities or property), and herewith makes
payment of $_______________ therefor in cash or by certified or official
bank check. The undersigned hereby requests that the Certificate(s) for
such securities be issued in the name(s) and delivered to the
address(es) as follows:
Name:
Address:
Social Security Number:
Deliver to:
Address:
If the foregoing Subscription evidences an exercise of the Warrant
to purchase fewer than all of the Shares (or other securities or
property) to which the undersigned is entitled under such Warrant,
please issue a new Warrant, of like tenor, for the remaining portion of
the Warrant (or other securities or property) in the name(s), and
deliver the same to the address(es) as follows:
Name:
Address:
DATED: ____________, 199__.
(Name of Holder)
(Signature of Holder or Authorized Signatory)
Signature Guaranteed:
(Social Security or Taxpayer
Identification Number of Holder)
EXHIBIT 10.18
FORM OF CLASS C WARRANT DATED DECEMBER 30, 1996
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES UNDERLYING THIS WARRANT HAS BEEN
THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR UNDER
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT HAS BEEN TAKEN BY THE
REGISTERED OWNER FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TOWARD
RESALE OR DISTRIBUTION HEREOF. THIS WARRANT MAY NOT BE TRANSFERRED OR
DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER
HEREOF THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES
ACT, THE RULES AND REGULATIONS THEREUNDER, OR APPLICABLE STATE
SECURITIES LAWS. IN CONNECTION WITH COMPLIANCE WITH THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS, NO EXERCISE, TRANSFER OR
DISPOSITION OF THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT
SHALL BE MADE UNLESS THE CONDITIONS SPECIFIED HEREIN ARE SATISFIED.
No. WA-<Warrant_No> Number of Shares Purchasable Upon
Issue Date: December 30, 1996 Exercise of Warrant: <Shares_No>
Void after 5:00 p.m. New York time on June 30, 1998
COMMON STOCK PURCHASE WARRANT
OF
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
Franklin Ophthalmic Instruments Co., Inc. (the "Company"), a
Delaware corporation, hereby certifies that for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, [NAME] is (are) entitled, subject to the terms set forth
in this warrant (the "Warrant"), at any time or from time to time
commencing six months from the date hereof, but in no event later than
June 30, 1998, to purchase from the Company shares of common stock of
the Company, par value $.001 per share (the "Common Stock"), at an
exercise price of $1.00 per share, as adjusted from time to time
pursuant to the provisions set forth below (the "Exercise Price"). This
Warrant and all rights hereunder, to the extent such rights shall not
have been exercised, shall terminate and become null and void to the
extent the holder hereof (the "Holder") fails to exercise any portion of
this Warrant prior to 5:00 p.m., New York, New York time, June 30, 1998
("Expiration Date").
1. EXERCISE OF WARRANT. Subject to the provisions of Section 10
below, this Warrant may be exercised in whole or in part at any time or
from time to time commencing six months from the date hereof and until
the Expiration Date; provided, however, that if any such date is a day
on which banking institutions are authorized by law to close (a "Bank
Holiday"), then on the next succeeding day which shall not be a Bank
Holiday.
<PAGE>
This Warrant may be exercised by presentation and surrender
hereof to the Company at its principal office or at the office of its
transfer agent, if any (the "Transfer Agent"). The presentation and
surrender of this Warrant for exercise must be accompanied by: (a) the
form of subscription which is attached hereto as Annex A (the "Form of
Subscription") duly executed with signature guaranteed; and (b) payment
of the aggregate Exercise Price for the number of shares specified in
such form (up to the maximum number of shares of Common Stock subject
hereto). If this Warrant should be exercised in part only, upon
presentation and surrender of this Warrant to the Company or the
Transfer Agent for cancellation, the Company shall execute and deliver a
new warrant evidencing the rights of the Holder to purchase the balance
of the shares purchasable hereunder. Upon receipt of this Warrant by
the Company at its office or by the Transfer Agent at its office, in
proper form for exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise;
provided, however, that if at the date of surrender of such Warrant and
payment of the aggregate Exercise Price, the transfer books for the
Common Stock shall be closed, the certificates representing the shares
of Common Stock or other securities subject to issuance upon such
exercise hereof shall be issuable as of the date on which the Company's
transfer books shall next be opened. Until such date, the Company shall
be under no duty to deliver any certificate representing such shares of
Common Stock or other securities and the Holder shall not be deemed to
have become a holder of record or owner of such shares of Common Stock
or such other securities. The Company reserves the right to pay any
broker-dealer registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") a fee not to exceed ten percent of the
Exercise Price upon the exercise of this Warrant in accordance with
applicable federal and state securities laws and applicable regulations
of the National Association of Securities Dealers, Inc.
2. RESERVATION OF SHARES. There shall at all times be reserved
for issuance upon exercise of this Warrant such number of shares of
Common Stock as shall be subject hereto.
3. FRACTIONAL SHARES. Notwithstanding any other provision
hereof, the Company shall not be required to issue fractional shares of
Common Stock upon the exercise of this Warrant. If any fraction of a
share would, except for the provisions hereof, be issuable upon the
exercise of this Warrant, then: (a) if the fraction of a share
otherwise issuable is equal to or less than one-half, the Company shall
round down and issue only the largest whole number of shares of Common
Stock to which the Holder is otherwise entitled; or (b) if the fraction
of a share otherwise issuable is greater than one-half, the Company
shall round up and issue one additional share of Common Stock in
addition to the largest whole number of shares of Common Stock to which
the Holder is otherwise entitled.
<PAGE>
4. EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT. Subject to the
provisions of this section and of Section 10 below, this Warrant is
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or the Transfer Agent,
for other warrants of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to the provisions of this section
and of Section 10 below, upon surrender of this Warrant to the Company
or the Transfer Agent accompanied by: (a) the form of assignment which
is attached hereto as Annex B (the "Form of Assignment") duly executed;
and (b) funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new warrant in the name of the
assignee named in the Form of Assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other
warrants which carry the same rights upon presentation hereof at the
office of the Company or the Transfer Agent, accompanied by a written
notice signed by the Holder hereof specifying the names and
denominations in which new warrants are to be issued.
Notwithstanding anything herein to the contrary, the Company may,
without any obligation to do so, at its option, at any time and from
time to time prior to the Expiration Date require that the Holder
surrender this Warrant to the Company or the Transfer Agent in exchange
for a warrant certificate in engraved or other form as may be approved
by the board of directors of the Company (the "Board of Directors")
representing this Warrant, bearing such letters, numbers or other marks
of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Board of
Directors may deem appropriate, having terms and conditions
substantially similar to those contained in this Warrant or which, in
the reasonable judgment of the Board of Directors, afford the Holder or
Holders of the outstanding Warrants issued by the Company as a class a
net benefit when considered under the totality of the circumstances or
as may be required to comply with any law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to usage; it
being understood and agreed, however, that the terms and conditions of
this Warrant may be modified, amended or superseded by the Company at
any time hereafter as set forth herein. The term "Warrant" shall
hereinafter be interpreted to include any warrant into which this
Warrant may be divided, exchanged or combined, and any warrant as the
same may be hereafter modified or amended from time to time.
5. THEFT, DESTRUCTION, LOSS OR MUTILATION OF WARRANT. Subject to
the provisions of Section 4, in the event of the theft, destruction,
loss or mutilation of this Warrant, upon receipt by the Company of
evidence satisfactory to it of such theft, destruction, loss or
mutilation and, in the case of loss, theft or destruction, of such
indemnification as the Company may in its discretion impose, and in the
case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver a new warrant of like tenor and date.
6. RIGHTS OF THE HOLDER. Prior to the exercise of this Warrant,
the Holder shall not be entitled by virtue hereof to any rights of a
stockholder in the Company, either at law or equity. The rights of the
Holder are limited to those expressed in this Warrant and are
enforceable against the Company only to the extent set forth herein.
<PAGE>
7. REGISTRATION RIGHTS. The Company hereby covenants and agrees
as follows:
(a) Definitions. As used in this section, the following
terms shall have the meanings set forth below:
(i) The terms "register," "registered" and
"registration" shall refer to a registration
effected by preparing and fling a registration
statement or similar document with the Securities
and Exchange Commission (the "Commission") in
compliance with the Securities Act of 1933 (the
"Securities Act"), and the declaration or ordering
of the effectiveness of such registration statement
or document by the Commission.
(ii) The term "Registrable Securities" shall mean:
(A) this Warrant; (B) the Common Stock issued or
issuable upon exercise of this Warrant; and (C) any
other securities of the Company issued as (or
issuable upon the conversion or exercise of any
warrant, right or other security which is issued as)
a dividend or other distribution with respect to, in
exchange for or in replacement of this Warrant or
the Common Stock referenced in Subsections
7(a)(ii)(A) or 7(a)(ii)(B) immediately above,
excluding in all cases, however, any Registrable
Securities sold to the public pursuant to
registration under the Securities Act or an
applicable exemption therefrom.
(b) Demand Registration Rights. At any time through the
period ending on the Expiration Date, upon the written request (the
"Demand Request") of the Holders of at least a majority of the
outstanding Registrable Securities (the "Initiating Holders"), the
Company shall, on one occasion, afford all of the Holders of Registrable
Securities (as reflected in the records of the Company) the opportunity
to effect the registration of the offer and sale of the Registrable
Securities. In the case of there being more than one Holder, in the
event that the Holders of a majority of the outstanding Registrable
Securities deliver a Demand Request, the Company shall notify all of the
remaining Holders of record of the receipt of such request and shall
file a registration statement relating to the Registrable Securities as
soon as practicable after receipt of the Demand Request. Such
registration statement may, subject to the provisions of this section,
include other securities of the Company whether being offered and sold
for the account of a securityholder or being offered and sold for the
account of the Company.
If the Initiating Holders intend to distribute the Registrable
Securities covered by the Demand Request by means of an underwriting,
such Holders shall so advise the Company as a part of the Demand Request
and the Company shall include such information in the written notice
referred to in this subsection. The right of any Holder to include its
securities in a registration statement pursuant hereto shall be
conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested (unless otherwise mutually agreed
by a majority in interest of the Initiating Holders and such party) to
the extent provided herein.
<PAGE>
If the underwriter (or managing underwriter on behalf of all of the
underwriters) has not limited the number of Registrable Securities to be
underwritten, the Company may include securities for its own account or
for the account of other securityholders in such registration if the
underwriters so agree and if the number of Registrable Securities which
would otherwise have been included in such registration and underwriting
shall not thereby be limited.
(c) Piggy-back Registration Rights. If (but without any
obligation to do so) the Company, at any time through the period ending
on the Expiration Date, proposes to register (including for this purpose
a registration effected by the Company for securityholders other than
the Holder) any of its securities under the Securities Act in connection
with the public offering of such securities solely for cash (other than
a registration on Form S-4, Form S-8 or any form which does not include
substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable
Securities), the Company shall, each such time, promptly give the Holder
or Holders, as the case may be, written notice of such registration (the
"Piggy Back Notice"). Upon the written request of the Holder or
Holders, as the case may be, given within twenty (20) days after any
such Holder's receipt of such Piggy Back Notice from the Company, the
Company shall, subject to the provisions of this section, include in a
registration statement filed with the Commission under the Securities
Act all of the Registrable Securities that the Holder or Holders, as the
case may be, has requested to be registered; provided, however, that the
Company shall have no such obligation if, in the good faith judgment of
the Board of Directors, it would be seriously detrimental to the Company
and its securityholders to include any Registrable Securities in the
subject registration statement or offering or if the managing
underwriter of the subject proposed offering objects in writing to the
inclusion of any Registrable Securities in the subject registration
statement; and provided, further, that the Registrable Securities shall
be subject to restrictions on transfer for ninety (90) days after the
effective date of the subject registration statement. The inclusion of
any of a Holder's Registrable Securities in a registration statement
filed by the Company and declared effective by the Commission shall be
deemed to be the exercise by such Holder of the piggy-back registration
rights granted herein to such Holder; and, thereafter, the Company shall
have no further obligations pursuant to Subsections 7(b) or 7(c) above.
(d) Obligations of the Company. Whenever required hereunder
to effect the registration of any Registrable Securities, the Company
shall, as soon as practicable:
(i) Prepare and file with the Commission a
registration statement with respect to such
Registrable Securities and use its best efforts to
cause such registration statement to become
effective and to keep such registration statement
effective for at least six (6) months;
(ii) Prepare and file with the Commission such
amendments and supplements to such registration
statement and the prospectus used in connection with
such registration statement as may be necessary to
comply with the provisions of the Securities Act
with respect to the disposition of all securities
covered by such registration statement;
<PAGE>
(iii) Furnish to the Holders such numbers of
copies of the prospectus included in the
registration statement, including a preliminary
prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they
may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them;
(iv) Use its best efforts to register and qualify
the securities covered by such registration
statement under the securities laws of such
jurisdictions as shall be reasonably requested by
the Holders for the distribution of the securities
covered by the registration statement; provided,
however, that the Company shall not be required in
connection therewith or as a condition thereto to
qualify to do business or to file a general consent
to service of process in any such jurisdiction;
(v) In the event of any underwritten public
offering, enter into and perform its obligations
under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such
offering;
(vi) Notify the Holders, promptly after the Company
shall have received notice thereof, of the time when
the registration statement becomes effective or any
supplement to any prospectus forming a part of the
registration statement has been filed; and
(vii) Notify the Holders of any stop order
suspending the effectiveness of the registration
statement and use its reasonable best efforts to
remove such stop order.
(e) Furnish Information. It shall be a condition precedent
to the obligations of the Company to take any action pursuant hereto
that the Holder, having chosen to have its Registrable Securities
included for registration, shall furnish to the Company such information
regarding the Holder, its Registrable Securities and the intended method
of disposition of such securities as shall be required to effect the
registration thereof. The Holder shall be required to represent to the
Company that all such information which is given is complete and
accurate in all material respects. The Holder shall deliver to the
Company a statement in writing from the beneficial owners of such
securities that such beneficial owners bona fide intend to sell,
transfer or otherwise dispose of such securities.
<PAGE>
(f) Expenses.
(i) Registration Expenses. All expenses incurred
by the Company in complying with this section,
including without limitation, all registration and
filing fees, printing expenses, fees and
disbursements of counsel for the Company, "Blue Sky"
fees and expenses, and the expense of any special
audits incident to or required by any such
registration (but excluding the compensation of
regular employees of the Company which shall be paid
in any event by the Company) shall be borne by the
Company.
(ii) Selling Expenses. All underwriting discounts,
underwriters' expense allowance and selling
commissions applicable to the sale of Registrable
Securities by the Holders and all fees and
disbursements of any special counsel (other than the
Company's regular counsel) shall be borne by the
Holders of the Registrable Securities so registered
pro rata on the basis of the number of Registrable
Securities so registered.
(g) Underwriting Requirements. All Holders proposing to
distribute their Registrable Securities through an underwriting in which
the Company has proposed or is proposing to participate, shall (together
with the Company and any other Holders distributing their securities
through such underwriting) enter into an underwriting agreement in
customary form with the underwriter (or underwriters) selected for
underwriting by the Company. Notwithstanding any other subsection of
this section, at the request of the managing underwriter, the Holder
shall delay the sale of Registrable Securities which such Holder has
requested be registered hereunder for up to ninety (90) days following
the effective date of the registration statement. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect
to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(h) Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this section.
(i) Indemnification. In the event that any Registrable
Securities are included in a registration statement pursuant hereto:
<PAGE>
(i) To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the
officers, directors and partners of each Holder, any
underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any
losses, claims, damages or liabilities (joint or
several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following
statements, omissions or violations (collectively, a
"Violation"): (A) any untrue statement or alleged
untrue statement of a material fact contained in
such registration statement, including any
preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto;
(B) the omission or alleged omission to state
therein a material fact required to be stated
therein, or necessary to make the statements therein
not misleading; or (C) any violation or alleged
violation by the Company of the Securities Act, the
Exchange Act, any applicable state securities law or
any rule or regulation promulgated under the
Securities Act, the Exchange Act or any applicable
state securities law; and the Company will reimburse
the Holder for any legal or other expenses
reasonably incurred by them in connection with
investigating or defending any such loss, claim,
damage, liability or action; provided, however, that
the indemnity agreement contained in this subsection
shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if
such settlement is effected without the consent of
the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage,
liability or action to the extent that it arises out
of or is based upon a violation which occurs in
reliance upon and in conformity with written
information furnished expressly for use in
connection with such registration by the Holder; and
further provided, however, that the foregoing
indemnity agreement is subject to the condition
that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged
omission made in any preliminary prospectus but
eliminated or remedied in the prospectus, such
indemnity agreement shall not inure to the benefit
of any underwriter or broker, if a copy of the
prospectus was not sent or given to such person with
or prior to the confirmation of the sale of such
securities to such person.
<PAGE>
(ii) To the extent permitted by law, each Holder
will indemnify and hold harmless the Company, its
directors, its officers, any person who controls the
Company within the meaning of the Securities Act or
the Exchange Act, any underwriter (within the
meaning of the Securities Act) for the Company and
any person who controls such underwriter against any
losses, claims, damages or liabilities (joint or
several) to which the Company or any such director,
officer, controlling person, or underwriter or
controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity
with written information furnished by the Holder
expressly for use in connection with such
registration; and the Holder will reimburse any
legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling
person, underwriter or controlling person thereof,
in connection with investigating or defending any
such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement
contained in this subsection shall not apply to
amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is
effected without the consent of the Holder, which
consent shall not be unreasonably withheld.
(iii) Promptly after receipt by an indemnified
party of notice of the commencement of any action
(including any governmental action), such
indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party
hereunder, notify the indemnifying party in writing
of the commencement thereof and the indemnifying
party shall have the right to participate in, and,
to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the
right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying party, if
representation of such indemnified party by the
counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing
interests between such indemnified party and any
other party represented by such counsel in such
proceeding. The failure to notify an indemnifying
party within a reasonable time of the commencement
of any such action, to the extent prejudicial to its
ability to defend such action, shall relieve such
indemnifying party of any liability to the
indemnified party hereunder, but the omission so to
notify the indemnifying party will not relieve it of
<PAGE>
any liability that it may have to any indemnified
party otherwise than under this subsection.
(j) Reports Under Exchange Act. Following registration of
the Company's securities under the Exchange Act and with a view of
making available to the Holders the benefits of Rule 144 under the
Securities Act and any other rule or regulation promulgated by the
Commission that may at any time permit a Holder to sell securities of
the Company to the public without registration, the Company agrees to:
(i) use its best efforts to make and keep public
information available, as those terms are understood
and defined in Rule 144, at all times; and
(ii) use its best efforts to file with the
Commission in a timely manner all reports and other
documents required of the Company under the
Securities Act and the Exchange Act.
(k) Termination of the Company's Obligations.
(i) The Company shall have no obligations pursuant
to Subsections 7(b) or 7(c) with respect to any
request made by the Holder after the Expiration
Date.
(ii) Notwithstanding any provision hereof to the
contrary, the Company shall not be required to
effect any registration under the Securities Act or
under any state securities laws on behalf of any
Holder or Holders if, in the opinion of counsel for
the Company, the offering or transfer by such Holder
or Holders in the manner proposed (including without
limitation, the number of shares proposed to be
offered or transferred and the method of offering or
transfer) is exempt from the registration
requirements of the Securities Act and the
securities or "Blue Sky" laws of applicable states.
(1) Holder's Acceptance of Obligations. Acceptance of this
Warrant by the Holder shall be deemed to constitute the unqualified
acceptance by the Holder of all of the terms and conditions set forth
herein.
8. REDEMPTION. This Warrant is redeemable by the Company for
$.10 per Warrant, at any time after September 30, 1997, upon thirty (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 twenty (20) consecutive trading days ending within
fifteen (15) days prior to the date of the notice of redemption.
9. ADJUSTMENTS.
(a) The number of shares of Common Stock issuable on exercise of
this Warrant and the Exercise Price shall be subject to adjustment from
time to time in the event that the Company shall:
<PAGE>
(i) pay a dividend in, or make a distribution of,
shares of Common Stock;
(ii) subdivide its outstanding shares of Common Stock
into a greater number of shares;
(iii) combine its outstanding shares of Common
Stock into a smaller number of shares; or
(iv) spin-off a subsidiary by distributing, as a
dividend or otherwise, shares of the subsidiary to
its stockholders. In any such case, the total number
of shares of Common Stock issuable on exercise
hereof immediately prior thereto shall be adjusted
so that the Holder shall be entitled to receive, at
the same aggregate Exercise Price, the number of
shares of Common Stock that the Holder would have
owned or would have been entitled to receive
immediately following the occurrence of any of the
events described above had this Warrant been
exercised in full immediately prior to the
occurrence (or applicable record date) of such
event. An adjustment made pursuant to this section
shall, in the case of a stock dividend or
distribution, be made as of the record date and, in
the case of a subdivision or combination, be made as
of the effective date thereof. If, as a result of
any adjustment pursuant to this section, the Holder
shall become entitled to receive shares of two or
more classes or series of securities of the Company,
the Board of Directors shall equitably determine the
allocation of the adjusted exercise price between or
among shares or other units of such classes or
series and shall notify the Holder of such
allocation.
(b) In the event of any reorganization or recapitalization of the
Company or in the event the Company consolidates with or merges into or
with another entity or transfers all or substantially all of its assets
to another entity, then and in each such event, the Holder, on exercise
of this Warrant as provided herein, at any time after the consummation
of such reorganization, recapitalization, consolidation, merger or
transfer, shall be entitled, and the documents executed to effectuate
such event shall so provide, to receive the stock or other securities or
property to which the Holder would have been entitled upon such
consummation if the Holder had exercised this Warrant immediately prior
thereto. In such case, the terms of this Warrant shall survive the
consummation of any such reorganization, recapitalization,
consolidation, merger or transfer and shall be applicable to the shares
of stock or other securities or property receivable on the exercise of
this Warrant after such consummation.
(c) Whenever a reference is made in this section to the issue or
sale of shares of Common Stock, the term "Common Stock" shall mean the
Common Stock of the Company of the class authorized as of the date
hereof and any other class of stock ranking on a parity with such Common
Stock.
<PAGE>
(d) Whenever the number of shares of Common Stock purchasable upon
exercise of this Warrant or the Exercise Price shall be adjusted as
required herein, the Company shall forthwith file such information with
its secretary at its principal office, and with the price determined as
herein provided and setting forth in detail the facts requiring such
adjustment. Each such officer's certificate shall be made available at
all reasonable times for inspection by the Holder and the Company shall,
forthwith after such adjustment, deliver a copy of such certificate to
the Holder.
(e) The Company: (i) will not cause the par value of any
securities receivable on exercise of this Warrant to be in excess of the
amount payable therefor on such exercise; and (ii) will take all action
as may be necessary or appropriate so that the Company may validly and
legally issue fully paid and non-assessable shares (or other securities
or property deliverable hereunder) upon the exercise of this Warrant.
This Warrant shall bind the successors and assigns of the Company.
10. TRANSFER TO COMPLY WITH THE SECURITIES ACT AND OTHER
APPLICABLE SECURITIES LAWS. Neither this Warrant nor the shares of
Common Stock (or other securities) issuable upon exercise hereof have
been the subject of registration under the Securities Act or under state
securities laws. Except as provided in Section 4 above: (a) this
Warrant may not be transferred, assigned, pledged, sold or otherwise
disposed of; and (b) the shares of Common Stock (or other securities)
issuable upon exercise of this Warrant may not be transferred, assigned,
pledged, sold or otherwise disposed of in the absence of registration
under or exemption from the applicable provisions of the Securities Act,
unless the Holder provides the Company with an opinion of counsel in
form and substance satisfactory to the Company (together with such other
representations and warranties as the Company may request) that the
shares of Common Stock issued or issuable, as applicable, upon exercise
of this Warrant may be legally transferred without violating the
Securities Act, and any other applicable securities law and then only
against receipt of an agreement of the transferee (in form and substance
satisfactory to the Company) to comply with the provisions of this
section with respect to any resale or other disposition of such
securities.
11. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have
been made when delivered or mailed by first class mail, postage prepaid,
as follows: (a) if to the Holder, at the address of the Holder as shown
on the registry books maintained by the Company or the Transfer Agent;
and (b) if to the Company, at 1265 Naperville Road, Romeoville, Illinois
60446, Attention: President, with a copy by like means to Ungaretti &
Harris, 3500 Three First National Plaza, Chicago, Illinois 60602,
Attention: Michael J. Philippi, Esq.
12. SURVIVAL. All agreements, covenants, representations and
warranties set forth herein shall survive the execution and delivery of
this Warrant and any investigation at any time made by or on behalf of
any parties hereto and the exercise and purchase of this Warrant.
<PAGE>
13. AMENDMENTS. The Company may, in its sole discretion, by
supplemental agreement or pursuant to an amended warrant certificate
issued in exchange for this Warrant make any changes or corrections to
the terms and conditions hereof which it deems appropriate in order to:
(a) reduce the Exercise Price; (b) extend the Expiration Date of this
Warrant; (c) cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained;
(d) modify such other terms and conditions hereof which modification, in
the judgment of the Board of Directors, provides, when considered under
the totality of the circumstances a net benefit to or which, in the
exercise of such judgment, the Board of Directors determines would not
be contrary to the interests of the Holder or the Holders; provided,
however, that no adverse change in the number or nature of the
securities purchasable upon the exercise of this Warrant, or the
Purchase Price therefor, or the acceleration of the Expiration Date,
shall be made without the consent in writing of the Holder. In
addition, the Company may at any time hereafter enter into an agreement
with a qualified warrant agent (a "Warrant Agent") chosen by it in its
sole discretion to act on behalf of the Company in connection with the
issuance, registration, transfer and exchange, the issuance of
certificates representing the Warrants, the exercise of the Warrants and
the rights of the Holders thereof (a "Warrant Agreement"). The
registration rights contained in Section 7 hereof shall survive any such
modification or replacement of this Warrant.
14. AGREEMENT OF HOLDERS. Every Holder, by acceptance hereof,
consents and agrees with the Company, any Warrant Agent, any Transfer
Agent and every other Holder that:
(a) The Warrants are transferable only on the registry books
of the Company, the Transfer Agent or the Warrant Agent by the Holder
thereof in person or by his attorney duly authorized in writing and only
if the warrant certificates representing such Warrants are surrendered
at the office of the Company or the Warrant Agent, if any, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the
Company and the Warrant Agent, if any, in their sole discretion,
together with payment of any applicable transfer taxes;
(b) The Company and any Warrant Agent may deem and treat the
person in whose name the warrant certificate is registered as the Holder
and as the absolute, true and lawful owner of the Warrants represented
thereby for all purposes, and none of the Company, the Transfer Agent or
the Warrant Agent shall be affected by any notice or knowledge to the
contrary, except as otherwise expressly provided in Section 5 hereof;
(c) Each Warrant shall be subject in all respects to the
terms and conditions set forth in any amended warrant certificate upon
the issuance thereof or in any Warrant Agreement entered into by the
Company as permitted pursuant to Section 13 hereof upon the execution
thereof and, in either such case, upon the mailing by the Company of
notice of the amendment of the terms and conditions of this Warrant. In
the event of the execution of any such Warrant Agreement, a true copy
thereof shall be promptly mailed by the Company to the Holder;
<PAGE>
(d) Such Holder shall execute all such further instruments
and documents and take such further action as the Company may reasonably
require in order to effectuate the terms and purposes of this Warrant.
15. SEVERABILITY. The provisions of this Warrant shall be
considered severable in the event that any of such provisions are held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable. Such invalid, void or otherwise unenforceable provisions
shall be automatically replaced by other provisions which are valid and
enforceable and which are as similar as possible in term and intent to
those provisions deemed to be invalid, void or otherwise unenforceable.
Notwithstanding the foregoing, the remaining provisions hereof shall
remain enforceable to the fullest extent permitted by law.
16. ENTIRE AGREEMENT. This Warrant is intended to and does
contain and embody the entire understanding and agreement of the Company
and the Holder with respect to the subject matter hereof and there
exists no oral agreement or understanding, express or implied, whereby
the absolute, final and unconditional character and nature of this
Warrant shall be in any way invalidated, unempowered or affected.
17. HEADINGS. The headings in this Warrant are for convenience of
reference only and are not part of this Warrant.
18. GOVERNING LAW. This Warrant shall be governed by and
construed and interpreted in accordance with the laws of the State of
Delaware without reference to principles of conflict of laws.
* * * * *
IN WITNESS WHEREOF, Franklin Ophthalmic Instruments Co., Inc. has
caused this Warrant to be signed in its name and on its behalf and its
corporate seal to be affixed hereon by its duly authorized officers as
of the date of issuance first above written.
FRANKLIN OPHTHALMIC
INSTRUMENTS CO., INC.
[SEAL]
By:
Michael J. Carroll, President
Attest:
Linda S. Zimdars, Secretary
<PAGE>
Annex to Warrant
FORM OF ASSIGNMENT
(To be executed upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers to __________________________ the right represented by the
within Warrant, together with all rights, title and interest therein,
and does hereby irrevocably constitute and appoint
__________________________ attorney to transfer such Warrant on the
Warrant register of the within named Company, with full power of
substitution.
DATED: ________________, 199__.
Signature:
(Signature must conform in all respects to
name of
holder as specified on the face of the
Warrant)
Signature Guaranteed:
<PAGE>
Annex to Warrant
FORM OF SUBSCRIPTION
(To be completed and signed only upon an exercise of the Warrant in
whole or in part)
TO: Franklin Ophthalmic Instruments Co., Inc.
The undersigned, the Holder of the attached Warrant, hereby
irrevocably elects to exercise the purchase right represented by the
Warrant for, and to purchase thereunder, _______ shares of Common Stock
(as such terms are defined in the Warrant, dated December 30, 1996,
issued by Franklin Ophthalmic Instruments Co., Inc. to
_________________) (or other securities or property), and herewith makes
payment of $_______________ therefor in cash or by certified or official
bank check. The undersigned hereby requests that the Certificate(s) for
such securities be issued in the name(s) and delivered to the
address(es) as follows:
Name:
Address:
Social Security Number:
Deliver to:
Address:
If the foregoing Subscription evidences an exercise of the Warrant
to purchase fewer than all of the Shares (or other securities or
property) to which the undersigned is entitled under such Warrant,
please issue a new Warrant, of like tenor, for the remaining portion of
the Warrant (or other securities or property) in the name(s), and
deliver the same to the address(es) as follows:
Name:
Address:
DATED: ____________, 199__.
(Name of Holder)
(Signature of Holder or Authorized Signatory)
Signature Guaranteed:
(Social Security or Taxpayer
Identification Number of Holder)
EXHIBIT 10.19
AMENDMENT TO INVESTMENT AGREEMENT DATED MAY 9, 1997 BETWEEN THE COMPANY
AND PRINZ-FRANKLIN L.L.C.
<PAGE>
AMENDMENT
TO
INVESTMENT AGREEMENT
This AMENDMENT TO INVESTMENT AGREEMENT is entered into as of the
9th day of May, 1997, by and between FRANKLIN OPHTHALMIC INSTRUMENTS
CO., INC., a Delaware corporation (the "Company"), and PRINZ-FRANKLIN
L.L.C., an Illinois limited liability company ("Investor").
RECITAL
The Company and Investor are parties to an Investment Agreement
dated as of April 11, 1997 (the "Investment Agreement"), and the Company
and Investor desire to amend and modify certain provisions of the
Investment Agreement, upon the terms and subject to the provisions set
forth herein.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree
as follows:
1. Capitalized Terms. All capitalized terms used herein and not
otherwise defined shall have the meaning ascribed to them in the
Investment Agreement.
2. Modification of Section 2.1(b). The Company and Investor have
agreed that the purchase and sale of Common Stock pursuant to Section
2.1(b) of the Investment Agreement shall occur in two phases. Investor
shall pay a purchase price of $200,000 for one million (1,000,000)
shares of Common Stock of the Company and the Company shall authorize
the issuance to Investor of one million (1,000,000) shares of Common
Stock of the Company on each of May 9, 1997 and on May 30, 1997. For
purposes of the Investment Agreement, all deliveries and satisfaction of
conditions to be met on the Second Closing Date shall occur as of May
30, 1997, which shall be deemed to be the Second Closing Date under the
Investment Agreement.
3.. Ratification of Investment Agreement. Except as herein
modified, the Investment Agreement is hereby reaffirmed and ratified in
all respects.
4. Counterparts. This Amendment to Investment Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
to Investment Agreement as of the date first above written.
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
By: /s/ Michael J. Carroll
PRINZ-FRANKLIN L.L.C., an Illinois limited
liability company
By: /s/ John Prinz
EXHIBIT 10.20
AMENDMENT TO INVESTMENT AGREEMENT DATED MAY 11, 1997 BETWEEN THE COMPANY
AND PRINZ-FRANKLIN L.L.C.
<PAGE>
AMENDMENT
TO
INVESTMENT AGREEMENT
This AMENDMENT TO INVESTMENT AGREEMENT is entered into as of the
11th day of May, 1997, by and between FRANKLIN OPHTHALMIC INSTRUMENTS
CO., INC., a Delaware corporation (the "Company"), and PRINZ-FRANKLIN
L.L.C., an Illinois limited liability company ("Investor").
RECITALS
A. The Company and Investor are parties to an Investment
Agreement dated as of April 11, 1997, as amended May 8, 1997 and May 9,
1997 (as amended, the "Investment Agreement"),
B. Under the Investment Agreement, a final transaction (the
"Final Transaction") is to occur in which the Investor is to pay a
purchase price (the "Remaining Purchase Price") of two hundred thousand
dollars ($200,000) for one million (1,000,000) shares of Common Stock of
the Company (the "Remaining Shares") on May 30, 1997.
C. In accordance with the Investment Agreement, the Company is to
issue a warrant (the "Warrant") for two hundred thousand (200,000)
shares of Common Stock on May 30, 1997.
D. The Company and Investor desire to amend and modify certain
provisions of the Investment Agreement, upon the terms and subject to
the provisions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree
as follows:
1. Capitalized Terms. All capitalized terms used herein and not
otherwise defined shall have the meaning ascribed to them in the
Investment Agreement.
2. Modification of Section 2.1(b). The Investment Agreement is
hereby amended to provide that (i) the Final Transaction shall occur on
or before June ____, 1997; (ii) the Remaining Purchase Price shall be
reduced to One Hundred Eighty Thousand Dollars ($180,000); and (iii) the
Remaining Shares to be issued to Investor shall be reduced to Nine
Hundred Thousand (900,000).
3. Issuance of Warrant. The Company and Investor acknowledge
that the Final Warrant has been issued and delivered at or before the
date hereof.
4. Ratification of Investment Agreement. Except as herein
modified, the Investment Agreement is hereby reaffirmed and ratified in
all respects.
5. Counterparts. This Amendment to Investment Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
to Investment Agreement as of the date first above written.
FRANKLIN OPHTHALMIC INSTRUMENTS CO., INC.
By: /s/ Michael J. Carroll
Michael J. Carroll, President
PRINZ-FRANKLIN L.L.C., an Illinois limited
liability company
By: /s/ John Prinz
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
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 caption "Experts" in
the Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Chicago, Illinois
July 23, 1997
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