<PAGE> 1
As filed with the Securities and Exchange Commission on August 14, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 10
TO
FORM F-1
ON FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
PHARMA PATCH PUBLIC LIMITED COMPANY
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
REPUBLIC OF IRELAND 2834 NOT APPLICABLE
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
PHARMA PATCH PLC KEVIN J. QUINN
15/16 FITZWILLIAM PLACE 11400 WEST OLYMPIC BOULEVARD
DUBLIN 2, SECOND FLOOR
IRELAND LOS ANGELES, CA 90064
TEL: 011-353-1-668-7144 TEL: (310) 914-0161
(Address, including zip code and telephone number, including (Address, including zip code and telephone
area code, of Registrant's principal executive offices) number, including area code, of agent for service)
</TABLE>
------------------------------------
COPY TO:
<TABLE>
<S> <C>
KEVIN J. QUINN, ESQ. PAUL E. HENEY, ESQ.
PROFESSIONAL CORPORATION HENEY & ASSOCIATES
11400 WEST OLYMPIC BOULEVARD 8 KING STREET. E. #300
SECOND FLOOR TORONTO, CANADA M5C 1B5
LOS ANGELES, CA 90064
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933 check the following box /X/
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
PHARMA PATCH PLC
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 CAPTION IN PROSPECTUS
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus . Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . Inside Front Cover Page of Prospectus; Outside
Back Cover of Prospectus
3. Summary Information, Risk Factors and Ration
of Earnings to Fixed Charges . . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . Not Applicable
5. Determination of Offering Price . . . . . . Not Applicable
6. Dilution . . . . . . . . . . . . . . . . . Dilution
7. Selling Security Holders . . . . . . . . . Selling Security Holders; Plan of Distribution
8. Plan of Distribution Outside Front Cover Page of Prospectus; Plan of
Distribution
9. Description of Securities to be Registered Description of Securities; Prospectus Summary;
Outside Front Cover Page
10. Interests of Names Experts and Counsel . . Legal Matters; Experts
11. Information with Respect to the Registrant Prospectus Summary; Risk Factors; Exchange Rates;
Dividend Policy; Capitalization;
Selected Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Principal Shareholders;
Description of Capital Stock; Transfer Agent and
Registrar; Description of American
Depository Receipts; Tax Considerations;
Consolidated Financial Statements; Statutory
Information Required pursuant to The Companies Acts,
1963 to 1990, of the Republic of
Ireland.
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . Not Applicable.
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus; one to be
used in connection with a shelf registration of 1,425,111 ADSs representing
1,425,111 Ordinary Shares of the Company to be sold from time to time by
certain selling security holders ("Shelf Prospectus") and one to be used in
connection with up to 10,549,144 ADSs representing 10,549,144 Ordinary Shares
of the Company which may be issued upon exercise of outstanding warrants
("Warrant Prospectus"). The Warrant Prospectus also relates to (i) 675,000
Class A Warrants, 337,500 Class B Warrants, 789,875 Class C Warrants and
500,000 Class D Warrants, all of which are presently outstanding, and (ii)
100,000 Warrants issued to the Underwriters in connection with Registrant's
initial public offering and the Units, A, B and C Warrants issuable upon
exercise of the Underwriter's Warrants. The Warrant Prospectus will be
identical in all respects to the Shelf Prospectus except for the alternative
pages in the Warrant Prospectus, included herein, each of which is labeled
"Alternative Page for Warrant Prospectus."
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
PHARMA PATCH PLC
---------------------
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 14, 1996
1,425,111 American Depositary Shares
PHARMA PATCH PLC
EACH AMERICAN DEPOSITARY SHARE REPRESENTS ONE ORDINARY SHARE
---------------------
This Prospectus relates to the offering (the "Offering") of 1,425,111
American Depositary Shares ("ADSs"), each ADS representing one Ordinary Share,
IRL.01 par value ("Ordinary Share"), of Pharma Patch Plc, an Irish public
limited company (the "Company"). Each ADS is represented by an American
Depositary Receipt ("ADR"). See "Description of Share Capital" and "Description
of American Depositary Receipts."
The ADRs are being offered from time to time by certain selling security
holders (the "Selling Security Holders"). See "Selling Security Holders".
The Company will not receive any of the proceeds from the sales of the ADRs
by the Selling Security Holders, but will receive the exercise price upon the
exercise of warrants by the Selling Security Holders. The ADRs may be offered
from time to time by the Selling Security Holders through ordinary brokerage
transactions in the over-the-counter market, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices.
The Selling Security Holders each may be deemed to be "an underwriter", as
defined in the Securities Act of 1933 (the "Securities Act"). If any
broker-dealers are used by the Selling Security Holders, any commissions paid
to broker-dealers and, if broker-dealers purchase any ADRs as principals, any
profits received by such broker-dealers on the resales of the ADRs may be
deemed to be underwriting discounts or commissions under the Securities Act. In
addition, any profits realized by the Selling Security Holders may be deemed to
be underwriting commissions. All costs, expenses and fees in connection with
the registration of the securities offered by the Selling Security Holders will
be borne by the Company. All brokerage commissions, if any, attributable to the
sale of the securities offered by the Selling Security Holders will be borne by
the Selling Security Holders. See "SELLING SECURITY HOLDERS."
--------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
A COPY OF THIS DOCUMENT, HAVING ATTACHED THERETO THE DOCUMENTS SPECIFIED
HEREIN, HAS BEEN DELIVERED TO THE REGISTRAR OF COMPANIES IN THE
REPUBLIC OF IRELAND AS REQUIRED BY THE COMPANIES ACTS 1963 TO 1990.
THE DATE OF THIS PROSPECTUS IS AUGUST __, 1996.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Enforceability of Civil Liabilities Under United
States Federal Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Selected Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Limited Operating History; Accumulated
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Control by Present Shareholders and
Management; No Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . 9
No Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ADR's De-listed From NASDAQ Small Cap
Market - Possible Imposition of
Stamp Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Outstanding Warrants and Options;
Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 10
NASDAQ Listing and Maintenance
Requirements; Disclosure Relating to Low
Priced Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Price Range of ADR's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Unaudited Pro Forma Condensed
Consolidated Statements of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Management's Discussion and Analysis of
Results of Operations and Financial
Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Business of Vista . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Background - Vision Disorders and
Corrective Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Laser Vision Correction Systems . . . . . . . . . . . . . . . . . . . . . . . . . 17
European Operating Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Program to Expand by Sponsoring
Regional Joint Venture Companies
in North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Vista Laser Control of Michigan, Inc. . . . . . . . . . . . . . . . . . . . . . . . 21
Other Relationships with Professionals . . . . . . . . . . . . . . . . . . . . . . . 22
Status of FDA Pre-Market Approval of LVC
Eximer Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Market Potential for LVC Services . . . . . . . . . . . . . . . . . . . . . . . . . 24
Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Insurance and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Agreements between Vista and the Company . . . . . . . . . . . . . . . . . . . . . . 26
Changes in Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . 28
Management of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . 36
Employment and Consulting Agreements . . . . . . . . . . . . . . . . . . . . . . . . 37
Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Description of Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Ordinary Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Description of American Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . 55
American Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Deposit and Withdrawal of Deposited
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Dividends, Other Distributions and Rights. . . . . . . . . . . . . . . . . . . . . . 56
Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Voting of the Underlying Deposited
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Inspection of Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Reports and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Amendment and Termination of the Deposit
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Charges of Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Enforceability of Foreign Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Republic of Ireland Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Statutory Information Required Pursuant to the
Companies Acts, 1963 to 1990, of
the Republic of Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
2
<PAGE> 6
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY, OR A
SOLICITATION OF AN OFFER TO SELL, ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO BUY OR A SOLICITATION OF AN OFFER TO SELL SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY INSTRUCTION GRANTED
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
ADDITIONAL INFORMATION
Effective February 28, 1994 the Company became subject to the informational
requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and at
the following Regional Offices of the Commission: Chicago Regional Office, 230
South Dearborn Street, Room 3190, Chicago, Illinois 60604; and New York
Regional Office, 75 Park Place, New York, New York 10007. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933 (the
"Securities Act") with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and in the exhibits thereto. For further information with respect to
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, which
may be inspected without charge at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Washington D.C. 20549, and copies
of such documents can be obtained from the Public Reference Section of the
Commission at prescribed rates.
AVAILABLE INFORMATION
The Company will furnish the Depositary referred to under the heading
"Description of American Depositary Receipts" with annual reports which will
include a review of operations and will contain financial information that has
been examined and reported upon, with an opinion expressed by an independent
chartered or certified public accountant prepared in conformity with accounting
principles generally accepted in the United States ("GAAP"). Upon receipt
thereof, the Depositary will promptly mail such reports to all record holders
of ADRs. The Company will also furnish the Depositary with quarterly reports
prepared in conformity with US GAAP which will be supplied to the holders of
ADRs upon written request to the Depositary. The Company also will furnish to
the Depositary all notices of shareholders' meetings and other reports and
communications that are made generally available to shareholders of the
Company. The Depositary will, to the extent permitted by law, make such
notices, reports and communications available to holders of ADRs in such manner
as the Company requests and will mail to all record holders of ADRs a notice
containing a summary of the information contained in any notice of a
shareholders' meeting received by the Depositary.
3
<PAGE> 7
ENFORCEABILITY OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS
The Company is a public limited company organized under the laws of
Ireland. One of its directors who also serves as the Chairman of the Board of
Directors and Chief Executive Officer and one of its officers and certain
experts named herein are residents of Canada, Ireland or other non-U.S.
jurisdictions, and a substantial portion of the assets of these persons are or
will be located in Canada or other non-U.S. jurisdictions. As a result, it may
not be possible for investors to effect service of process within the United
States upon such persons or the Company or to enforce a judgment obtained in
United States courts predicated upon the civil liability provisions of the
Federal securities laws of the United States. The Company has been advised by
its Canadian and Irish counsel, the law firms of Heney & Associates, and Rory
O'Donnell & Company, respectively, that there is doubt as to the enforceability
against such persons in Canada or in Ireland, whether in original actions or
actions for enforcement of judgments of United States courts, of civil
liabilities predicated solely upon United States federal securities laws.
Subject to certain requirements discussed under the heading "Enforceability of
Foreign Judgments," actions for enforcement of judgments of United States
courts for civil liabilities predicated upon the Federal securities laws of the
United States may be enforced in Canada or in Ireland.
4
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus.
THE COMPANY
The Company had no revenues from continuing operations and has accumulated
a deficit as of February 29, 1996 of $6,249,628 after giving effect to the sale
of assets described below. The Company made a significant shift in its
business direction in recent months through the sale of substantially all of
its operating assets and subsequently through the acquisition of a majority
interest in a laser vision company. The Company does expect to continue to
incur operating losses until such time, if ever, as it derives revenues from
operations. There is no assurance that the Company will ever operate
profitably.
On November 1, 1995, the Company sold substantially all of its assets,
including the operations and technology acquired from Flora, Inc. on June 30,
1994, to Technical Chemicals and Products, Inc. ("TCPI") in exchange for
786,214 shares of TCPI common stock ("Shares") with a fair value of $11,919,000
after net closing adjustments of $81,000 and the satisfaction by TCPI of a
$5,000,000 promissory note previously issued by the Company. As a result of
the consummation of this transaction, the Company then owned approximately 9.9%
of TCPI's outstanding common shares. In April 1996, the Company sold 210,000
TCPI shares pursuant to the underwritten TCPI public offering described in the
next paragraph and received net proceeds of $2,928,697.
On January 16, 1996, the Company entered into a Supplemental Agreement
("Supplemental Agreement") with TCPI which amends certain provisions of the
Asset Purchase Agreement dated as of November 1, 1995 ("Asset Purchase
Agreement") between the Company and TCPI and addressing certain additional
matters. TCPI has filed a Registration Statement on Form S-1 ("S-1") with the
Securities and Exchange Commission with respect to the sale of 1,800,000 TCPI
common shares ("Offering"). Pursuant to the terms of the Supplemental
Agreement, the Company agreed to execute a lock-up letter with the
representative of the Underwriters providing that it would not sell or
otherwise dispose of any of its shares of Common Stock for a period to expire
180 days following the closing date of the Offering. As consideration for the
execution of this lock-up agreement, TCPI agreed (i) to terminate an existing
lock-up agreement covering Common Stock owned by the Company, executed in
connection with the Asset Purchase Agreement; (ii) effective as of the closing
date of the Offering, to terminate the voting trust agreements, shareholders'
agreement and irrevocable proxy, executed in connection with the Asset Purchase
Agreement which, among other things, limited the Company's ability to vote or
dispose of its shares of Common Stock; (iii) allow the Company to offer for
sale 100,000 shares of this Common Stock in the Offering (plus up to an
additional 110,000 if the Underwriters' over-allotment option is exercised);
(iv) effective as of the closing date of the Offering, issue to the Company a
two-year warrant to purchase 100,000 shares of Common Stock at an exercise
price equal to the per share Offering price; and (v) to file a registration
statement on Form S-3 to register all of the remaining shares of Common Stock
owned by the Company after the Offering. All 210,000 shares were sold in the
Offering which closed on April 30, 1996.
On March 31, 1996, the Company acquired a controlling interest in Vista
Technologies, Inc. ("Vista"), a publicly traded company. Vista also received
equity financing from the Company in a series of transactions. The Company
purchased 200,000 Vista shares for $500,000 cash and received 2,060,000 Vista
shares and 500,000 Vista Class C Warrants in exchange for a loan to Vista of
$750,000 repayable in six months and 200,000 restricted shares of TCPI common
stock owned by the Company. In July 1996, the Company acquired an additional
200,000 Vista shares upon the partial exercise of a warrant received by it in
March 1996. See "Certain Transactions." Vista provides photorefractive
keratectomy and other laser vision correction facilities and services to the
health care industry.
The mailing address and telephone number of the Company's principal
executive offices are 15/16 Fitzwilliam Place, Dublin 2, Ireland and
011-353-1-668-7144, respectively.
5
<PAGE> 9
THE OFFERING
SECURITIES OFFERED . . . 11,974,255 ADRs, which are being offered for sale
by the Selling Security Holders, including
1,425,111 outstanding ADRs and 8,399,144 ADRs
which may be issued upon the exercise of
outstanding Class A, B, C and D Warrants
(collectively, the "Warrants"). The exercise
prices of the ADRs issuable upon the exercise of
Warrants, and the number of ADRs issuable, are
subject to adjustment in the event of a merger,
stock split, stock dividend and similar
transactions.
Each Class A Warrant entitles the holder to
purchase one Ordinary Share and one Class B
Warrant from the Company commencing May 29, 1994
until February 28, 1999, at an exercise price of
$1.92. Each Class B Warrant entitles the holder
to purchase one Ordinary Share from the Company
commencing May 29, 1994 until February 28, 1999
at an exercise price of $2.31.
The Class A and Class B Warrants are redeemable
commencing February 28, 1995 until they expire,
upon 30 days written notice from the Company, at
a price of $.10 per Warrant, provided that the
average closing bid price of an ADS equals or
exceeds $7.50 in the case of the Class A Warrants
and $9.00 in the case of the Class B Warrants for
30 consecutive trading days ending within 10 days
of the date of the notice.
Each Class C Warrant is exercisable to purchase
one Unit consisting of one Ordinary Share,
one-half of a Class A Warrant and one-quarter of
a Class B Warrant at an exercise price of $3.89
per Unit. The Class C Warrants are not
exercisable until (i) the Company generates
revenues in excess of $10,000,000 in any one
fiscal year or (ii) the Units, or the sum of
their components trade at a price equal to
$12.00, for a period of 14 consecutive trading
days. The Class C Warrants expire on February 28,
1999. See "Description of Securities" and
"Certain Transactions."
Each Class D Warrant is exercisable to purchase
one Unit consisting of one Ordinary Share,
one-half of a Class A Warrant and one-quarter of
a Class B Warrant. The Class D Warrants became
exercisable commencing May 29, 1994. The
exercise price per Class D Warrant is $1.54. The
Class D Warrants expire on July 30, 1997. See
"Description of Securities" and "Certain
Transactions."
6
<PAGE> 10
<TABLE>
<CAPTION>
PRIOR TO AFTER EXERCISE
SECURITIES OUTSTANDING OFFERING OF WARRANTS
-------- -----------
<S> <C> <C>
Ordinary Shares(1) 16,915,211(2)(3) 9,923,058(4)
Warrants
Class A . . 897,000(5) -0-
Class B . . 1,015,425(6) -0-
Class C . . 789,875 789,875(4)
Class D . . 500,000 500,000(4)
</TABLE>
USE OF PROCEEDS . . . . The Company will not receive any proceeds from
the sale of ADRs by the Selling Security
Holders. Any proceeds from the exercise of
Warrants will be used to provide working
capital. See "USE OF PROCEEDS."
RISK FACTORS . . . . . An investment in the Company involves a high
degree of risk and should be made only after
careful consideration of significant risk
factors which may affect the Company and its
business. Such risks include immediate
substantial dilution, negative cash flow, a
history of losses and need for substantial
additional financing. See "Risk Factors."
<TABLE>
<S> <C>
NASDAQ SYMBOLS: . .
Units . . . . . . SKIUF
Class A Warrants . SKIWF
Class B Warrants . SKIZF
Class C Warrants . SKICF
ADSs . . . . . . . SKINY
BOSTON STOCK EXCHANGE SYMBOLS:
Units . . . . . . SKUF
ADSs . . . . . . . SKUY
</TABLE>
- ----------------
(1) Includes Ordinary Shares represented by ADSs.
(2) Does not include the Ordinary Shares represented by ADSs issuable upon
exercise of (i) Class A Warrants contained in outstanding Units or issuable
upon the exercise of currently outstanding Class C and Class D Warrants,
and (ii) Class B Warrants contained in currently outstanding Units,
issuable upon the exercise of currently outstanding Class A, Class C and
Class D Warrants or issuable upon the exercise of Class A Warrants issued
upon the exercise of currently outstanding Class C and Class D Warrants.
Also does not include Ordinary Shares reserved for issuance upon the
exercise of 700,000 Management Options. See "Management of the Company",
"Certain Transactions", "Description of Share Capital -- Warrants", and
"Selling Security Holders".
(3) Does not include 100,000 ADSs issuable upon exercise of the Underwriters'
Warrants.
(4) Assumes only the exercise of the currently outstanding Class A and Class B
Warrants and the Class B Warrants issuable upon the exercise of the
currently outstanding Class A Warrants. If the shares issuable with respect
to the Class C and D Warrants, including the shares issuable upon the
exercise of the Class A and B Warrants included in the Class C and D
Warrants, are issued, then total number of ordinary shares outstanding
would be increased by 14,162,495 and the Class C and D Warrants would be
nil.
(5) Does not include Class A Warrants issuable upon the exercise of Class C and
Class D Warrants.
(6) Does not include Class B Warrants issuable upon the exercise of currently
outstanding Class A, Class C and Class D Warrants or the Class A Warrants
issuable upon the exercise of currently outstanding Class C and Class D
Warrants.
7
<PAGE> 11
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF THE COMPANY
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical and pro forma
consolidated financial information concerning the Company and is qualified by
reference to the consolidated financial statements and the unaudited pro forma
consolidated statement of loss and notes thereto included elsewhere in this
Prospectus. See "Consolidated Financial Statements" and "Pro Forma Consolidated
Statements of Operations". The three month period ended May 31, 1996 includes
the results of operations of Vista Technologies, Inc. since the acquisition in
March 1996. Reference should be made to Note 1 to the Consolidated Financial
Statements with respect to the basis of presentation.
PHARMA PATCH PLC
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------------------
MONTH PERIOD ENDED PRO FORMA
MAY 31, FEBRUARY 29, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1996 1995 1996(1) 1996 1995 1994 1993 1992
---- ---- ------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Revenue 482,732 -- 2,130,073 -- -- -- -- --
Loss from Continuing
Operations (730,192) (174,902) (4,449,390) (1,728,683) (2,039,091) (1,307,672) -- --
Earnings (Loss) from
Discontinued Operations -- (703,444) -- 13,819,359 (11,698,353) (1,919,752) (718,748) (176,837)
Net Earnings (Loss) (730,192) (878,346) (4,449,390) 12,090,676 (13,737,444) (3,227,424) (718,748) (176,837)
Per Share Earnings (Loss)
from:
Continuing Operations (.05) (.04) (.36) (.22) (.38) (.38) -- --
Discontinued Operations -- (.14) -- 1.72 (2.18) (.55) (.30) (.05)
---------- --------- ---------- ---------- ---------- ---------- --------- ---------
Net Earnings (Loss) (.05) (.18) (.36) (1.50) (2.56) (.93) (.30) (.05)
========== ========= ========== ========== ========== ========== ========= =========
Weighted Average Number of
Ordinary Shares 15,580,315 4,960,425 12,533,265 8,033,265 5,368,298 3,453,874 2,414,748 3,536,740
BALANCE SHEET:
Working Capital
(Deficiency) 7,765,931 (592,617) 14,581,298 (608,600) 1,487,820 540,358 1,281,329
Technology -- -- -- -- 2,164,170 -- --
Total Assets 18,898,909 1,654,771 17,748,332 1,628,021 5,237,293 753,729 1,422,587
Note Payable -- 5,000,000 -- 5,000,000 -- -- --
Shareholders' Equity
(Deficiency) 12,083,067 (4,753,868) 14,581,298 (4,708,222) 4,337,356 672,234 1,371,893
</TABLE>
- --------------
(1) After giving effect to the Vista Acquisition as if it had occurred on
March 1, 1995.
8
<PAGE> 12
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND MAY NOT BE APPROPRIATE FOR INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING
FACTORS, AMONG OTHER THINGS, IN MAKING A DECISION CONCERNING THE PURCHASE OF
THE SECURITIES OFFERED HEREBY:
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT
The Company was engaged primarily in research and development activities
since its inception through November 15, 1995 when it sold all of its assets in
exchange for 786,214 shares of a public company. As of February 29, 1996, the
Company had an accumulated deficit of $6,249,628. On March 29, 1996, the
Company acquired approximately 61% of the outstanding shares of a public
company. See "Certain Transactions." The Company cannot predict with
certainty when it might become profitable, if ever.
CONTROL BY PRESENT SHAREHOLDERS AND MANAGEMENT; NO CUMULATIVE VOTING
The current principal shareholders and management of the Company
beneficially own 961,643 Ordinary Shares, or approximately 6% of the Company's
outstanding Ordinary Shares. As such, the present principal shareholders and
management may be in a position to elect the Company's directors and thereby
select management and direct the policies of the Company. See "Management",
"Principal Shareholders" and "Description of Capital Stock".
There is no cumulative voting for the election of directors of the Company.
Accordingly, the beneficial owners of a majority of the Company's outstanding
Ordinary Shares voting in an election of directors, may elect all directors
nominated for election, if they choose to do so, and the owners of the
remaining Ordinary Shares will not be able to elect any directors.
NO DIVIDENDS
The Company has not paid any dividends on its capital stock and does not
expect to do so in the foreseeable future. See "Dividend Policy".
ADR'S DE-LISTED FROM NASDAQ SMALL CAP MARKET - POSSIBLE IMPOSITION OF STAMP
DUTY
On August 17, 1995, the Company's ADRs and warrants were de-listed from
the NASDAQ Small Cap Stock Market and the Boston Stock Exchange because the
Company was not in technical compliance with the applicable listing
requirements. As the result of such de-listing, any broker or dealer effecting
a purchase or sale of unlisted ADRs will be required to comply with the "penny
stock" rules set forth in Section 15(g) of the Securities Exchange Act of 1934,
as amended, and the regulations promulgated thereunder, unless the transaction
is otherwise exempt pursuant to specified exemptions contained in such rules.
The "penny stock" rules require that, prior to the transaction, the broker or
dealer has (i) approved the prospective investor's account for the transaction
in the penny stock in compliance with specified procedures and (ii) receive
from the investor a written agreement to the transaction setting forth the
identity and quantity of the penny stock to be purchased. These requirements
may further adversely affect the liquidity of and market for the ADRs.
The de-listing of the Company's ADRs from the Boston Stock Exchange may
give rise to the imposition of an Irish stamp duty upon the transfer of ADRs.
See "Tax Considerations - Republic of Ireland Taxation - Stamp Duty/Capital
Duty."
OUTSTANDING WARRANTS AND OPTIONS; REGISTRATION RIGHTS
Holders of outstanding warrants and options are likely to exercise them
when, in all likelihood, the Company could obtain additional capital on terms
more favorable than those provided by currently outstanding warrants and
9
<PAGE> 13
options. Further, while such warrants and options are outstanding, the
Company's ability to obtain additional financing on favorable terms may be
adversely affected. The existence of a substantial amount of unexercised
warrants and options, and future sales of restricted securities represent
potential for the public sale of ADSs representing a substantial number of
Ordinary Shares after the Offer and following the expiration of various lock-up
periods. As such, there will be a significant market overhang with respect to
the Company's ADSs in the public market and the existence thereof may have a
depressive effect upon the market price for the ADSs.
Concurrent with the filing of this Registration Statement, the Company has
filed a Registration Statement on Form S-1 containing two forms of Prospectus;
one to be used in connection with a shelf registration of 439,999 Ordinary
Shares of the Company which may be sold from time to time by Arca Investments,
Inc. ("Arca Prospectus"), and one to be used in connection with a shelf
registration of up to 5,340,685 ADSs representing 5,340,685 Ordinary Shares of
the Company to be sold from time to time by certain Selling Security Holders.
The Arca Prospectus and the Shelf Prospectus will be identical in all respects
except for certain alternate pages.
SHARES ELIGIBLE FOR FUTURE SALE
Members of the Company's management and directors own 961,643 Ordinary
Shares. All of such shares are deemed "restricted securities" as defined by
Rule 144 under the Securities Act of 1993, as amended, and were acquired or
were derived from securities purchased prior to the date hereof. In general,
under Rule 144, a person or persons whose shares are aggregated, and who has
satisfied a two year holding period may, under certain circumstances, sell
within any three month period a number of restricted securities which does not
exceed the greater of one percent (1%) of the shares outstanding or the average
weekly trading volume during the four calendar weeks preceding the notice of
sale required by Rule 144. In addition, Rule 144 permits, under certain
circumstances, the sale of restricted securities by a person who is not an
affiliate of the Company and who has satisfied a three year holding period,
without any quantity limitations. Any sales of shares by shareholders pursuant
to Rule 144 may have a depressive effect on the price of the Ordinary Shares.
None of such "restricted securities" may be sold under Rule 144 prior to August
1995.
NASDAQ LISTING AND MAINTENANCE REQUIREMENTS; DISCLOSURE RELATING TO LOW PRICED
STOCKS
The National Association of Securities Dealers, Inc. ("NASD") has adopted
rules imposing substantially more stringent criteria for initial and continued
listing of securities on NASDAQ. Under the initial listing rules, in order to
qualify for initial listing on the NASDAQ, a company must, among other things,
have at least $4,000,000 in total assets, $2,000,000 in capital and surplus,
and a minimum bid price for its common stock of $3.00 per share. The rules
require that in order to maintain its NASDAQ listing, the Company must, among
other things, have at least $2,000,000 in total assets, $1,000,000 in capital
and surplus and a minimum bid price for its ADSs of $1.00 per share. However,
if the Company's ADSs fall below the $1.00 bid price maintenance standard, it
may remain on NASDAQ if the market value of its public float is at least
$1,000,000 and has at least $2,000,000 in capital and surplus. If the listed
securities are not eligible for continued listing on NASDAQ, trading, if any,
in the listed securities would thereafter be conducted in the over-the-counter
market in what are commonly referred to as the "pink sheets" or on the NASD's
"Electronic Bulletin Board." As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the Company's securities if the Company is unable to maintain its NASDAQ
listing. In addition, if the Company's securities are de-listed, they would be
subject to Securities and Exchange Commission ("Commission") Rule 15c-2-6
promulgated under the Securities Exchange Act of 1934, which imposes additional
sales practice requirements on broker-dealer who sell such securities to
persons other than established customers and accredited investors (generally
those persons with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
this rule, the broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser's written consent to the
transaction prior to the purchase. Consequently, the rule may restrict the
ability of broker-dealers to sell the Company's securities and may affect the
ability of purchasers in the Offerings to sell their securities in the
secondary market. The de-listing from NASDAQ may also cause a decline in share
price, loss of news coverage of the Company, and difficulty in obtaining
subsequent financing.
The Commission has also recently adopted regulations which define a "penny
stock" to be any equity security that has a market price (as defined) less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
10
<PAGE> 14
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules would require the delivery prior to any transaction in a
penny stock, of a disclosure schedule prepared by the Commission relating to
the penny stock market. Disclosure would also have to be made about
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
and the registered representative, current quotations for the securities and,
if the broker-dealer is the sole market-maker, the broker-dealer must disclose
this fact and its presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in
the account together with information on the limited market in penny stocks.
Although the Company's ADSs are outside the definitional scope of a penny
stock, in the event the ADSs were subsequently characterized as penny stock,
the market liquidity of the Company's securities could be severely affected,
thereby limiting the ability of purchasers of the Company's securities to sell
their securities in the secondary market.
CAPITALIZATION
The following table sets forth the capitalization at February 29, 1996.
<TABLE>
<CAPTION>
February 29, 1996(1)
-------------------------------
<S> <C>
Shareholders' Equity
Ordinary Shares of IRL.01 par value each (2) . . . . . . 2,256,756
Premium in excess of par value . . . . . . . . . . . . . . 15,404,580
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,249,628)
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . 14,581,298
Authorized -- 52,046,576 Ordinary Shares;
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 11,410,633
</TABLE>
- ---------------
(1) Reference should be made to Note 1 to the Consolidated Financial
Statements with respect to the basis of presentation
(2) See Note (7) to the Consolidated Financial Statements.
PRICE RANGE OF ADRS
The Company's ADRs were traded on the NASDAQ Stock Market (Small Cap
Market ["NASDAQ"]) and on the Boston Stock Exchange ("BSE") through August 16,
1995. Effective August 17, 1995, the ADRs were de-listed from NASDAQ and the
BSE. The ADRs now trade on NASDAQ's OTC Bulletin Board. The Company's ADRs
began trading on NASDAQ on March 1, 1994. Set forth below is the high and low
closing bid and high and low closing asking prices for the ADRs through August
16, 1995 and the closing bid and asking prices thereafter:
11
<PAGE> 15
<TABLE>
<CAPTION>
PERIOD CLOSING BID CLOSING ASK
- --------- ----------- -----------
1994 HIGH LOW HIGH LOW
- ------ ---- --- ---- ----
<S> <C> <C> <C> <C>
First Quarter (March 2 thru March 31) . . . . . . . . . . 9 7 1/2 9 1/8 7 7/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . . 6 7/8 4 5/8 7 1/4 5
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 5 2 5 3/4 2 1/2
Fourth Quarter 2 7/8 1 3 1/2 1 3/8
</TABLE>
<TABLE>
<CAPTION>
1995 HIGH LOW HIGH LOW
- ------ ---- --- ---- ----
<S> <C> <C> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . . . . 1 3/16 1 1 2 1/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . . 1 5/8 1 1 5/8 1 1/8
Third Quarter (July 1 through August 16) . . . . . . . . . 1 7/8 1 1/16 2 1/8 1 1/8
</TABLE>
<TABLE>
<CAPTION>
1995 CLOSING BID CLOSING ASK
- ------ -------------------------------
<S> <C> <C>
Third Quarter (after August 16) . . . . . . . . . . . . . . 15/16 1 3/8
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 13/16 1 3/8
</TABLE>
<TABLE>
<CAPTION>
1996
- ------
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . . . . 3/4 1 3/16
Second Quarter . . . . . . . . . . . . . . . . . . . . . . 13/16 1 1/2
Third Quarter (through August 5) . . . . . . . . . . . . . . 1/2 1
</TABLE>
12
<PAGE> 16
SUMMARY UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
INTRODUCTION
In March 1996, Pharma Patch Plc ("Pharma Patch" or, the "Company") acquired
3,160,000 common shares or 61.3% ("Vista Acquisition") of the issued and
outstanding capital of Vista Technologies, Inc. ("Vista"). The Company
acquired 2,260,000 newly issued shares from Vista for $500,000, a $750,000
promissory note and 200,000 shares of Technical Chemicals and Products, Inc.
common stock. In addition, the Company acquired 900,000 shares of Vista from
outside investors in exchange for 4,500,000 newly issued shares of the Company.
The pro forma financial information has been prepared with respect to the pro
forma condensed consolidated statements of operations, with the assumption that
the Vista acquisition occurred on March 1, 1995.
The unaudited pro forma consolidated statement of operations for the three
months ended May 31, 1996 has been prepared using the unaudited historical
consolidated statement of loss of Pharma Patch for the three months ended
May 31, 1996 which includes the results of Vista since the acquisition (assumed
to be March 31, 1996) and the unaudited historical consolidated statement of
operations and accompanying notes of Vista for the month ended March 31, 1996.
The unaudited pro forma consolidated statement of operations for the year
ended February 29, 1996 have been prepared using the audited historical
consolidated statement of loss and accompanying notes of Pharma Patch for
the year ended February 29, 1996 and the historical audited consolidated
statement of operations and accompanying notes of Vista for the year
ended March 31, 1996.
The pro forma financial information gives effect to the Vista acquisition
under the purchase method of accounting based on the assumptions and
adjustments described in the accompanying notes. The proforma adjustments
relate to the amortization of the cost in excess of the net assets acquired and
the recoding of minority interest for the portion of Vista that Pharma Patch
does not own. It should be understood that the pro forma condensed consolidated
statements of operations do not reflect actual consolidated results of
operations since among other factors, actual expenses may be lower or higher
than amounts assumed or estimated. The pro forma condensed consolidated
statements of operations may not be indicative of the results that actually
would have occurred if the transaction had taken place on the dates indicated
nor do they represent a basis for assessing future performance. The pro forma
consolidated statements of operations should be read in conjunction with the
historical financial statements and the accompanying notes of Pharma Patch and
Vista.
13
<PAGE> 17
PHARMA PATCH PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Pharma Vista Pro forma
Patch Plc Technologies, Inc. totals for
for the three for the one the three month
month period ended month period ended period ended
May 31, 1996 March 31, 1996 ADJUSTMENTS May 31, 1996
$ $ $ $
-------------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
REVENUE 482,732 241,366 - - 724,098
EXPENSES
General & Administrative 871,526 278,610 - - 1,150,136
Depreciation & amortization 149,788 49,418 25,476 - 224,682
Interest expense (income) (2,894) - - - (2,894)
Other 567 232 - - 799
Total expenses 1,018,987 328,260 25,476 - 1,372,723
------- ------- ------ ------ ---------
Loss from operations 536,255 86,894 25,476 - 648,625
------- ------- ---------
Equity Investee Loss 7,468 3,734 11,202
Minority Interest (Benefit) (68,434) 10,202 - 53,339 (111,571)
Other (income) Expense 254,903 - - - 254,903
------- ------- ------ ------ ---------
Loss from continuing operations 730,192 100,830 25,476 53,339 803,159
Loss from continuing operations
per ordinary share .05 - - - .05
Weighted average number of
ordinary shares outstanding 15,580,315 - 16,607,489
</TABLE>
14
<PAGE> 18
PHARMA PATCH PLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Pharma Vista Pro forma
Patch Plc Technologies, Inc. totals for
for the year ended for the year ended the year ended
February 29, 1996 March 31, 1996 ADJUSTMENTS February 29, 1996
$ $ $ $
------------------ ----------------- ------------------------ ----------------
<S> <C> <C> <C> <C> <C>
REVENUE - 2,130,073 - - 2,130,073
EXPENSES
General & Administrative 1,798,524 4,624,630 - - 6,423,154
Depreciation & amortization - 467,509 382,152 - 849,661
Interest expense (income) - 63,645 - - 63,645
Other 2,285 695 - - 2,980
--------- --------- --------- ----------- ---------
Total Expenses 1,800,809 5,156,479 382,152 - 7,339,440
Loss from Operations 1,800,809 3,026,406 382,152 - 5,209,367
Equity Investee Loss 11,202 (11,202)
Minority Interest (1,816) 1,476,380 (1,478,196)
Other (Income) Expense (72,126) (779,143) - (707,017)
--------- --------- --------- ----------- ---------
Loss from continuing operations 1,728,683 3,814,935 382,152 1,476,380 4,449,390
Loss from continuing operations
per ordinary share .22 - (.36)
Weighted average number of
ordinary shares outstanding 8,033,265 - - - 12,533,265
</TABLE>
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
BACKGROUND
The operations of the Company were primarily those of its wholly owned
subsidiaries PP Holdings, Inc. and Medipro Sciences Limited ("Medipro") and
Flora, Inc. ("Flora"). The Flora operation was acquired June 30, 1994 and is
reflected in fiscal 1995 accordingly. The Medipro operation was significantly
downsized after the acquisition of the assets of Flora, and officially ceased
operations January 31, 1995. The operations of the Company were primarily
those of Medipro for the first four months of fiscal 1995 and all prior years.
On November 15, 1995 the Company sold substantially all of its assets to
Technical Chemicals and Products, Inc. ("TCPI") for 786,214 shares of TCPI
common stock. Operating results related to this business have been treated as
discontinued operations in the consolidated financial statements. Accordingly,
the financial statements for fiscal 1996 include a loss from the discontinued
operations of approximately $2,600,000, and a gain on the sale of approximately
$16,400,000. See "Certain Transactions." The consolidated financial statements
have been prepared in accordance with US GAAP.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1996 AND MAY 31, 1995
Revenues for the three months ended May 31, 1996 were generated
from photo refractive keratectomy and other laser vision correction facility and
service fees earned by European operations of the Company's subsidiary Vista.
The Company did not generate any revenue for the comparable prior year
period.
Expenses for the three month period ended May 31, 1996 totalled
$1,018,987. The increase of $838,201 from the three months ended May 31,
1995 is primarily attributable to the inclusion of Vista operations in the
companies first quarter financial statements. Total expenses of $1,018,987
consist primarily of salaries, equipment (excimer lasers) and facility leases
related to the laser vision correction operations and depreciation and
amortization.
During the first quarter ended May 31, 1996 the Company sold 210,000
shares of TCPI generating a loss including commissions of $254,903.
The net loss for the three months ended May 31, 1996 was $730,192
or $0.05 per share compared to $878,346 or $0.18 per share for the
three months ended May 31, 1995.
FISCAL YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
As a result of the November 1995 TCPI transaction, the operations of
the Company's subsidiaries, PP Holdings Inc. and Medipro, have been presented
in the Company's Consolidated Statements of Earnings and Loss and Deficit as
discontinued operations as per U.S. GAAP. The transaction with TCPI resulted
in a gain of approximately $16,400,000 as the Company had previously
written-off its acquired technologies and all research and development
expenditures associated with these technologies. TCPI issued 786,214 shares of
TCPI's common stock with a fair value of approximately $11,919,000 to the
Company and also satisfied the $5,000,000 promissory note previously issued by
the Company to Flora, Inc.
During the fiscal year ended February 29, 1996, the Company had
revenue from discontinued operations of $469,055 versus nil for the previous
year. These revenues were primarily due to feasibility studies conducted by
the Company on behalf of third parties. The Company does not expect to have
similar revenue in fiscal 1997.
The loss from continuing operations in fiscal 1996 of $1,728,683
consists mainly of administration expenses of the Company during the year.
Administration expenses of continuing operations of $1,798,524 increased by
approximately $657,223 or 58% from 1995. This increase can be attributed to an
increase in professional fees relating to the TCPI transaction and increased
compensation expenses for the year relating to the anticipated reorganization
of the Company. Other income during the year of $64,321 was primarily derived
from receipt of proceeds from the sale of certain securities. Interest income
is down from 1995 by $36,865 or 76% to $11,698 due to lower cash balances being
available for short-term investments during the year.
The loss from operations of the discontinued business segment of
$2,593,468 in fiscal 1996 consists mainly of operating expenses of the
Company's subsidiary PP Holdings Inc. Within this amount is $1,164,681 in
research and development expenses and $558,033 in administration and general
expenses. In addition, $337,667 in interest on long-term debt was incurred
during the year related to the $5,000,000 note satisfied by TCPI. The fiscal
1995 loss from operations of discontinued business segment of $11,698,353 for
fiscal 1995 is $9,104,885 higher than the 1996 amount because of the unusual
items charged in 1995's financial statements. These included the write-off of
capitalized technologies, restructuring costs of Medipro and the write-off of a
foreign currency translation amount, all totalling approximately $6,361,000.
In addition to these amounts, fiscal 1995 costs were higher due to higher
research and development costs incurred of $2,355,515.
For the year ended February 29, 1996 the Company has a net earnings of
$12,090,676 or $1.50 per share (fiscal 1995 - a loss of $2.56). This net income
in fiscal 1996 is due to the gain on the sale of assets to TCPI whereas the
fiscal 1995 loss is attributable to the unusual items charged in fiscal 1995
listed above.
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<PAGE> 20
FISCAL YEARS ENDED FEBRUARY 28, 1995 AND 1994
Expenses from continuing operations for the fiscal year ended February
28, 1995 were $2,081,891 versus $1,348,112 for the fiscal year ended February
28, 1994. The increase in expenses are primarily attributable to the write-off
of Cangene acquisition costs and the loss on disposal of the Cangene investment
($992,843) partially off-set by a reduction in administration expense and a
foreign exchange gain. Loss from continuing operations for the 12 month periods
ending February 28, 1995 and 1994 are $2,039,091 and $1,307,672 respectively.
The increase in the loss from continuing operations is attributable as outlined
above.
The loss from discontinued operations for fiscal year 1995 were
$11,698,353 versus $1,919,752 for the fiscal year ended February 28, 1994. The
year over year increase in the loss from discontinued operations is primarily
attributable to unusual items written off in fiscal 1995 totalling $6,361,084
and an increase in expenses associated with the operations of PP Holdings, Inc.
The unusual items relate to acquired technology ($2,775,336), write-off of
capitalized technology ($1,685,516), Medipro restructuring costs ($1,492,070)
and a write-off of the cumulative translation adjustment related to Medipro
Sciences Limited ($408,162).
The net loss for fiscal 1995 increased 326% to $13,737,444 from
$3,227,424 in fiscal 1994. The increase was primarily attributable to the
unusual items described above and duplication of discontinued operating
expenses associated with PP Holdings, Inc.
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<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has relied upon private and public
equity financing and internally generated cash flows, principally from the
license and contract product development fees, to finance its operations.
The increase in cash of $2,957,777 from February 29, 1996 to May 31,
1996 represents the net proceeds from the balance of a closing of the Private
Placement ($276,894) and the net proceeds from the sale of 210,000 shares of
TCPI ($2,928,696) offset primarily by the net cash component of the purchase
price paid to Vista ($998,500) less cash held by Vista at the time of purchase
of $288,312 for a net effect of ($710,188), the purchase of fixed assets
($5,412) and other on-going working capital requirements. The Company has
576,214 shares of TCPI remaining for which the lock up agreement ends in
October 1996, at which time the stock can be sold. As of August 8, 1996 the
TCPI stock had a market value of $10.25 per share.
The net loss for the three month period ended May 31, 1996 of $730,192
included depreciation and amortization and a net change in non-cash working
capital of $149,788 and $570,617 respectively.
The Company has had limited operating revenues and has accumulated a
deficit of $6,979,820. The Company expects to continue to incur operating
losses until such time, if ever, it generates sufficient revenues. There is no
assurance that the Company will ever operate profitably.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," which is effective for years beginning after
December 15, 1995. The Company anticipates electing to continue its current
accounting methodology regarding stock options granted to employees and will
add the required additional footnote disclosures prescribed by SFAS No. 123.
In addition, options granted to non-employees will have compensation expense
associated with it, calculated in accordance with the new pronouncement.
18
<PAGE> 22
BUSINESS OF VISTA
INTRODUCTION
Certain information in this Proxy Statement -- Prospectus includes
forward-looking statements within the meaning of applicable securities laws that
involve risks and uncertainties including, but not limited to, market acceptance
of new technologies, financial resources available to Vista and its corporate
affiliates, economic, competitive, governmental and technological factors
affecting Vista operations, markets, services and prices, and other factors
described in this Report. The Vista's actual results could differ materially
from those suggested by any forward-looking statements as a result of such
risks.
Vista, through its European operating subsidiaries and joint venture
interests in other affiliated companies in the United States and Canada, is
primarily engaged in providing access to advanced laser vision correction
("LVC") equipment and support services (collectively "LVC Services") for use by
licensed ophthalmologists in the treatment of refractive vision disorders.
Computer-controlled excimer lasers can be used to treat refractive vision
disorders such as nearsightedness and astigmatism to eliminate or reduce the
need for corrective lenses. The Company's subsidiaries and affiliates provide
individual physicians and group ophthalmic practices with shared access to laser
equipment, thus eliminating capital costs, investment risk and maintenance of
such equipment by the health care professional. LVC Services provided by the
Company's subsidiaries and affiliates also include various support services,
such as physician and staff training, technical support services, equipment
maintenance, billing and accounting and other administrative services.
Vista's European operating subsidiaries have owned and operated excimer
laser facilities in Italy and Sweden since 1992 and 1994, respectively, and
currently maintain five excimer lasers in use at outpatient surgical centers,
three in Italy and two in Sweden. Another laser owned by a third party is shared
by the Company at a recently established fourth center in Italy. See "European
Operating Subsidiaries" below.
In anticipation of recent approvals by the United States Food and Drug
Administration ("FDA") of excimer laser technology and equipment supplied by two
manufacturers to treat certain refractive vision disorders, the Company
developed a strategic plan commencing in June 1995 to organize and sponsor
additional companies to provide LVC Services in the United States and Canada
through regional joint venture alliances with certain prominent
ophthalmologists. A key part of Vista's strategy for expansion in the United
States and Canada is to develop, invest in, and act as a consultant to, regional
joint venture companies ("Regional Joint Ventures") that are to be independently
financed and offer advantages of equity incentives
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<PAGE> 23
and management control to skilled and prominent ophthalmologists experienced in
a variety of LVC treatments, procedures and post-operative care. To date, the
Company has organized and sponsored six Regional Joint Ventures in various
stages of development including one in Northern California that recently
commenced operations in June 1996 with an excimer laser at each of three
locations. See "North American Regional Joint Venture Investments and
Affiliations".
During March 1996, Vista completed equity financing transactions with the
Company that resulted in a change in control of Vista. See "Agreements with the
Company for Equity Financing and Change in Control" below.
In July 1995, Vista abandoned efforts to acquire control of Medical
Development Resources, Inc. ("MDRI") and wrote off $5,643,000 of prior
investments in MDRI and its subsidiaries at the end of its prior fiscal year on
March 31, 1995. The joint venture operations of an excimer laser clinic in
London, England were discontinued in June 1995 in response to unfavorable local
pricing for PRK procedures due to overcrowding of the market, a history of
unprofitable operations and a change in business strategy of the joint venture
partner.
The Company was incorporated under the laws of Nevada on June 15, 1992 and
its principal office is located at 1250 Oakmead Parkway, Suite 210, Sunnyvale,
California 92086-3599, telephone number (408) 524-2939.
BACKGROUND AS TO LASER VISION CORRECTION SYSTEMS
Advanced LVC equipment supplied by various manufacturers has been
commercially available in recent years for use in foreign countries, including
Canada and various countries in Europe, among others. Two U.S. manufacturers,
Summit Technology, Inc. ("Summit") and VISX, Incorporated ("VISX"), recently
received FDA pre-market approval in October 1995 and March 1996, respectively,
for use of the Summit SVS Apex excimer laser system and VISX's excimer laser
systems Models "B" and "C" to perform photorefractive keratectomy ("PRK") to
treat low to moderate myopia (nearsightedness). PRK is a form of LVC treatment
involving the use of an excimer laser to reshape the cornea, thereby adjusting
refractive power of the eye. Excimer lasers manufactured by Summit and VISX have
also been approved for use in the United States and other countries to treat a
number of pathological superficial corneal disorders in a procedure called
phototherapeutic keratectomy ("PTK").
Other LVC procedures employed in Canada and other foreign countries include
the use of excimer lasers to perform a procedure known as laser in situ
keratomileusis ("LASIK") and holmium lasers for laser thermalkeratoplasty
("LTK") and laser sclerostomy ("LS") procedures. LASIK is primarily prescribed
for treatment of hyperopia (farsightedness), astigmatism and extreme myopia; LTK
may be prescribed for instances of mild hyperopia and astigmatism; and LS is
used for treatment of symptoms of glaucoma. In May 1996, the FDA advised U.S.
eye care professionals that LASIK and bilateral surgery (treatment of both eyes
at the same time) are outside the scope of currently FDA approved labeling for
excimer lasers; although the FDA noted that physician discussions with patients
and decisions to conduct either of those procedures are considered the practice
of medicine, the FDA cautioned that it expects excimer laser equipment
manufacturers and health care practitioners will advertise and promote the use
of FDA approved lasers in the United States only within the scope of their
currently FDA approved use, i.e. for PRK and PTK.
All of these LVC procedures are normally performed on an outpatient basis
and require from 15 to 30 minutes in addition to pre-operative consultations and
post-operative care. Depending upon the severity of the patient's pre-treatment
vision disorder, improved vision resulting from LVC procedures either eliminates
or significantly reduces the patient's need to wear eyeglasses or contact
lenses. Vista's existing European subsidiaries and planned Regional Joint
Ventures in the United States focus primarily on PRK treatment to correct low
and mild myopia. Regional Joint Venture operations planned for at least two
locations in Canada adjacent to the U.S. border are expected to offer a wider
variety of LVC services, including LASIK, bilateral treatment and an advanced
proprietary method of PRK developed by Dr. Donald G. Johnson called the Johnson
transepilthelial multi-zone, multi-pass PRK procedure ("TMM PRK"). TMM PRK
provides for a smoother ablation zone than standard PRK procedures, thus
reducing glare and central islands side effects sometimes encountered in PRK
procedures. The epithelium (a layer of cells comprising the outer surface of
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<PAGE> 24
the cornea) is removed in the TMM PRK procedure by use of the laser, thus
avoiding direct contact with the eye by the physician or instruments. Vista
believes that the TMM PRK method promotes faster post-operative regrowth during
the period when risk of pain and infection risk is highest.
Vision care professionals engaged by Vista and/or its Regional Joint
Ventures establish medical and operational standards relating to LVC Services,
train ophthalmologists and optometrists in advanced LVC procedures, and
establish advisory boards consisting of credentialed and prominent
ophthalmologists and optometrists with similar skills and experience. The
Company believes that its Regional Joint Ventures planned for targeted market
segments of North America will be capable of supporting a full range of LVC
procedures because of access to physicians skilled in advanced methods and the
ability to make appropriate referrals to medical professionals in Canada
offering certain LVC procedures not currently available in the U.S.
VISION DISORDERS AND ALTERNATE FORMS OF CORRECTIVE TREATMENT
The human eye is approximately 25 millimeters in diameter and functions
much like a camera, with a lens in front and a light sensitive screen, the
retina, in the rear. Images enter the human eye through the cornea, a
transparent domed window at the front of the eye. In a properly functioning eye,
the cornea bends (refracts) incoming images, causing the images to focus on the
retina. The inability of the cornea to properly refract incoming images results
in blurred vision and is called a refractive disorder.
Myopia (nearsightedness), hyperopia (farsightedness) and astigmatism are
three of the most common refractive disorders resulting from an inability of the
optic system to properly focus images on the retina. The amount of refraction is
dependent on the shape, specifically the curvature, of the cornea. In a
nearsighted (myopic) eye, images are focused in front of the retina; in a
farsighted (hyperopic) eye, images are focused behind the retina; and in an
astigmatic eye, images are not focused at any one single point.
Conventional methods of correcting refractive disorders are by prescription
of eyeglasses and contact lenses. Over the last 15 years, refractive vision
disorders have also been treated by several surgical techniques. These include
radial keratotomy ("RK"), in which small incisions approximately 400 to 450
microns deep in a radial configuration are made around the periphery of the
cornea to cause a flattening of the cornea. Other surgical techniques are
keratomileusis, which involves freezing the cornea and reshaping it, and
automated lamellar keratoplasty ("ALK"), which involves using a microkeratone to
remove microscopic amounts of corneal tissue. Industry sources estimate that
200,000 RK procedures were performed in the United States in 1994. Because RK is
a manual procedure and not performed with a computer-controlled device, RK is
highly dependent on the surgical skill of the ophthalmologist performing the
procedure. Moreover, because RK involves incisions into the corneal tissue, it
weakens the structure of the cornea which may have adverse consequences as
patients age. RK has never undergone a controlled clinical study under an FDA
protocol because no medical device, other than a scalpel, is used in the
procedure. Compared to RK, the Company believes that laser surgery involves
reduced surgical risk, does not weaken the corneal tissue, is less invasive and
is less dependent on the ophthalmologist's skill.
Corneal pathological disorder, which include certain diseases, injuries and
conditions of the cornea, also result in impaired vision, discomfort or
blindness. Such pathologies include corneal opacities, irregular corneal
surfaces and abnormal tissue growths on the cornea. Another pathological
condition of the eye is glaucoma, a disease characterized by a sustained
elevation of intraocular pressure which, if untreated, may result in blindness.
A typical medical alternative for treatment of pathological disorders is a
corneal transplant which involves major surgery and is dependent on the
availability of a suitable donor cornea and the individual surgeon's skill and
experience. Corneal transplants may produce irregular corneal surfaces which
compromise the patient's vision and also involve a risk of the possible
transmission of viruses that could infect the patient.
LASER VISION CORRECTION ("LVC") SYSTEMS
Lasers have been used routinely for a variety of medical purposes since the
1960s. Lasers emit photons of light into a highly intense beam of energy that is
delivered to targeted tissue by means of optical mirrors or
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<PAGE> 25
fiber optics. The degree of absorption by the tissue varies with the choice of
wavelength and is an important variable in the application of laser technology
in treating various tissues. Surgical lasers emit light in a continuous stream
or in a series of very short duration "pulses", thus interacting with tissue
through heat or shock waves. Several factors, including the wavelength of the
laser and the frequency and duration of the exposure or pulse, determine the
amount of energy which interacts with the targeted tissue.
Laser technology has been accepted in the ophthalmic community for the
treatment of certain eye disorders. In general, ophthalmic lasers are used to
coagulate, cut or ablate (remove) targeted tissue.
EXCIMER LVC SYSTEMS AND PROCEDURES
Excimer lasers were first developed in the late 1980s, and are incorporated
in a fully integrated ophthalmic surgical workstation for use by
ophthalmologists to perform procedures to treat refractive and other ophthalmic
disorders. The excimer laser system delivers pulses of ultraviolet laser light
to ablate (remove) submicron layers of tissue from the surface of the cornea in
a computer-assisted, predetermined pattern to reshape the cornea. Most of the
laser light generated by the excimer system is absorbed by the removed corneal
tissue during a procedure. As a result, the laser light does not penetrate
interior portions of the eye and does not create substantial amounts of heat in
the surrounding tissue. These attributes make the excimer laser system well
suited to corneal surgery.
PRK. Photorefractive keratectomy ("PRK") is procedure performed with a
excimer laser system to treat primarily nearsightedness. When performing PRK
with the excimer laser, the ophthalmologist determines the exact correction
required (which is measured by the same type of examination used to prescribe
eyeglasses or contact lenses) and programs the correction into the system's
computer. The ophthalmologist removes the thin surface layer of the cornea (the
epithelium) and positions the patient for the laser procedure. The average PRK
procedure consists of approximately 150 laser pulses, each of which lasts
several billionths of a second over a period ranging for 15 to 40 seconds.
Cumulative exposure to the laser light is less than one second. The entire
procedure, including patient preparation and post-operative dressing, generally
lasts no more than thirty minutes.
Following the PRK procedure, the ophthalmologist may prescribe topical
pharmaceuticals to promote corneal healing and to alleviate discomfort. A series
of patient follow up visits is scheduled with the ophthalmologist or an
optometrist to monitor the corneal healing process, to verify that there are no
complications and to test the correction achieved by the PRK procedure. Patients
undergoing PRK generally experience discomfort for approximately 24 hours, and
blurred vision for approximately 48 to 72 hours after the procedure. Although
most patients experience improvement in uncorrected vision within a few days of
the procedure, it generally takes from two to six months for the correction to
stabilize and for the full benefit of the procedure to be realized. An
individual typically has one eye treated in a session, with the second eye
treated three to six months thereafter. The Company anticipates, however, that a
significant percentage of patients at Vista's Regional Joint Ventures planned
for Canada may be eligible for bilateral treatment in which both eyes are
treated simultaneously.
Although a patient usually experiences a substantial improvement in clarity
of vision within a few days following the PRK procedure, it generally takes from
two to six months for the full benefit of the procedure to occur. The PRK
procedure is used today primarily to correct the vision of patients with myopia
(or nearsightedness) ranging from -1.5 to up to -7.00 diopters, although the PRK
procedure has also been performed in foreign countries on higher diopter
nearsighted and, occasionally, farsighted and astigmatic patients. Approximately
90% of all myopic patients are nearsighted up to -6.00 diopters and use of the
PRK procedure to correct the vision of nearsighted patients of up to -6.00
diopters therefore has received the greatest degree of testing.
LASIK. Laser assisted in situ keratomileusis ("LASIK") is a procedure
performed with an excimer laser system primarily to treat extreme cases of
myopia. LASIK, although a more unusual and delicate surgical procedure than PRK,
offers advantages in that the epithelium is not touched by the laser and
therefore promotes quicker healing. The ophthalmologist uses a microkeratone to
open a flap on the surface of
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the cornea, laser energy is used to ablate corneal cells on the exposed surface,
and the flap is then folded back into place. Glare and central islands are
practically non-existent after LASIK since ablation occurs in the stroma layer
(under the surface epithelium layer). Due to the corneal flap, subsequent
retouches are facilitated with minimal recovery time.
LASIK may be more predictable in treating high levels of myopia, but the
LASIK procedure not been specifically approved in the United States by the FDA.
The FDA has advised physicians that discussions with patients and decisions to
conduct LASIK or bilateral surgery (treatment of both eyes at the same time) are
considered the practice of medicine, and the Company believes that certain
surgeons in the U.S. are performing LASIK procedures. The FDA has cautioned eye
care professionals in the U.S. to advertise and promote the use of FDA approved
lasers only within the scope of their currently FDA approved use, i.e. for PRK
and PTK.
PTK. Phototherapeutic keratectomy ("PTK") is a procedure performed with the
excimer system to treat corneal pathologies. In this procedure, submicron layers
of tissue are ablated from the surface of the cornea in order to remove
diseased, scarred or sight-inhibiting tissue. The goal of PTK is not necessarily
to cure the corneal pathology, but to alleviate symptoms associated with the
pathology. The FDA has granted pre-market approvals for use in the United States
of PTK procedures with Summit excimer laser equipment in February 1995 and for
VISX equipment in October 1995.
Other. Excimer lasers may also be used to treat glaucoma by a procedure
known as Partial Excimer Traheculectomy ("PET"). The PET procedure involves the
use of the excimer laser to create a penetrating filter through the scleral
tissue (the tough, fibrous tissue covering all of the eye except the cornea),
which causes the permeation of fluids from within the eye, thus reducing
pressure levels. Vista believes that one laser manufacturer has received an
Investigational Device Exemption from the FDA to conduct clinical trials for the
PET procedure in the United States.
HOLMIUM LVC SYSTEMS AND PROCEDURES
LTK. Another recently developed LVC technology is the holmium laser system.
The holmium system delivers high intensity pulses of infrared light to an eye by
means of a fiber optic cable and a single-use, hand-held probe that directly
contacts the eye at the exact spots chosen by the ophthalmologist. Vista is
aware of two manufacturers that have developed holmium laser systems. Vista
believes that both of those companies are in the process of conducting clinical
trials for the FDA to demonstrate the safety and efficacy of the holmium laser
to perform laser thermal keratoplasty ("LTK"). LTK is a refractive procedure
performed to treat farsightedness and astigmatism in which peripheral corneal
tissue is thermally shrunk, causing the central portion of the cornea to
steepen.
LS. Laser Sclerostomy ("LS") is a surgical procedure performed with the
holmium system to treat the symptoms of glaucoma by making an opening in the
front chamber of the eye. Summit has received FDA pre-market approval to sell
its holmium system in the U.S. for treatment of glaucoma.
OTHER LVC SYSTEMS
Vista is aware of three companies that have reportedly developed solid
state lasers, ophthalmic laser surgical systems that apply a beam of high
intensity light to remove tissue from the inside, as opposed to the surface of,
the cornea. These solid state lasers are designed to ablate tissue inside the
cornea without violating the cornea's surface by computer guiding the laser beam
to the inner corneal tissue and vaporizing the targeted tissue.
EUROPEAN OPERATING SUBSIDIARIES
From February to May 1994, Vista negotiated and completed the acquisition
of controlling interests in certain foreign subsidiaries offering access to
excimer lasers at outpatient surgical centers in Italy, Sweden and the United
Kingdom. At the time of those acquisitions in 1994, these European operating
subsidiaries had
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excimer lasers at four refractive surgical centers, two in Italy, one in Sweden
and one in England. The center in England was subsequently closed in June 1995
and two new centers, one in Italy and one in Sweden, have been opened since
these acquisitions were accomplished. Due primarily to the limited operating
history of these surgical centers including charges for depreciation and
amortization, Vista's operations in Europe have not yet been profitable.
However, Vista's Italian subsidiary, representing approximately 57% of Vista's
consolidated revenues for its fiscal year ended March 31, 1996, produced
positive cash flow from operations during its fiscal year ended December 31,
1995.
Vista's European LVC Services are operated under the trade name Vista
Vision(TM). As of March 31, 1996, Vista owned approximately 73.57% of Vista
Vision S.p.A. ("Vista-Italy") and 100% of Vista Vision Scandinavia AB
("Vista-Sweden"). Vista's interest in Vista-Sweden is held through a
wholly-owned Dutch company organized to facilitate administration of Vista's
European operations. A United Kingdom subsidiary of Vista, Vista Vision
International Ltd. ("Vista-UK"), owned a 50% joint venture interest in a
surgical center in London, England and was liquidated in mid-1995 when Vista and
its joint venture partner determined to close the London clinic.
Vista-Italy's locations include a Milan center originally opened in
February 1992 and relocated during 1995, a Pisa clinic established in March 1993
and a Rome center started in January 1995. The Vista-Sweden centers include a
center in Stockholm purchased from a third party in June 1994 and a center in
Malmo opened in August 1995.
Vista's European operating subsidiaries typically receive a fee or a
percentage of the surgeon's fee for each LVC surgical procedure performed, which
to date have consisted primarily of PRK procedures. The gross professional fee
for PRK procedures in Italy and Sweden currently ranges from approximately
$1,500 to $2,500 per procedure, with a single eye constituting one procedure,
and fees payable to Vista-Italy and Vista-Sweden generally range from $800 to
$1,800 per procedure. Certain operating expenses of Vista-Italy and Vista-Sweden
under cooperative agreements for their facilities are in turn based upon the
number of procedures performed.
Vista-Italy and Vista-Sweden maintain a total of five VISX excimer lasers.
Another laser owned by a third party is shared by Vista-Italy at a center
recently opened in Palermo, Italy.
The following chart summarizes certain information as to the number of LVC
surgical procedures performed at Vista's European centers for the periods
indicated (excluding the center at Palermo, Italy opened in July 1996 after the
periods covered by the talk):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH
31,
-----------------------
1996 1995 1994
----- ----- ---
<S> <C> <C> <C>
Milan, Italy (opened February 1992)................................... 595 466 239
Pisa, Italy (opened March 1993)....................................... 504 404 213
Rome, Italy (opened January 1995)..................................... 268 41 --
Stockholm, Sweden (see Note a)........................................ 581 524 420
Malmo, Sweden (opened August 1995).................................... 77 -- --
----
-
----- -----
Totals................................................................ 2,025 1,435 972
===== ===== =====
</TABLE>
- ---------------
(a) Includes procedures performed at this center for periods prior to the June
1994 purchase of assets by Vista-Sweden
NORTH AMERICAN REGIONAL JOINT VENTURE INVESTMENTS AND AFFILIATES
Having anticipated recent FDA pre-market approval of PRK equipment supplied
by Summit and VISX, Vista's business strategy developed in June 1995 is to
expand in North America by organizing and sponsoring independently financed
regional enterprises (the "Regional Joint Ventures") in which Vista will obtain
a significant equity interest and long-term fee-based consulting arrangements.
Vista has obtained and will continue to seek affiliations for its each of its
Regional Joint Venture subsidiaries with experienced LVC eye
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care professionals; these regional enterprises will seek third-party financing
with Vista's assistance to provide equipment and other LVC support services to
vision care professionals in targeted regional markets operating under the name
"Vista Laser Centers".
In the typical Regional Joint Venture enterprise, Vista has subscribed to a
5% Series B convertible preferred stock issue of the Regional Joint Venture
enterprise in exchange for shares of Vista common stock.
From July 1995 through June 1996, an unaffiliated foreign venture capital
corporate investor named Refractive Services-800, Inc. provided at least
$100,000 in initial seed capital to five Regional Joint Ventures (for an
aggregate investment of $520,000) to finance initial organizational expenses and
costs of negotiating agreements with vision care professionals and seeking
additional financing. In exchange for that investment, and in view of the high
risks associated with a start-up enterprise, Refractive Services-800, Inc.
received shares of a 10% Series A convertible preferred issue of the Regional
Joint Venture with a liquidation preference equal to five times its cash
investment in four Regional Joint Ventures and six times its cash investment in
one other Regional Joint Venture.
The Company recently negotiated an agreement effective July 18, 1996 to
acquire the Series A preferred shares owned by refractive Services-800, Inc. in
all five of these Regional Joint Ventures in exchange for 520,000 shares of
Vista common stock. In addition, Vista agreed to purchase all of the capital
stock in Refractive Services 800 Corp., a Nevada corporation ("RS-800") for
$50,000 from Refractive Services-800, Inc. Refractive Services-800, Inc.
organized RS-800 to acquire rights to, and offer the use of, certain 800 and 900
telephone numbers for telemarketing purposes at the election of Regional Joint
Ventures.
After initial organization of a Regional Joint Venture, negotiations with
one or more local prominent ophthalmologists have been instituted and these
physicians are offered the opportunity of providing additional seed capital
investment in common stock and/or common stock purchase warrants issuable by the
Regional Joint Venture. Agreements with professionals are negotiated for use of
the Regional Joint Venture's equipment and other LVC Services and management to
be provided to the Regional Joint Venture by eye care professionals or
management personnel designated by them; these agreements are typically
conditioned upon receipt of additional financing in the form of a subsequent
private placement and/or initial public offering of securities by the Regional
Joint Venture, Based upon its experience in LVC Services and affiliations with
prominent LVC specialists, Vista also enters into a long-term consulting service
agreement to provide certain administrative and consulting services to the
Regional Joint Venture in exchange for a percentage of revenues realized by the
Regional Joint Venture, which is also contingent upon additional financing.
The Regional Joint Venture is licensed by Vista on a non-exclusive basis
for no additional charge to operate under the name and style of "Vista Laser
Centers" of the particular region during the term of Vista's consulting services
agreement. Vista has adopted use of, and has filed trademark applications in the
United States and Canada to register, the service mark "Vista Laser
Centers"(TM). To date, Vista has organized and sponsored six Regional Joint
Ventures discussed below, all of which are incorporated under the laws of
Nevada.
Upon commencing business, each Regional Joint Venture plans to enter into
nonexclusive LVC Service agreements with additional ophthalmologists and
optometrists who desire to contract for access to equipment and LVC Services.
Regional Joint Ventures will earn fees for the fair market value of their LVC
Services by billing health care professionals at the time of use, with such fees
typically based upon a negotiated percentage of the gross procedure fees charged
to patients by the professional; payment normally will be received when the
professional collects its gross procedure fee from the patient. The gross
procedure fee is established by the professional, except that consent of the
Regional Joint Ventures will be required for gross procedures fees at less than
a specified minimum per eye. Generally speaking, gross procedure fees charged by
professionals for LVC treatment in most markets in the United States and Canada
currently ranges from approximately $1,500 to $2,000 per eye, although there can
be no assurance these levels will be maintained for the long term. Support
services offered by the Regional Joint Ventures will include, among others,
access to equipment, supplies and support personnel; administration of
accounting, billing, collection and other information processing functions;
training and education in advanced LVC procedures; and marketing support. There
can be no assurance that ophthalmologists and optometrists will require and
contract for LVC Services of these
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Regional Joint Ventures, and independent professionals and groups that do
contract for such services cannot legally be required to agree that they will
use exclusively the services of any single provider for their LVC practice on an
exclusive basis.
VISTA LASER CENTERS OF MICHIGAN, INC.
The first Regional Joint Venture sponsored by Vista is Vista Laser Centers
of Michigan, Inc. ("VLC-Michigan"). To date, the activities of VLC-Michigan have
consisted primarily of market research, seeking affiliations and negotiating
agreements with experienced vision care professionals in the United States and
Canada, and negotiating to acquire equipment for establishing a laser vision
correction center in Windsor, Ontario after an initial public offering of its
securities has been completed. VLC-Michigan is also negotiating to enter into a
joint venture arrangement with a group of physicians in Michigan following
completion of an pending initial public offering by VLC-Michigan.
The Company issued 200,000 shares of Vista common stock in November 1995 to
VLC-Michigan in exchange for 200,000 shares of VLC-Michigan Series B preferred
stock, which have been recorded for financial statement purposes at an appraised
value of $217,597. VLC-Michigan also received $157,000 in cash subscriptions to
100,000 shares of its Series A preferred stock ($100,000), 30,000 shares of its
common stock ($30,000) and 270,000 Class A warrants ($27,000) exercisable at $1
per share. As noted above, Vista has agreed to purchase the 100,000 shares of
Series A preferred stock previously issued by VLC-Michigan.
VLC-Michigan has filed a registration statement with the Securities and
Exchange Commission for a proposed initial public offering of 800,000 shares of
its 10% Series A cumulative convertible preferred stock at $5.00 per share
($4,000,000 total). There can be no assurance that VLC-Michigan will
successfully complete an initial public offering of its securities, failing
which it may not have sufficient capital to engage in business operations.
Vista entered into a Consulting Services Agreement to provide certain
consulting services to VLC-Michigan in exchange for 5% of VLC-Michigan's
revenues attributable to its charges to health care professionals for the use of
equipment and VLC Services, less a credit to VLC-Michigan of $5,000 per month.
The Consulting Services Agreement is for a term of ten years from the date of an
initial public offering by VLC-Michigan, and is automatically renewed thereafter
for periods of five years unless either party provides six months' prior notice
of an intent not to extend the term.
RS-800, currently a wholly-owned subsidiary of Vista, has granted
VLC-Michigan the right to use certain 800 and 900 area code telephone numbers,
including among others 800-WE-DO-PRK, for its marketing and public education
programs. If VLC-Michigan elects to use those telephone numbers, RS-800 will
receive 2 1/2% of the revenues generated only as a direct result of responses to
telemarketing activities of VLC-Michigan by use of the licensed 800 and 900
telephone numbers.
VLC-Michigan's VLC services are planned to be offered at locations in
southern Ontario and Michigan. Dr. Fouad Tayfour, an Ontario ophthalmologist,
has agreed to act as a consultant and to enter into a facilities use agreement
with VLC-Michigan effective upon the completion of its initial public offering.
Dr. Tayfour has performed approximately 2,000 LASIK procedures through 1995 in
Ontario. Under the terms of a Facilities Agreement between VLC-Michigan and Dr.
Tayfour, upon completion of a public offering, VLC-Michigan will receive
approximately 50% of the gross procedure fee (as defined in the agreement)
charged to patients by Dr. Tayfour as compensation for his use of VLC-Michigan's
facilities and support services. The Facilities Agreement between VLC-Michigan
and Dr. Tayfour will be for a term of five years effective upon successful
completion of a public offering and will be renewed thereafter on a year-to-year
basis unless either party has provided the other with at least three months'
notice not to renew the agreement.
Equipment for the first location of VLC-Michigan in Windsor, Ontario will
be purchased by VLC-Michigan under an Agreement of Purchase of Assets with
Windsor Excimer Corporation, an affiliate of Dr. Tayfour, and its operations
will be located in a portion of facilities to be subleased from Windsor Excimer
Corporation upon completion of VLC-Michigan's initial public offering. The
equipment includes a Summit OmniMed UV 200 excimer laser, a Sunrise Technologies
LTK holmium laser and related equipment for a
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price of $1,000,000, payable $500,000 at completion of VLC-Michigan's initial
public offering and $500,000 payable in a 10% promissory note due two years
thereafter and collateralized by the equipment.
VLC-Michigan has also assumed lease obligations from another physician in
Michigan as to a Summit holmium laser with rental payments of $10,850 per month
until December 1999, at which point VLC-Michigan has the right to purchase the
equipment for a nominal payment of $1, plus an obligation in the aggregate
amount of $230,000, payable at the rate of $250 each time the equipment is used
by a physician.
VLC-Michigan has entered into a consulting agreement with Dr. Tayfour
effective upon the completion of its public offering. Under that agreement, Dr.
Tayfour will act as a professional consultant to VLC-Michigan concerning the
establishment of ethical standards and procedures for LVC Services and care, and
will periodically conduct training and education seminars sponsored by
VLC-Michigan. Compensation payable to Dr. Tayfour under this consulting
agreement will include a percentage of VLC-Michigan's fees, after deduction of
certain operating expenses, attributable to the first 20 LVC procedures
performed in each month at its Windsor location by credentialed physicians other
than Dr. Tayfour. The consulting agreement with Dr. Tayfour is for a term of
five years effective upon successful completion of a public offering and will be
renewed thereafter on a year-to-year basis unless either party has provided the
other with at least three months' notice not to renew the agreement.
Under the agreements with Dr. Tayfour, VLC-Michigan elected Ghassan Barazi
as its President and Chief Executive Officer. Mr. Barazi acted as the
Administrative Director and Business Manager for the Windsor Laser Eye Institute
founded by Dr. Tayfour in 1991. VLC-Michigan has agreed that its Series B
preferred shares in VLC-Michigan will be voted to cause Mr. Barazi and two
vision care professionals to be designated by Dr. Tayfour to be elected
directors of VLC-Michigan. Dr. J. Charles Casebeer and Dr. Donald G. Johnson,
directors of Vista, have been elected to serve as directors of VLC-Michigan and
Dr. Casebeer also serves as VLC-Michigan's Chairman of the Board.
OTHER VISTA LASER CENTERS REGIONAL JOINT VENTURES
Other Regional Joint Ventures sponsored by Vista are in the process of
seeking affiliations and negotiating agreements with experienced vision care
professionals in their primarily geographic markets and are at various stages in
implementing plans to raise additional capital and acquire excimer laser
equipment and related facilities. As noted below, one of those Regional Joint
Ventures recently commenced operations in June 1996 following the completion of
private placement financing.
From November 1995 to May 1996, Vista issued 1,900,000 shares of its common
stock in exchange for the purchase of 5% Series B cumulative convertible
preferred shares in five of these Regional Joint Ventures as summarized in the
table below. In each instance, it is anticipated that Vista's investment in
Series B preferred shares of the Regional Joint Venture has or will be valued by
independent appraisals for the purpose of determining the value of the shares
exchanged for financial statement purposes.
Vista Laser Centers of the Southwest, Inc. ("VLC-Southwest") commenced
business operations at a location in Scottsdale, Arizona in February 1996.
VLC-Southwest has leased a newly acquired VISX excimer laser. As of June 30,
1996, VLC-Southwest had received cash subscriptions of $291,500 to 100,000
shares of its Series A preferred stock ($100,000), 35,000 shares of its common
stock ($35,000), 315,000 Class A warrants ($31,500) exercisable at $1 per share
and a private placement ($125,000) of units aggregating $125,000 in principal
amount of 11% convertible notes and 12,500 Class B warrants exercisable at $4
per share. One of the investors in common stock and Class A warrants of
VLC-Southwest is Dr. J. Charles Casabeer. If VLC-Southwest successfully
completes additional financing activities, as to which there can be no
assurances, it is expected that VLC-Southwest will negotiate the purchase of
certain assets from an affiliate of Dr. Casabeer, who is Chairman of the Board
and a director of VLC-Southwest and also a director of Vista.
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<PAGE> 31
Vista Laser Centers of the Pacific, Inc. ("VLC-Pacific") commenced business
operations in June 1996 following receipt of $1,295,000 in cash subscriptions to
100,000 shares of its Series A preferred stock ($100,000), 50,000 shares of its
common stock ($50,000), 450,000 Class B warrants ($45,000) exercisable at $1 per
share and a private placement ($950,000) of units aggregating $950,000 in
principal amount of 11% convertible notes and equipment lease obligations from
physicians affiliated with VLC-Pacific for two VISX excimer lasers in Sacramento
and San Jose, California and for a Summit excimer laser in San Leandro,
California, and is currently operating at leased facilities in those three
locations.
Vista Laser Centers Metro, Inc., to be renamed Vista Laser Centers of the
Northeast, Inc. ("VLC-Northeast") commenced business operations at a center in
Toronto, Ontario and received $100,000 in cash subscriptions to 100,000 shares
of Series A preferred stock. Additional cash subscriptions to common stock and
warrants from local physicians and from a private placement of 11% convertible
note and warrants are pending. VLC-Northeast owns a newly acquired VISX excimer
laser and is engaged in negotiations to establish its next location in the New
York City metropolitan area.
Vista Laser Centers of the Northwest, Inc. ("VLC-Northwest") has not yet
commenced business operations and has received $191,250 in cash subscriptions
for 100,000 shares of Series A preferred stock ($120,000), 37,500 shares of its
common stock ($37,500) and 337,500 Class A warrants ($33,750) exercisable at $1
per share. The investor in common stock and Class A warrants of VLC-Northwest is
Dr. Donald G. Johnson. VLC-Northwest is currently engaged in negotiating
agreements for its plan of operations and to raise additional capital, failing
which it may not have sufficient capital to engage in business operations. If
VLC-Northwest successfully completes an initial public offering or private
placement of its securities, as to which there can be no assurance, it is
expected that VLC-Northwest will negotiate the purchase of capital stock for an
existing LVC services business from an affiliate of Dr. Johnson, who is Chairman
of the Board and a director of VLC-Northwest and also Chairman of the Board and
a director of Vista.
Vista Laser Centers of the South, Inc. ("VLC-South") has established an
office at Baton Rouge, Louisiana and is in the preliminary stages of
organization and negotiating agreements.
The Company does not exercise control over the Regional Joint Ventures and
Vista has granted irrevocable proxies to vote all shares in the Regional Joint
Ventures owned by Vista to one or more local affiliates of each Regional Joint
Venture. Although there can be no assurance one or more Regional Joint Ventures
will be successful in plans for an initial public offering or additional private
placement financing, each Regional Joint Venture plans to ultimately affect a
public offering of its securities that would reduce Vista's beneficial ownership
in the Regional Joint Venture to significantly less than 50%. After giving
effect to Vista's recent agreement to purchase Series A preferred shares in five
Regional Joint Ventures in exchange for 520,000 shares of Vista Common Stock,
the Company's investments in the Regional Joint Ventures described above as of
July 30, 1996 are summarized in the following table:
<TABLE>
<CAPTION>
SHARES(1) ISSUED SERIES B(1) SERIES A PRIMARY(2) DILUTED
--------- -------- ----------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Vista Laser Centers of Michigan, Inc.......... 200,000 11-16-95 200,000(4) 100,000(4) 90.9% 46.2%
Vista Laser Centers of the Southwest, Inc..... 250,000 3-18-96 350,000(5) 100,000(5) 87.2% 47.7%
Vista Laser Centers of the Pacific, Inc....... 500,000 5-08-96 500,000(6) 100,000(6) 67.6% 38.5%
Vista Laser Centers of the Northeast, Inc..... 450,000 5-08-96 675,000(2) 100,000(2) 100% 100%
Vista Laser Centers of the Northwest, Inc..... 500,000 5-08-96 500,000(8) 130,000(8) 94.1% 51.1%
Vista Laser Centers of the South.............. 0 (9)
</TABLE>
- ---------------
(1) In each case, Vista has granted or is committed to grant to one or more
persons associated with the Regional Joint Venture an irrevocable proxy granting
such person or persons the right to vote shares acquired by Vista in the
Regional Joint Venture for a five year term. Conversely, the Board of Directors
of Vista has received for the same period an irrevocable proxy from the Regional
Joint Venture to vote shares of Vista Common Stock issued to the Regional Joint
Venture. All of such proxies will terminate as to any shares which are sold to a
bona fide third party prior to expiration of the proxy.
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(2) Represents percentage of common and common equivalent shares of the
Regional Joint Venture that would be outstanding if all its convertible
securities issued as of July 30, 1996 were converted into common stock.
Does not give effect to the exercise of warrants and/or stock options
issued by the Regional Joint Venture or to the possibility of additional
offerings of securities planned by the Regional Joint Venture.
(3) Calculated on a fully-diluted basis to give effect to the assumed
conversion or exercise into common stock of all convertible securities,
warrants and/or stock options issued by the Regional Joint Venture as of
July 30, 1996. Does not give effect to the possibility of additional
offerings of securities planned by the Regional Joint Venture. Based upon
current proposals, if planned initial public offerings for VLC-Michigan and
VLC-Pacific are successfully completed, as to which there can be no
assurances, the beneficial ownership of shares held by the Company in
VLC-Michigan and VLC-Pacific on a fully-diluted basis would decrease to
approximately 20.7% and 20.3% respectively.
(4) Shares of 5% Series B preferred stock issued by VLC-Michigan have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Michigan on a one-for-one basis. The appraised value of
the Series B preferred shares in VLC-Michigan as of the date of original
issuance for financial purposes is $217,597. Shares of 10% Series A
preferred stock acquired by Vista for 100,000 shares of Vista Common Stock
on July 18, 1996 were originally issued by VLC-Michigan for $1.00 per share
in cash, have a preference in liquidation of $5.00 per share and are
convertible into common stock of VLC-Michigan on a one-for-one basis.
(5) Shares of 5% Series B preferred stock issued by VLC-Southwest have a
preference in liquidation of $2.50 per share and are convertible into
VLC-Southwest common stock on a one-for-one basis. The value of the Series
B preferred shares in VLC-Southwest has not yet been appraised. Shares of
10% Series A preferred stock acquired by Vista for 100,000 shares of Vista
Common Stock on July 18, 1996 were originally issued by VLC-Southwest for
$1.00 per share in cash, have a preference in liquidation of $5.00 per
share and are convertible into common stock of VLC-Southwest on a
one-for-one basis.
(6) Shares of 5% Series B preferred stock issued by VLC-Pacific have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Pacific on a one-for-one basis. The appraised value of
the Series B preferred shares in VLC-Pacific as of the date of original
issuance for financial reporting purposes is $487,855. Shares of 10% Series
A preferred stock acquired by Vista for 100,000 shares of Vista Common
Stock on July 18, 1996 were originally issued by VLC-Pacific for $1.00 per
share in cash, have a preference in liquidation of $5.00 per share and are
convertible into common stock of VLC-Pacific on a one-for-one basis.
(7) Shares of 5% Series B preferred stock issued by VLC-Northeast have a
preference in liquidation of $2.50 per share and are convertible into
common stock of VLC-Northeast on a one-for-one basis. The value of the
Series B preferred shares in VLC-Northeast has not yet been appraised.
Shares of 10% Series A preferred stock acquired by Vista for 100,000 shares
of Vista Common Stock on July 18, 1996 were originally issued by
VLC-Northeast for $1.00 per share in cash, have a preference in liquidation
of $6.00 per share and are convertible into common stock of VLC-Michigan on
a one-for-one basis.
(8) Shares of 5% Series B preferred stock issued by VLC-Northwest have a
preference in liquidation of $3.00 per share and are convertible into
common stock of VLC-Northwest on a one-for-one basis. The value of the
Series B preferred shares in VLC-Northwest not yet been appraised. Shares
of 10% Series A preferred stock acquired by Vista for 120,000 shares of
Vista Common Stock on July 18, 1996 were originally issued by
VLC-Northwest for $1.20 per share in cash, have a preference in
liquidation of $6.00 per share and are convertible into common stock of
VLC-Michigan on a one-for-one basis.
(9) VLC-South is still in the organization stages. It is anticipated the
Company will acquire Series B preferred shares of VLC-South in exchange
for shares of Vista common stock.
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OTHER RELATIONSHIPS WITH PROFESSIONALS
Dr. Donald G. Johnson is Chairman of the Board and a director of Vista and
has agreed to render part-time consulting services to certain of Vista's
Regional Joint Ventures. The TMM PRK procedure was developed by Dr. Johnson, who
is one of the world's most experienced PRK surgeons. Dr. Johnson developed TMM
PRK procedures with VISX equipment and, as of December 31, 1995, has
successfully treated approximately 7,400 eyes with excimer laser procedures.
Dr. J. Charles Casebeer is an educator and trainer in the LASIK procedure
and has previously served other companies as a consultant in the LASIK field.
Dr. Casebeer is a director of Vista and has entered into a Consulting Agreement
with VLC-Michigan contingent upon completion of its pending public offering. He
is expected to continue his efforts in LASIK procedures and to assist in
managing programs for training vision care professionals in the use and
performance of LVC procedures and in recommending standards to establish a
program of credentialing and training health care professionals in various
aspects relating to LVC procedures and patient treatment. After completion of an
initial public offering, Dr. Casebeer's professional corporation will receive
from VLC-Michigan compensation at the rate of $60,000 per annum plus additional
compensation for each vision care professional that enters a credentialing
program to be established by VLC-Michigan.
Dr. Casebeer and Dr. Johnson are expected to promote advanced LVC methods
for both Vista and for various Regional Joint Ventures that have been formed, or
may be formed in the future, to service various North American geographic
markets.
SAFETY AND EFFICACY
The first PRK procedure for the treatment of nearsightedness using an
excimer laser system was performed in 1989, and the first PTK procedure for the
treatment of a corneal pathology using an excimer system was performed in 1988.
A large majority of PRK and PTK procedures to date have been performed only
since 1990. PRK to correct myopia has been performed in at least 35 countries
outside the U.S. prior to 1996.
Some potential medical risks have been identified in connection with the
use of LVC surgery and there may be other risks which will not be known until
the procedure has been more widely used and monitored over an extended period of
time.
Possible concerns with respect to the safety and efficacy of LVC excimer
laser systems for refractive surgery include predictability and stability of
results and potential complications, such as modest decreases in best corrected
vision and side effects from PRK, PTK, LASIK and LTK. Other possible effects
include postoperative discomfort; corneal haze during healing (an increase in
the light scattering properties of the cornea); glare/halos (undesirable visual
sensations produced by bright lights); decrease in contrast sensitivity
(diminished vision in low light); temporary increases in intraocular pressure in
reaction to post procedure medication; modest fluctuations in astigmatism and
modest decreases in best corrected vision (i.e., with eyeglasses); unintended
over or under corrections; instability, reversal or regression of effect;
corneal scars (blemishing marks left on the cornea); corneal ulcers
(inflammatory lesions resulting in loss of corneal tissue); and corneal healing
disorders (compromised or weakened immune system or connective tissue disease
which causes poor healing).
Summit has reported that two year follow-up data accumulated by Summit
during its Phase III PRK clinical trials indicate all of the individuals
undergoing PRK experienced an improvement in visual acuity without corrective
eyewear. Prior to PRK, 95% of the eyes in this group were 20/200 or worse. Of
the eyes treated, approximately 91% improved to 20/40 or better, the legal
requirement to obtain a driver's license in
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<PAGE> 34
most states without corrective eyewear, while the remaining 9% experienced
improved vision without corrective eyewear, but still required corrective
eyewear to achieve 20/40 vision or better.
MARKET POTENTIAL FOR LVC SERVICES
It is estimated that in excess of 100 million people in the U.S., and a
much larger number worldwide, use eyeglasses or contact lenses to correct common
vision disorders, with over 60 million of these individuals suffering from
nearsightedness. U.S. consumers spent an estimated $13.8 billion in eyeglass and
contact lens purchases in 1993. While excimer laser procedures can treat people
who are farsighted or are astigmatic, both the existing technology and
application for regulatory approvals for those uses are in an earlier stage than
for use of excimer lasers for treatment for nearsightedness.
Refractive disorders generally are corrected with conventional methods such
as eyeglasses and contact lenses. Alternative treatments for permanently
reshaping the cornea to relieve nearsightedness, farsightedness and astigmatism
include surgical methods, the most popular of which has been RK, discussed
earlier in this Report. RK is used primarily to correct nearsightedness, but is
known to have potential limitations such as: (i) weakening the cornea, (ii)
potential for infection and (iii) producing inconsistent visual correction
results. However, RK procedures are generally substantially less expensive than
LVC procedures.
Vista believes that the market potential for alternative refractive care
utilizing excimer laser systems is commercially significant. Many eyeglass or
contact lens wearers are potential candidates for laser refractive surgery.
Generally speaking, Vista believes that younger persons are more apt to elect
refractive surgery than older people who have become accustomed to eyeglasses or
contact lenses over an extended period. However, the degree to which Vista's LVC
Services can penetrate the potential market for vision correction will depend on
a variety of factors including, but not limited to, medical and public
acceptance of laser vision correction procedures and alternative technologies.
None of these factors is under the immediate control of Vista nor is any
predictable at this time.
Vista's growth strategy includes: (a) increasing market penetration into
Canada and the United States through Vista's sponsorship, investment and
affiliation with Regional Joint Ventures; (b) continuing to promote alliances
with prominent ophthalmologists and other vision care professionals with a goal
of maximizing excimer laser usage for both its European operating subsidiaries
and North American Regional Joint Ventures; (c) targeting Regional Joint Venture
efforts toward specific markets and key demographic groups within their regional
markets; (d) expanding market acceptance of LVC procedures by both vision care
professionals and the general public through Vista's participation in seminars
and training programs and dissemination of public information and advertising;
and (e) on a longer-term basis, the possible acquisition of other companies
engaged in providing LVC Services.
LVC EQUIPMENT AND SUPPLIERS
Vista is not involved in the research, development or manufacture of
refractive laser systems, and is dependent on unrelated manufacturers for the
supply of laser equipment and systems to Regional Joint Venture companies and
for possible expansion in Europe. Vista believes there are four U.S. companies
that have conducted or are conducting clinical trials with excimer lasers for
refractive surgery: in addition to Summit and VISX, these include Chiron Corp.
and LaserSight Incorporated. As discussed earlier, Summit and VISX have received
pre-market approval to commercially sell and market in the United States their
excimer lasers for PRK treatment of low and mild myopia and for PTK procedures.
The current cost of an excimer laser ranges from approximately $475,000 to
$525,000, plus sales tax. For laser equipment purchased from VISX or Summit, the
manufacturer generally requires an additional royalty equal to $250 per PRK
procedure to be paid to Pillar Point Partners, a partnership between VISX and
Summit that holds certain patent rights with respect to their excimer laser
technology. The purchase price typically includes a one or two year warranty on
all parts except the optics (mirror and glass components) which generally carry
a 30-day warranty. Annual maintenance and service fees are contracted for
separately at the time of purchase and range from approximately $40,000 to
$60,000 per year, but these estimates may vary with usage. Due to the equipment
cost, Vista believes that most ophthalmologists interested in LVC surgery
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<PAGE> 35
will not be able or willing to purchase a laser, seek financing for the purchase
and/or arrange for required maintenance of the laser equipment.
Equipment currently maintained or expected to be acquired by the Company's
European operating subsidiaries and Regional Joint Ventures are described above
under the captions "European Operating Subsidiaries", "Vista Laser Centers of
Michigan, Inc." and "Other Vista Laser Centers Regional Joint Ventures".
Reference is also made to Note 12 of the Notes to the Consolidated Financial
Statements. Regional Joint Ventures in which the Company has acquired an
interest plan to enter into additional commitments to purchase and lease LVC
equipment which may be contingent in certain instances upon the respective
Regional Joint Venture obtaining additional financing.
In June 1996, the Company entered into two rental agreements with Summit
for the lease of two Summit Apex excimer lasers. The term of each rental
agreement commences upon equipment installation and will continue for a 27 month
period. After the first three months of operation, each equipment lease provides
for a minimum monthly rental fee of $6,500. The Company anticipates installing
these lasers at one or more of its Regional Joint Ventures under a sublease
arrangement.
FDA PRE-MARKET APPROVAL OF LVC EXCIMER SYSTEMS
Excimer laser systems are regulated as medical devices by the United States
Food and Drug Administration ("FDA") and require pre-market clearance or
pre-market approval (referred to as a "PMA") by the FDA prior to commercial sale
and use in the U.S. Medical devices in the U.S. are classified into one of three
classes on the basis of the controls deemed necessary by the FDA to reasonably
ensure safety and effectiveness. Class III devices, which include medical
lasers, generally are those which must receive PMA by the FDA to ensure their
safety and effectiveness and include, among other devices, new devices which
have been found not to be "substantially equivalent" to existing legally
marketed devices.
A PMA application must be supported by valid scientific evidence which
typically includes extensive preclinical and clinical trial data to demonstrate
the safety and effectiveness of the device. If human clinical trials of a device
are required, and the device presents a "significant risk," the sponsor of the
trial (usually the manufacturer or distributor of the device) will have to file
an Investigational Device Exemption ("IDE") application prior to commencing
human clinical trials. The IDE application must be supported by data, typically
including results of animal and laboratory testing. If the IDE application is
approved, human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA.
A PMA application must contain the results of clinical trials, the results
of all relevant bench tests, laboratory and animal studies, a complete
description of the device and its components, a detailed description of methods,
facilities and controls used to manufacture the device and certain other
information. Upon receipt of a PMA application, the FDA makes a threshold
determination as to whether the application is sufficiently complete to permit a
substantive review. If the FDA determines that the PMA application is
sufficiently complete to permit a substantive review, the FDA will accept the
application for filing. FDA review of a PMA generally takes one to two years
from the date the PMA is accepted for filing, but may take significantly longer.
The review time is often significantly extended by the FDA asking for more
information, including additional clinical trials for clarification of
information provided in the submission. There are devices for which FDA approval
has been sought which have never been approved for marketing in the U.S.
When conditions have been fulfilled to the satisfaction of the FDA, it will
issue a PMA approval letter, authorizing commercial distribution of the device
for certain applications. If the FDA's evaluation is not favorable, the FDA will
deny approval of the PMA application or issue a "not approvable letter". The FDA
may approve a device for some procedures but not others, or for certain classes
of patients and not others. Modifications to a device that is an approved PMA
also may require approval by the FDA of PMA supplements or new PMAs.
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GOVERNMENTAL REGULATION
The manufacturing, labeling, distribution, marketing and promotion of
medical devices such as excimer lasers to which Vista and its affiliated
companies provide access are subject to extensive and rigorous government
regulation in the United States and in certain other countries.
Excimer lasers in the United States are required to be the subject of an
approved PMA application. As noted above, Summit and VISX have received approval
of PMA applications for use of their excimer lasers in PRK and PTK procedures
for the treatment of low to mild myopia. There can be no assurance that FDA
approval will be received by equipment manufacturers for use of PRK for other
refractive disorders, such as extreme myopia, astigmatism and hyperopia
(farsightedness) or that other LVC procedures, such as LASIK or TMM PRK, will
ever be approved by the FDA. Failure to receive such approvals could have the
effect of limiting the market for LVC procedures in the United States, although
the Company's plan in such event is that vision care professionals affiliated
with its Regional Joint Ventures will have an option of referring patients
desiring these alternative procedures to physicians in Canada associated with
one or more Regional Joint Ventures.
Users of medical devices in the United States are subject to continuing FDA
obligations. Medical devices are required to be manufactured in accordance with
regulations setting forth current Good Manufacturing Practices ("GMP"), which
require that devices be manufactured and records be maintained in a prescribed
manner with respect to manufacturing, testing and control activities. It is the
FDA's view that with respect to excimer lasers, users, as well as manufacturers,
are required to comply with FDA requirements with respect to labeling and
promotion. The Medical Device Reporting regulation adopted by the FDA would
require that the user provide information to the FDA whenever there is evidence
to reasonably suggest that one of its devices may have caused or contributed to
a death or serious injury, or that there has occurred a malfunction that would
be likely to cause or contribute to a death or serious injury if the malfunction
were to recur. Users of medical devices are subject to periodic inspections by
the FDA. Failure to comply with applicable FDA requirements could subject one or
more Regional Joint Ventures subject to FDA regulation in the United States to
enforcement action, including product seizures, recalls, withdrawal of
approvals, and civil and criminal penalties, any one or more of which could have
a material adverse effect.
Medical device laws and regulations are also in effect in Canada and
Europe. These range from comprehensive device approval requirements to requests
for product data or certifications. The number and scope of these requirements
are increasing. Medical device laws and regulations are also in effect in some
states in which the Company may plan to sponsor Regional Joint Ventures. The
failure of the Company's European operating subsidiaries or Regional Joint
Ventures to comply with applicable foreign or state medical device laws and
regulations may have a material adverse effect on the Company's business.
Federal, state and foreign laws and regulations regarding the manufacture
and marketing of medical devices are subject to change. For example, the FDA is
currently considering significant changes to its GMP and to other regulations.
The Company cannot predict what impact, if any, such changes might have on its
business.
The operations of Vista's European subsidiaries and the Regional Joint
Ventures are also subject to extensive rules and regulations, both in the United
States and foreign countries at the federal, provincial, state and local level,
affecting the health care industry and the delivery of health care. These
include laws and regulations prohibiting the practice of medicine and optometry
by persons not licensed to practice medicine or optometry, prohibiting the
unlawful rebate or unlawful division of fees and limiting the manner in which
prospective patients may be solicited.
Current regulatory requirements and restrictions that relate to corporate
entities involved in the ownership and operation of healthcare facilities
include prohibitions against: the corporate practice of medicine except by an
entity owned by healthcare professionals and/or wherein the professionals
exercise control over medical judgments; patient referrals by healthcare
professionals (including ophthalmologists and optometrists) to a facility owned
or compensated by such referring professional (either generally, or sometimes by
defining such payments as "kick backs"); and "fee splitting" between healthcare
professionals
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<PAGE> 37
and corporate entities. Other laws in both the United States and foreign
countries specifically regulate the nature and compensation provisions of
employment or management relationships that healthcare professionals may have
with a corporate-owned facility, may affect the form of business entity to be
utilized, may limit payments either to the entity or to healthcare professionals
to the "fair market value" of their contributions, or affect the manner of
marketing the service performed at the healthcare facility. Additional
regulations in some jurisdictions also now affect, or in the future may affect,
the administration and use of LVC Services, including requirements for
certificates of need and/or other licensing and registration of medical
equipment.
Laws and regulations affecting the manner in which LVC Services may be
marketed, administered or compensated for vary significantly from jurisdiction
to jurisdiction. In some instances these laws and regulations are ambiguous, and
sometimes regulators fail to provide adequate guidelines. Vista believes that
its European operating subsidiaries and Regional Joint Ventures have adopted
strategies that enables each of them to offer and administer LVC Services in
compliance with applicable regulatory requirements in their areas of operations.
However, federal, state and provincial regulatory attention may continue to be
directed to the practice of medicine, and any changes in applicable law or
regulations, or in governmental agency and judicial interpretations of such laws
and regulations, could cause one or more of these strategies currently in
compliance with applicable laws to cease to comply.
The use of excimer lasers and other medical equipment is also subject to
numerous government laws and regulations relating to such matters as safe
working conditions, environmental protection, fire hazard control and disposal
of potentially hazardous substances. There can be no assurance that the
Company's European operating subsidiaries and one or more Regional Joint
Ventures will not be required to incur significant costs to comply with such
laws and regulations in the future.
INSURANCE AND INDEMNIFICATION
Health insurance providers in North America generally consider LVC
procedures to be elective surgery and do not provide insurance reimbursement. In
other countries, reimbursement programs vary by country and region, and
reimbursement is not generally available for European locations at which the
Company's European subsidiaries currently operate.
Use of laser systems by health care professionals using laser equipment and
other LVC Services may give rise to claims against Vista or its affiliates by
persons alleging injury. Vista's subsidiaries generally do not currently have
malpractice liability insurance due to limited capital resources.
Vista believes that claims alleging defects in laser systems will be
covered by manufacturers' warranties and the manufacturer's product liability
insurance, and that Vista and its affiliates could take advantage of such
insurance by adding such suppliers to potentially adverse lawsuits. There can be
no assurance that laser suppliers will carry product liability insurance or that
any such insurance will be adequate to protect Vista.
Generally speaking, the policy of Vista's operating subsidiaries and
Regional Joint Ventures are to require that ophthalmologists who perform laser
procedures by use of LVC equipment maintain their own professional liability
insurance.
At a future date, Vista intends to explore the availability and cost of
obtaining umbrella coverage with respect to any malpractice claims relating to
procedures performed by use of LVC Services and of obtaining errors and
omissions coverage with respect to the Company's staff. There can be no
assurance that Vista will be able to retain adequate liability insurance at
reasonable rates, or that insurance or indemnification provided by health care
providers will be adequate to cover claims asserted against Vista, in which
event Vista's business may be materially adversely affected.
PROPRIETARY RIGHTS
Vista has no licenses, patents, registered trademarks or registered
copyrights except that it has filed trademark applications in the United States
and Canada for the service mark "Vista Laser Centers" (TM) and its European
operating subsidiaries conduct business under the name of Vista Vision (TM).
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<PAGE> 38
COMPETITION
The vision care industry is extremely competitive and includes numerous
companies that are substantially larger than Vista and have greater financial,
marketing and technical resources. Vista believes principal competitive factors
affecting revenues include market acceptance of LVC procedures by both patients
and vision care professionals, performance, success relative to alternative
refractive correction methods, pricing, regulatory requirements, quality of
equipment and convenience to the patient and physicians, some of which are
factors beyond the Company's control.
Vista competes with other surgical and non-surgical forms of treatments for
refractive disorders, including eyeglasses, contact lenses, manual refractive
surgery (such as RK), corneal transplants and possibly other new technologies
currently under development. Continued use of eyeglasses and contact lens are
expected to be the most popular methods of treating refractive vision disorders
due to low immediate cost and the avoidance of surgery. Notwithstanding certain
limitations and disadvantages compared to LVC procedures, RK surgery is
generally less expensive than are LVC procedures, and RK may remain a
competitive surgical treatment due to cost considerations or the skills of
particular physicians.
The market for access to excimer lasers is highly competitive and Vista and
its Regional Joint Ventures compete, or will compete, in various geographic
markets with other businesses formed since 1990 offering similar access to LVC
equipment and services in Europe, Canada and the United States. These
competitors are pursuing a variety of business and marketing strategies, such as
marketing directly to consumers through optical chains or affiliating with
hospitals or physician group practices.
Summit, a supplier of laser equipment, has indicated it plans, through a
subsidiary named Refractive Centers International, Inc., to open various laser
centers in the United States. Other companies which do not manufacture laser
equipment currently provide, or have indicated they intend to provide, access to
laser equipment in the United States, including: Beacon Eye Institute Inc. (a
subsidiary of Siddeley Canada Inc.); Vision International, Inc., which operates
PRK clinics in Mexico, Finland and Argentina; Laser Vision Centers, Inc.
("LVCI"), which has operated centers in Canada since 1991 and in Europe since
1993; Global Vision, Inc.; LCA Vision, Inc.; Sight Resources, Inc.; Sterling
Vision, Inc.; The Laser Centre; and 20/20 Laser Centers, Inc. Additional
competition also exists or may develop from hospital affiliated groups,
physician group practices and private ophthalmologists electing to purchase
refractive laser systems in certain markets, some of whom are believed to
operate equipment for which royalties are not payable to a laser manufacturer.
LVCI reportedly operates 12 sites in the U.S., and plans to open additional U.S.
locations, in conjunction with Columbia Healthcare Corporation, formerly named
Columbia/HCA, which operates ambulatory surgery centers in approximately 27
states. LVCI has also announced plans to develop self-contained mobile laser
surgery centers and to apply for pre-market approval of its mobile system with
the FDA.
The ability of Vista and its Regional Joint Ventures to compete
successfully may also depend in the future on their ability to adapt to
technological changes and advances in the treatment of refractive vision
disorders. There can be no assurance that, as the market for excimer laser
surgery and other treatments of refractive disorders develops, that equipment
owned and/or leased by Vista and its affiliates will not become obsolete, and if
this occurs, there can be no assurance that Vista will be able to secure new
equipment to allow Vista and its affiliates to compete effectively.
INVESTMENT IN TECHNICAL CHEMICALS AND PRODUCTS, INC.
As part of an Exchange Agreement between Vista and the Company generating
additional financing for Vista in March 1996, Vista received 200,000 restricted
shares of Technical Chemicals and Products, Inc. ("TCPI") common stock from
Pharma Patch at a stated value of $4,400,000, or $22.00 per TCPI share. On March
1, 1996, the date the Company and Vista concluded negotiations for the Exchange
Agreement, the high and low sale prices quoted for TCPI common stock were $22.25
and $21.375, respectively. Subsequent closing prices for TCPI common stock were
$16.50 on March 31, 1996 and $10.25 on August 8, 1996.
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<PAGE> 39
TCPI is principally engaged in the design, development, manufacture and
marketing of a wide range of medical diagnostic products for use in physician
offices, at home and at other point-of-care locations. TCPI's medical diagnostic
products employ patented and proprietary membrane-based technology, and include
approximately 25 different tests to detect conditions such as pregnancy,
ovulation timing, cholesterol levels, blood glucose levels, infectious diseases
and drugs of abuse. TCPI markets diagnostic products through a marketing and
distribution alliance between TCPI and Boehringer Mannheim and also markets
products under its proprietary brand name and under private label arrangements
to drug, discount and supermarket chains. In addition to its diagnostics
business, TCPI is also involved, through its Pharmetrix Division acquired from
Pharma Patch PLC in November 1995, in research, development and
commercialization of transdermal and mucosal drug delivery systems and skin
permeation enhancers. For its fiscal year ended December 31, 1995, TCPI reported
net sales of $4,188,000 and a net loss of $1,494,000.
TCPI's common stock is publicly-traded in the over-the-counter market and
quoted on the Nasdaq SmallCap Market under the symbol "TCPI". TCPI is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission") which may
be inspected and copied at the public reference facilities maintained by the
Commission at its principal office in Washington D.C. and at its regional
offices in Chicago and New York.
As the assignee of the Company with respect to its investment in TCPI, the
Company is entitled to certain benefits and subject to certain obligations
arising under prior agreements between the Company and TCPI. TCPI filed a
registration statement on Form S-3 to register certain shares of TCPI common
stock acquired by the Company from TCPI, including the 200,000 shares assigned
to Vista. The resale of these shares pursuant to such registration is subject to
a lock-up agreement executed by Vista. Under that lock-up, Vista has agreed it
will not sell, contract to sell, grant any option for the sale of, or otherwise
directly or indirectly dispose of Vista's shares of TCPI common stock during the
period expiring on October 31, 1996 without the prior consent of the
representative of the underwriters of TCPI's public offering.
EMPLOYEES
Vista's corporate operations employ the services of eight employees and
consultants, including three on a full time basis and five on a part-time basis,
all of which are involved in management or administrative functions. Vista's
European subsidiaries employ six persons at Vista-Italy and five persons at
Vista-Sweden. Management believes that the Company's relationship with its
employees is satisfactory. As the Company expands, it expects to add additional
employees, primarily in marketing, administrative and management positions. The
Company does not anticipate difficulty in hiring such personnel when needed.
DESCRIPTION OF PROPERTY
Vista's principal office is located at 1250 Oakmead Parkway, Suite 210,
Sunnyvale, California 92088-3599. Commencing in mid-August 1996, the Company
will relocate its principal office to 167 S. San Antonio Road, Suite 9, Los
Altos, California 94022.
The Company and its subsidiaries do not own any real property. The
following table summarizes information as to facilities utilized by the Company
and its European operating subsidiaries.
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<PAGE> 40
Vista's principal office is located at 1250 Oakmead Parkway, Suite 210,
Sunnyvale, California 92088-3599. Vista and its subsidiaries do not own any real
property. The following table summarizes information as to facilities utilized
by Vista and its European operating subsidiaries:
<TABLE>
<CAPTION>
SIZE AND LEASE--
LOCATION USE EXPIRATION DATA
- -------------------------------- ------------------ --------------------------------------------
<S> <C> <C>
UNITED STATES FACILITIES:
Vista Technologies Inc. Corporate offices 404 square feet; expires 8/31/96
1250 Oakmead Parkway, Suite
210 Sunnyvale,
California
167 S. San Antonio Road Corporate offices 1,042 square feet; expires 7/31/01
Suite 9
Los Altos,
California
EUROPEAN FACILITIES:
Vista Vision Spa:
Milan Center LVC center 430 square feet; expires (renewed every 3
Milan, Italy years unless notice given six months in
advance)
Pisa Center LVC center 480 square feet; expires February 1999
Pisa, Italy (renewed every 3 years unless notice given
six months in advance)
Rome Center LVC center 1,600 square feet; expires November 2000
Rome, Italy
Vista Vision Scandinavia AB:
Klara Clinic LVC center shared use of facilities under operating
Stockholm, Sweden agreement expiring Sept. 30, 1996 (renewed
every years unless notice given 9 months in
advance)
Malmo Center LVC center shares use of facilities operating agreement
Malmo, Sweden with Gustav Adolf Clinic expiring on May 1,
1988 (renewed every 3 years unless notice
given 12 months in advance)
</TABLE>
The Company believes that its facilities are in good operating condition
and repair and are adequate for their existing requirements. See Note 12 of the
Notes to Consolidated Financial Statements elsewhere herein for additional
information concerning lease obligations of the Company. The lease for the
Company's new corporate offices in Los Altos, California provides for a base
rental of $2,084 per month adjusted at the end of each year during the five-year
term for changes in the consumer price index and in any event not less than a 3%
nor more than a 7% increase per year.
LEGAL PROCEEDINGS
PENDING-LEGAL PROCEEDINGS AS TO VISTA-ITALY
Vista-Italy is a party to pending litigation proceedings arising as a
result of prior transactions between Vista-Italy and Laser Vision Centers, Inc.
("LVCI") of St. Louis, Missouri. An unfavorable determination in these
proceedings would not adversely affect the business operations of the Company or
Vista-Italy as presently conducted.
On October 9, 1993, LVCI filed civil litigation in the Circuit Court of St.
Louis County, Missouri against Vista-Italy alleging fraud and breach of contract
on the part of Vista-Italy arising from agreements made and partly performed
between the parties from May 1991 to March 1993. Vista-Italy did not file
responsive
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<PAGE> 41
pleadings in this proceeding based upon its counsel's advice, among other
things, that the Missouri court did not have jurisdiction. On December 17, 1993,
a default judgment was entered in this action against Vista-Italy (a)
terminating and rescinding all agreements and proposed agreements between LVCI
and Vista-Italy, (b) awarding damages of $175,000 against Vista-Italy, and (c)
ordering a return to LVCI of 275,000 shares of its common stock previously
issued or issuable to Vista-Italy (of which only 200,000 shares were delivered
to Vista-Italy). Vista-Italy filed a motion to vacate this judgment which was
denied by the trial court; the trial court's decision recently was affirmed on
appeal. Vista-Italy intends to apply for a rehearing by the appellate court or,
in the alternative, to petition for an appeal to the Missouri Supreme Court. The
ultimate outcome of these proceedings cannot presently be determined.
In view of the default judgment and uncertainty as to the ability of
Vista-Italy to set aside that judgment, Vista recorded the following
transactions on its consolidated financial statements as of September 30, 1994;
(i) the cancellation of 287,500 shares of Vista-Italy previously issued to LVCI
under the agreements that would be rescinded by the default judgment; (ii)
cancellation of 200,000 shares of LVCI stock previously delivered to
Vista-Italy; and (iii) an accrued liability of approximately $175,000 for
damages awarded by the default judgment. Vista-Italy does not believe that the
money damage portion of the default judgment would be enforced by a court of
competent jurisdiction in Italy.
SEC SUBPOENA RELATING TO TRADING IN U.S. SHOE CORP. SECURITIES
In June 1996, the Company received a subpoena duces tacum from the
Securities and Exchange Commission ("Commission") in connection with an
investigation by the Commission into trading in the securities of U.S. Shoe
Corp., Commission File Number HO-3018. Based on the subpoena, this investigation
is apparently focused on trading in U.S. Shoe Corp. securities during the period
from October 1, 1994 through March 3, 1995. The subpoena requires the Company to
furnish the Commission with various documents relating, among other things, to
the Company's bank accounts, brokerage accounts, telephone records and documents
referring or relating to 29 named individuals and entities. As of July 29, 1996,
Vista had transmitted to the Commission copies of all documents then in its
possession required by the subpoena. (Additional documents received from storage
files of a former executive officer were delivered to Vista on July 29, 1996 and
will be produced for the Commission after review by the Company's counsel.) The
Company has never directly or indirectly traded in the securities of U.S. Shoe
Corp. and management therefore believes that Vista is not a target of the
Commission's investigation. Counsel for Jac. J. Lam, a former director of Vista,
has advised the Company that Mr. Lam purchased call options covering securities
of U.S. Shoe Corp. during 1994 based solely on then publicly-available
information. To avoid any possible complications arising as a result of these
proceedings, Mr. Lam resigned as a director of the Company on July 2, 1996.
OTHER
In two separate instances, a physician planning to associate with a
Regional Joint Venture sponsored by Vista has been advised by a third party that
it contends the physician breached commitments or obligations to the third party
by the physician's decision to associate with one of Vista's Regional Joint
Ventures. In one of these matters, the third party contends that its plan of
operations to enter the business of providing access to LVC equipment in
association with the physician has been damaged. In the other, the third party
contends that the physician breached fiduciary duties to the third party and
misappropriated client lists and data, and the claimant also has threatened to
hold Vista and certain other parties responsible as well as the physician. To
date, neither dispute has resulted in the filing of legal proceedings although
legal proceedings have been threatened. Based on information currently known to
Vista, Vista believes these claims are without merit and will not result in
material liability to the either of the Regional Joint Ventures involved or to
Vista.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Shares of Vista common stock were initially offered and sold to the public
in an initial public offering completed in December 1993. However, an active
trading market did not develop until March 18, 1996 following a one-for-five
reverse stock split as to the Company's common stock effective as of March 15,
1996.
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<PAGE> 42
Vista's common stock is traded in the over-the-counter market and quoted on the
NASD's Electronic Bulletin Board under the trading symbol "VIII". The following
table sets forth, for the periods indicated, the high and low closing bid and
asked prices for Vista's common stock as reported by the National Quotation
Bureau, Inc. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
CLOSING BID PRICES CLOSING ASKED PRICES
-------------------- ------------------------
PERIOD HIGH BID LOW BID HIGH ASKED LOW ASKED
- -------------------------------------------------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C>
1996:
Quarter ended March 31 (from March 18).......... $ 2.50 $0.875 $2.625 $ 2.50
Quarter ended June 30........................... $ 4.50 $ 2.50 $ 6.00 $ 2.625
July 1, 1996 to July 22, 1996................... $ 3.00 $ 2.50 $ 3.75 $ 3.00
</TABLE>
On July 15, 1996, the closing sale price for Vista's common stock as
reported in the over-the-counter market was $3.00 and the closing bid and asked
prices were $2.875 bid and $3.50 asked. As of July 8, 1996, there were
approximately 135 holders of record of Vista's Common Stock. Additional
beneficial owners of the Common Stock hold shares in street name or other
nominee accounts.
No cash dividends have been declared or paid by Vista since its inception.
Vista intends to employ all available funds for development of its business and,
accordingly, does not intend to pay cash dividends in the foreseeable future.
There are no contractual provisions that would prohibit Vista from payment of
dividends on its common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
INTRODUCTION AND PLAN OF OPERATION
Vista commenced business operations in February 1994. Vista acquired
controlling equity interests in European subsidiaries during 1994, made
substantial investments in Medical Development Resources, Inc. ("MDRI") and its
subsidiaries in 1994 and 1995, and developed a strategic plan in mid-1995 to
sponsor and invest in Regional Joint Ventures to conduct additional LVC Services
businesses in regional markets of North America.
Since commencing operations, Vista has financed its business operations,
acquisition and expansion activities primarily from the issuance or sale of
equity securities. From February 1994 through March 31, 1996, Vista had received
approximately $7,437,500 from the sale of 1,197,500 shares of common stock and
1,225,000 warrants, approximately $278,000 from the sale of convertible debt
instruments, and had issued an additional 3,692,756 shares of common stock and
259,000 warrants in connection with the acquisition of other assets and
investments.
Vista made significant investments in MDRI and its subsidiaries from May
1994 through March 1995. In July 1995, Vista terminated and rescinded all of its
executory agreements with MDRI and certain of its stockholders and noteholders.
Vista's investment in cash, securities issued and loans advanced for its
investment in MDRI of approximately $5,643,000 was written-off at March 31,
1995.
At March 31, 1996, Vista had an accumulated deficit of $15,036,000 incurred
as a result of the $5,643,000 writeoff of its investment in MDRI in fiscal 1995,
a $3,826,000 impairment of goodwill during fiscal 1995 and otherwise primarily
as a result of losses from operations in the fiscal years ended March 31, 1995
and 1996. Vista's net loss for the most recent fiscal year ended March 31, 1996
was $3,815,000. Vista's European subsidiaries have not operated profitably since
their inception; although its Italian subsidiary generated positive cash flow
from operations in fiscal 1996 and Vista-Sweden's cash flow from operations was
approximately cash neutral, there can be no assurance that European operations
will be profitable in the future.
Management's strategy developed in mid-1995 has been to expand its
participation in a developing market for LVC Services in the United States,
anticipated as a result of recent FDA approval of excimer laser
39
<PAGE> 43
equipment for certain PRK and PTK procedures, while at the same time minimizing
Vista's short-term cash requirements for such expansion. Since insurance
reimbursement is not available, Vista's management believes the skills and
reputation of health care professionals involved in recommending and performing
refractive eye procedures are an important and often critical element in the
patient's decision to elect an LVC refractive procedure. Vista has therefore
designed and is implementing a program to organize and sponsor U.S. and Canadian
Regional Joint Ventures in alliance with prominent physicians that are to be
largely independently financed and will offer advantages of equity incentives
and management control to skilled and prominent ophthalmologists experienced in
a variety of LVC treatments, procedures and post-operative care.
Vista plans to continue to seek additional capital through the private
placement and/or public sale of its equity securities, use of equipment lease
financing, and sale of marketable securities in TCPI when possible to finance
Vista's operations and expansion plans in North America.
Vista's business activities are subject to both predictable and unforeseen
risks incident to the creation of new businesses with a limited history of
operations. Prospective investors should consider the frequency with which newly
developed businesses encounter unforeseen expenses, difficulties, complications
and delays, and other factors such as Vista's losses from its continuing
operations.
RESULTS OF OPERATIONS:
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
Revenues: During the fiscal year ended March 31, 1996 (the "1996 Year"),
Vista's consolidated revenues from operations were $2,130,000, an increase of
76% compared to $1,210,000 in consolidated revenues for the prior fiscal year
ended March 31, 1995 (the "1995 Year"). Consolidated revenues in the 1996 Year
principally included $1,216,000 attributable to the operations of Vista-Italy,
approximately a 100% increase compared to the 1995 Year, and $929,000 from the
operations of Vista-Sweden, an increase of approximately 60% over the 1995 Year.
These increases were in part attributable to new LVC Services centers opened in
January 1995 and August 1995 in Rome, Italy and Malmo, Sweden, respectively, and
in part to increases in the number of LVC procedures performed at other
locations of Vista-Italy and Vista-Sweden.
Operating Expenses: Costs and expenses of operations for the 1996 Year were
$5,092,000, an increase of 51.8% compared to costs and expenses of operations of
$3,354,000 in the 1995 Year. Vista believes that increases in costs and expenses
of operation were generally commensurate with the 76% increase in consolidated
revenues. Costs and expenses in the 1996 Year consisted of $4,625,000 in general
and administrative expenses, a 66.8% increase compared to the 1995 Year, and
$468,000 in depreciation and amortization, a $113,000 decrease compared to the
1995 Year. General and administrative expenses for the 1996 Year included
$1,173,000 for Vista-Italy, a 40% increase compared to the 1995 Year, and
$1,198,000 for Vista-Sweden, a 127% increase compared to the 1995 Year due
primarily to start-up operations in Malmo. Costs and expenses for operations in
England which were closed in June 1995 were $152,000 for the 1996 Year compared
to $199,000 in the prior 1995 Year. Vista's European subsidiaries accordingly
sustained losses from operations in the 1996 Year that were significantly
reduced compared to the 1995 Year and will not be impacted in future years by
the England operation closed in June 1995. Vista-Italy generated positive cash
flow from operations in fiscal 1996 and Vista-Sweden's cash flow from operations
was approximately cash neutral as a result of the start-up at Malmo. Profitable
operations from European operating subsidiaries in the future will be dependent
upon increasing revenues, as to which there can be no assurance. Other major
components of Vista's general and administrative expenses in the 1996 Year
included approximately $2,552,000 of general and administrative expenses at the
Vista parent corporation level.
Other Expenses and Income: Other net expenses in the 1996 year totalled
$843,000, a reduction of $3,012,000 compared to $3,855,000 in other net expenses
in the prior 1995 Year. The primary portion of such expenses in the prior 1995
Year was nonrecurring charges of $3,826,000 for impairment of goodwill relating
to Vista's investments in its European subsidiaries ($2,762,000 relating to
Vista-Italy, $633,000 as to Vista-UK and $431,000 relating to Vista-Sweden and
Convista Vision B.V.). Approximately 53% of other net expenses in the 1996 Year
was a charge of $447,000 for the impairment of idle equipment formerly used at .
Other major components of income and expense items in the 1996 Year included a
reserve of $135,000 for losses
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<PAGE> 44
incurred in closing operations in England, a $152,000 loss on trading securities
and $64,000 of interest expense. Interest expense increased by $54,000 compared
to the prior 1995 Year due to an increase in outstanding debt obligations.
Net Loss: Net loss for the 1996 Year was $3,815,000, equal to a net loss of
$1.92 per common share, compared to a net loss in the 1995 Year of $11,420,000,
or $9.64 per common share.
FISCAL YEAR ENDED MARCH 31, 1995
Revenues: During the fiscal year ended March 31, 1995 (the "1995 Year"),
Vista's consolidated revenues from operations were $1,210,000. Consolidated
revenues principally included $607,000 attributable to the operations of
VistaItaly and $580,000 to the operations of Vista-Sweden. No revenues were
recognized in the comparable prior year's twelve month period ended March 31,
1994 because Vista had not acquired interests in operating subsidiaries prior to
March 31, 1994.
Operating Expenses: Costs and expenses of operations for the 1995 Year were
$3,354,000, consisting of $2,773,000 in general and administrative expenses and
$581,000 in depreciation and amortization. General and administrative expenses
for the 1995 Year included $836,000 for Vista-Italy, $526,000 for Vista-Sweden
and $199,000 for operations in England which were closed in June 1995. Vista's
European subsidiaries accordingly sustained losses from operations in the 1995
Year, which increased as a result of the start-up of a clinic in Rome and the
relocation of the Milan clinic. Other major components of general and
administrative expenses in the 1995 Year included approximately $463,000 in
legal and accounting fees, a majority of which were attributable to transactions
with Medical Development Resources, Inc. that were ultimately abandoned in July
1995, $226,000 in officers' salaries, $208,000 in travel expenses and $131,000
in consulting fees.
Other Expenses and Income: Other net expenses in the 1995 year totalled
$3,855,000. The primary portion of such expenses was a $3,826,000 impairment of
goodwill charge relating to the Company's investments in its European
subsidiaries ($2,762,000 relating to Vista-Italy, $633,000 as to Vista-UK and
$431,000 relating to Vista-Sweden and Convista Vision B.V.). Other income and
expense items included an expense reserve of $186,000 for litigation, a writeoff
of $125,000 in advances to a stockholder and $29,000 in foreign currency
exchange losses; these expenses were partially offset by $129,000 of realized
gains and $117,000 of unrealized gains on trading securities.
Extraordinary Loss: During the 1995 Year, Vista recognized an extraordinary
loss of $5,643,000 attributable to the write-off of its investment in, and
advances to, Medical Development Resources, Inc. and its subsidiaries. See Item
12 of this Report and the Notes to Consolidated Financial Statements included
elsewhere herein.
Net Loss: Net loss for the 1995 Year was $11,420,000, equal to a net loss
of $9.64 per common share. The 1995 Year includes results of operations of
consolidated subsidiaries only from their respective dates of acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Vista's principal capital requirements include working capital for
management and administration, cash resources to finance programs to acquire
additional LVC equipment and support activities of Regional Joint Ventures
sponsored by the Company since June 1995, and in the future, anticipated
requirement to finance sales and marketing and other working capital
requirements. Subject to the availability of adequate capital, as to which there
can be no assurance, expenditures for additional excimer laser equipment may be
significant during the foreseeable future to support Vista's program of
expanding LVC Services and supporting the activities of Regional Joint Ventures.
Due to a lack of capital and in order to sustain the Vista parent corporation's
operations from June 1995 through December 1995, corporate activities during the
1996 Year were financed in part by the issuance of 925,000 shares of common
stock in December 1995 at an negotiated cost of $1,470,000.
As of March 31, 1996, Vista had $288,000 in cash and a deficit consolidated
working capital of $67,000. An additional $1,675,000 in cash was generated
subsequent to March 31, 1996 by the collection of $750,000
41
<PAGE> 45
short-term note from the Company and collection of a stock subscription
receivable for $212,500, both of which were included as current assets on
Vista's consolidated financial statements at March 31, 1996, and the sale in
June 1996 of common stock for an additional $212,500. Vista's long-term assets
include 200,000 restricted shares of TCPI common stock which are expected to be
registered and available for resale by Vista after September 30, 1996. Vista
plans to continue to seek additional capital through the private placement
and/or public sale of its equity securities, use of equipment lease financing,
and sale of marketable securities in TCPI when possible to finance the Company's
operations and expansion plans in North America.
Although Vista's European operating subsidiaries appear to have achieved
positive or neutral cash flow levels of operations, Vista's management
anticipates that its consolidated operations will incur negative cash flows for
the immediate future, primarily due to fixed expenses for corporate general and
administrative overhead. There can be no assurance that Vista's consolidated
revenues will increase to the point that operating expenses will be fully
absorbed by revenues from operations.
U.S. DOLLAR PRESENTATION AND FOREIGN CURRENCY FLUCTUATIONS
Vista publishes its consolidated financial statements in U.S. dollars after
translating transactions in foreign currencies to U.S. dollars. A significant
portion of Vista's consolidated revenues and expenses are collected and paid in
local currency of its European operating subsidiaries, i.e. Italian lira and
Swedish krona. Income and expense items in foreign currencies are translated at
the weighted average exchange rate prevailing during the period, except that
expenses related to nonmonetary assets and liabilities are translated at
historical rates. In periods when the U.S. dollar depreciates against relevant
foreign currencies, reported earnings attributable to transactions in foreign
currencies may be materially enhanced. In periods when the U.S. dollar
appreciates against the relevant foreign currencies, however, reported earnings
attributable to transactions in foreign currencies may be materially reduced.
Fluctuations in the exchange rate between relevant foreign currencies and the
U.S. dollar may also affect the book value of Vista's consolidated assets and
the amount of its stockholders' equity. Except as otherwise stated in this
Report, all monetary amounts have been presented in U.S. dollars.
DIRECTORS AND EXECUTIVE OFFICERS
Vista's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
Donald G. Johnson, M.D. 57 Chairman of the Board; Director
Thomas A. Schultz 46 President and Chief Executive Officer;
Director
Murray D. Watson 52 Vice Chairman of the Board; Director
J. Charles Casebeer 57 Director
Kenneth G. Howling 38 Treasurer and Chief Financial Officer
William M. Curtis 55 Secretary
</TABLE>
DR. DONALD G. JOHNSON was elected Chairman of the Board and a director of
Vista on February 16, 1996. Dr. Johnson, an ophthalmologist actively practicing
in Canada, has successfully treated approximately 7,400 eyes with excimer laser
procedures as of December 31, 1995. He also developed the proprietary Johnson
transepilthelial multi-zone, multi-pass PRK procedure ("TMM PRK"), which
provides for a smoother ablation zone and substantially reduces glare and
central islands side effects sometimes encountered in standard PRK procedures.
Dr. Johnson has practiced in New Westminster, British Columbia continuously
since 1969, first participating in a group practice for general ophthalmology
from 1969 to 1981, then as a solo practitioner from 1981 to 1985. He established
the London Place Eye Centre in New Westminster as an outpatient medical and
surgical eye center in November 1985 where he still practices. Dr. Johnson has
published 16 articles and conducted 11 clinical investigation studies in the
field of ophthalmology, including clinical investigations of the VISX 20/20 and
Nidek EC-5000 excimer lasers and the Sunrise holmium laser. He has appeared as a
guest speaker on radio and television and at numerous hospital and professional
seminars since 1991 on subjects relating to excimer lasers. Dr. Johnson has been
affiliated with St. Mary's Hospital,
42
<PAGE> 46
Royal Columbian Hospital and Surrey Memorial Hospital since 1969 and Whitehorse
General Hospital since 1970. He received his M.D. degree from the University of
Western Ontario, served his internship at Toronto Western Hospital, his general
surgery residency at Shaughnessy Hospital, Vancouver, British Columbia, and his
ophthalmology residency at the University of British Columbia. His post graduate
accomplishments include certifications in the United States for radial
keratotomy (1984), epikeratophakia (1986), advanced corneal transplantation
(1987), small incision cataract and advanced phacoemulsification (1990) and
excimer laser PRK and PTK (1990) and certification in Germany for non freeze
B.S.K. method of lamellar keratoplasty (1988).
THOMAS A. SCHULTZ was elected a director, President and Chief Executive
Officer of Vista on February 16, 1996. Mr. Schultz was a director and employee
of Chrystallume, Inc., from 1986 to January 16, 1996 and served as its Chairman
of the Board and Chief Executive Officer from April 15, 1993 until October 15,
1995. Chrystallume, a publicly-held company, produced diamond film for
electronic and industrial applications. From 1983 to 1986, Mr. Schultz served as
Corporate Vice President of Dole Food Co., formerly named Castle and Cooke,
Inc., a consumer foods company. From 1979 to 1983, he was a staff member of
Booz, Allen & Hamilton, an international business consulting firm. Mr. Schultz
holds a B.E.S. degree in Operations Research from John Hopkins University and an
M.B.A. from Harvard Business School.
MURRAY D. WATSON was elected a director of Vista on January 31, 1994 and
Vice Chairman of the Board on February 16, 1996. He has served as Chairman of
the Board, Chief Executive Officer and a director of the Company, a
publicly-traded company, since July 1993. The Company is an Irish public company
and was engaged in the research and development of both advanced transdermal
drug delivery systems and advanced skin penetration enhancers, a business sold
by the Company in late 1995 to Technical & Chemical Products, Inc. Prior to July
1993, Mr. Watson had been the President and Chief Operating Officer of the
Company's predecessor, Medipro Sciences Limited, from November 1987. Mr. Watson
has over 25 years of experience in the international health care industry,
including Vice President, Picker International, Inc.; President, Odyssey, Inc.;
and General Manager, American Hospital Supply Corp. of Canada. As president
since 1985 of the M.D.W. Group, Inc., a privately owned merchant banking
company, he has managed a broad spectrum of business ventures. Mr. Watson
received his B.A. Science in Civil Engineering in 1965 from the University of
Toronto and his M.B.A. in 1971 from York University, Toronto, Canada.
DR. J. CHARLES CASEBEER was elected a director of Vista and its Chairman of
the Board on February 16, 1996. Dr. Casebeer is an ophthalmologist actively
practicing in the United States and his experience since 1983 includes over
10,000 refractive procedures and the education of more than 3,000 physicians
worldwide in various refractive procedures ranging from radial keratotomy ("RK")
to PRK and laser assisted in situ keratomileusis ("LASIK"). He has been engaged
in private practice from 1971 to the present time, including associations with
the Northern Arizona Eye Clinic, Ltd. Outpatient Surgery Center, Flagstaff,
Arizona from 1971 to July 1994, where he served as President and Medical
Director; Northern Arizona Eye Clinic, Ltd., Scottsdale, Arizona from 1992 to
May 1994; the J. Charles Casebeer Laser/Refractive Surgery Center Ltd.,
Scottsdale, Arizona from May 1994 to August 1994; and Casebeer Eye Centers,
Ltd., Scottsdale, Arizona from August 1994 to the present. Dr. Casebeer's
experience in keratorefractive surgery dates from 1983 to the present, and
includes more than 6,000 cases. From 1987 to the present, Dr. Casebeer has
served as a Course Director in RK technique and practice development and in
automated lamellar keratoplasty ("ALK") at numerous courses and symposiums
worldwide. Since 1992, he has been a Clinical Professor for the University of
Utah Department of Ophthalmology. Dr. Casebeer has lectured extensively since
1989 at over 150 seminars, courses and symposiums on various refractive surgery
topics including, among others, RK, ALK and LASIK procedures. He has authored
four books or book chapters on refractive surgery, has 16 articles published in
peer-reviewed medical journals, and since July 1993 has authored a monthly
ocular surgery news column entitled "The Comprehensive Refractive Surgeon" in
Ocular Surgery News. He received his B.A. degree from Harvard University, his
Doctor of Medicine degree from the University of Southern California School of
Medicine, served his internship at the Medical College of Virginia, his
residency in ophthalmology at Stanford University Medical Center and currently
holds professional licenses in the States of Arizona, California and Utah.
43
<PAGE> 47
KENNETH G. HOWLING was elected Treasurer and Chief Financial Officer of
Vista on February 16, 1996. He has served from November 8, 1993 until the
present time as Vice President of Finance and Chief Financial Officer of the
Company. From June 1988 until November 1993, Mr. Howling was employed by Roberts
Company Canada Limited in the capacities of corporate Secretary and Controller
from June 1988 until May 1991 and as General Manager from June 1991 until
November 1993. Prior to June 1988, he was employed for ten years in financial
and general management positions with Smith Kline Beecham, Bancard Allergy
Laboratories, McGraw Edison and Price Waterhouse. Mr. Howling has been involved
in acquisitions, corporate restructuring, cash flow management, human resource
management and management information systems. He received a Certified Public
Accountant license from the State of New Jersey in 1987 and holds a B.A. degree
in Accounting from Upsala College in East Orange, New Jersey.
WILLIAM M. CURTIS was elected corporate Secretary of Vista in October 1994.
Mr. Curtis has been principally engaged in a private law practice in Southern
California since 1976 specializing in corporate, merger and acquisition, finance
and securities matters. Mr. Curtis holds a law degree from Duke University.
There is no family relationship between any of Vista's directors and
executive officers. All directors hold office until the next annual meeting of
stockholders and until their successors are elected. Officers serve at the
discretion of the Board of Directors. There are no arrangements or
understandings between any director and any other person pursuant to which any
person was elected or nominated as a director.
The Board of Directors currently has a Compensation Committee and a Stock
Option Committee.
The Compensation Committee is responsible for reviewing and reporting to
the Board on the recommended annual compensation for Vista's executive officers
and for reviewing management recommendations concerning compensation programs
for other members of management. The Compensation Committee met once during the
fiscal year ended March 31, 1996 at a meeting of the full Board. The
Compensation Committee currently consists of Mr. Watson and a vacancy to be
filled by the Board.
The Stock Option Committee is responsible for granting options under the
Company's employee stock option plans, establishing the terms and conditions of
options granted under those plans, and administering employee stock options.
Actions by the Stock Option Committee during the fiscal year ended March 31,
1996 were by unanimous written consent and at one meeting of the full Board of
Directors. The Stock Option Committee currently consists of Mr. Watson and a
vacancy to be filled by the Board.
Vista intends to establish an Audit Committee during 1996 responsible for
meeting independently with representatives of Vista's independent accountants
and with representatives of senior management. The Audit Committee will also be
responsible for reviewing the general scope of the audit and matters relating to
internal control systems.
During the fiscal year ended March 31, 1996 the Board of Directors held
eight meetings and took certain actions by unanimous written consent of the
Board. No incumbent director attended fewer than 75% of all meetings of the
Board of Directors.
No director received compensation for his services as a director during the
fiscal year ended March 31, 1996, except that an award of 25,000 shares of
common stock was granted by Vista to each of its three then directors in
December 1995, including Murray D. Watson and two former directors. Although the
Company has no current compensation plan for directors other than stock options,
Vista's By-Laws permits compensation of directors and the Board reserves the
right of changing compensation policies for directors from time to time. The
salaries of all officers are subject to review and adjustment from time to time
by the Board of Directors.
44
<PAGE> 48
SUMMARY EXECUTIVE COMPENSATION
The following Summary Compensation Table indicates the cash compensation
paid by Vista as well as certain other compensation, paid or accrued for its
fiscal years ended March 31, 1996 and 1995 to each of its Chief Executive
Officer and other executive officers whose salary and bonus exceeded $100,000
for such periods.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------- -------------------------- PAYOUTS
OTHER RESTRICTED SECURITIES -------
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPEN- AWARDS OPTIONS PAYOUTS COMPEN-
PRINCIPAL POSITION YEAR(1) ($) ($) SATION ($) ($) SARS (#) ($) SATION ($)
- -------------------------------- ------- -------- -------- ---------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas A. Schultz 1996 $ 12,000 -0- -0- -0- 300,000 -0- (6)
President and Chief Executive
Officer(2)
Jac. J. Lam 1996 $225,000 -0- -0- $ 18,750(7) -0- -0- -0-
President and Chief Executive
Officer(3)
Drago A. Cerchiari 1996 $ 20,000 -0- $ 20,260(8) $ 25,000(8) -0- -0- -0-
President & Chief Executive 1995 $ 33,100 -0- $ 84,000(9) -0- 190,000 -0- -0-
Officer(4)
G. Lennart Perlhagen 1995 $130,000 -0- -0- -0- -0- -0- -0-
Chairman or President and
Chief Executive Officer(5)
</TABLE>
- ---------------
(1) Information set forth in the table represents data for the fiscal years
ended March 31, 1996 ("1996") and March 31, 1995 ("1995").
(2) Mr. Schultz was elected President and Chief Executive Officer of the Company
on February 16, 1996.
(3) Mr. Lam was elected acting President and Chief Executive Officer of the
Company on June 9, 1995 and resigned from that position when he was replaced
on February 16, 1996.
(4) Mr. Cerchiari was elected President and Chief Executive Officer of the
Company on February 1, 1995 and resigned as an executive officer of the
Company on June 1, 1995.
(5) Mr. Perlhagen was elected Chairman, President and Chief Executive Officer of
the Company on February 1, 1994. On January 15, 1995, he relinquished the
titles of President and Chief Executive Officer. Mr. Perlhagen resigned as
an executive officer of the Company on June 1, 1995.
(6) Mr. Schultz's employment agreement provides he will be entitled to a cash
bonus of $75,000 upon the filing of the second of two registration
statements for an initial public offering by Regional Joint Ventures
sponsored by the Company.
(7) Represents the value of 25,000 shares of common stock awarded in December
1995 to Mr. Lam for services as a director in the fiscal year ended March
31, 1996 valued at $.75 per share.
(8) Includes 4,000 shares of common stock valued at $20,260 paid in settlement
of claim for expenses and subject to a put option subsequently exercised by
Mr. Cerchiari and $25,000 in common stock (5,000 shares valued at $5.00 per
share) paid in settlement of a hiring bonus claim under the terms of a
Termination Agreement between the Company and Mr. Cerchiari effective June
1, 1995.
(9) Includes $84,000 in consulting payments for the 1995 period paid prior to
Mr. Cerchiari's election as an officer and director.
45
<PAGE> 49
STOCK OPTIONS
The following tables summarize stock option activity during the fiscal year
ended March 31, 1996 for each of the named officers shown in the table "Summary
Executive Compensation":
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
ENDED MARCH 31, 1996
-----------------------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS/SARS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM
OPTIONS/SARS IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($)(3) 10%($)(3)
- ---------------------------- ----------- ------------ -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Schultz........... 150,000(1) 9.8% $ 2.50 2/15/01 $103,606 $228,941
Thomas A. Schultz........... 150,000(2) 9.8% $ 2.50 2/15/01 $103,606 $228,941
Jac. J. Lam................. 150,000(1) 9.8% $ 2.50 2/15/01 $103,606 $228,941
Jac. J. Lam................. 150,000(2) 9.8% $ 2.50 2/15/01 $103,606 $228,941
Drago A. Cerchiari.......... -0- -- n/a n/a n/a n/a
G. Lennart Perlhagen........ 50,000(1) 3.3% $ 2.50 2/15/01 $ 34,535 $ 76,314
</TABLE>
- ---------------
(1) Options granted under the Company's 1994 Stock Option Plan at an exercise
price of not less than fair market value on date of grant, exercisable in 12
equal quarter-annual installments commencing May 15, 1996.
(2) Options granted under the Company's 1994 Stock Option Plan at an exercise
price of not less than fair market value on date of grant, exercisable
during the last 30 days of the five-year option term or earlier if the
Company's common stock has traded at $10.00 or more for 30 days which need
not be consecutive.
(3) The 5% and 10% assumed annualized rates of compound stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or a projection by the Company of future
common stock prices.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
-----------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)(A)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------ ----------- ----------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Schultz............. -0- n/a -0- 300,000 -0- $37,500
Jac. J. Lam................... -0- n/a -0- 300,000 -0- $37,500
Drago A. Cerchiari............ -0- n/a -0- -0- -0- -0-
G. Lennart Perlhagen.......... -0- n/a -0- 50,000 -0- $ 6,250
</TABLE>
- ---------------
(A) The value of unexercised in-the-money options is based upon an estimated
fair market value for the common stock on March 29, 1996 of $2.625 per
share, based on the last reported closing price for the common stock as of
that date.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
------------------------------------------------------------------
PERFORMANCE
NUMBER OF OR OTHER
SHARES, PERIOD UNTIL
UNITS OR MATURATION
NAME OTHER RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
- -------------------------------------- ------------ ------------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
Thomas A. Schultz N/A N/A N/A -0- N/A
Jac. J. Lam N/A N/A N/A -0- N/A
Drago A. Cerchiari N/A N/A N/A -0- N/A
G. Lennart Perlhagen N/A N/A N/A -0- N/A
</TABLE>
- ---------------
(1) The Company does not have any compensation plans involving stock
appreciation rights or long-term incentive or deferred pension or
profit-sharing plans.
46
<PAGE> 50
EMPLOYMENT AGREEMENT WITH CHIEF FINANCIAL OFFICER
Vista has entered into a written employment agreement dated as of January
31, 1996 with Thomas A. Schultz, who was elected President and Chief Executive
Officer on February 16, 1996. The employment agreement with Mr. Schultz is for a
term of 36 months from January 15, 1996 and is renewable thereafter on a
year-to-year basis unless either party provides at least 60 days prior notice of
termination before the expiration of its original term or any renewal term. The
agreement provides for an annual base salary of $150,000, participation in group
benefit programs, payment of Mr. Schultz's existing insurance premiums for
long-term disability and life insurance for the initial 12 months of the
agreement, and an amount not exceeding 7 1/2% of his base salary for personal
benefit expenses relating to Mr. Schultz and his family members as he shall
determine. Mr. Schultz is eligible to receive an annual performance bonus of up
to 100% of his annual base salary based upon achievement of Vista goals to be
determined by the Board of Directors. In addition, he is entitled to a cash
bonus of $75,000 upon the filing of the second of two registration statements
for the initial public offerings by Regional Joint Ventures sponsored by Vista.
Mr. Schultz's employment agreement further provides he is entitled to
severance benefits if his employment is involuntarily terminated, other than for
cause (as defined in the agreement), death or disability, equal to (i) a
lump-sum payment equal to his annual base salary, (ii) continuation of insurance
benefits for life, health, dental and longterm disability for a period of 12
months after employment termination, and (iii) continued vesting of his
outstanding stock options for a period of 12 months after employment
termination. Mr. Schultz is required to devote his full business time to the
affairs of Vista except for such investment, business, professional and
continuing education activities that do not interfere with the performance of
his duties as Vista's President and Chief Executive Officer. The employment
agreement contains confidentiality and non-competition provisions in favor of
the Company. Mr. Schultz's employment agreement was approved by the Board of
Directors on February 6, 1996.
OTHER RECENT COMPENSATION ARRANGEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS
On February 6, 1996, Vista approved compensation for certain executive
officers and directors. Murray Watson, effective upon his election as the
Company's Vice Chairman on February 16, 1996, receives a base salary of $100,000
per year plus a bonus to be reviewed by the Board at the end of each fiscal year
up to 100% of his base salary. Kenneth G. Howling, effective upon his election
as Vista's Treasurer and Chief Financial Officer on February 16, 1996, receives
a base salary of $60,000 per year plus a bonus to be reviewed by the Board at
the end of each year up to 100% of his base salary. A corporate affiliate of Dr.
J. Charles Casebeer, effective upon his election as a director of Vista on
February 16, 1996 and in further consideration of his agreement to provide
certain consulting services to be defined by the Board, receives a base salary
of $60,000 per year. Dr. Casebeer also serves as a director of certain Regional
Joint Ventures and is Chairman of the Board and Chief Executive Officer of Vista
Laser Centers of the Southwest, Inc. Upon successful completion of an initial
public offering by three of those Regional Joint Ventures, one of which will be
VLC-Southwest, Dr. Casebeer's corporate affiliate will become entitled to annual
compensation of $60,000 per year from each of three Regional Joint Ventures. Dr.
Donald G. Johnson, effective upon his election as Chairman of the Board and a
director of the Company on February 16, 1996 and in further consideration of his
agreement to provide certain consulting services to be defined by the Board,
receives a base salary of $60,000 per year. Dr. Johnson is also Chairman of the
Board and Chief Executive Officer of Vista Laser Centers of the Northwest, Inc.
and is expected to enter into an employment agreement providing compensation for
such services effective upon completion of an initial public offering by
VLC-Northwest at an annual compensation rate of $180,000 plus an annual bonus
based upon a formula to be determined relating to pre-tax earnings of
VLC-Northwest.
In December 1995, Vista's Board of Directors authorized the issuance of
25,000 shares of the Company's common stock to each of its then three directors,
Messrs. Jac. J. Lam, Malcolm J. Rowe and Murray D. Watson, or their nominees, as
compensation for their services as directors during the fiscal year ending March
31, 1996. Due to the absence of an active trading market for the common stock at
the time of this award and other factors deemed relevant by the Board, these
shares were valued by the Company at $.75 per share.
47
<PAGE> 51
TERMINATION AGREEMENTS WITH FORMER EXECUTIVE OFFICERS
The Company previously had employment agreements with: Robert L. Ferrera,
who resigned as the Company's Chief Financial Officer on April 14, 1995; Drago
A. Cerchiari, who resigned as Vista's President and Chief Executive Officer on
June 1, 1995; and G. Lennart Perlhagen, who resigned as Vista's Chairman on June
1, 1995.
Under an agreement dated as of July 5, 1995, Vista issued 16,000 shares of
its common stock to Mr. Perlhagen in payment of $80,000 of unreimbursed business
expenses.
Under an agreement dated as of June 1, 1995, Vista paid Mr. Cerchiari
$8,740 in cash and issued 4,000 shares of common stock for reimbursement of a
total of $29,000 of unreimbursed business expenses. Vista agreed that Mr.
Cerchiari had the right to put the 4,000 shares of common stock to the Company
after January 31, 1996 at a price equal to $20,260 plus interest from June 1,
1995 at the rate of 1% per month. Mr. Cerchiari exercised that option on
February 1, 1996. Vista also issued 5,000 shares of common stock to Mr.
Cerchiari under the June 1, 1995 agreement as a negotiated settlement for a
one-time hiring bonus in his original employment agreement of January 15, 1995.
STOCK OPTION PLANS
Vista's Board of Directors has adopted a policy of providing long-term
incentive to members of its Board and senior management tied to performance of
Vista's common stock through stock option plans. These plans are intended to
foster management incentive and positively align and reinforce management and
stockholder interests. The plans are structured to allow the Board of Directors
or its Stock Option Committee discretion in creating management and key employee
equity incentives which assist Vista in motivating and retaining the appropriate
talent needed to conduct its business successfully.
Vista's Board of Directors and stockholders adopted two stock option plans
in 1994, the 1994 Stock Option Plan (the "1994 Plan") and the Restricted Stock
Option Plan (the "Restricted Plan"). The 1994 Plan covers an aggregate of
150,000 shares of common stock and on February 6, 1996 the Board increased the
total number of shares subject to the 1994 Plan to a total of 1,900,000 shares
subject to ratification and approval of that increase by stockholders of the
Company with one year. The Restricted Plan covers a total of 50,000 shares of
common stock. Under both Plans, the number of shares available for options and
subject to option, and the option exercise price of outstanding options, is to
be adjusted upward or downward, as the case may be, in the event of any stock
dividend, recapitalization, merger, consolidation, split up or similar
transaction affecting shares of Vista's common stock.
Both Plans are by the Board of Directors or by a Stock Option Committee of
two or more members of the Board of Directors of Vista. The Stock Option
Committee currently consists of Mr. Watson and a vacancy to be filled by the
Board. The Stock Option Committee, or the Board in the absence of a Committee,
determines the persons to receive options under the Plans, the terms of options
granted, including the exercise price, the number of shares subject to the
option and the terms and conditions of exercise.
Both Plans contains provisions which authorize the Stock Option Committee,
in the event of a sale or merger of all or substantially all of the Company's
assets, or a merger or consolidation in which Vista is not the surviving
corporation, to take certain action in its discretion. In the event of such a
transaction, the Committee may accelerate the exercisability of any option to
permit its exercise in full during such period as the Committee may prescribe
following the public announcement of a sale of assets or merger, or may elect to
earlier grant that right at the time an individual option is granted. The
Committee may also require in the event of such a transaction that an optionee
surrender an option in return for a substitute option issued by a surviving
corporation which is determined by the Committee to have a value substantially
equal to the value of the surrendered option.
Each of the Plans provides that shares of common stock acquired upon
exercise of options will be paid for in cash or, in the sole discretion of the
Committee, through the delivery of shares of Vista's common stock with a market
value equal to the option exercise price. The ability to pay the option price in
shares would, if permitted by the Committee, enable an optionee to engage in a
series of successive stock for stock exercises of
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<PAGE> 52
an option (sometimes referred to as "pyramiding") and thereby fully exercise an
option with little or no cash investment by the optionee. The Board of Directors
has not established any policy as to whether it will permit exercises of options
through payment with shares.
The maximum term for each option under both Plans is ten years; to date no
option has been granted for a term in excess of five years under either Plan. If
any option granted under either Plan expires or terminates without having been
exercised in full, the shares covered by the unexercised portion of the option
may be used again for new grants under that Plan. No option granted under the
Plans may be transferred by the optionee other than by will, the laws of descent
and distribution, or by a qualified domestic relations order, and each option is
exercisable during the lifetime of the optionee only by such optionee or a
corporate entity controlled by the optionee.
1994 STOCK OPTION PLAN
The 1994 Plan provides that options granted thereunder may be either
incentive stock options pursuant to Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"), or, at the discretion of a Stock Option
Committee, non-qualified stock options which do not qualify as incentive stock
options under the Code. The 1994 Plan provides that incentive stock options must
be granted at an option price which is not less than the fair market value of
the Common Stock on the date of grant, and that any non-qualified option granted
must be at an option price which is not less than 50% of the fair market value
of the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting rights of the Company's outstanding capital stock,
the exercise price of any incentive stock option under the 1994 Plan must be not
less than 110% of fair market value on the date of grant. To date, all options
granted under the 1994 Plan were granted at fair market value on date of grant.
Options under the 1994 Plan may be granted to officers, directors, key employees
of, and consultants to, the Company and its subsidiaries.
In the event of termination of employment, the optionee's option will
terminate and may be exercised during a three month period after termination to
the extent the option was exercisable on the date of termination. In the event
termination of employment was caused by death or permanent disability, the
period of exercisability is extended under the 1994 Option Plan to one year
after the date of termination, but in no event after the date the option would
have expired in the absence of termination of employment. No shares acquired on
exercise of an option granted under the 1994 Plan may be sold or otherwise
disposed of by an optionee until the expiration of at least six months following
the date on which the exercised option was originally granted by the Company.
At July 15, 1996, no options had been exercised under the 1994 Plan, and
unexercised options were outstanding to purchase 1,567,000 shares of common
stock at an average option exercise price of $2.73 per share, of which options
covering 1,520,000 shares at an option exercise price of $2.50 per share are
subject to stockholder ratification of an increase in the number of shares
covered by the 1994 Plan approved by the Board on February 6, 1996, and up to
333,000 shares were available for future grants of options under the 1994 Plan.
Of the total options outstanding, options to purchase 383,000 shares are
exercisable in the fiscal year ending March 31, 1997 without regard to the
market price of Vista's common stock and 450,000 shares are exercisable at such
time as Vista's common stock has traded at $10.00 per share or more for at least
30 days, which need not be consecutive days. Of the unexercised options
outstanding, options covering 828,000 shares are held by five current officers
and directors (of which options covering 181,333 shares are exercisable in the
fiscal year ending March 31, 1997 without regard to the market price of Vista's
common stock and 300,000 shares are exercisable at such time as Vista's common
stock has traded at $10.00 per share or more for at least 30 days,) at an
average exercise price of $2.57 per share.
RESTRICTED STOCK OPTION PLAN
The Restricted Plan provides that options granted thereunder must be
granted at an option price which is the lesser of $0.50 per share or 10% of the
fair market value of the Common Stock on the date of grant. No options granted
under the Restricted Plan may be exercised until the expiration of at least two
years following the date on which the option was originally granted by Vista.
Options under the Restricted Plan may be
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<PAGE> 53
granted only to directors and senior management of Vista, including its Chairman
of the Board, its President, and any other persons appointed to act as Chief
Executive Officer, Chief Operating Officer or Chief Financial Officer of the
Company.
In the event of termination of an optionee's service as a director or
member of senior management, the optionee's option will terminate and may be
exercised during a 12 month period after termination to the extent the option
was exercisable on the date of termination. In the event termination of
employment was caused by death or permanent disability, the amount exercisable
is extended under the Restricted Plan to the extent the option would have become
exercisable during the 12 month period if not prevented by the optionee's death
or disability. In no event may any option be exercised after the date the option
would have expired in the absence of termination of employment.
At July 15, 1996, no options had been exercised under the Restricted Plan,
unexercised options were outstanding to purchase 8,000 shares of common stock
(all of which are exercisable in the fiscal year ending March 31, 1997) at an
average exercise price of $.50 per share, and up to 42,000 shares were available
for future grants of options under the Restricted Plan.
1996 STOCK COMPENSATION PLAN
On February 6, 1996, the Company's Board of Directors adopted a 1996 Stock
Compensation Plan (the "Stock Plan") subject to approval of the Stock Plan
within one year thereafter by stockholders of the Company. The purpose of the
Stock Plan is to permit the Board or a Committee of the Board the flexibility of
issuing shares of Vista common stock in lieu of cash to compensate officers,
directors, employees and other individuals acting as professionals, consultants
and/or advisers to the Company for services rendered to Vista and its
subsidiaries. A "subsidiary" of the Corporation for purposes of the Stock Plan
is any corporation in which Vista at the time of a compensation award owns or
controls, directly or indirectly, at least 50% or more of the outstanding voting
capital stock.
Shares may be issued under the Stock Plan solely in payment for the value
of services actually rendered to Vista. In no event may shares be issued as
compensation under the Stock Plan: (i) for services which are either directly or
indirectly related to the offer or sale of securities in a capital-raising
transaction by Vista or its corporate affiliates; or (ii) for the sale of goods,
merchandise, products or other tangible assets. Common stock issued as
compensation under the Stock Plan will be valued at their fair market value on
the date such shares are authorized to be issued to a participant for designated
services rendered in a specified dollar amount. In determining the fair market
value of any such payment, the Board or a Committee of the Board will take into
consideration the quoted prices in the public market for common stock on the
date shares are authorized for issuance and, if deemed applicable by the Board
or the Committee to its determination of fair market value, a reasonable
discount to quoted market prices not exceeding 25% of the low bid price on the
date of such authorization if such discount is deemed appropriate to allow for
price volatility and/or possible lack of liquidity based on reported prices and
trading volume in the public market for the common stock when compared to the
number of shares authorized for issuance as compensation and any applicable
forfeiture or restrictive provisions relating to the award.
Shares of common stock authorized by the Stock Plan may be issued as
compensation only upon the execution of an agreement by the recipient to accept
the same in lieu of all or a designated portion of cash compensation otherwise
payable for his or her services. If the award of shares is subject to
contractual restrictions or performance conditions that may result in a
forfeiture, the recipient's interest in the shares may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the date on which any
applicable restriction or performance condition and period shall lapse without
the requirement of forfeiture.
The Stock Plan will be administered by the Board or by a Committee of not
less than two directors. No member of the Committee will be eligible to
participate in the Stock Plan while serving on the Committee. The Committee has
the authority to (i) select the participants to whom common stock compensation
may be granted; (ii) determine the number of shares and the fair market value
thereof for each payment of common stock compensation; (iii) determine any other
terms and conditions of common stock compensation payments, including but not
limited to any restrictions or forfeiture conditions relating to the performance
of
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<PAGE> 54
services by the participant; (iv) determine whether, to what extent and under
what circumstances a common stock payment of compensation under the Stock Plan
may be deferred either automatically or at the election of the participant under
a written agreement; and (v) approve any agreement executed by participants
under the Stock Plan.
Subject to approval of the Stock Plan by Vista stockholders, 250,000 shares
of common stock will be available for payment of compensation under the Stock
Plan. If any shares are issued under the Stock Plan and subsequently cease to be
outstanding as a result of any forfeiture or failure to satisfy restrictive
conditions, such shares will again be available for compensation payments under
the Stock Plan. No compensation awards under the Stock Plan have been made as of
July 30, 1996.
OTHER
Vista currently has no pension, retirement, annuity, savings or similar
benefit plan which provides compensation to its executive officers or directors
except for group health and life insurance plans.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information (except as otherwise indicated
by footnote) as of July 20, 1996 as to Vista's common stock owned by (i) each
person known by management to beneficially own more than 5% of the Company's
outstanding Common Stock, (ii) each of the Company's directors, and (iii) all
executive officers and directors as a group:
<TABLE>
<CAPTION>
COMMON STOCK (1)
-----------------------------------------------------
SHARES BENEFICIALLY
OWNED, DISREGARDING
IRREVOCABLE PROXIES
GRANTED TO THE COMPANY'S
BOARD OF DIRECTORS(2) VOTING RIGHTS(2)
------------------------ ------------------------
% OF % OF
NAME OR GROUP (3) NO. OF SHARES CLASS NO. OF SHARES CLASS
- -------------------------------------------------- ------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Directors:
Dr. J. Charles Casebeer(4)...................... 260,000 3.7% 10,000 0.1%
Dr. Donald G. Johnson(5)........................ 510,000 7.3% 10,000 0.1%
Thomas A. Schultz(6)............................ 25,000 0.4% 25,000 0.4%
Murray D. Watson(7)............................. 3,472,000# 49.0% 3,472,000 49.0%
Proxies granted to the Board of Directors by
Regional Joint Ventures(8)................... -- -- 1,900,000 27.1%
All officers and directors as a group [6
persons](9).................................. 4,283,667# 59.9% 5,433,667 75.9%
Other 5% Shareholders:
Pharma Parch PLC(10)............................ 3,410,000# 48.3% -3,410,000 -48.3%
131 Bloor Street West, Suite 210
Toronto, Ontario M5S 1R1, Canada
Vista Laser Centers of the Northwest,
Inc.(12)..................................... 450,000 6.4% -- --
918 12th Street
New Westminster
British Columbia V3M 6B1, Canada
Vista Laser Centers of the Pacific, Inc.(13).... 500,000# 7.1% -- --
14895 East 14th Street, Ste 400
San Leandro, California 94578
</TABLE>
- ---------------
# Includes certain securities listed elsewhere in the above table. See Notes
4, 5, 7, 8, 10, 11, 12 and 13 below.
(1) Based on 7,006,112 shares of common stock outstanding at July 20, 1996 and
includes common stock beneficially owned plus, where applicable, common
stock issuable upon exercise of outstanding stock
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<PAGE> 55
options held only by the person or group indicated that are fully
exercisable or exercisable within 60 days after July 20, 1996.
(2) As described in Note 8 below, five Regional Joint Ventures holding an
aggregate of 1,900,000 shares of Vista common stock have agreed to grant
irrevocable proxies to Vista's Board of Director's expiring in each
instance approximately five years after the Regional Joint Venture has
completed an initial public offering of its securities. All other rights of
beneficial ownership are retained by the respective Regional Joint Venture
including the power to dispose of the shares in a bona fide sale
transaction free of the proxy restrictions.
(3) To the best knowledge of Vista's management, the persons named in the table
have sole voting and investment power with respect to all shares shown to
be beneficially owned by them, subject to the information contained in the
footnotes to the table and, where applicable, community property laws.
(4) Includes 10,000 shares issuable upon exercise of stock options held
directly by Dr. Casebeer that were fully exercisable or exercisable within
60 days after July 20, 1996 plus 250,000 shares owned by Vista Laser
Centers of the Southwest, Inc. in which Dr. Casebeer is Chairman of the
Board and Chief Executive Officer. Dr. Casebeer disclaims beneficial
ownership of shares owned by Vista Laser Centers of the Southwest, Inc.
Does not include other shares owned by Regional Joint Ventures for which
Vista's Board of Directors holds irrevocable voting proxies (see Note 8
below). Dr. Casebeer's business address is 15100 North 78th Way, Suite 100,
Scottsdale, Arizona 85260.
(5) Includes 10,000 shares issuable upon exercise of stock options held
directly by Dr. Johnson that were fully exercisable or exercisable within
60 days after July 20, 1996 plus 500,000 shares owned by Vista Laser
Centers of the Northwest, Inc. in which Dr. Johnson is Chairman of the
Board and Chief Executive Officer. Dr. Johnson disclaims beneficial
ownership of shares owned by Vista Laser Centers of the Northwest, Inc.
Does not include other shares owned by Regional Joint Ventures for which
Vista's Board of Directors holds irrevocable voting proxies (see Note 8
below). Dr. Johnson's business address is 918 12th Street, New Westminster,
British Columbia V3M 6B1, Canada.
(6) Includes 25,000 shares issuable upon exercise of stock options held
directly by Mr. Schultz that were fully exercisable or exercisable within
60 days after July 20, 1996. Does not include shares owned by Regional
Joint Ventures for which Vista's Board of Directors holds irrevocable
voting proxies (see Note 8 below). Mr. Schultz's business address is 1250
Oakmead Parkway, Suite 210, Sunnyvale, California 94086.
(7) Includes (i) 25,000 shares of common stock and 37,000 shares issuable upon
exercise of stock options held directly by a corporate affiliate of Mr.
Watson that were fully exercisable or exercisable within 60 days after July
20, 1996, plus (ii) shares of common stock and fully exercisable stock
options owned by the Company (see Note 10 below) in which Mr. Watson is
Chairman of the Board and Chief Executive Officer. Mr. Watson disclaims
beneficial ownership of shares owned by the Company. Does not include
shares owned by Regional Joint Ventures for which Vista's Board of
Directors holds irrevocable voting proxies (see Note 8 below). Mr. Watson's
business address is 51 Yonge Street, Suite 400, Toronto, Ontario M5E 1J1,
Canada.
(8) The following Regional Joint Ventures, holding an aggregate of 1,900,000
shares of Vista common stock, have agreed to grant irrevocable proxies to
Vista's Board of Director's expiring in each instance approximately five
years after the Regional Joint Venture has completed an initial public
offering of its securities: Vista Laser Centers of Michigan, Inc. as to
200,000 shares; Vista Laser Centers Metro, Inc. as to 450,000 shares; Vista
Laser Centers of the Northwest, Inc. as to 500,000 shares; Vista Laser
Centers of the Pacific, Inc. as to 500,000 shares; and Vista Laser Centers
of the Southwest, Inc. as to 250,000 shares. All other rights of beneficial
ownership are retained by the respective Regional Joint Venture including
the power to dispose of the shares in a bona fide sale transaction free of
the proxy restrictions.
(9) Includes shares described in Notes 4 through 8 above plus 16,667 shares
issuable upon exercise of stock options held directly by one other officer
that were fully exercisable or exercisable within 60 days after July 20,
1996.
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<PAGE> 56
(10) Includes 3,360,000 shares of common stock and fully exercisable stock
options to purchase 50,000 shares expiring on September 30, 1996 owned by
Pharma Patch PLC. These securities are also included in the table under
beneficial ownership of Murray D. Watson (see Note 7 above). The table does
not include (i) 500,000 Class C Warrants owned by Pharma Patch PLC which
are exercisable during the month of February 1997 and/or the month of
February 1998, and expire thereafter to the extent not exercised (see Item
12 of this Report), or (ii) shares owned by Regional Joint Ventures for
which Vista's Board of Directors holds irrevocable voting proxies (see Note
8 below).
(11) Includes 450,000 shares beneficially owned by Vista Laser Centers Metro,
Inc. which are subject to an irrevocable proxy in favor of the Company's
Board of Directors (see Note 8 above).
(12) Includes 500,000 shares beneficially owned by Vista Laser Centers of the
Northwest, Inc. which are subject to an irrevocable proxy in favor of the
Company's Board of Directors (see Notes 5 and 8 above).
(13) Includes 500,000 shares beneficially owned by Vista Laser Centers of the
Pacific, Inc. which are subject to an irrevocable proxy in favor of the
Company's Board of Directors (see Note 8 above).
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<PAGE> 57
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH THE COMPANY FOR EQUITY FINANCING AND CHANGE IN CONTROL
The Company sold its operating assets and proprietary transdermal patch and
penetration enhancer business in November 1995 in exchange for 786,214 shares of
common stock in Technical & Chemical Products, Inc. ("TCPI") and the
satisfaction of approximately $5,000,000 of Company indebtedness by TCPI. TCPI
is a publicly-traded company engaged primarily in the design, development,
manufacture and marketing of medical diagnostic products for use in physician
offices, at home and at other point-of-care locations, and the research,
development and commercialization of transdermal and mucosal drug delivery
systems and skin permeation enhancers.
Vista's Board on February 6, 1996 authorized the negotiation of equity
financing agreements with the Company. On February 15, 1996, the Company
publicly announced its board of directors had approved the acquisition of a
controlling interest in Vista subject to negotiation of definitive agreements.
Definitive agreements negotiated between Vista and the Company were executed on
March 1 and March 4, 1996 and were closed on or prior to March 31, 1996. Vista's
financing transactions and agreements with the Company are summarized as
follows:
STOCK PURCHASE AGREEMENT FOR $500,000 (200,000 VISTA COMMON SHARES)
On March 1, 1996, Vista and the Company executed a Stock Purchase Agreement
providing for the first stage of financing transactions. The Stock Purchase
Agreement provided for 200,000 newly issued shares of Vista common stock to be
sold to the Company for a cash price of $500,000, or $2.50 per share. These
funds were received by Vista in March 1996.
EXCHANGE OF NOTE AND TCPI SECURITIES FOR $5,150,000 (2,060,000 VISTA COMMON
SHARES) AND EXERCISE OF STOCK OPTION
On March 4, 1996, Vista and the Company executed an Agreement (the
"Exchange Agreement") that was closed on March 31, 1996. Under the Exchange
Agreement, Vista delivered to the Company 2,060,000 newly issued shares of Vista
common stock at a stated value of $5,150,000, or $2.50 per Vista share, plus
500,000 Vista Class C common stock purchase warrants ("Class C Warrants"). In
exchange, Vista received from the Company: (i) an interest-free note due in six
months from the Company in the principal amount of $750,000, which was fully
paid by the Company on May 3, 1996; and (ii) 200,000 restricted shares of
Technical Chemicals and Products, Inc. ("TCPI") common stock to be transferred
from the Company to Vista at a stated value of $4,400,000, or $22.00 per TCPI
share. On March 1, 1996, the date the Company and Vista concluded negotiations
for the Exchange Agreement, the high and low sale prices quoted for TCPI common
stock were $22.25 and $21.375, respectively. Subsequent closing prices for TCPI
common stock were $16.50 on March 31, 1996 and $10.375 on July 15, 1996.
As additional consideration for these transactions, the Exchange Agreement
granted the Company an option exercisable at any time on or before September 30,
1996 to purchase up to an additional 250,000 newly issued shares of the
Company's common stock at an option exercise price of $2.50 per share in cash
(the "Six Month Option"). On July 18, 1996, the Company exercised 200,000 shares
subject to the Six Month Option at an exercise price of $500,000.
DESCRIPTION OF CLASS C WARRANTS
The 500,000 Class C Warrants issued to the Company under the Exchange
Agreement each represent the right to purchase one (1) share of Vista's common
stock during the month of February 1997 and/or the month of February 1998, and
expire thereafter to the extent not exercised. In each instance, the exercise
price per share will be determined by the average of the quoted closing prices
for Vista's common stock in the over-the-counter market during the month of
January immediately preceding the date Class C Warrants or any portion thereof
are exercised, except that the Class C Warrant exercise price per share in any
event will not exceed $10.00 per share. The exercise price and number of shares
issuable on exercise of Class C Warrants are
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<PAGE> 58
subject to adjustment in certain events to prevent dilution in the event of any
subsequent stock split, stock dividend, reclassification or recapitalization
affecting the outstanding common stock as a class.
EXCHANGE OF 900,000 VISTA COMMON SHARES BY CERTAIN STOCKHOLDERS
At the time Vista negotiated and concluded its agreements with the Company,
Vista was advised that three Vista stockholders, including Therapeutic Patch
Research N.V. ("TPR"), Saliva Research Limited ("SRL") and Westcliff Partners
Inc. ("WPI"), exchanged a total of 900,000 shares of Vista's outstanding common
stock for newly issued securities of the Company in a privately-negotiated
transaction. Those securities had been acquired by TPR, SRL and WPI in December
1995 as a result of prior transactions financing the operations of Vista through
December 1995. See "Issuance of Shares for Expenses from June Through December
1995" below.
CHANGE IN CONTROL AND OTHER INFORMATION
As a result of the agreements described above, the Company acquired a
controlling interest in Vista during March 1996. At March 31, 1996, Vista had
5,256,104 common shares outstanding, including the 2,260,000 Vista shares issued
to the Company under the Stock Purchase Agreement and the Exchange Agreement,
but excluding common stock reserved for outstanding stock options, warrants,
conversion or exchange of debt obligations or reserved for investments in
certain Regional Joint Ventures. The Company's total ownership of 3,160,000
Vista common shares represented approximately 60.1% of the total Vista common
stock outstanding at March 31, 1996 and approximately 46.4% of 6,806,112 shares
of Vista common stock outstanding at July 15, 1996. Vista and the Company both
recognized in March 1996 that the Company's percentage ownership of the Company
may fluctuate in the future as a result of continuing changes in Vista's
capitalization, the right of Vista to exercise its Six Month Option for 250,000
Vista common shares expiring on September 30, 1996 and/or 500,000 Class C
Warrants exercisable in February 1997 and February 1998, described above, or as
a result of a future decision by Pharma Patch to sell or otherwise dispose of
all or a portion of its investment in Vista.
Vista entered into a registration rights agreement with the Company upon
closing the Exchange Agreement. Subject to certain limitations, this agreement
grants the Company two "piggy-back" registration rights in the event Vista files
registration statements covering offerings of its securities under the
Securities Act of 1933. In addition, the Company will have the right on three
occasions after March 31, 1997 and until July 31, 2006 to demand that all or a
portion of Vista's common stock held by the Company and issuable upon exercise
of Class C Warrants and the Six Month Option be registered under the Securities
Act of 1933. Any such registrations of Vista common stock for the account of
Pharma Patch will be at Vista's expense.
Murray D. Watson, a director of Vista since January 31, 1994, has served
since July 1993 as Chairman of the Board, Chief Executive Officer and a director
of the Company. On February 16, 1996, Mr. Watson was elected Vista's Vice
Chairman of the Board and Kenneth G. Howling, Vice President and Chief Financial
Officer of the Company, was elected Vista's Treasurer and Chief Financial
Officer. In each case, their election as Vista officers was subject to a
condition that definitive agreements for the contemplated transactions between
Vista and the Company be executed, which events occurred on March 1, 1996.
Transactions contemplated by the Stock Purchase Agreement and the Exchange
Agreement were authorized and approved by Vista's board of directors ("Board")
at a Board meeting held on February 6, 1996 attended by all three of Vista's
then directors. Vista's Board approved the Stock Purchase Agreement and Exchange
Agreement transactions with knowledge and disclosure of the proposed exchange by
TPR, SRL and WPI of 900,000 shares of Vista common stock with the Company. Mr.
Watson, a Vista director, abstained from voting on the proposed transactions due
to his position as the Chief Executive Officer and a director of Pharma Patch.
Messrs. Jac. J. Lam and Malcolm J. Rowe, Vista's other two directors at that
time, voted in favor of approving the transactions. Mr. Rowe also served at the
time as a member of Pharma Patch's board of directors.
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<PAGE> 59
Purchase of Certain Assets from Refractive Services-800, Inc.
From July 1995 through June 1996 date, a foreign corporate investor named
Refractive Services-800, Inc. invested $520,000 in cash in five Regional Joint
Ventures sponsored by the Company. In exchange for that investment, and in view
of the high risks associated with making the initial investment in start-up
enterprises that had yet to negotiate any agreements for proposed business
operations, Refractive Services-800, Inc. received shares of a 10% Series A
convertible preferred issue of the five Regional Joint Ventures with a
liquidation preference equal to five times its cash investment (six times its
cash investment in the case of VLC-Northeast). Vista has been advised that
Refractive Services-800, Inc. is a Panama corporation owned and controlled by
Marcel Jouby, a Dutch citizen, Kerry Lynne O'Rourke, a South African citizen
residing in The Netherlands, and Sukumal Chintagevongse, a Thailand citizen.
Vista negotiated an agreement on July 18, 1996 to acquire all Series A
Preferred Shares in five Regional Joint Ventures originally purchased by
Refractive Services-800, Inc. for $520,000. In exchange, Vista has agreed to
issue to Refractive Services-800, Inc. a total of 520,000 shares of Vista common
stock. Vista also agreed to purchase for $50,000 in cash all of the capital
stock in Refractive Services 800 Corp., a Nevada corporation ("RS-800")
organized by Refractive Services-800, Inc. in 1995 to acquire rights to certain
800 and 900 telephone numbers for telemarketing purposes at the election of
Regional Joint Ventures.
OFFSHORE SALES OF COMMON STOCK UNDER REGULATION S
On March 29, 1996, Vista received $212,500 in proceeds from the sale of
100,000 shares of its common stock at $2.125 per share under a Regulation S
offshore private placement transaction with one foreign investor, Corundum B.V.
The quoted closing market price for Vista's common stock on March 29, 1996 was
$2.625 per share. No fees or commissions to third parties were paid in
connection with this offering.
On June 13, 1996, Vista received $212,500 in proceeds from the sale of
100,000 shares of the Company's common stock at $2.125 per share under a
separate Regulation S offshore private placement transaction with two foreign
investors, Solar Ventures Limited as to 50,000 shares and Armilla Holdings
Limited as to 50,000 shares. The quoted closing market price for the Company's
common stock on June 13, 1996 was $3.25 per share. No fees or commissions to
third parties were paid in connection with this offering.
PURCHASE OF LASER EQUIPMENT FROM AFFILIATE OF A DIRECTOR
On February 1, 1996, Vista entered into an asset purchase and lease
assumption agreement with a corporate affiliate of Dr. J. Charles Casebeer
providing for the purchase by Vista of an excimer laser system. The purchase
price for the equipment was $75,000 in cash, a $96,591 promissory note with
interest at 8% per annum originally due May 31, 1996, and the assumption of
outstanding obligations under an existing lease of the laser including future
lease payments not to exceed $328,409. Dr. Casebeer was subsequently elected
a director of Vista on February 16, 1996. Vista later determined to replace
its intended use of this equipment with newer technology, resulting in a charge
to earnings in the amount of $446,636 for the impairment of an idle asset. As of
July 12, 1996, the note to Dr. Casebeer's corporate affiliate remained
unpaid and is expected to be paid by Vista later in the current fiscal year
ending March 31, 1997.
ISSUANCE OF SHARES FOR EXPENSES FROM JUNE THROUGH DECEMBER 1995
During the period from June to December 1995, certain clients of Vista's
then acting President, Jac. J. Lam, invested approximately $1,470,000 to sustain
Vista's corporate operations during that period. These advances included
approximately $700,000 for travel by Vista's officers and consultants and
corporate office expenses in New York and Europe, approximately $100,000 in
out-of-pocket advances for various expenses, and $670,000 in compensation paid
for personnel assigned to support Vista's corporate activities and its program
to establish various Regional Joint Ventures in North America under the "Vista
Laser Centers" name. The $670,000 figure for personnel included $200,000 paid or
payable to Vista's then acting President, Jac. J. Lam, and $60,000 accrued for
its then acting Treasurer and Chief Financial Officer, Theodore J. Mayer.
Vista's Board of Directors agreed these charges should be billed at a flat
negotiated rate of $1,470,000 and in December 1995 authorized the issuance of
925,000 shares of Vista's common stock in payment of these obligations.
These shares were issued to Therapeutic Patch Research, N.V. (300,000
shares), Saliva Research Ltd. (325,000 shares) and Westcliff Partners Inc.
(300,000 shares). Mr. Lam acted at the time as a managing director for Saliva
Research Ltd. and Westcliff Partners Inc., but disclaimed any beneficial
interest in the securities held by those entities.
REPURCHASE OF SHARES FROM SEMERA AB
In June 1994, Vista formed a subsidiary in Sweden, Vista Vision Scandinavia
AB ("Vista-Sweden"). Under an agreement dated June 1, 1994, Vista-Sweden
purchased certain assets of a PRK surgical center clinic in Stockholm, Sweden,
from Semera AB, an unaffiliated company. The price paid for the assets was
approximately $100,000 in cash, 28,600 shares of Vista common stock and 28,600
Class A Warrants. Vista-Sweden concurrently engaged the services of Professor
Bjorn Tengroth, a noted authority in PRK procedures. All of the capital stock of
Vista-Sweden is owned by Convista Vision BV, an inactive Dutch company
("Convista") purchased by Vista in April 1994 as a subsidiary to administer
financing and management of Vista's international operations.
As part of the negotiated agreement with Semera AB, 20% of Convista's
capital stock was sold to Professor Tengroth for $3,000 and Vista-Sweden
advanced a loan of approximately $134,000 to Professor Tengroth. Exercising an
option granted in June 1994, Convista subsequently repurchased Professor
Tengroth's 20% interest in Convista for SEK 1,250,000 (approximately $167,000),
and his loan was repaid from the proceeds. In June 1995, the Company repurchased
25,640 shares of Vista common stock and 25,640 Class A Warrants from Semera AB
for the sum of $277,777 pursuant to a commitment made in June 1994.
The funds required for the $277,777 payment to Semera AB in June 1995 were
obtained by the Company from proceeds of 12% convertible promissory notes issued
by Vista in June 1995. These 12% notes were issued and sold to G. Lennart
Perlhagen ($177,777), then a director of the Company, and Quintillion B.V., an
affiliate of Jac. J. Lam (who was elected a director and acting President of the
Company in June 1995). The 12% notes are due on June 15, 1998 and are
convertible into shares of Vista common stock at $5.00 per share. Payment
obligations on the 12% notes are collateralized by the pledge of 51% of the
outstanding shares of
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<PAGE> 60
Vista-Sweden. In consideration of these loans, Vista-Sweden is obligated to pay
the noteholders a royalty of $100 for each Incremental PRK procedure performed
by Vista-Sweden during the three years ending May 31, 1996, 1997 and 1998.
Incremental PRK procedures for this purpose are generally defined as the number
of PRK procedures performed by Vista-Sweden in excess of its first 800 PRK
procedures for the twelve months ended May 31, 1996, and the number of PRK
procedures in each following 12 month period that exceed PRK procedures
performed for the prior 12 month period.
ABANDONMENT OF OPERATIONS BY VISTA VISION INTERNATIONAL LTD. (UNITED KINGDOM)
Vista Vision International Ltd. ("Vista-UK"), formed in July 1992, owned a
50% interest in Precision Laser Eye Centres Ltd., a joint venture with Optika
Holdings Limited formed in June 1993, which owned and operated an excimer laser
eye surgical clinic in London, England. G. Lennart Perlhagen, President and
Chief Executive Officer of Vista from February 1994 to January 15, 1995, served
as the managing director of Vista-UK since its organization. Vista purchased all
of the capital stock of Vista-UK and advances to Vista-UK of approximately
24,000 British pounds from an unaffiliated third party under an agreement dated
March 31, 1994. The consideration paid by the Company included $134,000 in cash
(U.S. funds) and 250,000 shares of Vista's common stock issued to the seller,
Laser Technologies (Jersey) Ltd.
In June 1995, Vista closed the operations of Vista-UK and Precision Laser
Eye Centres Ltd. due to their unprofitable history, a change in business
strategy of the joint venture partner and extremely competitive market
conditions in London.
ABANDONMENT OF PROPOSED ACQUISITION OF MEDICAL DEVELOPMENT RESOURCES, INC.
Medical Development Resources, Inc. ("MDRI") is a privately-held Delaware
corporation engaged in research and development of a proprietary production
process for the manufacture of scalpels and other cutting instruments from
natural obsidian and/or an obsidian formulation. MDRI owned 100% of two
operating subsidiaries, KMI I, Inc. ("KMI") which designs, manufactures and
markets precision surgical instruments and related products, and Micra
Instruments Limited ("Micra"), a company was formed by MDRI in July 1993 to
purchase the assets of a business involved in design, development, manufacturing
and marketing of titanium microsurgical instruments for ophthalmology and
neurosurgery.
As previously reported in Vista's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1995 and Reports on Form 10-QSB for the quarterly
periods ended June 30, 1995 and September 30, 1995, Vista engaged in a series of
transactions and proposed transactions relating to investments in MDRI and its
subsidiaries from April 1994 through June 1995. Vista wrote-off all of its
investment in MDRI and loans advanced for MDRI's account, aggregating
$5,643,000, as of March 31, 1995.
INITIAL INVESTMENT BY VISTA IN MDRI. On April 1, 1994, Vista entered into
an agreement with Obsidian Research N.V., an unaffiliated partnership, to
acquire 715,563 shares of MDRI common stock and warrants to purchase up to
601,073 shares of MDRI common stock exercisable at $6.60 per share until
December 31, 1996. The purchase price paid by Vista for these MDRI securities
consisted of 200,000 shares of Vista Common Stock and 200,000 Vista Class A
Warrants. The MDRI common stock and warrants were originally acquired by
Obsidian Research N.V. at a cost of $1,125,000 in February 1993. Vista's purpose
in acquiring this interest in MDRI was to establish a long-term relationship
with the KMI subsidiary for future access to U.S. ophthalmologists.
ADDITIONAL MDRI INVESTMENTS IN MAY 1994. On May 5, 1994, Vista entered into
a Stock Purchase Agreement (the "May 1994 Stock Agreement") with six individuals
who were principal stockholders of MDRI and included certain members of MDRI and
KMI's management (the "MDRI Management Stockholders"). Under the May 1994 Stock
Agreement, Vista purchased 1,000,000 newly issued shares of MDRI common stock
from MDRI on May 6, 1994 for $1,250,000 in cash and acquired 1,000,000 shares of
MDRI common stock from the MDRI Management Stockholders in exchange for $2
million in principal amount of noninterest bearing promissory notes due on
December 31, 1994. At the time of this investment, MDRI's management projected
MDRI would generate net income for fiscal 1994 of at least $900,000 and
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<PAGE> 61
there was proposed an initial public offering of MDRI securities in which Vista
would participate as a selling stockholder.
Concurrent with the closing of the May 1994 Stock Agreement, seven foreign
private investors purchased an additional 1,000,000 shares of MDRI common stock
from the MDRI Management Stockholders for $2 million in non-interest bearing
promissory notes due in ten equal bi-weekly installments from July 5, 1994
through November 9, 1994. Under separate agreements on May 24, 1994, Vista
acquired these 1,000,000 MDRI shares from the seven foreign investors in
exchange for 200,000 shares of Vista common stock and 100,000 Vista Class A
Warrants (all of which Vista shares and warrants were subsequently cancelled, as
described below). With the consent of the MDRI Management Stockholders, Vista
common stock issued to the seven foreign investors were substituted as a
collateral pledge to secure obligations of the foreign investors on their
non-interest bearing notes to the MDRI Management Stockholders.
In July 1994, Vista was advised that the seven foreign investors were
unable at that time to make payment of the installments due on their $2 million
in notes to the MDRI Management Stockholders. As an accommodation to the MDRI
Management Stockholders, during July and August 1994 Vista prepaid $600,000 in
principal amount of Vista's $2 million note obligations otherwise maturing on
December 31, 1994 to the MDRI Management Stockholders.
EXCHANGES WITH TNC MEDIA, INC. FOR MDRI SECURITIES. Under an agreement
dated October 11, 1994, MDRI transferred shares of common stock in TNC Media,
Inc. ("TNC") to TNC in exchange for the forgiveness of $450,000 in principal and
$56,140 of accrued interest due from MDRI and KMI to TNC and for the
cancellation of 155,000 shares of MDRI common stock then held by TNC. As a
consequence of the cancellation of these shares, Vista's then percentage
ownership of MDRI capital stock increased from 52.41% to approximately 53.48%.
In consideration of this increase in Vista's ownership of MDRI, TNC received
from Vista redeemable Class B warrants to purchase up to 31,000 shares of Vista
common stock exercisable at $10.00 per share at any time through October 11,
1999 unless earlier called for redemption. Vista has the optional right of
calling the Class B warrants for redemption if the Vista common stock issuable
upon exercise of Class B Warrants have been registered for sale under the
Securities Act of 1933 and if Vista common stock is traded in the NASDAQ
over-the-counter market or on a national securities exchange and the closing
sale price is $22.50 per share or more for at least 20 consecutive trading days
on the date Class B Warrants are called for redemption.
During December 1994, Vista acquired 778,777 shares of MDRI common stock
(representing approximately 11.2% of the MDRI shares then outstanding) from TNC
in exchange for 155,755 shares of Vista common stock in order to increase its
voting position in MDRI. Vista demanded that MDRI call an annual meeting of its
stockholders to elect directors, but this demand was ignored by MDRI.
As a result of the above transactions, Vista owned 4,809,340 shares of MDRI
capital stock, or approximately 69.13% of the total then outstanding, at
December 31, 1994. The MDRI Management Stockholders continued to manage MDRI and
its subsidiaries and controlled the policies and operations of MDRI and its
subsidiaries.
DECEMBER 1994 REORGANIZATION AGREEMENT WITH MDRI. In order to resolve
certain disputes which arose between MDRI Management Stockholders and the seven
foreign investors, on the one hand, and between MDRI Management Stockholders and
Vista on the other hand, and in an effort to obtain control over the operating
policies and management of MDRI and its subsidiaries, Vista entered into an
Agreement and Plan of Reorganization with MDRI and the MDRI Management
Stockholders dated as of December 15, 1994 (the "Reorganization Agreement") and
amended in January and March 1995. In order to obtain access to historical
financial records retained by independent public accountants for MDRI, Vista
further agreed that upon the closing of the Reorganization Agreement Vista would
assume $70,000 of MDRI's indebtedness to its independent public accountants and
would guarantee an additional $70,000 of such indebtedness assumed by KMI. Vista
advanced $40,000 of the funds contemplated by these obligations prior to closing
the Reorganization Agreement as an accommodation to MDRI and KMI.
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<PAGE> 62
Due to numerous problems observed by Vista during its due diligence review
of the operations and reported financial condition of MDRI and its subsidiaries,
the original closing contemplated by the Reorganization Agreement was postponed
pending a renegotiation of certain terms and provisions of the Reorganization
Agreement. Vista also extended an exchange offer to the holders of certain MDRI
notes and warrants as required by the Reorganization Agreement, subject to the
closing of the Reorganization Agreement. The Reorganization Agreement further
provided for a proposed merger later in 1995 of MDRI with a wholly-owned
subsidiary of Vista.
EXCHANGE AGREEMENT FOR LOAN TO MICRA. In June 1995, Quintillion B.V., an
affiliate of Vista's then acting President, Jac. J. Lam, advanced the sum of
$100,000 to Micra Instruments Ltd. for working capital to sustain Micra's
operations in exchange for a 15% debenture issued by Micra. The 15% debenture
was for a term of six months and payable thereafter on three months written
notice and secured by a fixed and floating charge on the assets of Micra. In
consideration of this financial accommodation, Vista entered into an Exchange
Agreement with Quintillion B.V. which grants Quintillion the right to exchange
the 15% Micra debenture for shares of the Company's common stock at an exchange
price of $1.25 per share of Vista common stock.
TERMINATION AND RESCISSION OF AGREEMENTS RELATING TO MDRI. Following the
failure of MDRI and the MDRI Management Stockholders to comply with conditions
set forth in the Reorganization Agreement and the inadequacy of MDRI's financial
records, Vista elected on July 7, 1995 to terminate all obligations on its part
under the Reorganization Agreement and advised MDRI and the MDRI Management
Stockholders that Vista was further rescinding all transactions with the MDRI
Management Stockholders contemplated by the May 1994 Purchase Agreement
including all obligations under promissory notes previously issued by Vista. The
reasons given by Vista for these actions included Vista's allegations of fraud,
intentional misconduct and breach of fiduciary duties on the part of the MDRI
Management Stockholders, misrepresentations of material facts by the MDRI
Management Stockholders and MDRI, and failures in the timely performance of
conditions precedent to Vista's obligations. Vista further demanded that the
MDRI Management Stockholders make full restitution to Vista of $600,000 in cash
previously paid by Vista to the MDRI Management Stockholders under notes issued
pursuant to the May 1994 Stock Purchase Agreement.
As a result of this action, all shares issued by Vista under the
Reorganization Agreement and to seven foreign investors in exchange for Vista
securities were cancelled and Vista returned to the MDRI Management Stockholders
all certificates representing shares of MDRI common stock previously received by
Vista except for 2,794,340 MDRI shares, believed to represent approximately 40%
of MDRI's outstanding common stock, paid for in cash by Vista. Vista wrote-off
all of its investment in MDRI and loans advanced for MDRI's account, aggregating
$5,643,000 as of March 31, 1995.
TRANSACTIONS WITH FORMER OFFICERS AND DIRECTORS
In June 1994, Vista engaged the services of Drago A. Cerchiari to render
consulting services relating to financial and accounting matters, including
identification of suitable candidates for the position of the Company's Chief
Financial Officer. Vista issued 7,000 Class A Warrants in consideration of this
agreement, and agreed to repurchase all or any portion of these Class A Warrants
at the price of $5.00 per warrant. Mr. Cerchiari exercised his put option and
the 7,000 Class A Warrants were cancelled in June 1995.
Vista previously had employment agreements with Robert L. Ferrara, who
resigned as Vista's Chief Financial Officer on April 14, 1995; Drago A.
Cerchiari, who resigned as Vista's President, Chief Executive Officer and a
director on June 1, 1995; and G. Lennart Perlhagen, who resigned as Vista's
Chairman on June 1, 1995 and as a director on July 4, 1995.
Under an agreement dated as of July 5, 1995, Vista issued 16,000 shares of
its common stock to Mr. Perlhagen in payment of $80,000 of unreimbursed business
expenses.
Under an agreement dated as of June 1, 1995, Vista paid Mr. Cerchiari
$8,740 in cash and issued 4,000 shares of common stock for reimbursement of a
total of $29,000 of unreimbursed business expenses. Vista
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<PAGE> 63
agreed that Mr. Cerchiari had a put option right to sell the 4,000 shares of
common stock to Vista after January 31, 1996 at a price equal to $20,260 plus
interest from June 1, 1995 at the rate of 1% per month. Mr. Cerchiari exercised
that option on February 1, 1996. Vista also issued 5,000 shares of common stock
to Mr. Cerchiari under the June 1, 1995 agreement as a negotiated settlement for
a one-time hiring bonus in his original employment agreement dated as of January
15, 1995.
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MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Murray D. Watson . . . . . . . . . 51 Chairman of the Board, Chief Executive Officer, President and Director
Kenneth G. Howling . . . . . . . . 38 Vice President -- Finance and Chief Financial Officer
Paul E. Heney . . . . . . . . . . . 37 Secretary
Kevin J. Quinn . . . . . . . . . . 54 Director(1)
William G. Hutchison . . . . . . . 58 Director(1)
- ---------------
</TABLE>
(1) Member of the Audit, Compensation and Nominating Committees.
All of the above persons have served in their respective capacities since
July 30, 1993 with the following exceptions: Mr. Howling began his service on
November 8, 1993, and Mr. Quinn and Mr. Lam became directors on March 15, 1996
and April 1, 1996, respectively. No director receives any compensation for his
services as such.
The function of the Audit Committee is to review significant financial and
accounting issues, to review the services performed by, and reports of, the
Company's independent auditors and to make recommendations to the Board of
Directors with respect to these and related matters.
The Compensation Committee is responsible for establishing and
administering the Company's executive compensation programs. The Nomination
Committee is responsible for making recommendations for vacancies on the Board
of Directors.
MURRAY D. WATSON, B.A.S., M.B.A., CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER, PRESIDENT AND DIRECTOR
Mr. Watson became the Chairman of the Board and Chief Executive Officer of
the Company on July 30, 1993. Prior thereto, he had been the President and
Chief Operating Officer of Medipro Sciences Limited since November, 1987. He
has over 25 years of experience in the international health care industry
including Vice President, Picker International Inc., President, Odyssey Inc.,
and General Manager, American Hospital Supply Corp. of Canada. As President of
the M.D.W. Group Inc., a privately owned merchant banking company since 1985,
he has managed a broad spectrum of business ventures. Mr. Watson received his
B.A.Sc., in Civil Engineering in 1965 from the University of Toronto and his
MBA in 1971 from York University in Toronto, Canada. Mr. Watson is also a
director of Technical Chemicals and Products, Inc. and is the Vice-Chairman of
the Board of Vista. See "The Company" and "Certain Transactions".
KENNETH G. HOWLING, C.P.A., VICE PRESIDENT -- FINANCE AND CHIEF FINANCIAL
OFFICER
Mr. Howling became the Vice President -- Finance and Chief Financial
Officer of the Company on November 8, 1993. He served as the Corporate
Secretary and Controller for Roberts Company Canada Limited from June 1988
until May 1991 and also served as General Manager from June 1991 to November
1993. Prior thereto, he spent 10 years in financial and general management
positions including positions with Smith Kline Beecham, Bencard Allergy
Laboratories, McGraw Edison, and Price Waterhouse. He has been involved in
acquisitions, corporate restructuring, cash flow management, human resource
management, and management information systems. Mr. Howling received his
Certified Public Accountant license from the state of New Jersey in 1987 and
his B.A. in Accounting from Upsala College in East Orange, New Jersey.
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<PAGE> 65
PAUL E. HENEY, B.S.S., LL.B., M.B.A., SECRETARY
Mr. Heney became the Secretary of the Company on July 30, 1993. He is an
attorney and has practiced in the Toronto, Ontario firm of Heney and Associates
since 1991. Between 1985 and 1991 he worked with the Toronto law firm of Holden
Day Wilson. He received his B.Soc.,Sci. in economics from the University of
Ottawa in 1981, his LL.B. from the University of Ottawa in 1984 and his M.B.A.
in 1985 from York University, Toronto.
KEVIN J. QUINN, LLM., DIRECTOR
Mr. Quinn was elected a director of the Company in March 1996. He has been
a practicing attorney in Los Angeles, California since 1969.
WILLIAM G. HUTCHISON, B. ENG., P. ENG., DIRECTOR
Mr. Hutchison is the Managing Director of Quorum Growth International
Limited, located in Singapore. Quorum is a Canadian headquartered company
providing expansion capital and strategic management expertise to
technology-rich growth companies. Prior to joining Quorum, Mr. Hutchison was
National Managing Partner for the Information Technology Practice of Ernst &
Young (Canada) and also National Director, Information, Communications and
Entertainment Industries and Chairman of the International Telecommunications
Industries Practice of Ernst & Young; Chairman & CEO of Informart, Canada's
largest multimedia publishing firm; and President and CEO of Consolidated
Computer Inc., Canada's first computer systems manufacturing firm. Mr.
Hutchison has focused much of his 35 year career in pioneering efforts to help
establish Canada's advanced technology infrastructure. He was Chairman of the
Executive Committee that created CANARIE Inc., a former Chairman of the Board
and he continues as a director. Other positions Mr. Hutchison has held include
Vice-Chairman of the Prime Minister's National Advisory Board for Science and
Technology; founder, Director and Chairman of the Canadian Advanced Technology
Association (CATA); and founder and Director of Precarn Associates Ltd.
Mr. Hutchison received his B. Eng. in Electrical Engineering 1962 from
McGill University in Montreal, Quebec.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company entered into a three (3) year management agreement commencing
August 3, 1993 (the "TMI Agreement") with Trident Management Inc. ("TMI").
Mr. Watson is a minority shareholder of TMI.
On February 28, 1994 the TMI Management Agreement was terminated save and
except for the option provisions and a three-year employment agreement between
the Company and Mr. Watson became effective. On January 22, 1996, the TMI
Agreement was terminated, effective November 15, 1995. A new consulting
agreement was entered into between the Company and TMI on February 27, 1996,
effective November 16, 1995. The new agreement provides that TMI will provide
general supervision of the day to day operations and provide consulting
services with respect to the worldwide business and affairs of the company and
designated Murray D. Watson, a minority shareholder of TMI, to serve as the
Company's Chairman of the Board and Chief Executive Officer.
The agreement provides for annual salary of $225,000 U.S., payable monthly.
The annual base salary shall be increased annually at the rate of 10% per
annum. TMI shall be entitled to receive an annual performance bonus payable in
cash or by mutual agreement by equivalent equity in the amount equal to 100% of
the gross annual base remuneration payable during the first year of the term
thereof but only in the event that closing price of the Company's ADSs equals
or exceeds U.S.$ 2.00 for any 21 day period (whether or not consecutive) prior
to February 28, 1997. With respect to subsequent years, the bonus shall be in
an amount agreed upon between the compensation committee of the Company's board
of directors and TMI. If the Company terminates the agreement without cause,
TMI will be entitled to receive severance payments in an amount equal to the
greater of the amounts payable each year for the number of years or part
thereof remaining under the contract or 12 months.
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On November 8, 1993, the Company entered into an employment agreement with
Mr. Kenneth Howling for a term of three (3) years. On January 22, 1996, this
agreement was terminated, effective November 15, 1995. Pinnacle Financial
Corporation ("Pinnacle") and the Company entered into a new three year
consulting agreement on February 27, 1996, effective November 16, 1995.
Pinnacle is wholly-owned by Mr. Howling. The new agreement provides that
Pinnacle will provide general supervision of the day to day financial
operations and provide consulting services with respect to the worldwide
business and affairs of the company and designated Kenneth G. Howling, its sole
shareholder, to serve as the Company's Vice President of Finance and Chief
Financial Officer.
The agreement provides for annual salary of $125,000 U.S., payable monthly.
The annual base salary shall be increased annually at the rate of 10% per
annum. Pinnacle shall be entitled to receive an annual performance bonus
payable in cash or by mutual agreement by equivalent equity in the amount equal
to 100% of the gross annual base remuneration payable during the first year of
the term thereof but only in the event that closing price of the Company's ADSs
equals or exceeds US$2.00 for any 21 day period (whether or not consecutive)
prior to February 28, 1997. With respect to subsequent years, the bonus shall
be in an amount agreed upon between the compensation committee and the
Company's board of directors. If the Company terminates the agreement without
cause, Pinnacle will be entitled to receive severance payments in an amount
equal to the greater of the amounts payable each year for the number of years
or part thereof remaining under the contract or 12 months.
Effective December 1, 1993, the Company entered into a consulting agreement
with Dr. Joseph G. Masterson pursuant to which Dr. Masterson will provide the
Company with consulting services including assistance in establishing strategic
alliances. This agreement was terminated on January 22, 1996.
Also on January 22, 1996, the employment or management agreements between
the Company, Hooper & Associates of which Mr. Gary R. Hooper is the sole
shareholder, Dr. Thomas S. Spencer and Dr. Vithal J. Rajadhyaksha were
terminated. Mr. Hooper resigned as the President and Chief Operating Officer
of the Company; Dr. Spencer resigned as the Executive Vice President and Chief
Technical Officer of the Company; and Dr. Rajadhyaksha resigned as the Vice
President - Pharmaceutical Development of the Company. These transactions were
effective November 15, 1995. In connection with the termination of these
agreements, as consideration for contractual obligations not met by the
Company, services rendered, severance pay, accepting shares in lieu of cash as
payment for salaries in fiscal 1996, the obligations of TMI, Hooper &
Associates, Mr. Howling, and Dr. Spencer under promissory notes valued at
$741,250 issued in August of 1995 with respect to the purchase of Ordinary
Shares were deemed paid in full and TMI was issued 206,250 additional Ordinary
Shares valued at $103,125. (See "Certain Transactions").
STOCK OPTION PLANS
On July 30, 1993, and July 19, 1994, the Board of Directors adopted its
1993 and 1994 Share Option Plans (together, the "Plans"), the purpose of which
is to provide the Company's employees, officers and directors with additional
incentives to improve the Company's ability to attract, retain and motivate
individuals upon whom the Company's sustained growth and financial success
depend.
The Plans are administered by the Compensation Committee designated by the
Board of Directors (the "Committee"), which is comprised of outside directors.
The aggregate number of Ordinary Shares reserved for issuance under the 1993
Plan is 550,000 shares, while the aggregate number of Ordinary Shares reserved
for issuance under the 1994 Plan is 150,000 shares. Options for a total of
685,000 shares were outstanding and have expired.
On March 3, 1996, the following options to purchase Ordinary Shares were
issued to the persons and entities listed below, all of which have terms of
five years:
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<PAGE> 67
<TABLE>
<CAPTION>
No. of Shares Exercise Price
Name Subject to Option(1) Per Share
---- ----------------- ---------------
<S> <C> <C>
Trident Management, Inc. . . . . . . . . . . 350,000 $0.50
Pinnacle Financial Corporation . . . . . . . 250,000 $0.50
S. Lynda Murtha . . . . . . . . . . . . . . . 33,334 $0.50
Kevin J. Quinn . . . . . . . . . . . . . . . 33,333 $0.50
Paul E. Heney . . . . . . . . . . . . . . . . 33,333 $0.50
All officers and directors as a group
(5 persons) . . . . . . . . . . . . . . . . . 700,000
</TABLE>
- ---------------------------
(1) These options shall vest only in the event that the closing price of
the Company's ADS's equals or exceeds U.S. $2.00 in any 21 day trading period
(whether or not consecutive) to the February 28, 1997.
Options granted under the Plans are immediately exercisable. The exercise
price of the options is determined by the Committee and will be at least 100%
of the market price of the Ordinary Shares on the date the option is granted.
No awards can be made under the Plans after August 2002. The term of any option
will be determined by the Committee, provided that the term may not exceed ten
(10) years from the date of grant. Unless otherwise expressly authorized by
the Board, all options will terminate not more than ninety (90) days after
termination of the option holder's employment or service with the Company (or
one year after such termination because of death or disability). Under certain
circumstances involving a change of control of the Company, the Committee may
accelerate the exercisability and termination of the option.
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<PAGE> 68
PRINCIPAL SHAREHOLDERS
The Company has outstanding 16,915,211 Ordinary Shares as of July 15, 1996.
Such total excludes Ordinary Shares issuable upon the exercise of outstanding
Class A, Class B, Class C and Class D Warrants.
The following table sets forth the Company's Ordinary Shares beneficially
held as of the date of this Prospectus by (i) each person known by the Company
to beneficially hold 5% or more of such shares, (ii) each director and officer
of the Company, and (iii) all officers and directors as a group. All of the
persons and groups shown below have voting and investment power with respect to
the shares indicated.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF
ORDINARY SHARES OUTSTANDING
BENEFICIALLY OWNED (1) SHARES
-----------------------------------
<S> <C> <C>
Trident Management Inc. (2) . . . . . . . . . . . . . . . . . . . 880,339 8.8%
Murray Watson . . . . . . . . . . . . . . . . . . . . . . . . . . -0- -
Paul E. Heney . . . . . . . . . . . . . . . . . . . . . . . . . . 302,500 3.0%
Kenneth G. Howling . . . . . . . . . . . . . . . . . . . . . . . 113,000 1.1%
Pinnacle Financial Corporation (3) . . . . . . . . . . . . . . . 143,750 1.4%
Kevin J. Quinn . . . . . . . . . . . . . . . . . . . . . . . . . 116,408 *
All officers and directors as a group (5 persons) . . . . . . . . 961,643 9.6%
</TABLE>
* Less than .1%
(1) Unless otherwise indicated, all shares are beneficially owned and sole
voting and investment power is held by the person or entity in the table
above. The address for each beneficial holder is c/o the Company, 15/16
Fitzwilliam Place, Dublin 2, Ireland.
(2) Mr. Watson is a minority shareholder of Trident Management Inc. Mr.Watson
disclaims beneficial ownership of such shares and options.
(3) Mr. Howling is a controlling shareholder of Pinnacle Financial Corporation.
EXECUTIVE COMPENSATION
The following table sets forth in the prescribed format the compensation
paid the Company's Chief Executive Officer and the other executive officers of
the Company who received total annual salary and bonus for the fiscal year
ended February 29, 1996 in excess of $100,000 for services rendered in all
capacities during the Company's last completed fiscal year:
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<PAGE> 69
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- -------------------------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Options
Options
Name and Compensation
Principal Position Year ($) ($) ($) (#) ($)
--------------------- ---- ---------- ------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Murray D. Watson 1996 211,719(1) --- 309,375(1)(2) N/A N/A
Gary Hooper 1996 128,333(3) --- 160,000(4)
Thomas Spencer 1996 99,167 --- 140,000(5)
Kenneth Howling 1996 117,917(6) --- 115,000(7)
</TABLE>
(1) This amount was paid to TMI in which Mr. Watson is a minority shareholder.
(2) Represents 257,813 Ordinary Shares valued at $0.80 per share and 206,250
Ordinary Shares valued at $0.50 per share which were issued to TMI in which
Mr. Watson is a minority shareholder.
(3) Includes $15,000 paid to a consulting company in which Mr. Hooper is the
sole shareholder.
(4) Represents 200,000 Ordinary Shares valued at $0.80 per share.
(5) Represents 175,000 Ordinary Shares valued at $0.80 per share.
(6) Includes $38,333 paid to a consulting company in which Mr. Howling is the
sole shareholder.
(7) Represents 146,750 Ordinary Shares valued at $0.80 per share issued to a
consulting company in which Mr. Howling is the sole shareholder.
The following tables set forth certain information in the prescribed format
with respect to options granted and exercised under the Company's various stock
option plans during the last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Option Term (1)
Number of Securities % of Total Options Exercise Expiration
Name Underlying Options Granted To Employees In Price ($) Date 5% 10%
---- Granted (#) Fiscal Year (%) --------- ---------- -- ---
-------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Murray
D. -0- N/A N/A N/A N/A N/A
Watson
Gary
Hooper -0- N/A N/A N/A N/A N/A
Thomas
Spencer
-0- N/A N/A N/A N/A N/A
Kenneth
Howling -0- N/A N/A N/A N/A N/A
</TABLE>
(1) Potential realizable value is based on an assumption that the stock
price of the common stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the ten
year option term. Such amounts are based on the assumption that the
named person hold the options for their full 10-year term. These numbers
are calculated based on the requirements promulgated by the Securities
and Exchange Commission and do not reflect the Company's estimate of
future stock price growth.
66
<PAGE> 70
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Securities Underlying Unexercised
Unexercised in the Money
Options at FY-End at FY-Ended(1) Options
Shares Acquired Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
Name on Exercise (#) ($) ($) ($) ($) ($)
---- ---------------- -------------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Murray D.
Watson None N/A 0 0 0 0
Gary Hooper None N/A 0 0 0 0
Thomas Spenser None N/A 0 0 0 0
Kenneth Howling None N/A 0 0 0 0
</TABLE>
(1) The amounts in this column are calculated using the difference between the
closing market price of the Company's ordinary shares at the Company's
1996 fiscal year-end and the option exercise prices.
67
<PAGE> 71
SELLING SECURITY HOLDERS
The following table sets forth the number of Ordinary Shares, Units, and
Class A, Class B, and Class D Warrants (collectively, the "Selling Security
Holder Securities") beneficially owned by each Selling Security Holder prior to
offering such Securities pursuant to this Prospectus. In the event all of such
Securities so offered are sold, the Selling Security Holders would not
beneficially own any of the Company's securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO OFFERING
--------------------------------------
WARRANTS
SELLING ORDINARY -------------------------------------------------
SECURITY HOLDER(1) SHARES UNITS CLASS A CLASS B CLASS C CLASS D
------------------ ---------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Therapeutic Patch Research N.V. . . . 162,113(2) 67,500 33,750 16,875 1,600,000 -0-
Caserto Holdings, Inc. . . . . . . . -0- 157,858 -0- -0- -0- -0-
Varese Holdings, Inc. . . . . . . . . -0- 165,867 -0- -0- -0- -0-
Brundisi Investments, Inc. . . . . . -0- 176,275 -0- -0- -0- -0-
Patras Investment S.A. . . . . . . . 80,500(2) 32,500 16,250 8,125 800,000 -0-
Buffett Investment Ltd. . . . . . . . -0- -0- -0- -0- -0- 311,250
Adrian A. Alexander . . . . . . . . . -0- -0- -0- -0- -0- 130,000
Merritt K. Widen . . . . . . . . . . -0- -0- -0- -0- -0- 15,000
Patrick E. Brake . . . . . . . . . . -0- -0- -0- -0- -0- 13,750
Richard Wells . . . . . . . . . . . . -0- -0- -0- -0- -0- 7,500
Reginald Duquesnoy . . . . . . . . . -0- -0- -0- -0- -0- 5,000
Elizabeth A. Helke . . . . . . . . . -0- -0- -0- -0- -0- 3,500
Nicholas D. Newton . . . . . . . . . -0- -0- -0- -0- -0- 2,500
Cresvale, Ltd. . . . . . . . . . . . 12,250 -0- 8,750 4,375 -0- 2,125
Chillington, N.V. . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- 1,875
Nicholas Kane . . . . . . . . . . . . -0- -0- -0- -0- -0- 1,875
Anthony L. Havens . . . . . . . . . . -0- -0- -0- -0- -0- 1,250
Edmond Nagel . . . . . . . . . . . . -0- -0- -0- -0- -0- 1,250
Chris Arenal . . . . . . . . . . . . -0- -0- -0- -0- -0- 625
Barry Blank . . . . . . . . . . . . . -0- -0- -0- -0- -0- 625
Susan M. Diamond . . . . . . . . . . -0- -0- -0- -0- -0- 625
Costus Spyropoulos . . . . . . . . . -0- -0- -0- -0- -0- 625
Woodco Fund Management . . . . . . . -0- -0- -0- -0- -0- 625
Steve Abrams . . . . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
Allentown Investments . . . . . . . . 35,000 -0- 25,000 12,500 -0- -0-
The American Heritage Fund, Inc. . . 52,500 -0- 37,500 18,750 -0- -0-
James Argyropoulos . . . . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
Bereshkai S. Aslami . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Banca Euromobiliare . . . . . . . . . 43,750 -0- 31,250 15,625 -0- -0-
Banque Von Ernst & Cie SA . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
Michael S. Barish . . . . . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
Anne W. Bensen . . . . . . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
Suzanne M. Berns . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Bluehaven Ltd. . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Bradley Resources Company . . . . . . 35,000 -0- 25,000 12,500 -0- -0-
Brancor Securities A/S . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Stephen F. Brint, M.D. . . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
Michael Brophy . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Mark Brown . . . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Continental Overseas Development
Corp. 12,500 -0- 6,250 3,125 -0- -0-
Marie L. Culcagno . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Elizabeth DeLuca . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Robert Donalson . . . . . . . . . . . 12,500 -0- 6,250 3,125 -0- -0-
Dr. H.C. Donnerstag . . . . . . . . . 35,000 -0- 25,000 12,500 -0- -0-
Isaac R. Dweck . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Jack R. Dweck . . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
</TABLE>
68
<PAGE> 72
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
-----------------
WARRANTS
SELLING ORDINARY ---------------------------------------------------------
SECURITY HOLDER(1) SHARES UNITS CLASS A CLASS B CLASS C CLASS D
------------------ --------- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John Favia . . . . . . . . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
Fidulex Management Inc. . . . . . . . 26,250 -0- 18,750 9,375 -0- -0-
John Flood . . . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Generation Capital Associates . . . . 8,750 -0- 6,250 3,125 -0- -0-
Joseph Giamanco . . . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
Efraim Gilder . . . . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
Joseph Hartmun . . . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
A. Hoenner . . . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Hazelbrook, Ltd. . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Leo Jaffe . . . . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
William C. & Rita A. Krebs . . . . . 8,750 -0- 6,250 3,125 -0- -0-
John P. LaRocque . . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
David LaRocque . . . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
Mary Woodward Lasker . . . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
Lazard Freres & Company . . . . . . . 105,000 -0- 75,000 37,500 -0- -0-
Leonard L. Levin . . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
James P. Lewis . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Manhattan Group Funding . . . . . . . 14,000 -0- 10,000 5,000 -0- -0-
Patrick J. Nanghton . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
Louis S. Panos . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Piedmont N.V. . . . . . . . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
QTDI Pension Plan & Trust . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Patrick G. Rooney . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
SAGAX Investment Fund, Ltd. . . . . . 17,500 -0- 12,500 6,250 -0- -0-
John Silberman . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Robert D. Skoronski . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
Bruce Slovin . . . . . . . . . . . . 35,000 -0- 25,000 12,500 -0- -0-
Gerald Snower . . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Henry A. Solomon, M.D. PC
Pension Trust . . . . . . . . . 4,375 -0- 3,125 1,562.5 -0- -0-
John S. Slafford, Jr. . . . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
Allan R. Trynz . . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Thomas T. Tsucalas . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
Wellington, N.V. . . . . . . . . . . 8,750 -0- 6,250 3,125 -0- -0-
NKS Wills . . . . . . . . . . . . . . 17,500 -0- 12,500 6,250 -0- -0-
Albert Cinelli . . . . . . . . . . . 174 -0- -0- -0- -0- -0-
Satinger Dang . . . . . . . . . . . . 1,099 -0- -0- -0- -0- -0-
Avtar & Harjinder Dhunjal . . . . . . 880 -0- -0- -0- -0- -0-
Hardev & Balbir Dhanjal . . . . . . . 440 -0- -0- -0- -0- -0-
Fountain Valley Cardiology
Medical Clinic . . . . . . . . . 3,665 -0- -0- -0- -0- -0-
Stan Gardner . . . . . . . . . . . . 366 -0- -0- -0- -0- -0-
Santosh & Bimlesh Garg . . . . . . . 1,099 -0- -0- -0- -0- -0-
Anat Goldman . . . . . . . . . . . . 366 -0- -0- -0- -0- -0-
Tina Goldman . . . . . . . . . . . . 366 -0- -0- -0- -0- -0-
Jennifer Irani . . . . . . . . . . . 183 -0- -0- -0- -0- -0-
Joseph Irani . . . . . . . . . . . . 3,224 -0- -0- -0- -0- -0-
Janet Moore, Custodian for
Joseph Alexander Irani . . . . . 550 -0- -0- -0- -0- -0-
Malim Irani . . . . . . . . . . . . . 733 -0- -0- -0- -0- -0-
Sheila Irani . . . . . . . . . . . . 73 -0- -0- -0- -0- -0-
Susan Irani . . . . . . . . . . . . . 916 -0- -0- -0- -0- -0-
</TABLE>
69
<PAGE> 73
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
-----------------
WARRANTS
SELLING ORDINARY -----------------------------------------------------------
SECURITY HOLDER(1) SHARES UNITS CLASS A CLASS B CLASS C CLASS D
------------------ -------- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Janet Moore, Custodian for
Timothy Machen Irani . . . . . . 550 -0- -0- -0- -0- -0-
Zachary Irani . . . . . . . . . . . . 733 -0- -0- -0- -0- -0-
Thelma Johnson . . . . . . . . . . . 366 -0- -0- -0- -0- -0-
Arden Kelton and Judith Kelton,
Joint Tenants . . . . . . . . . 13,193 -0- -0- -0- -0- -0-
Siegfied Krutzik Disease
Detection International . . . . 1,099 -0- -0- -0- -0- -0-
William & Sandra Massey . . . . . . . 909 -0- -0- -0- -0- -0-
Gertrude McKelvy & Gerald
Kimpinsky, Joint Tenants . . . . 4,581 -0- -0- -0- -0- -0-
Janet Moore . . . . . . . . . . . . . 1,082 -0- -0- -0- -0- -0-
Janet Moore, Custodian for
Joseph Alexander Irani . . . . . 183 -0- -0- -0- -0- -0-
Janet Moore, Custodian for
Timothy Machen Irani . . . . . . 183 -0- -0- -0- -0- -0-
Phillip & Janet Paxton . . . . . . . 366 -0- -0- -0- -0- -0-
Dinesh Rajadhyaksha . . . . . . . . . 292 -0- -0- -0- -0- -0-
Nelly Michelle Rajadhyaksha . . . . . 9,666 -0- -0- -0- -0- -0-
Nelly Michelle Rajadhyaksha . . . . . 916 -0- -0- -0- -0- -0-
Joseph Rink . . . . . . . . . . . . . 366 -0- -0- -0- -0- -0-
Hayward, Tilton & Rolapp . . . . . . 386 -0- -0- -0- -0- -0-
Jangbir Sangha . . . . . . . . . . . 9,511 -0- -0- -0- -0- -0-
David G. Schrunk . . . . . . . . . . 1,466 -0- -0- -0- -0- -0-
Stradling, Yocca, Carlson & Rauth . . 1,003 -0- -0- -0- -0- -0-
Ann Sultanian Smyth . . . . . . . . . 733 -0- -0- -0- -0- -0-
Ilse Sultanian . . . . . . . . . . . 1,008 -0- -0- -0- -0- -0-
Kay Sultanian . . . . . . . . . . . . 733 -0- -0- -0- -0- -0-
Steven Sultanian . . . . . . . . . . 733 -0- -0- -0- -0- -0-
Wreds Whitney . . . . . . . . . . . . 349 -0- -0- -0- -0- -0-
Wittenberg Family Trust . . . . . . . 1,466 -0- -0- -0- -0- -0-
Ari Zubli and Yvette Zubli . . . . . 1,466 -0- -0- -0- -0- -0-
Biomerica Inc. . . . . . . . . . . . 72,792 -0- -0- -0- -0- -0-
Edmond Cohen . . . . . . . . . . . . 18,323 -0- -0- -0- -0- -0-
James Cohen . . . . . . . . . . . . . 366 -0- -0- -0- -0- -0-
Ronald C. & Dolores A. Else . . . . . 806 -0- -0- -0- -0- -0-
James Kelton . . . . . . . . . . . . 73 -0- -0- -0- -0- -0-
Vithal Rajadhyaksha & Nelly
Michelle Rajadhyaksha,
Trustees of the Vithal
Rajadhyaksha & Nelly
Michelle Rajadhyaksha
Trust . . . . . . . . . . . . . 124,040 -0- -0- -0- -0- -0-
Jack & Wilma Zupli . . . . . . . . . 1,466 -0- -0- -0- -0- -0-
Ronald K. Robertson . . . . . . . . . 14,659 -0- -0- -0- -0- -0-
</TABLE>
(1) No Selling Security Holder is an officer or director of the Company or any
of its affiliates or predecessors. Except with respect to TPR's
relationship with the Company, there are no material relationships between
any Selling Shareholder and the Company or any of its predecessors or
affiliates. See "Certain Transactions".
(2) Does not include the Ordinary Shares included in the Units.
70
<PAGE> 74
(3) Does not include 14,162,495 shares issuable with respect to the Class C
and D Warrants, including the shares issuable upon the exercise of the
Class A and B Warrants included in the Class C and D Warrants.
Each Unit consists of one ADS representing one Ordinary Share, one-half of
a Class A Warrant and one-quarter of a Class B Warrant. The components of the
Units are immediately detachable and separately tradeable.
Subject to this restriction, the Selling Security Holders have advised the
Company that sales of the Selling Security Holder Securities may be effected
from time to time in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. The Selling Security
Holders may effect such transactions by Selling Security Holder Securities
directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of Selling Security Holder Securities for whom such
broker/dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The Selling Security Holders and any broker-dealers that act in connection
with the sale of the Selling Security Holder Securities as principals may be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and any commission received by them and any profit on the resale
of the as principals might be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Security Holders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the Selling Security Holder Securities against certain
liabilities, including liabilities arising under the Securities Act. The
Company will not receive any proceeds from sales of the Selling Security Holder
Securities. Sales of the Selling Security Holder Securities, or even the
potential of such sales, would likely have an adverse effect on the market
price of the ADRs.
71
<PAGE> 75
CERTAIN TRANSACTIONS
On July 30, 1993, pursuant to an Agreement for Purchase of Assets, as
amended, TPR acquired from Synorex Incorporated, a Delaware corporation
("Synorex"), substantially all of the assets of Synorex, consisting primarily
of patents and patent applications relating to certain skin penetration
enhancer technologies in exchange for 2,046,576 TPR Class B Preferred Shares.
After February 28, 1994, such TPR Class B Preferred Shares were exchanged for
300,000 Ordinary Shares of the Company held by TPR. The 300,000 Ordinary Shares
may not be sold or transferred for a period of up to one (1) year after
February 28, 1994 without the prior written consent of Westfield Financial
Corporation, one of the underwriters of the Company's initial public offering.
In connection with the Synorex transaction, Dr. Vithal J. Rajadhyaksha
("Dr. Raj"), the principal inventor of the Synorex technology, entered into a
Consulting and Non-Compete Agreement ("Consulting Agreement") with TPR pursuant
to which Dr. Raj agreed to provide part time technical consulting services to
TPR through December 31, 1996. In connection with the TPR License described
below, the Consulting Agreement was assigned to the Company. Thereafter, the
Consulting Agreement was terminated and Dr. Raj entered into an employment
agreement with the Company. See "Management -- Employment and Consulting
Agreements."
On July 30, 1993, TPR completed the private placement of 1,250,000 of its
Class A Preferred Shares, for which TPR received aggregate gross proceeds of
$5,000,000. Also on July 30, 1993, TPR contributed $4,387,500 to the Company in
exchange for 1,250,000 Units, each of which was comprised of one (1) Ordinary
Share, one-half of a Class A Warrant, and one-quarter of a Class B Warrant. See
"Description of Capital Stock."
The Company entered into the TPR License Agreement dated July 30, 1993,
with TPR pursuant to which TPR granted the Company an exclusive, fully paid,
worldwide license to sublicense, develop, manufacture, use and sell all of the
skin penetration enhancer technologies which TPR purchased from Synorex. As
consideration for the license, the Company paid the following to TPR:
(1) . . . . . . . . . . . . . . . . . . . . . . . . $300,000;
(2) . . . . . . . . . . . . . . . . . . . . . 600,000 Units;
(3) . . . . . . . . . . . . . 2,400,000 Class C Warrants; and
(4) . . . . . . . . . . . . . . . . 500,000 Class D Warrants.
For a description of the Class C Warrants and the Class D Warrants, see
"Description of Capital Stock -- Warrants."
TPR may be deemed to be a promoter of the Company in view of the foregoing
transactions.
On July 30, 1993, the Company entered into a Share Exchange Agreement
("Exchange Agreement") with Medipro and each of its shareholders pursuant to
which the Company acquired all of the issued and outstanding shares of capital
stock of Medipro in exchange for 2,309,432 Ordinary Shares of the Company. The
former Medipro shareholders received registration rights with respect to such
shares, which rights become exercisable on or after July 30, 1995. The majority
of the Company's current directors were nominated by former Medipro
shareholders.
EC/American Ltd. a consulting firm, received from TPR fees of $262,500 and
a payment of $50,000 for expenses as partial consideration for management
consulting services rendered in connection with the development and
implementation of TPR's licensing, acquisition and restructuring strategies.
Such amounts were paid from the proceeds of the TPR Private Offering. In
addition, EC/American Ltd. received Class D Warrants from TPR to acquire up to
500,000 Units which warrants EC/American Ltd. transferred to certain
individuals.
72
<PAGE> 76
On November 30, 1993, the Company entered into a license agreement with
Genetronics pursuant to which the Company acquired the exclusive world wide
license to exploit electrofusion patents and technological know-how developed
by Genetronics for the purpose of developing and selling transdermal drug
delivery systems, excluding cosmetic applications. The Company paid a license
fee of $150,000 and is required to pay royalties to be mutually agreed by the
parties on a product by product basis. The agreement also provides that
Genetronics shall have the right to manufacture certain components that the
parties expect will be incorporated in drug delivery systems which include
these technologies.
On March 7, 1994, the Company completed its initial public offering in the
United States of ADRs and warrants generating gross proceeds of $3,715,000 (the
"ADS Offering").
On June 13, 1994, the Company acquired a total of 1,319,996 common shares
of Cangene Corporation ("Cangene") from Arca Investments Inc. ("Arca"). In
payment for these shares, the Company issued a total of 439,999 of its Ordinary
Shares, on the basis of one Ordinary Share for each three shares of Cangene
held by Arca. The Company agreed to register 439,999 Ordinary Shares (which
will be represented by ADRs) issued to Arca and has filed this Registration
Statement under the U.S. Securities Act of 1933, as amended. This acquisition
was completed as part of a bid by the Company to acquire all of the common
shares of Cangene which was subsequently withdrawn. The Cangene shares acquired
have since been sold by the Company (See "Managements Discussion and Analysis
of Results of Operations and Financial Condition").
On June 30, 1994, the Company acquired from Flora substantially all of the
assets of Flora and assumed certain specified liabilities arising after June
30, 1994. The acquired business ("Business") primarily relates to the research
and development of (i) passive transdermal systems, (ii) a periodontal delivery
system and (iii) a buccal system, each for the systemic delivery to humans of
therapeutic drugs and compounds.
In exchange for the Business, the Company issued a two year senior secured
convertible promissory note in the amount of $5,000,000 (the "Note"). The
principal amount of the Note was due and payable on June 30, 1996. The Note was
secured by a pledge of all of the assets acquired from Flora. Such assets were
transferred at the direction of the Company directly to PP Holdings, Inc. a
wholly owned subsidiary of the Company, on June 30, 1994.
On July 6, 1994, the Company entered into an Agreement with LDI, Inc.,
("LDI") pursuant to which LDI has provided lease financing in the Canadian
dollar equivalent amount of $750,000 which will be utilized by the Company to
purchase prototype manufacturing equipment costing $1,100,000. The balance of
the acquisition costs, approximately $350,000, has been paid by the Company in
the form of deposits. The equipment supplier has agreed with LDI to repurchase
the equipment if the Company defaults on its lease payments. The Company was
required to provide LDI with a letter of credit for the difference between the
repurchase amount and the lease amount. In September 1994, the Company
terminated the lease arrangement. In full and complete settlement of all claims
regarding this matter, on December 16, 1994, the equipment lessor drew down
the letter of credit, received a further CDN.$25,000 and accepted delivery of
86,908 common shares of Cangene from the Company. (See "Management's
Discussion and Analysis of Results of Operations and Financial Condition").
The Company entered into agreements with Pharmacia AB of Sweden in
December 1994 pursuant to which it sold to Pharmacia the nicotine patch and
buccal patent rights and know-how acquired from Flora in June 1994. The terms
of the sale included a cash payment to the Company of $1,250,000 and on-going
royalties tied to the revenue generated from the commercialization of these
patent rights. The agreements with Pharmacia entitle the Company to a royalty
on the sale by Pharmacia of certain second generation nicotine patches to be
developed by Pharmacia, as well as a non-exclusive license, with right of
sublicense, to use the patent rights sold by the Company to Pharmacia.
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On May 24, 1995, August 14, 1995, August 23, 1995, September 13, 1995 and
September 25, 1995, the Company had closings of a private placement of
1,699,400 shares ("Placement Shares") of its Ordinary Shares at a price of
$1.00 per share for net proceeds of $1,486,777. The Placement Shares were
issued to 35 investors. The Company granted registration rights to the
purchasers of the Placement Shares and has filed a separate Registration
Statement with respect to the Placement Shares.
In March 1996, the Company concluded a private placement of 2,150,000
ordinary shares to 16 investors. The Company received net proceeds of
$1,075,000 from this private placement. 2,150,000 Class C Warrants were
retired in connection with this private placement.
On May 25, 1995, the Company declared bonuses valued at an aggregate of
$261,250 to Messrs. Watson, Hooper, Spencer and Howling pursuant to their
respective employment agreements or consulting agreements, as the case may be,
with the Company in respect of the fiscal year ended February 28, 1995. One
third of each bonus was paid in cash and the balance paid in an aggregate of
174,167 Ordinary Shares valued at $1.00 per share. During the fiscal year
ended February 29, 1996, senior management received an aggregate of 423,627
ordinary shares valued at $.50 per share in lieu of receiving salary or
consulting fees, as the case may be.
On June 28, 1995, the Company's Board of Directors authorized the issuance
of an aggregate of 926,563 Ordinary Shares to the following persons or
entities, all of which are either officers, directors or affiliates of officers
and directors of the Company. The price per share was $.80 representing a
discount of 20% from the market price on the date the Board of Directors
authorized the issuance thereof as follows:
<TABLE>
<CAPTION>
Name Number of Shares Subscription Price
- ---- ---------------- ------------------
<S> <C> <C>
Trident Management, Inc. 257,813 Ordinary Shares $206,250
Hooper & Associates, Inc. 200,000 Ordinary Shares 160,000
Thomas Spencer 175,000 Ordinary Shares 140,000
Pinnacle Financial Corporation 143,750 Ordinary Shares 115,000
Lennart Perlhagen 50,000 Ordinary Shares 40,000
Malcolm Rowe 50,000 Ordinary Shares 40,000
Joseph Masterson 50,000 Ordinary Shares 40,000
</TABLE>
Each person or entity executed a promissory note in the amount set forth
above which is secured by a pledge of the shares received by them. The shares
were issued at a discount because the shares could not be sold until the
promissory note was satisfied.
On January 22, 1996, the employment or management agreements between the
Company and each of the above persons or entities were terminated effective
November 15, 1995. In connection with the termination of these agreements, as
consideration for contractual obligations not met by the Company, accepting
shares in lieu of cash as payment for salaries in fiscal 1996, severance pay
and/or the granting of a bonus for fiscal 1996, the obligations of the above
persons or entities under such promissory notes valued at $741,250 were deemed
paid in full and TMI was issued 206,250 additional shares.
During March 1996, the Company and Vista Technologies Inc. ("Vista")
consummated certain agreements pursuant to which Vista received equity
financing from the Company in a series of transactions and the Company acquired
a controlling equity interest in Vista. These definitive agreements are
summarized as follows:
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Stock Purchase Agreement for $500,000
On March 21, 1996, Vista and the Company consummated a Stock Purchase
Agreement which provided for 200,000 newly issued shares of Vista common stock
to be sold to the Company for a cash price of $500,000, or $2.50 per share.
These funds were part of the proceeds of a private placement of 2,150,000
Ordinary Shares, the net proceeds of $1,075,000 were received by the Company on
March 21, 1996.
Exchange of Shares by Certain Stockholders
Three Vista stockholders, including Therapeutic Patch Research N.V.
("TPR"), Saliva Research Limited ("SRL") and Westcliff Partners Inc. ("WPI"),
agreed to exchange a total of 900,000 shares of Vista's outstanding common
stock owned by TPR, SRL and WPI for 4,500,000 newly issued Ordinary Shares of
the Company in a privately-negotiated transaction. The transaction was
consummated on March 21, 1996.
Exchange Agreement with Vista
On March 1, 1996, the Company and Vista executed an agreement ("Exchange
Agreement") which was consummated on March 21, 1996.
Under the Exchange Agreement, Vista delivered 2,060,000 newly issued shares
of Vista common stock to the Company at a stated value of $5,150,000, or $2.50
per Vista share, plus 500,000 Vista Class C common stock purchase warrants. In
exchange, Vista received from the Company (i) an interest-free note due in six
months from the Company in the principal amount of $750,000, and (ii) 200,000
restricted shares of TCPI common stock currently held by the Company at a
stated value at July 19, 1996 of $10.25 per TCPI share.
As additional consideration for these transactions, the Exchange Agreement
granted the Company an option exercisable at any time on or before September
30, 1996 to purchase up to an additional 250,000 newly issued shares of Vista's
Common Stock at an option exercise price of $2.50 per share in cash (the "Six
Month Option"). In July 1996, the Company acquired 200,000 Vista shares upon
partial exercise of the Six Month Option.
The 500,000 Class C Warrants issuable to the Company under the Exchange
Agreement each represent the right to purchase one (1) share of Vista's Common
Stock during the month of February 1997 and/or the month of February 1998, and
expire thereafter to the extent not exercised. In each instance, the exercise
price per share will be determined by the average of the quoted closing prices
for the Common Stock in the over-the-counter market during the month of
January immediately preceding the date Class C Warrants or any portion thereof
are exercised, except that the Class C Warrant exercise price per share will
not in any event exceed $10.00 per share of Common Stock. The exercise price
and number of shares issuable on exercise of Class C Warrants are subject to
adjustment in certain events to prevent dilution in the event of any subsequent
stock split, stock dividend, reclassification or recapitalization affecting the
outstanding Common Stock as a class.
CHANGE IN CONTROL AND OTHER INFORMATION
As a result of the agreements described above, the Company acquired a
controlling interest in Vista.
After giving effect to the issuance of 2,260,000 newly issued Vista shares
required by the Stock Purchase Agreement and the Exchange Agreement (but
without giving effect to other common stock reserved for outstanding stock
options, warrants, conversion or exchange of debt obligations, or for
additional Regional Joint Ventures other than 1,700,000 shares committed for
issuance to four Vista Laser Centers in formation), there are approximately
6,706,104 Vista shares outstanding. Of that amount, 3,160,000 Vista common
shares, or approximately 61.3% of the total then outstanding, are owned by the
Company upon closings of the Stock
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Purchase Agreement, the Exchange Agreement and the Company's exchange of shares
with TPR, SRL and WPI. Vista and the Company anticipate this percentage
ownership may be reduced in the near future as Vista issues additional common
shares in connection with its sponsorship of additional Regional Joint Ventures
currently in various stages of negotiation and for a planned private placement
offering of Vista securities for Vista's own account.
Vista entered into a registration rights agreement at the closing the
Exchange Agreement. This agreement grants the Company certain "piggy-back"
registration rights in the event Vista files registration statements covering
offerings of its securities under the Securities Act of 1933. In addition, the
Company will have the right on one occasion after March 31, 1997 to demand that
all or a portion of the Vista common stock held by the Company as a result of
the Stock Purchase Agreement, the Exchange Agreement and issuable upon exercise
of Class C Warrants be registered under the Securities Act of 1933. Any such
registration of Vista common stock for the account of the Company will be at
Vista's expense.
Murray D. Watson has served since July 1993 as Chairman of the Board, Chief
Executive Officer and a director of the Company. He is also a director of
Vista since January 31, 1994. On February 16, 1996, Mr. Watson was elected
Vista's Vice Chairman of the Board and Kenneth G. Howling, Vice President and
Chief Financial officer of the Company, was elected Vista's Treasurer and Chief
Financial Officer. In each case, their election as Vista officers was subject
to a condition that definitive agreements for the contemplated transactions
between Vista and the Company be executed, which events occurred on March 1,
1996.
The transactions contemplated by the Stock Purchase Agreement and the
Exchange Agreement were authorized and approved by the boards of directors of
the Company and Vista at a board meeting held in February 1996 attended by all
of the Company's and Vista's then directors. The Boards approved the Stock
Purchase Agreement and Exchange Agreement transactions with knowledge and
disclosure of the proposed exchange by TPR, SRL and WPI of 900,000 shares of
Vista common stock with the Company. Messr. Watson and Rowe, each a director
of the Company, abstained from voting on the proposed transactions due to there
being directors of Vista and in the case of Mr. Watson, because of his position
as the Chief Executive Officer and a director of the Company.
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DESCRIPTION OF SHARE CAPITAL
Set forth below is certain information concerning the Company's capital
stock and a brief summary of certain provisions of the Company Articles of
Association under the Irish Companies Acts, 1963 to 1990. This description does
not purport to be complete and is qualified in its entirety by reference to the
Articles of Association, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. A copy is also
available for inspection at the offices of the Company, and Rory O'Donnell &
Company, 16 Fitzwilliam Place, Dublin 2, Ireland, Irish counsel to the Company.
ORDINARY SHARES
The Company's authorized share capital is 52,046,576 Ordinary Shares of
IRL pound sterling .01 per share.
The Company, as of July 15, 1996, had issued and outstanding 16,915,211
Ordinary Shares.
All of the Ordinary Shares issued as of the date of this Prospectus, have
been credited as fully paid, duly authorized and validly issued. Holders of
Ordinary Shares are entitled to receive such dividends as may be recommended by
the Board of Directors of the Company and approved by the shareholders and/or
such interim dividends as the Board of Directors of the Company may decide. No
dividends have been paid on the Ordinary Shares prior to the date of this
Prospectus. On liquidation or a winding up of the Company, the assets available
for distribution among the holders of ADSs and Ordinary Shares not otherwise
represented by ADSs shall be distributed pro rata. The Ordinary Shares have no
conversion or redemption rights.
Voting Rights. Holders of Ordinary Shares are entitled to one vote per
share, either in person or by proxy, at shareholder meetings and five or more
shareholders present in person or by proxy, not being less than five
individuals, holding not less than 66.6% of the issued Ordinary Shares
constitutes a quorum at such meetings. A majority of votes cast in favor of the
resolution is required for ordinary resolutions; however, a 75% vote in favor
of the resolution is required for the adoption of special resolutions.
Variation of the rights relating to a class of Ordinary Shares requires the
approval of a special resolution by the class in question. Shareholders do not
have cumulative voting rights for the election of directors.
Rights of Dissenting Shareholders. There are no appraisal rights under
Irish law.
Rotation and Appointment of Directors. The Articles of Association of the
Company require that a third of the non-executive directors shall retire by
rotation at each annual general meeting of the Company. Each of the directors
retiring at this time may offer themselves for re-election. The directors may,
during the period between annual general meetings of the Company, add
additional directors to the Board of Directors of the Company. Directors who
are added to the board in such a fashion must resign at the next annual general
meeting and may offer themselves for re-election.
Shareholder Meetings. Under Irish law, a company's annual general meeting
of shareholders must take place in the Republic of Ireland and any business
transacted at a meeting held in breach of this requirement will be void, unless
all shareholders entitled to attend and vote at such meeting consent in writing
to the meeting being held elsewhere or alternatively a resolution providing
that the meeting be held elsewhere has been passed at the preceding annual
general meeting of shareholders. The Articles of Association of the Company
permit general annual meetings to be held outside Ireland if the above
procedures are followed. Under Irish law, extraordinary general shareholders'
meetings may be convened by the Board of Directors or at the request of
shareholders holding not less than one-tenth of the paid-up capital of the
Company as at the relevant date. An annual general meeting of the Company must
be held within 18 months of the date of incorporation and thereafter one in
each
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calendar year so that not more than 15 months shall elapse between one meeting
and the next. The Minister for Enterprise and Employment of Ireland may, on the
application of any shareholder, call or direct the calling of a general meeting
if default is made in holding such a meeting. Irish law requires at least 14
days written notice of a meeting, except that an annual general meeting or a
meeting for passing a special resolution requires at least 21 days written
notice.
Resolutions which may be passed by the members in general meetings are of
two kinds -- ordinary and special. Ordinary resolutions require that a simple
majority of members present in person or by proxy (where voting by proxy is
allowed) at the meeting and entitled to vote approve and vote for the
resolution. Special resolutions must be passed by not less than three quarters
of the votes in person or by proxy (where voting by proxy is allowed).
Issuance of Shares. Irish law restricts the power of the Board of Directors
to allot shares and to grant share subscription rights and rights to convert
loans or other obligations of a company into shares unless the shareholders
pass a resolution conferring such powers on the Board of Directors for periods
of up to five years. The Company's shareholders have passed such a resolution.
In addition, the Company may not pay, directly or indirectly, a commission in
excess of 10% of the price at which shares are issued to any person subscribing
for or procuring subscriptions for the Company's shares.
Substantial Shareholdings. Under the Irish Companies Acts a person who has
an interest in 5% or more of the issued voting share capital of a public
limited company must notify the company (in the prescribed manner and normally
within five business days) of his interest and of certain circumstances and
events affecting that interest. In general, such a person must notify changes
in his interest above the 5% level and any reduction which takes his interest
below 5%. Failure to notify punctually and properly is an offense.
Additionally, no right or interest in respect of the relevant shares will be
enforceable by the person who fails to notify the company of such an interest,
whether directly or indirectly by action or legal proceeding. The courts may
remove the restriction but not if the failure to notify was the result of any
deliberate act or omission on the part of the applicant. Any interest in an ADS
would be regarded as an interest in the Ordinary Shares for this purpose.
Preemptive Rights. Irish law provides that issuances of shares for cash
(and rights to subscribe for or convert into shares for cash) must be offered,
pro rate, to the existing holders of shares. The shareholders may by special
resolution eliminate this requirement for periods of up to five years. The
Company's shareholders have passed such a resolution.
Derivative Action Suits. As a general principle of Irish law, only a
company itself can be the proper plaintiff for the purposes of maintaining
proceedings in respect of wrongs done to the company. Neither an individual
shareholder, nor any group of shareholders has any right of action in such
circumstances. There are, however, certain exceptions to this principle
available under equitable principles on a case-by-case basis. For example, the
controlling shareholders cannot perpetrate a fraud on the minority shareholders
or commit an act which is illegal or ultra vires. Additionally, if a company
purports to act on the strength of a decision by a simple majority where
certain decisions call for more than a simple majority, an individual
shareholder is entitled to bring suit. In cases where the controlling
shareholders will not institute proceedings in the name of the company in those
instances where they are properly called for, one or more of the aggrieved
minority shareholders may bring what has come to be known as a derivative
action, namely an action that derives from the injury to the company rather
than the injury to individual shareholders. A minority shareholder is also able
to initiate proceedings in the name of the Company in certain other limited
circumstances.
Class Action Suits. In contrast to derivative action, Irish law permits an
action by a shareholder in his own right where his personal rights have been
infringed. Such a shareholder may commence a suit in a representative capacity
on behalf of himself and other affected shareholders of the same class if their
rights are identical.
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Additionally, under Irish law any member of a company who claims that the
affairs of the company are being conducted, or that the powers of the directors
of the company are being exercised in a manner oppressive to him or any of the
members (including himself) or in disregard of his or their interests as
members, may apply to the courts for an appropriate order.
Interlocking and Interested Directors. Irish law provides that it shall be
the duty of a director of a company who is in any way, whether directly or
indirectly, interested in a contract or proposed contract with the company to
declare the nature of his interest at a meeting of the directors of the company
at which that contract is discussed. A director includes a "shadow director",
who is any person in accordance with whose directions or instructions the
directors are accustomed to act. Irish law and the Articles of Association of
the Company provide, among other things, that a director may not generally vote
in respect to any contract or arrangement or any other proposal in which he has
any material interest otherwise than by virtue of his interests in shares or
other securities of or otherwise in or through the Company. The Articles of
Association also provide that if any question shall arise at any meeting as to
the materiality of a director's interest or as to the entitlement of any
director to vote and such question shall be referred to the Chairman of the
meeting. Additionally, the Articles of Association provide that the
shareholders of the Company may, by Ordinary Resolution, suspend or relax these
provisions to any extent to ratify any transaction not only duly authorized by
reason of a contravention of the Articles of Association.
Significant changes have recently been made in Irish law with regard to
transactions of a company involving its directors and connected persons, i.e.,
a director's spouse, immediate family, trustee, guarantor, surety, partner or
corporate body controlled by that director. The matter dealt with includes
loans, share dealings and disclosures. A sale or purchase of an asset by a
director to the company or from the company is void in certain circumstances
unless the transaction is approved by the company in a general meeting. It is
illegal for a company to give a loan or loan type finance to or grant security
for a director save in specified circumstances. Where permitted loans are made
the director may be held personally liable for the debts of the Company by a
court in a winding up and these loans must be disclosed in the accounts of the
company. There are also extensive obligations on directors to disclose to the
company certain transactions in the company's annual accounts. All directors,
shadow directors and secretaries have to disclose any interests in shares in
the company or a subsidiary or a holding company of the company. Each company
is obliged to keep a register of interests. Interests of spouses or minor
children are considered to be interests of a director for purposes of Irish
law.
Approval of Consolidated Financial Statements by Shareholders. The Board of
Directors is required to submit the Company's consolidated financial statements
and a report of their conduct to the shareholders annually for their approval.
The shareholders must approve or reject such financial statements.
Purchase of Own Shares. The Company has authority in its Articles of
Association to purchase its own shares. This power may not be exercised unless
the shareholders of the Company have passed a special resolution giving the
Company general authority to purchase its own shares, which the Company has not
done.
WARRANTS
The Company has outstanding (a) 897,000 Class A Warrants exercisable to
purchase 897,000 Ordinary Shares and 897,000 Class B Warrants, (b) 1,015,425
Class B Warrants exercisable to purchase 1,015,425 Ordinary Shares, (c) 789,875
Class C Warrants exercisable to purchase 789,875 Units (consisting of one
Ordinary Share, one-half of Class A Warrant and one-quarter of a Class B
Warrant), and (d) 500,000 Class D Warrants exercisable to purchase 500,000
Units (collectively, the "Warrants").
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CLASS A WARRANTS
The Class A Warrants are exercisable until February 28, 1999. Every Class A
Warrant entitles the holder to purchase one ADS and receive one Class B Warrant
at an exercise price of $1.92 per Class A Warrant, subject to adjustment under
certain circumstances.
CLASS B WARRANTS
The Class B Warrants are exercisable until February 28, 1999. Each Class B
Warrant entitles the holder to purchase one ADS at an exercise price of $2.31
per share, subject to adjustment under certain circumstances.
CLASS C WARRANTS
Each Class C Warrant is exercisable to purchase one Unit consisting of one
ADS, one-half of a Class A Warrant and one-quarter of a Class B Warrant at an
exercise price of $3.89 per Unit. The Class C Warrants are not exercisable
until (i) the Company generates revenues in excess of $10,000,000 in any one
fiscal year or (ii) the Units, or the sum of their components trade a price
equal to $12.00, for a period of 14 consecutive trading days. The Class C
Warrants expire on February 28, 1999.
The Class C Warrants are exchangeable at the option of the warrant
holder(s) for Units of the Company on a formula basis, reflecting the spread
between the exercise price of the Warrants and the fair market price of the
Units (or the sum of their component parts) at the time when the exchange is
requested by the Warrant holder(s).
CLASS D WARRANTS
Each Class D Warrant is exercisable to purchase one Unit consisting of one
ADS, one-half of a Class A Warrant and one-quarter of a Class B Warrant. The
Class D Warrants became exercisable commencing May 29, 1994. The exercise price
per Class D Warrant is $1.54. The Class D Warrants expire on July 30, 1997.
The Class D Warrants are exchangeable at the option of the warrant
holder(s) for Units of the Company on a formula basis, reflecting the spread
between the exercise price of the Warrants and the fair market price of the
Units (or the sum of their component parts) at the time when the exchange is
requested by the Warrant holder(s).
REDEMPTION
The Company may, on 30 days written notice, redeem each Class A and Class B
Warrant then issued and outstanding commencing March 1, 1995 for $0.10 per
Warrant, provided that the closing bid price per Ordinary Share shall have
exceeded $7.50 in the case of the Class A Warrants and $9.00 in the case of the
Class B Warrants for 30 consecutive trading days prior to notice of redemption.
The Class A and Class B Warrants can be exercised up to the last business day
preceding the redemption date. The Class C and Class D Warrants are not
redeemable by the Company.
GENERAL
The Warrants may be exercised during their respective exercise periods upon
surrender of the Warrant Certificate on or prior to the expiration date (or
earlier redemption date) of such warrants at the office of the Depository, with
the form of Election of Purchase on the reverse side of the Warrant certificate
completed and executed, as indicated, accompanied by payment of the full
exercise price (by certified check payable to the order of the Warrant Agent)
for the number of Warrants being exercised.
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The Warrants do not confer upon the holders any voting or any other rights
as a shareholder of the Company. Upon notice to the Warrant holders, the
Company has the right to reduce the exercise price or extend the expiration
date of the Warrants.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Securities and Exchange Commission a current prospectus
covering the issuance of Units, ADS and Warrants issuable upon exercise of the
Warrant and the issuance of Shares has been registered or qualified or is
deemed to be exempt from registration or qualification under the securities
laws of the state of residence of the holder of the Warrant. The Company has
undertaken to use its best efforts to maintain a current prospectus relating to
the issuance of ADSs representing Ordinary Shares upon the exercise of the
Warrants until the expiration of the Warrants, subject to the terms of the
Warrant Agreement. While it is the Company's intention to maintain a current
prospectus, there is no assurance that it will be able to do so.
No fractional Ordinary Shares or ADSs will be issued upon exercise of the
Warrants. However, if a holder exercises all warrants then owned of record by
him, the Company will pay to that holder, in lieu of the issuance of any
fractional shares that are otherwise issuable, an amount of cash based on the
market value of the ADSs on the last trading day before the exercise date.
WARRANT AGENT
The warrant agent for the Warrants is the Bank of New York, 101 Barclay
Street, New York, New York 10286 (the "Warrant Agent").
The Warrants were issued pursuant to a warrant agreement between the
Company and the Warrant Agent.
In connection with the Company's initial public offering in March 1994, the
Company sold to Westfield Financial Corporation, the Underwriter and its
designees, for an aggregate of $10.00, warrants (the "Underwriter's Warrants")
to purchase up to 100,000 ADSs at $9.90 per ADS, 50,000 Class B Warrants at
$0.165 per B Warrant and 50,000 Class C Warrants at $0.165 per C Warrant. The
Underwriter's Warrants could not be transferred until February 28, 1995, except
to the officers and partners of the Underwriter or members of the selling
group, and are exercisable during the four year period commencing February 28,
1995 (the "Warrant Exercise Term"). The exercise price of the Underwriter's
Warrants and the number of Ordinary Shares issuable upon exercise of the
Underwriter's Warrants are subject to adjustment under the anti-dilution
provisions contained in the Underwriter's Warrants. The Company has also
granted certain registration rights to the holders of the Underwriter's
Warrants.
During the Warrant Exercise Term, the holders of the Underwriter's Warrants
are given, at nominal cost, the opportunity to profit from a rise in the market
price of the Company's ADRs. To the extent that the Underwriter's Warrants are
exercised, dilution to the equity interests of the Company's shareholders will
occur if, at the time of exercise, the Company's book value exceeds the
exercise price. Further, the terms upon which the Company will be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in the Underwriter's Warrants.
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DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
The following is a summary of certain provisions of the deposit agreement
(the "Deposit Agreement") pursuant to which the ADRs are issued. The Deposit
Agreement is between the Company and The Bank of New York, as depositary (the
"Depositary"). Additional copies of the Deposit Agreement are available for
inspection at the Corporate Trust Office of the Depositary, 101 Barclay Street,
New York, New York 10286, at the principal Dublin, Ireland Office at AIB
Custodial Services (the "Custodian") and at the principal office of the
Company's co-registrar and co-transfer agent in Toronto, Canada. Such summary
does not purport to be complete and is qualified in its entirety by reference
to the Deposit Agreement.
AMERICAN DEPOSITARY RECEIPTS
ADRs evidencing ADSs are issuable by the Depositary pursuant to the Deposit
Agreement. Each ADS represents, as of the date hereof, one Ordinary Share,
deposited with the Custodian, as agent of the Depositary. An ADR may evidence
any number of ADSs.
DEPOSIT AND WITHDRAWAL OF DEPOSITED SECURITIES
The Depositary has agreed that, upon deposit with the Custodian of the
requisite number of Ordinary Shares (or evidence of rights to receive such
Ordinary Shares) accompanied by an appropriate instrument or instruments of
transfer, or endorsement, in form satisfactory to the Custodian and any
certifications as may be required by the Depositary or the Custodian and
subject to the terms of the Deposit Agreement, the Depositary will execute and
deliver at its Corporate Trust Office, to or upon, the person or persons
specified by the depositor upon payments of the fees, charges and taxes
provided in the Deposit Agreement, an ADR or ADRs registered in the name of
such person or persons for the number of ADSs issuable in respect of such
deposit.
Upon surrender of ADRs at the Corporate Trust Office of the Depositary and
upon payment of the taxes, fees and governmental charges provided in the
Deposit Agreement and subject to the terms thereof, ADR holders are entitled
to delivery, at the office of the Custodian or the Corporate Trust Office of
the Depositary, of the deposited shares, any other property or documents of
title at the time represented by the surrendered ADRs. Delivery to the
Corporate Trust Office of the Depositary shall be made at the risk and expense
of the ADR holder surrendering ADRs.
The Depositary may execute and deliver ADRs prior to the receipt of
Ordinary Shares ("PreRelease"). The Depositary may deliver Ordinary Shares upon
the receipt and cancellation of ADRs which have been Pre-Released, whether or
not such cancellation is prior to the termination of such Pre-Release or the
Depositary knows that such ADR has been Pre-Released. Each PreRelease will be
(a) preceded or accompanied by a written representation from the person to whom
ADRs to be remitted, as the case may be, (b) at all times fully collateralized
with cash or such other collateral as the Depositary deems appropriate, (c)
terminable by the depositary on not more than five business days notice, and
(d) subject to further indemnities and credit regulations as the Depositary
deems appropriate. The number of ADRs which are outstanding at any time as a
result of Pre-Releases will not normally exceed 30% of the Ordinary Shares
deposited under the Deposit Agreement; provided, however, that the Depositary
reserves the right to change or disregard such limit from time to time as it
deems appropriate. The Depositary may retain for its own account any
compensation received by it in connection with the foregoing.
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DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
The Depositary is required, to the extent that in its judgment it can
convert Irish Pounds on a reasonable basis into U.S. dollars (or, with respect
to certain ADR holders, with Canadian address, Canadian dollars), and subject
to the Deposit Agreement, to convert all cash dividends and other cash
distributions that it received in respect of the deposited Ordinary Shares into
U.S. dollars or Canadian dollars, as applicable, and to distribute the amount
thus received (net of any conversion expenses of the Depositary) to the holders
of ADRs in proportion to the number of ADSs representing such shares held by
each of them. The amount distributed will also be reduced by any amounts
required to be withheld by the Company or the Depositary on account of taxes.
If the Depositary determines that in its judgment any foreign currency received
by it cannot be so converted, the Depositary may distribute, or in its
discretion hold, such foreign currency, without liability for interest thereon,
for the respective accounts of the ADR holders entitled to receive the same.
If a distribution by the Company consists of a dividend in or free
distribution of Ordinary Shares, the Depositary may, or if the Company so
requests, the Depositary will, distribute to the holders of outstanding ADRs,
in proportion to their holdings, additional ADRs for an aggregate number of
ADSs representing the number of Ordinary Shares received as such dividend or
free distribution. If additional ADRs are not so distributed, each ADS shall
thenceforth also represent the additional Ordinary Shares distributed in
respect of the Ordinary Shares represented by such ADS prior to such dividend
or free distribution.
Subject to the terms of the Deposit Agreement, whenever the Depositary
shall receive any distribution other than a distribution of cash, Ordinary
Shares or rights, the Depositary shall cause the securities or property
received by it to be distributed to the holders entitled thereto, in proportion
to the number of ADSs representing such deposited securities held by them
respectively, in a manner that the Depositary may deem equitable and
practicable for accomplishing such distribution; provided, however, that if in
the opinion of the Depositary such distribution cannot be made proportionately
among the holders entitled thereto, or if for any other reason (including, but
not limited to, any requirement that the Company or the Depositary withhold an
amount on account of taxes or other governmental charges or that such
securities must be registered under the Act in order to be distributed) the
Depositary deems such distribution not to be feasible, the Depositary may, upon
consultation with the Company, adopt such method as it may deem equitable and
practicable for the purpose of effecting such distribution, including, but not
limited to, the public or private sale of the securities or property thus
received, or any part thereof, and the net proceeds of any such sale shall be
distributed by the Depositary to the holders entitled thereto as in the case of
a distribution received in cash.
If the Company offers or causes to be offered to holders of Ordinary Shares
any rights to subscribe for additional Ordinary Shares or any rights of any
other nature, the Depositary will have discretion as to the procedure to be
followed in making such rights available to holders of ADRs or in disposing of
such rights and making the net proceeds available in U.S. dollars (or with
respect to certain ADR holders with a Canadian address, Canadian dollars) to
holders of ADRs, but will at the request of the Company either (a) make such
rights available to holders of ADRs by means of warrants or otherwise, if the
Depositary determines in its discretion that it is lawful and feasible to do
so, or (b) if making such rights available is determined by the Depositary in
its discretion not be lawful or feasible, or if the rights represented by such
warrants or other instruments are not exercised and appear to be about to
lapse, sell such rights or warrants or other instruments at public or private
sale upon such terms as the Depositary may deem proper, and allocate the
proceeds of such sales (net of conversion expenses, taxes and any other
applicable charges) for the account of the holders of ADRs otherwise entitled
thereto upon an averaged or practicable basis without regard to any
distinctions among such holders because of exchange restrictions, or the date
of delivery of any ADR or ADRs, or otherwise. The net proceeds so allocated to
the holders of ADRs entitled thereto could be distributed to the extent
practicable as in the case of a distribution of cash.
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If registration under the U.S. Securities Act of 1933 the securities to
which any rights relate is required in order for the Company to offer such
rights to holders of ADRs and sell the securities represented by such rights,
the Depositary will not offer such rights to holders of ADRs unless and until
such a registration statement is in effect, or unless the offering and sale of
such securities to the holders of ADRs are exempt from registration under the
provisions of such Act.
In the event that the Depositary determines that any distribution in
property (including Ordinary Shares and rights to subscribe therefor) is
subject to any tax or other governmental charge which the Depositary is
obligated to withhold, the Depositary may by public or private sale dispose of
all or a portion of such property (including Ordinary Shares and rights to
subscribe therefor) in such amounts and in such manner as the Depositary deems
necessary and practicable to pay any such taxes or charges and the Depositary
shall distribute the net proceeds of any such sale after deduction of such
taxes or charges to the holders of ADRs entitled thereto in proportion to the
number of ADSs held by them respectively.
Upon any change in nominal value, change in par value, split-up,
consolidation or any other reclassification of Deposited Securities, as defined
in the Deposit Agreement, or upon any recapitalization, reorganization, merger
or consolidation or sale of assets affecting the Company or to which it is a
party, any securities which shall be received by the Depositary or a Custodian
in exchange for or in conversion of or in respect of Deposited Securities,
shall be treated as new Deposited Securities under the Deposit Agreement, and
ADRs shall be delivered pursuant to the following sentence. In any such case
the Depositary may, and shall if the Company shall so request, execute and
deliver additional ADRs as in the case of a dividend in Ordinary Share, or call
for the surrender of outstanding ADRs to be exchanged for new ADRs specifically
describing such new Deposited Securities.
RECORD DATES
Whenever any cash dividend or other cash distribution shall become payable
or any distribution other than cash shall be made, or whenever rights shall be
issued with respect to Ordinary Shares, or whenever the Depositary shall
receive notice of any meeting of holders of Ordinary Shares or whenever for any
reason the Depositary causes a change in the number of Ordinary Shares that are
represented by each ADS, the Depositary will fix a record date for the
determination of the holders of ADRs who are entitled to receive such dividend,
distribution or rights, or net proceeds of the sale thereof, or to give
instructions for the exercise of voting rights at any such meeting, or on or
after which each ADS will represent the changed number of Ordinary Shares,
subject to the provisions of the Deposit Agreement.
VOTING OF THE UNDERLYING DEPOSITED SECURITIES
Upon receipt of notice of any meeting of holders of Ordinary Shares or
other Deposited Securities, as defined in the Deposit Agreement, if requested
in writing by the Company, the Depositary has agreed to mail holders of ADRs a
notice containing (a) such information as is contained in such notice (b) a
statement that each holder of ADRs at the close of business on a specified
record date will be entitled subject to any applicable provisions of the laws
of the Republic of Ireland and the provisions of the Articles to instruct the
Depositary as to the exercise of the voting rights, if any, pertaining to the
Deposited Securities represented by the ADSs evidenced by such holders ADRs.
Upon the written request of a holder of ADRs on such record date received on or
before the date established by the Depositary for such purpose, the Depositary
has agreed to endeavor to vote or cause to be voted the Deposited Securities
represented by the ADSs in accordance with any instructions set forth in such
request. If no instructions are received by the Depositary from any holder of
ADRs with respect to any of the Deposited Securities represented by the ADSs
evidenced by such holders receipts on or before the date established by the
Depositary for such purpose the Deposited Securities represented by the ADSs
will not be voted.
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INSPECTION OF TRANSFER BOOKS
The Depositary will maintain in the Borough of Manhattan, the City of New
York, facilities for the execution and delivery, registration of transfer, and
a register for the registration of ADRs and registration of the transfer of
ADRs that at reasonable times will be open for inspection by the holders of
ADRs, provided that such inspection shall be for valid business purposes or a
matter related to the Deposit Agreement or the ADRs.
REPORTS AND NOTICES
The Company will transfer to the Depositary copies of communications
generally distributed to holders of Ordinary Shares including its annual
reports to shareholders together with its audited consolidated financial
statements prepared in accordance with U.S. GAAP. The Depositary will make
available for inspection by ADR holders at the Corporate Trust Office of the
Depositary any reports and communications received from the Company that are
both (a) received by the Depositary as the holder of Ordinary Shares and (b)
made generally available to the holders of Ordinary Shares by the Company. The
Depositary will also send to ADR holders copies of such reports when furnished
by the Company as provided in the Deposit Agreement.
On or before the first date on which the Company gives notice, by
publication or otherwise, of any meeting of holders of Ordinary Shares, or of
any adjourned meeting of such holders, or of the taking of any action in
respect of any cash or other distributions or the offering of any rights, the
Company shall transmit to the Depositary and the Custodian a written notice
thereof in the form given or to be given to holders of Ordinary Shares. The
Depositary will, if requested in writing, at the Company's expense, arrange for
the mailing of such notices to all ADR holders.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of the ADRs and the Deposit Agreement may at any time be amended
by agreement between the Company and the Depositary. Any amendment that imposes
or increases any fees or charges (other than taxes and other governmental
charges), or that otherwise prejudices any substantial existing right of ADR
holders, will not take effect as to outstanding ADRs until the expiration of
thirty days after notice of such amendment has been given to the record holders
of outstanding ADRs. Every holder of ADRs at the time such amendment so becomes
effective, will be deemed by continuing to hold such ADR to consent and agree
to such amendment and to be bound by the Deposit Agreement or the ADR as
amended thereby. In no event may an amendment impair the right of any ADR
holder to surrender his ADR and receive therefor the Ordinary Shares and other
property represented thereby, except in order to comply with mandatory
provisions of applicable law.
Upon the resignation or removal of the Depositary pursuant to the terms of
the Deposit Agreement, or whenever so directed by the Company, the Depositary
has agreed to terminate the Deposit Agreement by giving notice of such
termination to the holders of ADRs at least 30 days prior to the date fixed in
such notice for such termination. On or after the date of termination, the ADR
holder will be entitled to delivery, to him or upon his order, of the amount of
Ordinary Shares and other property represented by such ADR, upon payment of the
fees of the Depositary and upon payment of any applicable taxes or governmental
charges. If any ADRs remain outstanding after the date of termination, the
Depositary thereafter will discontinue the registration of transfers of ADRs,
will suspend the distribution of dividends to the holders thereof and will not
give any further notices or perform any further acts under the Deposit
Agreement, except that the Depositary will continue the collection of dividends
and other distributions pertaining to the Ordinary Shares and any other
property represented by such ADRs, the sale of rights as provided in the
Deposit Agreement and the delivery of Ordinary Shares, together with any
dividends or other distributions received with respect thereto and the net
proceeds of the sale of any rights or other property, in exchange for
surrendered ADRs, subject to the terms of the Deposit Agreement. At any time
after the expiration of one year from the date of termination, the Depositary
may sell the Ordinary Shares and any
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other property represented by such ADRs and hold the net proceeds, together
with any other cash then held, unsegregated and without liability for interest,
for the pro rata benefit of the holders of ADRs that have not theretofore
surrendered their ADRs, such holders of ADRs thereupon becoming general
creditors of the Depositary with respect to such net proceeds.
CHARGES OF DEPOSITARY
The Depositary will charge each party depositing or withdrawing Ordinary
Shares or any party surrendering ADRs or to whom ADRs are issued: (i) taxes and
other governmental charges; (2) such registration fees as may from time to time
be in effect for the registration of transfers of Ordinary Shares generally on
the share register of the Company or its Irish registrar and applicable to
transfers of Ordinary Shares to the name of the Depositary or its nominee or
the Custodian or its nominee on the making of deposits or withdrawals, (3) such
cable, telex and facsimile transmission expenses as are expressly provided in
the Deposit Agreement, (4) such expenses as are incurred by the Depositary in
the conversion of foreign currency, (5) a fee not in excess of $10.00 or less
per 100 ADSs (or portion thereof) for the execution and a delivery of ADRs and
the surrender of ADRs, (6) a fee not in excess of $0.02 or less per ADS (or
portion thereof) for any cash distribution made pursuant to the Deposit
Agreement and, (7) a fee not in excess of $1.50 or less per certificate for
transfers of ADRs.
GENERAL
Neither the Depositary nor the Company will incur any liability if
prevented or delayed in performing its obligations under the Deposit Agreement
by reason of any present future law, or regulation of the United States or any
other country or of any governmental or regulatory authority or stock exchange
or by reason of any provision, present or future of the Articles or any act of
God, war, the threat of any civil or criminal penalty, or any other
circumstance beyond its control. The obligations and liabilities of the Company
and the Depositary under the Deposit Agreement are expressly limited to
performing without negligence or bad faith their respective obligations
specified therein.
The Depositary will act as ADR registrar or appoint a registrar or one or
more co-registrars, for registration of the ADRs evidencing the ADSs in
accordance with any requirements of any stock exchange on which the ADSs may be
listed.
The transfer of the ADRs is registrable on the books of the Depositary;
provided, however, that the Depositary may close the transfer books at any time
or from time to time when deemed expedient by it in connection with the
performance of its duties. As a condition precedent to the execution and
delivery, registration of transfer, split-up or combination of any ADR or the
delivery of any distribution thereon or the withdrawal of any Ordinary Shares
or any property represented by the ADR, the Depositary, Custodian or registrar
require from the presenter of the ADR or the depositor of the Ordinary Shares
(a) payment of a sum sufficient to pay or reimburse the Depositary, the
Custodian or the Company for any tax or other governmental charge and any stock
transfer or registration fee or any charge of the Depositary upon delivery of
the ADR or upon surrender of the ADR, as set forth in the Deposit Agreement and
(b) the production of proof satisfactory to the Depositary or Custodian of
identity or genuineness of any signature and proof of citizenship, residence or
other information as the Depositary may deem necessary or proper. The delivery,
registration, registration of transfer, split-up or combination of ADRs, or the
deposit or withdrawal of Ordinary Shares or other property represented by ADRs,
in particular instances or generally, may be suspended during any period when
the transfer books of the Depositary are closed, or if any such action is
deemed necessary or advisable by the Depositary or the Company at any time or
from time to time subject to the terms of the Deposit Agreement.
The surrender of outstanding ADRs and withdrawal of Deposited Securities
may not be suspended subject only to (i) temporary delays caused by closing the
transfer books of the Depositary or the Company or the deposit
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of Ordinary Shares in connection with voting at a shareholders' meeting, or the
payment of dividends; (ii) the payment of fees, taxes and similar charges, and
(iii) compliance with any U.S. or foreign laws or governmental regulations
relating to the ADRs or to the withdrawal of the Deposited Securities.
The Depositary may appoint one or more co-transfer agents for the purpose
of effecting transfers, combinations and split-ups of ADRs at designated
transfer offices on behalf of the Depositary. In carrying out its functions, a
co-transfer agent may require evidence of authority and compliance with
applicable laws and other requirements by holders of ADRs or persons entitled
to ADRs and will be entitled to protection and indemnity to the same extent as
the Depositary.
ENFORCEABILITY OF FOREIGN JUDGMENTS
No treaty exists between the United States and Ireland for the reciprocal
enforcement of foreign judgments. However, the laws of Ireland as a general
rule provide that the judgments of courts of the United States have in Ireland
the same validity as if rendered by Irish courts. There are a number of
important requirements which must be satisfied before an Irish court will
recognize or enforce a United States judgment. The most fundamental
requirement is that the United States court which gave the original judgment
must have been a court of competent jurisdiction according to Irish principles
of law. The United States judgment may not be recognized if it was a judgment
based on public policy. Similarly a United States judgment will not be
recognized if it was obtained by fraud or if its recognition would be contrary
to Irish principles of public policy, and a United States judgment which has
been obtained in contravention of the rules of natural justice will not be
enforced in Ireland. It is also a generally recognized principle that the
courts of Ireland will not recognize or enforce the revenue laws of another
country and therefore, if the claim is brought to collect United States revenue
debts, it will not be enforced.
Notwithstanding the foregoing, no assurance can be given that an Irish
court would enforce a monetary judgment for the violation of the United States
securities laws with respect to the ADRs. See "Enforceability of Civil
Liabilities Under United States Federal Securities Laws."
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TAX CONSIDERATIONS
The following discussion is based on Republic of Ireland tax law,
statutes, treaties, regulations, rulings and decisions now in effect, all of
which are subject to change. This summary does not discuss all aspects of
Irish income taxation that may be relevant to a particular investor in light
of the investor's circumstances or to certain types of investor subject to
special treatment under the tax laws (for example, financial institutions life
insurance companies, tax-exempt organizations, and non-U.S. taxpayers) and it
does not discuss any tax consequences arising under the laws of taxing
jurisdictions other than the Republic of Ireland. This summary assumed that
ADSs will be held as "capital assets" (generally, property held for investment)
under the Internal Revenue Code of 1986, as amended. Holders of ADSs are
advised to consult their tax advisors as to the specific tax consequences of
acquiring, holding, disposing of and engaging in other transactions involving
ADSs, including the application and effect of Irish and other tax laws. Each
prospective investor should understand that future legislative, administrative
and judicial changes could modify the tax consequences described below.
REPUBLIC OF IRELAND TAXATION
CORPORATION TAX/INCOME TAX
The Company is a company incorporated in Ireland. For Irish tax purposes a
company is tax resident in Ireland if it is managed and controlled in Ireland
and this is a question of fact. The Company is currently regarded as non
resident in Ireland under Irish tax law. A non-resident company is chargeable
to corporation tax if it carries on a trade in Ireland through a branch. It
would be chargeable to corporation tax based on the profits of the branch and on
any income arising from assets used by/or held by or for, the branch and
chargeable gains in respect of the disposal of trading assets of the Branch.
A non-resident not chargeable to corporation tax is chargeable to income
tax on Irish source income (other than dividends) subject to the provisions of
any relevant double tax treaty. There is no Irish withholding tax on dividends
paid by the Company.
CAPITAL GAINS TAX
A non-resident company is subject to Irish capital gains tax on the
disposal of certain assets only. These are land, buildings and mineral rights
located in Ireland or shares deriving the greater part of their value from any
of those assets.
A person who is not resident or ordinarily resident in Ireland for Irish
tax purposes will not be subject to Irish capital gains tax on the disposal of
Pharma Patch ADSs unless such ADSs derive the greater part of their value from
land, buildings or mineral rights in Ireland.
CAPITAL ACQUISITIONS TAX
Capital acquisitions tax incorporates two taxes, gift tax and inheritance
tax and is aimed, primarily, at the individual owner of Irish assets. As the
name suggests, the tax arises on gifts of Irish property or on inheritances of
Irish property taken under a Will or otherwise on a death. These taxes should
not affect any of the companies directly although they may relate to individual
shareholders in Pharma Patch plc. It is not anticipated that capital
acquisitions tax will ever be payable by the Company. Although ADSs may be held
by non-residents, the underlying Ordinary Shares are deemed to be situated in
the Republic of Ireland because the Company is required to maintain its
original share registers in the Republic of Ireland. Accordingly, ADSs may be
subject to gift or inheritance tax payable by the donees of gifts and the
successors in the case of inheritances, notwithstanding that the parties
involved are domiciled and resident outside of the Republic of Ireland.
However, gifts and inheritances
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taken from one's spouse are exempt from tax and there is a cumulative tax-free
threshold of IR pound sterling 23,200 where the gift or inheritance is from a
lineal ancestor or descendant, brother, sister or child of a brother or sister,
and a cumulative tax-free threshold of IR pound sterling 11,600 on gifts and
inheritances between non-affiliate persons. The maximum cumulative tax-free
threshold for gifts and inheritances received by children is IR pound sterling
174,000. Due to the complexities of calculating the thresholds, tax may become
payable on amounts lower than the thresholds mentioned above. Irish gift taxes
are not creditable against United States gift taxes, if any, on gift of the
Company's Ordinary Shares. Irish inheritance taxes should be creditable, in
whole or in part, against United States federal estate taxes. The thresholds
above are indexed annually.
In addition to the above, a probate tax of 2% on the entire value of Irish
assets comprised in the estate of a decedent is payable where the value of those
assets exceeds pound sterling 10,150. This sum, again, is indexed annually.
STAMP DUTY/CAPITAL DUTY
The Finance Act 1992 makes any transfers or agreements to transfer an ADR
exempt from stamp duty.
ADRs are defined as instruments which:
(a) acknowledge:
1. that a Depositary or nominee holds stocks or marketable securities
which are dealt in and quoted on a recognized stock exchange, and
2. that the holder of the ADR has rights in or in relation to such stocks
or marketable securities (including the right to receive them from the
Depositary (or its nominee)) and which
(b) 1. are dealt in and quoted on a recognized stock exchange which is
situate in the United States, or
2. represent stocks or marketable securities which are so dealt in and
quoted.
As the ADRs are accepted as within this exemption, any transfer of an ADR
itself will not be subject to stamp duty in Ireland so long as the ADRs remain
listed on a recognized stock exchange.
Any transfer of the underlying ordinary shares (which may include a
transfer from the Depositary to another ADR holder unless the beneficial
interest does not pass and the transfer is not a sale or arising under a
contract for sale or in contemplation of a sale), would require the person
acquiring such Ordinary Shares in the Company to pay stamp duty in respect of
those shares.
In the case of a transfer on sale, stamp duty is charged at the rate of IR
pound sterling 1.00 for every IR pound sterling 100.00 (or part thereof) of the
amount of value of the consideration. Where the consideration for the sale is
expressed in a currency other than Irish pounds, the duty is charged on the
Irish Pound equivalent calculated at the rate of exchange prevailing on the date
of the transfer. In the case of a transfer by way of gift (subject to certain
exceptions) or for a consideration less than the market value, stamp duty is
charged at the above rate on such market value. The person accountable for
payment of stamp duty is the transferee or, in the case of a transfer by way of
gift or for a consideration less than the market value, both parties to the
transfer. Stamp duty is payable within thirty days after the date of execution
of the transfer. Later or inadequate payment of stamp duty will result in
liability to interest, penalties and fines.
Certain of the transactions described in this Prospectus gave rise to stamp
duty and capital duty liabilities in the Republic of Ireland and provision has
been made for the payment of those duties.
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PLAN OF DISTRIBUTION
The Selling Security Holders may sell from time to time in one or more
transactions the ADRs and/or the Warrants covered by this Prospectus at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Selling Security Holders may effect
such transactions by selling Security holders Securities directly to purchasers
or through broker-dealers that may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions
or commissions from the Selling Security Holders and/or the purchasers of the
Selling Security Holders Securities for whom sun broker/dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). All
costs, expenses and fees in connection with the preparation of the Registration
Statement of which this Prospectus is a part will be borne by the Company.
Brokerage commissions, if any attributable to the sale of the ADRs and/or the
Warrants will be borne by the Selling Security Holders.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Ordinary Shares
since inception. Pursuant to Irish law, the directors can pay interim dividends
on Ordinary Shares and the right to declare a final dividend is reserved to the
shareholders of a company at the annual general meeting of the shareholders,
although such dividend cannot exceed the amount recommended by the Board of
Directors.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by its counsel in Ireland, Rory O'Donnell & Company, Solicitors, and
certain securities matters have been passed upon by the Company's special U.S.
securities counsel, Kevin J. Quinn Professional Corporation, Santa Monica,
California.
EXPERTS
The consolidated financial statements of the Company as of February 29,
1996 and for the year then ended have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and in the
Registration Statement, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of the Company as of February 28,
1995, and for the years ended, February 28, 1995 and 1994, appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young
(Chartered Accountants) as set forth in their report thereon included elsewhere
herein and are included in reliance upon such report given upon on the
authority of said firm as experts in accounting and auditing.
The financial statements of Vista Technologies, Inc., included in this
Prospectus have been audited as of March 31, 1996 and for the year then ended by
KPMG Peat Marwick LLP, and for the year ended March 31, 1995 by AJ. Robbins,
PC, independent certified public accountants as stated in their reports
appearing herein and are included in reliance on their reports given an
authority of said firms as experts on accounting and auditing.
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STATUTORY INFORMATION
REQUIRED PURSUANT TO THE COMPANIES ACTS, 1963 TO 1990,
OF THE REPUBLIC OF IRELAND
1. The number of shares of each class in the share capital of the Company
which have been issued and are fully paid are 16,915,211 Ordinary Shares of 1p
each.
2. The Articles of Association of the Company provide with regard to the
remuneration of Directors:
(a) That the Directors shall be entitled by way of remuneration to
such sum (if any) as shall from time to time be voted to them by the
Company by Ordinary Resolution, and such sum (unless otherwise determined
by the resolution by which it is voted) shall be divided among the
Directors as they shall agree or failing agreement, equally.
(b) That the Directors shall also be entitled to be paid all
travelling, hotel and other expenses incurred by them in connection with
their duties as Directors.
(c) That any Director who serves on any Committee or who devotes
special attention to the business of the Company or who otherwise performs
services which in the opinion of the Directors are outside the scope of the
ordinary duties of Director may be paid such extra remuneration by way of a
salary, commission, participation in profits or otherwise as the Directors
may determine.
(d) That the Directors may establish and maintain pension or
superannuation funds for the benefit of Directors who hold or held salaried
employment, office or position of profit in the Company or any connected
company and the wives, widows, families and dependents of such Director and
may give or procure the giving of donations, gratuities, pensions,
allowances or emoluments to such Directors and family as aforesaid.
3. The Articles of the Association of the Company do not require that
directors hold qualification shares in the capital of the Company.
4. The following are the names and addresses of the Directors of the
Company.
Murray D. Watson
35 Pheasant Lane
Etobicoke, Ontario M9A 1T5
Kevin J. Quinn
11400 W. Olympic Blvd.
Los Angeles, CA 90064
5. On incorporation, two Ordinary Shares of IRL pound sterling 1 each
were issued fully paid. On July 29, 1993, an aggregate of 212,500 Ordinary
Shares were issued at par to ten (10) individuals. An aggregate of 5,199,431
Ordinary Shares were issued as fully paid in a series of transactions as set
out under the heading "Certain Transactions" in the Prospectus.
6. The following contracts (not being contracts entered into in the
ordinary course of business) have been, or will be, entered into and maybe
material to the Company:
91
<PAGE> 95
(a) Share Exchange Agreement between Pharma Patch Plc, the shareholders of
Medipro and Medipro, dated July 30, 1993;
(b) Agreement for Purchase of Assets between TPR and Synorex, dated March
26, 1993, as amended;
(c) Employment Agreement dated August 1, 1993, between G. Wayne Schnarr,
Ph.D., and the Company;
(d) Employment Agreement dated August 1, 1993, between Gary Murray, Ph.D.,
and the Company;
(e) Employment Agreement dated November 8, 1993, between Kenneth G. Howling
and the Company;
(f) Management Agreement dated August 3, 1993, between Trident Management,
Inc. and the Company;
(g) Consulting Agreement dated July 1, 1991, between Dr. James E. Guillet
and Medipro;
(h) Consulting Agreement dated August 1, 1993, between Ian W. French,
Ph.D., and the Company;
(i) Consulting Agreement dated August 1, 1993, between Walter Zingg, M.D.,
and the Company;
(j) Underwriting Agreement dated February 28, 1994 among the Underwriters,
the Company and the Selling Shareholders providing for the underwriting of the
ADS Offering;
(k) Deposit Agreement dated February 28, 1994 between the Company and the
Bank of New York as Depository and the holders from time to time of American
Depository Receipts evidencing American Depository Shares which represent the
underlying issued Ordinary Shares of the Company deposited with the Depository
which deals with the issuance of American Depository Receipts;
(l) Exclusive License Agreement dated July 30, 1993, between TPR and the
Company;
(m) Option Agreement among the Company, Medipro and Innovation Ontario
Corporation, dated July 30, 1993;
(n) Voting Rights Agreement among the Company, the Medipro Shareholders,
Medipro and TPR, dated July 30, 1993;
(o) Underwriters' Warrants dated February 28, 1994 to purchase ADSs
representing 100,000 Ordinary Shares at 165% of the offering price per ADS;
(p) Warrant Agreement dated February 28, 1994 between the Company and the
Bank of New York as Warrant Agent setting out the rights and conditions
attaching to the Class A, Class B, Class C and Class D Warrants;
(q) 1993 Stock Option Plan.
(r) License Agreement dated November 1, 1985 between the Company and the
Canadian Department of National Defense, as amended.
(s) Consulting Agreement dated December 1, 1993, between Joseph G.
Masterson and the Company.
(t) License Agreement, dated November 30, 1993, between BTX, Inc. and the
Company.
92
<PAGE> 96
(u) Lease dated May 6, 1991, between Medipro and Inducon Development
Corporation.
(v) Consulting Agreement, dated August 19, 1993 between Medical
Diversification, Inc. and the Company.
(w) License Agreement dated November 30, 1993 between BTX, Inc. and the
Company.
(x) Employment Agreement, dated October 1, 1993, between Dr. Vithal J.
Rajadhyaksha and the Company.
(y) Financial Advisory and Investment Banking Agreement between Westfield
Financial Corporation and the Company.
(z) Employment Agreement, dated January 4, 1994, between Murray Watson and
the Company.
(a)(a) Memorandum of Agreement, dated June 1, 1994, between Registrant and
Arca Investments Inc.
(a)(b) Registration Rights Agreement, dated June 13, 1994, between
Registrant and Arca Investments Inc.
(a)(c) Letter Agreement, dated June 13, 1994, between Registrant and
Capital Canada Limited.
(a)(d) Letter Agreement, dated June 22, 1994, between Registrant and
ScotiaMcLeod.
(a)(e) Letter Agreement, dated May 12, 1994, between Registrant and LDI
Canada Inc.
(a)(f) Research and Development Agreement, dated June 1, 1994, between
Registrant and Drug Delivery Research, Inc. ("DDRI").
(a)(g) Shareholder Agreement, dated June 1, 1994, among Registrant,
Westport Capital, Inc. and DDRI.
(a)(h) Asset Purchase and Sale Agreement dated June 30, 1994, among
Registrant, Flora, Inc. and Recordati American Holdings, Inc.
(a)(i) Management and Consulting Agreement, dated as of July 1, 1994,
between Gary R. Hooper and the Company.
(a)(j) Employment Agreement, dated as of August 1, 1994, between Thomas S.
Spencer and the Company.
(a)(k) Form of 1994 Stock Option Plan.
The following agreements to which the Company is not a party may be
material to the rights acquired by the Company:
(1) Letter Agreement dated September 14, 1992, between Medipro and Trimel
Corporation;
(2) License Agreement dated June 30, 1992, among Medipro, SS Pharmaceutical
Co. Ltd., and Dajin Iyakukako Co. Ltd.;
(3) Joint Venture Agreement dated June 30, 1992, between Medipro and
Allelix Biopharmaceuticals, Inc.;
(4) Letter Agreement dated June 18, 1992, between Medipro and Laminating
Development Corp.
93
<PAGE> 97
(5) Industrial Property Agreement dated December 13, 1994 between PP
Holdings and Pharmacia AB.
(6) Development Agreement dated December 13, 1994 between PP Holdings and
Pharmacia AB.
(7) The auditors of the Company are Ernst & Young, Chartered Accountants,
Harcourt Centre, Harcourt Street, Dublin 2, Ireland.
(8) The Company was incorporated on January 22, 1992, under the name
Manadon Limited. Until 1993, when the Company entered into the transactions
referred to under the heading "Certain Transactions," the Company did not carry
out any business or trade.
(9) Ernst & Young, Rory O'Donnell & Company, Solicitors, Heney & Associates
and Kevin J. Quinn, attorneys at law, have given and have not withdrawn their
written consent to the inclusion in this document of the references to them in
the form and context in which they appear.
(10) Save as set forth in this Prospectus, no shares or debentures in the
Company have been issued or agreed to be issued, as fully or partly paid up
otherwise than in cash.
(11) Save as set forth in this Prospectus, no amount has been paid, within
the preceding five years or is payable, as commission for subscribing or
agreeing to subscribe, procuring or agreeing to procure subscription, for any
shares or debentures of the Company.
(12) Save as set forth in this Prospectus, no sum or benefit has been paid
within the preceding five years or is intended to be paid to any promoter.
94
<PAGE> 98
PHARMA PATCH PUBLIC LIMITED COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PHARMA PATCH PUBLIC LIMITED COMPANY
Independent Auditors' Report -- KPMG Peat Marwick LLP.......................... F-1
Independent Auditors' Report -- Ernst & Young.................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheet -- February 29, 1996 and February 28, 1995....... F-3
Consolidated Statements of Earnings and Loss and Deficit -- Years ended
February 29, 1996 and February 28, 1995 and 1994........................... F-4
Consolidated Statements of Cash Flows -- Years ended February 29, 1996 and
February 28, 1995 and 1994................................................. F-5
Notes to Consolidated Financial Statements.................................. F-6-18
Unaudited Consolidated Balance Sheet -- May 31, 1996........................ F-19
Unaudited Consolidated Statement of Operations -- Period ended
May 31, 1996 and 1995..................................................... F-20
Unaudited Consolidated Statements of Cash Flows -- Period ended
May 31, 1996 and 1995..................................................... F-21
Unaudited Statement of Changes in Shareholders' Equity...................... F-22
Unaudited Notes to Consolidated Financial Statements........................ F-23-25
VISTA TECHNOLOGIES, INC.
Independent Auditors' Report -- KPMG Peat Marwick LLP.......................... F-26
Independent Auditors' Report -- AJ. Robbins, P.C............................... F-27
Consolidated Financial Statements:
Consolidated Balance Sheet -- March 31, 1996................................ F-28
Consolidated Statements of Operations -- For the years ended March 31, 1996
and 1995................................................................... F-29
Consolidated Statements of Stockholders' Equity -- For the years ended March
31, 1996 and 1995.......................................................... F-30
Consolidated Statements of Cash Flows -- For the years ended March 31, 1996
and 1995................................................................... F-31
Notes to Consolidated Financial Statements -- March 31, 1996 and 1995....... F-32-49
</TABLE>
All schedules are omitted for the reason that they are not required or are
not applicable, or the required information is shown in the respective financial
statements or notes thereto.
<PAGE> 99
Independent Auditors' Report
The Board of Directors and Shareholders
Pharma Patch Public Limited Company:
We have audited the accompanying consolidated balance sheet of Pharma Patch
Public Limited Company and subsidiaries as of February 29, 1996, and the
related consolidated statements of earnings and loss and deficit and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pharma Patch Public
Limited Company and subsidiaries as of February 29, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
May 9, 1996
F-1
<PAGE> 100
Report of Independent Auditors
To the Shareholders of
Pharma Patch Plc
We have audited the accompanying consolidated balance sheet of Pharma Patch Plc
as of February 28, 1995 and the related statements of earnings and loss and
deficit and cash flows for the years ended February 28, 1995 and 1994. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pharma Patch Plc as
of February 28, 1995, and the results of its operations and the changes in its
financial position for the years ended February 28, 1995 and 1994, in
conformity with accounting principles generally accepted in the United States.
Dublin, Ireland
May 25, 1995
(except for note 1(e) which Ernst & Young
is as of May 9, 1996) Chartered Accountants
F-2
<PAGE> 101
PHARMA PATCH PUBLIC LIMITED COMPANY
Consolidated Balance Sheets
February 29, 1996 and February 28, 1995
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Assets 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 668,822 638,745
Accounts receivable 22,690 41,600
Due from Vista (note 13) 251,500 -
Prepaid expenses and deposits - 47,298
Investment in TCPI - available for sale, at market price
16,805,320 -
---------- -----------
Total current assets 17,748,332 727,643
Fixed assets (note 3) - 900,378
---------- -----------
Total assets $ 17,748,332 1,628,021
========== ===========
Liabilities and Shareholders'
Equity (Deficiency)
-------------------
Current liabilities:
Accounts payable 683,269 688,544
Accrued expenses 773,553 647,699
Deferred tax liability 1,710,212 -
--------- -----------
Total current liabilities 3,167,034 1,336,243
--------- -----------
Notes payable (note 4) - 5,000,000
Shareholders' equity (deficiency):
Capital stock, authorized 52,046,576 ordinary shares;
issued and outstanding 11,410,633 and 5,740,253
ordinary shares in 1996 and 1995, respectively,
at par value (note 7) 2,256,756 2,183,643
Premium in excess of par value 15,404,580 11,448,439
Deficit (6,249,628) (18,340,304)
Cumulative translation adjustment (6,518)
Unrealized appreciation on equity securities available
for sale (net of deferred taxes of $1,710,212) 3,176,108 -
--------- -----------
Total shareholders' equity
(deficiency) 14,581,298 (4,708,222)
---------- -----------
Commitments (note 10) $ 17,748,332 1,628,021
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 102
PHARMA PATCH PUBLIC LIMITED COMPANY
Consolidated Statement of Earnings
and Loss and Deficit
Years ended February 29, 1996
and February 28, 1995 and 1994
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Restated Restated
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $ - - -
----------- ----------- ----------
Expenses:
Administration 1,798,524 1,141,301 1,348,112
Foreign exchange loss (gain) 2,285 (52,253) -
Write-off of Cangene acquisition costs (note 8) - 514,791 -
Loss on disposal of Cangene investment (note 8) - 478,052 -
----------- ----------- ----------
Loss from operations 1,800,809 2,081,891 1,348,112
Other income (76,019) (42,800) (40,440)
Other expenses 3,893 - -
----------- ----------- ----------
Loss from continuing operations 1,728,683 2,039,091 1,307,672
----------- ----------- ----------
Discontinued operations (note 3):
Loss from operations (2,593,468) (11,698,353) 1,919,752
Gain on sale 16,412,827 - -
----------- ----------- ----------
Gain (loss) on discontinued operations 13,819,359 (11,698,353) 1,919,752
----------- ----------- ----------
Net earnings (loss) 12,090,676 (13,737,444) (3,227,424)
Deficit, beginning of year (18,340,304) (4,602,860) (1,375,436)
----------- ---------- ---------
Deficit, end of year (6,249,628) (18,340,304) (4,602,860)
=========== =========== ==========
Per share of common stock:
Loss from continuing operations $(.22) (.38) (.38)
Discontinued operations 1.72 (2.18) (.55)
----------- ----------- ----------
Net earnings (loss) 1.50 (2.56) (0.93)
=========== =========== ==========
Weighted average number of ordinary shares outstanding 8,033,265 5,368,298 3,453,874
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 103
PHARMA PATCH PUBLIC LIMITED COMPANY
Consolidated Statements of Cash Flows
Years ended February 29, 1996
and February 28, 1995 and 1994
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) for the year $ 12,090,676 (13,737,444) (3,227,424)
Add noncash items:
Depreciation and amortisation 253,958 813,740 365,936
Stock compensation - - 867,381
Write-down of fixed assets 9,900 892,271 -
Write-off of Cangene acquisition costs (note 8) - 514,791 -
Loss on disposal of Cangene investment (note 8) - 478,052 -
Write-off of capitalized technology - 4,460,852 -
Write-off of cumulative translation adjustment - 408,162 -
Gain on sale of business (note 1(e)) (16,412,827) - -
Noncash payment of expenses 1,842,478 - -
Net change in noncash working capital items (note 11) 361,272 1,528,131 473,129
------------ ---------- ---------
Net cash used in operating
activities (1,854,543) (4,641,445) (1,520,978)
------------ ---------- ---------
Cash flows from investing activities:
Purchase of fixed assets (50,658) (467,369) (665,450)
Advances to Vista (note 13) (251,500) - -
Purchase of technology - - 447,775
Proceeds of sale of technology - 1,250,000 -
Proceeds on sale of Cangene shares (note 8) - 657,422 -
------------ ---------- ---------
Net cash (used in) provided by
investing activities (302,158) 1,440,053 (1,113,225)
------------ ---------- ---------
Cash flows from financing activities - issue of shares,
net income (note 7) 2,186,778 2,590,947 3,651,676
------------ ---------- ---------
Effect of exchange rate changes on cash and cash equivalents - (3,275) (75,305)
------------ ---------- ---------
Net increase (decreased) in cash and cash
equivalents for the year 30,077 (613,720) 942,168
Cash and cash equivalents, beginning of year 638,745 1,252,465 310,297
------------ ---------- ---------
Cash and cash equivalents, end of year $ 668,822 638,745 1,252,465
============ ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 104
PHARMA PATCH PUBLIC LIMITED COMPANY
Notes to Consolidated Financial Statements
February 29, 1996 and February 28, 1995 and 1994
(Expressed in U.S. Dollars)
(1) The Company and Basis of Presentation
Pharma Patch Public Limited Company (Pharma Patch or the Company) was
incorporated under the laws of the Republic of Ireland in January 1992. Prior
to July 1993, Pharma Patch had no significant assets or operations.
(a) In July 1993, Pharma Patch acquired an exclusive, perpetual,
royalty-free license on all skin penetration enhancement technology held by
Therapeutic Patch Research N.V. (TPR), a Netherlands Antilles company. Pharma
Patch paid cash of $300,000 and issued 600,000 Units (a Unit comprised one
Ordinary Share, one-half Class A Warrant and one quarter Class B Warrant),
2,400,000 Class C Warrants and 500,000 Class D Warrants as consideration for
the license. Concurrently, Pharma Patch issued 1,250,000 Units for cash
proceeds of $4,387,500 to certain investors.
(b) On July 30, 1993, Pharma Patch entered into a share exchange
with the shareholders of Medipro Sciences Limited (Medipro), whereby 2,309,432
Ordinary Shares of Pharma Patch were exchanged for all of the issued and
outstanding common and Class A shares of Medipro. The exchange of shares were
accounted for as a reverse acquisition of Pharma Patch by Medipro as the former
shareholders of Medipro held a majority of the voting shares of Pharma Patch
following the exchange. All the assets of Pharma Patch at the time of the
exchange, consisting primarily of the technology acquired from TPR and the cash
from the issue of the 1,250,000 Units described in note 1(a), were recorded at
their estimated fair market value. There was no excess of the purchase price
over the carrying value of the assets.
(c) On June 30, 1994, the Company acquired substantially all of
the assets and assumed certain specified liabilities arising after June 30,
1994 of Pharmetrix Corporation (Pharmetrix). The assets related to patents and
the research and development of (i) passive transdermal systems, (ii) a
periodontal delivery system and (iii) a buccal system, each for the systemic
delivery to humans of therapeutic drugs and compounds. In exchange for the
Pharmetrix assets, the Company issued a convertible promissory note in the
amount of $5,000,000 (note 6). These assets are held by PP Holdings Inc., a
wholly-owned subsidiary of Pharma Patch incorporated in the State of
California. PP Holdings Inc.'s results of operations are included in the
Company's consolidated results from July 1, 1994.
This acquisition was accounted for under the purchase method of
accounting whereby the purchase price for the Pharmetrix assets was allocated
to fixed assets at fair market value assumed by the Company. The difference
between the purchase price and fair market value of fixed assets was assigned
to acquired pharmaceutical technology in the amount of $4,025,000. A portion
of this technology was resold to a third party for $1,250,000 and the remaining
balance of approximately $2,775,000 (acquired research and development with no
alternative non-pharmaceutical uses) was charged to the Company's consolidated
statement of earnings and loss and deficit in fiscal 1995.
A summary of the unaudited pro forma consolidated statements of
earnings and loss and deficit are set out below to give the pro forma effect to
the Pharmetrix acquisition as if Pharmetrix had been included in the
consolidated statements of earnings and loss and deficit throughout the year
ended February 28, 1995 (before the effect of discontinued operations).
F-6
<PAGE> 105
<TABLE>
<CAPTION>
Pro forma
1995
(unaudited)
-----------
<S> <C>
Revenues $ -
Expenses 14,642,977
----------
Net loss for the year (14,642,977)
Deficit, beginning of year (8,473,352)
----------
Deficit, end of year $ (23,116,329)
==========
Loss per ordinary share $(2.73)
====
Weighted average number of Ordinary Shares
outstanding 5,368,298
=========
</TABLE>
(d) The acquisition of the Pharmetrix assets and leased facilities
initially increased the Company's annual cash requirements.
The acquisition created a duplication of research staff,
facilities and equipment. Pharma Patch restructured its
operations resulting in the centralization of all research and
development activities at the Pharmetrix facility in Menlo
Park, California, a reduction of 22 staff positions and
termination of lease commitments entered into by the Company
for prototype patch manufacturing equipment. In January 1995,
the Company ceased operations of its Canadian subsidiary,
Medipro. A charge of $1,492,070 was incurred in fiscal 1995
in connection with this restructuring, primarily consisting of
a write-off of production equipment, capital lease equipment,
employee termination and lease costs. Employee termination
costs of approximately $105,000 were paid and expensed during
fiscal 1995. Of the total $1,492,070 expense, approximately
$83,000 was accrued at the end of fiscal 1995 in connection
with lease costs. All accrued amounts were paid out during
fiscal 1996.
In fiscal 1995, the Company had acquired a 50% interest in the
issued and outstanding shares of Drug Delivery Research Inc.
(DDRI) for a nominal amount with the intention of using DDRI
to perform the research and development work previously being
done by Medipro.
As a result of the Pharmetrix acquisition and the relocation
of research and development activities, DDRI has remained
inactive.
(e) On November 15, 1995, the Company sold substantially all of
the operating assets to Technical Chemicals and Products, Inc.
(TCPI) for a gain of approximately $16.4 million. These
assets included 11 U.S. patents relating to transdermal drug
delivery and skin permeation technology, license rights to
skin penetration enhancers and electronically assisted drug
delivery, proprietary information and trade secrets related
thereto, certain licensing and product feasibility agreements
entered into by the Company and all of PP Holdings, Inc.'s
fixed assets. TCPI also assumed the sublease of the research
facility occupied by PP Holdings, Inc.
In consideration for the purchased assets, TCPI issued an
aggregate of 786,214 shares of its common stock with a fair
value of $11,919,000 and satisfied the $5,000,000 promissory
note previously issued by the Company to Flora, Inc. (Flora)
(see note 6). As a result of this transaction, the Company
owned 9.9% of TCPI's outstanding common shares. In addition,
as of November 15, 1995, the Company had ceased to perform
research and development work and other operations in the
areas of skin penetration enhancers and drug delivery systems.
F-7
<PAGE> 106
On January 16, 1996, the Company entered into a supplemental
agreement with TCPI which amended certain provisions of the
November 1995 asset purchase agreement. TCPI has filed a
Registration Statement on Form S-1 with the Securities and
Exchange Commission with respect to the sale of 1,800,000 TCPI
common shares (Offering). Pursuant to the terms of the
supplemental agreement, the Company executed a lock-up letter
with the representative of the TCPI Underwriters providing
that it would not sell or otherwise dispose of any of its
shares of common stock for a period to expire 180 days
following the closing date of the Offering without their prior
consent. As consideration for the execution of the lock-up
agreement, TCPI (i) terminated an existing lock-up agreement
covering TCPI common stock owned by the Company, executed in
connection with the asset purchase agreement; (ii) effective
as of closing date of the Offering, terminated the voting
trust agreements, shareholders' agreement and irrevocable
proxy, executed in connection with the asset purchase
agreement which, among other things, limited the Company's
ability to vote or dispose of its shares of common stock;
(iii) allowed the Company to offer for sale 100,000 shares of
this common stock in the Offering (plus up to an additional
110,000 if the Underwriters over-allotment option is
exercised); (iv) effective as of the closing date of the
Offering, issued to the Company a two-year warrant to purchase
100,000 shares of common stock at an exercise price equal to
the per share Offering price; and (v) file a Registration
Statement on Form S-3 to register all of the remaining shares
of common stock owned by the Company after the Offering.
(f) In March 1996, the Company completed the acquisition of
approximately 61% of the voting interest of Vista Technologies
Inc.(Vista). Vista provides photo refractive keratectomy
(PRK) and other laser vision connection (LVC) facilities and
services to the health care industry (see note 13).
As a result of the TCPI transaction, the Company had an
accumulated deficit of $6,249,628 as of February 29, 1996, had
total assets of $17,748,332 and total shareholders' equity of
$14,581,298. The Company, including Vista, has not yet
achieved profitable operations and there is no assurance that
profitable operations, if achieved, could be sustained on a
continuing basis. Further, the Company's future operations
are dependent on the success of the commercialization efforts
and market acceptability of the Vista business plan and other
potential business ventures of the Company, together with the
value derived from the TCPI investment securities.
(2) Significant Accounting Policies
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) in the
United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Pharma
Patch and its wholly-owned subsidiaries in Canada and in the United
States. All significant intercompany balances and transactions have
been eliminated in consolidation.
Fixed Assets
Fixed assets are recorded at acquisition cost. The Company provides
depreciation and amortization at rates which are expected to charge
operations with the cost of the assets over their estimated useful
lives using a rate of 20% declining balance. Estimated useful lives
are as follows (see note 3 regarding the TCPI purchase of
substantially all of the Company's operating assets):
F-8
<PAGE> 107
<TABLE>
<S> <C>
Equipment 5 years
Furniture and office equipment 5 years
Leasehold improvements over the term of the lease
==========================
</TABLE>
Research and Development Expenditures
Research and development expenditures are charged to expense as
incurred. Any investment tax credits (ITCs) earned as a result of
incurring scientific research and experimental development
expenditures in Canada (SRED) are recorded as a reduction of the
related current period expense. No ITCs were recognized in 1996 or
1995 ($141,433 were recognized in 1994).
Investment Securities
Investment securities at February 29, 1996 consist of equity
securities. The Company's equity securities are classified as
available-for-sale securities under the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company's equity
securities are recorded at fair value based on quoted market prices.
The carrying amount of other financial instruments approximates fair
value generally due to the short-term maturity of these instruments.
Technological Assets
Licenses purchased from third parties for non-pharmaceutical uses are
recorded at acquisition cost and are amortized over their expected
useful lives of five years. Non-pharmaceutical licenses are charged
to expense when future recovery becomes uncertain. Pharmaceutical
patents acquired by the Company are charged to expense in the related
current period. Costs associated with the investigation and
processing of patents for technologies developed by the Company are
considered development costs and, accordingly, are charged to expense
as incurred.
During 1995, the Company wrote off its capitalized non-pharmaceutical
technology to reflect the uncertainty of cost recovery through future
revenue. The resources required to further develop this technology
were otherwise utilized in the Pharmetrix acquisition. Accordingly,
the remaining net book value of $1,685,516 was changed to the
consolidated statement of earnings and loss and deficit in fiscal
1995.
Stock Compensation
Stock options issued by the Company which are exercisable at a value
below the market price of the common stock at the date the option is
granted or date options vest, if applicable, gives rise to
compensation expense for the excess of such market value over the
option price. In addition, shares may be issued at nominal value to
certain directors and officers as remuneration, of which certain
shares are subject to achieving certain performance criteria. From
the time the options are granted and until the performance criteria
are satisfied, compensation expense results from the difference
between the underlying share price at such time and the exercise
price.
Foreign Currency Translation
The acquisition of the Pharmetrix assets and termination of operations
of Medipro resulted in a change in functional currency during fiscal
1995 from Canadian dollars to U.S. dollars.
F-9
<PAGE> 108
Prior to fiscal 1995, the Company's functional currency was Canadian
dollars. As the Company's operating activities are now principally in
the United States, the Company also changed its reporting currency to
U.S. dollars in fiscal 1995. The fiscal 1994 financial results have
been restated to reflect this change.
Assets and liabilities stated in functional currencies other than the
U.S. dollar are translated at the year-end exchange rate and revenues
and expenses at the average rate of exchange for the year. Foreign
exchange gains and losses from transactions in currencies other than
the applicable functional currency are reflected in income during the
year. Gains or losses arising on the translation of financial
statements give rise to a cumulative translation adjustment which is
included as a component of shareholders' deficiency. In fiscal 1995,
the Company ceased carrying on business in Canada and accordingly
charged the cumulative translation adjustment to expense. The
following is a continuity schedule of the cumulative translation
adjustment included in shareholders' deficit for fiscal 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance, beginning of year $ 346,326 86,941
Translation adjustments arising
during the year 61,836 259,385
Write-off (408,162)
---------- -------
Balance, end of year $ - 346,326
========== =======
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of expenses
during the reporting period. Actual results could differ from those
estimates.
(3) Discontinued Operations
The November 1995 sale of substantially all of the Company's operating
assets (see note 1(e)) has been accounted for as discontinued
operations. Accordingly, the 1996 consolidated financial statements
exclude amounts for discontinued operations from captions applicable
to continuing operations. The 1995 and 1994 consolidated statements of
earnings and loss and deficit have been restated to conform with the
1996 presentation.
The discontinued business had revenues of $469,055 in 1996, none in
1995 and $129,421 in 1994. There were no tax benefits associated with
the losses from operations of the discontinued business in 1996, 1995
and 1994 and the gain from the disposition had no tax expense
associated with it as a result of the tax basis of the assets involved.
Interest expense on the $5 million note payable to Flora, which was
satisfied by TCPI, totaling $337,667, $333,333 and none in 1996 and
1995, respectively, is included in discontinued operations.
The 1995 loss from operations of the discontinued business includes
the following unusual items:
o Acquired technology write-off of $2,775,336 (see note 1(c)).
o Write-off of capitalized technology of $1,685,516 (see note
2).
F-10
<PAGE> 109
o Medipro restructuring costs of $1,492,070 (see note
1(d)).
o Write-off of cumulative translation adjustment
attributable to Medipro of $408,162 (see note 2).
(4) Investment Securities
Investment securities at February 29, 1996, consisted of equity shares
acquired by the Company in TCPI asset purchase agreement (see note
1(e)). On November 15, 1995, the Company acquired 786,214 common
shares of TCPI with a fair value of $11,919,000 or $15.16 per share.
As of February 29, 1996, the TCPI stock was trading at $21.375 per
share; therefore, the Company recorded an unrealized gain, net of
deferred income taxes of $1,710,212, on the TCPI shares of $3,176,000
in a separate component of shareholders' equity. In April 1996, the
Company sold 210,000 TCPI shares for net proceeds of $2,928,697 and
recorded a loss of $254,100. As of May 9, 1996, the TCPI stock had a
market value of $14.25 which eliminates the unrealized gain on the
remaining securities recorded at February 29, 1996.
(5) Fixed Assets
Fixed assets consisted of the following at February 28, 1995 (none at
February 29, 1996 as a result of the TCPI transaction (see notes 1(e)
and 3)):
<TABLE>
<CAPTION>
Accumulated Net
depreciation/ book
Cost amortization value
---- ------------ -----
<S> <C> <C> <C>
Equipment $ 858,735 195,861 662,874
Furniture and office equipment 66,780 14,759 52,021
Leasehold improvements 232,650 47,167 185,483
--------- ------- -------
$1,158,165 257,787 900,378
========== ======= =======
</TABLE>
(6) Note Payable
In 1995, the Company issued a $5,000,000 senior secured convertible
promissory note (note 1(c)). The promissory note bore interest at the
rate of 10% per annum, payable semiannually. The principal amount of
the note was originally due and payable in full on June 30, 1996.
As collateral for the promissory note, the Company pledged
substantially all of the assets acquired from Pharmetrix being held in
the Company's subsidiary, PP Holdings Inc. The note was satisfied by
TCPI (see notes 1(c), 1(e) and 3).
(7) Capital Stock
(a) Pharma Patch Capital Stock
The authorized and issued Ordinary Shares of Pharma Patch for
the 1996 and 1995 fiscal years were as follows:
F-11
<PAGE> 110
Authorized
The Company has authorized 52,046,576 Ordinary Shares of IR pound sterling 0.01
representing an aggregate value of IR pound sterling 520,466.
<TABLE>
<CAPTION>
Number Premium in Total
of Par excess of -----
shares value par value
------- ----- ---------
<S> <C> <C> <C> <C>
Balance, July 30, 1993 prior to exchange (note $ - 1,878,789 255,821 2,134,610
7(b))
Issued for cash prior to July 31, 1993 212,500 2,763 - 2,763
Impact of the acquisition of Medipro including - 255,821 (255,821) -
the exchange of shares (i):
Elimination of Medipro equity
Creation of Pharma Patch equity 2,309,432 - - -
Issued in exchange for technology license, July 600,000 8,290 2,097,711 2,106,001
30, 1993 (ii)
Issued for cash July 30, 1993 (iii) 1,250,000 17,269 4,370,231 4,387,500
Share issue expenses - - (211,713) (211,713)
Stock compensation (iv) - - 867,381 867,381
---------- --------- ---------- ----------
Balance, February 28, 1994 4,371,932 2,162,932 7,123,610 9,286,542
Issued for cash, March 7, 1994 (v) 600,000 8,828 3,706,172 3,715,000
Share issue expenses (v) - - (1,633,990) (1,633,990)
Issued in exchange for Cangene shares (vi) 439,999 6,720 1,764,276 1,770,996
Issued in payment of professional fees (vii) 328,322 5,163 488,371 493,534
---------- --------- ---------- ----------
Balance, February 28, 1995 5,740,253 2,183,643 11,448,439 13,632,082
---------- --------- ---------- ----------
Issued for cash (viii) 3,249,400 37,713 2,399,085 2,436,798
Share issued costs (viii) - - (250,022) (250,022)
Payment of accrued salaries (ix) 804,044 10,848 488,475 499,323
Payment of professional fees (x) 690,373 9,912 591,993 601,905
Officers and directors (xi) 926,563 14,640 726,610 741,250
---------- --------- ---------- ----------
Subtotal for fiscal 1996 5,670,380 73,113 3,956,141 4,029,254
---------- --------- ---------- ----------
Balance at February 29, 1996 $ 11,410,633 2,256,756 15,404,580 17,661,336
========== ========= ========== ==========
</TABLE>
(i) Issued in connection with the share exchange with the shareholders of
Medipro described in note 1(b).
(ii) Issued in connection with the Units issued for the royalty-free
licensing agreement described in note 1(a).
F-12
<PAGE> 111
(iii) On July 30, 1993, the Company issued 1,250,000 Units for cash of
$4,387,500.
(iv) Accounted for as described in note 2.
(v) On March 7, 1994, the Company completed an initial public offering for
600,000 American Depository Shares, 575,000 Class B Warrants and
575,000 Class C Warrants of the Company. The securities are traded on
the NASDAQ exchange. Gross proceeds from the offering were $3,715,000,
issue costs were $1,633,990 and net proceeds were $2,081,010.
(vi) Issued in connection with the private acquisition of 1,319,996 common
shares of Cangene Corporation (note 8).
(vii) Issued to various professionals in lieu of cash payments totaling
$493,534 for services rendered.
(viii) During the year the Company completed private placements to issue
3,249,400 Ordinary Shares for gross proceeds of $2,399,085, issue
costs of $250,022 and net proceeds of $2,149,063.
(ix) In May 1995, the Company declared bonuses totaling $261,250 pursuant
to employment agreements for key executive employees. One-third of
each bonus was paid in cash and the balance of $174,167 was paid in
Ordinary Shares valued at $1.00 (174,167 shares). In the year ended
February 29, 1996, 423,627 Ordinary Shares were issued in lieu of cash
salaries of $222,031. In addition, 206,250 shares at a value of
$103,125 were awarded in the fourth quarter to senior management in
lieu of a consulting fee.
(x) During the year the Company issued 690,373 shares in lieu of cash
payments of $601,905 to various professionals for services rendered.
(xi) In June 1995, the Company's Board of Directors authorized the issuance
of 926,563 Ordinary Shares to certain officers and directors or their
affiliates at a share price of $0.80. Each person or entity executed a
promissory note which was secured by a pledge of the shares as payment
for the shares received. Effective November 15, 1995 all outstanding
management and employment agreements were terminated. In connection
with the termination of these agreements, as consideration for
contractual obligations not met by the Company, services rendered and
severance pay, the obligations of the officers and directors or their
affiliates under promissory notes totaling $741,250 were deemed to be
paid in full. A charge for this amount is included in administrative
expense in the accompanying fiscal 1996 statement of earnings and loss
and deficit.
As of February 29, 1996, approximately 1.6 million ordinary shares
related a private placement (see (iv) above) and the 206,250 shares
awarded to management in lieu of a consulting fee have not been
actually issued. However, the shares are reflected as outstanding in
the accompanying balance sheet and for purposes of the earnings per
share calculation on the date the shares were awarded/sold. In March
1996, the Company finalized a private placement for 2,150,000 ordinary
shares for net proceeds of $1,075,000 (which includes the 1.6 million
shares noted above).
(b) Medipro Capital Stock
As more fully described in note 1(b), the capital structure
was reorganized upon the exchange of shares with Pharma Patch
on July 30, 1993. The basis for exchange was approximately
0.59 and 0.45 Pharma Patch Ordinary Shares for each Medipro
common shares and Class A share, respectively. The capital
stock of Medipro for the periods ending July 30, 1993 is
summarized below.
F-13
<PAGE> 112
<TABLE>
<CAPTION>
Common shares Class A shares
----------------- ------------------
Number Number Total
of Stated of Stated stated
shares value shares value value
------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Balance, February 28, 1993 2,565,753 $1,061,119 1,652,466 $817,670 1,878,789
</TABLE>
In addition to capital stock, Medipro has contributed surplus, which
for comparative purposes, has been classified as premium in excess of
par value, of $255,821 at July 30, 1993.
(c) Warrants
The details of outstanding warrants at February 29, 1996 are
as follows:
Class A Warrants - 897,000 outstanding (1995 - 925,000)
Each Class A Warrant entitles the holder to purchase one
Ordinary Share and one Class B Warrant at an exercise price of
$2.66 commencing on May 29, 1994 until February 28, 1999. The
warrants are redeemable by the Company at a price of $0.10 if
certain stock price conditions exist.
Class B Warrants - 1,015,425 outstanding (1995 - 1,037,500)
Each Class B Warrant entitles the holder to purchase one
Ordinary Share at an exercise price of $3.19 commencing on May
29, 1994 until February 28, 1999. The warrants are redeemable
by the Company at a price of $0.10 if certain stock price
conditions exist.
Class C Warrants - 2,939,875 outstanding (1995 - 2,975,000)
The Class C Warrants are exercisable to purchase one Unit
consisting of one Ordinary Share, one-half of a Class A
Warrant and one-quarter of a Class B Warrant at an exercise
price of $5.31 per Unit. The Class C Warrants are not
exercisable until (i) the Company generates revenues in excess
of $10,000,000 in any one fiscal year or the Units, or the sum
of their components (ii) trade at a price equal to 200% of the
Initial Public Offering (IPO) price of $6.00. The Class C
Warrants are exchangeable at the option of the warrant holders
for Units of the Company on a formula basis, reflecting the
spread between the exercise price of the warrants and the fair
market value price of the Units (or the sum of their component
parts) at the time when the exchange is requested by the
warrant holders. These warrants expire on February 28, 1999.
Class D Warrants - 500,000 outstanding
The Class D Warrants are exercisable, commencing on May 29,
1994, to purchase one Unit consisting of one Ordinary Share,
one-half of a Class A Warrant and one-quarter of a Class B
Warrant. The exercise price per Class D Warrant is $2.12 and
the warrants expire on July 30, 1997.
The Class D Warrants are exchangeable at the option of the
warrant holders for Units of the Company on a formula basis,
reflecting the spread between the exercise price of the
warrants and the fair market price of the Units (or the sum of
their component parts) at the time when the exchange is
requested by the warrant holders.
F-14
<PAGE> 113
The exercise prices of the Class A, B, C and D Warrants were
initially determined by the Board of Directors and were either
equal to or exceeded the fair market value of the Company's
share price at the date the warrants were granted. Exercise
prices are subsequently adjusted, in accordance with the
formula stipulated in the Warrant Agreement, if the Company
issues or sells shares for consideration less than the greater
of the initial public offering price or market price.
(d) Stock Option Plan
The Company has adopted stock option plans which allows an
aggregate maximum of 700,000 Ordinary Shares of the Company to
be available for awards to employees, officers and directors.
The exercise price of these options is determined by the
Compensation Committee of the Board of Directors but will be
at least 100% of the fair market value of the options at the
date the option is granted. Additionally, these options shall
terminate in the event of a sale or transfer of all or
substantially all of the Company's assets. Effective November
15, 1995, all outstanding management and employment agreements
were terminated. In connection with the termination of these
agreements, the Company required outstanding options to be
exercised by December 15, 1995. No options were exercised and
all outstanding options thus expired on such date.
Changes to issued options are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Number of options exercisable, beginning of year 685,000 550,000
New options granted - 265,000
Options expired (685,000) (130,000)
Number of options exercisable, end of year
- 685,000
======= =======
</TABLE>
In March 1996, 700,000 options at an exercise price of $.50 per share
to purchase Ordinary Shares were issued to certain persons and
entities who perform services for the Company, all of which have terms
of five years. These options shall vest only in the event that the
closing price of the Company's stock price equals or exceeds $2.00 in
any 21-day trading period (whether or not consecutive) prior to
February 28, 1997. Upon such vesting, administrative expense will be
recorded on such options.
(e) Earnings (Loss) Per Share
The net earnings (loss) per share calculations are based on
the weighted average number of shares outstanding during the
respective years. In addition, the earnings (loss) per share
calculations have taken into account the shares, options and
warrants issued at prices below the Company's IPO price in the
12-month period prior to the initial filing of the IPO. These
have been treated as outstanding during all the periods
presented prior to March 7, 1994. The Company has used the
treasury stock method of determining the dilutive effect of
all options and warrants for the period after March 7, 1994.
(8) Cangene Acquisition and Disposal
On June 13, 1994, the Company completed a private acquisition of
1,319,996 Common Shares in the capital of Cangene Corporation
(Cangene) from ARCA Investments Inc. (ARCA). In payment for these
shares, the Company issued a total of 439,999 of its Ordinary Shares,
on the basis of one Ordinary Share for each three shares of Cangene or
ARCA. This acquisition was part of a take-over bid to acquire all of
the outstanding Common Shares of Cangene. The bid was subsequently
withdrawn. The Company
F-15
<PAGE> 114
incurred acquisition costs of approximately $515,000, substantially
all of which were paid for with Cangene shares.
Certain of the Cangene shares were sold resulting in net cash proceeds
of approximately $657,000 and the balance was used to settle
outstanding professional fees totaling approximately $630,000. The
Company incurred a loss on disposition of the Cangene shares of
approximately $478,000.
(9) Income Taxes
Prior to July 30, 1993, Medipro was a Canadian Controlled Private
Corporation, as defined under the Income Tax Act (Canada) and,
accordingly, was entitled to receive a refund on a portion of its ITCs
earned on eligible SRED. These refundable ITCs, which are similar to
government grants provided for performing qualifying research
activities, were recorded in income as earned. As a result of the
change in the ownership of Medipro in fiscal 1994, the ITCs are earned
subsequently at the rate of 20% of eligible SRED, will no longer be
refundable and will only be available to reduce income taxes payable
in Canada.
The Financial Accounting Standards Board has issued Financial
Accounting Standards No. 109, "Accounting for Income Taxes" which was
effective for the Company's February 28, 1994 fiscal year. As of
February 29, 1996, February 28, 1995 and 1994, Medipro had research
and development expenses not claimed for income tax purposes of
approximately $2,870,000, $2,831,000 and $1,743,000, respectively,
available to reduce taxable income of Medipro in future years. Due to
the significant uncertainty relating to the Company's ability to
utilize these expenses to offset taxable income, valuation allowances
are recognized to offset all of the deferred tax assets relating to
these expenses. These unclaimed research and development expenses may
be carried forward indefinitely for income tax purposes.
At February 29, 1996, the Company also had unused operating loss
carryforwards amounting to approximately $6,500,000 available to
reduce future taxable income. A valuation allowance has been set up to
offset the deferred tax benefit of these loss carryforwards. These
losses expire as follows:
<TABLE>
<S> <C>
2001 $ 1,448,000
2002 1,205,000
2010 3,477,000
2011 370,000
==========
</TABLE>
F-16
<PAGE> 115
Deferred income taxes have been provided in timing differences as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Operating loss carryforward $ 2,600,000 5,400,000
Capitalized research and development expense 492,000
Purchase research and development expense 1,110,000
Start-up costs associated with PP Holdings 136,000
Interest expense 133,000
Tax benefit of research and development 1,148,000 1,269,000
Other 59,000 65,000
---------- ----------
Total tax assets 3,807,000 8,605,000
Valuation allowance (3,807,000) (8,605,000)
----------- ----------
Adjusted tax assets $ - -
=========== ==========
Deferred tax liabilities - unrealized appreciation on equity
securities (1,710,212) -
----------- ----------
Total deferred tax liabilities $ (1,710,212) -
----------- ==========
</TABLE>
(10) Commitments
As a result of the transaction with TCPI, the Company no longer has
any commitments under operating leases requiring any future minimum
annual payments.
In February 1996, the Company entered into two consulting agreements,
each for a term of three years with aggregate annual payments of
$350,000, plus a bonus at the discretion of the board of directors.
These agreements provide management to the Company.
(11) Consolidated Statements of Cash Flows
The net change in noncash working capital balances for each of the
fiscal years are noted below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sources (uses) of cash:
Accounts receivable $ 18,910 27,305 (37,736)
Investment tax credits receivable - 136,937 141,109
Prepaid expenses and deposits 47,298 (6,238) (38,719)
Accounts payable (5,275) 439,763 186,082
Accrued expenses 296,854 374,996 253,907
Other 3,485 555,368 (31,514)
------- --------- --------
$ 361,272 1,528,131 473,129
======= ========= ========
</TABLE>
During the year ended February 29, 1996, the amounts of cash interest
paid was $250,000 (1995 - $250,000, 1994 - none). No income taxes were
paid during 1996, 1995 or 1994.
All short-term, highly liquid investments with maturities of three
months or less at the date of purchase are considered to be cash
equivalents.
F-17
<PAGE> 116
(12) Related-party Transactions
In 1993, the Company entered into an agreement, which expires on
December 31, 2011, with a shareholder whereby the Company has granted
the licensee certain production and distribution rights to a
technology that the Company still maintains after the TCPI
transaction, but which is not expected to be pursued for
commercialization. No fee revenue was recognized in fiscal 1996 and
1995.
(13) Subsequent Event
In March 1996, the Company executed agreements which provided the
Company with a controlling interest in Vista. The Company had
previously made certain working capital advances to Vista before the
consummation of this transaction. Such amounts totaled $251,500 at
February 29, 1996.
The Company executed a stock purchase agreement for 200,000 newly
issued shares of Vista common stock for a cash price of $500,000. The
Company and Vista executed an additional agreement under which Vista
provided 2,060,000 newly issued shares of its common stock to the
Company at a value of $5,150,000 plus 500,000 Vista Class C common
stock purchase warrants. In exchange, Vista received a $750,000
interest-free note due six months after the transaction date and
200,000 restricted shares of TCPI common stock previously held by the
Company with a fair value on the date of the transaction of $3,550,000
(original cost basis to the Company of $3,032,000).
The Company also has an option to purchase up to an additional 250,000
newly issued shares of Vista common stock at an option price of $2.50
in cash. This option is exercisable at any time up to September 30,
1996.
In addition, in a separate transaction, the Company agreed to provide
4,500,000 newly issued Ordinary Shares in exchange for a total of
900,000 shares of Vista's outstanding common stock owned by three
shareholders.
As a result of these transactions, the Company acquired approximately
61% of the voting interest in Vista. The acquisition will be
accounted for utilizing the purchase accounting method in fiscal 1997.
F-18
<PAGE> 117
PHARMA PATCH PLC
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
ASSETS
<TABLE>
<CAPTION>
UNAUDITED
AS AT
MAY 31, 1996
------------
<S> <C>
Current Assets
Cash and cash equivalents..................................................... 3,626,593
Accounts receivable........................................................... 307,810
Due from Vista................................................................ --
Investment in TCPI -- available for sale, at market price..................... 6,698,488
Prepaids & other assets....................................................... 263,380
----------
Total Current Assets.................................................. 10,896,271
Fixed assets.................................................................. 1,126,375
Investments in subsidiaries................................................... 2,149,818
Long term receivables......................................................... 191,571
Goodwill...................................................................... 4,534,874
----------
Total Assets.......................................................... 18,898,909
==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Accounts payable.............................................................. 1,950,100
Accrued expenses.............................................................. 1,180,240
Deferred tax liability........................................................ --
----------
Total Current Liabilities............................................. 3,130,340
----------
Long Term Debt.................................................................. 660,196
----------
Total Liabilities..................................................... 3,890,536
----------
Minority Interest............................................................... 3,025,306
SHAREHOLDERS' EQUITY (DEFICIENCY)
Capital stock
Authorized
52,046,576 Ordinary Shares Issued and outstanding [16,915,211 at May 31,
1996; 11,410,633 at February 29, 1996]
Ordinary Shares, at par value................................................. 2,343,678
Premium in excess of par value................................................ 18,387,064
Deficit....................................................................... (6,979,820)
Cumulative translation adjustment............................................. 369,057
Unrealized gain (loss) on securities available for sale (net of deferred taxes
of $1,710,212 at February 29, 1996......................................... (2,036,912)
----------
Total shareholders' equity (deficiency)............................... 12,083,067
----------
18,898,909
==========
</TABLE>
F-19
<PAGE> 118
PHARMA PATCH PLC
CONSOLIDATED STATEMENT OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MAY 31
--------------------------
1996 1995
---------- -----------
UNAUDITED
<S> <C> <C>
Revenues........................................................... 482,732 --
Expenses
Administration..................................................... 871,526 180,786
Depreciation and amortization...................................... 149,788 --
Foreign exchange (gain) loss....................................... 567 --
Interest income.................................................... (2,894) --
---------- -----------
1,018,987 180,786
---------- -----------
Loss from operations..................................... 536,255 180,786
---------- -----------
Loss on sale of investment......................................... 254,903 --
Equity investee loss............................................... 7,468 --
Minority interest loss for period.................................. (68,434) --
Other income....................................................... -- (5,884)
---------- -----------
Loss from continuing operations.......................... 730,192 174,902
---------- -----------
Discontinued Operations
Loss from discontinued operations.................................. -- (703,444)
Gain on sale of business segment......................... -- --
---------- -----------
Gain (loss) on discontinued operations................... -- (703,444)
---------- -----------
Net Earnings (Loss) For The Period................................. (730,192) (878,346)
Deficit, beginning of Period....................................... (6,249,628) (18,340,304)
---------- -----------
DEFICIT, END OF PERIOD................................... (6,979,820) (19,218,650)
========== ===========
Per share of common stock
Loss from continuing operations.................................. (.05) (.04)
Discontinued operations.......................................... 0 (.14)
Net earnings (loss).............................................. (.05) (.18)
---------- -----------
Weighted average number of Ordinary Shares outstanding............. 15,580,315 4,960,425
========== ===========
</TABLE>
F-20
<PAGE> 119
PHARMA PATCH PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
UNAUDITED
FOR THE THREE MONTHS
ENDED MAY 31
----------------------
1996 1995
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) for the year...................................... (730,192) (878,346)
Add non-cash items
Depreciation and amortization....................................... 149,788 91,941
Write-down of fixed assets.......................................... -- --
Gain on sale of business............................................ -- --
Non cash payment of expense......................................... -- --
Loss on sale of investment.......................................... 254,903 --
Non cash payment of expenses........................................ 208,690 --
Other cash payments................................................. 13,975 --
Net change in non-cash working capital items.......................... 570,617 38,354
--------- --------
467,781 (748,051)
--------- --------
INVESTING ACTIVITIES
Purchase of fixed assets.............................................. (5,412) (30,312)
Net proceeds of sale of investment.................................... 2,928,696 --
Investment in Vista, net of cash acquired............................. (710,188) --
--------- --------
2,213,096 (30,312)
--------- --------
FINANCING ACTIVITIES
Issue of shares, net.................................................. 276,894 832,700
--------- --------
Net increase (decrease) in cash and cash equivalents for the period... 2,957,771 54,337
Cash and cash equivalents, beginning of period........................ 668,822 638,745
--------- --------
Cash and cash equivalents, end of period.............................. 3,626,593 693,082
========= ========
</TABLE>
F-21
<PAGE> 120
PHARMA PATCH PLC
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTH PERIODS ENDED MAY 31, 1995 AND 1996
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
UNREALIZED TOTAL
PREMIUM IN CUMULATIVE GAIN (LOSS) SHAREHOLDER
NUMBER OF EXCESS OF ACCUMULATED TRANSLATION EQUITY EQUITY
SHARES PAR VALUE PAR VALUE DEFICIT ADJUSTMENT SECURITIES (DEFICIENCY)
---------- --------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance on February 28,
1995........................ 5,740,253 2,183,643 11,448,439 (18,340,304) -- -- (4,708,222)
Issuance of Stock-(Unaudited)
Payment of Professional
Fees..................... 21,500 254 20,027 -- -- -- 20,281
Payment of Accrued
Salaries................. 174,167 2,525 171,642 -- -- -- 174,167
Private Placement
Share Issuance Costs........ -- -- (80,748) -- -- -- (80,748)
Net Income (Loss) May 31, 1995
(unaudited)................. -- -- -- (878,346) -- -- (878,346)
---------- --------- ---------- ----------- ------- ---------- ----------
Balance May 31, 1995
(Unaudited)................. 6,654,920 2,196,848 12,267,934 (19,218,650) -- -- (4,753,868)
========== ========= ========== =========== ======= ========== ==========
Balance on February 29,
1996........................ 11,410,633 2,256,756 15,404,580 (6,249,628) (6,518) 3,176,108 14,581,298
Issuance of Stock (Unaudited)
Payment of Professional
Fees..................... 404,578 6,350 202,340 -- -- 208,690
Shares issued to acquire
900,000 of Vista's
outstanding common
stock.................... 4,500,000 71,100 2,178,900 250,000 -- -- --
Private Placement........... 600,000 9,472 285,528 -- -- 295,000
Share Issuance Costs..... -- -- (18,106) -- -- (18,106)
Unrealized gain on capital
issued by Vista
Technologies, Inc........ -- -- 333,822 -- -- 333,822
Cumulative translation
adjustment related to
Vista.................... -- -- -- -- 375,575 375,575
Unrealized gain (Loss) on
Equity Securities for the
Period................... -- -- -- -- -- (5,213,020) (5,213,020)
Net Loss May 31, 1996
(Unaudited)................. -- -- -- (730,192) -- (730,912)
---------- --------- ---------- ----------- ------- ---------- ----------
Balance May 31, 1996
(Unaudited)................. 16,915,211 2,343,678 18,387,064 (6,979,820) 369,057 (2,038,912) 12,083,067
========== ========= ========== =========== ======= ========== ==========
</TABLE>
F-22
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
UNAUDITED
All information should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition, Results of Operations and
Financial Statements and Notes to Financial Statements included in the Company's
Annual Report on Form 10KSB for the year ended February 29, 1996. Operating
results for the three month period ending May 31, 1996 are not necessarily
indicative of the results that may be obtained for the entire year.
1. ORGANIZATION
Pharma Patch Plc ("Pharma Patch") or ("the Company") is currently engaged,
through its subsidiary Vista Technologies, Inc., in providing photorefractive
keratectomy ("PRK") and other laser vision correction ("LVC") facilities and
services to the health care industry. The Company was incorporated under the
laws of the Republic of Ireland in January, 1992. Prior to July, 1993, Pharma
Patch had no significant assets or operations.
On November 15, 1995, the Company sold substantially all of the operating
assets to Technical Chemicals and Products, Inc. (TCPI) for a gain of
approximately $16.4 million. These assets included 11 U.S. patents relating to
transdermal drug delivery and skin permeation technology, license rights to skin
penetration enhancers and electronically assisted drug delivery, proprietary
information and trade secrets related thereto, certain licensing and product
feasibility agreements entered into by the Company and one of its subsidiaries
fixed assets. In consideration for the purchased assets, TCPI issued an
aggregate of 786,214 shares of its common stock with a fair value of $11,919,000
and satisfied the $5,000,000 promissory note previously issued by the Company to
Flora, Inc. (Flora). As a result of this transaction, the Company owned 9.9% of
TCPI's outstanding common shares.
On January 16, 1996, the Company entered into a supplemental agreement with
TCPI which amended certain provisions of the November 1995 asset purchase
agreement. TCPI has filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission with respect to the sale of 1,800,000 TCPI
common shares (Offering). Pursuant to the terms of the supplemental agreement,
the Company executed a lock-up letter with the representative of the TCPI
Underwriters providing that it would not sell or otherwise dispose of any of its
shares of common stock for a period to expire 180 days following the closing
date of the Offering (April 30, 1996) without their prior consent. As
consideration for the execution of the lock-up agreement, TCPI (i) terminated an
existing lock-up agreement covering TCPI common stock owned by the Company,
executed in connection with the asset purchase agreement; (ii) effective as of
closing date of the Offering, terminated the voting trust agreements,
shareholders' agreement and irrevocable proxy, executed in connection with the
asset purchase agreement which, among other things, limited the Company's
ability to vote or dispose of its shares of common stock; (iii) allowed the
Company to offer for sale 100,000 shares of this common stock in the Offering
(plus up to an additional 110,000 if the Underwriters over-allotment option is
exercised); (iv) effective as of the closing date of the Offering, issued to the
Company a two-year warrant to purchase 100,000 shares of common stock at an
exercise price equal to the per share Offering price; and (v) file a
Registration Statement on Form S-3 to register all of the remaining shares of
common stock owned by the Company after the Offering. On April 30, 1996, TCPI
completed the offering whereby Pharma Patch sold 210,000 of its TCPI stock for
net proceeds of approximately $2.9 million.
On March 21, 1996, the Company completed the acquisition of 61.3% of the
voting interest of Vista Technologies, Inc. ("Vista"). Vista provides photo
refractive keratectomy (PRK) and other laser vision correction ("LVC")
facilities and services to the health care industry.
The Company executed a stock purchase agreement for 200,000 newly issued
shares of Vista common stock for a cash price of $500,000. The Company and Vista
executed an additional agreement under which Vista provided 2,060,000 newly
issued shares of its common stock to the Company plus 500,000 Vista Class C
common stock purchase warrants. In exchange, Vista received a $750,000
interest-free note due six months after the transaction date and 200,000
restricted shares of TCPI common stock previously held by the Company with a
fair value on the date of the transaction of $3,550,000 (original cost basis to
the Company of
F-23
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN U.S. DOLLARS)
UNAUDITED
$3,032,000). The Company repaid the $750,000 note in full during the first
quarter of fiscal 1997. The Company also received an option to acquire 250,000
Vista shares at $2.50 per share. In a separate transaction, the Company agreed
to provide 4,500,000 newly issued Ordinary Shares in exchange for a total of
900,000 shares of Vista's outstanding common stock owned by three shareholders.
2. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) in the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Pharma Patch
and its wholly-owned subsidiaries. The Company owned 47.1% (see Minority
Interest note) of Vista's issued and outstanding common shares on May 31, 1996,
and these accounts are also included in the consolidated financial statements
(since the acquisition at the end of March 1996). All significant intercompany
balances and transactions have been eliminated on consolidation.
Fixed Assets
Fixed Assets are recorded at acquisition cost. The Company provides
depreciation and amortization at rates which are expected to charge operations
with the cost of the assets over their estimated useful lives ranging from 3 to
10 years.
Revenue Recognition
Revenues are recognized when services are performed. Product development
fees included in discontinued operations represent charges to third parties for
research and development work performed by the Company and are recorded in the
period the fees are earned.
Research and Development Expenditures
Research and development expenditures included in discontinued operations
are charged to expense as incurred.
Foreign Currency Translation
Assets and liabilities stated in functional currencies other than the U.S.
dollar are translated at the year-end exchange rate and revenues and expenses at
the average rate of exchange for the year. Foreign exchange gains and losses
from transactions in currencies other than the applicable functional currency
are reflected in income during the year. Gains or losses arising on the
translation of financial statements give rise to a cumulative translation
adjustment which is included as a component of shareholders' deficiency.
As a result of the Company's transaction and consolidation of Vista's
financial statements at May 31, 1996, a balance of $369,057 relating to foreign
currency adjustment at quarter end exists. This amount arises from Vista's
European subsidiaries.
Fixed Assets
Fixed assets consist of the following at May 31, 1996:
<TABLE>
<S> <C>
Eximer laser and other technical equipment........................ 1,084,735
Other furniture and equipment..................................... 41,640
---------
1,126,375
=========
</TABLE>
F-24
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN U.S. DOLLARS)
UNAUDITED
Goodwill
Goodwill on the Company's Consolidated Balance Sheet represents the excess
purchase price paid for Vista after allocating the purchase price to the net
assets. Goodwill is being amortized on over 15 years on a straight-line method,
pending final review of the allocation of the purchase price by the Company's
management. Goodwill at May 31, 1996 is as follows:
<TABLE>
<S> <C>
Goodwill.......................................................... 4,585,828
Less: Accumulated amortization.................................... (50,954)
---------
4,534,874
=========
</TABLE>
Minority Interest
On March 21, 1996, the Company acquired 61.3% on the issued and outstanding
common stock on Vista. In May 1996, Vista issued 1,450,000 shares of its common
stock to acquire interests in three developmental stage companies involved in
providing PRK and other LVC facilities and services to the health care industry.
The shares issued by Vista reduced the Company's ownership in Vista from 61.3%
to 47.1% at May 31, 1996. The results of Vista have been included in the
consolidated financial statements of the Company as the Company continues to
have control of Vista through its Board of Directors representation as well as
the active roles the Company's officers have over the day-to-day operations of
Vista. Additionally, in July the Company increased its ownership in Vista from
47.1% to 48.7% by exercising 200,000 of its 250,000 existing rights to acquire
Vista common stock.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Investment Securities Available for Sale
Equity securities that are purchased with the intent and ability to hold as
investments are classified as investment securities available for sale and are
carried at fair market value. Unrealized holding gains and losses are excluded
from earnings and reported as a net amount in a separate component of
stockholders equity. At May 31, 1996 Investment Securities available for sale
consist of 576,214 shares of common stock in TCPI.
F-25
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Vista Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of Vista
Technologies, Inc. and subsidiaries as of March 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vista
Technologies, Inc. and subsidiaries as of March 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
July 12, 1996
F-26
<PAGE> 125
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Vista Technologies, Inc. and Subsidiaries
Sunnyvale, California
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows for the year ended March 31,
1995, of Vista Technologies, Inc. and subsidiaries. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of its operation and cash
flows for the year ended March 31, 1995, of Vista Technologies, Inc. and
subsidiaries in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred significant operating losses from inception
totaling $11,432,110, has substantial commitments and contingencies relating to
the rescission of an incomplete acquisition, recognized a permanent impairment
of goodwill incurred in the acquisitions of subsidiaries in the amount of
$3,825,990 and the Company is a party in a lawsuit more fully discussed at note
7. These conditions raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding these matters are to abandon its UK
operations, complete a private placement of common stock, attempt to generate
revenues from other European operations and establish laser centers in the
United States. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
AJ. Robbins, P.C.
Certified Public Accountants
and Consultants
Denver, Colorado
May 24, 1995
F-27
<PAGE> 126
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash......................................................................... $ 288,312
Accounts receivable:
Trade..................................................................... 29,515
VAT....................................................................... 41,434
Related parties........................................................... 214,454
Stock subscriptions receivable (notes 1, 2 and 17)........................... 962,500
Prepaid expenses and other................................................... 256,081
------------
Total current assets................................................. 1,792,296
Investment securities (note 5):
Available for sale........................................................... 2,475,000
Held-to-maturity............................................................. 115,468
Long-term VAT receivables...................................................... 191,571
Property and equipment, net (note 4)........................................... 1,219,798
Investment in equity investees (note 1)........................................ 468,350
Other assets................................................................... 7,299
------------
$ 6,269,782
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade...................................................... $ 520,825
Accounts payable, officers................................................... 29,535
Accrued expenses............................................................. 633,206
Current portion of notes payable (note 10)................................... 296,591
Current portion of long-term debt (note 11).................................. 137,351
Current portion of obligation under capital lease (note 12).................. 67,588
------------
Total current liabilities............................................ 1,685,096
Notes payable, net of current portion (note 10)................................ 277,777
Long-term debt, net of current portion (note 11)............................... 463,240
Obligation under capital lease, net of current portion (note 12)............... 196,956
------------
937,973
Minority interest (note 2)..................................................... 653,306
------------
Commitments and contingencies (notes 7, 10, 12 and 17)
Total liabilities.................................................... 3,276,375
------------
Stockholders' equity (notes 7, 8, 9 and 17):
Preferred stock, $.001 par value; 15,000,000 shares authorized; none
issued.................................................................... --
Common stock, $.005 par value; 15,000,000 shares authorized; 5,256,106 shares
issued and outstanding.................................................... 26,281
Additional paid-in capital................................................... 18,026,096
Unrealized loss on securities available for sale............................. (187,500)
Accumulated deficit.......................................................... (15,247,045)
Foreign currency translation adjustments..................................... 375,575
------------
Total stockholders' equity........................................... 2,993,407
------------
$ 6,269,782
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 127
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Revenues.......................................................... $ 2,130,073 1,209,673
Costs and expenses:
General and administrative...................................... 4,624,630 2,773,390
Depreciation and amortization................................... 467,509 580,870
----------- ------------
Total costs and expenses................................ 5,092,139 3,354,260
----------- ------------
Other (income) expense:
Foreign currency exchange loss.................................. 695 28,887
Unrealized (gains) loss on trading securities................... -- (116,707)
Realized loss (gains) on trading securities..................... 148,005 (129,621)
Impairment of idle equipment (note 3)........................... 446,636 --
Legal judgment (note 7)......................................... -- 186,055
Impairment of goodwill (note 1)................................. -- 3,825,990
Write off of note receivable, stockholder (note 1).............. -- 125,000
Interest........................................................ 63,645 9,781
Loss on sale of equipment....................................... -- 1,053
Loss on closure of UK clinic (note 1)........................... 135,097 --
Other........................................................... 49,405 (75,758)
----------- ------------
Net other (income) expense.............................. 843,483 3,854,680
----------- ------------
Loss from operations.................................... (3,805,549) (5,999,267)
Equity investees (loss) income (note 1 and 6)..................... (11,202) 28,132
----------- ------------
Loss before income taxes, minority interest and
extraordinary loss.................................... (3,816,751) (5,971,135)
Income taxes (note 13)............................................ -- --
----------- ------------
Loss before minority interest and extraordinary loss.... (3,816,751) (5,971,135)
Minority interest................................................. 1,816 193,842
----------- ------------
Net loss before extraordinary loss...................... (3,814,935) (5,777,293)
Extraordinary loss (note 1)....................................... -- (5,642,887)
----------- ------------
Net loss................................................ $(3,814,935) (11,420,180)
=========== ============
Loss per common share:
Before extraordinary loss....................................... $ (1.92) (4.88)
Extraordinary loss.............................................. -- (4.76)
----------- ------------
Net loss per common share............................... $ (1.92) (9.64)
=========== ============
Weighted average number of common shares outstanding.............. 1,985,675 1,184,976
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 128
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK SUBSCRIBED STOCK ADDITIONAL FOREIGN TOTAL
------------------- ---------------------- PAID-IN UNREALIZED ACCUMULATED CURRENCY STOCKHOLDERS'
NUMBER AMOUNT NUMBER AMOUNT CAPITAL LOSS DEFICIT ADJUSTMENTS EQUITY
--------- ------- -------- ----------- ----------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
March 31,
1994...... 712,613 $ 3,564 125,000 $ 1,132,152 $ 5,310,161 $ -- $ (11,930) $ (1,962) $ 6,431,985
Common stock
issued for
cash
proceeds,
net of
offering
costs of
$471,991
(note
8)........ 335,000 1,675 (125,000) (1,132,152) 2,876,334 -- -- -- 1,745,857
Common stock
issued in
exchange
for
Medical
Development
Resources
Inc.
(MDRI)
(note 1)
stock and
warrants... 200,000 1,000 -- -- 1,999,000 -- -- -- 2,000,000
Private
placement
issued in
exchange
for the
assets of
Klara
Clinic.... 2,960 15 -- -- 8,208 -- -- -- 8,223
Common stock
adjustment
for Vista-
Italy
acquisition
(note
1)........ 2,381 11 -- -- 23,807 -- -- -- 23,818
Common stock
issued to
acquire
MDRI stock
from TNC
Media,
Inc....... 155,756 779 -- -- 1,556,775 -- -- -- 1,557,554
Foreign
currency
adjustment... -- -- -- -- -- -- -- 234,327 234,327
Net (loss)
for the
period.... -- -- -- -- -- -- (11,420,180) -- (11,420,180)
--------- ------- -------- ----------- ----------- --------- ------------ -------- ------------
Balance,
March 31,
1995...... 1,408,710 7,044 -- -- 11,774,285 -- (11,432,110) 232,365 581,584
Common
stock,
issued for
services
and cash
advances,
net of
repurchases
(note
3)........ 1,021,000 5,105 -- -- 1,632,395 -- -- -- 1,637,500
Common stock
issued to
Pharma
Patch Plc.
(note
1)........ 2,260,000 11,300 -- -- 3,901,200 -- -- -- 3,912,500
Common stock
issued to
Vista
Laser
Centers of
Michigan,
Inc. (VLC-
Michigan)
in
exchange
for
200,000
shares of
Series B
preferred
stock of
VLC-Michigan
(note
1)........ 200,000 1,000 -- -- 216,600 -- -- -- 217,600
Common stock
issued to
Vista
Laser
Centers of
Southwest,
Inc. (VLC-
Southwest)
in
exchange
for
350,000
shares of
Series B
preferred
stock of
VLC-Southwest
(note 1)... 250,000 1,250 -- -- 270,500 -- -- -- 271,750
Common stock
issued for
stock
subscriptions
receivable
(note 2)... 100,000 500 -- -- 212,000 -- -- -- 212,500
Common stock
issued in
exchange
for Vista
Vision SpA
stock..... 16,396 82 -- -- 8,116 -- -- -- 8,198
Unrealized
loss on
securities
available
for
sale...... -- -- -- -- -- (187,500) -- -- (187,500)
Compensation
expense
for non
employee
stock
options... -- -- -- -- 11,000 -- -- -- 11,000
Foreign
currency
adjustment... -- -- -- -- -- -- -- 143,210 143,210
Net loss.... -- -- -- -- -- -- (3,814,935) -- (3,814,935)
--------- ------- -------- ----------- ----------- --------- ------------ -------- ------------
Balance,
March 31,
1996...... 5,256,106 $26,281 -- $ -- $18,026,096 $ (187,500) $(15,247,045) $ 375,575 $ 2,993,407
========= ======= ======== =========== =========== ========= ============ ======== ============
</TABLE>
F-30
<PAGE> 129
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows used by operating activities:
Net loss.............................................................................. $(3,814,935) (11,420,180)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization....................................................... 467,509 580,870
Extraordinary loss from advanced funds for incomplete acquisition................... -- 5,642,887
Write off of impaired and abandoned assets, net..................................... 453,467 --
Impairment of goodwill.............................................................. -- 3,825,990
Legal judgment...................................................................... -- 186,055
Write off of note receivable, stockholder........................................... -- 125,000
Loss on sale of equipment........................................................... -- 1,053
Unrealized loss (gain) on trading securities........................................ -- (116,707)
Realized loss (gain) on trading securities.......................................... 148,005 (129,621)
Minority interest................................................................... (1,816) (193,842)
Interest income received in common stock............................................ -- (50,000)
Foreign currency translation on operating assets and liabilities.................... 146,656 (39,462)
Equity investees loss (income), net................................................. 11,202 (28,132)
Stock issued for services........................................................... 1,637,500 --
Compensation related to stock options issued to non-employees....................... 11,000 --
Changes in operating assets and liabilities, net of foreign currency translation:
Accounts receivable:
Trade........................................................................... 41,326 (70,841)
VAT............................................................................. 99,142 (140,576)
Related parties................................................................. 99,293 (482,132)
Prepaid expenses.................................................................. 6,864 (5,401)
Other current assets.............................................................. (179,250) 70,800
Other assets...................................................................... (16,793) 109,774
Bank overdraft protection......................................................... (86,913) 86,913
Accounts payable, trade........................................................... 73,484 371,560
Accounts payable, officers........................................................ (99,516) 129,051
Accrued expenses.................................................................. 309,909 (38,526)
Other liabilities................................................................. 145,234 --
----------- -----------
Net cash used by operating activities........................................... (548,632) (1,585,467)
----------- -----------
Cash flows used by investing activities:
Proceeds from sales of trading securities............................................. 417,652 432,859
Repayment of notes receivable......................................................... -- 753,526
Repayment of capital lease obligation................................................. (10,501) --
Proceeds from sale of equipment....................................................... -- 7,656
Redemption of equity investment in partnership........................................ -- 595,313
Purchase of trading securities........................................................ (162,531) (589,657)
Issuance of notes receivable.......................................................... -- (254,870)
Purchase of property and equipment.................................................... (302,121) (95,557)
Sale purchase of investment -- held to maturity....................................... 11,875 (145,215)
Purchase of investment, at cost....................................................... -- (1,850,000)
Loss on investment -- held to maturity................................................ 29,813 --
Purchase of equity investment......................................................... -- (419,675)
Foreign currency translation.......................................................... -- 11,749
Purchase of Klara Clinic assets....................................................... -- (102,225)
Purchase of ConVista.................................................................. -- (163,597)
Advances to investee companies........................................................ (214,454) --
----------- -----------
Net cash used by investing activities........................................... (230,267) (1,819,693)
----------- -----------
Cash flows from financing activities:
Payment of note payable............................................................... -- (90,876)
Payment of long-term debt............................................................. (107,497) (190,410)
Sale of common stock.................................................................. 500,000 3,350,000
Payment of offering costs............................................................. -- (864,488)
Issuance of notes payable............................................................. 302,777 --
Redeemed stock of subsidiary.......................................................... (277,777) --
----------- -----------
Net cash provided by financing activities....................................... 417,503 2,204,226
----------- -----------
Net increase (decrease) in cash......................................................... (361,396) (1,200,934)
Cash, beginning of period............................................................... 649,708 1,850,642
----------- -----------
Cash, end of period..................................................................... $ 288,312 649,708
=========== ===========
</TABLE>
Supplemental disclosure of cash flow information: See note 15.
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 130
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Vista Technologies, Inc. (the Company), formerly Mercury Acquisitions,
Inc., was organized under the laws of the State of Nevada on June 15, 1992.
Since inception, the Company has devoted its efforts to raising capital,
locating merger and acquisition candidates and establishing excimer laser
clinics throughout Europe and North America to provide facilities and support
services for photorefractive keratectomy (PRK) and other laser surgical
procedures. On February 23, 1994 the Company changed its name from Mercury
Acquisitions, Inc. and amended certain provisions relating to its authorized and
unissued preferred stock. The Company was in the development stage as defined by
Financial Accounting Standards Board Statement Number 7, until March 31, 1994,
at which date it acquired operating subsidiaries. During March 1994 the Company
changed its year end from December 31 to March 31.
(a) Vista Vision SpA
On March 31, 1994 the Company acquired 61.83% of the common stock of Vista
Vision, SpA (Vista-Italy) for cash of approximately $625,000 and 262,760 shares
of the Company's common stock.
As the result of a default judgment entered against the Company which
terminates and rescinds the provisions of the agreement between Vista-Italy and
Laser Vision Centers, Inc. (LVCI) (note 7 (c)), the Company's ownership interest
in Vista-Italy increased to 69.87% as of March 31, 1995. During fiscal year
1996, the Company's ownership interest was increased to 73.57%.
The acquisition of Vista-Italy was recorded using the purchase method of
accounting resulting in goodwill of $2,997,506 which was being amortized over 10
years using the straight-line method. At March 31, 1995, the Company's
management determined that the goodwill was impaired. As a result, the Company
wrote off goodwill of $2,761,506 (note 2).
(b) Vista Vision International Ltd.
On March 31, 1994 the Company acquired all of the outstanding common stock
of Vista Vision International Ltd. (Vista-UK) from Laser-Jersey for $134,000 in
cash and 50,000 shares of the Company's common stock.
The acquisition of Vista-UK was recorded using the purchase method of
accounting resulting in goodwill of $703,159 which was being amortized over ten
years using the straight-line method. As of March 31, 1995, the Company's
management determined that the goodwill was impaired. As a result, the Company
wrote off goodwill of $633,159 (note 2). Effective June 1, 1995, the Company
abandoned its Vista-UK operations.
Vista-UK owned 50% of Precision Laser Eye Centers Limited (PLEC), a joint
venture that leased laser equipment, which was recorded using the equity method
of accounting. The Company's proportionate share of the loss from its equity
investment in the joint venture was $147,506 for the year ended March 31, 1995.
(c) ConVista Vision BV
During April 1994, the Company acquired 100% of Pawnee Finance B.V., an
inactive company in the Netherlands, since renamed ConVista Vision B.V.
(ConVista), to serve as a future vehicle for financing and management of its
international operations. The Company acquired ConVista for approximately
$20,986 and subsequently contributed additional capital of $163,597 for a total
investment of approximately $184,583. The acquisition of ConVista was recorded
using the purchase method of accounting resulting in goodwill of $163,597 which
was being amortized using the straight-line method over ten years beginning May
1, 1994. At March 31, 1995, the Company's management determined that the
goodwill was impaired. As a result, the Company wrote off goodwill of $149,597
(note 2).
F-32
<PAGE> 131
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
ConVista's results of operations from the date of acquisition are included
in the statement of operations for the year ended March 31, 1995.
During June 1994 ConVista acquired 100% of Vista-Sweden for $6,494. On June
1, 1994 Vista-Sweden acquired the assets of a PRK surgical center in Sweden for
cash and a note payable totaling $383,000.
Vista-Sweden's investment resulted in goodwill of $324,211 which was being
amortized over three years using the straight-line method. At March 31, 1995,
the Company's management determined that goodwill was impaired. As a result, the
Company write off goodwill of $281,728 (note 2).
(d) Medical Development Resources, Inc.
During 1995, the Company was unsuccessful in its attempt to acquire a
controlling interest in MDRI and its subsidiaries due to the failure of MDRI and
its principal stockholders to satisfy certain conditions of the acquisition.
Therefore, the Company rescinded and terminated the acquisition agreements
entered into with MDRI and its principal stockholders. MDRI and its wholly-owned
subsidiaries are engaged in the design, development, manufacture and marketing
of surgical instruments and related products for ophthalmology and neurosurgery.
On July 7, 1995, the Company notified MDRI, the MDRI principal stockholders
and the MDRI 8% promissory noteholders that it rescinded all transactions
contemplated by the MDRI Stock Agreement and the MDRI Agreement among the
Company, MDRI and the MDRI principal stockholders. The Company's reasons for
rescinding the MDRI Stock Agreement and the MDRI Agreement include alleged
fraud, intentional misconduct, breach of fiduciary duties, misrepresentation of
material facts and failure of MDRI and its principal stockholders to satisfy
conditions to the obligations of the Company under the MDRI Agreement. As a
result, the Company canceled 1) the 200,000 shares of its common stock and the
100,000 Class A Warrants issued to the foreign investors; 2) the promissory
notes totaling $1,400,000 issued to the MDRI stockholders; 3) the 67,800 shares
of its common stock issued to terminate employment and consulting agreements; 4)
the obligation to issue 67,617 shares of its common stock upon completion
of the exchange stage of the MDRI agreement; 5) the obligation to issue 60,000
shares of its common stock to secure certain MDRI indebtedness; and 6) the
Company's 8% convertible promissory note and Class A Warrants issued under the
Exchange Offer. However, a contingent liability may exist relating to the
cancellation of the above items.
As a result of the rescission, the Company owns 2,794,340 shares of MDRI
common stock, or a 40.1% ownership interest, which was acquired for
consideration valued at $5,407,554, which was comprised of $1,850,000 in cash
and $3,557,554 ($10.00 per share) in the Company's common stock.
Because the Company never had the ability to influence the financial and
operating activities of MDRI, the Company's 40.1% investment in MDRI was
recorded using the cost method of accounting. In addition, the Company made
advances totaling $235,333 to fund the operations of MDRI and its subsidiaries
during 1995.
As of March 31, 1995, the Company's investment in MDRI of $5,407,554 and
advances made to MDRI and its subsidiaries of $235,333 have been written off to
reflect a permanent impairment due to the deterioration of MDRI's financial
condition. As a result, the Company recorded an extraordinary loss of $5,642,887
for the misappropriation of advances made to MDRI and the investment in MDRI for
the year ended March 31, 1995.
During 1995, the Company advanced $125,000 to a stockholder subject to a
promissory note due December 31, 1995, bearing interest at 10% per annum,
payable upon maturity. The note was collateralized by not less than 100,000
shares of the Company's common stock issued to the stockholder as part of the
MDRI
F-33
<PAGE> 132
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
acquisition. As a result of the rescission of the MDRI Agreement, a majority of
the shares of the Company's common stock pledged as collateral have been
canceled. As of March 31, 1995, the note receivable has been written off as
collection is doubtful.
(e) Agreements with Pharma Patch Plc
In March 1996, the Company executed Agreements with Pharma Patch Plc (PP
Plc) which resulted in PP Plc acquiring approximately 60% of the voting interest
of the Company.
Under these Agreements, the Company issued to PP Plc: (a) 2,260,000 shares
of new common stock; (b) 500,000 Class C common stock purchase warrants (note
8); and, (c) an option to purchase an additional 250,000 shares of new common
stock for cash, on or before September 30, 1996, at an exercise price of $2.50
per share (note 17). In return, the Company received (a) $500,000 cash; (b) a
$750,000 subscription note, which was subsequently paid in May, 1996; and, (c)
200,000 shares of Technical Chemicals and Products, Inc. (TCPI) restricted stock
previously held by PP Plc, valued at $2,662,550. The value of the TCPI stock was
based on the trading value of unrestricted TCPI stock on the date of the closing
of the transaction after making appropriate adjustments for the restrictions
placed on the TCPI stock received by the Company.
In a separate transaction, PP Plc agreed to provide 4,500,000 newly issued
PP Plc Common Shares to three Company shareholders in exchange for a total of
900,000 shares of the Company's outstanding common stock.
(f) Regional Joint Ventures
The Company's business strategy is to expand in North America by organizing
and sponsoring independently financed regional enterprises (Regional Joint
Ventures) in which the Company will obtain a significant equity interest and
long-term fee-based consulting arrangements. As of March 31, 1996, two such
Regional Joint Ventures, Vista Laser Centers of Michigan, Inc. and Vista Laser
Centers of the Southwest, Inc. had been formed. Subsequent to March 31, 1996
several more Regional Joint Ventures were formed (note 17).
Investment in Vista Laser Centers of Michigan, Inc.
In November 1995, the Company issued 200,000 shares of its common
stock in exchange for 200,000 shares of 5% Series B convertible preferred
stock in Vista Laser Centers of Michigan, Inc. (VLC-Michigan). VLC-Michigan
is a development stage enterprise organized on June 30, 1995 to establish,
own and manage laser vision correction centers in Southern Ontario and
Michigan.
To date, the activities of VLC-Michigan have consisted primarily of
market research, seeking affiliation and negotiating agreements with
experienced vision care professionals in the United States and Canada, and
negotiating to acquire equipment for establishing a laser vision correction
center in Windsor, Ontario after an initial public offering on its
securities has been completed. VLC-Michigan is also negotiating to enter
into a joint venture arrangement with a group of physicians in Michigan
following completion of a pending initial public offering by VLC-Michigan.
VLC-Michigan has filed a registration statement with the Securities and
Exchange Commission for a proposed initial public offering of 800,000
shares of its 10% Series A cumulative convertible preferred stock at $5.00
per share. There can be no assurance that VLC-Michigan will successfully
complete an initial public offering of its securities, failing which it
will not have sufficient capital to engage in business operations.
F-34
<PAGE> 133
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS -- (CONTINUED)
The Company entered into a consulting services agreement to provide
certain consulting services to VLC-Michigan in exchange for 5% of
VLC-Michigan's revenues attributable to its charges to health care
professionals for the use of equipment and laser vision correction (LVC)
services, less a credit to VLC-Michigan of $5,000 per month. The consulting
services agreement is for a term of ten years from the date of an initial
public offering by VLC-Michigan, and is automatically renewed thereafter
for periods of five years unless either party provides six months prior
notice of an intent not to extend the term.
Certain directors of the Company have been elected to serve as
directors of VLC-Michigan. The Company has assigned the voting rights for
its shares of VLC-Michigan Series B convertible preferred stock to local
affiliates of VLC-Michigan.
The Company's initial investment in VLC-Michigan represented an
approximate 61% ownership interest. Such interest is expected to be reduced
to approximately 21% upon completion of VLC-Michigan's initial public
offering. In addition, the Company does not have voting rights related to
its ownership interest. Accordingly, the Company accounts for this
investment using the equity method of accounting. The initial value of the
investment of $217,600 was determined based upon an independent appraisal.
As of March 31, 1996, the Company had advanced approximately $176,000
to VLC-Michigan.
Investment in Vista Center of the Southwest, Inc.
In March, 1996, the Company issued 250,000 shares of its common stock
in exchange for 350,000 shares of 5% Series B convertible preferred stock
in Vista Laser Centers of the Southwest, Inc. (VLC-Southwest).
VLC-Southwest is a development stage enterprise organized on January 30,
1996 to establish, own and manage laser vision correction centers in
Arizona, New Mexico, Texas and Nevada. The Company has assigned the voting
rights for its shares of VLC-Southwest Series B convertible preferred stock
to local affiliates of VLC-Southwest.
The Company has granted VLC-Southwest the use of their service mark
and has entered into a consulting agreement with VLC-Southwest. Under this
agreement, the Company has agreed to provide advice and assistance to
VLC-Southwest for the development of their business in consideration for 5%
of VLC-Southwest's revenues from wholly-owned subsidiaries of VLC-Southwest
and 2.5% of revenues from non-majority owned subsidiaries, less $5,000 per
month. The Company has agreed to establish and maintain a Medical Advisory
Board and adopt a stock option program for the members of such board. This
consulting services agreement will be effective with the successful
completion of VLC-Southwest's initial public offering and shall continue
for a period of ten years. If the initial public offering has not been
successfully completed on or before August 31, 1996, the Company may
terminate the agreement at its discretion with 30 days written notice.
The Company's initial investment in VLC-Southwest was valued at
$271,750 and represented an approximate 72% ownership interest. Such
interest is expected to be reduced to approximately 20% upon completion of
VLC-Southwest's initial public offering. In addition, the Company does not
have voting rights related to its ownership interest. Accordingly, the
Company accounts for this investment using the equity method of accounting.
The Company has a commitment to pay an officer of the Company a bonus
of $75,000 in connection with the initial public offering of VLC-Southwest.
F-35
<PAGE> 134
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include accounts of the Company, and
all wholly-owned and majority-owned subsidiaries. Investments in companies in
which the Company's ownership interests range from 20 to 50 percent, and in
which the Company exercises significant influence over operating and financial
policies, are accounted for using the equity method. Investments in companies in
which the Company's ownership interest is currently in excess of 50% but for
which majority interest is considered only temporary and investments in
companies in which the Company's financial interest exceeds 20 percent but in
which the Company has limited or no voting rights are accounted for using the
equity method. Other investments are accounted for using the cost method. All
significant intercompany accounts and transactions have been eliminated. The
Company's subsidiaries in Italy, United Kingdom, Sweden and the Netherlands have
been consolidated at March 31, 1996 using the subsidiaries' respective fiscal
year ends, which were December 31, 1995; and have been consolidated at March 31,
1995 using December 31, 1994 for the Company's subsidiary in Italy and March 31,
1995 for the Company's subsidiaries in Sweden, the Netherlands and the United
Kingdom. The three month period ending March 31, 1995 for the Company's
subsidiaries in Sweden and the Netherlands have been included in the results of
operations for the years ended March 31, 1996 and 1995.
(b) Foreign Currency Translation
Financial statements of international subsidiaries are translated into US
dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses, gains and losses. Where the local currency is the functional currency,
translation adjustments are recorded as a separate component of stockholders'
equity.
The balance sheet and income statement data for the foreign subsidiaries
have been translated from their respective foreign currency to U.S. dollars
using the following exchange rates:
<TABLE>
<CAPTION>
AVERAGE RATE AVERAGE RATE
FOR THE FOR THE
FOREIGN MARCH 31, 1996 YEAR ENDED YEAR ENDED
SUBSIDIARY CURRENCY SPOT RATE MARCH 31, 1996 MARCH 31, 1995
- ------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Vista-UK Pounds Sterling 1.527 1.563 1.565
Vista-Italy Lira .001 .001 .001
ConVista Gilders .606 .624 .577
Vista-Sweden Krona .150 .144 .133
</TABLE>
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are calculated using the straightline method over the estimated useful lives of
the assets ranging from three to ten years.
(d) Intangible Assets
The Company determined that the goodwill resulting from the acquisitions of
its subsidiaries was impaired on March 31, 1995. As a result, the Company wrote
off goodwill of $3,825,990, resulting in zero value of goodwill. Amortization
expense was $-0- and $374,900 for the years ended March 31, 1996 and 1995,
respectively.
The Company assesses the recoverability of intangible assets by determining
whether the amortization of the asset's balance over its remaining life can be
recovered through projected future discounted cash flows.
F-36
<PAGE> 135
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(e) Revenue Recognition
Revenues are recognized when services are performed.
(f) Minority Interest
Minority interest represents the minority stockholders' proportionate share
of the equity in Vista-Italy. At March 31, 1996, the Company owned 73.57% of the
capital stock of Vista-Italy.
(g) Loss Per Common Share
Loss per common share is based on the weighted average number of common
shares outstanding. Common equivalent shares relating to stock options and
warrants are excluded from the computation as their effect is anti-dilutive.
(h) Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires
the use of the asset and liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. A valuation allowance is required to the extent it is more likely than
not that a deferred tax asset will not be realized. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents.
(k) Stock Subscriptions Receivable
The Company has recorded stock subscriptions receivable as a current asset
as of March 31, 1996, because all such receivables were paid before the issuance
of the Company's financial statements.
(l) Investment Securities
The Company accounts for investment securities under the provisions of SFAS
No. 115. This standard requires that individual debt and equity securities be
classified into one of three categories: trading, held-to-maturity or
available-for-sale.
F-37
<PAGE> 136
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those securities
in which the Company has the ability and intent to hold the security until
maturity. All other securities not included in trading or held-to-maturity are
classified as available-for-sale.
Trading securities and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized holding gains
and losses on trading securities are included in earnings. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until realized. Realized gains and losses from the sale
of securities are determined on a specific identification basis.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a reduction
in carrying amount to fair value. The impairment is charged to earnings and a
new cost basis for the security is established. Premiums and discounts are
amortized or accreted over the life of the related held-to-maturity security as
an adjustment to yield using the effective interest method. Dividend and
interest income are recognized when earned.
(m) Offering Costs
Costs associated with public and private offerings by the Company of its
stock have been charged against the proceeds of the offering.
(n) Newly Issued Accounting Standards
In October 1995, Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation (SFAS 123) was issued. SFAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans as well as transactions in which an entity issues
its equity instruments to acquire goods or services from non-employees. This
statement defines a fair value based method of accounting for employee stock
options or similar equity instruments, and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value-based method of accounting prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees. Entities electing
to remain with the accounting in Opinion 25 must make proforma disclosures of
net income and, if presented, earnings per share, as if the fair value based
method of accounting defined by SFAS 123 had been applied. SFAS 123 is
applicable to fiscal years beginning after December 15, 1995. The Company
currently accounts for its equity instruments using the accounting prescribed by
Opinion 25. The Company does not currently expect to adopt the accounting
prescribed by SFAS 123; however, the Company will include the disclosures
required by SFAS 123 as required in future consolidated financial statements
included in Form 10-KSB.
(o) Reclassification
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
(3) RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere are disclosed in the
following:
On February 1, 1996, the Company entered into an asset purchase and
lease assumption agreement with a related party for an excimer laser
system. The purchase price for the asset was $75,000 in cash, a
F-38
<PAGE> 137
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(3) RELATED PARTY TRANSACTIONS -- (CONTINUED)
$96,591 promissory note with annual interest at 8% originally due May 31,
1996, and the assumption of outstanding obligations under the existing
lease on the laser, including future lease payments not to exceed $328,409.
Subsequent to February 1, 1996, the Company replaced this laser with newer
technology resulting to a charge to the statement of operations in the
amount of $446,636 for the impairment of an idle asset. As of July 12,
1996, the note payable for $96,591 had not been paid. The Company expects
to pay the note in fiscal year 1997.
During the period from June to December 1995, certain clients of the
Company's then acting president invested approximately $1,470,000 to
sustain the Company's corporate operations during that period. These
advances included approximately $700,000 for travel by the Company's
officers and consultants and corporate office expenses in New York and
Europe, approximately $100,000 in out-of-pocket advances for various
expenses, and $670,000 in compensation paid for personnel assigned to
support the Company's corporate activities and its program to establish
various Regional Joint Ventures in North America. The $670,000 figure for
personnel included $200,000 paid or payable to the Company's then acting
president, and $60,000 accrued for its then acting treasurer and chief
financial officer. The Company's Board of Directors agreed these charges
should be billed at a flat negotiated rate of $1,470,000 and in December
1995 authorized the issuance of 925,000 shares of the Company's common
stock in payment of these obligations.
These shares were issued to Therapeutic Patch Research, N.V. (300,000
shares), Saliva Research Ltd. (325,000 shares) and Westcliff Partners Inc.
(300,000 shares). The Company's then acting president acted at the time as
a managing director for Saliva Research Ltd. and Westcliff Partners Inc.,
but disclaimed any beneficial interest in the securities held by those
entities.
Under an agreement dated July 5, 1995, the Company issued 16,000
shares of its common stock to a former chairman of the Company in payment
of $80,000 of unreimbursed business expenses.
Under an agreement dated as of June 1, 1995, the Company paid a former
president of the Company $8,740 in cash and issued 4,000 shares of common
stock for reimbursement of a total of $29,000 of unreimbursed business
expenses. The Company agreed that the former president had a put option
right to sell the 4,000 shares of common stock to the Company after January
31, 1996 at a price equal to $20,260 plus interest from June 1, 1995 at the
rate of 1% per month. The former president exercised that option on
February 1, 1996. The Company also issued 5,000 shares of common stock to
the former president under the June 1, 1995 agreement as a negotiated
settlement for a one-time hiring bonus in his original employment agreement
dated as of January 15, 1995.
In December, 1995 the Company issued 25,000 shares of common stock to
each of its then three directors in exchange for services performed.
During fiscal year 1995, the Company advanced $125,000 to a
stockholder subject to a promissory note due December 31, 1995, bearing
interest at 10% per annum, payable upon maturity in connection with the
Company's attempt to acquire MDRI. At March 31, 1995 the note receivable
had been written off as collection is doubtful.
Certain relationships existed from inception of the Company through
March 31, 1995 between the Company's original management, their affiliates
and the Company. Original management had other interest including business
interest to which they devoted their primary attention.
Effective January 15, 1995 the Company hired a new chief executive
officer and president who was also made a member of the Company's board of
directors. The Company paid $84,000 to the new chief
F-39
<PAGE> 138
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(3) RELATED PARTY TRANSACTIONS -- (CONTINUED)
executive officer and president of the company for consulting services
provided prior to his employment with the Company.
During the fiscal year ended March 31, 1995, the Company paid
SEK100,000 (approximately $13,630) to the managing director of Vista-Sweden
for consulting prior to his employment with Vista-Sweden.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31, 1996:
<TABLE>
<S> <C>
Excimer lasers and other technical equipment..................... $1,896,394
Office furniture and equipment................................... 67,385
----------
1,963,779
Less accumulated depreciation and amortization................... (743,981)
----------
$1,219,798
==========
</TABLE>
Depreciation and amortization expense was $467,509 and $205,600 for the
years ended March 31, 1996 and 1995, respectively.
(5) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for available-for-sale and held-to-maturity
securities by major security type and class of security at March 31, 1996, were
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities................... $2,662,500 -- (187,500) 2,475,000
Held-to-maturity:
8.75% Italian bonds................. 115,468 -- (5,343) 110,125
</TABLE>
The 8.75% Italian bonds mature in 1997.
Proceeds from sales of trading securities were $417,652 and $432,859,
resulting in gross realized losses of $152,431 in the year ended March 31, 1996
and gross realized gains of $129,621, for the year ended March 31, 1995
respectively.
(6) EQUITY INVESTMENT IN PARTNERSHIP
During July 1994, the Company acquired a 36% ownership interest in Keech
One Partnership (Partnership) for $419,675. During December 1994 the Partnership
was liquidated. The Company's proportionate share of the income from its equity
investment in the partnership was $175,638 for the year ended March 31, 1995.
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<PAGE> 139
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(7) COMMITMENTS AND CONTINGENCIES
(a) Employment Agreements
The Company has employment agreements with its executive officers, the
terms of which expire at various times through January 15, 1999. Such agreements
provide for minimum salary levels, as well as for incentive bonuses which are
payable if specified management and operational goals are attained.
(b) Exchange Agreement
In order to induce a stockholder to advance $100,000 under a deed of
debenture to MICRA (a wholly owned subsidiary of MDRI), the Company entered into
an exchange agreement on June 28, 1995 with the stockholder. The exchange
agreement provides the stockholder with the option of exchanging the unpaid
principal and interest of the debenture for fully paid and nonassessable shares
of the Company's common stock issued under Regulation S at a conversion price of
$1.25 per share at any time prior to repayment of the debenture by MICRA. As of
March 31, 1996, the stockholder has not exercised this option.
(c) Legal Judgment
In 1991 and 1993, Vista-Italy and LVCI entered into agreements to license
trademarks and develop territorial marketing strategies. The companies exchanged
shares of their respective common stock as consideration under the agreements.
In 1993, LVCI filed suit for termination of these agreements and a default
judgment was entered into their favor. In connection with this judgment,
Vista-Italy canceled the shares of the common stock they had issued to LVCI,
returned the shares of LVCI which they held and recorded a note payable for
$175,000 plus related legal fees. Vista-Italy filed a motion to vacate the
judgment which was denied by the trial court; the trial court's decision was
recently affirmed on appeal. Vista-Italy intends to apply for a rehearing by the
appellate court, or in the alternative, to petition for an appeal to the
Missouri Supreme Court.
(d) Insurance and Indemnification
Use of laser systems by health care professionals using laser equipment and
other LVC services may give rise to claims against the Company or its affiliates
by persons alleging injury. The Company's subsidiaries generally do not
currently have malpractice liability insurance due to limited capital resources.
The Company believes that claims alleging defects in laser systems will be
covered by manufacturers' warranties and the manufacturer's product liability
insurance, and that the Company and its affiliates could take advantage of such
insurance by adding such suppliers to potentially adverse lawsuits. There can be
no assurance that laser suppliers will carry product liability insurance or that
any such insurance will be adequate to protect the Company.
Generally speaking, the policy of the Company's operating subsidiaries and
regional joint ventures is to require that ophthalmologists who perform laser
procedures by use of LVC equipment maintain their own professional liability
insurance.
(e) Physician Commitments
In two separate instances, a physician planning to associate with a
Regional Joint Venture sponsored by the Company has been advised by a third
party that it contends the physician breached commitments or obligations to the
third party by the physician's decision to associate with one of the Company's
Regional Joint Ventures. In one of these matters, the third party contends that
its plan of operations to enter the business of providing access to LVC
equipment in association with the physician has been damaged. In the other, the
F-41
<PAGE> 140
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(7) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
third party contends that the physician breached fiduciary duties to the third
party and misappropriated client lists and data, and the claimant also has
threatened to hold the Company and certain other parties responsible as well as
the physician. To date, neither dispute has resulted in the filing of legal
proceedings although legal proceedings have been threatened. Based on
information currently known to the Company, the Company believes these claims
are without merit and will not result in material liability to either of the
Regional Joint Ventures involved or to the Company.
(8) COMMON STOCK
(a) Stock Offerings
During fiscal 1996, the Company issued 1,021,000 shares of common stock in
exchange for services and cash advances (note 3), 2,260,000 shares to Pharma
Patch Plc in exchange for cash, a subscription note and tradable equity
securities (note 1(e)), 450,000 shares of common stock in exchange for interests
in two Regional Joint Ventures (note 1(f)), 100,000 shares of common stock in
exchange for a $212,500 note which was paid subsequent to the Company's March
31, 1996 year end and 16,393 shares of common stock in exchange for an
additional approximate 5% interest in Vista Vision SpA.
During May 1994, the Company's Board of Directors authorized an offering of
units (Foreign "B" Units) consisting of 5,000 shares of the Company's common
stock and 2,500 Class A Warrants for $50,000 per Foreign "B" Unit. As of March
31, 1995, the offering of Foreign "B" Units was completed and the Company
received and accepted subscriptions totaling $1,250,000 for 25 units to
qualified foreign investors representing 125,000 shares of the Company's common
stock and 62,500 Class A Warrants. As of March 31, 1995, the Company received
proceeds of $1,051,192 (net of offering costs of $198,808) for the sale of 25
Foreign "B" Units. The Company has agreed to register the Class A Warrants.
During May 1994, the Company's Board of Directors authorized an offering of
units (U.S. "B" Units) consisting of 5,000 shares of the Company's common stock
and 5,000 Class A Warrants for $50,000 per U.S. "B" Unit. As of March 31, 1995,
the Company had received and accepted subscriptions totaling $850,000 for 17
U.S. "B" Units to accredited investors representing 85,000 shares of the
Company's common stock and 85,000 Class A Warrants. As of March 31, 1995 the
Company received proceeds of $714,690 (net of offering costs of $135,310) from
the sale of 17 U.S. "B" Units. The Company has agreed to register the Class A
Warrants.
In connection with the above offerings, the Company also issued 90,000
Class A Warrants to the placement agent.
(b) Class A Warrants
As of March 31, 1996, 677,960 Class A Warrants were issued and outstanding.
Each Class A Warrant represents the right to purchase one share of the Company's
common stock with an exercise price of $15.00 per share at any time between June
30, 1994 through December 31, 1998, unless earlier called for redemption by the
Company. The Company has the option to call the rights for redemption if the
warrants have been registered for sale under the Securities Act of 1933 and if
the Company's common stock is trading in the NASDAQ over the counter market or
on a national securities exchange and the closing sale price is $22.50 per share
for at least 20 consecutive trading days on the date the warrants are called for
redemption.
No warrants have been exercised to date.
F-42
<PAGE> 141
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(8) COMMON STOCK -- (CONTINUED)
(c) Class B Warrants
As of March 31, 1996, 31,000 Class B Warrants were issued and outstanding.
Each Class B Warrant represents the right to purchase one share of the Company's
common stock with an exercise price of $11.00 per share, expiring October 11,
1999 unless earlier called for redemption by the Company. The Company has the
option to call the rights for redemption if the warrants have been registered
for sale under the Securities Act of 1933 and if the Company's common stock is
trading in the NASDAQ over the counter market or on a national securities
exchange and the closing sale price is $22.50 per share for at least 20
consecutive trading days on the date the warrants are called for redemption.
No warrants have been exercised to date.
(d) Class C Warrants
As of March 31, 1996, 500,000 Class C Warrants were issued and outstanding.
The Class C Warrants represent the right to purchase one share of the Company's
common stock during the month of February 1997 and/or the month of February 1998
and expire thereafter if not exercised. The exercise price per share will be
determined by the average of the quoted closing prices for the Company's common
stock in the over the counter market during the month of January immediately
preceding the date of exercise. In no event will the exercise price per share
exceed $10 per share.
No warrants have been exercised to date.
(e) Reservation of Common Stock
At March 31, 1996, the Company designated 3,000,000 shares of its common
stock for sale in future private placements to finance the Company's operations
in 1996 and to acquire equity interests in additional laser vision correction
centers sponsored by the Company.
(f) Reverse Stock Split
Effective March 15, 1996, the Company completed a one share for five shares
reverse stock split of its common stock. All shares and per share amounts have
been restated retroactively as a result of this reverse split. As a result, any
fractional shares will be rounded up to the nearest full share.
(9) STOCK OPTION AND STOCK COMPENSATION PLANS
(a) The 1994 Stock Option Plan
During February 1994, the Company's Board of Directors adopted and the
stockholders approved the 1994 stock option plan (the 1994 Plan).
The 1994 Plan provides that options granted thereunder may be either
incentive stock options or nonqualified stock options. The 1994 Plan provides
that incentive stock options must be granted at a option price which is not less
than the fair market value of the common stock on the date of grant and that
nonqualified options must be granted at an option price which is not less than
50% of the fair market value of the common stock on the date of grant. With
respect to any participant who owns stock possessing more than 10% of the voting
rights of the Company's outstanding capital stock, the exercise price of any
incentive stock option under the 1994 Plan must be not less than 110% of the
fair market value on the date of grant. The options shall expire within ten
years from the date of the grant, except for options granted to optionees owning
more than 10% of the voting stock of the Company for which the options shall
expire within five years from
F-43
<PAGE> 142
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(9) STOCK OPTION AND STOCK COMPENSATION PLANS -- (CONTINUED)
the date of grant. In the event of termination of employment, the optionee's
option will terminate and may be exercised during a three month period after
termination to the extent the option was exercisable on the date of termination.
A summary of stock option activity under the 1994 Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------- PRICE
RESERVED GRANTED PER
SHARES SHARES SHARE
--------- --------- ------
<S> <C> <C> <C>
Reserved, February 3, 1994............................ 80,000 -- $ --
Granted............................................. -- 56,000 10.00
--------- ---------
Balance, March 31, 1994............................... 80,000 56,000
Reserved............................................ 70,000 -- --
Granted............................................. -- 44,000 10.00
--------- ---------
Balance, March 31, 1995............................... 150,000 100,000
--------- ---------
Reserved............................................ 1,750,000 -- --
Granted............................................. -- 1,467,000 2.50
--------- ---------
Balance, March 31, 1996............................... 1,900,000 1,567,000
========= =========
</TABLE>
At March 31, 1996, options for 47,000 shares were exercisable and options
for 333,000 shares were available for future grants under the 1994 Plan. To
date, no options have been exercised under the 1994 Plan.
A portion of the options granted during fiscal year 1996 will vest and may
be exercised after the 30th trading day (whether or not consecutive) following
the date of grant on which the closing price for the Company's common stock
price equals or exceeds $10.00 per share or five years after the date of grant,
whichever occurs sooner. The remaining options will vest and may be exercised in
12 equal quarter-annual installments commencing on May 15, 1996 subject to the
optionee's continued employment by, or active service as a director or
consultant for, the Company at the time each installment vests. Each option is
for a term of five years subject to possible earlier termination in accordance
with provisions of the 1994 Plan.
(b) The Restricted Stock Option Plan
During February 1994, the Company's Board of Directors adopted and the
stockholders approved the restricted stock option plan (the Restricted Plan)
under which shares of the Company's common stock were reserved for issuance to
senior management at prices the lesser of $.50 per share or 10% of the fair
market value of the Company's common stock on the date of grant. The options
expire within ten years from the date of grant or to the extent exercisable
within 12 months after termination. The options may not be exercised until the
optionee has remained in continuous employment as a senior executive officer or
as a director of the Company for a period of at least two years from the date of
grant.
F-44
<PAGE> 143
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(9) STOCK OPTION AND STOCK COMPENSATION PLANS -- (CONTINUED)
A summary of stock option activities under the Restricted Plan is as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------- PRICE
RESERVED GRANTED PER
SHARES SHARES SHARE
-------- ------- -----
<S> <C> <C> <C>
Reserved, February 3, 1994............................... 20,000 -- $ --
Granted................................................ -- 20,000 .50
-------- -------
Balance, March 31, 1994.................................. 20,000 20,000
Reserved............................................... 30,000 -- --
Granted................................................ -- 12,000 .50
-------- -------
Balance, March 31, 1995.................................. 50,000 32,000
-------- -------
Canceled............................................... -- (24,000) .50
-------- -------
Balance, March 31, 1996.................................. 50,000 8,000
====== =======
</TABLE>
As of March 31, 1996, 42,000 shares were available for future grants under
the Restricted Plan. To date no options have been exercised under the Restricted
Plan.
(c) The 1996 Stock Compensation Plan
On February 6, 1996, the Company's Board of Directors adopted a 1996 Stock
Compensation Plan (the Stock Plan) subject to approval of the Stock Plan within
one year thereafter by stockholders of the Company. The purpose of the Stock
Plan is to permit the Board or a Committee of the Board the flexibility of
issuing shares of the Company's common stock in lieu of cash to compensate
officers, directors, employees and other individuals acting as professionals,
consultants and/or advisers to the Company for services rendered to the Company
and its subsidiaries.
Subject to approval of the Stock Plan by Vista stockholders, 250,000 shares
of common stock will be available for payment of compensation under the Stock
Plan. No compensation awards under the Stock Plan have been made.
(10) NOTES PAYABLE
Notes payable consist of the following at March 31, 1996:
<TABLE>
<S> <C>
12% convertible promissory notes due to related parties; maturing June
15, 1998............................................................... $ 277,777
Note payable to LVCI under a default judgment (note 7)................... 175,000
Note payable to a related party under an asset purchase and lease
assumption agreement (note 3).......................................... 96,591
Note payable to a related party.......................................... 25,000
---------
574,368
---------
Less current portion..................................................... (296,591)
---------
$ 277,777
=========
</TABLE>
The 12% notes are convertible, at the option of the holder, to convert the
principal amount and accrued interest on the notes into shares of the Company's
common stock at a conversion price of $5.00 per share. The notes are
collateralized by 51% of the issued and outstanding shares of Vista-Sweden
common stock. Vista-
F-45
<PAGE> 144
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(10) NOTES PAYABLE -- (CONTINUED)
Sweden has also signed a royalty agreement with each noteholder expiring on May
31, 1998. Under the royalty agreements, VistaSweden will pay royalties to each
noteholder for each incremental PRK procedure performed by Vista-Sweden during
the three years ended May 31, 1996, 1997 and 1998.
(11) LONG-TERM DEBT
Long-term debt consists of the following as of March 31, 1996:
<TABLE>
<S> <C>
Note payable with interest accrued monthly at 10%; payments due quarterly
of approximately $22,003; maturing January 10, 1999; collateralized by
laser equipment........................................................ $ 361,167
Note payable with interest accrued monthly at 10%; payments of $6,789 due
monthly; maturing June 30, 1999; collateralized by laser equipment..... 239,424
---------
600,591
Less current portion..................................................... (137,351)
---------
$ 463,240
=========
</TABLE>
Future maturities of long-term debt are as follows for the years ended
March 31:
<TABLE>
<S> <C>
1997..................................................................... $ 137,351
1998..................................................................... 151,903
1999..................................................................... 167,809
2000..................................................................... 143,528
---------
$ 600,591
=========
</TABLE>
(12) LEASES
The Company leases equipment, vehicles and office space under noncancelable
operating leases and leases certain equipment under capital leases.
As of March 31, 1996, future minimum lease payments under the operating and
capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING
--------------------------
VEHICLES LASER
AND EQUIPMENT CENTERS CAPITAL TOTAL
------------- -------- -------- --------
<S> <C> <C> <C> <C>
1997........................................... $24,360 $ 73,226 $ 95,696 $193,282
1998........................................... 24,360 76,362 95,696 196,418
1999........................................... -- 73,362 129,748 203,110
2000........................................... -- 57,645 -- 57,645
------------- -------- -------- --------
Total minimum lease payments................... $48,720 $280,595 $321,140 $650,455
=========== ======== ========
Less amount representing interest (12%)........ (56,596)
--------
Present value of net minimum lease payments.... 264,544
Less current portion........................... (67,588)
--------
Total................................ $196,956
========
</TABLE>
F-46
<PAGE> 145
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(12) LEASES -- (CONTINUED)
Rent expense relating to operating leases totaled approximately $161,000
and $125,000 for the years ended March 31, 1996 and 1995, respectively.
(13) INCOME TAXES
The Company is obligated to file U.S. federal income tax returns and
separate tax returns in Italy, United Kingdom, Netherlands and Sweden.
As of March 31, 1996, the Company has not recorded any deferred tax assets
or liabilities. The Company's income tax net operating loss carryforwards, if
any, were not determinable at March 31, 1996. The annual use of income tax loss
carryovers may be limited by Section 382 of the Internal Revenue Code.
(14) FOREIGN SEGMENT OPERATIONS
The Company's operations are in a single industry, providing PRK treatments
and laser surgical procedures to patients through the establishment and
operation of eye clinics.
The Company's headquarters are located in the United States, however, all
of the Company's operating assets are located in Italy, Sweden and the
Netherlands.
Revenue by geographic areas is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Domestic................................................. $ -- $ --
Foreign.................................................. 2,130,073 1,209,673
----------- ------------
$ 2,130,073 $ 1,209,673
=========== ============
</TABLE>
Net loss by geographic areas is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Domestic................................................. $(3,428,987) $(10,238,767)
Foreign.................................................. (385,948) (1,181,413)
----------- ------------
$(3,814,935) $(11,420,180)
=========== ============
</TABLE>
Identifiable assets by geographic areas are as follows:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Domestic............................................................... $ 4,216,830
Foreign................................................................ 2,052,952
------------
$ 6,269,782
============
</TABLE>
F-47
<PAGE> 146
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(15) SUPPLEMENTAL CASH FLOWS INFORMATION FOR NONCASH INVESTING AND FINANCING
ACTIVITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Common stock issued in exchange for Vista Vision SpA
stock..................................................... $ 8,198 $ --
========== ==========
Issuance of common stock for investment in VLC-Michigan..... $ 217,600 $ --
========== ==========
Issuance of common stock for investment in VLC-Southwest.... $ 271,750 $ --
========== ==========
Issuance of common stock for investment in TCPI stock
received from PP Plc...................................... $2,662,500 $ --
========== ==========
Issuance of common stock for stock subscriptions
receivable................................................ $ 962,500 $ --
========== ==========
Note payable issued to acquire equipment.................... $ 96,591 $ --
========== ==========
Capital lease assumed to acquire equipment.................. $ 275,045 $ --
========== ==========
Long-term debt issued to acquire laser equipment............ $ -- $ 901,112
========== ==========
Common stock issued to acquire MDRI......................... $ -- $3,557,554
========== ==========
Note payable to acquire assets of Klara Clinic.............. $ -- $ 286,000
========== ==========
Common stock issued to retire note payable issued to acquire
assets of Klara Clinic.................................... $ -- $ 286,000
========== ==========
Rescission and cancellation of stock issued to acquire
investment in LVCI........................................ $ -- $ 968,907
========== ==========
Note payable issued to LVCI for legal settlement............ $ -- $ 175,618
========== ==========
Cash paid during the period for interest.................... $ 61,415 $ 9,781
========== ==========
</TABLE>
(16) FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1995, the Company recorded the following
year-end adjustments which it believes are material to the results of that
quarter:
<TABLE>
<S> <C>
Extraordinary loss from advanced funds for incomplete acquisition........ $5,642,887
Impairment of goodwill................................................... 3,825,990
Accrual of payroll and payroll taxes..................................... 113,836
----------
$9,582,713
==========
</TABLE>
(17) SUBSEQUENT EVENTS
(a) Cash Received
Subsequent to March 31, 1996 the Company received $1,675,000 in cash
related to the following:
(i) In May 1996, payment was received for the $962,500 of stock
subscriptions receivable reflected in the Company's financial
statements as of March 31, 1996.
(ii) In June 1996, the Company completed the sale of 100,000 shares of
its common stock on a Regulation S basis for cash proceeds of
$212,500.
F-48
<PAGE> 147
VISTA TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996 AND 1995
(17) SUBSEQUENT EVENTS -- (CONTINUED)
(iii) In July 1996, PP Plc exercised options to purchase 200,000 shares of
the Company's common stock resulting in proceeds to the Company of
$500,000.
(b) Rental Agreements
In June 1996, the Company entered into two rental agreements with Summit
Technologies, Inc. to rent two Summit Apex excimer lasers. The term of each
rental agreement commences upon installation of the equipment and shall continue
for a period of 27 months. After the first three months of operation, each
equipment lease provides for a minimum monthly rental fee of $6,500. The Company
anticipates installing these lasers at one or more of its Regional Joint
Ventures under a sublease arrangement.
In June 1996, the Company entered into a five year lease agreement for
additional office space. The lease provides for a base rental of $2,084 per
month which will be adjusted at the end of each year for changes in the consumer
price index and in any event not less than three percent increase per year.
(c) Establishment of Regional Joint Ventures
In May 1996, the Company issued 450,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in Vista
Laser Centers of New York, Inc. (VLC-New York). At March 31, 1996, the Company
had advanced VLC-New York approximately $38,000.
In May 1996, the Company issued 500,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in Vista
Laser Centers of the Northwest, Inc. (VLC-Northwest).
In May 1996, the Company issued 500,000 shares of its common stock in
exchange for 500,000 shares of 5% Series B convertible preferred stock in Vista
Laser Centers of the Pacific, Inc. (VLC-Pacific).
VLC-New York, VLC-Northwest and VLC-Pacific have been organized to
establish, own and manage laser vision correction centers.
The Company does not exercise control over any of the Regional Joint
Ventures insofar as it has granted or has committed to grant to one or more
local affiliates of each of the Regional Joint Ventures an irrevocable five year
proxy to vote the Series A and Series B preferred shares owned by the Company.
(d) Agreement to Acquire Refractive Services-800 (unaudited)
From July 1995 through June 1996, a foreign corporate investor named
Refractive Services-800, Inc. provided at least $100,000 in initial seed capital
to each of five Regional Joint Ventures (for an aggregate investment of
$520,000) to finance initial organizational expenses and costs of negotiating
agreements with vision care professionals and seeking additional financing. In
exchange for that investment, and in view of the high risks associated with a
start-up enterprise, Refractive Services-800, Inc. received shares of a 10%
Series A convertible preferred issue of the Regional Joint Venture with a
liquidation preference equal to five times its cash investment in four
Regional Joint Ventures and six times its cash investment in one other
Regional Joint Venture.
The Company recently negotiated an agreement effective July 18, 1996 to
acquire the Series A preferred shares owned by Refractive Services-800, Inc. in
all five of these Regional Joint Ventures in exchange for 520,000 shares of
Vista common stock. In addition, Vista agreed to purchase all of the capital
stock in Refractive Services 800 Corp., a Nevada corporation ("RS-800") for
$50,000 from Refractive Services-800, Inc. Refractive Services-800, Inc.
organized RS-800 to acquire rights to, and offer the use of, certain 800 and 900
telephone numbers for telemarketing purposes at the election of Regional Joint
Ventures.
F-49
<PAGE> 148
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
[ALTERNATIVE PAGE FOR WARRANT PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 14, 1996
10,549,144 AMERICAN DEPOSITARY SHARES
PHARMA PATCH PLC
EACH AMERICAN DEPOSITARY SHARE REPRESENTS ONE ORDINARY SHARE
This Prospectus relates to the offering (the "Offering") of 10,549,144
American Depositary Shares ("ADSs"), each ADS representing one Ordinary Share,
IR pound sterling .01 par value ("Ordinary Share"), of Pharma Patch Plc, an
Irish public limited company (the "Company"). Each ADS is represented by an
American Depositary Receipt ("ADR"). See "Description of Capital Stock" and
"Description of American Depositary Receipts." The ADRs may be offered from
time to time upon exercise of outstanding Class A, B, C and D Warrants. See
"Plan of Distribution."
This Prospectus also relates to (i) 897,000 Class A Warrants, 1,015,425
Class B Warrants, 789,875 Class C Warrants and 500,000 Class D Warrants, all of
which are presently outstanding, and (ii) 100,000 Warrants issued to the
Underwriters in connection with Registrant's initial public offering in March,
1994 and to Units and A, B and C Warrants issuable upon exercise of the
Underwriter's Warrant.
The Company will not receive any of the proceeds from the sales of the
ADRs by the Selling Security Holders, but will receive the exercise price upon
the exercise of warrants by the Selling Security Holders. Upon exercise of
Warrants, the ADRs or the Warrants may be offered from time to time by the
Selling Security Holders through ordinary brokerage transactions in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices.
The Selling Security Holders each may be deemed to be "an
underwriter", as defined in the Securities Act of 1933 (the "Securities Act").
If any broker-dealers are used by the Selling Security Holders, any commission
paid to broker-dealers and, if broker-dealers purchase any ADRs or Warrants as
principals, any profits received by such broker-dealers on the resales of the
ADRs or Warrants may be deemed to be underwriting discounts or commissions
under the Securities Act. In addition, any profits realized by the Selling
Security Holders may be deemed to be underwriting commissions. All costs,
expenses and fees in connection with the registration of the securities offered
by the Selling Security Holders will be borne by the Company. All brokerage
commissions, if any, attributable to the sale of the securities offered by the
Selling Security Holders will be borne by the Selling Security Holders. See
"SELLING SECURITY HOLDERS."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
AT PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. A COPY OF THIS DOCUMENT,
HAVING ATTACHED THERETO THE DOCUMENTS SPECIFIED HEREIN, HAS BEEN
DELIVERED TO THE REGISTRAR OF COMPANIES IN THE REPUBLIC OF IRELAND AS REQUIRED
BY THE COMPANIES ACTS 1963 TO 1990.
The date of this Prospectus is August __, 1996.
<PAGE> 149
[ALTERNATIVE PAGE FOR WARRANT PROSPECTUS]
RISK OF REDEMPTION OF CLASS A AND CLASS B WARRANTS
The Company may, at its option, under certain circumstances, redeem
the Class A and Class B Warrants, in whole or in part, during the exercise
period and from time to time on 30 days notice, at a redemption price of $.10
per warrant, but only if the closing bid price for an ADS has been at least
$7.50 in the case of the Class A Warrants and $9.00 in the case of the Class B
Warrants for 30 consecutive trading days. A holder of the Warrants who does
not exercise his Class A or Class B Warrants prior to the redemption will lose
the opportunity to profit from his ownership of such warrants.
NECESSITY OF CONTINUING POST-EFFECTIVE AMENDMENTS TO THE COMPANY'S REGISTRATION
STATEMENT
Although the Units containing the Class A and Class B Warrants such
warrants will not knowingly be offered to persons in jurisdictions in which
such warrants are not registered or otherwise qualified for sale, purchasers
may buy such warrants in the after-market or may move to jurisdictions in which
such warrants and the Ordinary Shares underlying such warrants are not so
registered or qualified. In this event, the Company would be unable to issue
ADSs representing Ordinary Shares to those persons desiring to exercise their
warrants unless and until such warrants and the Ordinary Shares are qualified
for sale in jurisdictions in which such purchasers reside, or an exemption from
such qualification exists in such jurisdictions. There can be no assurance that
the Company will be able to effect any required qualification. See "Description
of Securities Warrants."
The Units, Ordinary Shares and Warrants offered hereby may trade
separately upon completion of the Exchange Offering. Neither the Units nor the
Ordinary Shares can trade nor can Warrants be exercised unless the Company
maintains a current Registration Statement on file with the Commission through
post-effective amendments to the Registration Statement containing this
Prospectus on file with the Commission. Although the Company has agreed to file
appropriate post-effective amendments to the Registration Statement containing
this Prospectus, and to maintain a current Registration Statement on file with
the Commission relating to the Units, Ordinary Shares Warrants which are
offered hereby, there can be no assurance that such will be accomplished or
that the Class A and Class B Warrants will continue to be so registered. See
"Description of Securities Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS
Although the Ordinary Shares and the Class B and Class C Warrants will
not knowingly be sold to purchasers in jurisdictions in which they are not
registered or otherwise qualified for sale, purchasers may buy the Class B and
Class C Warrants in the after-market or may move to jurisdictions in which the
Ordinary Shares issuable upon exercise of the Class B and Class C Warrants are
not so registered or qualified during the period that the Class B and Class C
Warrants are exercisable. In this event, the Company would be unable to issue
Ordinary Shares to those persons desiring to exercise their Class B and Class C
Warrants unless and until the Ordinary Shares could be registered or qualified
for sale in the jurisdictions in which such purchasers reside, or unless an
exemption to such qualification exists in such jurisdiction. No assurance can
be given as to the ability of the Company to effect any required registration
or qualification of the Ordinary Shares in any jurisdiction. See "Description
of Capital Stock -- Warrants."
<PAGE> 150
[ALTERNATIVE PAGE FOR WARRANT PROSPECTUS]
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IF GIVEN OR
MADE MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE
COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
10,549,144 ORDINARY SHARES
675,000 CLASS A WARRANTS
337,500 CLASS B WARRANTS
600,000 UNITS
789,875 CLASS C WARRANTS
500,000 CLASS D WARRANTS
AND THE ORDINARY SHARES
ISSUABLE UPON THE EXERCISE
OF THE CLASS A AND CLASS B WARRANTS
CONTAINED IN
THE UNITS ISSUABLE UPON EXERCISE OF
THE CLASS C AND CLASS D WARRANTS
------------------------------
100,000 UNDERWRITERS' WARRANTS
PHARMA PATCH PLC
PROSPECTUS
<PAGE> 151
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
The following exhibits were delivered with this Registration Statement, or
will be delivered by Amendment, for filing:
3.1 Memorandum and Articles of Association of Registrant.*
4.1 Specimen of American Depositary Share.*
4.2 Warrant Agreement.*
4.3 Form of Class A Warrant (included in Exhibit 4.2).*
4.4 Form of Class B Warrant (included in Exhibit 4.2).*
4.5 Form of Underwriter's Warrant.*
4.6 Form of Class C Warrant.*
4.7 Form of Class D Warrant.*
4.8 Form 1993 Stock Option Plan.*
4.9 Financial Advisory and Investment Banking Agreement between Westfield
Financial Corporation and the Company.*
4.10 Form of 1994 Stock Option Plan**
5 Opinion of Rory O'Donnell & Company.**
10.1 Share Exchange Agreement between Pharma Patch Plc, the shareholders of
Medipro and Medipro, dated July 30, 1993.*
10.2 Agreement for Purchase of Assets between TPR and Synorex, dated March
26, 1993, as amended.*
10.3 Employment Agreement dated August 1, 1993, between Wayne Schnarr,
Ph.D. and the Company.*
10.4 Employment Agreement dated August 1, 1993, between Gary Murray, Ph.D,
and the Company.*
10.5 Employment Agreement dated November 8, 1993 between Kenneth G. Howling
and the Company.*
10.6 Consulting Agreement dated August 3, 1993, between Trident Management,
Inc. and the Company.*
10.7 Consulting Agreement dated August 1, 1993, between Dr. James E.
Guillet and Medipro Sciences, Ltd.*
10.8 Consulting Agreement dated August 1, 1993, between Ian W. French,
Ph.D., and the Company.*
10.10 Consulting Agreement dated August 1, 1993, between Walter Zingg, M.D.,
and the Company.*
10.11 Deposit Agreement between the Company and the Bank of New York as
Depository.*
10.12 Exclusive License Agreement dated July 30, 1993, between TPR and the
Company.*
10.13 Option Agreement among the Company, Medipro and Innovation Ontario
Corporation, dated July 30, 1993.*
10.14 Voting Rights Agreement among the Company, the Medipro Shareholders,
Medipro and TPR, dated July 30, 1993.*
10.15 Letter Agreement dated September 14, 1992, between Medipro and Trimel
Corporation.*
10.16 License Agreement dated June 30, 1992, among Medipro, SS
Pharmaceutical Co., Ltd., and Dajin Iyakukako Co., Ltd.*
10.17 Joint Venture Agreement dated June 30, 1992, between Medipro and
Allelix Pharmaceuticals, Inc.*
10.18 Letter Agreement dated June 18, 1992, between Medipro and Laminating
Development Corp.*
10.19 Lease dated May 6, 1991, between Medipro and Inducon development
Corporation.*
10.20 Consulting Agreement, dated August 19, 1993 between Registrant and the
Canadian Department of National Defense.*
10.21 License Agreement, dated November 1, 1985, between Registrant and the
Canadian Department of National Defense.*
10.22 Employment Agreement, dated October 1, 1993, between Dr. Vithal J.
Rajadhyaksha and the Company.*
10.23 Consulting Agreement, dated December 1, 1993, between Joseph G.
Materson and the Company.*
10.24 License Agreement dated November 30, 1993, between BTX, Inc. and the
Company.*
10.25 Employment Agreement, dated January 4, 1994, between Murray Watson and
the Company.*
10.26 Memorandum of Agreement dated June 1, 1994 between Registrant and Arca
Investments, Inc.**
10.27 Offer to Purchase -- Cangene Corporation, dated June 29, 1994.**
10.28 Registration Rights Agreement, dated June 13, 1994, between Registrant
and Area Investments Inc.**
10.29 Letter Agreement, dated June 13, 1994, between Registrant and Capital
Canada Limited.**
10.30 Letter Agreement, dated June 22, 1994, between Registrant and
ScotiaMcLeod.**
<PAGE> 152
10.31 Letter Agreement, dated May 22, 1994, between Registrant and LDI
Canada Inc.**
10.32 Research and Development Agreement, dated June 1, 1994, between
Registrant and Drug Delivery Research, Inc. ("DDRI").**
10.33 Shareholder Agreement, dated June 1, 1994, among Registrant, Westport
Capital, Inc. and DDRI.**
10.34 Asset Purchase and Sale Agreement, dated June 30, 1994, among
Registrant, Flora, Inc. and Recordati American Holdings, Inc.**
10.35 Management and Consulting Agreement, dated as of July 1, 1994, between
Hooper & Associates, Inc. and Registrant.**
10.36 Employment Agreement, dated as of August 1, 1994, between Thomas S.
Spencer and Registrant.*
10.37 Industrial Property Agreement dated December 13, 1995 between PP
Holdings and Pharmacia AB*
10.38 Development Agreement dated December 13, 1994 between PP Holdings and
Pharmacia AB*
10.39 Agreement dated July 7, 1994 between Registrant and Revlon *
10.40 Amended Letter of Intent between Registrant and Technical Chemicals
and Products, Inc. ("TCPI")****
10.41 Asset Purchase Agreement dated as of November 1, 1995 among TCPI,
Registrant and PP Holdings, Inc.*****
10.42 Supplemental Agreement dated January 16, 1996 among TCPI, Registrant
and PP Holdings, Inc.******
10.43 Form of Management and Consulting Agreement between Registrant and
Trident Management, Inc.**
10.44 Form of Management and Consulting Agreement between Registrant and
Pinnacle Financial Corporation.**
10.45 Stock Purchase Agreement dated March 1, 1996 between Registrant and
Vista Technologies, Inc. ("Vista").**
10.46 Agreement dated as of March 1, 1996 between Vista and Registrant
including as exhibits thereto (i) form of Class C Common Stock
Purchase Warrants to be issued by Vista, (ii) form of Promissory Note
for $750,000 to be issued by the Company, and (iii) form of
Registration Rights Agreement between Registrant and Vista.*
10.47 Share Exchange Agreement dated as of March 1, 1996 between Registrant
and three stockholders of Vista.**
11 Computation of loss per ordinary share.**
21 Subsidiaries of Registrant.**
23.1 Consent of Kevin J. Quinn Professional Corporation.**
23.2 Consent of Ernst & Young.***
23.3 Consent of Rory O'Donnell & Company (included in Exhibit 5).**
23.4 Consent of Heney & Associates.*
23.5 Consent of Rideout & Maybee.*
23.6 Consent of KPMG Peat Marwick LLP.***
23.7 Consent of Arthur Andersen LLP.*
23.8 Consent of KPMG Peat Marwick LLP.***
23.9 Consent of AJ. Robbins.***
* Previously filed as an exhibit to this Registration Statement.
** Filed as an exhibit to Registrant's Form F-1 Registration Statement,
File No. 33-80816 and is incorporated herein by reference.
*** Filed herewith.
**** Filed as an exhibit to Registrant's Form 8-K dated August 9, 1995, as
amended August 15, 1995 and are incorporated herein by reference.
***** Filed as an exhibit to Registrant's Form 8-K dated November 15, 1995
and is incorporated herein by reference.
****** Filed as an exhibit to Registrant's Form 8-K dated February 12, 1996
and is incorporated herein by reference.
<PAGE> 153
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement or Amendment thereto to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dublin, Republic of Ireland on the 9th day of August, 1996.
Pharma Patch Plc.
By: /s/ Murray D. Watson
-------------------------------
Murray D. Watson
Chairman of the Board and
Chief Executive Officer
We the undersigned, directors and officers of Pharma Patch, Plc, do hereby
constitute and appoint Murray Watson and Paul E. Heney, or either of them,
acting individually, as our true and lawful attorneys and agents to do any and
all acts and things in our name and on behalf, in our capacities indicated
below which said attorneys and agents, or any one of them, may deem necessary
or advisable to enable said corporation to comply with the Securities and
Exchange Commission, in connection with this Registration Statement, or
amendment thereto, including specifically, but without limitation, power and
authority to sign for us or any of us in our names and in our capacities
indicated below, any and all amendments (including post-effective amendments)
hereof and we do hereby ratify and confirm all that the said attorneys and
agents, or any of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement or amendment thereto has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Murray D. Watson Chairman of the Board, August 9, 1996
- --------------------
Murray D. Watson Chief Executive Officer, President and Director
(Principal Executive Officer)
/s/ Kenneth Howling Vice President-Finance August 9, 1996
- ------------------------
Kenneth Howling (Chief Accounting Officer)
/s/ Kevin J. Quinn Director August 9, 1996
- ------------------------
Kevin J. Quinn
/s/ William G. Hutchison Director August 9, 1996
- ------------------------
William G. Hutchison
/s/ Kevin J. Quinn Authorized United States Representative August 9, 1996
- ------------------------
Kevin J. Quinn
***By/s/ Murray D. Watson August 9, 1996
---------------------
Murray D. Watson
---------------------
Attorney in Fact
</TABLE>
<PAGE> 154
EXHIBIT INDEX
23.2 Consent of Ernst & Young
23.6 Consent of KPMG Peat Marwick LLP
23.8 Consent of KPMG Peat Marwick LLP
23.9 Consent of AJ. Robbins
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts"
and to the use of our report dated May 25, 1995 (except for note 1(e) which is
as of May 9, 1996), in the Post-Effective Amendment No. 10 to the Registration
Statement (Form S-1 No. 33-70542) and related Prospectus of Pharma Patch Plc for
the registration of 11,974,255 Ordinary Shares.
Dublin, Ireland Ernst & Young
August 9, 1996
<PAGE> 1
Exhibit 23.6
The Board of Directors
Pharma Patch Public Limited Company
We consent to the use of our report on Pharma Patch Public Limited Company
included herein and to the reference to our firm under the heading "Experts"
in the Prospectus.
KPMG Peat Marwick LLP
Short Hills, New Jersey
August 9, 1996
<PAGE> 1
Exhibit 23.8
The Board of Directors
Vista Technologies, Inc.
We consent to the use of our report on Vista Technologies, Inc. included herein
and to the reference to our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
San Francisco, California
August 9, 1996
<PAGE> 1
Exhibit 23.9
The Board of Directors
Pharma Patch Public Limited Company
We consent to the use of our report on Vista Technologies, Inc. included
herein and to the reference to our firm under the heading "Experts" in the
Prospectus.
AJ. Robbins
Denver, Colorado
August 9, 1996
