-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TXqHzTd3VBs9LCni0YS4rxdh/HWI72pWqnMi7noELLbORr4nQ3VEcP1yPlHOSXp5 DrjKTSz7uaFeDx7f4O5/Cw== 0000879301-00-000009.txt : 20000331 0000879301-00-000009.hdr.sgml : 20000331 ACCESSION NUMBER: 0000879301-00-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LASERSIGHT INC /DE CENTRAL INDEX KEY: 0000879301 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 650273162 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19671 FILM NUMBER: 588474 BUSINESS ADDRESS: STREET 1: 3300 UNIVERSITY BLVD STREET 2: SUITE 140 CITY: WINTER PARK STATE: FL ZIP: 32792 BUSINESS PHONE: 4076789900 MAIL ADDRESS: STREET 1: 3300 UNIVERSITY BLVD STREET 2: SUITE 140 CITY: WINTER PARK STATE: FL ZIP: 32792 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-19671 LASERSIGHT INCORPORATED ----------------------- (Exact name of registrant as specified in its charter) Delaware 65-0273162 -------- ---------- (State of incorporation) (I.R.S. Employer Identification No.) 3300 University Blvd, Suite 140, Winter Park, Florida 32792 ----------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (407) 678-9900 -------------- Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- None N/A ---- --- Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $.001 Preferred Share Purchase Rights ------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( X ) The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing sale price on March 27, 2000 was approximately $124,841,854. Shares of Common Stock held by each officer and director and by each person who has voting power of 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Number of shares of Common Stock outstanding as of March 27, 2000: 19,803,663. DOCUMENTS INCORPORATED BY REFERENCE The information required to be included in Part III is incorporated herein by reference to the Company's definitive proxy materials to be filed with the Securities and Exchange Commission on or before April 29, 2000. LASERSIGHT INCORPORATED TABLE OF CONTENTS PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Company's Common Equity and Related Stockholder Matters Item 6. Selected Consolidated Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Item 8. Financial Statements and Supplemental Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relations and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 2 The information in this Annual Report on Form 10-K contains forward looking-statements, as indicated by words such as "anticipates," "expects," "believes," "estimates," "intends," "projects," and "likely," by statements of the Company's plans, intentions and objectives, or by any statements as to future economic performance. Forward-looking statements involve risks and uncertainties that could cause the Company's actual results to differ materially from those described in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 7 under the caption "Risk Factors and Uncertainties" as well as those discussed elsewhere in this Report. All references to "LaserSight" "we," "our" and "us" in this Report refer to LaserSight Incorporated and its subsidiaries unless the context otherwise requires. PART I Item 1. Business OVERVIEW We develop, manufacture and market quality product technologies for laser refractive surgery and other areas of vision correction. Our products include narrow beam scanning excimer laser systems used to perform procedures that correct common refractive vision disorders such as nearsightedness (myopia), farsightedness (hyperopia) and astigmatism, as well as keratome systems, keratome blades and other products used in refractive vision correction procedures. We believe that our narrow beam scanning lasers have significant technological advantages and produce smoother and more precise ablation areas than the older, broad-beam laser systems offered by many of our competitors. We also believe that the breadth of our product offering provides us with a competitive advantage relative to many other excimer laser system manufacturers because it provides us with a platform to become a single-source supplier of refractive vision correction products to refractive surgeons. Moreover, our broad product offering affords us the opportunity to participate in the anticipated growth in refractive laser vision correction procedure volume by collecting per procedure fees and by selling our single-use keratome products and keratome blades. We have over five years of experience in the manufacture, sale and service of narrow beam scanning laser systems for refractive vision correction procedures. Since 1994, we have sold our scanning laser systems commercially in over 30 countries worldwide. As a result, we believe that our installed base of over 250 scanning laser systems, including approximately 80 of our most advanced laser system, the LaserScan LSX, is among the largest installed bases of scanning laser systems in the industry. In November 1999, the FDA approved our LaserScan LSX scanning laser system for commercial sale in the U.S. for the treatment of nearsightedness of up to 6.0 diopters using a pulse repetition rate of 100 Hz. Our approval will also allow refractive surgeons in the U.S. to use our laser system to treat patients for nearsightedness up to 10.0 diopters at the discretion of the physician. We currently have pending with the FDA a supplemental PMA application seeking approval of the use of our laser system for the treatment of nearsightedness with astigmatism, and expect to file PMA supplements in the near future which would permit our laser systems sold to customers in the U.S. to operate at a 200 Hz pulse rate, the pulse rate currently used in international versions of our LaserScan LSX system and the fastest pulse rate currently available in our industry, and to operate with our advanced eye tracking system. We are currently in litigation with one of our major competitors regarding intellectual property claims. We have a broad 3 intellectual property portfolio, and believe that we own or license all intellectual property necessary for commercialization of our products. See Item 3 ("Legal Proceedings") below. Our MicroShape(TM) family of keratome products includes our UniShaper(TM) single-use keratome, UltraShaper(TM) durable keratome, a control console which may be used interchangeably with our single-use and durable keratomes, and our UltraEdge(TM) keratome blades. Our MicroShape family of keratome products work with the LaserScan LSX and also with other laser systems used to perform LASIK. We began commercial shipment of keratome blades in July 1999 and of our single-use keratomes and control consoles in December 1999. We anticipate that sales of our UniShaper single-use keratome and our UltraEdge keratome blades will provide us with the opportunity to participate in the expected growth in refractive laser vision correction procedure volume by generating recurring revenue streams, regardless of which laser system a refractive surgeon uses. We intend to aggressively develop and market other refractive vision correction products in the future, including our UltraShaper durable keratome product which recently received FDA 510(k) clearance, and which we expect to commercially launch in the second quarter of 2000. OPERATING SEGMENTS. LaserSight Incorporated and its subsidiaries (collectively, "LaserSight"(TM)) operate in three major operating segments: refractive products, patent services and health care services. Our principal wholly-owned subsidiaries include: LaserSight Technologies, Inc. ("LaserSightTechnologies"), LaserSight Patents, Inc. ("LaserSight Patents"), and MRF, Inc.("The Farris Group" or "TFG"). Our refractive products segment, which includes LaserSight Technologies and LaserSight Centers Incorporated, develops, manufactures and markets ophthalmic lasers with a galvanometric scanning system for use in performing refractive surgery. The LaserScan LSX uses a one millimeter scanning laser beam to ablate microscopic layers of corneal tissue to reshape the cornea and to correct the eye's point of focus in persons with myopia (nearsightedness), hyperopia (farsightedness) and astigmatism. Since August 29, 1997, our patent services segment has consisted of LaserSight Patents, which licenses various patents related to the use of excimer lasers to ablate biological tissue. Since December 31, 1997, the health care services segment has consisted of TFG. TFG provides health care and vision care consulting services to hospitals, managed care companies and physicians. Until that date, this segment also included MEC Health Care, Inc. and LSI Acquisition, Inc. Under our ownership, MEC was a vision managed care company that managed vision care programs for health maintenance organizations (HMOs) and other insured enrollees. LSIA was a physician practice management company that managed the ophthalmic practice known as the "Northern New Jersey Eye Institute" under a management services agreement. For information regarding our export sales and operating revenues, operating profit (loss) and identifiable assets by industry segment, see Note 14 of the Notes to Consolidated Financial Statements. ORGANIZATION AND HISTORY. LaserSight was incorporated in Delaware in 1987, but was inactive until 1991. In April 1993, we acquired LaserSight Centers in a stock-for-stock exchange with additional shares issued in March 1997 pursuant to an amended purchase agreement. In February 1994, we acquired TFG. In July 1994, LaserSight was reorganized as a holding company. In October 1995, we acquired MEC. In July 1996, our LSIA subsidiary acquired the assets of the Northern New Jersey Eye Institute, P.A. On December 30, 1997, we sold MEC and LSIA in connection with a transaction which was effective as of December 1, 1997. Our principal offices and mailing address are 3300 University Boulevard, Suite 140, Winter Park, Florida 32792, and our telephone number is (407) 678-9900. 4 INDUSTRY OVERVIEW REFRACTIVE VISION CORRECTION Laser vision correction is a surgical procedure for correcting vision disorders such as nearsightedness, farsightedness and astigmatism using an excimer laser. This procedure uses ultraviolet laser energy to ablate, or remove, tissue from the cornea and sculpt the cornea into a predetermined shape. Because the excimer laser is a cold laser, it is possible to ablate precise amounts of corneal tissue without causing thermal damage to surrounding tissue. The goal of laser vision correction is to achieve patient vision levels which eliminate or significantly reduce a person's reliance on corrective eyewear. The first laser vision correction procedure on human eyes was conducted in 1985 and the first human eye was treated with the excimer laser in the U.S. in 1988. There are currently two principal methods for performing laser vision correction with excimer laser systems: photorefractive keratectomy, or PRK, and laser in-situ keratomileusis, or LASIK. According to industry sources, approximately 80% of the refractive vision correction procedures performed in the U.S. in 1998 were LASIK procedures. In both PRK and LASIK procedures, a refractive surgeon determines the exact refractive correction required to be made to the cornea, typically using the same examination used to prescribe eyeglasses and contact lenses. Required corrections are then programmed into the excimer laser system's computer. During the procedure, the excimer laser system emits laser pulses, each of which lasts several billionths of a second, to remove submicron layers of corneal tissue. While the average laser treatment lasts approximately 15 to 60 seconds, cumulative exposure to the laser light during each procedure is less than one second. The entire procedure, including patient preparation and post-operative dressing, generally lasts no longer than thirty minutes. PHOTOREFRACTIVE KERATECTOMY (PRK) In PRK, the refractive surgeon prepares the eye by gently removing the surface layer of the cornea called the epithelium. The surgeon then applies the excimer laser beam, reshaping the curvature of the cornea. A bandage contact lens is then placed on the eye to protect it. Following PRK, a patient typically experiences blurred vision and discomfort until the epithelium heals. It generally takes one month, but may take up to six months, for the full benefit of PRK to be realized. PRK has been used commercially since 1988. LASER IN-SITU KERATOMILEUSIS (LASIK) LASIK was commercially adopted internationally in 1994 and in the U.S. in 1996. Immediately prior to a LASIK procedure, the refractive surgeon uses a surgical instrument called a keratome to create a thin, hinged flap of corneal tissue. Patients do not feel or see the cutting of the corneal flap, which takes only a few seconds. The flap is flipped back, the laser beam is directed to the exposed corneal surface, the flap is placed back and the flap and interface are rinsed. Once the procedure is completed, surgeons generally wait two to three minutes to ensure the corneal flap has fully re-adhered. At this point, patients can blink normally and the corneal flap remains secured in position by the natural suction within the cornea. Since the surface layer of the cornea remains intact during LASIK, no bandage contact lens is required and the patient experiences virtually no discomfort. The LASIK procedure often results in a higher degree of patient satisfaction due to an immediate improvement in visual acuity and generally involves less post-operative discomfort than PRK. 5 REFRACTIVE VISION CORRECTION MARKET The worldwide market for products and services to correct common refractive vision disorders such as nearsightedness, farsightedness and astigmatism is large and growing. Industry sources estimate that 50% of the U.S. population, or approximately 140 million people, presently wear eyeglasses or contact lenses. There are approximately 14,000 practicing ophthalmologists in the U.S., and a growing percentage of them regularly perform refractive laser vision correction procedures. Laser vision correction is a fast growing segment of the vision correction market. Total laser refractive procedure volume in the U.S. has more than doubled each year since 1996 to an estimated 980,000 procedures in 1999. A procedure refers to laser treatment on a single eye, and most patients have procedures performed on both eyes during a single visit to a refractive surgeon. Laser vision correction's growth in the U.S. is also reflected in the expansion of excimer laser installations and in the rise in average annual procedure volume per laser. This growth also reflects patient and surgeon acceptance of using excimer laser systems approved by the FDA for PRK to perform LASIK as part of the practice of medicine. Many, but not all, manufacturers of excimer laser systems seek to share in the anticipated growth in procedure volume by receiving a fee for each procedure performed by a refractive surgeon using laser systems manufactured by them. The per procedure fees charged by these manufacturers vary and have been significantly reduced in recent months due to competitive pressures and changing market conditions. See "Business-Competition." DEVELOPMENT OF EXCIMER LASER SYSTEM AND KERATOME TECHNOLOGY EXCIMER LASER SYSTEMS The excimer laser systems utilized for laser vision correction have evolved over time with improvements in laser and beam delivery technology. Until recently, broad beam laser systems, which were initially developed during the late 1980's, were the only systems approved by the FDA for commercial use in the U.S. As a result, broad beam laser systems currently represent over 90% of the installed laser systems in the U.S. Broad beam laser systems are characterized by the use of a relatively large, fixed laser beam of six to eight millimeters in diameter to deliver relatively high amounts of laser energy (100 - 200 mj) at low laser pulse repetition rates (generally 10 Hz) to the corneal surface. Because of the relatively large diameter of the laser beam, these systems require a number of mechanical elements to condition, size, shape and deliver the beam profiles necessary to produce the required ablation. These mechanical means of beam shaping have limited the flexibility of broad beam systems and made it necessary to modify the mechanical means in order to adapt to a broader range of treatment modalities and other expanded applications. Broad beam laser systems operate by delivering a consistent laser beam across the entire vision field of the cornea. In order to reduce the likelihood of possible adverse effects resulting from constant exposure, the beam width is reduced incrementally, or in steps, during the course of the procedure. The use of broad beam laser systems can result in a corneal ablation profile characterized by ridges on the corneal surface as a result of the stepping action of the mechanical elements, and may also result in central islands, an irregularity formed on the corneal bed resulting from the fixed nature of the laser beam. Additionally, the relatively high laser energy of broad beam systems can lead to damage from acoustic shock and the possibility of retinal 6 detachment. Glare, halo when looking at lights and other bright objects, and reduction in night vision have also been associated with the use of broad beam systems. Improvements in excimer laser technology during the early 1990's have made it possible to develop refractive excimer laser systems which have significantly narrower laser beams (one millimeter in diameter) and that use reduced amounts of laser energy (10 mj) at higher pulse repetition rates (up to 200 Hz). Developers of this new generation of narrow beam scanning excimer laser systems incorporated scanning mirrors and computer control to shape the ablation profile, making it unnecessary to utilize mechanical elements to size and shape the laser beam to attain the desired results. Techniques incorporated into scanning laser technology such as purposeful overlapping of laser pulses and random scanning patterns can lead to overall improved clinical results as evidenced by the elimination of ridges and central islands, and the reduction in the incidence of glare, halos, and loss or reduction of night vision and by smoother ablation profiles. Narrow beam scanning excimer laser systems are currently the most flexible laser vision correction platforms available as they can be adapted to expansions in treatment modalities and the incorporation of new technologies such as higher laser pulse repetition rate, active eye tracking and custom topography through software and minor hardware upgrades. KERATOMES Keratomes used to cut the thin corneal flap during the LASIK procedure are similar in design to those used to perform earlier non-laser surgical refractive techniques such as automated lamellar keratoplasty (ALK). The Automated Corneal Shaper (ACS), developed by Luis A. Ruiz, M.D. and Sergio Lenchig, is an example of an ALK keratome that is utilized extensively in association with LASIK procedures without modification from its original design. Prior to the commercial introduction of our UniShaper single-use keratome in December 1999, most keratomes were durable keratomes. Durable keratomes require some degree of disassembly, sterilization and blade replacement between uses. This makes the durable keratome an instrument with relatively high maintenance requiring a degree of skill to ensure proper functioning. We believe that a large percentage of flap-related complications associated with LASIK procedures are related to durable keratome performance or maintenance. The ACS durable keratome, manufactured and marketed by Bausch & Lomb pursuant to a license agreement, was the leading keratome during the early and mid-1990's at a time when many refractive surgeons learned to perform LASIK. Since we licensed the rights to commercially market keratomes based on the same technology in 1997, Bausch & Lomb has not aggressively marketed or serviced the ACS, and has introduced an alternative durable keratome product which requires a modified surgical technique. We believe that a significant number of refractive surgeons prefer the surgical technique associated with the ACS. The introduction of our MicroShape family of keratome products provides refractive surgeons with the opportunity to utilize keratomes based on the original design of the ACS, but which incorporate a number of significant improvements to make the instruments safer and more adaptable for use prior to LASIK procedures. Our single-use keratome provides the refractive surgeon with a sterilized, fully assembled and tested keratome solution which eliminates the cleaning and maintenance associated with durable keratomes. We believe our UltraEdge blades offer refractive surgeons the ability to use the only blades currently offered in the market made from surgical steel. 7 LASERSIGHT RECENT DEVELOPMENTS Our LaserScan LSX excimer laser system is based on narrow beam scanning technology rather than broad beam technology, which until recently was the only commercially available excimer laser vision correction technology in the U.S. We believe we are well-positioned to become a leading provider of excimer laser systems, disposable and durable keratomes and other related products as a result of our technology and the following recent developments: o COMMERCIAL LAUNCH OF OUR LASERSCAN LSX EXCIMER LASER SYSTEM IN THE U.S. In November 1999, the FDA approved our LaserScan LSX narrow beam scanning excimer laser system for use in the U.S. for the treatment of nearsightedness using a pulse repetition rate of 100 Hz. We intend to aggressively enter the U.S. market, and begin commercial shipment of our laser systems to customers in the U.S. within the next week. We currently have a supplemental PMA application pending with the FDA seeking approval of the use of our laser system for the treatment of nearsightedness with astigmatism. We expect to file a supplemental PMA in the near future which would permit our laser systems sold to U.S. customers to operate at a 200 Hz pulse repetition rate, the fastest pulse rate currently available in our industry and the pulse rate used in international versions of our LaserScan LSX system. We are currently in litigation with Visx, one of our major competitors, regarding intellectual property claims. We have a broad intellectual property portfolio, and believe that we own or license all intellectual property necessary for commercialization of our products. See Item 3 ("Legal Proceedings- Visx, Incorporated") below. o COMMERCIAL LAUNCH OF OUR MICROSHAPE FAMILY OF KERATOME PRODUCTS. We began commercial shipments of our UltraEdge keratome blades in July 1999 and of our UniShaper single-use keratome and our control console in December 1999. We believe that our UltraEdge keratome blades, which are intended to be replaced after each procedure when used in durable keratomes, and our UniShaper single-use keratome provide us with an attractive opportunity to generate recurring revenues on a per procedure basis. o ALLIANCE WITH BECTON DICKINSON. In October 1999, we entered into a marketing and distribution alliance with Becton Dickinson, the manufacturer of our UltraEdge keratome blades and a leading worldwide manufacturer of medical supplies, devices and diagnostic systems. This alliance will enable us to leverage the extensive U.S. and international marketing and distribution capabilities of Becton Dickinson in connection with the marketing and distribution of our MicroShape family of keratome products in the U.S., the U.K., Ireland and Japan. o INDIVIDUALIZED ABLATIONS. In March 2000, we purchased from Premier Laser Systems, Inc. all intellectual property related to a development project designed to provide front-to-back analysis and total refractive measurement of the eye. The technology we acquired includes the acquisition of two U.S. patents, six foreign patents, and a pending patent application along with an exclusive license to nine patents that are intended to be used to complete development of an integrated refractive diagnostic work station. This diagnostic tool is intended to be utilized with our Advanced Shape Technology Refractive Algorithms (ASTRA(TM)) system, for personalized treatment plans. Upon completion of development, the new work station will be designed to integrate wavefront analysis and corneal topography into a single instrument with additional diagnostic capabilities. We believe ASTRA represents a new standard of eyecare that goes beyond conventional laser vision correction by individualizing the laser 8 treatment utilizing a patient-specific set of diagnostic criteria intended to address and control both refractive error and optical aberrations. We intend to launch international studies for ASTRA during the second quarter of 2000. PRODUCTS EXCIMER LASERS Our current and most advanced scanning excimer laser system, the LaserScan LSX, has evolved from the patented optical scanning system incorporated in the Compak-200 Mini-Excimer laser system, which we introduced internationally in 1994. Since the introduction of the Compak-200 laser system we have offered several generations of our scanning laser, each incorporating enhancements and new features. We have sold our narrow beam scanning excimer laser systems in over 30 countries and believe our installed base of over 250 scanning laser systems, including approximately 80 of our most advanced laser system, the LaserScan LSX, is among the largest installed bases of scanning laser systems in the industry. Throughout the evolution of our scanning excimer laser systems, the core concept of utilizing our proprietary scanning software to ablate corneal tissue with a low energy, narrow laser beam at a rapid pulse repetition rate has remained the underlying basis for our technology. In November 1999, the LaserScan LSX was approved by the FDA for commercialization in the U.S., and we expect to begin commercial shipments to U.S. customers within the next week. We believe that the narrow-beam scanning technology and other advanced features incorporated into our LaserScan LSX excimer laser system offer refractive surgeons and patients significant advantages over broad beam laser systems. The key benefits of the LaserSight LSX include the following: o NARROW BEAM SCANNING LASER. We believe that techniques like the purposeful overlapping of laser pulses and random scanning patterns used by our narrow beam scanning technology can lead to overall improvements in clinical results with smoother ablations, the elimination of surgical anomalies associated with broad beam laser systems such as rings, ridges and central islands, and reductions in the incidence of glare, halos and loss of night vision. The LaserScan LSX uses a patented scanning system to deliver a high resolution, one millimeter low-energy "flying spot," the highest resolution currently available, in a proprietary, randomized pattern. The LaserScan LSX is a true scanning software-controlled laser which uses a pair of galvanometer controlled mirrors to reflect and scan the laser beam directly onto the corneal surface, without the mechanical elements used by some broad beam excimer laser systems. o HIGHER PULSE REPETITION RATE. Operating at higher pulse repetition rates can result in a number of benefits relative to laser systems which operate at lower pulse repetition rates, including reduced average procedure times and elimination or reduction of dehydration problems associated with longer exposure of the corneal tissue to ambient conditions. The LaserScan LSX operates at pulse repetition rates of 100 Hz (200 Hz in international models), and we intend in the near future to apply for FDA approval to operate the laser system at a 200 Hz pulse repetition rate in the U.S. Many competitive laser systems currently operate at lower pulse repetitions, often 50 Hz or less. o EYE TRACKING. Proper alignment of the refractive correction is important in all laser vision correction procedures, and is essential in order to perform custom ablations. Our AccuTrack eye tracking system maintains alignment of the refractive correction relative to the visual axis of the eye, and can be turned on or off 9 based on the refractive surgeon's clinical preference. The LaserSight AccuTrack eye tracker is an "Active + Passive" system that is capable of following even small, involuntary eye movements. The tracking system eliminates most errors normally introduced by eye movements during untracked laser refractive surgery, and does not require dilation of the pupil or any apparatus to be in contact with the eye. Our AccuTrack eye tracking system is currently available only on international versions of the LaserScan LSX, and we are pursuing FDA approval for use of this system in the U.S. o SOFTWARE DRIVEN FLEXIBLE PLATFORM. Individualized ablations have resulted in increased patient satisfaction in international studies and we believe the ability to perform individualized ablations will generally result in improved, more predictable results and less post-operative regression relative to other refractive surgery techniques. We also believe that individualized ablation will also be the technique most preferred by refractive surgeons for correction of irregular astigmatism. In our LaserScan LSX scanning laser, ablation profiles and spot location are determined by system software, not mechanical elements. It is the ability to move the "flying spot" beam to many areas across the cornea using software which provides the ability to perform individualized ablation. Software upgrades can be used to readily update U.S. models upon receipt of FDA approvals to include features currently available only on international models, including the ability to operate at a 200 Hz pulse repetition rate and the ability to treat farsightedness or astigmatism, with or without our AccuTrack eye tracking system. o ADVANCED DESIGN AND ERGONOMICS. The LaserScan LSX's relatively light weight and compact design allows it to fit into small spaces, and its wheels enable it to be easily moved around in a multi-surgeon practice. This allows for higher utilization of the laser system. The efficient design also enables users to implement a mobile strategy, since the laser is readily transportable to other locations. o IMPROVED RELIABILITY AND LOWER MAINTENANCE REQUIREMENTS. Our LaserScan LSX laser system uses a lower energy laser, fewer optical elements, and a smaller laser head compared to broad beam laser systems. This design requires less frequent replacement of expensive optical elements and a lower volume of laser gas. Savings achieved from less frequent replacement of optical elements and reduced laser gas usage translate directly into lower maintenance requirements and costs. CLINICAL EXPERIENCE AND OUTCOME QUALITY We believe that there are several measures to evaluate with regard to the safety and clinical effectiveness of a laser vision correction system, including the incidence of adverse side effects such as double vision, night driving problems or haze, the post-operative best visual acuity that can be obtained using corrective eyewear such as glasses or contact lenses, or the BSCVA, and the post-operative uncorrected visual acuity, or UCVA (such as 20/20 or 20/40). We believe that the degree to which negative, and sometimes permanent, side effects occur as a result of refractive procedures performed using a laser system is a key measure of a laser system's performance. In some cases, the BSCVA deteriorates following a laser vision correction procedure. In addition, the incidence of side effects such as double vision or haze can substantially reduce patient satisfaction even if a high level of post-operative visual acuity is achieved. The data from FDA clinical trials shows that with respect to symptoms such as corneal haze and night vision problems the LaserSight LSX compares favorably to the data for the Visx and/or Summit broad beam laser 10 systems. We believe these qualitative improvements are a result of the technological features of the LaserScan LSX, including larger treatment zones and a small scanning spot resulting in smoother ablation surfaces. CLINICAL RESULTS FDA clinical trials for the LaserScan LSX laser were conducted in the U.S. on patients with nearsightedness with required levels of correction of 6 diopters and less. We believe that the average pre-operative level of required correction is a significant factor which must be taken into account in evaluating the clinical results of an excimer laser system. The average pre-operative level of required correction in our FDA clinical trials was 4.8 diopters. Six months following the procedure, approximately 88% of patients could see 20/40 or better, which is the refractive condition required to drive in most states without corrective lenses. . We expect the post-procedure UCVA of patients treated with our LaserScan LSX laser system following FDA approval to exceed the results obtained in our FDA clinical trials as refractive surgeons gain experience using our laser system and are not subject to the strict clinical controls of FDA trials which can limit the refractive surgeon's ability to tailor the treatment to the patient's specific needs and the procedure environment. We intend to continue to develop and improve our technology and to aggressively continue the process of gaining regulatory approvals for our laser products in order to expand our access to the U.S. market for refractive procedures. We currently have a supplemental PMA application pending with the FDA to expand the use of our laser systems for the treatment of nearsightedness with astigmatism using PRK, and we anticipate filing PMA supplements in the near future to operate the LaserScan LSX at a 200 Hz pulse repetition rate using PRK and to utilize our advanced eye tracking system. We also are planning to seek FDA approval of the LaserScan LSX to perform LASIK procedures to treat nearsightedness, with and without astigmatism, and farsightedness, with and without astigmatism, in each case with and without use of our AccuTrack eye tracking system. OVERVIEW OF COMPETITIVE LASER SYSTEMS The table below summarizes the product features and approved treatment ranges with PRK as of March 20, 2000 for all excimer laser systems currently approved by the FDA and which are currently or are expected to be commercialized in the U.S. Although most of the excimer lasers currently on the market have not been approved for LASIK, many refractive surgeons use these to perform LASIK procedures as part of the practice of medicine. 11
LaserSight Bausch & Lomb Nidek Summit Visx ---------- ------------- ----- ------ ---- Model Name LaserScan LSX 217 EC-5000 Ladarvision Apex Plus Star S2 Weight(lbs.) 570 1,496 1,430 799 1,399 1,597 Beam Size Narrow Narrow Broad Narrow Broad Broad (1 mm) (2 mm) (7x2 mm) (1 mm) (6.5 mm) (6.5 mm) Pulse Rate 100-200 Hz(1) 50 Hz 50 Hz 60 Hz 10 Hz 10 Hz Eye Tracking Active or Active or Active or Active None None passive (2) passive passive FDA Approval Status (diopters): Nearsightedness To -10 (3) To -7 To -13 To -10 To -14 To -12 Nearsightedness Not Approved To -3 To -4 To -4 (4) To -5 To -4 with (PMA supplement astigmatism pending) Farsightedness Not Approved Not Approved Not Approved Not Approved To +4 To +6 (5) Farsightedness Not Approved Not Approved Not Approved Not Approved Not Approved Not Approved with (5) astigmatism LASIK Not Approved Not Approved Not Approved Not Approved Approved Not Approved (5)
(1) 200 Hz pulse rate currently available only on systems sold in international markets. Systems sold to customers in the U.S. currently use a pulse rate of 100 Hz. We intend to file a PMA supplement in the near future to enable operation of the system at 200 Hz in the U.S. (2) Active eye tracking currently available only on systems sold in international markets. PMA supplement anticipated for use of eye tracking system in models sold in the U.S. (3) The LaserScan LSX has been approved by the FDA for treatment of nearsightedness of up to -6 diopters, and may be used to treat nearsightedness of up to -10 diopters at the discretion of the refractive surgeon. (4) With combined spherical equivalent of up to -10 diopters. (5) The FDA Ophthalmic Advisory Panel recommended approval on March 20, 2000 for farsightedness of up to +6 diopters and an astigmatism range of up to -6 diopters. 12 KERATOME PRODUCTS Our MicroShape family of keratome products includes our UniShaper single-use keratome, UltraShaper durable keratome, a control console which may be used interchangeably with our single-use and durable keratomes, and our UltraEdge keratome blades. We began commercial shipment of keratome blades in July 1999 and of our single-use keratomes and control consoles in December 1999. The following is an overview of our MicroShape family of keratome products: FDA Status Product Features/Benefits ---------- ------------------------- UniShaper single-use 510(k) o Preassembled (including Keratome clearance blade), sterile and ready received to use o Built-in stopper provides consistent stopping point for flaps o Covered gears reduces possible eyelash or eyelid entrapment or injury o Automated dual-drive mechanism with 7,500 RPM blade speed can create flap size of 8.5 millimeters or larger UltraShaper durable 510(k) o Easy-to-use blade insertion Keratome clearance eliminates manual handling of received blades o Built-in stopper provides consistent stopping point for flaps o Integrated components provide reduced assembly time o Design reduces possible eyelash or eyelid entrapment or injury o Automated drive mechanism with 7,500 RPM blade speed can create flap size of 7.2 Control console 510(k) o Interchangeable for use with the clearance UniShaper single-use keratome received and the UltraShaper durable keratome o Continuous suction monitoring features including visual and auditory cautionary alarms and indicated total time elapsed at high suction o Low suction setting for surgeons using suction ring for globe fixation UltraEdge keratome No 510(k) o Manufactured to precise Blades notification specifications for dimensional required accuracy and consistency o Proprietary finishing processes applied to every blade o Manufactured with surgical grade steel o Extensive testing and verification 13 We acquired the right to manufacture and sell the UniShaper single-use disposable keratome, formerly known as the Automated Disposable Keratome (A*D*K(TM)), in September 1997 from inventors Ruiz and Lenchig, who had invented the ACS distributed by another company. The UniShaper single-use keratome and the UltraShaper durable keratome each incorporate the market proven features found in the ACS with new enhancements and features, including pre-assembly, transparent components for improved visibility while cutting the flap, and a dual drive mechanism with covered gears. See "Risk Factors - Company and Business Risks -- Required Minimum Payments Under Our UniShaper License Agreement may Exceed Our Gross Profits From Sales of Our UniShaper Product." Product Upgrades and Other Products. We also offer a number of ancillary products which either complement our core laser system and keratome product portfolio or leverage our laser technology and generally are offered as a convenience to our customers. We offer various upgrades and modules to purchasers of prior models of our excimer laser systems, including the AccuTrack eye tracking system for international customers, a video display system for observation or recording of refractive procedures, and the latest version of our proprietary software, version 9.0, which provides international users with features including expanded treatment options and patient databases. In addition, we offer aesthetic and scientific lasers and related equipment for medical, medical research, and scientific research applications. Our primary focus in this area has been our erbium laser, the Crystalase, which is used to perform dermatological procedures. Our revenue from sales of our ancillary and other products generally is included in refractive product net revenue and represents, in the aggregate, less than 5% of our total refractive product net revenue. GROWTH STRATEGY Our goal is to become a leading worldwide provider of excimer laser systems, single-use and durable keratomes and other products for the refractive vision correction industry. We believe that our over five years of experience in the manufacture, sales and service of excimer laser systems, our significant penetration of international markets and the advanced technology of our laser systems and keratome products provide us with a strong platform for future growth as we enter the U.S. market for excimer laser systems and the U.S. and international markets for our MicroShape family of keratome products. We believe that our ability to successfully expand and leverage our strategic alliance with Becton Dickinson, a leading worldwide provider of medical supplies, devices and diagnostic systems, will be instrumental in our ability to achieve this goal. The following are the key elements of our growth strategy: o PENETRATE U.S. EXCIMER LASER MARKET. We believe that our LaserScan LSX scanning excimer laser system represents a significant technological advancement over the broad beam laser systems currently being marketed in the U.S., as narrow beam scanning lasers can provide more precise corneal ablation, reduced visual side effects, enhanced visual acuity and shorter procedure times. o PENETRATE WORLDWIDE KERATOME AND KERATOME BLADE MARKETS. We believe that a key competitive strength of our MicroShape family of keratome products is that the compatibility of the keratome control console offers refractive surgeons the option to utilize either a single-use or durable keratome based on their clinical preference. Commercial shipments of our UniShaper single-use keratome product began in December 1999 and the commercial launch of our UltraShaper durable keratome is expected to occur in the second quarter of 2000. In addition to the keratome blades we make for use in our keratome 14 products, in July 1999 we also began distributing our UltraEdge keratome blades for use in the keratomes of other manufacturers. We also believe that our distribution alliance with Becton Dickinson will assist us in penetrating the U.S. and international keratome and keratome blade markets. o PROVIDE COMPREHENSIVE PRODUCT SOLUTIONS FOR REFRACTIVE VISION CORRECTION. We believe that most excimer laser system manufacturers currently approved to sell their laser systems in the U.S. do not offer the breadth of refractive vision correction equipment and products that we do. As the market for refractive vision correction continues to evolve, we believe refractive surgeons will increasingly seek a comprehensive equipment and product solution from a single supplier. In addition to our laser systems, keratomes and keratome blades currently available, we plan to develop and market additional ophthalmic products, including cannulas and custom kits, to provide a full product offering to refractive surgeons. o GENERATE RECURRING REVENUE STREAMS. We have positioned our business to benefit from the anticipated future growth in refractive vision correction procedure volume. In addition to receiving the purchase price for each laser system sold in the U.S., we believe we will generate recurring revenue streams by participating in per procedure fees resulting from the use of our systems. We also believe that our UniShaper single-use keratome and our UltraEdge keratome blades, which are intended to be replaced after each procedure when used in durable keratomes, provide additional sources of recurring revenue for us. In addition, we also plan to continue to develop or acquire additional single-use ophthalmic products in order to complement our line of products for refractive vision correction. o PROPRIETARY TECHNOLOGY LEADERSHIP. We believe that technological advances in the refractive vision correction market will continue to evolve through the advancement of existing technologies and the introduction of new treatment modalities. Accordingly, we intend to strategically develop and/or acquire complementary products and other refractive vision correction modalities. For example, in October 1999 we acquired the rights to a development stage technology that uses infrared light to correct farsightedness and in March 2000, we acquired the intellectual property relating to a technology development project under design to provide an integrated refractive diagnostic work station that includes front-to-back analysis of aberrations within the total eye. STRATEGIC RELATIONSHIP MARKETING AND DISTRIBUTION ALLIANCE WITH BECTON DICKINSON. In October 1999, we entered into a marketing and distribution alliance with Becton Dickinson, the manufacturer of our UltraEdge keratome blades and a leading worldwide manufacturer of medical supplies, devices and diagnostic systems. Becton Dickinson is, subject to limited exceptions, the exclusive distributor of our MicroShape family of keratome products in the U.S., the U.K., Ireland and Japan, and has a non-exclusive right to distribute kits including keratome products in other countries. Becton Dickinson utilizes its approximately 28-person sales force to promote, market and sell our MicroShape family of keratome products in these markets. We have retained the right to sell directly to TLC Laser Eye Centers Inc. and to market and sell our keratome products in markets other than the U.S., U.K., Ireland and Japan. This agreement has a term of five years and specifies minimum product sales for two years of the agreement beginning in July 2000. If Becton Dickinson does not sell the required number of 15 products or if the parties are unable to agree on purchase minimums for future years of the agreement, this agreement may be terminated. SALES AND MARKETING We sell our excimer laser systems, keratomes and related products through a direct sales force, independent sales representatives and distributors, and through the sales and marketing capabilities of our strategic allies. Since 1994, we have marketed our laser systems commercially in over 30 countries worldwide and currently have an installed base of over 250 scanning lasers outside the U.S., including over 80 of our LaserScan LSX laser systems. EXCIMER LASER SYSTEMS Following receipt of FDA approval of the LaserScan LSX in November 1999, we began to commercially market our excimer laser systems in the U.S. We employ two territorial managers and three independent distributors in the U.S. in connection with our launch in the U.S. market. These territorial managers and independent distributors are responsible for sales within their respective territories. Laser system sales in international markets are generally to hospitals, corporate centers or established and licensed ophthalmologists. We market our excimer laser systems in Canada, Europe, Russia, the Pacific Rim, Asia, South and Central America, and the Middle East. We are also exploring potential clinical trial advisors and distribution agents in Japan. As of December 31, 1999, we employed three territorial managers who are responsible for sales in international markets, both directly and through our approximately 36 independent distributors and representatives within their respective territories. All of our distributors and representatives have been selected based on their experience and knowledge of the ophthalmic equipment market. In addition, the selection of international distributors and representatives is also based on their ability to offer technical support. Distributor and representative agreements provide for either exclusive territories, with continuing exclusivity dependent upon achievement of mutually-agreed levels of annual sales, or non-exclusive agreements without sales minimums. Currently, separate distributor and representative agreements are in place for all major market areas. During 1999, approximately 83% of our product sales resulted from distributors and representatives with the balance from sales made by employees of LaserSight. Other than TLC, no single customer or distributor was responsible for generating sales in excess of 10% of our consolidated revenues in 1999. TLC represented approximately 14% of our consolidated revenues in 1999. In conjunction with our sales activities, we participate in a number of foreign and domestic ophthalmology meetings, exhibits and seminars. Historically, two large U.S. meetings, the American Academy of Ophthalmology and the American Society of Cataract and Refractive Surgery, have yielded substantial interest in our products. We believe that educating our customers and informing them about system developments is an important way to ensure customer satisfaction and desirable clinical results. After installation, one of our clinical specialists will typically travel to a customer site to train the refractive surgeon on how to safely operate our excimer laser system. We have also developed an extensive set of written materials to inform refractive surgeons about how our laser system works. 16 KERATOME PRODUCTS In October 1999, we entered into a marketing and distribution alliance with Becton Dickinson, the manufacturer of our UltraEdge keratome blades and a leading worldwide manufacturer of medical supplies, devices and diagnostic systems. Becton Dickinson is, subject to limited exceptions, the exclusive distributor of our keratomes and keratome related products in the U.S., the U.K., Ireland and Japan, and has a non-exclusive right to distribute kits including keratome products in other countries. Becton Dickinson utilizes its approximately 28-person sales force to promote, market and sell our MicroShape family of keratome products in these markets. We have retained the right to sell directly to TLC and to market and sell our keratome products in markets other than the U.S., U.K., Ireland and Japan. In these markets, our keratome products are marketed both through our existing distributor network for excimer laser system sales and through direct sales efforts. MANUFACTURING EXCIMER LASER SYSTEMS MANUFACTURING FACILITIES. Our manufacturing operations primarily consist of assembly, inspection and testing of parts and system components to assure performance and quality. We acquire components of our laser system and assemble them into a complete unit from components which include both "off-the-shelf" materials and assemblies and key components which are produced by others to our design and specifications. We conduct a series of final integration and acceptance tests prior to shipping a completed system. The proprietary computer software which operates the scanning system in our laser systems was developed and is maintained internally. We have excimer laser system manufacturing operations in Winter Park, Florida and San Jose, Costa Rica. Generally, LaserScan LSX excimer laser systems assembled in our Florida facility are shipped to U.S. customers and systems assembled in our Costa Rica facility are shipped to our international customers. In August 1999, our Florida facility was inspected by the FDA in conjunction with our then pending PMA application for our LaserScan LSX excimer laser system. This QSR/GMP inspection was required for the commercial sale of our LaserScan LSX excimer laser system in the U.S. We intend to move our U.S. manufacturing operations to another leased location in Winter Park during the second quarter of 2000. In October 1996, we received certification under ISO 9002, an international system of quality assurance, for our manufacturing and quality assurance activities in our Florida and Costa Rica facilities. Since that time we have maintained our ISO 9002 certification through a series of periodic surveillance audits and have also been certified to ISO 9001 quality system standards. We opened our Cost Rica facility in late 1995 in a free trade zone to manufacture our lasers for international sales, and for delivery to U.S. investigational sites under our investigational device exemption, or IDE, protocols. From 1996 until we received FDA clearance to market our LaserScan LSX in the U.S., all of our lasers sold commercially were manufactured at this facility. The establishment of an offshore manufacturing facility permitted us to sell products to any international customer prior to receipt of FDA approval. AVAILABILITY OF COMPONENTS. We purchase the vast majority of components for our laser systems from commercial suppliers. These include both standard, "off-the-shelf" items, as well as components produced to our designs and specifications. While most components are acquired from single sources, we believe that in many cases there are multiple sources available to us in the 17 event a supplier is unable or unwilling to perform. Since we need an uninterrupted supply of components to produce our laser systems, we are dependent upon these suppliers to provide us with a continuous supply of integral components and sub-assemblies. We contracted with TUI Lasertechnik und Laserintegration GmbH, Munich, Germany, in 1996 to develop an improved performance laser head based on their innovative technology and our performance specification and laser lifetime requirements. We began to incorporate this new laser head into our products, notably the LaserScan LSX, in the fourth quarter of 1997. Currently, TUI is a single source for the laser heads used in the LaserScan LSX. Currently, SensoMotoric Instruments GmbH, Teltow, Germany, is a single source for the eye tracker boards used in the LaserScan LSX. We continue to evaluate joint ventures with critical suppliers as well as other potential supplier relationships. KERATOME PRODUCTS Our UltraEdge keratome blades are manufactured by Becton Dickinson pursuant to our manufacturing agreement with them. Becton Dickinson has agreed to manufacture keratome blades exclusively for us, and we have agreed to purchase keratome blades exclusively from them. We generally are required to purchase one million keratome blades over a five-year period. The consummation of this agreement resulted in the cessation of internal blade manufacturing operations by LaserSight. The UniShaper single-use keratome is manufactured for us under an exclusive agreement with Frantz Medical Development Ltd., an ISO 9001 certified company experienced in the manufacture of disposable medical devices from engineering-grade polymer. This agreement has a 30-month term which expires in May 2002, and we are obligated to purchase 50,000 units during each year of the contract following receipt of final product approval, which occurred in October 1999. The UltraShaper durable keratome is expected to be manufactured exclusively for us by Owens Industries, Inc. Owens is experienced in the machining and assembly of precision instruments. The control console for our keratomes is manufactured for us by Humphrey Instruments, a division of Carl Zeiss, Inc., located in San Leandro, California. COMPETITION The vision correction industry is subject to intense, increasing competition. We operate in this highly competitive environment which has numerous well-established U.S. and foreign companies with substantial market shares, as well as smaller companies. Many of our competitors are substantially larger, better financed, better known, and have existing products and distribution systems in the U.S. marketplace. FDA approval requirements are a significant barrier to entry into the U.S. market for commercial sales of medical devices. Two of our competitors, Visx and Summit, received FDA approval of their broad beam laser systems more than three years ago, and have manufactured and sold laser systems which currently account for more than 90% of the installed excimer laser systems in the U.S. Summit currently manufactures the only laser system specifically approved by the FDA for use in LASIK procedures. In the market for keratome products, Bausch & Lomb sold a significant majority of the keratomes and keratome blades used by refractive surgeons in the U.S. in 1998 and 1999. We believe competition in the excimer laser system market is primarily based on safety and effectiveness, technology, price, regulatory approvals, per procedure fee payments, royalty payments, dependability, warranty coverage and customer service capabilities. We believe that safety and effectiveness, 18 technology, price, dependability, warranty coverage and customer service capabilities are among the most significant competitive factors, and we believe that we compete favorably with respect to these factors. Currently, five manufacturers, Visx, Summit, Nidek, Bausch & Lomb and LaserSight, have excimer laser systems with the required FDA approval to commercially sell the systems in the U.S. Some of the approvals are for broader labeled indications, a key competitive element in the industry. A laser system with broader labeling approvals is attractive because it enlarges the pool of laser vision correction candidates to whom the procedure can be marketed. At present, the laser systems manufactured by most of our competitors in the U.S. market have FDA approval to perform a wider range of treatments than our laser system, including higher degrees of nearsightedness, astigmatism, and in the case of Visx and Summit, farsightedness. These approvals have given Visx a competitive advantage, with laser systems sold by Visx having performed a significant majority of the laser vision correction procedures performed in the U.S. in 1998 and 1999. Our LaserScan LSX excimer laser system is not presently approved to treat farsightedness, astigmatism or more than 10 diopters of nearsightedness in the U.S. Our PMA supplement for treatment of nearsightedness with astigmatism is presently pending. While regulatory approvals play a significant role with respect to the U.S. market, competition from new entrants may be prevalent in other countries where regulatory barriers are lower. In February 2000, Visx announced that it was reducing the fee it charges to customers from $250 to $100 for each laser vision correction procedure performed on an excimer laser manufactured by Visx. Shortly after this announcement, Summit announced it would also reduce its licensing fee to $100, plus an additional $25 for astigmatism and hyperopia correction and $150 for its Ladarvision systems. Bausch & Lomb has indicated it will charge a fee of $100 for each laser vision correction procedure performed on an excimer laser manufactured by Bausch & Lomb. We currently intend to charge a per procedure fee of up to $130. Nidek has indicated that it does not intend to charge per procedure fees. The per procedure fees received by us as well as our competitors who currently receive such fees are subject to change based on competitive factors and changing market conditions, and there can be no assurance that such fees will not be reduced or eliminated in the future. In addition to conventional vision correction treatments such as eyeglasses and contact lenses, we also compete against other surgical alternatives for correcting refractive vision disorders such as surgically implantable rings which recently received FDA approval, as well as implantable intraocular lenses and a holmium laser system developed for the treatment of farsightedness, neither of which have been approved by the FDA, though the holmium laser system recently received a recommendation for the approval of temporary reduction of hyperopia by FDA's Ophthalmic Advisory Panel. We believe competition in the market for keratome products is primarily on the basis of performance, design, automation, price, availability, regulatory approvals, royalty payments, warranty coverage and customer service capabilities. We believe that performance, design, automation, and price are among the most significant, and believe that we compete favorably with respect to these factors. In addition to Bausch & Lomb, who manufactured a significant majority of the keratomes and keratome blades used by refractive surgeons in the U.S. in 1998 and 1999, our principal competitors in the keratome and keratome blade business include Moria and Innovative Optics. INTELLECTUAL PROPERTY There are a number of U.S. and foreign patents or patent rights relating to the broad categories of laser devices, use of laser devices in refractive surgical procedures, delivery systems for using laser devices in 19 refractive surgical procedures and keratomes. We maintain a portfolio of strategically important patents, patent applications, and licenses. Our patents, patent applications and licenses generally relate to the following areas: UV-wavelength laser ablation, our laser scanning method, infrared technology, frequency conversion techniques, solid-state technology, calibration technology, glaucoma and retinal treatments, corneal topography developments, treatment techniques for nearsightedness and farsightedness, treatment techniques to optimize clinical outcomes, and keratome design and usage. We monitor intellectual property rights in our industry on an ongoing basis and take action as we deem appropriate, including protecting our intellectual property rights and securing additional patent or license rights. A number of our competitors, including Visx and Summit, have asserted broad intellectual property rights in technology related to excimer laser systems and related products, and intellectual property lawsuits are sometimes a competitive factor in our industry. In November 1999, Visx asserted that the Company's technology infringed one of Visx's U.S. patents for equipment used in ophthalmic surgery. See "Legal Proceedings--Visx, Incorporated" in Item 3 and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors and Uncertainties - We are subject to risks and uncertainties relating to our patent litigation with Visx" in Item 7. We believe that we own or have a license to all intellectual property necessary for commercialization of our products. PATENT SEGMENT. We generate royalty income pursuant to license agreements with respect to certain of our intellectual property rights, including most significantly two key patents and related license agreements we acquired from IBM in August 1997. These patents (the "IBM Patents"), U.S. Patent No. 4,784,135 (Blum Patent) and U.S. Patent No. 4,925,523 (Braren Patent) relate to the use of ultraviolet light for the removal of organic tissue and may be used in laser vision correction, as well as for non-ophthalmic applications. Under the license agreements with Visx and Summit we acquired from IBM, Visx and Summit are each obligated to pay a royalty to us on all excimer laser systems they manufacture, sell or lease in the U.S., excluding those systems manufactured in the U.S. and sold into a country where a foreign counterpart to the IBM Patents exists. We believe a license to the Blum Patent is required for all companies desiring to enter the laser vision correction market in the U.S. We have licensed or sold certain of the vascular and cardiovascular patent rights and international patent rights covered by the IBM Patents. In September 1997, we received a one-time lump sum payment of $4 million from a third party in exchange for an exclusive, worldwide, royalty-free license to the vascular and cardiovascular rights covered by the IBM Patents. In February 1998, we entered into an agreement with Nidek pursuant to which we retained all of the IBM Patent rights within the U.S., and transferred to Nidek ownership of the foreign counterparts to those patents, including those in Australia, Austria, Belgium, Brazil, Canada, France, Germany, Italy, Japan, Spain, Sweden, Switzerland, and the U.K. We also granted Nidek a non-exclusive license to utilize the IBM Patents in the U.S. In addition, Nidek granted us an exclusive license to the foreign counterparts to the IBM Patents in the non-ophthalmic, non-vascular and non-cardiovascular fields. We also believe that our other intellectual property rights are valuable assets of our business. For example, we entered into an agreement with a subsidiary of TLC in October 1998 that grants us an exclusive license under U.S. Patent No. 5,630,810 (TLC Patent) relating to a treatment method for preventing formation of central islands during laser surgery. Central islands is a problem generally associated with laser refractive surgery performed with broad beam laser systems used to ablate corneal tissue. We recently filed a lawsuit against Visx, our competitor, asserting that they infringe this patent. We have agreed to pay TLC for the term of the exclusive license 20% of the aggregate net royalties we receive in the future from licensing the TLC patent and other patents currently owned by us. The TLC Patent is currently in reissue 20 at the U.S. Patent and Trademark Office. We may negotiate additional license agreements relating to the IBM Patents and our other patents in the future. However, we cannot provide any assurance as to whether, when or on what terms we may be able to do so. OTHER INTELLECTUAL PROPERTY. Among the more significant of our intellectual property rights are our scanning and solid-state laser-related patents, including a patent we were granted in May 1996 (U.S. Patent No. 5,520,679) relating to an ophthalmic surgery method utilizing a non-contact scanning laser. U.S. Patent No. 5,520,679 is currently in reissue at the U.S. Patent and Trademark Office. Another of our patents (U.S. Patent No. 5,144,630) covers the apparatus and use of the solid-state (ultraviolet and infrared) LaserHarmonic System. The extent of protection that may be afforded to LaserSight, or whether any claim embodied in these patents will be challenged or found to be invalid or unenforceable, cannot be determined at this time. These patents and other pending applications may not afford a significant advantage or product protection to us. REGULATION MEDICAL DEVICE REGULATION The FDA regulates the manufacture, use, distribution and production of medical devices in the U.S. Our products are regulated as medical devices by the FDA under the Federal Food, Drug, and Cosmetic Act. In order to sell such medical devices in the U.S., a company must file a 510(k) premarket notice or obtain premarket approval after filing a PMA application. Noncompliance with applicable FDA regulatory requirements can result in one or more of the following: o fines; o injunctions; o civil penalties; o recall or seizure of products; o total or partial suspension of production; o denial or withdrawal of premarket clearance or approval of devices; o exclusion from government contracts; and o criminal prosecution. The FDA also has authority to request repair, replacement or refund of the cost of any device manufactured or distributed by a company. Medical devices are classified by the FDA as Class I, Class II or Class III based upon the level of risk presented by the device and whether the device is substantially equivalent to an already legally marketed Class I or II device. Class III devices are subject to the most stringent regulatory review and cannot be marketed in the U.S. until the FDA approves a PMA for the device. CLASS III DEVICES. A PMA application must be filed if a proposed device is not substantially equivalent to a legally marketed Class I or Class II device, or if it is a Class III device for which the FDA requires PMAs. The process of obtaining approval of a PMA application is lengthy, expensive and uncertain. It requires the submission of extensive clinical data and supporting information to the FDA. Human clinical studies may be conducted only under an FDA-approved and must be conducted in accordance with FDA regulations. In addition to the results of clinical trials, the PMA application includes other 21 information relevant to the safety and efficacy of the device, a description of the facilities and controls used in the manufacturing of the device, and proposed labeling. After the FDA accepts a PMA application for filing and reviews the application, a public meeting may be held before an FDA advisory panel comprised of experts in the field. After the PMA is reviewed and discussed, the panel issues a favorable or unfavorable recommendation to the FDA and may recommend conditions. Although the FDA is not bound by the panel's recommendations, it historically has given them significant weight. If the FDA's evaluation of the PMA application is favorable, the FDA typically issues an "approvable letter" requiring the applicant's agreement to comply with specific conditions (such as specific labeling language) or to supply specific additional data (such as post-approval patient follow-up data) or other information in order to secure final approval. Once the approvable letter is satisfied, the FDA will issue approval for certain indications which may be more limited than those originally sought by the manufacturer. The PMA approval can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale and distribution. Failure to comply with the conditions of approval can result in enforcement action, including withdrawal of the approval. Products manufactured and distributed pursuant to a PMA will be subject to extensive, ongoing regulation by the FDA. The FDA review of a PMA application generally takes one to two years from the date such application is accepted for filing but may take significantly longer. The review time is often significantly extended by FDA requests for additional information, including additional clinical trials or clarification of information previously provided. Modifications to a device subject to a PMA generally require approval by the FDA of PMA supplements or new PMAs. We believe that our excimer laser systems require a PMA or a PMA supplement for each of the surgical procedures which they are intended to perform. The FDA may grant a PMA with respect to a particular procedure only when it is satisfied that the use of the device for that particular procedure is safe and effective. In granting a PMA, the FDA may restrict the types of patients who may be treated. FDA regulations authorize any interested person to petition for administrative review of the FDA's decision to approve a PMA application. Challenges to an FDA approval have been rare. We are not aware that any challenge has been asserted against us and do not believe any PMA application has ever been revoked by the agency based on such a challenge. During 1994, we began the clinical studies required for approval and commercialization of our laser scanning system in the U.S. In April 1998, we filed a PMA application for PRK treatment of nearsightedness using our scanning laser system. We received notification from the FDA that our laser system had received PMA approval for low to moderate nearsightedness in November 1999. The QSR/GMP regulations impose certain procedural and documentation requirements upon us with respect to our manufacturing and quality assurance activities. Our facilities will be subject to ongoing inspections by the FDA, and compliance with QSR/GMP regulations is required for us to continue marketing our laser products in the U.S. In addition, our suppliers of significant components or sub-assemblies must meet quality requirements established and monitored by LaserSight, and some may also be subject to FDA regulation. 22 The following table summarizes the FDA regulatory status of the LaserScan LSX excimer laser system. The labeling for each device contains a more detailed description of the ranges summarized below. Condition Regulatory Status --------- ----------------- Low to Moderate Nearsightedness.....Approved (to -6 diopters) (PRK) (1) -- with astigmatism.............Supplemental PMA filed (PRK) Higher Degrees of Nearsightedness...Clinical trials underway (LASIK) -- with astigmatism.............Clinical trials underway (LASIK) Low to Moderate Farsightedness......Clinical trials underway (LASIK) -- with astigmatism.............Clinical trials underway (LASIK) 200 Hz pulse rate...................Supplemental PMA to be filed in the near future AccuTrack eye tracking system.......Clinical trials underway (LASIK) (1) The LaserScan LSX has been approved by the FDA for treatment of nearsightedness of up to -6 diopters, and may be used to treat nearsightedness of up to -10 diopters at the discretion of the refractive surgeon. During 1998, we submitted and received approval to begin U.S. clinical trials of our scanning laser for treatment of nearsightedness and farsightedness, with and without astigmatism, utilizing the LASIK procedure. We also began a clinical trial of our scanning laser system for LASIK treatment of nearsightedness and nearsightedness astigmatism in Canada in late 1998 and received Device License Approval from Canadian Medical Devices Bureau in mid-1999. During 1996, we began clinical trials for photo-astigmatic refractive keratectomy, or PARK, in the U.S. In July 1997, we acquired from Photomed the rights to a PMA application filed with the FDA by Dr. Kremer for an excimer laser system for LASIK treatment. In July 1998, the FDA approved the PMA application for the laser to perform LASIK for correction of nearsightedness and nearsightedness with astigmatism. This approval, however, is for the treatment of nearsightedness and nearsightedness with astigmatism, specifically using LASIK at a single-site only. The commercial sale of the Photomed laser in the U.S. would require additional FDA approvals and compliance with QSR/GMP. The FDA's approval of this PMA is unrelated to the PMA for our LaserScan LSX scanning laser system. Summit's Apex Plus Excimer Laser Workstation recently received FDA approval for the LASIK treatment of myopia (nearsightedness) with or without astigmatism. The approval is for the correction of myopia in the range of 0 D to -14.0D with or without astigmatism in the range of -0.5D to -5.0D. The Summit laser system is currently the only laser system commercially available in the U.S. with FDA approval for use in LASIK. Laser systems manufactured by other companies approved by FDA for PRK, including Visx, Nidek, and LaserSight, are routinely used off-label to perform LASIK. A physician may decide, as part of the practice of medicine, to use a medical device outside of its FDA-approved indications for an unapproved or "off-label" use. Prior to Summit's approval, all LASIK procedures performed in the U.S. with commercially available lasers were performed in accordance with the practice of medicine. See "Products--Overview of Competitive Laser Systems" above. CLASS I OR II DEVICES. Devices deemed to pose relatively less risk are placed in either Class I or II, which requires the manufacturer to submit a 510(k) premarket notification, unless an exemption applies. The premarket notification must demonstrate that the proposed device is "substantially equivalent" to a "predicate device" that is either in Class I or II, or is a "pre-amendment" Class III device that was in commercial distribution before May 28, 1976, for which the FDA does not require PMA approval. The FDA issued 23 determinations of equivalency for our UniShaper single-use keratome in January 1998 and for our UltraShaper durable keratome in January 2000. Our UltraEdge keratome blades are exempt from the 501(k) requirement. After the FDA has issued a determination of equivalency for a device, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) notice. The FDA requires each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees with a manufacturer's decision not to submit a new 510(k), the agency may retroactively require the manufacturer to submit a premarket notification. The FDA also can require the manufacturer to cease marketing and/or recall the modified device until 510(k). OTHER REGULATORY REQUIREMENTS. Labeling and promotional activities are subject to scrutiny by the FDA and by the Federal Trade Commission. Current FDA enforcement policy prohibits manufacturers from marketing and advertising their approved medical devices for unapproved or off label uses. The scope of this prohibition has been the subject of recent litigation. The only materials related to unapproved devices that may be disseminated by companies are peer reviewed articles. Our lasers are also subject to the Radiation Control for Health and Safety Act administered by the Center for Devices and Radiological Health of the FDA. The law requires laser manufacturers to file new product and annual reports and to maintain quality control, product testing and sales records. In addition, laser manufacturers must incorporate specified design and operating features in lasers sold to end users and comply with labeling and certification requirements. Various warning labels must be affixed to the laser depending on the class of the product under the performance standard. The manufacture, sale and use of our products is also subject to numerous federal, state and local government laws and regulations relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. INTERNATIONAL REGULATORY REQUIREMENTS. The manufacture, sale and use of our products is also subject to regulation in countries other than the U.S. During November 1996 we completed all requirements necessary to obtain authority to apply the CE Mark to our LaserScan 2000 System, an earlier generation of excimer laser system we sold in international markets. In September 1998, we received similar certification to apply the CE Mark to our LaserScan LSX excimer laser system. The CE Mark, certifying that the LaserScan Models 2000 and LaserScan LSX meet all requirements of the European Community's medical directives, provides our products with marketing access in all member countries of the EU. All countries in the EU require the CE Mark certification of compliance with the EU Medical Directives as the standard for regulatory approval for sale of excimer laser systems. The EU Medical Directives include all the requirements under EU laws regarding the placement of various categories of medical devices on the EU market. This includes a "directive" that an approved "Notified Body" will review technical and medical requirements for a particular device. All clinical testing of medical devices in the EU must be done under the Declaration of Helsinki, which means that companies must have ethics committee approval prior to commencement of testing, must obtain informed consent from each patient tested, and the studies must be monitored and audited. Patient records must be maintained for 15 years. Companies must also comply with the Medical Device Vigilance reporting requirements. In obtaining the CE Mark for our excimer laser system, we demonstrated that we satisfied all engineering and electro-mechanical requirements of the EU by having our manufacturing processes and controls evaluated by a Notified Body (Semko) for compliance with ISO 9002 and ISO 9001 24 requirements, and conducted a clinical study in France to confirm the safety and efficacy of the excimer laser system on patients. RESEARCH AND DEVELOPMENT We continue to research and develop new laser products, laser systems, product upgrades, keratome products, and ancillary product lines. In March 2000, we acquired the intellectual property relating to a technology development project under design to provide an integrated refractive diagnostic work station that includes front-to-back analysis of aberrations within the total eye. We believe this project will assist us in developing our ASTRA individualized ablation capabilities. Other research and development efforts include the continued development of a new solid-state laser, enhancements for our advanced eye-tracking system that is standard on the international model of LaserScan LSX and the development of a mobile platform for an excimer laser system. The solid-state is the first true non-gas laser capable of delivering a laser beam in the ultraviolet spectrum (common to all excimer lasers used for refractive surgery). In addition, the solid-state laser could be capable of generating multiple wavelengths, thus permitting its use for other ophthalmic procedures which now require separate lasers. The solid-state research and development effort has already resulted in the identification of many features that have been subsequently incorporated into our excimer laser system. Further efforts will continue to be directed at an appropriate level towards production of a clinical design for this product to ensure that a commercial version is available to meet the market's demand for such a system. Upon completion of a clinical design for the solid-state system, pre-clinical trials and formal clinical trials are anticipated. Once sufficient clinical and safety data have been gathered, we intend to initially market the solid-state system for medical uses outside of the U.S. We continue to assess numerous issues related to manufacturing and marketing of the solid-state system. As is the case with many new technology products, the commercialization of the solid-state laser is subject to potential delays. Our research and development activities continue to include efforts to develop completely new designs for solid-state laser heads that are not currently available or produced anywhere in the world. While the risk of failure of these specific activities may be significant, we believe that if developed, these products could provide us with a leading edge technology that would further differentiate our products from other companies in the industry. There is no assurance that any of these research and development efforts will be successful. HEALTH CARE CONSULTING SERVICES We also provide health care and vision care consulting services to hospitals, managed care companies and physicians through our TFG subsidiary. The core business of TFG is two-fold: developing and maintaining physician databases for clients' needs and providing customized strategic plans. Services included are physician recruitment tools, competitive intelligence, demand studies, community health analyses and distribution channel mapping. TFG clients include multi-hospital health systems, community hospitals, academic medical centers, specialty health care providers and manufacturers and distributors of health care products. In 1998, as a result of losses incurred in previous years, TFG reduced staffing substantially, tightened it business focus and began outsourcing certain services such as teleresearch and physician recruiting. In 1999, two senior consultants joined who are expected to develop new business and help lead TFG towards significant financial improvement during 2000. 25 The senior consulting staff of TFG includes seven individuals with significant experience in health care. We believe that new business will increase as a result of existing business relationships and previously-developed leads for new business. In addition to working with former clients, sales efforts are in development to generate new clients in the hospital, academic medical center, hospital system and other health care provider categories. TFG served approximately 13 clients in 1999. Industry projections indicate continued turbulence in the health care industry as prices paid by government and managed care organizations continue to decrease. Consolidation, diversification, divestiture and downsizing are among the actions many health care providers are being forced to consider in order to solidify a position in the fast changing market place. TFG believes it is positioned to assist health care managers in understanding the range of available options and selecting an appropriate course of action. See "Management's Discussion and Analysis -- Results of Operations -- Revenues." Clients are generally asked to pay a certain amount at the commencement of the engagement and at the point where predefined milestones are reached, but no less than monthly. Certain clients pay a monthly retainer. Projects may be priced on an hourly rate or at a fixed project price, exclusive of out of pocket expenses. We believe that the key competitive factors in the health care consulting services segment is the experience of consultants, contacts within the industry, pricing of services and satisfaction of clients. Primary competitors are national consulting firms and small health care consulting firms. EMPLOYEES As of December 31, 1999, we had 129 full-time and two part-time employees. None of our employees is a member of a labor union or subject to a collective bargaining agreement. LaserSight generally considers its employee relations to be good. ITEM 2. PROPERTIES Our principal offices, including executive offices and administrative, marketing and U.S. manufacturing facilities, are located in approximately 22,700 square feet of space that we have leased in Winter Park, Florida. This lease expires on June 14, 2002. We have leased approximately 15,600 square feet of additional space in Winter Park, Florida for administrative office space and to provide capacity for an increase in U.S. manufacturing. The lease of this additional space in Winter Park expires January 31, 2004. We lease approximately 3,900 square feet of office space in St. Louis, Missouri, which lease expires July 31, 2001. We lease approximately 6,400 square feet of space near San Jose, Costa Rica, which we use as a manufacturing facility. The lease of the San Jose manufacturing facility expires November 30, 2000. We lease approximately 5,500 square feet of space in Munich, Germany, which we will use as our European base of operations. The Munich lease expires in February 2004. In our opinion, the various properties used in our operations are generally in good condition and are adequate for the purposes for which we utilize them. ITEM 3. LEGAL PROCEEDINGS VISX, INCORPORATED. On November 15, 1999, we were served with a complaint filed by Visx asserting that the Company's technology infringed one of 26 Visx's U.S. patents for equipment used in ophthalmic surgery. On November 16, 1999, LaserSight and Visx reached agreement to stay the patent litigation and to continue negotiations toward a U.S. license agreement in our effort to facilitate commercialization of its laser systems in the U.S. During the stay, we could commence manufacturing its laser systems in the U.S. but could not sell, offer to sell, ship or use commercially its systems in the United States until the parties entered into a license agreement or the stay was otherwise lifted. This stay did and does not affect our ability to manufacture or sell its laser systems outside the U.S. On February 1, 2000, we announced that we withdrew from the licensing negotiations and allowed the litigation to proceed. The stay was lifted effective February 16, 2000. In addition, on February 1, 2000, we filed suit against Visx claiming non-infringement and invalidity of the Visx patent and asserting that Visx infringes U.S. Patent No. 5,630,810. Management believes that LaserSight does not infringe Visx's patent and that this action will not have material adverse effect on our business, financial condition or results from operations. However, the outcome of patent litigation, particularly in jury trials, is inherently uncertain, and an unfavorable outcome in the Visx litigation could have a material adverse effect on our business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors and Uncertainties - We are subject to risks and uncertainties relating to our patent litigation with Visx" in Item 7. Separately, in May 1998, Visx asserted that we were underpaying royalties due under an international license agreement (the "License Agreement") and submitted the dispute for binding arbitration. Prior to the arbitration, the dispute was resolved in November 1999. The resolution did not result in a material adverse effect on our financial condition or results of operations. FORMER NNJEI OWNERS. On March 22, 1999, we received notice of an action filed on March 15, 1999 by the former owners of Northern New Jersey Eye Institute, or NNJEI, and related assets and entities against LaserSight in U.S. District Court for the District of New Jersey. The complaint alleges breach of contract in connection with a provision in our July 1996 acquisition agreements related to the assets of NNJEI and related assets and entities. Such provision provided for additional issuance of LaserSight common stock if our stock price was not at certain levels in July 1998. We issued the additional common stock in July 1998 in accordance with the provisions of the agreements. The plaintiffs allege that, based on the price of LaserSight common stock in July 1998, additional payments are required of approximately $540,000. Cross motions for summary judgment have been filed and are awaiting action by the court. Management disagrees with the plaintiffs' interpretation of the NNJEI agreements and believes that its obligations under the agreements will not have a material adverse effect on our financial condition or results of operations. J.T. LIN. On June 24, 1999, Jui-Teng Lin, a former president, chief executive officer and director of LaserSight, filed an action in the Circuit Court of the Ninth Judicial Circuit in Orange County, Florida, against LaserSight. This action asserts that LaserSight is currently in default on a promissory note executed in June 1991, and payable to Mr. Lin in the principal amount of $1,180,000. LaserSight believes that the allegations made by the plaintiff against LaserSight are without merit and it intends to vigorously defend the action. Management believes that LaserSight has satisfied its obligations under the promissory note and that this action will not have a material adverse effect on our financial condition or results of operations. FORMER MRF, INC. SHAREHOLDER. On November 12, 1999 a lawsuit was filed in the U.S. District Court for the Eastern District of Missouri on behalf of a former shareholder of MRF, Inc. (the "Subsidiary"), a wholly-owned subsidiary of LaserSight. The lawsuit names Michael R. Farris, the Company's Chief Executive Officer, as the sole defendant and alleges fraud and breach of fiduciary duty by 27 Mr. Farris in connection with the redemption by the Subsidiary of the former shareholder's capital stock in the Subsidiary. At the time of the redemption, which redemption occurred prior to LaserSight's acquisition of the Subsidiary, Mr. Farris was the President and Chief Executive Officer of the Subsidiary. LaserSight's Board of Directors has authorized LaserSight to retain and, to the fullest extent permitted by the Delaware General Corporation Law, pay the fees of counsel to defend Mr. Farris, the Subsidiary and LaserSight in the litigation so long as a court has not determined that Mr. Farris failed to act in good faith and in a manner Mr. Farris reasonably believed to be in the best interest of the Subsidiary at the time of the redemption. Management has reviewed the lawsuit and believes that the allegations set forth therein are without merit, and that our obligations with respect to Mr. Farris' legal defense will not have a material adverse effect on our financial condition or results from operations. LAMBDA PHYSIK, INC. On January 20, 2000 a lawsuit was filed in the Circuit Court of Broward County, Florida on behalf of Lambda Physik, Inc. ("Lambda") against LaserSight. The action alleges that LaserSight is in breach of an agreement it entered into with Lambda for the purchase of lasers from Lambda. Lambda has requested $1,852,813 in damages, plus interest, costs and attorney's fees. LaserSight believes that the allegations made by the plaintiff are without merit, and intends to vigorously defend the action. Management believes that LaserSight has satisfied its obligations under the agreement and that this action will not have material adverse effect on tour financial condition or results from operations. ROUTINE MATTERS. In addition, we are involved from time to time in routine litigation and other legal proceedings incidental to our business. Although no assurance can be given as to the outcome or expense associated with any of these proceedings, we believe that none of such proceedings, either individually or in the aggregate, will have a material adverse effect on the financial condition of LaserSight. Item 4. Submission of Matters to a Vote of Security Holders None. 28 PART II Item 5. Market for Company's Common Equity and Related Stockholder Matters Our common stock trades on The Nasdaq Stock Market(R) under the symbol LASE. The following table sets forth, for the fiscal quarters indicated, the high and low sale prices for our common stock on The Nasdaq Stock Market. 1997: High Low ---- ---- --- First Quarter $6.63 $5.19 Second Quarter 7.31 3.38 Third Quarter 6.94 4.19 Fourth Quarter 5.25 2.56 1998: ---- First Quarter $3.38 $1.56 Second Quarter 5.38 2.25 Third Quarter 8.03 3.38 Fourth Quarter 6.00 2.75 1999: ---- First Quarter $5.94 $3.88 Second Quarter 20.38 5.22 Third Quarter 17.63 12.13 Fourth Quarter 18.31 7.19 On March 27, 2000, the closing sale price for our common stock on the Nasdaq National Market was $7.38 per share. As of March 27, 2000, LaserSight had 19,803,663 shares of common stock outstanding held by approximately 200 stockholders of record and, to our knowledge, approximately 6,185 total stockholders, including stockholders of record and stockholders in "street name." We have never declared or paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. Our current policy is to retain all available funds and any future earnings to provide funds for the operation and expansion of our business. Any determination in the future to pay dividends will depend upon our financial condition, capital requirements, results of operations and other factors deemed relevant by our board of directors, including any contractual or statutory restrictions on our ability to pay dividends. POSSIBLE DILUTIVE ISSUANCES OF COMMON STOCK Each of the following issuances of Common Stock may depress the market price of the Common Stock. See "Management's Discussion and Analysis - Risk Factors and Uncertainties - Common Stock Risks--The Significant Number of Shares Eligible for Future Sale and Dilutive Stock Issuances may Adversely Affect Our Stock Price." LASERSIGHT CENTERS AND FLORIDA LASER PARTNERS. Based on previously-reported agreements entered into in 1993 in connection with our acquisition of LaserSight Centers (our development-stage subsidiary) and modified in July 1995 and March 1997, we may be obligated as follows: 29 o To issue up to 600,000 unregistered shares of Common Stock ("Centers Contingent Shares") to the former stockholders and option holders of LaserSight Centers (including two trusts related to our Chairman of the Board and certain of our former officers and directors). The Centers Contingent Shares will be issued only if we achieve certain pre-tax operating income levels through March 2002. Such income levels must be related to our use of a fixed or mobile excimer laser to perform PRK, the arranging for the delivery of PRK or receipt of license or royalty fees associated with patents held by LaserSight Centers. The Centers Contingent Shares are issuable at the rate of one share per $4.00 of such operating income. o To pay to a partnership whose partners include our Chairman of the Board and certain of our former officers and directors a royalty of up to $43 (payable in cash or in shares of Common Stock ("Royalty Shares")), for each eye on which PRK is performed on a fixed or mobile excimer laser system owned or operated by LaserSight Centers or its affiliates. o Royalties do not begin to accrue until the earlier of March 2002 or the delivery of all of the 600,000 Centers Contingent Shares. As of March 27, 2000, we have not accrued any obligation to issue Centers Contingent Shares or Royalty Shares. We cannot assure you that any issuance of Centers Contingent Shares or Royalty Shares will be accompanied by an increase in our per share operating results. We are not obligated to pursue strategies that may result in the issuance of Centers Contingent Shares or Royalty Shares. It may be in the interest of our Chairman of the Board for us to pursue business strategies that maximize the issuance of Centers Contingent Shares and Royalty Shares. PHOTOMED. If, within specified time frames, the FDA approves (for general commercial use) a LaserSight-manufactured laser system in the treatment of farsightedness that uses part or all of the know-how of the laser technology we acquired from Photomed, we would be required to issue additional shares of Common Stock with a market value of up to $1.0 million (based on the average closing price of the Common Stock during the preceding 10-day period) to the former Photomed stockholders. Because such approval was not received by June 1, 1999, this obligation decreases by approximately $2,740 per day each day thereafter, and the obligation will be eliminated entirely on June 1, 2000. As of March 27, 2000, the number of additional shares issuable would have been approximately 20,000. Depending on whether and when such FDA approval is received and on the market price of the Common Stock at the time of any such approval, the actual number of additional shares of Common Stock issuable could be more (but not more than permitted under the listing rules of The Nasdaq Stock Market) or less than this number. FOOTHILL WARRANT. In April 1997, we issued to Foothill a warrant to purchase 500,000 shares of Common Stock (the "Foothill Warrant") at a price of $6.067 per share. We are required to make anti-dilution adjustments to both the number of warrant shares and the warrant exercise price if we sell Common Stock or Common Stock-equivalents (such as convertible securities or warrants) at a price per share that is (or could be) less than the fair market value of the Common Stock at the time of such sale (a "Below-Market issuance"). To date, such anti-dilution adjustments have resulted in (1) an increase in the number of Foothill Warrant shares to 594,562, and (2) a reduction to the exercise price of the Foothill Warrant shares to $5.10 per share. Additional anti-dilution adjustments to the Foothill Warrant could also result from any future Below-Market Issuance. The Foothill warrants may be exercised at any time through March 31, 2002. As of March 27, 2000, warrants for 97,562 shares of our common stock remain outstanding. 30 SERIES B WARRANT. In connection with our issuance of the Series B Preferred Stock in August 1997, we issued to the former holders of the Series B Preferred Stock warrants to purchase 750,000 shares of Common Stock (the "Series B Warrant") at a price of $5.91 per share at any time before August 29, 2002. In connection with a March 1998 agreement whereby we obtained the option to repurchase the Series B Preferred Stock and a lock-up on conversions, the exercise price of the Series B Warrant shares was reduced to $2.753 per share. We are required to make anti-dilution adjustments to both the number of warrant shares and the warrant exercise price in the event we make a Below-Market Issuance. To date, these anti-dilution adjustments and other agreements among the former holders of the Series B Preferred Stock and us have resulted in (1) an increase in the number of Series B Warrant shares to 787,998, and (2) a reduction to the exercise price of Series B Warrant shares to $2.60 per share. Additional anti-dilution adjustments to the Series B Warrants could also result from any future Below-Market Issuance. As of March 27, 2000, 140,625 of such warrants had been exercised. SHORELINE WARRANT. In connection with our sale of the Series B Preferred Stock in August 1997, we issued to four individuals associated with our placement agent warrants to purchase 40,000 shares of Common Stock (the "Shoreline Warrant") at a price of $5.91 per share at any time before August 29, 2002. We are required to make anti-dilution adjustments to both the number of warrant shares and the warrant exercise price in the event we make a Below-Market Issuance. To date, these anti-dilution adjustments have resulted in (1) an increase in the number of Shoreline Warrant shares to 42,254, and (2) a reduction to the exercise price of Shoreline Warrant shares to $5.58 per share. Additional anti-dilution adjustments to the Shoreline Warrants could also result from any future Below-Market Issuance of Common Stock. As of March 27, 2000, 8,589 of such warrants had been exercised. SERIES D PREFERRED STOCK. In accordance with the terms of our Certificate of Designation, Preferences and Rights of the Series D Preferred Stock, the holders of the Series D Preferred Stock are entitled to certain anti-dilution adjustments if we issue Common Stock or Common Stock-equivalents (such as convertible securities or warrants) at a price per share (or having a conversion or exercise price per share) less than $4.00 per share. To date, no anti-dilution adjustments have been made. MARCH 1999 PRIVATE PLACEMENT WARRANTS. In connection with our sale of Common Stock in March 1999, we issued the purchasers warrants to purchase a total of 225,000 shares of Common Stock at an exercise price of $5.125 per share, the closing price of the Company's Common Stock on March 22, 1999. The warrants have a term of five years. As of March 27, 2000, 45,000 of such warrants had been exercised. CONSULTING WARRANTS. On February 22, 1999, in connection with a consulting services agreement that we entered into with Guy Numann, we issued warrants to purchase a total of 67,500 shares of our common stock at a price of $5.00 per share. One-third of the warrants become vested on each annual anniversary of the grant until all the warrants are vested. To the extent vested, the warrants are exercisable at any time prior to February 22, 2004. As of March 27, 2000, 22,500 of such warrants had vested and all such warrants remained outstanding. 31 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. The summary financial information as of and for each of the years in the five-year period ended December 31, 1999 is derived from our consolidated financial statements for such years.
(In thousands, except for per share amounts) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Net sales $21,728 $17,756 $24,389 $21,504 $25,988 Gross profit 11,951 11,410 11,687 11,381 18,895 Income (loss) from operations (15,102) (11,461) (9,262) (4,960) 4,552 Gain on sale of subsidiaries -- 364 4,129 -- -- Net income (loss) (14,424) (11,882) (7,253) (4,074) 4,592 Conversion discount on preferred stock -- (859) (42) (1,011) -- Dividends and accretion on preferred stock -- (2,752) (298) (359) -- Income (loss) attributable to common stockholders (14,424) (15,493) (7,593) (5,444) 4,592 Basic earnings (loss) per common share (0.89) (1.26) (0.80) (0.69) 0.68 Diluted earnings (loss) per share (0.89) (1.26) (0.80) (0.69) 0.64 Working capital 21,648 14,875 12,730 10,021 7,272 Total assets 49,379 43,873 50,461 34,250 29,102 Long-term obligations 100 560 500 642 -- Redeemable convertible preferred stock -- -- 11,477 -- -- Stockholders' equity 39,578 34,015 27,040 26,769 20,420
32 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of LaserSight's consolidated results of operations and consolidated financial position should be read in conjunction with the Selected Consolidated Financial Data and LaserSight's consolidated financial statements, including the notes thereto, appearing elsewhere in this report. All references to years are to LaserSight's fiscal years ended December 31, 1999, 1998 and 1997, unless otherwise indicated. OVERVIEW LaserSight's net loss and loss attributable to common shareholders for 1999 was $14,423,980, or $0.89 per basic and diluted common share, on net sales of $21,728,452, while the net loss for 1998 was $11,882,389 and its loss attributable to common stockholders that year was $15,493,214, or $1.26 per basic and diluted common share, on net sales of $17,756,116. The net losses are primarily attributable to the expenses generated by our technology segment. The difference between the net loss and the loss attributable to common stockholders in 1998 resulted from preferred stock dividends, accretion, premiums on repurchases and the conversion discount on preferred stock. LaserSight is principally engaged in the manufacture and supply of narrow beam scanning excimer laser systems, keratomes, keratome blades and other related products used to perform procedures that correct common refractive vision disorders such as nearsightedness, farsightedness and astigmatism. Since 1994, we have marketed our laser systems commercially in over 30 countries worldwide and currently have an installed base of over 250 scanning laser systems outside the U.S., including approximately 80 of our LaserScan LSX laser systems. In November 1999, we received FDA approval for commercialization of our LaserScan LSX laser systems in the U.S., and shipments of that product in the U.S. are expected to begin within the next week. Our MicroShape family of keratome products includes our UniShaper single-use keratome, UltraShaper durable keratome, a control console which may be used interchangeably with our single-use and durable keratomes, and our UltraEdge keratome blades. We began commercial shipment of keratome blades in July 1999 and of our single-use keratomes in December 1999, and anticipate that both of these products will provide us with the opportunity to participate in the significant growth in refractive laser vision correction procedure volume by generating recurring revenue streams. We currently expect to begin commercial shipments of our UltraShaper durable keratomes during the second quarter of 2000. As a result of these significant developments, our historical financial statements may not be indicative of our future performance. In particular, we anticipate that our LaserScan LSX laser system will make a more significant contribution to our future operating results in the future as a result of the first commercial shipments of these laser systems to U.S. customers within the next week. In addition, commercial shipment of our UniShaper single-use keratome products to U.S. and international customers began in December 1999, and we expect to commercially launch our UltraShaper durable keratome in the second quarter of 2000, which we also expect to contribute to our future operating results. However, we expect to continue to incur a loss and a deficit in cash flow at least through the first quarter of 2000. 33 We also license to other participants in the excimer laser industry various patents held by LaserSight related to the use of excimer lasers to ablate biological tissue, and provide health care and vision care consulting services to hospitals, managed care companies and physicians. For information regarding our export sales and operating revenues, operating profit (loss) and identifiable assets by industry segment, see note 14 of the notes to our consolidated financial statements included in this prospectus. CERTAIN PRO FORMA FINANCIAL INFORMATION We sold our MEC Health Care, Inc. and LSIA subsidiaries to Vision Twenty-One, Inc. in a transaction effective as of December 1, 1997. Under LaserSight's ownership, MEC was a vision managed care company which managed vision care programs for health maintenance organizations and other insured enrollees and LSIA was a physician practice management company which managed the ophthalmic practice known as the Northern New Jersey Eye Institute (NNJEI) under a management services agreement. The following pro forma information has been prepared assuming that the disposition of both MEC and LSIA had occurred as of the beginning of the year ended December 31, 1997. The pro forma adjustments serve to eliminate revenues and expenses related to MEC and LSIA for the periods presented and do not include any overhead allocations. The unaudited pro forma condensed consolidated revenues, gross profit and net loss are not necessarily indicative of results that would have occurred had the disposition been consummated as of the beginning of the year ended December 31, 1997, or that which might be attained in the future. For the Year Ended December 31, 1997 (Unaudited) Pro Forma Adjustments Historical MEC LSIA Pro Forma ---------- --- ---- --------- Revenues, net $ 24,388,833 $(7,988,419) $(3,021,304) $ 13,379,110 Gross profit 11,686,993 (2,229,356) (607,517) 8,850,120 Net loss (7,253,084) (450,700) (214,420) (7,918,204) RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, information derived from our statements of operations expressed as a percentage of net sales, and the percentage change in such items from the comparable prior year period. Any trends illustrated in the following table are not necessarily indicative of future results. 34
Percentage Increase (Decrease) As a Percentage of Net Sales Over Prior Periods Year Ended December 31, Year Ended December 31, ----------------------- ----------------------- 1997 1998 1999 1997 to 1998 1998 to 1999 ---- ---- ---- ------------ ------------ Statements of Operations Data: Net revenues: Refractive products 48.9% 89.9% 89.3% 33.9% 21.5% Patent services 1.0 6.3 9.1 *nm 77.2 Healthcare services 5.0 3.8 1.6 (44.1) (47.6) Subsidiaries sold 45.1 -- -- (100.0) 0.0 ------ ------ ------ Net revenues 100.0 100.0 100.0 (27.2) 22.4 Gross profit(1) 47.9 64.3 55.0 (2.4) 4.7 Research, development and regulatory expenses (2) 11.5 21.6 14.4 36.8 (18.3) Other general and administrative expenses 53.8 68.5 76.7 (7.3) 37.1 Selling-related expenses (3) 13.5 25.7 21.7 38.8 3.2 Amortization of intangibles 7.1 13.0 11.7 33.0 9.9 ------ ------ ----- Loss from operations (38.0) (64.5) (69.5) 23.7 31.8
* Not meaningful. (1) As a percentage of net revenues, the gross profit for refractive products only for each of the three years ended December 31, 1997, 1998 and 1999, were 65%, 62% and 50%, respectively. (2) As a percentage of refractive product net revenues, research, development and regulatory expenses for each of the three years ended December 31, 1997, 1998 and 1999, were 24%, 24% and 16%, respectively. (3) As a percentage of refractive product net revenues, selling-related expenses for each of the three years ended December 31, 1997, 1998 and 1999, were 28%, 29% and 24%, respectively. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 Revenues. Net revenues for the year ended December 31, 1999 increased by $3.9 million, or 22%, to $21.7 million from $17.8 million for the comparable period in 1998. During the year ended December 31, 1999, refractive products revenues increased $3.4 million, or 22%, to $19.4 million from $16.0 million for the comparable period in 1998. This revenue increase was primarily the result of increased sales of our higher priced LaserScan LSX excimer laser system. During the year ended December 31, 1999, excimer laser system sales accounted for approximately $17.0 million in revenues compared to $14.6 million in revenues over the same period in 1998. During the year ended December 31, 1999 and 1998, respectively, LaserScan LSX system sales accounted for 89% and 60%, respectively, of total excimer laser system sales. During the year ended December 31, 1999, 65 laser systems were sold compared to 50 system sales over the comparable period in 1998. The 65 systems sold during 1999 include 51 system sales to new customers and 14 LaserScan LSX excimer laser systems sold to existing customers to replace older laser systems. The replacement systems were sold at discounted prices at a positive gross margin, though at a lower gross margin than sales to new customers. Additional improvements in refractive products related revenues during the year ended December 31, 1999 were attributable to an increase in the level of service contract revenues and increased revenues generated from our aesthetic product line, which was acquired 35 in April 1998. These increases were slightly offset by a reduction in revenues generated from miscellaneous part sales for the year ended December 31, 1999 as compared to the year ended December 31, 1998. Net revenues from patent services for the year ended December 31, 1999 increased approximately $0.9 million, or 77%, to $2.0 million from $1.1 million for the comparable period in 1998, due to increased licensing fees. Net revenues from health care services for the year ended December 31, 1999 decreased approximately $0.3 million, or 48% to $0.4 million from $0.7 million for the comparable period in 1998. This decrease was primarily attributable to a reduction in consulting services provided and was accompanied by a reduction in expenses of approximately $0.2 million over the year ended December 31, 1998. Such revenue and expense reductions are primarily the result of staffing reductions instituted during mid-1998 to more closely match the cost structure of this segment with anticipated revenues going forward. COST OF REVENUES; GROSS PROFITS. For the year ended December 31, 1999 and 1998, gross profit margins were 55% and 64%, respectively. The gross profit margin decrease during the year ended December 31, 1999 was primarily attributable to higher raw material costs relating to the LaserScan LSX excimer laser system of $2.0 million, an increase in manufacturing overhead of $0.5 million, an increase in our inventory obsolescence reserve of $0.9 million, and an increase of $0.2 million in raw materials relating to our aesthetics division, which was acquired in April 1998. RESEARCH, DEVELOPMENT AND REGULATORY EXPENSES. Research, development and regulatory expenses for the year ended December 31, 1999 decreased by $0.7 million, or 18%, to $3.1 million from $3.8 million for the comparable period in 1998. We continued to develop our keratome systems, excimer laser systems and continued to pursue protocols in our effort to attain FDA approval for our products. As a result of a continuation of these efforts plus the anticipated development of new product concepts, we expect research and development expenses during 2000 to increase over levels incurred during 1999. Regulatory expenses are expected to increase as a result of our continued pursuit of FDA approval for our PMA supplements, protocols added during 1999 related to the potential use of our laser systems for treatments utilizing LASIK procedures and the possible development of additional pre-market approval supplements and future protocols for submission to the FDA. OTHER GENERAL AND ADMINISTRATIVE EXPENSES. Other general and administrative expenses for the year ended December 31, 1999 increased $4.5 million, or 37%, to $16.7 million from $12.2 million for the comparable period in 1998. This increase was due to an increase in expenses related to our refractive products business of approximately $4.6 million over the comparable period in 1998. These included enhancements to the customer support and training, quality assurance, marketing, software development and engineering departments of $2.5 million, $0.4 million of costs relating to our efforts to develop a blade manufacturing operation, $0.5 million of higher depreciation and lease costs (including the second Winter Park, Florida facility and larger office space), $0.4 million of salaries primarily resulting from staffing additions to accounting, information systems and human resources departments and bad debt expense of $0.8 million, which represented a general increase in reserves. See "Risk Factors--Financial and Liquidity Risks -- If our uncollectible receivables exceed our reserves we will incur additional unanticipated expenses, and we may experience difficulty collecting restructured receivables with extended payment terms." The total increase was partially offset by a $0.2 million reduction of expenses related to our patent services business from the comparable period in 1998. SELLING-RELATED EXPENSES. Selling-related expenses consist of those items directly related to sales activities, including commissions on sales, royalty or license fees, warranty expenses, and costs of shipping and installation. Commissions and royalties, in particular, can vary significantly from sale-to-sale or period-to-period depending on the location and terms of each sale. Selling-related expenses for the year ended December 31, 1999 36 increased $0.1 million, or 3%, to $4.7 million from $4.6 million during the comparable period in 1998. This increase was primarily attributable to an $0.5 million increase in estimated warranty expense being accrued resulting from higher sales and an increase in the per system estimate to provide annual warranty coverage from the comparable 1998 period, partially offset by a $0.4 million decrease in sales commissions, which vary depending on the location of sale. There were no material changes in the levels of royalty fees, system installation and shipping costs in the comparable periods. AMORTIZATION OF INTANGIBLES. During the year ended December 31, 1999, costs relating to the amortization of intangible assets increased by $0.2 million, or 10%, to $2.5 million from $2.3 million for the comparable period in 1998. Items directly related to the amortization of intangible assets are acquired technologies, patents, license agreements and goodwill. LOSS FROM OPERATIONS. The operating loss for the year ended December 31, 1999 was $15.1 million compared to the operating loss of $11.5 million for the same period in 1998. This increase in the loss from operations was primarily due to the increase in other general and administrative expenses related to the sale of our refractive products and the decrease in our gross profit margin, partially offset by an improvement in the operating gain generated by our patent services subsidiary. OTHER INCOME AND EXPENSE. Interest and dividend income for the year ended December 31, 1999 was $0.8 million compared to $0.6 million for the comparable period in 1998. Interest and dividend income was earned from the investment of cash and cash equivalents and the collection of long-term receivables related to laser system sales. Interest expense for the year ended December 31, 1999 was $0.1 million compared to interest expense of $0.8 million for the comparable period in 1998. Interest expense incurred during the year ended December 31, 1999 related primarily to an adjustment to the fair value of the warrant issued to Foothill Capital Corporation and interest paid on a capital lease obligation during the first half of 1999. Interest expense incurred during the year ended December 31, 1998 related primarily to the credit facility established with Foothill on April 1, 1997 which was repaid in full in June 1998. In addition to interest paid on the outstanding note payable balance, interest expense in 1998 included the amortization of deferred financing costs, the accretion of the discount on the note payable, and fees associated with amendments to the original loan agreement. During the year ended December 31, 1998, LaserSight recognized gains on the sale of subsidiaries and securities of $0.4 million resulting from the sale of marketable equity securities which were received in December 1997 in exchange for the sale of two health care subsidiaries. INCOME TAXES. For the year ended December 31, 1999, LaserSight had no income tax expense, while income tax expense of $0.2 million was recognized during the year ended December 31, 1998. The net expense for the year ended December 31, 1998 is primarily the result the payment of Japanese taxes in connection with the receipt of $1.2 million in royalties for the non-exclusive license of certain patents, the income from which is deferred for accounting purposes. NET LOSS. Net loss for the year ended December 31, 1999, was $14.4 million compared to a net loss of $11.9 million for the comparable period in 1998. The increase in net loss for the year ended December 31, 1999 can be attributed to the increase in other general and administrative expenses incurred by our refractive products operations and the decrease in our gross profit margin, partially offset by an improvement in the operating gain generated by our patent services subsidiary. LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS. The loss attributable to common shareholders for the year ended December 31, 1998 was impacted by the $1.1 million premium paid on the repurchase of the 525 remaining shares of 37 Series B Preferred Stock, the accretion of $0.6 million of financing costs related to such shares, the $0.8 million value of the conversion discount on the Series C Preferred Stock and Series D Preferred Stock, the impact of the $0.7 million premium paid on the first quarter 1998 repurchase of 351 shares of Series B Preferred Stock and the accretion of $0.4 million of financing costs related to such shares. The comparable period in 1999 was not impacted by any such adjustments. LOSS PER SHARE. The loss per basic and diluted share decreased to $0.89 for the year ended December 31, 1999, compared to $1.26 for the comparable period in 1998. Of the basic and diluted losses per share for the year ended December 31, 1998, $0.29 was a result of the value of the conversion discount on preferred stock in accordance with EITF Topic D-60 and accretion and dividend requirements on the Series B Preferred Stock. During the year ended December 31, 1999, the weighted average shares of common stock outstanding increased primarily due to the exercise of options and warrants and the private placement completed in March 1999. YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 REVENUES. Net revenues decreased by $6.6 million, or 27%, to $17.8 million in 1998 from $24.4 million in 1997 primarily as a result of the subsidiaries sold in 1997. Refractive product revenues increased by $4.0 million, or 34%, to $16.0 million in 1998 from $11.9 million in 1997. The improvement in refractive product net revenues can be primarily attributed to increased sales of our newer LaserScan LSX excimer laser system during 1998 at a higher average selling price, resulting in $3.4 million of the total revenue increase. The average system selling price increased by approximately 11% from 1997 levels. Fifty laser systems, including 30 of our LaserScan LSX systems, were sold during 1998 compared to 46 laser systems, including nine LaserScan LSX systems, which were sold in 1997. Other contributing factors leading to the increase in refractive product revenues were a $0.3 million increase in service contract revenues, and a $0.4 million increase in revenues generated from our aesthetic product line. Patent related revenues also increased by $0.9 million to $1.1 million in 1998 from $0.2 million in 1997. More than offsetting the increases in refractive product and patent revenues were decreases in health care services revenues, which was attributable to the sale of MEC and LSIA effective December 1, 1997. These two subsidiaries contributed revenues of $8.0 million and $3.0 million, respectively, during the year ended 1997. All of our health care services revenue was generated by TFG during 1998. Net sales for TFG for the year ended 1998 decreased by $0.5 million from the same period in 1997. This decrease was due primarily to a reduction in consulting services provided and was accompanied by a total expense reduction, including cost of services, of $1.0 million for the year ended 1998. Such revenue and expense decreases are primarily the result of staffing reductions instituted during 1998 to more closely match the cost structure of the health care services segment with anticipated revenues going forward. COST OF REVENUES; GROSS PROFITS. Gross profit margins were 64% of net sales in 1998 compared to 48% in 1997. However, gross profit decreased by $0.3 million, or 2.4%, to $11.4 million in 1998 from $11.7 million in 1997. The gross profit margin percentage increase was primarily attributable to the sale of MEC and LSIA effective December 1, 1997. MEC and LSIA operated at gross margins of 28% and 20%, respectively, for the year ended 1997. An additional contributing factor leading to the improvement in the gross profit margin was a higher level of LaserScan LSX laser system sales, which generally carry a higher gross margin. 38 RESEARCH, DEVELOPMENT AND REGULATORY EXPENSES. Research, development and regulatory expenses increased by $1.0 million, or 37%, to $3.8 million in 1998 from $2.8 million in 1997. The increase can be primarily attributed to continued development and validation of the keratome product line and the development of a new mobile scanning refractive laser system, partially offset by a decrease in costs relating to the continued development of the LaserScan LSX, which was substantially completed during 1998. Additionally, LaserSight incurred minor increases in costs related to the FDA regulatory approval process, both for its own scanning laser system and the LASIK laser system acquired from Dr. Kremer. In 1998, approximately $1.1 million was incurred in the development of and clinical and manufacturing validation of the UniShaper single-use keratome compared to $0.1 million in 1997. During 1998, LaserSight began a project to develop a mobile platform for an excimer laser system and incurred approximately $0.4 million in related costs. Expenses related to the development of the LaserScan LSX excimer laser system decreased approximately $0.3 million from 1997 levels to approximately $0.6 million in 1998. As a result of a continuation of the efforts described plus the anticipated development of new product ideas, we expect research and development expense during 1999 to remain at levels consistent with those incurred during 1998. Regulatory expenses may increase as a result of our continued pursuit of FDA approval, protocols added during 1997 and 1998 related to the potential use of our laser systems for LASIK and the possible development of additional future protocols for submission to the FDA. OTHER GENERAL AND ADMINISTRATIVE EXPENSES. Other general and administrative expenses decreased by $1.0 million, or 7%, to $12.1 million in 1998 from $13.1 million in 1997. This decrease was primarily attributable to the sale of MEC and LSIA effective December 1, 1997. MEC and LSIA incurred $1.5 million and $0.3 million, respectively, in other general and administrative costs during 1997. Additional factors resulting in this decrease were the reduction in the operating costs of TFG of $0.9 million from 1997 levels and the reduction in bad debt expense of $1.3 million from 1997 levels. This decrease was partially offset by an increase in other general and administrative expenses incurred at our refractive product subsidiary of $1.5 million from 1997 levels and by strategic initiatives of LaserSight and the development of it products and services. Such strategic initiatives included enhancements to the customer support, quality assurance, marketing, software development and engineering departments of $1.4 million, $0.8 million of costs of the aesthetic laser product line acquired in April 1998, $0.3 million of higher depreciation and lease costs (including a larger facility in Florida), $0.2 million of legal expenses, and patent related expenses of $0.1 million, which were nominal during 1997. SELLING-RELATED EXPENSES. Selling-related expenses increased by $1.3 million, or 39%, to $4.6 million in 1998 from $3.3 million in 1997. This increase was primarily attributable to a higher level of laser system sales with an associated distributor commission of $0.2 million, a $0.5 million increase in royalty fees, a $0.5 million increase in warranty expenses accrued based on more sales of the LaserScan LSX, and higher shipping and installation expenses resulting from increased system sales. AMORTIZATION OF INTANGIBLES. Costs relating to the amortization of intangible assets increased by $0.6 million, or 33%, to $2.3 million in 1998 from $1.7 million in 1997. This increase was primarily attributable to a higher level of amortization costs relating to patent acquisitions as a result of 1998 being the first full year for patents acquired in 1997 of $0.2 million, and a higher level of amortization costs relating to acquired technology as a result of 1998 being the first full year that the acquired LASIK PMA application and keratome license were amortized of $0.7 million. This increase was partially offset by a $0.4 million reduction in goodwill amortization resulting from the sale of MEC and LSIA. 39 LOSS FROM OPERATIONS. LaserSight recognized a loss from operations of $11.5 million in 1998 compared to $9.3 million in 1997. This increase in loss from operations can be attributed primarily to the increases in research, development, regulatory and selling related expenses and the sale of MEC and LSIA, which generated income from operations of $0.4 million and $0.2 million, respectively, during 1997. This increase was partially offset by a reduction in the operating loss generated by TFG. OTHER INCOME AND EXPENSES. Interest and dividend income of $0.6 million was earned in 1998 from the investment of cash and cash equivalents and the collection of long-term receivables related to laser system sales. This represents an increase of $0.2 million from the $0.4 million of interest and dividend income earned in 1997. Interest expense incurred during 1998 was $0.8 million and related primarily to the credit facility established with Foothill on April 1, 1997, which was repaid in full in June 1998. In addition to the interest paid on the outstanding note payable balance, interest expense includes the amortization of deferred financing costs, the accretion of the discount on the note payable, and fees associated with amendments to the original loan agreement. Interest expense for 1997 was $1.3 million and related primarily to the credit facility established with Foothill and the note payable to the former owners of MEC which was repaid in full on April 1, 1997. Included in other expense in 1998 and 1997 are costs of $0.4 million and $0.3 million, respectively, related to the settlement of patent and other filed and threatened litigation. Included in other income in 1998 and 1997 are gains of $0.4 million and $4.1 million, respectively, related to the sale MEC and LSIA. The 1998 total includes $28,148 of gain on the sale of Vision Twenty-One, Inc. stock that was originally received as partial consideration in the sale of MEC and LSIA. INCOME TAXES. LaserSight recorded an income tax provision of $0.2 million in 1998 compared to $0.9 million in 1997. The 1998 provision for income taxes is primarily the result of the payment of Japanese taxes in connection with a licensing transaction. The 1997 provision for income taxes primarily result from the gain on the sale of two of our subsidiaries after utilization of net operating loss and capital loss carryforwards. NET LOSS. LaserSight incurred a net loss of $11.9 million in 1998 compared to a net loss of $7.3 million in 1997. The 1998 results are primarily attributable to an increase in operating loss resulting from the sale of MEC and LSIA in late 1997, losses generated from TFG and higher operating expenses as described above, which were partially offset by increased revenues from the sale of refractive products. The 1997 results are primarily attributable to losses generated from TFG and higher operating expenses described above, which were partially offset by increased revenues from refractive products and MEC services. LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS. During 1998, our loss attributable to common shareholders was impacted by the following events, which occurred in the first and second quarters of 1998: premiums of $1.8 million paid on the repurchase of shares of Series B Preferred Stock, accretion of $1.0 million of financing costs related to such shares, and the value of the conversion discount on Series B Preferred Stock of $25,372 and on Series C Preferred Stock and Series D Preferred Stock of $0.8 million. In 1997, the conversion discount on Series B Preferred Stock was $41,573 and accretion and dividend requirements totaled $0.3 million. LOSS PER SHARE. Loss per basic and diluted common share increased to $1.26 in 1998 from $0.80 in 1997. This increase was attributable to the larger net loss incurred and accretion, dividend requirements, and premiums on the redemption of Series B Preferred Stock. The basic and diluted losses per share in 1998 of $0.29 were a result of the value of the conversion discount on Series 40 B, C and D Preferred Stock in accordance with EITF Topic D-60 and accretion, dividend requirements and repurchase premiums on the Series B Preferred Stock. Weighted average shares outstanding increased in 1998 primarily as a result of the conversion of 419 shares of Series B Preferred Stock into common stock. Other increases were from acquisition activity and the exercise of options and warrants. Weighted average shares outstanding increased in 1997 as a result of the conversion of eight shares of Series A Preferred Stock into common stock, the 1997 amendment to the purchase agreement related to LaserSight Centers, the issuance of shares under the earnout provisions of the 1994 acquisition of TFG, the issuance of shares in conjunction with the 1997 acquisition of rights to the PMA application for the excimer laser and keratome patent, and the exercise of options. The basic and diluted losses per share in 1997 of $0.04 were a result of the value of the conversion discount on preferred stock in accordance with EITF Topic D-60, and accretion and dividend requirements on the Series B Preferred Stock. LIQUIDITY AND CAPITAL RESOURCES Our principal sources of funds have historically been from sales of preferred stock and common stock, sales of subsidiaries and patent rights and, to a lesser extent, our operating cash flows. We issued securities totaling approximately $14.8 million in 1997, $15.8 million in 1998, $8.9 million in 1999 and $13.3 million to date in 2000, and received proceeds from the exercise of stock options and warrants of approximately $98,000 in 1997, $0.5 million in 1998 and $10.4 million in 1999. In addition, we sold subsidiaries and various patent rights, resulting in proceeds to us of approximately $10.5 million in 1997 and $12.7 million in 1998. We have principally used these capital resources to fund operating losses, working capital, capital expenditures, acquisitions and retirement of debt. At December 31, 1999, we had an accumulated deficit of $38.2 million. We entered into a $2.5 million revolving credit facility with The Huntington National Bank in June 1999. We may borrow amounts under this credit facility at an annual rate equal to 0.5% above the prime rate for short-term working capital needs or for such other purposes as may be approved by Huntington. The credit agreement with Huntington expires on June 30, 2000, though we expect to renew it, and requires us to maintain a specified liquidity level and tangible net worth levels. At December 31, 1999, we had no outstanding borrowings under this credit facility. Operating activities used net cash of $11.7 million during 1999, compared to $14.3 million during the year ended December 31, 1998. We expect to incur a loss and a deficit in cash flow from operations for the first quarter of 2000. There can be no assurance that we can regain or sustain profitability or positive operating cash flow in any subsequent fiscal period. Net cash used in investing activities of $0.7 million during 1999 can be attributed primarily to the purchase of furniture, equipment and leasehold improvements. As of December 31, 1999, we had no material commitments for capital expenditures. Net cash provided from financing activities during 1999 of $19.2 million resulted from the issuance of 2,250,000 shares of common stock and 225,000 warrants in a private placement to six investors for gross proceeds of $8.9 million (including $2.0 million each from TLC and the Pequot Funds) and from the aggregate exercise price of $10.4 million received upon the exercise of stock options and warrants. Our working capital increased $6.7 million from $14.9 million at December 31, 1998 to $21.6 million as of December 31, 1999. This increase in working capital resulted primarily from the March 1999 private placement of common stock and warrants for gross proceeds of $8.9 million and $10.4 million 41 received upon the exercise of stock options and warrants, offset primarily by cash used in operating activities of $11.7 million. On January 31, 2000, we issued 1,269,841 shares of common stock in exchange for proceeds of $12.5 million (including $10.0 million from TLC). On February 22, 2000, we issued 76,189 shares of common stock in exchange for proceeds of $750,000. We believe that the proceeds from these issuances, together with our existing balances of cash and cash equivalents and our cash flows from operations, should be sufficient to fund our anticipated working capital requirements for the next 12 months in accordance with our current business plan. Our belief regarding future working capital requirements is based on various factors and assumptions including the commercial acceptance of our LaserScan LSX excimer laser system, our UltraEdge keratome blades and our UniShaper single-use keratomes, the commercial acceptance of our UltraShaper durable keratome, the anticipated timely collection of receivables, and the absence of unanticipated product development and marketing costs. These factors and assumptions are subject to certain contingencies and uncertainties, some of which are beyond our control. Similarly, our long-term liquidity will be dependent on the successful entrance into the U.S. market with our laser systems, the successful entrance into U.S. and international markets of our keratome products, and our ability to collect our receivables on a timely basis. We cannot assure you that we will not seek additional debt or equity financing in the future to implement our business plan or any changes thereto in response to future developments or unanticipated contingencies. Other than the $2.5 million credit facility signed in June 1999 with The Huntington National Bank, we currently do not have any commitments for additional financing. SEASONALITY, BACKLOG AND CUSTOMER PAYMENT TERMS Based on our historical activity, we do not believe that seasonal fluctuations have a material impact on our financial performance. To date, we have been able to ship laser units as orders are received. As a result, order backlog is not a meaningful factor in our business. In the U.S., we expect that sales of our laser systems will generally be to customers with approved credit, and we anticipate that the purchase price for such laser systems will generally be paid to us within 30 days of installation. In international markets, unless a letter of credit or other acceptable security has been obtained, we generally require a significant down payment or deposit from our laser system customers at or before installation. At December 31, 1999, we were the payee on letters of credit with foreign financial institutions aggregating approximately $0.6 million (compared to approximately $2.5 million at December 31, 1998). On occasion, it is necessary to meet a competitor's more liberal terms of payment. In those and other cases, we may provide term financing. Our internally-financed sales with repayment periods exceeding 18 months (measured from the installation date) decreased from 13 systems in 1997, to 10 systems in 1998 and consisted of five systems during 1999. In our experience, sales of major capital equipment such as excimer laser systems in certain areas, including much of South and Central America, often require payment terms ranging from 12 to 24 months. 42 RISK FACTORS AND UNCERTAINTIES The business, results of operations and financial condition of LaserSight and the market price of our common stock may be adversely affected by a variety of factors, including the ones noted below: INDUSTRY AND COMPETITIVE RISKS WE CANNOT ASSURE YOU THAT OUR LASERSCAN LSX LASER SYSTEM WILL ACHIEVE MARKET ACCEPTANCE IN THE U.S., AND OUR BUSINESS MODEL FOR SELLING OUR LASER SYSTEM IN THE U.S. IS NEW AND UNPROVEN. We only recently received the Food & Drug Administration approval necessary for the commercial marketing and sale of our LaserScan LSX excimer laser system in the U.S. and expect our first commercial shipments to customers in the U.S. within the next week. Our previous experience marketing and selling our LaserScan LSX excimer laser system in the U.S. had been limited to cost-recovery sales to refractive surgeons participating in our FDA clinical trials. The required level of per procedure fees payable to us by the refractive surgeon may not be accepted by the marketplace or may exceed those charged by our competitors. While we believe that gaining access to our recently-approved scanning narrow beam laser technology justifies the required per procedure fee levels, we cannot assure you that this business model will be accepted by a large number of refractive surgeons. If our competitors reduce or do not charge per procedure fees to users of their systems, we could be forced to reduce or eliminate the fees charged under this business model, which could significantly reduce our revenues. For example, Nidek Co., Ltd., one of our competitors, has publicly stated that it does not intend to charge per procedure fees to users of its laser systems in the U.S. and internationally. Successful implementation of this business model is crucial to the commercial launch of our LaserScan LSX laser system in the U.S. and may require the expenditure of significant financial and other resources to create awareness of the LaserScan LSX laser system and create demand by refractive surgeons. If our laser system fails to achieve market acceptance in the U.S., we may not be able to execute our business plan, which would have a material adverse effect on our business, financial condition and results of operations. WE CANNOT ASSURE YOU THAT OUR KERATOME PRODUCTS WILL ACHIEVE MARKET ACCEPTANCE, AND WE ARE SIGNIFICANTLY DEPENDENT UPON OUR MARKETING ALLIANCE WITH BECTON DICKINSON WITH RESPECT TO THE SALE OF OUR KERATOME PRODUCTS. Keratomes are surgical devices used to create a corneal flap immediately prior to LASIK laser vision correction procedures. We began to roll out our MicroShape family of keratome products only recently with the commercial launch of our UltraEdge keratome blades in July 1999 and of our UniShaper single-use keratomes and control consoles in December 1999. We anticipate the commercial launch of our UltraShaper durable keratomes during the second quarter of 2000. We cannot provide any assurances that there will not be unanticipated delays in the launch of our UltraShaper durable keratome. Our UniShaper single-use keratome is the first disposable keratome product to be commercially marketed, and we cannot assure you that refractive surgeons, including in particular refractive surgeons who perform a large volume of LASIK procedures, will accept our UniShaper product as either a replacement for or a supplement to the durable keratomes traditionally used to create corneal flaps. Our UltraShaper durable keratome incorporates the features found in the Automated 43 Corneal Shaper keratome previously marketed by Bausch & Lomb with new enhancements and features. However, Bausch & Lomb has not aggressively marketed or serviced the ACS since 1997 when we licensed the rights to commercially market keratomes based on the same technology, and has successfully transitioned a large number of refractive surgeons from the ACS to its Hansatome durable keratome product. We believe that many refractive surgeons learned to perform the LASIK procedure using the ACS and prefer the surgical technique required by the ACS, which is also used to operate our UltraShaper durable keratome, to that required to operate the Hansatome keratome product. However, we cannot assure you that we will be successful in achieving broad market acceptance of our UltraShaper durable keratome or our other keratome products. Successful implementation of our keratome product sales strategy is significantly dependent upon our marketing and distribution alliance with Becton Dickinson. Pursuant to our October 1999 agreement, Becton Dickinson is, subject to limited exceptions, the exclusive distributor of our keratomes and keratome related products in the U.S., the U.K., Ireland and Japan, and has a non-exclusive right to distribute kits including keratome products in other countries. While our agreement with Becton Dickinson has a five-year term, it is subject to early termination in certain circumstances, including the failure of Becton Dickinson to achieve minimum sales levels. If we cannot successfully market and sell our keratome products or if our marketing and distribution alliance with Becton Dickinson fails to benefit us as expected, we may not be able to execute our business plan, which would have a material adverse effect on our business, financial condition and results of operations. See also "--Company and Business Risks -- Required minimum payments under our keratome license agreement may exceed our gross profits from sales of our keratome product." THE VISION CORRECTION INDUSTRY CURRENTLY CONSISTS OF A FEW ESTABLISHED PROVIDERS WITH SIGNIFICANT MARKET SHARES AND WE MAY ENCOUNTER DIFFICULTIES COMPETING IN THIS HIGHLY COMPETITIVE ENVIRONMENT. The vision correction industry is subject to intense, increasing competition, and we do not know if we will be able to compete successfully against our current and future competitors. Many of our competitors have established products, distribution capabilities and customer service networks in the U.S. marketplace, are substantially larger and have greater brand recognition and greater financial and other resources than we do. Visx, Incorporated, the current industry leader for excimer laser system sales in the U.S., sold laser systems which performed a significant majority of the laser vision correction procedures performed in the U.S. in 1998 and 1999. Similarly, Bausch & Lomb sold a significant majority of the keratomes used by refractive surgeons in the U.S. in 1998 and 1999. Two of our other competitors, Summit Technology, Inc. and Autonomous Technology Corporation merged in April 1999. The merger resulted in a combined entity with enhanced market presence, technology base and distribution capabilities and provided Summit with a narrow beam laser technology platform which will enable Summit to compete more directly with our narrow beam LaserScan LSX excimer laser system. In addition, as a result of the merger, the combined entity will be able to sell narrow beam laser systems under a royalty-free license to certain Visx patents without incurring the expense and uncertainty associated with intellectual property litigation with Visx. MANY OF OUR COMPETITORS RECEIVED EARLIER REGULATORY APPROVALS THAN US AND MAY HAVE A COMPETITIVE ADVANTAGE OVER US DUE TO THE SUBSEQUENT EXPANSION OF THEIR REGULATORY APPROVALS AND THEIR SUBSTANTIAL EXPERIENCE IN THE U.S. MARKET. We received the FDA approval necessary for the commercial sale of our LaserScan LSX excimer laser system in the U.S. in November 1999, and expect our first commercial shipments to customers in the U.S. to occur within the next 44 week. Our direct competitors include large corporations such as Visx and Summit, each of whom received FDA approval of excimer laser systems more than three years ago and has substantial experience manufacturing, marketing and servicing laser systems in the U.S. In addition to Visx, Summit, and Nidek, Bausch & Lomb recently obtained FDA approval for their laser system. In the U.S., a manufacturer of excimer laser vision correction systems gains a competitive advantage by having its systems approved by the FDA for a wider range of treatments. Initial FDA approvals of excimer laser vision correction systems historically have been limited to PRK treatment of low to moderate nearsightedness, with additional approvals for other and broader treatments granted only as a result of subsequent FDA applications and clinical trials. Our LaserScan LSX is currently approved only for the PRK treatment of low to moderate nearsightedness (up to -6.0 diopters) without astigmatism using a pulse repetition rate of 100 Hz, and its use for the treatment of higher levels of nearsightedness (up to -10.0 diopters) is allowed only if the refractive surgeon deems it to be reasonable. Currently, excimer laser vision correction systems manufactured by Visx, Summit and Nidek have been approved for higher levels of nearsightedness than the LaserScan LSX and are also approved for the treatment of nearsightedness with astigmatism for which the LaserScan LSX currently does not have approval. The Visx excimer laser system is also approved for the treatment of moderate farsightedness. On March 20, 2000, the FDA Ophthalmic Advisory Panel recommended approval for Summit's Ladarvision system for farsightedness of up to +6 diopters and an astigmatism range of up to - -6 diopters. Although we have submitted applications to the FDA for approval for the treatment of nearsightedness with astigmatism and we expect to file a PMA supplement in the near future which would permit our laser systems sold to customers in the U.S. to operate at a 200 Hz pulse rate, if the FDA does not approve our pending and expected applications in a timely manner or at all, our ability to compete effectively in the U.S. may be severely impaired. Summit's Apex Plus Excimer Laser Workstation recently received FDA approval for the LASIK treatment of myopia (nearsightedness) with or without astigmatism. The approval is for the correction of myopia in the range of 0D to - -14.0D with or without astigmatism in the range of -0.5D to -5.0D. The Summit laser system is currently the only laser system commercially available in the U.S. with FDA approval for use in LASIK.Laser systems manufactured by other companies approved by FDA for PRK, including Visx, Nidek, and LaserSight, are routinely used off-label to perform LASIK. A physician may decide, as part of the practice of medicine, to use a medical device outside of its FDA-approved indications for an unapproved or "off-label" use. Prior to Summit's approval, all LASIK procedures performed in the U.S. with commercially available lasers were performed as the practice of medicine. Summit's receipt of LASIK-specific FDA regulatory approval could be a significant competitive advantage which could impede our ability to successfully introduce our LaserScan LSX system in the U.S. or discourage physicians from using our or other manufacturers' lasers off-label. Our failure to successfully effect our product introduction in a timely manner could have a material adverse effect on our business, financial condition and results of operations. All of our principal competitors in the keratome business, including current market leader Bausch & Lomb, received FDA clearance prior to the commercialization of our keratome products and have substantial experience marketing their keratome products. The established market presence in the U.S. of previously-approved laser systems and keratome products, as well as the entry of new competitors into the market upon receipt of new or expanded regulatory approvals, could impede our ability to successfully introduce our LaserScan LSX 45 system in the U.S. and our keratome products worldwide and may have a material adverse effect on our business, financial condition and results of operations. WE DEPEND UPON OUR ABILITY TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS. We believe that our ability to establish and maintain strategic relationships will have a significant impact on our ability to meet our business objectives. These strategic relationships are critical to our future success because we believe that these relationships will help us to: o extend the reach of our products to a larger number of refractive surgeons; o develop and deploy new products; o further enhance the LaserSight brand; and o generate additional revenue. Entering into strategic relationships is complicated because some of our current and future strategic partners may decide to compete with us in some or all of our markets. In addition, we may not be able to establish relationships with key participants in our industry if they have relationships with our competitors, or if we have relationships with their competitors. Moreover, some potential strategic partners have resisted, and may continue to resist, working with us until our products and services have achieved widespread market acceptance. Once we have established strategic relationships, we will depend on our partners' ability to generate increased acceptance and use of our products and services. To date, we have established only a limited number of strategic relationships, and many of these relationships are in the early stages of development. There can be no assurance as to the terms, timing or consummation of any future strategic relationships. If we lose any of these strategic relationships or fail to establish additional relationships, or if our strategic relationships fail to benefit us as expected, we may not be able to execute our business plan, and our business will suffer. BECAUSE THE SALE OF OUR PRODUCTS IS DEPENDENT ON THE CONTINUED MARKET ACCEPTANCE OF LASER-BASED REFRACTIVE EYE SURGERY USING THE LASIK PROCEDURE, THE LACK OF BROAD MARKET ACCEPTANCE WOULD HURT OUR BUSINESS. We believe that whether we achieve profitability and growth will depend, in part, upon the continued acceptance of laser vision correction using the LASIK procedure in the U.S. and other countries. We cannot be certain that laser vision correction will continue to be accepted by either the refractive surgeons or the public at large as an alternative to existing methods of treating refractive vision disorders. The acceptance of laser vision correction and, specifically, the LASIK procedure may be adversely affected by: o possible concerns relating to safety and efficacy, including the predictability and stability of results; o the public's general resistance to surgery; o the effectiveness and lower cost of alternative methods of correcting refractive vision disorders; o the lack of long-term follow-up data; o the possibility of unknown side effects; o the lack of third-party reimbursement for the procedures; o the cost of the procedure; and o possible future unfavorable publicity involving patient outcomes from the use of laser vision correction. 46 Unfavorable side effects and potential complications which may result from the use of laser vision correction systems manufactured by any manufacturer may broadly affect market acceptance of laser-based vision correction surgery. Potential patients may not distinguish between our narrow beam scanning technology and the laser technology incorporated by our competitors in their laser systems, and customers may not differentiate laser systems and procedures that have not received FDA approval from FDA-approved systems and procedures. Any adverse consequences resulting from procedures performed with a competitor's systems or an unapproved laser system could adversely affect consumer acceptance of laser vision correction in general. In addition, because laser vision correction is an elective procedure which is not typically covered by insurance and which involves more significant immediate expense than eyeglasses or contact lenses, adverse changes in the U.S. or international economy may cause consumers to reassess their spending choices and to select lower-cost alternatives for their vision correction needs. Any such shift in spending patterns could reduce the volume of LASIK procedures performed which would, in turn, reduce our revenues from per procedure fees and sales of single-use products such as our UniShaper keratome and our UltraEdge keratome blades. The failure of laser vision correction to achieve continued market acceptance could have a material adverse effect on our business prospects. Even if laser vision correction achieves and sustains market acceptance, sales of our keratome products could be adversely impacted if a laser procedure which does not require the creation of a corneal flap were to emerge as the procedure of choice. NEW PRODUCTS OR TECHNOLOGIES COULD ERODE DEMAND FOR OUR PRODUCTS OR MAKE THEM OBSOLETE, AND OUR BUSINESS COULD BE HARMED IF WE CANNOT KEEP PACE WITH ADVANCES IN TECHNOLOGY. In addition to competing with eyeglasses and contact lenses, excimer laser vision correction competes or may compete with newer technologies such as intraocular lenses, corneal rings and surgical techniques using different or more advanced types of lasers. Two products that may become competitive within the near term are intraocular lenses, which are pending FDA approval, and corneal rings, which were recently approved by the FDA. Both of these products require procedures with lens implants, and their ultimate market acceptance is unknown at this time. To the extent that any of these or other new technologies are perceived to be clinically superior or economically more attractive than currently marketed excimer laser vision correction procedures or techniques, they could erode demand for our excimer laser and keratome products, cause a reduction in selling prices of such products or render such products obsolete. In addition, if one or more competing technologies achieves broader market acceptance or render laser vision correction procedures obsolete, it would have a material adverse effect on our business, financial condition and results of operations. As is typical in the case of new and rapidly evolving industries, the demand and market for recently-introduced products and technologies is uncertain, and we cannot be certain that our LaserScan LSX laser system, UniShaper single-use keratome, UltraShaper durable keratome, UltraEdge keratome blades or future new products and enhancements will be accepted in the marketplace. In addition, announcements or the anticipation of announcements of new products, whether for sale in the near future or at some later date, may cause customers to defer purchasing our existing products. If we cannot adapt to changing technologies, our products may become obsolete, and our business could suffer. Our success will depend, in part, on our ability to continue to enhance our existing products, develop new technology that addresses the increasingly sophisticated needs of our customers, license 47 leading technologies and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of our proprietary technology entails significant technical and business risks. We may not be successful in using new technologies effectively or adapting our proprietary technology to evolving customer requirements or emerging industry standards. COMPANY AND BUSINESS RISKS WE ARE SUBJECT TO RISKS AND UNCERTAINTIES RELATING TO OUR PATENT LITIGATION WITH VISX. Visx Incorporated commenced a lawsuit in November 1999 in the United States District Court, District of Delaware, against the Company alleging that our LaserScan LSX laser system infringes one of Visx's U.S. patents for equipment used in ophthalmic surgery. The LaserScan LSX is the only laser system we are currently marketing and is the only laser system manufactured by us which is approved for sale to U.S. customers. The suit requests, among other things, injunctive relief, treble damages and attorneys' fees and expenses. Management does not believe that our LaserScan LSX laser system infringes the asserted Visx patent. However, we agreed to a stay of such litigation to pursue license negotiations with Visx in an effort to help facilitate commercialization of the LaserScan LSX in the U.S. market. We withdrew from license negotiations with Visx in February 2000, and after the stay of the litigation was lifted, we filed suit against Visx, claiming non-infringement and invalidity of the Visx patent and asserting that Visx infringes the TLC Patent. We also expect to begin to sell and ship our LaserScan LSX laser systems in the U.S. within the next week. We believe that the Visx lawsuit is without merit and intend to vigorously contest it. However, if we are unsuccessful in defending this lawsuit, we may be enjoined from manufacturing and selling our LaserScan LSX laser system in the U.S. without a license from Visx. In addition, we may be subject to damages for past infringement. No assurance can be given as to whether we will be subject to such damages or, if so, the amount of damages which we may be required to pay. In addition, such patent litigation could be time-consuming, result in costly litigation, divert management's attention and resources, cause product shipment delays or require us to develop non-infringing technology or enter into license agreements in order to market our products. Such license agreements, if required, may not be available on acceptable terms, or at all. The outcome of patent litigation, particularly in jury trials, is inherently uncertain, and an unfavorable outcome in the Visx litigation could have a material adverse effect on our business, financial condition and results of operations. WE WILL BE REQUIRED TO SIGNIFICANTLY EXPAND OUR U.S. MANUFACTURING OPERATIONS TO MEET OUR BUSINESS PLAN AND MUST COMPLY WITH STRINGENT REGULATION OF OUR MANUFACTURING OPERATIONS. We intend to manufacture our LaserScan LSX laser systems for sale in the U.S. at our manufacturing facility in Winter Park, Florida, and to continue to manufacture our laser systems for sale in international markets at our manufacturing facility in Costa Rica. Our U.S. personnel have limited experience manufacturing laser systems. We cannot, therefore, assure you that we will not encounter difficulties in scaling up production of our laser systems at our Florida facility, including problems involving production delays, quality control or assurance, component supply and lack of qualified personnel. In addition, we may in the future move our U.S. manufacturing operations to another location leased by us in Winter Park, Florida, which could result in unanticipated problems and production delays. Any products manufactured or distributed by us pursuant to FDA clearances or approvals are subject to extensive regulation by the FDA, including recordkeeping requirements and 48 reporting of adverse experience with the use of the product. Our manufacturing facilities are subject to periodic inspection by the FDA, certain state agencies and international regulatory agencies. We require that our key suppliers comply with recognized standards as well as our own quality standards, and regularly test the components and sub-assemblies supplied to us. Any failure by us or our suppliers to comply with applicable regulatory requirements, including the FDA's quality systems/good manufacturing practice (QSR/GMP) regulations, could cause production and distribution of our products to be delayed or prohibited, either of which could have a material adverse effect on our business, financial condition and results of operations. REQUIRED MINIMUM PAYMENTS UNDER OUR KERATOME LICENSE AGREEMENT MAY EXCEED OUR GROSS PROFITS FROM SALES OF OUR KERATOME PRODUCTS. In addition to the risk that the UniShaper single-use keratome or UltraShaper durable keratome will not be accepted in the marketplace, we are required to make certain minimum payments to the licensor under our keratome limited exclusive license agreement, unless the January 2000 amendment, as described below, is triggered by April 30, 2000. Under the original agreement, we are required to provide an excimer laser system and pay a total of $300,000 to the licensor in two equal installments due six and 12 months after the date of our receipt of the production molds for the UniShaper product. We provided the laser system to the licensor during the quarter ended June 30, 1998, and we received the molds in October 1999. We shipped the first UniShaper single-use keratome in December 1999. In addition, beginning seven months after the first commercial shipment, we will be required to make royalty payments equal to 50% of our defined gross profits from the sale of our UniShaper and UltraShaper keratomes, with a minimum royalty of $400,000 per calendar quarter for a period of eight quarters. As a result of our obligations under this license arrangement, the minimum royalty payments we are required to make to the licensor may exceed our gross profits from sales of our UniShaper and UltraShaper keratome products. On January 18, 2000, the Company entered into a first amendment to a license and royalty agreement related to certain keratome related products. Under the terms of the amendment 555,552 shares of Common Stock were placed in escrow and are included in common shares issued and outstanding on that date. If certain conditions under the amendment are satisfied by April 30, 2000, the shares will be released from escrow. Otherwise, the shares will be returned to the Company. In addition, the Company agreed to pay the licensors $200,000 upon execution of the amendment and $200,000 on April 1, 2000. The amendment eliminates the restriction on the Company manufacturing, marketing and selling other keratomes, but the sale of such other keratomes is included in the gross profit to be shared with the licensors. The Company agreed to pay the costs of the UniShaper final production molds. OUR FAILURE TO TIMELY OBTAIN OR EXPAND REGULATORY APPROVALS FOR OUR PRODUCTS AND TO COMPLY WITH REGULATORY REQUIREMENTS COULD ADVERSELY AFFECT OUR BUSINESS. Our excimer laser systems and keratome products are subject to strict governmental regulations which materially affect our ability to manufacture and market these products and directly impact our overall business prospects. FDA regulations impose design and performance standards, labeling and reporting requirements, and submission conditions in advance of marketing for all medical laser products in the U.S. New product introductions, expanded treatment types and levels for approved products, and significant design or manufacturing modifications require a premarket clearance or approval by the FDA prior to commercialization in the U.S. The FDA approval process, which is lengthy and uncertain, requires supporting clinical studies and substantial commitments of financial and management resources. Failure to obtain or maintain regulatory approvals and clearances in the U.S. and other countries, or significant delays in obtaining these approvals and clearances, could prevent us from marketing our products for either approved or expanded indications or treatments, which could substantially decrease our future revenues. Additionally, product and procedure labeling and all forms of promotional activities are subject to examination by 49 the FDA, and current FDA enforcement policy prohibits the marketing by manufacturers of approved medical devices for unapproved uses. Noncompliance with these requirements may result in warning letters, fines, injunctions, recall or seizure of products, suspension of manufacturing, denial or withdrawal of PMAs, and criminal prosecution. Laser products marketed in foreign countries are often subject to local laws governing health product development processes, which may impose additional costs for overseas product development. Future legislative or administrative requirements, in the U.S. or elsewhere, may adversely affect our ability to obtain or retain regulatory approval for our products. The failure to obtain approvals for new or additional uses on a timely basis could have a material adverse effect on our business, financial condition and results of operations. OUR BUSINESS DEPENDS ON OUR INTELLECTUAL PROPERTY RIGHTS, AND IF WE ARE UNABLE TO PROTECT THEM, OUR COMPETITIVE POSITION MAY BE ADVERSELY AFFECTED. Our business plan is predicated on our proprietary systems and technology, including our narrow-beam scanning laser systems. We protect our proprietary rights through a combination of patent, trademark, trade secret and copyright law, confidentiality agreements and technical measures. We generally enter into non-disclosure agreements with our employees and consultants and limit access to our trade secrets and technology. We cannot assure you that the steps we have taken will prevent misappropriation of our intellectual property. Misappropriation of our intellectual property would have a material adverse effect on our competitive position. In addition, we may have to engage in litigation or other legal proceedings in the future to enforce or protect our intellectual property rights or to defend against claims of invalidity. These legal proceedings may consume considerable resources, including management time and attention, which would be diverted from the operation of our business, and the outcome of any such legal proceeding is inherently uncertain. We are aware that certain competitors are developing products that may potentially infringe patents owned or licensed exclusively by us. In order to protect our rights in these patents, we may find it necessary to assert and pursue infringement claims against such third parties. We could incur substantial costs and diversion of management resources litigating such infringement claims and we cannot assure you that we will be successful in resolving such claims or that the resolution of any such dispute will be on terms that are favorable to us. PATENT INFRINGEMENT ALLEGATIONS MAY IMPAIR OUR ABILITY TO MANUFACTURE AND MARKET OUR PRODUCTS. There are a number of U.S. and foreign patents covering methods and apparatus for performing corneal surgery that we do not own or have the right to use. If we were found to infringe a patent in a particular market, LaserSight and its customers may be enjoined from manufacturing, marketing, selling and using the infringing product in the market and may be liable for damages for any past infringement of such rights. In order to continue using such rights, we would be required to obtain a license, which may require us to make royalty, per procedure or other fee payments. We cannot be certain if we or our customers will be successful in securing licenses, or that if we obtain licenses, such licenses will be available on acceptable terms. Alternatively, we might be required to redesign the infringing aspects of these products. Any redesign efforts that we undertake could be expensive and might require regulatory review. Furthermore, the redesign efforts could delay the reintroduction of these products into certain markets, or may be so significant as to be impractical. If redesign efforts were impractical, we could be prevented from manufacturing and selling the infringing products, which would have a material adverse effect on our business, financial condition and results of operations. 50 We are currently involved in patent litigation with Visx, and such allegations are common in our industry. In 1992, Summit and Visx formed a U.S. partnership, Pillar Point Partners, to pool certain of their patents related to corneal sculpting technologies. As part of their agreement to dissolve Pillar Point in June 1998, Summit and Visx granted each other a worldwide, royalty free cross-license whereby each party has full rights to license for use with its own systems all existing patents owned by either company relating to laser vision correction. In connection with our March 1996 settlement of litigation with Pillar Point regarding alleged infringement by our lasers of certain U.S. and foreign patents, we entered into a license agreement with Visx covering various foreign patents and patent applications pursuant to which we pay royalties to Visx and agreed to notify Visx before we began manufacturing and selling our laser systems in the U.S. While we do not believe our laser systems or keratome products infringe any valid and enforceable patents held by Visx, Summit or any other person, we cannot assure you that one or more of our competitors or other persons will not assert that our products infringe their intellectual property, or that we will not in the future be deemed to infringe one or more patents owned by them or some other party. We could incur substantial costs and diversion of management resources defending any infringement claims. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could effectively block our ability to market one or more of our products. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for our products will be available on commercially reasonable terms, or at all. See "--Risk Factors and Uncertainties--We are subject to risks and uncertainties relating to our patent litigation with Visx." WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES. Our international sales accounted for 72% and 87% of our total revenues during the year ended December 31, 1999 and the year ended December 31, 1998, respectively. In the future, we expect that sales to international accounts will represent a lower percentage of our total sales as a result of our recent regulatory approval to market our LaserScan LSX laser system in the U.S., the anticipated commercial launch of our UltraShaper durable keratome in the second quarter of 2000, and the recent commercial launch of our UltraEdge keratome blades and our UniShaper single-use keratome. The majority of our international revenues for the year ended December 31, 1999 were from customers in Canada, Mexico Spain, , Italy, Belgium and France, and for the year ended December 31, 1998 were from customers in Canada, China, Brazil, Mexico, Italy, Argentina, South Africa, and Turkey. International sales of our products may be limited or disrupted by: o the imposition of government controls; o export license requirements; o economic or political instability; o trade restrictions; o difficulties in obtaining or maintaining export licenses; o changes in tariffs; and o difficulties in staffing and managing international operations. Our sales have historically been and are expected to continue to be denominated in U.S. dollars. The European Economic Union's conversion to a common currency, the Euro, is not expected to have a material impact on our 51 business. However, due to our significant export sales, we are subject to exchange rate fluctuations in the U.S. dollar, which could increase the effective price in local currencies of our products. This could result in reduced sales, longer payment cycles and greater difficulty in collecting receivables relating to our international sales. OUR SUPPLY OF CERTAIN CRITICAL COMPONENTS AND SYSTEMS MAY BE INTERRUPTED BECAUSE OF OUR RELIANCE ON A LIMITED NUMBER OF SUPPLIERS. We currently purchase certain components used in the production, operation and maintenance of our laser systems and keratome products from a limited number of suppliers and certain key components are provided by a single vendor. For example, all of our keratome blades are manufactured exclusively by Becton Dickinson pursuant to our agreement with them, and all of our UniShaper single-use keratome products are manufactured exclusively by Frantz Medical Development Ltd. pursuant to our agreement with them. We do not have written long-term contracts with providers of some key laser system components, including TUI Lasertechnik und Laserintegration GmbH, which currently is a single source supplier for the laser heads used in our LaserScan LSX excimer laser system. Currently, SensoMotoric Instruments GmbH, Teltow, Germany, is a single source for the eye tracker boards used in the LaserScan LSX. Any interruption in the supply of critical laser or keratome components could have a material adverse effect on our business, financial condition and results of operations. If any of our key suppliers ceases providing us with products of acceptable quality and quantity at a competitive price in a timely fashion, we would have to locate and contract with a substitute supplier and, in some cases, such substitute suppliers would need to be qualified by the FDA. If substitute suppliers cannot be located and qualified in a timely manner or could not provide required products on commercially reasonable terms, it would have a material adverse effect on our business, financial condition and results of operations. UNLAWFUL TAMPERING OF OUR SYSTEM CONFIGURATIONS COULD RESULT IN REDUCED REVENUES. We include a procedure counting mechanism on LaserScan LSX lasers manufactured for sale and use in the U.S. Users of our LaserScan LSX excimer laser system could tamper with the software or hardware configuration of the system so as to alter or eliminate the procedure counting mechanism that facilitates the collection of per procedure fees. Unauthorized tampering with our procedure counting mechanism by users could result in the loss of per procedure fees. THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS. Our ability to maintain our competitive position depends in part upon the continued contributions of our executive officers and other key employees, especially Michael R. Farris, our president and chief executive officer. A loss of one or more such officers or key employees could have a material adverse effect on our business. We do not carry "key person" life insurance on any officer or key employee. As we commercially launch our laser system and keratome products in the U.S., we will need to continue to implement and expand our operational, sales and marketing, financial and management resources and controls. While to date we have not experienced problems recruiting or retaining the personnel necessary to expand our business, we cannot assure you that we will not have such problems in the future. If we fail to attract and retain qualified individuals for necessary positions, and if we are unable to effectively manage growth in our domestic or international operations, it could have a material adverse effect on our business, financial condition and results of operations. 52 INADEQUACY OR UNAVAILABILITY OF INSURANCE MAY EXPOSE US TO SUBSTANTIAL PRODUCT LIABILITY CLAIMS. Our business exposes us to potential product liability risks and possible adverse publicity that are inherent in the development, testing, manufacture, marketing and sale of medical devices for human use. These risks increase with respect to our products that receive regulatory approval for commercialization. We have agreed in the past, and we will likely agree in the future, to indemnify certain medical institutions and personnel who conduct and participate in our clinical studies. While we maintain product liability insurance, we cannot be certain that any such liability will be covered by our insurance or that damages will not exceed the limits of our coverage. Even if a claim is covered by insurance, the costs of defending a product liability, malpractice, negligence or other action, and the assessment of damages in excess of insurance coverage in the event of a successful product liability claim, could have a material adverse effect on our business, financial condition and results of operations. Further, product liability insurance may not continue to be available, either at existing or increased levels of coverage, on commercially reasonable terms. FINANCIAL AND LIQUIDITY RISKS WE HAVE EXPERIENCED SIGNIFICANT LOSSES AND OPERATING CASH FLOW DEFICITS AND WE EXPECT THAT OPERATING CASH FLOW DEFICITS WILL CONTINUE THROUGH AT LEAST THE FIRST QUARTER OF 2000. We experienced significant net losses and deficits in cash flow from operations for the years ended December 31, 1999, 1998 and 1997, as set forth in the following table. We cannot be certain that we will be able to achieve or sustain profitability or positive operating cash flow in the future. Year Ended December 31, 1997 1998 1999 ---- ---- ---- Net Loss $ 7.3 million $ 11.9 million $ 14.4 million Deficit in Cash Flow from Operations $ 4.4 million $ 14.3 million $ 11.7 million As of December 31, 1999, we had an accumulated deficit of $38.2 million. IF OUR UNCOLLECTIBLE RECEIVABLES EXCEED OUR RESERVES WE WILL INCUR ADDITIONAL UNANTICIPATED EXPENSES, AND WE MAY EXPERIENCE DIFFICULTY COLLECTING RESTRUCTURED RECEIVABLES WITH EXTENDED PAYMENT TERMS. Although we monitor the status of our receivables and maintain a reserve for estimated losses, we cannot be certain that our reserves for estimated losses, which were approximately $3.9 million at December 31, 1999, will be sufficient to cover the amount of our actual write-offs over time. At December 31, 1999, our net trade accounts and notes receivable totaled approximately $13.2 million, and accrued commissions, the payment of which generally depends on the collection of such net trade accounts and notes receivable, totaled approximately $2.0 million. Actual write-offs that exceed amounts reserved could have a material adverse effect on our consolidated financial condition and results of operations. The amount of any loss that we may have to recognize in connection with our inability to collect receivables is principally dependent on our customer's ongoing financial condition, their 53 ability to generate revenues from our laser systems, and our ability to obtain and enforce legal judgments against delinquent customers. Our ability to evaluate the financial condition and revenue generating ability of our prospective customers located outside of the U.S., and our ability to obtain and enforce legal judgments against customers located outside of the U.S., is generally more limited than for our customers located in the U.S. Our agreements with our international customers typically provide that the contracts are governed by Florida law. We have not determined whether or to what extent courts or administrative agencies located in foreign countries would enforce our right to collect such receivables or to recover laser systems from customers in the event of a customer's payment default. When a customer is not paying according to established terms, we attempt to communicate and understand the underlying causes and work with the customer to resolve any issues we can control or influence. In most cases, we have been able to resolve the customer's issues and continue to collect our receivable, either on the original schedule or under restructured terms. If such issues are not resolved, we evaluate our legal and other alternatives based on existing facts and circumstances. In most such cases, we have concluded that the account should be written off as uncollectible. At December 31, 1999, we had extended the original payment terms of laser customer accounts totaling approximately $1.4 million by periods ranging from 12 to 60 months. Such restructured receivables represent approximately 8% of our gross receivables as of that date. Our liquidity and operating cash flow would be adversely affected if additional extensions become necessary in the future. In addition, it would be more difficult to collect laser system receivables if the payment schedule extends beyond the expected or actual economic life of the system, which we estimate to be approximately five to seven years. To date, we do not believe any payment schedule extends beyond the economic life of the applicable laser system. WE COULD REQUIRE ADDITIONAL FINANCING WHICH MIGHT NOT BE AVAILABLE IF WE NEED IT. During the years ended December 31, 1999 and 1998, we experienced deficits in cash flow from operations of $11.7 million and $14.3 million, respectively. We believe that the proceeds from our January 2000 private placement of common stock, together with our existing balances of cash and cash equivalents and our cash flows from operations, should be sufficient to fund our anticipated working capital requirements for the next 12 months in accordance with our current business plan. Our belief regarding future working capital requirements is based on various factors and assumptions including the commercial acceptance of our LaserScan LSX excimer laser system, our UltraEdge keratome blades and our UniShaper single-use keratomes, the successful validity testing and subsequent commercial acceptance of our UltraShaper durable keratome, the anticipated timely collection of receivables, and the absence of unanticipated product development and marketing costs. These factors and assumptions are subject to certain contingencies and uncertainties, some of which are beyond our control. If we do not collect a material portion of current receivables in a timely manner, or experience less market demand for our products than we anticipate, our liquidity could be materially and adversely affected. We cannot be certain that we will not seek additional debt or equity financing in the future to implement our business plan or any changes thereto in response to future developments or unanticipated contingencies. Other than the $2.5 million credit facility signed in June 1999 with The Huntington National Bank which expires in June 2000, we currently do not have any commitments for additional financing. We cannot be certain that additional financing will be available in the future to the extent required or that, if available, it will be on commercially acceptable terms. If we raise additional funds by issuing equity or convertible debt securities, the terms of the new securities could have 54 rights, preferences and privileges senior to those of our common stock. If we raise additional funds through debt financing, the terms of the debt could require a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest and may render us more vulnerable to competitive pressures and economic downturns. COMMON STOCK RISKS VARIATIONS IN OUR SALES AND OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO FLUCTUATE. Our operating results have fluctuated in the past, and may continue to fluctuate in the future, as a result of a variety of factors, many of which are outside of our control. For example, historically a significant portion of our laser system orders for a particular quarter have been received and shipped near the end of the quarter. As a result, our operating results for any quarter often depend on the timing of the receipt of orders and the subsequent shipment of our laser systems. Other factors that may cause our operating results to fluctuate include: o timing of regulatory approvals and the introduction or delays in shipment of new products; o reductions, cancellations or fulfillment of major orders; o the addition or loss of significant customers; o the relative mix of our business; o changes in pricing by us or our competitors; o costs related to expansion of our business; and o increased competition. As a result of these fluctuations, we believe that period-to-period comparisons of our operating results cannot be relied upon as indicators of future performance. In some quarters our operating results may fall below the expectations of securities analysts and investors due to any of the factors described above. THE MARKET PRICE OF OUR COMMON STOCK MAY CONTINUE TO EXPERIENCE EXTREME FLUCTUATIONS DUE TO MARKET CONDITIONS THAT ARE UNRELATED TO OUR OPERATING PERFORMANCE. The stock market, and in particular the securities of technology companies like us, could experience extreme price and volume fluctuations unrelated to our operating performance. Our stock price has historically been volatile. Factors such as announcements of technological innovations or new products by us or our competitors, changes in domestic or foreign governmental regulations or regulatory approval processes, developments or disputes relating to patent or proprietary rights, public concern as to the safety and efficacy of refractive vision correction procedures, and changes in reports and recommendations of securities analysts, have and may continue to have a significant impact on the market price of our common stock. THE SIGNIFICANT NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE AND DILUTIVE STOCK ISSUANCES MAY ADVERSELY AFFECT OUR STOCK PRICE. Sales, or the possibility of sales, of substantial amounts of our common stock in the public market could adversely affect the market price of our common stock. Substantially all of our 19,803,663 shares of common stock outstanding at March 27, 2000 were freely tradable without restriction or 55 further registration under the Securities Act of 1933, except to the extent such shares are held by "affiliates" as that term is defined in Rule 144 under the Securities Act or subject only to the satisfaction of a prospectus delivery requirement. Shares of common stock which we may issue in the future in connection with acquisitions or financings or pursuant to outstanding warrants or agreements could also adversely affect the market price of our common stock and cause significant dilution in our earnings per share and net book value per share. We may be required to issue more than eight million additional shares of common stock upon the conversion of outstanding preferred stock, the exercise of outstanding warrants and stock options, and the satisfaction of certain contingent contractual obligations. See "Market for Company's Common Equity and Related Stockholder Matters--Possible Dilutive Issuances of Common Stock." The anti-dilution provisions of certain of our existing securities and obligations require us to issue additional shares if we issue shares of common stock below specified price levels. If a future share issuance triggers these adjustments, the beneficiaries of such provisions effectively receive some protection from declines in the market price of our common stock, while our other stockholders incur additional dilution of their ownership interest. We may include similar anti-dilution provisions in securities issued in connection with future financings. ANTI-TAKEOVER PROVISIONS UNDER DELAWARE LAW AND IN OUR CERTIFICATE OF INCORPORATION, BY-LAWS AND STOCKHOLDER RIGHTS PLAN MAY MAKE AN ACQUISITION OF LASERSIGHT MORE DIFFICULT AND COULD PREVENT YOU FROM RECEIVING A PREMIUM OVER THE MARKET PRICE OF OUR STOCK. Certain provisions of our certificate of incorporation, by-laws, stockholder rights plan and Delaware law could delay or frustrate the removal of incumbent directors, discourage potential acquisition proposals and delay, defer or prevent a change in control of LaserSight, even if such events could be beneficial, in the short term, to the economic interests of our stockholders. For example, our certificate of incorporation allows us to issue preferred stock with rights senior to those of the common stock without stockholder action, and our by-laws require advance notice of director nominations or other proposals by stockholders. LaserSight also is subject to provisions of Delaware corporation law that prohibit a publicly-held Delaware corporation from engaging in a broad range of business combinations with a person who, together with affiliates and associates, owns 15% or more of the corporation's common stock (an interested stockholder) for three years after the person became an interested stockholder, unless the business combination is approved in a prescribed manner. We also have adopted a stockholder rights agreement, or "poison pill," and declared a dividend distribution of one preferred share purchase right for each share of common stock. The rights would cause substantial dilution to a person or group that attempts to acquire 15% or more of our common stock on terms not approved by our board of directors. ACQUISITION RISKS PAST AND POSSIBLE FUTURE ACQUISITIONS THAT ARE NOT SUCCESSFULLY INTEGRATED WITH OUR EXISTING OPERATIONS MAY ADVERSELY AFFECT OUR BUSINESS. We have made several significant acquisitions since 1994, and we may in the future selectively pursue strategic acquisitions of, investments in, or enter into joint ventures or other strategic alliances with, companies whose business or technology complement our business. We may not be able to identify suitable candidates to acquire or enter into joint ventures or other arrangements with entities, and we may not be able to obtain financing on satisfactory terms for such activities. In addition, we could have difficulty 56 assimilating the personnel, technology and operations of any acquired companies, which could prevent us from realizing expected synergies, and may incur unanticipated liabilities and contingencies. This could disrupt our ongoing business and distract our management and other resources. AMORTIZATION AND CHARGES RELATING TO OUR SIGNIFICANT INTANGIBLE ASSETS COULD ADVERSELY AFFECT OUR STOCK PRICE AND REPORTED NET INCOME OR LOSS. Of our total assets at December 31, 1999, approximately $13.9 million, or 28%, were goodwill or other intangible assets. Any reduction in net income or increase in net loss resulting from the amortization of goodwill and other intangible assets resulting from future acquisitions by us may have an adverse impact upon the market price of our common stock. In addition, in the event of a sale of LaserSight or our assets, we cannot be certain that the value of such intangible assets would be recovered. In accordance with SFAS 121, we review intangible assets for impairment whenever events or changes in circumstances, including a history of operating or cash flow losses, indicate that the carrying amount of an asset may not be recoverable. If we determine that an intangible asset is impaired, a non-cash impairment charge would be recognized. We continue to assess the current results and future prospects of MRF, Inc., d/b/a The Farris Group (TFG), our subsidiary which provides health care and vision care consulting services, in view of the substantial reduction in the subsidiary's operating results in 1997. Though TFG's operating results improved in 1998 when compared to 1997, operating losses similar to those incurred during the first year of 1998 have continued during 1999. In 1999, two senior consultants joined who are expected to develop new business and help lead TFG towards significant financial improvement during 2000. If TFG is unsuccessful in improving its financial performance, some or all of the carrying amount of goodwill recorded, $3.5 million at December 31, 1999, may be subject to an impairment adjustment. OTHER RISKS The risks described above under are not the only risks facing LaserSight. There may be additional risks and uncertainties not presently known to us or that we have deemed immaterial which could also negatively impact our business operations. If any of the foregoing risks actually occur, it could have a material adverse effect on our business, financial condition and results of operations. In that event, the trading price of our common stock could decline, and you may lose all or part of your investment. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company believes that its exposure to market risk for changes in interest and currency rates is not significant. The Company's investments are limited to highly liquid instruments with maturities generally three months or less. At December 31, 1999, the Company had approximately $10.1 million of short-term investments classified as cash and equivalents. All of the Company's transactions with international customers and suppliers are denominated in U.S. dollars. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Consolidated financial statements prepared in accordance with Regulation S-X are listed in Item 14 of Part IV of this Report, are attached to this Report and incorporated in this Item 8 by reference. 57 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS Information with respect to the Company's directors and executive officers is incorporated herein by reference to the definitive form of the Company's proxy materials to be filed with the Commission on or before April 29, 2000. ITEM 11. EXECUTIVE COMPENSATION Information with respect to executive compensation is incorporated herein by reference to the definitive form of the Company's proxy materials to be filed with the Commission on or before April 29, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to the security ownership of certain beneficial owners and management is incorporated herein by reference to the definitive form of the Company's proxy materials to be filed with the Commission on or before April 29, 2000. ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIons Information with respect to certain relations and related transactions is incorporated herein by reference to the definitive form of the Company's proxy materials to be filed with the Commission on or before April 29, 2000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS AND SCHEDULES. (a) (1) The following financial statements and related items commence on page F-1: Independent Auditors' Reports Consolidated Balance Sheets as of December 31, 1999 and 1998. Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997. Consolidated Statements of Comprehensive Loss for the years ended December 31, 1999, 1998 and 1997. 58 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997. Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997. Notes to Consolidated Financial Statements. (2) Financial Statement Schedules: Schedules not filed: All schedules have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. (3) Exhibits required by Item 601 of Regulation S-K. The Exhibit Index set forth in this Form 10-K is hereby incorporated herein by this reference. b) Reports on Form 8-K (1) On October 23, 1999, we filed a Current Report on Form 8-K describing a distribution agreement entered into with Becton, Dickinson and Company for our keratome product line in the U.S., United Kingdom, Ireland and Japan and an amendment our Manufacturing and Marketing Agreement with them. (2) On November 17, 1999, we filed a Current Report on Form 8-K including a press release describing a stay on patent infringement litigation and the status of license negotiations with Visx, Incorporated. (3) On December 20, 1999, we filed a Current Report on Form 8-K describing our amended and restated bylaws adopted by the board of directors on December 2, 1999. 59 INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 2.1 See Exhibits 10.1, 10.2, 10.6, 10.7, 10.16, 10.22, 10.25, 10.26, 10.30, 10.31 and 10.56. 3.1 Certificate of Incorporation, as amended (incorporated by reference to Exhibit 1 of Form 8-A/A (Amendment No. 4) filed by the Company on June 25, 1998*). 3.2 Bylaws, as amended (filed as Exhibit 3.2 to the Company's Form 8-K filed on December 20, 1999*). 3.3 Rights Agreement, dated as of July 2, 1998, between LaserSight Incorporated and American Stock Transfer & Trust Company, as Rights Agent, which includes (i) as Exhibit A thereto the form of Certificate of Designation of the Series E Junior Participating Preferred Stock, (ii) as Exhibit B thereto the form of Right Certificate (separate certificates for the Rights will not be issued until after the Distribution Date) and (iii) as Exhibit C thereto the Summary of Stockholder Rights Agreement (incorporated by reference to Exhibit 99.1 to the Form 8-K filed by the Company on July 8, 1998*). 3.4 First Amendment to Rights Agreement, dated as of March 22, 1999, between LaserSight Incorporated and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 2 to Form 8-A/A filed by the Company on March 29, 1999*). 3.5 Second Amendment to Rights Agreement, dated as of January 28, 2000, between LaserSight Incorporated and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 99.6 to Form 8-K filed by the Company on February 8, 2000*). 4.1 See Exhibits 3.1, 3.2, 3.3, 3.4, 10.19, 10.23, 10.28, 10.29, 10.36, 10.37, 10.38, 10.39, 10.48, 10.49, 10.50, 10.51, 10.54 and 10.55. 10.1 Agreement for Purchase and Sale of Stock by and among LaserSight Centers Incorporated, its stockholders and LaserSight Incorporated dated January 15, 1993 (filed as Exhibit 2 to the Company's Form 8-K/A filed on January 25, 1993*). 10.2 Amendment to Agreement for Purchase and Sale of Stock by and among LaserSight Centers Incorporated, its stockholders, and LaserSight Incorporated dated April 5, 1993 (filed as Exhibit 2 to the Company's Form 8-K/A filed on April 19, 1993*). 10.3 Royalty Agreement by and between LaserSight Centers Incorporated and LaserSight Partners dated January 15, 1993 (filed as Exhibit 10.5 to the Company's Form 10-K for the year ended December 31, 1995*). 60 10.4 Exchange Agreement dated January 25, 1993 between LaserSight Centers Incorporated and Laser Partners (filed as Exhibit 10.6 to the Company's Form 10-K for the year ended December 31, 1995*). 10.5 Stipulation and Agreement of Compromise, Settlement and Release dated April 18, 1995 among James Gossin, Francis E. O'Donnell, Jr., J.T. Lin, Wen S. Dai, Emanuela Dobrin-Charlton, C.H. Huang, W. Douglas Hajjar, and LaserSight Incorporated (filed as Exhibit 10.7 to the Company's Form 10-K for the year ended December 31, 1995*). 10.6 Agreement for Purchase and Sale of Stock dated December 31, 1993, among LaserSight Incorporated, MRF, Inc., and Michael R. Farris (filed as Exhibit 2 to the Company's Form 8-K filed on December 31, 1993*). 10.7 First Amendment to Agreement for Purchase and Sale of Stock by and among MRF, Inc., Michael R. Farris and LaserSight Incorporated dated December 28, 1995 (filed as Exhibit 10.9 to the Company's Form 10-K for the year ended December 31, 1995*). 10.8 LaserSight Incorporated 1995 Stock Option Plan (filed as Exhibit 10.5 to the Company's Form 10-Q for the quarter ended September 30, 1995*). 10.9 Modified Promissory Note between LaserSight Incorporated, EuroPacific Securities Services, GmbH and Co. KG and Wolf Wiese (filed as Exhibit 10.6 to the Company's Form 10-Q for the quarter ended September 30, 1995*). 10.10 Patent License Agreement dated December 21, 1995 by and between Francis E. O'Donnell, Jr. and LaserSight Centers, Inc. (filed as Exhibit 10.21 to the Company's Form 10-K for the year ended December 31, 1995*). 10.11 LaserSight Incorporated Amended and Restated 1996 Equity Incentive Plan (filed as Exhibit 10.12 to the Company's Form 10-Q/A for the quarter ended June 30, 1998*). 10.12 LaserSight Incorporated Amended and Restated Non-Employee Directors Stock Option Plan (filed as Exhibit B to the Company's definitive proxy statement dated May 19, 1997*). 10.13 Agreement dated September 18, 1996 between David T. Pieroni and LaserSight Incorporated (filed as Exhibit 10.35 to the Company's Form 10-K for the year ended December 31, 1996*). 10.14 Agreement dated January 1, 1997, between International Business Machines Corporation and LaserSight Incorporated (filed as Exhibit 10.37 to the Company's Form 10-K for the year ended December 31, 1996*). 10.15 Addendum dated March 7, 1997 to Agreement between International Business Machines Corporation and LaserSight Incorporated (filed as Exhibit 10.38 to the Company's Form 10-K for the year ended December 31, 1996*). 61 10.16 Second Amendment to Agreement for Purchase and Sale of Stock by and among LaserSight Centers Incorporated, its stockholders and LaserSight Incorporated dated March 14, 1997 (filed as Exhibit 99.1 to the Company's Form 8-K filed on March 27, 1997*). 10.17 Amendment to Royalty Agreement by and between LaserSight Centers Incorporated, Laser Partners and LaserSight Incorporated dated March 14, 1997 (filed as Exhibit 99.2 to the Company's Form 8-K filed on March 27, 1997*). 10.18 Employment Agreement dated September 16, 1996 by and between LaserSight Incorporated and Richard L. Stensrud (filed as Exhibit 10.41 to the Company's Form 10-Q filed on May 9, 1997*) 10.19 Warrant to purchase 500,000 shares of Common Stock dated March 31, 1997 by and between LaserSight Incorporated and Foothill Capital Corporation (filed as Exhibit 10.44 to the Company's Form 10-Q filed on August 14, 1997*). 10.20 License Agreement dated May 20, 1997 by and between Visx Incorporated and LaserSight Incorporated (filed as Exhibit 10.45 to the Company's Form 10-Q filed on August 14, 1997*). 10.21 Patent Purchase Agreement dated July 15, 1997 by and between LaserSight Incorporated and Frederic B. Kremer, M.D. (filed as Exhibit 2.(i) to the Company's Form 8-K filed on August 13, 1997*). 10.22 Agreement and Plan of Merger dated July 15, 1997 by and among LaserSight Incorporated, Photomed Acquisition, Inc., Photomed, Inc., Frederic B. Kremer, M.D., Linda Kremer, Robert Sataloff, Trustee for Alan Stewart Kremer and Robert Sataloff, Trustee for Mark Adam Kremer (filed as Exhibit 2.(ii) to the Company's Form 8-K filed on August 13, 1997*). 10.23 Warrant to purchase 750,000 shares of Common Stock dated August 29, 1997 by and between LaserSight Incorporated and purchasers of Series B Convertible Participating Preferred Stock of LaserSight Incorporated (filed as Exhibit 10.39 to the Company's Form 10-Q filed on November 14, 1997*). 10.24 Independent Contractor Agreement by and between Byron Santos, M.D. and LaserSight Technologies, Inc. (filed as Exhibit 10.42 to the Company's Form 10-Q filed on November 14, 1997*). 10.25 Stock Purchase Agreement, dated December 30, 1997, by and among LaserSight Incorporated, LSI Acquisition, Inc., MEC Health Care, Inc. and Vision Twenty-One, Inc. (filed as Exhibit 2.(i) to the Company's Form 8-K filed on January 14, 1998*). 10.26 Stock Distribution Agreement, dated December 30, 1997, by and among LaserSight Incorporated, LSI Acquisition, Inc., MEC Health Care, Inc. and Vision Twenty-One, Inc. (filed as Exhibit 2.(ii) to the Company's Form 8-K filed on January 14, 1998*). 62 10.27 Agreement dated April 1, 1992 between International Business Machines Corporation and LaserSight Incorporated (filed as Exhibit 10.1 on Form 10-K for the year ended December 31, 1995*). 10.28 Securities Purchase Agreement, dated June 5, 1998, by and between LaserSight Incorporated and TLC The Laser Center, Inc. (filed as Exhibit 99.1 to the Company's Form 8-K filed on June 25, 1998*). 10.29 Securities Purchase Agreement, dated June 12, 1998, by and between LaserSight Incorporated and Pequot Funds (filed as Exhibit 99.5 to the Company's Form 8-K filed on June 25, 1998*). 10.30 Letter Agreement dated September 11, 1998, amending the Agreement and Plan of Merger dated July 15, 1997, by and among LaserSight Incorporated, Photomed Acquisition, Inc., Photomed, Inc., Frederic B. Kremer, M.D., Linda Kremer, Robert Sataloff, Trustee for Alan Stewart Kremer and Robert Sataloff, Trustee for Mark Adam Kremer (filed as Exhibit 10.31 to the Company's Form 10-Q filed on November 16, 1998*). 10.31 Exclusive License Agreement dated August 20, 1998, by and between LaserSight Technologies, Inc. and TLC The Laser Center Patents Inc. (filed as Exhibit 10.32 to the Company's Form 10-Q filed on November 16, 1998*). 10.32 Purchase Agreement, dated June 9, 1997, by and between LaserSight Technologies, Inc. and TUI Lasertechnik Und Laserintegration GmbH (filed as Exhibit 10.1 to the Company's Form S-3, Pre-Effective Amendment No. 1 filed on February 1, 1999*). 10.33 License and Royalty Agreement, dated September 10, 1997, by and between LaserSight Technologies, Inc. and Luis A. Ruiz, M.D. and Sergio Lenchig (filed as Exhibit 10.2 to the Company's Form S-3, Pre-Effective Amendment No. 1 filed on February 1, 1999*). 10.34 Manufacturing Agreement, dated September 10, 1997, by and between LaserSight Technologies, Inc. and Frantz Medical Development Ltd. (filed as Exhibit 10.3 to the Company's Form S-3, Pre-Effective Amendment No. 1 filed on February 1, 1999*). 10.35 Employment Agreement by and between LaserSight Incorporated and Michael R. Farris dated October 30, 1998 (filed as Exhibit 10.37 to the Company's Form 10-K filed on March 31, 1999*). 10.36 Securities Purchase Agreement by and between LaserSight Incorporated and purchasers of Common Stock dated March 22, 1999 (filed as Exhibit 10.38 to the Company's Form 10-K filed on March 31, 1999*). 10.37 Warrant to purchase 225,000 shares of Common Stock dated March 22, 1999 by and between LaserSight Incorporated and purchasers of Common Stock of LaserSight Incorporated (filed as Exhibit 10.39 to the Company's Form 10-K filed on March 31, 1999*). 63 10.38 Warrant to purchase 67,500 shares of Common Stock dated February 22, 1999 by and between LaserSight Incorporated and Guy Numann (filed as Exhibit 10.40 to the Company's Form 10-Q filed on May 17, 1999*). 10.39 Revolving Credit Agreement, dated June 29, 1999, by and between LaserSight Incorporated and The Huntington National Bank (filed as Exhibit 10.39 to the Company's Form 10-Q filed on August 11, 1999*). 10.40 Manufacturing and Marketing Agreement, and Addendum thereto, dated May 14, 1999, by and between LaserSight Technologies, Inc. and Becton, Dickinson and Company (filed as Exhibit 10.40 to the Company's Form 10-Q filed on August 11, 1999*)**. 10.41 First Amendment to Manufacturing and Marketing Agreement, dated October 23, 1999, by and between LaserSight Technologies, Inc. and Becton, Dickinson and Company (filed as Exhibit 10.1 to the Company's 8-K, filed on October 27, 1999*)**. 10.42 Distribution Agreement, dated October 23, 1999, by and between LaserSight Technologies, Inc. and Becton, Dickinson and Company (filed as Exhibit 10.2 to the Company's 8-K, filed on October 27, 1999*)**. 10.43 Employment Agreement, by and between LaserSight Technologies, Inc. and J. Richard Crowley, dated as of July 3, 1997 (filed as Exhibit 10.43 to the Company's Form 10-Q filed on November 15, 1999*). 10.44 Employment Agreement, by and between LaserSight Incorporated and Michael P. Dayton, dated November 10, 1998 (filed as Exhibit 10.44 to the Company's Form 10-Q filed on November 15, 1999*). 10.45 Relocation Agreement, by and between LaserSight Incorporated and Gregory L. Wilson, dated October 13, 1999 1998 (filed as Exhibit 10.45 to the Company's Form 10-Q filed on November 15, 1999*). 10.46 Technology Development and License Agreement, dated October 23, 1999, by and between LaserSight Technologies, Inc. and Quadrivium, L.L.C. 1998 (filed as Exhibit 10.46 to the Company's Form 10-Q filed on November 15, 1999*). 10.47 Employment Agreement, by and between LaserSight Technologies, Inc. and Jack T. Holladay, dated October 27, 1999 (filed as Exhibit 10.47 to the Company's Form 10-Q filed on November 15, 1999*). 10.48 Securities Purchase Agreement by and between LaserSight Incorporated and TLC Laser Eye Centers Inc. dated January 31, 2000 (filed as Exhibit 99.2 to the Company's Form 8-K filed on February 8, 2000*). 10.49 Registration Rights Agreement dated January 31, 2000 by and between LaserSight Incorporated and TLC Laser Eye Centers Inc. (filed as Exhibit 99.3 to the Company's Form 8-K filed on February 8, 2000*). 64 10.50 Securities Purchase Agreement by and between LaserSight Incorporated, BayStar Capital, L.P. and BayStar International, Ltd. dated January 31, 2000 (filed as Exhibit 99.4 to the Company's Form 8-K filed on February 8, 2000*). 10.51 Registration Rights Agreement dated January 31, 2000 by and between LaserSight Incorporated, BayStar Capital, L.P. and BayStar International, Ltd. (filed as Exhibit 99.5 to the Company's Form 8-K filed on February 8, 2000*). 10.52 First Amendment to License and Royalty Agreement dated as of January 18, 2000 by and between LaserSight Technologies, Inc., Luis A. Ruiz, M.D. and Sergio Lenchig. 10.53 Registration Rights Agreement dated as of January 18, 2000 by and between LaserSight Incorporated, Luis A. Ruiz, M.D. and Sergio Lenchig. 10.54 Securities Purchase Agreement by and between LaserSight Incorporated, Engmann Options, Inc. and MDNH Partners, L.P. dated February 18, 2000. The Company undertakes to provide to the Commission upon its request the schedules omitted from this exhibit. 10.55 Registration Rights Agreement dated February 18, 2000 by and between LaserSight Incorporated, Engmann Options, Inc. and MDNH Partners, L.P. 10.56 Technology Purchase Agreement dated as of March 8, 2000 by and between LaserSight Technologies, Inc., Premier Laser Systems, Inc. and Eyesys-Premier, Inc. The Company undertakes to provide to the Commission upon its request the schedules omitted from this exhibit. Exhibit 11 Statement of Computation of Loss Per Share Exhibit 21 Subsidiaries of the Registrant Exhibit 23 Consent of KPMG LLP Exhibit 27 Financial Data Schedule Exhibit 99 Press release dated March 27, 2000 - ---------------------- *Incorporated herein by reference. File No. 0-19671. **Confidential treatment has been granted for portions of this document. The redacted material has been filed separately with the commission. 65 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 29, 2000 LASERSIGHT INCORPORATED By: /s/ Michael R. Farris ----------------------------- Michael R. Farris, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Michael R. Farris Dated: March 29, 2000 - --------------------------------------------- Michael R. Farris, President, Chief Executive Officer and Director /s/ Francis E. O'Donnell, Jr., M.D. Dated: March 29, 2000 - --------------------------------------------- Francis E. O'Donnell, Jr., M.D., Chairman of the Board, Director /s/ D. Michael Litscher Dated: March 29, 2000 - --------------------------------------------- D. Michael Litscher, Chief Operating Officer, LaserSight Technologies, Inc. and Director /s/ J. Richard Crowley Dated: March 29, 2000 - --------------------------------------------- J. Richard Crowley, Chief Operating Officer, LaserSight Incorporated and Director /s/ Terry A. Fuller, Ph.D. Dated: March 29, 2000 - --------------------------------------------- Terry A. Fuller, Ph.D., Director /s/ Gary F. Jonas Dated: March 29, 2000 - --------------------------------------------- Gary F. Jonas, Director /s/ David T. Pieroni Dated: March 29, 2000 - --------------------------------------------- David T. Pieroni, Director /s/ Gregory L. Wilson Dated: March 29, 2000 - --------------------------------------------- Gregory L. Wilson, Chief Financial Officer (Principal accounting officer) 66 Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders LaserSight Incorporated: We have audited the accompanying consolidated balance sheets of LaserSight Incorporated and Subsidiaries (the Company) as of December 31, 1999 and 1998, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LaserSight Incorporated and Subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP St. Louis, Missouri February 11, 2000 F-1
LASERSIGHT INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 ASSETS 1999 1998 ---- ---- Current assets: Cash and cash equivalents $ 11,247,801 4,437,718 Accounts receivable-trade, net 6,400,980 4,611,834 Notes receivable-current portion, net 4,110,428 4,805,831 Inventories 8,409,823 8,517,636 Deferred tax assets 68,208 184,997 Other current assets 394,543 159,057 ------------- ------------ Total current assets 30,631,783 22,717,073 Notes receivable, less current portion, net 2,721,229 2,880,358 Property and equipment, net 1,934,618 1,502,339 Other assets, net 14,091,303 16,773,213 ------------- ------------ $ 49,378,933 43,872,983 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,694,494 2,220,045 Accrued expenses 3,757,458 3,224,369 Accrued commissions 1,511,653 1,451,180 Income taxes payable -- 9,239 Deferred revenue 1,020,044 937,602 ------------ ------------ Total current liabilities 8,983,649 7,842,435 Refundable deposits -- 194,000 Accrued expenses, less current portion 615,942 642,880 Deferred royalty revenue, less current portion 33,333 433,333 Deferred income taxes 68,208 184,997 Long-term obligations 100,130 560,000 Commitments and contingencies Stockholders' equity: Convertible preferred stock: Series C - par value $.001 per share; authorized 10,000,000 shares; 2,000,000 shares issued and outstanding at December 31, 1999 and 1998, respectively 2,000 2,000 Series D - par value $.001 per share; authorized 10,000,000 shares; 2,000,000 shares issued and outstanding at December 31, 1999 and 1998, respectively 2,000 2,000 Common stock-par value $0.001 per share; authorized 40,000,000 shares; 18,040,313 and 13,332,835 shares issued and outstanding at December 31, 1999 and 1998, respectively 18,040 13,333 Additional paid-in capital 82,346,811 59,407,392 Issued shares held in escrow (2,936,250) -- Stock subscription receivable (1,140,000) (1,140,000) Accumulated deficit (38,172,283) (23,748,303) Less treasury stock, at cost; 145,200 and 140,200 common shares at December 31, 1999 and 1998, respectively (542,647) (521,084) ------------ ------------ Total stockholders' equity 39,577,671 34,015,338 ------------ ------------ $ 49,378,933 43,872,983 ============ ============
See accompanying notes to consolidated financial statements. F-2 LASERSIGHT INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ---- ---- ---- Revenues: Products $ 19,403,781 15,968,035 11,925,018 Royalties 1,970,504 1,111,917 245,000 Services 354,167 676,164 12,218,815 ------------ ------------ ------------ 21,728,452 17,756,116 24,388,833 Cost of revenues: Product cost 9,621,351 6,048,730 4,127,908 Cost of services 155,833 297,512 8,573,932 ------------ ------------ ------------ Gross profit 11,951,268 11,409,874 11,686,993 Research, development, and regulatory expenses 3,139,906 3,840,924 2,807,579 Other general and administrative expenses 16,663,864 12,156,982 13,118,289 Selling related expenses 4,710,288 4,562,740 3,286,600 Amortization of intangibles 2,539,072 2,310,169 1,736,679 ------------ ------------ ------------ 23,913,224 19,029,891 18,141,568 ------------ ------------ ------------ Loss from operations (15,101,862) (11,460,941) (9,262,154) Other income and expenses: Interest and dividend income 770,967 591,481 383,611 Interest expense (93,085) (782,668) (1,343,198) Gain on sale of subsidiaries and securities -- 364,452 4,129,057 Other, net -- (362,500) (280,400) ------------ ------------ ------------ Loss before income tax expense (14,423,980) (11,650,176) (6,373,084) Income tax expense -- 232,213 880,000 ------------ ------------ ------------ Net loss (14,423,980) (11,882,389) (7,253,084) Conversion discount on preferred stock -- (858,872) (41,573) Preferred stock accretion and dividend requirements -- (2,751,953) (298,269) ------------ ------------ ------------ Loss attributable to common stockholders $(14,423,980) (15,493,214) (7,592,926) ============ ============ ============ Loss per common share - basic and diluted $ (0.89) (1.26) (0.80) ============ ============ ============ Weighted average number of shares outstanding - basic and diluted 16,207,000 12,272,000 9,504,000 ============ ============ ============
See accompanying notes to consolidated financial statements. F-3
LASERSIGHT INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ---- ---- ---- Net loss $(14,423,980) (11,882,389) (7,253,084) Other comprehensive income (loss), net of tax: Unrealized gain (reversal) on marketable securities (net of tax of $(353,675) in 1998 and $370,500 in 1997) -- (577,048) 604,500 Reclassification adjustment for gains included in net loss (net of tax of $16,825) -- (27,452) -- ------------ ------------ ----------- Comprehensive loss $(14,423,980) (12,486,889) (6,648,584) ============ ============ ===========
See accompanying notes to consolidated financial statements. F-4 LASERSIGHT INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1999, 1998 and 1997
Obli- gation Stock Addi- Issued to Subscrip- Total Common Stock Preferred Stock tional Share Issue tion Unreal- Accu- Trea Stock- ------------ --------------- Paid-in Held In Common Receiv- ized mulated sury- holders' Shares Amount Shares Amount Capital Escrow Stock able Gain Deficit Stock Equity ------ ------ ------ ------ ------- ------ ----- ------- ---- ------- ----- ------ Balances at December 31, 1996 8,454,266 $ 8,454 8 $ -- 30,080,560 -- 3,065,056 (1,140,000) -- (4,612,830)(632,709)26,768,531 Issuance of shares from exercise of stock options 25,875 26 -- -- 98,337 -- -- -- -- -- -- 98,363 Premium and other adjust- ments on redemp- tion of Series B pre- ferred stock -- -- -- -- (454,866) -- -- -- -- -- -- (454,866) Dividends on Series A pre- ferred stock -- -- -- -- (176,268) -- -- -- -- -- -- (176,268) Conversion of, and settle- ments of dividends on,Series A pre- ferred stock 102,525 102 (8) -- 52,240 -- -- -- -- -- -- 52,342 Issuance of op- tions and treasury stock in conjunc- tion with con- sulting agree- ments -- -- -- -- 52,608 -- -- -- -- -- 18,349 70,957 Adjustment of mar- ketable equity secur- ities to market, net of tax -- -- -- -- -- -- -- -- 604,500 -- -- 604,500 Issuance of shares in con- junction with a- mendment of pur- chase a- greement 624,991 625 -- -- 3,319,640 -- -- -- -- -- -- 3,320,265 Issuance of shares in con- junction with 1994 acqui- sition agree- ment 406,700 407 -- -- 3,064,649 --(3,065,056) -- -- -- -- -- Issuance of shares in con- junction with ac- quisi- tion of intan- gible assets 535,515 536 -- -- 3,416,164 -- -- -- -- -- -- 3,416,700 Issuance of war- rants in conjunc- tion with Series B pre- ferred stock offering -- -- -- -- 592,500 -- -- -- -- -- -- 592,500 Net loss -- -- -- -- -- -- -- -- -- (7,253,084) -- (7,253,084) --------- ------ -------- -------- ----------- ------- --------- ---------- -------- ----------- -------- ---------- Balances at December 31, 1997 10,149,872 10,150 -- -- 40,045,564 -- -- (1,140,000) 604,500 (11,865,914)(614,360) 27,039,940 F-5a Conver- sion of Series B pre- ferred stock 2,392,220 2,392 -- -- 3,714,747 -- -- -- -- -- -- 3,717,139 Issuance of Series C and D pre- ferred stock -- -- 4,000,000 4,000 15,815,556 -- -- -- -- -- -- 15,819,556 Issuance of shares from ex- ercise of stock options and war- rants 194,625 195 -- -- 513,476 -- -- -- -- -- -- 513,671 Issuance of war- rants in conjunc- tion with settle- ment -- -- -- -- 250,000 -- -- -- -- -- -- 250,000 Issuance of shares in con- junction with amendment of pur- chase agreement 187,500 187 -- -- 749,813 -- -- -- -- -- -- 750,000 Issuance of shares in con- junction with ac- quisition 305,820 306 -- -- 1,249,777 -- -- -- -- -- -- 1,250,083 Issuance of shares in con- junction with 1996 acquisi- tion agreement 102,798 103 -- -- (103) -- -- -- -- -- -- -- Premium and other adjust- ments on redemp- tion of Series B pre- ferred stock -- -- -- -- (2,969,180) -- -- -- -- -- -- (2,969,180) Adjustment of market- able equity securi- ties to market, net of tax -- -- -- -- -- -- -- -- (604,500) -- -- (604,500) Issuance of op- tions and shares in con- junction with con- sulting agree- ments -- -- -- -- 37,742 -- -- -- -- -- 93,276 131,018 Net loss -- -- -- -- -- -- -- -- -- (11,882,389) -- (11,882,389) ---------- ------- --------- ------ ---------- ------- --------- ---------- -------- ----------- ------- ----------- Balances at December 31, 1998 13,332,835 13,333 4,000,000 4,000 59,407,392 -- -- (1,140,000) -- (23,748,303)(521,084) 34,015,338 F-5b Issuance of shares from ex- ercise of stock options, warrants and ESPP 2,257,478 2,257 -- -- 10,873,627 -- -- -- -- -- (21,563)(10,854,321) Issuance of op- tions and warrants in con- junction with con- sulting agree- ments -- -- -- -- 187,192 -- -- -- -- -- -- 187,192 Issuance of shares in con- junction with ac- quisition of intan- gible assets 200,000 200 -- -- 2,936,050 -- -- -- -- -- -- 2,936,250 Issuance of stock options in con- junction with acquisi- tion of intan- gible assets -- -- -- -- 94,800 -- -- -- -- -- -- 94,800 Issuance of shares from fi- nancing, net of financ- ing costs 2,250,000 2,250 -- -- 8,847,750 -- -- -- -- -- -- 8,850,000 Issued shares held in escrow -- -- -- -- --(2,936,250) -- -- -- -- -- (2,936,250) Net loss -- -- -- -- -- -- -- -- -- (14,423,980) -- (14,423,980) ---------- ------- --------- ------ ---------- --------- --------- ---------- -------- ----------- -------- ----------- Balances at December 31, 1999 18,040,313 $18,040 4,000,000 $4,000 82,346,811(2,936,250) -- (1,140,000) -- (38,172,283)(542,647) 39,577,671 ========== ======= ========= ====== ========== ========= ========= ========== ======== =========== ======== ===========
See accompanying notes to consolidated financial statements. F-5c LASERSIGHT INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ---- ---- ---- Cash flows from operating activities: Net loss $(14,423,980) (11,882,389) (7,253,084) Adjustments to reconcile net loss to net cash used in operating activities: Realized gain on sale of investments and subsidiaries -- (364,452) (4,129,057) Depreciation and amortization 3,263,894 3,376,174 2,892,456 Provision for uncollectible accounts 1,965,234 1,212,896 2,366,995 Stock, options and warrants issued in conjunction with consulting agreements and settlement 187,192 381,018 -- Changes in assets and liabilities: Notes receivable, net 595,280 (2,357,750) (362,584) Accounts receivable, net (3,495,128) (2,215,473) (176,029) Inventories (315,451) (2,942,720) (1,236,042) Accounts payable 474,449 11,492 859,808 Accrued expenses and commissions 566,624 541,410 1,411,710 Income taxes (9,239) (875,752) 1,688,145 Deferred revenue (317,558) 1,156,716 -- Other, net (174,328) (370,182) (415,097) ------------ ------------ ------------ Net cash used in operating activities (11,683,011) (14,329,012) (4,352,779) ------------ ------------ ------------ Cash flows from investing activities: Purchases of property and equipment (704,298) (648,475) (630,550) Proceeds from sale of subsidiaries -- 6,527,452 6,500,000 Net proceeds from exclusive and non-exclusive license of patents -- 6,170,000 3,958,436 Acquisition of other intangible assets (989,874) (15,428,961) Purchase of managed care contract -- -- (150,000) Transfer to restricted cash account -- (4,200,000) (3,200,000) Proceeds from restricted cash account -- 4,228,000 3,172,000 ------------ ------------ ------------ Net cash provided by (used in) investing activities (704,298) 11,087,103 (5,779,075) ------------ ------------ ------------ Cash flows from financing activities: Proceeds from issuance of common stock 8,850,000 -- -- Proceeds from preferred stock financings, net -- 15,819,555 14,834,219 Redemption and repurchase of preferred stock -- (10,512,000) (3,172,000) Proceeds from issuance of note payable, net -- -- 3,414,142 Repayments on notes payable -- (2,000,000) (3,000,000) Proceeds from exercise of stock options, warrants and ESPP 10,367,051 513,672 98,363 Repayment of capital lease obligation (19,659) -- (187,971) ------------ ------------ ------------ Net cash provided by financing activities 19,197,392 3,821,227 11,986,753 ------------ ------------ ------------ Increase in cash and cash equivalents 6,810,083 579,318 1,854,899 Cash and cash equivalents: Beginning of year 4,437,718 3,858,400 2,003,501 ------------ ------------ ------------ End of year $ 11,247,801 4,437,718 3,858,400 ============ ============ ============ See accompanying notes to consolidated financial statements.
F-6 LASERSIGHT INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998 NOTE 1 - BUSINESS - ----------------- LaserSight Incorporated (the Company) is the parent company of three major wholly-owned operating subsidiaries: LaserSight Technologies, Inc., which develops, manufactures and sells ophthalmic lasers and related products primarily for use in photorefractive keratectomy (PRK) and laser in-situ keratomileusis (LASIK) procedures; LaserSight Patents, Inc., which owns and licenses various patents related to refractive surgical procedures; and MRF, Inc. d/b/a The Farris Group, a consulting firm servicing health care providers. In December 1997, the Company sold two operating subsidiaries: MEC Health Care, Inc. (MEC), a managed care intermediary that contracted with various health maintenance organizations (HMOs) and eye care providers to provide comprehensive vision services to the HMO subscribers; and LSI Acquisition, Inc. (LSIA), which managed ophthalmic practices and ambulatory surgery centers (see note 4). NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Basis of Presentation - --------------------- The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents - ------------------------- For financial reporting purposes, the Company considers short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. Marketable Securities - --------------------- The Company classifies all of its marketable securities as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of income taxes, reported as a component of stockholders' equity. F-7 Credit Risk - ----------- Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts and notes receivable. The Company sells products to customers, at times extending credit for such sales. Exposure to losses on receivables is principally dependent on each customer's financial condition and their ability to generate revenue from the Company's products. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. To mitigate a portion of the Company's exposure on certain sales, the Company has obtained letters of credit to be drawn on foreign financial institutions in the event a customer should default. At December 31, 1999 and 1998, the Company was the payee on letters of credit with foreign financial institutions aggregating approximately $0.6 million and $2.5 million, respectively. Income Taxes - ------------ The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Inventory - --------- Inventory, which consists primarily of laser systems parts and components, is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Property and Equipment - ---------------------- Property and equipment are stated at cost. Furniture and equipment are depreciated using the straight-line method over the estimated lives (three to seven years) of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Such depreciation and amortization is included in other general and administrative expenses on the consolidated statements of operations. Patents - ------- Costs associated with obtaining patents are capitalized as incurred and are amortized over their remaining useful lives (generally 17 years or less). Goodwill and Acquired Technology - -------------------------------- Goodwill represents the excess of cost over the fair value of net assets acquired and is amortized on a straight-line basis over estimated useful lives up to 20 years. Management evaluates the carrying value of goodwill using projected future undiscounted operating cash flows of the acquired businesses. Acquired technology was recorded as an intangible asset and is amortized over a period of 12 years based on the Company's estimate of the lifespan of the solid-state laser product and the useful life of a related patent acquired. The Company continually assesses the potential market for solid-state as an improvement to existing excimer laser technology. F-8 Research and Development - ------------------------ Research and development costs are charged to operations in the year incurred. The cost of certain equipment used in research and development activities which have alternative uses is capitalized as equipment and depreciated using the straight-line method over the estimated lives (five to seven years) of the assets. Total expenditures on research and development for the years ended December 31, 1999, 1998, and 1997 were, approximately $2,084,000, $2,813,000, and $1,836,000, respectively. Product Warranty Costs - ---------------------- Estimated future warranty obligations related to the Company's products, typically for a period of one year, are provided by charges to operations in the period in which the related revenue is recognized. Extended Service Contracts - -------------------------- The Company sells product service contracts covering periods beyond the initial warranty period. Revenues from the sale of such contracts are deferred and amortized on a straight-line basis over the life of the contracts. Service contract costs are charged to operations as incurred. Revenue Recognition - ------------------- The Company recognizes revenue from the sale of its products in the period that the products are shipped to the customers. Royalty revenues from the license of patents owned are recognized in the period earned. Service revenues from consulting clients are recognized in the period that the services are provided. The Company recognized premiums from HMOs and other payors as income in the period to which vision care coverage related. Substantially all premiums are collected on a monthly basis and relate to vision care coverage during that month. Capitation revenue for the years ended December 31, 1999, 1998, and 1997 was approximately $0, $0 and $7,955,000, respectively (see note 4). Revenues from managing an ophthalmic practice and an ambulatory surgery center were recognized when earned in accordance with the practice services agreement (see note 4). F-9 Cost of Revenues - ---------------- Cost of revenues consist of product cost and cost of services. Product cost relates to the cost from the sale of its products in the period that the products are shipped to the customers. Cost of services consists of the costs related to servicing consulting clients, managing an ophthalmic practice and an ambulatory surgery center and provider payments. Provider payments consist of benefit claims and capitation payments made to providers. Loss Per Share - -------------- Basic loss per common share is computed using the weighted average number of common shares and contingently issuable shares (to the extent that all necessary contingencies have been satisfied), if dilutive. Diluted loss per common share is computed using the weighted average number of common shares, contingently issuable shares, and common share equivalents outstanding during each period. Common share equivalents include options, warrants to purchase Common Stock, and convertible Preferred Stock and are included in the computation using the treasury stock method if they would have a dilutive effect. Diluted loss per share for the years ended December 31, 1999, 1998 and 1997 is the same as basic loss per share. F-10 Pursuant to Emerging Issue Task Force (EITF) Announcement No. D-60, the value of the conversion discount on the Series C and D Convertible Participating Preferred Stock (Series C and D Preferred Stock) issued in June 1998 (approximately $834,000) and the Series B Convertible Participating Preferred Stock (Series B Preferred Stock) issued in August 1997 (approximately $42,000 in 1997 and $25,000 in 1998) has been reflected as an increase to the loss attributable to common stockholders for the years ended December 31, 1998 and 1997, respectively. The value of the conversion discounts, ($0.07) basic and diluted in 1998, have been reflected as an adjustment to the loss attributable to common shareholders. The value of the conversion discount in 1997 had no per share effect. The following is the reconciliation of the numerators and denominators of the basic and diluted EPS computations for the years ended December 31, 1999, 1998, and 1997: 1999 1998 1997 ---- ---- ---- Numerator: Net loss $(14,423,980) (11,882,389) (7,253,084) Conversion discount on preferred stock -- (858,872) (41,573) Preferred stock accretion and dividends -- (2,751,953) (298,269) ------------ ------------ ------------ Loss attributable to common stockholders $(14,423,980) (15,493,214) (7,592,926) ------------ ------------ ------------ Denominator, basic and diluted weighted average shares outstanding 16,207,000 12,272,000 9,504,000 ============ ============ ============ Basic and diluted loss per share $ (0.89) (1.26) (0.80) ============ ============ ============ F-11 Common share equivalents, including contingently issuable shares, options, warrants, and convertible Preferred Stock totaling 5,538,000, 2,530,000 and 4,722,000 common stock equivalents at December 31, 1999, 1998, and 1997, respectively, are not included in the computation of diluted loss per share because they have an antidilutive effect. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - ----------------------------------------------------------------------- Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Comprehensive Loss - ------------------ The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", on January 1, 1998. SFAS No. 130 requires companies to classify items defined as "other comprehensive income" by their nature in a financial statement and to display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the consolidated balance sheet. Operating Segments - ------------------ The Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", on December 31, 1998. SFAS No. 131 requires companies to report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement also requires that public companies report certain information about their products and services, the geographic areas in which they operate and their major customers. Reclassifications - ----------------- Certain reclassifications have been made to prior years' consolidated financial statements to conform to the 1999 consolidated financial statement presentation. F-12 NOTE 3 - ACQUISITIONS - --------------------- Technology Development and License Agreement - -------------------------------------------- On October 23, 1999, the Company entered into a technology development and exclusive license agreement with Quadrivium, L.L.C. covering patents and patent applications related to a corneal reshaping procedure that achieves a refractive correction utilizing low levels of infrared energy. The Company issued 200,000 shares of Common Stock, valued at approximately $3.0 million, which were placed into escrow. If the Company determines the technology is capable of producing a commercially viable system in accordance with the agreement, 100,000 shares will be released from escrow. Otherwise, all shares will be returned to the Company. On the date that clinical trials using this technology are completed, if LaserSight determines that the international commercialization of the system is viable, the remaining 100,000 shares will be released from escrow. Otherwise, the remaining shares will be returned to the Company. Pending the Company's determinations, the value of these shares is classified as Issued Shares Held in Escrow in the Stockholders' Equity section of the consolidated balance sheet. Aesthetic Product - ----------------- In April 1998, the Company acquired from Schwartz Electro-Optics, Inc. (SEO) substantially all the assets, and assumed certain liabilities, of SEO's medical products division (the Division) in exchange for 305,820 shares of the Company's Common Stock. The value of the acquisition was $1,250,000. The Division develops, tests, manufactures, assembles, and sells lasers and their related equipment, accessories, parts, and software for medical and medical research applications. The Division's primary focus is erbium lasers, which are primarily used to perform dermatology-related procedures. The acquisition was accounted for using the purchase method. Accordingly, the Division's results of operations are included in the Company's consolidated financial statements subsequent to the acquisition date. The fair value of the purchase consideration was determined at the date of acquisition and was recorded at that time. The acquisition did not have a material effect of the assets or operations of the Company. Photomed, Inc. - -------------- In July 1997, the Company acquired from Photomed, Inc. the rights to a Pre-Market Approval (PMA) application filed with the Food and Drug Administration (FDA) for a laser to perform LASIK, a refractive surgery alternative to surface PRK. In addition, the Company purchased from a stockholder of Photomed, Inc. U.S. Patent No. 5,586,980 for a keratome, the instrument necessary to create the corneal "flap" in the LASIK procedure. The Company issued a combination of 535,515 unregistered shares of Common Stock (valued at $3,416,700) and $333,300 in cash as consideration for the PMA application and the keratome patent. The seller will also receive a percentage of any licensing fees or sale proceeds related to the patent. The total value was capitalized as the cost of PMA application and patent and is being amortized over 5 and 15 years, respectively. In September 1998, the Company entered into an amendment with Photomed based on a FDA approval received in July 1998, and paid Photomed a total of $1,740,000, of which $990,000 was paid in cash and the balance paid through the issuance of 187,500 shares of Common Stock. Upon receipt of FDA approval of equivalency of the Company's refractive scanning laser to the laser acquired, payment of up to $1 million in cash is due if the approval is obtained within four months after Photomed takes delivery of the Company's refractive scanning laser. Such obligation decreases approximately $2,740 per day after such four month period. As of December 31, 1999 and 1998, the unamortized carrying values of the LASIK PMA application and the keratome patent were included in other assets. F-13 Patents - ------- In August 1997, the Company finalized an agreement with IBM, in which the Company acquired certain patents (IBM Patents) relating to ultraviolet light ophthalmic products and procedures for ultraviolet ablation for $14.9 million. The total value was capitalized and is being amortized over approximately 8 years. Under the agreement, IBM transferred to the Company all of IBM's rights under its patent license agreements with certain licensees. Royalties from such assigned patent licenses totaled approximately $1,971,000, $1,112,000 and $803,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Royalties accrued on or after January 1, 1997 but before September 1997, totaling approximately $581,000, reduced the Company's cost of the IBM Patents. The acquisition was financed through the private placement of Series B Preferred Stock (see note 11). In September 1997, the Company sold an exclusive worldwide royalty-free patent license covering the vascular and cardiovascular rights included in the IBM Patents for $4 million, reducing the Company's basis in the IBM Patents. No gain or loss was recognized as a result of this sale. Approximately $3.2 million of these funds were placed in a restricted cash account and in October 1997 were used to voluntarily redeem 305 shares of the Series B Preferred Stock issued to finance the purchase of the IBM Patents. In connection with such redemption, the Company paid a total of $3,172,000 including a four percent premium (see note 11). In February 1998, the Company sold certain rights in certain patents to Nidek Co., Ltd. for $6.3 million in cash (of which $200,000 was withheld for the payment of Japanese taxes). The Company transferred all rights in those patents issued in countries outside of the U.S. but retained the exclusive right to use and sublicense the non-U.S. patents in all fields other than ophthalmic, cardiovascular and vascular. The Company received a non-exclusive license to the non-U.S. patents in the ophthalmic field. In addition, the Company has granted a non-exclusive license to use those patents issued in the U.S., which resulted in $1.2 million of deferred royalties that are being amortized to income over three years. The transaction did not result in any current gain or loss, but reduced the Company's amortization expense over the remaining useful life of the U.S. patents. As of December 31, 1999 and 1998, the unamortized carrying value of the patents was included in other assets. Keratome License - ---------------- In September 1997, the Company acquired worldwide distribution rights to the Ruiz-Lenchig disposable keratome for the LASIK procedure and entered into a limited exclusive license agreement for intellectual property related to the keratome products formerly known as Automated Disposable Keratomes (A*D*K). The trade name for this single use keratome is now the LaserSight "UniShaper(TM)" single use keratome. In exchange, the Company paid $400,000 in cash at closing and supplied to the licensors one excimer laser. Six months after the first shipment of the disposable keratome product, the Company will pay an additional $150,000 to the licensors with another installment of $150,000 due twelve months after the initial shipment date. The total value was capitalized, including the net book value of the laser, and is being amortized over 31 months. The Company will also share the product's gross profit with the licensors with minimum quarterly royalties of $400,000 beginning approximately seven months after the initial shipment date. Under the arrangement, gross profit is defined as the selling price less certain costs of sales and commissions. As of December 31, 1999, and 1998, the unamortized carrying value of the keratome license was included in other assets. UniShaper shipments began in December 1999. See note 17. F-14 Assets of Northern New Jersey Eye Institute - ------------------------------------------- In July 1996, the Company acquired the assets of the Northern New Jersey Eye Institute (NNJEI) and contracted with the practice to provide ongoing management services through its LSIA subsidiary. The acquisition was accounted for using the purchase method. Accordingly, the Company's results of operations resulting from LSIA's service agreement with NNJEI were included in the Company's consolidated financial statements subsequent to the acquisition date. The total purchase cost, including acquisition costs, of $2,576,882, was comprised of a 5.05% promissory note in the amount of $340,000 and 205,598 unregistered shares of the Company's Common Stock. The Company issued 102,798 additional shares on July 3, 1998 because the Company's quoted stock price was lower than $15.00 per share at that date. The fair value of the purchase consideration was determinable at the date of acquisition and was recorded at that time. When the additional shares were issued in July 1998, the entry was to record the par value of shares issued in Common Stock with the offset to additional paid-in capital. The promissory note was repaid in September 1996. Cost to enter into the management services agreement, totaling $1,606,774, was recognized as a result of the acquisition, and was being amortized over 25 years. In December 1997, the Company sold LSIA to an unrelated company (see note 4). MEC Health Care, Inc. - --------------------- In October 1995, the Company acquired all of the issued and outstanding shares of common stock of MEC. The acquisition was accounted for using the purchase method. Accordingly, MEC's results of operations are included in the Company's consolidated financial statements subsequent to the acquisition date. The total purchase cost, including acquisition costs, of $6,579,087 was comprised of an 8.75% promissory note in the total amount of $1,799,100 (see note 10) and 543,464 unregistered shares of the Company's Common Stock. Goodwill recognized as a result of the acquisition, totaling $6,667,918, was being amortized over 20 years. In December 1997, the Company sold MEC to an unrelated company (see note 4). The Farris Group - ---------------- In February 1994, the Company acquired MRF, Inc. d/b/a The Farris Group. The acquisition was accounted for using the purchase method. Accordingly, The Farris Group's results of operations are included in the Company's consolidated financial statements subsequent to the acquisition date. The terms of the acquisition provided, among other things, for the Company to pay $2 million and up to 750,000 unregistered shares of the Company's Common Stock issuable if The Farris Group achieved certain future performance objectives. Based on The Farris Group's pre-tax profits for each of the years ended December 31, 1996, 1995, and 1994, 406,700 shares were issued in April 1997 (see note 11). These earn-out shares were valued at $3,065,056 and accounted for as additional purchase price since there are a maximum number of shares issuable, termination of the former owner's employment does not impact the agreement, and the agreement is entirely separate from compensation agreements. No additional shares will be issued. F-15 LaserSight Centers Incorporated - ------------------------------- In April 1993, the Company acquired all of the outstanding stock of LaserSight Centers Incorporated (Centers), a privately held corporation, whose former owners include two of the Company's former presidents and its chairman. Centers is a development stage corporation which intends to provide services for ophthalmic laser surgical centers using excimer and other lasers. The terms for the closing of this transaction provided for the issuance of 500,000 unregistered shares of the Company's Common Stock and the agreement of the Company to issue up to an additional 1,265,333 unregistered shares of its Common Stock based on the outcome of certain future events and whether Centers achieves certain performance objectives. In March 1997, the Company amended the purchase and royalty agreements related to the 1993 acquisition of Centers. The amended purchase agreement provided for the Company to issue approximately 625,000 unregistered common shares with 600,000 additional shares contingently issuable based upon future operating profits. This replaced the provision calling for 1,265,333 contingently issuable shares based on cumulative revenues or other future events and the uncertainties associated therewith. The amended royalty agreement reduced the royalty from $86 to $43 per refractive procedure and delayed the obligation to pay such royalties until the sooner of five years or the issuance of all contingently issuable shares as described above. The value of shares issued in March 1997, $3,320,321, was accounted for as additional purchase price based upon historical and expected growth in the excimer laser industry and undiscounted projected cash flows. NOTE 4 - DIVESTITURES - --------------------- In December 1997, the Company sold all of the outstanding stock of MEC and LSIA to Vision Twenty-One, Inc. (Vision 21) in a transaction which was effective as of December 1, 1997. The total consideration paid by Vision 21 to the Company consisted of $6.5 million in cash paid at closing and 820,085 unregistered shares of Vision 21 common stock. The final number of the Vision 21 shares to be received by the Company was subject to certain post-closing adjustments, for which a portion of the unregistered Vision 21 shares, valued at $1 million at the closing date, were placed in escrow. The Vision 21 shares were to be liquidated pursuant to the agreement from February through May 1998. The Company was to receive a minimum of $6.5 million and a maximum of $7.475 million from the liquidation of the Vision 21 shares. The Company received a total of approximately $6.5 million through June 1998. A portion of the proceeds was used to repay the Foothill loan. The Company believes Vision 21 owes it approximately $800,000 in additional proceeds, an amount in dispute at this time. At December 31, 1997, the market value of the Vision 21 shares was approximately $7,586,000 (see notes 10 and 16). The Company recorded a current liability in the amount of approximately $770,000 as of December 31, 1997, representing the maximum potential post-closing adjustments. The post-closing adjustments were resolved during 1998 and no liability is recorded at December 31, 1998. As a result of this transaction, the Company recorded gains before income taxes of $364,452 and $4,129,057 in the years ended December 31, 1998 and 1997, respectively. Approximately $191,000 of the gain in 1998 related to the sale of Vision 21 securities. F-16 The following pro forma unaudited information has been prepared assuming that the disposition of both MEC and LSIA had occurred as of the beginning of the year ended December 31, 1997. The pro forma adjustments serve to eliminate revenues and expenses related to MEC and LSIA for the periods presented and do not include any overhead allocations. The unaudited pro forma condensed consolidated revenues, gross profit and net loss are not necessarily indicative of results that would have occurred had the disposition been consummated as of the beginning of the year ended December 31, 1997, or that which might be attained in the future. For the Year Ended December 31, 1997 (Unaudited) Subsidiaries Historical Sold Pro Forma ---------- ---- --------- Revenues, net $24,388,833 (11,009,723) 13,379,110 Gross profit 11,686,993 (2,836,873) 8,850,120 Net loss $(7,253,084) (665,120) (7,918,204) =========== ============ ============ NOTE 5 - ACCOUNTS AND NOTES RECEIVABLE - -------------------------------------- Accounts and notes receivable at December 31, 1999 and 1998 were net of allowance for uncollectibles of approximately $3,876,000 and $2,576,000, respectively. During 1999 and 1998, approximately $665,000, and $462,000, respectively, in accounts and notes receivable, net of associated commissions and bad debt recoveries, were written off as uncollectible. The Company currently provides internal financing for sale of its laser systems. Sales for which there is no stated interest rate are discounted at a rate of eight percent, an estimate of the prevailing market rate for such purchases. Note receivable payments due within one year are classified as current. The maturity dates of long-term notes receivable balances, less an allowance for uncollectibles, at December 31, 1999 are as follows: Due in 2001 $ 2,318,846 2002 319,899 2003 82,484 ----------- $ 2,721,229 =========== F-17 NOTE 6 - INVENTORIES - -------------------- The components of inventories at December 31, 1999 and 1998 are summarized as follows: 1999 1998 ---- ---- Raw materials $ 6,381,980 5,226,146 Work in process 630,342 1,837,460 Finished goods 958,387 1,046,756 Test equipment-clinical trials 439,114 407,274 ------------ ----------- $ 8,409,823 8,517,636 ============ =========== As of December 31, 1999, the Company had two laser systems being used under arrangements for clinical trials in various countries. At December 31, 1998, the Company had three laser systems being used under arrangements for clinical trials in various countries. As described in Note 3, in April 1998, the Company acquired an aesthetic product line. Included in these assets at acquisition was approximately $1,230,000 of inventory. At December 31, 1999 and 1998, inventory related to the aesthetic products division was approximately $1,337,000 and $1,545,000, respectively. NOTE 7 - PROPERTY AND EQUIPMENT - ------------------------------- Property and equipment at December 31, 1999 and 1998 are as follows: 1999 1998 ---- ---- Leasehold improvement $ 334,135 213,622 Furniture and equipment 1,696,601 1,429,413 Laboratory equipment 1,985,853 1,372,473 ------------ ----------- 4,016,589 3,015,508 Less accumulated depreciation 2,081,971 1,513,169 ------------ ----------- $ 1,934,618 1,502,339 ============ =========== During the quarter ended March 31, 1999, LaserSight entered into a capital lease agreement for blade manufacturing equipment. During the quarter ended September 30, 1999, LaserSight sold the equipment to its contract blade manufacturer, who assumed all liability associated with the capital lease, which approximated the net book value of the equipment. F-18 NOTE 8 - OTHER ASSETS - ---------------------- Other assets at December 31, 1999 and 1998 are as follows: 1999 1998 ---- ---- Restricted cash $ -- 194,000 Goodwill, net of accumu- lated amortization of $1,798,999 in 1999 and $1,274,371 in 1998 6,028,235 6,552,863 Acquired technology, net of accumulated amorti- zation of $647,616 in 1999 and $501,612 in 1998 1,104,384 1,250,388 Ultraviolet patents, net of accumulated amortization of $1,456,413 in 1999 and $939,093 in 1998 2,931,484 3,448,804 LASIK PMA application, net of accumulated amortization of $1,790,956 in 1999 and $881,884 in 1998 2,754,394 3,663,466 Keratome patents and license, net of accumulated amortization of $1,013,828 in 1999 and $571,776 in 1998 1,061,060 1,408,308 Other assets 211,746 255,384 ------------ ------------ $ 14,091,303 16,773,213 ============ ============ Restricted cash represents deposits in connection with service contracts with approximately 95 ophthalmologists at December 31, 1998, granting them exclusive market areas to perform specific services as set forth in the Center's service contracts. Remaining deposits were returned to the ophthalmologists during December 1999. NOTE 9 - EMPLOYEE BENEFIT PLAN - ------------------------------ 401(k)Plan - ---------- The Company has a 401(k) plan for the benefit of substantially all of its full-time employees. The plan provides, among other things, for employer-matching contributions to be made at the discretion of the Board of Directors. Employer-matching contributions vest over a seven-year period. Administrative expenses of the plan are paid by the Company. For the years ended December 31, 1999, 1998 and 1997, expense incurred related to the 401(k) plan, including employer-matching contributions, was approximately $60,000, $49,000 and $36,000, respectively. Employee Stock Purchase Plan - ---------------------------- During 1999, the Company established a qualified Employee Stock Purchase Plan, the terms of which allow for qualified employees (as defined) to participate in the purchase of designated shares of the Company's Common Stock at a price equal to the lower of 85% of the closing price at the beginning or end of each semi-annual stock purchase period. The Company issued 6,126 shares of Common Stock during fiscal 1999 pursuant to this plan at an average price per share of $8.50. F-19 NOTE 10 - NOTES PAYABLE - ----------------------- In April 1997, the Company entered into a loan agreement with Foothill Capital Corporation (Foothill) for up to $8 million, consisting of a term loan in the amount of $4 million and a revolving loan in an amount of 80% of the eligible receivables of LaserSight Technologies, Inc., but not more than $4 million. In June 1998, the Company fully repaid its note payable to Foothill and also terminated its line of credit arrangement with Foothill. In connection with the loan, the Company issued warrants to purchase 500,000 shares of Common Stock. The warrants are exercisable at any time from April 1, 1998 through April 1, 2002 at an exercise price per share of $6.0667. Subject to certain conditions based on the market price of the Common Stock, up to half of the warrants are eligible for repurchase by the Company. Any warrants that remain outstanding on April 1, 2002 are subject to mandatory repurchase by the Company at a price of $1.50 per warrant. The warrants have certain anti-dilution features which provide for approximately 95,000 additional shares to be issued as a result of the issuance of the Series B, C & D Preferred Stock and a corresponding reduction in the exercise price to approximately $5.10 per share and repurchase price to approximately $1.29 per warrant. The warrants were valued at $100,130 and $560,000 at December 31, 1999 and 1998, respectively, and were classified as long-term obligations. The reduction in value during 1999 resulted from Foothill's exercise of 497,000 warrants. As a result of a cashless exercise, a total of 314,941 shares were issued from such warrants. The recorded amount of the obligation will change with the fair value of the warrants, with the corresponding adjustment to interest expense. At December 31, 1999, 97,562 such warrants remained outstanding. At December 31, 1996, the Company owed $1,000,000 to former owners of MEC. The note payable was secured by stock of MEC, and bore interest at 8.75%. In April 1997, the Company repaid the note in full. Interest paid during 1999, 1998, and 1997 approximated $25,000, $199,000, and $515,000, respectively. In July 1996, the Company entered into an agreement for the sale and leaseback of certain assets acquired. The lease, with a four-year term, was classified as a capital lease. The fair market value of the assets financed was approximately $957,000 and payments under the lease approximated $300,000 annually and commenced in July 1996. This obligation was assumed by the purchaser as a result of the sale of LSIA (see notes 4 and 16). NOTE 11 - STOCKHOLDERS' EQUITY - ------------------------------ During the twelve months ended December 31, 1999, LaserSight received approximately $10.4 million in cash from the exercise of warrants, stock options and the Employee Stock Purchase Plan, resulting in the issuance of 2,257,478 shares of Common Stock. Additionally, approximately $500,000 was applied to additional paid-in capital resulting from the cashless exercise of a portion of Foothill's warrants (see Note 10). F-20 On March 23, 1999, LaserSight closed a transaction for the sale of 2,250,000 shares of Common Stock to a total of six investors, including Pequot Capital Management, Inc. (Pequot) and TLC Laser Eye Centers Inc. (TLC), in exchange for LaserSight receiving $9 million in cash. In addition, the investors received a total of 225,000 warrants to purchase Common Stock at $5.125 each, the Common Stock closing price on March 22, 1999. At December 31, 1999, 180,000 such warrants were outstanding. In connection with the dismissal and release of claims from an action filed by Mercacorp, Inc. against the Company in August 1998, the Company issued the plaintiff two separate warrants to purchase Common Stock. Under the first warrant, the plaintiff was entitled to purchase up to 750,000 shares of Common Stock at an exercise price of $4.00 per share, the closing bid price on November 10, 1998, and under the second warrant, the plaintiff was entitled to purchase up to 750,000 shares of Common Stock at an exercise price of $5.00 per share. The fair value of the warrants and other costs related to the matter are included in other expenses in 1998. During 1999, all 1,500,000 warrants were exercised. The Board of Directors of the Company declared a dividend distribution of one preferred stock purchase right (the "Rights") for each share of the Company's Common Stock owned as of July 2, 1998, and for each share of the Company's Common Stock issued until the Rights become exercisable. Each Right, when exercisable, will entitle the registered holder to purchase from the Company one-thousandth of a share of the Company's Series E Junior Participating Preferred Stock, $.001 par value (the Series E Preferred Stock), at a price of $20 per one-thousandth of a share. The Rights are not exercisable and are transferable only with the Company's Common Stock until the earlier of 10 days following a public announcement that a person has acquired ownership of 15% or more of the Company's outstanding Common Stock, or the commencement or announcement of a tender offer or exchange offer, the consummation of which would result in the ownership by a person of 15% or more of the Company's outstanding Common Stock. The Series E Preferred Stock will be nonredeemable and junior to any other series of preferred stock that the Company may issue in the future. Each share of Series E Preferred Stock, upon issuance, will have a quarterly preferential dividend in an amount equal to the greater of $1.00 per share or 1,000 times the dividend declared per share of the Company's Common Stock. In the event of the liquidation of the Company, the Series E Preferred Stock will receive a preferred liquidation payment equal to the greater of $1,000 per share or 1,000 times the payment made on each share of the Company's Common Stock. Each one-thousandth of a share of Series E Preferred Stock outstanding will have one vote on all matters submitted to the stockholders of the Company and will vote together as one class with the holders of the Company's Common Stock. In the event that a person acquires beneficial ownership of 15% or more of the Company's Common Stock, holders of Rights (other than the acquiring person or group) may purchase, at the Rights' then current purchase price, shares of the Company's Common Stock having a value at that time equal to twice such exercise price. In the event that the Company merges into or otherwise transfers 50% or more of its assets or earnings power to any person after the Rights become exercisable, holders of Rights (other than the acquiring person or group) may purchase, at the then current exercise price, common stock of the acquiring entity having a value at that time equal to twice such exercise price. F-21 In June 1998, the Company entered into a Securities Purchase Agreement with TLC, pursuant to which the Company issued 2,000,000 shares of newly-created Series C Preferred Stock with a face value of $4.00 per share, resulting in an aggregate offering price of $8 million. The Series C Preferred Stock is convertible by TLC on a fixed, one-for-one basis into 2,000,000 shares of Common Stock at any time until June 2001, on which date all shares of Series C Preferred Stock then outstanding will automatically be converted into an equal number of shares of Common Stock. The net proceeds to the Company, after deduction of costs of issuance, was approximately $7.9 million. The net proceeds were partially used to repurchase all 525 outstanding shares of the Company's Series B Preferred Stock on June 5, 1998 for approximately $6.3 million, including a 20% premium. In June 1998, the Company entered into a Securities Purchase Agreement with Pequot Private Equity Fund, L.P., Pequot Scout Fund, L.P., and Pequot Offshore Private Equity Fund, Inc. (Pequot Funds), pursuant to which the Company issued, collectively, 2,000,000 shares of the newly-created Series D Preferred Stock with a face value of $4.00 per share, resulting in an aggregate offering price of $8 million. The Series D Preferred Stock is convertible by the Pequot Funds on a one-for-one basis into 2,000,000 shares of Common Stock at any time until June 2001, on which date all shares of Series D Preferred Stock then outstanding will automatically be converted into an equal number of shares of Common Stock. The Series D Preferred Stock is subject to certain anti-dilution adjustments if the Company issues or sells shares of Common Stock before June 2001 at a price per share less than $4.00. The net proceeds to the Company, after deduction of costs of issuance, was approximately $7.9 million. In August 1997, the Company completed a private placement of 1,600 shares Series B Preferred Stock yielding net proceeds, after costs of financing, of $14.83 million. The Company also issued warrants to purchase 790,000 shares of Common Stock for a period of five years at $5.91 per share to the investors and placement agent. The warrant price to the investors was reduced to $2.75 in February 1998 in exchange for certain amendments to the agreement as approved by the Company's shareholders. The warrants have certain anti-dilution features which provide for approximately 34,000 additional shares primarily pursuant to the issuance of the Series C and D Preferred Stock and a corresponding reduction in the exercise price to approximately $2.60. At December 31, 1999, 674,977 such warrants remain outstanding. The Series B Preferred Stock was convertible into the Company's Common Stock at the option of the holders at any time through August 29, 2000. The conversion price equaled the lesser of $6.68 per share or the average of the three lowest closing bid prices during a 30-trading day period preceding the conversion date. In October 1997, 305 shares were voluntarily redeemed with a 4 percent redemption premium totaling $122,000, which was recorded as a dividend to the Series B Preferred Stock stockholders. At December 31, 1997, 1,295 shares of Series B Preferred Stock were outstanding. The Series B Preferred Stock was recorded at the amount of gross proceeds less the costs of the financing and the fair value of the warrants and classified as mezzanine financing above the stockholders' equity section on the consolidated balance sheet. In February 1998, 351 shares were repurchased at a 20 percent premium totaling $702,000 which was recorded as a dividend to the Series B Preferred Stock stockholders. In June 1998, 525 shares were repurchased at a 20 percent premium totaling $1,050,000, which was recorded as a dividend to the Series B Preferred Stock stockholders. Prior to June 1998, the holders of Series B Preferred Stock had converted 419 shares of Series B Preferred Stock into 2,392,220 shares of common stock. At December 31, 1999 and 1998, no shares Series B Preferred Stock were outstanding. F-22 In January 1996, the Company completed a private placement of 116 shares Series A Preferred Stock, yielding net proceeds, after costs of financing, of $5.34 million. The Company also issued warrants to purchase 17,509 shares of Common Stock at $13.25 per share to the placement agent. The conversion price equaled the lesser of $14.18 per share or 85% of the average closing price of the Common Stock during the five trading days preceding the conversion date, subject to a minimum conversion price. At December 31, 1999 and 1998, zero shares of Series A Preferred Stock were outstanding. The conversion of 116 shares of Series A Preferred Stock through December 31, 1997 resulted in the issuance of 975,261 shares of Common Stock, including the issuance of Common Stock in settlement of preferred dividends (at an annual rate of 10%) accrued through the respective conversion dates. Based on The Farris Group's pre-tax profits for each of the years ended December 31, 1996, 1995, and 1994, 406,700 shares were issued in April 1997. No further shares are issuable under this agreement. NOTE 12 - STOCK OPTION PLANS - ---------------------------- The Company has options outstanding at December 31, 1999 related to five stock based compensation plans (the Plans). Options are currently issuable by the Board of Directors only under the 1996 Equity Incentive Employee Plan (1996 Incentive Plan) and the LaserSight Incorporated Non-employee Directors Stock Option Plan (Directors Plan), both of which were approved by the Company's stockholders in June 1996, and which were last amended in June 1999. Under the 1996 Incentive Plan, as amended, employees of the Company are eligible to receive options, although no employee may receive options to purchase greater than 750,000 shares of Common Stock during any one year. Pursuant to terms of the 1996 Incentive Plan, 2,250,000 shares of Common Stock may be issued at exercise prices of no less than 100% of the fair market value at date of grant, and options generally become exercisable in four annual installments on the anniversary dates of the grant. The Directors Plan, as amended, provides for the issuance of up to 500,000 shares of Common Stock to directors of the Company who are not officers or employees. Grants to individual directors are based on a fixed formula that establishes the timing, size, and exercise price of each option grant. At the date of each annual stockholders' meeting, 15,000 options will be granted to each outside director, and 5,000 options will be granted to each outside director that chairs a standing committee, at exercise prices of 100% of the fair market value as of that date, with the options becoming fully exercisable on the first anniversary date of the grant. The options will expire in ten years or three years after an outside director ceases to be a director of the Company. F-23 The per share weighted-average fair value of stock options granted during the years ended December 31, 1999, 1998 and 1997, was $6.40, $2.16 and $3.62, respectively, on the dates of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1999 1998 1997 ---- ---- ---- Expected dividend yield 0% 0% 0% Volatility 50% 50% 49% Risk-free interest rate 4.57-6.14% 5.5% 5.70-5.71% Expected life (years) 3-10 3-10 5-10 The Company applies Accounting Principles Board (APB) Opinion No. 25 and related interpretations in accounting for its Plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS No. 123, the Company's net loss and loss per share would have been reduced to the pro forma amounts indicated below: 1999 1998 1997 ---- ---- ---- Net loss As reported $(14,423,980) (11,882,389) (7,253,084) Pro forma (16,209,237) (12,834,441) (8,012,317) Basic and diluted EPS As reported $ (0.89) (1.26) (0.80) Pro forma (1.00) (1.34) (0.88) In accordance with SFAS No. 123, the pro forma net loss reflects only options granted on or after January 1, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net loss amounts presented above because compensation cost does not reflect options granted prior to January 1, 1995, that vested in 1999, 1998 or 1997. F-24 Stock option activity for all plans during the periods indicated is as follows: Weighted Shares Average Under Exercise Option Price Balance at January 1, 1997 879,850 $ 9.29 Granted 286,000 6.29 Exercised (25,875) 3.80 Terminated (90,975) 7.27 --------- Balance at December 31, 1997 1,049,000 8.75 Granted 750,000 4.16 Exercised (54,000) 2.46 Terminated (88,000) 12.01 --------- Balance at December 31, 1998 1,657,000 6.25 Granted 1,121,000 12.85 Exercised (382,822) 5.99 Terminated (190,900) 5.84 --------- Balance at December 31, 1999 2,204,278 9.68 ========= On June 12, 1998, the Company repriced 110,000 shares of stock options previously granted to employees (excluding executive officers) with option prices ranging from $7.03 to $12.81 to the market value of the stock on June 12, 1998 of $4.31. All shares repriced were not exercisable until the later of December 12, 1998 or the original vesting date and expire on the later of June 12, 1999 or the original expiration date. The following table summarizes the information about stock options outstanding and exercisable at December 31, 1999: Range of Exercise Prices ------------------------ $2.41-$4.81 $5.31-$7.69 $9.50-$16.63 ----------- ----------- ------------ Options outstanding: Number outstanding at December 31, 1999 577,278 426,750 1,200,250 Weighted average remaining contractual life 3.89 years 4.90 years 4.58 years Weighted average exercise price $4.18 7.02 13.27 Options exercisable: Number exercisable at December 31, 1999 308,640 223,875 315,000 Weighted average exercise price $4.27 6.76 11.65 F-25 NOTE 13 - INCOME TAXES - ---------------------- The components of the income tax expense (benefit) for the years ended December 31, 1999, 1998, and 1997 were as follows: 1999 1998 1997 ---- ---- ---- Current: Federal $ -- 208,992 67,066 State -- 23,221 812,934 ------------ ------------ ------------ Total income tax expense $ -- 232,213 880,000 ============ ============ ============ Deferred tax assets and liabilities consist of the following components as of December 31, 1999 and 1998: 1999 1998 ---- ---- Deferred tax liabilities: Acquired technology $ 367,298 425,132 Change in tax status of subsidiaries -- 55,494 Property and equipment 50,275 -- ------------ ------------ 417,573 480,626 Deferred tax assets: Intangibles 689,161 131,145 Inventory 593,507 400,737 Receivable allowance 1,497,204 943,873 Royalty fees 159,160 283,333 Commissions 171,137 167,579 Warranty accruals 515,192 296,695 NOL carry forward 12,988,133 2,381,196 Other tax credits 256,173 -- Other -- 38,352 ------------ ------------ 16,869,667 4,642,910 Valuation allowance (16,452,094) (4,162,284) ------------ ------------ 417,573 480,626 ------------ ------------ Net deferred tax asset (liability) $ -- -- ============ ============ F-26 Realization of deferred tax assets is dependent upon generating sufficient taxable income prior to their expiration. Management believes that there is a risk that these deferred tax assets may expire unused and, accordingly, has established a valuation allowance against them. Payments for income taxes during the years ended December 31, 1999, 1998 and 1997 were $71,000, $905,000 and $0, respectively. Income taxes paid during 1998 primarily related to the sale of MEC and LSIA. At December 31, 1999, the Company has net operating loss carryforwards for federal income tax purposes of $34.8 million which are available to offset future federal taxable income and begin to expire in the year 2018. In addition, the Company has other tax credit carryforwards of approximately $256,000 which begin to expire in the year 2007. For the years ended December 31, 1999, 1998 and 1997, the difference between the Company's effective income tax provision and the "expected" tax provision, computed by applying the federal statutory income tax rate to income before provision for income taxes, is reconciled below: 1999 1998 1997 ---- ---- ---- "Expected" tax provision (benefit) $ (4,904,100) (3,961,060) (2,166,849) State income taxes, net of federal income tax benefit (911,999) 48,493 536,536 Tax basis of subsidiaries sold -- -- 2,478,304 Intangible amortization 178,374 417,064 369,210 Nondeductible expenses 101,578 26,594 17,835 Tax deduction from exercise of options and warrants (6,608,671) -- -- Valuation allowance 12,289,810 3,989,294 (355,036) Other items, net (144,992) (288,172) -- ------------- ------------ ------------ Income tax expense $ -- 232,213 880,000 ============= ============ ============ F-27 At December 31, 1999, of the $34.8 million net operating loss carryforward, $19.5 million is associated with the exercise of nonqualified stock options, disqualifying dispositions of incentive stock options and warrants. This tax benefit will be recorded as an increase to additional paid-in capital when recognized. NOTE 14 - SEGMENT INFORMATION - ----------------------------- The Company operates principally in three operating segments: refractive products, patent services and health care services. Refractive product operations primarily involve the development, manufacture, and sale of ophthalmic lasers and related devices for use in vision correction procedures. Patent services involve the revenues and expenses generated from the ownership of certain refractive laser procedure patents, and health care services provides health and vision care consulting services to hospital, managed care companies and physicians. Subsidiaries sold consist of MEC and LSIA, which were sold in December 1997. Operating profit is total revenue less operating expenses. In determining operating profit for operating segments, the following items have not been considered: general corporate expenses; expenses attributable to Centers, a developmental stage company; non-operating income; and income tax expense. Identifiable assets by operating segment are those that are used by or applicable to each operating segment. General corporate assets consist primarily of cash, marketable equity securities and income tax accounts. 1999 1998 1997 ---- ---- ---- Operating revenues: Refractive products $ 19,403,781 15,968,035 11,925,018 Patent services 1,970,504 1,111,917 245,000 Health care services 354,167 676,164 1,209,092 Subsidiaries sold -- -- 11,009,723 ------------ ------------ ------------ Total revenues $ 21,728,452 17,756,116 24,388,833 ============ ============ ============ Operating profit (loss): Refractive products $(13,376,160) (9,038,922) (6,329,036) Patent services 1,452,231 349,673 (163,387) Health care services (711,571) (541,670) (1,121,186) Subsidiaries sold -- -- 658,923 General corporate (2,189,666) (1,953,326) (2,040,328) Developmental stage company-LaserSight Centers Incorporated (276,696) (276,696) (267,140) ------------ ------------ ------------ Loss from operations $(15,101,862) (11,460,941) (9,262,154) ============ ============ ============ F-28 Identifiable assets: Refractive products $ 28,049,316 28,818,547 20,056,924 Patent services 3,652,788 3,838,804 10,614,652 Health care services 3,563,517 3,910,200 4,398,202 General corporate assets 11,345,800 4,267,269 12,080,776 Developmental stage company-LaserSight Centers Incorporated 2,767,512 3,038,163 3,310,519 ------------ ------------ ------------ Total assets $ 49,378,933 43,872,983 50,461,073 ============ ============ ============ Depreciation and amortization: Refractive products $ 2,184,727 1,659,571 751,682 Patent services 517,320 567,187 371,906 Health care services 276,766 333,205 319,823 Subsidiaries sold -- -- 641,501 General corporate 8,385 3,731 2,751 Development stage company-LaserSight Centers Incorporated 276,696 276,696 254,634 ------------ ------------ ------------- Total depreciation and amortization $ 3,263,894 2,840,390 2,342,297 ============ ============ ============= Amortization of deferred financing costs and accretion of discount on note payable of $545,784 and $550,159 for the years ended December 31, 1998 and 1997, respectively, are included as interest expense in the table below. 1999 1998 1997 ---- ---- ---- Capital expenditures: Refractive products $ 688,432 599,873 560,946 Health care services 3,441 30,228 12,154 Subsidiaries sold -- -- 57,450 General corporate 12,425 18,374 -- ------------ ------------ ------------ Total capital expenditures $ 704,298 648,475 630,550 ============ ============ ============ F-29 Interest income: Refractive products $ 251,066 293,731 267,590 Patent services -- 9,377 10,717 Health care services -- -- 150 Subsidiaries sold -- -- 65,490 General corporate 509,425 278,033 26,541 Development stage company -LaserSight Centers, Inc. 10,476 10,340 13,123 ------------ ------------ ------------ Total interest income $ 770,967 591,481 383,611 ============ ============ ============ Interest expense: Refractive products $ 20,685 -- -- General corporate 72,400 782,668 1,283,904 Subsidiaries sold -- -- 59,294 ------------ ------------ ------------ Total interest expense $ 93,085 782,668 1,343,198 ============ ============ ============ The following table presents the Company's refractive products segment net revenues by geographic area for the three years ended December 31, 1999. The individual countries shown generated net revenues of at least 10% of the total segment net revenues for at least one of the years presented. 1999 1998 1997 ---- ---- ---- Geographic area: Argentina $ 409,600 808,400 1,382,000 Brazil 475,000 1,825,000 3,290,000 Canada 2,385,000 2,512,000 288,000 China 70,000 1,980,000 1,346,000 Colombia 180,000 510,000 1,245,400 United States 3,006,000 230,000 658,000 Other 12,878,181 8,102,635 3,715,618 ------------ ------------ ------------ Total refractive products revenues $ 19,403,781 15,968,035 11,925,018 ============ ============ ============ Export sales are as follows: 1999 1998 1997 ---- ---- ---- North and Central America $ 4,359,962 3,781,712 1,075,000 South America 1,935,855 4,473,156 5,995,000 Asia 1,254,194 3,746,171 2,235,000 Europe 7,348,609 2,735,631 2,526,500 Africa 560,000 642,250 -- ------------ ------------ ------------ $ 15,458,620 15,378,920 11,831,500 ============ ============ ============ The geographic areas above include significant sales to the following countries: North and Central America - Canada and Mexico; South America - Brazil, Argentina and Columbia; Asia - China and India; Europe - Italy, Spain and France. In the Company's experience, sophistication of ophthalmic communities varies by region, and is better segregated by the geographic areas above than by individual country. F-30 As of December 31, 1999 and 1998, the Company had approximately $37,000 and $72,000, respectively, in assets located at a manufacturing facility in Costa Rica. As of December 31, 1999, the Company did not have any other subsidiaries in countries where it does business. As a result, substantially all of the Company's operating losses and assets apply to the U.S. Revenues from one customer of the refractive products segment totaled $3,006,000, or 14%, of the Company's consolidated revenues (see note 15). NOTE 15 - RELATED PARTY TRANSACTIONS - ------------------------------------ During January 1993, Centers entered into a royalty agreement with Florida Laser Partners, a Florida general partnership, in which two of the Company's former presidents and the Company's chairman are partners. The royalty agreement provides, among other things, for a perpetual royalty payment to Florida Laser Partners of a number of shares of Centers' common stock, as determined by a formula defined in the royalty agreement. Also during January 1993, the Company entered into an exchange agreement with Florida Laser Partners, which provides among other things, that Laser Partners shall exchange, from time to time, shares of Centers' common stock that it acquires pursuant to the royalty agreement for shares of the Company's stock. This agreement was amended in March 1997 (see note 3). During 1999 and 1998, the Company sold nine and three laser systems, respectively, for $2,700,000 and $900,000, respectively, to TLC. In addition, $306,000 of keratome related products were sold to TLC during 1999. As discussed in Notes 11 and 17, TLC has invested in securities of the Company in June 1998, March 1999 and January 2000. The Company has received full payment for the products sold. NOTE 16 - COMMITMENTS AND CONTINGENCIES - -------------------------------------- Visx, Incorporated - ------------------ On November 15, 1999, the Company was served with a complaint filed by Visx asserting that the Company's technology infringed one of Visx's U.S. patents for equipment used in ophthalmic surgery. On November 16, 1999, the Company and Visx reached agreement to stay the patent litigation and to continue negotiations toward a U.S. license agreement in an effort by the Company to facilitate commercialization of its laser systems in the U.S. On February 1, 2000, the Company announced that it withdrew from the licensing negotiations and allowed the litigation to proceed. The stay was lifted effective February 16, 2000. In addition, on February 1, 2000, the Company filed suit against Visx claiming non-infringement and invalidity of the Visx patent and asserting that Visx infringes U.S. Patent No. 5,630,810. Management believes that the Company does not infringe Visx's patent and that this action will not have a material adverse effect on our business, financial condition or results from operations. However, the outcome of patent litigation, particularly in jury trials, is inherently uncertain, and an unfavorable outcome in the Visx litigation could have a material adverse effect on our business, financial condition and results of operations. F-31 In May 1997, the Company entered into a license agreement with Visx to settle litigation and any and all potential claims related to patent infringement prior to May 1997. The aggregate amount of $230,400 is reflected in other expenses in 1997 and was paid in eight quarterly installments. Northern New Jersey Eye Institute - --------------------------------- In March 1999, the Company received notice of an action filed by the former owners of Northern New Jersey Eye Institure, or NNJEI, and related assets and entities against the Company alleging breach of contract in connection with a provision in our July 1996 acquisition agreements related to the assets of NNJEI and related assets and entities. Such provision provided for additional issuance of the Company's Common Stock if such stock price was not at certain levels in July 1998. The Company issued the additional Common Stock in July 1998 in accordance with the provisions of the agreements. The plaintiffs allege that, based on the price of the Company's Common Stock in July 1998, additional payments are required of approximately $540,000. Cross motions for summary judgment have been filed and are awaiting action by the court. Management disagrees with the plaintiffs' interpretation of the NNJEI agreements and believes that its obligations under the agreements will not have a material adverse effect on our financial condition or results of operations. Former Officer - -------------- In June 1999, a former president, chief executive officer and director of the Company filed an action asserting that the Company is currently in default on a promissory note executed in June 1991 in the principal amount of $1,180,000. The Company believes that the allegations made by the plaintiff are without merit and it intends to vigorously defend the action. Management believes that the Company has satisfied its obligations under the promissory note and that this action will not have a material adverse effect on our financial condition or results of operations. Former MRF, Inc. Shareholder - ---------------------------- In November 1999, a lawsuit was filed on behalf of a former shareholder of MRF, Inc. (the Subsidiary), a wholly-owned subsidiary of the Company. The lawsuit names the Company's chief executive offier as the sole defendant and alleges fraud and breach of fiduciary duty in connection with the redemption by the subsidiary of the former shareholder's capital stock in the Subsidiary. At the time of the redemption, which redemption occurred prior to the Company's acquisition of the Subsidiary, the Company's chief executive officer was the president and chief executive officer of the Subsidiary. The Company's Board of Directors has authorized the Company to retain and, to the fullest extent permitted by the Delaware General Corporation Law, pay the fees of counsel to defend the Company's chief executive officer, the Subsidiary and the Company in the litigation so long as a court has not determined that the Company's chief executive officer failed to act in good faith and in a manner he reasonably believed to be in the best interest of the Subsidiary at the time of the redemption. Management has reviewed the lawsuit and believes that the allegations set forth therein are without merit, and that the Company's obligations with respect to the legal defense will not have a material adverse effect on the Company's financial condition or results from operations. F-32 Capital Lease Obligation - ------------------------ In connection with certain divestitures completed in December 1997 (see note 4), the Company continues to guarantee a capital lease obligation. The Company is indemnified for this by the purchaser, and the purchaser is obligated to take all necessary steps to remove the Company as a guarantor. If the purchaser fails to pay the lease obligation, an event which the Company believes to be unlikely, management estimates that it could settle these obligations for approximately $265,000 at December 31, 1999. In the opinion of management, the ultimate disposition of these guarantees will not have a material adverse effect on the Company's consolidated financial condition, results of operations or future cash flows. Lease Obligations - ----------------- The Company leases office space and certain equipment under operating lease arrangements. Future minimum payments under non-cancelable operating leases, with initial or remaining terms in excess of one year, as of December 31, 1999, are approximated as follows: 2000 $768,000 2001 692,000 2002 412,000 2003 208,000 Thereafter 15,000 Rent expense during 1999, 1998, and 1997 was approximately $895,000, $606,000 and $755,000, respectively. NOTE 17 - SUBSEQUENT EVENT - -------------------------- Private Placement - ----------------- On January 31, 2000, the Company closed a transaction for the sale of 1,269,841 shares of Common Stock to a total of two investors, including TLC, in exchange for the Company receiving $12.5 million in cash. On February 22, 2000, the Company closed a transaction for the sale of 76,189 shares of Common Stock to one investor in exchange for the Company receiving $750,000 in cash. License Agreement - ----------------- On January 18, 2000 the Company entered into a first amendment to a license and royalty agreement related to certain keratome related products. Under the terms of the amendment 555,552 shares of Common Stock were placed in escrow and are included in common shares issued and outstanding on that date. If certain conditions under the amendment are satisfied, the shares will be released from escrow. Otherwise, the shares will be returned to the Company. F-33 EX-10.52 2 LICENSE AND ROYALTY AGREEMENT EXHIBIT 10.52 FIRST AMENDMENT TO LICENSE AND ROYALTY AGREEMENT This First Amendment To License and Royalty Agreement ("Amendment"), is made and entered into as of January 18, 2000 (the "Amendment Date"), by and among LASERSIGHT TECHNOLOGIES, INC., a Delaware corporation ("Licensee"), LUIS A. RUIZ, M.D. and SERGIO LENCHIG (collectively, the "Licensors"). WHEREAS, the Licensors and Licensee have entered into that certain License and Royalty Agreement dated as of September 10, 1997 (the "Agreement"); WHEREAS, the Licensors and Licensee desire to amend certain terms of the Agreement as provided herein with certain amendments being conditioned on the occurrence of future events; and WHEREAS, LaserSight Incorporated, a Delaware corporation ("LaserSight"), has agreed to guaranty certain obligations of Licensee. NOW, THEREFORE, for and in consideration of the mutual promises and valuable consideration set forth herein, the parties hereto mutually agree as follows: 1. Amendments to Agreement Effective Immediately. As of the --------------------------------------------- Amendment Date the Agreement shall be revised as follows: 1.1 Section 1(b) of the Agreement. Section 1(b) of the ----------------------------- Agreement is deleted in its entirety. 1.2 Section 2. Section 2 of the Agreement shall be deleted in --------- its entirety and replaced with the following: 2. Term. This Agreement shall be effective as of the date ---- first set forth above (the "Effective Date"), and shall commence on January 1, 2000 (the "Commencement Date"), and shall continue thereafter until July 31, 2002 (the "Initial Term"), unless earlier terminated as provided herein. At the conclusion of the Initial Term Licensee shall have the sole option to renew this Agreement for additional one (1) year terms (each a "Renewal Term" and collectively "Renewal Terms", and the Initial Term together with the Renewal Terms shall constitute the "Term") upon the terms and conditions as set forth herein; provided, however, with respect to Licensee's obligations pursuant to Section 5 of this Agreement during the Renewal Term(s), Licensee shall be obligated to pay to Licensors only the payments described in Sections 5(a)(v) and 5(e). 1.3 Section 4(f). Section 4(f) of the Agreement shall be ------------ deleted in its entirety. 1.4 Section 5(a) of the Agreement. The following new Section ----------------------------- 5(a)(vi) shall be insertedinto the Agreement: (vi) $200,000 U.S. upon Licensee's receipt of a completely executed copy of the Amendment, and $200,000 U.S. on April 1, 2000 (such payments shall be referred to herein as the "Advanced Payments"). 1.5 Section 5(b) of the Agreement. Section 5(b) of the Agreement ----------------------------- is deleted in its entirety and the following inserted in its place: (b) [INTENTIONALLY LEFT BLANK] 1.6 Section 5(c)(iii) of the Agreement. Section 5(c)(iii) of ---------------------------------- the Agreement shall be deleted in its entirety and replaced with the following: (iii) for purposes of determining Gross Profit, all amounts invoiced by Licensee or LaserSight shall be included which are the result of sales of Covered Products (as defined herein) and other components which are related to the Covered Products including, but not limited to, (A) disposable or reusable microkeratome with gear box, suction ring, and suction handle, (B) motor, (C) motor power cord, (D) tonometer, (E) suction and power supply, (F) foot switch, (G) tubing, (H) user's manual, (I) sterile packaging, (J) control consoles, (K) blades, (L) replacement parts, (M) lid speculum, and other component parts which are manufactured utilizing the Licensed Patents and/or the Licensed Technology (collectively, the "Products"). For purposes of this Section 5(c)(iii), the term "Covered Products" shall mean Licensee's UniShaperTM keratome, UltraShaperTM keratome and any other keratome manufactured, distributed or sold by Licensee or LaserSight. 1.7 Section 5(e) of the Agreement. The phrase "the date that ------------------------------ is seven (7) months after the Commencement Date" that appears in lines one and two of Section 5(e) of the Agreement shall be deleted and replaced with the following: "July 1, 2000". 1.8 Section 17 of the Agreement. Section 17 of the Agreement is --------------------------- hereby deleted in itsentirety and replaced with the following: 17. Additional Obligations. Nothing contained in the Agreement ---------------------- or the Amendment shall be construed to prohibit Licensee from manufacturing, distributing, marketing, promoting in any manner, or selling any keratome, whether or not such keratome is covered by claims of the Licensed Patents or Licensed Technology. 1.9 Section 18 of the Agreement. Section 18 of the Agreement --------------------------- is hereby deleted in itsentirety and replaced with the following: 18. Mold Use and Manufacture. Licensors agree to provide ------------------------- Licensee with single cavity limited production molds ("Limited Production Molds") capable of producing disposable microkeratomes which are safe and effective for their intended use. Licensors and Licensee shall share equally in the cost of manufacturing the Limited Production Molds. In the event the Limited Production Molds need to be replaced, as determined by the manufacturer thereof, Licensors and Licensee shall share equally in the cost of such replacement. The Licensee shall be solely responsible for the design, manufacture, engineering, tooling and testing of the dual cavity, automatic production molds (the "Final Production Molds") capable of producing disposable microkeratomes which are safe and effective for their intended use and shall pay the entire cost thereof, including all unpaid amounts currently owed therefor. In the event the Final Production Molds need to be replaced, as determined by the manufacturer thereof, Licensee shall be solely responsible for the cost of such replacement. The Licensors acknowledge and agree that the Final Production Molds shall be the sole and exclusive property of Licensee. After the Termination Date (as defined in the Agreement) Licensee agrees to entertain any reasonable offer from Licensors for the purchase of the Final Production Molds. If, after the Termination Date, Licensee receives a bona fide offer from a licensee of the Licensed Patents or the Licensed Technology for the purchase of the Final Production Molds (the "Offer"), Licensee shall notify Licensors of the existence and terms and conditions of the Offer. Licensors shall have ten (10) days after receipt of such notice from Licensee to notify Licensee that Licensors desire to purchase the Final Production Molds on the same terms and conditions as set forth in the Offer. If Licensors fail to notify Licensee within said ten (10) day period, Licensors shall be deemed to have elected not to exercise its option hereunder. Licensee shall then be free to accept the Offer, but only from such prospective purchaser and in strict accordance with the terms and conditions of the Offer. In no event and under no circumstances shall Licensee or LaserSight sell or transfer the Final Production Molds to any person or entity to whom or which Licensors have not granted a license to the Licensed Patents or Licensed Technology. 1.10 Section 19 of the Agreement. Section 19 of the Agreement is --------------------------- hereby deleted in its entirety and replaced with the following: 19. Return of Molds. Within fifteen (15) days following the --------------- Termination Date, Licenseeshall return the Limited Production Molds to Licensors. 1.11 Section 21 of the Agreement. The parenthetical phrase "(other than claims arising in connection with the design, engineering, and/or the specifications of the Devices delivered pursuant to Section 4(f))" that appears in lines 4, 5 and 6 of Section 21 of the Agreement is hereby deleted. 2. Royalty Shares. -------------- 2.1 Issuance of Royalty Shares. On the Amendment Date, ----------------------------- LaserSight shall send its transfer agent an irrevocable letter of direction to issue four stock certificates (two in the name of each Licensor) each representing that number of shares of common stock, $.001 par value per share ("Common Stock") which shall be determined by dividing (i) $1,250,000, by (ii) the closing price of Common Stock as quoted on the Nasdaq National Market (the "NASDAQ") for the trading day immediately preceding the Amendment Date. The certificates representing the shares of Common Stock issued in accordance with this Section 2.1 shall be referred to as the "Royalty Shares". Also on the Amendment Date Licensors shall execute stock powers, in form and substance satisfactory to LaserSight, providing for the transfer of the Royalty Shares to LaserSight. 2.2 Escrow of Royalty Shares. The Royalty Shares and the Stock ------------------------ Powers shall be delivered to and held in escrow by LaserSight. The parties acknowledge and agree that during the period the Royalty Shares, or any part thereof, are being held in escrow, the Licensors will be entitled to (i) exercise any and all voting and other consensual rights pertaining to the Royalty Shares or any part thereof, and (ii) receive and retain any and all dividends and other distributions paid in respect of the Royalty Shares. The Royalty Shares shall be released from escrow to the Licensors in accordance with the terms of Section 3. However, if the Royalty Shares are not released from escrow to the Licensors in accordance with the terms of Section 3, the Royalty Shares shall be released from escrow to LaserSight, and LaserSight is hereby directed to utilize the Stock Powers in order to transfer the ownership of the Royalty Shares from Licensors to LaserSight. 2.3 Restricted Shares. The Licensors acknowledge and ----------------- agree that the Royalty Shares (i) are authorized but previously unissued Common Stock which have not been registered under the Securities Act of 1933, as amended ("the Act"), or any state securities laws, (ii) have been acquired for investment purposes only and not with a view to distribution or resale, (iii) may not be sold or transferred unless such shares have been registered under the Act and such applicable state securities laws, or unless in the opinion of counsel acceptable to LaserSight an exemption from registration is available, and (iv) the certificates representing such shares shall bear substantially the following legend: THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH SECURITIES ACTS AND SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER. The Royalty Shares have those registration rights that are more fully described in that certain Registration Rights Agreement, dated as of the Amendment Date, substantially in the form which is attached hereto as Exhibit A. 3. Amendments to Agreement Effective Upon Certain Events. If (i) during the period commencing on the Amendment Date and ending on April 30, 2000, LaserSight raises at least $15,000,000 in proceeds (the "Capital Target") through the sale of LaserSight Common Stock; or (ii) Licensee, in its sole and absolute discretion, elects to make the Initial Payment (as defined below) even though the Capital Target has not been achieved (provided, however, such election must be made by Licensee and communicated to the Licensors prior to April 30, 2000), then the amendments to the Agreement set forth in Sections 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 below shall become effective and Licensee shall be obligated to make the payments described in Sections 3.1, 3.2, 3.3 and 3.4 below. LaserSight acknowledges and agrees that it will use its reasonable best efforts to reach the Capital Target on or prior to April 30, 2000. 3.1 Sections 5(a)(i) and 5(a)(iii) of the Agreement. The ----------------------------------------------- following sentence shall be added at the end of each of Section 5(a)(i) and 5(a)(iii): "The previous receipt of which is herebyacknowledged." 3.2 Section 5(a)(ii) of the Agreement. Section 5(a)(ii) of the --------------------------------- Agreement shall be deleted in its entirety and replaced with the following: (ii) Within five business days after the earlier of the date on which the Capital Target is achieved, or the date on which Licensee has communicated to the Licensors its decision to make the election described in phrase (ii) of the first sentence of Section 3 of the Amendment, Licensee shall (i) wire transfer $4,000,000 U.S. (less the amount of any Advanced Payments made as of the date of such payment) in immediately available funds to the Licensors in accordance with wire transfer instructions provided to Licensee by the Licensors (the "Initial Payment"), and (ii) direct LaserSight to release a certificate to each of the Licensors representing, in the aggregate, one-half (1/2) of the Royalty Shares. Notwithstanding the provisions of Section 5(a)(vi), if all or any portion of the Advanced Payments have not been made at the time the Initial Payment is made, then once the Initial Payment is made Licensee shall have no further obligation to make the Advanced Payments (or unpaid portion thereof). 3.3 Section 5(a)(iv) of the Agreement. Section 5(a)(iv) of the --------------------------------- Agreement shall be deletedin its entirety and replaced with the following: (ii) Within five business days after the six-month anniversary of the Amendment Date, Licensee shall (i) wire transfer $2,000,000 U.S. in immediately available funds to the Licensors in accordance with wire transfer instructions provided to Licensee by the Licensors, and (ii) direct LaserSight to release a certificate to each of the Licensors representing, in the aggregate, the remaining one-half (1/2) of the Royalty Shares. In addition, within five business days after the nine-month anniversary of the Amendment Date, Licensee shall wire transfer $2,000,000 U.S. in immediately available funds to the Licensors in accordance with wire transfer instructions provided Licensee by the Licensors. 3.4 Section 5(a)(v) of the Agreement. During the Initial Term -------------------------------- only, Section 5(a)(v) of the Agreement shall be deleted in its entirety and replaced with the following: (v) ten percent (10%) of the Gross Profits (as defined in Section 5(a) of the Agreement, as such Section has been revised by the Amendment) ("Gross Profit Payment") shall be paid to the Licensors no later than forty-five (45) days after the end of each calendar quarter during the Term. Following the Initial Term and during any Renewal Term, the first of which would commence August 1, 2002, if the Agreement is renewed by Licensee, the payments to Licensors shall be made in accordance with Section 5(a)(v) of the Agreement (as such Section existed prior to the amendment contemplated by this Section 3.4), which Section 5(a)(v) shall be deemed reinstated following the Initial Term and during any Renewal Term. 3.5 Sections 5(e) and 5(f) of the Agreement. During the ------------------------------------------- Initial Term only, Sections 5(e) and 5(f) of the Agreement shall be deemed deleted in their entirety. Following the Initial Term and during any Renewal Term, the first of which would commence August 1, 2002, if the Agreement is renewed by Licensee, Sections 5(e) and 5(f) of the Agreement shall be deemed reinstated following the Initial Term and during any Renewal Term. 3.6 Section 20 of the Agreement. During the Initial Term only, --------------------------- the words "Minimum Payment Requirement" that appear in line 10 of this Section shall be deemed deleted and replaced with the words "Gross Profit Payment." 3.7 Amendments Not Effective in Certain Circumstances. ------------------------------------------------- If neither of the events described in the first sentence of Section 3 occurs on or prior to April 30, 2000, then (i) amendments contemplated by this Section 3 shall not become effective and shall be of no further force or effect, (ii) the terms and conditions of the Agreement (as amended by Section 1 of this Amendment) will remain in full force and effect, and (iii) LaserSight shall remove the Royalty Shares from escrow and utilize the Stock Powers to transfer the Royalty Shares to LaserSight. 4. No Other Changes. Except as specifically set forth herein, all ---------------- other terms and conditions of the Agreement shall remain in effect as originally set forth therein. 5. Counterparts. This Amendment may be executed in one or more ------------ counterparts, each of which shall be deemed an original and all of which shall be deemed one and the same instrument. 6. Governing Law. The validity, formulation, interpretation -------------- and performance of this Amendment shall be governed by the laws of the State of Virginia, without giving effect to choice of law principles. The parties do hereby irrevocably submit themselves to the personal jurisdiction of the United States Federal Court for the Eastern District of Virginia and do hereby irrevocably agree to service of such court's process upon them, and with respect to the Licensors, on their counsel, Allan S. Buffenstein of Mezzullo & McCandlish, so long as they remain counsel to the Licensors and thereafter until such time as it is verified to Licensee in writing that the Licensors' successor counsel has agreed to accept such service on the Licensors' behalf. 7. Outside Date for Execution of Amendment. Unless this Amendment --------------------------------------- has been duly authorized and executed by Licensee and LaserSight and submitted to Licensors for signature by 5:00 o'clock P.M. Richmond, Virginia time, on January 18, 2000, this Amendment shall be of no effect and the Agreement shall remain in effect as it presently exists, without this Amendment. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties hereto, by their respective duly authorized officers, have executed this Amendment as of the date first written above. LICENSORS: LUIS A. RUIZ, M.D. /s/Luis A. Ruiz, M.D. ------------------------------------ Luis A. Ruiz, M.D. SERGIO LENCHIG /s/Sergio Lenchig ------------------------------------ Sergio Lenchig LICENSEE: LASERSIGHT TECHNOLOGIES, INC. By: /s/Michael R. Farris -------------------------------- Michael R. Farris President The undersigned hereby unconditionally guarantees the payment of the sums described in Section 2 of this Amendment as and when such sums become due and payable according to the terms thereof. In case of failure of Licensee to pay the obligations guaranteed hereby, the undersigned agrees to cause such payment to be made as and when the same shall become due and payable, in the manner specified in this Amendment and as if such payment were made by Licensee. The undersigned agrees to those terms of the Agreement as amended by this Amendment which pertain to the performance by the undersigned. This is a guarantee of payment, not of collection. LaserSight Incorporated By: /s/Michael R. Farris -------------------------------- Michael R. Farris President and CEO EX-10.53 3 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.53 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT ("Agreement") is made as of January 18, 2000, by and among LaserSight Incorporated, a Delaware corporation (the "Company"), with headquarters located at 3300 University Boulevard, Suite 140, Winter Park, Florida 32792, and Luis A. Ruiz, M.D. and Sergio Lenchig (collectively, "Licensors"), with regard to the following: RECITALS A. In connection with the First Amendment to License and Royalty Agreement dated of even date herewith by and among the LaserSight Technologies, Inc., a wholly owned subsidiary of the Company, and Licensors (the "Amendment"), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue to Licensors shares of the Company's common stock, par value $.001 per share (the "Common Stock"). The shares of Common Stock to be issued to Licensors under the License Agreement shall be referred to herein as the "Securities". B. To induce Licensors to execute and deliver the Amendment, the Company has agreed to provide to Licensors certain rights to a registration of the Securities by the Company under the Securities Act of 1933 and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act"), and applicable state securities laws. AGREEMENTS In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Licensors agree as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings specified: Advice: See Section 4 hereof. ------ Agreement: See the introductory paragraphs hereto. --------- Amendment: See the introductory paragraphs hereto. --------- Blackout Event means a determination by the Board made in good faith, -------------- after consulting with outside securities counsel, that the registration of Registrable Securities under the Securities Act or the continuation of the disposition of Registrable Securities pursuant to an effective Piggy-Back Registration Statement at such time (i) would have a material adverse effect upon a proposed material sale of all (or substantially all) of the assets of the Company or a material merger, reorganization, recapitalization or similar current transaction materially affecting the capital structure or equity ownership of the Company, or (ii) would require the Company to make a public disclosure of information, which disclosure would have a material adverse effect on the Company. Blackout Period: See Section 3(a) hereof. --------------- Board: The Board of Directors of the Company. ----- Claim: See Section 6(a) hereof. ----- Common Stock: See the introductory paragraphs hereto. ------------ Company: See the introductory paragraphs hereto. ------- Exchange Act: The Securities Exchange Act of 1934 and the rules and ------------ regulations of the SEC promulgated thereunder. Form S-3: Form S-3 of the SEC under the Securities Act or any successor -------- form. Holdback Period: See Section 3(b) hereof. --------------- Holder: Any registered holder of a Registrable Security or Registrable ------ Securities, including, without limitation, the Licensors (and any of Licensors' assignees). Indemnified Person: See Section 6(c) hereof. ------------------ Indemnifying Person: See Section 6(c) hereof. ------------------- Licensors: See the introductory paragraphs hereto. --------- Losses: See Section 6(a) hereof. ------ NASD: See Section 4(j) hereof. ---- Other Holders: See Section 2(a) hereof. ------------- Other Shares: See Section 2(a) hereof. ------------ Other Investors: Any holder of equity securities of the Company or any securities convertible into or exercisable or exchangeable for such equity securities, which holder is entitled by written agreement with the Company to have some or all of such securities included in a Piggy-Back Registration Statement. Participant: See Section 6(a) hereof. ----------- Person: An individual, trustee, corporation, partnership, limited ------ liability company, trust, unincorporated association, business association, firm or other legal entity. Piggy-Back Registration Statement: See Section 2(a) hereof. --------------------------------- Prospectus: The prospectus included in any Piggy-Back Registration ---------- Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Registrable Securities means any of the Securities. As to any ----------------------- particular Registrable Securities held by a Holder, such securities shall cease to be Registrable Securities when (i) a Piggy-Back Registration Statement with respect to the offering of such securities by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such Holder pursuant to such Piggy-Back Registration Statement, (ii) such securities may at the time of determination be sold to the public pursuant to Rule 144 without any restriction on the amount of securities which may be sold by such Holder without the lapse of any further time or the satisfaction of any condition, or (iii) such securities shall have been otherwise transferred by such Holder and new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company or its transfer agent, and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law. Registration Expenses: See Section 5(b) hereof. --------------------- Registration Period: See Section 2(c) hereof. ------------------- Registration Statement: Any registration statement of the Company filed ---------------------- with the SEC under the Securities Act, including the Prospectus, all amendments and supplements to such registration statement, post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Requested Shares: See Section 2(a) hereof. ---------------- Rule 144: Rule 144 promulgated under the Securities Act, as such Rule -------- may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC providing for public offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule -------- may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission or any successor federal --- agency charged with the enforcement of the federal securities laws. Securities Act: See the introductory paragraphs hereto. -------------- Subsidiary: Any corporation of which the Company owns securities ---------- representing a majority of the outstanding voting power or any partnership of which the Company (or a Subsidiary) holds a majority of the general partner interest. Underwritten Offering: A public offering of Common Stock, or other ---------------------- securities convertible into, or exercisable or exchangeable for, Common Stock that is underwritten on a firm commitment basis; provided that such offering shall be exclusively for the account of any one or more of the Company or Licensors (or any of Licensors' assignees). 2. PIGGY-BACK REGISTRATION RIGHTS (a) If during the Registration Period (as defined herein) the Company proposes or is required to file with the SEC a registration statement under the Securities Act relating to any shares of Common Stock (other than a registration statement on Form S-8 or Form S-4 or any successor forms thereto, or any other registration statement that does not permit the inclusion therein of the Registrable Securities) (the "Piggy-Back Registration Statement"), the Company will each such time give prompt written notice of its intention to do so to each Holder. Upon the written request of any Holder given within 10 days after the delivery or mailing of such notice from the Company, the Company will use commercially reasonable efforts to include in such Piggy-Back Registration Statement that number of the Securities specified by Holder in such written request (subject to the limitations set forth in this Section 2(a) and in Section 2(b) below) (the "Requested Shares") so as to permit the public sale of such Requested Shares, provided that if the managing underwriter or underwriters advise the Company that marketing factors require a limit on the number of shares to be underwritten, the Company may (subject to the limitations set forth below) exclude all Requested Shares from, or limit the number of Requested Shares to be included in, the Piggy-Back Registration Statement and underwriting. In such event, the Company shall so advise each requesting Holder, and the number of Requested Shares and other shares ("Other Shares") requested to be included in such Piggy-Back Registration Statement and underwriting by other persons or entities that are then stockholders of the Company ("Other Holders"), after providing for all shares that the Company proposes to offer and sell for its own account, shall be allocated among the Requesting Holders and Other Holders pro rata on the basis of (i) the number of Requested Shares then held by the requesting Holders, and (ii) the aggregate number of Other Shares then held by Other Holders. (b) The right of any Holder to registration shall be conditioned upon (i) such Holder's execution of the underwriting agreement agreed to among the Company and the managing underwriters selected by the Company for such underwritten offering, (ii) such Holder's completion and execution of all customary questionnaires and other documents which must be executed in connection with such underwriting agreement, and (iii) such Holder supplying the Company and the underwriter such additional information as may be necessary to register such Holder's Registrable Securities. (c) The registration rights granted pursuant to this Section 2, shall commence on July 15, 2000 and continue until the first to occur of (i) the date on which all of the Securities have been sold by the Holders, and (ii) the date on which all of the Securities may be immediately sold to the public without registration conditions or limitations, whether pursuant to Rule 144 or otherwise. The period of time commencing on July 15, 2000 and ending on the earliest of the dates described in items (i) and (ii) of this Section 2(c) shall be referred to as the "Registration Period". 3. BLACKOUT AND HOLDBACK EVENTS (a) During any period of up to 90 days' duration following the occurrence of a Blackout Event (a "Blackout Period"), the Company shall not be required to file, or cause to be declared effective, under the Securities Act any Piggy-Back Registration Statement hereunder, or, if applicable, the Holders will discontinue the offer and sale of Registrable Securities pursuant to the Piggy-Back Registration Statement. (b) The Holders shall not, if requested by the managing underwriter or underwriters of an Underwritten Offering, effect any public or private sale of any Common Stock, including a sale pursuant to Rule 144, during the period ("Holdback Period") beginning 14 days prior to, and ending 90 days after, the effective date of the registration statement relating to such Underwritten Offering. (c) The Company shall promptly notify the Holders in writing of any decision not to file a Piggy-Back Registration Statement or not to cause a Piggy-Back Registration Statement to be declared effective or to discontinue sales of Registrable Securities pursuant to this Section 3, which notice shall set forth the reason for such decision (but not disclosing any nonpublic material information) and shall include an undertaking by the Company promptly to notify the Holders as soon as sales may resume. 4. REGISTRATION PROCEDURES In connection with the filing of a Piggy-Back Registration Statement by the Company, the Company shall effect such registrations to permit the sale of the Registrable Securities covered thereby in accordance with the intended method or methods of disposition thereof, and in connection with such Piggy-Back Registration Statement the Company shall: (a) Prior to the filing of the Piggy-Back Registration Statement or any Prospectus or any amendments or supplements thereto, the Company shall provide Licensors with a copy of such Piggy-Back Registration Statement or any Prospectus or any amendments or supplements thereto. (b) Notify the selling Holders of Registrable Securities promptly (but in any event within five business days), and confirm such notice in writing: (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Piggy-Back Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act, and (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Piggy-Back Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose. (c) Use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Piggy-Back Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest practicable time. (d) Furnish to each selling Holder of Registrable Securities at the sole expense of the Company one conformed copy of the Piggy-Back Registration Statement, as applicable, and each post-effective amendment thereto. (e) Deliver to each selling Holder of Registrable Securities at the sole expense of the Company as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto; and, subject to the last paragraph of this Section 4, the Company consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (f) Prior to any public offering of Registrable Securities, to use its reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Securities in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any selling Holder reasonably requests; keep each such registration or qualification (or exemption therefrom) effective during the period such Piggy-Back Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Piggy-Back Registration Statement; provided, however, that the Company shall not be required to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4(f), (ii) subject itself to general taxation in any such jurisdiction, (iii) file a general consent to service of process in any such jurisdiction, (iv) provide any undertakings that cause the Company material expense or burden, or (v) make any change in its charter or by-laws, which in each case the Board determines to be contrary to the best interests of the Company and its stockholders. (g) Cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form in compliance with any applicable rules of a stock exchange on which the Common Stock is then listed; and enable such Registrable Securities to be in such denominations and registered in such names as Holders may reasonably request. (h) Upon the occurrence of any event or any information becoming known to the Company that makes any statement made in such Piggy-Back Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect, as promptly as practicable prepare and (subject to Section 4(a) hereof) file with the SEC, at the sole expense of the Company, a supplement or post-effective amendment to such Piggy-Back Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to Licensors of the Registrable Securities being sold thereunder, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (i) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 90 days after the end of any 12-month period (or 120 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of a Piggy-Back Registration Statement, which statements shall cover said 12-month periods. (j) Cooperate with each seller of Registrable Securities covered by any Piggy-Back Registration Statement in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (k) Use its reasonable best efforts to cause all Registrable Securities relating to any Piggy-Back Registration Statement to be listed on each securities exchange, if any, on which similar securities issued by the Company are then listed. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Securities as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Securities of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Piggy-Back Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. Each Holder of Registrable Securities understands that the Securities Act may require delivery of a Prospectus in connection with any sale thereof pursuant to a Piggy-Back Registration Statement, and each such Holder shall comply with the applicable Prospectus delivery requirements of the Securities Act in connection with any such sale. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 4(b)(ii) hereof or any information becoming known that makes any statement made in such Piggy-Back Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Piggy-Back Registration Statement or Prospectus to be sold by such Holder until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(e) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. 5. REGISTRATION EXPENSES (a) All Registration Expenses shall be borne by the Company. Notwithstanding the foregoing, the sellers of the Registrable Securities being registered shall pay all (i) brokerage or underwriting fees, discounts and commissions attributable to the sale of such Registrable Securities, (ii) the fees and disbursements of any counsel or other advisors or experts retained by such sellers (severally or jointly), and (iii) transfer taxes on resale of any of the Registrable Securities by such sellers. (b) For purposes of this Agreement, "Registration Expenses" shall mean all fees and expenses incident to the compliance with this Agreement by the Company (other than fees and expenses referred to in the second sentence of Section 5(a) hereof), including, without limitation, (i) all registration and filing fees, including, without limitation, (A) any SEC or NASD filing fees and (B) fees and expenses of compliance with state securities or blue sky laws, (ii) duplicating and copying expenses, (iii) messenger, telephone and delivery expenses incurred by the Company, (iv) all fees and disbursements of counsel for the Company, (v) fees and expenses of all other Persons retained by the Company, including annual or special audit and "comfort" letters, (vi) stock exchange listing fees and expenses, if any, and (vii) the expenses relating to printing and distributing the Piggy-Back Registration Statement and any other documents necessary in order to comply with this Agreement. 6. INDEMNIFICATION AND CONTRIBUTION (a) The Company agrees to indemnify and hold harmless each Holder of Registrable Securities, the officers and directors of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and liabilities (collectively, "Losses") (including, without limitation, the reasonable legal fees and other expenses actually incurred in connection with any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand (a "Claim")) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Piggy-Back Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented from time to time) or any preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading, except insofar as such Losses are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Company in writing by such Participant expressly for use therein; provided, however, that the Company will not be liable if such untrue statement or omission or alleged untrue statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus or any amendment or supplement thereto and the Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related proceeding and any such Loss suffered or incurred by the Participants resulted from any Claim by any Person who purchased Registrable Securities which are the subject thereof from such Participant and it is established in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registrable Securities sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by the Company with this Agreement. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Piggy-Back Registration Statement, and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Participant, but only with reference to information relating to such Participant furnished to the Company in writing by such Participant expressly for use in such Piggy-Back Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Securities giving rise to such obligations. (c) If any Claim shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may reasonably designate in such Claim and shall pay the reasonable fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Person shall not relieve it of any obligation or liability which it may have hereunder or otherwise. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person, or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person or any affiliate and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Indemnifying Person shall not, in connection with any one such proceeding or separate but substantially similar related proceedings in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and all such fees and expenses shall be reimbursed promptly as they are incurred. If the Company shall be the Indemnifying Person, any such separate firm for the Indemnified Persons shall be designated in writing by Participants who sold a majority in interest of Registrable Securities sold by all such Participants and reasonably acceptable to the Company. If the Company shall be the Indemnified Person, any such separate firm for the Company, its directors, its officers who sign a Piggy-Back Registration Statement and such control Persons of the Company shall be designated in writing by the Company. No Indemnifying Person shall be liable for any settlement of any proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, the Indemnifying Person shall indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Persons (which consent shall not be unreasonably withheld or delayed), effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement involves only the payment of money damages that are actually paid by the Indemnifying Person or includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding. (d) If the indemnification provided for in the first and second paragraphs of this Section 6 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any Losses, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such Losses (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Person on the one hand or such Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the Losses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such Claim. Notwithstanding the provisions of this Section 6, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Securities exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) Any Losses for which an indemnified party is entitled to indemnification or contribution under this Section shall be paid by the Indemnifying Person to the Indemnified Person as such Losses are incurred. The indemnity and contribution agreements contained in this Section 6 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any of Licensors, any Holder, any person who controls Licensors or any Holder, or any officers or directors of Licensors or such Holder, and (ii) any termination of this Agreement. (g) The indemnity and contribution covenants contained in this Section 6 are in addition to any liability which any Indemnifying Person may otherwise have to any Indemnified Person. 7. RULE 144 The Company will file the reports required to be filed by it under the Exchange Act in a timely manner in accordance with the requirements of the Exchange Act. The Company will also take such further action as any Holder of Registrable Securities issued by the Company may reasonably request, to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144(k). 8. MISCELLANEOUS (a) The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (i) the Company, and (ii) the Holders of not less than a majority in aggregate amount of the then-outstanding Registrable Securities; provided, however, that Section 4 and this Section 8(a) may not be amended, modified or supplemented without the prior written consent of each Holder (including any person who was a Holder of Registrable Securities disposed of pursuant to any Piggy-Back Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Piggy-Back Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority in aggregate amount of the Registrable Securities being sold by such Holders pursuant to such Piggy-Back Registration Statement. (b) Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by nationally-recognized overnight courier or by facsimile-machine confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). Each party shall provide notice to the other party of any change in address. The addresses for such communications shall be: If to the Company: LaserSight Incorporated 3300 University Boulevard, Suite 140 Winter Park, Florida 32792 Telecopy: (407) 678-9981 Attention: Chief Financial Officer with a copy to: The Lowenbaum Partnership, L.L.C. 222 South Central Avenue, Suite 901 St. Louis, Missouri 63105 Telecopy: (314) 746-4848 Attention: Timothy L. Elliott and Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 Telecopy: (312) 876-7934 Attention: Paul Miller If to Licensors: Luis A. Ruiz, M.D. and Sergio Lenchig Calle 120 No. 20A-44, Apartment 401 Santefe de Bogota, Colombia South America Telecopy:57-1-213-8462 - attn: Sergio Lenchig Telecopy:57-1-218-5730 - attn: Luis A. Ruiz, M.D. and Mezullo & McCandlish 1111 East Main Street, 15th Floor Richmond, Virginia 23219 Telecopy: (804) 775-3800 Attention: Allan S. Buffenstein, Esq. (c) This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, and the Holders; provided, however, that this Agreement shall not inure to the benefit of, or be binding upon, a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Securities. (d) This Agreement may be executed in two or more counterparts, including, without limitation, by facsimile transmission, all of which counterparts shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause additional original executed signature pages to be delivered to the other parties. (e) The headings in this Agreement are for convenience of reference and shall not form a part of, or affect the interpretation of, this Agreement. (f) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in that state. The parties hereto irrevocably consent to the jurisdiction of the United States federal courts and state courts located in the County of New Castle in the State of Delaware, in any suit or proceeding based on or arising under this Agreement and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The parties hereto irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. The parties hereto further agree that service of process upon the parties hereto mailed by first class mail shall be deemed in every respect effective service of process upon each such party in any such suit or proceeding. Nothing herein shall affect either party's right to serve process in any other manner permitted by law. The parties hereto agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. (g) Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (h) Holders of Registrable Securities are intended third party beneficiaries of the agreements made hereunder between the Company and Licensors and shall have the right to enforce this Agreement to the extent they deem such enforcement necessary or advisable to protect their rights hereunder. (i) This Agreement, together with the Amendment and the other agreements among the parties of even date herewith or therewith, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter. (j) The Company agrees that during the time period beginning on the dated hereof and continuing until the Company has satisfied its obligations hereunder or until such obligations have expired, the Company will not enter into any agreement related to the registration of its securities which is inconsistent with the rights granted to the Holders pursuant to this Agreement. The rights granted to Licensors pursuant to this Agreement do not conflict with any other agreements to which the Company is a party. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. LASERSIGHT INCORPORATED LICENSORS By: /s/Michael R. Farris /s/Luis A. Ruiz, M.D. ------------------------- ------------------------- Michael R. Farris Luis A. Ruiz, M.D. President and CEO /s/Sergio Lenchig ------------------------- Sergio Lenchig EX-10.54 4 SECURITIES PURCHASE AGREEMENT EXHIBIT 10.54 SECURITIES PURCHASE AGREEMENT This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of February 18, 2000, by and among LaserSight Incorporated, a Delaware corporation (the "Company"), with its headquarters located at 3300 University Boulevard, Suite 140, Winter Park, Florida 32792, and the purchasers (collectively, the "Purchasers" and each individually a "Purchaser") named on the execution page hereto, with regard to the following: RECITALS A. The Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933 (the "Securities Act") and Regulation D ("Regulation D") of the Securities and Exchange Commission (the "SEC") promulgated under the Securities Act. B. The Purchasers desire to purchase, upon the terms and conditions stated in this Agreement, a total of 76,189 shares (the "Placement Shares") of the Company's common stock, $.001 par value per share ("Common Stock"). The Placement Shares are referred to herein as the "Securities." C. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement of even date herewith in the form attached hereto as Exhibit A (the "Registration Rights Agreement"), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and applicable state securities laws. AGREEMENTS NOW, THEREFORE, in consideration of the foregoing recitals (which are incorporated into and deemed a part of this Agreement), their respective promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Purchasers hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF COMMON STOCK 1.1 Purchase of Common Stock. Subject to the terms and conditions of this Agreement, on February 22, 2000 (the "Closing Date"), the Company agrees to issue and sell to each Purchaser, and each Purchaser severally agrees to purchase from the Company (the "Closing"), the number of shares of Common Stock indicated below at a price which shall be in the aggregate $750,000 (the "Purchase Price"): Purchaser No. of Shares of Purchase Price Common Stock Engmann Options, Inc. 50,793 $500,000 MDNH Partners, L.P. 25,396 250,000 ------ ------- Total 76,189 $750,000 ====== ======== Each Purchaser's obligation to purchase Common Stock hereunder is distinct and separate from each other Purchaser's obligation to purchase, and no Purchaser shall be required to purchase hereunder more than the number of shares of Common Stock set forth opposite its name immediately above. The obligations of the Company with respect to each Purchaser shall be separate from the obligations of each other Purchaser and, except as provided in Section 6.1(c) hereof, shall not be conditioned as to any Purchaser upon the performance of obligations of any other Purchaser. The Closing shall take place on the Closing Date at 10:00 A.M., Eastern Time, at the offices of the Company, or at such other time and place as shall be agreed upon by the parties. At the Closing, the Company shall direct its transfer agent to deliver to each Purchaser a certificate representing the Placement Shares. Delivery of such certificate to the Purchaser shall be made against receipt at the Closing by the Company from the Purchaser of the Purchase Price, which shall be paid by wire transfer to an account designated at least one business day prior to the Closing by the Company. 1.2 Form of Payment. Upon satisfaction of the conditions contained --------------- in Section 7.1, the Purchaser shall pay the Purchase Price by wire transfer to the account designated by the Company. 1.3 Transfer of Securities. The Securities shall, when issued, ----------------------- be unregistered and therefore subject to the restrictions on sale, distribution and transfer imposed under the Securities Act and under applicable securities laws or blue sky laws of any state or foreign jurisdiction. 1.4 Registration of the Securities. The Securities shall have ------------------------------ those registration rights as are set forth in the Registration Rights Agreement. ARTICLE 2 PURCHASER'S REPRESENTATIONS AND WARRANTIES Each Purchaser represents and warrants, solely with respect to itself and its purchase hereunder and not with respect to any other Purchaser or the purchase hereunder by any other Purchaser (and no Purchaser shall be deemed to make or have any liability for any representation or warranty made by any other Purchaser), to the Company as set forth in this Article 2. No Purchaser makes any other representations or warranties, express or implied, to the Company in connection with the transactions contemplated hereby and any and all prior representations and warranties, if any, which may have been made by a Purchaser to the Company in connection with the transactions contemplated hereby shall be deemed to have been merged in this Agreement and any such prior representations and warranties, if any, shall not survive the execution and delivery of this Agreement. 2.1 Investment Purpose. Such Purchaser is purchasing the Securities ------------------ for Purchaser's own account for investment only and not with a view toward or in connection with the public sale or distribution thereof. Such Purchaser will not, directly or indirectly, offer, sell, pledge or otherwise transfer the Securities or any interest therein except pursuant to transactions that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act. Such Purchaser understands that it must bear the economic risk of this investment indefinitely, unless the Securities are registered pursuant to the Securities Act and any applicable securities laws or blue sky laws of any state or foreign jurisdiction or an exemption from such registration is available, and that the Company has no intention or obligation to register any of the Securities other than as contemplated by Section 1.4 hereof and the Registration Rights Agreement. 2.2 Accredited Investor Status. Such Purchaser represents and -------------------------- warrants that it is an Accredited Investor (as that term is defined in Rule 501 promulgated by the SEC under the Securities Act), that it has such knowledge and experience in business and financial matters as to be capable of evaluating the merits and risks of the investment contemplated to be made hereunder, and that it (i) was not formed or organized for the specific purpose of investing in the Company; (ii) understands that such investment bears a high degree of risk and could result in a total loss of its investment; and (iii) has sufficient financial strength to hold the same as an investment and to bear the economic risks of such investment (including possible loss of such investment) for an indefinite period of time. 2.3 Reliance on Exemptions. Such Purchaser acknowledges that the ------------------------ Securities being sold to it hereunder are being sold pursuant to a private offering exemption under the Securities Act and are not being registered under the Securities Act or under the securities laws or blue sky laws of any state or foreign jurisdiction and understands that the Company is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities. 2.4 Information. Such Purchaser has been furnished all materials ----------- relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which it has specifically requested, including, without limitation, the Company's Annual Report on Form 10-K and 10-K/A for the year ended December 31, 1998, its Quarterly Report on Form 10-Q and 10-Q/A, as applicable, for the periods ended March 31, 1999, June 30, 1999, September 30, 1999, its Current Reports on Form 8-K filed with the SEC on December 20, 1999; November 17, 1999; October 27, 1999; the description of the Common Stock contained in the Company's Form 8-A/A (Amendment No. 4) filed with the SEC on June 25, 1998; the description of the Company's Series E Preferred Stock contained in the Company's Form 8-A filed with the SEC on July 7, 1998 and on Form 8-A/A (Amendment No. 1) filed with the SEC on March 29, 1999; Proxy Statement dated May 26, 1999 (such documents, including any financial statements and related notes included in such documents, collectively the "Furnished SEC Documents"). In addition, such Purchaser has received and considered certain non-public information disclosed pursuant to the terms of the Confidentiality Agreement between Purchaser and the Company (the "Confidential Disclosure"). Such Purchaser and its advisors have been given the opportunity to obtain information and to examine all documents referred to herein and to ask questions of, and to receive answers from, the Company or any person acting on its behalf concerning the Company and the terms and conditions of this investment, and to obtain any additional information, to the extent the Company possesses such information or could acquire it without unreasonable effort or expense, to verify the accuracy of any information previously furnished. All such questions have been answered to such Purchaser's full satisfaction, and all information and agreements, documents, records and books pertaining to this investment which such Purchaser has requested have been made available to such Purchaser or its advisors. Such Purchaser understands that its investment in the Securities involves a high degree of risk. In making its investment decision, such Purchaser has not relied on any oral or written representation, other than those contained in the Furnished SEC Documents, the Confidential Disclosure, this Agreement (including the schedules hereto) and the Registration Rights Agreement, with respect to the Securities, the Company, its business or prospects, or other matters. In making its decision to invest in the Company, such Purchaser has relied solely upon independent investigations made by such Purchaser and its advisors. 2.5 Governmental Review. Such Purchaser understands that no ------------------- United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. 2.6 Transfer or Resale. Such Purchaser understands that (i) the -------------------- Securities have not been and (except as contemplated by the Registration Rights Agreement) are not being registered under the Securities Act or under the securities laws or blue sky laws of any state or foreign jurisdiction, and may not be offered, sold, pledged or otherwise transferred unless subsequently registered thereunder or an exemption from such registration is available, and neither the Company nor any other person is under any obligation to register the Securities under the Securities Act or under the securities laws or blue sky laws of any state or foreign jurisdiction or to comply with the terms and conditions of any exemption thereunder (in each case, other than pursuant to this Agreement or the Registration Rights Agreement), and (ii) any sale of the Securities made in reliance on Rule 144 under the Securities Act, or a successor rule ("Rule 144"), may be made only in accordance with the terms of Rule 144 and Article 5 hereof and further, if Rule 144 is not applicable, any resale of the Securities without registration under the Securities Act under circumstances in which the seller may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder. 2.7 Authorization. Such Purchaser represents and warrants that as of ------------- the Closing Date the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein have been duly authorized by it. The fulfillment of and compliance with the terms of this Agreement will not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, or (iii) result in a violation of, breach of or default under (A) its charter or constituent document, (B) any law, statute, rule or regulation to which it is subject, or (C) any agreement, instrument, order, judgment or decree to which it is subject or is a party or by which it is bound. 2.8 Binding Effect. Such Purchaser represents and warrants that --------------- this Agreement constitutes its valid and binding obligation, enforceable in accordance with its terms, except (i) as limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally or by equitable principles in any action (legal or equitable), (ii) that the availability of equitable relief is subject to the discretion of the court before which any proceeding thereof may be brought, and (iii) that the enforceability of the indemnification provisions may be limited by applicable securities laws or public policy. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to each Purchaser, except as disclosed (including, in the case of financial statements, provided for) in the disclosure schedules delivered herewith, as set forth in this Article 3. The Company does not make any other representations or warranties, express or implied, to the Purchasers in connection with the transactions contemplated hereby and any and all prior representations and warranties, if any, which may have been made by the Company to a Purchaser in connection with the transactions contemplated hereby shall be deemed to have been merged in this Agreement and any such prior representations and warranties, if any, shall not survive the execution and delivery of this Agreement. 3.1 Organization and Qualification. Each of the Company and its -------------------------------- subsidiaries is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power to own its properties and to carry on its business as now being conducted or are presently expected to be conducted during the Company's current fiscal year. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction where the failure so to qualify or be in good standing would have a Material Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" means any material adverse effect on the business, operations, assets, properties, liabilities, condition (financial or otherwise), the Common Stock price or operating results of the Company and its subsidiaries, taken as a whole on a consolidated basis, or on the transactions contemplated hereby. 3.2 Authorization; Enforcement. -------------------------- (a) The Company has the requisite corporate power and authority to enter into and perform this Agreement, and to issue, sell and perform its obligations with respect to the Securities in accordance with the terms hereof and thereof; (b) the execution, delivery and performance of this Agreement and the Registration Rights Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and, except as set forth on Schedule 3.2 hereof, no further consent or authorization of the Company, its board of directors, or its stockholders or any other person, body or agency is required with respect to any of the transactions contemplated hereby (whether under rules of The NASDAQ Stock Market (the "NASDAQ"), the National Association of Securities Dealers, Inc. or otherwise); (c) this Agreement, the Registration Rights Agreement, and the certificates for the Securities have been duly executed and delivered by the Company; and (d) this Agreement and the Registration Rights Agreement constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except (i) to the extent that such validity or enforceability may be subject to or affected by any bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement thereof, creditors' rights or remedies of creditors generally, or by other equitable principles of general application, (ii) that the availability of equitable relief is subject to the discretion of the court before which any proceeding thereof may be brought, and (iii) that the enforceability of indemnification provisions may be limited by applicable securities laws or public policy. 3.3 Capitalization. The capitalization of the Company as of the date -------------- hereof, including the authorized capital stock, the number of shares issued and outstanding, the number of shares reserved for issuance pursuant to the Company's stock option plans, the number of shares reserved for issuance pursuant to securities exercisable for, or convertible into or exchangeable for any shares of Common Stock is set forth on Schedule 3.3. All of such shares of capital stock have been, or upon issuance in accordance with the terms of the relevant security will be, validly issued, fully paid and nonassessable. Except as disclosed in Schedule 3.3, no shares of capital stock of the Company (including the Securities) are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances imposed or suffered by the Company. Except as disclosed in Schedule 3.3, as of the date of this Agreement, there are no outstanding options, warrants, scrip, rights to subscribe for, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries. The Company shall provide the Purchasers with a written update of this representation signed by the Company's Chief Executive Officer or Chief Financial Officer on behalf of the Company as of the Closing Date. Except as set forth in Schedule 3.3, since December 31, 1999, the Company has not declared or paid any dividend or made any other distribution of cash, stock or other property with respect to the Common Stock. Except as set forth in Schedule 3.3 or as contemplated by this Agreement or the Registration Rights Agreement or except for the right to vote its shares of Common Stock for the election of directors, no person has the right to nominate or elect one or more directors of the Company. 3.4 Issuance of Shares. As of the Closing the Securities will be duly authorized, validly issued, fully paid and non-assessable with no personal liability attaching to the owners thereof, and free from all taxes, liens, claims and encumbrances imposed or suffered by the Company and except as disclosed in Schedule 3.3, will not be subject to preemptive rights or other similar rights of stockholders of the Company. 3.5 No Conflicts. The execution, delivery and performance of ------------- this Agreement and the Registration Rights Agreement by the Company, and the consummation by the Company of transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance, as applicable, of the Securities) will not (i) result in a violation of the Company's Certificate of Incorporation or By-laws, or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, result in any loss of benefit under, or give to others any rights of termination, amendment, acceleration or cancellation of, any Material Contract (as defined herein) to which the Company or any of its subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries, or by which any property or asset of the Company or any of its subsidiaries, is bound or affected, or (iv) result in the creation or imposition of an Encumbrance (as defined herein) upon the Company's properties or assets (except with respect to items (ii), (iii) and (iv) of this Section 3.5 such possible conflicts, defaults, terminations, amendments, accelerations, cancellations, violations and Encumbrances as would not individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or other organizational documents, and neither the Company nor any of its subsidiaries, is in default (and no event has occurred which has not been waived which, with notice or lapse of time or both, would put the Company or any of its subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, except for possible violations, defaults or rights as would not individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its subsidiaries are not being conducted in violation of any law, ordinance or regulation of any governmental entity, except for possible violations the sanctions for which either singly or in the aggregate would not have a Material Adverse Effect. Except as set forth on Schedule 3.5, or except (i) as may be required under the Securities Act in connection with the performance of the Company's obligations pursuant to the Registration Rights Agreement, (ii) filing of a Form D with the SEC, and (iii) compliance with the state securities laws or blue sky laws of applicable jurisdictions, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under this Agreement or to perform its obligations in accordance with the terms hereof. The Common Stock is listed on the NASDAQ, the Company is not in violation of the listing requirements of the NASDAQ and the Company is not aware of any fact (including any proceedings pending or, to the best of the Company's knowledge, contemplated) that could result in the Common Stock being delisted from the NASDAQ. The Company is not aware of any fact that could result in a refusal by the NASDAQ to approve the Securities for listing. 3.6 SEC Documents. Except as disclosed in Schedule 3.6, since ------------- December 31, 1997, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act") (all of the foregoing filed after December 31, 1995 and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being referred to herein as the "SEC Documents"). The Company has delivered to the Purchasers true and complete copies of the Furnished SEC Documents, except for exhibits, schedules and incorporated documents. Each of the SEC Documents as originally filed or as amended complied in all material respects with the requirements of its respective report or form and did not on the date of filing contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and as of the date hereof, there is no fact or facts not disclosed in the SEC Documents or disclosed in writing to the Purchasers which relate specifically to the Company which individually or in the aggregate, may have a Material Adverse Effect. The consolidated financial statements of the Company (including any related schedules or notes thereto) included in the SEC Documents were prepared in accordance with generally accepted accounting principles, consistently applied, and the applicable rules and regulations of the SEC during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they do not include footnotes or are condensed or summary statements) and present accurately and completely, in all material respects, the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, year-end audit adjustments). To the extent required by the rules of the SEC applicable thereto, the SEC Documents contain a complete and accurate list of all material undischarged written or oral contracts, agreements, leases or other instruments to which the Company or any subsidiary is a party or by which the Company or any subsidiary is bound or to which any of the properties or assets of the Company or any subsidiary is subject (each a "Material Contract"). Except as set forth in Schedule 3.6, none of the Company, its subsidiaries or, to the best knowledge of the Company, any of the other parties thereto, is in breach or violation of any Material Contract, which breach or violation would have a Material Adverse Effect. To the best knowledge of the Company, no event, occurrence or condition exists which, with the lapse of time, the giving of notice, or both, would become a default by the Company or its subsidiaries thereunder which would have a Material Adverse Effect. Except as set forth in Schedule 3.6 or disclosed in writing to the Purchasers, there are no liabilities or obligations (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due and regardless of when asserted), except (i) liabilities and obligations in the respective amounts reserved for in the Company's balance sheet or the footnotes thereto as of September 30, 1999 included in the Furnished SEC Documents, (ii) liabilities and obligations incurred after December 31, 1999 in the ordinary course of business consistent (in amount and kind) with past practice (none of which is a liability resulting from breach of contract, breach of warranty, tort, infringement, claim or lawsuit), (iii) liabilities and obligations disclosed in the Furnished SEC Documents, and (iv) liabilities and obligations which would not individually or in the aggregate, have a Material Adverse Effect. Since December 31, 1999, the Company has operated its business only in the ordinary course and there has not been individually or in the aggregate, any change that would have a Material Adverse Effect (a "Material Adverse Change") other than changes disclosed in the SEC Documents or otherwise set forth in Schedule 3.6. 3.7 Absence of Certain Changes. Except as disclosed in Schedule 3.7 -------------------------- or in the Confidential Disclosure, since December 31, 1999, the business of the Company and its subsidiaries has been conducted in the ordinary course, consistent with past practice and there has not been (a) any Material Adverse Change, nor has any event or change occurred which could reasonably result in a Material Adverse Change, in the condition (financial or otherwise), results of operations, business, assets, liabilities or prospects of the Company or its subsidiaries or any event or condition which could reasonably be expected to have such a Material Adverse Change, (b) any waiver or cancellation of any valuable right of the Company or its subsidiaries, or the cancellation of any material debt or claim held by the Company or its subsidiaries, (c) any payment, discharge or satisfaction of any claim, liability or obligation of the Company or its subsidiaries other than in the ordinary course of business except where such payment, discharge or satisfaction would not, individually or in the aggregate, have a Material Adverse Effect, (d) the placement of any Encumbrance upon the assets of the Company or its subsidiaries other than any Permitted Encumbrance (as defined herein), (e) any declaration or payment of dividends on, or other distribution with respect to, or any direct or indirect redemption or acquisition of, any securities of the Company, (f) any issuance of any stock, bonds or other securities of the Company or its subsidiaries which is not disclosed in Schedule 3.3 or the Furnished SEC Documents, (g) any sale, assignment or transfer of any tangible or intangible assets of the Company or its subsidiaries except in the ordinary course of business, (h) any loan by the Company or its subsidiaries to any officer, director, employee, consultant or shareholder of the Company or its subsidiaries (other than advances to such persons in the ordinary course of business in connection with travel and travel related expenses), (i) any damage, destruction or loss (whether or not covered by insurance) materially and adversely affecting the assets, property, condition (financial or otherwise), results of operations or prospects of the Company or its subsidiaries, (j) any increase, direct or indirect, in the compensation paid or payable to any officer or director of the Company or its subsidiaries, other than in the ordinary course of business, to any other employee, consultant or agent of the Company or its subsidiaries, (k) any change in the accounting methods, practices or policies of the Company or its subsidiaries, (l) any indebtedness incurred for borrowed money by the Company or its subsidiaries other than in the ordinary course of business, (m) any amendment to or termination of any material agreement to which the Company or its subsidiaries is a party other than the expiration of any such agreement in accordance with its terms or as disclosed in the Furnished SEC Documents, (n) to the Company's knowledge, any change in the laws or regulations governing the Company or its subsidiaries, (o) any Material Adverse Change in the manner of business or operations of the Company or its subsidiaries (including, without limitation, material accelerations or material deferrals of the payment of accounts payable or other current liabilities or material deferrals of the collection of accounts or notes receivable), (p) any capital expenditures or commitments therefor by the Company or its subsidiaries other than in the ordinary course of business, (q) any amendment of the certificate of incorporation, bylaws or other organizational documents of the Company or its subsidiaries which is not disclosed in the Furnished SEC Documents, (r) any material transaction entered into by the Company or its subsidiaries other than in the ordinary course of business or any other material transactions entered into by the Company or its subsidiaries whether or not in the ordinary course of business which is not disclosed in the Furnished SEC Documents, or (s) any agreement or commitment (contingent or otherwise) by the Company or its subsidiaries to do any of the foregoing. For purposes of this Agreement, "Permitted Encumbrance" shall mean (i) Encumbrances for unpaid taxes that either (A) are not yet due and payable, or (B) for which a reserve with respect to such obligation is established on the books of the Company, (ii) the interests of lessors under operating leases and purchase money liens of lessors under capital leases, (iii) Encumbrances arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or other similar encumbrances in the ordinary course of business of the Company, (iv) Encumbrances arising from deposits made in connection with obtaining worker's compensation or other unemployment insurance, (v) with respect to any real property, easements, rights of way, zoning and similar covenants and restrictions, and similar Encumbrances and that do not individually or in the aggregate materially impair the property of the Company, (vi) Encumbrances resulting from any judgment or award that would not result in a Material Adverse Change, and (vii) other Encumbrances which arise in the ordinary course of business and which individually and in the aggregate do not materially impair the Company's use of such property or its ability to obtain financing by using such asset as collateral. 3.8 Absence of Litigation. Except as disclosed in Schedule 3.8 or ---------------------- as disclosed in the Furnished SEC Documents, there is no civil, criminal or administrative action, suit, proceeding, inquiry, claim, notice, hearing or investigation at law or in equity (a "Litigation") before or by any court, arbitrator or similar panel, public board, government agency, or self-regulatory organization or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company, any of its subsidiaries, or any of their respective assets (including Intangibles (as defined herein)) or directors or officers in their capacities as such. There are no facts known to the Company which, if known by a potential claimant or governmental authority, could give rise to a claim or proceeding which, if asserted or conducted with results unfavorable to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 3.8, neither the Company nor its subsidiaries is subject to any order, writ, injunction or decree of any court of any federal, state, municipal or other domestic or foreign governmental department, commission, board, bureau, agency or instrumentality which could have a Material Adverse Effect. 3.9 Disclosure. Neither this Agreement, the SEC Documents nor any ---------- certificate, instrument or written statement furnished or made to the Purchasers by or on behalf of the Company in connection with this Agreement or the Registration Rights Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading as of the date such statements were made. There is no fact which is not disclosed in the Furnished SEC Documents or fact which the Company has not disclosed to the Purchasers or its counsel and of which the Company is aware which materially and adversely affects, or which could materially and adversely affect, the Company or its subsidiaries or the business, financial condition, operations, property, affairs or prospects of the Company or its subsidiaries or the ability of the Company or its subsidiaries to perform its obligations under the Agreement or any of the Registration Rights Agreement. 3.10 S-3 Registration. The Company is currently eligible to register ----------------- the resale of the Securities by the Purchasers pursuant to a registration statement on Form S-3 under the Securities Act. 3.11 No General Solicitation. Neither the Company nor any person ----------------------- acting for the Company has conducted any "general solicitation," as described in Rule 502(c) under Regulation D, with respect to any of the Securities being offered hereby. 3.12 No Integrated Offering. Neither the Company, nor any of its ------------------------ Affiliates (as defined herein), nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would prevent the parties hereto from consummating the transactions contemplated hereby pursuant to an exemption from registration under the Securities Act pursuant to the provisions of Regulation D. The transactions contemplated hereby are exempt from the registration requirements of the Securities Act, assuming the accuracy of the representations and warranties herein contained of the Purchasers. For purposes hereof, "Affiliate" shall mean any entity controlling, controlled by or under common control with a designated person or entity; for the purposes of this definition, "control" shall have the meaning presently specified for that word in Rule 405 promulgated by the SEC under the Securities Act. With respect to any entity which is a limited partnership, Affiliate shall also mean any general or limited partner of such limited partnership, or any person or entity which is a general partner in a general or limited partnership which is a general partner of such limited partnership. 3.13 No Brokers. The Company has taken no action that would give rise ----------- to any claim by any person for brokerage commissions, finder's fees or similar payments by the Purchasers relating to this Agreement or the transactions contemplated hereby. 3.14 Intellectual Property. Each of the Company and its subsidiaries ---------------------- owns or possesses adequate and enforceable rights to use all material patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "Intangibles") used or necessary for the conduct of its business as now being conducted and as described in the Company's Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 1998. Except as set forth on Exhibit 3.14, to the Company's knowledge, neither the Company nor any subsidiary of the Company infringes on or is in conflict with any right of any other person with respect to any Intangibles nor is there any claim of infringement made by a third party against or involving the Company or any of its subsidiaries, which infringement, conflict or claim, individually or in the aggregate, could reasonably be expected to result in an unfavorable decision, ruling or finding which would have a Material Adverse Effect. 3.15 Employee Benefit Plans. ---------------------- (a) Identification. Schedule 3.15(a) contains a complete and -------------- accurate list of all employee benefit plans (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) sponsored by the Company or to which the Company contributes on behalf of its employees (the "Employee Benefit Plans") and each employment, severance or change in control agreement to which the Company is a party. The Company has provided or made available to the Purchasers copies of all plan documents, determination letters, pending determination letter applications, VCR Submission (as defined below), trust instruments, insurance contracts, administrative services contracts, annual reports, actuarial valuations, summary plan descriptions, summaries of material modifications, administrative forms and other documents that constitute a part of or are incident to the administration of the Employee Benefit Plans. In addition, the Company has provided or made available to the Purchasers a written description of all existing practices engaged in by the Company that constitute Employee Benefit Plans. Except as set forth on Schedule 3.15(a) and subject to the requirements of the Internal Revenue Code of 1986, as amended (the "Code") and ERISA, each of the Employee Benefit Plans can be terminated or amended (without material cost to the Company) at will by the Company. Except as set forth on Schedule 3.15(a), no unwritten amendment exists with respect to any Employee Benefit Plan. The Company has no plan or commitment, whether legally binding or not, to establish any new Employee Benefit Plan, to enter into any employment severance or change in control agreement or to modify or to terminate any Employee Benefit Plan or agreement. (b) Administration. Each Employee Benefit Plan has been -------------- administered and maintained in compliance with all applicable laws, rules and regulations, except where the failure to be in compliance would not, individually or in the aggregate, result in a Material Adverse Effect. To the best of the knowledge of the Company, the Company has (i) made all necessary filings with respect to such Employee Benefit Plans, including the timely filing of Form 5500 if applicable, and (ii) made all necessary filings, reports and disclosures pursuant to and have complied with all requirements of the Internal Revenue Service ("IRS") Voluntary Compliance Resolution Program ("VCR Submission"), if applicable, with respect to all profit sharing retirement plans and pension plans in which employees of the Company participate. (c) Examinations. Except as set forth on Schedule 3.15(c), the ------------ Company has not received any notice that any Employee Benefit Plan is currently the subject of an audit, investigation, enforcement action or other similar proceeding conducted by any state or federal agency. (d) Prohibited Transactions. To the best of the knowledge of ------------------------ the Company, no prohibited transactions (within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA) have occurred with respect to any Employee Benefit Plans. (e) Claims and Litigation. No pending or, to the actual ----------------------- knowledge of the Company, threatened claims, suits, or other proceedings exist with respect to any Employee Benefit Plan other than normal benefit claims filed by participants or beneficiaries. (f) Qualification. As set forth in more detail on Schedule ------------- 3.15(f), the Company has applied for a favorable determination letter or ruling from the IRS for each of the Employee Benefit Plans intended to be qualified within the meaning of Section 401(a) of the Code and/or tax-exempt within the meaning of Section 501(a) of the Code. Except as set forth on Schedule 3.15(f), no proceedings exist or, to the actual knowledge of the Company has been threatened that could result in the revocation of any such favorable determination letter or ruling. (g) Funding Status. Neither the Company nor any member of a --------------- "Controlled Group" (within the meaning of Section 412(n)(6)(B) of the Code) with the Company sponsors any plans which (i) are subject to the minimum funding requirements of Code Section 412 or ERISA Section 302, or (ii) are subject to Title IV of ERISA assumptions. (h) Excise Taxes. To the best of the knowledge of the Company, ------------ neither the Company nor any member of a Controlled Group has any liability to pay excise taxes with respect to any Employee Benefit Plan under applicable provisions of the Code or ERISA. (i) Multi-Employer Plans. Neither the Company nor any member of a Controlled Group is or ever has been obligated to contribute to a multi-employer plan within the meaning of Section 3(37) of ERISA and neither the Company nor the Controlled Group has ever contributed to any plan subject to Title IV of ERISA. (j) Pension Benefit Guaranty Corporation. None of the Employee ------------------------------------ Benefit Plans are subject to the requirements of Title IV of ERISA. (k) Retirees. The Company has no obligation or commitment to -------- provide medical, dental or life insurance benefits to or on behalf of any of its employees who may retire or any of its former employees who have retired except as may be required pursuant to the continuation of coverage provisions of Section 4980B of the Code and Sections 601 through 608 of ERISA. (l) Change in Control. The execution of, and performance of ----------------- the transactions contemplated in, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under an Employee Benefit Plan or employment, severance or change in control agreement that will or may result in any, payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee of the Company. No payment or benefit which will or may be made by the Company, any of its subsidiaries, the Purchasers or any of its affiliates by reason of such execution or performance may be characterized as an "excess parachute payment," within the meaning of Section 28OG(b)(1) of the Code or which will not be deductible for federal tax purposes by virtue of Section 162(m) of the Code. (m) Insurance. With respect to each Employee Benefit Plan --------- which is an employee welfare benefit plan (within the meaning of Section 3(l) of ERISA), all claims incurred by the Company are (i) insured pursuant to a contract of insurance whereby the insurance company bears any risk of loss with respect to such claims, or (ii) covered under a contract with a health maintenance organization which bears the liability for claims. (n) Labor Disputes. No work stoppage or labor strike against --------------- the Company is pending or threatened. The Company is not now, nor has been in the past (i) involved in or threatened with any labor dispute, grievance, or litigation relating to labor matters, including, without limitation, violation of any federal, state or local labor, safety or employment laws (domestic or foreign), charges of unfair labor practices or discrimination complaints which could have a Material Adverse Effect; (ii) engaged in any unfair labor practices within the meaning of the National Labor Relations Act or the Railway Labor Act, or (iii) a party to, or bound by, any collective bargaining agreement or union contract and no such agreement or contract is currently being negotiated by the Company or any of its affiliates. No employees of the Company are currently represented by any labor union for purposes of collective bargaining and no activities the purpose of which is to achieve such representation are threatened or ongoing. The Company (i) is in compliance with all applicable federal, state and local laws, rules and regulations (domestic and foreign) respecting employment, employment practices, labor, terms and conditions of employment and wages and hours, except for such possible non-compliance as would not, individually or in the aggregate, have a Material Adverse Effect; (ii) has withheld all amounts required by law or by agreement to be withheld from the wages, salaries and other payments; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund or to any governmental or administrative authority, with respect to unemployment compensation benefits, social security or other benefits. 3.16 Equity Investments; Subsidiaries. Set forth on Schedule 3.16 is a ------------------ list of all of the Company's subsidiaries. Except as set forth on Schedule 3.16, the Company does not own, whether directly or indirectly, any capital stock or other proprietary interest directly or indirectly, in any corporation, association, trust, partnership, joint venture or other entity which is currently involved in the Company's ordinary course of business. 3.17 Title to Assets and Properties; Insurance. ----------------------------------------- (a) The Company has good and marketable title, or a valid leasehold interest in or contractual right to use, all of its assets and properties, free and clear of any mortgages, judgments, claims liens, security interests, pledges, escrows, charges or other encumbrances of any kind or character whatsoever ("Encumbrances") except in each case for Permitted Encumbrances and such defects in title and such other liens and Encumbrances which do not individually or in the aggregate materially detract from the value to the Company of the properties and assets of the Company and its subsidiaries taken as a whole. (b) The Company and its subsidiaries maintain insurance (including D&O insurance) in such amounts (to the extent available in the public market), including self-insurance, retainage and deductible arrangements, and of such a character as is reasonable for companies engaged in the same or similar business. 3.18 Compliance with Laws; Permits. Except as provided in Schedule ------------------------------- 3.18, the Company and its subsidiaries are in compliance, and have been conducted in compliance with, all federal, state, local and foreign laws, rules, ordinances, codes, consents, authorizations, registrations, regulations, decrees, directives, judgments and orders applicable to it except where the failure to comply would not individually or in the aggregate have a Material Adverse Effect. The Company has all federal, state, local and foreign governmental licenses, permits, qualifications and authorizations ("Permits") necessary in the conduct of its business as currently conducted. All such Permits are in full force and effect and no violations have been recorded in respect of any such Permit; no proceeding is pending or, to the best knowledge of the Company, threatened to revoke or limit any such Permit and no such Permit will be suspended, cancelled or adversely modified as a result of the execution and delivery of this Agreement or the Registration Rights Agreement and the consummation of the transactions contemplated hereby or thereby, except where failure to have such Permit would not individually or in the aggregate have a Material Adverse Effect. 3.19 Taxes. ----- (a) For purposes of this Agreement, (i) "Taxes" shall mean all taxes, assessments, charges, duties, fees, levies or other governmental charges (including interest, penalties or additions associated therewith) (including, without limitation, federal, state, city, county, local, foreign, or other income, franchise, ad valorem, value added, excise, real or personal property, asset, franchise taxes withheld, capital, withholding, real or tangible property, employment, unemployment compensation, transfer, sales, use, excise and all other taxes of any kind whatsoever imposed by the United States or any state, city, county, country or foreign government or subdivision or agency thereof, whether disputed or not, and (ii) "Transaction" means one or more transactions, acts, events, or omissions of whatever nature. (b) The Company has filed on a timely basis all returns and reports, including all estimated returns and reports of every kind and have timely given all notices, in respect of Taxes required to be filed or given under applicable law within the applicable statute of limitations period by any of them, or except where proper action has been taken by the Company to extend the relevant filing deadline. Such returns, reports and notices are complete and accurate in all material respects. All Taxes shown on such returns or reports have been, and all Taxes subsequently assessed with respect to the periods and/or Transactions to which such returns or reports relate have been or will be, timely, and fully paid, except for amounts which the Company is contesting in good faith. The provisions in the financial statements (and the notes and schedules related thereto) contained in the Furnished SEC Documents for Taxes currently payable and for deferred Taxes are adequate in all material respects to provide for such Taxes for which the Company and its Subsidiaries taken as a whole may be liable in respect of periods or Transactions through the dates thereof. (c) No fact or condition relating to any past or present Transaction, except as set forth in the Company's disclosure schedules delivered herewith, which, if known to any tax authority having jurisdiction, would likely result in a successful challenge by such authority of the treatment or omission of such factor or condition on any tax return, report or notice of the Company or its subsidiaries, and no issue has arisen in any examination of the Company by the IRS that, in either case, if raised with respect to any other period not so examined would result in a proposed material deficiency for any other period not so examined, if upheld. The Company and its subsidiaries have made all payments or estimated Taxes required to be made under Section 6655 of the Code and any comparable provisions of state, local or foreign law. Except as set forth on Schedule 3.19, there is no pending nor, to the Company's knowledge, threatened or contemplated action, audit, proceeding or investigation for the assessment or collection of Taxes from the Company. There are no requests for rulings, outstanding subpoenas or requests for information with respect to Taxes of the Company, proposed reassessments of any property owned or leased by the Company, or similar matters pending with respect to any taxing authority. 3.20 Environmental Matters. Except as listed in Schedule 3.20: --------------------- (a) There are, with respect to the Company and its subsidiaries, or any predecessor of the foregoing, no present violations of Environmental Law (as defined herein), any actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any liability of the Company pursuant to any Environmental Law and neither the Company nor its subsidiaries has received any notice with respect to any of the foregoing nor is any Litigation pending or threatened in connection with any of the foregoing. (b To the knowledge of the Company and except in the normal course of the Company's or its subsidiaries' business, (i) no Hazardous Materials (as defined herein) are present on or about any real property currently owned, leased or used by the Company or its subsidiaries, and (ii) no Hazardous Materials were present on or about any real property previously owned, leased or used by the Company or its subsidiaries during the period the property was owned, leased or used by the Company or its subsidiaries. (c) To the knowledge of the Company, no Hazardous Materials have been released on or about, or where they may pose a threat of migration to, any real property currently owned, leased or used by the Company or its subsidiaries and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or its subsidiaries during the period the property was owned, leased or used by the Company or its subsidiaries, except as may be required in the normal course of business and in material compliance with applicable Environmental Law. (d) To the knowledge of the Company, no asbestos-containing materials or PCBs are present on or about any property currently owned, leased or used by the Company or its subsidiaries. (e) To the knowledge of the Company, there are not now, nor have there ever been, any underground storage tanks or similar facilities of any kind on or under any real property currently or previously owned, leased or used by the Company or its subsidiaries. (f) For purposes of this Section 3.20, capitalized terms used herein shall have the following meanings: "Environmental Laws" shall mean, at any date, all provisions ------------------- of federal, state, local or foreign law (including applicable principles of common and civil law), statutes, ordinances, rules, regulations, published standards and directives that have the force and effect of laws, statutes, regulations, permits, licenses, judgments, writs, injunctions, decrees and orders enacted, promulgated or issued by any Public Authority, and all indemnity agreements and other contractual obligations, as in effect at such date, relating to (i) the protection of the environment, including the air, surface and subsurface soils, surface waters, groundwaters and natural resources, and (ii) occupational health and safety and exposure of persons to Hazardous Materials. Environmental Laws shall include the Comprehensive Environmental Response, Compensation and Liability Act 42 U.S.C. ss.ss.9601 et seq., and any other laws imposing or creating liability with respect to Hazardous Materials. "Environmental Liability" shall mean any liabilities, ------------------------- obligations, costs, losses, payments or damages, including compensatory and punitive damages, incurred (i) to contain, remove, clean up, assess, abate or otherwise remedy any actual or alleged release or threatened release of Hazardous Materials, any actual or alleged contamination (by Hazardous Materials) of air, surface or subsurface soil, groundwater or surface water, or any personal injury or damage to natural resources or property resulting from any such release or contamination, pursuant to the requirements of any Environmental Law or in response to any claim by any Public Authority or other third party under any Environmental Law; (ii) to modify facilities or processes or take any other remedial action in response to any claim by any Public Authority of non-compliance with any Environmental Law, (iii) as a result of the imposition of any civil or criminal fine or penalty by any Public Authority for the violation or alleged violation of any Environmental Law, or (iv) as a result of any action, suit, proceeding or claim by any third party under any Environmental Law. The term "Environmental Liability" shall include: (i) reasonable fees of counsel and consultants (but not any corporate allocation for management time or for the use of similar in-house services or facilities), and (ii) the costs and expenses of any investigation undertaken to ascertain the existence or extent of any potential or actual Environmental Liability. "Hazardous Material" shall mean any substance regulated by any ------------------ Environmental Law or which may now or in the future form the basis for any Environmental Liability. "Public Authority" shall mean any supranational, national, ----------------- regional, state or local government court, governmental agency, authority, board, bureau, instrumentality or regulatory body. 3.21 Suppliers and Customers. Except as set forth on Schedule 3.21, the ----------------------- Company does not have any knowledge of any termination, cancellation or threatened termination or cancellation or limitation of, or any material modification or change in, or expressed material dissatisfaction with the business relationship between the Company or its subsidiaries and any supplier or vendor of the Company or its subsidiaries, in each case, of materials or services in an amount in excess of $50,000 per year. 3.22 Holding Company Act and Investment Company Act. Neither the --------------------------------------------------- Company nor its subsidiaries is: (i) a "public utility company" or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," or an "affiliate" of such a "subsidiary company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or (ii) a "public utility," as defined in the Federal Power Act, as amended, or (iii) an "investment company" or an "affiliated person" thereof or an "affiliated person" of any such "affiliated person," as such terms are defined in the Investment Company Act of 1940, as amended. 3.23 Foreign Corrupt Practices. To the Company's best knowledge, the -------------------------- Company has no notice and neither the Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended. To the Company's best knowledge, the Company has no notice and neither the Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has, in the course of his actions or, on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. ARTICLE 4 COVENANTS 4.1 Best Efforts. The parties shall use their best efforts timely to ------------ satisfy each of the conditions described in Articles 6 and 7 of this Agreement. 4.2 Securities Laws. The Company shall file a Form D with respect to ---------------- the Securities with the SEC as required under Regulation D and shall provide a copy thereof to the Purchasers within 15 days after the Closing Date. The Company shall file a Form 8-K disclosing this Agreement and the transactions contemplated hereby with the SEC within five business days following the Closing Date. The Company shall, on or prior to the Closing Date, take such action as is necessary to sell the Securities to the Purchasers under applicable securities laws of the states of the United States, and shall provide evidence of any such action so taken to the Purchasers on or prior to the Closing Date. 4.3 Reporting Status. So long as any Purchaser beneficially owns any ---------------- of the Securities, the Company shall use its best efforts to timely file all reports required to be filed by it with the SEC pursuant to the Exchange Act, and make and keep public information available as those terms are defined in Rule 144 and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. 4.4 Use of Proceeds. The Company shall use the Purchase Price for --------------- general corporate purposes. 4.5 Expenses. Except as may otherwise agreed to, the Company and -------- the Purchasers shall pay all the costs and expenses incurred by it or them or on its or their behalf in connection with this Agreement and the consummation of the transactions contemplated hereby. 4.6 Listing. The Company shall use its best efforts to continue the ------- listing and trading of its Common Stock on the NASDAQ, the New York Stock Exchange or American Stock Exchange; and comply in all respects with the Company's reporting, filing and other obligations under the by-laws or rules of the NASDAQ or such exchange, as applicable. 4.7 Prospectus Delivery Requirement. The Purchasers understand that ------------------------------- the Securities Act requires delivery of a prospectus relating to the Securities in connection with any sale or other disposition thereof pursuant to a registration statement, and each Purchaser shall comply with the applicable prospectus delivery requirements of the Securities Act in connection with any such sale or other disposition. 4.8 Transactions with Affiliates. The Company will not, and will ------------------------------ not permit any subsidiaries to, engage in any transaction or group of related transactions (including, without limitation, the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any affiliate (other than the Company), except in the ordinary course and pursuant to the reasonable requirements of the Company's or the subsidiaries' business and upon fair and reasonable terms no less favorable to the Company or such subsidiaries than would be obtainable in a comparable arm's-length transaction with a person not an affiliate. The Company will not be deemed in default of this Section 4.8 in connection with carrying out its obligations pursuant to those agreements or transactions described in the Furnished SEC Documents. ARTICLE 5 TRANSFER OF SECURITIES The Securities shall not be transferable except upon the conditions specified in this Article 5, which conditions are intended to insure compliance with the provisions of the Securities Act and state securities laws in respect of the transfer of any such Securities. 5.1 Restrictive Legend. ------------------ (a) Unless and until otherwise permitted by this Article 5, each certificate for the Securities issued to the Purchasers or to any subsequent transferee of the Securities shall be stamped or otherwise imprinted with a legend in substantially the following form: "These shares have not been registered under the Securities Act of 1933 and may not be offered for sale, sold, transferred or otherwise disposed of unless registered under such Act or unless an exemption from such registration is available. Further, such transfer is subject to the conditions specified in a Securities Purchase Agreement dated as of February 18, 2000 pursuant to which such shares were issued and sold by LaserSight Incorporated (the "Company"), a copy of which Agreement will be furnished by the Company to the holder hereof upon request and without charge." (b) The Company may order its transfer agent for the Common Stock to stop the transfer of any of the Securities bearing the legend set forth in Subsection (a) of this Section 5.1 until the conditions of this Article 5 with respect to the transfer of such securities have been satisfied. 5.2 Notice of Proposed Transfer. If, prior to any transfer or sale ---------------------------- of any the Securities, a Purchaser shall deliver a written notice to the Company describing briefly the manner of such transfer or sale and a written opinion of counsel for such Purchaser (provided that such counsel, and the form and substance of such opinion, are reasonably satisfactory to the Company) to the effect that such transfer or sale may be effected without the registration of such Securities under the Securities Act, the Company shall thereupon permit or cause its transfer agent to permit such transfer or sale to be effected; provided, however, that if in such written notice the transferring Purchaser represents and warrants to the Company that the transfer or sale is to a purchaser or transferee whom the transferring Purchaser knows or reasonably believes to be a "qualified institutional buyer," as that term is defined in Rule 144A promulgated by the SEC under the Securities Act ("Rule 144A"), no opinion shall be required unless reasonably requested in writing by the Company within five days after receipt of such written notice, in which case such Purchaser shall deliver to Company such a written opinion of counsel. 5.3 Termination of Restrictions. --------------------------- (a) Notwithstanding the foregoing provisions of this Article 5, the restrictions imposed by this Article 5 upon the transferability of the Securities shall terminate as to any particular share of such securities when (i) such security shall have been effectively registered under the Securities Act and sold by such Purchaser thereof in accordance with such registration, or (ii) a written opinion to the effect that such restrictions are no longer required or necessary under any federal or state securities law or regulation has been received from counsel for such Purchaser thereof (provided that such counsel, and the form and substance of such opinion, are reasonably satisfactory to the Company) or counsel for the Company, or (iii) such security shall have been sold without registration under the Securities Act in compliance with Rule 144, or (iv) the Company is reasonably satisfied that such Purchaser of such security shall, in accordance with the terms of Subsection (k) of Rule 144, be entitled to sell such security pursuant to such Subsection, or (v) a letter or an order shall have been issued to such Purchaser thereof by the staff of the SEC or the SEC stating that no enforcement action shall be recommended by such staff or taken by the SEC, as the case may be, if such security is transferred without registration under the Securities Act in accordance with the conditions set forth in such letter or order and such letter or order specifies that no subsequent restrictions on transfer are required. (b) Whenever the restrictions imposed by this Article 5 shall terminate, as hereinabove provided, a Purchaser who then holds any particular Securities then outstanding as to which such restrictions shall have terminated shall be entitled to receive from the Company, without expense to such Purchaser, one or more new certificates for such securities not bearing the restrictive legend set forth in Section 5.1(a) hereof. 5.4 Compliance with Rule 144 and Rule 144A. At the written request --------------------------------------- of any Purchaser who proposes to sell any of the Securities in compliance with Rule 144, the Company shall furnish to such Purchaser, within 10 days after receipt of such request, a written statement as to whether or not the Company is in compliance with the filing requirements of the SEC as set forth in such Rule. For purposes of effecting compliance with Rule 144A, in connection with any resales of any Securities that hereafter may be effected pursuant to the provisions of Rule 144A, any Purchaser desiring to effect such resale and each prospective institutional purchaser of such shares designated by such Purchaser shall have the right, at any time the Company is not subject to Section 13 or 15(d) of the Securities and Exchange Act, to obtain from the Company, upon the written request of the Purchaser and at the Company's expense the documents specified in Section (d)(4)(i) of Rule 144A, as such rule may be amended from time to time. 5.5 Non-Applicability of Restrictions on Transfer. Notwithstanding --------------------------------------------- the provisions of Section 5.2 hereof, any record owner of Securities may from time to time transfer all or part of such record owner's Securities (i) to a nominee identified in writing to the Company as being the nominee of or for such record owner, and any nominee of or for a beneficial owner of Securities identified in writing to the Company as being the nominee of or for such beneficial owner may from time to time transfer all or part of the Securities registered in the name of such nominee but held as nominee on behalf of such beneficial owner, to such beneficial owner, (ii) to an Affiliate of such record owner, or (iii) if such record owner is a partnership or limited liability company or the nominee of a partnership or limited liability company, to a partner, member, retired partner or member, or estate of a partner, member or retired partner or member, of such partnership or limited liability company, so long as such transfer is in accordance with the transferee's interest in such partnership or limited liability company and is without consideration; provided, however, that (A) such record owner shall deliver a written notice to the Company describing in reasonable detail the manner of such transfer or sale prior to the consummation of such transfer or sale, (B) each such transferee shall remain subject to all restrictions on the transfer of Securities herein contained, and (C) if reasonably requested in writing by the Company within five days after receipt of such written notice, such record owner shall deliver to the Company such additional information requested by the Company or its counsel (in form and substance satisfactory to the Company and such counsel) that the proposed transfer is within the scope of this Section 5.5 or a written opinion of counsel for such record owner (provided that such counsel, and the form and substance of such opinion, are reasonably satisfactory to the Company) to the effect that such transfer or sale may be effected without the registration of such securities under the Securities Act. ARTICLE 6 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL 6.1 Conditions to the Company's Obligation to Sell. The obligation of ----------------------------------------------------------------------- the Company hereunder to issue and sell the Securities to any Purchaser at the Closing is subject to the satisfaction, as of the Closing Date and with respect to such Purchaser, of each of the following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: (a) Such Purchaser shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Company. (b) Such Purchaser shall have wired same-day funds to the account designated by the Company equal to its applicable portion of the Purchase Price. (c) The aggregate Purchase Price delivered by all of the Purchasers for the Placement Shares purchased at the Closing shall equal at least $750,000. (d) The representations and warranties of such Purchaser shall be true and correct as of the date when made and as of the Closing as though made at that time (except for representations and warranties that speak as of a specific date), and such Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser at or prior to the Closing. (e) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which restricts or prohibits the consummation of any of the transactions contemplated by this Agreement. ARTICLE 7 CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE 7.1 The obligation of each Purchaser hereunder to purchase the Securities to be purchased by it on the Closing Date is subject to the satisfaction of each of the following conditions, provided that these conditions are for each Purchaser's sole benefit and may be waived by such Purchaser at any time in such Purchaser's sole discretion: (a) The Company shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Purchasers. (b) The Company shall have directed its transfer agent to deliver to each Purchaser duly executed certificates for the Securities being so purchased by such Purchaser. (c) The Trading in the Common Stock shall not have been suspended by the NASDAQ or the SEC or other regulatory authority. (d) The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing as though made at that time and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing. Each Purchaser shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the Closing Date to the foregoing effect. (e) Each Purchaser shall have completed to its satisfaction all business, legal, accounting and financial due diligence with respect to the Company. (f) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which restricts or prohibits the consummation of any of the transactions contemplated by this Agreement. (g) Each Purchaser shall have received the Officer's Certificate described in Section 3.3 dated as of the Closing Date. (h) Each Purchaser shall have received an opinion of Sonnenschein Nath & Rosenthal, dated as of the Closing Date, in the form attached hereto as Exhibit B. (i) The Company shall have delivered to each Purchaser certificates of good standing of the Company and the subsidiaries which are organized pursuant to the corporate laws of a State within the United States as of a date no earlier than 30 days prior to the Closing. (j) The Company shall have delivered to each Purchaser a certificate executed by a duly authorized officer certifying (i) a copy of the Company's certificate of incorporation and the by-laws, (ii) resolutions authorizing the execution of this Agreement and the Registration Rights Agreement, and (iii) incumbency matters. (k) Without limiting the generality of Section 7.1(d), no Material Adverse Effect shall have occurred, nor shall any event or events have occurred which would reasonably likely to have a Material Adverse Effect. ARTICLE 8 GOVERNING LAW; MISCELLANEOUS 8.1 Governing Law; Jurisdiction. This Agreement shall be governed ---------------------------- by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware, without giving effect to the principles of conflicts of law. The parties hereto irrevocably consent to the jurisdiction of the United States federal courts and state courts located in the County of New Castle in the State of Delaware in any suit or proceeding based on or arising under this Agreement or the transactions contemplated hereby and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Company and each Purchaser irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. Service of process upon the Company or any Purchaser mailed by certified mail, return receipt requested, shall be deemed in every respect effective service of process upon the Company in any suit or proceeding arising hereunder. Nothing herein shall affect any Purchaser's right to serve process in any other manner permitted by law. A final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 8.2 Counterparts. This Agreement may be executed in two or more ------------ counterparts, including, without limitation, by facsimile transmission, all of which counterparts shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause additional original executed signature pages to be delivered to the other parties. 8.3 Headings. The headings of this Agreement are for convenience of -------- reference and shall not form part of, or affect the interpretation of, this Agreement. 8.4 Severability. If any provision of this Agreement shall be invalid ------------ or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. 8.5 Entire Agreement; Amendments. This Agreement, the Schedules ----------------------------- hereto and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement and no provision of this Agreement may be amended other than by an instrument in writing signed by the Company and each Purchaser. 8.6 Notice. Any notice herein required or permitted to be given ------ shall be in writing and may be personally served or delivered by nationally- recognized overnight courier or by facsimile-machine confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). Each party shall provide notice to the other party of any change in address. The addresses for such communications shall be: If to the Company: LaserSight Incorporated 3300 University Boulevard Suite 140 Winter Park, Florida 32792 Telecopy: (407) 678-9982 Attention: Chief Executive Officer with a copy to: The Lowenbaum Partnership, L.L.C. 222 South Central Avenue Suite 901 St. Louis, Missouri 63105 Telecopy: (314) 746-4848 Attention: Timothy L. Elliott, Esq. and Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 Telecopy: (312) 876-7934 Attention: Paul Miller, Esq. If to the Purchasers: Engmann Options, Inc. 220 Bush Street, Suite 660 San Francisco, California 94104 Telecopy: (415) 781-4641 Attention: Michael W. Engmann and MDNH Partners, L.P. 220 Bush Street, Suite 660 San Francisco, California 94104 Telecopy: (415) 781-4641 Attention: Herbert C. Kurlan with a copy to: Phillip E. Handin, Esq. 220 Bush Street, Suite 660 San Francisco, California 94104 Telecopy: (415) 781-4641 8.7 Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. The provisions of this Agreement which are for each of the Purchaser's benefit as a purchaser of holder of Securities are also for the benefit of, and enforceable by, any subsequent holder of such Securities. 8.8 Third Party Beneficiaries. This Agreement is intended for the ------------------------- benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 8.9 Survival. All representations and warranties in this -------- Agreement shall survive the execution and delivery of this Agreement and the Closing. All agreements contained herein shall survive the Closing until, by their respective terms, they are no longer operative. 8.10 Indemnification. --------------- (a) The Company shall indemnify and hold harmless each Purchaser, its respective officers, directors, employees, attorneys, agents, representatives, successors and assigns (each a "Purchaser Entity") from any (a) Losses (as defined herein) insofar as such Losses (or actions in respect thereof) incurred or suffered by the Purchaser Entity (whether incurred or suffered directly or indirectly through ownership of capital stock of the Company) arise out of or are based upon or are incurred as a result of (i) the breach or falsity or incorrectness as of the Closing Date of any representation or warranty, covenants or agreements of the Company contained in or made pursuant to this Agreement, or (ii) the existence of any condition, event or fact constituting, or which with notice or passage of time, or both, would constitute a default in the observance of any of the Company's undertakings or covenants hereunder, under the Registration Rights Agreement or the Company's Certificate of Incorporation and By-laws. The Company shall also pay all reasonable attorney's and accountant's fees and costs and court costs incurred by any Purchaser in enforcing the indemnification provided for in this Section 8.10. Notwithstanding the foregoing, the Company expressly agrees and acknowledges that the right of indemnification granted herein to the Purchaser shall not be deemed to be the exclusive remedy available to the Purchaser for any of the matters described in this Section 8.10. (b) For purposes of this Section 8.10, "Losses" shall mean each and all of the following items: claims, losses, (including, without limitation, losses of earnings) liabilities, obligations, payments, damages (actual, punitive or consequential), charges, judgments, fines, penalties, amounts paid in settlement; costs and expenses (including, without limitation, interest which may be imposed in connection therewith, costs and expenses of investigation, actions, suits, proceedings, demands, assessments and fees, expenses and disbursements of counsel, consultants and other experts). Any payment (or deemed payment) by the Company to the Purchaser pursuant to this Section 8.10 shall be treated for federal income tax purposes as an adjustment to the Purchase Price. (c) Within five days after a party seeking indemnification under this Section 8.10 shall become aware of the facts indicating that a claim for indemnification may be warranted, such party shall give to the party from whom indemnification is being sought a claim notice relating to such Losses (a "Claim Notice"). Each Claim Notice shall specify the nature of the claim, the applicable provision(s) of this Agreement or other instrument under which the claim for indemnity arises and, if possible, the amount or the estimated amount thereof. 8.11 Stamp Tax and Delivery Costs. The Company will pay all stamp and ----------------------------- other taxes, if any, which may be payable in respect of the sale or other transfer of the Securities to the Purchasers and the issuance thereof to the Purchasers or their nominee, and will save the Purchasers harmless against any loss or liability resulting from nonpayment or delay in payment of any such tax. The Company will also pay all reasonable costs of delivery to the Purchasers, or the Purchasers' nominee, of the Securities to be purchased by the Purchasers or otherwise transferred to the Purchasers. 8.12 Public Filings; Publicity. No party hereto shall make any public -------------------------- statement regarding the transactions contemplated hereby unless the language and timing of such statement has been approved by both the Company and the Purchasers or unless such party has been advised by its securities counsel to make such statement. Notwithstanding the foregoing, each of the parties hereto may, in documents required to be filed by it with the SEC or other regulatory bodies, make such statements with respect to the transactions contemplated hereby as each may be advised is legally necessary upon advice of its counsel; provided, however, that the party making such determination shall immediately notify the other party that it intends to make a public announcement and the parties hereto shall, in good faith, attempt to agree on any public announcements or publicity statements with respect thereto (which approval shall not be unreasonably withheld or delayed). 8.13 Further Assurances. Each party shall do and perform, or cause to ------------------- be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 8.14 Remedies. No provision of this Agreement providing for any remedy -------- to the Purchasers shall limit any remedy that would otherwise be available to the Purchasers at law or in equity. Nothing in this Agreement shall limit any rights the Purchasers may have with any applicable federal or state securities laws with respect to the investment contemplated hereby. 8.15 Termination. In the event that the Closing shall not have occurred ----------- on or before February 25, 2000, this Agreement shall terminate at the close of business on such date. IN WITNESS WHEREOF, the Purchasers and the Company have caused this Agreement to be duly executed as of the date first above written. LASERSIGHT INCORPORATED ENGMANN OPTIONS, INC. By: /s/Gregory L. Wilson By: /s/Michael W. Engmann ----------------------------- ----------------------------- Gregory L. Wilson Name: Michael W. Engmann Chief Financial Officer ----------------------------- Title: Chairman ----------------------------- MDNH PARTNERS, L.P. By: MDNH Trading Corporation, its General Partner By: /s/Herbert C. Kurlan ----------------------------- Name: Herbert C. Kurlan ----------------------------- Title President ----------------------------- SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT LIST OF EXHIBITS AND SCHEDULES Exhibit A - Registration Rights Agreement Exhibit B - SN&R Opinion Schedule 3.2 - Consents Schedule 3.3 - Capitalization Schedule 3.5 - Conflicts Schedule 3.6 - SEC Filings Schedule 3.7 - Certain Changes Schedule 3.8 - Litigation Schedule 3.14 - Intellectual Property Schedule 3.15(a) - Employee Benefit Plans - Identifications Schedule 3.15(c) - Employee Benefit Plans - Examinations Schedule 3.15(f) - Employee Benefit Plans - Qualification Schedule 3.16 - Subsidiaries Schedule 3.18 - Compliance with Laws; Permits Schedule 3.19 - Tax Matters Schedule 3.20 - Environmental Matters Schedule 3.21 - Suppliers and Customers EX-10.55 5 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.55 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of February 18, 2000, by and among LaserSight Incorporated, a Delaware corporation (the "Company"), with its headquarters located at 3300 University Boulevard, Suite 140, Winter Park, Florida 32792, and the purchasers (collectively, the "Purchasers" and each individually a "Purchaser") set forth on the execution page hereto, with regard to the following: RECITALS A. In connection with the Securities Purchase Agreement dated of even date herewith by and among the Company and the Purchasers (the "Securities Purchase Agreement"), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to the Purchasers 76,189 (the "Placement Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"). B. To induce the Purchasers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide to the Holders certain rights to registration by the Company under the Securities Act of 1933 and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act") and applicable state securities laws. AGREEMENTS In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Purchasers agree as follows: 1. DEFINITIONS As used in this Agreement, the following terms shall have the meanings specified: Advice: See Section 4 hereof. ------ Agreement: See the introductory paragraphs hereto. --------- Blackout Event: means a determination by the Board made in good faith, -------------- after consulting with outside securities counsel, that the registration of Registrable Securities under the Securities Act or the continuation of the disposition of Registrable Securities pursuant to an effective Registration Statement at such time (i) would have a material adverse effect upon a proposed material sale of all (or substantially all) of the assets of the Company or a material merger, reorganization, recapitalization or similar current transaction materially affecting the capital structure or equity ownership of the Company, or (ii) would require the Company to make a public disclosure of information, which disclosure a majority of the outside directors determine in good faith would have a material adverse effect on the Company. Blackout Period: See Section 3(a) hereof. --------------- Board: The Board of Directors of the Company. ----- Claim: See Section 6(a) hereof. ----- Common Stock: See the introductory paragraphs hereto. ------------ Company: See the introductory paragraphs hereto. ------- Exchange Act: The Securities Exchange Act of 1934 and the rules and ------------ regulations of the SEC promulgated thereunder. Form S-3: Form S-3 of the SEC under the Securities Act or any successor -------- form. Holdback Period: See Section 3(b) hereof. ----------- Holder: Any registered holder of a Registrable Security or Registrable ------ Securities. Indemnified Person: See Section 6(c) hereof. ------------------ Indemnifying Person: See Section 6(c) hereof. -------------------- Losses: See Section 6(a) hereof. ------ NASD: See Section 4(j) hereof. ---- Other Holders: See Section 2.2(a) hereof. ------------- Other Shares: See Section 2.2(a) hereof. ------------ Participant: See Section 6(a) hereof. ----------- Person: An individual, trustee, corporation, partnership, limited ------ liability company, trust, unincorporated association, business association, firm or other legal entity. Piggyback Registration Statement: See Section 2.2(a) hereof. -------------------------------- Prospectus: The prospectus included in any Registration Statement ---------- (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchasers: See the introductory paragraphs hereto. ---------- Registrable Securities means the Placement Shares and any other ----------------------- securities issued or issuable with respect to any of the foregoing by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities held by a Holder, such securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to the offering of such securities by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such Holder pursuant to such Registration Statement, or (ii) such securities may at the time of determination be sold to the public pursuant to Rule 144 without any restrictions or limitations whatsoever (including restrictions or limitations related to affiliates) on the amount of securities which may be sold by such Holder without the lapse of any further time or the satisfaction of any condition. Registration Expenses: See Section 5(b) hereof. --------------------- Registration Period: See Section 2.1(b) hereof. ------------------- Registration Statement: Any registration statement of the Company filed ---------------------- with the SEC under the Securities Act, including the Prospectus, all amendments and supplements to such registration statement, post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule -------- may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC providing for public offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule -------- may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission or any successor federal --- agency charged with the enforcement of the federal securities laws. Securities Act: See the introductory paragraphs hereto. -------------- Securities Purchase Agreement: See the introductory paragraphs hereto. ----------------------------- Shelf Registration Statement: See Section 2.1(a) hereof. ---------------------------- Subsidiary: Any corporation of which the Company owns securities ---------- representing a majority of the outstanding voting power or any partnership of which the Company (or a Subsidiary) holds a majority of the general partner interest. Underwritten Offering: A public offering of Common Stock, or other ---------------------- securities convertible into, or exercisable or exchangeable for, Common Stock that is underwritten on a firm commitment basis. 2. SHELF REGISTRATION 2.1 Shelf Registration Statement. ---------------------------- (a) The Company shall: (i) prepare and, no more than 90 days after the date of this Agreement, file with the SEC a Registration Statement in respect of all the Registrable Securities on an appropriate form for a secondary offering to be made on a continuous basis by the Company pursuant to Rule 415 (the "Shelf Registration Statement"); and (ii) subject to Section 3 hereof, use its best efforts to cause the Shelf Registration Statement to become effective as soon as practicable after such filing. In addition to the Registrable Securities, the Company may include in the Shelf Registration Statement shares of Common Stock held by any holder of equity securities of the Company or any securities convertible into or exercisable or exchangeable for such equity securities, which holder is entitled by written agreement with the Company to have some or all of such securities included in the Shelf Registration Statement. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective at all times until such date as is the earlier of: (i) the date on which all of the Registrable Securities have been sold, (ii) the date on which all of the Registrable Securities may be immediately sold to the public without registration conditions or limitations whatsoever (including limitations or restrictions related to affiliates), whether pursuant to Rule 144 or otherwise, and (iii) subject to this Section and Section 3, the date which is two years after the date hereof. (The period of time commencing on the date the Shelf Registration Statement is declared effective and, subject to this Section and Section 3, ending on the earliest of the foregoing dates is referred to as the "Registration Period.") Subject to Section 3 hereof, the Company shall use its best efforts to amend or supplement the Prospectus contained in the Shelf Registration Statement in order to permit such Prospectus to be lawfully delivered until the end of the Registration Period. The Registration Period shall be extended by duration of (i) any period during which a Holder is unable to utilize the Prospectus until the Company amends or supplements the related Registration Statement pursuant to Section 4(h), and (ii) any Blackout Period. (c) In addition to complying with the requirements of Section 4, in connection with the Shelf Registration Statement, the Company shall (i) mail to each Holder a copy of the Prospectus forming part of the Shelf Registration Statement, and (ii) otherwise comply in all respects with all applicable federal securities laws, rules and regulations. (d) Each Holder shall notify the Company at least five business days prior to any sale of Registrable Securities by such Holder pursuant to the Shelf Registration Statement. During such five-day period, the Company shall have the right to notify Holder that the Holder may not sell Registrable Securities pursuant to the Shelf Registration Statement due to either a Blackout Period or Holdback Period then being in effect or then being invoked. Upon such notice being provided, Holder shall not sell any Registrable Securities pursuant to the Shelf Registration Statement until the Company has notified Holder that the Blackout Period or Holdback Period, as applicable, is no longer in effect. (e) Subject to Sections 3 and 4 hereof, the Company shall promptly supplement or amend the Shelf Registration Statement if required by the Securities Act to keep such Registration Statement effective during the Registration Period, or if reasonably requested by the Holders of at least 30% of the Registrable Securities then transferable pursuant to such Shelf Registration Statement. (f) Each Holder shall notify the Company promptly, but in any event within three business days, after the date on which all Registrable Securities owned by such Holder have been sold by such Holder so that the Company may comply with its obligation to terminate the Shelf Registration Statement in accordance with Item 512 of Regulation S-K. 2.2 Piggyback Registration Rights. ----------------------------- (a) So long as the Holders hold Registrable Securities, if the Company proposes or is required to file with the SEC a registration statement (the "Piggyback Registration Statement") under the Securities Act in connection with an Underwritten Offering of Common Stock (other than a registration statement on a form that does not permit the inclusion therein of the Registrable Securities), the Company will each such time give prompt written notice of its intention to do so to each Holder. Upon the written request of any Holder given within 10 days after the delivery or mailing of such notice by the Company, the Company will use reasonable best efforts to include in such Piggyback Registration Statement that number of the Registrable Securities specified by Holder in such written request (subject to the limitations set forth in this Section 2.2(a) and in Section 2.2(b) below) (the "Requested Shares") so as to permit the public sale of such Requested Shares; provided that if the managing underwriter or underwriters of such Underwritten Offering advise the Company that marketing factors require a limit on the number of shares to be underwritten, the Company may (subject to the limitations set forth in the following sentence and based on the written recommendation of the underwriter) exclude or limit the number of Requested Shares to be sold pursuant to such Piggyback Registration Statement. In such event, the Company shall so advise each requesting Holder, and the number of Requested Shares and other shares ("Other Shares") requested to be included in such Piggyback Registration Statement and underwriting by other persons or entities that are then stockholders of the Company ("Other Holders"), after providing for all shares that the Company proposes to offer and sell for its own account, shall be allocated among the Requesting Holders and Other Holders pro rata on the basis of (i) the number of Requested Shares then held by the requesting Holders, and (ii) the aggregate number of Other Shares then held by Other Holders. (b) The right of any Holder to registration shall be conditioned upon (i) such Holder's execution of the underwriting agreement agreed to among the Company and the managing underwriters for such Underwritten Offering, (ii) such Holder's completion and execution of all customary questionnaires and other documents which must be executed in connection with such underwriting agreement, and (iii) such Holder supplying the Company and the underwriter such additional information as may be necessary to register such Holder's Registrable Securities. 3. BLACKOUT AND HOLDBACK EVENTS (a) During any period of up to 90 days' duration following the occurrence of a Blackout Event (a "Blackout Period"), the Company shall not be required to file, or cause to be declared effective, under the Securities Act any Registration Statement hereunder and, if applicable, the Holders will discontinue the offer and sale of Registrable Securities pursuant to any effective Shelf Registration Statement or a Piggyback Registration Statement. (b) The Holders shall not, if requested by the managing underwriter or underwriters of an Underwritten Offering, effect any public or private sale of any Common Stock, including a sale pursuant to Rule 144, during the period ("Holdback Period") beginning 14 days prior to, and ending 90 days after, the effective date of the registration statement relating to such Underwritten Offering. (c) The aggregate number of days during which one or more Blackout Periods or Holdback Periods are in effect shall not exceed 225 days during the Registration Period, provided that the aggregate number of days during which one or more Blackout Periods or Holdback Periods are in effect shall not exceed 90 days during any 12-month period. (d) The Company shall promptly notify the Holders in writing of any decision not to file a Registration Statement or not to cause a Registration Statement to be declared effective or to discontinue sales of Registrable Securities pursuant to this Section 3, which notice shall set forth the reason for such decision (but not disclosing any nonpublic material information) and shall include an undertaking by the Company promptly to notify the Holders as soon as sales may resume. If the Company shall give any notice of postponement of the filing or effectiveness of any registration statement or shall request the Holders not to sell Registrable Securities pursuant to an effective Registration Statement, the Company shall not, during the period of postponement or withdrawal, sell any Common Stock for its own account pursuant to a Registration Statement or permit any stockholder of the Company to sell Common Stock pursuant to an effective Registration Statement, in either case other than pursuant to a registration statement on Form S-8 (or an equivalent registration form then in effect). 4. REGISTRATION PROCEDURES In connection with the filing of the Shelf Registration Statement or a Piggyback Registration Statement by the Company, the Company shall effect such registrations to permit the sale of the Registrable Securities covered thereby in accordance with the intended method or methods of disposition thereof, and in connection with such Registration Statement the Company shall: (a) At least 3 business days before the filing of the Shelf Registration Statement or Piggyback Registration Statement, and a reasonable time before the filing of or any Prospectus or any amendments or supplements thereto, the Company shall afford to the Purchasers an opportunity to review a draft of the Shelf Registration Statement, Piggyback Registration Statement or any Prospectus or any amendments or supplements thereto, as applicable, except for such portions thereof which outside securities counsel to the Company has advised the Company contain material non-public information. The Holders of Registrable Securities included or intended to be included in a Registration Statement shall have a reasonable opportunity to comment on the sections of any such Registration Statement or related Prospectus captioned "Selling Stockholders" or "Plan of Distribution" (or the equivalent) and the Company shall not file any Registration Statement that includes in such sections statements concerning any such Holder, its holdings of Registrable Securities, or its intended method or methods of distribution as to which such Holder shall reasonably object. (b) Notify the selling Holders of Registrable Securities promptly (but in any event within five business days), and confirm such notice in writing: (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act, and (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose. (c) Use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest practicable time. (d) Furnish to each selling Holder of Registrable Securities and each managing underwriter, if any, at the sole expense of the Company one conformed copy of the Shelf Registration Statement or Piggyback Registration Statement, as applicable, and each post-effective amendment thereto and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (e) Deliver to each selling Holder of Registrable Securities, and the underwriters, if any, at the sole expense of the Company as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 4, the Company consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters, agents or dealers, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (f) Prior to any public offering of Registrable Securities, to use its reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Securities, the managing underwriter or underwriters, if any, and respective counsel, in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities laws of such jurisdictions within the United States as any selling Holder or the managing underwriter or underwriters reasonably request; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4(f), (B) subject itself to general taxation in any such jurisdiction, (C) file a general consent to service of process in any such jurisdiction, (D) provide any undertakings that cause the Company unreasonable material expense or burden, or (E) make any change in its charter or by-laws, which in each case the Board, in good faith, determines to be contrary to the best interests of the Company and its stockholders. (g) Cooperate with the selling Holders of Registrable Securities and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form in compliance with any applicable rules of a stock exchange on which the Common Stock is then listed; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (h) Upon the occurrence of any event or any information becoming known to the Company that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect, as promptly as practicable prepare and (subject to Section 4(a) hereof) file with the SEC, at the sole expense of the Company, a supplement or post-effective amendment to such Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (i) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 90 days after the end of any 12-month period (or 120 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (j) Cooperate with each seller of Registrable Securities covered by any Registration Statement in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (k) Use its reasonable best efforts to cause all Registrable Securities relating to any Registration Statement to be listed on each securities exchange or national market system, if any, on which similar securities issued by the Company are then listed. (l) In connection with any Underwritten Offering, enter into an underwriting agreement as is customary in underwritten offerings of common equity similar to the Common Stock, and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Securities and, in such connection: (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Company and its subsidiaries, as applicable (including any acquired business, properties or entity, if applicable), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in firm-commitment underwritten offerings of common equity similar to the Common Stock, and confirm the same in writing if and when requested; (ii) obtain the written opinions of counsel to the Company in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by the managing underwriter or underwriters; (iii) obtain "comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "comfort" letters in connection with underwritten offerings and such other matters as reasonably requested by the managing underwriter or underwriters as permitted by the Statement on Auditing Standards No. 72; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 6 hereof (or such other provisions and procedures acceptable to Holders of a majority of the Registrable Securities covered by such Registration Statement and the managing underwriter or underwriters or agents) with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (l) Make available for inspection by any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such underwriter, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Company and its subsidiaries, as applicable, as shall be reasonably necessary to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act, and cause the officers, directors and employees of the Company and its Subsidiaries, as applicable, to supply all information reasonably requested by any such inspector in connection with such Registration Statement. (m) Enter into such customary agreements (including, if applicable, an underwriting agreement) and take such other actions as the Holders of a majority of the Registrable Securities participating in such offering shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities. The Holders of the Registrable Securities which are to be distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that the Company make to and for the benefit of such Holders the representations, warranties and covenants of the Company which are being made to and for the benefit of such underwriters and which are of the type customarily provided to institutional investors in secondary offerings. (n) Use its reasonable best efforts to take all other steps reasonably necessary or advisable to effect the registration of the Registrable Securities covered by a Registration Statement. (o) Cause to be maintained a transfer agent and registrar for all Registrable Securities covered by a Registration Statement. (p) Deliver promptly to each Holder participating in the offering and each underwriter, if any, copies of all correspondence between the SEC and the Company, its counsel or auditors with the SEC or its staff with respect to a Registration Statement, other than those portions of any such correspondence which contain information subject to attorney-client privilege or a request for confidential treatment with respect to the Company, and, upon receipt of such confidentiality agreements as the Company may reasonably request, make reasonably available for inspection by any underwriter, if any, participating in any disposition to be effected pursuant to a Registration Statement and by any attorney, accountant or other agent retained by any such underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any such underwriter, attorney, account or agent in connection with such registration statement. (q) Make reasonably available to its employees and personnel and otherwise provide reasonable assistance to the underwriters (taking into account the needs of the Company's businesses and the requirements of the marketing process) in the marketing of Registrable Securities in any unwritten offering. (r) Promptly prior to the filing of any document which (i) is to be incorporated by reference into the registration statement or the prospectus (after the initial filing of such registration statement), and (ii) contains disclosure specifically referring to the Holders provide copies of such document to counsel for the selling Holders of Registrable Securities and to each managing underwriter, if any, and make the Company's representatives reasonably available for discussion of such information and make such changes in such information concerning the selling Holders prior to the filing thereof as counsel for such selling holders or underwriters may reasonably request. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Securities as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Securities of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any registration is being effected shall furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 4(b)(ii) hereof or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus to be sold by such Holder until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(e) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Company shall give any such notice, the Registration Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement, as the case may be, shall have received (i) the copies of the supplemented or amended Prospectus contemplated by Section 4(e) hereof, or (ii) the Advice. Each Holder of Registrable Securities understands that the Securities Act may require delivery of a Prospectus in connection with any sale thereof pursuant to a Registration Statement, and each such Holder shall comply with the applicable Prospectus delivery requirements of the Securities Act in connection with any such sale. 5. REGISTRATION EXPENSES (a) All Registration Expenses shall be borne by the Company. Notwithstanding the foregoing, the sellers of the Registrable Securities being registered shall pay all (i) brokerage or underwriting fees, discounts and commissions attributable to the sale of such Registrable Securities, (ii) the fees and disbursements of any counsel or other advisors or experts retained by such sellers (severally or jointly), and (iii) transfer taxes on resale of any of the Registrable Securities by such sellers. (b) For purposes of this Agreement, "Registration Expenses" shall mean all fees and expenses incident to the compliance with this Agreement by the Company (other than fees and expenses referred to in the second sentence of Section 5(a) hereof), including, without limitation, (i) all registration and filing fees, including, without limitation, (A) any SEC or NASD filing fees and (B) fees and expenses of compliance with state securities or blue sky laws, (ii) printing expenses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, as the case may be, duplicating and copying expenses, (iii) messenger, telephone and delivery expenses incurred by the Company, (iv) all fees and disbursements of counsel for the Company, (v) fees and expenses of all other Persons retained by the Company, including annual or special audit and "comfort" letters, (vi) stock exchange listing fees and expenses, if any, and (vii) the expenses relating to printing and distributing the Shelf Registration Statement, Piggyback Registration Statement and any other documents necessary in order to comply with this Agreement. 6. INDEMNIFICATION AND CONTRIBUTION (a) The Company shall indemnify and hold harmless each Holder of Registrable Securities, the officers, partners (and directors, officers, employees and stockholders thereof), employees, stockholders and directors of each such Person (each, a "Participant"), from and against any and all losses, claims, damages and liabilities, joint or several, actions or proceedings (commenced or threatened) (collectively, "Losses") (including, without limitation, the reasonable legal fees and other expenses (including settlements made pursuant to the terms of Section 6(c)) actually incurred in connection with any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand (a "Claim")) caused by, arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented from time to time) or any preliminary prospectus, (ii) or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading, except insofar as such Losses are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information relating to any Participant furnished to the Company by such Participant expressly for use therein, or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company will reimburse any such indemnified party for any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending such Claim as such expenses are incurred; provided, however, that the Company will not be liable if such untrue statement or omission or alleged untrue statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus or any amendment or supplement thereto and the Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related proceeding and any such Loss suffered or incurred by the Participants resulted from any Claim by any Person who purchased Registrable Securities which are the subject thereof from such Participant and it is established in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registrable Securities sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by the Company with this Agreement. Such indemnity and reimbursement of expenses shall remain in full force and effect regardless of any investigation made by as on behalf of such indemnified party and shall survive the transfer of such securities by such Holder. (b) Each Participant shall, severally and not jointly, indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, and each Person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Participant, but only with reference to information relating to such Participant furnished to the Company, in writing by such Participant expressly for use in such Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the net proceeds received by such Participant from sales of Registrable Securities giving rise to such obligations. (c) If any Claim shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may reasonably designate in such Claim and shall pay the reasonable fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Person shall not relieve it of any obligation or liability which it may have hereunder or otherwise. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person or any affiliate and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Indemnifying Person shall not, in connection with any one such proceeding or separate but substantially similar related proceedings in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and all such fees and expenses shall be reimbursed promptly as they are incurred. If the Company shall be the Indemnifying Person, any such separate firm for the Indemnified Persons shall be designated in writing by Participants who sold a majority in interest of Registrable Securities sold by all such Participants and reasonably acceptable to the Company. If the Company shall be the Indemnified Person, any such separate firm for the Company, its directors, its officers who sign a Registration Statement and such control Persons of the Company shall be designated in writing by the Company. No Indemnifying Person shall be liable for any settlement of any proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, the Indemnifying Person shall indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Persons (which consent shall not be unreasonably withheld or delayed), effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement involves only the payment of money damages that are actually paid by the Indemnifying Person or includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding. (d) If the indemnification provided for in the first and second paragraphs of this Section 6 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any Losses, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such Losses (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Person on the one hand or such Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. If, however, the allocation provided in the second preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative fault, but also the relative benefits of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the Losses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such Claim. Notwithstanding the provisions of this Section 6, in no event shall a Participant be required to contribute any amount in excess of the amount by which net proceeds received by such Participant from sales of Registrable Securities exceed the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) Any Losses for which an indemnified party is entitled to indemnification or contribution under this Section shall be paid by the Indemnifying Person to the Indemnified Person as such Losses are incurred. The indemnity and contribution agreements contained in this Section 6 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Purchaser, any Holder, any person who controls any Purchaser or any Holder, or any officers or directors of any Purchaser or such Holder, and (ii) any termination of this Agreement. (g) The indemnity and contribution covenants contained in this Section 6 are in addition to any liability which any Indemnifying Person may otherwise have to any Indemnified Person. 7. RULE 144 The Company will file the reports required to be filed by it under the Exchange Act in a timely manner in accordance with the requirements of the Exchange Act. The Company will also take such further action as any Holder of Registrable Securities issued by the Company may reasonably request, to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144(k). 8. MISCELLANEOUS (a) The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (i) the Company, and (ii) the Holders of not less than a majority in aggregate amount of the then-outstanding Registrable Securities; provided, however, that Section 4 and this Section 8(a) may not be amended, modified or supplemented without the prior written consent of each Holder (including any person who was a Holder of Registrable Securities disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority in aggregate amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement. (b) Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by nationally-recognized overnight courier or by facsimile-machine confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). Each party shall provide notice to the other party of any change in address. The addresses for such communications shall be: If to the Company: LaserSight Incorporated 3300 University Boulevard Suite 140 Orlando, Florida 32792 Telecopy: (407) 678-9981 Attention: Chief Financial Officer with a copy to: The Lowenbaum Partnership, LLC 222 South Central Avenue Suite 901 St. Louis, Missouri 63105 Telecopy: (314) 746-4848 Attention: Timothy L. Elliott, Esq. and Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 Telecopy: (312) 876-7934 Attention: Paul Miller, Esq. If to the Purchasers: Engmann Options, Inc. 220 Bush Street, Suite 660 San Francisco, California 94104 Telecopy: (415) 781-4641 Attention: Michael W. Engmann and MDNH Partners, L.P. 220 Bush Street, Suite 660 San Francisco, California 94104 Telecopy: (415) 781-4641 Attention: Herbert C. Kurlan with a copy to: Phillip E. Handin, Esq. 220 Bush Street, Suite 660 San Francisco, California 94104 Telecopy: (415) 781-4641 (c) This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, and the Holders; provided, however, that this Agreement shall not inure to the benefit of, or be binding upon, a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Securities. If any Person shall acquire Registrable Securities from any Holder, in any manner (except for any acquisition in violation of this Agreement, the Securities Purchase Agreement or applicable law) whether by operation of law or otherwise, such transferee shall promptly notify the Company and such Registrable Securities acquired from such Holder shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. If the Company shall so request, any such successor or assign shall agree in writing to acquire and hold the Registrable Securities acquired from such Holder subject to all of the terms hereof. (d) This Agreement may be executed in two or more counterparts, including, without limitation, by facsimile transmission, all of which counterparts shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause additional original executed signature pages to be delivered to the other parties. (e) The headings in this Agreement are for convenience of reference and shall not form a part of, or affect the interpretation of, this Agreement. (f) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such State. The parties hereto irrevocably consent to the jurisdiction of the United States federal courts and Delaware State courts located in the County of New Castle in the State of Delaware, in any suit or proceeding based on or arising under this Agreement and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The parties hereto irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. Service of process upon any party hereto mailed by first-class mail shall be deemed in every respect effective service of process upon such party in any such suit or proceeding. Nothing herein shall affect any party's right to serve process in any other manner permitted by law. A final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. (g) Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (h) Holders of Registrable Securities are intended third-party beneficiaries of the agreements made hereunder among the Company and the Purchasers and shall have the right to enforce this Agreement to the extent they deem such enforcement necessary or advisable to protect their rights hereunder. (i) This Agreement, together with the Securities Purchase Agreement and the other agreements among the parties of even date herewith or therewith, is intended by the parties as a final expression of their agreement and to be a complete and exclusive statement of their agreement and understanding in respect of the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Registrable Securities. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter. (j) During the time period beginning on the date hereof and continuing until the Company has satisfied its obligations hereunder or until such obligations have expired, the Company will not enter into any agreement related to the registration of its securities which is inconsistent with the rights granted to the Holders pursuant to this Agreement. The rights granted to the Purchasers pursuant to this Agreement do not conflict with any other agreements to which the Company is a party. (k) If Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its option, be treated as the Holder of such Registrable Securities for purposes of any request or other action by any Holder or Holders of Registrable Securities pursuant to this Agreement (or any determination of any number or percentage of shares constituting Registrable Securities held by any Holder or Holders of Registrable Securities contemplated by this Agreement), provided that the Company shall have received assurances reasonably satisfactory to it of such beneficial ownership. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. LASERSIGHT INCORPORATED ENGMANN OPTIONS, INC. By: /S/Gregory L. Wilson By: /s/Michael W. Engmann ------------------------------- ------------------------------- Gregory L. Wilson Chief Financial Officer Name: Michael W. Engmann ------------------------------- Title: Chairman ------------------------------- MDNH PARTNERS, L.P. By: MDNH Trading Corporation, its General Partner By: /s/Herbert C. Kurlan ------------------------------- Name: Herbert C. Kurlan ------------------------------- Title: President ------------------------------- SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT EX-10.56 6 TECHNOLOGY PURCHASE AGREEMENT EXHIBIT 10.56 TECHNOLOGY PURCHASE AGREEMENT THIS TECHNOLOGY PURCHASE AGREEMENT ("Agreement") is made as of March 8, 2000, by and between LASERSIGHT TECHNOLOGIES, INC., a Delaware corporation ("Buyer"), and PREMIER LASER SYSTEMS, INC., a California corporation and its wholly-owned subsidiary EYESYS-PREMIER, INC., a Delaware corporation (collectively, "Seller"). RECITALS A. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, certain assets comprising and related to Seller's corneal topography/wave front aberration measurement system currently under development and referred to as Topomax (collectively, the "Topomax System"), upon the terms and conditions set forth herein. B. In connection therewith, Buyer and Seller desire to enter into certain other agreements and covenants as set forth herein. NOW, THEREFORE, in consideration of the premises and of the mutual covenants of the parties hereinafter expressed, it is hereby agreed as follows: SECTION 1 PURCHASE AND SALE OF ASSETS 1.1 Purchased Assets and Excluded Assets. (a) Purchased Assets. Subject to the terms and conditions ---------------- hereof, on the Closing Date (as hereinafter defined), Seller agrees to sell, transfer, assign and deliver to Buyer and Buyer agrees to purchase from Seller the following: (i) all interests of Seller in (A) any prototype of the Topomax System, (B) computer disks or CD Roms that contain information related to the Topomax System downloaded from Seller's computers or computer system, and (C) all tangible personal property, including, but not limited to, all furniture, fixtures, computer hardware, equipment and supplies which at any time have been utilized solely in connection with the development of the Topomax System; (ii) all interests of Seller in existing versions of the Topomax System related computer software (including object code and source code, in machine readable and listing form) operating systems, application programs, routines and subroutines, screen displays, user interfaces and machine interfaces, Topomax System documentation, and all files and records pertaining to the conception and reduction to practice of the same, including, but not limited to, the right to use and modify (solely for purposes of developing and commercializing the Topomax System) such items that are utilized in Seller's EyeSys line of products; (iii) all Seller's right, title and interest to other Topomax System related technology and know-how, including, but not limited to, all algorithms, patents, copyrights, tradenames, trademarks, servicemarks, registered or unregistered, including applications and registrations therefor and any reissues, divisionals, continuations or continuations-in-part thereof, trade secrets, confidential business information (including ideas, formulas, compositions, supplier and customer lists, inventions, know-how, manufacturing and production processes and techniques, research and development information, drawings, designs, plans, proposals and technical data, financial, marketing and business data, pricing and cost information) and other Topomax System related intellectual property rights; and all of Seller's right, title and interest in and to any third-party software (to the extent transferable) or other technology which has been incorporated in the Topomax Intellectual Property (as defined herein), utilized by Seller in connection with the development of the Topomax System at any time prior to or as of the Closing Date, including, but not limited to, all files, records and documentation pertaining to the conception, development and reduction to practice of the inventions claimed in the Topomax Intellectual Property and those items more specifically described on Schedule 1.1(a)(iii) hereto (collectively, the "Topomax Intellectual Property"); (iv) all of Seller's goodwill associated with the Topomax System and all causes of actions related to the Topomax Intellectual Property, including, but not limited to, all rights of recovery to past, present and future infringement of the Topomax Intellectual Property; and (v) copies or originals of all Seller's books, records, ledgers, files, documents, correspondence, lists, plats, drawings, creative materials, advertising and promotional materials, studies, reports and other printed or written materials used by Seller relating to the Topomax System. All of the assets of Seller to be purchased by Buyer hereunder are herein sometimes collectively referred to as the "Purchased Assets." (b) Excluded Assets. The parties acknowledge and agree that Buyer is acquiring hereunder only those assets or rights which are defined herein, collectively, as the Purchased Assets and that the Purchased Assets expressly exclude all other assets of Seller which do not relate to the Topomax Field (as defined in the Premier License (as defined herein)). (c) Discovered Assets. If after the Closing, Buyer or Seller discovers any Purchased Assets that were not previously transferred to Buyer (each such item a "Discovered Asset"), such Discovered Asset shall be deemed to have been a component of the Purchased Assets. The party which discovers the Discovered Asset shall promptly provide the other party with written notice briefly describing the Discovered Asset. Seller hereby agrees to deliver to Buyer or its permitted assigns such consents, documents and instruments and to take such other actions, as may be required for the purpose of providing Buyer with all of Seller's right, title and interest in the Discovered Asset. If Buyer is unable for any reason to secure a signature from an authorized officer or agent of Seller for such consents, documents and instruments necessary to carry out the terms set forth in this Section 1.1(c), Seller does hereby irrevocably designate and appoint Buyer and its authorized officers and agents as Seller's agent and attorney-in-fact, to act for and in Seller's behalf and stead to execute such items, with the same legal effect as if executed by Seller. 1.2 Liabilities and Obligations Are Not Being Assumed. Buyer wil -------------------------------------------------- not assume, and will not be deemed to have assumed any liabilities of Seller, whether fixed, contingent or unliquidated, whenever arising prior to the date of the Closing or thereafter. Without limiting the foregoing, Buyer does not assume and shall not be obligated to pay or satisfy any obligation, debt or liability, contingent or otherwise, of Seller, including without limitation, any liability for taxes, whether measured by income, sales or otherwise. 1.3 Purchase Price. In addition to the consideration in the form of -------------- the license granted to Seller as described below, the aggregate consideration (the "Purchase Price") to be paid by Buyer to Seller (or to such party as Seller shall direct) for the Purchased Assets shall be $4,050,000 which shall be payable as follows: (a) on the Closing Date (as defined herein) $2,825,000 shall be delivered to Seller by wire transfer of immediately available funds to such accounts as shall be designated by Seller prior to the Closing; (b) on the date which is 30 days after the Closing Date $500,000 shall be delivered to Seller by wire transfer of immediately available funds to such account as shall be designated by Seller; and (c) on the date which is 60 days after the Closing Date $725,000 shall be delivered to Seller by wire transfer of immediately available funds to such account as shall be designated by Seller. Seller acknowledges and agrees that the payments described in Section 1.3(b) and (c) shall be subject to set-off for Seller's indemnification obligations as described in Section 7.3 of this Agreement. In addition, if any of the sale of the Purchased Assets to Buyer, the LaserSight License (as defined herein), the termination of the Sarver Agreements (as defined herein) or the release of David Liu ("Liu") contemplated by Section 4.1 is being challenged (or an official committee or any party with standing threatens to challenge such transaction) on any basis as a result of Seller filing for protection under any bankruptcy or insolvency statute or rule, then the payments described in Section 1.3(b) and (c), to the extent such payments have not already been made, shall not be made until approval of all such transactions. If such a challenge or threat occurs and such approval is not received, then Buyer shall not be obligated to make either of the payments described in Section 1.3(b) and (c), to the extent such payments have not already been made, and Buyer shall be repaid all amounts previously paid by Buyer to Seller, and upon such repayment Buyer shall return the Purchased Assets to Seller to the extent Buyer has been repaid. The existence of, or outcome related to, any such challenge or threat which occurs after the Closing Date will not affect the fact that all right, title and interest to the Purchased Assets transferred to Buyer at the Closing. 1.4 Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place on March 8, 2000 if the conditions set forth in Sections 5 and 6 have been satisfied, or as soon thereafter as such conditions have either been satisfied or waived by the party benefiting from such conditions, at the offices of Buyer, or at such other place as the parties shall agree (the "Closing Date"), and shall be effective as of 12:01 a.m. on the Closing Date. At the Closing, Seller shall execute and deliver to Buyer appropriate instruments of assignment, transfer and conveyance and such other documents as Buyer or its counsel shall reasonably request to transfer to Buyer title to and right to possession of the Purchased Assets, free and clear of any liens, claims, security interests or encumbrances. SECTION 2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER Seller hereby represents and warrants to Buyer as of the Closing Date as follows. In connection with the following representations and warranties, to the extent any representation or warranty is made "to Seller's knowledge" such phrase shall mean the knowledge of Michael J. Quinn, Robert V. Mahoney, Liu or Sarver (as defined herein). 2.1 Corporate Organization. Seller is a corporation duly ----------------------- organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with all requisite power and authority (corporate and other) to own its properties and assets and to conduct its business as now conducted. 2.2 Corporate Authority. As of the Closing Date, Seller will have -------------------- the corporate power to enter into this Agreement and to carry out its obligations hereunder. As of the Closing Date, the execution and delivery of this Agreement and all agreements contemplated hereunder and the performance of Seller's obligations hereunder and thereunder, will have been duly authorized by the Board of Directors of Seller, and no other corporate proceedings on the part of Seller will be necessary to authorize such execution, delivery and performance. This Agreement and all agreements contemplated hereunder have been duly executed by Seller and, as of the Closing Date, will constitute valid and legally binding obligations of Seller, enforceable against Seller in accordance with the terms hereof and thereof, except to the extent that such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. 2.3 No Violation. Neither the execution, delivery nor the performance by Seller of this Agreement and all agreements contemplated hereunder violates or will violate any provision of law, of any order, judgment or decree of any court or other governmental or regulatory authority, or of the charter documents or by-laws of Seller, nor violates or will result in a breach of or constitute (with due notice or lapse of time or both) a default under any contract, lease, loan agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which Seller is a party or by which it is bound or to which any of its properties or assets is subject, nor will result in the creation or imposition of any lien, charge or encumbrance of any kind whatsoever upon any of the properties or assets of Seller. Seller has not issued any preferred stock nor does there exist any shareholders agreement relating to Seller's capital stock. The transactions contemplated by this Agreement will not violate any term or condition of any shareholders' agreement, bond, indenture, contract or other instrument or require any consent thereunder. 2.4 Consents and Approvals. No consent, waiver, authorization, or ----------------------- approval of any governmental or regulatory authority, domestic or foreign, or of any other person, firm or corporation, and no declaration to or filing or registration with any such governmental or regulatory authority, is required in connection with the execution and delivery of this Agreement by Seller or the performance by Seller of its obligations hereunder, except that an assignment form will have to be filed with the United States Patent and Trademark Office to record the transfer of the Topomax Patents (as defined on Schedule 1.1(a)(iii)). 2.5 Litigation. There are no claims, actions, suits, proceedings, ---------- disputes or investigations pending or, to Seller's knowledge, threatened before any federal, state or local court or governmental or regulatory authority, domestic or foreign, or before any arbitrator of any nature, brought by or against Seller involving, affecting or relating to the Purchased Assets or the transactions contemplated by this Agreement. Neither Seller nor the Purchased Assets is subject to any order, writ, judgment, award, injunction or decree of any federal, state or local court or governmental or regulatory authority or arbitrator. 2.6 Title. As of the Closing Seller is the sole owner of all right, ----- title and interest in and to the Purchased Assets. Buyer acknowledges that it has reviewed the disclosure set forth on Schedule 2.6 and understands the nature of the confirmatory assignments described therein. Buyer acknowledges that certain of Seller's ownership rights to the Purchased Assets derive from the Sarver Agreements. Seller does not have any subsidiaries or affiliates that have any rights or interests, directly or indirectly, in any of the Purchased Assets. Seller has the legal right to transfer the Purchased Assets as set forth in this Agreement, and Seller has not executed any agreement which is in conflict with the terms of this Agreement. The intellectual property assignments which have been granted by Seller in favor of Strong River Investments, Inc. ("SRI") and Herkimer LLC ("Herkimer") have been granted as collateral security interests only and do not constitute an absolute assignment of such intellectual property. Except for the intellectual property assignments which have been granted to SRI and Herkimer, there are no other purported liens or assignments which encumber the Purchased Assets. 2.7 Topomax Intellectual Property. ----------------------------- (a) Set forth on Schedule 1.1(a)(iii) hereto is a listing of all United States and foreign patents, registered or unregistered, including applications and registrations therefor and any reissues, divisionals, continuations or continuations-in-part thereof, and trade secrets which have been incorporated in or are practiced by the Topomax System. Except for the security interests of SRI and Herkimer, title to the Topomax Intellectual Property is held exclusively by Seller free and clear of all options, liens, security interests, agreements, restrictions and other encumbrances. Seller has no registered copyrights, and no tradenames, trademarks, servicemarks, registered or unregistered, relating to the Topomax System. (b) There are no challenges, proceedings or infringement suits pending or, to the knowledge of Seller, threatened with respect to the Topomax Intellectual Property. (c) The Topomax Intellectual Property has been developed exclusively by Seller and to Seller's (and employees with responsibility for intellectual property matters) knowledge none of the apparatus or methods associated with the Topomax Intellectual Property conflicts with, infringes or violates the rights of any other party. (d) As of the Closing Date, except for Seller's rights pursuant to the Premier License (as defined herein), neither Seller nor any person other than Buyer shall have any claim to, rights under, or interest in the Topomax System or the Topomax Intellectual Property, including, but not limited to, Topomax System software source code and object code, provided that Buyer acknowledges that certain of Seller's ownership rights to the Purchased Assets derive from the Sarver Agreements. (e) As of the Closing Date, Buyer will be vested with all right, title and interest in and to the Topomax Intellectual Property, free and clear of any rights or claims of any third party. (f) To the knowledge of Seller, the Topomax Patents and the patents licensed to Buyer pursuant to the LaserSight License are all of the patents incorporated in or practiced by the Topomax System and/or Seller's EyeSys products. 2.8 Patent Protection. Schedule 1.1(a)(iii) represents a complete ----------------- and accurate list of all jurisdictions and registration numbers related to such jurisdictions where the Topomax Patents have been applied for, registered, or where any continuation or reissue applications corresponding to the Topomax Patents have been filed, and there are no other jurisdictions where the Topomax Patents have been registered or an application for registration has been made. Except as indicated on Schedule 1.1(a)(iii), Seller has taken all reasonable and customary action to maintain and protect the Topomax Patents and has paid all fees to maintain Seller's rights in the Topomax Patents. 2.9 Third-Party Rights. Seller has not previously used or disclosed ------------------ the Topomax Intellectual Property or any part thereof anywhere in the world. To Seller's knowledge, none of the Topomax Patents are being infringed anywhere in the world. Seller has not granted any license, right or option in or to any of the Purchased Assets. With respect to each of the Topomax Patents, Seller warrants that, except as set forth on Schedule 2.9: (a) none of the Topomax Patents are, nor has any of them ever been, subject to any injunction, judgment, order, decree, ruling or charge; (b) to the knowledge of Seller (and employees with responsibility for intellectual property matters) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand (collectively, a "Claim") is or ever has been pending or is threatened which challenges the legality, validity, enforceability, or ownership of any of the Topomax Patents; and (c) to the knowledge of Seller (and employees with responsibility for intellectual property matters), there is not any basis for any such Claim, and Seller has received no notice asserting that any proposed development, manufacturing, use, sale, license or disposition of products covered by the Topomax Patents infringes or would infringe the rights of any other party. 2.10 Accuracy of Information. All documents delivered or to be ------------------------- delivered by Seller, and to Seller's knowledge, all documents to be delivered on behalf of Seller, in connection with this Agreement and the transactions contemplated hereby are true, complete and correct in all material respects. Neither this Agreement, nor any of the other documents contains any untrue statement of a material fact or omits a material fact necessary to make the statements made by Seller herein or therein, in light of the circumstances in which made, not misleading. 2.11 Agreements, Judgments and Decrees. Seller represents and warrants ---------------------------------- that it is not subject to any agreement, judgment or decree which could materially and adversely affect its ability to satisfy its obligations hereunder. 2.12 Transfer of Purchased Assets. The Purchase Price constitutes the ----------------------------- highest and best price Seller could receive for the Purchased Assets and was arrived at through arm's length negotiations between Buyer and Seller. Seller has not entered into this agreement or made any transfer or incurred any obligations hereunder or in connection herewith, with actual intent to disturb, hinder, delay or defraud either present or future creditors or other persons. The Topomax System is currently in the development stage. Seller has marketed the Purchased Assets to various potential purchasers and the bid of Buyer is the highest and best offer received by Seller for such assets and constitutes reasonably equivalent value and fair consideration for such assets. The Purchased Assets constitute only a portion of Seller's business and is far less than substantially all of Seller's assets. The transactions contemplated by this Agreement do not constitute a bulk transfer as defined in the Uniform Commercial Code. 2.13 Sarver Agreements. As of the Closing (i) that certain Consulting ------------------ Agreement (the "Sarver Consulting Agreement"), dated February 1, 1999, between Seller and Sarver and Associates, Inc. ("SAA"), and that certain Technology Transfer and Software License Agreement (the "Sarver Technology Agreement" and together with the Sarver Consulting Agreement, the "Sarver Agreements"), dated February 1, 1999, among Seller, SAA and Edwin J. Sarver, Ph.D. ("Sarver") shall be terminated, (ii) SAA shall be paid $275,000, and (iii) SAA and Sarver (collectively, the "Sarver Parties") shall have transferred to Seller all right, title and interest that the Sarver Parties have or any time in the past may have had in the Purchased Assets. 2.14 Labor Matters. There is no labor or other collective bargaining ------------- unit representing or seeking to represent any employee of Seller. As of the Closing Date, there shall be no employment agreement between Liu and Seller and there shall be no restrictions on Liu performing services in the Topomax Field on behalf of Buyer. 2.15 Product Liability. Seller has no liability (and, to the knowledge ----------------- of Seller, there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against it giving rise to any liability) arising out of any injury to individuals or property as a result of the ownership, possession or use of any product manufactured, sold, leased or delivered by Seller. 2.16 Environmental Matters. Seller is in compliance with all ---------------------- Environmental Laws (as defined herein) in connection with the ownership, use, maintenance and operation of the property relating to Seller's business and otherwise in connection with the operation of Seller's business, (ii) Seller has no liability, whether contingent or otherwise, under any Environmental Law with respect to the operations or properties of Seller's business (including any of the Purchased Assets), (iii) no notices of any violation or alleged violation of, non-compliance or alleged non-compliance with, or any liability under, any Environmental Law relating to the operations or properties of Seller's business (including any of the Purchased Assets) have been received by Seller during the past five years, (iv) there are no administrative, civil or criminal actions, suits, claims, proceedings or investigations pending or, to the best knowledge of Seller, threatened, relating to compliance with or liability under any Environmental Law affecting Seller's business (including any of the Purchased Assets), and (v) to Seller's knowledge, no underground tank or other underground storage receptacle for Hazardous Materials (as defined herein) is located on any property, leased or occupied by Seller or any of its Affiliates. For purposes of this Section 2.16 "Hazardous Materials" means each and every element, compound, chemical mixture, contaminant, pollutant, material, waste or other substance which is defined, determined or identified as hazardous or toxic under any Environmental Law or the release of which is prohibited under any Environmental Law. Without limiting the generality of the foregoing, the term will include: (a) "hazardous substances" as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendment and Reauthorization Act of 1986, or Title III of the Superfund Amendment and Reauthorization Act, each as amended, and regulations promulgated thereunder; (b) "hazardous waste" as defined in the Resource Conservation and Recovery Act of 1976, as amended, and regulations promulgated thereunder; (c) "hazardous materials" as defined in the Hazardous Materials Transportation Act, as amended, and regulations promulgated thereunder; (d) "chemical substance or mixture" as defined in the Toxic Substances Control Act, as amended, and regulations promulgated thereunder; and (e) petroleum products and byproducts, and asbestos. For purposes of this Section 2.16 "Environmental Law" means any federal, state or local statute, regulation or ordinance or any judicial or administrative decree or decision with respect to any Hazardous Materials, drinking water, groundwater, wetlands, landfills, open dumps, storage tanks, underground storage tanks, solid waste, waste water, storm water run-off, waste emissions or wells. Without limiting the generality of the foregoing, the term will encompass each of the following statutes and the regulations promulgated thereunder: (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (codified in scattered sections of 26 U.S.C., 33 U.S.C., 42 U.S.C. and 42 U.S.C.ss. 9601 et seq.); (ii) the Resource Conservation and Recovery Act of 1976 (42 U.S.C.ss. 6901 et seq.); (iii) the Hazardous Materials Transportation Act (49 U.S.C.ss. 1801 et seq.); (iv) the Toxic Substances Control Act (15 U.S.C.ss. 2061 et seq.); (v) the Clean Water Act (33 U.S.C.ss. 7401 et seq.); (vi) the Clean Air Act (42 U.S.C.ss. 7401 et seq.); (vii) the Safe Drinking Water Act (21 U.S.C.ss. 349); 42 U.S.C.ss. 201 andss. 300f et seq.); (viii) the National Environmental Policy Act of 1969 (42 U.S.C.ss. 4321); (ix) the Superfund Amendment and Reauthorization Act of 1986 (codified in scattered sections of 10 U.S.C., 29 U.S.C., 33 U.S.C. and 42 U.S.C.); and (x) Title III of the Superfund Amendment and Reauthorization Act (40 U.S.C.ss. 1101 et seq). 2.17 Taxes. All federal, state, local or foreign, sales, withholding, ----- payroll and employment taxes, fees, assessment or charges, including any interest, penalty or addition thereto ("Taxes") owed by Seller (whether or not shown on any tax return), have been paid and all current Taxes have been paid or provided for or will be paid or provided for prior to the Closing. SECTION 3 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller and covenants and agrees, as of the Closing Date, as follows: 3.1 Corporate Organization. Buyer is a corporation duly organized, ----------------------- validly existing and in good standing under the laws of the jurisdiction of its incorporation, with all requisite power and authority (corporate and other) to own its properties and assets and to conduct its business as now conducted. 3.2 Corporate Authority. As of the Closing Date, Buyer will have -------------------- the corporate power to enter into this Agreement and to carry out its obligations hereunder. As of the Closing Date, the execution and delivery of this Agreement and all agreements contemplated hereunder and the performance of Buyer's obligations hereunder and thereunder, will have been duly authorized by the Board of Directors of Buyer, and no other corporate proceedings on the part of Buyer will be necessary to authorize such execution, delivery and performance. This Agreement and all agreements contemplated hereunder have been duly executed by Buyer and, as of the Closing Date, will constitute valid and legally binding obligations of Buyer, enforceable against Buyer in accordance with the terms hereof and thereof, except to the extent that such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought. 3.3 No Violation. Neither the execution, delivery nor the ------------ performance by Buyer of this Agreement and all agreements contemplated hereunder violates or will violate any provision of law, of any order, judgment or decree of any court or other governmental or regulatory authority, or of the charter documents or by-laws of Buyer, nor violates or will result in a breach of or constitute (with due notice or lapse of time or both) a default under any contract, lease, loan agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which Buyer is a party or by which it is bound or to which any of its properties or assets is subject, nor will result in the creation or imposition of any lien, charge or encumbrance of any kind whatsoever upon any of the properties or assets of Buyer. 3.4 Consents and Approvals. Other than requirements of federal and ----------------------- state securities laws, no filing or registration with, no notice to and no permit, authorization, consent or approval of any third party or any public or governmental body or authority is necessary for the consummation by Buyer of the transactions contemplated by this Agreement. SECTION 4 ADDITIONAL AGREEMENTS AND COVENANTS 4.1 David Liu. Effective as of the Closing Date, Seller shall --------- (i) terminate Liu's employment with Seller without cause and satisfy all of Seller's obligations in connection with such a termination, and (ii) release Liu from any and all obligations under that certain Non Disclosure & Confidentiality Agreement, dated December 23, 1996, between Liu and EyeSys-Premier, Inc. as successor to EyeSys Technologies, Inc., which relate to the Topomax Field. After the Closing Date, Buyer agrees to make Liu available to provide technical assistance to Seller for up to 10 hours per month until the first to occur of (i) the six-month anniversary of the Closing Date, and (ii) Liu has completed the upgrade for Seller's Vista product. 4.2 LaserSight License. Seller agrees to grant Buyer a royalty- ------------------- free, perpetual, exclusive license (the "LaserSight License") in the form attached hereto as Exhibit A. 4.3 Premier License. Buyer agrees to grant Seller a royalty-free, --------------- perpetual, exclusive license (the "Premier License") in the form attached hereto as Exhibit B. 4.4 Intellectual Property Further Assurances. After the Closing, ---------------------------------------- Seller agrees to cooperate with any reasonable inquiry Buyer may have in connection with the Topomax Intellectual Property. Seller shall make available such personnel and books and records as Buyer may reasonably request in connection with any such inquiry. Seller agrees to sign and deliver to Buyer, promptly following Buyer's request, any and all agreements, documents, certificates and papers that may be necessary to confirm Buyer's exclusive ownership of the Topomax Intellectual Property. If Buyer seeks to secure a reissue, divisional, continuation, or continuation-in-part of any of the Topomax Patents or in the case of any reexamination of the Topomax Patents Seller agrees to cooperate with Buyer in any manner reasonably requested by Buyer. Seller agrees not to directly or indirectly contest any proceeding, or otherwise aid, assist or participate in any proceeding contesting, the validity or enforceability of the Topomax Patents. If Buyer is unable for any reason to secure a signature of an authorized officer or agent of Seller for any agreements, documents, certificates or papers necessary to carry out the terms set forth in the immediately preceding paragraph, Seller does hereby irrevocably designate and appoint Buyer and its authorized officers and agents as Seller's agent and attorney-in-fact, to act for and in Seller's behalf and stead to execute such items, with the same legal effect as if executed by Seller. Seller hereby confirms that it has waived and quit claimed to Buyer any and all claims of any nature whatsoever that Seller may now have or may later have in connection with the Topomax Patents. 4.5 Filing of Documents. Seller does hereby irrevocably appoint ------------------- Buyer and its authorized officers and agents as Seller's attorney-in-fact, to act for and in Seller's behalf and stead for purposes of executing and delivering any patent assignment documents relating to the Topomax Patents, any collateral or lien release documents relating to the Purchased Assets, any required consents to the LaserSight License, or acknowledgments as to no liens on the Topomax Patents, all as Buyer may request with the same legal effect as if executed by Seller. SECTION 5 CONDITIONS TO SELLER'S OBLIGATION TO SELL 5.1 Conditions to Seller's Obligation to Sell. The obligation of ----------------------------------------- Seller hereunder to sell the Purchased Assets to Buyer at the Closing is subject to the satisfaction, as of the Closing Date, of each of the following conditions thereto, provided that these conditions are for Seller's sole benefit and may be waived by Seller at any time in its sole discretion: (a) Buyer shall have executed this Agreement and delivered the same to Seller. (b) Buyer shall have wired same-day funds to the account designated by Seller equal to that portion of the Purchase Price described in Section 1.3(a). (c) Buyer and Seller shall have executed the Premier License. (d) The representations and warranties of Buyer shall be true and correct as of the date when made and as of the Closing as though made at that time (except for representations and warranties that speak as of a specific date), and Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Buyer at or prior to the Closing. Buyer shall have received a certificate, executed by the Chief Executive Officer or Secretary of Buyer, dated as of the Closing Date to the foregoing effect. (e) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which restricts or prohibits the consummation of any of the transactions contemplated by this Agreement. SECTION 6 CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE 6.1 The obligation of Buyer hereunder to purchase the Purchased Assetson the Closing Date is subject to the satisfaction of each of the following conditions, provided that these conditions are for Buyer's sole benefit and may be waived by Buyer at any time in Buyer's sole discretion: (a) Seller shall have executed this Agreement and delivered the same to Buyer. (b) The representations and warranties of Seller shall be true and correct as of the date when made and as of the Closing as though made at that time and Seller shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Seller at or prior to the Closing. Buyer shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of Seller, dated as of the Closing Date to the foregoing effect. (c) Buyer shall be satisfied with its business, legal, accounting, financial and intellectual property due diligence it was able to perform prior to the Closing Date. (d) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which restricts or prohibits the consummation of any of the transactions contemplated by this Agreement. (e) Buyer shall have received an opinion of Seller's legal counsel, dated as of the Closing Date, in a form reasonably acceptable to Buyer. (f) Seller shall have delivered to Buyer certificates of good standing of Seller and the subsidiaries which are organized pursuant to the corporate laws of a State within the United States as of a date no earlier than 30 days prior to the Closing. (g) Seller shall have delivered to Buyer a certificate executed by a duly authorized officer certifying (i) a copy of Seller's certificate of incorporation and by-laws, (ii) resolutions authorizing the execution of this Agreement, and (iii) incumbency matters. (h) The Sarver Consulting Agreement and Sarver Technology Agreement shall have each been terminated on terms and conditions acceptable to Buyer, and Buyer, SAA and Sarver shall have entered into new agreements the form and substance of which is acceptable to Buyer. (i) Seller shall have taken all action contemplated by Section 4.1 hereof. (j) Seller shall have delivered to Buyer a general release, in form and substance reasonably acceptable to Buyer, all necessary UCC-3 partial releases or terminations, and all necessary documents to release claims to the Topomax Patents from each of the following lienholders of Seller: (i) SRI, and (ii) Herkimer. (k) Seller shall have delivered to Buyer an assignment, in form and substance reasonably acceptable to Buyer, of each of the Topomax Patents. (l) Seller shall have delivered to Buyer a copy of the LaserSight License Agreement. (m) Buyer shall be satisfied as to the ownership and any possible impairment of the Purchased Assets, including without limitation, the Topomax Intellectual Property. SECTION 7 INDEMNIFICATION 7.1 Seller's Indemnification. Seller hereby agrees to ------------------------ indemnify and hold harmless Buyer, and any person or entity controlling, controlled by or under common control with Buyer, from and against any and all claims, damages, liabilities, losses and expenses (including reasonable attorneys' fees) resulting from or arising out of (i) any breach by Seller of any covenant, representation, warranty or obligation of Seller contained in this Agreement or any agreement executed in connection with this Agreement other than the LaserSight License or the Premier License, (ii) any infringement or alleged infringement claim brought against Buyer with respect to the Topomax Intellectual Property (in the form the Topomax Intellectual Property existed as of the Closing Date), whether arising prior to the Closing Date or thereafter, or (iii) any liability or obligation of Seller, including, without limitation, judgments or liens attached to or asserted against the Purchased Assets or Buyer. 7.2 Buyer's Indemnification. Buyer hereby agrees to indemnify ----------------------- and hold harmless Seller, and any person or entity controlling, controlled by or under common control with Seller, from and against any and all claims, damages, liabilities, losses and expenses (including reasonable attorneys' fees) resulting from or arising out of any breach by Buyer of any covenant, representation, warranty or obligation of Buyer contained in this Agreement or any agreement executed in connection with this Agreement other than the LaserSight License or the Premier License. 7.3 Notice of Claim. The party to be indemnified hereunder --------------- (the "Indemnified Party") shall notify in writing (such notification shall be referred to herein as a "Claims Notice") the indemnifying party (the "Indemnifying Party") within (i) 60 days after a claim is presented to the Indemnified Party or the Indemnified Party becomes aware of substantial facts that would reasonably appear to the Indemnified Party to be likely to give rise to a claim for indemnity hereunder, or (ii) five days if the Indemnified Party receives formal notice of the filing of a suit, petition or claim or the scheduling of a hearing related to a matter which may give rise to claim for indemnity hereunder. Each Claims Notice shall, if feasible, contain a reasonable estimate by the Indemnified Party of the losses, costs, liabilities and expenses (including, but not limited to, costs and expenses of litigation and attorneys' fees) which the Indemnified Party may incur. If Buyer is the Indemnified Party and delivers a Claims Notice to Seller, and either or both of the payments described in Section 1.3(b) or (c) have not yet been made, Buyer shall have the right to escrow the amount claimed in the Claims Notice. These funds shall be released from escrow and either paid to Seller or retained by Buyer depending on the final resolution of such situation. Such escrow shall be established with a bank or title company acceptable to Buyer and Seller, with neither party unreasonably withholding their consent. The Indemnifying Party shall have the right to defend a claim and control the defense, settlement and prosecution of any litigation; provided, however, in order to have the right to defend a claim and control the defense, settlement and prosecution of any litigation, the Indemnifying Party (i) must expressly acknowledge the assumption by it of all liabilities related to such litigation, including without limitation, the cost of such defense, settlement and prosecution of such litigation, and (ii) unless the Indemnified Party consents otherwise in writing, may only compromise or settle such litigation solely for money damages for which the Indemnifying Party shall be fully liable. If the Indemnifying Party fails to defend such claim, the Indemnified Party will (upon further notice to the Indemnifying Party) have the right to undertake the defense, compromise or settlement of such claim on behalf and for the account and risk of the Indemnifying Party. The Indemnifying Party will make available to the Indemnified Party or its representatives, at the Indemnifying Party's expense, all records and other materials in the Indemnifying Party's possession and all employees or agents of the Indemnifying Party required by the Indemnified Party for the Indemnified Party's use in contesting any such claim, and the Indemnified Party and its representatives agree that they will not use the Indemnifying Party's making available to them of any such material, or its agreement to do so, as a basis for asserting a waiver by the Indemnifying Party of any statutory or common law privilege the Indemnifying Party might have in any other proceedings, whether related or unrelated to the matter giving rise to the claim. If the Indemnified Party fails to notify the Indemnifying Party of a claim in accordance with the terms of this Section 7.3, and the Indemnifying Party is thereby materially prejudiced by such failure of notice in its defense of the claim, the Indemnifying Party's obligation to indemnify hereunder shall be extinguished with respect to such claim to the extent that the Indemnifying Party has been prejudiced by the failure to give such notice. The amount of losses for which indemnification is provided under this Agreement shall be net of any amounts recovered by the Indemnified Party under insurance policies or from unaffiliated third parties with respect to such losses. SECTION 8 GENERAL PROVISIONS 8.1 Governing Law; Jurisdiction. This Agreement shall be governed ---------------------------- by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware, without giving effect to the principles of conflicts of law. The parties hereto irrevocably consent to the jurisdiction of the United States federal courts and state courts located in the County of New Castle in the State of Delaware in any suit or proceeding based on or arising under this Agreement or the transactions contemplated hereby and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. Buyer and each Seller irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. Service of process upon Buyer or Seller mailed by certified mail, return receipt requested, shall be deemed in every respect effective service of process upon Buyer in any suit or proceeding arising hereunder. Nothing herein shall affect Seller's right to serve process in any other manner permitted by law. A final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 8.2 Counterparts. This Agreement may be executed in two or more ------------ counterparts, including, without limitation, by facsimile transmission, all of which counterparts shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause additional originally executed signature pages to be delivered to the other parties. 8.3 Headings. The headings of this Agreement are for convenience of -------- reference and shall not form part of, or affect the interpretation of, this Agreement. 8.4 Severability. If any provision of this Agreement shall be invalid ------------ or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. 8.5 Entire Agreement; Amendments. This Agreement, the Schedules ------------------------------ and Exhibits hereto, which are incorporated herein by this reference, and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Buyer nor Seller makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement and no provision of this Agreement may be amended other than by an instrument in writing signed by Buyer and each Seller. 8.6 Notice. Any notice herein required or permitted to be given ------ shall be in writing and may be personally served or delivered by nationally- recognized overnight courier or by facsimile-machine confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). Each party shall provide notice to the other party of any change in address. The addresses for such communications shall be: If to Buyer: LaserSight Incorporated 3300 University Boulevard Suite 140 Winter Park, Florida 32792 Telecopy: (407) 678-9982 Attention: Chief Executive Officer with a copy to: The Lowenbaum Partnership, L.L.C. 222 South Central Avenue Suite 901 St. Louis, Missouri 63105 Telecopy: (314) 746-4848 Attention: Timothy L. Elliott, Esq. If to Seller: Premier Laser Systems, Inc. 3 Morgan Irvine, California 92618 Telecopy: (949) 859-0656 Attention: Michael Quinn with a copy to: Knobbe, Martens, Olson & Bear, LLP 620 Newport Center Drive 16th Floor Newport Beach, California 92660 Telecopy: (949) 760-9502 Attention: William Nieman, Esq. and O'Melveny & Myers, L.L.P. 610 Newport Center Drive Newport Beach, California Telecopy: (949) 823-6994 Attention: Suzzanne Uhland, Esq. 8.7 Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of the parties and their successors and assigns. Neither Buyer nor Seller shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. 8.8 Third Party Beneficiaries. This Agreement is intended for the ------------------------- benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 8.9 Survival. All representations and warranties in this -------- Agreement shall survive the execution and delivery of this Agreement and the Closing. All agreements contained herein shall survive the Closing until, by their respective terms, they are no longer operative. 8.10 Public Filings; Publicity. No party hereto shall make any public -------------- statement regarding the transactions contemplated hereby unless the language and timing of such statement has been approved by both Buyer and Seller. If Buyer and Seller cannot mutually agree on such disclosure matters, either party may make such disclosures as may be advised by such party's securities counsel. Notwithstanding the foregoing, each of the parties hereto may, in documents required to be filed by it with the SEC or other regulatory bodies, make such statements with respect to the transactions contemplated hereby as each may be advised is legally necessary upon advice of its counsel; provided, however, that the party making such determination shall immediately notify the other party that it intends to make a public announcement and the parties hereto shall, in good faith, attempt to agree on any public announcements or publicity statements with respect thereto (which approval shall not be unreasonably withheld or delayed). 8.11 Further Assurances. Each party shall do and perform, or cause to ------------------- be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 8.12 Topomax Patent Enforcement. Upon learning of the infringement of -------------------------- any of the Topomax Patents by third parties, Seller shall inform the other in writing of that fact, and shall supply the other with any evidence available pertaining to the infringement. 8.13 Termination of Agreement. If the Closing shall not have occurred ------------------------ on or before the first to occur of (i) April 1, 2000, or (ii) Seller files for protection under any bankruptcy or insolvency statute or rule (or any of Seller's creditors take such action), this Agreement shall terminate at the close of business on such date. JURY TRIAL WAIVER. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY FOR ANY MATTER ARISING UNDER OR IN ANY WAY RELATED TO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS. THIS IS A KNOWING WAIVER GRANTED AFTER CONSULTATION WITH SUCH PARTY'S LEGAL COUNSEL. IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be duly executed as of the date first above written. LASERSIGHT TECHNOLOGIES, INC. PREMIER LASER SYSTEMS, INC. By: /s/Gregory L. Wilson By: /s/Michael J. Quinn ----------------------------- ----------------------------- Name: Gregory L. Wilson Name: Michael J. Quinn ----------------------------- ----------------------------- Title: Secretary Title: President & CEO ----------------------------- ----------------------------- EYESYS-PREMIER, INC. By: /s/Michael J. Quinn ----------------------------- Name: Michael J. Quinn ----------------------------- Title: President ----------------------------- Signature Page to Technology Purchase Agreement Schedule 1.1(a)(iii) Topomax Intellectual Property 1. Each of the following patents (collectively, the "Topomax Patents") are being purchased by Buyer: Appl No./ Filing Date/ Title Country Patent No. Issue Date - ----- ------- ---------- ---------- A Method of Corneal Analysis Using 08/736,348 10/23/96 a Checkered Placido Apparatus USA 5,841,511 11/24/98 A Method of Corneal Analysis Using USA 09/102,839 06/23/98 a Checkered Placido Apparatus A Method of Corneal Analysis Using a Checkered Placido Apparatus PCT PCTUS97/19487 10/22/97 Checkered Placido Apparatus and BRAZIL PI9306484-5 06/02/93 Method Checkered Placido Apparatus and CAN 2137151 06/02/93 Method Checkered Placido Apparatus and JAPAN 500870/1994 06/02/93 Method Multi-Camera Corneal Analysis System USA 08/638,875 04/25/96 5,847,804 12/08/98 Multi-Camera Corneal Analysis System USA 08/956,515 10/23/97 5,953,100 09/14/99 Multi-Camera Corneal Analysis System EPO 95940570.5 10/30/95 Multi-Camera Corneal Analysis System JAPAN 514798/1996 10/30/95 Topomax System patent application USA 03/07/00 2. Each of the following items are being purchased by Buyer: a. All drawings, designs, plans, proposals and technical data of the EyeSys 2000 System that are utilized in the Topomax System b. Copy of the EyeSys 2000 System components vendor list EX-11 7 COMPUTATION OF LOSS PER SHARE EXHIBIT 11 LASERSIGHT INCORPORATED COMPUTATION OF LOSS PER SHARE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997 ---- ---- ---- BASIC Weighted average shares outstanding 16,207,000 12,272,000 9,504,000 ============ ============ ============ Net loss $(14,423,980) (11,882,389) (7,253,084) Conversion discount on preferred stock -- (858,872) (41,573) Dividends on preferred stock -- (2,751,953) (298,269) ------------ ------------ ------------ Loss attributable to common shareholders $(14,423,980) (15,493,214) (7,592,926) ============ ============ ============ Basic loss per share $ (0.89) (1.26) (0.80) ============ ============ ============ DILUTED Weighted average shares outstanding, above 16,207,000 12,272,000 9,504,000 ============ ============ ============ Net loss $(14,423,980) (11,882,389) (7,253,084) Conversion discount on preferred stock -- (858,872) (41,573) Dividends on preferred stock -- (2,751,953) (298,269) ------------ ------------ ------------ Loss attributable to common shareholders $(14,423,980) (15,493,214) (7,592,926) ============ ============ ============ Diluted loss per share $ (0.89) (1.26) (0.80) ============ ============ ============ Loss attributable to common shareholders above $(14,423,980) (15,493,214) (7,592,926) ============ ============ ============ Additional adjustment to weighted average number of shares: Weighted average shares outstanding, above 16,207,000 12,272,000 9,504,000 Dilutive effect of stock options, warrants and convertible preferred stock 5,538,000 2,530,000 4,722,000 ------------ ------------ ------------ Weighted average number of shares, as adjusted 21,745,000 14,802,000 14,226,000 ============ ============ ============ Diluted loss per share, as adjusted $ (0.66)(A) (1.05)(A) (0.53)(A) ============ ============ ============
--------------------------- (A) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 13-14 of SFAS 128 because it produces an anti-dilutive result. EX-21 8 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 ---------- SUBSIDIARIES OF REGISTRANT State or jurisdiction Subsidiary in which incorporated - ---------- --------------------- LaserSight Technologies, Inc. . . . . . . . . .. . . . Delaware LaserSight Patents, Inc. . . . . . . . . . . . . . . . Delaware MRF, Inc. (d/b/a The Farris Group) . . . . . . . . . . Missouri Photomed Acquisition, Inc. . . . . . . . . . . . . . Delaware LaserSight Centers Incorporated . . . . . . . . . . . Delaware LS Export, Ltd. . . . . . . . . . . . . . . . . . . . U.S. Virgin Islands LST Laser, S.A. . . . . . . . . . . . . . . . . . . . Costa Rica LaserSight Europe GmbH . . . . . . . . . . . . . . . . Germany LS Japan Company, Limited (Not active) . . . . . . . . Japan EX-23 9 INDEPENDENT AUDITORS' CONSENT Exhibit 23 Independent Auditors' Consent The Board of Directors LaserSight Incorporated: We consent to incorporation by reference in the registration statement (No. 33-96390) on Form S-8, registration statement (No. 33-52170) on Form S-8, registration statement (No. 333-16817) on Form S-8, registration statement (No. 333-16823) on Form S-8, registration statement (No. 333-62587) on Form S-8, registration statement (No. 333-62591) on Form S-8, registration statement (No. 333-84073) on Form S-8, registration statement (No. 333-84075) on Form S-8, registration statement (No.333-2198) on Form S-3, registration statement (No. 333-25237) on Form S-3, registration statement (No. 333-36655) on Form S-3, registration statement (No. 333-36837) on Form S-3, registration statement (No. 333-59369) on Form S-3, registration statement (No. 333-68495) on Form S-3 and registration statement (No. 333-77825) on Form S-3 of LaserSight Incorporated of our report dated February 11, 2000, relating to the consolidated balance sheets of LaserSight Incorporated and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of LaserSight Incorporated. /s/ KPMG LLP St. Louis, Missouri March 29, 2000 EX-27 10 FDS
5 This schedule contains summary financial information extracted from the accompanying financial statements and is qualified in its entirety by reference to such financial statements. Year DEC-31-1999 DEC-31-1999 11,247,801 0 13,744,123 3,232,715 8,409,823 30,631,783 4,016,589 2,081,971 49,378,933 8,983,649 0 0 4,000 18,040 39,555,631 49,378,933 19,403,781 21,728,452 9,621,351 9,777,184 25,087,896 1,965,234 93,085 (14,423,980) 0 (14,423,980) 0 0 0 (14,423,980) (0.89) (0.89)
EX-99 11 PRESS RELEASE DATED MARCH 27, 2000 LASERSIGHT ANNOUNCES FOURTH QUARTER AND YEAR END RESULTS -Provides Q1 Update on Product Performance and Launch- -Sales and Shipments for LSX(R) Laser System on Schedule- -Announces Management Additions and Changes to Board- Winter Park, FL, (March 27, 2000) - LaserSight Incorporated (NASDAQ: LASE) today announced financial results for the fourth quarter and year ended December 31, 1999. The Company also announced that it will ship this week the first of its state-of-the-art LaserScan LSX(R) refractive laser systems to ophthalmologists in the U.S. Revenues for the fourth quarter of 1999 increased approximately 40% to $4.6 million from $3.3 million in the fourth quarter of 1998. The Company reported a net loss of $4.6 million, or $0.26 per share for the fourth quarter of 1999, compared to a net loss of $6.0 million, or $0.46 per share in the same period of 1998. Internationally, the Company sold 13 LaserScan LSX excimer laser systems in the fourth quarter of 1999, an increase of over 60% compared to the 8 sold in the fourth quarter of 1998. The Company sold 65 laser systems internationally in 1999, including 14 sales to existing customers, a 30% increase over the 50 total systems sold in 1998. For the year ended December 31, 1999, the Company's revenues were $21.7 million, an increase of about 22% from $17.8 million in 1998. The Company reported a net loss for 1999 of $14.4 million, or $0.89 per share, compared to 1998's loss of $15.5 million, or $1.26. In 1998 $3.6 million of the $15.5 million loss reflected the effects of premiums, accretion and conversion discounts on the redemption of Series B Preferred Stock and the issuance of Series C and D Preferred Stock. The average common shares outstanding were 16,207,000 during 1999 compared to 12,272,000 during 1998. The Company's increased loss in 1999 is attributed to costs associated with developing, testing and launching the Company's new MicroShape(TM) family of keratome products and development of the infrastructure necessary to support the introduction of the LaserScan LSX excimer laser system into the U.S. market. During the fourth quarter of 1999, the Company received clearance to market the LaserScan LSX excimer laser system in the U.S. The Company stated it remains on track for delivering the first in a series of lasers in the U.S. by the end of the first quarter. The Company has a PMA supplement pending FDA approval for the treatment of astigmatism, and LASIK trials underway for the treatment of hyperopia with astigmatism and mixed astigmatism. Michael R. Farris, President and Chief Executive Officer of LaserSight Incorporated, commented, "1999 was a very significant turning point for the Company as we completed the development of several key products and received the necessary approvals to commercially launch these products into the U.S. market. We are seeing our vision unfold as U.S. ophthalmologists purchase LaserSight's state-of-the-art products to perform laser vision correction. The achievement of these milestones provides LaserSight the opportunity to attain profitability in 2000." During fiscal 1999, the Company solidified a number of key strategic alliances and initiated several products for launch into the U.S. and international markets. Key highlights for 1999 include: o Received FDA approval to market, sell, and distribute its excimer laser system for laser refractive vision correction procedures in the United States. o Established a relationship with Becton Dickinson Ophthalmic Systems to exclusively develop, manufacture, and distribute keratome blades for refractive surgery and later in the year expanded this partnership with Becton to enter into an exclusive distribution agreement for LaserSight's MicroShape family of products in the United States, the United Kingdom, Ireland and Japan. o Expanded TLC relationship; additional equity investment of $10 million made by TLC Laser Eye Centers, Inc., the largest vision correction corporate centers company in North America. o Launched its MicroShape(TM) family of keratome products and blades for sale in the U.S. and internationally. This included the shipment of its UltraEdge(TM) single-use keratome blades manufactured under its agreement with Becton Dickinson in the second quarter, which marked LaserSight's entry into the market for per-procedure laser vision correction products; and, shipment of its ADK UniShaper(TM) single-use keratome in the fourth quarter, with shipments to the U.S. in the first quarter of this year. Q1 Update on Product Performance and Launch International LaserScan LSX(R) The Laserscan LSX international version continues to receive strong endorsements as the system of choice among many surgeons. The Company recently released outside the United States an advanced design to its eyetracking technology and a new software upgrade. These advancements continue to demonstrate the Company's commitment to remain at the forefront in technology features and performance. Dr. Jeff Machat, National Medical Director for TLC Laser Eye Centers, commented, "The improvements in the eyetracker, air flow and nomogram for the LaserSight LSX have been substantial. These changes have definitely resulted in much faster visual recovery and better visual results than ever before, even for my severely nearsighted and astigmatic patients." U.S. LaserScan LSX(R) The level of interest in the Laserscan LSX has been very high. Sales and production are on schedule. The Company is planning to continue to accelerate its manufacturing activity to meet the anticipated demand over the coming months. This week the Company will ship the first systems to U.S. ophthalmologists. Philip L. Martin, M.D. of Southern Eye Associates, PA, commented, "We are very enthusiastic about this latest state-of-the-art technology platform. I believe that LaserSight's true scanning technology is the platform for the future. The smoothness of the treatment on the patient's eye, the size and precision of the flying spot and the high speed performance of the laserhead will take us into the future with continued advancements for improving quality of vision for our patients. We were one of the first to purchase a broad beam laser in our region of the country. By purchasing a LaserSight Laserscan LSX we have moved beyond second generation technology to third generation state-of-the-art technology." "This is truly remarkable technology," commented Stephen A. Updegraff, M.D., FACS, of Updegraff Lasik Vision. Dr. Updegraff continued, "As a colleague of Michiel Kritzinger, M.D., of Visiomed, who has performed over 6,000 surgeries on the international version of the Laserscan LSX, I have watched the evolution of this technology through his experience. His results are remarkable. The proprietary software innovation, the shape and size of the optical zones, the energy per pulse, and the size of the flying spot combines to provide a platform that no other system offers today. As a refractive surgeon focused on providing the highest standard of quality care, I am anxious to bring this new technology to my patients. I also believe this platform is the most effective state-of-the-art design and will enable us to provide personalized treatments. I look forward to participating in the technology advancements ahead as LaserSight continues to work with ophthalmologists to help raise the standard of care to the communities we serve." Microkeratome System The Company began selling the UniShaper last quarter and received CE Mark approval this month authorizing the Company to begin selling into Europe. The Company expects this product to gradually increase in popularity and demand as the market becomes more confident of its performance as a single-use keratome that to date has only been available in a stainless steel design. The Company recently received clearance from the FDA to market its own stainless steel durable keratome, the UltraShaper (TM) and expects to begin shipments of this device in the second quarter. The MicroShape System is comprised of the UlraEdge keratome blades, the UniShaper single use keratome, the UltraShaper reusable keratome and are interchangeable to the same control console making this the only system of its kind. Dr. Anthony Economou, D.O., an Ophthalmologist with the TLC Center in Tulsa and also a clinical investigator in the LaserScan LSX LASIK clinical trial, commented, "I am very pleased and impressed with the performance of the UniShaper single use keratome. I have now used the device on over 40 eyes with absolutely zero complications. There are obvious advantages in that the device is pre-packaged sterile and pre-assembled reducing the risks associated with each unit requiring assembly prior to each surgery. The blade is already inserted and measured for accuracy. The units are 100% inspected and completely sterilized. I have been extremely pleased with the consistent performance of the device, the smoothness of the stromal bed and the cleanliness of the surgical interface. The interface actually appears cleaner than the interface when I use the stainless steel keratome of other manufacturers." Blade sales for keratomes have remained strong during the first quarter. Additional blades for other types of keratomes are scheduled to be launched in the second quarter of this year for sale in the third quarter. The Company also stated it anticipates releasing its UltraShaper durable keratomes and blades in time for shipments to occur next quarter. Management Additions and Changes to Board of Directors The Company is pleased to announce the naming of Mr. Michael Litscher to the position of Chief Operating Officer. Mr. Litscher, 53, has 25 years of experience directing operations for companies in medical devices and high volume medical disposables. In his most recent position Mr. Litscher was General Manager and Vice President of the Frantz Tool and Design division of Frantz Medical Group, responsible for the business management and manufacturing operations of the Division. Mr. Litscher began his career with General Electric Medical Systems where he became responsible for all plant and manufacturing operations for the MRI business team. Following this position, he was Manager, New Products Manufacturing for Coulter Corporation, where he was responsible for all areas of manufacturing involved in the introduction of the Company's new hematology products. Mr. Litscher graduated from the University of Arizona, Tuscon, with a B.S. in Aerospace Engineering, and has an M.B.A. from the University of Wisconsin. Additionally, Ms. Juliet Tammenoms Bakker, a Senior Vice President of Pequot Capital Management, Inc., has resigned as a Director on the LaserSight Board. Mr. Litscher will join the Company's Board of Directors. Ms. Tammenoms Bakker, who has served on the LaserSight Board since 1998, commented, "I am confident in management's ability to capitalize on the outstanding opportunities in the laser vision correction industry. LaserSight has concluded significant operational and strategic milestones over the past two years. It is now time that I return to other duties in the Pequot portfolio. The Company is in a favorable position to grow its business in the U.S. and has a strong team in place to achieve the next milestones." Michael R. Farris, Chief Executive Officer, commented, "Ms. Tammenoms Bakker has provided valuable contribution to the board of LaserSight. On behalf of the Board of Directors I would like to express our appreciation for her dedication and contributions made over the last two years. At a very critical time in the history of LaserSight, Pequot Capital Management, Inc. expressed a vote of confidence through its investment in the Company. I am also very pleased with the appointment of Mr. Litscher to the Board of Directors and as the Chief Operating Officer of the Company. We have moved to the next level of development and the talents and experience of Mr. Litscher will be of great importance in the days ahead." LaserSight Incorporated provides quality technology solutions for laser refractive surgery and other innovative applications, mainly in the vision correction industry. The Company sells its products in more than 30 countries. In the United States, LaserSight's refractive scanning laser system has a pending pre-market approval application with the U.S. Food and Drug Administration and is not yet commercially available in this market. This press release contains forward-looking statements regarding future events and future performance of the Company, including statements with respect to anticipated sales revenue and commercialization of products, which involves risks and uncertainties that could materially affect actual results. Investors should refer to documents that the Company files from time-to-time with the Securities and Exchange Commission for a description of certain factors that could cause the actual results to vary from current expectations and the forward looking statements contained in this press release. Such filings include, without limitation, the Company's Form 10-K, Form 10-Q and Form 8-K reports. The following are selected financial results for LASERSIGHT INCORPORATED (In thousands, except per share data) THREE MONTHS ENDED YEAR ENDED 12/31/99 12/31/98 12/31/99 12/31/98 -------- -------- -------- -------- Total Revenues $ 4,637 $ 3,303 $21,728 $17,756 Cost of Revenues 2,561 1,789 9,777 6,346 Gross Profit 2,076 1,514 11,951 11,410 Research, Development and Regulatory 883 1,356 3,140 3,841 Selling, General and Administrative 6,035 5,893 23,913 19,030 Loss from Operations (4,842) (5,735) (15,102) (11,461) Other Income (Expense) 212 (283) 678 (189) Income Tax Expense -- -- -- (232) Net Loss (4,630) (6,018) (14,424) (11,882) Preferred Stock Accretions/ Dividends and Conversion Discounts -- -- -- (3,611) Loss Attributable to Common Shareholders (4,630) (6,018) (14,424) (15,493) Loss per Common Share - Basic and Diluted $ (0.26) $ (0.46) $ (0.89) $ (1.26) Weighted Average Number of Shares Outstanding 17,752 13,173 16,207 12,272 SELECTED BALANCE SHEET DATA (in 000s): December 31, 1999 December 31, 1998 ----------------- ----------------- Cash and Cash Equivalents $ 11,248 $ 4,438 Accounts and Notes Receivable (Current), Net 10,501 9,418 Total Current Assets 30,632 22,717 Total Current Liabilities 8,984 7,842 Long-Term Obligations 100 560 Stockholders' Equity 39,578 34,015 -----END PRIVACY-ENHANCED MESSAGE-----