Exhibit 10.2
EXCHANGE AGREEMENT
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This Exchange Agreement (the "AGREEMENT") entered into as of the last
date written below by and between ___________________ ("CREDITOR"), a California
limited liability partnership with its principal place of business at __________
________________________________________, and Premier Laser Systems,
Inc. ("PLSI"), a California corporation, having its principal place of business
at 3 Xxxxxx, Irvine, California.
WITNESSETH:
WHEREAS, PLSI is indebted to Creditor in an amount in excess of
____________ as a result of products or services provided by Creditor to PLSI;
WHEREAS, PLSI and Creditor wish to agree upon a payment mechanism that
would permit PLSI to pay a portion of such debt;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, IT IS HEREBY AGREED:
1. LIQUIDATION OF DEBT.
The parties hereby agree that, as of the date of this Agreement, the
total amount due and owing by PLSI to Creditor is at least equal to the sum of
_________________________ (___________) (such sum being hereafter referred to as
the "LIQUIDATED DEBT"). PLSI agrees to pay the Liquidated Debt to Creditor
pursuant to the terms and conditions set forth in this Agreement. As used
herein, the term "Liquidated Debt" does NOT refer to any amount of debt in
excess of __________________________ (___________).
2. ISSUANCE OF CONVERTIBLE DEBENTURES.
2.1 AMOUNT OF DEBENTURES ISSUED. Simultaneously with the execution
of this Agreement, PLSI shall issue to Creditor a series of
____ (_) convertible debentures (the "DEBENTURES") in the
amount of __________________ Dollars and 00/100 U.S. Dollars
(US$______) each in the form set forth in EXHIBIT A. The
Debentures shall be convertible into the Common Stock of PLSI
(the "UNDERLYING SHARES" or "SHARES") pursuant to the terms
and conditions set forth in the Debentures. Following the
issuance of the Debentures, the Debentures shall thereafter
represent the Liquidated Debt, and thereafter there shall be
no independent debt from PLSI to Creditor with respect to the
Liquidated Debt. The parties acknowledge, however, that the
total indebtedness of PLSI to Creditor may exceed the
Liquidated Debt, and the exchange of the Debentures for the
Liquidated Debt shall not extinguish or otherwise affect any
additional indebtedness that PLSI may have to Creditor.
2.2 REGISTRATION OF THE UNDERLYING SHARES. Within ten (10)
Business Days of the execution of this Agreement and issuance
of the Debentures, PLSI agrees to file a Registration
Statement with the Commission to register the resale of the
Underlying Shares under the Act, and to thereafter prosecute
such application in good faith and with its best efforts. PLSI
will keep such Registration Statement effective until the
earlier of that date 18 months from its effective date or the
date that the selling securityholders named therein have
converted all of the Debentures held by them AND sold all of
the Common Stock received by them upon conversion. During this
period, PLSI shall amend the Registration Statement and the
prospectus included therein, and any documents incorporated by
reference therein, as necessary to ensure that it does include
any misstatement of a material fact or omit to state a fact
necessary to make the other statements contained therein not
misleading. A copy of all filings by PLSI with respect to the
Underlying Shares shall be provided to Creditor by the notice
procedures set forth in subparagraph 8.1 below within five (5)
Business Days on which the filing was made with the
Commission. In addition, Notice of the effectiveness of such
registration shall be given by PLSI to Creditor within five
(5) Business Days of the effectiveness of such Registration.
2.3 INDEMNIFICATION. PLSI agrees to indemnify and hold harmless
Creditor and its officers, directors, agents, partners and any
person who may be deemed to control Creditor under the Act or
the Securities Exchange Act of 1934, to the fullest extent
permitted by law, from and against any and all losses, claims,
damages, liabilities, costs and expenses (including without
limitation attorneys' fees), as incurred, arising out or
relating to any untrue or alleged untrue statement of a
material fact contained in the Registration Statement or the
prospectus contained therein, or arising out of or relating to
any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements
therein not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based
solely upon information regarding the Creditor furnished in
writing by the Creditor to PLSI expressly for use therein.
3. LIMITATION ON SALE OF SHARES.
Commencing on the effective date of the registration of the Underlying
Shares, Creditor agrees that it will not sell on any public exchange (including
without limitation the Nasdaq National Market) an amount of the Underlying
Shares for an aggregate sales price in excess of ______________ U.S. Dollars
(US$________) in any calendar month.
4. MANDATORY CONVERSION.
PLSI shall have the option, but not the obligation, to require
Creditor, upon five (5) business days notice, to convert any or all of the
Debentures, provided that:
4.1 The Underlying Shares are covered by an effective registration
statement freely permitting Creditor to sell the Underlying
Shares on a public market;
4.2 The Common Stock of PLSI is listed on the NASDAQ National
Market or Nasdaq Small Cap Market;
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4.3 The Underlying Shares, at the time of conversion, shall have a
bid price no less than $1.50; AND
4.4 The conversion of the Debentures in accordance with such
notice from PLSI will not result in Creditor having converted
more that $______ of the Debentures in any calendar month.
5. REPRESENTATIONS AND WARRANTIES OF PLSI.
PLSI hereby represents and warrants to Creditor as follows:
5.1 CORPORATE QUALIFICATIONS. PLSI is a California corporation in
good standing, is qualified to do business in the State of
California, and is subject to no legal disability which would
prevent it from entering into this Agreement.
5.2 CORPORATE APPROVALS. PLSI has received all approvals of
shareholders, officers and directors required by its Articles,
Bylaws, and applicable law in order to enter into this
Agreement and to issue the Debentures as provided herein. The
Debentures, when issued in accordance herewith, shall be the
valid and binding obligations of PLSI, enforceable in
accordance with their terms. The issuance of the Underlying
Shares upon the conversion of the Debentures in accordance
with their terms has been approved by all necessary corporate
action on the part of PLSI, and upon such conversion the
Underlying Shares shall be duly and validly authorized, fully
paid and nonassessable
6. REPRESENTATIONS AND WARRANTIES OF CREDITOR.
Creditor hereby represents and warrants to PLSI as follows:
6.1 CORPORATE QUALIFICATIONS. Creditor is a limited liability
partnership in good standing, is qualified to do business in
the State of California, and is subject to no legal disability
which would prevent it from entering into this Agreement.
6.2 CORPORATE APPROVALS. Creditor has received all approvals of
partners required by its partnership agreement and applicable
law and any other understandings among its partners in order
to enter into this Agreement.
6.3 KNOWLEDGE OF, AND CAPACITY TO ASSUME, ECONOMIC RISK. Creditor
acknowledges and represents that:
6.3.1 Creditor is an "accredited investor" as defined in
Exhibit B hereto;
6.3.2 Creditor has received and reviewed PLSI's Annual
Report on Form 10-K/A for the fiscal year ended March
31, 1999, and its quarterly reports on Form 10-Q for
the quarters ended June 30, 1999 and September 30,
1999;
6.3.3 Creditor is in a financial position to hold the
Shares for an indefinite period of time, is able to
bear the economic risk of an investment in the Shares
and is able to withstand a complete loss of its
investment in the Shares;
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6.3.4 Creditor has such knowledge and experience in
business and financial matters that make it capable
of evaluating the merits and risks of an investment
in the Shares;
6.3.5 Creditor understands that an investment in the Shares
is highly speculative and involves a high degree of
risk but believes that an investment in the Shares is
suitable based upon its investment objectives and
financial needs, and that it has adequate means to
undertake the risk and to provide for its current
financial needs and has no need for liquidity of
investment with respect to the Shares; Creditor has
reviewed and understands the Risk Factors attached
hereto as EXHIBIT A;
6.3.6 Creditor has had the opportunity to ask questions of,
and receive answers from, representatives of PLSI,
for the purpose of obtaining any additional
information to the extent reasonably available that
is necessary to verify the information provided;
6.3.7 Creditor understands that the Shares may be resold by
it only (i) upon registration of the Shares pursuant
to the Act or (ii) in a transaction that is exempt
from registration under the Act. Creditor understands
that until the resale of the Underlying Shares is
registered under the Act, the certificates
representing the Underlying Shares will bear a legend
restricting the sale or other disposition thereof.
6.3.8 Creditor is acquiring the Debentures and the
Underlying Shares for purposes of investment, and
without a view to the distribution or resale thereof
except where such distribution or resale is
registered under the Act or otherwise permitted by
applicable securities laws.
6.3.9 Creditor is a resident of or domiciled in the state
set forth under its name in Section 8.1 hereof.
7. DEFINITIONS.
In addition to the capitalized terms (such as "LIQUIDATED DEBT")
defined elsewhere, the below terms, whether capitalized or not, will have the
meanings ascribed to them in this paragraph 9 as follows.
7.1 "BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking
institutions in the State of California are authorized or
required by law or other government action to close.
7.2 "COMMISSION" means the Securities and Exchange Commission.
7.3 "COMMON STOCK" means the Class A Common Stock, no par value
per share, of PLSI and stock of any other class into which
such shares may hereafter have been reclassified or changed.
7.4 "PERSON"means a corporation, an association, a partnership,
organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
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7.5 "ACT" means the Securities Act of 1933, as amended.
7.6 "UNDERLYING SHARES" means the shares of Common Stock issuable
upon conversion of any or all of the Debentures.
8. MISCELLANEOUS.
8.1 NOTICE. Whenever notice is permitted or required by this
Agreement, it shall be deemed given as of the date of receipt
if sent by facsimile transmission to the numbers shown below,
or by a nationally recognized overnight courier, signature
required, and addressed to the party at such address shown
below, or at such other address or facsimile numbers as the
party may time to time give by written notice.
For notice to PLSI:
Premier Laser Systems, Inc
Attn: Chief Financial Officer.
0 Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Fax: 000.000.0000
For notice to Creditor:
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this subparagraph prior to 4:00 p.m. (California
time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 4:00 p.m. (California time) on any date and
earlier than 11:59 p.m. (California time) on such date, (iii) the Business Day
following the date of sending, if sent by a nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
8.2 ASSIGNMENT. This Agreement may not be assigned in whole or
part by either party without the prior written approval by the
other party.
8.3 ENTIRE AGREEMENT. This Agreement and the Debentures referred
to herein constitutes the entire agreement among the parties
with respect to the subject matter hereof. In addition, this
Agreement may not be modified except by a subsequent writing
duly executed by all parties.
8.4 GOVERNING LAW. The internal law of the State of California,
without regard to conflicts of laws principles, will govern
all questions concerning the construction, validity and
interpretation of this Agreement and the performance of the
obligations imposed by this Agreement.
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8.5 COUNTERPARTS. This Agreement may be executed in counterparts
with any two counterparts signed by each party having the full
force, effect and authority of an original document signed by
all parties.
8.6 NO WAIVER. No failure or delay by any party in the exercise of
any of its rights hereunder will be deemed to be a waiver of
any of its rights.
8.7 SEVERANCE. In the event that any provision or provisions are
found by any tribunal of competent jurisdiction to be null or
void, such provisions will be deemed to be severed from this
Agreement and the remainder of the Agreement will remain in
full force and effect.
8.8 HEADINGS. The headings contained in this Agreement are for
reference only and shall not be used to resolve any questions
of interpretation or construction.
8.9 ATTORNEYS' FEES. If either party commences litigation to
enforce or interpret this Agreement or the Debentures, the
nonprevailing party in such litigation shall reimburse the
prevailing party for the prevailing party's expenses in
connection with such litigation, including without limitation
the prevailing party's attorneys' fees.
8.10 WAIVER OF CONFLICT OF INTEREST. PLSI ACKNOWLEDGES THAT THE
CREDITOR IS ITS LEGAL COUNSEL, AND THAT AS A RESULT THE
CREDITOR HAS A CONFLICT OF INTEREST INSOFAR AS IT HAS
PARTICIPATED IN THE NEGOTIATION AND PREPARATION OF THIS
AGREEMENT AND THE DEBENTURES REFERRED TO HEREIN. PLSI
IRREVOCABLY AND PERMANENTLY WAIVES ANY SUCH CONFLICT ON
INTEREST ON THE PART OF CREDITOR, AND ACKNOWLEDGES THAT IT HAS
BEEN ADVISED TO OBTAIN SEPARATE LEGAL REPRESENTATION IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the undersigned officers of the party, having been
duly authorized to bind their respective parties, have executed this Agreement
on behalf of their respective parties as of the date last below written.
"CREDITOR"
___________________________ PREMIER LASER SYSTEMS, INC.
By:________________________ By:___________________________
Its:_________________ Its:___________________
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EXHIBIT A
FORM OF DEBENTURE
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EXHIBIT B
DEFINITION OF ACCREDITED INVESTOR
(A) Any bank as defined in Section 3(a)(2) of the Securities Act of
1933 (the "Act"), or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Act whether acting in its individual or
fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in Section
2(13) of the Act; any investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
the Investment Company Act of 1940; any Small Business Investment Company
licensed by the U.S. Small Business Administration under section 301(c) or (d)
of the Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivision, or any agency or
instrumentality of a state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; any employee
benefit plan as defined in ERISA (i) for which the investment decision is made
by a plan fiduciary which is a bank, savings and loan association, insurance
company or registered investment adviser, or (ii) where the plan has total
assets in excess of $5,000,000 or, (iii) which is a self-directed plan
(including an individual retirement account), with investment decisions made
solely by "accredited investors" as defined in this Exhibit B;
(B) Any private business development company as defined in Section
202(a)(22) of the Investment Advisors Act of 1940;
(C) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar trust, or partnership, not
formed for the specific purpose of acquiring the Debentures or the Shares, with
total assets in excess of $5,000,000;
(D) Any director or executive officer of the Company;
(E) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(F) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year;
(G) Any trust with total assets in excess of $5,000,000 not formed for
the specific purpose of acquiring the Debentures or the Shares, whose purchase
is directed by a person who, either alone or with his purchaser representative
has such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective investment;
(H) Any entity in which all the equity owners are accredited investors
as defined in subparagraphs (A) through (G) above.
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EXHIBIT C
RISK FACTORS
RISKS RELATED TO OUR BUSINESS
IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING IN THE FUTURE, WE WILL HAVE TO
DELAY OR HALT OUR PRODUCT DEVELOPMENT PROGRAMS.
In the future, we will require substantial additional funds for
research and development programs, preclinical and clinical testing, development
of our sales and distribution force, operating expenses, regulatory processes
and manufacturing and marketing programs. Our capital requirements may vary, and
will depend on both internal and external factors. Internal factors affecting
our capital requirements include:
o the progress of research and development programs
o results of preclinical and clinical testing
o the cost of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights
o developments and changes in our existing research
o licensing and other relationships
o the terms of any new collaborative, licensing and other
arrangements that we may establish.
o the amount of legal, accounting and administrative costs
incurred in connection with pending litigation
External factors affecting our capital requirements include:
o competing technological and market developments
o the time and cost involved in obtaining regulatory approvals
OUR AVAILABLE SHORT-TERM ASSETS AND INVESTMENT INCOME WILL NOT BE
SUFFICIENT TO MEET OUR OPERATING EXPENSES AND CAPITAL EXPENDITURES THROUGH THE
CURRENT FISCAL YEAR. WE ARE CURRENTLY IN THE PROCESS OF SEEKING ADDITIONAL
FINANCING. WE DO NOT KNOW IF ADDITIONAL FINANCING WILL BE AVAILABLE WHEN NEEDED,
OR IF IT IS AVAILABLE, IF IT WILL BE AVAILABLE ON ACCEPTABLE TERMS. INSUFFICIENT
FUNDS MAY PREVENT US FROM IMPLEMENTING OUR BUSINESS STRATEGY OR MAY REQUIRE US
TO DELAY, SCALE BACK OR ELIMINATE RESEARCH AND PRODUCT DEVELOPMENT PROGRAMS OR
TO LICENSE TO THIRD PARTIES RIGHTS TO COMMERCIALIZE PRODUCTS OR TECHNOLOGIES
THAT WE WOULD OTHERWISE SEEK TO DEVELOP INTERNALLY.
WE HAVE INCURRED NET LOSSES IN THE PAST AND EXPECT TO INCUR FUTURE LOSSES WHICH
MAY NEGATIVELY IMPACT OUR ABILITY TO SUSTAIN OUR OPERATIONS.
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We incurred net losses of approximately $76,343,000 from April 1, 1995
through March 31, 1999, and approximately $30,841,000 for the year ended March
31, 1999. As of March 31, 1999, we had an accumulated deficit of approximately
$89,207,000. We have incurred additional losses since that date, and expect to
continue to incur net losses until product sales generate sufficient revenues to
fund our continuing operations. We may fail to achieve significant revenues from
sales or achieve or sustain profitability. Our ability to achieve profitability
in the future will depend in part on our ability to continue to successfully
develop clinical applications, obtain regulatory approvals for our products and
sell these products on a wide scale. These risks apply to both our laser
products and our ophthalmic diagnostic products.
THE HIGH COST OF DENTAL LASERS, SAFETY AND EFFICACY CONCERNS OF DENTISTS AND
PATIENTS AND THE SUBSTANTIAL MARKET ACCEPTANCE OF DENTAL DRILLS MAY PREVENT US
FROM ACHIEVING THE BROAD MARKET ACCEPTANCE WHICH IS NECESSARY FOR OUR SUCCESS.
Our products may not be accepted by the medical or dental community or
by patients. We do not know if these products can be successfully commercialized
on a broad basis. The acceptance of dental lasers may be adversely affected by
their high cost, concerns by patients and dentists relating to their safety and
efficacy, and the substantial market acceptance and penetration of alternative
dental tools such as the dental drill. Our future sales and profitability depend
in part on our ability to demonstrate to dentists, ophthalmologists,
optometrists and other physicians the potential cost and performance advantages
of our laser systems, diagnostic products and other products over traditional
methods of treatment and over competitive products. Current economic pressure
may make doctors and dentists reluctant to purchase substantial capital
equipment or invest in new technology. We currently have a limited sales force
and will need to hire additional sales and marketing personnel to increase the
general acceptance of our products. Of all the factors impacting our
profitability, the failure of our products to achieve broad market acceptance
would have the greatest negative impact on our business, financial condition and
results of operations and our profitability.
WE ARE INVOLVED IN PENDING LITIGATION AND A REGULATORY INVESTIGATION AND MAY BE
ADVERSELY AFFECTED BY AN ADVERSE OUTCOME IN THE LAWSUIT OR BY THE COSTS OF
DEFENDING THIS LAWSUIT.
We have been sued in a number of related securities class action
matters, generally relating to allegations of misrepresentations during the
period from May 7, 1997 to April 15, 1998. In addition, the Securities and
Exchange Commission has commenced an investigation of our practices and
procedures relating to revenue recognition issues and related matters. The costs
of our continuing defense of the litigation matters and responses to the
regulatory investigations, including accounting and legal fees as well as
management time and effort, will be substantial, and we expect these costs to
materially and adversely affect our results of operations until these matters
are resolved. We do not know when these matters will be resolved. We have
reached an agreement in principle to settle the class action litigation and
recorded an expense in the quarter ended December 31, 1998, relating to this
settlement. We have recorded substantial additional expense since that date to
cover continuing legal fees incurred in connection with this settlement.
However, this settlement is subject to several conditions, and it is possible
that it may not be completed, in which case the litigation would continue. An
adverse judgment entered in this litigation could materially and adversely
affect our business and results of operations.
In addition, the Securities and Exchange Commission is empowered to
assess substantial penalties against us in connection with its findings in the
pending investigation. The imposition of any of these penalties could materially
and adversely affect our business, financial condition and results of
operations.
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IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE THE OPHTHALMIC IMAGING SYSTEMS
("OIS") BUSINESS WITH OUR OTHER OPERATIONS, WE MAY INCUR SUBSTANTIAL AND
UNANTICIPATED EXPENSES AND OPERATING INEFFICIENCIES.
We acquired a majority of the outstanding common stock of OIS in 1998.
In March 1999, we agreed to manufacture OIS's products on an outsourcing basis.
In addition, we have agreed with OIS to acquire the remaining outstanding stock
of OIS, subject to satisfaction of certain conditions. We are not sure if the
synergies of the two entities will allow us to reduce expenses in such a way as
to make OIS profitable. In addition, members of our management will have to
continue to expend time and effort on new activities relating to the OIS
operations, which will detract from their time available to attend to our other
activities. We cannot assure you that the expenses or dislocations that we may
suffer as a result of the coordination of these businesses will not be material.
BECAUSE SOME OF THE COMPONENTS WE USE ARE NOT WIDELY AVAILABLE, THERE IS A RISK
THAT WE MAY NOT ALWAYS BE ABLE TO OBTAIN THESE COMPONENTS, WHICH COULD PREVENT
US FROM FILLING ORDERS ON TIME AND REDUCE OUR SALES.
We purchase some of the raw materials, components and subassemblies
included in our products from a limited group of qualified suppliers and do not
maintain long-term supply contracts with any of our key suppliers. Some of the
components used by OIS are manufactured by a sole vendor, including Foresight
Imaging for its prism card and Kodak for its 12 bit camera. In addition, our
Arago laser product is manufactured for us by one supplier, LaserMed, Inc.
Further, our components are subject to rapid innovation and obsolescence. The
discontinuance of the manufacturing of these components may require us to
redesign some of the hardware and software used in our products to accommodate a
replacement component. While we believe that suppliers could be found for all of
our components and products, we cannot assure you that any supplier could be
replaced in a timely manner. Any interruption in the supply of key components
could materially harm our ability to manufacture our products and our business,
financial condition and results of operations.
IN ORDER TO CONTINUE TO SELL OUR PRODUCTS IN FOREIGN MARKETS, WE MUST DEVELOP
AND MAINTAIN FOREIGN SALES DISTRIBUTION CHANNELS AND MANAGE POLITICAL AND
ECONOMIC INSTABILITY IN FOREIGN MARKETS AND DEAL WITH GOVERNMENTAL QUOTAS AND
OTHER REGULATIONS.
A substantial portion of our sales are made in foreign markets. The
primary risks to which we are exposed due to our foreign sales are the
difficulty and expense of maintaining foreign sales distribution channels,
political and economic instability in foreign markets and governmental quotas
and other regulations.
The regulation of medical devices worldwide also continues to develop,
and it is possible that new laws or regulations could be enacted which would
have an adverse effect on our business. In addition, we may experience
additional difficulties in providing prompt and cost effective service of our
medical lasers in foreign countries. We do not carry insurance against these
risks. The occurrence of any one or more of these events may individually or in
the aggregate have a material adverse effect upon our business, financial
condition and results of operations.
IF WE CANNOT ADAPT TO TECHNOLOGICAL ADVANCES, OUR PRODUCTS MAY BECOME
TECHNOLOGICALLY OBSOLETE AND OUR PRODUCT SALES COULD SIGNIFICANTLY DECLINE.
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The markets in which our medical products compete are subject to rapid
technological change as well as the potential development of alternative
surgical techniques or new pharmaceutical products. These changes could render
our products uncompetitive or obsolete. We will be required to invest in
research and development to attempt to maintain and enhance our existing
products and develop new products. We do not know if our research and
development efforts will result in the introduction of new products or product
improvements.
IF WE ARE UNABLE TO PROTECT OUR PATENTS AND PROPRIETARY TECHNOLOGY WE MAY NOT BE
ABLE TO COMPETE EFFECTIVELY.
Our success will depend in part on our ability to obtain patent
protection for products and processes, to preserve our trade secrets and to
operate without infringing the proprietary rights of third parties. While we
hold a number of U.S. and foreign patents and have other patent applications
pending in the United States and foreign countries, we cannot assure you that
any additional patents will be issued, that the scope of any patent protection
will exclude competitors or that any of our patents will be held valid if
subsequently challenged. Further, other companies may independently develop
similar products, duplicate our products or design products that circumvent our
patents. We are aware of certain patents which, along with other patents that
may exist or be granted in the future, could restrict our right to market some
of our technologies without a license, including, among others, patents relating
to our lens emulsification product and ophthalmic probes for the Er:YAG laser.
We also rely upon unpatented trade secrets, and we cannot assure you
that others will not independently develop or otherwise acquire substantially
equivalent trade secrets. In addition, at each balance sheet date, we are
required to review the value of our intangible assets based on various factors,
such as changes in technology. Any adjustment downward in the value of our
intangible assets may result in a write-off of the intangible asset and a
substantial charge to earnings, which would adversely affect our operating
results in the future.
IN OUR BUSINESS, WE COULD BECOME INVOLVED IN PATENT AND INTELLECTUAL PROPERTY
LITIGATION, IN WHICH AN ADVERSE DETERMINATION COULD SUBJECT US TO SIGNIFICANT
LIABILITIES AND RESTRICT OUR MANUFACTURING RIGHTS.
In the past, we have received allegations that some of our laser and
diagnostic products infringe on other patents. There has been significant patent
litigation in the medical device industry. Adverse determinations in litigation
or other patent proceedings to which we may become a party could subject us to
significant legal judgments or other liabilities to third parties and could
require us to seek licenses from third parties that may or may not be
economically viable. We cannot assure you that any licenses required under these
or any other patents or proprietary rights would be available on terms
acceptable to us. If we do not obtain these licenses, we could encounter delays
in product introductions while we attempt to design around these patents, or we
could find that the development, manufacture or sale of products requiring such
licenses could be enjoined.
OUR BUSINESS IS SUBJECT TO GOVERNMENTAL REGULATION WHICH IMPOSES SIGNIFICANT
COSTS ON US AND IF NOT COMPLIED WITH COULD LEAD TO THE ASSESSMENT OF PENALTIES.
Our products are regulated as medical devices by the United States Food
& Drug Administration. As such, these devices require either Section 510(k)
premarket clearance or approval of a premarket approval application by the FDA
prior to commercialization. Satisfaction of regulatory requirements is expensive
and may take several years to complete. We cannot assure you that further
clinical trials of our medical products or of any future products will be
successfully completed or, if they are completed, that any requisite FDA or
foreign governmental approvals will be obtained.
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FDA or other governmental approvals of products we may develop in the
future may require substantial filing fees which could limit the number of
applications we seek and may entail limitations on the indicated uses for which
our products may be marketed. In addition, approved or cleared products may be
subject to additional testing and surveillance programs required by the FDA and
other regulatory agencies, and product approvals and clearances could be
withdrawn for failure to comply with regulatory standards or by the occurrence
of unforeseen problems following initial marketing. Also, we have made
modifications to some of our existing products which we do not believe require
the submission of a new 510(k) notification to the FDA. However, we cannot
assure you that the FDA would agree with our determination. If the FDA did not
agree with our determination, they could require us to cease marketing one or
more of the modified devices until the devices have been cleared.
We are also required to adhere to a wide variety of other regulations
governing the operation of our business. Noncompliance with state, local,
federal or foreign requirements can result in serious penalties that could harm
our business.
THE INTENSE COMPETITION WE FACE COULD RESULT IN REDUCED SALES AND DOWNWARD
PRESSURE ON THE PRICES OF OUR PRODUCTS.
We are, and will continue to be, subject to intense competition in our
targeted markets, principally from businesses providing other traditional
surgical and nonsurgical treatments, including existing and developing
technologies, and competitive products. Many of our competitors have
substantially greater financial, marketing and manufacturing resources and
experience than us. In addition, we expect that other companies will enter the
laser market, particularly as medical lasers gain increasing market acceptance.
Significant competitive factors which will affect future sales in the
marketplace include regulatory approvals, performance, pricing and general
market acceptance.
The ophthalmic diagnostic market is also highly competitive. There are
many companies engaged in this market, some with significantly greater resources
than ours. Our competitors may be able to develop technologies, procedures or
products that are more effective or economical than ours, or that would render
our products obsolete or noncompetitive.
To continue to remain competitive, we must develop new software and
hardware meeting the needs of ophthalmologists and optometrists. Our future
revenues will depend, in part, on our ability to develop and commercialize these
new products as well as on the success of development and commercialization
efforts of our competitors.
A SUCCESSFUL PRODUCT LIABILITY CLAIM ASSERTED AGAINST US DUE TO A DEFECT IN ONE
OF OUR PRODUCTS IN EXCESS OF OUR INSURANCE COVERAGE WOULD HARM OUR BUSINESS.
The sale of our medical products involves the inherent risk of product
liability claims against us. We currently maintain product liability insurance
coverage in the amount of $5 million per occurrence and $5 million in the
aggregate, but this insurance is expensive, subject to various coverage
exclusions and may not be obtainable in the future on terms acceptable to us. We
do not know whether claims against us arising with respect to our products will
be successfully defended or that our insurance will be sufficient to cover
liabilities arising from these claims. A successful claim against us in excess
of our insurance coverage could materially harm our business.
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THERE IS UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT WHICH IS CRITICAL TO
MARKET ACCEPTANCE OF OUR PRODUCTS.
Our laser systems and other products are generally purchased by
physicians, dentists and surgical centers which then xxxx various third party
payors, such as government programs and private insurance plans, for the
procedures conducted using these products. Third-party payors carefully review
and are increasingly challenging the prices charged for medical products and
services, and scrutinizing whether to cover new products and evaluating the
level of reimbursement for covered products. While we believe that the laser
procedures using our products have generally been reimbursed, payors may deny
coverage and reimbursement for our products if they determine that the device
was not reasonable and necessary for the purpose for which it was used, was
investigational or not cost-effective. As a result, we cannot assure you that
reimbursement from third party payors for these procedures will be available or
if available, that reimbursement will not be limited. If third party
reimbursement of these procedures is not available, it will be more difficult
for us to sell our products on a profitable basis. Moreover, we are unable to
predict what legislation or regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may be enacted in the future,
or what effect such legislation or regulation may have on us.
THE COVERAGE AND SPENDING LIMITATIONS CONTAINED IN HEALTH CARE REFORM PROPOSALS
WOULD, IF ADOPTED, REDUCE DEMAND FOR OUR PRODUCTS.
Several states and the United States government are investigating a
variety of alternatives to reform the health care delivery system and further
reduce and control health care spending. These reform efforts include proposals
to limit spending on health care items and services, limit coverage for new
technology and limit or control the price health care providers and drug and
device manufacturers may charge for their services and products. If adopted and
implemented, such reforms could have a material adverse effect on our business,
financial condition and results of operations.
IF WE EXPERIENCE PROBLEMS WITH YEAR 2000 COMPLIANCE OUR OPERATIONS MAY BE
DISRUPTED.
Many existing computer programs use only two digits to identify the
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. As a result, any
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in system
failure or miscalculations, causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
We are heavily dependent upon the proper functioning of our own
computer and data- dependent systems. This includes, but it not limited to, our
support/administrative and operational/production systems. Any failure or
malfunctioning on the part of these or other systems could harm our business in
ways that we currently do not know and cannot discern, quantify or otherwise
anticipate. In addition, if our key vendors experience Year 2000 compliance
issues, then our business could be harmed. Due to the interrelated nature of
international commerce, if there is a failure in Year 2000 compliance by us or
one of our direct or indirect business partners, we could suffer major
disruptions in our ability to call on customers, obtain orders from customers,
obtain parts from suppliers, manufacture products for sale, ship products to our
customers, or receive payment for our sales.
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We have not developed a formal assessment of all potential impacts of
the Year 2000. We design, manufacture and sell medical products which contain
computer chips and we utilize software developed by other companies. While our
engineers are developing new software which they expect to complete by December
31, 1999, there can be no assurance that their efforts will be successful. We
rely on external business partners. As such, there can be no assurance that our
business will not be negatively affected by Year 2000 problems experienced by
these business partners.
RISKS RELATED TO THIS OFFERING
CHANGES IN REVENUE AND OPERATING RESULTS MAY CAUSE THE MARKET PRICE OF OUR STOCK
TO FLUCTUATE, WHICH MAY ADVERSELY AFFECT OUR ABILITY TO RAISE ADDITIONAL
CAPITAL.
Due to the relatively high sales price of our products and low sales
unit volume, minor timing differences in receipt of customer orders have
produced and could continue to produce significant fluctuations in quarterly
results. In addition, if anticipated sales and shipments in any quarter do not
occur when expected, expenditures and inventory levels could be
disproportionately high, and our operating results for that quarter, and
potentially for future quarters, would be adversely affected. Quarterly results
may also fluctuate based on a variety of other factors. The important factors
which may cause our quarterly results to fluctuate are seasonality and
production delays. During the past four fiscal quarters, our net loss has
fluctuated from a low of $2.1 million to a high of $12.9 million. Such
fluctuations may cause our stock price to decline and adversely affect our
ability to raise additional capital.
THE VOLATILITY OF OUR STOCK PRICE MAKES THESE SECURITIES RISKY FOR THOSE SEEKING
A STABLE INVESTMENT.
The market price of our common stock is very volatile, and our common
stock therefore may not be a suitable investment for those who seek stable
investment prices over the short or long term. Our common stock was first
publicly traded in December 1994 and has had last reported closing sale prices
ranging from a low of $1.38 per share in August 1999 to a high of $14.00 per
share in May 1997. The market price of our common stock could continue to
fluctuate substantially due to a variety of risk factors, including those
described elsewhere in this prospectus. The market price for our common stock
may also be affected by our ability to meet analysts' expectations. Any failure
to meet these expectations, even slightly, could have an adverse effect on the
market price of our common stock. In addition, the market prices of securities
issued by many companies may change for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against the company. If similar litigation were
instituted against us, it could result in substantial costs and a diversion of
our management's attention and resources, which could have an adverse effect on
our business, results of operations and financial condition.
A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR SALE, AND IF SOLD, THESE SHARES
MAY CREATE EXCESS SUPPLY IN THE MARKET CAUSING OUR STOCK PRICE TO DECLINE.
Sales of a substantial number of our shares of common stock in the
public market could adversely affect the market price for our common stock. At
this time, approximately 7.6 million shares of our common stock are issuable
upon the full exercise of our outstanding Class B Warrants, and over 6.4 million
shares of our common stock are issuable upon exercise of other outstanding
warrants and options and conversion of outstanding debentures. The existence of
these outstanding warrants and options could adversely affect our ability to
obtain future financing. We have also reserved 2,250,000 shares of our common
stock for issuance in connection with the proposed settlement of outstanding
litigation. The consummation of this settlement will require satisfaction of a
number of conditions, and we cannot assure you that the settlement will be
completed.
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The price which we may receive for our common stock issued upon
exercise of outstanding options and warrants will likely be less than the market
price of our common stock at the time these options and warrants are exercised.
Moreover, the holders of the options and warrants might be expected to exercise
them at a time when we would, in all likelihood, be able to obtain needed
capital by a new offering of our securities on terms more favorable than those
provided for by the options and warrants.
OUR PREFERRED STOCK MAY DELAY OR PREVENT A TAKEOVER OF OUR COMPANY POSSIBLY
PREVENTING YOU FROM OBTAINING HIGHER SHARE PRICES.
Our articles of incorporation authorize the issuance of 8,850,000
shares of "blank check" preferred stock, which will have terms as may be
determined from time to time by the board of directors. Accordingly, the board
of directors is empowered, without shareholder approval, to issue preferred
stock with terms which could adversely affect the rights of the holders of the
common stock. The preferred stock could also be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of Premier. This could have the effect of preventing others from seeking
to acquire your shares in transactions at premium prices.
In March 1998, we adopted a Shareholder Rights Plan, which entitles
certain of our shareholders to purchase our Series A Junior Participating
Preferred Stock. These rights are not exercisable until the acquisition by a
person or affiliated group of 15% or more of the outstanding shares of our
common stock, or the commencement or announcement of a tender offer or exchange
offer which would result in the acquisition of 15% or more of our outstanding
shares. Upon request, we will provide you with a copy of the Shareholder Rights
Plan. The Shareholder Rights Plan may have the effect of discouraging, delaying
or preventing a change of control of Premier.
SHORT SELLING OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
If a significant number of shares of common stock which are issued upon
conversion of the debentures and payment of interest thereon are then sold in
the market, the price of our common stock could be depressed due to the presence
of these additional shares in the market. This downward pressure could encourage
short sales of common stock by the selling shareholders or others. By increasing
the number of shares offered for sale, material amounts of short selling could
place further downward pressure on the market price of the common stock.
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