<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CELL ROBOTICS INTERNATIONAL, INC.
(Name of small business issuer in its Charter)
<TABLE>
<S> <C> <C>
COLORADO 5049-05 84-1153295
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
2715 BROADBENT PARKWAY N.E.
ALBUQUERQUE, NEW MEXICO 87107
(505) 343-1131
(505) 344-8112 (FAX)
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
RONALD K. LOHRDING, PH.D.
PRESIDENT AND CEO
2715 BROADBENT PARKWAY N.E.
ALBUQUERQUE, NEW MEXICO 87107
(505) 343-1131
(505) 344-8112 (FAX)
(Name, address, including zip code, and telephone number of agent for service of
process)
--------------------------
COPIES TO:
CLIFFORD L. NEUMAN, ESQ. STEPHEN A. ZELNICK, ESQ.
NATHAN L. STONE, ESQ. JOEL J. GOLDSCHMIDT, ESQ.
NEUMAN & DRENNEN, LLC MORSE, ZELNICK, ROSE & LANDER, LLP
1507 PINE STREET 450 PARK AVENUE
BOULDER, COLORADO 80302 NEW YORK, NEW YORK 10022
(303) 449-2100 (212) 838-8269
(303) 449-1045 (FAX) (212) 838-9190 (FAX)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.004 par value(2)............ 2,300,000 $5.00 $11,500,000 $3,484.85
Representatives' Warrants................... 200,000 $-0- $-0- $-0-
Shares of Common Stock Underlying
Representatives' Warrants(3).............. 200,000 $6.00 $1,200,000 $363.64
Total:...................................... 2,500,000 $12,700,000 $3848.49
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes Common Stock offered in the offering and issuable upon exercise of
Underwriters' Over-Allotment Option.
(3) Consists of Common Stock issuable upon exercise of the Representatives'
Warrants.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
ITEM NO. AND HEADING IN FORM SB-2 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Forepart of Registration Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary and Risk Factors............................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds; Risk Factors
5. Determination of Offering Price...................... Front Cover Page; Underwriting
6. Dilution............................................. Dilution; Risk Factors
7. Selling Securityholders.............................. *
8. Plan of Distribution................................. Underwriting
9. Legal Proceedings.................................... Legal Proceedings
10. Directors, Executive Officers, Promoters and
Controlling Persons................................ Management
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Security Ownership of Management and Principal
Stockholders
12. Description of Securities............................ Description of Securities
13. Interest of Named Experts and Counsel................ Legal Matters; Experts
14. Disclosure of SEC Position on Indemnification for
Securities Act Liabilities......................... Management--Indemnification and Limitation on
Liability of Directors
15. Organization Within Last Five Years.................. The Company; Business--Overview
16. Description of Business.............................. Prospectus Summary; Risk Factors; Business
17. Management's Discussion and Analysis or Plan of
Operation.......................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations; Financial
Statements; Business
18. Description of Property.............................. Business
19. Certain Relationships and Related Transactions....... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................ Market for Common Stock
21. Executive Compensation............................... Management--Executive Compensation
22. Financial Statements................................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ Business--Changes in Independent Public Accountants
</TABLE>
- ------------------------
* Omitted from Prospectus because Item is inapplicable or answer is in the
negative
i
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
CELL ROBOTICS INTERNATIONAL, INC.
2,000,000 SHARES
COMMON STOCK
Cell Robotics International, Inc., a Colorado corporation (the "Company"),
is offering 2,000,000 shares (the "Shares") of its common stock, $.004 par value
(the "Common Stock").
Although the Company is a publicly-held corporation, the present market for
its Common Stock is limited and sporadic. On November , 1997, the closing bid
and ask prices of the Common Stock on the OTC Electronic Bulletin Board
("Bulletin Board") under the trading symbol CRII were $ and $ ,
respectively. Application has been made to have the Common Stock approved for
quotation on the Nasdaq SmallCap Market under the symbol "CRII", subject to
completion of this offering.
It is currently anticipated that the offering price of the Shares will be
between $4.00 and $5.00 per share. The public offering price of the Shares will
be determined by negotiation between the Company and Paulson Investment Company,
Inc. ("Paulson") and Cohig & Associates, Inc. (together with Paulson, the
"Representatives"), as representatives of the several underwriters
("Underwriters"). For a discussion of the factors considered in determining the
public offering price, see "Underwriting."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 8.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total(3).............................................. $ $ $
</TABLE>
(1) Excludes a non-accountable expense allowance equal to 3% of the gross
proceeds of this offering, payable to Paulson, and five-year warrants (the
"Representatives' Warrants") entitling the Representatives to purchase up to
200,000 shares of Common Stock at an exercise price equal to 120% of the
public offering price per share. The Company also has agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting offering expenses payable by the Company of approximately
$550,000 including the non-accountable expense allowance to Paulson. See
"Underwriting."
(3) The Company has granted the Underwriters an option, exercisable within 45
days from the date of this Prospectus to purchase up to an additional
300,000 shares of Common Stock on the same terms as set forth above solely
to cover over-allotments, if any (the "Over-Allotment Option"). If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $10,350,000,
$1,035,000 and $9,315,000 respectively, assuming an offering price for the
Common Stock of $4.50 per share. See "Underwriting."
------------------------
The Shares are being offered by the several Underwriters, subject to prior
sale, when and if delivered to and accepted by the Underwriters, and subject to
their right to reject any order, in whole or in part, and to certain other
conditions. It is expected that delivery of the certificates representing the
Shares will be made against payment therefor in New York, New York on or about
, 1997.
PAULSON INVESTMENT COMPANY, INC. COHIG & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
------------------------
The Company is subject to the reporting and other requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company intends to furnish its stockholders with annual reports containing
financial statements audited by independent certified public accountants, as
well as quarterly financial information for each of the first three quarters of
each fiscal year. The Company will also file reports, proxy statements and other
information with the Securities and Exchange Commission ("Commission").
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. FURTHER, SUCH PERSONS MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF
THE COMMON STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE THE
MARKET PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT
POSITION IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
Medical Laser Products
Lasette-TM-
One photograph of product, two graphic art depictions of skin
perforation.
In Vitro Fertilization Workstation-TM-
One photograph of product, two photographs of cells showing
product functions, with descriptions.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION WITH REGARD TO THE CAPITAL STOCK OF THE COMPANY IN THIS PROSPECTUS,
INCLUDING SHARE AND PER SHARE INFORMATION, ASSUMES (I) NO EXERCISE OF ANY
OUTSTANDING OPTIONS OR WARRANTS OF THE COMPANY PRIOR TO THE OFFERING DESCRIBED
HEREIN AND (II) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, OR THE
REPRESENTATIVES' WARRANTS. (SEE "DESCRIPTION OF SECURITIES" AND "UNDERWRITING".)
UNLESS OTHERWISE SPECIFIED TO THE CONTRARY OR UNLESS THE CONTEXT IMPLIES
OTHERWISE, ALL REFERENCES HEREIN TO THE "COMPANY" SHALL BE DEEMED TO REFER TO
CELL ROBOTICS INTERNATIONAL, INC., A COLORADO CORPORATION, AND ITS WHOLLY-OWNED
SUBSIDIARY, CELL ROBOTICS, INC., A NEW MEXICO CORPORATION.
THE COMPANY
The Company has developed, and is preparing to manufacture, market and sell,
a number of sophisticated medical laser products. The "Lasette-TM-," a compact,
lightweight, portable skin perforator, has been designed to permit nearly
painless sampling of capillary blood in both clinical and home settings. The
"RevitaLase-TM-" is a modularly-designed laser system for dermatological use,
which incorporates the laser in the hand-piece. Its design allows for
interchangeable hand-pieces, each with a laser having a different wavelength
suitable for specific applications, driven by a common base unit containing
computer controls, power supply and cooling system. The initial Erbium:YAG laser
for the RevitaLase-TM- has been designed for cosmetic uses such as skin
resurfacing and wrinkle removal and may find added applications in scar
revisioning and burn debridement. The IN VITRO fertilization workstation ("IVF
Workstation-TM-") utilizes a microscope, computer-controlled stages and a
solid-state laser to enhance human assisted reproduction techniques. Both the
Lasette-TM- and RevitaLase-TM- require a disposable shield or disposable
delivery tip each time the laser is used. These disposables will be manufactured
for and sold by the Company. The new medical laser products utilize core
technologies and management skills developed by the Company in connection with
its Cell Robotics Workstation-TM-, a laser scientific instrument which
transforms a microscope from a viewing device into a tool for physically
manipulating and microdissecting living cells. The Company believes that the
markets for its new medical laser devices are broader than for its scientific
instruments and that its future growth will depend, primarily, on market
acceptance of these medical laser devices.
The Erbium:YAG laser handpiece for the RevitaLase-TM- has received FDA
clearance for use in dermatological and surgical applications. It is undergoing
continuing testing to finalize protocols for clinical use. The Company expects
to begin initial shipments of RevitaLase-TM- units with the Erbium:YAG handpiece
in the first quarter of 1998. The Lasette-TM- is a substitute for the stainless
steel lancet now used for capillary blood sampling. In clinical settings the
Company believes that the Lasette-TM- will lessen the spread of, and the fear
among healthcare workers of contracting, infectious diseases through inadvertent
needle sticks while also reducing the problems of sharps disposal. The
Lasette-TM- has received FDA clearance for capillary blood sampling from all
adults, including diabetics, in clinical settings. However, the Company believes
that another principal market for the Lasette-TM- will be for home use by
diabetics. Diabetics are often required to take multiple blood samples each day
and many diabetics develop permanent finger-tip soreness and calluses from
recurrent blood sampling. The Company is making application for FDA clearance of
Lasette-TM- sales for diabetic home use and for use on children. No assurances
can be given that these additional FDA clearances will be received. The Company
plans to begin shipping the Lasette-TM- for clinical use in the fourth quarter
of 1997.
The IVF Workstation-TM- has three basic applications: first, for measuring,
assessing and storing in computer memory the various properties of a human egg
to assess its suitability for fertilization; second, to mechanically inject
sperm into an egg; and third, to pierce the outer shell of a fertilized egg with
a laser to facilitate "hatching" and promote embryo development and successful
pregnancy. In the United States, FDA clearance is required for sale of the IVF
Workstation-TM-. Clinical trials necessary to obtain the data
3
<PAGE>
required for application for such clearance have recently begun and the Company
expects they will take approximately one year to complete. However, no assurance
can be given that FDA clearance will ever be obtained for use of the IVF
Workstation-TM- in "hatching." The European Community has cleared the use of the
IVF Workstation-TM- for marketing and the Company is applying for the CE Mark
necessary for sales. The first purchase order for an IVF Workstation-TM- has
been received from an IVF clinic in Tunisia.
The Company's growth plan is to concentrate its resources on the development
of the clinical and home markets for its medical laser products. The Company
intends to market the Lasette-TM- through strategic alliances with major
distributors serving the diabetic and clinical markets, supplemented by
distribution arrangements with regional distributors and direct sales by the
Company. The Company intends to market the RevitaLase-TM- with its Erbium:YAG
laser head by establishing an OEM relationship with a major manufacturer of CO2
and other medical laser systems for the aesthetic market, to be supplemented by
direct distribution by the Company under a different trademark. The IVF
Workstation-TM- will be marketed and sold over the internet and through other
direct selling methods by the Company, except that in the United States the IVF
Workstation-TM- will not be offered for laser-assisted hatching until after FDA
clearance is obtained.
The Company was organized on September 28, 1988 as Intelligent Financial
Corporation ("IFC"). In February 1995, IFC acquired all of the issued and
outstanding shares of Cell Robotics, Inc. ("CRI"), a New Mexico corporation (the
"Acquisition"), which had been formed in 1988 to develop the Cell Robotics
Workstation. In May 1995, IFC changed its name to Cell Robotics International,
Inc.
The Company maintains its principal offices at 2715 Broadbent Parkway, N.E.,
Albuquerque, New Mexico 87107. Its telephone number at that address is (505)
343-1131, its facsimile number is (505) 344-8112, and its Internet Website
address is http://www.cellrobotics.com/cell.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 2,000,000 shares of $.004 par value Common Stock. See
"Description of Securities."
Common Stock outstanding before
offering........................ 5,222,414 shares(1)
Common Stock outstanding after
offering........................ 7,222,414 shares(1)(2)
Use of proceeds................... To fund marketing and sales, to acquire fixed assets, to
hire additional marketing and manufacturing personnel,
to fund further research and development and for working
capital and other general corporate purposes. See "Use
of Proceeds."
Proposed NASDAQ symbol:
Common Stock.................... "CRII"
</TABLE>
- ------------------------
(1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of options which may be granted under the Company's Stock
Incentive Plan (the "Plan"), 1,032,000 of which are subject to outstanding
and unexercised options having a weighted average exercise price of $1.99
per share, and of which 357,724 options are subject to future vesting, (ii)
450,000 shares of the Common Stock reserved for issuance upon the exercise
of options held by the Company's President, Dr. Ronald K. Lohrding , at the
same price per share as Common Stock sold in this offering (the "Lohrding
Options"), (iii) 345,000 shares of Common Stock reserved for issuance upon
exercise of the outstanding Placement Agent's Warrant (as hereinafter
defined) and (iv) 300,000 shares of Common Stock reserved for issuance under
the Company's Employee Stock Purchase Plan ("ESPP"). See "Management--Stock
Incentive Plans" and "Description of Securities--Placement Agent's Warrant."
(2) Assumes no exercise of (i) the Underwriters' Over-Allotment Option and (ii)
the Representatives' Warrants.
The information contained in this Prospectus relates solely to the issuance
of up to 2,000,000 shares of Common Stock and additional Common Stock included
in the Over-Allotment Option granted to the Underwriters. The Shares are being
offered and sold to the public through the Underwriters on the terms set forth
in "Underwriting."
5
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below is selected summary financial data with respect to the
Company. Actual financial information for the years ended December 31, 1995 and
1996, and as of September 30, 1997 and for the nine months ended September 30,
1996 and September 30, 1997, is derived from the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus and is
qualified by reference to such Consolidated Financial Statements and the Notes
thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
---------------------------- ----------------------------
1995 1996 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues.............................................. $ 942,667 $ 663,261 $ 592,802 $ 828,566
Cost of Sales......................................... 728,719 496,531 400,997 597,299
Operating Expenses.................................... 1,192,522 1,771,101 1,306,841 2,091,621
Other Income (Expenses)............................... (372,576) 60,281 33,379 41,186
Net Loss.............................................. (1,351,150) (1,544,090) (1,081,657) (1,819,168)
Net Loss Per Share(1)................................. (.66) (.37) (.28) (.36)
Average Common Shares Outstanding..................... 2,039,280 4,197,499 3,926,416 5,054,026
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
DECEMBER 31, 1996 ACTUAL AS ADJUSTED(2)
----------------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Total Assets.................................................... $ 2,570,952 $ 1,784,323 $ 9,334,323
Working Capital................................................. 1,858,088 771,162 8,321,162
Total Liabilities............................................... 363,722 726,752 726,752
Stockholders' Equity............................................ 2,207,230 1,057,571 8,607,571
</TABLE>
- ------------------------
(1) See Note 2 of Notes to Consolidated Financial Statements for a discussion of
the calculation of net loss per share for the fiscal years ended December
31, 1995 and 1996, and for the nine-month periods ended September 30, 1996
and 1997.
(2) Adjusted to give effect to the application of the estimated net proceeds of
this offering based upon an assumed public offering price of $4.50 per
share. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
6
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements made in this Prospectus are "forward-looking statements"
(within the meaning of the Private Securities Litigation Reform Act of 1995)
regarding the plans and objectives of management for future operations. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking
statements made in this Prospectus are based on current expectations that
involve numerous risks and uncertainties. The Company's plans and objectives are
based, in part, on assumptions involving the growth and expansion of business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that its assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking statements made in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements made in this Prospectus, particularly
in view of the Company's early stage of operations, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
7
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE POSSIBILITY OF THE
LOSS OF THEIR ENTIRE INVESTMENT IN THE COMPANY'S SECURITIES AND, ALONG WITH EACH
OF THE FOLLOWING FACTORS, CONSIDER THE INFORMATION SET FORTH ELSEWHERE IN THIS
PROSPECTUS.
HISTORY OF OPERATING LOSSES; FUTURE PROFITABILITY UNCERTAIN. From its
inception in 1988 through September 30, 1997, the Company has incurred losses of
approximately $13.0 million, substantially all of which consisted of research
and development and general and administrative expenses. To date, the Company
has been unable to profitably market its products. For the years ended December
31, 1996 and 1995 and for the nine months ended September 30, 1997 and 1996, the
Company's net losses were $1,544,090, $1,351,150, $1,819,168 and $1,081,657,
respectively. In addition, the Company's operations used net cash of $1,315,930
and $1,803,286 for the year ended December 31, 1996 and nine months ended
September 30, 1997, respectively. The Company has yet to sell any of its
products in commercial quantities. Moreover, even if the Company eventually
generates increased revenues from product sales, the Company does not expect to
achieve operating profits before the first quarter of 1999. The Company's
ability to achieve a profitable level of operations in the future will depend in
large part on finalizing development of its medical laser products, obtaining
additional regulatory approval for such products and bringing several of these
products to market. The likelihood of long-term success of the Company must be
considered in light of the expenses, difficulties and delays frequently
encountered in the development and commercialization of new medical laser
products, competitive factors in the marketplace as well as the burdensome
regulatory environment in which the Company operates. There can be no assurance
that the Company will ever achieve significant revenues or profitable
operations. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
GOING CONCERN UNCERTAINTIES. The consolidated financial statements included
in this Prospectus have been prepared assuming that the Company will continue as
a going concern. As a result of the Company's continuing operating losses and
negative cash flows from operations, the Independent Auditors' Report issued in
conjunction with the audit of the consolidated financial statements of the
Company for the fiscal year ended December 31, 1996, contained an explanatory
paragraph indicating that the foregoing matters raised substantial doubt about
the Company's ability to continue as a going concern. The Company's continued
operating losses have resulted in an accumulated deficit of $12,959,624 at
September 30, 1997. There can be no assurance that the Company's operations will
be profitable or that the Company will be able to attain its business plan
objectives. See Independent Auditors' Report and Notes to Consolidated Financial
Statements--Note 12.
FUTURE REVENUE GROWTH DEPENDENT ON MEDICAL LASER PRODUCTS. The Company is
relying heavily upon the success of its medical laser products which are in the
product introduction stage. These medical laser products are subject to all of
the risks of failure inherent in the market introduction of innovative
technologies. Those risks include the possibilities that some or all of the
proposed products may fail to receive additional necessary regulatory
clearances, that the proposed products may have features which render them
uneconomical either to manufacture or market, that there does not exist demand
for the products at levels or prices at which the Company can operate
profitably, or that third parties will market a superior product. As a result,
there can be no assurance that all or any of the Company's medical laser
products will receive all of the required governmental regulatory approvals or
become commercially viable or achieve market acceptance. See "Business."
ADDITIONAL FINANCING REQUIREMENTS. The Company will require substantial
funds for commercialization of its medical laser products, establishing
manufacturing and testing capabilities and marketing and sales efforts. The
Company's capital requirements depend upon numerous factors, including the
progress of its product commercialization, the requirement for additional
clinical testing, the time and cost involved in obtaining additional regulatory
approvals, the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, competing technological and
market developments, the ability
8
<PAGE>
of the Company to establish collaborative arrangements, the development of
commercialization activities and arrangements, and the purchase of capital
equipment. The Company believes that its existing capital resources, including
the estimated net proceeds of this offering, will be sufficient to satisfy its
current and projected funding requirements for at least 12 months from the date
of this Prospectus. Unless the Company is able to achieve profits from
operations within that time, which the Company does not anticipate, or if the
Company experiences unanticipated cash requirements during the next 12 months,
the Company expects that it may require substantial additional capital. The
Company may seek additional funding through public or private financings or
collaborative or other arrangements with third parties. There can be no
assurance that additional funds will be available on acceptable terms, if at
all. If additional funds are raised by issuing equity securities, further
substantial dilution to existing stockholders, including purchasers of the
Shares offered hereby, may result. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate one or more of its
development programs or to obtain funds by entering into arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its products or technologies that the Company would not
otherwise relinquish. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PATENT LITIGATION. On October 15, 1997, Venisect, Inc. ("Venisect")
commenced a patent infringement action (the "Venisect Litigation") against the
Company in the United States District Court for the Eastern District of Arkansas
alleging that the Lasette-TM- infringes on certain patents and patent rights
owned by Venisect. Venisect seeks injunctive relief and monetary relief,
including treble damages. The Company has filed a response to this Complaint,
moving to dismiss the Complaint for lack of jurisdiction. The Company believes,
and has received an opinion from its patent counsel, that the Lasette-TM- does
not infringe on the patents and patent rights owned by Venisect and will assert
substantive defenses if the action is not dismissed or is refiled in another
jurisdiction. Nevertheless, there can be no assurance that the Company will be
able to successfully defend the patent infringement claims made by Venisect. If
Venisect prevails in this litigation, the Company may be permanently enjoined
from selling the Lasette-TM- and may be obligated to pay significant damages to
the plaintiff. Even if the Company is successful in its defense of the
Litigation, the cost of such defense could be substantial and the Company's
management may be required to devote a substantial amount of time to such
defense. Accordingly, the Venisect Litigation could have a material adverse
impact on the Company's business and financial condition.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company's medical laser products
currently have no patent protection. The Company intends to file applications
for patents covering some features of the medical laser products; however, there
can be no assurance that patents will be issued or, if issued, the degree of
protection that they will afford. The Company's current scientific research
instruments only have limited patent protection. The Company has licenses to or
assignments of United States patents and certain corresponding foreign patents
that cover certain aspects of some of its products. However, there can be no
assurance as to the degree of protection offered by these patents. These patents
may have limited commercial value or may lack sufficient breadth or scope to
adequately protect the aspects of the Company's technology to which they relate.
Since there is no patent protection currently afforded the Company's medical
laser products, there can be no assurance that other patent holders or other
third parties will not claim infringement by the Company or its licensors with
respect to current and future technology. Because United States patent
applications are held and examined in secrecy, it is also possible that
presently pending United States patent applications will eventually issue with
claims that will be infringed by the Company's products. There can be no
assurance that additional competitors, in the United States and in foreign
countries, many of which have substantially greater resources than the Company
and have made substantial investments in competing technologies, will not apply
for and obtain patents that will prevent, limit or interfere with the Company's
ability to make and sell its products. The Company is aware of several patents
held by third parties that relate to certain aspects of its products. There can
be no assurance that these patents would
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not be used as a basis to challenge the Company's current or future patents, to
limit the scope of its patent rights or to limit its ability to obtain
additional or broader patent rights. A successful challenge to the validity of
any of the Company's existing or future patents and/or patent rights may
adversely affect the Company's competitive position and could limit the
Company's ability to commercialize one or more of its medical laser products and
its scientific products. Further, the Company may in the future be required to
initiate litigation to protect its patent position. There can be no assurance
that the Company will have the resources necessary to pursue such litigation or
otherwise protect its patent rights. The defense and prosecution of patent suits
is costly and time-consuming, even if the outcome is favorable. This is
particularly true in foreign countries where the expense associated with a
proceeding can be prohibitive. An adverse outcome in the defense of a patent or
infringement suit could subject the Company to significant liabilities to third
parties, require the Company and others to cease selling products that infringe
or require disputed rights to be licensed from third parties. Such licenses may
not be available on satisfactory terms or at all. Moreover, if claims of
infringement are asserted against future co-development partners or customers of
the Company, those partners or customers may seek indemnification from the
Company for damages and expenses they incur. There can no be assurance that the
Company would prevail in any such action or that any license required under any
such patent would be made available under acceptable terms, if at all. There has
been, and the Company believes that there will continue to be, significant
litigation in the laser-based biotechnological industry regarding patent and
other intellectual property rights. Any litigation, including the Venisect
Litigation, could consume a substantial portion of the Company's financial and
personnel resources and, regardless of the outcome of such litigation, have a
material adverse impact upon the Company's business, results of operations and
financial condition.
The Company also relies on trade secret protection for its unpatented
proprietary technology. However, trade secrets are difficult to protect. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets, that such trade secrets will not be disclosed or
that the Company can effectively protect its rights to unpatented trade secrets.
Despite precautions taken by the Company, unauthorized parties may attempt to
engineer, reverse engineer, copy or obtain and use its products and other
information the Company considers proprietary. The Company pursues a policy of
having its employees and consultants execute non-disclosure agreements upon
commencement of employment or consulting relationships with the Company, which
agreements provide that all confidential information developed or made known to
the individual during the course of the relationship shall be kept confidential
except in specified circumstances. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's trade
secrets or other proprietary information in the event of unauthorized use or
disclosure of such information.
Further, the Company has developed and relies on the trademarks that it uses
with its products, including the Lasette-TM-, the RevitaLase-TM- and the IVF
Workstation-TM-. The Company has applied for a federal registration for the name
Lasette-TM- and intends to apply for federal registration with respect to the
use of the RevitaLase-TM- and IVF Workstation-TM- trademarks. Where
registrations of trademarks have not been issued, the Company claims common law
trademark rights to those names. Notwithstanding, there can be no assurance that
the Company will obtain additional registrations for any of its trademarks or
that the Company will not be subject to opposition, cancellation or infringement
proceedings based upon the use of such trademarks. The loss of the use of any
one or more of the trademarks could have a material adverse effect upon the
Company's ability to profitably market the associated product. See "Business--
Intellectual Property."
COMPETITION. The industry in which the Company competes is characterized by
intense competition, extensive research and development efforts and rapid
technological progress. New product developments and enhancements of existing
products are expected to continue and there can be no assurance that discoveries
by others will not render the Company's products non-competitive.
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There are many companies, both public and private, that are engaged in the
development of products for the same applications being pursued by the Company.
Many of those companies have substantially greater financial, research and
development, manufacturing and marketing experience and resources than the
Company and represent substantial long-term competition for the Company. Such
companies may succeed in developing products that are more effective or less
costly than any products that may currently be owned or which may be developed
by the Company in the future. Specifically, the Company is aware of several
other companies which are developing glucose testing products based on
non-invasive technologies, such as skin patches and diode-pumping laser
products. If these products are approved for sale and become commercially
available in the United States in the future, they could have a material adverse
effect on sales of the Lasette-TM- and on the business and financial condition
of the Company.
Factors affecting competition in the laser-based medical and
biotechnological industry vary depending on the extent to which the competitor
is able to achieve a competitive advantage based upon proprietary technology. If
the Company is able to establish and maintain a significant proprietary position
with respect to its products, competition will likely depend primarily on the
effectiveness of the products and their price competitiveness. In addition, the
Company's competitive position also depends upon its ability to attract and
retain qualified scientific and other personnel, develop effective proprietary
products, acquire technology from third parties, implement development and
marketing plans, obtain patent protection and secure adequate capital resources.
See "Business--Competition."
RISKS ASSOCIATED WITH LICENSES. The LaserTweezers-Registered Trademark-
application of the Cell Robotics Workstation is based upon an exclusive patent
license from AT&T (the "AT&T License"), which requires the payment of
substantial minimum annual royalties in the future. If future sales of the Cell
Robotics Workstation do not increase substantially over historical levels, it is
likely that future sales of the product will be rendered uneconomical by virtue
of the minimum royalty required under the AT&T License. Under such
circumstances, the Company may elect to allow the AT&T License to terminate and
as a result lose its ability to continue to market the LaserTweezers-Registered
Trademark- module of the Cell Robotics Workstation.
TECHNOLOGICAL CHANGE AND PRODUCT OBSOLESCENCE. The medical device industry
is characterized by extensive research efforts, rapid technological progress,
evolving industry standards, frequent new product and service introductions and
enhancements and intense competition from numerous organizations, including
pharmaceutical and medical diagnostic equipment companies, academic
institutions, and others. New developments are expected to continue at a rapid
pace. There can be no assurance that research and discoveries by others will not
render any of the Company's products or potential products non-competitive,
obsolete and/or unmarketable. In order to compete successfully, the Company must
continue to improve its current products and develop and market new products
that keep pace with technological developments. Accordingly, even if the
Company's medical laser products achieve market acceptance, its future success
will depend in significant part on its ability to continually improve the
performance, features, and reliability of its products in response to both
evolving demands of the marketplace and competitive product offerings. There can
be no assurance that the Company will be successful in so doing. Any failure by
the Company to anticipate or respond adequately to technological developments
could have a material adverse effect on its operating results and financial
condition. The Company's pursuit of necessary technological advances will
require substantial time and expense, and there can be no assurance that the
Company will succeed in adapting its products to changing technology standards
and customer requirements. There can be no assurance that the announcement or
introductions of new products by the Company or its competitors or any change in
industry standards will not cause customers to defer or cancel purchases of
existing products, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business."
GOVERNMENT REGULATION; NEED FOR ADDITIONAL PRODUCT CLEARANCES AND
APPROVALS. The testing, manufacture, labeling, distribution, marketing and
advertising of products such as the Company's existing and proposed products and
its ongoing research and development activities are subject to extensive
regulation
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by government regulatory authorities in the United States and other countries.
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of new medical laser products through lengthy
and detailed clinical testing procedures, and other costly and time-consuming
compliance procedures. The Company's products must receive FDA clearance before
they can be commercially marketed in the United States, which in many instances
involves rigorous pre-clinical and clinical testing and an extensive FDA
approval process. The time required for completing such testing and obtaining
such approvals is uncertain, and FDA clearance may never be obtained for some
products or applications. Delays or rejections may be encountered based upon
changes in FDA policy during the period of product development and FDA
regulatory review of the Company's submitted application. Similar delays may
also be encountered in other countries. Failure to receive timely approval from
these agencies could result in the Company's incurring substantial costs and
could also have a material adverse effect upon the Company's operations and
financial condition. In addition, if regulatory clearance of a product is
granted, such clearance may entail limitations on the indicated uses for which
the product may be marketed. Also, modifications may be made to the Company's
products to incorporate enhancements to their functionality and performance
based upon new data and design review. There can be no assurance that the FDA
will not request additional information relating to product improvements, that
any such improvements would not require further regulatory review thereby
delaying testing, approval and commercialization of the Company's products or
that ultimately any such improvements will receive FDA clearance.
While the Lasette-TM- has been cleared by the FDA for clinical use for all
adult glucose/hematocrit testing, including diabetics, the Company believes that
realizing the full commercial potential of the Lasette-TM- will depend upon the
Company receiving FDA clearance to sell the Lasette-TM- to all diabetics (adults
and children) for home use. The Company is applying for FDA clearance to sell
the product for home use by diabetics; however, there can be no assurance that
such clearance will be issued or, if issued, that it will not be subject to
restrictions that could substantially impair its future profitability. In
addition, the laser-assisted hatching module of the IVF Workstation-TM- has only
begun clinical trials, which will consist of at least 600 clinical cycles. It is
estimated that the clinical trials for this product will take at least one year
to complete, with no assurance that once completed the product will receive FDA
clearance for sales in the United States.
FDA regulations also require manufacturers of medical devices to adhere to
certain "Medical Device Quality System Regulation" ("MDQS"), which include
testing, design, quality control and documentation procedures. Compliance with
applicable regulatory requirements is subject to continual review and will be
monitored through periodic inspections by the FDA. Similarly, sales of the
Company's products outside of the United States are also subject to certain
manufacturing standards promulgated by the International Standards Organization
("ISO"). In addition, the Company's manufacturing activities are subject to
regulation and control under the Occupational Safety and Health Act (OSHA) and
regulations promulgated thereunder. Later discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
such product or manufacturer, including fines, delays, or suspensions of
regulatory clearances, seizures, recalls of products, operating restrictions and
criminal prosecution. The failure to comply with regulatory requirements could
subject the Company to regulatory or judicial enforcement actions, including,
but not limited to, product recall or seizures, injunctions, civil penalties,
criminal prosecution, refusals to approve new products and withdrawal of
existing approvals, as well as potentially enhanced product liability exposure.
Sales of the Company's products outside of the United States will be subject to
regulatory requirements governing clinical trials and marketing approval.
In addition, the foreign sale by the Company of at least one of its lasers
is subject to the Export Control Act and can only be exported under a license
held by the Company's supplier. Should that source of supply fail to maintain
such license, the Company's ability to export that laser product would be
suspended until it was able to identify and enter into an arrangement with a new
licensed supplier. These requirements vary widely from country to country and
could delay introduction or continuing sales of the Company's products in
foreign countries. See "Government Regulation."
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DEPENDENCE UPON SOURCE OF SUPPLY. The Erbium:YAG lasers used by the Company
in the Lasette-TM- and the Revitalase-TM- are made from crystals which the
Company has manufactured in Russia through a strategic relationship. The
Company's competitive advantage in these products is derived to a degree upon
the significant cost savings which the Company is able to realize by having its
crystals manufactured by its Russian supplier. However, the continuation of the
Company's relationship with this source of supply is in doubt due to current
unresolved disputes, including problems related to crystal quality. If this
source of supply were restricted or eliminated due to factors specifically
affecting such supplier, such as the inadvertent or intentional non-performance
by such source, or events flowing from Russia's political or economic
instability, it is likely that alternative sources of supply would be
substantially more expensive. As a result of the foregoing, and other factors
beyond the control of the Company, the Company could lose its strategically
important source of supply for laser crystals, which would impair its
competitive advantage. See "Business."
UNCERTAINTY OF MARKET ACCEPTANCE. Achieving market acceptance for the
Company's proprietary products will require substantial marketing efforts and
expense. As with any new technology, there is substantial risk that the
marketplace will not accept the potential benefits of such technology or be
willing to pay for any cost differential with the existing technologies. For
example, the Lasette-TM- will compete directly with stainless steel lancets
which only cost pennies apiece and non-invasive procedures and products are
currently being developed by other companies. Market acceptance of these current
and proposed products will depend, in large part, upon the ability of the
Company to educate potential customers, including third-party distributors, of
the distinctive characteristics and benefits of its products. There can be no
assurance that current or proposed products will be accepted by the end users or
that any of the current or proposed products will be able to compete effectively
against current and alternative products. See "Business."
DEPENDENCE ON MANUFACTURERS. The Company is relying upon a third party to
manufacture the Lasette-TM-. The Company is dependent on third parties to
produce and manufacture certain components for its other products. Certain key
components used in the manufacturing of the Company's products are currently
obtained from single vendors. There are no written agreements with such third
parties, and no third party is obligated to perform any services for the Company
on which the Company depends in order to meet its business objectives.
Consequently, there can be no assurance that these third parties will commit any
resources to the commercialization of the Company's business. Any supply
interruption in a single-sourced component would have a material adverse effect
on the Company's ability to manufacture products until a new source of supply
were qualified. There can be no assurance that the Company would be successful
in qualifying additional sources on a timely basis, if ever. Failure to do so
would have a material adverse effect on the Company's business, financial
condition, and results of operations. See "Business."
PRODUCT DEFECTS AND WARRANTIES. Products as complex as those developed by
the Company may contain undetected errors or defects when first introduced or as
new versions are released. In addition, the Company offers on existing products
and plans to offer on future products a one-year warranty against defects in
materials and workmanship. There can be no assurance that, despite testing by
the Company or its customers, errors will not be found in new products resulting
in warranty claims, product redevelopment costs and loss of, or delay in, market
acceptance and additional costs. If a product initially fails to produce
acceptable results, customer acceptance of the Company's products, even those
which have been successfully redesigned or improved, could be materially
adversely affected. See "Business."
MARKETING AND SALES; STRATEGIC RELATIONSHIPS. In order for the Company to
increase revenues and achieve profitability, the Company's products must achieve
a significant degree of market acceptance. The Company's future success is
dependent upon its ability to establish an effective sales organization for its
proprietary products or to enter into distribution arrangements with other
entities selling to its target markets. No assurances can be given that the
Company will be able to hire and retain its own sales force or
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enter into appropriate distribution arrangements. The Company must attract,
build, train and motivate a marketing and sales force which the Company
currently does not have. Building a successful sales force takes time, and
requires a significant amount of capital. The Company intends to acquire
experienced marketing personnel, and to enter into marketing and distribution
agreements with various strategic partners. There can be no assurance that the
Company will be successful in recruiting marketing personnel with the required
skills or that it will be able to enter into such strategic relationships. In
addition, there can be no assurance that a commercial market for the Company's
products will develop, that the Company will be able to compete effectively on
price or some other basis, if such a market does develop, or that the Company's
products will perform up to market expectations. See "Business."
DEPENDENCE UPON KEY PERSONNEL. The Company's future success is dependent on
the continued service of its key technical, marketing, sales, and management
personnel and on its ability to continue to attract, motivate, and retain highly
qualified employees. The Company's key employees may voluntarily terminate their
employment with the Company at any time. Competition for such employees is
intense and the process of locating technical and management personnel with the
combination of skills and attributes required to execute the Company's strategy
is often lengthy. Accordingly, the loss of the services of key personnel could
have a material adverse effect upon the Company's operations and on research and
development efforts. Further, the Company does not have key person life
insurance covering its management personnel or other key employees, other than a
$500,000 term policy on Dr. Lohrding. See "Management."
MANAGEMENT OF GROWTH. The Company's ability to manage its growth, if any,
will require it to continue to improve and expand its management, operational
and financial systems and controls. Any measurable growth in the Company's
business will result in additional demands on its customer support, sales,
marketing, administrative and technical resources and will place significant
strain on the Company's management, administrative, operation, financial and
technical resources and increase demand upon its systems and controls. There can
be no assurance that the Company will be able to successfully address these
additional demands. There also can be no assurance that the Company's operating
and financial control systems will be adequate to support its future operations
and anticipated growth. Failure to manage the Company's growth properly could
have a material adverse effect upon the Company's business, financial condition
and results of operations. The Company may also seek potential acquisitions of
patents, products, technologies and businesses that could complement or expand
the Company's business. In the event the Company were to identify an appropriate
acquisition candidate, there is no assurance that the Company would be able to
successfully negotiate, finance or integrate such acquired patents, products,
technologies or businesses. Furthermore, such an acquisition could cause a
diversion of management's time and resources. There can be no assurance that a
given acquisition, when consummated, would not materially adversely affect the
Company's business and results of operations. See "Risk Factors-- Dependence
Upon Key Personnel."
HEALTH CARE REFORM AND POTENTIAL LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
RELATED MATTERS. The Company's future success may be affected by the continuing
efforts of government and third-party payors to contain or reduce the costs of
health care through various means. The Company cannot predict the effect health
care reforms may have on its business, and there can be no assurance that any
such reforms will not have a material adverse effect on the Company. Certain of
the medical lasers products that the Company is developing are designed for use
in elective medical procedures, such as cosmetic surgery and in vitro
fertilization. In both the United States and elsewhere, uses of elective medical
procedures are dependent in part on the availability of reimbursement to the
consumer from third-party payors, such as government and private insurance
plans. Third-party payors are increasingly challenging the prices charged for
medical products and services. It is unlikely that the cost of the Lasette-TM-
will qualify as a reimbursable expense under most health insurance programs.
There can be no assurance that the Company's laser medical products will be
considered cost effective and that reimbursement to the consumer will be
available or will be sufficient to allow the Company to sell its products on a
competitive basis. See "Business."
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LIMITED MARKET FOR SCIENTIFIC INSTRUMENTS. The principal markets for the
Company's scientific instrumentation products are colleges, universities and
other institutions engaged in scientific research. Most, if not all, of these
potential customers rely upon federal and state funding in order to support
their research activities. The ability of these institutions to purchase the
Company's products is dependent upon receiving adequate funding from the public
sector. A reduction or withdrawal of government support of scientific pursuits
could result in, a diminished demand for the Company's products. See "Business."
RISK OF PRODUCT LIABILITY. Clinical trials or marketing of any of the
Company's products may expose the Company to liability claims from the use of
such products. The Company currently carries product liability insurance;
however, there can be no assurance that the Company will be able to obtain or
maintain insurance on acceptable terms for its clinical and commercial
activities or that such insurance would be sufficient to cover any potential
product liability claim or recall. Failure to have sufficient coverage could
have a material adverse effect on the Company's business and results of
operations. See "Business."
BROAD DISCRETION AND APPLICATION OF PROCEEDS. The Company expects that the
proceeds of this offering will be used principally for product research and
development and to launch its medical laser products, with approximately 20% to
be reserved for use as working capital. The Company is not currently able to
estimate precisely the allocation of the proceeds among such uses, and the time
and amount of expenditures will vary depending upon numerous factors. The
Company's Board of Directors will have broad discretion to allocate the proceeds
of this offering and to determine the timing of expenditures. See "Use of
Proceeds."
SUBSTANTIAL DILUTION. Investors acquiring Shares offered hereby will incur
immediate and substantial dilution of their investment of approximately $3.32
per share, or 73.8% of the offering price, based upon the Company's adjusted net
tangible book value as of September 30, 1997. To the extent that currently
outstanding options and warrants to purchase the Company's Common Stock are
exercised, there will be further dilution to investors acquiring Shares. See
"Dilution."
OFFERING PRICE ARBITRARILY DETERMINED. The offering price of the Shares
being offered hereby were determined by negotiation between the Company and the
Representatives and is not necessarily related to the Company's assets, book
value or financial condition, and may not be indicative of the actual value of
the Company. See "Underwriting."
POTENTIAL ADVERSE EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE. Sales of
Common Stock (including Common Stock issued upon the exercise of outstanding
options and warrants) in the public market after this offering could materially
adversely affect the market price of the Common Stock. Such sales also might
make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems acceptable, or at all. As of November 15, 1997, 5,222,414 shares of the
Company's $.004 par value Common Stock, were issued and outstanding, of which
2,749,708 are unrestricted and freely tradeable at the discretion of their
owners and 2,472,706 are "restricted securities" and under certain circumstances
may, in the future, be sold in compliance with Rule 144 adopted under the
Securities Act. In general, under Rule 144, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the Company, who
beneficially owned restricted shares of Common Stock for at least one (1) year
is entitled to sell, within any three (3) month period, a number of shares that
does not exceed the greater of one percent (1%) of the total number of
outstanding shares of the same class, or if the Common Stock is quoted on NASDAQ
or a stock exchange, the average weekly trading volume during the four (4)
calendar weeks immediately preceding the sale. A person who presently is not,
and who has not been an affiliate of the Company for at least three (3) months
immediately preceding the sale, and who has beneficially owned the shares of
Common Stock for at least two (2) years is entitled to sell such shares under
Rule 144 without regard to the volume limitations described above. Of these
restricted shares, approximately 1,415,106 shares of Common Stock are eligible
for sale in the public market without restriction in reliance upon Rule 144(k)
under the Securities Act. Of the 2,472,706 restricted shares outstanding,
1,040,100 are beneficially owned by officers, directors and affiliates of the
Company, who
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have agreed, pursuant to lock-up agreements, that they will not offer, sell,
contract to sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock owned by them or that could be purchased
by them to the exercise of options or warrants to purchase Common Stock of the
Company through a period of 90 days after the date of this Prospectus without
the prior written consent of the Underwriters. Upon the expiration of the
lock-up agreements, the 840,100 shares of Common Stock held by the officers,
directors and affiliates will be immediately eligible for resale subject to the
volume limitations of Rule 144 and approximately 217,500 other restricted shares
will become eligible for resale under Rule 144 from time to time thereafter. In
addition, the Company currently has issued and outstanding options and warrants
to purchase an aggregate of 1,827,000 shares of Common Stock, of which 1,032,000
underlying shares of Common Stock may be freely tradeable upon exercise due to
the registration statement covering the Plan. The Company may also grant options
to purchase an additional 300,000 shares of Common Stock under the ESPP. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock or the availability of such shares for sale will have on the market prices
prevailing from time-to-time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital in the future through the sale of equity securities.
Actual sales or the prospect of future sales of shares of Common Stock under
Rule 144 may have a depressive effect upon the price of the Common Stock and the
market therefor. See "Shares Eligible For Future Sale."
POSSIBLE DILUTION FROM FUTURE SALES OF COMMON STOCK. The Company's Board of
Directors has the authority to issue up to 12,500,000 shares of Common Stock and
to issue options and warrants to purchase shares of the Company's Common Stock
without stockholder approval. Future issuance of Common Stock could be at values
substantially below the offering price in this offering and therefore could
represent further substantial dilution to investors in this offering. In
addition, the Board could issue large blocks of common stock to fend off
unwanted tender offers or hostile takeovers without further stockholder
approval. See "Description Of Securities" and "Shares Eligible For Future Sale."
POTENTIAL ADVERSE EFFECTS OF FUTURE SALES OF PREFERRED STOCK. The Company's
Articles of Incorporation, as amended, authorize the issuance of up to 2,500,000
shares of $.04 par value preferred stock, none of which are outstanding. The
Board of Directors has been granted the authority to fix and determine the
relative rights and preferences of preferred shares, as well as the authority to
issue such shares, without further stockholder approval. As a result, the Board
of Directors could authorize the issuance of a series of preferred stock which
would grant to holders preferred rights to the assets of the Company upon
liquidation, the right to receive dividend coupons before dividends would be
declared to common stockholders, and the right to the redemption of such shares,
together with a premium, prior to the redemption of Common Stock. Common
stockholders have no redemption rights. In addition, the Board could issue large
blocks of preferred stock to fend against unwanted tender offers or hostile
takeovers without further stockholder approval. See "Description Of Securities"
and "Shares Eligible For Future Sale."
MANAGEMENT'S LACK OF VOTING INFLUENCE. Upon consummation of this offering,
the Company's President, Ronald K. Lohrding, will own 300,000 shares of Common
Stock, and vested options exercisable to acquire an additional 325,000 shares of
Common Stock, together representing 8.7% of the total issued and outstanding
shares following completion of this offering. All of the Company's officers and
directors as a group own only 420,800 shares of Common Stock, and vested options
exercisable to acquire an additional 496,000 shares of Common Stock. Even giving
effect to the exercise of their outstanding and vested options, the Company's
officers and directors as a group would exercise voting control over only 11.9%
of the Company's outstanding shares of Common Stock following completion of this
offering. As a result of this lack of voting influence as stockholders, there
can be no assurance that the Company's officers and directors will be able to
implement the plans and strategies described in this Prospectus. Further, it is
possible that stockholders with greater voting influence could initiate actions
which could be adverse to
16
<PAGE>
those plans or hostile to current management. See "Security Ownership of
Management and Principal Stockholders."
LIMITED PUBLIC TRADING MARKET FOR THE COMPANY'S COMMON STOCK. While there
currently exists in the over-the-counter market a limited and sporadic public
trading market for the Common Stock, there can be no assurance that such a
market will improve in the future, even if the Common Stock is approved for
listing on NASDAQ. There can be no assurances that an investor will be able to
liquidate his investment without considerable delay, if at all. If a more active
market does develop, the price may be highly volatile. Factors discussed herein
may have a significant impact on the market price of the Shares. Moreover due to
the relatively low price of the Common Stock, many brokerage firms may not
effect transactions in the Common Stock. See "Description Of Securities."
RISKS OF PRICE AND VOLUME FLUCTUATIONS. The over-the-counter markets for
securities such as the Common Stock historically have experienced extreme price
and volume fluctuations during certain periods. These broad market fluctuations
and other factors, such as new product developments and trends in the Company's
industry and the investment markets generally, as well as economic conditions
and quarterly variations in the Company's results of operations, may adversely
affect the market price of the Common Stock. See "Certain Market Information."
POSSIBLE LOSS OF NASDAQ LISTING. The Company has applied to NASDAQ to have
its shares quoted on the SmallCap Market. Even if such application is granted,
in order to continue to be listed on NASDAQ, the Company must satisfy certain
maintenance standards which relate to the Company's net tangible assets and
public trading price of its securities. Currently, NASDAQ rules require that a
listed company maintain certain minimum net tangible assets and a minimum public
trading price of $1.00 per share. As a result, there can be no assurance that
the Company's securities will continue to be listed on NASDAQ. If the Common
Stock is delisted from NASDAQ, trading, if any, in those securities would
thereafter be conducted in the over-the-counter market on an electronic bulletin
board established for securities that do not meet NASDAQ listing requirements,
or in what are commonly referred to as the "pink sheets." As a result, an
investor would find it substantially more difficult to dispose of, or to obtain
accurate quotations as to the price of the Common Stock, and depending upon
several factors including future market price of the Common Stock, the Company's
securities could become subject to the "penny stock" rules. See "Risk
Factors--The Securities Enforcement and Penny Stock Reform Act of 1990."
THE SECURITIES ENFORCEMENT AND PENNY STOCK REFORM ACT OF 1990. The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure, relating to the market for penny stocks, in connection with trades
in any stock defined as a penny stock. The Commission recently adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
Such exceptions include any equity security listed on NASDAQ and any equity
security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous operation for three years,
(ii) net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000, if such issuer has been in continuous operation for less
than three years. Unless an exception is available, the regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
See "Certain Market Information."
Although application has been made to have the Common Stock approved for
quotation on the NASDAQ SmallCap Market, there can be no assurance that they
will be approved or if approved will remain eligible to be included on NASDAQ.
In the event that the Common Stock were no longer eligible for quotation on
NASDAQ and as a result is delisted, the Common Stock could become subject to
rules adopted by the Commission regulating broker-dealer practices in connection
with transactions in "penny stocks." Those disclosure rules applicable to penny
stocks require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized list disclosure
document
17
<PAGE>
prepared by the Commission. That disclosure document advises an investor that
investments in penny stocks can be very risky and that the investor's
salesperson or broker is not an impartial advisor but rather paid to sell the
shares. It contains an explanation and disclosure of the bid and offer prices of
the security, any retail charges added by the dealer to those prices ("markup"
or "markdown"), and the amount of compensation or profit to be paid to or
received by the salesperson in connection with the transaction. The disclosure
contains further admonitions for the investor to exercise caution in connection
with an investment in penny stocks, to independently investigate the security as
well as the salesperson with whom the investor is working, and to understand the
risky nature of an investment in the security. Further, the disclosure includes
information regarding the market for penny stocks, explanations regarding the
influence that marketmakers may have upon the market for penny stocks and the
risk that one or two dealers may exercise domination over the market for such
security and therefore control and set prices for the security not based upon
competitive forces. The broker-dealer must also provide the customer with
certain other information and must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. Further, the rules require
that following the proposed transaction the broker provide the customer with
monthly account statements containing market information about the prices of the
securities. These disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. If the Common Stock became subject to the
penny stock rules, many brokers may be unwilling to engage in transactions in
the Common Stock because of the added disclosure requirements, thereby making it
more difficult for purchasers of Common Stock in this offering to dispose of
their securities.
POTENTIAL ADVERSE EFFECTS OF MARKET OVERHANG FROM WARRANTS AND OUTSTANDING
OPTIONS. The Company has outstanding options and warrants exercisable to
acquire 795,000 shares of Common Stock, 450,000 of which are subject to future
vesting. In addition, the Company has 1,250,000, shares of Common Stock reserved
for issuance under the Plan and has granted 1,032,000 options with respect to
such shares, all of which are immediately exercisable. In addition, the Company
has reserved 300,000 shares for issuance under the ESPP. To the extent that such
stock options or warrants are exercised, dilution to the interests of the
Company's stockholders may occur. Exercise of these options or warrants, or even
the potential of their exercise may have an adverse effect on the trading price
and market for the Common Stock. The holders of the options or warrants are
likely to exercise them at times when the market price of the Common Stock
exceeds the exercise price of the options or warrants. Accordingly, the issuance
of shares of Common Stock upon exercise of the options or warrants may result in
dilution of the equity represented by the then outstanding shares of Common
Stock held by other stockholders. Holders of the options or warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms which are more favorable to the
Company than the exercise terms provided by such options or warrants. See
"Description of Securities."
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant number of the Shares
may be sold to customers of the Underwriters. Such customers may subsequently
engage in transactions for the sale or purchase of such securities through or
with the Underwriters. Although they have no legal obligation to do so, the
Underwriters from time to time in the future may make a market in and otherwise
effect transactions in the Common Stock. To the extent the Underwriters do so,
they may be a dominating influence in any market that might develop and the
degree of participation by the Underwriters may significantly affect the price
and liquidity of the Common Stock. Such market making activities, if commenced,
may be discontinued at any time or from time to time by the Underwriters without
obligation or prior notice. Depending on the nature and extent of the
Underwriters' market making activities and retail support of the Common Stock at
such time, the Underwriters' discontinuance could adversely affect the price and
liquidity of the Common Stock. See "Underwriting."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered hereby,
assuming an offering price of $4.50 per share, are estimated to be approximately
$7,550,000 ($8,765,000 if the Over-Allotment Option is exercised in full) after
deducting the underwriting discount and offering expenses.
<TABLE>
<CAPTION>
USE AMOUNT PERCENT
- ------------------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Marketing and Sales(1)..................................................................... $ 3,200,000 42.4%
Manufacturing Equipment and Personnel(2)................................................... 1,400,000 18.5%
Product Development(3)..................................................................... 725,000 9.6%
Future Research and Development(4)......................................................... 700,000 9.3%
Working Capital(5)......................................................................... 1,525,000 20.2%
------------ ---
$ 7,550,000 100%
</TABLE>
- ------------------------
(1) Consists primarily of salaries to hire additional marketing and sales staff
and expenses for negotiating distribution agreements and developing
marketing material, including advertising brochures and attending trade
shows.
(2) Reflects purchase of machinery, equipment and other fixed assets to be used
for manufacturing and testing, and hiring and training additional
manufacturing personnel.
(3) Includes funds needed to complete engineering, commercial development and
validation of the medical laser products.
(4) Consists of research and development principally for additional dermatology
lasers, a dental laser and a smaller version of the Lasette-TM-.
(5) The Company continually evaluates potential acquisitions of patents,
products or technologies owned by third parties that could complement the
Company's current product portfolio. Funds allocated to working capital
could be used to complete one or more product or technology acquisitions,
although there are currently no understandings, agreements or commitments
with respect to any such material acquisition.
The amounts set forth above represent the Company's best estimate for the
use of the net proceeds of this offering in light of current circumstances.
However, actual expenditures could vary considerably depending upon many
factors, including, without limitation, changes in the economic conditions,
unanticipated complications, delays and expenses, or problems relating to the
development of additional products and/or market acceptance for the Company's
products. Any reallocation of the net proceeds of the offering will be made at
the discretion of the Board of Directors but will be in furtherance of the
Company's strategy to achieve growth and profitable operations through the
development of additional products and augmentation of the Company's marketing
efforts. The Company's working capital requirements are a function of its future
sales growth and expansion, neither of which can be predicted with any
reasonable degree of certainty. As a result, the Company is unable to precisely
forecast the period of time for which net proceeds of this offering will meet
its working capital requirements although it expects it to be at least 12 months
from the date of this Prospectus. The Company may need to seek funds through
loans or other financing arrangements in the future, and there can be no
assurance that the Company will be able to make such arrangements in the future
should the need arise.
Pending use of the net proceeds of the offering, the funds will be invested
temporarily in certificates of deposit, short-term government securities or
similar investments. Any income from these short-term investments will be used
for working capital.
19
<PAGE>
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its Common Stock in
the preceding two fiscal years. The Company currently intends to retain all
future earnings, if any, to fund the operation of its business, and, therefore,
does not anticipate paying dividends in the foreseeable future. Future cash
dividends, if any, will be determined by the Board of Directors.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis and (ii) as adjusted to give effect to
the estimated net proceeds from the sale of the Shares offered hereby, based
upon an assumed public offering price of $4.50 per share. This section should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
AS
ADJUSTED
ACTUAL (1)(2)
-------------- --------------
<S> <C> <C>
Long term debt.................................................................... $ -0- $ -0-
Stockholders' equity..............................................................
Preferred Stock, $.04 par value, 2,500,000 shares authorized; no shares
outstanding................................................................... -0- -0-
Common Stock, $.004 par value, 12,500,000 shares authorized; 5,222,414 shares
issued and outstanding actual; and 7,222,414 shares issued and outstanding as
adjusted(2)................................................................... 20,890 28,890
Additional paid-in capital...................................................... 13,996,305 21,538,305
Accumulated (deficit)............................................................. (12,959,624) (12,959,624)
Total stockholders' equity........................................................ 1,057,571 8,607,571
-------------- --------------
Total capitalization.............................................................. $ 1,057,571 $ 8,607,571
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of options which may be granted under the Plan, 1,032,000 of
which are subject to outstanding and unexercised options having a weighted
average exercise price of $1.99 per share, and of which 357,724 options are
subject to future vesting, (ii) 450,000 shares of the Common Stock reserved
for issuance upon the exercise of the Lohrding Options, (iii) 345,000 shares
of Common Stock reserved for issuance upon exercise of the outstanding
Placement Agent's Warrant, and (iv) 300,000 shares of Common Stock reserved
for issuance under the ESPP. See "Management--Stock Incentive Plans" and
"Description of Securities--Placement Agent Warrants."
(2) Assumes no exercise of the Underwriters' Over-Allotment Option or the
Representatives' Warrants.
21
<PAGE>
DILUTION
At September 30, 1997, the Company had a net tangible book value of $986,057
or $.19 per share based upon 5,222,414 shares of Common Stock outstanding. Net
tangible book value per share is determined by dividing the number of
outstanding shares of Common Stock into the net tangible book value of the
Company (total assets less total liabilities and intangible assets). After
giving effect to the sale of the Shares offered hereby and receipt of the
estimated net proceeds therefrom (after deducting the estimated underwriting
discount and offering expenses), the adjusted net tangible book value at
September 30, 1997 would have been $8,536,057 or $1.18 per share of Common
Stock. This represents an immediate increase in net tangible book value of $.99
per share to current stockholders and an immediate dilution of $3.32 per share,
or 73.8%, to the investors in this offering. The following table illustrates the
per share dilution, assuming all 2,000,000 Shares are sold in this offering:(1)
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share of Common Stock.......................................... $ 4.50
Net tangible book value per share of Common Stock before offering.............................. $ .19
Increase per share of Common Stock attributable to new investors............................... $ .99
Adjusted net tangible book value per share of Common Stock after offering........................ $ 1.18
Dilution of net tangible book value per share of Common Stock to new investors................... $ 3.32
---------
---------
Dilution per share of Common Stock as a percentage of offering price............................. 73.8%
---------
---------
</TABLE>
- ------------------------
(1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of options which may be granted under the Plan, 1,032,000 of
which are subject to outstanding and unexercised options having a weighted
average exercise price of $1.99 per share, and of which 357,724 options are
subject to future vesting, (ii) 450,000 shares of the Common Stock reserved
for issuance upon the exercise of the Lohrding Options, (iii) 345,000 shares
of Common Stock reserved for issuance upon exercise of the outstanding
Placement Agent's Warrant, and (iv) 300,000 shares of the Common Stock
reserved for issuance under the ESPP. "Management--Stock Incentive Plans"
and "Description of Securities--Placement Agent Warrant."
The following table sets forth, as of November 1, 1997, the number of shares
of Common Stock purchased, the percentage of total cash consideration paid, and
the average price per share paid by (i) the existing stockholders and (ii)
investors purchasing Shares in this offering, before deducting estimated
underwriting discounts and offering expenses payable by the Company.
<TABLE>
<CAPTION>
AVERAGE
TOTAL CASH CONSIDERATION
SHARES PURCHASED AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........................... 5,222,414 72.3% $ 14,017,195 60.9% $ 2.68
New Investors................................... 2,000,000 27.7%(1) $ 9,000,000 39.1%(1) $ 4.50(1)
---------- --- ------------- ---
Total........................................... 7,222,414 100% $ 23,017,195 100%
</TABLE>
- ------------------------
(1) Estimated
22
<PAGE>
CERTAIN MARKET INFORMATION
PRICE RANGE OF COMMON STOCK
The Common Stock is traded over-the-counter and quoted on the Bulletin Board
on a limited and sporadic basis under the symbol "CRII." The reported high and
low bid and asked prices for the Common Stock are shown below for the period
through November 20, 1997. The prices presented are bid and asked prices which
represent prices between broker-dealers and do not include retail mark-ups and
mark-downs or any commission to the broker-dealer. The prices do not necessarily
reflect actual transactions.
<TABLE>
<CAPTION>
BID ASK
-------------------- --------------------
LOW HIGH LOW HIGH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1995
First Quarter..................................... $ 2.75 $ 3.625 $ 3.25 $ 4.00
Second Quarter.................................... 2.25 3.00 3.00 3.75
Third Quarter..................................... 1.00 3.125 2.25 3.50
Fourth Quarter.................................... 1.75 2.875 2.00 3.25
1996
First Quarter..................................... $ 1.375 $ 2.75 $ 1.625 $ 3.25
Second Quarter.................................... 1.875 3.875 2.125 4.125
Third Quarter..................................... 1.375 3.00 1.625 3.125
Fourth Quarter.................................... 1.375 2.875 1.563 1.938
1997
First Quarter..................................... $ 1.875 $ 2.8125 $ 2.00 $ 3.00
Second Quarter.................................... 1.9375 3.375 2.00 3.50
Third Quarter..................................... 2.9375 4.00 3.0625 4.0625
Fourth Quarter (Through Nov. 20, 1997)............ 3.375 3.625 3.4375 3.875
</TABLE>
The bid and ask prices of the Common Stock on November 20, 1997 were $3.38
and $3.63, respectively, as quoted on the Bulletin Board. As of November 20,
1997 there were approximately 176 stockholders of record of the Common Stock.
23
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is selected financial data with respect to the Company.
Financial information for the years ended December 31, 1995 and 1996, and as of
September 30, 1997 and for the nine months ended September 30, 1996 and
September 30, 1997, is derived from the Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus and is qualified by
reference to such Consolidated Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues................................................... $ 942,667 $ 663,261 $ 592,802 $ 828,566
Cost of Goods Sold......................................... 728,719 496,531 400,997 597,299
Gross Profit............................................... 213,948 166,730 191,805 231,267
Operating Expenses......................................... 1,192,522 1,771,101 1,306,841 2,091,621
Operating Loss............................................. (978,574) (1,604,371) (1,115,036) (1,860,354)
Other Income (Expenses).................................... (372,576) 60,281 33,379 41,186
Net Income (Loss).......................................... (1,351,150) (1,544,090) (1,081,657) (1,819,168)
Net (Loss) Per Share(1).................................... (.66) (.37) (.28) (.36)
Average Common Shares
Outstanding(1)........................................... 2,039,280 4,197,499 3,926,416 5,054,026
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
BALANCE SHEET DATA
Total Assets............................................................. $ 2,570,952 $ 1,784,323
Working Capital.......................................................... 1,858,088 771,162
Total Liabilities........................................................ 363,722 726,752
Accumulated Deficit...................................................... (11,140,456) (12,959,624)
Stockholders' Equity..................................................... 2,207,230 1,057,571
</TABLE>
- ------------------------
(1) See Note 2 of Notes to Consolidated Financial Statements for a discussion of
the calculation of net loss per share for the fiscal years ended December
31, 1995 and 1996, and for the nine-month periods ended September 30, 1996
and 1997.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
PLAN OF OPERATION--OVERVIEW
In 1995, the Company introduced its laser-based scientific research
instruments, which in 1996 were refined and redesigned into the modularized Cell
Robotics Workstation. Sales of these scientific instruments during 1995 and 1996
were disappointing, resulting in significant operating losses in both periods.
Given the limited market for the scientific research instruments, the Company
acquired certain technology in January 1996, (see Business--"Intellectual
Property") which it has used to develop medical laser products for the clinical
and consumer markets. Having now completed the development of the Lasette-TM-
(skin perforator), the RevitaLase-TM- (skin resurfacer) and the IVF
Workstation-TM-, and having obtained initial regulatory clearances for limited
domestic sales of the Lasette-TM- and RevitaLase-TM-, the Company intends to use
the net proceeds of this offering principally to stimulate both domestic and
international sales of its medical laser products and concurrently complete the
processes necessary for additional domestic and international regulatory
clearances for those products.
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1996
During the nine month period ended September 30, 1997, the Company's
operating activities were limited to continuing efforts to complete the
development of its medical laser products. Product sales for the period were
generated only from sales of its scientific research instruments. Total revenues
from product sales and grant revenue increased from $592,802 for the nine month
period ended September 30, 1996 to $828,566 for the nine month period ended
September 30, 1997, an increase of 39.8%. Research and development grant revenue
increased, from $69,190 during the nine months ended September 30, 1996 to
$105,720 during the nine month period ended September 30, 1997, an increase of
52.8%. The Company's gross profit for the nine months ended September 30, 1997
increased by 20.6%, from gross profit of $191,805 for the period ended September
30, 1996 to $231,267 for the period ended September 30, 1997.
The Company believes that its increased product sales reflect, in part, the
fact that during the fourth quarter of fiscal 1996, the Company converted its
exclusive distribution agreement with Carl Zeiss, Inc. covering its scientific
research instruments to a non-exclusive marketing arrangement. Management
believes this has allowed the Company to more aggressively market and sell its
research based instruments through its own internal efforts, as well as through
other microscope companies. However, the Company's ability to substantially
increase future revenue is heavily dependent upon the successful introduction
and subsequent market acceptance of its new medical laser products.
Total operating expenses for the nine month period increased from $1,306,841
for the period ended September 30, 1996 to $2,091,621 for the period ended
September 30, 1997, an increase of $784,780, or 60.1%. This increase was
principally attributable to costs related to the continuing design and
development of the Company's medical laser products. Salaries increased by
$184,399, or 46.1%, due to the addition of personnel and increased wage rates.
Professional fees increased by $301,992, or 175.3%, principally as a result of
professional design and engineering consulting fees related to the development
of the Company's medical laser products. Other operating expenses, consisting of
overhead, general and administrative expenses, consulting and professional fees,
and other costs associated with the conduct of the Company's business also
increased, from $457,667 during the nine months ended September 30, 1996 to
$666,696 for the comparable period ended September 30, 1997, an increase of
$209,029, or 45.7%. This increase is also related to the Company's accelerated
product development activities during the most recent nine months.
25
<PAGE>
During the nine month period ended September 30, 1997, other income and
expenses also increased from a $33,379 net contribution to income for the nine
month period ended September 30, 1996 to a $41,186 net contribution to income
during the period ended September 30, 1997. This increase was due almost
exclusively to an increase in interest income of $12,034, or 66.7%, realized
from the Company's short term investment of the remaining proceeds from the
exercise of warrants during the third quarter of 1996.
As a result of the foregoing, the Company's net loss for the nine month
period ended September 30, 1997 increased by $737,511, or 68.2%, from a net loss
of $1,081,657 for the nine month period ended September 30, 1996 to a net loss
of $1,819,168 for the comparable period ended September 30, 1997. This resulted
in a net loss of $.36 per share on 5,054,026 weighted average shares outstanding
for the nine months ended September 30, 1997 compared to a net loss of $.28 per
share on 3,926,416 weighted average shares outstanding for the comparable period
ended September 30, 1996.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995.
The Company's total revenues for the year ended December 31, 1996 were
$663,261, a decrease of $279,406, or 29.6%, over revenues for the comparable
period in 1995. The gross profit realized by the Company on revenues generated
during fiscal 1996 was $166,730, or 25.1%, compared to a gross profit of
$213,948, or 22.7%, realized during fiscal 1995.
Operating expenses incurred during fiscal 1996 were $1,771,101, an increase
of $578,579, or 48.5%, over fiscal 1995 operating expenses of $1,192,522. This
increase was due primarily to a 117.0% increase in other operating expenses, to
$647,617 in fiscal 1996 from $298,397 in fiscal 1995, This increase reflects
expenses associated with the re-design of the Cell Robotics Workstation, as well
as the efforts to develop its new medical laser products. Also contributing to
the increase in operating expenses was a $98,138, or 23.8%, increase in salaries
and a $142,622, or 153.2%, increase in professional fees. The increase in
salaries was driven by the hiring of additional personnel, and an increase in
the compensation of existing employees. Payroll taxes and benefits increased
correspondingly. Expenses related to the testing of the Company's research
instrument line to ensure compliance with certain federal and international
regulations contributed to the increase in professional fees, as did fees
related to the filing of international patents on the Company's recently
acquired proprietary technology and the new products incorporating that
technology. Slight decreases in rent and utilities, travel, and depreciation and
amortization served to partially offset the overall increase in operating
expenses.
Other income and expenses increased to $60,281 for the year ended December
31, 1996, from a negative $372,576 for the year ended December 31, 1995, arising
from a reduction in interest expense of $344,364. This resulted from the
conversion of a stockholder's note payable to equity, thereby reducing the
Company's outstanding debt.
The foregoing resulted in the Company experiencing a net loss for the year
ended December 31, 1996 of $1,544,090, or $0.37 per weighted average share. This
compares to a net loss of $1,351,150, or $0.66 per weighted average share for
fiscal 1995. As a result of the exercise of Class A Common Stock Purchase
Warrants, the weighted average shares outstanding increased to 4,197,499 for the
year ended December 31, 1996 from 2,039,280 for the year ended December 31,
1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has relied principally upon the proceeds of
both debt and equity financings to provide working capital for its product
development and marketing activities and, to a lesser extent, the proceeds of
two small SBIR grants. The Company has not been able to generate sufficient cash
from operations and, as a consequence, additional financings have been required
to fund ongoing operations. Initially, the Company relied upon one investor,
Mitsui Engineering & Shipbuilding Company ("Mitsui"), a Japanese corporation,
which provided, through a series of loans and stock purchases, in
26
<PAGE>
excess of $7 million in working capital. In 1995, the Company completed a
private offering of equity in which it raised approximately $2.875 million. As
part of that private offering, the Company issued a series of warrants, whose
exercise during the third quarter of 1996 resulted in an additional capital
infusion of approximately $2 million. Finally, in connection with that private
offering, the Company issued to Paulson, who served as placement agent, warrants
exercisable for a period of five years to purchase 11.5 units at a price of
$25,000 per unit, each unit consisting of 20,000 shares of Common Stock and
10,000 Class A Warrants (the "Placement Agent's Warrants"). As of the date of
this Prospectus, none of the Placement Agent's Warrants have been exercised.
Most recently, the Company completed a private sale of 200,000 shares for gross
proceeds of $650,000.
Cash used in operations for the years ended in December 31, 1995 and 1996
and nine months ended September 30, 1997 were $1,267,920, $1,315,930, and
$1,803,286, respectively. The primary reason for the increase in the negative
cash flow from operations in the nine months ended September 30, 1997 as
compared to prior periods is the increase in product development and operating
expenses during that period.
At its present level of research, development and product introduction, the
Company requires approximately $200,000 per month to cover operating expenses,
in excess of cash flow currently generated from operations. In August, 1997, the
Company sold in a private transaction to one investor 200,000 shares of Common
Stock at a price of $3.25 per share. The proceeds of that private sale are being
used to satisfy the Company's working capital requirements pending completion of
this offering. The Company does not have any available commercial lines of
credit or other sources of capital to satisfy its cash requirements until
revenues from operations can be realized through future product introduction and
sales. Accordingly, the Company will rely exclusively upon the proceeds of this
offering to satisfy its working capital requirements for the foreseeable future.
Cash provided by financing activities for the years ended December 31, 1995
and 1996 and nine months ended September 30, 1997 were $1,953,778, $2,444,812,
and $669,509, respectively. These figures reflect the equity financings
discussed above.
The Company's liquidity and capital resources continued to decrease during
the nine month period ended September 30, 1997, due primarily to the Company's
ongoing operating losses.
The Company's current ratio at September 30, 1997 was 2.1:1, compared to a
current ratio of 6.1:1 on December 31, 1996. This decrease in liquidity is
primarily due to a reduction of the Company's current assets, principally cash.
Total assets decreased from $2,570,952 at December 31, 1996 to $1,784,323 at
September 30, 1997, a decrease of $786,629, or 30.6%. Of this decrease, current
assets accounted for $723,896, or 92%.
The decrease in the Company's current assets of $723,896, or 32.6%, was the
result of a large decrease in cash and cash equivalents which fell from
$1,724,671 at December 31, 1996, to $559,060 at September 30, 1997, a decrease
of $1,165,611 or 67.6%. This decrease in cash and cash equivalents was primarily
the result of continuing operating losses. Slightly offsetting the decrease in
cash and cash equivalents was an increase in accounts receivable of $282,179,
from $69,845 at the end of fiscal 1996, to $352,024 at September 30, 1997. The
increase in accounts receivable was primarily due to increased sales during the
first nine months of fiscal 1997 of the Cell Robotics Workstation. Inventory
increased in the amount of $114,837, or 28.1% to support the increased sales.
Finally, as a result of the pre-payment of a purchase commitment made to a
supplier of a particular inventory component, other current assets increased
from $19,121 to $63,820, an increase of 234%.
During the nine month period ended Septembere 30, 1997, the Company's total
liabilities increased $363,030, from $363,722 at December 31, 1996 to $726,752
at September 30, 1997. Increases in accounts payable of $264,590, or 164.5%, and
royalties payable of $110,914, or 263.9%, and a smaller increase in
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payroll related liabilities were slightly offset by a small decrease in other
current liabilities of $4,561, or 14.3%. The Company did not have any long term
liabilities on December 31, 1996 or September 30, 1997.
As a result of the foregoing, the Company's working capital decreased from
$1,858,088 at December 31, 1996 to $771,162 at September 30, 1997, a decrease of
$1,086,926. This decrease was due almost exclusively to the Company's operating
loss incurred during the nine month period.
The Company will be required to expend resources and working capital in the
defense of the Venisect Litigation. The defense of this action, even if the
Company is successful, could have a material adverse effect on the Company's
future liquidity. See "Risk Factors--Patent Litigation."
The Company expects that its cash used in operating activities will increase
in the near future. The timing of the Company's future capital requirements,
however, cannot accurately be predicted. The Company's capital requirements
depend upon numerous factors, principally the market acceptance of its new
medical laser products. If capital requirements vary materially from those
currently planned, the Company may require additional financing, including but
not limited to, the sale of equity or debt securities. The Company has no
commitments for any additional financing and there can be no assurance that such
commitments can be obtained. Any additional equity financing may be dilutive to
the Company's existing stockholders, and debt financing, if available, may
involve pledging some or all of the Company's assets and may contain restrictive
covenants with respect to raising future capital and other financial and
operational matters. If the Company is unable to obtain additional financing as
needed, the Company may be required to reduce the scope of its operations, which
would have a material adverse effect upon the Company's business, financial
condition and results of operation. The Company believes that the net proceeds
from this offering will be sufficient to meet the Company's working capital
requirements for at least the next 12 months, although there can be no assurance
in this regard. See "Risk Factors--Additional Financing Requirements."
NET OPERATING LOSS CARRYFORWARDS
At December 31, 1996, the Company had a net operating loss carryforward for
income tax purposes of approximately $10,000,000, which expires beginning in
2006. Under the Tax Reform Act of 1986, the amounts of and the benefits from net
operating loss carryforwards are subject to certain limitations in the amount of
net operating losses that the Company may utilize to offset future taxable
income. It is likely that the ownership changes in 1995 in connection with the
Acquisition (as hereafter defined) will limit the use of this net operating loss
carryforward under applicable Internal Revenue Service regulations.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings Per Share." SFAS 128 establishes new standards for computing and
presenting earnings per share ("EPS"). Specifically, SFAS 128 replaces the
currently required presentation of primary EPS with a presentation of basic EPS,
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures, and requires a
reconciliation of the numerator and denominator of the basic and diluted EPS
computations to the financial statements issued for periods ending after
December 15, 1997, and early application is not permitted. Upon adoption, SFAS
128 requires restatement of prior period EPS presented to conform to the
requirements of SFAS 128. Management believes the adoption of SFAS 128 will not
have a material effect on the Company's previously-issued financial statements.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expense,
gains, and losses) in a full set of general purposes financial statements.
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Specifically, SFAS 130 requires that all items that meet the definition of
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. However, SFAS
130 does not specify when to recognize or how to measure the items that make up
comprehensive income. SFAS 130 is effective for fiscal years beginning after
December 15, 1997, and early application is permitted. SFAS 130 requires
reclassification of financial statements for all periods presented for
comparative purposes. Management believes the adoption of SFAS 130 will not have
a material effect on the Company's future financial statements.
REPORTING FOR SEGMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131 supersedes
the "industry segment" concept of SFAS 14 with a "management approach" concept
as the basis for identifying reportable segments. SFAS 131 is effective for
fiscal years beginning after December 15, 1997, and early application is
permitted. Management believes the adoption of SFAS 131 will not have a material
effect on the Company's future financial statements.
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BUSINESS
OVERVIEW
The Company has developed, and is preparing to manufacture, market and sell,
a number of sophisticated medical laser products. The Lasette-TM-, a compact,
lightweight, portable skin perforator, has been designed to permit nearly
painless sampling of capillary blood in both clinical and home settings. The
RevitaLase-TM- is a modularly-designed laser system for dermatological use which
incorporates the laser in the hand-piece. Its design allows for interchangeable,
hand-pieces each with a laser having a different wavelength suitable for
specific applications to be driven by a common base unit containing computer
controls, power supply and cooling system. The initial Erbium:YAG laser for the
RevitaLase-TM- has been designed for cosmetic uses such as skin resurfacing and
wrinkle removal and may find added applications in scar revisioning and burn
debridement. The IVF Workstation-TM-" utilizes a microscope, computer-controlled
stages and a solid-state laser to enhance human assisted reproduction
techniques. Both the Lasette-TM- and RevitaLase-TM- will require a disposable
shield or disposable delivery tip each time the laser is used. These disposables
will be manufactured for and sold by the Company. The new medical laser products
utilize core technologies and management skills developed by the Company in
connection with its Cell Robotics Workstation, a laser scientific instrument
which transforms a microscope from a viewing device into a tool for physically
manipulating and microdissecting living cells. The Company believes that the
markets for its new medical laser devices are broader than for its scientific
instruments and that its future growth will depend, primarily, on market
acceptance of these medical laser devices.
The Erbium:YAG laser handpiece for the RevitaLase-TM- has received FDA
clearance for use in dermatological and surgical applications. It is undergoing
continuing testing to finalize protocols for clinical use. The Company expects
to begin initial shipments of RevitaLase-TM- units with the Erbium:YAG handpiece
in the first quarter of 1998. The Lasette-TM- is a substitute for the stainless
steel lancet now used for such capillary blood sampling. In clinical settings
the Company believes that the Lasette-TM- will lessen the spread of, and the
fear among healthcare workers of contracting, infectious diseases through
inadvertent needle sticks while also reducing the problems of sharps disposal.
The Lasette-TM- has received FDA clearance for capillary blood sampling from all
adults, including diabetics, in clinical settings. However, the Company believes
that another principal market for the Lasette-TM- will be for home use by
diabetics. Diabetics are often required to take multiple blood samples each day
and many diabetics develop permanent finger-tip soreness and calluses from
recurrent blood sampling. The Company is making application for FDA clearance
of, Lasette-TM- sales for diabetic home use and for use on children. No
assurances can be given that these additional FDA clearances will be received.
The Company plans to begin shipping the Lasette-TM- for clinical use before the
end of 1997.
The IVF Workstation-TM- has three basic applications: first, for measuring,
assessing and storing in computer memory the various properties of a human egg
to assess its suitability for fertilization; second, to mechanically inject
sperm into an egg; and third, to pierce the outer shell of a fertilized egg with
a laser to facilitate "hatching" and promote embryo development and successful
pregnancy. In the United States, FDA clearance is required for sale of the IVF
Workstation-TM-. Clinical trials necessary to obtain the data required for
application for such clearance have recently begun and the Company expects they
will take approximately one year to complete. However, no assurance can be given
that FDA clearance will ever be obtained for use of the IVF Workstation-TM- in
"hatching." The European Community has cleared for marketing the IVF
Workstation-TM- and the Company is applying for the CE Mark necessary for sales.
The first purchase order for an IVF Workstation-TM- has been received from an
IVF clinic in Tunisia.
The Company's growth plan is to concentrate its resources on the development
of the clinical and home markets for its medical laser products. The Company
intends to market the Lasette-TM- through strategic alliances with major
distributors serving the diabetic and clinical markets, supplemented by
distribution arrangements with regional distributors and direct sales by the
Company. The Company intends to market the RevitaLase-TM- with its Erbium:YAG
laser head by establishing an OEM relationship
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with a major manufacturer of CO(2) and other medical laser systems for the
aesthetic market, to be supplemented by direct distribution by the Company under
a different trademark. The IVF Workstation-TM- will be marketed and sold over
the internet and through other direct selling methods by the Company, except
that in the United States the IVF Workstation-TM- will not be offered for
laser-assisted hatching until after FDA clearance is obtained.
HISTORY
CRI was organized in 1988 under the laws of the State of New Mexico to
develop and commercialize the discoveries embodied in the AT&T Patent (defined
below) as well as related technologies. See "Intellectual Property--Patents and
Licenses." In 1991, it obtained a non-exclusive license covering the AT&T Patent
and, using funding provided by Mitsui, began developing instruments using those
technologies. In 1994, the license with AT&T was converted from non-exclusive to
exclusive. In February 1995, IFC, the shares of which were publicly traded,
acquired 100% of the issued and outstanding shares of Common Stock of CRI in a
transaction treated as a reverse merger (the Acquisition), and subsequently
changed its name to "Cell Robotics International, Inc."
BUSINESS STRATEGY
The Company has developed a business strategy to provide a line of
technologically-advanced proprietary medical laser products for both clinical
and consumer markets. The Company's goal is to provide advanced medical laser
products that provide superior safety, efficacy and comfort at competitive
prices. The key components of this business strategy include:
EXPLOIT PROPRIETARY TECHNOLOGY. Through its patents, licenses and know-how,
the Company has developed and plans to continue to improve sophisticated laser
technology for medical applications.
DEVELOP MARKET RECOGNITION. The Company plans to position its medical laser
products as the preferred technological solution to clearly-defined medical
needs.
ESTABLISH EXCLUSIVE DISTRIBUTION CHANNELS. The Company plans to enter into
exclusive distribution agreements with large, well-established manufacturers and
distributors of medical products to take advantage of existing distribution
channels and name recognition.
RAPIDLY EXPAND CAPACITY TO ASSEMBLE PRODUCTS. The Company is committed to
rapidly expand its manufacturing capacity to assemble some of its medical laser
products. Through a combination of outsourcing for components, OEM (Original
Equipment Manufacturers) relationships and internal assembly capacity, the
Company plans to be prepared to respond efficiently to market demand for its new
products.
Through the implementation of the foregoing, the Company hopes to become a
leader in the development and sale of technologically sophisticated medical
laser products that respond to the rapidly increasing market demand for products
that offer more effective, safer and less painful solutions than conventional
procedures.
PRODUCTS
LASETTE-TM-
DESCRIPTION. The Lasette-TM- is a compact, lightweight, portable skin
perforator that uses a laser to pierce the skin on a fingertip to permit the
taking of capillary blood samples . The Lassette-TM- is designed to reduce
patient discomfort, and the Company believes it is a safer and cleaner process
than the lancet or pinprick method now in use... As a result, the Company
believes the Lasette-TM- can replace stainless steel
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lancets in certain applications which contribute to large quantities of medical
sharps, blood-infected medical waste and pose the risk of infection to both the
clinician as well as the patient.
The present generation of the Lasette-TM- is approximately the size of a
video cassette and consists of a battery-driven primary perforator unit, a
recharger and wall mount. The next generation Lasette-TM- is currently under
design and development and, when completed (projected sometime in the fourth
quarter of 1998), will be the approximate size of a handheld cellular telephone.
To protect the laser, enhance its safety and reduce the risk of inadvertent
transmission of disease, the Lasette-TM- requires the use of a disposable
plastic shield for each perforation, which the Company has manufactured on an
OEM basis. The Company expects to initially sell the Lasette-TM- for $2,000 and
the shields for $3.00 for a box of 25.
MARKETS. The Lasette-TM- is a product that addresses the collection of
capillary blood from fingertips, which according to industry data is a procedure
that is performed approximately one billion times a year in homes, hospitals,
clinics and doctors' offices. Capillary blood sampling is performed in virtually
all clinical settings, including hospitals, dialysis clinics, blood banks,
nursing facilities, home health agencies and physicians' offices. Data indicates
that in the United States alone, there are 9,500 hospitals and 21,000 other
clinical sites performing routine daily capillary blood sampling. Currently the
most commonly used device for capillary blood sampling is the stainless steel
lancet. In the hospital setting, inadvertent transmission of disease from
accidental lancet sticks is a recognized problem. The Company believes that the
Lasette-TM- can substantially reduce the trauma involved in this procedure and
the risk of inadvertent infection for both the clinician and the patient.
While the Company believes that the potential clinical market for the
Lasette-TM- is significant, a substantially greater opportunity lies in the
worldwide consumer market of persons afflicted with diabetes. Diabetics
throughout the world are required to take capillary blood samples in order to
monitor their blood sugar levels on average four times per day. The recurring
fingersticks become painful and annoying when performed on a daily basis,
causing many patients to test less frequently than prescribed by their
physicians. The Company believes that, if it can obtain the necessary regulatory
clearances for home use by diabetics, of which there can be no assurance, the
Lasette-TM- can reduce the trauma involved in this procedure and provide
valuable assistance to such patients.
MARKETING AND DISTRIBUTION. Initial marketing targets will be hospitals,
clinics, and physicians' offices, where sales of multiple units will be
possible. The Company has designed a sales, marketing and distribution program
for the Lasette-TM- which includes (i) strategic alliances with worldwide
distributors already serving the worldwide diabetic and other clinical markets,
(ii) direct sales by the Company and (iii) arrangements with smaller regional
distributors in specific world market segments. The Company is engaged in
negotiations with large companies that already have a presence in the worldwide
diabetic products market. Finalizing those arrangements will depend upon the
satisfactory delivery and testing of pre-production Lasettes-TM- to permit the
distributor to verify product performance and regulatory clearances for diabetic
use. In addition to the Company's efforts to establish major distribution
arrangements, the Company has existing distributorships in South Korea,
Singapore, Thailand and Malaysia, with sales beginning in these locations in the
fourth quarter of 1997. Direct sales by the Company will be accomplished both
through mail order and through the Company's own sales staff and sales
representatives.
MANUFACTURING. In August 1996, the Company established a strategic
development and production alliance with Big Sky Laser Technologies, Inc., an
OEM manufacturer and developer of medical laser products in Montana. Big Sky
Laser Technologies, Inc. is a recognized laser OEM manufacturer that has agreed
to comply with FDA, MDQS and other regulatory requirements. Big Sky Laser
Technologies, Inc. began the commercial manufacture of the Lasette-TM- for the
Company in the third quarter of 1997.
COMPETITION. The Lasette-TM- represents a technological alternative to the
traditional stainless steel lancet for routine capillary blood sampling. It
eliminates the risk of cross-contamination and attendant
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indirect costs, and has been designed to reduce the pain, fear and anxiety
associated with blood sampling. It also eliminates the cost and risk of lancet
waste disposal.
While each stainless steel lancet costs only pennies, the Company believes
that by eliminating the associated indirect costs of their use described above,
the Lasette-TM- can be successfully marketed at an initial end price of $2,000
per unit. The Company expects to price the second generation Lasette-TM- below
$1,000 per unit.
The only other commercialized approach to laser-based capillary blood
sampling that has come to the attention of the Company is a laser skin
perforator developed by Venisect. The Company is aware from industry sources,
however, that the Venisect laser is substantially larger than the Lasette-TM- ,
more expensive and, most significantly, has been determined by the FDA to be
unsuitable for use by diabetics. In October 1997, Venisect commenced the
Venisect Litigation in which it claims the Lasette-TM- infringes the U.S. patent
underlying its competitive skin perforator. The Company has investigated the
Venisect patent with its advisors, including patent counsel, and believes that
no basis for any infringement claim exists. Nevertheless, there can be no
assurance that the ultimate outcome of the Venisect Litigation will not have a
material adverse effect upon the Company's ability to market and sell the
Lasette-TM- or the competitive position of this product. See "Legal
Proceedings."
The development of new advanced technologies for determining and/or
controlling glucose levels in diabetic patients is a focus of many corporate
research and development efforts throughout the world. Several companies are
developing glucose testing products based on non-invasive technologies, using
skin patches and diode-pumping lasers. To the Company's knowledge, none of these
products has received FDA clearance for sales in the United States. However, if
these products are approved for sale and become commercially available in the
United States in the future, they could have a material adverse effect on sales
of the Lasette-TM- and, as a result, on the business and financial condition of
the Company.
REGULATORY STATUS. The Lasette-TM- obtained FDA clearance for clinical use
for all adult glucose/ hematocrit testing, including diabetics, in October 1997.
In addition, the Company will soon begin clinical studies for additional
applications for clearance for children in clinical settings and home use for
all ages. These studies are scheduled to be completed by the end of 1997, and
the FDA is required to respond within 90 days. See "Risk Factors--Government
Regulation" and "Business--Government Regulation--Product Approval Process."
REVITALASE-TM-
DESCRIPTION. Aesthetic procedures are performed worldwide to remove
wrinkles and other cosmetic blemishes. The Company's newly-developed
RevitaLase-TM- is a sophisticated skin resurfacing laser that introduces a new
modular design and concept to clinicians performing aesthetic surgery. The unit
is small, portable and operates on standard 110 volt wall current so that the
clinicians and their staff can easily move the system within a facility or from
office to office. The Company's solid state laser system will consist of a
portable, Erbium:YAG laser with a variable power supply, cooling system and
disposable delivery tip. The most distinguishing feature of the system will be
the location of the laser in the handpiece, which will eliminate the need for
the expensive delivery systems, such as wave guides, optical fibers or
articulated arms, that make competing systems heavy and expensive. This design
offers numerous advantages to the clinician, including a substantial cost
savings from other products currently available, as well as the use of
interchangeable laser heads using different crystals that permit the same unit
to be used for multiple dermatological applications such as wrinkle removal,
scar revision, hair removal and tatoo removal.
The Company has completed manufacture of prototype RevitaLase-TM- systems
which is currently being made available to potential distributors for
evaluation.
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MARKETS. In January 1995, CO(2) laser technology was introduced that could
remove wrinkles much more effectively than the topical treatments then available
and at substantially less cost than surgery. CO(2) lasers quickly emerged as the
predominant new treatment for wrinkles and over 20 companies began selling
lasers for this application. According to Medical Laser Insight, through 1996
over 4,000 units have been sold worldwide, generating over $200 million in
revenue.
Market expansion for CO(2) lasers has been hampered by the extended healing
times, high cost, inability to treat skin colors other than Caucasian, and other
product limitations. In March 1997, new Erbium lasers were introduced. The use
of Erbium:YAG lasers has been shown to shorten the healing times and be safe to
treat most skin colors. Since the introduction of Erbium:YAG lasers, more than
100 such lasers have been sold, with worldwide sales rapidly expanding.
Skin resurfacing is one of the fastest growing fields in dermatology, with
approximately 25,000 dermatologists, plastic surgeons and general physicians
qualified to do skin resurfacing procedures in the United States. Industry data
suggests that there are over 70,000 licensed physicians in the United States
practicing in areas of dermatology, plastic surgery, otolaryngology (ENT),
ocular plastic surgery and general practice who collectively performed more that
46,000 laser resurfacings during 1996. In addition, because the Erbium:YAG laser
has been proven effective on all skin colors, the Company believes that the
RevitaLase-TM- can be marketed successfully in many heretofore unserved areas,
such as Asia, South America and the Middle East. The Company believes that the
advantages of the Erbium laser plus the low price of the Company's laser system
will allow it to capture greater market share in international markets.
Traditionally, cosmetic removal of wrinkles and other skin treatments have
been administered by dermatologists, plastic surgeons and other physicians.
Sales of skin resurfacing lasers have in the past been primarily to hospitals
and clinics that could afford the high cost of the lasers. Because of their
cost, single physician or group practice sales have been limited in most
instances to high volume practices or to physicians who are willing to invest in
new technology. The Company believes that at the RevitaLase-TM-'s expected price
point of $35,000 to $40,000 per unit, the RevitaLase-TM- will be attractive to
single physician and small group practices.
MARKETING AND DISTRIBUTION. The Company's primary distribution strategy for
the RevitaLase-TM- involves the establishment of an OEM relationship with a
major manufacturer and distributor of medical laser systems in the aesthetic
market. Under this arrangement, a strategic partner would use its existing
presence in the market to promote and sell the RevitaLase-TM- under its own
brand name. The Company is currently engaged in negotiations with a major
distributor of medical laser systems; however, as of the date of this
Prospectus, no definitive agreements, commitments or understandings exist with
any third party, and there can be no assurance that the Company will be
successful in these efforts. The Company will also establish its own worldwide
distribution network to sell a similar product under its own trademark.
MANUFACTURING. The Company will outsource the manufacture of certain
components of the Revitalase-TM- and then complete the final assembly and
delivery of the finished product. The Company is remodeling a portion of its
existing facility and will purchase the fixed assets necessary to assemble the
RevitaLase-TM- internally, with a projected capacity of 30 units per month. All
manufacturing must be in conformity with the requirements of the FDA, GMP, the
European Community's ISO 9001 and other applicable requirements. The Company
expects the first units to be ready for initial shipments in February 1998.
COMPETITION. The worldwide market for laser skin resurfacers is
characterized by the dominance of several large, well-established competitors,
including Coherent, Inc., LaserScope, Inc., Sharplan Lasers, Inc., Laser
Industries, Ltd., ESC Medical Systems, Ltd., and Continuum Biomedical, Inc.
These manufacturers already have achieved varying degrees of market penetration
with the first generation of CO(2) lasers and are in a position to offer their
existing and expanding markets significant advantages by upgrading to the
technology offered by the RevitaLase-TM-.
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Erbium:YAG lasers have recognized advantages over the CO(2) lasers
previously marketed to clinicians performing aesthetic surgery. Healing times of
patients treated with Erbium lasers are four to 14 days while CO(2) lasers can
take as long as six weeks to three months. In addition, clinical trials suggest
that the Erbium wavelength of the laser may enhance healing and reduce thermal
damage.
Because of their clinical and aesthetic advantages, Erbium:YAG laser systems
currently are the best selling lasers in the skin resurfacing market. The
Erbium:YAG skin resurfacers which are currently available range in price from
$61,000 to $90,000 per unit. The Company believes that it can profitably
manufacture and market a RevitaLase-TM- for $35,000 to $40,000 per unit, giving
it a significant price advantage over existing competition. Further, the
interchangeable heads offering expanded applications will be offered at
approximately $10,000 to $15,000 each, which is substantially below the cost to
the clinician of buying an entire unit to service a new application. The Company
believes that this significant price advantage as well as its versatility,
reduced size and portability will open new markets beyond the high performance,
high-priced user to include the single physician's office and additional
international markets.
REGULATORY STATUS. In July 1997, the Company received all necessary FDA
clearances for marketing and sales of the RevitaLase-TM- for dermatological and
surgical applications. It will be tested on additional patients to develop
protocols for clinical use.
IN VITRO FERTILIZATION WORKSTATION
DESCRIPTION. The IVF Workstation-TM- is a computer-controlled
multi-functional workstation that combines for the first time a technological
solution to both the functional and informational requirements of clinicians
working in the IVF environment. Utilizing a microscope, computer-controlled
motorized stage, video camera, sophisticated laser technology and data storage
and retrieval systems, the IVF Workstation-TM- permits standardized evaluation,
measurement and diagnosis of eggs and embryos, sperm injection and
laser-assisted embryo hatching in one integrated system. With its computer
hardware and software, the IVF Workstation-TM- also permits the detailed
cataloguing and documentation of each IVF procedure and the organization and
retrieval of data and other information.
The Company plans to offer the IVF Workstation-TM- in various
configurations, including a standard platform plus optional laser modules and a
pair of micromanipulators and/or micro syringe pumps for sperm injection. The
computer controls the pumps used for sperm injection, positions and fires the
laser and documents each step with a video image in a Microsoft Word document.
IVF is a rapidly-growing area of human fertility treatment. However, success
rates with current procedures vary significantly from clinic to clinic. While
sperm injection is a technique commonly used by IVF clinics, it has been found
that problems encountered in embryo hatching often contribute to infertility and
poor success rates. The Company believes the IVF Workstation-TM- is the only
product currently available that offers laser-assisted hatching technology,
while providing more accurate diagnosis of the embryo and documentation of the
procedure for improved future outcomes. An IVF clinic's reputation is dependent
upon the number of successful pregnancies it is able to achieve. The IVF
Workstation-TM- is designed to improve success rates for clinics and IVF
patients. Initial animal trials have demonstrated improved success rates
utilizing the IVF Workstation-TM- with its laser-assisted hatching. Using
laser-assisted hatching, the Company believes that IVF clinics will have the
ability to provide substantially improved success rates with fewer IVF cycles,
thereby also reducing costs. The complete IVF Workstation-TM- can currently be
sold in most of the world, excluding the United States and Japan. The European
Community allows the Company to market and sell the product and much of the rest
of the world follows the European Community guidance. The Company has received
its first purchase order from an IVF clinic in Tunisia.
MARKETS. The market for the IVF Workstation-TM- consists of the more than
1,300 clinics worldwide that treat infertility, approximately 300 of which are
located in the United States. Worldwide these clinics conduct approximately
100,000 IVF treatment cycles a year. At an average cost of $5,000 per treatment
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cycle, it is estimated that over $500 million is spent annually at these
clinics. It is believed that the IVF Workstation-TM- will substantially increase
success rates and reduce the time and cost required to successfully complete a
fertility treatment cycle, thereby increasing profits and revenue to the
clinician.
MARKETING AND DISTRIBUTION. The IVF Workstation-TM- has received all
necessary clearances within the European Community and most foreign markets.
Clinical trials for FDA clearance for marketing in the United States have begun
in Europe, Australia, Israel and, more recently in the United States. The
Company hopes that the improved success rate experienced by foreign clinics will
have the effect of stimulating interest in the product in domestic markets.
Sales, service and installation of the IVF Workstation-TM- will be handled
directly by the Company's staff. The Company is also using its Internet Website
as a sales medium. In addition, the Company is entering into arrangements with
distributors in foreign markets. Currently, distribution agreements are in place
covering South Korea and Brazil.
The complete IVF Workstation-TM- will be offered with two pricing
structures. Wherever permitted, the Company will promote the pricing strategy of
a reduced purchase price with ongoing revenues based upon each laser shot. Under
this scenario, the Company will maintain ownership of the laser and will provide
annual calibration and maintenance of the laser module. This will ensure that
the system is performing as it was designed and the Company expects that
customers will increase their use of the laser as they experience a reduction in
time and expense and improve their success rates. In the United States, clinics
will be able to pass along the fees for laser-assisted hatching to their
patients since most procedures are direct patient-pay procedures. This will
allow the clinic to purchase the equipment initially at a much lower price. In
many countries outside of the United States, however, the Company expects the
IVF Workstation-TM- will be sold for a single, higher flat fee.
MANUFACTURING. The Company plans to outsource the manufacture of certain
components and then assemble the IVF Workstation-TM- at its facility. The
Company expects to use a portion of the proceeds of this offering to purchase
equipment and hire personnel required for the assembly of the IVF
Workstation-TM- at its own facility. The Company anticipates that it will be
able to assemble and ship sufficient units to satisfy demand for the product, if
any.
COMPETITION. The Company is not aware of any other product that combines
all of the features and performance specifications of the IVF Workstation-TM-.
Once operational, the IVF Workstation-TM- will offer IVF clinics a tool that
integrates the latest in technological advances together with needed
documentation for better outcomes.
REGULATORY STATUS. The IVF Workstation-TM- has been approved for marketing
and sale in Europe and international sales efforts have been initiated. The only
functional component of the IVF Workstation-TM- that requires FDA clearance is
the laser module used for laser-assisted hatching. An Investigational Device
Exemption (IDE) application for clinical trials of the IVF Workstation-TM- has
been approved by the FDA. Clinical trials started in October 1997 at two sites
in the United States and are scheduled to begin in Belgium, Israel, and
Australia. It is expected that FDA clinical trials of the IVF Workstation-TM-
will be completed no earlier than late 1998. There can be no assurance when, if
ever, FDA clearance for sales in the United States will be obtained.
SCIENTIFIC RESEARCH INSTRUMENTS
APPLICATIONS OF THE RESEARCH INSTRUMENTS. The Company's microrobotic
technology allows scientists to manipulate objects in microspace, upgrading the
microscope from simply an instrument for observation to an interactive
micro-laboratory. The scientific research instruments are designed to enhance
the usefulness and importance of the conventional laboratory microscope as a
tool in medical, biological and genetic applications in the life sciences. The
technology can be used for cell separation, cell-cell interaction,
microdissection, and intercellular manipulation of living cells. The Company has
either demonstrated itself
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that its products can be used for, or is aware of others using its products in,
cancer research and immunology, neurobiology, assisted reproductive techniques
and genome research.
DESCRIPTION. In 1996, the Company introduced the computer-controlled Cell
Robotics Workstations for optical trapping, micromanipulation and microsurgery.
These workstations are based on the Company's core LaserTweezers-Registered
Trademark-, LaserScissors-Registered Trademark-, CellSelector-Registered
Trademark- and SmartStage-Registered Trademark- technologies. The functionality
of the Cell Robotics Workstations has been improved through the addition of
computer control, providing more powerful and user-friendly features such as
interactive software with mouse or keyboard control, unique motorized stage and
motorized focus drive providing motion in three directions. The Cell Robotics
Workstation integrates the Company's research instruments into a complete
computer-controlled optical trapping and ablation workstation. The Cell Robotics
Workstation provides and improves upon functions that are routinely used in
research microscopy, but offers advanced laser-mediated micromanipulation. With
the Cell Robotics Workstation, instruments are controlled via an easy-to-use
software program. Performance and observation of experiments are entirely on
screen. Video and image capture capabilities allow the storage of images while
experiments are in progress for use in papers, reports, and presentations. A
fully-equipped Cell Robotics Workstation includes the SmartStage-Registered
Trademark-, LaserTweezers-Registered Trademark-, LaserScissors-Registered
Trademark-, and CellSelector-Registered Trademark- modules, an electronic
controller, a motorized stage, computer, motorized focus drive, instrument
control software, and video camera. A fully-equipped Cell Robotics Workstation
sells for a retail price of $80,940 in the United States. The modules included
in the complete Cell Robotics Workstation are also offered separately, with the
basic microscope Workstation offered at a retail price of $25,000, the
LaserTweezers-Registered Trademark- Workstation for a retail price of $52,250
and the LaserScissors-Registered Trademark- Workstation at a retail price of
$52,440.
MARKETS. The initial market for the Company's research workstations has
been the national and international biology research community. In the United
States, the research market consists of approximately 108,000 research
biologists working in 2,400 institutions. The Company specifically targets users
of inverted microscopes, for which there were approximately 10,000 existing
users in 1996 and approximately 1,000 new purchases made annually in the United
States and Canada. Worldwide, the installed base of inverted microscopes was
approximately 33,000 in 1996, with 3,000 additional new sales annually. Another
potential market, and a form of competition to the Company's products, is the
mechanical micromanipulator market. A micromanipulator consists of a very thin
needle, or micropipette, that performs many of the same functions as the
Company's CellSelector-Registered Trademark- and SmartStage-Registered
Trademark- but is operated manually and often compromises the sterility of the
specimen. Annual sales of micromanipulators totaled approximately 800 in the
United States in 1996 and 2,000 worldwide.
Principal markets for the Company's research instruments are researchers
using inverted microscopes in universities, research laboratories, biotechnology
and pharmaceutical companies, and commercial laboratories currently conducting
biological research. The Company's marketing strategy is to identify key
scientists who are engaged in specific research applications for which the
Company's instruments are particularly well suited.
MARKETING AND DISTRIBUTION. While the Company intends to focus its
marketing efforts on the distribution and sale of its medical laser devices, it
will continue to promote and market its scientific instruments through direct
sales, dealers, representatives and distribution arrangements. The Company
previously had an exclusive distribution arrangement with Carl Zeiss, Inc.
("Zeiss"), one of the largest worldwide manufacturers of microscopes and lenses.
However, due to disappointing performance by Zeiss under the agreement, the
Company chose not to renew the arrangement at the end of 1996. The Company has
decided that direct marketing of its scientific instrument products will provide
a more effective and lucrative strategy for this industry segment. The Company
also has a distribution agreement with Mitsui granting Mitsui exclusive
distribution rights for the Company's products in Japan for a term of ten years.
The Company also expanded its domestic and international distribution channels,
and now distributors in 15 countries are starting to sell the research
instruments.
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MANUFACTURING
The Company has entered into an arrangement for the manufacture of the
Lasette-TM- by a third party on an OEM basis. The Company's manufacturing
approach for the RevitaLase-TM- and IVF Workstation-TM- attempts to minimize the
capital outlay by outsourcing parts to machine shops and circuit board
companies, but completing all final assembling and testing on its premises to
ensure the quality of the final products. The Company plans to continue to use
this approach with the new and current products. The Company is instituting the
record keeping, quality control, and production procedures to meet the
requirements of the FDA MDQS , and the European Community's ISO 9001
manufacturing requirements.
COMPETITION
The industry in which the Company competes with its medical laser products
is characterized by rapidly evolving technology and intense competition. Many
companies of all sizes, including both large organizations as well as several
specialized medical laser products companies are engaged in activities similar
to that of the Company. In addition, colleges, universities, governmental
agencies and other public and private research institutions will continue to
conduct research and to protect technologies that they have developed, some of
which will be directly competitive with that of the Company. Many of the
Company's competitors have substantially greater financial, research and
development, human and other resources than the Company.
The Company believes it has certain technological advantages in producing
the compact, low-cost laser design in the Lasette-TM- and the RevitaLase-TM-.
However, the Company's cost advantage is dependent in part upon its ability to
maintain its relationship with New Technology Enterprise Center ("NTEC"), its
Russian associate, the supplier of the crystals used in the manufacture of its
lasers, the continuation of which is in doubt due to current unresolved disputes
between the Company and NTEC. In addition, the Company has experienced quality
or supply problems with its Russian supplier, either of which, if not remedied,
could necessitate it changing the source of supply. Alternative sources of
supply for the crystals, while available, would increase the production cost of
the Company's product and reduce its competitive advantage.
The development of new advanced technologies for determining and/or
controlling glucose levels in diabetic patients is a focus of many corporate
research and development efforts throughout the world. Several companies are
developing glucose testing products based on non-invasive technologies, using
skin patches and diode-pumped lasers. To the Company's knowledge, none of the
products has received FDA clearance for sales in the United States. However, if
these products are approved for sale and become commercially available in the
United States in the future, they could have a material adverse effect on sales
of the Lasette-TM-, and, as a result, on the business and financial condition of
the Company.
The Company believes that its success is highly dependent upon its ability
to complete distribution agreements for the sale of its new medical laser
products and create additional internal sales and marketing resources. Although
several distribution agreements are in place, there can be no assurance that the
Company can achieve these goals.
The Company believes that the principal factor affecting its competitive
position is the suitability of its instruments for, and performance in, a
particular application. Because of the highly specialized nature of its markets,
such traditional competitive factors as price, delivery, upgradability and
support are less significant, with the exception of the RevitaLase-TM- which is
in a very cost-competitive market. The Company faces potential competition from
a number of established domestic and international companies, all of which have
vastly greater engineering, manufacturing, marketing and financial capabilities
than the Company. The ability of the Company to compete successfully in existing
and future markets will depend on elements both within and outside its control,
including, but not limited to, its success in market penetration, protection of
its products by effective utilization of intellectual property laws, including
full exercise of its patent rights, improvements in product quality and
reliability, ease of use, price, diversity of
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product line, efficiency of production, the rate at which customers incorporate
the Company's instruments into their products, product introductions by the
Company's competitors and general domestic and international economic
conditions.
INTELLECTUAL PROPERTY
The Company relies primarily on a combination of patent, trade secret,
copyright and trademark laws, confidentiality procedures and other intellectual
property protection methods to protect its proprietary technology. The Company's
medical laser products currently have no patent protection and its scientific
research instruments only have limited patent protection. The commercial success
of the Company's medical laser products will depend, in part, upon the Company's
ability to protect and defend its intellectual property rights and the
competitive advantages that those rights offer to its products. There can be no
assurance that the Company will be successful in these efforts.
Both the Lasette-TM- and the RevitaLase-TM- were originally developed under
the MCR Patent (defined and described below). However, the RevitaLase-TM-
currently does not use the MCR Patent and, in fact, does not currently have any
direct patent protection. The Company is, however, in the process of preparing,
and will be submitting, design patents related to the RevitaLase-TM-. Similarly,
the Lasette-TM-, also does not use the MCR Patent design, but uses other
crystals which the Company believes offer certain advantages over crystals made
under the MCR Patent. As a result, the Lasette-TM- also does not currently have
any direct patent protection. The IVF Workstation-TM- does not have any direct
patent protection, although the Company believes that certain features may be
patentable and intends to make patent applications for them in the future.
Finally, the LaserTweezers-Registered Trademark- application of the Cell
Robotics Workstation is being developed and sold under the AT&T License and the
related optical trapping patent (defined and described below).
PATENTS AND LICENSES
AT&T LICENSE--In 1991, the Company entered into a license agreement with
AT&T (the "AT&T" License") pursuant to which the Company was granted a worldwide
exclusive license to manufacture, use and sell products and processes covered by
the claims of one (1) United States patent held by AT&T (the "AT&T Patent")
related to "Optical Traps" which covers all biological optical trapping
applications for wavelengths that are longer than 800nm. The AT&T Patent expires
in 2007. Corresponding patents have also been issued in Canada, Japan,
Australia, Hong Kong and the European Community. The inventions covered by the
AT&T Patent and License apply to the Company's LaserTweezers-Registered
Trademark-. Under the terms of the AT&T License, the Company is required to pay
a royalty equal to five percent (5%) of the value of each product sold utilizing
the patents, subject to minimum annual royalties initially in the amount of
$100,000 at December 31, 1996 and increasing by an additional $50,000 per year
to as high as $500,000 per year, regardless of actual sales. As of the date of
this Prospectus, the Company is current in its minimum royalty payment
obligations under the AT&T License. However, the Company recognizes that the
minimum royalty will escalate to a substantial annual capital commitment, and
there can be no assurance that its future financial condition or results of
operations will be able to support that commitment. The Company is engaged in
efforts to renegotiate the terms of the AT&T License, but there can be no
assurance that these efforts will be successful. If the Company is unable to
renegotiate the AT&T License, it may be forced to abandon the
LaserTweezers-Registered Trademark- product.
TECNAL PATENTS--On January 10, 1996, the Company acquired from Tecnal
Products, Inc., a subsidiary of Lovelace Scientific Resources, Inc., one United
States patent known as the Multifaceted Crystal Resonator patent, ("MCR
Patent"), and one foreign patent application and a strategic license. These
acquisitions comprised a package of technological assets covering two laser
products: a low-cost, high-power solidstate laser that eliminates many of the
delicate optical components required by conventional solidstate lasers, and a
laser perforator. The MCR Patent was originally developed under the license
agreement with NTEC of Russia. The advanced laser design of the MCR Patent and
other related technology developments can
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be used in a variety of laser applications, including skin resurfacing (facial
wrinkle removal), laser dentistry, eye surgery and other medical and industrial
procedures. While these technologies were used in early versions of the
Lasette-TM- and the RevitaLase-TM-, the Company has now developed its own
technology for these products.
The Company acquired the MCR Patent and other technological assets in
consideration of cash payments in the amount of approximately $15,000, the
issuance of an aggregate of 17,500 shares of Common Stock and the grant of a 1%
royalty on future net revenue based upon the technology, with a lifetime maximum
royalty of $20,000.
OTHER PATENTS--The Company has also been issued two (2) United States
patents. One patent covers three dimensional mechanical staging and the other a
specialized chamber for the LaserTweezers-Registered Trademark-, both used in
the Cell Robotics Workstation. In addition, the Company is in the process of
preparing, and will be submitting, applications for design patents related to
the RevitaLase-TM- as well as applications for patents associated with the IVF
Workstation-TM-. However, neither the RevitaLase-TM- nor the IVF Workstation is
currently covered by any of the Company's existing patents.
Because of rapid technological developments in the industries in which the
Company competes and the broad and rapidly developing patent coverage, the
patent position of the Company is subject to certain uncertainties and may
involve complex legal and factual issues. Consequently, although the Company
holds certain patents, is licensed under other patents and is currently
prosecuting additional patent applications, there can be no assurance that
patents will issue from any pending or future applications or that claims
allowed by any existing or future patents issued or licensed to the Company will
not be challenged, invalidated or circumvented, or that any rights granted
thereunder will provide adequate protection to the Company. Moreover, the
Company may be required to participate in interference proceedings to determine
the priority of inventions, which could result in substantial costs to the
Company. Further, while the Company believes, based upon its research and
investigations, as well as those of its advisors, including patent counsel, that
none of its products infringe upon the domestic or foreign patent rights, or
other intellectual property rights, of third parties, there can be no assurance
that the Company will not be required to defend against future infringement
claims of third parties in addition to the Venisect-TM- Litigation. Such
additional litigation could represent a substantial commitment of the Company's
limited capital resources, including both funds and human resources, without any
assurance that the Company will ultimately prevail on the merits. As a result,
the potential of such litigation could represent a material adverse effect upon
the Company's future financial condition and results of operations.
OTHER INTELLECTUAL PROPERTY
In addition to its patent rights, the Company relies upon certain
proprietary know-how in its manufacturing process and has entered into employee
and third party nondisclosure agreements to protect its proprietary technology.
In addition, the Company has developed distinctive trademarks for both its
medical laser devices and its scientific research instruments which it believes
constitute valuable intellectual property rights. The Company has obtained
federal registrations for LaserTweezers-Registered Trademark-,
LaserScissors-Registered Trademark-, CellSelector-Registered Trademark- and
SmartStage-Registered Trademark-, all modules of its Cell Robotics Workstation.
The Company has not obtained federal registrations for Lasette(TM),
Revitalase(TM), and IVF Workstation(TM). While it intends to apply for these
registrations, to date it has made application only for Lasette(TM). However,
there can be no assurance that federal registrations for these trademarks will
be issued or, if issued, the degree of protection that they will afford. In the
absence of Federal registration, the Company relies on common law rights for its
trademarks.
RESEARCH AND DEVELOPMENT
The Company's success will depend in large part upon its ability to enhance
existing products and to continue developing new products incorporating the
latest improvements in laser technology. Accordingly, the Company is committed
to investing significant resources in research and development activities.
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During the year ended December 31, 1996 and in the nine months ended
September 30, 1997, the Company spent approximately $709,000 and $813,000,
respectively, on internal research and development programs. As of September 30,
1997, three of the Company's scientists and engineers were engaged primarily in
research and development activities. The majority of funds expended by the
Company for its internal research and development activities was derived from
sales of capital stock and short-term borrowings from its principal stockholder,
Mitsui, and the sale of securities in 1995, 1996 and 1997. The Company does not
have any research arrangements with outside R&D firms and does not anticipate
entering into development arrangements with third parties in the foreseeable
future. The Company does not currently perform any research and development
under contract to third parties except for Small Business Innovative Research
("SBIR") grants from the federal government. These include a Phase II grant from
the National Cancer Institute (NCI) of the National Institutes of Health (NIH).
The award funds two years of development of a proprietary laser instrument for
semi-automated single cell sorting. The total award over two years is
approximately $749,000, of which approximately $42,600 has been received to
date. The receipt of this award should facilitate the Company's goal of
developing a single cell analysis workstation which could aid in the
understanding of cancer cells and viruses. Proceeds from this award will be used
to expand the current capabilities of the Cell Robotics Workstation and
LaserTweezers-Registered Trademark-technology.
While the Company is actively engaged in the development of potential future
products from its core technology, these products are essentially extensions of
the current product lines. There can be no assurance that any of these programs
will be continued or completed. Even if these products are successful, the
Company does not expect to introduce any resulting new products for at least six
months, and there can be no assurance that any such products will be
commercially successful.
GOVERNMENT REGULATION--PRODUCT APPROVAL PROCESS
The Company is subject to a variety of government regulations pertaining to
various aspects of its marketing, sales and manufacturing processes. The Company
has been successful in obtaining many of the regulatory clearances that are
required to market and sell its products, however additional clearance for
broader markets will be required, of which there can be no assurance.
For research applications, the Company's products are subject only to safety
regulations by the FDA. However, the European Community ("EC") has recently
required that the research instruments receive their CE mark before they can be
exported to the EC. The Company received the CE mark for its Cell Robotics
Workstation and all of its modules in September 1997. However, the Company's
medical device products require more extensive regulatory approval.
In the United States, the Company's medical instruments are subject to
rigorous regulation under federal and state statutes and regulations governing
the testing, manufacture, safety and efficacy, labeling, recordkeeping,
approval, advertising and promotion of the Company's products. Product
development and approval within this regulatory framework may take many months
and may involve the expenditure of substantial resources. In addition to
obtaining FDA clearances for each product, each manufacturing establishment must
be registered with, and approved by the FDA and meet ISO 9001 requirements.
The FDA has separate review processes for medical devices that must be
followed before such products can be commercially marketed in the United States.
There are two basic review procedures for medical devices in the United States.
Certain products may qualify for a Section 510(k) procedure, under which the
manufacturer gives the FDA a Pre-Market Notification ("510(k) Notification") of
the manufacturer's intention to commence marketing of the product at least 90
days before the product will be introduced for clinical use. Among other things,
the manufacturer must establish in the 510(k) Notification that the product to
be marketed is "substantially equivalent" to another legally-marketed,
previously existing product. If a device does not qualify for the 510(k)
procedure, the manufacturer must file a Pre-Market Approval Application ("PMA").
The PMA requires more extensive pre-filing testing than the 510(k) procedure and
involves a significantly longer FDA review process.
As Class II devices, both RevitaLase-TM- and Lasette-TM- were eligible to
qualify under the Section 510(k) procedure. The RevitaLase-TM- received FDA
clearance within a few months without clinical trials. The
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Lasette-TM-, on the other hand, required approximately one year to obtain its
first FDA clearance, limited to clinical use with healthy adults, due to the
required extensive clinical trials. FDA clearance for use of the Lasette-TM- for
adult diabetics in clinical settings was issued in October 1997, and the Company
has begun clinical studies for additional applications for clearance for
children in clinical settings and home use for all ages. Until such clearances
are obtained, the Company will not be able to market or sell the Lasette-TM- in
the United States for home use by diabetics, a principal market for the product.
The IVF Workstation-TM-, as a Class III device insofar as laser-assisted
hatching is concerned, was not eligible for the Section 510(k) procedure and
requires complete Pre-Market Approval. The IVF Workstation-TM- was granted an
IDE and is in the process of completing detailed clinical trials, which may take
more than two years in their entirety. However, while marketing in the United
States must await FDA clearance which is likely not to occur before the fourth
quarter of 1998, the Company has the right to market and sell the IVF
Workstation-TM- in Europe and most foreign countries, since it is not deemed a
medical device in those jurisdictions. Nevertheless, as an electronic laser
product, actual shipments of the IVF Workstation-TM- to the EC requires a CE
Mark which the Company expects to receive by the end of 1997.
For marketing outside of the United States, the Company or its prospective
licensees will be subject to foreign regulatory requirements governing clinical
trials and marketing approval for the products. The requirements governing the
conduct of clinical trials, product licensing, pricing, and reimbursement vary
widely from country to country. Although the Company does have employees
experienced in the EC and other regulatory procedures, it does not currently
have any facilities or employees outside of the United States. In some cases the
Company will rely on its strategic partners in foreign markets to satisfy the
regulatory requirements imposed by those jurisdictions.
EMPLOYEES
At September 1, 1997, the Company had 15 full-time employees and two
part-time employees. Of the full-time employees, 4 were principally engaged in
product development, 4 in manufacturing, 5 in marketing and sales and the
balance in administration and finance. None of the Company's employees is
represented by a labor union or covered by a collective bargaining agreement.
The Company has experienced no work stoppages and believes that its employee
relations are good. The Company believes that its success will depend, in part,
on its continuing ability to attract and retain qualified technical, marketing
and management personnel.
FACILITIES
The Company's facilities are located in approximately 12,000 square feet in
Albuquerque, New Mexico. This facility contains the Company's executive and
administrative offices, as well as its assembly, production, testing, storage
and inventory functions. The lease covering the facility requires monthly
payments of $7,986, subject to a 3% annual increase, and has recently been
renegotiated to terminate in 2002. The Company believes that this facility is
adequate for its present and near-term requirements. The equipment, fixtures and
other assets of the Company located within the facility are adequately insured
against loss.
LEGAL PROCEEDINGS
In October 1997, a civil action was brought by Venisect, Inc. against the
Company in the United States District Court of the Eastern District of Arkansas,
Case No. LR-C-97-877 (the "Venisect Litigation") in which Venisect claims that
the Lasette-TM- infringes a U.S. patent, underlying its competitive laser skin
perforator. The Company and its advisors, including patent counsel, have
conducted a comprehensive investigation of the basis of the claims underlying
the Venisect Litigation and believe that the Lasette-TM- does not infringe upon
the Venisect U.S. patent or any of its related foreign patents. The Company
intends to vigorously defend the claims being asserted in the Venisect
Litigation. See "Risk Factors--Patent Litigation."
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The name, position with the Company, age of each Director, executive officer
and key employee of the Company is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(1)
- ------------------------------ --- -------------------------------------------------
<S> <C> <C>
Dr. Ronald K. Lohrding........ 56 President, Chief Executive Officer and Chairman
of the Board
Craig T. Rogers............... 35 Vice-President of Investor Relations, Secretary,
Treasurer and Director
Jean Scharf................... 35 Chief Financial Officer and Controller
Travis Lee.................... 38 Vice-President of Sales and Marketing
Richard Zigweid............... 49 Manufacturing Manager
Connie White.................. 43 Regulatory Affairs and Quality Manager
Michael Wolf.................. 55 Chief Engineer
Dr. Larry Keenan.............. 50 Product Manager, CR Workstation
Dr. Jerome Conia.............. 37 Product Manager, IVF Workstation-TM-
David Costello................ 42 Product Manager, Lasette-TM-
Mark T. Waller................ 46 Director
Dr. Raymond Radosevich........ 59 Director
Dr. Debra Bryant.............. 46 Director
</TABLE>
- ------------------------
(1) There exists no family relationship between any officer or director.
DR. RONALD K. LOHRDING, has served as the Company's Chief Executive Officer,
President and Chairman of the Board since February 23, 1995. He co-founded the
wholly-owned subsidiary, Cell Robotics, Inc., in 1988 and has served as the
Chairman, President and CEO since incorporation. He has over 20 years of
management experience. He received his Ph.D. in mathematical statistics from
Kansas State University in 1969, and then spent from 1968 to 1988 at LANL as an
R&D manager and as a scientist. He served as LANL 's Assistant Director for
Industrial and International Initiatives, Deputy Associate Director for
Environment and Biosystems, as well as Program Director for Energy, Environment
and Technology, among other senior management positions. Concurrently, he has
been a general partner in seven real estate partnerships, two of which are still
currently active.
CRAIG T. ROGERS has served as the Company's Vice President for Investor
Relations, Secretary, Treasurer and as a Director since 1995. From 1991 until
1995, he served as the Chief Executive Officer, President and a Director of IFC.
As a result of the Acquisition, Mr. Rogers resigned as the Chief Executive
Officer and President of IFC and, in February 1995, concurrently was appointed
Chief Financial Officer, Secretary and Treasurer of the Company. Mr. Rogers
served as Chief Financial Officer until January 8, 1997 Mr. Rogers served as
Chief Operating Officer of The Rockies Fund, Inc. from July 1993 to October 1,
1996. Mr. Rogers also currently serves as an officer and director of Discovery
Technologies, Inc., a Colorado-based publicly-held holding company. From April
1988 to June 1991, he also served as Chief Financial Officer for DMA Computer
Solutions, a general partnership operating four Connecting Point franchise
stores. Mr. Rogers received a Bachelor of Arts Degree in Business/Economics from
Colorado College in 1984.
JEAN SCHARF was appointed Chief Financial Officer and Controller of the
Company in August 1997. From April 1995 to August 1997, she served as, the
Controller for TPL, Inc., a $7 million defense and private sector contractor.
From April 1984 to September 1994, she was employed by with Applied Technology
Associates and with SAIC. She has also owned her own financial software
consulting business since 1994. She has a BA degree in business with an
accounting specialty from the University of New Mexico and is currently working
on a M.B.A. degree.
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TRAVIS LEE was appointed Vice-President of Sales and Marketing in January,
1997. During 1996, Mr. Lee, was responsible for International Marketing and
Business Development at LaserScope Surgical Systems, San Jose, CA, a $70 million
manufacturer of surgical laser systems. From February 1994 to September 1996, he
was Vice President for Marketing at Heraeus Surgical Inc., a $30 million
manufacturer of surgical lasers and other medical products. He held senior
management, marketing and sales positions with Medasonics, Inc. and Xintec
Corporation from 1991 to 1994. Mr. Lee received his B.S. degree from San Jose
State University in Graphic Design.
RICHARD ZIGWEID, Manufacturing Manager, joined the Company in August, 1996.
Mr. Zigweid was Manufacturing Manager at Olympus America from May 1994 to August
1996. He served as engineering manager at Bausch & Lomb and as engineering
manager and manufacturing engineer at Baxter Healthcare from December 1988 to
February 1994. He received his B.S. degree from the University of Wyoming in
Mechanical Engineering.
CONNIE WHITE, Regulatory Affairs and Quality Assurance Manager, joined the
Company in January, 1997. She, served as Compliance Officer for Tissue
Technologies, Inc., a skin resurfacing laser manufacturer and wholly-owned
subsidiary of Palomar Medical Technologies, Inc. during 1995 and 1996, where she
achieved FDA Medical Device Quality System compliance, European market
permission, and ISO 9000 registration for Tissue Technologies' skin resurfacing
laser systems. From 1986 to 1995, was responsible for regulatory affairs at the
"O" Company, a dental implant company. Ms. White received her B.A. degree from
the University of New Mexico.
MICHAEL WOLF, Chief Engineer, joined the Company in June 1991, and has been
principally responsible for designing the Company's flagship products. He served
as Senior Engineer at Amtech Systems Corp. and spent 24 years at LANL in various
technical positions beginning in 1967. He has authored over 30 technical papers,
holds 10 United States patents, and has been the lead designer on three projects
that were awarded the R&D 100 Award, signifying one of the 100 most significant
technological advances of the year.
DR. LARRY KEENAN, Sales Representative, joined the Company in January 1993
and has been Product Manager for the Cell Robotics Workstation since July, 1997.
Dr. Keenan was the Regional Sales Manager of BioRad for the confocal microscope
product line of BioRad from 1991 through 1992. He received his Ph.D. in
Biological Sciences at the University of California at Irvine and was an
Associate Research Scientist in Neurobiology at Yale University.
DR. JEROME CONIA joined the Company in May 1992 as a Scientist and has been
the IN VITRO Fertilization Workstation Product Manager since May 1996. He has
authored several scientific papers on optical trapping and scissoring and is the
principal investigator on several SBIR grants. He received his M.S. in
Embryology, Cellular Biology, and Physiology from the University of Paris, and
his Ph.D. in Specialty Life Science from the University of Orsay, Paris, France.
He also was a post-doctoral fellow in the Genetics Group at the LANL from March
1989 until May 1992.
DAVID COSTELLO, Product Manager of the Lasette-TM-, joined the Company in
August 1996. From February 1994 to September 1995, he was founder and Executive
Vice-President of Technal Products, Inc. From May 1992 to February 1994, he was
Technology Development Program Manager at Lovelace Scientific Resources. His
qualifications include five patents in medical optics, experience in regulatory
development of new clinical products, and a master's degree in Biomedical
Engineering from Texas A&M University.
MARK WALLER, DIRECTOR, was elected to the Board in February 1995. Since
1990, Mr. Waller has been President and founder of BridgeWorks Capital, a sole
proprietorship which arranges public and private financing for and provides
public relations services to client companies. Mr. Waller was Interim President
and Director of Totem Health Sciences, Inc., a Canadian medical products and
research company, from 1988 to 1990.
DR. RAYMOND RADOSEVICH, Director, was elected to the Board in 1992. From
1985 to 1989, he was Dean of the Anderson School of Management at the University
of New Mexico, where he is currently a Professor
44
<PAGE>
of Management, specializing in business strategy and the management of
technology. In addition, he teaches a course in Technology Entrepreneurship and
lectures on the subject nationally and internationally. Dr. Radosevich earned
his Ph.D. from Carnegie-Mellon University, a B.S. in Mechanical Engineering and
an M.S. in Industrial Engineering from the University of Minnesota.
DR. DEBRA BRYANT, Director, was elected to the Board in July 1997. She is
President, CEO and majority stockholder of Humagen Fertility Diagnostics, Inc.,
which is the largest manufacturer of micropipets for the worldwide IN VITRO
fertilization market. In 1984, Dr. Bryant joined Humagen, Inc. as a Senior
Scientist. In 1991, Dr. Bryant purchased the fertility diagnostics division of
Humagen, Inc. and founded Humagen Fertility Diagnostics, Inc. Dr. Bryant
received her Ph.D. in Medical Microbiology from Bowman Gray School of Medicine,
Wake Forest University and completed a NIH postdoctoral fellowship in molecular
biology at the University of Virginia.
Each director is elected to serve for a term of one year until a successor
is duly elected and qualified.
The executive officers of the Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual meeting of
stockholders. Each executive officer will hold office until his successor is
duly elected and qualified, until his resignation or until he shall be removed
in the manner provided by the Company's By-Laws.
During the fiscal year ended December 31, 1996, the Company had a standing
Audit Committee of the Board of Directors, but did not have a Compensation or
Nominating Committee of the Board. The members of the Audit Committee were Dr.
Raymond Radosevich and Dr. Denis Burger. Dr. Burger has since resigned as a
director and was succeeded on the Audit Committee by Mr. Waller. No member of
the Audit Committee receives any additional compensation for his service as a
member of that Committee. The Audit Committee is responsible for providing
assurance that financial disclosures made by management reasonably portray the
Company's financial condition, results of operations, plan and long-term
commitments. To accomplish this, the Audit Committee oversees the external audit
coverage, including the annual nomination of the independent public accountants,
reviews accounting policies and policy decisions, reviews the financial
statements, including interim financial statements and annual financial
statements, together with auditor's opinions, inquires about the existence and
substance of any significant accounting accruals, reserves or estimates made by
management, reviews with management the Management's Discussion and Analysis
section of the Annual Report, reviews the letter of management Representations
given to the independent public accountants, meets privately with the
independent public accountants to discuss all pertinent matters, and reports
regularly to the Board of Directors regarding its activities.
The Company plans to form a Compensation Committee during fiscal 1997. No
member of the Compensation Committee will receive any additional compensation
for his service as a member of that Committee. The Compensation Committee will
be responsible for reviewing pertinent data and making recommendations with
respect to compensation standards for the executive officers, including the
President and Chief Executive Officer, establishing guidelines and making
recommendations for the implementation of management incentive compensation
plans, reviewing the performance of the President and CEO, establishing
guidelines and standards for the grant of incentive stock options to key
employees under the Company's Incentive Stock Option Plan, and reporting
regularly to the Board of Directors with respect to its recommendations.
There are no family relationships among Directors or persons nominated or
chosen by the Company to become a Director, nor any arrangements or
understandings between any Director and any other person pursuant to which any
Director was elected as such. The present term of office of each Director will
expire at the next annual meeting of stockholders.
TECHNICAL ADVISORY BOARD
The Company has voluntarily formed a Technical Advisory Board (the "Advisory
Board ") whose members are chosen by the Board of Directors based upon their
individual technical and scientific expertise in areas related to the Company's
business. In consideration of their services as members of the Advisory Board,
each member has been granted non-qualified stock options exercisable to purchase
6,000
45
<PAGE>
shares of Common Stock at exercise prices ranging from $1.75 per share to $2.50
per share. Members of the Advisory Board receive no other compensation for their
services, which consist of approximately one day per year devoted to the
business of the Company. The following persons currently serve as members of the
Advisory Board:
DR. MICHAEL BERNS is President, Beckman Laser Institute and Professor of
Cell Biology at the University of California.
DR. STEVEN CHU is Chairman of the Physics Department, Stanford University.
DR. STEVEN BLOCK is Associate Professor of Molecular Biology at Princeton
University.
DR. PAUL JACKSON is a Molecular and Plant Biologist at a national
laboratory.
DR. WILFRIED FEICHTINGER is at the Institute for Fertility in Vienna,
Austria and was the recent chairman of the IXth World Congress on IN VITRO
Fertilization and Assisted Reproduction.
DR. CHARLES BRACKER is the G. B. Cummins Distinguished Professor, Department
of Botany and Plant Pathology, Purdue University.
DR. ROBERT STEVENSON is a biotech consultant in marketing and acquisitions.
DR. OTIS PETERSON is a laser expert and an inventor of the Alexandrite
Laser.
DIRECTOR COMPENSATION
During the fiscal year ended December 31, 1996, outside Directors received
no cash compensation or other remuneration for their services as such, however
they were reimbursed their expenses associated with attendance at meetings or
otherwise incurred in connection with the discharge of their duties as Directors
of the Company.
Directors who are also executive officers of the Company receive no
additional compensation for their services as Directors.
EXECUTIVE COMPENSATION
The following table and discussion set forth information with respect to all
compensation earned by or paid to the Company's Chief Executive Officer ("CEO"),
and its most highly compensated executive officers other than the CEO, for all
services rendered in all capacities to the Company and its subsidiaries for each
of the Company's last three fiscal years; provided, however, that no disclosure
has been made for any executive officer, other than the CEO, whose total annual
salary and bonus does not exceed $100,000.
46
<PAGE>
TABLE 1
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION AWARDS
----------------------------
-------------------------- OTHER ANNUAL RESTRICTED OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) STOCK AWARD(S) SARS
- ------------------------------- --------- ----------- ------------- ----------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Ronald K. Lohrding(1)...... 1996 $ 115,500 -0- $ 3,623 -0- 25,000
President and CEO 1995 $ 96,821 -0- $ 3,220 -0- 150,000
Craig T. Rogers(2)............. 1995 $ 24,525 -0- -0- -0- 50,000
President, CEO and Treasurer
of IFC 1994 $ 27,000 -0- -0- -0- -0-
<CAPTION>
PAYOUTS
--------------- ALL OTHER
NAME AND PRINCIPAL POSITION LTIP PAYOUTS($) COMPENSATION($)
- ------------------------------- --------------- ---------------------
<S> <C> <C>
Dr. Ronald K. Lohrding(1)...... -0- -0-
President and CEO -0- -0-
Craig T. Rogers(2)............. -0- -0-
President, CEO and Treasurer
of IFC -0-
</TABLE>
- ------------------------------
(1) Dr. Lohrding replaced Mr. Rogers as President and CEO of the Company in
February 1995, following consummation of the Acquisition.
(2) Mr. Rogers served as President and CEO of the predecessor company, IFC,
until the Acquisition in February 1995. Mr. Rogers served as the Company's
Chief Financial Officer through January 8, 1997, and currently serves as the
Company's Vice-President of Investors Relations, Secretary and Treasurer.
EMPLOYMENT AGREEMENTS
The Company has entered into written Employment Agreements, having terms of
five years each, with Dr. Lohrding and Mr. Rogers. The Employment Agreement with
Dr. Lohrding provides for Dr. Lohrding to serve the Company as its Chairman,
President and CEO, on a full-time basis, for a minimum base salary of $100,000
per year. During fiscal 1996, Dr. Lohrding was paid a base salary of $115,500.
The Employment Agreement with Mr. Rogers provides for his serving as Chief
Financial Officer, Secretary and Treasurer, on a part-time basis, for a minimum
base salary of $27,000 per year. Mr. Rogers was paid a base salary of $40,000
during fiscal 1996. Effective January 9, 1997, Mr. Rogers resigned as Chief
Financial Officer; however, he remains as the Company's Vice-President of
Investor Relations, Secretary and Treasurer. The Company also has a written
employment agreement with Mr. Travis Lee, Vice President of Marketing and Sales.
Under Mr. Lee's agreement, he receives a base salary of $110,000 per year;
provided, however, that either the Company or Mr. Lee may terminate the
employment relationship upon thirty days' prior written notice.
STOCK INCENTIVE PLAN
During fiscal 1992, the Company adopted the Plan. Pursuant to the Plan,
stock options granted to eligible participants may take the form of Incentive
Stock Options ("ISO's") under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") or options which do not qualify as ISO's (Non-Qualified
Stock Options or "NQSO's"). As required by Section 422 of the Code, the
aggregate fair market value of the Company's Common Stock with respect to its
ISO's granted to an employee exercisable for the first time in any calendar year
may not exceed $100,000. The foregoing limitation does not apply to NQSO's. The
exercise price of an ISO may not be less than 100% of the fair market value of
the shares of the Company's Common Stock on the date of grant. The exercise
price of an NQSO may be set by the administrator. An option is not transferable,
except by will or the laws of descent and distribution. If the employment of an
optionee terminates for any reason (other than for cause, or by reason of death,
disability, or retirement), the optionee may exercise his options within a
ninety day period following such termination to the extent he was entitled to
exercise such options at the date of termination. Either the Board of Directors
(provided that a majority of directors are "disinterested") can administer the
Plan, or the Board of Directors may designate a committee comprised of directors
meeting certain requirements to administer the Plan. The Administrator will
decide when and to whom to make grants, the number of shares to be covered by
the grants, the vesting schedule, the type of award and the terms and provisions
relating to the exercise of the awards. An aggregate of 1,250,000 shares of the
Company's Common Stock is reserved for issuance under the Plan.
47
<PAGE>
At September 30, 1997, the Company had granted a total of 1,032,000 Stock
Options under the Plan consisting of 694,000 Incentive Stock Options exercisable
at prices ranging from $1.75 per share to $1.875 per share, and 338,000
Non-Qualified Stock Options (NQSO's), which NQSO's have been issued to members
of the Advisory Board and other Company advisors, and to certain members of the
Board of Directors, and are exercisable at prices ranging from $1.75 per share
to $2.81 per share. All options have been issued with exercise prices at or
above market value on the date of issuance.
The following tables set forth certain information concerning the granting
and exercise of incentive stock options during the last completed fiscal year by
each of the named executive officers and the fiscal year-end value of
unexercised options on an aggregated basis:
TABLE 2
OPTION/SAR GRANTS FOR LAST
FISCAL YEAR--INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL OPTIONS/
SECURITIES SARS GRANTED TO EXERCISE
UNDERLYING OPTIONS/ EMPLOYEES IN FISCAL PRICE
NAME SARS GRANTED(#) YEAR ($/SH) EXPIRATION DATE
- ---------------------------------------- ------------------- --------------------- ------------- ---------------
<S> <C> <C> <C> <C>
Ronald K. Lohrding...................... 25,000 14.3% $ 1.875 12/13/01
Craig T. Rogers......................... 10,000 5.7% $ 1.875 12/13/01
</TABLE>
TABLE 3
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS AT
AT FY-END(#) FY-END($)(2)
SHARES ACQUIRED ON VALUE REALIZED(1) ------------- ---------------
NAME EXERCISE(#) ($) EXERCISABLE EXERCISABLE
- --------------------------------------------- ------------------- --------------------- ------------- ---------------
<S> <C> <C> <C> <C>
Ronald K. Lohrding(3)........................ -0- -0- 175,000 $ 40,625.00
Craig T. Rogers.............................. -0- -0- 60,000 $ 13,750.00
</TABLE>
- ------------------------
(1) Value Realized is determined by calculating the difference between the
aggregate exercise price of the options and the aggregate fair market value
of the Common Stock on the date the options are exercised.
(2) The value of unexercised options is determined by calculating the difference
between the fair market value of the securities underlying the options at
fiscal year end and the exercise price of the options. The fair market value
of the securities underlying the options, based on the closing bid price of
the Company's Common Stock at December 31, 1996, as quoted on OTC Electronic
Bulletin Board, was $2.00 per share.
(3) Does not reflect the Lohrding Options issued in anticipation of this
offering exercisable to purchase, in the aggregate, 450,000 shares of the
Company's Common Stock at an exercise price equal to the initial price per
share of the Shares sold in this offering, or $4.50 per share, whichever is
greater. The Lohrding Options are subject to vesting. Specifically, 150,000
Lohrding Options will vest and become exercisable on the closing of this
offering and the balance will vest on November 30, 2002; provided, however,
(i) 150,000 Lohrding Options will vest and become exercisable thirty days
after the end of any quarter in which the Company reports pre-tax income of
at least $50,000; and (ii) 150,000 Lohrding Options shall vest and become
exercisable upon the Company reporting its first fiscal year with net income
of at least $500,000. The Lohrding Options are exercisable for a period of
36 months from each respective vesting date, but in no event later than
December 31, 2002.
48
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors and stockholders have approved the ESPP which has
been adopted pursuant to Section 423 of the Code. The ESPP has an initial term
of three years at which time it will terminate except as to any options
outstanding on the termination date. The ESPP is available to all employees of
the Company and its subsidiaries, except those employees of less than six
months, those employed on a part-time basis (20 hours per week or less), those
customarily employed for not more than five months in any calendar year, and
those persons who are officers, supervisors, or highly-compensated employees. In
addition, no persons owning five percent (5%) or more of the Company's Common
Stock may participate in the ESPP. No employee may purchase any more than
$25,000 worth of stock in any calendar year. The plan is limited to 100,000
shares per year over the three-year term with a maximum aggregate number of
shares which may be purchased by the Company's employees pursuant to the ESPP
being 300,000.
Under the plan, the year is divided into two enrollment periods of six
months each. At the commencement of each six month enrollment period, an
employee is given the ability to subscribe for and purchase shares of the
Company's Common Stock at the end of the six month enrollment at a price equal
to 85% of the fair market value of the Company's Common Stock on the
commencement date or the termination date of such enrollment, whichever price
per share is lower. The shares are purchased pursuant to a payroll deduction
program pursuant to which an employee may elect to have up to 10% of that
employee's compensation withheld during each pay period for the purposes of
covering subscriptions made under the plan.
As of the date of this Prospectus, no shares of Common Stock have been
issued under the ESPP and there have been no subscriptions of employees to
participate in the plan. The Company expects to begin implementing the ESPP
during fiscal 1998.
No officer of the Company receives any additional compensation for his
services as a director. The Company does not contribute to any retirement,
pensions, or profit sharing plans covering its directors who are not also
employees of the Company. The Company does, however, maintain a group health
insurance plan for its employees.
INDEMNIFICATION AND LIMITATION ON LIABILITY OF DIRECTORS
The Company's Articles of Incorporation provide that the Company shall
indemnify, to the fullest extent permitted by Colorado law, any director,
officer, employee or agent of the corporation made or threatened to be made a
party to a proceeding, by reason of the former or present official of the
person, against judgments, penalties, fines, settlements and reasonable expenses
incurred by the person in connection with the proceeding if certain standards
are met. At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
The Company's Articles of Incorporation limit the liability of its directors
to the fullest extent permitted by the Colorado Business Corporation Act.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for (i) any
breach of the duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or that involved intentional misconduct or a knowing
violation of law, (iii) dividends or other distributions of corporate assets
that are in contravention of certain statutory or contractual restrictions, (iv)
violations of certain laws, or (v) any transaction from which the director
derives an improper personal benefit. Liability under federal securities law is
not limited by the Articles.
49
<PAGE>
CERTAIN TRANSACTIONS
ACQUISITION
Effective February 23, 1995, IFC and CRI consummated the Acquisition
pursuant to which IFC acquired 100% of the issued and outstanding shares of
common stock and equity rights of CRI in exchange for which IFC issued to the
stockholders of CRI, PRO RATA, 668,019 shares of IFC Common Stock, Incentive
Stock Options exercisable to purchase 66,594 shares of Common Stock at an
exercise price of $2.39 per share, and non-qualified stock options exercisable
to purchase 36,000 shares of Common Stock at an exercise price of $2.39 per
share, the latter of which were issued in exchange for non-qualified stock
options of CRI held by members of its Board of Technical Advisors and Board of
Directors. As a result, CRI became a wholly-owned subsidiary of IFC. IFC
subsequently changed its name to "Cell Robotics International, Inc." The shares
of Common Stock issued to the stockholders of CRI, PRO RATA, represented
immediately following the Acquisition, 62.3% of the total issued and outstanding
shares of the Company's Common Stock. The Acquisition was accounted for as a
reverse purchase of all of the assets and liabilities of IFC by CRI.
In connection with the Acquisition, Mitsui voluntarily surrendered to CRI
for cancellation a total of 491,499 shares of common stock of CRI. As a result
of this surrender and cancellation, Mitsui retained 231,519 shares of CRI common
stock which were exchanged for an equal number of shares of Company Common Stock
in the Acquisition. The number of shares that Mitsui retained after the
voluntary surrender was subject to adjustment based upon the completion of a
subsequent financing. See "Financing and Capital Contribution Agreement." In
addition, Mitsui executed a Forbearance Agreement pursuant to which it agreed to
forebear from exercising or enforcing any rights it had by virtue of a series of
promissory notes having an outstanding principal balance of $5,758,338,
including unpaid interest, penalty interest and expenses due and owing of
$358,338, pending performance by the Company of its agreements under the
Financing Agreement described below.
FINANCING AND CAPITAL CONTRIBUTION AGREEMENT
Concurrently with the Acquisition, IFC, CRI, Mitsui and BridgeWorks
Investors I, L.L.C., an Oregon limited liability company ("BW") entered into a
Financing and Capital Contribution Agreement ("Financing Agreement"). Pursuant
to the terms of the Financing Agreement, BW executed a Subscription Agreement to
subscribe for and purchase 380,000 shares of the Company's Common Stock at an
exercise price of $1.00 per share, 50,000 of which were subsequently assigned
to, and purchased by R.O.I., Inc., controlled by Craig T. Rogers, Vice President
of Investor Relations of the Company. As of the date of this Prospectus, all
380,000 shares have been purchased in accordance with the Subscription
Agreement.
Further, under the terms of the Financing Agreement, BW agreed to obtain on
behalf of the Company a financing commitment which would result, when
consummated, in the infusion of a minimum of $1,400,000 of additional equity
into the Company (the "Financing"). Following consummation of the Acquisition,
the Company completed a $12.875 million private placement of its securities
through Paulson, a Representative in this offering, which served as placement
agent (the "Private Offering"). The Private Offering was designed, in part, to
meet the requirements of the Financing and the Financing Agreement.
In accordance with and fulfilling the terms of the Financing Agreement,
following the first closing of the private offering which occurred on August 31,
1995, the Company and Mitsui consummated the following transactions:
(1) The Company paid to Mitsui the sum of $250,000;
(2) The Company issued to Mitsui an additional 177,887 shares of Common
Stock;
50
<PAGE>
(3) The Company and Mitsui executed and delivered a Royalty Agreement
pursuant to which the Company agreed to pay to Mitsui a royalty equal to
one percent (1%) of the aggregate net sales of certain products for a
term of ten years; and
(4) Mitsui executed and delivered to the Company a Capital Contribution
Agreement pursuant to which it agreed to contribute to the capital and
equity of the Company $5,400,000 in aggregate principal debt obligation
of Cell Robotics, Inc. to Mitsui, together with all accrued and unpaid
interest in the aggregate amount of $358,338.
TRANSACTIONS WITH DIRECTOR
Mark Waller, a director of the Company, is also the managing member of BW.
In addition, Mr. Waller provided services to the Company in connection with
structuring the Private Offering and arranging on the Company's behalf for
Paulson to serve as placement agent, therefor. In consideration of his services
in connection with the Private Offering, Mr. Waller was granted non-qualified
stock options exercisable to purchase, in the aggregate, 200,000 shares of the
Company's Common Stock at an exercise price of $1.75 per share.
Any transactions between the Company and its officers, directors, principal
stockholders, or other affiliates have been, and will be, on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
on an arms-length basis and will be approved by a majority of the Company's
independent, disinterested directors.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, the stock
ownership of each person known by the Company to be the beneficial owner of five
(5%) percent or more of the Company's Common Stock, all executive officers of
the Company and directors individually and all directors and executive officers
of the Company as a group. Each person has sole voting and investment power with
respect to the shares shown, except as noted.
<TABLE>
<CAPTION>
PERCENT OF CLASS(1)
AMOUNT AND NATURE OF ----------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP BEFORE OFFERING(2) AFTER OFFERING(2)
- ------------------------------------------------------ ---------------------- ------------------- -------------------
<S> <C> <C> <C>
Ronald K. Lohrding (3) ............................... 475,000 8.8% 6.4%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
Mitsui Engineering & (4) ............................. 409,406 7.8% 5.7%
Shipbuilding Co., Ltd.
405 Park Avenue, Suite 501
New York, NY 10022
Mark T. Waller (5) ................................... 220,000 4.0% 3.0%
1820 North Shore Road
Lake Oswego, OR 97304
Craig T. Rogers (6) .................................. 180,800 3.4% 2.3%
c/o Rockies Fund, Inc.
4465 Northpark Drive
Colorado Springs, CO 80907
Raymond Radosevich (7) ............................... 26,000 0.5% 0.4%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
Debra Bryant (8) ..................................... 15,000 0.3% 0.2%
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
Richard S. Hall (9) .................................. 619,300 11.9% 8.6%
280 Estrellita Drive
Ft. Myers Beach, FL 33931
Travis Lee (10) ...................................... -0- -0- -0-
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
Jean Scharf (11) ..................................... -0- -0- -0-
c/o Cell Robotics, Inc.
2715 Broadbent Parkway, NE
Albuquerque, NM 87107
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF CLASS(1)
AMOUNT AND NATURE OF ----------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP BEFORE OFFERING(2) AFTER OFFERING(2)
- ------------------------------------------------------ ---------------------- ------------------- -------------------
<S> <C> <C> <C>
All Officers and Directors as a Group (7 persons)..... 916,800 16.0% 11.9%
</TABLE>
- ------------------------
(1) Shares not outstanding but deemed beneficially owned by the virtue of the
individual's right to acquire them within sixty days of the date of this
Prospectus are treated as outstanding when determining the percent of the
class owned by such individual and when determining the percent owned by the
group.
(2) Assumes no exercise by Paulson of the Placement Agent's Warrant to purchase
230,000 shares of Common Stock and 115,000 Class A Warrants issued to
Paulson in conjunction with the Company's Private Placement of securities in
September, 1995, and no subsequent exercise of the Class A Warrants by
Paulson. Also assumes no exercise by the Representatives of the
Representatives' Warrants.
(3) Includes Incentive Stock Options exercisable to purchase 150,000 shares of
Common Stock at an exercise price of $1.75 per share, and Incentive Stock
Options exercisable to purchase 25,000 shares of Common stock at an exercise
price of $1.875 per share, issued under the Plan. Does not include
additional Lohrding Options exercisable to purchase 450,000 shares of the
Company's Common Stock subject to future vesting. Of the Lohrding Options,
150,000 will vest and become exercisable upon completion of this offering,
resulting in Dr. Lohrding being the beneficial owner (as defined herein) of
an aggregate of 625,000 shares or 8.7%, of the total issued and outstanding
shares immediately after the offering.
(4) Mitsui Engineering & Shipbuilding Co., Ltd., a Japanese corporation, is the
record owner and exercises the sole power to vote and invest 409,406 shares
of the Company's Common Stock.
(5) Represents non-qualified stock options exercisable to purchase, in the
aggregate, 200,000 shares of Common Stock at $1.75 per share, and
Non-Qualified Stock Options exercisable to purchase 20,000 shares of Common
Stock at an exercise price of $2.81 per share.
(6) Mr. Rogers exercises the sole voting and investment power with respect to
40,800 shares of Common Stock. Also includes 10,000 shares of Common Stock
owned of record by Leslie Rogers, Mr. Roger's wife, and 70,000 shares of
Common Stock owned of record by R.O.I, Inc., a Colorado corporation, of
which Mr. Rogers is an officer, director and fifty percent stockholder, and
as a result would be deemed to exercise the shared voting and investment
power with respect to the securities. Mr. Rogers disclaims beneficial
ownership of 35,000 shares of Common Stock owned of record by R.O.I., Inc.
for purposes of Section 16 of the Exchange Act Also includes Incentive Stock
Options exercisable to purchase 50,000 shares of Common Stock at an exercise
price of $1.75 per share, and Incentive Stock Options exercisable to
purchase 10,000 shares of Common Stock at an exercise price of $1.875 per
share, granted pursuant to the Company's 1992 Stock Incentive Plan.
(7) Reflects Non-Qualified Stock Options exercisable to purchase 6,000 shares of
Common Stock at an exercise price of $1.75 per share, and Non-Qualified
Stock Options exercisable to purchase 20,000 shares of Common Stock at an
exercise price of $2.81 per share.
(8) Represents nonqualified stock options exercisable to purchase 15,000 shares
of Common Stock at $3.56 per share.
(9) Includes 320,500 shares of Common Stock owned by Mr. Hall individually
and/or by the R.S. Hall IRA; 6,000 shares of Common Stock owned collectively
by the Hall Grantor Retained Annuity Trust and the R.S. Hall Gift Trust,
both of which were created and are controlled by Mr. Hall; 2,500 shares of
Common Stock owned by the Wildwood Foundation, Inc., a non-profit private
foundation founded by Mr. Hall, and for whom Mr. Hall serves as President of
the Board of Trustees and supervises investment decisions; and 1,000 shares
of Common Stock owned by the Hall Scholarship Trust which
53
<PAGE>
was created and supervised by Mr. Hall. Also includes 139,000 shares of
Common Stock owned by Richard S. Hall, Jr., and 148,000 shares of Common
Stock owned by Mr. Hall's son, William R. Hall, with whom Mr. Hall shares
voting and dispositive power. Finally, includes 2,300 shares of Common Stock
owned by Tayloreel Corporation South, Inc., a controlled corporation of Mr.
Hall. Mr. Hall disclaims beneficial ownership of all shares of Common Stock
owned by Messrs. Richard S. Hall, Jr. and William R. Hall, the Hall
Scholarship Trust, and the Wildwood Foundation, Inc. for purposes of Section
16 of the Exchange Act.
(10) Does not reflect incentive stock options exercisable to purchase 74,174
shares of Common Stock at a price of $2.25 per share which are subject to
future vesting.
(11) Does not reflect incentive stock options exercisable to purchase 20,000
shares of Common Stock at a price of $3.50 per share which are subject to
future vesting.
54
<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 12,500,000 shares of $.004 par
value Common Stock and 2,500,000 shares of $.04 par value Preferred Stock. As of
November 15, 1997, 5,222,414 shares of Common Stock and no shares of Preferred
Stock were issued and outstanding, and there were 176 stockholders of record.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record. There is no right to cumulative voting of shares for the election of
directors. The shares of Common Stock are not entitled to pre-emptive rights and
are not subject to redemption or assessment. Each share of Common Stock is
entitled to share ratably in distributions to stockholders and to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive, pro-rata, the
assets of the Company which are legally available for distribution to
stockholders. The issued and outstanding shares of Common Stock are validly
issued, fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue up to 2,500,000 shares of $.04 par value
Preferred Stock. The preferred stock of the corporation can be issued in one or
more series as may be determined from time-to-time by the Board of Directors. In
establishing a series the Board of Directors shall give to it a distinctive
designation so as to distinguish it from the shares of all other series and
classes, shall fix the number of shares in such series, and the preferences,
rights and restrictions thereof. All shares of any one series shall be alike in
every particular. The Board of Directors has the authority, without stockholder
approval, to fix the rights, preferences, privileges and restrictions of any
series of preferred stock including, without limitation: (1) the rate of
distribution, (2) the price at and the terms and conditions on which shares
shall be redeemed, (3) the amount payable upon shares for distributions of any
kind, (4) sinking fund provisions for the redemption of shares, and (5) the
terms and conditions on which shares may be converted if the shares of any
series are issued with the privilege of conversion, and (6) voting rights except
as limited by law.
Although the Company currently does not have any plans to issue shares of
Preferred Stock or to designate any series of Preferred Stock, there can be no
assurance that the Company will not do so in the future. As a result, the
Company could authorize the issuance of a series of Preferred Stock which would
grant to holders preferred rights to the assets of the Company upon liquidation,
the right to receive dividend coupons before dividends would be declared to
common stockholders, and the right to the redemption of such shares, together
with a premium, prior to the redemption to Common Stock. The common stockholders
of the Company have no redemption rights. In addition, the Board could issue
large blocks of voting stock to fend off unwanted tender offers or hostile
takeovers without further stockholder approval.
PLACEMENT AGENT'S WARRANT
In connection with a private placement undertaken by the Company in 1995,
the Company issued to Paulson, a Representative in this offering, a warrant (the
"Placement Agent's Warrant") to purchase 11.5 units at a price of $25,000 per
unit, each unit consisting of 20,000 shares of Common Stock and 10,000 Class A
Warrants. The Placement Agent's Warrant is exercisable until September 30, 2000.
Each Class A Warrant included in the units gives to the holder the right to
purchase one additional share of the Company's Common Stock at an exercise price
of $1.75 share. The Class A Warrants are exercisable until December 31, 2000.
55
<PAGE>
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
The transfer agent, registrar and Warrant Agent for the Company's Common
Stock is Corporate Stock Transfer, Inc., Denver, Colorado.
REPORTS TO STOCKHOLDERS
The Company intends to furnish annual reports to stockholders which will
include audited financial statements reported on by its certified public
accountants. In addition, the Company will issue unaudited quarterly or other
interim reports to stockholders as it deems appropriate.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been only a limited public market for the
Common Stock. No prediction can be made of the effect, if any, that future
market sales of shares of Common Stock or the availability of such shares for
sale will have on the prevailing market price of the Common Stock following this
offering. Nevertheless, sales of substantial amounts of such shares in the open
market following this offering could adversely affect the prevailing market
price of the Common Stock.
Upon completion of this offering, and assuming no exercise of outstanding
options and warrants to purchase Shares, the Company will have 7,222,414,
outstanding shares of Common Stock. Of those, 2,749,708 shares of Common Stock
that are currently outstanding, together with the 2,000,000 Shares sold in this
offering (plus any shares sold as a result of any exercise of the Over Allotment
Option) by the Company and, commencing approximately three months after the date
of this Prospectus, up to 200,000 shares of Common Stock that are issuable upon
exercise of the Representatives' Warrants, will, subject to any applicable state
law restrictions on secondary trading, be freely tradeable without restriction
under the Securities Act, except that any shares purchased by an "affiliate" of
the Company (as that term is defined in Rule 144 under the Securities Act) will
be subject to the resale limitations of Rule 144.
The remaining 2,472,706 shares of Common Stock are "restricted" within the
meaning of Rule 144 under the Securities Act (the "Restricted Shares"). Of this
number, 1,415,106 shares are eligible for immediate sale in the public market
without restriction under Rule 144k. Beginning 90 days after the date of this
Prospectus (or earlier with the consent of the Underwriters), 840,100 additional
shares of Common Stock will become eligible for sale upon the expiration of a
lock-up agreement between the Underwriters and certain stockholders not to sell
such shares, subject to the volume limitation, set forth in Rule 144.
In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 72,224 shares immediately after the
offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq Small Cap Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Commission.
Sales pursuant to Rule 144 are also subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and whose Restricted
Shares have been fully-paid for two years since the later of the date they were
acquired from the Company or the date they were acquired from an affiliate of
the Company may sell such Restricted Shares under Rule 144(k) without regard to
the limitations and requirements described above. Under Rule 701, shares
privately issued under certain compensatory stock-based plans, such as the Plan
or the ESPP, may be resold under Rule 144 by non-affiliates, subject only to the
manner of sale requirements, and by affiliates without regard to the two-year
holding period requirement.
The Company has filed a registration statement under the Securities Act
covering shares of Common Stock reserved for issuance under the Company's
outstanding stock options and stock option plans, which registration statement
was declared effective on June 14, 1996. Based on the number of options
outstanding and options and shares reserved for issuance, said registration
statement currently covers 1,250,000 shares.
Prior to the offering, there has been only a limited and sporadic public
market for the Common Stock. No prediction can be made of the effect, if any,
that sales of shares under Rule 144 or the availability of shares for sale will
have on the market price of the Common Stock prevailing from time to time after
the offering. The Company is unable to estimate the number of shares that may be
sold in the public market under Rule 144, because such amount will depend on the
trading volume in, and market price for, the Common Stock and other factors.
Nevertheless, sales of substantial amounts of shares in the public market, or
the perception that such sales could occur, could adversely affect the market
price of the Common Stock of the Company. See "Underwriting."
57
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through the
Representatives, have agreed, severally and not jointly, subject to the terms
and conditions contained in the Underwriting Agreement between the Company and
the several Underwriters (the "Underwriting Agreement"), to purchase from the
Company the Shares offered by this Prospectus in the amounts set forth below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Paulson Investment Company, Inc..................................................
Cohig & Associates, Inc..........................................................
----------
Total........................................................................ 2,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the Shares offered by this Prospectus if any shares are
purchased. The Company has been advised that the Underwriters propose to offer
the Shares offered by this Prospectus to the public, initially at the offering
price set forth on the cover page of this Prospectus and to selected dealers,
including Underwriters, at that price less a concession to be determined by the
Representatives. After the initial offering of the Shares offered by this
Prospectus, the public offering price and other offering terms may be changed.
The Company has granted the Underwriters an option, exercisable by the
Representatives, during the 45-day period after the date of this Prospectus to
purchase up to 300,000 additional shares of Common Stock on the same terms as
the Shares being purchased by the Underwriters from the Company. The
Representatives may exercise this option only to cover over-allotments, if any,
incurred in the sale of the Shares.
The Underwriters will purchase the Shares offered hereby (including the
shares subject to the Over-Allotment Option) at a discount equal to 10% of the
public offering price, or $4.05 per share, assuming an initial offering price of
$4.50 per share.
As one of the Representatives, Paulson will also receive at the closing a
non-accountable expense allowance equal to 3% of the aggregate initial offering
price of the Shares sold in the offering, of which $25,000 has already been
paid.
The Company has agreed to issue to the Representatives the Representatives'
Warrants giving the Representatives the right to purchase up to 200,000 shares
of Common Stock. The Representatives' Warrants are exercisable for a period of
four years beginning one year from the date of this Prospectus at a price equal
to 120% of the public offering price, or $5.40 per share, assuming a public
offering price of $4.50 per share. The Representatives' Warrants are not
transferrable for a period of one year from the date of this Prospectus except
(i) to any of the Representatives or to individuals who are either a partner or
an officer of a Representative, or (ii) by will or by the laws descent and
distribution. The holders of the Representatives' Warrants will have, in that
capacity, no voting, dividend or other shareholder rights. Any profits realized
by the Representatives on the sale of the Common Stock issuable upon exercise of
the Representatives' Warrants may be deemed to be additional underwriting
compensation.
The shares of Common Stock underlying the Representatives' Warrants are
being registered on the Registration Statement of which this Prospectus is a
part. The Company has agreed to maintain an effective Registration Statement
with respect to such shares to permit their resale at all times during the
period in which the Representatives' Warrants are exercisable. The sale of the
shares issuable upon exercise of the Representatives' Warrants could dilute the
interest of other holders of Common Stock and
58
<PAGE>
the existence of the Representatives' Warrants may make the raising of
additional capital by the Company more difficult. At any time at which exercise
of Representatives' Warrants might be expected, it is likely that the Company
could raise additional capital on terms more favorable than the terms of the
Representatives' Warrants.
The Company has agreed that, for a period of 90 days following the closing
of this offering, it will not, subject to certain exceptions, offer, sell,
contract to sell, grant any option for the sale or otherwise dispose of any
securities of the Company without Paulson's prior written consent. All officers
and directors and 5% stockholders of the Company have agreed that for a period
of 90 days following the closing of this offering, they will not offer, sell,
contract to sell, grant any option for the sale or otherwise dispose of any
securities of the Company pursuant to Rule 144 under the Securities Act or
otherwise without Paulson's prior written consent.
Until the distribution of the Shares is completed, rules of the Commission
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the securities. As an exception to these rules, the
Underwriters are permitted to engage in certain transactions that stabilize the
price of the Common Stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Common Stock. If
the Underwriters create a short position in the Shares in connection with the
offering, i.e., if they sell more Shares than are set forth on the cover page of
this Prospectus, the Underwriters may reduce that short position by purchasing
Common Stock in the open market. The Underwriters may also elect to reduce any
short position by exercising all or part of the Over-Allotment Option described
above.
The Underwriters may also impose a penalty bid on selling group members.
This means that if the Underwriters purchase Common Stock in the open market to
reduce the Underwriters' short position or to stabilize the price of the Common
Stock, it may reclaim the amount of the selling concession from the selling
group members who sold those securities as part of this offering.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither the Company nor the Underwriters
make any representation or predictions as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company nor the Underwriters make any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Prior to this offering, there has been only a limited and sporadic public
market for the shares of Common Stock. Accordingly, the public offering price of
the Shares offered by this Prospectus has been determined by negotiations
between the Company and Paulson. Among the factors considered in determining the
public offering price of the Shares included the Company's net worth and
earnings, the amount of dilution per share of Common Stock to the public
investors, the history and the prospects of the Company and the industry in
which it operates, the status and development prospects for the Company's
proposed products and the trends of such results, the experience and
qualifications of the Company's executive officers and the general condition of
the securities markets at the time of the offering.
The Underwriting Agreement provides for indemnification between the Company
and the Underwriters against certain liabilities, including liabilities under
the Securities Act and for contribution by the Company and the Underwriters to
payments that may be required to be made in respect thereof.
59
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Shares offered hereby will be passed
upon for the Company by Neuman & Drennen, LLC, Boulder, Colorado. Clifford L.
Neuman, a partner in the firm of Neuman & Drennen, LLC, is the beneficial owner
of 3,100 shares of the Company's Common Stock. Certain legal matters will be
passed upon for the Underwriters by Morse, Zelnick, Rose & Lander, LLP, New
York, New York.
EXPERTS
The consolidated financial statements of Cell Robotics International, Inc.
as of December 31, 1996 and 1995 and for the years then ended, have been
included herein and in the registration statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1996 financial
statements contains an explanatory paragraph that states that the Company's
recurring losses from operations and negative cash flows from operations raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements referred to above do not include any
adjustments that might result from the outcome of that uncertainty.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance with the Exchange Act files periodic reports, proxy statements
and other information with the Commission. Reports, proxy statements and other
information concerning the Company can be inspected and copied (at prescribed
rates) at the Commission's Public Reference Section, Room 1024, 450 Fifth
Street, N.W. Judiciary Plaza, Washington, D.C. 20549, as well as at the
following Regional Offices: Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material also may be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and are publicly
available through the Commission's website at http:\\www.sec.gov.
The Company has filed a Registration Statement on Form SB-2 with the
Commission in Washington, D.C., in accordance with the provisions of the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. For further
information pertaining to the Shares offered hereby and the Company, reference
is made to the Registration Statement, including the exhibits and financial
statement schedules filed as a part thereof. Statements herein contained
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
Exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement may be obtained from the
Commission upon payment of the fees prescribed therefor and may be examined at
the principal office of the Commission in Washington, D.C.
60
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
This index relates to the consolidated financial statements set forth in
this Prospectus of Cell Robotics International, Inc.
<TABLE>
<S> <C>
Independent Auditors' Report of KPMG Peat Marwick LLP................................. F-2
Consolidated Financial Statements
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Operations............................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)........................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Cell Robotics International, Inc.:
We have audited the accompanying consolidated balance sheets of Cell
Robotics International, Inc. and subsidiary as of December 31, 1995 and 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 Cell
Robotics International, Inc. and subsidiary as of December 31, 1995 and 1996,
and the consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
12 to the consolidated financial statements, the Company has suffered recurring
losses from operations and negative cash flows from operations. These matters
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in note 12. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
February 21, 1997
Albuquerque, New Mexico
F-2
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
---------------------- 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 739,952 1,724,671 559,060
Restricted cash (note 5)............................. 425,000 -- --
Accounts receivable, net of allowance for doubtful
accounts of $2,500 and $1,841 in December 1995 and
1996, respectively and $1,841 (unaudited) in
September 1997..................................... 389,608 69,845 352,024
Inventory............................................ 169,076 408,173 523,010
Other................................................ 29,067 19,121 63,820
---------- ---------- -----------
Total current assets............................... 1,752,703 2,221,810 1,497,914
Property and equipment, net (note 3)................... 213,447 256,635 214,895
Other assets, net (note 4)............................. 33,963 92,507 71,514
---------- ---------- -----------
$2,000,113 2,570,952 1,784,323
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................... $ 129,483 160,824 425,414
Payroll related liabilities.......................... 99,226 128,932 121,019
Royalties payable.................................... 56,587 42,029 152,943
Other current liabilities............................ 24,871 31,937 27,376
---------- ---------- -----------
Total current liabilities.......................... 310,167 363,722 726,752
---------- ---------- -----------
Stockholders' equity (note 5):
Preferred stock, $.04 par value. Authorized 2,500,000
shares, no shares issued and outstanding........... -- -- --
Common stock, $.004 par value. Authorized 12,500,000
shares, 3,825,914 and 5,003,414 shares issued and
outstanding in December 1995 and 1996, respectively
and 5,222,414 (unaudited) in September 1997........ 15,304 20,014 20,890
Additional paid-in capital........................... 11,271,008 13,327,672 13,996,305
Accumulated deficit.................................. (9,596,366) (11,140,456) (12,959,624)
---------- ---------- -----------
Total stockholders' equity......................... 1,689,946 2,207,230 1,057,571
Commitments and contingencies (notes 9 and 11).........
---------- ---------- -----------
$2,000,113 2,570,952 1,784,323
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------------
1995 1996 1996 1997
------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Product sales............................................ $ 932,761 594,071 523,612 722,846
Research and development grants.......................... 9,906 69,190 69,190 105,720
------------- ----------- ----------- -----------
Total revenues....................................... 942,667 663,261 592,802 828,566
Product cost of goods sold............................... 718,813 427,341 331,807 491,358
SBIR direct expenses..................................... 9,906 69,190 69,190 105,941
------------- ----------- ----------- -----------
Total cost of goods sold................................. 728,719 496,531 400,997 597,299
------------- ----------- ----------- -----------
Gross profit......................................... 213,948 166,730 191,805 231,267
------------- ----------- ----------- -----------
Operating expenses:
Salaries............................................... 412,536 510,674 400,409 584,808
Payroll taxes and benefits............................. 51,086 78,466 56,220 97,259
Rent and utilities..................................... 122,484 119,371 88,553 108,606
Travel................................................. 100,211 68,499 51,854 80,793
Depreciation and amortization.......................... 114,708 110,752 79,893 79,222
Professional fees...................................... 93,100 235,722 172,245 474,237
Other operating expenses............................... 298,397 647,617 457,667 666,696
------------- ----------- ----------- -----------
Total operating expenses............................. 1,192,522 1,771,101 1,306,841 2,091,621
------------- ----------- ----------- -----------
Loss from operations................................. (978,574) (1,604,371) (1,115,036) (1,860,354)
------------- ----------- ----------- -----------
Other income (deductions):
Interest income........................................ 17,160 40,645 18,032 30,066
Interest expense....................................... (345,777) (1,413) (1,303) (680)
Other.................................................. (43,959) 21,049 16,650 11,800
------------- ----------- ----------- -----------
Total other income (deductions)...................... (372,576) 60,281 33,379 41,186
------------- ----------- ----------- -----------
Net loss............................................. $ (1,351,150) (1,544,090) (1,081,657) (1,819,168)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Average common shares outstanding........................ 2,039,280 4,197,499 3,926,416 5,054,026
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Net loss per common share................................ $ (.66) (.37) (.28) (.36)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
CELL ROBOTICS INTERNATIONAL,
INC.
CELL ROBOTICS, INC. -------------------------------
------------------------------------
COMMON CLASS PREFERRED
COMMON CLASS A B STOCK COMMON STOCK
---------------------- ------------- ------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 1,101,279 $ 1,602,967 58,239 $81,174 -- $-- -- $-- $1,202,665 $(8,245,216)
Forfeiture of shares at
$.00 per share (note
5)..................... (491,499) -- -- -- -- -- -- -- -- --
Issuance of Cell Robotics
International, Inc.
shares in substitution
for the capital stock
of Cell Robotics, Inc.
(note 5)............... (609,780) (1,602,967) (58,239) (81,174) -- -- 668,019 2,672 1,681,469 --
Issuance of Cell Robotics
International, Inc.
shares in substitution
for the capital stock
of Intelligent
Financial Corporation
(note 5)............... -- -- -- -- -- -- 300,008 1,200 248,800 --
Sale of shares at $1.00
per share
(note 5)............... -- -- -- -- -- -- 380,000 1,520 378,480 --
Sale of shares at $1.25
per share, less costs
of offering (note 5)... -- -- -- -- -- -- 2,300,000 9,200 2,251,968 --
Payment to a stockholder
(note 5)............... -- -- -- -- -- -- -- -- (250,000) --
Conversion of a
stockholder's debt to
equity (note 5)........ -- -- -- -- -- -- -- -- 5,758,338 --
Issuance of shares at
$0.00 per share (note
5)..................... -- -- -- -- -- -- 177,887 712 (712) --
Net loss for 1995........ -- -- -- -- -- -- -- -- -- (1,351,150 )
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
Balance at December 31,
1995................... -- -- -- -- -- -- 3,825,914 15,304 11,271,008 (9,596,366 )
Issuance of shares for
asset acquisition (note
4)..................... -- -- -- -- -- -- 17,500 70 41,492 --
Exercise of warrants..... -- -- -- -- -- -- 1,150,000 4,600 1,997,712 --
Issuance of shares at
$1.75 per share........ -- -- -- -- -- -- 10,000 40 17,460 --
Net loss for 1996........ -- -- -- -- -- -- -- -- -- (1,544,090 )
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
Balance at December 31,
1996................... -- -- -- -- -- -- 5,003,414 20,014 13,327,672 (11,140,456)
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
Issuance of shares at
$3.25, less costs of
offering (unaudited)... -- -- -- -- -- -- 200,000 800 629,700 --
Issuance of shares at
$2.39 (unaudited)...... -- -- -- -- -- -- 9,000 36 21,474 --
Issuance of shares at
$1.75 (unaudited)...... -- -- -- -- -- -- 10,000 40 17,459 --
Net loss (unaudited)..... -- -- -- -- -- -- -- -- -- (1,819,168 )
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
Balance at September 30,
1997 (unaudited)....... -- $ -- -- $ -- -- $-- 5,222,414 $20,890 $13,996,305 $(12,959,624)
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
---------- ----------- ------ ------ ------ ------ ---------- ------ ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- ----------------------
1995 1996 1996 1997
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(1,351,150) (1,544,090) (1,081,657) (1,819,168)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 114,708 126,096 88,893 94,567
Decrease (increase) in accounts receivable................ (327,913) 319,763 293,984 (282,179)
Decrease (increase) in inventory.......................... 39,422 (239,097) (125,074) (114,837)
Decrease (increase) in other current assets............... (21,231) 9,946 (1,737) (44,699)
Increase in other long-term assets........................ (11,120) (42,103) (62,701) --
Increase (decrease) in accounts payable and payroll
related liabilities..................................... (104,935) 61,047 (15,546) 256,677
Increase in accrued interest payable...................... 329,508 -- -- --
Increase (decrease) in other current liabilities and
royalties payable....................................... 64,791 (7,492) (14,600) 106,353
----------- ---------- ---------- ----------
Net cash used by operating activities................... (1,267,920) (1,315,930) (918,438) (1,803,286)
----------- ---------- ---------- ----------
Cash flows from investing activities--Purchase of property and
equipment................................................... (84,659) (144,163) (115,728) (31,834)
----------- ---------- ---------- ----------
Net cash used by investing activities......................... (84,659) (144,163) (115,728) (31,834)
Cash flows from financing activities:
Proceeds from loans......................................... 70,010 -- -- --
Repayments of loans......................................... (172,400) -- -- --
Payment to stockholder...................................... (250,000) -- -- --
Proceeds from issuance of common stock...................... 3,345,000 2,030,000 2,012,500 689,009
Costs of offering common stock.............................. (613,832) (10,188) (10,188) (19,500)
Restricted proceeds released (received) from issuance of
common
stock..................................................... (425,000) 425,000 425,000 --
----------- ---------- ---------- ----------
Net cash provided by financing activities............... 1,953,778 2,444,812 2,427,312 669,509
----------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents.......... 601,199 984,719 1,393,146 (1,165,611)
Cash and cash equivalents:
Beginning of period......................................... 138,753 739,952 739,952 1,724,671
----------- ---------- ---------- ----------
End of period............................................... $ 739,952 1,724,671 2,133,098 559,060
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Supplemental information:
Interest paid............................................... $ 12,659 -- 1,303 680
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Noncash financing activity:
Note payable to a stockholder and accrued interest
contributed to paid-in capital (note 5)................. $ 5,758,338 -- -- --
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Stock issued in exchange for asset acquisition (note 4)... $ -- 41,562 41,562 --
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Short-term borrowings repaid with common stock............ $ 160,000 -- -- --
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS AND INFORMATION WITH RESPECT TO
SEPTEMBER 30, 1996 AND 1997 ARE UNAUDITED)
(1) ORGANIZATION AND ACTIVITIES
(A) ORGANIZATION
Cell Robotics International, Inc., a Colorado corporation ("CRII"), was
organized on September 28, 1988 as Intelligent Financial Corporation ("IFC"). As
described in note 5, in 1995 the Company acquired Cell Robotics, Inc. ("CRI"), a
New Mexico corporation, in a transaction which resulted in the stockholders of
CRI owning 62.3 percent of IFC. Accordingly, the transaction was recorded as a
reverse purchase of IFC by CRI. Therefore, the historical financial information
in the accompanying consolidated financial statements is that of CRI adjusted to
reflect the capital structure of IFC. The consolidated financial statements
include the accounts of CRII and CRI (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
On May 19, 1995, IFC changed its name to Cell Robotics International, Inc.
(B) BUSINESS
The Company is developing and preparing to manufacture and market a series
of laser-based medical devices with applications in the blood sample collection,
skin resurfacing, and IN VITRO fertilization markets. Currently, the Company
also develops, produces and markets a line of advanced scientific instruments
which increase the usefulness and importance of the conventional laboratory
microscope. The Company markets its scientific instruments in both domestic and
international markets. Currently, approximately two-thirds of the Company's
sales are in the United States, with Japan being the largest international
market.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) FINANCIAL STATEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
short-term investments with original maturities of three months or less to be
cash equivalents.
(C) INVENTORY
Inventory is recorded at the lower of cost, determined by the first-in,
first-out method, or market.
F-7
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory at December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Parts and components................................................... $ 161,311 267,273
Sub-assemblies......................................................... 7,765 140,900
---------- ---------
$ 169,076 408,173
---------- ---------
---------- ---------
</TABLE>
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, which range
from five to seven years. Leasehold improvements are amortized over the life of
the lease.
(E) LICENSES
Licenses are recorded at cost and are amortized on a straight-line basis
over the shorter of economic or legal lives of the underlying patents.
(F) OTHER ASSETS
Certain legal fees and other related costs associated with start-up,
organization, license fees, software development costs, patents and noncompete
agreements have been capitalized. Start-up and organization costs are amortized
on a straight-line basis over five years, loan acquisition costs are amortized
over the life of the respective loan, license fees are amortized over the life
of the license, and software development costs are amortized as sales occur
based on the estimated total number of units to be sold.
(G) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be 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 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. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, restricted cash, accounts receivable, accounts
payable, royalties payable and accrued liabilities are reflected in the
consolidated financial statements at fair value because of the short-term
maturity of these instruments.
F-8
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) INCOME TAXES
The Company follows the asset and liability method for accounting for income
taxes whereby deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.
(J) REVENUE
The Company recognizes revenue on sales of its products when the products
are shipped from the plant and ownership is transferred to the customer.
Total export sales, primarily in the Far East, were $443,653 and $248,278
for the years ended December 31, 1995 and 1996, respectively. Sales revenues to
individual customers, each of which accounted for 10 percent or more of total
sales, are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Mitsui, a related party (note 5)....................................... $ 229,043 201,314
Customer A............................................................. 230,200 105,421
Customer B............................................................. 149,494 --
Customer C............................................................. -- 92,821
---------- ---------
---------- ---------
</TABLE>
(K) RESEARCH AND DEVELOPMENT
Research and development costs related to both present and future products
are expensed as incurred. Research and development costs consist primarily of
salaries, materials and supplies.
(L) WARRANTIES
The Company warrants their microrobotic laser systems against defects in
materials and workmanship for one year. The warranty reserve is reviewed
periodically and adjusted based upon the Company's historical warranty costs and
its estimate of future costs.
(M) STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, "ACCOUNTING FOR STOCK BASED
COMPENSATION," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
F-9
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(N) NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average shares of common
stock and, if dilutive, common equivalent shares (options and warrants)
outstanding during the period. None of the common stock equivalents were
dilutive during the periods presented.
(O) PRESENTATION OF UNAUDITED FINANCIAL STATEMENTS
The unaudited consolidated financial statements as of September 30, 1997 and
for the nine months ended September 30, 1996 and 1997 have been prepared in
accordance with the rules of the Securities and Exchange Commission and,
therefore, do not include all information and footnotes otherwise necessary for
a fair presentation of financial position, results of operations and cash flows,
in conformity with generally accepted accounting principles. However, the
information furnished, in the opinion of management, reflects all adjustments
necessary to present fairly the financial position, results of operations and
cash flows on a consistent basis. Such adjustments consisted only of normal
recurring items. The results of operations are not necessarily indicative of
results which may be expected for any other interim period or for the year as a
whole.
(P) RECLASSIFICATION
Certain prior period amounts have been reclassified to conform with the
current presentation.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Furniture and fixtures............................................... $ 8,028 8,028
Computers............................................................ 250,164 299,894
Equipment............................................................ 272,239 366,672
Leasehold improvements............................................... 48,150 48,150
----------- ----------
578,581 722,744
Accumulated depreciation............................................. (365,134) (466,109)
----------- ----------
Net property and equipment......................................... $ 213,447 256,635
----------- ----------
----------- ----------
</TABLE>
F-10
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) OTHER ASSETS
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Software development costs........................................... $ 11,120 59,019
Patents.............................................................. -- 48,246
License and prepaid royalties........................................ 36,320 --
Start-up and organization costs...................................... 33,116 33,116
Noncompete agreements................................................ -- 8,116
----------- ----------
80,556 148,497
Accumulated amortization............................................. (46,593) (55,990)
----------- ----------
Net other assets................................................... $ 33,963 92,507
----------- ----------
----------- ----------
</TABLE>
In January, 1996, the Company acquired certain technological assets and
covenants not to compete from Tecnal Products, Inc. for a consideration of
approximately $15,000 cash, 17,500 shares of the Company's common stock and the
grant of a 1 percent royalty on future sales, with a lifetime maximum of
$20,000.
During 1996, the Company expensed the remaining net costs relating to the
license and prepaid royalty on specific technology. That technology is not
currently incorporated into the Company's product lines and it is not
anticipated that it will be used in future products.
During 1995, the Company expensed the remaining net costs relating to the
acquisition of notes payable since all the principal and interest has been
forgiven and contributed to capital (note 7).
During 1995 and 1996, the Company capitalized $11,120 and $47,899 of
software development costs relating to a project whose technological feasibility
has been established. During 1996, the Company recorded amortization of $15,345
as cost of goods sold.
(5) CAPITAL TRANSACTIONS
In February 1995, IFC acquired 100 percent of CRI's issued and outstanding
shares of Class A and B common stock (the "Acquisition"). In connection with the
Acquisition, IFC issued 668,019 shares of IFC common stock to shareholders of
CRI, which represents 62.3 percent of the issued and outstanding IFC common
stock immediately following the transaction. In addition, the options to
purchase CRI's common stock described in note 6 were exchanged for options to
purchase the same number of IFC shares of common stock with identical terms. The
Acquisition was accounted for using the purchase method of accounting, treating
the merger as a reverse purchase of the assets and liabilities of IFC by CRI.
Immediately prior to the Acquisition, all operations, assets and liabilities of
IFC, except $250,000 of receivables from CRI and cash, were transferred to a
separate entity ("IFHC"). The assets, liabilities and results of operation of
IFHC are excluded from the accompanying consolidated financial statements. Pro
forma results of operations of the combined entities are substantially identical
to the results of operations of CRI presented in the accompanying consolidated
statements of operations.
On September 19, 1995, the Company successfully closed a private equity
offering to selected qualified investors at a price of $25,000 per Unit (the
"Private Offering"). Each Unit consisted of
F-11
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) CAPITAL TRANSACTIONS (CONTINUED)
20,000 shares of Common Stock and Class A Warrants exercisble to purchase an
additional 10,000 shares of common stock at an exercise price of $1.75 per
share. Proceeds of this private offering, net of offering costs, were $2,261,168
of which $425,000 was held in escrow until the Company's SB-2 was declared
effective on February 14, 1996, at which time the funds were released. During
1996, 100 percent of the Class A Warrants were exercised generating net proceeds
of $2,002,312. As part of the Private Offering, the placement agent was issued
warrants to purchase 230,000 shares of common stock at $1.25 per share and, if
these placement agent warrants are exercised, the placement agent will receive
up to 115,000 additional Class A Warrants, exercisable at $1.75 per share.
At December 31, 1994, CRI had outstanding notes payable of $5,400,000 due to
a wholly owned subsidiary of Mitsui Engineering and Shipbuilding Company
("Mitsui"), a Japanese corporation, and majority stockholder of CRI's Class A
common stock at the time. Immediately prior to the Acquisition, Mitsui
voluntarily surrendered to CRI, for cancellation, a total of 491,499 shares of
common stock of CRI. During 1995, in conjunction with the Private Offering and
in accordance with agreements entered into prior to the Acquisition, the Company
paid to Mitsui the sum of $250,000, issued to Mitsui 177,887 shares of CRII
common stock, increasing their ownership to approximately 8 percent, and Mitsui
contributed to the capital of the Company the $5,400,000 of notes payable
together with unpaid interest totaling $358,338.
(6) STOCK OPTIONS
The Company has adopted a Stock Incentive Plan ("the Plan") pursuant to
which the Company's Board of Directors may grant to eligible participants
options in the form of Incentive Stock Options ("ISO's") under Section 422 of
the Internal Revenue Code of 1986, as amended, or options which do not qualify
as ISO's (Non-Qualified Stock Options of "NQSO's"). An aggregate of 1,000,000
shares of the Company's Common Stock is reserved for issuance under the Plan.
Generally, stock options granted under the Plan have five-year terms and become
fully exercisable after three or four years from the date of grant.
During 1995, 97,579 options were re-priced to an exercise price of $1.75,
all vesting requirements were eliminated and the expiration date was extended to
December 31, 2003. The exercise price of $1.75 is only effective if the options
are exercised after January 1, 2000. If the options are exercised before that
date, the exercise price reverts back to the original grant with an exercise
price range of $2.39 to $2.50. During 1996, the vesting requirements were
eliminated on 360,000 options having original, and in some cases amended,
exercise prices of $1.75.
F-12
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) STOCK OPTIONS (CONTINUED)
The following is a summary of the stock options granted under the Plan:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
----------- ---------------
<S> <C> <C>
Options at December 31, 1994....................................... 102,594 $ 2.39
Options expired.................................................. (19,115) 2.39
Options granted.................................................. 672,100 1.85
Options repriced................................................. (97,579) 2.41
Options repriced................................................. 97,579 1.75
----------- -----
Options at December 31, 1995....................................... 755,579 1.83
Options expired.................................................. (34,753) 1.75
Options granted.................................................. 175,000 2.17
Options exercised................................................ (10,000) 1.75
----------- -----
Options at December 31, 1996....................................... 885,826 $ 1.91
----------- -----
----------- -----
</TABLE>
At December 31, 1996, range of exercise prices and weighted-average
remaining contractual life of outstanding options were $1.75--$2.875, and 4.20
years, respectively.
At December 31, 1996, the number of options exercisable was 665,826 and the
weighted-average exercise price of those options was $1.77.
During 1995, the Board of Directors and stockholders approved an Employee
Stock Purchase Plan ("ESPP"). As of December 31, 1995 and 1996, no shares of
Common Stock have been issued under the ESPP and there have been no
subscriptions of employees to participate in the plan.
At December 31, 1996, there were 104,174 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock options
granted and modified during 1995 and 1996 was $908,019 and $239,818,
respectively, on the date of grant or amendment using the Black Scholes option-
pricing model with the following weighted-average assumptions: 1995--expected
dividend yield 0 percent, risk-free interest rate of 6.0 percent, expected life
of 4 years for original grants and 7 years for modified grants, and an expected
volatility of 80 percent; 1996--expected dividend yield 0 percent, risk-free
interest rate of 6.6 percent, expected life of 4 years, and an expected
volatility of 80 percent.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the date of grant for its stock options under
SFAS No. 123, the Company's net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
------------- -----------
<S> <C> <C>
Reported net loss................................................ $ (1,351,150) (1,544,090)
Pro forma net loss............................................... (1,751,909) (1,997,271)
Pro forma net loss per share..................................... (.86) (.48)
</TABLE>
F-13
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) STOCK OPTIONS (CONTINUED)
Pro forma net loss reflects only options granted in 1995 and 1996.
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 is reflected over the options' vesting period
and compensation cost for options granted prior to January 1, 1995 is not
considered.
(7) EMPLOYMENT AGREEMENTS
At the closing of the Acquisition, the Company executed written employment
agreements, having terms of five years each, with two officers of the Company.
The employment agreement with one officer provides that he will serve the
Company as its Chairman, President and CEO, on a full-time basis, for a minimum
base salary of $100,000 per year. The employment agreement with the other
officer provides for his serving as Vice President of Finance, on a part-time
basis, for a minimum base salary of $27,000 per year.
In December 1996, the Company executed a written employment agreement with a
new officer of the Company. The employment period ends upon discharge or
resignation of the employee. The employment agreement provides that the officer
will serve the Company as Vice President of Marketing, on a full-time basis, for
a minimum base salary of $110,000 per year.
(8) OPERATING EXPENSES
For the years ended December 31, 1995 and 1996, operating expense consists
of the following:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
General and administrative...................................... $ 488,972 710,330
Marketing....................................................... 262,799 420,976
Research and development........................................ 450,657 708,985
------------- -------------
$ 1,202,428 1,840,291
------------- -------------
------------- -------------
</TABLE>
(9) ROYALTY AGREEMENTS
The Company is party to four royalty agreements under which it must make
payments to the original holders of patents on components used in its products.
Such royalties are generally due upon sale of products containing patented
components.
The first royalty agreement, with the University of California, pertains to
the Company's exclusive license agreement which continues until February 14,
2007. The royalty is calculated as either (a) $1,000 for each patentable item
included on a product sold for an amount in excess of $75,000, or (b) one
percent of the selling price of a product sold for less than $75,000 which
includes a patentable item. Minimum annual royalty payments required to retain
the license are $15,000 each year. This royalty agreement was renegotiated on
January 5, 1996. Pursuant to the renegotiation, the licensor agreed to accept
$15,000 for full satisfaction of the old license agreement. The new agreement
consists of two underlying patents. The new agreement continues until the
expiration of the last underlying patent which is February 14, 2007. Under the
terms of the new agreement, the Company agrees to pay a royalty equal to 4
percent of the net selling price of products utilizing one patent and two
percent of the net selling price of products utilizing the other patent. Minimum
annual royalty payments required to retain the license are $5,000 per year. The
F-14
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) ROYALTY AGREEMENTS (CONTINUED)
Company currently feels the technology covered in this license agreement is no
longer needed for future product development and intends to terminate the
license.
The second royalty agreement, with AT&T, requires a royalty payment equal to
5 percent of revenue generated from sales by the Company's products and pertains
to the Company's major, worldwide, exclusive license agreement which continues
until March 31, 2016. Minimum royalty payments required to retain this license
are as follows:
<TABLE>
<CAPTION>
TWELVE-MONTH PERIOD ENDED MARCH 31
- -------------------------------------------------------------------------------
<S> <C>
1998........................................................................... $ 150,000
1999........................................................................... 200,000
2000........................................................................... 250,000
2001........................................................................... 300,000
2002........................................................................... 400,000
Thereafter..................................................................... 4,550,000
-------------
$ 5,850,000
-------------
-------------
</TABLE>
The third royalty agreement is with Mitsui (note 5). Under the terms of the
agreement, which continues until September 11, 2005, the Company agrees to pay
Mitsui a royalty equal to 1 percent of the aggregate net sales of certain
products.
The fourth royalty agreement, with Tecnal Products, Inc., requires quarterly
royalty payments equal to 1 percent of the net revenues from sales of a certain
product. The royalty agreement stipulates that lifetime maximum royalty payments
will not exceed $20,000. The Company has the option to relieve itself of this
obligation by paying an amount equal to the difference between royalties
previously paid and the lifetime maximum of $20,000.
F-15
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) INCOME TAXES
No provision for federal or state income tax expense has been recorded due
to the Company's losses. The Company has net operating loss carryforwards and
temporary differences that give rise to the following deferred tax assets and
liabilities:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 2,800,000 3,400,000
Inventory capitalization...................................... 63,000 104,000
Obsolete inventory reserve.................................... 8,000 15,000
Vacation and sick leave payable............................... 31,500 27,000
Allowance for doubtful accounts............................... 625 625
Legal fees.................................................... 11,000 9,000
------------- -------------
2,914,125 3,555,625
Less valuation allowance...................................... (2,897,925) (3,536,625)
------------- -------------
Net deferred tax asset...................................... 16,200 19,000
Deferred tax liabilities:
Depreciation.................................................. (16,200) (19,000)
------------- -------------
Net deferred income taxes................................... $ -- --
------------- -------------
------------- -------------
</TABLE>
The net deferred taxes have been fully offset by a valuation allowance since
the Company cannot currently conclude that it is more likely than not that the
benefits will be realized. The net operating loss carryforward for income tax
purposes of approximately $10,000,000 expires beginning in 2006. Ownership
changes resulting from the Acquisition (note 5) will limit the use of this net
operating loss under applicable Internal Revenue Service regulations.
(11) COMMITMENTS
The Company is obligated under a noncancelable operating lease for building
facilities which require minimum rental payment of $86,196 in 1997. Rent expense
for 1995 and 1996 was $108,054 and $104,336, respectively.
The Company is obligated under a noncancelable purchase agreement to
purchase 1,000 units of a particular inventory component at $125 per unit for a
total commitment of $125,000 during 1997.
(12) CAPITAL RESOURCES
Since inception, the Company has incurred operating losses which resulted in
an accumulated deficit of $11,140,456 at December 31, 1996 and operations using
net cash of $1,315,930 in 1996.
The Company's ability to improve cash flow and ultimately achieve
profitability will depend on its ability to significantly increase sales.
Although the Company believes future sales of its scientific instrument line
will improve, it does not expect these products to materially contribute to its
goal of achieving
F-16
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) CAPITAL RESOURCES (CONTINUED)
future profitability. Accordingly, the Company has begun development on, and is
preparing to manufacture and market a series of laser-based medical devices
which leverage the Company's existing base of patented technology. The Company
believes the markets for these new products are broader than that of the
scientific instrumentation market and, as such, offer a greater opportunity to
significantly increase sales. In addition, the Company is pursuing development
and marketing partners for several of its new medical products. These
partnerships will enhance the Company's ability to rapidly ramp-up its marketing
and distribution strategy, and possibly offset the products' development costs.
Although the Company has refocused its strategy to concentrate on the
development of its laser based medical devices while continuing to market its
scientific instrument line, it does not anticipate achieving profitable
operations during fiscal 1997. As a result, the Company's working capital
surplus at December 31, 1996 is expected to erode over the next twelve months.
Nevertheless, the Company expects that its working capital surplus at December
31, 1996 will be sufficient to cover its expected operational deficits during
fiscal 1997.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. The ultimate continuation of the
Company is dependent on attaining profitable operations.
(13) SUBSEQUENT EVENTS (UNAUDITED)
At its present level of research and development and product introduction,
the Company requires approximately $200,000 per month to cover operating
expenses in excess of cash flow currently generated by operations. The proceeds
of an August 1997 private equity sale, resulting in net proceeds of $630,500,
are being used to satisfy the Company's working capital requirements pending
completion of the proposed offering described below. The Company does not have
any available commercial lines of credit or other sources of capital to satisfy
its cash requirements until revenues from operations can be realized through
future product introduction and sales. Accordingly, the Company will rely
exclusively upon the proceeds of the proposed public offering described below to
satisfy its working capital requirements for the foreseeable future.
The Board of Directors of the Company has authorized management to offer
2,000,000 shares of common stock in a registered offering to the public. If
successful, the net proceeds will be used for product development, future
research and development, manufacturing equipment and personnel, marketing, and
sales and working capital.
In conjunction with this offering, the Company will issue to the President
and CEO, warrants exercisable to purchase in the aggregate, 450,000 shares of
the Company's common stock at an exercise price equal to the initial price per
share of the Company's common stock sold in this offering or $4.50 per share,
whichever is greater. Of the total 450,000 warrants, 150,000 vest at the closing
of the offering. The remaining 300,000 warrants vest on November 30, 2002,
however, earlier vesting occurs if certain pre-tax and net income targets are
met.
In October 1997, a competitor filed a civil suit against the Company
claiming that the Lasette-TM- infringes a U.S. patent, underlying its
competitive laser skin perforator. The Company and its patent counsel have
conducted a comprehensive investigation of the basis of the claims underlying
such litigation, and believe that the Lasette-TM- does not infringe upon such
competitor's U.S. patent or any of its related
F-17
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
foreign patents. The Company intends to vigorously defend the claims being
asserted in such litigation. There has been, and the Company believes that there
will continue to be, significant litigation in the laser-based biotechnological
industry regarding patent and other intellectual property rights. Any
litigation, including the claim described above, could consume a substantial
portion of the Company's financial and personnel resources and, regardless of
the outcome of such litigation, have a material adverse impact on the Company's
business, results of operations and financial condition.
F-18
<PAGE>
Medical and Research Laser Products
Cell Robotics Workstation
One photograph of Workstation, two photographs of cells with
description of product and functions.
Revitalase-TM-
One photograph of product with description.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND IF,
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THAT DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 3
Risk Factors................................... 8
Use of Proceeds................................ 19
Dividend Policy................................ 20
Capitalization................................. 21
Dilution....................................... 22
Certain Market Information..................... 23
Selected Financial Data........................ 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 25
Business....................................... 30
Management..................................... 43
Certain Transactions........................... 50
Principal Stockholders......................... 52
Description of Securities...................... 55
Underwriting................................... 58
Legal Matters.................................. 60
Experts........................................ 60
Available Information.......................... 60
Financial Statements ........................... F-1 to F-18
</TABLE>
--------------------------
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF THE
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,000,000 SHARES
COMMON STOCK
CELL ROBOTICS
INTERNATIONAL, INC.
---------------------
PROSPECTUS
---------------------
PAULSON INVESTMENT
COMPANY, INC.
COHIG & ASSOCIATES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other arrangement
under which any controlling person, director or officers of the Registrant is
insured or indemnified in any manner against any liability which he may incur in
his capacity as such, is as follows:
Sections 7-109-101 through 7-109-110 of the Colorado Corporation Code
provide as follows:
7-109-101. DEFINITIONS. As used in this article:
(1) "Corporation" includes any domestic or foreign entity that is a
predecessor of a corporation by reason of a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
(2) "Director" means an individual who is or was a director of a corporation
or an individual who, while a director of a corporation, is or was serving at
the corporation's request as a director, officer, partner, trustee, employee,
fiduciary, or agent of another domestic or foreign corporation or other person
or of an employee benefit plan. A director is considered to be serving an
employee benefit plan at the corporation's request if his or her duties to the
corporation also impose duties on, or otherwise involve services by, the
director to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate or
personal representative of a director.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect to a proceeding
to pay a judgment, settlement, penalty, fine, including an excise tax assessed
with respect to an employee benefit plan, or reasonable expenses.
(5) "Official capacity" means, when used with respect to a director, the
office of director in a corporation and, when used with respect to a person
other than a director as contemplated in section 7-109-107, the office in a
corporation held by the officer or the employment, fiduciary, or agency
relationship undertaken by the employee, fiduciary, or agent on behalf of the
corporation. "Official capacity" does not include service for any other domestic
or foreign corporation or other person or employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal.
7-109-102. AUTHORITY TO INDEMNIFY DIRECTORS.
(1) Except as provided in subsection (4) of this section, a corporation may
indemnify a person made a party to a proceeding because the person is or was a
director against liability incurred in the proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonable believed:
(I) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best
interests; and
II-1
<PAGE>
(II) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no reasonable
cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement of subparagraph (II) of paragraph (b) of subsection (1) of this
section. A director's conduct with respect to an employee benefit plan for a
purpose that the director did not reasonably believe to be in the interests of
the participants in or beneficiaries of the plan shall be deemed not to satisfy
the requirements of paragraph (a) of subsection (1) of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation; or
(b) In connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action in an
official capacity, in which proceeding the director was adjudged liable on
the basis that he or she derived an improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
7-109-103. MANDATORY INDEMNIFICATION OF DIRECTORS.
Unless limited by its articles of incorporation, a corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person is
or was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
7-109-104. ADVANCE OF EXPENSES TO DIRECTORS.
(1) A corporation may pay for or reimburse the reasonable expenses incurred
by a director who is a party to a proceeding in advance of final disposition of
the proceeding if:
(a) The director furnishes to the corporation a written affirmation of
the director's good faith belief that he or she has met the standard of
conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written undertaking,
executed personally or on the director's behalf, to repay the advance if it
is ultimately determined that he or she did not meet the standard of
conduct; and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this article.
(2) The undertaking required by paragraph (b) of subsection (1) of this
section shall be an unlimited general obligation of the director but need not be
secured and may be accepted without reference to financial ability to make
repayment.
(3) Determinations and authorizations of payments under this section shall
be made in the manner specified in section 7-109-106.
II-2
<PAGE>
7-109-105. COURT-ORDERED INDEMNIFICATION OF DIRECTORS.
(1) Unless otherwise provided in the articles of incorporation, a director
who is or was a party to a proceeding may apply for indemnification to the court
conducting the proceeding or to another court of competent jurisdiction. On
receipt of an application, the court, after giving any notice the court
considers necessary, may order indemnification in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the corporation to
pay the director's reasonable expenses incurred to obtain court-ordered
indemnification.
(b) If it determines that the director is fairly and reasonable entitled
to indemnification in view of all the relevant circumstances, whether or not
the director met the standard of conduct set forth in section 7-109-102 (1)
or was adjudged liable in the circumstances described in section 7-109-102
(4), the court may order such indemnification as the court deems proper;
except that the indemnification with respect to any proceeding in which
liability shall have been adjudged in the circumstances described in section
7-109-102 (4) is limited to reasonable expenses incurred in connection with
the proceeding and reasonable expenses incurred to obtain court-ordered
indemnification.
7-109-106. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF DIRECTORS.
(1) A corporation may not indemnify a director under section 7-109-102
unless authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the standard of conduct set forth in section 7-109-102. A
corporation shall not advance expenses to a director under section 7-109-104
unless authorized in the specific case after the written affirmation and
undertaking required by section 7-109-104 (1) (a) and (1) (b) are received and
the determination required by section 7-109-104 (1) -C- has been made.
(2) The determinations required by subsection (1) of this section shall be
made:
(a) By the board of directors by a majority vote of those present at a
meeting at which a quorum is present, and only those directors not parties
to the proceeding shall be counted in satisfying the quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a committee of
the board of directors designated by the board of directors, which committee
shall consist of two or more directors not parties to the proceeding; except
that directors who are parties to the proceeding may participate in the
designation of directors for the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a) of
subsection (2) of this section, and a committee cannot be established under
paragraph (b) of subsection (2) of this section, or, even if a quorum is
obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required to be made by subsection (1) of this section shall be made:
(a) By independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified in paragraph (a) or (b)
of subsection (2) of this section or, if a quorum of the full board cannot
be obtained and a committee cannot be established, by independent legal
counsel selected by a majority vote of the full board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall be made
in the same manner as the determination that indemnification or advance of
expenses is permissible; except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
II-3
<PAGE>
authorization of indemnification and advance of expenses shall be made by the
body that selected such counsel.
7-109-107. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND AGENTS.
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification under section
7-109-103, and is entitled to apply for court-ordered indemnification under
section 7-109-105, in each case to the same extent as a director;
(b) A corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
director; and
(c) A corporation may also indemnify and advance expenses to an officer,
employee, fiduciary, or agent who is not a director to a greater extent, if
not inconsistent with public policy, and if provided for by its bylaws,
general or specific action of its board of directors or shareholders, or
contract.
7-109-108. INSURANCE. A corporation may purchase and maintain insurance on
behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the corporation, or who, while a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the corporation would
have power to indemnify the person against the same liability under section
7-109-102, 7-109-103, or 7-109-107. Any such insurance may be procured from any
insurance company designated by the board of directors, whether such insurance
company is formed under the laws of this state or any other jurisdiction of the
United States or elsewhere, including any insurance company in which the
corporation has an equity or any other interest through stock ownership or
otherwise.
7-109-109. LIMITATION OF INDEMNIFICATION OF DIRECTORS.
(1) A provision treating a corporation's indemnification of, or advance of
expenses to, directors that is contained in its articles of incorporation or
bylaws, in a resolution of its shareholders or board of directors, or in a
contract, except an insurance policy, or otherwise, is valid only to the extent
the provision is not inconsistent with sections 7-109-101 to 7-109-108. If the
article of incorporation limit indemnification or advance of expenses,
indemnification and advance of expenses are valid only to the extent not
inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's power to
pay or reimburse expenses incurred by a director in connection with an
appearance as a witness in a proceeding at a time when he or she has not been
made a named defendant or respondent in the proceeding.
7-109-110. NOTICE TO SHAREHOLDER OF INDEMNIFICATION OF DIRECTOR. If a
corporation indemnifies or advances expenses to a director under this article in
connection with a proceeding by or in the right of the corporation, the
corporation shall give written notice of the indemnification or advance to the
shareholders with or before the notice of the next shareholders' meeting. If the
next shareholder action is taken without a meeting at the instigation of the
board of directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such action.
* * *
b. Article XII of Registrant's Articles of Incorporation provide that the
corporation may indemnify each director, officer, and any employee or agent of
the corporation, his heirs, executors and administrators, against expenses
reasonably incurred or any amounts paid by him in connection with any action,
suit or proceeding to which he may be made a party by reason of his being or
having been a director, officer,
II-4
<PAGE>
employee or agent of the corporation to the extent permitted by the law as
recited above in subparagraph (a).
c. Article XII of Registrant's Articles of Incorporation provides, in part:
"e. To the maximum extent permitted by law or by public policy, directors
of this Corporation are to have no personal liability for monetary damages for
breach of fiduciary duty as a director."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering are to be borne by the Company, are
as follows:
<TABLE>
<CAPTION>
SEC Filing Fee.................................................... $ 3,849
<S> <C>
NASD Fee.......................................................... 1,770
Nasdaq Fee........................................................ 15,000
Printing Expenses................................................. 75,000
Accounting Fees and Expenses...................................... 40,000
Legal Fees and Expenses........................................... 60,000
Blue Sky Fees and Expenses........................................ 25,000
Registrar and Transfer Agent Fee.................................. 5,000
Underwriters' Non-Accountable Expense Allowance................... 270,000
Miscellaneous..................................................... 54,381
---------
Total........................................................... $ 550,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
1. In January 1994, the IFC issued an aggregate of 22,500 shares of
Common Stock valued at $.50 per share to officers and directors for services
performed in those capacities. The securities were issued to six
individuals, each of whom represented that he was an "accredited investor"
within in the meaning of Rule 501(a) of Regulation D. The securities, which
were taken for investment and were subject to appropriate transfer
restrictions, were issued without registration under the Securities Act of
1933, as amended (the "Act") in reliance upon the exemption provided in
Section 4(2) of the Act.
2. In February 1995, the Company issued an aggregate of 668,019 shares
of Common Stock and Incentive Stock Options exercisable to purchase an
additional 66,594 shares of Common Stock at $1.75 per share and
Non-Qualified Stock Options exercisable to purchase 36,000 shares of Common
Stock at $1.75 per share in connection with the Company's acquisition of
Cell Robotics, Inc., a New Mexico corporation. The shares of Common Stock
were issued to total of eight (8) former stockholders of Cell Robotics,
Inc., PRO RATA, each of whom represented that he, she or it satisfied
certain suitability and qualification requirements. The securities, which
were taken for investment and were subject to appropriate transfer
restriction, were issued without registration under the Act in reliance upon
the exemption provided in Section 4(2) of the Act.
3. In 1995, the Company sold 380,000 shares of Common Stock to
BridgeWorks Investors I, L.L.C., an Oregon limited liability company, for
$1.00 per share. The shares of Common Stock were acquired for investment
purposes and were subject to appropriate transfer restrictions. The shares
of Common Stock were not registered under the Act in reliance upon Section
4(2) thereof.
4. In 1994, the IFC sold 120,000 shares of Common Stock to six (6)
investors for $1.00 per share. Each investor represented that they satisfied
certain suitability requirements. The shares of Common Stock were acquired
for investment purposes and were subject to appropriate transfer
restrictions. The shares of Common Stock were not registered under the Act
in reliance upon Section 4(2) thereof.
II-5
<PAGE>
5. In August 1995, the Company granted Incentive Stock Options
exercisable to purchase 360,000 shares of the Company's Common Stock at an
exercise price of $1.75 per share. The Incentive Stock Options were issued
to executive officers and key employees of the Company pursuant to the
Company's 1992 Stock Incentive Plan. The Incentive Stock Options were taken
for investment, were subject to appropriate transfer restrictions, and were
issued without registration under the Act in reliance upon the exemption
provided in Section 4(2) of the Act.
6. In September 1995, the Company sold an aggregate 115 Units, each
Unit consisting of 20,000 shares of Common Stock and 10,000 Class A
Warrants. Each Class A Warrant entitles the holder thereof to purchase one
(1) share of Common Stock at an exercise price of $1.75 per share. The Units
were sold to an aggregate of 89 investors who represented that they
qualified as "accredited investors" within the meaning of Rule 501(a) of
Regulation D, and a total of 4 other investors who satisfied certain other
suitability requirements. The securities were acquired for investment
purposes and were subject to appropriate transfer restrictions. The
securities were not registered under the Act in reliance upon Section 4(2)
thereof and Rule 506 of Regulation D promulgated thereunder.
7. In September 1995, the Company issued a warrant to purchase 11.5
Units of the Company's securities, each Unit consisting of 20,000 shares of
Common Stock and 10,000 Class A Warrants. Each Class A Warrant entitles the
holder thereof to purchase one (1) share of Common Stock at an exercise
price of $1.75 per share. The subject warrant was issued to a registered
broker-dealer which qualified as a "accredited investor" within the meaning
of Rule 501(a) of Regulation D. The subject warrant was acquired for
investment purposes and was subject to appropriate transfer restrictions.
The subject warrant was not registered under the Act in reliance upon
Section 4(2) thereof and Rule 506 of Regulation D thereunder.
8. In September 1995, the Company granted a Non-Qualified Stock Option
exercisable to purchase 3,000 shares of the Company's Common Stock at an
exercise price of $2.39 per share. The Non-Qualified Stock Option was
granted to one (1) individual in addition to cash compensation for public
relations services performed for the Company. The option was deemed to have
only nominal value. The Non-Qualified Stock Option was acquired for
investment purposes and was subject to appropriate transfer restrictions.
The Non-Qualified Stock Option was not registered under the Act in reliance
upon Section 4(2) thereof.
9. In September 1995, the Company granted a Non-Qualified Stock Option
exercisable to purchase 6,000 shares of the Company's Common Stock at an
exercise price of $2.39 per share. The Non-Qualified Stock Option was
granted for services performed as a member of the Company's Technical
Advisory Board and was deemed to have only nominal value. The Non-Qualified
Stock Option was acquired for investment purposes and was subject to
appropriate transfer restrictions. The Non-Qualified Stock Option was not
registered under the Act in reliance upon Section 4(2) thereof.
10. In December, 1995, the Company granted Non-Qualified Stock Options
exercisable to purchase 60,000 shares of the Company's Common Stock at an
exercise price of $2.81 per share. The Non-Qualified Stock Options were
granted to three (3) directors of the Company. The Non-Qualified Stock
Options were deemed to have only nominal value. The Non-Qualified Stock
Options were acquired for investment purposes and were subject to
appropriate transfer restrictions. The Non-Qualified Stock Options were not
registered under the Act in reliance upon Section 4(2) thereof.
II-6
<PAGE>
11. In January 1996, the Company issued an aggregate of 17,500 shares to
seven (7) investors as partial consideration for certain United States and
foreign patent rights. The shares of Common Stock were valued at $2.25 per
share. The shares of Common Stock were acquired for investment purposes and
were subject to appropriate transfer restrictions. The shares of Common
Stock were not registered under the Act in reliance upon Section 4(2)
thereof.
12. During fiscal 1996, the Company granted Incentive Stock Options
exercisable to purchase 175,000 shares of the Company's Common Stock at
exercise prices of $1.875 to $2.875 per share. The Incentive Stock Options
were issued to executive officers and key employees of the Company pursuant
to the Company's 1992 Stock Incentive Plan. The Incentive Stock Options were
taken for investment, were subject to appropriate transfer restrictions, and
were issued without registration under the Act in reliance upon the
exemption provided in Section 4(2) of the Act.
13. In August 1997, the Company sold to one (1) accredited investor an
aggregate of 200,000 shares of Common Stock at a price of $3.25 per share.
The shares of Common Stock were acquired for investment purposes and subject
to the appropriate transfer restrictions. The shares of Common Stock were
not registered under the Act in reliance upon Section 4.2 thereof.
ITEM 27. EXHIBITS.
a. The following Exhibits are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ------------------------------------------------------------------
<C> <S>
***** 1.0 Underwriting Agreement
** 3.2 Amended and Restated Bylaws
**** 3.3(a) Amended and Restated Articles of Incorporation
** 3.3(b) Articles of Amendment to the Articles of Incorporation dated May
23, 1995
** 4.1 Specimen Certificate of Common Stock
***** 4.2 Representatives' Common Stock Purchase Warrant
***** 4.3 Warrant Agreement
***** 4.4 Lohrding Option Agreement
***** 5.0 Opinion of Neuman & Drennen, LLC regarding the legality of the
securities being registered
* 10.1 Agreement and Plan of Reorganization between and among Cell
Robotics, Inc., Intelligent Financial Corporation, MiCel, Inc.,
BridgeWorks Investors I, L.L.C., and Ronald K. Lohrding.
* 10.2 Employment Agreement of Ronald K. Lohrding.
* 10.3 Employment Agreement of Craig T. Rogers.
10.4 Employment Agreement of Travis Lee
* 10.5 Financing and Capital Contribution Agreement between and among
Cell Robotics, Inc., Intelligent Financial Corporation, MiCel,
Inc., and BridgeWorks Investors I, L.L.C.
* 10.6 Irrevocable Appointment of Voting Rights by Dr. Lohrding to MiCel,
Inc.
* 10.7 Stock Pooling and Voting Agreement
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ------------------------------------------------------------------
<C> <S>
** 10.8 Royalty Agreement dated September 11, 1995 between the Registrant,
Cell Robotics, Inc., and Mitsui Engineering & Shipbuilding Co.,
Ltd.
** 10.9 Agreement of Contribution and Mutual Comprehensive Release dated
September 11, 1995 between the Company, Cell Robotics, Inc. and
Mitsui Engineering & Shipbuilding Co., Ltd.
** 10.10 Distribution Agreement dated April 6, 1995, between Carl Zeiss,
Inc. and the Registrant
** 10.11 Distribution Agreement dated December 15, 1994, between MiCel,
Inc. and the Registrant
** 10.12 Revised License Agreement dated January 5, 1996 between the
Registrant and the Regents of the University of California
** 10.13 Purchase Agreement with Tecnal Products, Inc.
** 10.14 License Agreement with NTEC
**** 10.15 License Agreement dated May 13, 1996, between the Registrant and
GEM Edwards, Inc.
*****10.16 Termination Agreement and Release dated , 1997 between
the Registrant and GEM Edwards, Inc.
*** 16.00 Letter of Schumacher & Associates, Inc., Certified Public
Accountants, filed pursuant to Item 304(a)(3) of Regulation S-B
** 21.0 Subsidiaries
***** 23.1 Consent of Neuman & Drennen, LLC
***** 23.2 Consent of KPMG Peat Marwick LLP, Certified Public Accountants
</TABLE>
- ------------------------
* Incorporated by reference from the Registrant's Current Report on Form 8-K
dated February 23, 1995, as filed with the Commission on March 10, 1995,
SEC File No. 33-26467.
** Incorporated by reference from the Registrant's Pre-Effective Amendment
No. 1 to Registration Statement on Form SB-2 declared effective by the
Commission on February 14, 1996, SEC File No. 33-80347.
*** Incorporated by reference from the Registrant's Current Report on Form 8-K
dated May 15, 1995, as filed with the Commission on May 18, 1995, SEC File
No. 33-26467.
**** Incorporated by reference from the Registrant's Post-Effective Amendment
No. 1 to Registration Statement on Form SB-2 filed with the Commission on
July 15, 1996, SEC File No. 33-80347.
***** Filed herewith.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
a. Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
b. Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement;
II-8
<PAGE>
c. Include any additional or changed material information on the
plan of distribution.
2. That, for determining liability under the Securities Act, to treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
3. To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
5. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
and paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered hereby, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Albuquerque, State of New Mexico on the 24th day
of November, 1997.
<TABLE>
<S> <C> <C>
CELL ROBOTICS INTERNATIONAL, INC.
By: /s/ RONALD K. LOHRDING
-----------------------------------------
Ronald K. Lohrding, PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities with Cell Robotics International, Inc. and on the dates indicated.
SIGNATURE POSITION DATE
- ------------------------------ -------------------------- -------------------
/s/ RONALD K. LOHRDING Chairman of the Board,
- ------------------------------ President, Chief November 24, 1997
Ronald K. Lohrding Executive Officer
/s/ JEAN SCHARF Chief Financial Officer,
- ------------------------------ Chief Accounting Officer November 24, 1997
Jean Scharf and Controller
/s/ CRAIG T. ROGERS
- ------------------------------ Director November 24, 1997
Craig T. Rogers
/s/ MARK WALLER
- ------------------------------ Director November 24, 1997
Mark Waller
/s/ RAYMOND RADOSEVICH
- ------------------------------ Director November 24, 1997
Raymond Radosevich
/s/ DEBRA BRYANT
- ------------------------------ Director November 24, 1997
Debra Bryant
II-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ------------------------------------------------------------------
<C> <S>
***** 1.0 Underwriting Agreement
** 3.2 Amended and Restated Bylaws
**** 3.3(a) Amended and Restated Articles of Incorporation
** 3.3(b) Articles of Amendment to the Articles of Incorporation dated May
23, 1995
** 4.1 Specimen Certificate of Common Stock
***** 4.2 Representatives' Common Stock Purchase Warrant
***** 4.3 Warrant Agreement
***** 4.4 Lohrding Option Agreement
***** 5.0 Opinion of Neuman & Drennen, LLC regarding the legality of the
securities being registered
* 10.1 Agreement and Plan of Reorganization between and among Cell
Robotics, Inc., Intelligent Financial Corporation, MiCel, Inc.,
BridgeWorks Investors I, L.L.C., and Ronald K. Lohrding.
* 10.2 Employment Agreement of Ronald K. Lohrding.
* 10.3 Employment Agreement of Craig T. Rogers.
10.4 Employment Agreement of Travis Lee
* 10.5 Financing and Capital Contribution Agreement between and among
Cell Robotics, Inc., Intelligent Financial Corporation, MiCel,
Inc., and BridgeWorks Investors I, L.L.C.
* 10.6 Irrevocable Appointment of Voting Rights by Dr. Lohrding to MiCel,
Inc.
* 10.7 Stock Pooling and Voting Agreement
** 10.8 Royalty Agreement dated September 11, 1995 between the Registrant,
Cell Robotics, Inc., and Mitsui Engineering & Shipbuilding Co.,
Ltd.
** 10.9 Agreement of Contribution and Mutual Comprehensive Release dated
September 11, 1995 between the Company, Cell Robotics, Inc. and
Mitsui Engineering & Shipbuilding Co., Ltd.
** 10.10 Distribution Agreement dated April 6, 1995, between Carl Zeiss,
Inc. and the Registrant
** 10.11 Distribution Agreement dated December 15, 1994, between MiCel,
Inc. and the Registrant
** 10.12 Revised License Agreement dated January 5, 1996 between the
Registrant and the Regents of the University of California
** 10.13 Purchase Agreement with Tecnal Products, Inc.
** 10.14 License Agreement with NTEC
**** 10.15 License Agreement dated May 13, 1996, between the Registrant and
GEM Edwards, Inc.
*** 16.00 Letter of Schumacher & Associates, Inc., Certified Public
Accountants, filed pursuant to Item 304(a)(3) of Regulation S-B
** 21.0 Subsidiaries
***** 23.1 Consent of Neuman & Drennen, LLC
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- ------------------------------------------------------------------
<C> <S>
***** 23.2 Consent of KPMG Peat Marwick LLP, Certified Public Accountants
</TABLE>
- ------------------------
* Incorporated by reference from the Registrant's Current Report on Form 8-K
dated February 23, 1995, as filed with the Commission on March 10, 1995,
SEC File No. 33-26467.
** Incorporated by reference from the Registrant's Pre-Effective Amendment
No. 1 to Registration Statement on Form SB-2 declared effective by the
Commission on February 14, 1996, SEC File No. 33-80347.
*** Incorporated by reference from the Registrant's Current Report on Form 8-K
dated May 15, 1995, as filed with the Commission on May 18, 1995, SEC File
No. 33-26467.
**** Incorporated by reference from the Registrant's Post-Effective Amendment
No. 1 to Registration Statement on Form SB-2 filed with the Commission on
July 15, 1996, SEC File No. 33-80347.
***** Filed herewith.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 1.0 - Underwriting Agreement
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
___________ Shares
of Common Stock of
CELL ROBOTICS INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
_________, 199_
Paulson Investment Company, Inc.
As Representative of the
Several Underwriters
c/o Paulson Investment Company, Inc.
811 SW Front Avenue
Portland, Oregon 97204
Gentlemen:
Cell Robotics International, Inc., a Colorado corporation (the
"Company"), proposes to sell to the several underwriters (the "Underwriters")
named in Schedule I hereto for whom you are acting as the Representative (the
"Representative") an aggregate of _______ shares of Common Stock, $0.004 par
value per share (the "Common Stock"), of the Company. The respective amounts of
shares to be so purchased from the Company by the several Underwriters (the
"Firm Shares") are set forth opposite their names in Schedule I hereto. The
Company also proposes to grant to the Representative an option to purchase up to
______ additional shares of its Common Stock (the "Option Shares") as set forth
below.
As the Representative, you have advised the Company that (a) you are
authorized to enter into this Agreement for yourself as Representative and on
behalf of the several Underwriters and (b) the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I. The Firm Shares and the
Option Shares (to the extent that the aforementioned option is exercised) are
herein collectively called the "Shares".
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as
follows:
(a) A registration statement on Form S-1 (File No. 333-_________)
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, has become effective under the Act and no post-effective
amendment to the Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means (a) the form of prospectus first filed with the
Commission pursuant to Rule 424(b), or (b) the last preliminary prospectus
included in the Registration Statement filed prior to the time it becomes
effective or filed pursuant to Rule 424(a) under the Act that is delivered by
the Company to the Underwriters for delivery to purchasers of the Shares,
together with the term sheet or abbreviated term sheet filed with the Commission
pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included
in the Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus." Except where indicated otherwise,
the Registration Statement shall be deemed to include the Prospectus and the
Preliminary Prospectus.
(b) The Company and each of its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of the
state of its incorporation, with full power and authority (corporate and other)
to own or lease its properties and conduct its business as described in the
Registration Statement and is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions in which the
nature of its business or the character or location of its properties requires
such qualification, except where failure to so qualify will not materially
affect its business, properties or financial condition. Except as described in
the Registration Statement, the Company does not own any interest in any
corporation or other business entity that has any material assets, liabilities
or operations.
(c) The authorized capital stock of the Company as of the Effective
Date is set forth under "Description of Securities" and The Offering" in the
Prospectus. The shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable and have been issued and sold by the Company in compliance in all
material respects with applicable Federal and state securities laws; the Shares
and the shares issuable upon exercise of the Representative's Warrants (as
defined in Paragraph (e) of Section 2 hereof) have been duly authorized and when
issued and paid for as contemplated herein will be validly issued, fully paid
and non-assessable; and no preemptive rights of stockholders exist with respect
to any of the Shares or the issue and sale thereof. The Company has full power
and lawful authority to authorize, issue and sell the Shares to be sold by it
hereunder on the terms and conditions set forth
-2-
<PAGE>
herein, and no consent, approval, authorization or other order of anyone,
including any governmental authority, is required in connection with the
authorization, issuance and sale of the Shares or the Representative's Warrant,
except such as may be required under the Act or state or corporate securities
laws, all of which have been duly obtained. Neither the filing of the
Registration Statement, nor the offering or sale of the Shares as contemplated
by this Agreement gives rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any other shares of
Common Stock under the Act.
(d) The information set forth under the caption "Capitalization" in
the Prospectus is true, correct and complete as to the matters customarily
covered under such a caption. All of the Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the State of Colorado. Except as
disclosed in the Prospectus, there are no outstanding rights, options or
warrants for the purchase of any securities of the Company, and the Company is
not a party to any agreement pursuant to which any person has the right to
purchase any securities of the Company. Effectively immediately following the
Closing Date (hereinafter defined) there will be no person holding any
anti-dilution rights with respect to the securities of the Company other than
[the holders of stock options under the Company's Stock Incentive Plan (the
"Plan"), Paulson Investment Company Inc. with respect to warrants issued in
connection with a private placement in which it acted as placement agent (the
"Placement Agent Warrants"), Ronald K. Lohrding with respect to warrants issued
to him on ____ ___, 199_ to acquire up to 450,000 shares of Common Stock (the
"Lohrding Warrants")] and the holder(s) of the Representative's Warrants.
(e) Except as disclosed in the Registration Statement, the Company
has not (i) issued any capital stock or any options, warrants, convertible
securities or other rights to purchase its capital stock, (ii) increased its
long-term or short-term debt, or (iii) declared or paid any dividends on its
capital stock.
(f) Neither the Commission nor the "blue sky" or securities authority
of any jurisdiction has issued an order preventing or suspending the
effectiveness or use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform to, the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendments thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the Company
makes no representations or warranties as to information contained in or omitted
from the Registration Statement, or any such amendment or supplement, in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through the Representative,
specifically for use in the preparation thereof.
(g) The financial statements of the Company and its subsidiaries,
together with related notes and schedules as set forth in the Registration
Statement, present fairly the financial position and the results of operations
and cash flows of the Company as of the indicated dates and
-3-
<PAGE>
for the indicated periods. Such financial statements and related schedules have
been prepared in accordance with generally accepted accounting principles,
consistently applied through the periods involved, except as disclosed therein,
and all adjustments necessary for a fair presentation of results for such
periods have been made. The summary financial and statistical data of the
Company included in the Registration Statement present fairly the information
shown therein and such data has been compiled on a basis consistent with the
financial statements presented therein and the books and records of the Company
and its subsidiaries.
(h) KPMG Peat Marwick LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(i) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries before any court or administrative agency or otherwise which if
determined adversely to the Company or such subsidiary might result in any
material adverse change in the earnings, business, management, properties
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company or such subsidiary or to prevent the consummation of the
transactions contemplated hereby.
(j) Either the Company or one of its subsidiaries has good and
marketable title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those reflected in
such financial statements (or as described in the Registration Statement) or
which are not material in amount. All of the leases and subleases under which
the Company or any of its subsidiaries is the lessor or sublessor of properties
or assets or under which the Company or any of its subsidiaries holds properties
or assets as lessee or sublessee as described in the Registration Statement are
in full force and effect and, except as described in the Registration Statement,
neither the Company nor any of its subsidiaries is in default with respect to
any of the terms or provisions of any of such leases or subleases and, except as
described in the Registration Statement, no claim has been asserted by anyone
adverse to rights of the Company or any of its subsidiaries as lessor,
sublessor, lessee or sublessee under any of the leases or subleases to which it
is a party, or affecting or questioning the right of the Company or any of its
subsidiaries to continued possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Registration Statement; and either the Company or one of its subsidiaries
owns or leases all such properties described in the Registration Statement as
are necessary to its operations as now conducted.
(k) The Company and its subsidiaries (i) has filed all Federal,
state, local and foreign income tax returns which have been required to be filed
and has paid all taxes for which they are liable and all assessments received by
them to the extent that such taxes or assessment have become due and are not
being contested in good faith and has furnished all information returns it is
required to furnish pursuant to the Internal Revenue Code of 1986, as amended
(the "Code"), (ii) has established adequate reserves for such taxes which are
not due and payable, and (iii) do not have any tax deficiency or claims
outstanding, proposed or assessed against them. All tax liabilities have been
adequately provided for in the financial statements of the Company and its
subsidiaries.
-4-
<PAGE>
(l) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company or any of its subsidiaries, whether or not occurring in
the ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered into
by the Company or any of its subsidiaries, other than transactions in the
ordinary course of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented. Neither the
Company nor any subsidiary has any material contingent obligations which are not
disclosed in the Company's financial statements included in the Registration
Statement.
(m) The Company is not, nor, with the giving of notice or lapse of
time or both, will not be, in violation of or in default under its [Amended and
Restated] Certificate of Incorporation (the "Certificate of Incorporation") or
by-laws or under any agreement, lease, contract, indenture or other instrument
or obligation to which it is a party or by which it, or any of its properties,
is bound and which default is material in respect of the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company. The execution and delivery of this
Agreement and the consummation of the transactions contemplated herein will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation of any lien, charge or
encumbrance pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any of its subsidiaries is a
party, or of the Certificate of Incorporation or by-laws of the Company or any
statute or any order, rule or regulation applicable to the Company or any of its
subsidiaries of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction over the Company or any of its
subsidiaries, or any judgment or order of any court or other tribunal by which
the Company or any of its subsidiaries may be bound; in each case where the
breach or default would have a material adverse effect on the Company or any of
its subsidiaries.
(n) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or "'blue sky" laws) has been
obtained or made and is in full force and effect.
(o) Except as set forth in the Registration Statement, either the
Company or one of its subsidiaries owns or possesses adequate rights to use all
material patents, patent rights, patent applications, inventions, trademarks,
trademark applications, trade names, service marks, mark registrations,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures)
franchises and licenses and other intangible properties and assets (all of the
foregoing being herein called "Intellectual Property Rights") necessary for the
conduct of its business and has not received any notice of conflict with the
asserted rights of others in respect thereof. All Intellectual Property Rights
that the
-5-
<PAGE>
Company or any of its subsidiaries owns or has pending, or under which it is
licensed are accurately described in the Registration Statement. There is no
right under any Intellectual Property Rights necessary to the business of the
Company or any of its subsidiaries as presently conducted or as the Registration
Statement may indicate it contemplates conducting, except as accurately
described in the Registration Statement. Except as set forth in the
Registration Statement, to the knowledge of the Company, neither it nor any of
its subsidiaries has infringed, is infringing, and has received notice of
infringement with respect to, asserted Intellectual Property Rights of others,
except for such infringement or alleged infringement that has had, or cannot be
reasonably expected to have, a material adverse effect on the financial
condition, results of operations, business, properties, assets or future
prospects of the Company and its subsidiaries. Except as accurately described
in the Registration Statement, to the knowledge of the Company, there is no
infringement by others of any of the Intellectual Property Rights of the Company
or any of its subsidiaries. Except as accurately described in the Registration
Statement, to the knowledge of the Company, there is no Intellectual Property
Rights of any other entity or person which has had or may in the future have a
material adverse effect on the financial condition, results of operations,
business, properties, assets or future prospects of the Company or any of its
subsidiaries.
(p) The Company and its subsidiaries hold all material licenses,
certificates, permits, orders or other similar authorizations granted or issued
by any governmental agency (collectively the "Government Permits") required to
conduct their business and are in all material respects complying therewith. No
proceeding to revoke, limit or otherwise materially change any Government Permit
has been commenced or, to the Company's knowledge, is threatened against the
Company or any subsidiary.
(q) To its knowledge, the Company and each of its subsidiaries, is
in compliance with all laws, rules, regulations, orders of the United States,
any state, county or locality or of any court or administrative agency,
operating licenses or other requirements imposed by any governmental body,
except as in the aggregate do not have and will not in the future have a
material adverse effect upon the operations, business, properties or assets of
the Company and its subsidiaries, including, to the knowledge of the Company and
without limitation, all applicable laws, rules, regulations, licenses or other
governmental standards relating to any business conducted or proposed to be
conducted by the Company and its subsidiaries; and the conduct of the business
of the Company and its subsidiaries, as described in the Registration Statement,
will not cause the Company or any subsidiary to be in violation of any such
requirements.
(r) Neither the Company nor, to the Company's knowledge, any of its
affiliates, has taken or intends to take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(s) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940, as amended (the "1940 Act"),
and the rules and regulations of the Commission thereunder.
(t) The Company maintains a system of internal accounting controls
sufficient
-6-
<PAGE>
to provide reasonable assurances that (A) transactions are executed in
accordance with management's general or specific authorization; (B) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in accordance
with management's general or specific authorization; and (D) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(u) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of its business and the
value of its properties and as is customary for companies engaged in similar
industries.
(v) The Company and each of its subsidiaries is in compliance with
all regulations of the United States Food and Drug Administration (the "FDA"),
except where noncompliance would not have a material adverse effect on the
business operations or financial condition of the Company or any of its
subsidiaries. Except with respect to pending applications, there are no
rulemaking or similar proceedings before the FDA which affect or involve the
Company or any of its subsidiaries or any of the processes or products which the
Registration Statement discloses the Company or any of its subsidiaries has
developed, is developing or proposes to develop or uses or proposes to use
which, in each case, if the subject of an action or decision unfavorable to the
Company or any of its subsidiaries, individually or in the aggregate with all
such rulemaking or similar proceedings, would reasonably be expected to have a
material adverse effect on the business operations, or financial condition of
the Company or any of its subsidiaries.
(w) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of medical wastes or hazardous
substances by the Company or any of its subsidiaries (or, to the knowledge of
the Company, any of its predecessors in interest) at, upon or from any of the
property now or previously owned or leased by the Company or any of its
subsidiaries in violation of any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit or which could reasonably be expected to
require remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or remedial action
which would not have, or could not be reasonably likely to have, individually or
in the aggregate with all such violations and remedial actions, a material
adverse effect on the business, operations or financial condition of the Company
or any of its subsidiaries; there has been no material spill, discharge, leak,
emission, injection, escape, dumping or release of any kind onto such property
or of any medical wastes or hazardous substances due to or caused by the Company
or any of its subsidiaries or with respect to which the Company of any of its
subsidiaries had knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or could
not be reasonably likely to have, individually or in the aggregate with all such
spills, discharges, leaks, emissions, injections, escapes, dumpings or releases,
a material adverse effect on the business, operations or financial condition of
the Company or any of its subsidiaries; and the terms "hazardous substances" and
"medical wastes" shall have the meanings specified in any applicable local,
state, federal and foreign laws or regulations with respect to environmental
protection.
(x) The Company and each of its subsidiaries is in compliance in all
material
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respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any of its subsidiaries would have any liability; neither
the Company nor any subsidiary has incurred and does not expect to incur
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Code,
including the regulations and published interpretations thereunder; and each
"pension plan" for which the Company or any of its subsidiaries would have any
liability that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA plan which is intended to comply with Section 401(a) of
the Code stating that such ERISA plan and the attendant trust are qualified
thereunder. Neither the Company nor any subsidiary has never completely or
partially withdrawn from a "multiemployer plan."
(y) The Representative's Warrants have been duly authorized for
issuance to the Representative and will, when issued, possess rights, privileges
and characteristics as represented in the most recent form of Representative's
Warrant filed as an exhibit to the Registration Statement; the securities to be
issued upon exercise of the Representative's Warrants, when issued and delivered
against payment therefor in accordance with the terms of the Representative's
Warrants, will be duly and validly issued, fully paid, non-assessable and free
of preemptive rights, and all corporate action required to be taken for the
authorization and issuance of the Representative's Warrants, and the securities
to be issued upon their exercise, have been validly and sufficiently taken.
(z) The Company has caused each officer and director and each person
who owns, beneficially or of record, 5% or more of the Common Stock outstanding
immediately prior to this offering to furnish to the Representative, on or prior
to the date of this Agreement, a letter or letters, in form and substance
satisfactory to the Underwriters ("Lockup Agreements"), pursuant to which each
such person shall agree: (A) not to offer to sell, sell, contract to sell, sell
short or otherwise dispose of, any shares of Common Stock or other capital stock
of the Company, or any other securities convertible, exchangeable or exercisable
for shares or derivatives of Common Stock owned by such person, or request the
registration for the offer or sale of any of the foregoing (or as to which such
person has the right to direct the disposition of) for a period of ninety (90)
days after the effective date of the Registration Statement, directly or
indirectly, except with the prior written consent of the Representative; and (B)
for a period of three years from the effective date of the Registration
Statement, to give prior written notice to the Representative of any offers to
sell, sales, contracts to sell, short sales or other dispositions by any such
person of Common Stock pursuant to Rule 144 under the Act or any similar
provisions enacted subsequent to the date of this Agreement.
(aa) Neither the Company nor any of its subsidiaries has at any time
during the last five years (A) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation of
law, or (B) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof. The Company's internal accounting controls and
procedures are sufficient to enable the
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Company to comply in all material respects with the Foreign Corrupt Practices
Act of 1977, as amended.
(bb) Except as disclosed in the Prospectus, neither the Company nor
any of its officers, directors or affiliates have caused any person, other than
the Underwriters, to be entitled to reimbursement or compensation of any kind,
including, without limitation, any compensation that would be includable as
underwriter compensation under the NASD's Corporate Financing Rule with respect
to the offering of the Shares, as a result of the consummation of such offering
based on any activity of such person as a finder, agent, broker, investment
adviser or other financial service provider.
(cc) The Common Stock has been approved for listing, subject to
official notice of issuance on the National Association of Securities Dealers,
Inc. Automated System ("NASDAQ") SmallCap Market.
(dd) The Company has all requisite power and authority to execute,
deliver, and perform this Agreement and the agreement with respect to the
Representative's Warrants (the "Representative's Warrant Agreement"). All
necessary corporate proceedings of the Company have been duly taken to authorize
the execution, delivery and performance of this Agreement and the
Representative's Warrant Agreement by the Company. This Agreement and the
Representative's Warrant Agreement have been duly authorized, executed and
delivered by the Company, are the legal, valid and binding obligation of the
Company, and are enforceable as to the Company in accordance with their
respective terms (subject to applicable bankruptcy, insolvency and other laws
affecting creditors' rights generally and except as rights to indemnity and
contribution hereunder may be limited by federal or state securities laws and
public policy). Except as described in the Registration Statement, no consent,
authorization, approval, order, lien, certificate, or permit of or from, or
declaration or filing with, any federal, state, local or other governmental
authority or any court or other tribunal is required for the execution, delivery
or performance of this Agreement and the Representative's Warrant Agreement by
the Company (except filings under the Act which have been or will be made before
the Closing Date and such consents consisting only of consents under "blue sky"
or securities laws which have been obtained at or prior to the date of this
Agreement). No consent of any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding to which the Company or any of its
subsidiaries is a party, or to which any of its properties or assets are
subject, is required for the execution, delivery or performance of this
Agreement and the Representative's Warrant Agreement; and the execution,
delivery and performance of this Agreement and the Representative's Warrant
Agreement will not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate or declare a default under any such material contract, agreement,
instrument, lease, license, arrangement or understanding, or violate or result
in a breach of any term of the certificate of incorporation or by-laws of the
Company, or violate, result in a breach of, or conflict with, any law, rule,
regulation, order, judgment, or decree binding on the Company or any of its
subsidiaries or to which any of their operations, businesses, properties, or
assets is subject.
(ee) Except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement,
neither the Company nor any of its
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<PAGE>
subsidiaries has incurred any liabilities or obligations, direct or contingent,
not in the ordinary course of business, or entered into any transaction not in
the ordinary course of business, which is material to the business of the
Company or any of its subsidiaries, and there has not been any change in the
capital stock of, or any incurrence of long-term debt by, the Company or any of
its subsidiaries or any issuance of options [except for the issuance of options
pursuant to the Plan], warrants or other rights to purchase the capital stock of
the Company or any adverse change or any development involving, so far as the
Company can now reasonably foresee, a prospective adverse change in its
condition (financial or other), net worth, results of operations, business,
management or properties which would be material to the business or financial
condition of the Company or any of its subsidiaries, and the Company has not
become party to, and neither the business nor the property of the Company or any
of its subsidiaries has become the subject of, any material litigation whether
or not in the ordinary course of business.
(ff) On the Closing Dates all transfer or other taxes (including
franchise, capital stock or other tax, other than income taxes imposed by any
jurisdiction), if any, which are required to be paid in connection with the sale
and transfer of the Shares to the Representative will have been fully paid or
provided for by the Company and all laws imposing such taxes will have been
fully complied with.
(gg) Any contract, agreement, instrument, lease or license required to
be described in the Registration Statement or the Prospectus has been properly
described therein. Any contract, agreement, instrument, lease, or license
required to be filed as an exhibit to the Registration Statement has been filed
with the Commission as an exhibit to the Registration Statement.
(hh) Except as otherwise described in the Registration Statement, the
Company has no subsidiaries.
(ii) Except as set forth in the Prospectus, no officer, director,
principal stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or any of its subsidiaries, or
(B) purchases from or sells or furnishes to the Company or any of its
subsidiaries any goods or services, or (ii) a beneficial interest in any
contract or agreement to which the Company or any of its subsidiaries is a party
or by which it may be bound or affected. Except as set forth in the Prospectus
under "Certain Transactions", there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company or any of its
subsidiaries, on the one hand, and any officer, director, principal stockholder
of the Company or any of its subsidiaries, or any partner, affiliate or
associate of any of the foregoing persons or entities, on the other hand,
required to be set forth in the Prospectus.
(jj) Any certificate signed by any officer of the Company and
delivered to the Representative or to Representative's Counsel (as defined
herein) shall be deemed a representation and warranty by the Company to the
Representative as to the matters covered thereby.
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<PAGE>
(kk) The minute book of the Company has been made available to the
Representative and contains a complete record in all material respects of all
meetings and actions of the directors and stockholders of the Company,
respectively, since the time of its incorporation, contains a complete record of
all matters discussed at all such meetings and accurately reflects all
transactions referred to in such minutes in all material respects.
(ll) Except and to the extent the same may be described in the
Prospectus, no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or in any other registration statement to be filed by the Company or
to require the Company to file a registration statement under the Act and except
as described in the Registration Statement, no person or entity holds any price
protection anti-dilution rights with respect to any securities of the Company.
(mm) The Company and each of its subsidiaries has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance in all material respects with all federal, state, local, and foreign
laws and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours. There are no pending
investigations involving the Company or any of its subsidiaries by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company or any
of its subsidiaries pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving the Company or any of its subsidiaries, or any predecessor
entity, and none has ever occurred. No representation question exists
respecting the employees of the Company or any of its subsidiaries and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any of its subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or any of its subsidiaries.
(nn) Immediately prior to the effective date of the Registration
Statement there shall be no more than an aggregate of __________ shares of
Common Stock issued and outstanding or reserved for issuance (including any and
all (A) securities with equivalent rights as the Common Stock, (B) Common Stock
or such equivalent securities, issuable upon the exercise of options, warrants
and other contract rights, and (C) securities convertible directly or indirectly
into Common Stock or such equivalent securities, and excluding the
Representative's Warrant). Of the total shares outstanding or reserved for
issuance, no more than ________ shares of Common Stock are reserved for issuance
under the Plan, after giving effect to the grant prior to the date hereof of
options to purchase _______ shares thereunder, no more than ___ shares are
reserved for issuuance pursuant to the Placement Agent Warrants and no more than
450,000 are reserved for issuance pursuant to the Lohrding Warrants.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell ________ Firm Shares to
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the Underwriters and each Underwriter agrees, severally and not jointly, to
purchase, at a price of $____ per share, the number of Firm Shares set forth
opposite the name of each underwriter in Schedule I hereof, subject to
adjustment in accordance with Section 9 hereof.
(b) The Company agrees to have the Firm Shares available for
inspection, checking and packaging by the Representative in New York, New York,
not later than 1:00 PM on the business day prior to the Closing Date.
(c) Payment for the Firm Shares to be sold hereunder is to be made in
New York Clearing House funds and, at the option of the Representative by
certified or bank cashier's checks drawn to the order of the Company or bank
wire to an account specified by the Company against either uncertificated or
certificated delivery of the Firm Shares (which delivery, if certificated, shall
take place in such location in Portland, Oregon as may be specified by the
Representative) to the Representative for the several accounts of the
Underwriters. Such payment is to be made at the offices of Paulson Investment
Company, Inc., at 7:00 a.m., Portland, Oregon time, on the third business day
after the date of this Agreement or at such other time and date not later than
five business days thereafter as the Representative and the Company shall agree,
such time and date being herein referred to as the "Closing Date." (As used
herein, "business day" means a day on which the New York Stock Exchange is open
for trading and on which banks in New York are open for business and not
permitted by law or executive order to be closed.) Except to the extent
uncertificated Firm Shares are delivered at closing, the certificates for the
Firm Shares will be delivered in such denominations and in such registrations as
the Representative shall request in writing not later than the second full
business day prior to the Closing Date, and will be made available for
inspection by the Representative at least one business day prior to the Closing
Date.
(d) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the Representative to purchase the Option Shares at
the price per share as set forth in paragraph (a) of this Section 2. The option
granted hereby may be exercised in whole or in part by giving written notice:
(i) at any time before the Closing Date and (ii) only once thereafter within
thirty (30) days after the date of this Agreement, by the Representative to the
Company setting forth the number of Option Shares as to which the Representative
is exercising the option, the names and denominations in which the Option Shares
are to be registered and the time and date at which certificates representing
the Option Shares are to be delivered. The time and date at which certificates
for Option Shares are to be delivered shall be determined by the Representative
but shall not be earlier than three nor later than ten business days after the
exercise of such option nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The option
with respect to the Option Shares granted hereunder may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters. The
Representative may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be made
on the Option Closing Date in New York Clearing House funds and, at the option
of the Representative, by certified or bank cashier's check drawn to the order
of the Company or by bank wire to an account specified by the Company against
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delivery of certificates therefor at such location in New York, New York as may
be specified by the Representative.
(e) In addition to the sums payable to the Representative as provided
elsewhere herein, the Representative shall be entitled to receive at the
closing, for itself alone and not as representative of the Underwriters, as
additional compensation for its services, purchase warrants (the
"Representative's Warrants") for the purchase of up to _____ shares of Common
Stock of the Company at a price of $_____ per share, upon the terms and subject
to adjustment as described in the form of Representative's Warrant filed as an
exhibit to the Registration Statement.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representative deems it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representative may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Representative will offer them to the public on the
foregoing terms.
It is further understood that the Representative will act as
representative of the Underwriters in the offering and sale of the Shares in
accordance with an Agreement Among Underwriters entered into by the
Representative and the several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company shall: (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representative containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representative shall not
previously have been advised and furnished with a copy or to which the
Representative shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company shall advise the Representative promptly: (A) when
the Registration Statement or any post-effective amendment thereto shall have
become effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible
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<PAGE>
the lifting thereof, if any is issued.
(c) The Company shall cooperate with the Representative in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representative may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any Preliminary Prospectus
as the Representative may reasonably request. The Company will deliver to, or
upon the order of, the Representative during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representative may
reasonably request. The Company will deliver to the Representative at or before
the Closing Date, three signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representative such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representative
may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in light of the circumstances when it is so delivered, be
misleading, or so that the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of the Act and Rule 158 of the Rules and Regulations and will advise you in
writing when such statement has been so made available.
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<PAGE>
(g) The Company shall: (A) deliver to its stockholders annual reports
containing financial statements audited by its independent accountants and, for
a reasonable period, not less than five years, quarterly reports concerning
unaudited financial information for each of the first three quarters of each
fiscal year, and (B) for a period of five years from the Closing Date, deliver
to the Representative copies of annual reports and copies of all other
documents, reports and information furnished by the Company to its stockholders
or filed with any securities exchange or the NASD pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representative similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(h) Except with the prior written consent of the Representative, no
offering, sale, short sale or other disposition of any shares of Common Stock of
the Company or other securities convertible into or exchangeable or exercisable
for shares of Common Stock or derivative of Common Stock will be made for a
period of ninety (90) days after the effective date of this Registration
Statement directly or indirectly, by the Company other than the sales of Common
Stock covered by this Agreement and sales upon exercise of options outstanding,
on the effective date, under the Plan, the Placement Agent Warrants and the
Lohrding Warrants.
(i) The Company shall use its best efforts to list subject to notice
of issuance the Shares on the NASDAQ Stock Market and thereafter to maintain
such listing.
(j) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(k) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of its subsidiaries to register as an investment
company under the 1940 Act.
(l) The Company shall maintain the currency of the prospectus forming
a part of an effective registration statement, which may be the Registration
Statement, filed with respect to the Common Stock issuable upon exercise of the
Representative's Warrants at all times during which any such Warrants remain
outstanding.
(m) The Company shall, if it commences to engage in any business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes in
any material way, provide the Department with notice of such business or change,
as appropriate, in a form acceptable to the Department.
(n) The Company shall maintain a transfer agent and, if necessary
under the
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jurisdiction of incorporation of the Company, a registrar for the Common Stock.
(o) The Company shall not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(p) For a period of three years beginning on the effective date of
the Registration Statement, the Company will give the Representative prior
notice of any sales of equity securities of the Company pursuant to Rule 144 or
any similar rule promulgated under the Act.
(q) For a period of five years beginning on the effective date of the
Registration Statement, the Company will provide the Representative with prior
notice of all meetings of its Board of Directors and any Executive or similar
committee thereof.
5. COSTS AND EXPENSES.
(a) The Representative shall be entitled to receive from the Company,
for itself alone and not as Representative of the Underwriters, a nonaccountable
expense allowance equal to 3% of the aggregate public offering price of Shares
sold to the Underwriters in connection with the offering. The Representative
shall be entitled to withhold this allowance on the Closing Date with respect to
all Shares delivered on the Closing Date (less $35,000 heretofore advanced
against such amount that has heretofore been paid by the Company). In addition,
the Representative shall be entitled to receive from the Company reimbursement
for its accountable expenses to the extent that such expenses exceed the $35,000
heretofore advanced by the Company. If the public offering of the Shares is
consummated, all amounts paid pursuant to the immediately preceding sentence
shall be credited against the Representative's non-accountable expenses as
provided in the first sentence of this paragraph (a) of Section 5; PROVIDED,
HOWEVER, that the sums so paid shall be limited to an amount that would not
increase the amount of non-accountable reimbursement otherwise payable under the
aforesaid first sentence of this paragraph. If, for any reason, said public
offering is not consummated, the Company shall reimburse the Representative for
any further accountable expenses incurred in connection with the proposed
offering. For purposes of this paragraph, the Representative shall be deemed to
have incurred expenses when they are billed regardless of whether such expenses
have been paid.
(b) In addition to the payment described in paragraph (a) of this
Section 5, the Company shall pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the NASDAQ Listing Application, the Blue Sky Survey and any
supplements or amendments thereto; the filing fees of the Commission; the
Listing Fee of the NASDAQ Stock Market; and the expenses, including the fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Shares under State securities or Blue Sky laws. Any
transfer taxes imposed on the sale of the Firm Shares to the several
Underwriters shall be paid by the Company. If this Agreement shall not
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be consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representative pursuant to Section
11 hereof, or by reason of any failure, refusal or inability on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement or
to comply with any of the terms hereof on its part to be performed, unless such
failure to satisfy said condition or to comply with said terms be due to the
default or omission of any Underwriter, then, subject to the expense limitations
set forth in Paragraph (a) of this Section 5, the Company shall reimburse the
several Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date, as the case may be, are subject to the accuracy, as of the Closing Date or
the Option Closing Date, as the case may be, of the representations and
warranties of the Company contained herein, and to the performance by the
Company of its covenants and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all fillings required by Rule
424 and Rule 430A of the Rules and Regulations shall have been made, and any
request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representative and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, shall be contemplated
by the Commission and no injunction, restraining order, or order of any nature
by a Federal or state court of competent jurisdiction shall have been issued as
of the Closing Date which would prevent the issuance of the Shares.
(b) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Neuman & Drennen, LLC,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) the Company and each of its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of its state of incorporation and is duly authorized to transact business
as a foreign corporation in good standing in each other jurisdiction in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified and in
good standing would not have a material adverse effect on the Company and its
subsidiaries; to such counsel's knowledge, except as described in the
Prospectus, the Company does not own an equity interest in any other
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corporation, partnership, joint venture, trust or other business entity;
(ii) to the best knowledge of such counsel, (a) the Company and
each of its subsidiaries has obtained, or is in the process of obtaining, all
licenses, permits and other governmental authorizations necessary to the conduct
of its business as described in the Prospectus, and (b) such obtained licenses,
permits and other governmental authorizations are in full force and effect and
the Company and each of its subsidiaries is in all material respects complying
therewith;
(iii) the Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable and were issued and sold by the
Company in compliance in all material respects with applicable securities laws;
all of the securities of the Company conform to the description thereof
contained in the Prospectus; the certificates for the Common Stock of the
Company, assuming they are in the form filed with the Commission, are in due and
proper form; the shares of Common Stock to be sold by the Company pursuant to
this Agreement have been duly authorized and are, or in the case of the Shares
to be sold by the Company, will be validly issued, fully paid and non-assessable
when issued and paid for as contemplated by this Agreement and the Registration
Statement; and no preemptive rights of stockholders exist with respect to any of
the Common Stock of the Company or the issue or sale thereof pursuant to any
applicable statute or the provisions of the Company's Certificate of
Incorporation or, to such counsel's knowledge, pursuant to any contractual
obligation;
(iv) the Representative's Warrants have been authorized for
issuance to the Representative and will, when issued, possess rights,
privileges, and characteristics as represented in the most recent form of
Representative's Warrant filed as an exhibit to the Registration Statement; the
securities to be issued upon exercise of the Representative's Warrants, when
issued and delivered against payment therefor in accordance with the terms of
the Representative's Warrants, will be duly and validly issued, fully paid,
non-assessable and free of preemptive rights, and all corporate action required
to be taken for the authorization and issuance of the Representative's Warrants,
and the securities to be issued upon their exercise, has been validly and
sufficiently taken;
(v) except as described in the Prospectus, to the knowledge of
such counsel, there are no outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or subscribe for any
shares of capital stock of the Company and there are no outstanding or
authorized options, warrants or rights of any character obligating the Company
to issue any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for any
shares of such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the Company or any
other person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any Common Stock or the
right to have any shares of the Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company;
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<PAGE>
(vi) the Registration Statement has become effective under the
Act and, to the best knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the Act;
(vii) all descriptions in the Registration Statement, and any
amendment or supplement thereto, of contracts and other documents are accurate
and complete in all material respects and such counsel is familiar with the
contracts and other documents referred to in the Registration Statement and any
such amendment or supplement, or filed as exhibits to the Registration
Statement, and such counsel does not know of any contracts or documents of a
character required to be summarized (other than real property leases) or
described therein or to be filed as exhibits thereto which are not so
summarized, described or filed; the Registration Statement and any amendments or
supplement thereto (other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be rendered)
comply as to form in all material respects with the requirements of the Act and
the Rules and Regulations;
(viii) the statements in the Registration Statement under the
captions "The Company," "Risk Factors," "Business," "Use of Proceeds,"
"Management" (other than the data contained in the Summary Compensation table),
"Principal Shareholders," "Certain Transactions," "Shares Eligible for Future
Sale" and "Description of Securities" and Items 14 and 15 have been reviewed by
such counsel and, insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are correct in
all material respects;
(ix) such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described in
the Registration Statement which are not so filed or described as required, and
such contracts and documents as are summarized in the Registration Statement are
fairly summarized in all material respects;
(x) such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company and there are no
governmental proceedings or regulations known to such counsel required to be
described or referred to in the Registration Statement which are not so
described or referred to;
(xi) the statements in the Prospectus under the heading
"Business" to the extent they reflect matters of federal law arising under the
laws of the United States administered by the U.S. Food and Drug Administration
or legal considerations relating to such law and subject to the qualifications
set forth therein, fairly summarize the material legal and regulatory
requirements applicable to the approval or clearance for marketing in the United
States of the products of the Company and its subsidiaries as they are described
in the Prospectus;
(xii) the Company is not in violation of or default under the
Agreement or the Representative's Warrant Agreement and the execution and
delivery of this Agreement and the Representative's Warrant Agreement and the
consummation of the transactions herein and therein contemplated do not and will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Certificate of Incorporation or bylaws of the
Company or any of its subsidiaries, or any agreement or instrument known to such
counsel to which the Company or any
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of its subsidiaries is a party or by which the Company or any of its
subsidiaries may be bound;
(xiii) this Agreement and the Representative's Warrant
Agreement have been duly authorized, executed and delivered by the Company and
is a valid and binding agreement of the Company enforceable in accordance with
its terms except as rights to indemnity or contribution hereunder may be limited
by federal or state securities laws or public policy and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity;
(xiv) no approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
herein (other than as may be required by the NASD or as required by state
securities and Blue Sky laws as to which such counsel need not express an
opinion) except such as have been obtained or made, specifying the same;
(xv) the Company is not, and will not become, as a result of the
transactions contemplated by this Agreement and application of the net proceeds
therefrom as described in the Prospectus, required to register as an investment
company under the 1940 Act;
(xvi) such counsel has reviewed the applicable provisions of
the Hart-Scott-Rodino Act (the "HSR Act") and the Prospectus accurately
describes the applicability thereof to future acquisitions by the Company;
(xvii) the certificates evidencing the shares of Common Stock
are in valid and proper form;
(xviii) during the course of the preparation of the
Registration Statement, such counsel has participated in conferences with
officers and other representatives of the Company, the Representative and
independent public accountants of the Company, at which conferences the contents
of the Registration Statement contained therein and related matters were
discussed and, although such counsel need not pass upon and does not assume any
responsibility for the adequacy, accuracy, completeness or fairness of the
statements contained in the Registration Statement (except as specified in such
counsel's opinion), solely on the basis of the foregoing without independent
check and verification, no facts have come to such counsel's attention which
lead it to believe that the Registration Statement or any amendment thereto, at
the time the Registration Statement or amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading or the Prospectus or
any amendment or supplement thereto, at the time they were filed pursuant to
Rule 424(b) or at the date hereof, contained an untrue statement of a material
fact or omitted 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 (except that no view need be expressed as
to (i) financial information and statistical data and information included in
the Registration Statement, (ii)
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information included in the Registration Statement which was furnished by or on
behalf of the Underwriters, or (iii) information included in the second
paragraph of the "Underwriting" section of the Prospectus);
(xix) the properties and business of the Company and its
subsidiaries conform to the descriptions thereof contained in the Registration
Statement;
(xx) neither the Company nor any of its subsidiaries is in breach
of, or in default under, any term or provision of any license, contract,
indenture, mortgage, installment sale agreement, deed of trust, lease, voting
trust agreement, shareholders' agreement, partnership agreement, note, loan or
credit agreement or any other agreement or instrument evidencing an obligation
for borrowed money, or any other agreement or instrument to which the Company or
any subsidiary is a party or by which the Company or any subsidiary may be bound
or to which the property or assets (tangible or intangible) of the Company or
any subsidiary is subject or affected, which could materially adversely affect
the Company or any subsidiary; and neither the Company nor any of its
subsidiaries is in violation of any term or provision of its certificate of
incorporation or by-laws, or in violation of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation the result of which would
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, position, stockholders' equity, value operation,
properties, business or results of operations of the Company or such subsidiary;
(xxi) the Company and/or its subsidiaries owns or possesses,
free and clear of all liens or encumbrances and rights thereto or therein by
third parties, the Intellectual Property Rights necessary to conduct its
business (including, without limitation, any such licenses or rights described
in the Prospectus as being owned or possessed by the Company or any of its
subsidiaries), and to the best of such counsel's knowledge after reasonable
investigation, there is no claim or action by any person pertaining to, any
proceeding, pending, or threatened, which challenges the exclusive rights of the
Company and/or its subsidiaries with respect to, any trademarks, service marks,
copyrights, service names, trade names, patents, patent applications and
licenses used in the conduct of the business of the Company or any of its
subsidiaries (including, without limitations any such licenses or rights
described in the Prospectus as being owned or possessed by the Company or any of
its subsidiaries);
(xxii) except as described in the Prospectus, neither the
Company nor any of its subsidiaries (A) maintains, sponsors or contributes to
any ERISA Plans, (B) maintains or contributes now or at any time previously, to
a defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has never
completely or partially withdrawn from a "multiemployer plan";
(xxiii) the Securities have been approved for listing on the
Nasdaq SmallCap Market;
(xxiv) to such counsel's knowledge, the persons listed under
the caption "Principal Shareholders" in the Prospectus are the respective
"beneficial owners" (as such phrase is defined in Regulation 13d-3 under the
Exchange Act) of the securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
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(xxv) to such counsel's knowledge, except as described in the
Prospectus, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Shares or the financial consulting arrangement
between the Underwriter and the Company, if any, or any other arrangements,
agreements, understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD;
(xxvi) the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against each such party and any
subsequent holder of the securities subject thereto in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable); and
(xxvii) all actions under the Act necessary to make the public
offering and consummate the sale of the Securities as provided in this Agreement
have been taken by the Company; and the provisions of the certificate of
incorporation and by-laws of the Company comply as to form in all material
respects with the Act and the Rules and Regulations.
In rendering such opinion, such counsel may rely as to matters
governed by the laws of states other than Colorado or Federal laws on local
counsel in such jurisdictions, provided that in each case such counsel shall
state that they believe that they and the Underwriters are justified in relying
on such other counsel. In addition to the matters set forth above, the opinion
of Neuman & Drennen, LLC shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to believe
that (i) the Registration Statement, at the time it became effective under the
Act (but after giving effect to any modifications incorporated therein pursuant
to Rule 430A under the Act) and as of the Closing Date or the Option Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statements, Neuman &
Drennen, LLC may state that their belief is based upon the procedures set forth
therein (which procedures shall be reasonably acceptable to the Representative
and counsel for the Underwriters) but is otherwise without independent check and
verification.
(c) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of
__________________________, special counsel to the Company for intellectual
property matters, dated the Closing Date or the Option Closing Date, as the case
may be, addressed to the Underwriters (and stating that it may be relied upon by
counsel to the Underwriters), in form and substance satisfactory to counsel for
the Underwriters to the effect
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that as special counsel to the Company for intellectual property maters, such
counsel are familiar with the technology used by the Company in its business and
the manner of the Company's use thereof and:
(i) Such counsel has no reason to believe the statements in the
Registration Statement and Prospectus under the caption "Risk Factors - Patents
and Proprietary Technology", "Business - Intellectual Property", and all other
portions of the Registration Statement pertaining to the Company's intellectual
property contain any untrue statement of material fact, or fail to disclose any
material fact that is required to be stated therein or is necessary to make the
statements made therein not misleading, with respect to Intellectual Property
Rights;
(ii) To the best knowledge of such counsel, there are no pending
or threatened legal or governmental proceedings, or any allegations on the part
of any person of infringement, relating to the Intellectual Property Rights of
the Company or any of its subsidiaries;
(iii) To the best knowledge of such counsel, neither the
Company nor any of its subsidiaries is infringing or otherwise violating any
patents, trade secrets, trademarks, service marks, copyrights or other
proprietary information or know-how of any persons, or that any third party is
infringing or otherwise violating any of the Intellectual Property Rights of the
Company or any of its subsidiaries, in a way which could materially affect the
use thereof by the Company or any of its subsidiaries, as the business of the
Company and its subsidiaries is presently conducted;
(iv) Either the Company or one of its subsidiaries is listed in
the records of the appropriate patent office as the sole assignee of record of
each of the patents listed in an Appendix to such counsel's opinion (the
"Patents"). To such counsel's knowledge, there are no asserted or unasserted
claims of any persons relating to the scope or ownership of the Patents, there
are no liens which have been filed against any of the Patents, and in the course
of such counsel's review such counsel has noted no material defects of form in
the preparation or filing of the applications which led to the patents reviewed
by such counsel and sets forth an Appendix to such counsel's opinion;
(v) The Company or one of its subsidiaries is listed in the
records of the appropriate trademark office as the sole assignee of record of
each of the trademarks listed in an Appendix to such counsel's opinion (the
"Trademarks"). To such counsel's knowledge, there are no asserted or unasserted
claims of any persons relating to the scope or ownership of the Trademarks, and
there are no liens which have been filed against any of the Trademarks, and in
the course of such counsel's review such counsel has noted no material defects
of form in the preparation or filing of the applications which led to the
Trademarks reviewed by such counsel and set forth in an Appendix to such
counsel's opinion;
(vi) To such counsel's knowledge, the Trademarks are currently in
use, and have been in continuous use since their issuance;
(viii) Based on counsel's inquiry, counsel has no reason to
believe the Trademarks are other than validly registered and enforceable;
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(viii) Such counsel did not intend any misrepresentation to,
or conceal any material fact from, any patent office during the prosecution of
the patents prosecuted in whole or in part by such counsel and set forth in an
Appendix to such counsel's opinion and to such counsel's knowledge, all prior
art references material to the patentability of any claim in the issued patents
which were known to counsel to be material to patentability of such claims
during the prosecution of such patents were disclosed to the U.S. Patent and
Trademark Office, and any other patent office requiring such disclosure; and in
the course of such counsel's review, no such misrepresentations, concealments or
failures, as pertaining to any of the Patents were disclosed to such counsel;
and
(xi) The Company and its subsidiaries takes security measures
adequate to assert trade secret protection in its non-patented technology.
In rendering its opinion in regard to intellectual property, such counsel
shall have: (a) read the Registration Statement, including particularly the
portions of the Registration Statement referring to Intellectual Property
Rights; (b) made inquiry of the attorneys, patent agents and legal assistants of
such counsel who have provided legal services to the Company; (c) made inquiry
of employees and consultants of the Company and its subsidiaries having relevant
knowledge regarding the Intellectual Property Rights of the Company and its
subsidiaries and regarding the statements made in the Registration Statement
with respect thereto; (d) reviewed such counsel's files pertaining to the
Patents of the Company and its subsidiaries; (e) reviewed the file histories of
the patents adjudged by the Company to be the most important to its business and
the business of its subsidiaries and which the Company has asserted encompasses
the inventions, products and processes specifically referenced in the
Registration Statement; (f) made inquiry of the attorneys and patent agents that
prosecuted the Company's and its subsidiaries' Patents and Trademarks and other
Intellectual Property Rights; (g) reviewed lien and judgment search reports for
each Patent and for each Trademark; (h) reviewed litigation and title record
search reports with respect to the Patents and Trademarks and (i) made other
legal and factual examinations and inquiries.
(d) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of _____________, special
counsel to the Company for FDA matters, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters), in form and
substance satisfactory to counsel for the Underwriters, to the effect that as
special counsel to the Company for FDA matters, such counsel is familiar with
the products and processes developed or being developed by the Company and its
subsidiaries; and:
(i) Such counsel has no reason to believe that the Registration
Statement or the Prospectus contains any untrue statement of a material fact, or
omits to state any material fact that is required to be stated therein or is
necessary to make the statements made therein not misleading, with respect to
the status of the products and processes of the company and its subsidiaries
under the rules and regulations of the FDA;
(ii) The statements set forth in the Registration Statement and
Prospectus under the captions "Risk Factors -- Government Regulation; Product
Clearance and Approvals"] and the discussion in the section entitled "Business"
relating to regulatory approvals are accurate
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<PAGE>
statements or summaries of the matters set forth therein.
In rendering its opinion in regard to FDA matters, such counsel shall have:
(a) read the Registration Statement, including particularly the portions of the
Registration Statement referring to the rules and regulations of the FDA and
the status of the Company's and its subsidiaries products and processes under
such rules and regulations; (b) made inquiry of the attorneys, their agents and
legal assistants who have provided legal services to the Company in connection
with the FDA matters and reviewed such counsel's files with respect thereto; (c)
made inquiry of employees and consultants of the Company and its subsidiaries
having relevant knowledge regarding the products and processes of the Company
and its subsidiaries and their respective status under the rules and regulations
of the FDA and regarding the statements made in the Registration Statement with
respect thereto; (d) reviewed the file histories (including, but not limited
to, all filings made by or on behalf of the Company or any of its subsidiaries
with the FDA) of the products and processes of the Company and its subsidiaries
adjudged by the Company to be the most important to its business and the
business of its subsidiaries; and (e) made other legal and factual examinations
and inquiries.
(e) The Representative shall have received from Morse, Zelnick, Rose
& Lander, LLP, counsel for the Underwriters, an opinion dated the Closing Date
or the Option Closing Date, as the case may be, substantially to the effect
specified in subparagraphs (i), (vi) and (vii) of paragraph (b) of this
Section 6. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel that has caused them to believe that: (i) the Registration Statement, at
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in light of circumstances under which they were made, not
misleading (except that such counsel need not express any view as to financial
statements, schedules and statistical information therein). With respect to
such statement, such counsel may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(f) The Representative shall have received at or prior to the Closing
Date from Morse, Zelnick, Rose & Lander, LLP a memorandum or summary, in form
and substance satisfactory to the Representative, with respect to the
qualification for offering and sale by Underwriters of the Shares under the
state securities or Blue Sky laws of such jurisdictions as the Representative
may reasonably have designated to the Company.
(g) The Representative, on behalf of the several Underwriters, shall
have received, on the Closing Date and on the Option Closing Date, as the case
may be, a letter dated the Closing Date or the Option Closing Date, as the case
may be, in form and substance satisfactory to the Representative, from KPMG Peat
Marwick LLP:
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(i) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement that they were,
independent certified public accountants with respect to the Company and its
subsidiaries within the meaning of the Act and the public Regulations and
stating that the response to Item 10 of the Registration Statement is correct
insofar as it relates to them;
(ii) stating that, in their opinion, the financial statements and
schedules of the Company and its subsidiaries included in the Registration
Statement examined by them comply in form in all material respects with the
applicable accounting requirements of the Act and the Regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Company and its subsidiaries (with an indication of the date
of the latest available unaudited interim financial statements), a reading of
the latest available minutes of the stockholders and Board of Directors of the
Company and committees of such board, inquiries to certain officers and other
employees of the Company responsible for financial and accounting matters, and
other specified procedures and inquiries, nothing has come to their attention
that caused them to believe that (A) the unaudited financial statements and
schedules of the Company and its subsidiaries included in the Registration
Statement do not comply in form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations under either such act or are not fairly
presented in conformity with generally accepted accounting principles (except to
the extent that certain footnote disclosures regarding any stub period may have
been omitted in accordance with the applicable rules of the Commission under the
Exchange Act) applied on a basis consistent with that of the audited financial
statements appearing therein, (B) any unaudited financial information of the
Company and its subsidiaries included in the Prospectus was not determined on a
basis substantially consistent with the corresponding information in the audited
statements of operations, (C) there was any change in the capital stock or debt
of the Company or its subsidiaries or any decrease in the net current assets or
stockholders' equity of the Company as of the date of the latest available
monthly financial statements of the Company or as of a specified date not more
than five (5) business days prior to the date of such letter, each as compared
with the amounts shown in the ____________, 199__ balance sheet included in the
Registration Statement, other than as properly described in the Registration
Statement or any change or decrease (which shall be set forth therein) which you
in your sole discretion shall accept, or (D) there was any decrease in revenue,
net earnings, or net earnings per share of Common Stock of the Company during
the period of ____________, 199__ to the date of the latest available monthly
financial statements of the Company or to a specified date not more than five
(5) business days prior to the date of such letter, each as compared with the
corresponding prior year period, other than as properly described in the
Registration Statement or any decrease (which shall be set forth therein) which
you in your sole discretion shall accept; and
(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the Registration
Statement, each Preliminary Prospectus, and the Prospectus, if applicable, which
have been specified by the Representative prior to the date of this Agreement,
to the extent that such data and information may be derived from the
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general accounting records of the Company, and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
(which procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(h) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer of the Company to the effect that, as of the Closing
Date or the Option Closing Date, as the case may be, such officer represents as
follows:
(i) the Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
the best of his knowledge, contemplated by the Commission;
(ii) the representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) all filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) he has carefully examined the Registration Statement and, in
his opinion, as of the effective date of the Registration Statement, the
statements contained in the Registration Statement were true and correct, and
such Registration Statement did not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, and since the effective date of the Registration Statement no event
has occurred which should have been set forth in a supplement to or an amendment
of the Prospectus which has not been set forth in such supplement or amendment;
and
(v) since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company whether or not
arising in the ordinary course of business.
(i) The Company shall have furnished to the Representative such
further documents confirming the representations and warranties, covenants and
conditions contained herein and related matters as the Representative may
reasonably have requested.
(j) The Firm Shares and the Option Shares have been approved for
designation upon notice of issuance on the NASDAQ Stock Market.
(k) The Lockup Agreements described in Section 1(x) shall have been
executed
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<PAGE>
and delivered and shall be in full force and effect.
(l) The Common Stock shall have been approved for inclusion, subject
to official notice of issuance, in the NASDAQ Small-Cap Market.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representative and to Morse, Zelnick, Rose
& Lander, LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled, the obligations of the Underwriters hereunder may
be terminated by the Representative by notifying the Company of such termination
in writing or by telegram at or prior to the Closing Date or the Option Closing
Date, as the case may be. In such event, the Company and the Underwriters shall
not be under any obligation to each other (except to the extent provided in
Section 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, or any amendment or supplement thereto, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made; and will reimburse each
Underwriter and each such controlling person in accordance with Section 8(c) for
any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or governmental
inquiry related to the offering of the Shares, whether or not such Underwriter
or controlling person is a party to any action or proceeding; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent that: (i) any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Company by or
through the Representative specifically for use in the preparation thereof, or
(ii) with respect to the Preliminary Prospectus, any such loss, claim
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damage or liability of such Underwriter relates to the failure of such
Underwriter to deliver a copy of the Prospectus at, or prior to, the
confirmation of the sale of the Shares to the person alleging such loss, claim,
damage or liability, where the alleged untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; PROVIDED, HOWEVER, that each Underwriter will
be liable in each case to the extent, and only to the extent, that (i) such
untrue statement or alleged untrue statement or omission or alleged omission has
been made in the Registration Statement, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representative specifically for use in the preparation
thereof or, (ii) with respect to the Preliminary Prospectus, any such loss,
claim, damage or liability relates to the failure of such Underwriter to deliver
a copy of the Prospectus at, or prior to, the confirmation of the sale of the
Shares to the person alleging such loss, claim, damage or liability, where the
alleged untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and such
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party and shall pay as incurred the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
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indemnified party shall have the right to retain its own counsel at its own
expense. Notwithstanding the foregoing, the indemnifying party shall pay as
incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the fees and expenses of more than one separate
firm for all such indemnified parties. Such firm shall be designated in writing
by the Representative in the case of parties indemnified pursuant to Section
8(a) and by the Company in the case of parties indemnified pursuant to Section
8(b). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding in which
indemnification may be sought hereunder unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault 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
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
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<PAGE>
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d): (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, or any
supplement or amendment thereto, each party against whom contribution may be
sought under this Section 8 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any such
proceeding in which such other contributing party is a party.
(f) Any losses, claims, damages or liabilities for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, or expenses are incurred. The indemnity and
contribution agreements contained in this Section 8 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 Underwriter or any person controlling any Underwriter, the
Company, its directors or officers or any persons controlling the Company within
the meaning of the Act, (ii) acceptance of any Shares and payment therefor
hereunder, or (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be bound by and entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), the
Representative shall use its reasonable efforts to procure within 36 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company upon the terms set forth herein such amounts as may be agreed
upon and upon the terms set forth herein,
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<PAGE>
the Firm Shares or Option Shares, as the case may be, which the defaulting
Underwriter or Underwriters failed to purchase. If during such 36 hours the
Representative shall not have procured such other Underwriters, or any others,
to purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of Shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Options Shares covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of Firm Shares or Option Shares, as the
case may be, with respect to which such default shall occur equals or exceeds
10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the
Company or the Representative shall have the right, by written notice given as
to the Firm Shares if the default relates to the Firm Shares, or as to the
Option Shares if the default relates to the Option Shares, within the next
36-hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriters or of the
Company, except for expenses to be paid by the Company under Section 5 hereof
and except to the extent provided in Section 8 hereof. In the event of a
default by any Underwriter or Underwriters, as set forth in this Section 9, the
Closing Date or Option Closing Date, as the case may be, may be postponed for
such period, not exceeding seven days, as the Representative may determine in
order that the required changes in the Registration Statement or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows:
if to the Representative or the Underwriters:
Paulson Investment Company, Inc.
811 SW Front Avenue
Portland, Oregon 97204
Attention: Chester L.F. Paulson
with a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attention: Stephen A. Zelnick, Esq.
if to the Company to: Cell Robotics International, Inc.
2175 Broadbent Parkway, NE
Albuquerque, NM 87107
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<PAGE>
Attention: Ronald K. Lohrding
with a copy to: Neuman & Drennen, LLC
1507 Pine Street
Boulder, Colorado 80302
Attention: Clifford Neuman, Esq.
11. TERMINATION.
This Agreement may be terminated by the Representative by notice to
the Company as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by the Representative for sale by notice to the Underwriters, or (ii)
11:30 a.m. on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement, any material adverse change or any development involving
a prospective material adverse change in or affecting the condition, financial
or otherwise, of the Company or the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company, whether or not arising in the ordinary course of business, (ii) any
outbreak or escalation of hostilities or declaration of war or national
emergency or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial markets of
the United States would, in the Representative's judgment, make it impracticable
to market the Shares or to enforce contracts for the sale of the Shares, (iii)
the Dow Jones Industrial Average shall have fallen by 15 percent or more from
its closing price on the day immediately preceding the date that the
Registration Statement is declared effective by the Commission, (iv) suspension
of trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange, (v) the
enactment, publication, decree or other promulgation of any statute, regulation,
rule or order of any court or other governmental authority which in the
Representative's opinion materially and adversely or may materially and
adversely affect the business or operations of the Company, (vi) declaration of
a banking moratorium by United States or New York State authorities; (vii) the
suspension of trading of the Common Stock by the Commission or the NASD on the
Nasdaq National Market, or (viii) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in the
Representative's opinion has a material adverse effect on the securities markets
in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the
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Company and their respective successors, executors, administrators, heirs and
assigns, and the officers, directors and controlling persons referred to herein,
and no other person will have any right or obligation hereunder. No purchaser
of any of the Shares from any Underwriter shall be deemed a successor or assign
merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus consists of the information set forth in the last
paragraph on the front cover page (insofar as such information relates to the
Underwriters), the legends required by Item 502(d) of Regulation S-K under the
Act and the information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of: (a) any
termination of this Agreement (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Oregon. All disputes relating to this Agreement shall
be adjudicated before a court located in Multnomah County, Oregon to the
exclusion of all other courts that might have jurisdiction.
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<PAGE>
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
CELL ROBOTICS INTERNATIONAL, INC.
by:
---------------------------------
Ronald K. Lohrding
President and Chief Executive Officer
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
PAULSON INVESTMENT COMPANY, INC.
As Representative of the several
Underwriters listed on Schedule I
by:
---------------------------
Authorized Officer
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SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of
Underwriter Shares
to be Purchased(1)
Paulson Investment Company, Inc.
Total
____________________
(1) Subject to pro rata increase in the event that the Option Shares are
purchased as provided in Section 2(e)
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 4.2 - Representatives' Common Stock Purchase Warrant
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE SECURITIES ISSUABLE UPON EXERCISE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON RECEIPT BY THE ISSUER OF AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., PACIFIC TIME, ________, 200__
NO. W- WARRANTS TO PURCHASE
_________ SHARES OF COMMON STOCK
WARRANT CERTIFICATE
This WARRANT CERTIFICATE certifies that _________, or registered assigns,
is the registered holder of a Warrant to purchase initially, at any time from
_______, 199__ until 5:00 p.m., Pacific time, on _______, 200__ ("Expiration
Date"), up to _________________ fully-paid and non-assessable shares of common
stock, $.01 par value (the "Common Stock"), of CELL ROBOTICS INTERNATIONAL,
INC., a Colorado corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $____ per
share of Common Stock upon surrender of this Warrant Certificate and payment of
the Exercise Price in cash or in warrants as provided in paragraphs (a) and (b),
as the case may be, of Section 2 of the Warrant Agreement (defined below) at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Warrant Agreement dated as of __________, 199__ between the Company
and Paulson Investment Company, Inc. (the "Warrant Agreement"). Payment of the
Exercise Price, where payment is made in cash pursuant to paragraph (a) of
Section 2 of the Warrant Agreement, shall be made by certified or official bank
check in New York Clearing House funds payable to the order of the Company or,
where payment is made in Warrant(s) pursuant to paragraph (b) of Section 2 of
the Warrant Agreement, by surrender of this Warrant Certificate, as provided in
the Warrant Agreement.
The Warrant(s) may not be exercised after 5:00 p.m., Pacific time, on the
Expiration Date, at which time the Warrant(s) shall become null and void.
The Warrants evidenced by this Warrant Certificate have been issued
pursuant to the Warrant Agreement, dated as of _______, 199__, between Cell
Robotics International, Inc. and Paulson
<PAGE>
Investment Company, Inc. (the "Warrant Agreement") which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations and duties thereunder of the Company and the holder (the word
"holder" meaning the registered holder) of the Warrant(s).
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable upon exercise of the Warrant(s) may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder, issue
a new Warrant Certificate evidencing the adjustment in the Exercise Price and
the number and/or type of securities issuable upon the exercise of the
Warrant(s); PROVIDED, HOWEVER, that the failure of the Company to issue such new
Warrant Certificate shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing a like number of securities
for which this Warrant may be exercised shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the securities for which this Warrant
may be exercised, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing the remaining number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
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<PAGE>
All terms use in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ______________, 199__
CELL ROBOTICS INTERNATIONAL, INC.
[Seal]
By:
-----------------------------
Name:
Title:
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<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 2(a)
OF THE BELOW DESCRIBED WARRANT AGREEMENT
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ___________________ shares
of Common Stock and herewith tenders in payment for such securities a certified
or official bank check payable in New York Clearing House funds to the order of
Cell Robotics International, Inc. in the amount of $________________, all in
accordance with the terms of Section 2(a) of the Warrant Agreement, dated as of
____________, 199___, between Cell Robotics International, Inc. and Paulson
Investment Company, Inc. The undersigned requests that a certificate for such
securities be registered in the name of _____________________ whose address is
__________________________ and that such certificate be delivered to
______________ whose address is _____________________________.
Dated:
Signature
----------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 2(b)
OF THE BELOW DESCRIBED WARRANT AGREEMENT
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________________
shares of Common Stock and herewith tenders in payment for such securities
such number of the Warrant(s) as shall be determined in accordance with the
terms of Section 2(b) of the Warrant Agreement, dated as of _________, 199__,
between Cell Robotics International, Inc. and Paulson Investment Company,
Inc. The undersigned requests that a certificate for such securities be
registered in the name of _________________________whose address
is_______________________________ and that such certificate be delivered to
__________________ whose address is ________________________________________.
The undersigned also requests that a certificate for the remaining number of
unexercised warrants be registered in the name of ___________________ whose
address is ______________________________________ and that such certificate
be delivered to _________________ whose address is __________________________
Dated:
Signature
----------------------------------
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant
Certificate.)
-------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate or any part thereof, such
assignment to be subject to restrictions of the Warrant Agreement referred
to in the Warrant Certificate.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns and
transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
[this Warrant Certificate]
[________ warrants exercisable pursuant to this Warrant Certificate],
together with all right, title and interest therein. The undersigned
requests that a certificate for such securities be registered in the name of
_________________________ whose address is _________________________________
and that such certificate be delivered to __________________ whose address is
________________________________________. The undersigned also requests that
a certificate for the remaining number of unexercised warrants be registered
in the name of ___________________ whose address is ________________________
and that such certificate be delivered to ________________________ whose
address is __________________________________________________________________
______________________________.
Dated: Signature:
------------------ --------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
------------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 4.3 - Warrant Agreement
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT
BETWEEN
CELL ROBOTICS INTERNATIONAL, INC.
AND
PAULSON INVESTMENT COMPANY, INC.
_________________
WARRANTS FOR PURCHASE OF __________ SHARES OF COMMON STOCK,
PAR VALUE $0.004 PER SHARE, OF CELL ROBOTICS INTERNATIONAL, INC.
WARRANTS VOID AFTER ____________ _____, 200[2]
<PAGE>
WARRANT AGREEMENT, dated as of _____________, 199___, between CELL ROBOTICS
INTERNATIONAL, INC. (the "Company") and PAULSON INVESTMENT COMPANY, INC. (the
"Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative warrants
("Warrants") to purchase up to an aggregate of _______ shares of Common Stock,
$0.004 par value, of the Company; and
WHEREAS, the Representative has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the several Underwriters listed therein to act as the Representative
in connection with the Company's proposed public offering of up to _________
shares of Common Stock at a public offering price of $_____ per share of Common
Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency which is hereby
acknowledged, the parties hereto agreed as follows:
THE REPRESENTATIVE (OR ITS DESIGNEES) IS HEREBY GRANTED THE RIGHT TO
PURCHASE, AT ANY TIME FROM ____________, 199__, UNTIL 5:00 P.M., PACIFIC TIME,
ON ____________, 200__, UP TO AN AGGREGATE OF _________ SHARES OF COMMON STOCK
AT AN INITIAL EXERCISE PRICE (SUBJECT TO ADJUSTMENT AS PROVIDED IN SECTION 3
HEREOF) OF $_______ PER SHARE OF COMMON STOCK SUBJECT TO THE TERMS AND
CONDITIONS OF THIS AGREEMENT.
The Warrants issued pursuant hereto are subject to the following terms and
conditions:
1. DEFINITIONS OF CERTAIN TERMS. Except as may be otherwise clearly
required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Closing Date" means the date on which the Offering is closed.
(c) "Commission" means the Securities and Exchange Commission.
(d) "Common Stock" means the common stock, $0.004 par value, of the
Company.
-2-
<PAGE>
(e) "Company" means Cell Robotics International, Inc., a Colorado
corporation.
(f) "Company's Expenses" means any and all expenses payable by the Company
or the Warrantholder in connection with the offering described in the
Registration Statement, as defined below, including, but not limited to, (i) the
aggregate amount of cash payments made to an underwriter, underwriting
syndicate, or agent in connection with a public offering described in Section 6
hereof and (ii) all out-of-pocket expenses of the Warrantholder, except for the
fees and disbursements of one firm retained as legal counsel for the
Warrantholder that will be paid by the Company.
(g) "Effective Date" means the date on which the Registration Statement is
declared effective by the Commission.
(h) "Exercise Price" means the price at which the Warrantholder may
purchase one Share (or other Securities obtainable in lieu of one Share) upon
exercise of a Warrant as determined from time to time pursuant to the provisions
hereof. The initial Exercise Price is $_________ per Share.
(i) "Offering" means the public offering of Shares made pursuant to the
Registration Statement.
(j) "Participating Underwriter" means any underwriter participating in the
sale of the Shares pursuant to the Registration Statement, as defined below.
(k) "Registration Statement" means the Company's registration statement
(File No.333-______), as amended on the Closing Date.
(l) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.
(m) "Securities" means the securities obtained or obtainable upon exercise
of the Warrant(s) or securities obtained or obtainable upon exercise, exchange,
or conversion of such securities.
(n) "Share" means, as appropriate, either (i) a share of Common Stock
which is one of the shares of Common Stock offered to the public through the
prospectus included in the Registration Statement or (ii) an identical share of
Common Stock for which a Warrant is initially exercisable.
(o) "Warrant Certificate" means the certificate evidencing the Warrant(s),
a form of which is annexed hereto as Exhibit A.
(p) "Warrantholder" means the record holder of the Warrant(s) or
Securities. The initial Warrantholder is Paulson Investment Company, Inc.
(q) "Warrant(s)" means the warrant(s) evidenced by the Warrant
Certificate, any similar
-3-
<PAGE>
certificate issued in connection with the Offering, or any certificate obtained
upon transfer or partial exercise of the Warrant(s) evidenced by any such
certificate.
2. EXERCISE OF WARRANT(S).
(a) All or any part of the Warrant may be exercised during a four-year
period commencing on the first anniversary of the Effective Date and ending at 5
p.m. Pacific Time on the fifth anniversary of the Effective Date by surrendering
the Warrant Certificate, together with appropriate instructions, duly executed
by the Warrantholder or by its duly authorized attorney, at the office of the
Company, 2175 Broadbent Parkway, NE, Albuquerque, New Mexico 87107, or at such
other office or agency as the Company may designate. Upon receipt of notice of
exercise, the Company shall immediately instruct its transfer agent to prepare
certificates for the Securities to be received by the Warrantholder upon
completion of the Warrant exercise. When such certificates are prepared, the
Company shall notify the Warrantholder and deliver such certificates to the
Warrantholder (or as otherwise designated by the Warrantholder's written
instructions) immediately upon payment in full by the Warrantholder, in lawful
money of the United States, of the Exercise Price payable with respect to the
Securities being purchased. If the Warrantholder shall represent and warrant
that all applicable registration and prospectus delivery requirements for their
sale have been complied with upon sale of the Securities received upon exercise
of the Warrant(s), such certificates shall not bear a legend with respect to the
Act.
If fewer than all the Securities purchasable under the Warrant(s) are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to the Warrant Certificate, evidencing that portion of the Warrant
not exercised. The Securities to be obtained on exercise of the Warrant(s) will
be deemed to have been issued, and any person exercising the Warrants will be
deemed to have become a holder of record of those Securities as of the date of
the payment of the Exercise Price.
(b) In addition to the method of payment set forth in paragraph (a) of
this Section 2 and in lieu of any cash payment required thereunder, the
Warrantholder shall have the right at any time and from time to time to exercise
the Warrant(s) in full or in part by surrendering the Warrant Certificate in the
manner specified herein in exchange for the number of shares of Common Stock
equal to the quotient derived from DIVIDING the NUMERATOR (which shall be an
amount equal to the DIFFERENCE BETWEEN: (I) the number of shares of Common Stock
or other Securities as to which the Warrant is being exercised MULTIPLIED by the
per share Market Price, AND (II) the number of shares of Common Stock or other
Securities as to which the Warrant is being exercised MULTIPLIED by the
Exercise Price) BY the DENOMINATOR which shall be the per share Market Price of
the Common Stock. Solely for the purposes of this paragraph, Market Price shall
be calculated either: (i) on the date on which the form of election attached
hereto is deemed to have been sent to the Company pursuant to Section 10 hereof
(Notice Date") or (ii) as the average of the Market Prices for each of the five
trading days preceding the Notice Date, whichever of (i) or (ii) is greater.
As used herein, the term "Market Price" at any date shall be deemed to be,
when referring to the Common Stock, the last reported sale price, or, in case no
such reported sale takes place on such day, the average of the last reported
sale prices for the last three (3) trading days, in either case
-4-
<PAGE>
as officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by the NASDAQ Stock Market ("NSM"),
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the average closing bid price as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through NASDAQ or similar organization if NASDAQ is no longer reporting such
information, or if the Common Stock is not quoted on NASDAQ, as determined in
good faith (using customary valuation methods) by resolution of the members of
the Board of Directors of the Company, based on the best information available
to it.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class, and price of
Securities for which the Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:
(a) If the outstanding shares of the Company's Common Stock are divided
into a greater number of shares or a dividend in stock is paid on the Common
Stock, the number of shares of Common Stock for which the Warrant(s) is (are)
then exercisable will be proportionately increased and the Exercise Price will
be proportionately reduced; and, conversely, if the outstanding shares of Common
Stock are combined into a smaller number of shares of Common Stock, the number
of shares of Common Stock for which the Warrant(s) is (are) then exercisable
will be proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this paragraph (a) of
Section 3 will be made with the intent and, as nearly as practicable, the effect
that neither the percentage of the total equity of the Company obtainable on
exercise of the Warrant(s) nor the price payable for such percentage upon such
exercise will be affected by any event described in this paragraph (a) of
Section 3.
(b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or other
change in the capital structure of the Company, then, as a condition of such
change, lawful and adequate provision will be made so that the holder of the
Warrant Certificate will have the right thereafter to receive upon the exercise
of the Warrant(s) the kind and amount of shares of stock or other securities or
property which it would have been entitled if, immediately prior to such event,
it had held the number of shares of Common Stock obtainable upon the exercise of
the Warrant(s). In any such case, appropriate adjustment will be made in the
application of the provisions set forth herein with respect to the rights and
interest thereafter of the Warrantholder, to the end that the provisions set
forth herein will thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrant(s). The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or other
securities to be received by the holder of the Warrant Certificate, if not the
Company, agrees to be bound by and comply with the provisions of the Warrant
Certificate.
(c) When any adjustment is required to be made in the number of shares of
Common Stock or other securities, or property purchasable upon exercise of the
Warrant(s), the Company will promptly determine the new number of such shares or
other securities or property purchasable upon
-5-
<PAGE>
exercise of the Warrant(s) and (i) prepare and retain on file a statement
describing in reasonable detail the method used in arriving at the new number of
such shares or other securities or property purchasable upon exercise of the
Warrant(s) and (ii) cause a copy of such statement to be mailed to the
Warrantholder within thirty (30) days after the date of the event giving rise to
the adjustment.
(d) No fractional shares of Common Stock or other securities will be
issued in connection with the exercise of the Warrant(s), but the Company will
pay, in lieu of fractional shares, a cash payment therefor on the basis of the
Market Price as that term is defined in paragraph (b) of Section 2.
(e) If preferred securities of the Company or securities of any subsidiary
of the Company are distributed pro rata to holders of any or all of the
Company's securities, such number of securities will be distributed to the
Warrantholder or its assignee upon exercise of its rights hereunder as such
Warrantholder or assignee would have been entitled to if the Warrant Certificate
had been exercised prior to such distribution. The provisions with respect to
adjustment of the Common Stock provided in this Section 3 will also apply to the
preferred securities and securities of any subsidiary to which the Warrantholder
or his assignee is entitled under this paragraph (e) of Section 3.
(f) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale of the Common Stock or other
Securities purchasable upon exercise of the Warrant(s).
4. RESERVATION OF SHARES. The Company agrees that the number of shares
of Common Stock or other Securities sufficient to provide for the exercise of
the Warrant(s) upon the basis set forth above will at all times during the term
of the Warrant(s) be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered pursuant the
exercise of the Warrant(s) will be duly and validly issued in accordance with
their terms, and the Company will pay all documentary and transfer taxes, if
any, in respect of the original issuance thereof upon exercise of the
Warrant(s).
6. REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT(S).
(a) The Company shall register the Securities with the Commission pursuant
to the Act so as to allow the unrestricted sale of the Securities to the public
from time to time during a five year period commencing on the first anniversary
of the Effective Date and ending at 5:00 p.m. Pacific Time on the fifth
anniversary of the Effective Date (the "Registration Period"). The Company shall
also file such applications and other documents necessary to permit the sale of
the Securities to the public during the Registration Period in those states in
which the Shares were qualified for sale in the Offering or such other states as
to which the Company and the Warrantholder agree. In order to comply with the
provisions of this Section 6(a), the Company shall not be required to file more
than one registration statement. No registration right of any kind, "piggyback"
or otherwise, is required to be in effect longer than five years from the
Closing Date.
(b) The Company shall pay all of the Expenses relating to the
registration, offer, and sale
-6-
<PAGE>
of the Securities.
(c) Except as specifically provided herein, the manner and conduct of the
registration, including the contents of the registration statement, will be
entirely in the control and at the discretion of the Company. The Company shall
file such post-effective amendments and supplements as may be necessary to
maintain the currency of the registration statement during the period of its
use. In addition, if the Warrantholder participating in the registration is
advised by counsel that the registration statement, in its opinion, is deficient
in any material respect, the Company shall use its best efforts to cause the
registration statement to be amended to eliminate the concerns raised.
(d) The Company shall furnish to the Warrantholder the number of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as the Warrantholder may
reasonably request in order to facilitate the disposition of Securities owned by
it.
(e) The Company shall, at the request of Warrantholder: (i) furnish an
opinion of the counsel representing the Company for the purposes of the
registration pursuant to this Section 6, addressed to the Warrantholder and any
Participating Underwriter, (ii) furnish an appropriate letter from the
independent public accountants of the Company, addressed to the Warrantholder
and any Participating Underwriter, and (iii) make representations and warranties
to the Warrantholder and any Participating Underwriter. A request pursuant to
this subsection (e) may be made on three occasions. The documents required to be
delivered pursuant to this subsection (e) will be dated within 30 days of the
request and will be, in form and substance equivalent to similar documents
furnished to the underwriters in connection with the Offering, with such changes
as may be appropriate in light of changed circumstances.
7. INDEMNIFICATION IN CONNECTION WITH REGISTRATION.
(a) In connection with its registration obligations, the Company shall
indemnify and hold harmless the selling Warrantholder, any person who controls
the selling Warrantholder within the meaning of the Act, and any Participating
Underwriter against any losses, claims, damages, or liabilities, joint or
several, to which the Warrantholder, controlling person, or Participating
Underwriter may be subject under the Act or otherwise; and it shall reimburse
each Warrantholder, each controlling person, and each Participating Underwriter
for any legal or other expenses reasonably incurred by the Warrantholder,
controlling person, or Participating Underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action,
insofar as such losses, claims, damages, or liabilities, joint or several (or
actions in respect thereof), arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained, on the effective
date thereof, in any such registration statement or any preliminary prospectus
or final prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; PROVIDED, HOWEVER, that the Company will not be liable in any case
to the extent that any loss, claim, damage, or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission
-7-
<PAGE>
made in any registration statement, preliminary prospectus, final prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished by the Warrantholder or any person controlling the
Warrantholder or any Participating Underwriter for use in the preparation
thereof. The indemnity agreement contained in this subparagraph (a) will not
apply to amounts paid to any claimant in settlement of any suit or claim unless
such payment is first approved by the Company, such approval not to be
unreasonably withheld or delayed.
(b) The selling Warrantholder, as a condition of the Company's
registration obligation, shall indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed any registration statement
or other filing or any amendment or supplement thereto, and any person who
controls the Company within the meaning of the Act, against any losses, claims,
damages, or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, and shall
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person in connection with investigating
or defending any such loss, claim, damage, liability, or action, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue or alleged untrue statement of any material
fact contained in said registration statement, any preliminary or final
prospectus, or other filing, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, preliminary or final prospectus, or other filing, or
amendment or supplement, in reliance upon and in conformity with written
information furnished by the Warrantholder or any person controlling the
Warrantholder or any Participating Underwriter for use in the preparation
thereof; PROVIDED, HOWEVER, that the indemnity agreement contained in this
subparagraph (b) shall not apply to amounts paid to any claimant in settlement
of any suit or claim unless such payment is first approved by the Warrantholder,
such approval not to be unreasonably withheld or delayed.
(c) Promptly after receipt by an indemnified party under subparagraphs (a)
or (b) above of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party,
notify the indemnifying party of the commencement thereof, but the omission to
notify the indemnifying party will not relieve it from any liability that it may
have to any indemnified party otherwise than under subparagraphs (a) and (b).
(d) If any such action is brought against any indemnified party and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified parry; and after
notice from the indemnifying party to such indemnified party of its election to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
-8-
<PAGE>
8. RESTRICTIONS ON TRANSFER. The Warrant Certificate and the Warrant(s)
may not be sold, transferred, assigned or hypothecated except to underwriters of
the Offering or to individuals who are either a partner or an officer of such an
underwriter or by will or by operation of law. The Warrant(s) may only be
exercised by one of the aforesaid persons or by a successor entity or legal
representative. The Warrant(s) may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates evidencing the
same aggregate number of Warrants.
9. NO RIGHTS AS A STOCKHOLDER. Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant(s), be entitled
to any rights of a stockholder of the Company but will, upon written request to
the Company, be entitled to receive such quarterly or annual reports as the
Company distributes to its stockholders.
10. WARRANTS NOT CALLABLE. The Warrants may not be called or redeemed by
the Company at any time.
11. NOTICE. Any notices required or permitted to be given hereunder will
be in writing and may be served personally or by mail; and if served will be
addressed as follows:
-9-
<PAGE>
If to the Company:
2175 Broadbent Parkway, NE
Albuquerque, NM 87107
Attn: Ronald K. Lohrding,
President and Chief Executive Officer
If to the Warrantholder:
at the address furnished
by the Warrantholder to the
Company for the purpose of
notice.
Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above. Any
party may by written notice to the other specify a different address for notice
purposes.
11. APPLICABLE LAW. This Warrant Agreement and the Warrant(s) issuable
pursuant to the provisions hereof will be governed by and construed in
accordance with the laws of the State of Oregon, without reference to conflict
of laws principles thereunder. All disputes relating to this Warrant Agreement
and/or the Warrant(s) issuable hereunder shall be tried before the courts of
Oregon located in Multnomah County, Oregon to the exclusion of all other courts
that might have jurisdiction.
Dated as of , 199
------------------ ----
CELL ROBOTICS INTERNATIONAL, INC.
By:
------------------------------------
------------------------------------
Agreed and Accepted as of ,199
----------- ---
PAULSON INVESTMENT COMPANY, INC.
By:
-------------------------------
-------------------------------
-10-
<PAGE>
EXHIBIT A
[FORM OF WARRANTS CERTIFICATE]
THE SECURITIES ISSUABLE UPON EXERCISE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON RECEIPT BY THE ISSUER OF AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., PACIFIC TIME, ________, 200__
NO. W- WARRANTS TO PURCHASE
_________ SHARES OF COMMON STOCK
WARRANT CERTIFICATE
This WARRANT CERTIFICATE certifies that _________, or registered assigns,
is the registered holder of a Warrant to purchase initially, at any time from
_______, 199__ until 5:00 p.m., Pacific time, on _______, 200__ ("Expiration
Date"), up to _________________ fully-paid and non-assessable shares of common
stock, $.01 par value (the "Common Stock"), of CELL ROBOTICS INTERNATIONAL,
INC., a Colorado corporation (the "Company"), at the initial exercise price,
subject to adjustment in certain events (the "Exercise Price"), of $____ per
share of Common Stock upon surrender of this Warrant Certificate and payment of
the Exercise Price in cash or in warrants as provided in paragraphs (a) and (b),
as the case may be, of Section 2 of the Warrant Agreement (defined below) at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Warrant Agreement dated as of __________, 199__ between the Company
and Paulson Investment Company, Inc. (the "Warrant Agreement"). Payment of the
Exercise Price, where payment is made in cash pursuant to paragraph (a) of
Section 2 of the Warrant Agreement, shall be made by certified or official bank
check in New York Clearing House funds payable to the order of the Company or,
where payment is made in Warrant(s) pursuant to paragraph (b) of Section 2 of
the Warrant Agreement, by surrender of this Warrant Certificate, as provided in
the Warrant Agreement.
A-1
<PAGE>
The Warrant(s) may not be exercised after 5:00 p.m., Pacific time, on the
Expiration Date, at which time the Warrant(s) shall become null and void.
The Warrants evidenced by this Warrant Certificate have been issued
pursuant to the Warrant Agreement, dated as of _______, 199__, between Cell
Robotics International, Inc. and Paulson Investment Company, Inc. (the "Warrant
Agreement") which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations and duties thereunder of the
Company and the holder (the word "holder" meaning the registered holder) of the
Warrant(s).
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable upon exercise of the Warrant(s) may, subject to certain conditions, be
adjusted. In such event, the Company will, at the request of the holder, issue
a new Warrant Certificate evidencing the adjustment in the Exercise Price and
the number and/or type of securities issuable upon the exercise of the
Warrant(s); PROVIDED, HOWEVER, that the failure of the Company to issue such new
Warrant Certificate shall not in any way change, alter, or otherwise impair, the
rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing a like number of securities
for which this Warrant may be exercised shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the securities for which this Warrant
may be exercised, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing the remaining number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
A-2
<PAGE>
All terms use in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ______________, 199__
CELL ROBOTICS INTERNATIONAL, INC.
[Seal]
By:
-----------------------------
Name:
Title:
A-3
<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 2(a)
OF THE BELOW DESCRIBED WARRANT AGREEMENT
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ___________________ shares
of Common Stock and herewith tenders in payment for such securities a certified
or official bank check payable in New York Clearing House funds to the order of
Cell Robotics International, Inc. in the amount of $________________, all in
accordance with the terms of Section 2(a) of the Warrant Agreement, dated as of
____________, 199___, between Cell Robotics International, Inc. and Paulson
Investment Company, Inc. The undersigned requests that a certificate for such
securities be registered in the name of _____________________ whose address is
__________________________ and that such certificate be delivered to
______________ whose address is _____________________________.
Dated:
Signature
---------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate)
------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
A-4
<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 2(b)
OF THE BELOW DESCRIBED WARRANT AGREEMENT
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________________
shares of Common Stock and herewith tenders in payment for such securities
such number of the Warrant(s) as shall be determined in accordance with the
terms of Section 2(b) of the Warrant Agreement, dated as of _________, 199__,
between Cell Robotics International, Inc. and Paulson Investment Company,
Inc. The undersigned requests that a certificate for such securities be
registered in the name of _________________________ whose address is
_________________________ and that such certificate be delivered to
__________________ whose address is ________________________________________.
The undersigned also requests that a certificate for the remaining number of
unexercised warrants be registered in the name of ___________________ whose
address is ______________________________________ and that such certificate
be delivered to ________________________ whose address is ___________________
_______________________________________________.
Dated:
Signature
----------------------------------
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant
Certificate.)
-------------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
A-5
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate or any part thereof, such
assignment to be subject to restrictions of the Warrant Agreement referred
to in the Warrant Certificate.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns and
transfers unto
______________________________________________________________________________
(Please print name and address of transferee)
[this Warrant Certificate] [________ warrants exercisable pursuant to this
Warrant Certificate], together with all right, title and interest therein. The
undersigned requests that a certificate for such securities be registered in the
name of _________________________whose address
is_________________________________and that such certificate be delivered to
__________________ whose address is ________________________________________.
The undersigned also requests that a certificate for the remaining number of
unexercised warrants be registered in the name of ___________________ whose
address is ______________________________________ and that such certificate be
delivered to ________________________ whose address is__________________________
______________________________________________.
Dated: Signature:
--------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
------------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
A-6
<PAGE>
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EXHIBIT 4.4 - Lohrding Option Agreement
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE SECURITIES IN THE FORM OF NON-QUALIFIED STOCK OPTIONS OF CELL ROBOTICS
INTERNATIONAL, INC. HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES CANNOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.
CELL ROBOTICS INTERNATIONAL, INC.
(A COLORADO CORPORATION)
Option No. NQ-01 450,000 Common Stock Options
CERTIFICATE FOR COMMON STOCK OPTIONS
This certifies that, for value received, RONALD K. LOHRDING, or registered
assigns ("Optionholder"), is the registered owner of the above indicated number
of Options entitling the Optionholder, subject to the provisions of paragraph 1
below, to subscribe for, purchase and receive one (l) fully paid and
non-assessable share of Common Stock, $.004 par value, (the "Common Stock") of
Cell Robotics International, Inc., a Colorado corporation (the "Company"), upon
presentation and surrender of this Option and upon payment of the Exercise Price
as hereinbelow defined, for the shares of Common Stock of the Company, but only
subject to the conditions set forth herein. The Exercise Price, the number of
shares purchasable upon exercise of each Option, the number of Options
outstanding and the Expiration Date are subject to adjustments upon the
occurrence of certain events. The Optionholder may exercise all or any number
of the Options represented hereby. Upon exercise of this Option, the form of
election hereinafter provided for must be duly executed and the instructions for
registration of the Common Stock acquired by such exercise must be completed.
If the subscription rights represented hereby shall not be exercised at or
before the Expiration Date, this Option shall become and be void without further
force or effect, and all rights represented hereby shall cease and expire.
1. VESTING.
The Options represented by this Certificate are subject to vesting.
Options exercisable to purchase 150,000 shares of Common Stock shall vest and
become exercisable on the closing of a public offering by the Company of
2,000,000 shares of Common Stock through several underwriters, of which Paulson
Investment Co., Inc. and Cohig & Associates, Inc. shall serve as the
representatives of such underwriters ("Public Offering"); and the balance of
Option, shall vest on November 30, 2002; provided, however, that Options
exercisable to purchase an additional 150,000 shares of Common Stock will vest
30 days after the end of any quarter in which the Company reports pre-tax income
for any fiscal quarter of at least $50,000; and Options exercisable to purchase
an additional 150,000 shares of Common Stock shall vest and become exercisable
upon the Company reporting its first fiscal year with net income of at least
$500,000.
<PAGE>
2. TERM OF OPTIONS.
The Options evidenced by this Certificate may be exercised in
whole or in part commencing upon the respective vesting date such Option (the
"Exercise Date") and ending 36 months from each respective Exercise Date
("Expiration Date"), but in no event later than December 31, 2002 (the "Final
Expiration Date"); provided, however, that the Expiration Date may be
extended by the Company under paragraph 3.
3. NOTICE OF EXTENDED EXPIRATION DATE.
The Company may extend the Expiration Date for the exercise of this
Option at any time by giving sixty (60) days' written notice thereof to the
Optionholder. If this Option is not exercised on or before the extended
expiration date, it shall become wholly void.
4. EXERCISE PRICE.
Each vested and exercisable Options evidenced by this Certificate
shall be exercisable to purchase one share of Common Stock of the Company at an
Exercise Price equal to the initial price per share of the shares of Common
Stock sold by the Company in the Public Offering, or $4.50 per share, whichever
is greater (the "Exercise Price"). The Exercise Price is subject to adjustment
under certain circumstances more fully describe in paragraphs 5 and 6 below.
5. ADJUSTMENTS OF EXERCISE PRICE AND SHARES.
In the event the Common Stock issuable upon exercise of this Option
shall be changed into the same or different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise, or in the event the Company shall at any time issue Common Stock by
way of dividend or other distribution on any stock of the Company, or subdivide
or combine the outstanding shares of Common Stock, then in each such event the
Holder of this Option shall have the right thereafter to exercise such Option
and receive the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change
by holders of the number of shares of Common Stock into which such Option might
have been exercised immediately prior to such reorganization, reclassification
or change. In the case of any such reorganization, reclassification or change,
the Exercise Price shall also be appropriately adjusted so as to maintain the
aggregate Exercise Price. Further, in case of any consolidation or merger of
the Company with or into another corporation in which consolidation or merger
the Company is not the continuing corporation, or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety,
or substantially as an entirety, the Company shall cause effective provision to
be made so that the Optionholder shall have the right thereafter, by exercising
this Option, to purchase the kind and amount of shares of stock and other
securities and property receivable upon such consolidation, merger, sale or
conveyance by holders of the number of shares of Common Stock into which such
Option might have been exercised immediately prior to such consolidation,
merger, sale or conveyance, which provision shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Option. The foregoing provisions shall similarly
-2-
<PAGE>
apply to successive reclassifications, capital reorganizations and changes of
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
Notwithstanding the foregoing, no adjustment of the Exercise Price
shall be made as a result of or in connection with (1) the issuance of Common
Stock of the Company pursuant to options, warrants and share purchase agreements
now in effect or hereafter outstanding or created, (2) the establishment of
option plans of the Company, the modification, renewal or extension of any plan
now in effect or hereafter created, or the issuance of Common Stock upon
exercise of any options pursuant to such plans, (3) the issuance of Common Stock
in connection with an acquisition, consolidation or merger of any type in which
the Company is the continuing corporation, or (4) the issuance of Common Stock
in consideration of such cash, property or service as may be approved by the
Board of Directors of the Company and permitted by applicable law.
6. ADJUSTMENT TO EXERCISE PRICE.
The Company may, in its sole discretion, lower the exercise price at
any time, or from time-to-time. When any adjustment is made in the exercise
price, the Company shall cause a copy of such statement to be mailed to the
Optionholder, as of a date within ten (10) days after the date when the purchase
price has been adjusted.
7. MANNER OF EXERCISE.
The Optionholder of the Options evidenced by this Option Certificate
may exercise all or any whole number of such Options during the Exercise Period
in the manner stated herein. This Option Certificate, together with the
purchase form provide for herein duly executed by the Optionholder or by the
Optionholder's duly authorized attorney, plus payment of the purchase price,
shall be surrendered to the Company. If upon exercise of any Options evidenced
by this Option Certificate the number of Options exercised shall be less than
the total number of Options so evidenced, there shall be issued to the
Optionholder a new Option Certificate evidencing the number of Options not so
exercised.
8. MANNER OF PAYMENT.
The purchased price of each Option shall be paid, to the extent
permitted by applicable statutes and regulations, either (i) in cash at the time
the Option is exercised, or (ii) by delivery to the Company of other common
stock of the Company valued at its then-established fair market value, or (iii)
by delivery to the Company of either Options or Warrants of the Company, valued
at the difference between their Exercise Price and their then-established fair
market value of the Company's common stock, or (iv) according to a deferred
payment or other arrangement (which may include, without limiting the generality
of the foregoing, the use of other common stock of the Company) with the person
to whom the option is granted or to whom the option is transferred, or (v) in
any other form of legal consideration that may be acceptable to the Board of
Directors, in their discretion. For the purposes of this Paragraph 6, the fair
market value of the Company's common stock shall be (i) the closing sale price
for the Common Stock on the primary exchange upon which the shares are listed
and traded on the date the Warrant is exercised, or (ii) if the shares are not
traded on any national exchange, the closing sale
-3-
<PAGE>
price for the Common Stock on the NASDAQ National Market on the date the Warrant
is exercised, or (iii) if the shares or neither traded on a national exchange
nor listed on the NASDAQ National Market, then the average of the bid and ask
prices for the Common Stock in the Over-The-Counter Market as quoted on the
NASDAQ Small-Cap Market or (iv) if the shares of Common Stock are neither traded
on a national exchange or the NASDAQ National Market nor quoted on the NASDAQ
Small-Cap Market, the average of the bid and ask prices for the Common Stock as
quoted by any recognized securities quotation service such as the National
Quotation Bureau, Inc. or the OTC Electronic Bulletin Board on the date the
Warrant is exercised. In the case of any deferred payment arrangement, any
interest shall be payable at least annually and shall be charged at the minimum
rate of interest necessary to avoid the treatment as interest, under any
applicable provisions of the Internal Revenue Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.
9. RESERVATION OF COMMON STOCK.
The Company agrees that the number of shares of Common Stock
sufficient to provide for the exercise of the Options upon the basis herein set
forth will at all times during the term of this Option be reserved for the
exercise thereof.
10. ISSUANCE OF COMMON STOCK UPON EXERCISE.
The Company, at its expense, shall cause to be issued, within ten (10)
days after exercise of this Option, a certificate or certificates in the name
requested by the Optionholder of the number of shares of Common Stock to which
the Optionholder is entitled upon such exercise. All shares of Common Stock or
other securities delivered upon the exercise of the Options shall be validly
issued, fully paid and non-assessable.
11. NO RIGHT AS STOCKHOLDER.
The Optionholder is not, by virtue of ownership of the Options,
entitled to any rights whatsoever of a stockholder of the Company.
12. ASSIGNMENT.
This Option is not assignable by the Optionholder hereof.
Dated: CELL ROBOTICS INTERNATIONAL, INC.
------------------------
Attest: By:
------------------------- -------------------------------
Secretary
-4-
<PAGE>
PURCHASE FORM
Dated: , 199
------------------------ --
The undersigned hereby irrevocably elects to exercise the attached Option
to the extent of purchasing shares of Common Stock of Cell Robotics
International, Inc. and hereby makes payment of $ in payment of
the Exercise Price therefor.
----------------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
-------------------------------------------------------------
(please typewrite or print in block letters)
Address
------------------------------------------------------------------
Signature
-----------------------------------------------------------------
------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED,
--------------------------------------------------
hereby sells, assigns and transfers unto
Name
----------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-------------------------------------------------------------------
the right to purchase Common Stock represented by this Option to the extent of
shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint , attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Signature
------------------------------------------------------------------
Dated: , 19
---------------------------------- ---
<PAGE>
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EXHIBIT 5.0 - Opinion of Neuman & Drennen, LLC
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<PAGE>
[Letterhead]
November 20, 1997
Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
RE: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
We have acted as counsel to Cell Robotics International, Inc. (the
"Company") in connection with Registration Statement on Form SB-2 (the "Amended
Registration Statement") to be filed with the United Stated Securities and
Exchange Commission, Washington, D.C., pursuant to the Securities Act of 1933,
as amended, covering the registration of an aggregate of 2,500,000 shares of
Common Stock, $.004 par value ("Common Stock"). In connection with such
representation of the Company, we have examined such corporate records, and have
made such inquiry of government officials and Company officials and have made
such examination of the law as we deemed appropriate in connection with
delivering this opinion.
Based upon the foregoing, we are of the opinion as follows:
1. The Company has been duly incorporated and organized under the laws of
the State of Colorado and is validly existing as a corporation in good standing
under the laws of that state.
2. The Company's authorized capital consists of twelve million five
hundred thousand (12,500,000) shares of Common Stock having a par value of
$0.004 each and two million five hundred thousand (2,500,000) shares of
Preferred Stock having a par value of $.04 each.
3. The 2,300,000 shares of the Company's Common Stock being registered
for sale and offered to the public by the Company as more fully described in
the Registration Statement are lawfully and validly issued, fully paid and
non-assessable securities of the Company.
4. The 200,000 shares of the Company's Common Stock issuable upon
exercise of the Representative's Warrants shall, upon valid exercise of such
Warrants and issuance thereof as more fully described in the Registration
Statement, be duly and validly authorized, legally issued, fully paid and
non-assessable.
Sincerely,
Clifford L. Neuman
<PAGE>
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EXHIBIT 23.1
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<PAGE>
[Letterhead]
November 20, 1997
Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
Re: Registration on Form SB-2
Ladies and Gentlemen:
We hereby consent to the inclusion of our opinion regarding the
legality of the securities being registered by the Form SB-2 Registration
Statement to be filed with the United Stated Securities and Exchange Commission,
Washington, D.C., pursuant to the Securities Act of 1933, as amended, by Cell
Robotics International, Inc., a Colorado corporation (the "Company"), in
connection with the offering by the Company described therein of up to 2,500,000
shares of Common Stock, $.004 par value, as proposed and more fully described in
such Registration Statement.
We further consent to the reference in such Registration Statement to our
having given such opinions.
Sincerely,
Clifford L. Neuman
<PAGE>
The Board of Directors
Cell Robotics International, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report dated February 21, 1997 contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations and
negative cash flows from operations which raise substantial doubt about its
ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome
of that uncertainty.
Albuquerque, New Mexico
November 20, 1997
