<PAGE>
As filed with the Securities and Exchange Commission on September 8, 1998
Registration No. 333-55951
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
CELL ROBOTICS INTERNATIONAL, INC.
-------------------------------------------------------
(Exact name of Registrant as specified on its Charter)
Colorado 84-1153295
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(State or other jurisdiction IRS Employer
of incorporation or organization) Identification Number
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
(505) 343-1131
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(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Ronald K. Lohrding, Ph. D.
Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, new Mexico 87107
(505) 343-1131
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(Name, address, including zip code, and telephone number
of agent for service of process)
Copies to:
Clifford L. Neuman, Esq.
Nathan L. Stone, Esq.
Neuman, Drennen & Stone, LLC
1507 Pine Street
Boulder, Colorado 80302
(303) 449-2100
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date of
the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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. [ ]
==============================================================================
<PAGE>
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Proposed Proposed
Each Class Maximum Maximum Amount of
of Securities Amount Offering Aggregate Regis-
to be to be Price Offering tration
Registered Registered Per Share Price Fee
(1) (2) (1)
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<S> <C> <C> <C> <C>
Preferred Stock, 78,788 $10.00 (3) $ 787,880.00 $ 238.75
$.04 par value:
Common Stock, 315,152 $ 2.25 (4) $ 709,092.00 $ 214.88
$.004 par value,
Underlying
Preferred Stock:
Common Stock Purchase 157,576 $ 0.94 (5) $ 148,121.44 $ 44.89
Warrants:
Common Stock, 157,576 $ 2.40 (6) $ 378,182.40 $ 114.60
$.004 par value,
Underlying Warrants:
Common Stock, 189,090 $ 0.00 $ 0.00 $ 0.00
$.004 par value,
Issuable as Stock
Dividend on
Preferred Stock:
TOTAL: $2,023,275.84 $ 613.12
- --------------------------
</TABLE>
(1) Pursuant to Rule 416, the Registration Statement also relates to an
indeterminate number of additional shares of Common Stock issuable upon
exercise of outstanding Common Stock Purchase Warrants (the "Warrants")
pursuant to anti-dilution provisions contained therein, which shares of
Common Stock are registered hereunder.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) Based upon the average of the bid and ask prices of the Preferred Stock
being offered by the Selling Securityholders in accordance with Rule
457(c).
(4) Based upon the average of the bid and ask prices of the Common Stock
being offered by the Selling Securityholders in accordance with Rule
457(c).
(5) Based upon the average of the bid and ask prices of the Common Stock
Purchase Warrants being offered by the Selling Securityholders in
accordance with Rule 457(c).
(6) Based upon the $2.40 per share exercise price of the 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>
<PAGE>
CELL ROBOTICS INTERNATIONAL, INC.
Item No. and Heading
In Form S-3
Registration Statement Location in Prospectus
----------------------- -----------------------
1. Forepart of the Registration Forepart of the Registration
Statement and outside front Statement and outside front
cover of Prospectus page of Prospectus
2. Inside front and outside back Inside front and outside back
cover pages of Prospectus cover pages of Prospectus
3. Summary Information, Risk Risk Factors
Factors and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Determination of Offering Price
6. Dilution Dilution
7. Plan of Distribution Plan of Distribution
8. Description of Securities Description of Securities
to be Registered
9. Interest of Named Experts Legal Matters
and Counsel
10. Material Changes Recent Developments
11. Incorporation of Certain Incorporation of Certain
Information by Reference Documents by Reference
12. Disclosure of Commission Indemnification
Position on Indemnification for
Securities Act Liabilities
<PAGE>
<PAGE>
PROSPECTUS
CELL ROBOTICS INTERNATIONAL, INC.
-----------------------------------
78,788 Shares
Series A Convertible Preferred Stock
157,576
Common Stock Purchase Warrants
661,818 Shares
$.004 par value Common Stock
This Prospectus relates to the offering of securities of Cell Robotics
International, Inc., a Colorado corporation (the "Company" or "CRII").
The first offering relates to the reoffer of 78,788 shares of Series A
Convertible Preferred Stock, $.04 par value ("Preferred Stock") of the
Company, and 157,576 Common Stock Purchase Warrants of the Company
("Warrants") owned by certain securityholders of the Company (the "Selling
Securityholders" and the "Selling Securityholders' Offering," respectively).
See "DETERMINATION OF OFFERING PRICE." Each share of Preferred Stock is
convertible into four shares of the Company's common stock, $.004 par value
(the "Common Stock"), subject to adjustment under certain circumstances ("the
Conversion Stock") at any time at the option of the Holder thereof. See
"DESCRIPTION OF SECURITIES - SERIES A CONVERTIBLE PREFERRED STOCK." Each
share of Preferred Stock shall automatically convert into four shares of
Common Stock upon the earlier of (a) February 2, 2001 or (b) the date upon
which the sum of closing bid prices of the Preferred Stock and two Warrants
has been at least $12.375 for at least ten consecutive trading days. Dividends
in the form of shares of the Company's Common Stock will accrue on all
outstanding shares of Preferred Stock at the rate of four-tenths of one share
of Common Stock every six months commencing February 2, 1998. Such Common
Stock dividends shall be issued and distributed within 30 days following their
accrual every six months. Each Warrant is exercisable to purchase one share
of Common Stock at an exercise price of $2.40 per share (the "Exercise Price")
for the period of time commencing on February 10, 1998 and expiring on
February 2, 2003, (the "Warrant Term"), unless earlier redeemed. The Company
may redeem the outstanding Warrants, in whole or in part, at any time upon at
least 30 days' prior written notice to the registered holders thereof, at a
price of $.25 per Warrant, provided that (i) there is in effect a registration
statement registering for sale under the Securities Act of 1933 as amended
("Securities Act") the shares of Common Stock issuable upon exercise of the
Warrant; (ii) the closing bid price of the Company's Common Stock has been at
least $4.80 for the ten consecutive trading days immediately preceding the
date of such notice of redemption; and (iii) the expiration of the 30 day
notice period is within the Warrant Term. The Selling Securityholders may
offer all shares of the Company's Preferred Stock and Warrants covered by
this Prospectus in transactions in the over-the-counter market at prices
obtainable at the time of sale, or in privately-negotiated transactions at
prices determined by negotiation. The Selling Securityholders may effect such
transactions by selling the shares to or through securities broker-dealers,
and such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders, and/or the
purchasers of the securities for whom such broker-dealers may act as agent or
to whom they sell as principals, or both (which compensation as to a
particular broker/dealer may be in excess of customary commissions). See
"SELLING SECURITYHOLDERS" and "PLAN OF DISTRIBUTION." The Selling
Securityholders and the broker-dealers through whom sales of the securities
are made may be deemed to be "Underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). If any broker-
dealers are used by the Selling Securityholders, any commissions paid to
broker-dealers, and if broker-dealers purchase any securities as principals,
any profits received by such broker-dealers on the resales of the securities
may be deemed to be underwriting discounts or commissions under the Securities
Act. In addition, any profits realized by the Selling Securityholders may be
deemed to be underwriting compensation.
This Prospectus also relates to the offer by the Company of up to 315,152
shares of Common Stock issuable upon conversion of the Preferred Stock (the
"Conversion Stock Offering"), the offer by the Company of up to 189,090 shares
of Common Stock issuable as a dividend on the Preferred Stock (the "Dividend
Stock" and "Dividend Stock Offering," respectively) and the offer by the
Company of up to 157,576 shares of Common Stock pursuant to the exercise of
the Warrants (the "Warrant Stock Offering"). Except as set forth above, the
Company does not have the right to compel the conversion of the Preferred
Stock or the exercise of the Warrants, and the Selling Securityholders have
not committed to convert the Preferred Stock or to exercise any of the
Warrants. Accordingly, there can be no assurance of the number, if any, of
shares of Common Stock which may be issued to the holders of the Preferred
Stock and Warrants pursuant to the conversion of Preferred Stock and/or the
exercise of the Warrants under this Prospectus.
The Company will not receive any consideration in connection with the
conversion of the Preferred Stock or issuance of the Stock Dividend.
Assuming holders of the Warrants exercise all Warrants to purchase 157,576
shares of Common Stock, the Company will receive gross proceeds of
$378,182.40. The Company will not receive any of the proceeds from the resale
of shares of Preferred Stock or Warrants by the Selling Securityholders.
Pursuant to an agreement between the Company and the Selling Securityholders,
the Company has agreed to pay all of the expenses incurred in connection with
the preparation and filing of the Registration Statement of which this
Prospectus forms a part, estimated to be $12,000. The Selling Securityholders
will, however, pay the other costs related to the sale of the Preferred Stock
and Warrants, including discounts, commissions and transfer fees. See "PLAN
OF DISTRIBUTION." The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liability under the
Securities Act.
The Company's Common Stock is traded on the OTC Electronic Bulletin Board
("Bulletin Board") under the trading symbol CRII. On September 1, 1998, the
closing bid and ask prices of the Company's Common Stock were $1.00 and
$1.1667 respectively. There can be no assurance that a market for the Common
Stock will continue in the future. The Company has no arrangements with
broker-dealers concerning the maintenance of a trading market for the Common
Stock. As a result, the ability of a purchaser of the Company's Common Stock
to resell the securities may be severely limited and the purchaser may be
required to hold the securities for an indefinite period of time.
The Company's Preferred Stock is traded on the Bulletin Board under the
symbol CRIIP. On September 1, 1998, the closing bid and ask prices of the
Company's Preferred Stock were $3.50 and $4.25 respectively. There can be no
assurance that a market for the Preferred Stock will continue in the future.
The Company has no arrangements with broker-dealers concerning the maintenance
of a trading market for the Preferred Stock. As a result, the ability of
purchasers of the Company's Preferred Stock to resell the securities may be
severely limited and the purchaser may be required to hold the securities for
an indefinite period of time.
The Company's Warrants are traded on the Bulletin Board under the symbol
CRIIW. On September 1, 1998, the closing bid and ask prices of the Company's
Warrants were $.3750 and $.6875 respectively. There can be no assurance that
a market for the Warrants will continue in the future. The Company has no
arrangements with broker-dealers concerning the maintenance of a trading
market for the Warrants. As a result, the ability of purchasers of the
Company's Warrants to resell the securities may be severely limited and the
purchaser may be required to hold the securities for an indefinite period of
time.
------------------------------
FOR DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED IN EVALUATING
AN INVESTMENT IN THE COMPANY, SEE "RISK FACTORS" COMMENCING AT PAGE 8 HEREOF.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONS, 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>
- ---------------------------------------------------------------------------
Price to Underwriting Proceeds to
Warrantholders Discount (3) Company (2)
--------------- -------------- -------------
<S> <C> <C> <C>
Per share: $2.40 * $2.40
Total $378,182.40 * $378,182.40
- ---------------------------------------------------------------------------
</TABLE>
The Date of This Prospectus is ________________, 1998.
(1) Reflects the exercise by the Warrantholders of all outstanding Warrants
to purchase an aggregate of 157,576 shares of Common Stock at an Exercise
Price of $2.40 per share. The Company does not have the right to compel
the exercise of the Warrants, and the Warrantholders have not committed
to exercise any of the Warrants. Accordingly, there can be no assurance
of the number, if any, of shares of Common Stock which will be purchased
by the Warrantholders pursuant to their exercise of the Warrants. The
Company intends to maintain a current Prospectus until the Warrants
expire on February 2, 2003, or until they are all exercised, if earlier.
The Company may at any time and from time to time extend the Warrant Term
or reduce the Warrant Exercise Price, provided written notice of such
extension or reduction is given to the registered holders of the Warrants
prior to the expiration date then in effect. See "DESCRIPTION OF
SECURITIES-WARRANTS."
(2) The Warrantholders may reoffer their shares in transactions in the over-
the-counter market at prices obtainable at the time of sale or in
privately negotiated transactions at prices determined by negotiation.
The Warrantholders may effect transactions by selling to or through
securities broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from
the Warrantholders. While it is impracticable to determine the precise
amount that the Warrantholders will incur, it is anticipated that any
such discounts, selling concessions or commissions will be consistent
with those customarily charged by broker-dealers who are members of the
National Association of Security Dealers, Inc. ("NASD").
(3) Consists of proceeds to the Company from the exercise by the
Warrantholders of all Warrants which are exercisable to purchase 157,576
shares of the Company's Common Stock at an Exercise Price of $2.40 per
share. Does not reflect deduction of expenses of the Offering for
printing, legal, accounting, transfer agent and miscellaneous expenses of
the Offering, the total of which is estimated at $12,000, which the
Company has agreed to pay. See "USE OF PROCEEDS."
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction, or in any jurisdiction in
which the person making such offer or solicitation is not qualified to do so.
<PAGE>
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with
the Exchange Act files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (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 7 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 S-3 with the
Commission, Washington, D.C., in accordance with the provisions of the 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 of Common Stock, shares of Preferred
Stock and Warrants offered hereby and the Company, reference is made to the
Registration Statement, including the exhibits and financial statements
incorporated therein by reference. Reference also should be made to Pre-
Effective Amendment No. 2 to the Company's Registration Statement on Form SB-2
which was declared effective by the Commission on February 2, 1998, the
Company's Annual Report to Shareholders and Annual Report on Form 10-KSB for
the year ended December 31, 1997, the Company's definitive Proxy Statement,
and the Company's Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 1998 and June 30, 1998, incorporated by reference into this
Prospectus. 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 therefore and may be examined at the principal office of
the Commission in Washington, D.C.
<PAGE>
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
(a) Pre-Effective Amendment No. 2 to Registration Statement on Form SB-
2, Registration No. 333-40895, declared effective by the Commission
on February 2, 1998.
(b) The Company's Annual Report on Form 10-KSB/A-1 for the fiscal year
ended December 31, 1997, SEC File No. 0-27840, as filed with the
Commission on September 8, 1998.
(c) The Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 29, 1998, SEC File No. 0-27840, as
filed with the Commission on April 20, 1998.
(d) The Company's Quarterly Report on Form 10-QSB/A-1 for the quarter
ended March 31, 1998, SEC File No. 0-27840, as filed with the
Commission on September 8, 1998.
(e) The Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1998, SEC File No. 0-27840, as filed with the Commission on
August 14, 1998.
All documents filed by the Company with the Commission pursuant to
Section 13a, 13c, 14 or 15d of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering covered by this
Prospectus will be deemed incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents.
Any statement contained in the above-referenced documents shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained in this Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
A copy of the documents incorporated by reference, other than exhibits to
such documents (unless such exhibits are specifically incorporated by
reference to this Prospectus), may be obtained at no charge by a written or
oral request to Ronald K. Lohrding, Ph.D., President and CEO, Cell Robotics
International, Inc., 2715 Broadbent Parkway N.E., Albuquerque, New Mexico
87107 (505) 343-1131. In addition, such materials filed electronically by
the Company with the Commission are available at the Commission's worldwide
website at http://www.sec.gov/edgarhp/htm.
<PAGE>
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and are thus prospective. Such statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Such risks and uncertainties include, but are not limited to,
competitive pressures, changing economic conditions and other factors, some of
which will be outside of the control of the Company. See "RISK FACTORS."
<PAGE>
<PAGE>
THE COMPANY
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 has developed, and is preparing to
manufacture, market and sell, a number of sophisticated medical laser
products. The Company maintains its principal offices at 2715 Broadbent
Parkway, N.E., Suite A-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.
<PAGE>
<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 June 30, 1998, the Company has incurred
losses of approximately $14.4 million, approximately $6.3 million of which
consisted of research and development costs, with the balance consisting of
general and administrative and marketing expenses. To date, the Company has
been unable to profitably market its products. The Company has principally
relied upon the proceeds from debt and equity financings to provide its
working capital. For the years ended December 31, 1997 and 1996 and for the
six months ended June 30, 1998 and 1997, the Company's net losses were
$2,472,892, $1,544,090, $821,670 and $1,106,440, respectively. In addition,
the Company's operations used net cash of $2,253,941 and $1,044,675 for the
year ended December 31, 1997 and six months ended June 30, 1998,
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 last quarter of 1998. 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.
Future Revenue Growth Dependent on Medical Laser Products.
- ----------------------------------------------------------
The Company is relying heavily upon the success of its medical laser products
which have recently been, or are in the process of being introduced into the
medical laser products market. 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.
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 of the Company to establish collaborative arrangements, the
development of commercialization activities and arrangements, and the purchase
of capital equipment. Unless the Company is able to achieve profits from
operations within the next 12 months, 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 Securities
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."
Patent Litigation.
- ------------------
In October 1997, Venisect, Inc. ("Venisect") commenced a patent infringement
action (the "Venisect Litigation") in which it claimed the Lasette(-TM-)
infringed the U.S. patent underlying Venisect's competitive skin perforator.
The United States District Court for the Eastern District of Arkansas (the
"Court") subsequently dismissed the Venisect Litigation, without prejudice,
due to lack of personal jurisdiction and improper venue. Venisect has
recently filed a notice that it will appeal that decision. Moreover, the
Court's ruling does not prevent Venisect from re-filing in a proper
jurisdiction at a later date in the event its appeal is unsuccessful. While
the Company has investigated the Venisect patent with its advisors, and
believes that no basis for any infringement claim exists, there can be no
assurance that the Company will be able to successfully defend the patent
infringement claims made by Venisect in the event Venisect is successful in
appealing the Court's ruling or should Venisect re-file its claims in a proper
jurisdiction. If Venisect ultimately 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 Venisect 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.
Limited Protection from Patents and Proprietary Technology.
- -----------------------------------------------------------
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 laser-based medical devices currently have no
patent protection and its scientific research instruments have only limited
patent protection. The commercial success of the Company's laser-based
medical devices 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 Company's Lasette(-TM-) and the Revitalase(-TM-) products were
originally developed using the mutifaceted crystal resonator ("MCR")
technology acquired from Tecnal Products, Inc., a subsidiary of Lovelace
Scientific Resources, Inc. Subsequently, the Company has advanced the laser
design employed in both products and has sought, or is preparing to seek
continuations of existing patents and/or new patents protecting those designs.
One result of this effort has been the receipt of a Notice of Allowance from
the U.S. Patent and Trademark Office ("PTO") of a new patent for certain
advantageous modifications of the laser beam used in skin perforators, such as
the Lasette(-TM-). Generally, receipt of a Notice of Allowance means that
examination on the merits of the Company's application is concluded, the
examining attorney has identified allowable claims in the application, and
that the application is passed to allowance in anticipation of assignment of a
patent number and issue date. However, no enforceable patent rights exists
until the patent is actually issued, and there can be no assurance when, or
if, the patent will issue. This patent, if issued, will cover proprietary
aspects of both current and projected future models of the Lasette(-TM-).
Patents covering other aspects of the Lasette(-TM-) are currently pending in
the PTO and World Patent Office. The IVF Workstation is not currently
protected by any specific issued patents; however, the Company has submitted
an application to the PTO and World Patent Office seeking protection for
certain laser design aspects of the system. The Company will also seek to
protect certain data-processing aspects of the system. To this end,
collectively, the Company currently has five patent cases, in various phases,
pending, most with international counterparts, including applications for:
(i) a Microscope with Laser Port Microscope and Stage claims filed March 2,
1998, which is currently pending; (ii) a Dermal Perforator (referred to
above), filed July 3, 1996, which has received a Notice of Allowance; (iii) a
Lens Shield for Laser Skin Perforation, filed April 22, 1997, which is
currently pending, (iv) an application for apparatus and process related to
providing uniform distribution of energy to microscope targets, filed June 18,
1998; and (v) an application for apparatus and process related to activating
Thermo-Enzyme reactions with EM Energy, filed May 19, 1998. However, there
can be no assurance that any patents will be issued as a result of the
foregoing, or, if issued, the degree of protection that they will afford.
The LaserTweezers(-TM-) application of the Cell Robotics Workstation is being
produced and sold under a license agreement with AT&T and a related optical
trapping patent.
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 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 registered the marks Smartstage(-
Registered Mark-) and LaserTweezers(-Registered Mark-) and has applied for a
federal registration for the names Lasette(-TM-) and LaserScissors(-TM-). The
Company intends to apply for federal registration with respect to the use of
the RevitaLase(-TM-), CellSelector(-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.
Intense 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.
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.
Risks Associated with Licenses.
- -------------------------------
The LaserTweezers(-Registered Mark-) application of the Cell Robotics
Workstation was based upon an exclusive patent license from AT&T (the "AT&T
License"), which required the payment of substantial minimum annual royalties
in the future. Specifically, under the AT&T License, the Company was 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.
Absent a revision of the AT&T License, if future sales of the Cell Robotics
Workstation did not increase substantially over historical levels, it was
likely that future sales of the product would be rendered uneconomical by
virtue of the minimum royalty required under the AT&T License. Additionally,
at least two European companies have developed and are marketing products
which the Company believed violate AT&T's patents. To date, AT&T has elected
not to pursue patent infringement claims against these companies and their
distributors, and under the terms of the original AT&T License, the Company
cannot compel AT&T to initiate such proceedings.
As a result of the foregoing, as of June 30, 1998, the Company was
$200,000 in arrears in its minimum royalty payment obligations. However, the
Company and AT&T have agreed to amend the AT&T License. Specifically, AT&T
and the Company have agreed that the Company will pay AT&T the sum of $50,000
in lieu of all sums due and owing for fiscal 1997 and the first half of fiscal
1998, with an additional $50,000 payment due December 31, 1998. Additionally,
the royalty amount will increase from five percent (5%) to seven percent (7%)
of the value of each product sold utilizing AT&T's patents, however, the
minimum annual royalties will be reduced to flat $35,000 per year for the term
of the AT&T License. Notwithstanding the foregoing amendments to the AT&T
License, there can be no assurance that the Company will be able to increase
sales of the Cell Robotics Workstation to a level that renders the product
economically viable.
Rapid 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.
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 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
patients 5 years and older for 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.
In May, 1998, the Company applied for FDA clearance to sell the product for
home use by diabetics. The Company's application is currently under review by
the FDA. To this end, the FDA has requested additional clinical trial
information. Arrangements for these clinical trials are being made, and the
Company anticipates being able to supply the FDA with the requested
information by the end of August, 1998. Notwithstanding the foregoing, 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 Russian 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.
Dependence Upon Sole 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 disagreements regarding the supplier's rights and obligations
relative to the distribution of intellectual property and problems related to
crystal quality which arose in October, 1997. The Company is currently
negotiating the terms of the strategic relationship with this supplier to
specifically address the parties' concerns regarding the distribution of
intellectual property. Additionally the supplier has installed crystal growth
equipment which has improved the quality of their products. As a result, the
supply of laser components from this supplier has not, to date, been
interrupted. However, if this source of supply were restricted or eliminated
due to the parties' inability to agree on revised terms of the strategic
relationship, or 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.
Uncertainty of Market Acceptance, Substantial Marketing Efforts and Expense
Required.
- ---------------------------------------------------------------------------
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.
Risks Associated with International Operations.
- -----------------------------------------------
During fiscal 1997, and through the second quarter of fiscal 1998, Company
revenues from international sales totaled approximately $410,483 and $235,373,
respectively. While management believes that doing business in such
international locations and various European and Asian countries offers
significant opportunity, the Company's management has only limited
international business experience. Furthermore, such operations are subject
to the imponderable risks of economic or political instability within these
foreign jurisdictions, not to mention the uncertainties with respect to future
changes in laws, rules and regulations controlling such operations. Finally,
there exist inherent and substantial risks in purchasing component parts from,
and selling products in, jurisdictions separated by vast distances, which will
accentuate the need to enter into strategic relationships with loyal and
qualified suppliers and distributors in these jurisdictions.
In addition to the foregoing risks, each specific international location poses
risks peculiar to that site. For instance, Russia's political or economic
instability could adversely affect the supply of crystals utilized by the
Company in its Lasette(-TM-) and RevitaLase(-TM-) products. Likewise, while
the Company believes that the economic downturn recently experienced by most
Asian countries has not, to date, had a material adverse effect on sales of
the Company's products in those countries, a prolonged economic downturn
and/or continued currency devaluation relative to the U.S. Dollar, could
eventually have an adverse effect on sales of the Company's products in the
Asian marketplace
The Company cannot predict or quantify the degree to which any or all of the
foregoing factors may adversely impact its future operations.
Dependence on Manufacturers.
- ----------------------------
The Company is relying upon Big Sky Laser Technologies, Inc., a Montana
corporation ("BSLT") to manufacture the first generation Lasette(-TM-). To
this end, the Company recently entered into a manufacturing agreement with
BSLT. Under the terms of this agreement, BSLT has the exclusive manufacturing
rights and the Company has exclusive distribution rights, subject to certain
minimum order requirements. Specifically, the Company must order a minimum of
1,500 units during the first twelve months, and a minimum of 3,000 units in
each subsequent twelve month period to maintain its exclusive distribution
rights. Either party may terminate the agreement on 90 days written notice in
the event of a material breach that is not cured within 30 days of receipt of
notice. Otherwise, if not earlier terminated, the agreement terminates five
years after execution. 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. Except as described above, 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 sole-sourced component could
potentially 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.
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.
Marketing and Sales; Lack of 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.
To this end, the Company currently has three full-time employees, and one
part-time employee, who are responsible for sales of the Company's various
products. The Company also has in place distribution arrangements covering:
(i) the Lasette(-TM-) with one (1) distributor who replaced the Company's
previous distributors and has been given exclusive marketing rights worldwide;
(ii) the IVF Workstation with distributors in South Korea and Brazil and is
working on agreements with distributors in Israel and the United Kingdom and
(iii) the Company's scientific research instruments with a distributor in
Japan and with various other distributors for territories in Germany, Austria,
Switzerland, Hungary, Poland, the Czech Republic, the United Kingdom, Brazil,
Israel, Korea, the Netherlands, Belgium, Luxembourg, Singapore, Malaysia and
Thailand.. No assurances can be given that the Company will be able to hire
and/or retain an adequate sales force or enter into or maintain appropriate
distribution arrangements. The Company must attract, build, train and motivate
a marketing and sales force which the Company currently is working to expand.
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.
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 currently has in place, employment agreements with Ronald K. Lohrding,
Ph.D., the Company's President, Craig Rogers, the Company's Vice President of
Investor Relations, Secretary and Treasurer, and Mr. H. Travis Lee, the
Company's Vice President of Marketing and Sales. The Company's key
employees, including those with employment agreements, 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 its president and CEO,
Ronald K. Lohrding, Ph.D.
Management of Growth; Unspecified Acquisitions.
- -----------------------------------------------
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.
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.
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 with limits of $2,000,000;
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.
Broad Discretion and Application of Proceeds.
- ---------------------------------------------
The Company expects that the proceeds of this offering, if any, will be used
principally for product research and development and to launch its medical
laser products. 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."
Federal Income Tax Liability on Preferred Stock Dividend.
- ---------------------------------------------------------
Subject to certain conditions and assumptions, the payment and distribution by
the Company of the dividend in the form of Common Stock to holders of the
Preferred Stock will be characterized as a dividend for federal income tax
purposes. In general, distributions classified as dividends for federal income
tax purposes constitute ordinary income and will be recognized by the holders
of the Preferred Stock as taxable income upon the accrual of such dividend.
The amount of income tax attributable to receipt of such Common Stock dividend
is dependent, upon other things, upon the taxpayer's other income and expenses
for such year and the rates then in effect. While the Company has undertaken
and intends to distribute the Common Stock dividend within 30 days following
its accrual every six months, there can be no assurance that holders of the
Preferred Stock will be able to dispose of the Common Stock in market
transactions in sufficient quantities to pay the income tax which may be
attributable to receipt of such dividends. As a result, there is a risk that
holders of Preferred Stock will recognize taxable income with respect to the
Common Stock dividend and be required to pay income tax attributable to such
dividend without being able to liquidate sufficient quantities of the Common
Stock to pay the associated tax liability. THE TAX TREATMENT TO A HOLDER MAY
VARY DEPENDING ON SUCH HOLDER'S PARTICULAR SITUATION. POTENTIAL INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX TREATMENT THAT MAY BE
ANTICIPATED TO RESULT FROM THE OWNERSHIP OR DISPOSITION OF THE PREFERRED STOCK
IN THEIR PARTICULAR CIRCUMSTANCES.
Substantial Dilution.
- ---------------------
At June 30, 1998, the Company had a net tangible book value of $2,644,381 or
approximately $.51 per share of Common Stock outstanding, based upon 5,192,434
shares issued and outstanding. Assuming the exercise of all outstanding
Warrants, investors in this Offering exercising Warrants will incur immediate
and substantial dilution of their investment of approximately $1.89 per share,
or 78.8% of the Warrant Exercise Price, based upon the Company's adjusted net
tangible book value as of June 30, 1998. Such dilution does not reflect the
possible conversion of 502,033 shares of Preferred Stock into 2,008,132 shares
of Common Stock, which will further dilute existing shareholders. To the
extent that currently outstanding options and warrants to purchase the
Company's Common Stock are exercised, and depending upon the Company's net
tangible book value on the date of exercise, there may be further,
substantial, dilution to investors in this Offering exercising Warrants. See
"DILUTION."
Exercise Price Of Warrants.
- ---------------------------
The Exercise Price of the Warrants was determined by agreement between the
Company and the holders of the Warrants and bears no direct relationship to
the Company's assets, book value, net worth or operations.
No Assurance of Warrant Exercise.
- ---------------------------------
Holders of Warrants are under no obligation to exercise the warrants, and can
be expected to do so only if it is economically reasonable for them to do so.
Typically, warrants are not exercised unless exercise is forced, either by
the Company calling them for redemption, or because they are scheduled to
expire; and then they will be exercised only if the exercise price is less
than the market price of the Common Stock. Accordingly, there is no assurance
that the Warrants will be exercised during the Warrant Term.
No Dividends.
- -------------
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 on Common Stock in the foreseeable future.
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 and conversion of outstanding shares of
preferred stock) in the public market after this offering could materially
adversely affect the market prices of the Common Stock, the Preferred Stock
and the Warrants. 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 June 30, 1998,
5,192,434 shares of the Company's $.004 par value Common Stock, were issued
and outstanding, of which 4,397,228 are unrestricted and freely tradeable at
the discretion of their owners and 795,206 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
409,406 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 795,206 restricted shares outstanding, 385,800 are beneficially owned by
officers, directors and affiliates of the Company, all of which are
immediately eligible for resale subject to the volume limitations of Rule 144.
Additionally, the Company currently has outstanding 502,033 shares of
Preferred Stock which will be convertible into 2,008,132 shares of Common
Stock and Warrants exercisable to purchase an additional 1,077,576 shares of
Common Stock. Further, if all of the Preferred Stock remains outstanding until
their automatic conversion in three years, the Company will issue as a
dividend on that Preferred Stock 200,813 shares of Common Stock every six
months, or an aggregate of 1,204,878 shares of Common Stock over three years.
In addition, the Company currently has issued and outstanding options and
warrants to purchase an aggregate of 1,270,905 shares of Common Stock, of
which 1,005,785 underlying shares of Common Stock may be freely tradeable upon
exercise due to a registration statement covering the Plan. The Company may
also grant options to purchase an additional 300,000 shares of Common Stock
under the Employee Stock Purchase Plan ("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, Preferred Stock and Warrants 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 prices of
the Common Stock, Preferred Stock and Warrants and the markets therefor.
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."
Potential Adverse Effects of Future Sales of Preferred Stock; Antitakeover
Effect.
- ---------------------------------------------------------------------------
The Company's Articles of Incorporation, as amended, authorize the issuance of
up to 2,500,000 shares of $.04 par value preferred stock. In addition to the
Preferred Stock offered hereby, the Board of Directors has been granted the
authority to fix and determine the relative rights and preferences of
additional 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."
Management's Lack of Voting Influence; Possible Benefit to Non-Affiliated
Shareholders.
- ---------------------------------------------------------------------------
The Company's President, Ronald K. Lohrding, owns 300,000 shares of Common
Stock, and vested options exercisable to acquire an additional 310,417 shares
of Common Stock, together representing 11.22% of the total issued and
outstanding shares of Common Stock. All of the Company's officers and
directors as a group own only 427,442 shares of Common Stock, and vested
options exercisable to acquire an additional 670,750 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 18.54% of the Company's outstanding shares of Common Stock following
completion of this offering. This lack of voting control could be beneficial
to the interests of non-affiliated shareholders of the Company. However, 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 Company's business plans and strategies. Further, it is possible that
stockholders with greater voting influence could initiate actions which could
be adverse to those plans or hostile to current management.
Limited Public Trading Market for the Company's Securities.
- -----------------------------------------------------------
The Company's Common Stock, Preferred Stock and Warrants are traded on the OTC
Electronic Bulletin Board ("Bulletin Board") under the trading symbols CRII,
CRIIP and CRIIW, respectively. While there currently exists a limited and
sporadic public trading market for the Company's securities, the prices are
subject to high degrees of volatility and there can be no assurance that such
a market will improve in the future. As a result, there can be no assurances
that an investor will be able to liquidate his investment without considerable
delay, if at all. Factors discussed herein may have a significant impact on
the market prices of the Company's Common Stock, Preferred Stock, and
Warrants. See "DESCRIPTION OF SECURITIES."
Risks of Price and Volume Fluctuations.
- ---------------------------------------
The over-the-counter markets for securities such as the Preferred Stock,
Warrants and 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 prices of the securities.
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 has 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.
The Company's Common Stock is, the Preferred Stock may become, and the
Warrants will be 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 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 market makers 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. Many brokers may be
unwilling to engage in transactions in the Company's securities because of the
added disclosure requirements, thereby making it more difficult for purchasers
of Units in this offering to dispose of their securities. Additionally,
companies whose securities become subject to the penny stock rules may have
difficulty raising additional capital and purchasers of penny stocks may find
it difficult to obtain current pricing information due to a lack of mainstream
news coverage and a limited number of quotation sources.
Potential Adverse Effects of Market Overhang from Preferred Stock, Warrants
and Outstanding Options.
- ---------------------------------------------------------------------------
The Company has outstanding options and warrants exercisable to acquire
2,428,481 shares of Common Stock, 265,120 of which are subject to future
vesting. Included in the foregoing are 1,250,000 shares of Common Stock
reserved for issuance under the Company's Incentive Stock Option Plan of which
the Company has granted 1,005,785 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 Company's ESPP. Finally, the Company has
outstanding shares of Preferred Stock convertible into 2,155,152 shares of
Common Stock. To the extent that such stock options or warrants are exercised,
or the Preferred Stock converted, dilution to the interests of the Company's
stockholders will likely occur. Additional options and warrants may be issued
in the future at prices not less than 85% of the fair market value of the
underlying security on the date of grant. Exercise of these options or
warrants, or conversion of the Preferred Stock, or even the potential of their
exercise or conversion may have an adverse effect on the trading price and
market for the Common Stock. The holders of the Preferred Stock, options or
warrants are likely to convert or exercise them at times when the market price
of the Common Stock exceeds the conversion or exercise prices of the
securities. Accordingly, the issuance of shares of Common Stock upon exercise
of the options or warrants or conversion of the Preferred Stock will likely
result in dilution of the equity represented by the then outstanding shares of
Common Stock held by other stockholders. Holders of the Preferred Stock,
options or warrants can be expected to convert or 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."
Need for Current Prospectus and State Blue Sky Registrations.
- -------------------------------------------------------------
Holders of the Preferred Stock and/or Warrants will have the right to convert
the Preferred Stock or exercise the Warrants to acquire shares of Common Stock
only if there is a current and effective Registration Statement and Prospectus
covering the shares of Common Stock issuable upon their conversion or
exercise, and only if the shares are qualified for sale, or exempt from
qualification, under the securities laws of the applicable state or states.
While the Company has undertaken and plans to do so, maintaining a current
effective Registration Statement and Prospectus could result in substantial
expense to the Company, and there can be no assurance that a current
Registration Statement and Prospectus will be in effect when any of the
Preferred Stock is converted or the Warrants are attempted to be exercised.
Although the Company will seek to qualify for sale the shares of Common Stock
underlying the Preferred Stock and Warrants in those states in which the
securities are to be offered and qualification is required, no assurance can
be given that such qualification will occur. The Preferred Stock and Warrants
may be deprived of any value if a Prospectus covering the shares issuable upon
the conversion or exercise thereof is not kept effective and current, or if
such underlying shares are not, or cannot be, registered in the applicable
states. See "DESCRIPTION OF SECURITIES."
Potential Adverse Effect of Warrant Redemption.
- -----------------------------------------------
The Warrants may be redeemed by the Company at a price of $0.25 per Warrant
upon 30 days' notice, mailed after the closing bid price of the Common Stock
has equaled or exceeded $4.80 for a period of ten consecutive trading days.
Warrantholders shall have exercise rights until the close of the business day
preceding the date fixed for redemption. Redemption of the Warrants could
force the holders to exercise the Warrants and pay the Exercise Price at a
time when it may be disadvantageous for holders to do so, to sell the Warrants
at the then current market price when they might otherwise wish to hold the
Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. The Warrants may not be redeemed or exercised unless a
Registration Statement pursuant to the Securities Act covering the underlying
shares of Common Stock is current and such shares have been qualified for
sale, or there is an exemption from applicable qualification requirements,
under the securities laws of the state of residence of the holder of the
Warrant. See "DESCRIPTION OF SECURITIES."
Year 2000 Issue.
- ----------------
THE PROBLEM. The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
As a result, any of the Company's computer programs that have date sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000, which, in turn, could result in system failures or miscalculations
causing disruptions in the operations of the Company and its suppliers and
customers.
THE COMPANY'S STATE OF READINESS. The Company has instituted a Year 2000
Project. As part of the Company's Year 2000 Project, the Company has
completed its initial evaluation of current computer systems, software and
embedded technologies. The evaluation revealed that the Company's network
hardware and operating system, voice mail system, e-mail system, and
accounting and manufacturing software are the major resources that do have
Year 2000 compliance issues. These resources will need to be either replaced
or upgraded. Fortunately, the identified systems and/or programs are "off-
the-shelf" products with Year 2000 compliant versions now available. The
Company's network, e-mail system and accounting and manufacturing software are
scheduled for upgrade by the end of September, 1998. The Company's voice mail
system is scheduled to be replaced during the first quarter of 1999. All
other relevant programs, including Microsoft Windows95(-Registered Mark-)
operating system, are scheduled for upgrade by the end of December, 1998.
The Company has determined that there should be no Year 2000 Issues for
the products it has already sold, excluding issues associated with the
Microsoft Windows95(-Registered Mark-) operating system which is incorporated
into the Company's Workstation products. Customers who have purchased the
Company's Workstation products will be notified about Microsoft Windows95(-
Registered Mark-) and problems will be addressed as incurred.
As part of the Company's Year 2000 Project, the Company has also
contacted its significant suppliers and large customers to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their Year 2000 compliance issues. To date, approximately ten
percent (10%) of the entities contacted have responded, and of those
responding, half have indicated that they have remediated their Year 2000
compliance issues. The Company will continue to contact its significant
suppliers and large customers as part of its Year 2000 Project. However,
there can be no guarantee that the systems of other companies on which the
Company's business relies will be timely converted or that failure to convert
by another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company and its
operations.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Expenditures in
1997 for the Year 2000 Project amounted to less than $7,500.00. Management
expects that completion of its Year 2000 Project may result in additional
expenditures of approximately $35,000.00
THE RISKS ASSOCIATED WITH THE COMPANY'S YEAR 2000 ISSUES. The Company's
failure to resolve Year 2000 Issues on or before December 31, 1999 could
result in system failures or miscalculations causing disruption in operations,
including, among other things, a temporary inability to process transactions,
send invoices, send and/or receive e-mail and voice mail, or engage in similar
normal business activities. Additionally, failure of third parties upon whom
the Company's business relies to timely remediate their Year 2000 Issues could
result in disruptions in the Company's supply of parts and materials, late,
missed or unapplied payments, temporary disruptions in order processing and
other general problems related to the Company's daily operations. While the
Company believes its Year 2000 Project will adequately address the Company's
internal Year 2000 issues, until the company receives responses from a more
significant number of the Company's suppliers and customers, the overall risks
associated with the Year 2000 Issue remain difficult to accurately describe
and quantify, and there can be no guarantee that the Year 2000 Issue will not
have a material adverse effect on the Company and its operations.
THE COMPANY'S CONTINGENCY PLAN. The Company has not, to date,
implemented a Year 2000 Contingency Plan. It is the Company's goal to have
the major Year 2000 Issues resolved by the end of fiscal 1998, with the
exception of the Company's voice mail system which will be replaced during the
first quarter of fiscal 1999. As part of the Company's Year 2000 Project, the
Company plans to retain the services of an outside consultant to verify and
validate the Company's Year 2000 compliance. Final Year 2000 verification and
validation is scheduled to occur by the end of March, 1999. However, the
Company will develop and implement a contingency plan by the end of November,
1998, in the event the Company's Year 2000 Project should fall behind
schedule.
<PAGE>
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1998 was
$2,644,381 or approximately $.51 per share of Common Stock outstanding, based
upon 5,192,434 issued and outstanding shares of Common Stock, and without
giving effect to the conversion of 502,033 shares of Preferred Stock into
2,008,132 shares of Common Stock. 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).
If any outstanding shares of Preferred Stock are converted into shares of
Common Stock, the number of Common Shares outstanding will increase, however,
because no remuneration will be paid to the Company upon conversion, the
Company's net tangible book value will not increase. As a result, assuming
the conversion of all 502,033 shares of Preferred Stock into 2,008,132 shares
of Common Stock, the Company's net tangible book value per share at June 30,
1998, would decrease to approximately $.37 per share based upon a net tangible
book value of $2,644,381 and 7,200,566 issued and outstanding shares of Common
Stock following the conversion. On the other hand, if any outstanding
Warrants are exercised, of which there can be no assurance, the number of
Common Shares outstanding will increase and the Company's net tangible book
value will increase. The exercise of any Warrants at a time when the exercise
price is greater than the Company's net tangible book value per share will
result in an immediate increase in the net tangible book value of the
Company's existing shareholders, and the exercising Warrantholder will
experience immediate dilution in the value of his investment. Dilution is the
reduction of value of the purchaser's investment measured by the difference
between the Warrant Exercise Price and the net tangible book value per share
after the Offering, if the Warrants are exercised at a time when the Warrant
Exercise Price is greater than the net tangible book value per outstanding
share before the exercise. The dilution per share will decrease with the
exercise of each additional Warrant because the proceeds from each such
exercise will increase the Company's net tangible book value.
<PAGE>
<PAGE>
USE OF PROCEEDS
The 78,788 shares of Preferred Stock and 157,576 Warrants covered by this
Prospectus were issued by the Company to the Selling Securityholders in a
private transaction. The 661,818 shares of Common Stock covered by this
Prospectus consist of (i) 315,152 shares of Common Stock issuable upon
conversion of the Preferred Stock, (ii) 189,090 shares of Common Stock
issuable as a dividend on the Preferred Stock and (iii) 157,576 shares of
Common Stock issuable upon exercise of outstanding Warrants at a price of
$2.40 per share. (See "PLAN OF DISTRIBUTION.")
The Company will not receive any of the proceeds from the sale of
Preferred Stock, Dividend Stock and/or Warrants which may be sold by the
Selling Securityholders. If all of the 157,576 shares of Common Stock offered
hereby are purchased upon exercise of the Warrants, of which there can be no
assurance, then the Company will receive gross proceeds of up to $378,182.
The Company has agreed to pay all of the expenses incurred in connection with
the registration of securities covered by this Prospectus, estimated to be
$12,000. The Warrantholders and Selling Securityholders will not pay any of
the expenses which are expected to be incurred in connection with the
registration of the shares, but will pay all commissions, discounts and other
compensation to any securities broker-dealers through whom they sell any of
the shares.
The Company will utilize the net proceeds, if any, realized from the
exercise of the Warrants for working capital and for general corporate
purposes, at the discretion of management. Pending their use, proceeds will be
placed in short-term, interest-bearing investment grade securities,
certificates of deposit or direct or guaranteed obligations of the United
States of America.
Due to an inability to precisely forecast the number of Warrants which
may be exercised, the Company is unable to predict the precise period for
which the Warrant Stock Offering will provide financing. The Company's
working capital requirements are a function of its future sales growth and
potential business or product acquisition, neither of which can be predicted
with any reasonable degree of certainty. 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. (See "RISK FACTORS.")
<PAGE>
<PAGE>
DETERMINATION OF OFFERING PRICE
The Preferred Stock and Warrants were issued to the Selling
Securityholders in exchange for 200,000 shares of the Company's Common Stock
purchased by the Selling Securityholders in a private placement completed in
August, 1997 (the "August Private Placement"). The purchase price paid by the
Selling Securityholders in the August Private Placement was $3.25 per share of
Common Stock. Proceeds from the August Private Placement were used by the
Company to cover operating expenses in excess of cash flow generated from
operations.
In February, 1998, the Company completed a registered public offering of
460,000 Units, each Unit ("Unit") consisting of one share of the Company's
Series A Convertible Preferred Stock, convertible into four shares of Common
Stock, and two common stock purchase warrants (the "Unit Offering"). Each
Unit was sold at a price to the public of $8.25 per Unit. Subsequent to the
completion of the Unit Offering, and wishing to avail themselves of certain
perceived market benefits associated with the securities sold by the Company
in the Unit Offering, the Selling Securityholders requested that the Company
exchange the shares of Company Common Stock acquired by the Selling
Securityholders in the August Private Placement for 78,788 Units at an agreed
exchange value of $8.25 per Unit (the "Exchange"), which value is equal to the
Unit Offering price paid by the public in the Unit Offering. As part of the
Exchange, the Company agreed to register for sale, and to pay all of the
expenses incurred in connection with the registration of, the Preferred Stock,
Dividend Stock and Warrants acquired by the Selling Securityholders as part of
the Exchange.
Each share of Preferred Stock is convertible into four shares of Common
Stock (the "Conversion Ratio"). The Offering Price of the 157,576 shares of
Warrant Stock offered pursuant to the exercise of the Warrants is $2.40 per
share. The Conversion Ratio of the Preferred Stock and Exercise Price of the
Warrants was determined by negotiation between the Company and the Selling
Securityholders and bears no relationship to the market price of the Company's
Common Stock, the prevailing market conditions, operating results of the
Company in recent periods, the book value of the Company, or other recognized
criteria of value. The Selling Securityholders are accredited investors, and
the terms of the Exchange were the result of negotiation between the Company
and Selling Securityholders. The Units and price per Unit are identical to
the Units and offering price per Unit sold by the Company in a secondary
public offering underwritten by Paulson Investment Company, Inc. in February,
1998.
<PAGE>
<PAGE>
PLAN OF DISTRIBUTION
Selling Securityholders' Offering
- ---------------------------------
This Prospectus relates to the reoffer of 78,788 shares of Preferred
Stock and 157,576 Warrants currently owned by the Selling Securityholders, all
of which were acquired as part of Units in the Exchange.
The Selling Securityholders were granted certain demand and piggyback
registration rights with respect to the Preferred Stock and Warrants sold as
part of the Units.
The Company has been advised by the Selling Securityholders that they may
hold some of the shares of Preferred Stock and/or Warrants which they own or
shares of Common Stock which they may acquire pursuant to the exercise of the
Warrants and/or conversion of Preferred Stock for investment purposes.
However, the Selling Securityholders have not determined how many shares of
Common Stock, Preferred Stock and/or Warrants they will hold for investment
and how many shares or warrants they will sell. The Selling Securityholders
may distribute or resell the shares of Common Stock, Preferred Stock and/or
Warrants offered hereby to the public in the over-the-counter market at prices
and on terms prevailing on the date of sale in negotiated transactions or
otherwise. The Selling Securityholders also may pay customary brokerage
commissions on sales.
The shares of Common Stock, Preferred Stock and Warrants offered by the
Selling Securityholders are offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act.
Conversion Stock Offering
- -------------------------
Each share of Preferred Stock is convertible into four shares of Common
Stock, subject to adjustment under certain circumstances at any time at the
option of the Holder thereof. Each share of Preferred Stock shall
automatically convert into four shares of Common Stock upon the earlier of (a)
February 2, 2001 or (b) the date upon which the sum of closing bid prices of
the Preferred Stock and two Warrants has been at least $12.375 for at least
ten consecutive trading days. Dividends in the form of shares of the Company's
Common Stock will accrue on all outstanding shares of Preferred Stock at the
rate of four-tenths of one share of Common Stock every six months commencing
February 2, 1998. Such Common Stock dividends shall be issued and distributed
within 30 days following their accrual every six months. The Company intends
to maintain a current Prospectus until the shares of Preferred Stock are
converted into shares of Common Stock.
The shares of Common Stock to be issued upon conversion of the Preferred
Stock are offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act.
The Company is offering shares of Common Stock underlying the Preferred
Stock. No underwriter or placement agent has been engaged to assist the
Company in this regard and no commissions or similar compensation will be paid
to any person. Holders of the Preferred Stock may resell the shares offered
hereby from time to time in transactions (which may include block
transactions) in the over-the-counter market, in negotiated transactions,
through the writing of options on the Common Stock or a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. Holders of Preferred
Stock may effect such transactions by selling the Common Stock directly to
purchasers or through broker-dealers that may act as agents or principals.
Such broker-dealers may receive compensation in the form of discount,
concessions or commissions from the Preferred Stock holders and/or the
purchasers of the shares of Common Stock for whom such broker-dealers may act
as agents or to whom they sell as principals, or both (which compensation as
to a particular-broker dealer might be in excess of customary commissions).
Warrant Stock Offering
- ----------------------
The Warrants entitle the holders thereof to acquire up to 157,576 shares
of Common Stock at an Exercise Price of $2.40 per share. The Warrants are
exercisable until February 2, 2003, unless earlier redeemed. The Company may
redeem the outstanding Warrants, in whole or in part, at any time upon at
least 30 days' prior written notice to the registered holders thereof, at a
price of $.25 per Warrant, provided that (i) there is in effect a registration
statement registering for sale under the Securities Act the shares of Common
Stock issuable upon exercise of the Warrant; (ii) the closing bid price of the
Company's Common Stock has been at least $4.80 for the ten consecutive trading
days immediately preceding the date of such notice of redemption; and (iii)
the expiration of the 30 day notice period is within the Warrant Term. The
Company does not have the right to compel the exercise of any of the Warrants
and the Warrantholders have not committed to exercise any of the Warrants.
Accordingly, there can be no assurance of the number, if any, of shares that
will be purchased by the Warrantholders pursuant to the exercise of the
Warrants. The Company intends to maintain a current Prospectus until the
Warrants expire, or until they are all exercised, if earlier. The Company may
at any time and from time to time extend the Warrant Term or reduce the
Warrant Exercise Price, provided written notice of such extension or reduction
is given to the registered holders of the Warrants prior to the expiration
date then in effect.
The shares of Common Stock to be issued upon exercise of the Warrants are
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
The Company is offering shares of Common Stock underlying the Warrants.
No underwriter or placement agent has been engaged to assist the Company in
this regard and no commissions or similar compensation will be paid to any
person. The Warrantholders may resell the shares offered hereby from time to
time in transactions (which may include block transactions) in the over-the-
counter market, in negotiated transactions, through the writing of options on
the Common Stock or a combination of such methods of sale, at fixed prices
that may be changed, at market prices prevailing at the time of sale, or at
negotiated prices. The Warrantholders may effect such transactions by selling
the Common Stock directly to purchasers or through broker-dealers that may act
as agents or principals. Such broker-dealers may receive compensation in the
form of discount, concessions or commissions from the Warrantholders and/or
the purchasers of the shares of Common Stock for whom such broker-dealers may
act as agents or to whom they sell as principals, or both (which compensation
as to a particular broker-dealer might be in excess of customary commissions).
Dividend Stock Offering
- -----------------------
Dividends in the form of shares of the Company's Common Stock will accrue
on all outstanding shares of Preferred Stock at the rate of four-tenths of one
share of Common Stock every six months commencing February 2, 1998 ("Dividend
Stock"). Such Dividend Stock will be issued and distributed by the Company
within 30 days following their accrual every six months.
The Dividend Stock is being offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act.
The Company is offering the Dividend Stock. No underwriter or placement
agent has been engaged to assist the Company in this regard and no commissions
or similar compensation will be paid to any person. Holders of Dividend Stock
may resell the shares offered hereby from time to time in transactions (which
may include block transactions) in the over-the-counter market, in negotiated
transactions, through the writing of options on the Dividend Stock or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
holders of Dividend Stock may effect such transactions by selling the Dividend
Stock directly to purchasers or through broker-dealers that may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Divided Stock holders and/or
the purchasers of the shares of Dividend Stock for whom such broker-dealers
may act as agents or to whom they sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
compensation).
The Selling Securityholders, Warrantholders, holders of Preferred Stock,
and any broker-dealers that act in connection with the sale of the shares of
Common Stock as principals may be deemed to be "Underwriters" within the
meaning of Section 2(11) of the Securities Act and any commissions received by
them and any profit on the resale of the shares of Common Stock as principals
might be deemed to be underwriting discounts and commissions under the
Securities Act. The Selling Securityholders, Warrantholders and holders of
Preferred Stock may agree to indemnify any agent, dealer, or broker-dealer
that participates in transactions involving sales of the shares of Common
Stock against certain liabilities, including liabilities arising under the
Securities Act. The Company will not receive any proceeds from the resales of
shares of Common Stock by the Selling Securityholders, Warrantholders and
holders of Preferred Stock. Sales of the shares of Common Stock by the
Selling Securityholders, Warrantholders and holders of Preferred Stock or even
the potential of such sales, may have an adverse effect on the market price of
the Common Stock.
The Company has agreed to pay all expenses incurred in connection with
the registration of the shares offered hereby. The Selling Securityholders,
Warrantholders and holders of Preferred Stock shall be exclusively liable to
pay any and all commissions, discounts and other payments to broker-dealers
incurred in connection with their sale of the shares.
The Selling Securityholders have undertaken to the Company to comply with
Regulation M under the Exchange Act and in connection with any distribution of
the Company's securities. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities that may be incurred in connection
with this Offering, including certain liabilities under the Securities Act.
INDEMNIFICATION
The By-Laws of the Company provide for the indemnification of Officers
and Directors to the maximum extent allowable under Colorado law. Insofar as
the indemnification for liabilities arising under the Securities Act of 1933,
as amended, may be permitted to Directors, Officers or persons controlling the
Company pursuant to such provisions, the Company has been informed 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.
<PAGE>
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information regarding the Common
Stock held by the Selling Securityholders as of June 30, 1998. To the
knowledge of the Company, the Selling Securityholders have had no material
relationship with the Company within the past three years, other than as a
result of the ownership of the securities, except as is expressly noted. The
following information has been furnished to the Company by the person named:
<TABLE>
<CAPTION>
Beneficial Beneficial
Ownership Ownership
Prior to Shares After
Offering To Be Offering (5)
Name Shares % (1) Sold (5) Shares %
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard S. Hall (2) 471,664 8.93% 236,364 235,300 4.45%
280 Estrellita Drive
Ft. Myers Beach, FL
Richard S. Hall, Jr. (3) 213,182 4.13% 118,182 95,000 1.84%
12 Suffolk Street
Fairport, NY 14450
William R. Hall (4) 226,182 4.38% 118,182 108,000 2.09%
12 Suffolk Street
Fairport, NY 14450
- ---------------------------
</TABLE>
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of the date of this Prospectus, or
within sixty (60) days of such date, are treated as outstanding when
determining the percent of the class owned by such individual.
(2) Includes 222,500 shares of Common Stock owned by Mr. Hall individually
and/or by the R.S. Hall IRA; 1,000 shares of Common Stock owned by the
Hall Grantor Retained Annuity Trust and 6,000 shares of Common Stock
owned by the R.S. Hall Gift Trust, both of which 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 and the Board of Trustees and supervises
investment decisions; and 1,000 shares of Common Stock owned by the Hall
Scholarship Trust which was created and is supervised by Mr. Hall. Also
includes 157,576 shares of Common Stock issuable upon conversion of
39,394 shares of Series A Convertible Preferred Stock, and 78,788 shares
of Common Stock issuable upon exercise of Common Stock Purchase Warrants
held of record by Mr. Hall. 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 the Hall Scholarship Trust, and the
Wildwood Foundation, Inc. for purposes of Section 16 of the Exchange Act.
(3) Includes 95,000 shares of Common Stock owned by Richard S. Hall, Jr.
Also includes 78,788 shares of Common Stock issuable upon conversion of
19,697 shares of Series A Convertible Preferred Stock, and 39,394 shares
of Common Stock issuable upon exercise of Common Stock Purchase Warrants
held of record by Richard S. Hall, Jr.
(4) Includes 108,000 shares of Common Stock owned by William R. Hall. Also
includes 78,788 shares of Common Stock issuable upon conversion of 19,697
shares of Series A Convertible Preferred Stock, and 39,394 shares of
Common Stock issuable upon exercise of Common Stock Purchase Warrants
held of record by William R. Hall.
(5) Assuming (i) the conversion of all shares of Preferred Stock into Common
Stock and (ii) the exercise of all Warrants to purchase shares of Common
Stock and (iii) the resale of all shares of Conversion Stock and Warrant
Stock so acquired, of which there can be no assurance.<PAGE>
<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 June 30, 1998, 5,192,434 shares of Common Stock and 502,033 shares of
Preferred Stock were issued and outstanding, and there were 170 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, other than the Series A Convertible Preferred Stock described
below, or to designate any other 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.
Series A Convertible Preferred Stock
- ------------------------------------
The Company has authorized the issuance of up to 578,788 shares of
Series A Convertible Preferred Stock (the "Preferred Stock"). The relative
rights and preferences of holders of shares of Preferred Stock are controlled
by a Certificate of Designation of Rights and Preferences of Series A
Convertible Preferred Stock (the "Certificate"), a copy of which was filed
with the Commission as an Exhibit to the Company's Registration Statement on
Form SB-2 which was declared effective by the Commission on February 2, 1998.
The following is a brief summary of the provisions of the Certificate, does
not purport to be a complete statement of all of the relative rights and
preferences of holders of Preferred Stock and is qualified in its entirety by
reference to the Certificate.
Holders of outstanding shares of Preferred Stock have an option to
convert each share of Preferred Stock into four shares of the Company's Common
Stock (the "Conversion Stock") (the "Conversion Ratio"). The Conversion Ratio
is subject to certain anti-dilution adjustments, including adjustments in the
event of stock splits, dividends, reclassifications and the like. In addition,
the shares of Preferred Stock will convert, automatically, into shares of the
Company's Common Stock, upon the earlier of (i) February 2, 2001 or (ii) the
date upon which the sum of the closing bid prices of the Preferred Stock and
two Warrants equals or exceeds $12.375 for ten consecutive trading days.
Dividends payable exclusively in the form of shares of the Company's
Common Stock shall accrue on all outstanding shares of Preferred Stock at the
rate of four-tenths of one share of Common Stock every six months, commencing
February 2, 1998. Such dividends shall be rounded down to the nearest whole
share of Common Stock. By way of example, the Selling Securityholders, who
collectively own 78,788 shares of Preferred Stock, would receive 31,515
(78,788 x 0.40 = 31,515.20, rounded down to the nearest whole share of Common
Stock = 31,515) shares of Common Stock every six months. Such dividend shall
be issued and distributed within 30 days of accrual every six months. Other
than the dividend payable in the form of Common Stock, holders of Preferred
Stock are not entitled to receive payment of any additional dividends on the
Preferred Stock, but rather are entitled to participate pro rata in dividends
paid on outstanding shares of Common Stock when and if declared and paid by
the Company.
Holders of the Preferred Stock are not entitled to vote on any matters
presented to the Company's shareholders, except as required by law and as
provided to approve certain future actions. Further, the Preferred Stock is
not redeemable by the Company and holders of Preferred Stock have no right to
compel the redemption by the Company of any shares of the Preferred Stock.
Upon liquidation, dissolution, or winding up of the Company, holders of
Preferred Stock shall be entitled to receive, pro rata, cash or assets of the
Company which are legally available for distribution to shareholders equal to
$8.25 per share of Preferred Stock prior to any distributions to the common
stockholders. The issued and outstanding shares of Preferred Stock shall be,
when subscribed and paid for as provided for herein, validly issued, fully
paid and non-assessable.
Warrants
- --------
The Company has authorized the issuance of up to 1,077,576 Warrants. Each
Warrant entitles the holder thereof to purchase one share of Common Stock at a
price of $2.40. The Warrant Exercise Price is subject to adjustment upon
certain events such as stock splits, stock dividends and similar transactions.
The Warrants are subject to redemption by the Company, as described below. The
exercise period for the Warrants expires at 5:00 p.m., Mountain time on
February 2, 2003 (the "Warrant Term"). The Company may at any time and from
time to time extend the Warrant Term or reduce the Warrant Exercise Price,
provided written notice of such extension or reduction is given to the
registered holders of the Warrants prior to the expiration date then in
effect. The Company does not presently contemplate any extension of the
Warrant Term or reduction in the Warrant Exercise Price.
Subject to compliance with applicable securities laws, Warrants
certificates may be transferred or exchanged for new certificates of different
denominations at the offices of the Warrant Agent described below. The holders
of Warrants, as such, are not entitled to vote, to receive dividends or to
exercise any of the rights of shareholders for any purpose.
EXERCISE. The Warrants may be exercised during the Warrant Term only upon
surrender of the Warrant certificate at the offices of the Company with the
form of "Election to Purchase" on the reverse side of the Warrant certificate
completed and signed, accompanied by payment of the full Exercise Price for
the number of Warrants being exercised. Warrantholders will receive one share
of Common Stock for each Warrant exercised, subject to any adjustment required
by the Warrant Agreement. For a holder to exercise Warrants, there must be a
current Registration Statement in effect with the Commission and various state
securities authorities registering the shares of Common Stock underlying the
Warrants or, in the sole determination of the Company and its counsel, there
must be a valid exemption therefrom. The Company has undertaken, and intends,
to maintain a current Registration Statement which will permit the exercise of
the Warrants during the Warrant Term. Maintaining a current effective
Registration Statement could result in substantial expense to the Company and
there is no assurance that the Company will be able to maintain a current
Registration Statement covering the shares issuable upon exercise of the
Warrants. Holders of Warrants will have the right to exercise the Warrants
included therein for the purchase of shares of Common Stock only if a
Registration Statement is then in effect and only if the shares are qualified
for sale under securities laws of the state in which the exercising
warrantholder resides or if the Company, in its and its counsel's sole
discretion, is able to obtain valid exemptions from the foregoing
requirements. Although the Company believes that it will be able to register
or qualify the shares of Common Stock underlying the Warrants for sales in
those states where the securities are offered, there can be no guarantee that
such registration or qualification, or an exemption therefrom, can be
accomplished without undue hardship or expense to the Company. The Warrants
may be deprived of any value if a Registration Statement covering the shares
issuable upon exercise thereof or an exemption therefrom cannot be filed or
obtained without undue expense or hardship or if such underlying shares are
not registered or exempted from such registration in the states in which the
holder of a Warrant resides. In the latter event, the only option available to
a holder of a Warrant may be to attempt to sell his or her Warrants into the
market, if a market then exists and only then in compliance with applicable
securities laws and restrictions on transfer.
REDEMPTION. The Company shall have the right, at its discretion, to call all
or less than all of the Warrants for redemption on 30 days' prior written
notice at a redemption price of $.25 per Warrant if: (i) the closing bid price
of the Company's Common Stock exceeds $4.80 per share for at least ten
consecutive trading days; (ii) the Company has in effect a current
Registration Statement covering the Common Stock issuable upon exercise of the
Warrants; and (iii) the expiration of the 30 day notice period is within the
Warrant Term. If the Company elects to exercise its redemption right, holders
of Warrants may either exercise their Warrants, sell such Warrants in the
market until the date next preceding the date fixed for redemption, or tender
their Warrants to the Company for redemption. Within five business days after
the end of the 30 day period, the Company will mail a redemption check to each
registered holder of a Warrant who holds unexercised Warrants as of the end of
the 30 day period, whether or not such holder has surrendered the Warrant
certificates for redemption. The Warrants may not be exercised after the end
of such 30 day period.
Placement Agent's Warrant
- -------------------------
In connection with a private placement undertaken by the Company in 1995,
the Company issued to Paulson Investment Company, Inc., 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.
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.
<PAGE>
<PAGE>
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed on for the
Company by Neuman, Drennen & Stone, LLC, Temple-Bowron House, 1507 Pine
Street, Boulder, Colorado 80302. Clifford L. Neuman, a partner in the firm of
Neuman, Drennen & Stone, LLC, is the beneficial owner of 3,100 shares of the
Company's Common Stock.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for the years then ended, have been incorporated by
reference herein in reliance upon the report of KPMG Peat Marwick LLP,
Independent Certified Public Accountants, incorporated by reference herein and
upon the authority of said firm as experts in accounting and auditing.
<PAGE>
<PAGE>
- ------------------------------------ -----------------------------------
No person is authorized to give any
information or to make any
representation other than those
contained in this Prospectus, and
if made such information or
representation must not be relied CELL ROBOTICS
upon as having been given or INTERNATIONAL, INC.
authorized. This Prospectus does
not constitute an offer to sell or
a solicitation of an offer to buy 78,788 Shares of
any securities other than the Preferred Stock
Securities offered by this
Prospectus or an offer to sell or 157,576 Common Stock
a solicitation of an offer to buy Purchase Warrants
the Securities in any jurisdiction
to any person to whom it is
unlawful to make such offer or 661,818 Shares of
solicitation in such jurisdiction. Common Stock
The delivery of this Prospectus
shall not, under any circumstances,
create any implication that there
has been no change in the affairs
of the Company since the date of
this Prospectus. However, in the
event of a material change, this
Prospectus will be amended or
supplemented accordingly.
TABLE OF CONTENTS
Available information..............3
Incorporation by Reference.........4
The Company........................5
Risk Factors.......................6
Dilution..........................11 --------------------------
Use of Proceeds...................13 PROSPECTUS
Determination of the Offering --------------------------
Price...........................13
Plan of Distribution..............14
Indemnification...................14
Selling Securityholders...........14
Description of Securities.........15 _____________, 1998
Legal Matters.....................16
Experts...........................16
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
--------------------------------------------
The estimated expenses of the offering, all of which are to be
borne by the Company, are as follows:
SEC Filing Fee $ 613.12
Printing Expenses* 500.00
Accounting Fees and Expenses* 3,500.00
Legal Fees and Expenses* 5,500.00
Blue Sky Fees and Expenses* 1,200.00
Registrar and Transfer Agent Fee 500.00
Miscellaneous* 186.88
------------
Total* $ 12,000.00
- ----------------------
* Estimated
Item 15. 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:
a. Sections 7-109-101 through 7-109-110 of the Colorado
Corporation Code provide for the indemnification of a corporation's officers
and directors under certain circumstances.
* * *
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, 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."
d. The Company currently pays for and maintains an insurance
policy in the amount of $1,000,000 that covers directors' and officers'
liability.
Item 16. Exhibits.
---------
a. The following Exhibits are filed as part of this
Registration Statement pursuant to Item 601 of Regulation SB:
Exhibit No.Title
- -------------
* 4.1 Form of Preferred Stock Certificate
* 4.2 Form of Warrant Certificate
5.1 Opinion of Neuman, Drennen & Stone, LLC
10.1 Patent License Agreement between American Telephone and
Telegraph Company and Cell Robotics, Inc.
10.2 Amendment to AT&T Patent License Agreement
10.3 Manufacturing Agreement between Big Sky Laser
Technologies, Inc. and Cell Robotics International,
Inc. dated May 20, 1998.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Neuman, Drennen & Stone, LLC
- ------------------------
* Incorporated by reference from the Company's Registration Statement
on Form SB-2, SEC File No. 333-40895, declared effective by the
Commission on February 2, 1998.
Item 17. Undertakings.
-------------
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel that the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in
the information set forth in the registration
statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed
in the registration statement or any material
change to such information in the registration
statement.
2. That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
4. To provide, upon effectiveness, certificates in such
denominations and registered in such names as are required to permit prompt
delivery to each purchaser.
The undersigned registrant hereby undertakes to deliver or to
cause to be delivered with the Prospectus to each person to whom the
prospectus is sent or given the latest annual report to Securityholders that
is incorporated by reference in the Prospectus and furnish pursuant to and
meeting the requirements of Rule 14a-3 or 14c-3 under the Securities Exchange
Act of 1934; and where interim financial information required to be presented
by Article 3 of Regulation S-B are not set forth in the Prospectus, to deliver
or cause to be delivered to each person to whom the Prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the Prospectus to provide such interim financial information.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 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 8th
day of September, 1998.
CELL ROBOTICS INTERNATIONAL, INC., a Colorado
corporation
By: /s/ Ronald K. Lohrding, Ph.D.
-------------------------------------------
Ronald K. Lohrding, Ph.D., President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities with Cell Robotics International, Inc. and on the dates indicated.
Signature Title Date
---------- ------ ------
/s/ Ronald K. Lohrding, Ph.D. Chairman of the Board 9/8/98
------------------------------ President, Chief ---------
Ronald K. Lohrding, Ph.D. Executive Officer
/s/ Jean M. Scharf Chief Financial Officer, 9/8/98
------------------------------ Chief Accounting ---------
Jean M. Scharf Officer and Controller
/s/ Craig T. Rogers Director 9/8/98
------------------------------ ---------
Craig T. Rogers
/s/ Mark Waller Director 9/8/98
------------------------------ ---------
Mark Waller
/s/ Raymond Radosevich Director 9/8/98
------------------------------ ---------
Raymond Radosevich
/s/ Debra Bryant Director 9/8/98
------------------------------ ---------
Debra Bryant
September 8, 1998
Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
Re: Pre-Effective Amendment No. 1 to Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Cell Robotics International, Inc. (the
"Company") in connection with Pre-Effective Amendment No. 1 to Registration
Statement on Form S-3 (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 (i) 78,788 shares of Series A Convertible Preferred Stock
("Preferred Stock"); (ii) 157,576 Common Stock Purchase Warrants ("Warrants");
and (iii) an aggregate of 661,818 shares of Common Stock, $.004 par value
("Common Stock"), issuable as a dividend on the Preferred Stock, upon
conversion of the Preferred Stock and upon exercise of the Warrants, as
proposed and more fully described in such Amended Registration Statement. 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 78,788 shares of Preferred Stock and 157,576 Warrants of the
Company are lawfully and validly issued, fully paid and non-assessable
securities of the Company.
4. The 661,818 shares of the Company's Common Stock issuable (i) as a
dividend on the Preferred Stock from time to time, (ii) upon conversion of the
Preferred Stock and (iii) upon exercise of the Warrants shall, upon the valid
conversion of the Preferred Stock or exercise of the 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,
Nathan L. Stone
NLS/
<PAGE>
PATENT LICENSE AGREEMENT
between
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
and
CELL ROBOTICS, INC.
Effective as of April 1, 1994
Relating to Optical Traps
<PAGE>
<PAGE>
PATENT LICENSE AGREEMENT
TABLE OF CONTENTS
ARTICLE I - GRANTS OF LICENSES
1.01 Grant
1.02 Duration
1.03 Scope
1.04 Ability to Provide Licenses
1.05 Publicity
1.06 Infringement Actions
ARTICLE II - ROYALTY AND PAYMENTS
2.01 Royalty Calculation
2.02 Accrual
2.03 Exclusions
2.04 Records and Adjustments
2.05 Reports and Payments
ARTICLE III - TERMINATION
3.01 Breach
3.02 Voluntary Termination
3.03 Survival
ARTICLE IV - MISCELLANEOUS PROVISIONS
4.01 Disclaimer
4.02 Nonassignability
4.03 Addresses
4.04 Taxes
4.05 Choice of Law
4.06 Integration
4.07 Outside the United States
4.08 Dispute Resolution
4.09 Prior Agreement Superseded
DEFINITIONS APPENDIX
<PAGE>
<PAGE>
PATENT LICENSE AGREEMENT
Effective as of April 1, 1994, AMERICAN TELEPHONE AND TELEGRAPH COMPANY, a New
York corporation ("AT&T"), having an office at 32 Avenue of the Americas, New
York, New York 10013, and CELL ROBOTICS, INC., a New Mexico corporation (the
"Corporation"), having an office at 2715 Broadbent Parkway, NE, Albuquerque,
New Mexico 87107, agree as follows:<F1>
ARTICLE I
GRANTS OF LICENSES
1.01 Grant
- ----------
(a) AT&T grants to the CORPORATION under AT&T's PATENT personal and
nontransferable licenses to make, have made, use, lease, sell and import
products of the following kind:
OPTICAL TRAPS
(b) The CORPORATION grants to AT&T personal, non-exclusive, royalty-free
licenses under any and all patents which claim or are otherwise directed to an
invention made by any of the CORPORATION's employees or representatives, which
inventions are related to, or which are an improvement of, the invention
described in AT&T's PATENT.
(c) The licenses granted to the CORPORATION pursuant to Section1.01(a) shall
be exclusive, subject to (i) licenses previously granted to third parties, and
(ii) a license reserved by AT&T for AT&T's and its SUBSIDIARIES own
activities.
1.02 Duration
- -------------
All licenses granted herein under any patent shall continue for the entire
unexpired term of such patent.
1.03 Scope
- ----------
(a) Licenses granted herein are not to be construed either (i) as consent by
either party to any act which may be performed by the other, except to the
extent impacted by a patent licensed herein to that other party, or
- ----------------------
<F1> Any term in capital letter which is defined in the General Definitions
Appendix shall have the meaning specified therein.
<PAGE>
<PAGE>
(ii) to include licenses to contributorily infringe or induce infringement
under U.S. law or a foreign equivalent thereof.
(b) The grant of each license to a party hereunder includes the right of such
party to grant sublicenses within the scope of such license to that party's
SUBSIDIARIES for so long as they remain its SUBSIDIARIES. Any such sublicense
may be made effective retroactively, but not prior to the effective date
hereof, nor prior to the sublicensee's becoming a SUBSIDIARY of the party.
1.04 Ability to Provide Licenses
- --------------------------------
AT&T's failure to meet any obligation hereunder, due to the assignment of
title to any invention or patent, or the granting of any licenses, to the
United States Government or any agency or designee thereof pursuant to a
statute or regulation of, or contract with, such Government or agency, shall
not constitute a breach of this agreement.
1.05 Publicity
- --------------
Nothing in this agreement shall be construed as conferring upon the
CORPORATION or its SUBSIDIARIES any right to include in advertising, packaging
or other commercial activities related to a LICENSED PRODUCT, any reference to
AT&T (or any of its SUBSIDIARIES), its trade names, trademarks or service
marks in a manner which would be likely to cause confusion or to indicate that
such LICENSED PRODUCT is in any way certified by AT&T or its SUBSIDIARIES.
1.06 Infringement Actions
- -------------------------
For as long as the CORPORATION retains an exclusive license pursuant to
Section 1.01(c) of this agreement, the CORPORATION shall have the exclusive
right to bring any legal action against any third party, not licensed by AT&T
prior to the effective date hereof, for infringement of AT&T's PATENT;
provided, however, that the CORPORATION agrees to pay, or to reimburse AT&T,
all costs and expenses of AT&T relating to or resulting from any such legal
action, whether or not AT&T is joined as party thereto.
ARTICLE II
ROYALTY AND PAYMENTS
2.01 Royalty Calculation
- ------------------------
(a) Subject to Section 2.01(b) and Section 2.01(c), royalty shall be payable
to AT&T at the rate of five percent (5%) on each REPORTABLE PRODUCT which is
sold, leased or put into use by the CORPORATION, or any of its SUBSIDIARIES.
Such royalty rate shall be applied, except as otherwise provided in this
Article II, to the FAIR MARKET VALUE of such REPORTABLE PRODUCT.
(b) Notwithstanding Section 2.01(a), the following minimum amounts shall be
payable for the twelve (12) month period beginning on April 1st of each of the
years specified:
1994 - $ 25,000.00 2005 - $ 500,000.00
1995 - $ 50,000.00 2006 - $ 500,000.00
1996 - $ 100,000.00 2007 - $ 500,000.00
1997 - $ 150,000.00 2008 - $ 250,000.00 <F2>
1998 - $ 200,000.00 2009 - $ 250,000.00
1999 - $ 250,000.00 2010 - $ 250,000.00
2000 - $ 300,000.00 2011 - $ 250,000.00
2001 - $ 350,000.00 2012 - $ 250,000.00
2002 - $ 400,000.00 2013 - $ 250,000.00
2003 - $ 450,000.00 2014 - $ 125,000.00
2004 - $ 500,000.00 2015 - $ 125,000.00 <F3>
(c) In the event that the royalty payable for any year specified in Section
2.01(b), as calculated in accordance with Section 2.01(a), reaches three (3)
times the minimum amount specified in Section 2.01(b) for such year ("the
First Reduction Level"), then the royalty rate applicable pursuant to Section
2.01(a) to the FAIR MARKET VALUE of additional REPORTABLE PRODUCTS sold,
leased or put into use during such year, after achievement of the First
Reduction Level for such year, shall be reduced to four and one-half percent
(4.5%).
(d) In the event that the royalty payable for any year specified in Section
2.01(b), as calculated in accordance with Section 2.01(a), reaches five (5)
times the minimum amount specified in Section 2.01(b) for such year ("the
Second Reduction Level"), then the royalty rate applicable pursuant to Section
2.01(a) to the FAIR MARKET VALUE of additional REPORTABLE PRODUCTS sold,
leased or put into use during such year, after achievement of the Section
Reduction Level for such year, shall be further reduced to four percent (4%).
- ----------------------
<F2> Based on premise that corresponding patents will be in force in Japan and
Europe.
<F3> Based on premise that European patents expire this year. Otherwise,
schedule will be adjusted to reflect actual year of expiration of the
patents, using corresponding rates.
<PAGE>
<PAGE>
2.01 Accrual
- ------------
(a) Royalty shall accrue on any LICENSED PRODUCT upon its first becoming a
REPORTABLE PRODUCT and shall become payable upon the first sale, lease or
putting into use of such REPORTABLE PRODUCT. (Rebuilding or enlarging any
product shall be deemed to be a first putting into use of such product).
Obligations to pay accrued royalties shall survive termination of licenses and
rights pursuant to Article III and the expiration of any payment.
(b) When a company ceases to be a SUBSIDIARY of the CORPORATION, royalties
which have accrued with respect to any products of such company, but which
have not been paid, shall become payable with the CORPORATION's next scheduled
royalty payment.
(c) Notwithstanding any other provisions hereunder, royalty shall accrue and
be payable only to the extent that enforcement of the CORPORATION's obligation
to pay such royalty would not be prohibited by applicable law.
2.03 Exclusions
- ---------------
A LICENSED PRODUCTS, which is a REPORTABLE PRODUCT on account of AT&T's
PATENT, may be treated by the CORPORATION as not licensed an not subject to
royalty with respect to sales of such LICENSED PRODUCT if the purchaser is
licensed under the same patent to have said LICENSED PRODUCT made and/or
imported, and the purchaser advises the CORPORATION, in writing at or prior to
the time of such sale, that it is exercising its own license under such patent
with respect to such manufacture and/or importation.
2.04 Records and Adjustments
- ----------------------------
(a) The CORPORATION shall keep full, clear and accurate records with respect
to all REPORTABLE PRODUCTS and shall furnish any information which AT&T may
reasonably prescribe from time to time to enable AT&T to ascertain the proper
royalty due hereunder on account of products sold, leased and put into use by
the CORPORATION or any of its SUBSIDIARIES. AT&T shall have the right through
its accredited auditors to make an examination, during normal business hours,
of all records and accounts bearing upon the amount of royalty payable to it
hereunder. Prompt adjustment shall be made to compensate for any errors or
omissions disclosed by such examination.
(b) Independent of any such examination, AT&T will credit to the CORPORATION
the amount of any overpayment of royalties made in error which is identified
an fully explained in a written notice to AT&T delivered within eighteen (18)
months after the due date of the payments which included such alleged
overpayment, provided that AT&T is able to verify, to its own satisfaction ,
the existence and extent of the overpayment.
(c) No refund, credit or other adjustment of royalty payments shall be made
by AT&T except as provided in this Section 2.04. Rights conferred by this
Section 2.04 shall not be affected by any statement appearing on any check or
other document, except to the extent that any such right may be expressly
waived or surrendered by a party having such right and signing such statement.
2.05 Reports and Payments
- -------------------------
(a) Within sixty (60) days after the end of each semiannual period ending on
April 30th or October 31st, commencing with the semiannual period ending on
October 31, 1994, the CORPORATION shall furnish to AT&T at the address
specified in Section 4.03 a statement certified by a responsible official of
the CORPORATION showing in a manner acceptable to AT&T:
(i) all REPORTABLE PRODUCTS which were sold, leased or put into use
during such semiannual period, (ii) the FAIR MARKET VALUES of such
REPORTABLE PRODUCTS, (iii) the amount of royalty payable thereon without
regard to the minimum payment amounts specified in Section 2.01(b), and
(iv) all exclusions from royalty pursuant to Section 2.03.
If no REPORTABLE PRODUCT has been so sold, leased or put into use, the
statement shall show that fact.
(b) Within such sixty (60) days the CORPORATION shall pay in United States
dollars to AT&T at the address specified in Section 4.03 either (i) the
royalties payable in accordance with such statement or (ii) one half of the
minimum amount specified in Section 2.01(b) for the year of such semiannual
period, whichever is greater provided, however, that the payment to be made
for the second semiannual period of each such year may be adjusted such that
the total payment for the year is no greater than the minimum amount for the
year if the royalty payable for the year pursuant to Section 2.01(a) does not
exceed such minimum amount. Any conversion to United States dollars shall be
at the prevailing rate for bank cable transfers as quoted for the last day of
such semiannual period by leading United States banks in New York City dealing
in the foreign exchange market.
(c) Overdue payments hereunder shall be subject to a late payment charge
calculated at an annual rate of three percent (3%) over the prime rate or
successive prime rates (as posted in New York City) during delinquency. If
the amount of such charge exceeds the maximum permitted by law, such charge
shall be reduced to such maximum.
ARTICLE III
TERMINATION
3.01 Breach
- -----------
(a) In the event of a breach of this agreement by the CORPORATION, AT&T may,
in addition to any other remedies that it may have, at any time terminate all
licenses and rights granted by it hereunder by not less than two (2) months'
written notice specifying such breach, unless within the period of such notice
all breaches specified therein shall have been remedied.
(b) In the event that, during any year specified in Section 2.01(b), the
CORPORATION shall pay to AT&T less than the minimum amount specified in
Section 2.01(b), but not less than twenty-five (25%) of such minimum amount,
the failure to pay such minimum amount shall not be considered a breach of
this agreement. However, upon the occurrence of such event:
(i) the licenses granted to the CORPORATION pursuant to Section 1.01(b)
shall, notwithstanding Section 1.01(c), immediately become
nonexclusive, and the CORPORATION shall lose any and all right
thereafter to bring any legal action for any infringement of AT&T's
PATENT; and
(ii) each remaining minimum amount specified in Section 2.01(b) shall
thereupon be reduced to twenty-five (25%) thereof.
3.02 Voluntary Termination
- --------------------------
By written notice to AT&T, the CORPORATION may voluntarily terminate all or a
specified portion of the licenses and rights granted to it hereunder. Such
notice shall specify the effective date (not more than six (6) months prior to
the giving of said notice) of such termination and shall clearly specify any
affected invention or product.
3.03 Survival
- -------------
Any termination of licenses and rights of the CORPORATION under the provisions
of this Article III shall not affect the CORPORATION's licenses rights and
obligation with respect to any LICENSED PRODUCT made prior to such
termination.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.01 Disclaimer
- ---------------
Neither AT&T nor any of its SUBSIDIARIES makes any representations, extends
any warranties of any kind, assumes any responsibility or obligations
whatever, or confers any right by implication, estoppel or otherwise, other
than the licenses an rights herein expressly granted.
4.02 Nonassignability
- ---------------------
(a) AT&T has entered into this agreement in contemplation of personal
performance by the CORPORATION and it is AT&T's intention that a transfer of
the CORPORATION's licenses or rights not occur without AT&T's express written
consent.
(b) Neither this agreement nor any licenses or rights hereunder, in whole or
in part, shall be assignable or transferable by the CORPORATION (by operation
of law or otherwise) without AT&T's express written consent.
(c) Any purported assignment or transfer of this agreement or licenses or
rights hereunder by the CORPORATION without AT&T's necessary consent shall be
void (without affecting any other licenses or rights hereunder).
(d) AT&T shall not unreasonably withhold its written consent to any such
assignment.
4.03 Address
- ------------
(a) Any notice or other communication hereunder shall be sufficiently given
to the CORPORATION when sent by certified mail addressed to President, Cell
Robotics, Inc., 2715 Broadbent Parkway, NE, Albuquerque, New Mexico 87107, or
to AT&T when sent by certified mail addressed to Contract Administrator,
Intellectual Property, 10 Independence Boulevard, P.O. Box 4911, Warren, New
Jersey 07059-6799. Changes in such addresses may be specified by written
notice.
(b) Payments by the CORPORATION shall be made to AT&T at the address
specified in this section. Alternatively, payments to AT&T may be made by
bank wire transfers to AT&T's accounts: AT&T Licensing, Account No. 910-2-
568475, at Chase Manhattan Bank, N.A., 4 Chase Metrotech Center, Brooklyn, New
York 11245, United States of America. Changes in such address or account may
be specified by written notice.
4.04 Taxes
- ----------
The CORPORATION shall pay any tax, duty, levy, customs fee, or similar charge
("taxes"), including interest and penalties thereon, however designated,
imposed as a result of the operation or existence of this agreement, including
taxes which the CORPORATION is required to withhold or deduct from payments to
AT&T, except (i) net income taxes imposed upon AT&T by any governmental entity
within the United States (the fifty (50) states and the District of Columbia),
and (ii) net income taxes imposed upon AT&T by jurisdictions outside the
United States which are allowable as a credit against the United States
Federal income tax of AT&T or any of its SUBSIDIARIES. In order for the
exception in (ii) to be effective, the CORPORATION must furnish AT&T any
evidence required by the United States taxing authorities to establish that
such taxes have been paid.
4.05 Choice of Law
- ------------------
The parties are familiar with the principles of New York commercial law, and
desire and agree that the law of the State of New York shall apply in any
dispute arising with respect to this agreement.
4.06 Integration
- ----------------
This agreement (including the General Definitions Appendix) sets forth the
entire agreement and understanding between the parties as to the subject
matter hereof and merges all prior discussions between them. Neither of the
parties shall be bound by any warranties, understandings or representations
with respect to such subject matter other than as expressly provided herein or
in a writing signed with or subsequent to execution hereof by an authorized
representative of the party to be bound thereby.
4.07 Outside The United States
- ------------------------------
(a) There may be countries in which the CORPORATION may have, as a
consequence of this agreement, rights against infringers of AT&T's PATENT.
The CORPORATION hereby waives any such right it may have by reason of any
third party's infringement or alleged infringement of such patent.
(b) The CORPORATION hereby agrees to register or cause to be registered, to
the extent required by applicable law, and without expense to AT&T or any of
its SUBSIDIARIES, any agreements wherein sublicenses are granted by it under
AT&T's PATENT. The CORPORATION hereby waives any and all claims or defenses,
arising by virtue of the absence of such registration, that might otherwise
limit or affect its obligations to AT&T.
4.08 Dispute Resolution
- -----------------------
(a) If a dispute arises out of or relates to this agreement, or the breach,
termination or validity thereof, the parties agree to submit the dispute to a
sole mediator selected by the parties or, at any time at the option of a
party, to mediation by the American Arbitration Association ("AAA"). If not
thus resolved, it shall be referred to a sole arbitrator selected by the
parties within thirty (30) days of the mediation, or in the absence of such
selection, to AAA arbitration which shall be governed by the United States
Arbitration Act.
(b) Any award made (i) shall be a bare award limited to a holding for or
against a party and affording such remedy as is deemed equitable, just and
within the scope of the agreement; (ii) shall be without findings as to issues
(including but not limited to patent validity and/or infringement) or a
statement of the reasoning on which the award rests; (iii) may in appropriate
circumstances (other than patent disputes) include injunctive relief; (iv)
shall be made within four (4) months of the appointment of the arbitrator; and
(v) may be entered in any court.
(c) The requirement for mediation and arbitration shall not be deemed a
waiver of any right of termination under this agreement and the arbitrator is
not empowered to act or make any award other than based solely on the rights
and obligations of the parties prior to any such termination.
(d) The arbitrator shall determine issues of arbitrability but may not limit,
expand or otherwise modify the terms of the agreement.
(e) The agreement shall be interpreted in accordance with the laws of the
State of New York exclusive of its conflict of laws provisions and the place
of mediation and arbitration shall be New York City.
(f) Each party shall bear its own expenses but those related to the
compensation and expenses of the mediator and arbitrator shall be borne
equally.
(g) A request by a party to a court for interim measures shall not be deemed
a waiver of the obligation to mediate and arbitrate.
(h) The arbitrator shall not have authority to award punitive or other
damages in excess of compensatory damages and each party irrevocably waives
any claim thereto.
(i) The parties, their representatives, other participants and the mediator
and arbitrator shall hold the existence, content and result of mediation and
arbitration in confidence.
4.09 Prior Agreement Superseded
- -------------------------------
This agreement supersedes the November 1, 1990 Patent License Agreement
between the parties relating to OPTICAL TRAPS.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this agreement to be
executed in duplicate originals by its duly authorized representatives on the
respective dates entered below.
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
By:
--------------------------------------
Vice President, Intellectual Property
Date:
------------------------------------
CELL ROBOTICS, INC.
By:
--------------------------------------
Title:
-----------------------------------
Date:
------------------------------------
THIS AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY
IN ANY MANNER UNLESS DULY EXECUTED BY AUTHORIZED
REPRESENTATIVE OF BOTH PARTIES
<PAGE>
<PAGE>
GENERAL DEFINITIONS APPENDIX
AT&T's PATENT means U.S. Patent 4,893,886, any reissue thereof, and any
foreign patent corresponding thereto.
FAIR MARKET VALUE means, with respect to any OPTICAL TRAP sold, leased or put
into use, the greater of (i) the selling price which a seller would realize
from an unaffiliated buyer in an arm's length sale of an identical OPTICAL
TRAP in the same quantity and at the same time and place as such sale, lease
or putting into use; or (ii) the selling price actually obtained for such
OPTICAL TRAP in the form in which it is sold, whether or not assembled (and
without excluding from such OPTICAL TRAP any components or subassemblies
thereof which are included in such selling price).
In determining "selling price" the following shall be excluded:
(a) usual trade discounts actually allowed to unaffiliated persons or
entities;
(b) packing costs;
(c) costs of insurance and transportation; and
(d) import, export, excise, sales and value added taxes, and customs
duties.
LICENSED PRODUCT means any product of the kind specified in Section 1.0(a).
REPORTABLE PRODUCT means any LICENSED PRODUCT the manufacture, importation,
sale, lease or use of which by the CORPORATION or any of its SUBSIDIARIES
would but for licenses or rights under this agreement, constitute (i)
infringement of AT&T's PATENT by the CORPORATION or its SUBSIDIARIES, or (ii)
any other violation of applicable law by the CORPORATION or its SUBSIDIARIES
for which AT&T or any of its SUBSIDIARIES would be entitled to compensation or
other remedy on account of such patent.
SUBSIDIARY of a company means a corporation or other legal entity (i) the
majority of whose shares or other securities entitled to vote for election of
directors (or other managing authority) is now or hereafter controlled by such
company either directly or indirectly; or (ii) which does not have outstanding
shares or securities but the majority of the equity interest in which is now
or hereafter owned and controlled by such company either directly or
indirectly; but any such corporation or other legal entity shall be deemed to
be a SUBSIDIARY of such company only as long as such control or ownership and
control exists. Sandia Corporation, a Delaware corporation established to
operate Sandia National Laboratories for the United States Government, is
deemed not to be a SUBSIDIARY of AT&T.
TECHNICAL DEFINITIONS:
- ----------------------
OPTICAL TRAP shall mean any instrumentality or aggregate of instrumentalities
which by itself, or when attached to a microscope, serves to confine a
biological sample in a single beam, gradient force optical trap with a
wavelength of between 0.8um and 1.8um optical beam and shall include any
auxiliary equipment locally associated therewith for performing the function
thereof.
<PAGE>
AMENDMENT TO PATENT LICENSE AGREEMENT
--------------------------------------
WHEREAS, Lucent Technologies, Inc., a Delaware corporation ("Lucent"), with
offices at 600 Mountains Avenue, Murray Hill, New Jersey 07974, is a successor
in interest to the April 1, 1994 Patent License Agreement ("Agreement")
between American Telephone and Telegraph Company ("AT&T") and Cell Robotics,
Inc., a New Mexico corporation ("Cell Robotics"), with offices at 2715
Broadbent Parkway, NE, Albuquerque, New Mexico 87107; and
WHEREAS, Under the Agreement, royalties are payable by Cell Robotics to Lucent
Technologies, Inc.; and
WHEREAS, Cell Robotics has not paid the minimum amounts as specified in the
Agreement.
NOW THEREFORE, Lucent and Cell Robotics agree that the Agreement be amended as
follows:
In the Table of Contents, Delete "1.06 Infringement Actions"
Delete Section 1.01(a) and substitute:
--(a) LUCENT grants to the CORPORATION under LUCENT's PATENT
personal, nonexclusive and non-transferable licenses to make, have
made, use, lease, sell and import products of the following kind: --
Add the following Section 1.01(d):
In 1996, AT&T restructured itself to conduct its business in the
form of three separate legal entities. One of these legal entities
is Lucent, which conducts a business which was once part of AT&T.
Lucent and Cell Robotics agree that Lucent and Cell Robotics have
the same licenses and rights (and any corresponding obligations)
after the restructuring of AT&T that they each had before the
restructuring; i.e., Lucent has the same rights and obligations as
specified for AT&T in this Agreement.
Change "AT&T" to -LUCENT- throughout the Agreement.
Delete Section 1.01(c)
Delete Section 1.06
In Section 2.01(a):
first line, delete "Subject to Section 2.01(b) and Section 2.01(c),
royalty" and substitute -Royalty-
second line: change five percent (5%) to -seven percent (7%)-
Delete Section 2.01(b) and substitute:
2.01(b) Notwithstanding Section 2.01(a), beginning with the year
1999, the minimum royalty payable each year is thirty-five thousand
dollars (US $35,000.00) payable as follows: seventeen thousand five
hundred dollars (US $17,500.00) sixty (60) days after the end of
each semiannual period ending on June 30th and December 31st.
Delete Sections 2.01(c) and (d).
Delete the footnotes on Page 3.
In Section 2.05(a), second line, change "April 30th or October 31st,
commencing with the semiannual period ending on October 31, 1994" to -June
30th or December 31st-;
In Section 2.05(a), eighth line, subparagraph (iii), delete "without
regard to the minimum payment amounts specified in Section 2.01(b)."
Delete Section 2.05(b) and substitute:
(b) Within such sixty (60) days the CORPORATION shall pay in United
States dollars to LUCENT at the address specified in Section 4.03
the royalties payable in accordance with such statement. Any
conversion to United States dollars shall be at the prevailing rate
for bank cable transfers as quoted for the last day of such
semiannual period by leading United States banks in New York City
dealing in the foreign exchange market.
Change Section "3.01(a)" to -Section 3.01-
Delete Section 3.01(b)
Delete Section 4.02(d)
Section 4.06, first line, change "General Definitions Appendix" to
- -Appendices-
Section 4.07(b), third line, change "sublicenses" to -rights-
2. Upon execution of this Amendment, Cell Robotics agrees to pay fifty
thousand dollars (US $50,000.00) in lieu of all payments due for 1997 and the
first half of 1998. For the second half of 1998, Cell Robotics agrees to pay,
not later than December 31st, 1998, fifty thousand dollars (US $50,000.00) or
the royalty due pursuant to Section 2.01, whichever is greater.
3. The address for Lucent set out in Section 4.03(a) shall be replaced with
the following address: Contract Administrator, Intellectual Property
Division, Lucent Technologies, Inc., 14645 Northwest 77th Avenue, Miami Lakes,
Florida 33014, United States of America.
4. The bank account information in Section 4.03(b) shall be replaced with
the following information: Lucent Technologies Licensing, Account No. 910-2-
568475, ABA Code: 021000021, at Chase Manhattan Bank, N.A., 55 Water Street,
New York, New York 10041, United States of America.
5. All other provisions of the Agreement remain in full force and effect.
Accepted and Agreed:
LUCENT TECHNOLOGIES, INC.
By:
-----------------------------------------
M. R. Greene
Title:
--------------------------------------
Vice President - Intellectual Property
Date:
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CELL ROBOTICS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
Date:
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THIS AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY
IN ANY MANNER UNLESS DULY EXECUTED BY AUTHORIZED
REPRESENTATIVES OF BOTH PARTIES
<PAGE>
AGREEMENT
BY AND BETWEEN
BIG SKY LASER TECHNOLOGIES, INC.
AND
CELL ROBOTICS INTERNATIONAL, INC.
<PAGE>
<PAGE>
AGREEMENT
BY AND BETWEEN
BIG SKY LASER TECHNOLOGIES, INC.
AND
CELL ROBOTICS INTERNATIONAL, INC.
THIS AGREEMENT is made and entered into as of the 20th day of May, 1998,
by and between BIG SKY LASER TECHNOLOGIES, INC., a Montana corporation
("BSLT"), with principal offices at P.O. Box 8100, Bozeman, Montana 59715-2001
and CELL ROBOTICS INTERNATIONAL, INC, a Colorado corporation ("CRII"), with
principal offices at 2715 Broadbent Parkway N.E., Albuquerque, New Mexico
87107. BSLT and CRII may hereinafter individually be referred to as a "Party"
or collectively be referred to as the "Parties."
RECITALS
WHEREAS, CRII and BSLT have designed and developed a laser skin
perforation device to be used for capillary blood sampling; and
WHEREAS, subject to the terms and conditions of this Agreement, the
parties desire to provide for CRII to have and exercise the sole right to
market and distribute for its own account the Product (as hereafter defined),
and to provide for BSLT to have the sole and exclusive right to manufacture,
for its own account, the Product.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Affiliates" as used herein shall mean any person that directly or
indirectly controls or is controlled by or is under common control with BSLT
or CRII, their officers, directors, employees, agents, independent contractors
and/or servants, or a person that beneficially owns, directly or indirectly,
five percent (5%) or more of the equity of BSLT or CRII.
1.2 "Product" shall mean laser skin perforation devices to be used for
sampling of capillary blood in its current design configuration and with the
current dimensions and external features defined on Exhibit I hereto.
1.3 "Territory" means the entire geographical area of the world.
ARTICLE 2
MANUFACTURING
2.1 EXCLUSIVE GRANT. Subject to the terms hereof, BSLT shall have the
sole and exclusive right to manufacture the Product in the Territory at BSLT's
sole cost and expense.
2.2 OBLIGATIONS OF BSLT. BSLT agrees to maintain its manufacturing
capabilities to be able to manufacture Product, and BSLT agrees to so
manufacture the Product in accordance with specifications provided by CRII in
sufficient quantities and to the best of its abilities, meet all of CRII's
requirements pursuant to this Agreement. Except as may be expressly provided
for herein, all costs incurred by BSLT to manufacture Product shall be the
sole obligation of BSLT. For the term of this Agreement, CRII shall have the
right to place orders with BSLT for such quantities of Product as it, in its
discretion, may require from time to time, subject to the provisions of
Sections 2.3 and 4.2 hereof. BSLT agrees that for the term of this Agreement,
it will not transfer, assign, license or sublicense to any other third person
or entity, any of BSLT's right, title or interest in and to this Agreement or
otherwise undertake any delegation of BSLT's obligations hereunder, without
the express written consent of CRII. BSLT shall be responsible for the
maintenance of and compliance with all regulatory standards and requirements
necessary for the worldwide manufacture of the product.
2.3 PURCHASE ORDERS. During the term of this Agreement, CRII shall
provide BSLT with a rolling monthly 6-12-month forecast for the delivery of
Product. The first three (3) months of each such forecast shall serve as the
delivery schedule for Product to CRII. CRII shall execute and deliver to BSLT
Purchase Orders providing for the manufacture by BSLT and purchase by CRII of
quantities of the Product, as specified and defined in said Purchase Orders.
Such Purchase Orders shall identify the quantity and delivery date for such
Product which shall not be less than sixty (60) days of the Purchase Order.
BSLT agrees to manufacture and deliver Product in accordance with each
Purchase Order delivered by CRII unless, within five (5) days following
receipt by BSLT of such Purchase Order, BSLT serves written notice upon CRII
that BSLT will be unable to comply with the quantity and delivery dates
specified in such Purchase Order, and the reasons therefor. In such event,
the parties shall exercise good faith best efforts to agree upon a
modification of such Purchase Order which shall satisfy the requirements of
both CRII and BSLT.
2.4 OBLIGATIONS OF CRII. CRII shall be responsible for procuring and
delivering to BSLT, at CRII's sole cost and expense, the laser rods,
reflectors and lenses to be incorporated into the Product. Further, CRII
shall provide at its sole cost and expense final packaging, lense cleaning
kits, carrying cases, disposables, user manuals and battery chargers to be
used in conjunction with the Product. CRII agrees that for the term of this
Agreement, it shall not transfer, assign, license or sublicense to any third
person or entity, any of CRII's rights, title, interest or obligations
hereunder with respect to the Product without the express written consent of
BSLT.
2.5 PRICE. The purchase price to be paid to BSLT by CRII for the
Product shall be the lesser of (i) Eight Hundred Dollars ($800) per unit, or
(ii) the quotient of (a) BSLT's Material Cost of Parts ("MCOP") divided by (b)
six tenths (.6). For the purposes of this Agreement, BSLT's MCOP shall
include BSLT's direct out-of-pocket expenses for parts and raw materials used
in connection with the manufacture of the Product. MCOP shall not include any
costs incurred for tooling, molds and castings, nor any expense for salaries,
general and administrative costs, overhead or direct or indirect labor. CRII
shall have the right to review BSLT's MCOP and to request that BSLT purchase
parts and raw materials from vendors identified by CRII to the extent such
alternative sources provide parts and raw materials that meet BSLT's vendor
qualification guidelines at preferred prices. Upon delivery and acceptance by
CRII of Product pursuant to each Purchase Order, BSLT shall prepare and
deliver to CRII a billing invoice payable on a net thirty (30) day basis.
CRII shall pay each invoice for all accepted product not later than thirty
(30) days from the date of billing and, if such invoice is not paid in a
timely manner, a late payment fee equal to one percent (1%) per month may be
added by BSLT to the net amount due and owing.
2.6 DEMONSTRATION UNITS. Notwithstanding the provisions of 2.5 above,
BSLT agrees to provide CRII with demonstration units of Product up to a
maximum quantity of one hundred (100) units, at a price equal to BSLT's MCOP.
Manufacture and delivery of demonstration units shall be in accordance with
the other provisions of this Agreement.
2.7 DELIVERIES. Deliveries shall be made by BSLT at CRII's expense to
CRII in Albuquerque, NM. All risk of loss of Product during transit shall be
borne by CRII, it being expressly agreed that terms of shipment are F.O.B.
carrier. IF CRII fails to pay any invoice within thirty (30) days following
the due date, BSLT shall have the right to suspend further deliveries until
all delinquent invoices have been paid in full. BSLT shall not be liable for
any delays or failures in delivery due to circumstances beyond its reasonable
control.
2.8 ACCEPTANCE. All deliveries under this Agreement shall be subject to
acceptance by CRII. Any objections shall be in writing by CRII and shall set
forth in detail the reasons therefor. If CRII does not reject any delivery
within twenty (20) days of receipt, it shall be deemed to be accepted and BSLT
will be paid for the accepted product in accordance to 2.7 of this Agreement.
If CRII rejects any merchandise or a portion thereof, it shall be deemed
rejected for all purposes of this Agreement and BSLT will issue a credit memo
to CRII for the rejected Product.
ARTICLE 3
MARKETING
3.1 EXCLUSIVE GRANT. Subject to the terms and conditions hereof, CRII
shall have the sole and exclusive right to promote, market, sell and
distribute the Product throughout the Territory, at CRII's sole cost and
expense, either directly or by engaging the services of independent sales
representatives, dealers and distributors. For the term hereof and except as
provided for in Section 4.3 hereof, BSLT shall not promote, market, sell
and/or distribute the Product in any location within the Territory, nor grant
to any other party the right to so promote, market and/or distribute the
Product in the Territory, without the express written consent of CRII. BSLT
shall refer all inquiries for product to CRII without charge. All expenses
incurred by CRII in connection with the promotion, marketing, sales and
distribution of Product shall be the sole and exclusive responsibility of
CRII.
3.2 REGULATORY CLEARANCES. CRII shall have the right to apply for and
maintain all regulatory clearances and other governmental approval required to
market, sell and distribute the Product. All such regulatory approvals and
clearances obtained by CRII throughout the term shall be the sole and
exclusive property of CRII.
3.3 TRADEMARKS. Throughout the term of this Agreement, CRII shall have
the right to develop, utilize and affix such trademarks, copyrights,
tradenames, service marks, as well as associated designs and logos, as it may
desire for use in connection with the sale of Product. Any and all such
trademarks, copyrights, tradenames, service marks, designs and logos, if and
to the extent developed by CRII, shall be the sole, separate and exclusive
property of CRII. CRII shall have the exclusive right to apply for, hold and
maintain any and all registrations of such trademarks, copyrights, tradenames,
service marks, as well as associated designs and logos developed by it
throughout the term in connection with the marketing, sale and distribution of
Product.
3.4 CUSTOMER SUPPORT. During the term of this Agreement, CRII shall be
responsible for all customer interaction and support, as well as technical
support for customers and end users. All costs incurred by CRII in connection
with customer service and support shall be borne solely by CRII.
ARTICLE 4
PERFORMANCE REQUIREMENTS
4.1 INITIAL ORDER. Upon execution of this Agreement, CRII shall place
an initial order for Product consisting of a minimum of seventy-five (75)
units which shall be manufactured by BSLT and sold to CRII at a price of Eight
Hundred Dollars ($800) per unit. The pricing provisions of Section 2.5 shall
apply to all subsequent orders of units.
4.2 SUBSEQUENT MINIMUM ORDERS. During the first twelve (12) month
period following the execution of this Agreement, CRII agrees to purchase from
BSLT a minimum of one thousand five hundred (1,500) units of Product. During
the second year of the term of this Agreement and for each year thereafter,
CRII agrees to purchase from BSLT a minimum of three thousand (3,000) units of
Product. These minimum quantities shall be calculated based upon Purchase
Orders executed by CRII within each twelve (12) month period during the term
hereof. Orders shall be placed in minimum quantities of 500 units. The
delivery schedule of each order will be determined by the monthly forecast
described in Section 2.3 above.
4.3 FAILURE TO SATISFY MINIMUM. The minimum purchase quantity to keep
this agreement in effect will be 1,500 units during the first twelve months
following the date of this agreement and 3,000 units during the second year of
the agreement. If these quantities are met, BSLT agrees not to compete while
this Agreement is in effect. BSLT will not compete the first year if CRII
fulfills the minimum purchase quantity. After the first eighteen months
following the execution of this agreement, BSLT may compete with CRII if
either of the two following events happen: 1. CRII is manufacturing and/or
selling another laser finger perforator and 2. Purchases from BSLT are less
than 500 units per quarter. BSLT nevertheless shall continue to be subject to
its agreement to manufacture Product for CRII in accordance with this
Agreement.
ARTICLE 5
WARRANTY AND SERVICE WORK
5.1 MANUFACTURER'S WARRANTY. BSLT shall warrant that all Product
manufactured by it for CRII shall be free from defects in material or
workmanship. BSLT shall provide an express warranty that should any Product
prove to be defective in workmanship or materials within a period of twelve
(12) months from the delivery thereof, BSLT shall repair or replace at its own
discretion and subject to CRI acceptance, without cost to CRII or the end
user.
5.2 WARRANTY CLAIMS. Throughout the term of this Agreement, CRII shall
be responsible for all costs incurred in connection with warranty claims
arising from an alleged failure or defect in the laser rods, lenses and
reflectors provided by CRII. All costs associated in connection with or
incurred by virtue of claims based upon an alleged failure in coatings will be
shared equally by the parties, providing, however, that BSLT shall have the
right to approve vendors selected to provide such coatings. All other
warranty claims based upon alleged defects in materials or workmanship in
connection with the marketing and sale of Product shall be the sole and
exclusive responsibility of BSLT.
5.3 PRODUCT REPAIRS. BSLT shall be responsible to perform any and all
repairs or replacements outside of Product warranty and shall be entitled to
reimbursement from CRII of all costs and reasonable profit therefor, within 10
days after CRII receives payment from the end user or customer.
ARTICLE 6
PROPRIETARY RIGHTS
6.1 FUTURE PRODUCTS. Nothing contained in this Agreement shall grant to
either party any right, title or interest in and to any future design or
configuration of a laser skin perforator which may be developed by either
party in the future, including future generations of Lasette.
ARTICLE 7
DISPOSABLES
The parties acknowledge that the proper use of the Product requires the
use of disposable plastic shields. CRII shall be responsible for obtaining the
shields which will be provided to end users both on the initial unit purchase
and thereafter re-supplied on an ongoing basis. CRII will be entitled to
recoup the manufacturing cost for the shields less tooling for molds and the
accumulated revenue loss from disposable sales, prior to the equal division of
gross profits from the sales of shields which will be dispersed on a quarterly
basis by CRII. CRII will have the exclusive rights to sell, market and
manufacture the shields.
ARTICLE 8
TERM AND TERMINATION
8.1 TERM. The term of this Agreement shall commence upon the date
hereof and shall terminate upon the first to occur of any of the following
("Event of Termination"):
8.1.1 Either Party may terminate this Agreement with cause upon
sixty (90) days' written notice and the breaching party will have a 30 day
opportunity to cure in the event of a material breach of any term, covenant,
representation or warranty by the other Party.
8.1.2 Five (5) years from the date hereof.
8.2 TERMINATION PROVISIONS. Upon termination of this Agreement, the
following provisions shall control the respective rights and obligations of
the parties:
8.2.1 All outstanding Purchase Orders for Product shall be
fulfilled by the Parties in accordance with their respective responsibilities
and obligations under this Agreement.
8.2.2 All confidential information of each Party made or
developed during the term of this Agreement shall be held in strictest
confidence by the other and may not be used, disclosed or otherwise exploited
by the other Party for any purpose whatsoever.
ARTICLE 9
MISCELLANEOUS
9.1 NO ASSIGNMENT. Neither Party may transfer, sell or assign to any
third party its respective rights, duties or obligations hereunder without the
express written consent of the other Party.
9.2 NOTICES. Any notice to be given or to be served upon any Party
hereto in connection with this Agreement must be in writing, may be given by
registered or certified mail, and shall be deemed to have been given and
received when a registered or certified letter containing such notice,
properly addressed, with postage prepaid is deposited in the United States
mails. If given otherwise than by registered or certified mail, it shall be
deemed to have been given when delivered in hand to the Party to whom it is
addressed. Such notices shall be given to the parties hereto at the addresses
set forth on the signature page of this Agreement.
9.3 BINDING EFFECT. This Agreement and the covenants, obligations,
undertakings, rights and benefits hereof shall be binding upon, and shall
inure to the benefit of, the respective parties hereto and their respective
heirs, executors, administrators, representatives, successors and assigns.
9.4 INTERPRETATION. Words of any gender used in this Agreement shall be
held and construed to include any other gender, and words in the singular
number shall be held and construed to include the plural, unless the context
requires otherwise.
9.5 ARBITRATION. Should a dispute over this Agreement or any of its
terms or provisions arise, the Parties now agree that such situation shall be
submitted to arbitration in the Albuquerque, New Mexico area, under the rules
of the American Arbitration Association then in effect and that the decision
or opinion thereby obtained shall be binding on the Parties. Failure of
either Party to either submit to arbitration hereunder or to abide by the
decision or opinion of the arbitrators shall be a substantial breach of this
Agreement. The prevailing Party in any such arbitration, or any other legal
proceeding, shall be entitled to its costs, attorneys' fees and all expenses
of such action.
9.6 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New Mexico.
9.7 MODIFICATION. This Agreement may not be amended or modified except
in writing executed by the unanimous consent of all parties.
9.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed telex,
telecopy or facsimile transmission and by one or more parties in several
counterparts and all such counterparts so executed shall together be deemed to
constitute one final agreement as if signed by all parties and each such
counterpart shall be deemed to be an original.
9.9 HEADINGS. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provisions of this
Agreement.
9.10 ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties and supersedes any prior understandings and agreements
among them. There are no representations, agreements, arrangements or
understandings, oral or written, between and among the parties hereto relating
to any of the provisions of this Agreement which are not fully expressed or
incorporated by reference herein.
9.11 NO THIRD PARTY BENEFICIARIES; NO AGENCY. Except as expressly
provided herein to the contrary, no provisions of this Agreement, expressed or
implied, are intended or will be construed to confer rights, remedies, or
other benefits to any third Party under or by reason of this Agreement. This
Agreement will not be construed as creating an agency, partnership or any
other form of legal association (other than as expressly set out herein)
between the Parties. CRII and BSLT shall at all times and for all purposes
hereunder be deemed independent of one another, and no Party shall directly or
indirectly imply or represent to others, or permit their agents or employees
to imply or represent to others that it has the authority to act for,
represent or bind the other in any manner by virtue of this Agreement.
9.12 GOVERNMENT RESTRICTIONS. Each Party agrees to comply with all laws,
both present and future, including those of any governmental agency or court
having jurisdiction over any Party hereto, and to orders, regulations,
directions or requests of any such government agency or court. The Parties
hereto shall be excused from any failure to perform any obligation hereunder
to the extent such failure is caused by any such law, order, regulation,
direction or request. In addition, each Party will (I) comply with all United
States Department of Commerce and other United States export controls with
respect to the subject matter hereof, and (ii) not produce or distribute any
Products in any country where such production or distribution would be
unlawful.
9.13 NON-WAIVER. The waiver of any Party hereto of a breach or default
of any of the provisions of this Agreement by another Party, shall not be
construed as a waiver of any succeeding breach of the same or other provisions
of this Agreement, nor shall any delay or omission on the part of a Party
hereto to exercise or avail itself of any right, power or privilege that it
has or may have hereunder, operate as a waiver of any such right, power or
privilege by such Party.
9.15 PAYMENT OF EXPENSES OF PREVAILING PARTY IN DISPUTE. Unless
otherwise specifically provided for herein, in the event that there is a
dispute concerning this Agreement, including, without limitation, the issue of
compliance with any term of this Agreement, the prevailing Party shall be
entitled to reimbursement from the other Party or Parties, of reasonable
attorneys' fees and other expenses incurred in resolving the dispute.
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement
on the day and date first above written.
CELL ROBOTICS INTERNATIONAL, INC.,
a Colorado corporation
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
By:*
-----------------------------------------
-----------------------------------------
BIG SKY LASER TECHNOLOGIES, INC.,
a Montana corporation
P.O. Box 8100
Bozeman, Montana 59715-2001
By:
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* Subject to approval by CRII Board of Directors
The Board of Directors
Cell Robotics International, Inc.
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
September 3, 1998
September 8, 1998
Cell Robotics International, Inc.
2715 Broadbent Parkway N.E.
Albuquerque, New Mexico 87107
Re: Pre-Effective Amendment No. 1 to Registration on Form S-3
Ladies and Gentlemen:
We hereby consent to the inclusion of our opinion regarding the
legality of the securities being registered by the Pre-Effective Amendment No.
1 to Form S-3 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 an aggregate of (i) 78,788 shares of Series A
Convertible Preferred Stock ("Preferred Stock"); (ii) 157,576 Common Stock
Purchase Warrants ("Warrants"); and (iii) 661,818 shares of Common Stock,
$.004 par value ("Common Stock"), issuable as a dividend on the Preferred
Stock, upon conversion of the Preferred Stock and upon exercise of the
Warrants, 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,
Nathan L. Stone
NLS/
