SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
____________.
Commission File No. 1-10428
Sunrise Technologies International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 77-0148208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
47257 Fremont Boulevard, Fremont, California 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 623-9001
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant was approximately $34,836,000 as of March 21,
1997 based upon the closing price on the OTC Bulletin Board for that date.
There were 27,868,613 shares of the Registrant's Common Stock issued and
outstanding on March 21, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, and 13 of Part III incorporate information by reference from
the Proxy Statement for the 1997 Annual Meeting of Stockholders.
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PART I
ITEM 1. BUSINESS
Overview
Sunrise Technologies International, Inc. (the "Company") develops,
manufactures and markets laser systems for applications in ophthalmology and
dentistry. In addition, the Company has developed, manufactures and markets an
air abrasive cavity preparation system for dentistry (the "MicroPrep(R)").
Through the end of 1991, the Company was the exclusive developer and
manufacturer of dental laser systems for American Dental Technologies, Inc.
("ADT"), formerly known as American Dental Laser, Inc., and derived
substantially all of its revenues from the sale of the dLase 300 Dental Laser
system (the "dLase 300 system") to ADT for distribution in the United States and
overseas markets. ADT commenced foreign sales of the dLase 300 system in
December 1988 for the treatment of caries (tooth decay) and soft tissue (such as
gingivectomies). Following the clearance by the United States Food and Drug
Administration ("FDA") to market the product for soft tissue applications, the
Company commenced distributing the product in the United States in May 1990. The
Company filed a Pre-Market Approval application ("PMA") for commercial sales of
the dLase 300 in the United States for treatment of hard tissue in October 1988,
which was not recommended for approval in August 1990 and again denied in
February 1996. The Company is currently evaluating this development in relation
to its overall marketing of the dental laser.
Since mid-1992, the Company has focused a significant portion of its
efforts on engineering and development of its laser corneal shaping product (the
"LTK system") for the treatment of refractive errors of the eye, such as myopia,
hyperopia and astigmatism. The LTK system is based upon patented technology
acquired in the Company's acquisitions of in-process technology from Laser
Biotech, Inc. and Emmetropix Corporation in 1992. The LTK system was introduced
overseas in the fourth quarter of 1993 for the treatment of hyperopia and
astigmatism. The Company conducted Phase IIa clinical trials of this system for
the treatment of hyperopia in the United States pursuant to an Investigational
Device Exemption ("IDE") from the FDA through 1994. In February 1995, the
Company filed its request with the FDA to commence Phase IIb clinical trials. In
a March 1995 letter, the FDA cited various deficiencies in the Company's
February letter and requested additional information. In December 1995, the
Company submitted the requested additional information. In January 1996, the FDA
responded to the Company's submittal by requesting current follow-up data on all
Phase IIa patients. In March 1996, the Company provided the current follow-up
data on all Phase IIa patients. On September 5, 1996, the FDA authorized Sunrise
to treat an additional 100 subjects at five United States locations in a
continuation of Phase IIa clinical trials using a treatment algorithm developed
by Sunrise in the course of the initial Phase IIa clinical trials and in the
course of studies conducted by ophthalmologists in Mexico, Great Britain and
Canada. The continued clinical trial is limited to the treatment of forty
subjects for the +1 diopter treatment group and sixty subjects for the +2
diopter treatment group (See "Products", "Government Regulation", "Patents and
Licenses" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations").
In April 1993, the Company commenced development of the MicroPrep(R)
pursuant to a joint development and exclusive manufacturing agreement with
Danville Engineering, Inc. The Company filed a 510(k) application with the FDA
in June 1993, and received FDA market clearance during the second quarter of
1994 (See "Products" and "Government Regulation"). Initial shipment of the
product began in June 1994. In October 1995, the Company introduced the
Associate, a table-top version of the MicroPrep(R).
The Company has incurred substantial losses in the past three years which
have seriously depleted its working capital. Sales of its existing dental
products at current levels will not be sufficient to sustain both the existing
business and the continued development and regulatory licensing of additional
products including the LTK system. Historically, the Company has been able to
raise additional working capital for all aspects of its business through the
private placement of its common stock. These private placements raised
approximately $15.3 million in 1994, 1995 and 1996 in new equity for the
Company. In February and March 1997, the Company raised approximately $3.7
million through private placements of 5% convertible notes due 1999 (convertible
into common stock) and warrants to purchase common stock (the "1997 Notes
Placement"). The Company is seeking to raise additional working capital for all
aspects of its business. If the Company is unable to obtain additional working
capital, it may be required to reduce substantially, or eliminate, certain
business, limit or suspend its operations in their entirety or, under certain
circumstances, seek protection from creditors under the Bankruptcy Act.
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Proposed Sale of Dental Assets
On March 26, 1997, the Company entered into an asset purchase agreement
with Lares Research, a California corporation ("Lares"), providing for the sale
of the Company's assets associated with its dental laser, air abrasion and
composite curing systems (the "Dental Assets"). Lares is a privately held
company located in Chico, California. Consummation of the proposed dental sale
is subject to Lares' ability to raise $4,000,000 to fund the closing date
payment described below. There is no assurance that Lares will be able to
attract the required financing from banking institutions and members of the
Lares family, and, if Lares is unsuccessful, the transaction will be abandoned.
If Lares is able to raise the required capital, the Company would transfer
to Lares all of the Dental Assets except for cash and accounts receivable (book
value at December 31, 1996 of approximately $1,904,000). All liabilities of the
Company related to its operations associated with tbe Dental Assets (the "Dental
Business") would be retained by the Company, except for certain obligations
relating to royalties and a supply contract. Lares would pay Sunrise $4,000,000
at closing and would issue $1.5 million in notes ("Lares Notes"). The $1,000,000
Lares Note would be payable three years from the date of closing, and interest
at the rate of 8% per annum would begin to accrue at the end of the first
quarter following the closing and would be payable quarterly. The $500,000 Lares
Note would be payable four years from the date of closing, and interest at the
rate of 8% per annum would be accrued for the first two years following the date
of closing, with interest payable quarterly thereafter. The Company intends to
recognize proceeds from the sale and interest on the notes as cash is received.
In the event the transaction with Lares is not consummated, the Company
will seek to sell the Dental Assets to another purchaser.
The Company's revenues are substantially derived from the sale of its
dental laser and air abrasive products. In 1996, these sales represented 98% of
the Company's revenues. If the proposed sale of the Dental Assets is
consummated, $4,000,000 of the purchase price will be paid in cash which the
Company will use to fund its ophthalmic activities; however, by selling the
Dental Assets, the Company will lose a significant source of continued revenue.
PRODUCTS
Dental
SunLase Dental Laser Systems
The SunLase series of dental laser systems are portable laser systems
designed to be used in dentistry, without the use of local anesthetic, for hard
tissue applications such as treatment of dental caries (cavities) and
pre-carious dental lesions (the precursor of cavities) and for soft tissue
cutting procedures in the oral cavity.
The Company introduced the SunLase 800 for sales in international markets
during the third quarter of 1992 for hard and soft tissue applications. The
SunLase 800, which was developed using technology from the Company's ophthalmic
and surgical laser technologies, uses a pulsed Nd:YAG with a variable power of
0.3 watts to 8 watts and provides a choice of pulse rates from 10 to 50 pulses
per second. The SunLase 800 incorporates a memory feature that allows the
practitioner the choice of up to eight programmable treatment settings. The
application of solid-state laser technology provides low-cost, efficient and
reliable operations. No special utilities are required and the unit plugs into
any standard electrical outlet.
In March 1993, the Company introduced two new dental laser systems in the
United States market for soft tissue applications--the SunLase 400, a four watt
dental laser system and the SunLase Master, an eight watt dental laser system
with a pulse rate of from 10 pulses per second to 100 pulses per second. The
Company obtained FDA clearance to market these procedures prior to their
introduction.
MicroPrep(R) Dental Applications
The Company entered into a joint development agreement with Danville
Engineering in April 1993, to develop the MicroPrep(R), a low-cost, compact,
microprocessor-controlled air abrasive unit. Pursuant to the terms of the
agreement, Danville Engineering provides the air abrasive module for
incorporation into the
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MicroPrep(R). In addition, Danville Engineering may act as a non-exclusive
distributor of the product. The MicroPrep(R) uses a high speed air stream
containing small particles which, when directed at teeth, have an abrasive
action that can be used to cut enamel and dentin, thereby prepare a cavity for
restorative material. The air abrasive method allows for rapid cutting of the
tooth structure with minimal heat, vibration and pressure, thereby permitting
cavity preparation without the use of local anesthetic in most cases. In cases
where the tooth is hypersensitive, pulpal stimulation can be controlled by
reducing the pressure of abrasive material delivered to the tooth structure.
The MicroPrep(R) Director is approximately suitcase-sized (similar to the
Company's dental laser packaging) and has a built-in compressor which improves
the portability of the system as compared to the competitive product which uses
the dentist's existing compressed air supply. The Director utilizes a standard
115 volt outlet, delivers abrasive at from 80 psi to 120 psi, and operates at
three different pressures, three different abrasive concentrations and also has
a pulsed mode to allow the dentist innumerable variations on delivering abrasive
to the target tooth structure. The Company filed a 510(k) with the FDA in June
1993 and received clearance to market the product in May 1994. Initial product
shipment began in June 1994. In October 1995, the Company introduced the
"Associate(R)," a table-top version of the MicroPrep(R).
Ophthalmic
Ophthalmic Laser System for Glaucoma
In 1990, the Company developed the gLase 210 ophthalmic system (the "gLase
210 system"), a holmium laser system designed to perform a filtering procedure
for the treatment of glaucoma. Conventional filtering procedures, whereby a
permanent drainage duct is created to relieve the pressure in the eye, is a
difficult surgical procedure and is currently being performed only by a limited
number of glaucoma specialists. The gLase 210 system emits radiation at a
wavelength that is highly absorbed by water, and therefore by all tissues in the
body because water is the main constituent of all body tissues. The goal of a
filtering procedure is to relieve the pressure inside the eye by making a small
hole in the sclera, the strong wall of the eye. The pulsed nature of the holmium
laser combined with the wavelength, provide an effective and efficient way of
creating a hole in the sclera with minimal disturbance to surrounding tissues.
The laser beam is brought to the target inside the eye with a 200 micron fiber
built into a special probe that emits the laser beam at a right angle to the
fiber axis.
The design characteristics and the unique delivery device of the gLase 210
system enables the ophthalmologist to perform this procedure on an outpatient
basis, thus avoiding the use of an operating room and the hospitalization
sometimes required with traditional filtering surgery. Foreign sales of the
gLase 210 system commenced on a limited basis during the second quarter of 1990;
domestic sales commenced in December 1990 when the Company received FDA
clearance to begin commercial sale of the product line in the United States for
the filtering procedure. The gLase 210 system is currently marketed directly and
through dealers, distributors and manufacturer's representatives in the United
States and through distributors internationally. Sales of the gLase 210 system
have been limited and never represented more than 11% of revenues in any year.
Corneal Shaping System
In April 1992, the Company acquired Laser Biotech, Inc., a California
corporation ("Laser Biotech"), through a merger of a wholly-owned subsidiary of
the Company with Laser Biotech (the "Merger"). Laser Biotech was founded in 1986
by Bruce J. Sand, M.D., FACS, to research and develop a precision laser
instrument for eye surgery. In connection with the Merger, the Company also
acquired certain patent and patent applications held by Dr. Sand covering a
patented technique for reshaping the cornea using a laser. The technique, called
Laser Thermal Keratoplasty ("LTK" or the "Corneal Shaping System"), alters the
shape of the cornea to correct refractive disorders such as hyperopia
(farsightedness), astigmatism and presbyopia (decline in near vision due to
aging) without removing corneal tissue. The procedure employs a laser to shrink,
selectively, the collagen in the cornea, changing the curvature of the cornea
and thereby changing the refractive power of the eye. By comparison, excimer
laser systems for corneal reshaping developed by Summit Technologies, Inc. and
VISX, Inc. remove parts of the cornea to achieve changes in refraction. Laser
Biotech conducted pre-clinical studies to
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gain preliminary information on the efficacy and safety of the product, which
resulted in positive indications the Corneal Shaping System can be applied
successfully and safely to correct refractive errors.
In May 1992, the Company acquired substantially all of the in-process
technology of Emmetropix Corporation, a Texas corporation ("Emmetropix"),
including an assignment of certain patent applications and related technology
from an Emmetropix shareholder which the Company believes will be useful in
developing the LTK system.
The Company received an IDE from the FDA to begin Phase I clinical trials
on human subjects in the first quarter of 1992. Phase I trials commenced in June
1992 using a prototype LTK System designed and developed by the Company. The
Company completed Phase I of the clinical work for the LTK system and filed its
results with the FDA in June 1993. In September 1993, the Company received
clearance to begin Phase IIa clinical trials for the treatment of hyperopia. The
trials were conducted at Doheny Eye Institute at USC and Baylor University and
completed in November 1994. In February 1995, the Company filed its request with
the FDA to commence Phase IIb clinical trials. In March 1995 the FDA cited
various deficiencies in the Company's February letter and requested additional
information which the Company submitted in December 1995. In January 1996, the
FDA responded to the Company's submittal by requesting current follow-up data on
all Phase IIa patients. In March 1996, the Company provided the current
follow-up data on all Phase IIa patients. On September 5, 1996, the FDA
authorized the Company to treat an additional 100 subjects at five United States
locations in a continuation of Phase IIa clinical trials using a treatment
algorithm developed by the Company in the course of the initial Phase IIa
clinical trials and in the course of studies conducted by ophthalmologists in
Mexico, Great Britain and Canada. The continued clinical trial is limited to the
treatment of forty subjects for the +1 diopter treatment group and sixty
subjects for the +2 diopter treatment group.
In addition, clinical trials were initiated outside the United States in
early 1993 and are ongoing. The Company has obtained FDA export clearance to
market the Corneal Shaping System in most European countries, Turkey, Saudi
Arabia, Canada, Mexico, Brazil, Japan, China, Korea, Hong Kong, the Bahamas, and
other countries, although such sales are subject to the individual regulatory
authority of each country. Following regulatory approvals, the Company commenced
marketing the Corneal Shaping System overseas, primarily in Europe, for the
treatment of hyperopia and astigmatism in December 1993. Some preliminary
experiments have been done on myopia.
The Corneal Shaping System incorporates the Sun 1000, a modified gLase 210
system as the laser source into a delivery system that is built into a standard
slit-lamp to perform the LTK procedure. A slit-lamp is a binocular microscope
used regularly by ophthalmologists to examine an eye binocularly under high
magnification. The Corneal Shaping System delivers eight simultaneous laser
beams disposed in a circle of varying diameter. This system allows for easy
alignment on the patient's eye and the delivery of a two second exposure for the
treatment. To date, international sales of the Corneal Shaping System have been
limited. Revenue in the United States cannot be expected until the Company is
granted approval from the FDA to market in the U.S., which will not be until
1999 at the earliest.
There can be no assurance the Company will successfully develop or market
the Corneal Shaping System, the FDA will approve the results of continued
clinical trials, or the PMA will be approved which will result in the Company
marketing the product in the future. (See "Government Regulation" and "Marketing
and Sales").
GOVERNMENT REGULATION
The Company's products are subject to significant government regulation in
the United States and other countries. In order to test clinically, produce and
market products for human diagnostic and therapeutic use, the Company must
comply with mandatory procedures and safety standards established by the FDA and
comparable state and foreign regulatory agencies. Typically, such standards
require products be approved by the government agency as safe and effective for
their intended use before being marketed for human applications. The clearance
process is expensive and time consuming, and no assurance can be given that any
agency will grant clearance for the sale of the Company's products for routine
clinical applications or the time the clearance process will require will not be
extensive.
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No clinical testing of the Company's products on humans may be undertaken
without first obtaining an IDE from the FDA. To date, sales of the Company's
dental and ophthalmic laser systems in the United States for clinical testing on
humans have been pursuant to approved IDE's.
The Company is subject to regulation under the Radiation Control for Health
and Safety Act administered by the FDA which requires laser manufacturers to
file new product and annual reports; to maintain quality control, product
testing and sales records; to incorporate certain design and operating features
in lasers sold to end-users; and to certify and label each laser sold to an
end-user as belonging to one of four classes, based on the level of radiation
from the laser that is accessible to users. Various warning labels must be
affixed and certain protective devices installed, depending on the class of the
product. The CDRH (Center for Devices and Radiological Health) is empowered to
seek fines and other remedies for violations of the regulatory requirements.
Foreign sales of the Company's dental and ophthalmic laser systems are
subject in each case to clearance by the FDA for export to the recipient
country. Regulatory requirements vary widely among the countries, from
electrical approvals to clinical applications similar to the PMA application
filed with the FDA for sales in the United States. There can be no assurance the
Company will be successful in obtaining such approvals for its products in the
future.
MARKETING AND SALES
The Company's strategy is to market its products through established
medical or dental equipment distributors overseas. In the United States, the
Company sells its dental products through a small direct sales force coupled
with distributors and dealers where appropriate.
Through 1992, substantially all of the Company's revenues were derived from
sales of dental laser systems to ADT.
In September 1992, the Company commenced sale of the SunLase 800
internationally through distributors for hard and soft tissue applications.
Following settlement of its dispute with ADT in February 1993, the Company
expanded its network of established international distributors for sale of its
dental laser systems and commenced marketing dental laser systems in the United
States for soft tissue applications.
Unlike ophthalmology where lasers have been used for many years, the
introduction of laser systems for dental applications represents a significant
innovative treatment method. The ultimate success of the Company in penetrating
the dental market is dependent upon a well-trained and educated direct sales and
distributor organizations. The Company believes dental trade shows as well as
local dental organization trade meetings also represent an important opportunity
to provide dentists with an understanding of the application of the Company's
products to their practice and the dental market currently lacks the educational
programs necessary to provide the practitioner with an understanding of the
benefits of the Company's products not only to the patient but to their
practice. Furthermore, the Company's initial marketing efforts indicate dentists
have been confused by the variety of lasers offered for dental applications and
the market for dental lasers may not expand significantly until FDA approval for
hard tissue applications has been obtained. This marketing program will require
significant effort and expenses in order to establish a market presence in the
United States.
For ophthalmic and medical applications, the extent and nature of the
Company's marketing efforts are determined by a number of factors, including the
number of specialists in the area and the characteristics of the laser
applications. The ophthalmic market for the gLase 210 has been impacted by
reimbursement pricing pressures, the continued need for publication of long term
follow-up data, and increased educational
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requirements on the part of the practitioner regarding follow-up requirements
and patient monitoring. The Company markets its ophthalmic products through
distributors. The establishment of a successful distributor network requires
providing the distributors with sales instruments (brochures, clinical data,
research papers, educational videos). Such marketing efforts are expected to
include presentations at conventions and trade shows, customer training by
Company personnel and sponsorship of teaching seminars, clinical presentations,
and research by others. The Company also hires additional marketing and sales
consultants from time to time to assist in the introduction of its products.
There can be no assurance the Company can effectively market its existing
and planned new products.
ENGINEERING AND DEVELOPMENT
The Company's success will depend substantially upon its ability to
develop, produce and market innovative new products.
For the years ended December 31, 1994, 1995 and 1996, the Company expended
$1,561,000, $1,218,000 and $1,326,000, respectively, on engineering and
development relating to dental and ophthalmic lasers and MicroPrep(R) as well as
research on a variety of medical and dental applications. The Company continues
to explore several other types of lasers with varying characteristics in order
to find the optimal interactions with tissues in specific medical and dental
applications. Clinical testing and sale of the Company's products are subject to
obtaining applicable regulatory approvals, of which there can be no assurance.
The Company's research and development activities are conducted in house as well
as by outside sources, including consultants and universities.
The laser industry is characterized by extensive research and rapid
technological change. Development by others of new or improved products,
processes or technologies may make product development by the Company obsolete
or less competitive. The Company will be required to devote continuing efforts
and funds to further developments and enhancements for its existing products and
for its research and development of new technologies and products. There can be
no assurance the Company will be able to successfully adapt its operations to
evolving markets and technologies and fund the development of new medical
products to achieve possible technological advantages.
PRODUCTION
The Company manufactures its dental and ophthalmic lasers and MicroPrep(R)
systems from parts, components and subassemblies obtained from a number of
unaffiliated suppliers, and the Company designs the software incorporated into a
microprocessor purchased from an unaffiliated third party. Engineering and
development, prototype production, and all manufacturing, assembly and testing
activities take place at its Fremont, California facility. Although all the
parts and components used by the Company are available from multiple sources,
several are currently being purchased from only one source to obtain volume
discounts. Lack of availability of certain components could require minor
redesign of the products resulting in production delays.
In late 1993, the Company realigned its production structure through a
reduction in production manpower to more accurately reflect short-term demand as
well as the realignment of responsibilities.
The Company's dental laser systems, ophthalmic laser systems, and the
MicroPrep(R) products have been designed in a modular fashion to facilitate the
assembly process. The Company intends to utilize modular design and construction
concepts in connection with its future products.
POTENTIAL LIABILITY
The testing and use of human health care products entail an inherent risk
of physical injury to patients and resultant product liability or malpractice
litigation. While the Company has obtained product liability coverage
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in the amount of $5,000,000 with an umbrella policy for an additional
$5,000,000, such coverage is limited, and there can be no assurance such
coverage will be sufficient to protect it from all risks to which it may be
subject. Those costs of defending a product liability or malpractice action
could have a material adverse impact on the Company, even if the Company were to
ultimately prevail.
PATENTS AND LICENSES
Pursuant to agreements with ADT, the Company assisted ADT and its founders
in the preparation of several patent applications, which have been filed in the
United States Patent and Trademark Office and in certain countries in Europe.
From these applications, several patents have been issued and have been assigned
to ADT. Pursuant to the terms of its settlement with ADT in February 1993, the
Company obtained a royalty bearing non-exclusive, worldwide license under ADT's
patents and patent applications covering the manufacture, sale or use of dental
laser products. There can be no assurance any additional patents will be issued
or any such patents will afford protection or benefit to the Company.
The Company has two issued patents on its gLase 210 ophthalmic product.
In the acquisition of Laser Biotech, the Company acquired a United States
patent and pending United States and foreign patent applications previously
licensed to Laser Biotech by Dr. Bruce Sand, its founder. The issued patent
covers a method for using a laser to shrink collagen in the body. Since the
acquisition, two more patents filed by Dr. Sand have been allowed, and have been
assigned to the Company. In the Emmetropix acquisition, the Company acquired
three United States patent applications as well as foreign patent applications
previously licensed to Emmetropix, which the Company believes will be useful in
developing its laser thermal keratoplasty product. In addition, the Company has
filed a patent application covering the corneal shaping system it developed to
make use of the LTK procedure.
COMPETITION
The medical and dental laser and equipment industries are generally subject
to intense competition and are characterized by rapid technological change. The
Company's products will compete with conventional treatment methods, as well as
with products marketed by other medical and dental laser equipment
manufacturers, most of which have significantly greater financial resources than
the Company. While the Company believes its compact products, which can be used
in the doctor's office, offer better treatment characteristics than currently
available systems and offer comparable treatment at lower cost, there can be no
assurance the Company will be successful in marketing its dental and ophthalmic
products.
Dentistry
Since 1990, the Company's dental laser systems have been marketed in the
United States for soft tissue applications and overseas for both hard and soft
tissue applications. Soft tissue applications include gingivectomies, gum
contouring and minor surgical cuts such as frenectomies. The Company believes
its system, which employs a lightweight contact probe, offers advantages over
traditional surgical methods in that it allows the dentist to perform such
procedures with minimal bleeding and without anesthesia in most cases. The
Company currently competes with ADT among others with respect to its dental
laser systems.
In recent periods, competition in the dental laser industry has increased
significantly, as various dental laser systems have been introduced into the
market, primarily for soft tissue applications. These include pulsed and
continuous wave Nd:YAG, carbon dioxide and argon lasers. The introduction of
these systems has to some extent generated confusion and delays among end-users,
who must sort through various claims and complex technologies prior to
purchasing a dental laser system. There are several other competitors marketing
dental laser systems for soft tissue applications including ADT. The Company's
products also compete with established methods of treating caries, primarily the
dentist's drill, certain chemical solutions and with CO2 laser systems currently
marketed for other dental procedures. There are no laser systems currently
marketed in the United States for hard tissue applications and the Company
believes the market for its dental laser systems may be minimal until FDA
clearance to market for such application can be obtained.
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The Company's products will be required to compete with respect to price,
ease of use and rapid effective treatment. There can be no assurance other
companies will not introduce new products that compete with the Company.
The Company currently markets the MicroPrep(R), an abrasive-action cavity
preparation unit that competes with ADT's KCP 2000.
Ophthalmology
Use of the holmium laser for LTK will compete with or supplement existing
treatments for refractive disorders, including eyeglasses, contact lenses, other
refractive surgeries (such as radial keratotomy) and other technologies
currently under development, such as corneal implants and surgery involving
other laser techniques. The industry is characterized by extensive research and
rapid technological change. Newer technologies could be developed with better
performance for refractive surgery than LTK. The significant competitive factors
in the industry will include price, convenience, success relative to vision
correction, acceptance of new technologies, patient satisfaction and ability to
receive regulatory approval.
Aside from using eyeglasses and contact lenses, refractive errors are
currently being treated by a surgical approach called Radial Keratotomy ("RK"),
photo refractive keratectomy ("PRK") and LASIK which treat nearsightedness
(myopia).
Currently, the dominant laser approach for the treatment of myopic
refractive disorders is the use of the excimer laser. In the United States,
VISX, Incorporated ("VISX") and Summit Technology, Inc. ("Summit") are the
leading manufacturers of excimer refractive surgical systems. The Company
believes the LTK process for the treatment of hyperoptic refractive disorders
offers several distinct advantages over the use of excimer lasers, including
ease of use and less invasiveness. Both VISX and Summit have significantly
greater financial resources than the Company. In October 1995, both Summit and
VISX announced that the FDA had approved their PMA applications to commercially
market and sell their excimer laser systems in the U.S. for correctional myopic
refractive disorders. In 1997, VISX received approval to treat astigmatism. It
is unclear what effect these developments will have on the Company's business.
The Company believes the potential use of the process of shrinking collagen
is more attractive than competitive methods because it can address certain
refractive errors with minimal damage to the cornea. There can be no assurance,
however, the method can be reduced to practice using a reliable laser system or
the Company will receive regulatory approvals or successfully market such a
product.
BACKLOG
On December 31, 1996 the Company had a backlog of approximately $200,000.
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WARRANTY AND SERVICE
The Company provides a limited warranty on its dental laser systems. This
warranty is limited to 12 months from date of shipment by the Company. The
Company provides services to systems out of warranty in the United States. The
Company's laser products include microprocessors and software that perform self
checks upon startup and during operation. In addition, the systems feature
software that allows service personnel to perform diagnostic checks in the
field. The Company currently provides support services by telephone to customers
with operational and service problems and makes necessary repairs at its plant
or at the laser site. To date, actual costs incurred related to warranty work
have been minimal.
The Company provides similar warranties and support services to end-users
concerning its direct sales of the gLase ophthalmic laser systems; however, in
the case of sales by the distributors, all product service will be provided by
the distributor.
EMPLOYEES
At December 31, 1996 the Company had 42 full-time employees (including its
executive officers); 13 in manufacturing, 5 in engineering and development, 18
in marketing, sales and regulatory, and 6 in administration.
The Company is primarily dependent upon its engineering and development
employees and consultants for the development and improvement of current and
proposed products. The Company's future success is partially dependent upon its
ability to attract and retain highly qualified scientific and management
personnel.
EXPORT SALES
In 1996, approximately 47% of the Company's revenues were international as
compared to approximately 69% in 1995 and 68% in 1994.
CAUTIONARY STATEMENTS-RISK FACTORS
In the interest of providing the Company's shareholders and potential
investors with certain Company information, including management's assessment of
the Company's future potential, certain statements set forth herein contain or
are based on projections of revenue, income, earnings per share and other
financial items or relate to management's future plans and objectives or to the
Company's future economic performance. Such statements are "forward-looking
statements" within the meaning of Section 27A(I) of the Securities Act of 1933,
as amended, and in Section 21E(I) of the Securities Exchange Act of 1934, as
amended.
Although any forward-looking statements contained herein or otherwise
expressed by or on behalf of the Company are, to the knowledge and in the
judgment of the officers and directors of the Company, expected to prove true
and to come to pass, management is not able to predict the future with absolute
certainty. Accordingly, shareholders and potential investors are hereby
cautioned that certain events or circumstances could cause actual results to
differ materially from those projected or predicted. In addition,
forward-looking statements are based on management's knowledge and judgment as
of the date hereof, and the Company does not intend to update any
forward-looking statements to reflect events occurring or circumstances existing
hereafter.
In particular, the Company believes the following facts could impact
forward-looking statements made herein or in future written or oral releases and
by hindsight, prove such statements to be overly optimistic and unachievable.
History of Losses; Profitability Uncertain; Cash Flow Deficits
Since 1992, the Company has incurred substantial losses which have depleted
its working capital and reduced its stockholders' equity. Losses have been
incurred in both segments of the Company's business, dental and ophthalmic. The
Company's management believes that the Dental Business will operate at a loss
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during 1997. In addition, the Company's ophthalmic business will continue to be
a significant consumer of cash as the revenues from this business are not
expected to be sufficient to cover its operating costs unless and until FDA
approval is obtained to permit domestic sale of the Sunrise Corneal Shaping
System, which approval is not expected until 1999 at the earliest.
The negative cash flows of the Company have been funded during 1995 and
1996 by the sale of additional equity. At December 31, 1996, cash and cash
equivalents of the Company was approximately $650,000, and at March 21, 1997,
after consummation of the 1997 Notes Placement (approximate net proceeds of
$3,743,740), cash and cash equivalents of the Company was approximately
$2,150,000. The Company anticipates that it will be required to raise additional
working capital to fund its activities for 1997 and beyond. Any additional
equity financing may be dilutive to the Company's shareholders. No assurance can
be given that additional financing will be available or that, if available, it
will be available on terms favorable to the Company and its stockholders. If
funds are not available to satisfy the Company's short-term and long-term
operating requirement, the Company may be required to reduce substantially, or
eliminate, certain business, limit or suspend its operations in their entirety
or, under certain circumstances, be forced to seek protection from creditors
under the Bankruptcy Act.
Continuing Losses Expected
The Company expects to report operating losses during 1997 and beyond. The
losses will come primarily from the expenses of the FDA approval process and
underlying clinical studies related to the Sunrise Corneal Shaping System. The
Company will not have any domestic revenues from this product line unless and
until FDA approval is obtained and the international revenues will not be
sufficient to cover the cost of the approval process. The Company anticipates
the sale of the assets of its Dental Business during 1997, of which there can be
no assurance, will fund continuing clinical studies for the Sunrise Corneal
Shaping System. Even if the Dental Business is retained and can operate
profitably, consolidated operating losses would be anticipated at least during
1997.
Going Concern Report
The Company's independent auditors have included an explanatory paragraph
in its report covering the Company's financial statements for the year ended
December 31, 1996, which paragraph emphasizes substantial doubt as to the
Company's ability to continue as a going concern, based primarily on the
recurring operating losses that have been incurred by the Company. If the
company is unable to achieve future profitability or obtain other financing, the
Company may be required to reduce substantially, or eliminate, certain business,
limit or suspend its operations in their entirety or, under certain
circumstances, be forced to seek protection from creditors under the Bankruptcy
Act.
Loss of Dental Revenues
The Company's revenues are substantially derived from the sale of its
dental laser and air abrasive products. In 1996, these sales represented 98% of
the Company's revenues. If the proposed sale of the Dental Assets is
consummated, a portion of the purchase price will be paid in cash which the
Company can use to fund its ophthalmic activities; however, by selling the
Dental Assets, the Company will lose a significant source of continued revenue.
No Assurance of Proposed Dental Sale
If the proposed sale transaction is not consummated, the Company may seek
to sell the Dental Assets to another purchaser. There can be no assurance that
another such potential purchaser can be found, or that such potential purchaser
would be interested in the Dental Assets on terms similar to those contained in
the current proposed sale of dental assets. In any event, the Company would be
required to fund any continuing losses of the Dental Business, and may have to
terminate such Dental Business in its entirety, without receiving any
11
<PAGE>
payment. In addition, management would be required to continue to spend a
significant amount of time dealing with the Dental Business.
Effects of FDA Approval Requirements and Government Regulation on Marketability
of the Company's Systems
The Company's activities are subject to extensive regulation by the FDA and
similar health authorities in certain foreign countries. The Sunrise Corneal
Shaping System is regulated as a Class III medical device by the FDA under the
FDC Act. Class III medical devices require a PMA by the FDA prior to commercial
sale in the U.S. The PMA approval process (and underlying clinical studies) is
lengthy and uncertain and requires substantial commitments of the Company's
financial resources and management's time and effort. Delays in obtaining or
failure to obtain required regulatory approvals or clearances in the U.S. and
other countries would postpone or prevent the marketing of the Sunrise Corneal
Shaping System and other devices and would impair the Company's ability to
generate funds from operations, which in turn would have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance the Company will be able to obtain in a timely manner,
if at all, required premarket approval in the United States or Japan for
intended uses of the Sunrise Corneal Shaping System, or for any other devices
for which the Company may seek approvals or clearances.
The Company has been issued an IDE by the FDA to permit it to generate data
necessary to support a PMA application for the use and marketing of the
Company's holmium laser corneal shaping product in LTK application. The FDA has
advised the Company the initial Phase IIa clinical trials conducted by the
Company did not produce enough statistically significant data to enable the FDA
to determine that the treatment algorithms employed in such clinical trials were
predictable or effective for the treatment of hyperopia. On September 5, 1996,
the FDA authorized the Company to treat an additional 100 subjects at five
United States locations in a continuation of Phase IIa clinical trials using a
treatment algorithm developed by the Company in the course of the initial Phase
IIa clinical trials and in the course of studies conducted by ophthalmologists
in Mexico, Great Britain and Canada. The continued clinical trial is limited to
the treatment of forty subjects for the +1 diopter treatment group and sixty
subjects for the +2 diopter treatment group.
The FDA will grant a PMA with respect to a particular procedure performed
with the Sunrise Corneal Shaping System only if and when it is satisfied the use
of the device for that procedure is safe and effective treatment for the
condition indicated. In granting a PMA, the FDA may restrict the types of
patients who may be treated thereby limiting the market acceptance of the
Sunrise Corneal Shaping System. Even if FDA approval is obtained, a marketed
product is subject to continual review. Later discovery of previously unknown
problems or failure to comply with applicable regulatory requirements may result
in restrictions on the marketing of a product or withdrawal of the product from
the market, in addition to possible criminal and/or civil proceedings.
Modifications to a device that is the subject of an approved PMA, its labeling,
or manufacturing process may require approval by the FDA of PMA supplements or
new PMA's. Supplements to a PMA often require the submission of the same type of
information required for an initial PMA, except the supplement is generally
limited to information needed to support the proposed change from the product
covered by the original PMA. There can be no assurance the Sunrise Corneal
Shaping System will be shown to be safe and effective, or that it will be
approved or cleared by the FDA or foreign regulatory bodies, for the intended
uses for which it is being investigated. Modifications could also be required if
the Company is unable to reach a satisfactory licensing arrangement with the
University of Miami on a jointly developed component of the delivery system (See
"Patent Concerns").
Any products manufactured or distributed by the Company will be subject to
pervasive and continuing regulation by the FDA. The FDC Act also requires the
Company to manufacture its products in registered establishments, in accordance
with the FDA's Good Manufacturing Practices ("GMP") regulations, and to list its
devices with the FDA. Such manufacturing facilities are subject to periodic
requirements with respect to manufacturing and quality assurance activities. The
FDA has proposed changes to the GMP regulations which will likely increase the
cost of compliance with GMP requirements. Labeling and promotional activities
are subject to scrutiny by the FDA and, in certain instances, by the Federal
Trade Commission.
In addition, the introduction of the Company's products in foreign
countries may require obtaining individual foreign regulatory clearances in
numerous countries. These products have been sold in
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<PAGE>
approximately 15 foreign countries. Sales of the Sunrise Corneal Shaping Systems
are restricted in several countries in addition to the United States, including
Japan, Canada, Taiwan and Mexico. There can be no assurance the Company will be
able to obtain regulatory clearances for its products in the United States or
foreign markets.
Uncertain Market Acceptance of the Corneal Shaping System
Although the Company has other ophthalmic laser products, the Company has
and intends to concentrate its efforts primarily on the development of a holmium
laser corneal shaping product for the correction of hyperopia and will be
dependent upon the successful development of that system to generate increased
revenues. Use of the Sunrise Corneal Shaping System for laser thermal
keratoplasty has not yet been introduced commercially in the United States, and
there can be no assurance that if approved by the FDA, such system will be
accepted by either the ophthalmic community or the general population as an
alternative to existing methods of treating refractive vision disorders. Many
ophthalmologists may have already invested significant time and resources in
developing expertise in other corrective ophthalmic techniques. The acceptance
of LTK may be affected adversely by its cost, concerns relating to its safety
and efficacy, the lack of third party reimbursement for LTK, general resistance
to use of laser products on the eye, the effectiveness of alternative methods of
correcting refractive vision disorders, the lack of long-term follow-up data and
the possibility of unknown side effects. Promotional efforts by suppliers of
products or procedures which are alternatives to the Sunrise Corneal Shaping
System, including eyeglasses and contact lenses, may also adversely affect the
market acceptance of LTK. The Company's failure to achieve broad market
acceptance of LTK will have a material adverse effect on the Company's business,
financial condition and results of operations.
Safety and Efficacy Concerns; Lack of Long-Term Follow-Up
The Company has developed only limited clinical data to date on the safety
and efficacy of the Sunrise Corneal Shaping System in correcting farsightedness,
and related long-term safety and efficacy data. The FDA has not yet determined
whether the Sunrise Corneal Shaping System will prove to be safe or effective
for the predictable and reliable treatment of farsightedness or other common
vision problems. Potential complications and side effects from the use of the
Company's Sunrise Corneal Shaping System include post-operative discomfort,
decreases in contrast sensitivity, temporary increases in intraocular pressure
in reaction to post-procedure medication, modest fluctuations in refractive
capabilities during healing, unintended over or under-corrections, regression of
effect, and induced astigmatism. There can be no assurance that long-term safety
and efficacy data when collected will be consistent with the clinical trial
results previously obtained or will demonstrate that the LTK Corneal Shaping
System can be used safely and successfully to treat hyperopia in a broad segment
of the population on a long-term basis.
Limited Trading Market; Application of the Penny Stock Rules
On July 8, 1995, the company's common stock was delisted from The Nasdaq
Stock Market because the Company was unable to maintain the requisite standards
for continuing listing. Accordingly, trading of the Company's common stock is
now conducted on an electronic bulletin board established for securities that do
not meet the Nasdaq listing requirements. As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, the Company's common stock.
While the Company intends to pursue being relisted on The Nasdaq Stock
Market, the Company's securities are now subject to the Commission's "penny
stock rules" that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally defined as an investor with a net
worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale. Consequently, the Company's delisting may affect the ability of
broker-dealers to sell the Company's securities. There can be no assurance that
the Company will be successful in being relisted on The Nasdaq Stock Market in
the near future, if at all.
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<PAGE>
The Commission has adopted regulations that define "penny stock" to be any
equity security that has a market price (as defined) of less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations of the securities and, if the broker-dealer is the sole
market-maker, the monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. As a result of these regulations, an investor
may find it difficult to dispose of the Company's common stock.
Competition
Vision Correction Market
The vision correction industry is subject to intense competition. Patients
with hyperopia (farsightedness) can achieve vision correction with eyeglasses,
contact lenses and radial keratotomy, as well as with other technologies and
surgical techniques currently under development, such as corneal implants and
surgery using different types of lasers. Most of the Company's competitors have
substantially greater product development capabilities and financial and
marketing resources than the Company, which may enable such competitors to
market their products or procedures to the consumer and to the ophthalmic
community in a more effective manner. The success of any competing alternative
to LTK for treating hyperopia would have a material adverse effect on the
Company's business, financial condition and results of operations. The
significant competitive factors in the industry include price, convenience,
success relative to vision correction, acceptance of new technologies, patient
satisfaction and government approval.
The excimer laser is the dominant laser used for the treatment of
refractive disorders, although it is not currently used to treat hyperopia. In
the United States, VISX and Summit are the leading manufacturers of excimer
refractive surgical systems. While the Company believes the LTK process offers
several distinct advantages over the use of excimer lasers for treating
hyperopia, including ease of use and decreased invasiveness, both VISX and
Summit have significantly greater financial resources than the Company and have
received FDA approval for their respective excimer laser products for treating
myopia. Although the VISX and Summit excimer laser products are not currently
approved for treating hyperopia in the United States, any alternative treatment
offered by VISX or Summit will have a competitive advantage because of the name
recognition being created by the current promotion of excimer laser product for
correcting refractive errors using lasers.
Dental Products Market
The Company's dental products include laser systems for soft tissue
applications such as gingivectomies and gum contouring and the Sunrise
MicroPrep(R) System for cavity preparation. The Company's sale of dental laser
systems has decreased significantly in the past few years as a result of
increased competition as well as a decrease in the size of the total market. The
Sunrise MicroPrep(R) System, introduced in 1994, has experienced increased sales
levels as a result of growing market acceptance of this new alternative to
standard drilling technique. The Company's primary competitor in the dental
market is American Dental Technologies, its former distributor and the holder of
basic air abrasion patents (for which the Company has a license). ADT offers
product competitive with the Company's laser and air abrasive products. The
Company's dental products compete with respect to price, ease of use, rapid,
effective treatment and breadth of application. In addition, the Company's
dental products compete with conventional dentist drills and conventional soft
tissue surgery.
Patent Concerns
Although the Company believes it holds all of the U.S. process patents for
the use of holmium lasers in cornea shaping, foreign process patents and U.S.
and foreign apparatus patents for shaping the cornea with holmium lasers have
been issued to others. If patents held by others were considered valid and
interpreted broadly in an adversarial proceeding, they could be deemed to cover
one or more aspects of the Company's holmium laser corneal shaping systems or
use of such systems to perform LTK or other procedures. There can
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<PAGE>
be no assurance the Company and Laser Biotech will not be subject to one or more
claims for patent infringement, or that the Company and Laser Biotech would
prevail in any such action or that its patents will afford protection against
competitors with similarly technology.
In addition, the Company has attempted to negotiate with the University of
Miami to reach agreement regarding the non-exclusive use of a component of the
delivery system used in the Sunrise Corneal Shaping System which was jointly
developed by the Company and the University. The Company believes that it will
be able to make reasonable arrangements with the University. If, however, the
Company is unable to conclude negotiations with the University successfully, the
University may seek to prohibit the manufacture, sale and use of the delivery
system presently configured in the Sunrise Corneal Shaping System. If the
Company is forced to redesign the Sunrise Corneal Shaping System, such redesign
efforts could be time consuming, expensive and prolong FDA review.
In the event the Sunrise Corneal Shaping System is adjudged to infringe a
patent in a particular market, the Company and its customers may be enjoined
from making, selling, and using such system in such market or be required to
obtain a royalty-bearing license, if available on acceptable terms.
Alternatively, in the event a license is not offered or available, the Company
might be required to redesign those aspects of the Sunrise Corneal Shaping
System held to infringe so as to avoid infringement. Any redesign could delay
reintroduction of the Company's products into certain markets, or may be so
significant as to be impractical. If redesign efforts were impractical, the
Company could be prevented from manufacturing and selling the infringing
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
ITEM 2. FACILITIES
The Company leases 26,000 square feet for all its business activities
including executive offices as well as engineering and development,
manufacturing, assembly and testing activities in Fremont, California at a
rental of approximately $26,000 per month, including expenses. The lease expires
in January 1998.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not Applicable
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
As of December 31, 1996, there were 715 holders of record of the Company's
common stock. Price information for the Company's common stock may be obtained
from the OTC Bulletin Board. The table below sets forth the reported high and
low bid quotations of the Company's common stock as reported on the OTC Bulletin
Board for the periods indicated.
Prices for Common Stock
Quarter Ended Low Bid(1) High Ask(1)
------------- ---------- -----------
March 31, 1995 $0.69 $1.97
June 30, 1995 $0.56 $1.25
September 30, 1995 $0.50 $2.37
December 31, 1995 $0.94 $2.44
March 31, 1996 $1.34 $1.44
June 30, 1996 $1.13 $2.31
September 30, 1996 $0.88 $2.00
December 31, 1996 $0.81 $2.13
March 31, 1997 $0.75 $1.72
- ----------
(1) Bid and ask prices are quoted on the OTC Bulletin Board in increments of
1/32. Certain of the bid and ask prices set forth in this table have been
rounded to the nearest cent.
On March 31, 1997, the closing price of the Company's common stock as
reported on the OTC Bulletin Board was $1 3/16 (approximately $1.19) per share.
The over-the-counter market quotations provided herein may reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
Dividends
In the past three years, the Company has not declared or paid any cash
dividend on the common stock. Sunrise currently intends to retain any and all
future earnings to finance its business. Accordingly, the Company does not
anticipate paying cash or other dividends on its common stock in the foreseeable
future.
Recent Sales of Unregistered Securities
The Company did not sell any unregistered securities during the fourth
quarter of 1996.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data derived from
the audited financial statements for the years ended December 31, 1992, 1993,
1994, 1995 and 1996.
<CAPTION>
Year Ended December 31,
(In thousands, except per share amounts)
-------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues $ 8,550 $ 11,860 $ 7,578 $ 5,294 $ 5,654
Gross profit 3,604 5,009 1,340 1,637 1,638
Purchase of in-process 8,466 -- -- -- --
technology
Operating costs and expenses 16,941 11,461 8,257 5,824 7,658
Income (loss) from operations (13,337) (6,452) (6,917) (4,187) (6,020)
Income tax expense (benefit) (1,612) 232 -- -- --
Net income (loss) (11,640) (6,624) (6,910) (4,130) (5,968)
Net income (loss) per share (1.44) (0.74) (0.68) (0.28) (0.23)
Shares used in calculation of 8,111 8,955 10,129 14,935 26,414
net income (loss) per share
Total assets 10,339 5,511 3,822 6,689 3,741
Long term obligations 79 18 -- -- --
Total stockholders' equity 9,038 2,708 1,357 4,745 1,272
Working capital 7,877 1,965 1,101 4,541 1,073
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company has incurred substantial losses in the past five years which
have seriously depleted its working capital. Sales of its existing dental
products at current levels will not be sufficient to sustain both the existing
business and the continued development and regulatory licensing of additional
products including the LTK system. Historically, the Company has been able to
raise additional working capital for all aspects of its business through the
private placement of its common stock. These private placements raised
approximately $15,546,000 in gross proceeds (approximately $15,296,000 in net
proceeds) between 1994 and 1996 in new equity for the Company. Pursuant to the
1997 Notes Placement, consisting of two-year convertible notes and warrants, the
Company raised approximately $3,743,740 in net procees.
On March 12, 1997 the Company announced that it had entered into an
agreement for the sale of the Dental Assets to Lares, a privately held company
located in Chico, California, pursuant to which Lares will pay the Company a
total of $5.5 million, consisting of $4.0 million in cash and $1.5 million in
notes payable over four years. The transaction is subject to stockholder
approval.
Since its inception, the Company has generated revenues from the
manufacture and sale of laser systems for applications in dental and medical
fields. In 1994, the Company introduced an air abrasive cavity
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<PAGE>
preparation system for the dental market. After an initial period of commercial
success, laser product sales have decreased steadily from a high of
approximately $20 million in 1991 to approximately $2 million in 1996. During
1996, the FDA Dental Advisory Panel voted to reject the Company's application
for the utilization of its dental laser products for hard tissue application,
which further limits the potential market for these products. The Company does
not anticipate significant increases in revenues from existing laser products in
1997.
In 1992, the Company acquired patented technology covering the use of a
holmium laser to reshape the cornea, which the Company believes will be useful
in the treatment of hyperopia, presbyopia and over correction from photo
refractive keratectomy (previously defined as "PRK"). The Company filed its PMA
Application with the FDA in 1992 and commenced Phase I clinical trials in that
year. The FDA approval process is expected to continue through at least 1999
with the cost of clinical studies increasing as the number of sites and patients
increases during the period. Although the Company has had limited sales of its
Corneal Shaping System outside the United States, significant revenues cannot be
expected unless and until FDA approval is obtained to market the system in the
United States.
The following table sets forth certain operations data as a percentage of
net revenue for the periods indicated.
Year Ended December 31,
1996 1995 1994
---- ---- ----
Net Revenues 100% 100% 100%
Cost of revenues 71 69 82
----------------------
Gross profits 29 31 18
----------------------
Other costs and expenses:
Engineering and development 24 23 20
Sales, marketing and regulatory 64 43 50
General and Administration 48 44 39
----------------------
Total other costs and expenses 135 110 109
----------------------
Loss from operations (106) (79) (91)
Interest income, net of expense 1 1 --
----------------------
Loss before taxes on income (105) (78) (91)
Income tax expense (benefit) -- -- --
----------------------
Net Loss (105%) (78%) (91%)
======================
Revenues
The Company's revenues have historically been comprised primarily of sales
related to its dental products (98% in 1996, 76% in 1995 and 79% in 1994).
Revenues fell from $7,578,000 in 1994 to $5,294,000 in 1995, a decrease of
approximately 31%. The decrease is attributable to reduced demand for the
Company's dental laser products, which was partially offset by sales of the
Company's dental air abrasive products, first shipped in mid-1994. The Company
had achieved significant sales of dental laser products in Germany in 1994.
These sales levels in Germany were not achieved in later periods. During 1995,
the Company terminated its relationship with its exclusive distributor in
Germany. Sales of the Company's ophthalmic products, primarily non-U.S. sales of
the Corneal Shaping System, were also lower in 1995 than 1994. Non-dental sales
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<PAGE>
represented 20% of revenue in 1994 and 22% in 1995.
Revenues increased from $5,294,000 in 1995 to $5,655,000 in 1996, an
increase of approximately 7%. Sales of dental laser systems during 1996
increased slightly from prior levels. Sales of ophthalmic products were
insignificant in 1996 as the Company concentrated its limited resources on its
FDA clinical studies rather than overseas marketing. Significant increases in
sales of the Company's air abrasive products during 1996 more than offset the
decrease in sales of its ophthalmic products. The introduction of the MicroPrep
Associate(R) in the first quarter of 1996 provided the impetus for the increase
in sales of the air abrasive product line.
Gross Profit
Gross profit margins were 18%, 31% and 29% in 1994, 1995 and 1996
respectively. The 1995 improvement in gross profit, when compared to 1994, is
attributed to introduction of the cost-reduced MicroPrep(R) Director, increased
pricing though direct distribution and improved manufacturing efficiencies.
Gross profit margins decreased in 1996 to 29% primarily as a result of
increased sales of dental products through distributors and the decrease in
sales of Corneal Shaping Systems which carry a higher gross margin than dental
products.
Engineering and Development
Engineering and development expenses were $1,561,000, $1,218,000 and
$1,326,000 for the years ended 1994, 1995 and 1996, respectively. Engineering
and development expenses decreased by $343,000 in 1995, due primarily to
completion of development of the MicroPrep(R) product.
Engineering and development increased by $108,000 in 1996 compared to 1995
due primarily to development costs associated with the CureStar curing system, a
dental product introduced in the first quarter of 1997.
Sales, Marketing and Regulatory
Sales, Marketing and Regulatory expenses were $3,763,000, $2,277,000 and
$3,632,000 for the years ended 1994, 1995 and 1996 respectively.
The Company currently markets its ophthalmic lasers and dental products
through a small direct sales organization working with dealers, distributors and
manufacturer's representatives in the United States. Distribution for all
products internationally is handled through distributors. The Company had
thirteen direct sales employees at the end of 1995, and three at the end of
1996.
Sales, Marketing and Regulatory expenses decreased to $2,277,000 in 1995,
approximately a 40% reduction from the 1994 level. This reduction is principally
due to the lower international sales and marketing costs, including commissions,
as a result of decreased revenues in Germany.
Sales, Marketing and Regulatory expenses increased in 1996 over 1995 by 60%
due primarily to incremental costs associated with the development of a direct
sales force late in 1995, the launch of the MicroPrep Associate(R) in the first
quarter of 1996 and costs associated with the expansion of the Phase IIa FDA
ophthalmic clinical studies (see "Business") and FDA review of the Company's PMA
submitted for use of its dental lasers for hard tissue applications.
General and Administrative
General and administrative expenses were $2,933,000, $2,329,000 and
$2,700,000 for the years ended 1994, 1995 and 1996, respectively.
The Company's general and administrative expenses consist primarily of
product liability and officer and director liability insurance premiums;
accounting, legal and other fees related to financial transactions, patent
19
<PAGE>
and general corporate matters, and litigation as well as provisions for the
Company's allowance for bad debts. General and Administrative expenses decreased
to $2,329,000 in 1995, approximately a 20% reduction from the 1994 level, due
primarily to reduction in legal and accounting fees associated with litigation.
General and administrative expenses in 1996 increased compared to 1995
primarily as a result of costs associated with the proposed acquisition of
EyeSys Technologies and the development of a new management team for the
ophthalmic business.
Income taxes
At December 31, 1996 and 1995, all deferred tax assets computed in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", have been fully offset by a valuation allowance.
As of December 31, 1996, the Company had federal net operating loss
carry-forwards of approximately $25,000,000. The ownership provisions of the
Internal Revenue Code of 1986 would limit the utilization of the carry-forwards
should there be a substantial change in the Company's ownership.
Net loss
The Company reported losses of $6,910,000, $4,130,000 and $6,020,000 in
1994, 1995 and 1996, respectively.
The net loss in 1994 was due principally to a severe drop in laser sales in
both the domestic and international market place and a decrease in foreign sales
of dental lasers. Somewhat offsetting these reductions were the initial sales of
the MicroPrep(R) and across-the-board reductions in operating expenses.
The net loss in 1995 was due principally to the continued low level of
sales, excess manufacturing capacity and the Company's need to maintain the
basic sales, marketing, regulatory and corporate infrastructure. Although
across-the-board operating expense reductions totaled $2,433,000 in 1995 when
compared to 1994, the reductions do not offset the low level of sales volume.
The net loss in 1996 was due primarily to increased selling, marketing and
product development costs required to grow the business. A new sales, marketing,
and regulatory team was hired to focus on sales of the Corneal Shaping System
outside the United States and FDA clinical trials were expanded, along with
expansion of clinical research, to further advance the technology.
Liquidity and Capital Resources
As of December 31, 1996 the Company had $647,000 in cash and cash
equivalents. The Company's operating activities used $5,297,000 in cash during
1996. This was funded from the reduction of cash and $2.2 million net proceeds
received from a common stock private placement in August, 1996.
Working capital amounted to $4,541,000 at December 31, 1995 and decreased
to $1,073,000 at December 31, 1996. The overall reduction in working capital is
consistent with the current year loss and fund raising activity.
The Company's current operations continue to be cash flow negative, further
straining the Company's working capital resources. The level of current product
sales is not sufficient to provide enough cash to pursue the Dental Business and
support ongoing development and regulatory approval of the LTK system.
Management's plans include selling the Dental Assets and field of use rights
related to its Dental Business. If successful
20
<PAGE>
in selling the Dental Assets, the Company will focus on further developing and
seeking regulatory approval of its ophthalmic related products. Such approval
may take several years. Although dental related sales have represented the
majority of historical sales (98% in 1996, 76% in 1995 and 79% in 1994),
management's strategic plan is to use the proceeds from the sale of the Dental
Assets and the 1997 Notes Placement to further develop the ophthalmic products,
specifically the Sunrise Corneal Shaping System. There can be no assurance that
the Company will successfully consummate the sale of the dental assets, which is
subject to stockholder approval. There can also be no assurance that the Corneal
Shaping System will receive regulatory approval and the Company will be
successful in developing, manufacturing, and marketing the Corneal Shaping
System or other ophthalmic related products.
In February and March 1997 the Company completed private placements of 5%
convertible notes due 1999 (convertible into common stock) and warrants to
purchase common stock, for aggregate net proceeds of approximately $3.7 million.
Management believes the net proceeds from the 1997 Notes Placement and cash from
the expected sale of the Dental Assets will provide sufficient funds for the
Company's planned operations for 1997. Should the sale of the Dental Assets not
be successfully completed, the Company may need to seek additional debt or
equity financing. There can be no assurance that such financing, if necessary,
will be available, in which case management may need to curtail or suspend
certain or all operations.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated balance sheets at December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flow for
each of the three years in the period ended December 31, 1996 and the notes
thereto appear as noted in the index listed under Item 14(a).
ITEM 9: CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Directors And Executive Officers" in the Registrant's
Proxy Statement to be filed not later than April 30, 1997 ("Proxy Statement") is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial Owner's and
Management" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Relationships and Related Transactions" in
the Proxy Statement is incorporated herein by reference.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
The following documents are filed as part of this report:
Page in this
Annual Report on
Form 10-K
---------
Report of Ernst & Young LLP, Independent Auditors 25
Consolidated Balance Sheets - December 31, 1995 and 1996 26
Consolidated Statements of Operations* 27
Consolidated Statement of Stockholders' Equity* 28
Consolidated Statements of Cash Flows* 29
Notes to Consolidated Financial Statements 30
*For the years ended December 31, 1996, 1995, 1994
2. Financial Statement Schedules
The following financial statement schedule is filed as
part of this report:
Schedule II - Valuation and qualifying accounts 38
All other schedules have been omitted as they are not required, not
applicable, or the required information is included in the financial
statements or notes thereto.
3. Exhibits
Exhibit Description
- ------- -----------
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
2.1 Asset Purchase Agreement dated as of March 26, 1997, by and
among Sunrise and Lares Research, a California corporation
3 Charter Documents
3.1 Certificate of Incorporation, as amended (1)
3.2 Bylaws (1)
4 Instruments Defining the Rights of Security Holders
4.1 Form of 5% Convertible Notes due 1999 (6)
4.2 Form of Security Agreement relating to 5% Convertible Notes
due 1999 (6)
4.3 Form of Registration Rights Agreement (6)
4.4 Form of Warrant issued to Pennsylvania Merchant Group (4)
10 Material Contracts
10.1 Lease Agreement with Bayside Spinnaker Partners III, as
lessor, for the lease of facilities at 47257 Fremont
Boulevard, Fremont, California, dated July 16, 1991 (2)
10.2 Patent License Agreement between Sunrise and Patlex
Corporation dated January 1, 1990 (3)
10.3 Agreement between Sunrise and the University of Miami,
Department of Ophthalmology, dated October 28, 1991 (2)
10.4 Joint Development and Exclusive Manufacturing Agreement dated
April 17, 1993 between Sunrise and Danville Engineering, Inc.
(1)
10.5 Settlement Agreement between Sunrise and American Dental
Laser, Inc., dated February 4, 1993 (confidential treatment
has previously been granted for portions of this exhibit) (4)
10.6 License Agreement between Sunrise and American Dental Laser,
Inc., dated February 4, 1993 (confidential treatment has
previously been granted for portions of this exhibit) (4)
10.7 Settlement Agreement with between Sunrise and American Dental
Technologies, dated July 30, 1996
*10.8 Form of Indemnification Agreement between Sunrise and each of
its officers and directors (3)
23
<PAGE>
*10.9 1988 Stock Option Plan, as amended (5)
*10.10 Employment Agreement entered into between Sunrise and Joseph
W. Shaffer, dated April 5, 1989 (5)
10.11 Form of U.S. Note and Warrant Purchase Agreement relating to
the Regulation D private placement of 5% convertible notes due
1999 and warrants in February and March 1997
10.12 Form of Offshore Note and Warrant Purchase Agreement relating
to the Regulation S private placement of 5% convertible notes
due 1999 and warrants in March 1997
11 Statement regarding Computation of Per Share Loss
11.1 Statement regarding computation of per share loss for the
years ended December 31, 1996, 1995 and 1994
21 Subsidiaries of Registrant
21.1 Subsidiaries of Sunrise
22 Power of Attorney (included on the signature pages to this Form
10-K)
23 Consents of Experts
23.1 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
- ----------
* Compensatory plan or management contract
(1) Incorporated by reference from the registrant's Annual Report on Form
10-K for the year ended December 31, 1994 (File No. 0-17816)
(2) Incorporated by reference from the registrant's Annual Report on Form
10-K for the year ended December 31, 1991 (File No. 0-17816)
(3) Incorporated by reference from the registrant's Registration Statement
on Form S-1, as amended (File No. 33-36768)
(4) Incorporated by reference from the registrant's Annual Report on Form
10-K for the year ended December 31, 1992 (File No. 0-17816)
(5) Incorporated by reference from the registrant's Registration Statement
on Form S-18, as amended (File No. 33-27029-LA)
(6) Incorporated by reference from the registrant's Current Report on Form
8-K dated March 12, 1997 (File No. 0-17816)
Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
24
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sunrise Technologies International, Inc.
We have audited the accompanying consolidated balance sheets of Sunrise
Technologies International, Inc. as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sunrise Technologies International, Inc. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that Sunrise Technologies International, Inc. will continue as a going
concern. As more fully described in Note 1, the Company has incurred recurring
operating losses. This condition raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
Palo Alto, California
March 10, 1997
25
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Balance Sheets
December 31,
1996 1995
-----------------------
(In thousands)
-----------------------
Assets
Current assets:
Cash and cash equivalents $ 647 $ 3,514
Accounts receivable, net of allowance of
$ 140,000 and $25,000 in 1996 and 1995 472 1,048
Inventories 2,135 1,666
Prepaid expenses 288 257
-----------------------
Total current assets 3,542 6,485
Property and equipment, net 199 204
-----------------------
Total assets $ 3,741 $ 6,689
=======================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,586 $ 1,097
Accrued payroll and related expenses 209 181
Accrued warranty 199 324
Other accrued expenses 475 342
-----------------------
Total current liabilities 2,469 1,944
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; 2,000,000
shares authorized, none issued or outstanding -- --
Common stock, $0.001 par value; 40,000,000 shares
authorized, 27,868,613 and 25,279,716 shares
issued and outstanding at December 31, 1996
and 1995, respectively 28 25
Additional paid-in-capital 31,688 29,196
Accumulated deficit (30,444) (24,476)
-----------------------
Total stockholders' equity 1,272 4,745
-----------------------
Total liabilities and stockholders' equity $ 3,741 $ 6,689
=======================
See accompanying notes.
26
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Statements of Operations
Years ended December 31,
1996 1995 1994
---------------------------------
(In thousands, except per share amounts)
Net revenues $ 5,654 $ 5,294 $ 7,578
Cost of revenues 4,016 3,657 6,238
---------------------------------
Gross profit 1,638 1,637 1,340
---------------------------------
Other costs and expenses:
Engineering and development 1,326 1,218 1,561
Sales, marketing and regulatory 3,632 2,277 3,763
General and administrative 2,700 2,329 2,933
---------------------------------
Total other costs and expenses 7,658 5,824 8,257
---------------------------------
Loss from operations (6,020) (4,187) (6,917)
Interest income, net of expense 52 57 7
---------------------------------
Net loss $ (5,968) $ (4,130) $ (6,910)
=================================
Net loss per share $ (0.23) $ (0.28) $ (0.68)
=================================
Shares used in calculation of net loss per
share 26,414 14,935 10,129
=================================
See accompanying notes.
27
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Statement of Stockholders' Equity
Three Years ended December 31, 1996
<CAPTION>
Common Stock Additional Total
----------------------- Paid-In Treasury Accumulated Stockholders'
Shares Amount Capital Stock Deficit Equity
---------------------------------------------------------------------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 9,008,293 $ 9 $16,135 $ -- $(13,436) $ 2,708
Sale of common stock, net of offering costs 1,250,000 1 5,507 -- -- 5,508
Exercise of warrants and options 200,993 -- 670 -- -- 670
Treasury stock acquired through sale of
surgical laser business -- -- -- (619) -- (619)
Net loss -- -- -- -- (6,910) (6,910)
---------------------------------------------------------------------------
Balance at December 31, 1994 10,459,286 10 22,312 (619) (20,346) 1,357
Sale of common stock, net of offering costs 15,100,000 15 7,528 -- -- 7,543
Cancellation of treasury stock (275,000) -- (619) 619 -- --
Other (4,570) -- (25) -- -- (25)
Net Loss -- -- -- -- (4,130) (4,130)
---------------------------------------------------------------------------
Balance at December 31, 1995 25,279,716 25 29,196 -- (24,476) 4,745
Sale of common stock, net of offering costs 2,333,412 3 2,242 -- -- 2,245
Exercise of warrants and options 243,252 -- 243 -- -- 243
Other 12,233 -- 7 -- -- 7
Net Loss -- -- -- -- (5,968) (5,968)
---------------------------------------------------------------------------
Balance at December 31, 1996 27,868,613 $ 28 $31,688 $ -- $(30,444) $ 1,272
===========================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
28
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
Years ended December 31,
1996 1995 1994
-------------------------------
(In thousands)
Cash flows from operating activities
Net $(5,968) $(4,130) $(6,910)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 438 102 469
Provision for doubtful accounts 115 25 --
Changes in assets and liabilities:
Accounts receivable 461 (303) 777
Inventories (837) 289 (68)
Prepaid expenses (31) 25 (69)
Accounts payable 489 (278) (1,091)
Accrued payroll and related expenses 28 31 68
Accrued warranty (125) -- 181
Other accrued expenses 133 (256) 571
-------------------------------
Total adjustments 671 (365) 838
-------------------------------
Net cash used in operating activities (5,297) (4,495) (6,072)
Cash flows from investing activities
Purchase of property and equipment (65) (50) (22)
-------------------------------
Net cash used in investing activities (65) (50) (22)
-------------------------------
Cash flows from financing activities
Payment on capital lease obligations -- (18) (61)
Issuance of common stock, net of offering costs 2,495 7,518 6,178
-------------------------------
Net cash provided by financing activities 2,495 7,500 6,117
-------------------------------
Net increase (decrease) in cash and equivalents (2,867) 2,955 23
Cash and cash equivalents at beginning of period 3,514 559 536
-------------------------------
Cash and cash equivalents at end of period $ 647 $ 3,514 $ 559
===============================
See accompanying notes.
29
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. Organization and Summary of Significant Accounting Policies
Organization and Nature of Business
Sunrise Technologies International, Inc. (the "Company") develops,
manufactures and markets laser systems and other products for applications in
ophthalmology and dentistry. The Company was organized as a California
corporation in March 1987 and was reincorporated in Delaware in June 1993 as
Sunrise Technologies International, Inc. The Company continues to do business
under the name Sunrise Technologies, Inc.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries after elimination of all material intercompany
balances and transactions. Certain reclassifications have been made to prior
year amounts in order to conform to the current presentation.
The Company has incurred significant losses for the last several years and
at December 31, 1996 has an accumulated deficit of $30,444,000. The accompanying
financial statements have been prepared assuming the Company will continue as a
going concern. The Company's ability to continue as a going concern is dependent
upon performing profitably or obtaining further financing. Management's plans
include selling assets and field of use rights related to its dental operations.
If successful in selling the dental assets the company will focus on further
developing and seeking regulatory approval of its ophthalmic related products.
Such approval may take several years. Although dental related sales have
represented the majority of historical sales (98% in 1996, 76% in 1995 and 79%
in 1994), management's strategic plan is to use the proceeds from the sale of
the dental assets and debenture offering in March of 1997 to further develop the
ophthalmic products, specifically the Sunrise Corneal Shaping System. There can
be no assurance that the Company will successfully consummate the sale of the
dental assets, which is subject to stockholder approval. There can also be no
assurance that the Corneal Shaping System will receive regulatory approval and
the Company will be successful in developing, manufacturing, and marketing the
Corneal Shaping System or other ophthalmic related products.
In March 1997 the Company completed a private placement consisting of
two-year convertible notes and warrants resulting in net proceeds of
approximately $3.7 million. Management believes the net proceeds from the
convertible debenture offering and cash from the expected sale of the dental
assets will provide sufficient funds for the Company's planned operations for
1997. Should the sale of the dental assets not be successfully completed the
Company may need to seek additional debt or equity financing. There can be no
assurance that such financing, if necessary, will be available, in which case
management may need to curtail or suspend certain or all operations.
Industry Segment and Concentration of Risk
The Company, which operates in a single industry segment, designs,
manufactures, markets and services medical laser and air abrasive systems. The
Company sells its products to customers in the medical industries globally. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations. One customer
accounted for 16%, 21% and 57% of revenues in 1996, 1995 and 1994 respectively.
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash investments and trade
receivables. The Company invests its excess cash in deposits with major banks,
in U.S. Treasury and U.S. Agency obligations.
30
<PAGE>
Concentration of Other Risks
The Company's operating results each quarter are subject to various
uncertainties as discussed in the Company's Annual Report on Form 10-K for 1996,
including uncertainties related to the composition, timing and size of orders
from the shipments to major customers, variations in product mix and variations
in product cost and competitive pressures.
Inventories: Most components used in the Company's air abrasive and laser
systems are purchased from outside sources. Certain components in the air
abrasive systems are currently purchased from a single supplier. The failure of
such supplier to meet its commitment on schedule could have a material adverse
effect on the Company. If the sole source supplier were to go out of business or
otherwise become unable to meet its supply commitments, the process of locating
and qualifying alternate sources could require up to several months during which
time the Company's production could be delayed. Such delays could adversely
affect the Company's business and financial results.
International Operations: Sunrise's international business is an important
contributor to the Company's net revenues and gross profits. Substantially all
of Sunrise's international sales are denominated in the U.S. dollar and an
increase in the value of the U.S. dollar relative to foreign currencies could
make products sold internationally less competitive. The Company does not have
any overseas offices.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash consists of cash on deposit with banks and highly liquid investments
with a maturity from the date of purchase of 90 days or less. As of December 31,
1996 and 1995, the Company did not hold any investments in debt or equity
securities.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventory at December 31, consists of:
1996 1995
--------------------------------
(In thousands)
Raw materials $1,180 $909
Work-in-process 299 237
Finished goods 656 520
--------------------------------
$2,135 $1,666
================================
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method for financial
31
<PAGE>
reporting over estimated useful lives of two to five years. Assets under
capitalized leases are amortized over the shorter of the term of the lease or
their useful lives, and such amortization is included with depreciation expense.
Property and equipment at December 31, consists of:
1996 1995
------------------------------
(In thousands)
Machinery and equipment $1,644 $1,412
Computer Equipment 611 599
Furniture and fixtures 207 207
Leasehold improvements 392 167
------------------------------
2,854 2,385
Less accumulated depreciation and (2,655) (2,181)
amortization
------------------------------
$199 $204
==============================
Net Loss Per Share
Net loss per share for the years ended December 31, 1996, 1995 and 1994 is
based solely on weighted average shares of common stock outstanding during the
period. Common equivalent shares have not been considered in the computation
since their inclusion would have an anti-dilutive effect.
Revenue Recognition
Revenues are recognized at time of shipment. A provision for the estimated
future cost of warranty is made at the time a sale is recorded.
Export Sales
The Company had export sales by region as follows:
1996 1995 1994
-----------------------------------------------
(In thousands)
Europe $1,036 $1,948 $4,291
Pacific Rim 1,602 1,192 139
Canada ---- 248 393
Other ---- 282 363
-----------------------------------------------
Total $2,638 $3,670 $5,186
================================================
32
<PAGE>
2. Taxes on Income
As of December 31, 1996, the Company had federal and state net operating
loss carryforwards of approximately $24,600,000 and $11,000,000, respectively.
The federal net operating loss carryforwards will expire at various dates
beginning on 2007 through 2011. The state net operating loss carryforwards will
expire at various dates through 2001.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.
Significant components of the Company's deferred tax assets as of December
31 are as follows:
1996 1995
---------------------------------
(In thousands)
Deferred tax assets:
Net operating loss carry-forwards $9,000 $7,175
Research credits (expire 2007-2011) 600 642
Other 600 949
---------------------------------
Total deferred tax assets 10,200 8,766
Valuation allowance for deferred tax assets (10,200) (8,766)
---------------------------------
Net deferred tax assets $ ---- $ ----
=================================
Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $1,928,000 during the year ended December 31, 1995.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change provisions of the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.
3. Commitments and Contingencies
Leases
The Company leases certain of its facilities and equipment under a
non-cancelable operating lease. Rent expense was $299,000, $281,000 and $279,000
in 1996, 1995 and 1994, respectively.
Future minimum lease payments under the lease are $255,000 in 1997 and
$21,000 in 1998.
Litigation Settlements
In July 1996, the Company settled all of its outstanding litigation with
ADT. The material terms of the settlement are as follows:
(a) The Company waived its rights to collect a judgment for $940,000
obtained against ADT in a prior case, which had been subject to an
appeal by ADT.
(b) The Company obtained a non-exclusive license to certain ADT patents
covering air abrasion systems used in dental applications.
(c) The Company will pay ADT a royalty of 7% on all air abrasion products
shipped after December 31, 1996.
33
<PAGE>
(d) If the Company sells its dental air abrasion assets before July 1998,
it must pay to ADT a transfer fee on the amount received for the air
abrasion assets.
4. Stockholders' Equity
Common Stock
As of December 31, 1996, there remains 38,340 outstanding warrants to
purchase common stock which were issued in connection with the acquisition of
Laser Biotech, Inc. in April 1992. The exercise prices of these warrants range
from $3.70 to $9.26 per share.
In conjunction with a 1992 private placement, the placement agent received
a warrant to purchase 25,000 shares of common stock for $8.05 per share. The
warrant is exercisable at any time prior to August 28, 1997.
In February 1994, the Company completed a private placement of 1,250,000
shares of common stock. In connection with the private placement, the placement
agent received a warrant to purchase 62,500 shares of common stock. The exercise
price for these warrants is $6.00 per share and they are exercisable at any time
before February 8, 1999.
In June 1995, the Company completed a private placement of 2,100,000 shares
of common stock.
In September 1995, the Company completed a private placement of 13,000,000
shares of common stock. In connection with the private placement, the placement
agent received a warrant to purchase 675,000 shares of common stock. The
exercise price for these warrants is $0.55 per share and they are exercisable at
any time before September 6, 2000.
In August 1996, the Company completed a private placement of 2,334,000
shares of common stock. In connection with the private placement, the placement
agent received a warrant to purchase 116,721 shares of common stock. The
exercise price for these warrants is $1.06 per share and they are exercisable at
any time between August 7, 1997 and August 7, 2001.
As of December 31, 1996, there were warrants outstanding to purchase
917,561 shares of common stock.
Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("FAS 123")
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation is recognized.
In 1988, the Company adopted the 1988 Stock Option Plan (the "Plan") under
which employees, directors and consultants may be granted incentive or
non-statutory stock options. Under the Plan, incentive stock options must be
granted at an exercise price of not less than the fair market value of the
common stock at the date of grant, except that options granted to shareholders
owning greater than 10 percent of the total voting power of all classes of stock
of the Company must have an exercise price of not less than 110 percent of the
fair market value at the date of grant. Non-statutory options must be at least
85 percent of fair market value at the date of grant. Options granted generally
provide that 25 percent of the shares subject thereto become exercisable one
year after the date of grant and 1/36 of the remaining shares subject to the
option become exercisable each month thereafter. The Plan expires in 1998.
34
<PAGE>
<TABLE>
The following table summarizes the Company's stock option activity and
related information for the three years ended December 31, 1996:
<CAPTION>
Outstanding Options
------------------------------------------------------------
Shares
Available For Share
Grant Shares Price
<S> <C> <C> <C>
Balance, December 31, 1993 415,350 771,900 $0.75 - $8.50
Shares reserved 440,000 ---- ----
Granted (1,168,214) 1,168,214 $2.00
Exercised ---- (189,561) $0.75 - $5.63
Canceled 582,339 (582,339) $1.25 - $8.50
------------------------------------------------------------
Balance, December 31, 1994 269,475 1,168,214 $0.75 - $2.00
Shares reserved 1,550,000 ---- ----
Granted (1,633,331) 1,633,331 $0.97 - $2.50
Exercised ---- ---- ----
Canceled 1,497,381 (1,497,381) $1.00
------------------------------------------------------------
Balance, December 31, 1995 1,683,525 1,304,164 $0.75 - $2.50
Shares reserved ---- ---- ----
Granted (1,816,000) 1,816,000 $1.11*
Exercised ---- (243,252) $1.00*
Canceled 389,474 (389,474) $1.44*
------------------------------------------------------------
Balance, December 31, 1996 256,999 2,487,438 $1.03*
============================================================
<FN>
* Represents the weighted average exercise price for the applicable options.
</FN>
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding and Exercisable
-------------------------------------------------------
Weighted
Average Weighted
Number Remaining Average
Outstanding Contractual Exercise
Life Price
(Years)
$0.75 - $1.00 748,604 4.0 $1.00
$1.01 - $1.25 1,695,834 3.8 $1.05
$1.26 - $1.50 38,000 1.0 $1.49
$1.51 - $1.75 5,000 1.0 $1.63
-------------------------------------------------------
2,487,438 3.8 $1.03
=======================================================
As of December 31, 1996 and 1995, options to purchase 680,248 and 472,840
shares respectively were
35
<PAGE>
exercisable. In 1995, 1,058,331 options to purchase shares were reissued at
$1.00 per share under an option exchange program. During 1994 options
outstanding were canceled and reissued under an option exchange program.
Pro forma information regarding net loss and net loss per share is required
by FAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using the Black-Scholes
pricing model with the following weighted-average assumptions for 1996 and 1995,
respectively: risk-free interest rates of 5.7% and 5.6%; no dividend yield;
volatility factors of the expected market price of the Company's common stock of
0.955; and expected life of the options of 4.8 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
For the Years Ending
December 31,
1996 1995
--------------------------------------
(In thousands, except per share amounts)
Pro forma net loss $6,390 $4,220
Pro forma net loss per share $0.24 $0.28
The weighted average grant date fair value of options granted during 1996
and 1995 were $0.74 and $0.89 respectively.
Because FAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until fiscal
1997. The effects on pro forma disclosures of applying FAS 123 are not likely to
be representative of the effects on pro forma disclosures in future years.
Employee Stock Purchase Plan
In June 1992, the Company adopted the 1992 Employee Stock Purchase Plan
under which 200,000 shares have been reserved for issuance. Eligible employees
may purchase common stock at 85 percent of the lower of the closing price of the
stock on the offering date or the exercise date determined by the Board of
Directors. Purchases are limited to 10 percent of each employee's compensation.
There were 40,656 and 34,689 shares issued under the plan as of December 31,
1996 and 1995, respectively.
36
<PAGE>
5. Supplemental Statement of Cash Flows Information
1996 1995 1994
--------------------------------------
(In thousands)
Cash received during the year for:
Interest 52 ---- ----
6. Events Subsequent to Date of Auditor's Report (Unaudited)
On March 25, 1997, the Company signed an agreement to sell its dental
assets to Lares Research. Consideration for the sale will be $4.0 million in
cash on completion, $1.0 million in an 8% interest bearing note receivable three
years from the date of closing and $0.5 million in an 8% interest bearing
promissory note four years from the date of closing. This transaction is subject
to stockholder approval and other conditions.
37
<PAGE>
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End
of Period Expenses Deductions Other(A) of Period
---------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Reserves and allowances deducted from assets accounts:
Allowance for uncollectible accounts $981 $ ---- $ ---- $(531) $450
Allowance for inventory $886 $ ---- $ ---- $(373) $513
Year ended December 31, 1995
Reserves and allowances deducted from assets accounts:
Allowance for uncollectible accounts $450 $25 $(450) $---- $25
Allowance for inventory $513 $250 $(295) $---- $468
Year ended December 31, 1996
Reserves and allowances deducted from assets accounts:
Allowance for uncollectible accounts $25 $115 ---- $---- $140
Allowance for inventory $468 $---- $(118) $---- $350
<FN>
(A) Amounts relate to valuation allowance assigned to disposed assets.
</FN>
</TABLE>
38
<PAGE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: April 10, 1997
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
By: /s/ David W. Light
----------------------------
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each of the officers and directors of Sunrise Technologies International,
Inc. whose signature appears below hereby constitutes and appoints David W.
Light and Joseph W. Shaffer, and each of them, their true and lawful
attorneys-in-fact and agents, with full power and substitution, each with power
to act alone, to sign and execute on behalf of the undersigned any amendment or
amendments to this Report on Form 10-K, and to perform any acts necessary to be
done in order to file such amendment, and each of the undersigned does hereby
ratify and confirm all that such attorneys-in-fact and agents, or their or his
substitutes, shall do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David W. Light David W. Light April 9, 1997
- ----------------------------------------- Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Clara R. Munley Clara R. Munley April 9, 1997
- ----------------------------------------- Vice President, Finance and
Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ C. Russell Trenary, III C. Russell Trenary, III April 9, 1997
- ----------------------------------------- President, Chief Operating Officer and
Director
/s/ Joseph W. Shaffer Joseph W. Shaffer April 9, 1997
- ----------------------------------------- Vice President and Director
/s/ Joseph D.Koenig Joseph D. Koenig April 9, 1997
- ----------------------------------------- Director
</TABLE>
39
Exhibit 2.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is executed on March 25, 1997 between
Sunrise Technologies International, Inc., a Delaware corporation ("seller"),
having its principal place of business at 47257 Fremont Blvd., Fremont,
California 94538, and Lares Research, a California corporation ("buyer"), having
its principal place of business at 295 Lockheed Avenue, Chico, California 95973.
RECITALS
A. Seller is engaged in the business of developing, manufacturing,
distributing and selling high-technology dental lasers, abrasive tooth cutting
systems, and composite curing systems (the "Dental Business"). Seller is also
engaged in an ophthalmic business, and intends to continue to conduct its
ophthalmic business.
B. Seller and buyer have entered into a Letter of Intent dated November
14, 1996, which was agreed to by seller on November 18, 1996, and amended by
letter dated February 24, 1997, stating the intent of seller to sell the Dental
Business and the intent of buyer to purchase the Dental Business, subject to the
negotiation and execution of a definitive agreement between the parties.
C. Seller and buyer desire to enter into this agreement to set forth
the definitive agreement of seller and buyer for the sale of the Dental Business
to buyer.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Agreement for Purchase and Sale.
Subject to the terms and conditions of this Agreement, seller hereby
agrees to sell, assign, transfer and deliver to buyer, and buyer agrees to
purchase from seller free and clear of all liens or encumbrances, all of the
assets, properties, and business of seller, whether tangible, intangible, real,
personal or mixed, and wherever located, that are held for use in the operation
of and are a part of seller's Dental Business, excluding only the assets
described in section 1.2, below (the "assets"), which assets include but are not
necessarily limited to the following:
A. All of the seller's supplies, materials, equipment, machinery,
tools, instruments, furniture, fixtures, and other tangible personal property
(the "tangible property") held for use by seller in the Dental Business. A
listing of the items of tangible property having an original cost greater than
$1,000.00 shall be prepared, approved by buyer and signed by the parties, and
attached to this agreement as Exhibit 1.1A prior to the closing.
B. All of seller's inventories (the "inventory") of parts, work in
process, and finished goods used and produced in the business of the Dental
Business. Seller and buyer agree that a physical inventory
<PAGE>
will be taken jointly immediately prior to the closing and the actual inventory
purchased by the buyer shall be based thereon. A listing of the inventory being
purchased shall be prepared, approved by buyer and signed by the parties, and
attached to this agreement as Exhibit 1.1B prior to the closing.
C. All outstanding inventory purchase and product sales orders,
together with any deposits or prepayments received by seller on account thereof.
A listing of the inventory purchase and product sales orders, deposits and
prepayments shall be prepared by seller, approved by buyer and signed by the
parties, and attached to this agreement as Exhibit 1.1C prior to the closing.
D. All of seller's claims and rights under leases, contracts, trade
secrets, patents, patent applications, trademarks, service marks, trade names,
copyrights, inventions, formulas, knowhow, confidential proprietary technical
information, licenses, royalty rights, deposits, rights and claims to refunds
and adjustments of any kind, computer programs, software or firmware, data
processing information, and any other intellectual property, that are held for
use by seller in the Dental Business. Included in the foregoing shall be all
information, documents, design files, files, notes, and records of every kind
and nature prepared or maintained in connection with the research and
development activities of seller's Dental Business, including but not limited to
those concerning the original development of existing products, enhancements or
changes made to products of the Dental Business (whenever made), enhancements or
changes proposed to be made or being considered to be made to existing products,
or the development of new products. A partial listing of these claims and rights
shall be prepared by seller, approved by buyer and signed by the parties, and
attached to this agreement as Exhibit 1.1D signed by the parties prior to the
closing.
E. Contact information, including address and telephone numbers, for
vendors, customers, and others used by seller in the Dental Business, and any
yellow pages and trade journal advertising, web site files and web site links,
and all other advertising relating to the Dental Business.
F. All of seller's goodwill in the Dental Business, including all of
the seller's files (in any format, including paper and electronic), documents,
lists and records relating to the customers of and vendors to the Dental
Business (the "customer lists").
G. A Covenant Not to Compete pursuant to paragraph 4.1 of this
agreement.
1.2 Excluded Assets.
There shall be excluded from the assets sold hereunder:
A. Except for the deposits and prepayments described in paragraph 1.1C
of this agreement, all cash, cash items, accounts receivable, investments, stock
and other securities of seller;
B. All of seller's general financial records, provided that buyer shall
have the right to obtain copies of the financial records which buyer shall
reasonably require with respect to the continuing conduct of the business of the
Dental Business and with respect to filings with governmental and taxing
authorities concerning the assets;
C. All of seller's property, files and records used in connection with
seller's ophthalmic business or not relating to the Dental Business. Buyer
acknowledges that certain of seller's trade secrets, inventions, formulas,
knowhow and confidential proprietary technical information have applications to
and are used by seller in seller's ophthalmic business (collectively referred to
as "proprietary ophthalmic
-2-
<PAGE>
information"), and seller retains such proprietary ophthalmic information for
all uses, other than in Dental Business applications, including, without
limitation, such rights and proprietary information as it may have with respect
to the neodymium yag and other lasers;
D. The real property used in the business of the Dental Business,
subject to the provisions of paragraphs 4.7 and 9.9, hereof; and
E. The assets and rights described on Exhibit 1.2 to this agreement.
ARTICLE 2
CONSIDERATION FOR ASSETS
As full consideration for the transfer of the assets to buyer, buyer
agrees to pay and deliver to seller at the closing the following:
2.1 Cash Portion. The sum of Four Million Dollars ($4,000,000) in cash
(the "cash portion"). Upon execution of this agreement, buyer agrees to deposit
the sum of Two Hundred Fifty Thousand Dollars ($250,000) (the "deposit") with
Mid Valley Title & Escrow Company, 601 Main Street, Chico, California 95928 (the
"escrow company") which sum, together with the remaining cash portion, will be
paid to Seller at the closing. The deposit shall be refunded to buyer in the
event the purchase and sale of the assets does not close as a result of failure
of any of the conditions precedent to the obligations of buyer contained in
Sections 9.1 through 9.6, Section 9.7B, and Section 9.8, hereof. Seller and
buyer agree to execute such instructions as shall be required by the escrow
company as a condition to receipt and holding of the deposit.
2.2 Promissory Note. Buyer's promissory note, dated as of the closing
date, in the principal amount of One Million Five Hundred Thousand Dollars
($1,500,000) in the form of Exhibit 2.2A attached hereto and incorporated herein
by this reference. The promissory note shall be secured by a Security Agreement
in substantially the form of Exhibit 2.2B attached hereto and incorporated
herein by this reference and a Deed of Trust in standard form. Seller agrees to
execute a subordination agreement in favor of Bank of America NT&SA (the "bank")
subordinating seller's rights under the Security Agreement and Deed of Trust to
rights conferred upon the bank under its financing documents with buyer. Prior
to the closing, Buyer agrees to enter into such revisions to the form of
promissory note, security agreement and deed of trust as may be reasonably
requested by seller as a result of restrictions which may be placed upon seller
under the terms of the subordination agreement requested by the bank to the
extent that the restrictions are substantially different from those contained in
the bank's standard "Business Loan Subordination Agreement", or upon buyer under
the bank's financing agreements with buyer.
2.3 Allocation of Purchase Price. The purchase price shall be allocated
as follows:
A. $2,750,000 to the laser products portion of the Dental Business.
B. $2,200,000 to the air abrasive products portion of the Dental
Business.
C. $550,000 to the CureStar composite curing lamp portion of the Dental
Business.
-3-
<PAGE>
ARTICLE 3
LIABILITIES
3.1 No Assumption of Liabilities.
Except as stated in paragraphs 3.3 and 5.3, it is expressly agreed and
understood that buyer shall not assume and in no event shall buyer be deemed to
have assumed or agreed to pay or perform, and seller shall at all times remain
solely responsible for, any debts, contracts, commitments, obligations or
liabilities of seller of any kind or nature whatsoever, including but not
limited to those of the Dental Business or connected in any way to the assets
arising or accruing prior to the closing , and specifically including those
arising out of or connected in any way to claims based on products liability
theories of recovery.
3.2 Payment of Seller's Liabilities.
Prior to or at the close of escrow, all of Seller's liabilities
incurred in Seller's operation of the Dental Business shall be adequately
provided for to buyer's reasonable satisfaction.
3.3 Assumption of Contracts.
Buyer agrees to assume all of seller's obligations on those contracts,
licenses, or other agreements listed on Exhibit 3.3 attached hereto and
incorporated herein by this reference, including, without limitation, all
outstanding inventory purchase and product sales orders, as described in Exhibit
1.1C, but only to the extent of obligations that are executory or arise and
accrue thereunder from and after the closing date, and all unsatisfied warranty
obligations of seller related to Dental Business products.
ARTICLE 4
OTHER AGREEMENTS
4.1 Covenant Not to Compete and Non-Disclosure Agreement.
A. During the period commencing on the closing date and ending on the
date which is five (5) years after the closing date, except as otherwise
approved in advance and in writing by buyer, seller agrees not to, directly or
indirectly, for seller's own account, or through, on behalf of, or in
conjunction with any person, firm, corporation, business or other legal entity,
(i) own, maintain, operate, control, have any interest in, perform consulting
services for or otherwise engage in any business or enterprise which sells or
leases products or provides services in competition with or similar to or the
same as the products sold or leased by or services provided by the seller as
part of the Dental Business as of the closing date within any territory or
geographic area throughout the world in which seller through its Dental Business
may be doing business, or (ii) induce or attempt to persuade any employee, agent
or customer of the Dental Business to terminate his or her employment, agency or
business relationship with buyer in order to enter into any such relationship on
behalf of any competing business. Nothing herein shall be construed to restrict
Seller's use of its proprietary ophthalmic information and laser products in
ophthalmic or any other applications other than in the Dental Business.
B. Seller further agrees not to divulge, communicate, use to the
detriment of the buyer or for the benefit of any other person or persons, or
misuse in any way, any confidential information or trade secrets of the seller
that is part of the assets being purchased hereby, including personnel
information,
-4-
<PAGE>
secret processes, know-how, customer lists, formulas or other technical data,
except as may be required by law, provided however, that this prohibition,
subject to the agreement of seller contained in paragraph 4.1A, shall not apply
to any information which, through no improper action of seller, is publicly
available or generally known in the industry.
C. To the extent necessary to satisfy the laws of any state, including
the state of California, seller agrees that any geographical, temporal or other
restriction set forth in this paragraph 4.1 can and should, if necessary, be
judicially modified to the extent necessary to make it enforceable and enforced
as modified.
D. It is agreed between the parties that buyer would be irreparably
damaged by reason of any violation of the provisions of this paragraph 4.1, and
that any remedy at law for a breach of such provision would be inadequate. Buyer
shall therefore be entitled to seek and obtain injunctive or other equitable
relief (including, but not limited to, a temporary restraining order, a
temporary injunction or a permanent injunction) against seller, seller's agents,
assigns or successors of a breach or threatened breach of such provisions and
without the necessity of proving actual monetary loss. It is expressly
understood among the parties that this injunctive or other equitable relief
shall not be the buyer's exclusive remedy for any breach of this paragraph 4.1
and subject to the provisions of Section 11, the buyer shall be entitled to seek
any other relief or remedy which it may have by contract, statute, law or
otherwise for any breach hereof, and it is agreed the buyer shall also be
entitled to recover its attorneys' fees and costs in any successful action or
suit against seller relating to any such breach.
E. Seller warrants and represents that it: (i) is familiar with
covenants not to compete; (ii) has discussed the provisions of the covenant not
to compete contained herein with its attorney and has concluded that such
provisions (including, without limitation, the right to equitable relief and the
length of time and size of area provided for herein) are fair, reasonable, and
just under the circumstances; and (iii) is fully aware of the obligations,
limitations and liabilities included in the covenant not to compete contained in
this agreement.
4.2 Employees.
A. Prior to the closing, buyer agrees to coordinate in advance with
seller's chief executive officer as to all communications or contacts for any
purpose with seller's employees. Buyer wishes to have the opportunity to have
certain employees of buyer observe seller's manufacturing processes prior to the
closing. Seller will allow buyer's employee's to have such access if so
requested by buyer at such times and with such frequency, subject to such
conditions and with regard to such operations and processes as seller and its
employees may determine; provided, that the presence of buyer's employees do
not, in the sole judgment and discretion of seller's chief executive officer,
interfere with seller's employees or seller's normal business operations.
B. Immediately preceding the closing, seller shall, at its sole expense
and responsibility, terminate, effective as of the closing, employment of any
employees of seller providing services in connection with the Dental Business
upon receipt of written notice from buyer that buyer has made an offer of
employment to such employees, which offer has been accepted. Seller shall have
no obligation to terminate the employment of any other of Seller's employees.
Buyer shall have no responsibility for any wages, benefits and other payments or
obligations due or becoming due (including any benefits which have accrued, but
which have not been paid) employees of seller or former employees arising out of
their employment prior to the closing or the termination of their employment by
seller including, without limitation, any liability for any injuries of such
employees relating to any period prior to closing.
-5-
<PAGE>
Employment of the same persons by buyer shall not cause nor be deemed
to cause buyer to assume or be responsible for any of such obligations or
liabilities of seller. It is the intent of this paragraph to define the duties
and obligations only as between the parties hereto. Accordingly, nothing
contained herein shall be deemed to create any third party beneficiary rights to
others.
C. With respect to any person who accepts regular employment with buyer
prior to the closing, during the five (5) year period following the closing
Seller agrees not to directly or indirectly solicit the personal services of any
such person, and during the one (1) year period following the closing Seller
agrees not to hire, or otherwise directly or indirectly make use of the personal
services of, any such person.
D. Seller agrees to make available to buyer at seller's business
premises those employees who worked in the Dental Business prior to the closing
but remain as employees of seller, upon written request from buyer, on up to a
full time basis for a six (6) month transition period after the closing. In
addition, after the transition period, seller shall make available to buyer at
either seller's premises or such other locations may be requested by buyer such
employees of seller for one (1) year after the Closing Date, if reasonably
requested by buyer from time to time in connection with buyer's conduct of the
Dental Business; provided that such services to buyer shall not unreasonably
interfere with seller's normal business operations. In the event of a conflict,
the requirements of seller shall have priority over those of buyer.
E. For any services rendered by seller's employees during the
transition period or in the one year period after the closing, seller shall be
reimbursed for all travel, lodging and other out-of-pocket expenses incurred by
seller or its employees, and shall be paid for each of its employees providing
services to buyer the product of the following: (number of hours spent by
employee on services to buyer) x (employee's hourly rate of pay from seller) x
(1.25) within thirty (30) days after the services have been provided. If any
affected employees are compensated on a basis other than hourly, seller shall
calculate an equivalent hourly rate of pay, assuming a 40-hour work week and a
52-week work year. Buyer acknowledges that seller is providing the services of
its employees as an accommodation and agrees that seller and its employees shall
have no liability with respect to any services rendered, and buyer further
agrees to indemnify and hold harmless seller and its employees from any damages,
costs, losses, liability or expense arising as a result of such accommodation.
4.3 Risk of Loss.
The risk of loss to any of the assets being purchased shall remain with
seller until the closing. Buyer shall have the option to either cancel this
Agreement without further obligation or to negotiate a pro rata reduction in the
purchase price of the assets in the event of any material loss, destruction, or
damage to the assets by reason of fire, other casualty, or other cause prior to
such time.
4.4 Time.
Time is of the essence in connection with the performance of the
covenants, agreements and obligations arising under this agreement.
4.5 Use of Sunrise Name.
Seller hereby grants buyer the right to use the name "Sunrise
Technologies" and "Sunrise" (the "Sunrise names") as follows:
-6-
<PAGE>
A. Buyer may distribute any and all supplies of brochures and other
marketing and promotional materials concerning the Dental Business, sell any
item or items of inventory, containing the Sunrise names, and use any packaging
materials containing the Sunrise names that exist as of the closing in the
ordinary course of business, provided that buyer agrees to place a notice on the
materials to the effect that buyer is now the owner of the Dental Business and
will be selling, distributing, and warranting the products. The form of notice
shall be approved in advance by Sunrise, which approval shall not be
unreasonably withheld, and seller agrees to promptly review and respond to
buyer's notice proposal.
B. Buyer may use the "Sunrise" name for a period of one (1) year after
the Closing Date in new marketing materials and advertising to indicate that the
Dental Business products being sold by buyer were formerly manufactured,
marketed and sold by seller. The form of use of the "Sunrise" name shall be
approved in advance by Sunrise, which approval shall not be unreasonably
withheld, and seller agrees to promptly review and respond to buyer's proposals
for use.
C. Buyer agrees to indemnify and hold harmless seller and seller's
successors and assigns from and against any and all loss and expense (as those
terms are defined in paragraph 11.1, below) in connection with or arising from
any claim relating to the use of the Sunrise names.
4.6 Access to Records.
Subject to Section 1.2B, Buyer acknowledges that buyer will receive,
and seller agrees to deliver to buyer at the closing all documents, books,
papers, files and other records or data relating to the operation of the Dental
Business, and Seller shall not be obligated to retain any of such materials
except as required by law or as is reasonably prudent for tax and SEC
requirements. For a period of six (6) years following the closing date seller
shall make available to buyer or buyer's representatives and official designees,
during normal business hours for any proper purpose, such books, papers, files
or other records or data of or relating to the operation of the business of the
Dental Business of seller prior to the closing date as seller may have in its
possession or under its control, if any, and permit buyer to make copies and
extracts therefrom at buyer's expense. For a period of six (6) years after the
closing date, seller agrees not to dispose of all or part of such records or
data in its possession without giving buyer less than forty-five (45) days'
advance written notice of seller's intention to make such disposal.
4.7 Lease of Premises.
Seller holds a lease for the premises from which seller operates (the
"premises") through January 31, 1998 for approximately 25,000 sq. ft. From the
Closing Date, through such period of time as buyer may have equipment or
materials located at the premises, or any employees working for buyer from the
premises, the base rent and the additional rent payable to the landlord under
the lease shall be allocated as follows: seller shall be responsible for base
rent and additional rent for 8,000 sq. ft., buyer shall be responsible for base
rent and additional rent for 12,000 sq. ft., and seller and buyer shall share
equally base rent and additional rent for the remaining portion of the premises.
As of the first day of the month following buyer's vacation of the premises,
seller shall be responsible for base rent and additional rent for 8,000 sq. ft.,
and seller and buyer shall share equally base rent and additional rent for the
remaining portion of the premises until such time as the lease is terminated or
assigned, provided that buyer shall not be responsible for any share of the cost
of utilities paid directly by the tenant provided to the premises after buyer
has vacated the premises. Seller and buyer shall use their respective best
efforts (without the expenditure of money) to find a new tenant for the premises
for any time period after buyer has given seller notice that it intends to
vacate the premises. Any amount received from any subtenant(s) shall be applied
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on a pro-rata basis to reduce the obligations of the parties under this
paragraph. Seller has obtained the consent of the landlord to buyer's use of the
premises as described in this Section.
4.8 Insurance Coverage After Closing. Seller agrees to maintain, for a
period of five (5) years after the closing, the products liability insurance
coverage in existence at the time of execution of this agreement, or
substantially similar coverage, and to name buyer as an additional insured under
said insurance coverage. Seller agrees to give buyer at least 60 days' advance
notice of a decision to terminate said insurance coverage, and shall instruct
the insurance carrier to provide buyer at least 30 days' advance notice of a
cancellation or lapse of said coverage. Said insurance coverage shall provide
for the option to purchase at least 5 years of extended reporting ("tail
coverage"). As additional insured, buyer shall be entitled to purchase, and
seller hereby expressly authorizes buyer to so acquire if seller does not
purchase, the tail coverage at any time said tail coverage may be purchased. If
buyer exercises the option to purchase the tail coverage, buyer shall be
responsible for the premium cost of the tail coverage for any period beyond the
above-referenced 5 year period, and seller agrees to pay the premium cost of the
tail coverage for the portion of the tail coverage that applies to said 5 year
period.
ARTICLE 5
THE CLOSING
5.1 Closing Date.
The closing of the purchase and sale of the assets (the "closing")
shall be consummated at 10:00 A.M., local time, at the seller's principal place
of business, on or before the later of (i) thirty (30) days after the effective
date of this agreement or (ii) three (3) business days after receipt of approval
of the sale by seller's shareholders as required by paragraph 10.4, hereof, or
at such other time and place or on such other date as may be agreed upon by
seller and buyer in writing (the "closing date"), but in no event later than May
15, 1997. Possession of the assets shall be transferred to buyer as of 12:01
a.m. on the date of closing.
5.2 Closing Date Deliveries.
A. Subject to satisfaction or waiver of the conditions set forth
herein, on the closing date seller shall deliver to buyer (i) duly executed
instruments of transfer and assignment in form and substance reasonably
satisfactory to buyer sufficient to vest in buyer good and valid title to all of
seller's right, title and interest in and to the assets, (ii) such other
documents as reasonably may be necessary to enable buyer to deal with, utilize,
sell and/or collect on the assets which are the subject of this Agreement, (iii)
originals or copies, as appropriate, of the materials reviewed by buyer in
buyer's due diligence inspections, and (iv) each of the other instruments and
documents required to be delivered by seller hereunder.
B. Subject to satisfaction or waiver of the conditions set forth
herein, on the closing date buyer shall deliver to seller (i) the $250,000
deposit held in escrow by certified check or by wire transfer of immediately
available funds from the escrow company and $3,750,000 by wire transfer of
immediately available funds, together constituting the cash portion, (ii)
buyer's duly executed promissory note as described in paragraph 2.2, (iii)
buyer's duly executed Security Agreement and Deed of Trust as described in
paragraph 2.2, and (iv) each of the other instruments and documents required to
be delivered by buyer hereunder.
5.3 Prorations. All state and local real and personal property taxes,
rent, utilities and
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telephone services, and any other ongoing services utilized by the seller in the
Dental Business and specifically assumed in writing by buyer, if any, shall be
prorated between seller and buyer as of the date of closing. Buyer will not be
responsible for any business, occupation, withholding, or similar tax, or for
any taxes of any kind related to any period before the closing date. Any and all
sales taxes arising because of the sale of tangible property pursuant to this
Agreement shall be paid by the seller. Seller shall pay all fees associated with
the transfer of the ADL licenses to use patents.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to buyer to enter into this agreement and to
consummate the transactions contemplated hereby, seller hereby represents and
warrants to buyer and agrees as follows:
6.1 Organization of Seller.
Seller is a corporation duly organized, validly existing, and in good
standing under the laws of the state of Delaware, is qualified to do business in
and in good standing under the laws of the state of California, and neither the
nature of its properties nor the conduct of its business requires seller to be
qualified to transact business as a foreign corporation in any other state or
jurisdiction in which the failure to be so qualified and in good standing would
be materially adverse to the seller.
6.2 Corporate Power.
The seller has full power and authority to own or lease and operate its
properties and to conduct its business as now being conducted.
6.3 Authority of the Seller.
A. The seller has full power and authority to execute and deliver this
agreement and each of the agreements and instruments contemplated hereby to be
executed and delivered by seller and to perform all acts which are necessary or
desirable to be performed by it to carry out the terms, conditions and
provisions thereof.
B. Subject to obtaining the consent described in Section 10.4C, the
execution, delivery and performance of this agreement and each of the agreements
and instruments contemplated hereby to be executed and delivered by seller have
been duly authorized and approved by all necessary corporate action of the
seller and no further corporate action on the part of the seller is necessary to
authorize such execution, delivery and performance. Subject to obtaining the
consent described in Section 10.4C, this agreement has been duly executed and
delivered by seller and constitutes, and each of the agreements and instruments
contemplated hereby to be executed and delivered by the seller will when duly
executed and delivered constitute, the legal, valid and binding obligation of
the seller, enforceable against the seller in accordance with its terms, subject
only (i) to applicable bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally and (ii) to general principles of
equity.
C. Upon acquiring the consents identified herein, neither the execution
and delivery by seller of this agreement nor the execution and delivery by
seller of any of the other agreements or instruments contemplated hereby to be
executed and delivered by the seller nor the consummation of any of the
transactions contemplated hereby or thereby nor compliance by seller with or
fulfillment of the terms,
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conditions and provisions hereof or thereof will (i) conflict with, result in a
breach of the terms, conditions or provisions of, or constitute a default under,
the charter or bylaws of seller, any note, agreement, conditional sales
contract, indenture, mortgage, deed of trust, guarantee, lease, license, permit,
judgment, order, or other material agreement, commitment or arrangement to which
seller is a party or to which seller or seller's assets or any real property
owned or leased by seller are bound or affected and which is material to the
business and properties of the Dental Business, or any law, statute, rule or
regulation to which seller is subject, or (ii) require the approval, consent,
authorization of exemption by, or filing with any person not a party to this
Agreement or any court, governmental authority or regulatory or self-regulatory
body.
6.4 Financial Statements.
Schedule 6.4 hereto contains the audited statement of financial
condition of the seller as of December 31, 1996 (such statement of financial
condition being herein called the "Seller's Audited Balance Sheet") and the
related statements of retained earnings, operations and cash flows for the
twelve month period then ended, together with appropriate notes to such
financial statements, certified by Ernst & Young, Certified Public Accountants.
Such statements of financial condition, retained earnings, operation and cash
flows (and the Closing Unaudited Financial Statement described in paragraph 8.5
and its related statements of retained earnings, operations and cash flows) have
been prepared in conformity with generally accepted accounting principles
consistently applied (including, without limitation, provision for deferred tax
liability, and except for the absence of notes to the Closing Unaudited
Financial Statements and subject to normal year-end adjustments which are not
material) and present fairly the financial position of the company and the
Dental Business, respectively, and the results of operations as of their
respective dates and for the respective periods covered thereby.
6.5 Absence of Changes.
Except as disclosed in Schedule 6.5, since December 31, 1996:
A. There has not been any material adverse change in the assets,
properties, liabilities, business or condition (financial or otherwise) of the
Dental Business and no fact or condition exists or is contemplated or threatened
which might reasonably be expected to cause such a change in the future.
B. The seller has conducted the business of the Dental Business only in
the usual, regular and ordinary course and consistent with past practice.
Without limiting the generality of the foregoing, since December 31, 1996,
except as contemplated by this agreement the seller has not (i) sold, leased,
transferred or otherwise disposed of or mortgaged, pledged, or imposed or
suffered to be imposed any lien on any of the assets of the Dental Business
reflected on the Seller's Audited Balance Sheet or any assets of the Dental
Business acquired by the seller after December 31, 1996, other than property
sold or otherwise disposed of for fair value in the ordinary course of the
seller's business consistent with past practice; (ii) canceled or agreed to
cancel any debts owed to or claims held by the seller associated with the
business of the Dental Business other than in the ordinary course of the
seller's business consistent with past practice; (iii) entered into any material
contract or other agreement or any amendment or termination thereof with respect
to the Dental Business; (iv) made any change in the accounting policies, methods
or practices followed by the seller with respect to the Dental Business; or (v)
entered into or become committed to enter into any other transaction concerning
the business of the Dental Business except in the ordinary course of business.
6.6 Absence of Undisclosed Liabilities.
The seller is not subject to any liability with respect to or in any
manner affecting the Dental
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Business whether absolute, contingent, accrued or otherwise, which is not shown
or which is in excess of the amount shown or reserved for in the Seller's
Audited Balance Sheet, other than liabilities of the same nature and scope as
those which are set forth or reserved for in the Seller's Audited Balance Sheet
and the notes thereto incurred in the ordinary course of business after the date
of the Seller's Audited Balance.
6.7 Tax Returns.
Except as disclosed in Schedule 6.7, seller has filed all federal,
state and local income, excise, withholding, payroll, property, sales, use,
franchise and other tax returns required to be prepared or filed by or on behalf
of the seller in accordance with applicable law, and has paid all taxes,
interest, assessments, deficiencies and penalties due and payable to any taxing
authority. Except as disclosed in Schedule 6.7, there are no current audits
pending and no current disputes as to seller's liability for taxes of any
nature. All federal, state and local income, excise, withholding, payroll,
property, sales, use, franchise and other tax returns required to be filed by or
on behalf of the seller on or prior to the closing date will be true, correct
and complete and duly and timely filed in accordance with applicable law.
6.8 Assets.
The listing of assets in paragraph 1.1 and in the exhibits described
therein is a complete and accurate list of seller's assets being sold hereunder.
The assets constitute all the assets necessary or appropriate to conduct the
Dental Business as conducted by seller as of the date of execution of this
agreement and are, to the best knowledge of seller, in good condition and repair
(subject to normal wear and tear) and are suitable for the uses for which
intended. To the best knowledge of seller, all such assets and their uses
conform in all material respects to all applicable laws, regulations, rules,
ordinances, codes, licenses, franchises and permits (including, without
limitation, building, zoning, environmental and occupational safety and health
requirements), and no written notice of any violation of any of such matters
relating to such assets and their use has been received by the seller.
6.9 Title to Assets; Condition.
A. Seller has, and will have at the closing, good, valid and
indefeasible title to all the assets. All the assets are free and clear of
restrictions on or conditions to transfer or assignment and are free and clear,
or will be free and clear at the closing, of mortgages, liens, pledges, charges,
encumbrances, claims and other covenants, conditions or restrictions. Seller is
not a party to, and the assets are not bound by, any agreement that is
materially adverse to the assets. There are no liabilities or obligations with
respect to the assets, either accrued, absolute, direct, contingent or
otherwise, which would affect the value of the assets. Except for the licenses
described on Exhibit 1.1D, none of the assets is leased or subject to any other
agreement or right inconsistent with full ownership of the assets.
B. Except as described on Schedule 6.9B, to the knowledge of seller,
subject to the reserve for obsolescence shown on seller's Audited Balance Sheet,
the inventories of the seller consist of merchandise of a quality and quantity
usable and saleable in the ordinary course of the conduct of the Dental Business
and are valued at the lower of cost (on a FIFO basis) or market in accordance
with generally accepted accounting principles consistently applied. The term
"saleable" shall include use of inventory to perform warranty or non-warranty
service or repair of products sold by seller in the conduct of the Dental
Business, whether or not seller receives additional consideration for the
service or repair.
C. The customer accounts receivable of the seller have arisen from bona
fide transactions in the ordinary course of business of the Dental Business.
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D. EXCEPT AS SET FORTH IN THIS AGREEMENT, THERE ARE NO OTHER WARRANTIES
OF SELLER, EXPRESS OR IMPLIED, WITH RESPECT TO THE ASSETS OR INVENTORIES.
6.10 Litigation.
A. The seller has complied in all material respects with all laws,
regulations, rules or ordinances of, and with all judgments, writs, decrees,
injunctions or orders of, any foreign, federal, state, county, municipal or
other government or governmental department, commission, board, bureau, agency
or instrumentality which are applicable to the Dental Business or the assets,
except for such failures to comply as in the aggregate would not have a material
adverse effect on the seller.
B. Except for workers compensation claims, there are no lawsuits,
actions, claims, suits, proceedings or investigations, legal, equitable,
administrative, through arbitration or otherwise, pending or, to the best
knowledge of seller, threatened against seller, its officers or directors or
affecting the assets or operations of seller's Dental Business, and (ii) there
is no action, suit or proceeding pending or, to the best knowledge of seller,
threatened against seller which questions the legality or propriety of the
transactions contemplated by this agreement or the agreements contemplated
hereby.
6.11 Permits.
A. The seller owns, holds or possesses all material governmental,
regulatory, and/or private licenses, registrations, franchises, permits,
privileges, immunities, approvals and other authorizations which are necessary
to entitle it to own or lease, operate and use its properties and assets related
to the Dental Business and to carry on and conduct its Dental Business as
currently conducted (herein collectively called "Permits"). Schedule 6.11 hereto
sets forth a list and brief description of each Permit owned, held or possessed
by the seller and used in the Dental Business. Seller is not aware of any
non-material licenses, permits, or other authorizations that are needed to carry
on and conduct the Dental Business.
B. Seller has delivered, or will deliver prior to closing, to buyer
complete and correct copies of all Permits owned, held or possessed by the
seller and used in the Dental Business. The seller has fulfilled and performed
its obligations under each of the Permits which, if failed to be performed,
could have a material adverse effect on the seller. No written notice of
cancellation, of default or of any dispute concerning, any such Permit has been
received by the seller, or is known to seller. Except as set forth on Schedule
6.11, each of the Permits owned, held or possessed by the seller will continue
in full force and effect after the consummation of the transactions contemplated
by this agreement and will accrue to the benefit of and be owned, held or
possessed by buyer without (i) the occurrence of any breach, default or
forfeiture of rights thereunder, (ii) the consent, approval, or act of, or the
making of any filing with, any governmental body, regulatory commission or other
party, or (iii) the payment of any transfer or consent fee.
6.12 Environmental Matters.
A. The seller does not own any real property. Schedule 6.12A sets forth
a list and brief description of each lease or other agreement (including a
description of premises and its rental term and location) under which the seller
is lessee of, or holds or operates or has an interest in, any real property not
owned by the seller that is used in the operation of the Dental Business. The
seller has the right to quiet enjoyment of all such real property described in
such Schedule for the full term of each such lease or
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similar agreement (and any related renewal option relating thereto). To the best
knowledge of seller, neither the whole nor any part of any real property owned,
leased, used or occupied by the seller is subject to any suit for condemnation
or other taking by any public authority, and no such condemnation or other
taking is threatened or, to the best knowledge of seller, contemplated.
B. The seller is operating in material compliance with all
environmental Permits and seller has not received any notice from any
governmental or regulatory authority of violation of any environmental, health
or safety laws or environmental Permits.
C. To the best knowledge of seller, neither the real property
identified on Schedule 6.12A nor any other real property now or previously
owned, leased, used or occupied by seller is the subject of any investigation by
any governmental or regulatory authority evaluating whether any remedial action
is needed to respond to a release of any hazardous or toxic substance or waste,
including but not limited to medical or biological wastes, petroleum or
petroleum-based substance or waste, onto, at or beneath the real property.
D. Schedule 6.12D lists any materials known to seller that are located
at the seller's premises that might be considered, under applicable law, a
hazardous or toxic substance or waste. Except as disclosed on Schedule 6.12D,
there is not now, nor was there at any time during the seller's tenure on any
real property owned or leased by the seller:
1. Any treatment, storage, recycling or disposal of any
hazardous waste requiring a permit under 40 C.F.R. Part 264 or 256, or any state
equivalent;
2. Any underground storage tanks used for the seller's
operations or liability for which is assumed under the applicable lease executed
by the seller;
3. Any asbestos-containing building or insulating materials;
or
4. Any seller-owned or operated electrical transformers or
other equipment containing polychlorinated biphenyls.
6.13 Employees and Related Agreements; ERISA.
A. Except as set forth in Schedule 6.13A, with respect to the Dental
Business, the seller is not a party to or subject to or bound by any written or,
to the best knowledge of seller, oral: (i) employee collective bargaining
agreement, employment agreement, consulting, advisory, agency, or service
agreement, deferred compensation agreement, confidentiality agreement or
covenant not to compete; (ii) employees, pension, profit-sharing, stock option,
bonus, incentive, stock purchase, welfare, life insurance, hospital or medical
benefit plan or any other employee benefit agreement or plan; or (iii) any
contract or agreement with any officer, director or employee of the seller
(other than employment agreements).
B. Seller has heretofore delivered to buyer a list of all employees and
commissioned salespersons of the seller providing any services in connection
with the business of the Dental Business, which is current as of March 1, 1997,
setting forth the total annual compensation (salary and other benefits) payable
as of such date to each of such employees or commissioned salespersons.
6.14 Contracts.
A. Except as set forth in Schedule 6.14, the seller, in connection with
the operation of the
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Dental Business, is not a party to or bound by, and the assets are not subject
to: (i) any sales, agency, royalty, commission or franchise agreement; (ii) any
letter of credit or guarantee of the obligations of others; (iii) any loan
agreement or other instrument relating to indebtedness of the seller or any
instrument or arrangement creating liens on any property of the seller; (iv) any
contract, agreement, commitment, arrangement or understanding not elsewhere
specifically disclosed pursuant to this agreement involving the payment or
receipt by the seller of more than $10,000 per year or $25,000 over the term
thereof; other than purchase orders or agreements for the purchase of inventory,
supplies or equipment entered into in the ordinary course of business described
on Exhibit 1.1C or (v) any other contract, agreement or commitment, written or,
to the best knowledge of seller, oral, which is material to the seller or the
business of the Dental Business that is not terminable on no more than 30 days
notice and involves at least $2,000, whether or not made in the ordinary course
of business.
B. Except as set forth in Schedule 6.14, each of the contracts,
agreements and commitments listed in any schedule hereto to which the seller is
a party and which buyer has agreed to assume as set forth on Exhibit 3.3 hereto
(collectively the "Contracts") constitutes a valid and binding obligation of the
seller and, to the best knowledge of seller, the other parties thereto and is in
full force and effect and will continue in full force and effect to the
exclusive benefit of buyer following the consummation of the transactions
contemplated by this agreement and the agreements contemplated hereby, and in
each case without (i) breaching the terms thereof or resulting in the forfeiture
or impairment of any material rights thereunder, or (ii) the approval, consent
or act of any other party, or any foreign, federal, state or local court,
governmental authority or regulatory body. The seller has performed in all
material respects its obligations under each of the Contracts which, if failed
to be performed, could have a material adverse effect on the seller, and, to the
best knowledge of seller, no other party to any of the Contracts has materially
breached or defaulted thereunder. Complete and correct copies of each of the
Contracts have heretofore been delivered to buyer by seller.
C. Seller has disclosed to buyer all material contracts, agreements,
arrangements or understandings known to seller that are necessary to the
operation of the Dental Business in the manner in which it has been conducted by
seller.
6.15 Insurance and Claims.
A. Schedule 6.15A sets forth a list and brief description (including
nature of coverage, deductibles, premiums) of all policies of insurance
maintained, owned or held by the seller on the date hereof with respect to its
properties, operations, assets, business, employees or otherwise related to the
Dental Business. Seller shall keep such insurance or comparable insurance in
full force and effect through the closing date. The seller has complied with
each of such insurance policies in all material respects and has not failed to
give any notice or present any claim thereunder in a due and timely manner which
failure could have a material adverse effect on the Dental Business.
B. There have been no claims for products liability damages or injuries
made with respect to products sold by the Dental Business since October 12, 1994
and, to the best knowledge of seller, from its inception through October 12,
1994. For purposes of this paragraph, the term "claim" shall include claims that
have been made to seller or seller's agents or insurance carriers either in
writing or, to the best knowledge of seller, orally, as well as claims that
seller is aware might or could be made.
6.16 Trademarks, Patents, Etc.
Seller does not hold any patents nor has it filed any patent
applications in connection with the
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operation of the Dental Business except as described in Exhibit 1.1D. All
trademarks, trade names, service marks, copyrights, inventions, patent
applications, software, firmware, formulas, knowhow, confidential proprietary
technical information and trade secrets (the "intellectual property") owned by
the seller and used in the Dental Business, all registered names under which the
seller is doing business in the Dental Business, and all licenses, agreements or
arrangements, undertakings or commitments, written or, to the best knowledge of
seller, oral, under which the seller has the right to use any of the foregoing,
and any patents or patent rights used, in connection with the operation of the
Dental Business are briefly described in Exhibit 1.1D, and are valid, binding
and enforceable in accordance with their terms. Except for the settled
litigation with ADL, no claims have been made or, to the best knowledge of
seller, threatened, and no proceedings have been instituted or are pending or,
to the best knowledge of seller, threatened against seller which challenge the
validity of the ownership or use by the seller as part of the business of the
Dental Business of any such intellectual property or rights. Except as described
in Exhibit 1.1D, Seller has not licensed anyone to use any of the foregoing or
any other of its proprietary rights or intellectual property that are used in
the business of the Dental Business, seller has no knowledge of the infringing
use of any of such trademarks, trade names, service marks, copyrights, patents
or patent rights, or other proprietary rights by any other person, and seller
has no knowledge that seller's use of seller's proprietary rights and
intellectual property or sale of Dental Division products either violates any
patent, trademark or other rights of any other person or infringes upon the
intellectual rights of any other person.
6.17 Disclosure.
None of the representations or warranties made by seller in this
Agreement, none of the information relating to seller contained in the schedules
hereto, and none of the other information provided by seller's president or
documents, certificates, schedules or memoranda furnished by seller or any of
its representatives to buyer or any of its representatives in connection with
this Agreement or with the transaction herein contemplated is false or
misleading in any material respect, contains any untrue statement of material
fact or omits any material facts required to be stated to make the statement
therein, taken as a whole, not misleading. To the best knowledge of seller,
there is no material fact which adversely affects the properties, business or
prospects of the Dental Business of seller in any material respect which has not
been set forth or referred to in this agreement or the schedules to this
agreement.
6.18 Finder.
Seller has not paid or become obligated to pay any fee or commission to
any broker, finder or intermediary for or on account of the transactions
contemplated by this agreement.
6.19 Knowledge.
When used in this Article 6, "knowledge" or "known" means information
actually known by any of the following: David W. Light, Cathy Caserza, Clara R.
Munley, Joseph W. Shaffer and C. Russell Trenary.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to seller to enter into this agreement and to
consummate the transactions contemplated hereby, buyer hereby represents and
warrants to seller and agrees as follows:
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7.1 Organization of Buyer.
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the state of California and neither the nature of its
properties nor the conduct of its business requires buyer to be qualified to
transact business as a foreign corporation in any other state or jurisdiction in
which the failure to be so qualified and in good standing would be materially
adverse to the buyer.
7.2 Corporate Power.
The buyer has full power and authority to own or lease and operate its
properties and to conduct its business as now being conducted.
7.3 Authority of the Buyer.
A. The buyer has full power and authority to execute and deliver this
agreement and each of the agreements and instruments contemplated hereby to be
executed and delivered by buyer and to perform all acts which are necessary or
desirable to be performed by it to carry out the terms, conditions and
provisions thereof.
B. The execution, delivery and performance of this agreement and each
of the agreements and instruments contemplated hereby to be executed and
delivered by buyer have been duly authorized and approved by all necessary
corporate action of the buyer and no further corporate action on the part of the
buyer is necessary to authorize such execution, delivery and performance. This
agreement has been duly executed and delivered by buyer and constitutes, and
each of the agreements and instruments contemplated hereby to be executed and
delivered by the buyer will when duly executed and delivered constitute, the
legal, valid and binding obligation of the buyer, enforceable against the buyer
in accordance with its terms, subject only (i) to applicable bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally and (ii) to general principles of equity.
C. Upon acquiring the consents identified herein, neither the execution
and delivery of this agreement nor the execution and delivery by buyer of any of
the other agreements or instruments contemplated hereby to be executed and
delivered by the buyer nor the consummation of any of the transactions
contemplated hereby or thereby nor compliance by buyer with or fulfillment of
the terms, conditions and provisions hereof or thereof will, (i) conflict with,
result in a breach of the terms, conditions or provisions of, or constitute a
default under, the charter or bylaws of buyer, any note, agreement, conditional
sales contract, indenture, mortgage, deed of trust, guarantee, lease, license,
permit, judgment, order, or other material agreement, commitment or arrangement
to which buyer is a party or to which buyer or buyer's assets or any real
property owned or leased by buyer are bound or affected and which is material to
the business and properties of the buyer, or any law, statute, rule or
regulation to which buyer is subject, or (ii) require the approval, consent,
authorization of exemption by, or filing with any person not a party to this
Agreement or any court, governmental authority or regulatory or self-regulatory
body.
7.4 Financial Statements.
Schedule 7.4 hereto contains the unaudited statement of financial
condition of the buyer as of October 31, 1996 (such statement of financial
condition being herein called the "Buyer's 1996 Balance Sheet") and the related
statements of retained earnings, operations and cash flows for the twelve month
period then ended, together with appropriate notes to such financial statements,
reviewed by Matson & Isom Accountancy Corporation, Certified Public Accountants.
Schedule 7.4 also contains the internally
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generated unaudited statement of financial condition of buyer as of December 31,
1996 (such statement of financial condition being herein called the "Buyer's
Unaudited Balance Sheet") and the related statements of retained earnings,
operations and cash flows for the two month period then ended. Such statements
of financial condition, retained earnings, operation and cash flows have been
prepared in conformity with generally accepted accounting principles
consistently applied (except for the absence of notes thereto and subject to
normal year-end adjustments which are not material) and present fairly the
financial position of the buyer, and the results of operations as of their
respective dates and for the respective periods covered thereby.
7.5 Absence of Changes.
Since the date of the Buyer's Unaudited Balance Sheet:
A. There has not been any material adverse change in the assets,
properties, liabilities, business or condition (financial or otherwise) of buyer
and no fact or condition exists or is contemplated or threatened which might
reasonably be expected to cause such a change in the future.
B. The buyer has conducted buyer's business only in the usual, regular
and ordinary course and consistent with past practice. Without limiting the
generality of the foregoing, since the date of the Buyer's Unaudited Balance
Sheet, except as contemplated by this agreement the buyer has not (i) sold,
leased, transferred or otherwise disposed of or mortgaged, pledged, or imposed
or suffered to be imposed any lien on any of the assets reflected on the Buyer's
Unaudited Balance Sheet or any of buyer's assets after the date of the Buyer's
Unaudited Balance Sheet, other than property sold or otherwise disposed of for
fair value in the ordinary course of the buyer's business consistent with past
practice; (ii) canceled or agreed to cancel any debts owed to or claims held by
the buyer associated with buyer's business other than in the ordinary course of
the buyer's business consistent with past practice; (iii) entered into any
material contract or other agreement or any amendment or termination thereof;
(iv) made any change in the accounting policies, methods or practices followed
by the buyer; or (v) entered into or become committed to enter into any other
transaction concerning buyer's business except in the ordinary course of
business.
7.6 Absence of Undisclosed Liabilities.
The buyer is not subject to any liability, whether absolute,
contingent, accrued or otherwise, which is not shown or which is in excess of
the amount shown or reserved for in the Buyer's 1996 Balance Sheet or the
Buyer's Unaudited Balance Sheet, other than liabilities of the same nature and
scope as those which are set forth or reserved for in the Buyer's 1996 Balance
Sheet and the notes thereto or the Buyer's Unaudited Balance Sheet incurred in
the ordinary course of business after the dates of the Buyer's 1996 Balance
Sheet and the Buyer's Unaudited Balance Sheet, respectively.
7.7 Litigation.
A. The buyer has compiled in all material respects with all laws,
regulations, rules or ordinances of, and with all judgments, writs, decrees,
injunctions or orders of, any foreign, federal, state, county, municipal or
other government or governmental department, commission, board, bureau, agency
or instrumentality which are applicable to it or its properties, operations or
business except for such failures to comply as in the aggregate would not have a
material adverse effect on the buyer.
B. Except as set forth on Schedule 7.7, (i) there are no lawsuits,
actions, claims, suits, proceedings or investigations, legal, equitable,
administrative, through arbitration or otherwise, pending or,
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to the best knowledge of buyer, threatened against buyer, its officers or
directors or affecting the properties, operations or business of the buyer, and
(ii) there is no action, suit or proceeding pending or, to the best knowledge of
buyer, threatened against buyer which questions the legality or propriety of the
transactions contemplated by this agreement or the agreements contemplated
hereby.
7.8 Finder.
Except for a letter agreement with Robert Oliver, buyer has not paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
agreement.
7.9 Disclosure.
None of the representations or warranties made by buyer in this
Agreement, none of the information relating to buyer contained in the schedules
hereto, and none of the other information provided by buyer's president or
documents, certificates, schedules or memoranda furnished by buyer or any if its
representatives to seller or any if its representatives in connection with this
Agreement or with the transaction herein contemplated is false or misleading in
any material respect, contains any untrue statement of material fact or omits
any material facts required to be stated to make the statement therein, taken as
a whole, not misleading. To the best knowledge of buyer, there is no material
fact which adversely affects the properties, business or prospects of the
business of buyer in any material respect which has not been set forth or
referred to in this agreement or the schedules to this agreement.
7.10 Knowledge.
When used in this Article 7, "knowledge" or "known" means information
actually known by Craig Lares.
ARTICLE 8
ACTIONS PRIOR TO THE CLOSING DATE
The parties hereto hereby covenant and agree to take the following
actions between the date hereof and the closing date:
8.1 Access to the Seller and Buyer.
Seller agrees to cooperate with the buyer and buyer agrees to cooperate
with seller in the performance of a legal, business and financial due diligence
audit. The parties agree to grant to each other and their authorized
representatives (including without limitation its independent public
accountants, attorneys and bank representatives) access during normal business
hours to and the right to inspect and copy the books and records of the parties
and to consult with the directors, officers, employees, attorneys, auditors and
accountants of the parties concerning customary due diligence matters. Such
inspections may include, for example, review of books and records of account,
tax records, records of corporation proceedings, contracts, trademarks,
governmental consents, and other business activities and matters relating to the
transactions contemplated by this agreement. The parties agree to provide such
information and copies of documents as may be reasonably requested by the
parties in connection with the audit. All confidential information acquired by
the other party pursuant to this paragraph shall be held in the strictest of
confidence by the other party and shall not be revealed or disclosed to any
third party or parties except
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as may be required by law. Any such investigation shall be conducted in such a
manner as not to interfere unduly with the business or operations of the other
party.
8.2 Preserve Accuracy of Representations and Warranties.
Each of the seller and the buyer shall refrain from taking any action
which would render any representation or warranty contained in Article 6 or 7 of
this agreement inaccurate as of the closing date. Seller and buyer agree to
promptly notify the other of such representation or warranty becoming untrue.
8.3 Operations Prior to the Closing Date.
Except as contemplated by this agreement, seller and buyer shall
operate and carry on their respective businesses in the usual, regular and
ordinary manner, substantially as presently operated and with a view to the
maintenance and preservation of the assets and going concern value existing as
of the date hereof. Consistent with the foregoing, except as contemplated by
this agreement or with the prior written consent of the other party, each party
(as to seller, with respect to the Dental Business) agrees not to: (i) change,
alter or make any employment contracts or arrangements with any management
personnel; (ii) create, assume, or acquire property subject to any lien,
mortgage or other encumbrance except in the ordinary course of business; (iii)
compromise any debt or claim except for adjustments made with respect to
contracts for the purchase of supplies and materials or for the sale of products
in the ordinary course of business, which in the aggregate are not material;
(iv) other than in the ordinary course of business, enter into any transaction,
incur any indebtedness or other obligation, or, without the prior written
consent of the other party, sell any assets; (v) alter, amend or enter into any
licensing or other contractual arrangement with respect to intellectual
property; (vi) make any material changes in its existing business practices
affecting the amount of inventory in the Dental Business, including but not
limited to changes, whether or not material, to historical terms of sales of
inventory; or (vii) make any other material change in the business or operation
of the Dental Business or enter into any material agreement. Buyer agrees not to
unreasonably withhold approval of non-cancelable agreements with a term less
than one year, and normal purchase orders for materials, supplies, etc., shall
not require buyer's approval. Seller shall be entitled to continue to distribute
and sell inventory in the ordinary course of business, subject to the provisions
of paragraph 9.5, below, concerning the book value of seller's inventory on the
closing date. Seller agrees to replace, consistent with past practice, any
products consigned to its sales personnel that are sold by said sales personnel
in the ordinary course of business. Seller agrees that segregation of inventory
to seller's ophthalmic business has been completed, and no additional inventory
will be transferred to the seller's ophthalmic business.
8.4 Satisfaction of Conditions.
Seller shall use its best efforts to cause the conditions set forth in
paragraphs 9.3, 9.4, 9.5, 9.6, 9.8, and 9.10 to be satisfied as soon as possible
and buyer agrees to use its best efforts to cause the conditions set forth in
paragraphs 10.3, 10.4, 10.5, 10.6, and 10.7 to be satisfied as soon as possible.
8.5 Subsequent Financial Statements.
Prior to the closing, seller (with respect to the Dental Business) and
buyer shall deliver to each other, not later than twenty-five (25) days after
the end of each monthly period and in the form customarily prepared by each
party, each party's internally generated statement of financial condition as of
the last day of the previous month and the related statement of retained
earnings, operations and cash flows for the monthly period then ended and for
the period from the beginning of the fiscal year to the end of such
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monthly period (the "additional unaudited financial statements"). Seller agrees
to deliver to buyer prior to the closing an additional unaudited financial
statement (the "Closing Unaudited Financial Statement") as of a date not more
than thirty (30) days prior to the closing date, which statement shall also be
certified as to its accuracy and completeness by the chief executive officer and
the chief financial officer of seller.
8.6 Maintenance of Insurance.
Seller agrees to continue to carry all existing insurance on the
business and operations of the Dental Business, and the assets and properties
covered by this Agreement to the date of closing, subject to variations in
amounts resulting from the ordinary operations of the Dental Business.
8.7 Consents to Assignments of Agreements.
Seller agrees to use seller's best efforts (without the payment of
money unless required by the terms of the Contract) to obtain promptly the
consent to the transfer of the assets to buyer under any Contract listed in
Exhibit 3.3 requiring the consent of any party to effectuate such transfer.
8.8 Regulatory Consents.
Seller shall use seller's best efforts (without the payment of any
transfer or consent fee) to obtain promptly the consent to the transfer of the
assets to buyer under each material permit held by seller requiring the consent
of the issuer of the permit to effectuate such transfer.
8.9 Acquisition Financing.
Buyer shall use its best efforts to finalize financing in the amount of
not more than $4,000,000 from Bank of America NT&SA (the "bank") and Joseph P.
Lares on terms and conditions acceptable to buyer, which financing is necessary
for buyer to close the purchase, as soon as possible after the execution of this
agreement, and agrees to use its best efforts to finalize the financing from the
bank and Joseph P. Lares on or before April 4, 1997, in order to facilitate
seller's plan to hold its shareholders meeting on April 30, 1997, but without
any adverse consequences whatsoever should said April 4 date not be
accomplished.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATION OF BUYER
The obligations of buyer to be performed under this agreement on the
closing date shall, at the sole option of buyer, be subject to the satisfaction,
on or prior to the closing date, of the following conditions in all material
respects:
9.1 No Misrepresentation or Breach of Covenants, Representations and
Warranties.
There shall have been no breach by seller in the performance of any of
seller's covenants and agreements contained in this agreement and seller shall
have performed all obligations required to be performed by seller under this
agreement prior to or on the closing date; each of the representations and
warranties of seller contained in this agreement, other than the representations
contained in paragraphs 6.1, 6.5A, 6.8, 6.9, 6.10A, 6.11, 6.12, 6.14, 6.15, and
6.17, shall be true and correct in all material respects on the closing date as
though made on the closing date, and each of the representations and warranties
of seller
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contained in paragraphs 6.1, 6.5A, 6.8, 6.9, 6.10A, 6.11, 6.12, 6.14, 6.15, and
6.17 shall be true and correct in all respects on the closing date as though
made on the closing date; and there shall have been delivered to buyer a
certificate to such effect, dated the closing date, signed by the chief
executive officer of seller.
9.2 Opinion of Counsel for Seller.
Buyer shall have received from Thelen, Marrin, Johnson & Bridges LLP,
as counsel for seller, an opinion, dated the closing date, in form and substance
reasonably satisfactory to buyer and its counsel.
9.3 Corporate Action.
Seller shall have taken all corporate action necessary to execute and
deliver all papers and documents and to do and perform all acts which are
necessary or desirable to carry out the terms, conditions and provisions of this
agreement and the agreements contemplated hereby, including the requisite
approval of the Board of Directors of seller, and the approval of a majority of
the shareholders of seller, and seller shall furnish buyer with certified copies
of resolutions adopted by the Board of Directors of seller, in form and
substance reasonably satisfactory to counsel for buyer, in connection with such
action.
9.4 Approvals.
A. All governmental, regulatory and self-regulatory approvals, actions,
consents, authorizations, declarations, filings, registrations and waiting
periods which are necessary to consummate the transactions contemplated by this
agreement, including those which are specified in any schedule hereto, and those
which are referred to in paragraph 8.8, shall have been made, obtained or
satisfied and be in full force and effect, and any such approvals, actions,
consents and authorizations, declarations, filings and registrations shall be in
form and substance reasonably satisfactory to buyer and its counsel.
B. All consents, authorizations and approvals to the transactions
contemplated by this agreement that are required by the terms of those Contracts
referred to in Exhibit 3.3, shall have been obtained and be in full force and
effect, and such consents, authorizations and approvals shall be in form and
substance reasonably satisfactory to buyer and its counsel.
C. Buyer shall, using its best efforts, have negotiated a new
representation agreement with Helmuth Mayer which supersedes the existing
Consulting Agreement with seller on terms and conditions satisfactory to buyer
and seller.
9.5 No Change in Business.
Between the date hereof and the closing date, there shall have been (i)
no material adverse change in the properties, the business or the operations,
liabilities, profits, prospects or condition (financial or otherwise) of the
Dental Business of seller ; (ii) no material adverse foreign, federal or state
legislative or regulatory change affecting the business of the Dental Business
or its products; (iii) no material damage to the assets regardless of insurance
coverage for such damage; or (iv) no lawsuits, claims or proceedings filed or,
to the best knowledge of seller, threatened against or affecting the seller or
any of its properties or business which, if adversely determined, might have a
material adverse effect on the assets, the business of the Dental Business, or
the operations, liabilities, profits, prospects or condition (financial or
otherwise) of the Dental Business of the seller; and there shall have been
delivered to buyer a certificate or certificates to such effect, dated the
closing date and signed by the chief executive officer of seller. On the date of
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closing, the book value of seller's inventory (as defined in paragraph 1.1B, net
of seller's reserve for obsolete inventory) shall not be less than eighty
percent (80%) of the book value of seller's inventory, net of seller's reserve
for obsolete inventory, as of December 31, 1996.
9.6 No Restraint or Litigation.
No order, decree or ruling of any court shall have been entered, and no
action or proceeding before any court or governmental or regulatory authority or
agency shall be pending, to restrain, prohibit, challenge, invalidate or
otherwise adversely affect any of the transactions contemplated by this
agreement or the agreements contemplated hereby.
9.7 Buyer's Financing.
A. Buyer shall have obtained the financing described in paragraph 8.9,
above, and bank shall have approved this agreement.
B. Seller shall have executed a subordination agreement in such form as
shall be required by Bank of America NT & SA.
9.8 Products Liability Coverage.
Buyer shall have been named as an additional insured on the products
liability insurance policies of seller covering claims arising from the sale of
products by seller prior to the date of closing.
9.9 Lease of Business Premises.
If buyer desires to make use of the business premises currently used by
seller for the Dental Business, buyer shall have entered into a sublease of the
premises based on the terms of the existing lease agreement for a portion of the
business premises currently used by seller for the Dental Business. In any
event, buyer shall be responsible for the payments described in Section 4.7,
hereof. Seller agrees to cooperate with buyer in facilitating buyer's lease of
the premises and obtaining the consent of the landlord to buyer's sublease.
9.10 Approval of Counsel.
All matters, proceedings, instruments and documents required to carry
out this agreement or the agreements contemplated hereby or incidental thereto
and all other relevant legal matters shall be reasonably satisfactory to counsel
for buyer.
ARTICLE 10
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of seller to be performed under this agreement on the
closing date shall, at the sole option of seller, be subject to the
satisfaction, on or prior to the closing date, of the following conditions in
all material respects:
10.1 No Misrepresentation or Breach of Covenants, Representations and
Warranties.
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There shall have been no breach by buyer in the performance of any of
buyer's covenants and agreements contained in this agreement and buyer shall
have performed all obligations required to be performed by buyer under this
agreement prior to or on the closing date; each of the representations and
warranties of buyer contained in this agreement, other than the representations
contained in paragraphs 7.1, 7.5A, 7.7A, and 7.9 shall be true and correct in
all material respects on the closing date as though made on the closing date,
and each of the representations and warranties of buyer contained in paragraphs
7.1, 7.5A, 7.7A, and 7.9 shall be true and correct in all respects on the
closing date as though made on the closing date; and there shall have been
delivered to seller a certificate to such effect, dated the closing date, signed
by the chief executive officer of buyer.
10.2 Opinion of Counsel for Buyer.
Seller shall have received from Richard S. Matson, attorney at law, as
counsel for buyer, an opinion, dated the closing date, in form and substance
reasonably satisfactory to seller and its counsel.
10.3 Corporate Action.
Buyer shall have taken all corporate action necessary to execute and
deliver all papers and documents and to do and perform all acts which are
necessary or desirable to carry out the terms, conditions and provisions of this
agreement and the agreements contemplated hereby, including the requisite
approval of the Board of Directors of buyer, and buyer shall furnish seller with
certified copies of resolutions adopted by the Board of Directors of buyer, in
form and substance reasonably satisfactory to counsel for buyer, in connection
with such action.
10.4 Approvals.
A. All governmental, regulatory and self-regulatory approvals, actions,
consents, authorizations, declarations, filings, registrations and waiting
periods which are necessary to consummate the transactions contemplated by this
agreement, including those which are specified in any schedule hereto, shall
have been made, obtained or satisfied and be in full force and effect, and any
such approvals, actions, consents and authorizations, declarations, filings and
registrations shall be in form and substance reasonably satisfactory to seller
and its counsel.
B. All consents, authorizations and approvals to the transactions
contemplated by this agreement that are required by the terms of any contracts
or otherwise from third shall have been obtained and be in full force and
effect, and such consents, authorizations and approvals shall be in form and
substance reasonably satisfactory to seller and its counsel.
C. At least a majority of the holders of the issued and outstanding
shares of seller shall have voted to approve the sale of the assets of the
Dental Business on terms no less favorable to seller than those set forth
herein.
D. Buyer shall, using its best efforts, have negotiated a new
representation agreement with Helmuth Mayer which supersedes the existing
Consulting Agreement with seller on terms and conditions satisfactory to buyer
and seller.
10.5 No Restraint or Litigation.
No order, decree or ruling of any court shall have been entered, and no
action or proceeding before
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any court or governmental or regulatory authority or agency shall be pending, to
restrain, prohibit, challenge, invalidate or otherwise adversely affect any of
the transactions contemplated by this agreement or the agreements contemplated
hereby.
10.6 Approval of Counsel.
All matters, proceedings, instruments and documents required to carry
out this agreement or the agreements contemplated hereby or incidental thereto
and all other relevant legal matters shall be reasonably satisfactory to counsel
for seller.
10.7 No Change in Business.
Between the date hereof and the closing date, there shall have been (i)
no material adverse change in the properties, the business or the operations,
liabilities, profits, prospects or condition (financial or otherwise) of the
buyer's business; (ii) no material adverse foreign, federal or state legislative
or regulatory change affecting the business of the buyer or its products; (iii)
no material damage to the assets regardless of insurance coverage for such
damage; or (iv) no lawsuits, claims or proceedings filed or, to the best
knowledge of buyer, threatened against or affecting the buyer or any of its
properties or business which, if adversely determined, might have a material
adverse effect on the assets, the buyer's business, or the operations,
liabilities, profits, prospects or condition (financial or otherwise) of the
buyer's business; and there shall have been delivered to buyer a certificate or
certificates to such effect, dated the closing date and signed by the chief
executive officer of buyer.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification of Buyer.
A. Seller agrees to indemnify and hold harmless buyer and buyer's
successors and assigns from and against any and all (i) liabilities, losses,
claims, taxes, fines, penalties, damages and expenses, direct or indirect
("losses") and (ii) reasonable attorneys' and accountants' fees and expenses,
court costs and all other reasonable out-of-pocket expenses ("expenses")
incurred by buyer in connection with or arising from:
1. any damage or deficiency resulting from the non-performance
of any agreement to be performed by seller under this Agreement or from any
material misrepresentation in or omission from any certificate or other
instrument furnished to buyer under this Agreement;
2. any breach of any of the representations, warranties,
covenants or agreements made by seller in this Agreement or in any ancillary
document;
3. any attempt (whether or not successful) by any person to
cause or require buyer to pay or discharge any debt, obligation, liability or
commitment of seller the existence of which would constitute a breach of any
representation, warranty, covenant or agreement made by seller in this Agreement
or in any ancillary documents;
4. any action, suit, proceeding, compromise, settlement,
assessment or judgment (including reasonable attorneys' fees) arising out of or
incident to any of the matters indemnified against in
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this paragraph 11.1; or
5. the operation of the Dental Business and/or the ownership
or use of the assets prior to the closing, including but not limited to the
liabilities described in paragraph 3.1, above.
B. If buyer believes that any person indemnified under paragraph 11.1A
has suffered or incurred any loss or incurred any expense as to which it is
entitled to indemnification under paragraph 11.1A, buyer shall so notify seller
promptly in writing, describing such loss or expense, the amount thereof, if
known, and the method of computation of such loss or expense, all with
reasonable particularity and containing a reference to the provisions of this
agreement, or any agreement or instrument contemplated hereby, or any
certificate delivered pursuant hereto or thereto, in respect of which such loss
or expense shall have occurred; and if any action at law or suit in equity is
instituted by or against a third party with respect to which any such
indemnified person intends to claim any loss or expense under paragraph 11.1A,
such indemnified person shall promptly notify the indemnifying party of such
action or suit; provided that failure to give such notice shall not abrogate or
diminish any of seller's obligations under paragraph 11.1A if seller has or
receives timely actual knowledge of the existence of any such claim by any other
means or except to the extent such failure prejudices seller's ability to defend
such claim.
C. If, by reason of the claims of any third party relating to any of
the matters subject to indemnification under this paragraph 11.1, a lien,
attachment, garnishment or execution is placed on any of the property or assets
of buyer, seller will take whatever action is necessary to obtain the prompt
release of such lien, attachment, garnishment or execution.
D. The foregoing indemnities shall be in addition to any equitable
relief which the buyer might otherwise be entitled to obtain against the
indemnifying party.
E. Notwithstanding any other provision of this agreement, the
indemnification obligations of seller under this agreement, and with respect to
the transactions contemplated by this agreement, shall not apply to the first
Fifty Thousand Dollars ($50,000.00) of losses or expenses incurred by buyer, in
the aggregate, but this limitation shall not apply to the seller's indemnity
obligations for losses or expenses described in subparagraph A(3) of this
paragraph, and the indemnity obligations under subparagraph A(4) of this
paragraph to the extent related to losses or expenses described in subparagraph
A(3) of this paragraph.
F. Seller may, by written notice given to buyer within fifteen (15)
days of the final determination of the amount of any indemnity obligation to
buyer under this paragraph, satisfy all or a portion of its indemnity obligation
to Buyer by an offset against the accrued but unpaid interest, if any, and then
against the unpaid principal balance, if any, then due under the promissory note
described in paragraph 2.2, above. Any amount of the indemnity obligation not
satisfied by this offset shall be promptly paid in cash.
11.2 Indemnification of Seller.
A. Buyer agrees to indemnify and hold harmless seller and seller's
successors and assigns from and against any and all (i) liabilities, losses,
claims, taxes, liabilities, fines, penalties, damages and expenses, direct or
indirect ("losses") and (ii) reasonable attorneys' and accountants' fees and
expenses, court costs and all other reasonable out-of-pocket expenses
("expenses") incurred by seller in connection with or arising from:
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1. any damage or deficiency resulting from the non-performance
of any agreement to be performed by buyer under this Agreement or from any
material misrepresentation in or omission from any certificate or other
instrument furnished to seller under this Agreement;
2. any breach of any of the representations, warranties,
covenants or agreements made by buyer in this Agreement or in any ancillary
document;
3. any attempt (whether or not successful) by any person to
cause or require seller to pay or discharge any debt, obligation, liability or
commitment of buyer the existence of which would constitute a breach of any
representation, warranty, covenant or agreement made by buyer in this Agreement
or in any ancillary documents;
4. any action, suit, proceeding, compromise, settlement,
assessment or judgment (including reasonable attorneys' fees) arising out of or
incident to any of the matters indemnified against in this paragraph 11.2; or
5. the operation of the Dental Business and/or the ownership
or use of the assets after the closing, including but not limited to the
obligations assumed by buyer pursuant to paragraph 3.3.
B. If seller believes that any person indemnified under paragraph 11.2A
has suffered or incurred any loss or incurred any expense as to which it is
entitled to indemnification under paragraph 11.2A, seller shall so notify buyer
promptly in writing, describing such loss or expense, the amount thereof, if
known, and the method of computation of such loss or expense, all with
reasonable particularity and containing a reference to the provisions of this
agreement, or any agreement or instrument contemplated hereby, or any
certificate delivered pursuant hereto or thereto, in respect of which such loss
or expense shall have occurred; and if any action at law or suit in equity is
instituted by or against a third party with respect to which any such
indemnified person intends to claim any loss or expense under paragraph 11.2A,
such indemnified person shall promptly notify the indemnifying party of such
action or suit; provided that failure to give such notice shall not abrogate or
diminish any of buyer's obligations under paragraph 11.2A if buyer has or
receives timely actual knowledge of the existence of any such claim by any other
means or except to the extent such failure prejudices buyer's ability to defend
such claim.
C. If, by reason of the claims of any third party relating to any of
the matters subject to indemnification under this paragraph 11.2, a lien,
attachment, garnishment or execution is placed on any of the property or assets
of seller, buyer will take whatever action is necessary to obtain the prompt
release of such lien, attachment, garnishment or execution.
D. The foregoing indemnities shall be in addition to any equitable
relief which the seller might otherwise be entitled to obtain against the
indemnifying party.
E. Notwithstanding any other provision of this agreement, the
indemnification obligations of buyer under this agreement, and with respect to
the transactions contemplated by this agreement, shall not apply to the first
Fifty Thousand Dollars ($50,000.00) of losses or expenses incurred by seller, in
the aggregate, but this limitation shall not apply to the buyer's indemnity
obligations for losses or expenses described in subparagraph A(3) of this
paragraph, and the indemnity obligations under subparagraph A(4) of this
paragraph to the extent related to losses or expenses described in subparagraph
A(3) of this paragraph.
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11.3 Third Party Claims
The indemnifying party under this Article 11 shall have the right to
conduct and control, through counsel of its choosing, any third party claim,
action or suit and may compromise or settle the same. So long as the
indemnifying party is contesting any such action or suit in good faith, the
indemnified persons shall not pay or settle any such action or suit.
Notwithstanding the foregoing, the indemnified persons shall have the right to
pay or settle any such action or suit, provided that (i) in such event the
indemnified persons shall waive any right to indemnity therefor and no amount in
respect thereof shall be claimed as loss or expense under this Article 11 and
(b) the terms of any such settlement do not involve any agreement by the
indemnified persons that affects the indemnifying party.
ARTICLE 12
TERMINATION
12.1 Termination.
Anything contained in this agreement to the contrary notwithstanding,
this agreement may be terminated and the transactions contemplated herein
abandoned at any time prior to the closing: (a) by the mutual consent of the
buyer and the seller; (b) by buyer in the event of any material breach by seller
of any of seller's agreements, representations, or warranties contained herein;
(c) by seller in the event of any material breach by buyer of any of buyer's
agreements, representations, or warranties contained herein; (d) by seller or
buyer if the transactions contemplated herein have not closed by the date
specified in paragraph 5.1 except if the closing has not occurred as a result of
the fault of the party desiring to terminate this agreement.
12.2 Effect of Termination.
In the event that this agreement shall be terminated pursuant to
paragraph 12.1, all further obligations of the parties under this agreement
shall be terminated without further liability of any party to any other party
except for paragraphs 8.1, 13.3, and 13.13 hereof which shall continue after
such termination, provided that nothing herein shall relieve any party from
liability for its willful breach of this agreement.
ARTICLE 13
GENERAL PROVISIONS
13.1 Survival of Representations, etc.
All representations, warranties, and other agreements contained in this
agreement shall survive the consummation of the transactions contemplated by
this agreement; provided, however, that the representations and warranties
contained in Articles 6 and 7 shall terminate on the last day of the thirtieth
(30th) month after the closing date. Except as otherwise provided herein and
except for claims for indemnification for the breach or inaccuracy of any
representation or warranty asserted in accordance with Article 11, hereof, prior
to such last day of the thirtieth (30th) month but not concluded prior thereto,
no claim shall be made for the breach or the inaccuracy of any representation or
warranty contained in Articles 6 and 7 or under any certificate delivered with
respect thereto under this agreement after the date on which such representation
and warranty terminates as set forth in this paragraph.
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13.2 Waivers.
No delay or omission by any party hereto in exercising any right, power
or privilege hereunder shall impair such right, power or privilege, nor shall
any single or partial exercise of any such right, power or privilege preclude
any further exercise thereof or the exercise of any other right, power or
privilege. No waiver by any party hereto at any time of any breach by any other
party hereto of, or compliance with, any condition or provision of this
agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13.3 Expenses
All costs and expenses incurred by the respective parties in connection
with the negotiation, execution and delivery of this agreement and related
agreement and the consummation of the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
13.4 Notices.
All notices, requests, claims, demands and other communications which
are required to be or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered in person, by cable,
telegram, telex, facsimile or by registered or certified first-class mail,
return receipt requested, postage prepaid, to the party to which the same is so
given or made.
A. If to seller, to:
David W. Light, Chief Executive Officer
Sunrise Technologies, Inc.
47257 Fremont Boulevard
Fremont, California 94538
with a copy to:
Nancy L. Murray, Esq.
Thelen, Marrin, Johnson & Bridges LLP
2 Embarcadero Center, Suite 2100
San Francisco, California 94111-3995
B. If to buyer:
Craig J. Lares, President
Lares Research
295 Lockheed Avenue
Chico, California 95973
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with a copy to:
Richard S. Matson, Esq.
Richard S. Matson Law Office
P. O. Box 4141
Chico, CA 95927-4141
Any party may by notice given in accordance with this paragraph to the other
parties designate another address or person for receipt of notices hereunder.
13.5 Entire Agreement.
This Agreement (including the Exhibits and Schedules hereto)
constitutes the entire agreement among the parties and supersedes all prior oral
and written agreements and understandings among the parties hereto with respect
to the subject matter hereof, including specifically, but not by way of
limitation, a "Letter of Intent" dated November 14, 1996, and a letter dated
February 24, 1997. The parties hereto acknowledge and agree that no agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this agreement.
13.6 Headings and Gender.
The paragraph and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretations of
this Agreement. Reference to any one gender shall be deemed to include the
other.
13.7 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall, when executed, be deemed to be an original and all of which shall
be deemed to be one and the same instrument.
13.8 Severability.
Any provision in this agreement or any agreement or instrument
delivered pursuant hereto which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof and thereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. The parties shall endeavor in good faith negotiations to
replace any prohibited or unenforceable provision with a valid provision or
provisions, the effect of which shall reflect the bargain manifested in the
prohibited or unenforceable provision.
13.9 Governing Law.
This Agreement shall be construed as to both validity and performance
and enforced in accordance with and governed by the laws of the State of
California applicable to agreements made and to be performed in California.
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13.10 Assignment; Parties in Interest.
This Agreement may not be assigned by any party hereto without the
prior written consent of all the other parties, provided that buyer may assign
its rights and duties under this agreement to an entity formed or to be formed
for the purpose of operating the Dental Business. Subject to the foregoing, this
agreement shall inure to the benefit of and be binding upon permitted successors
and assigns of seller and buyer.
13.11 Modification.
The provisions of this Agreement may be amended, modified, changed or
waived only by a writing signed by all the parties hereto.
13.12 Further Assurances.
Each party hereto agrees to do such further acts and things, and to
execute and deliver such additional agreements and instruments, as any party may
reasonably request in connection with the performance, administration or
enforcement of this agreement or the agreements related hereto.
13.13 Publicity.
Except for disclosure (if any) required by law to which any party is
subject, the timing and content of any announcements, press releases and public
statement concerning the acquisition contemplated hereby shall be by mutual
agreement of the parties.
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EXECUTION
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SELLER: BUYER:
Sunrise Technologies International, Inc., Lares Research,
a Delaware corporation a California corporation
By: By:
----------------------------------- --------------------------
David W. Light, Chief Executive Officer Craig J. Lares, President
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Exhibit 10.7
SETTLEMENT AGREEMENT
THIS AGREEMENT is made effective this 30th day of July, 1996, by and
between American Dental Technologies (hereinafter, "ADT"), a Delaware
corporation, having offices at 28411 Northwestern Highway, Suite 1100,
Southfield, Michigan 48034-5541, and Sunrise Technologies International, Inc.
(hereinafter, "SUNRISE"), a Delaware corporation, having offices at 47257
Fremont Boulevard, Fremont, California.
WITNESSETH:
WHEREAS, ADT and SUNRISE are presently engaged in the following
litigation:
(a) Appellate Action No. A072262, entitled "Sunrise
Technologies International, Inc., Plaintiff/Cross-Defendant and Respondent v.
American Dental Technologies, Inc., f/k/a American Dental Laser, Inc.,
Defendant/Cross-Claimant and Appellant," now pending in the Court of Appeal of
the State of California, First Appellate District, Division Four, as appealed
from the lower court Civil Action No. H-172132-2, entitled, "Sunrise
Technologies International, Inc. et al. v. American Dental Technologies," which
was litigated in the Superior Court for the County of Alameda - Southern
Division (collectively hereinafter, "State Court Action"); and
(b) Civil Action No. C94-1512 (EFL), entitled "Sunrise
Technologies International, Inc. and Danville Manufacturing v. American Dental
Technologies, Inc.," now pending in the United States District Court for the
Northern District of California, Civil Action No. C94-1513 (EFL), entitled,
"Sunrise Technologies International, Inc. and Danville Manufacturing v. American
Dental Technologies, Inc.," now pending in the United States District Court for
the Northern District of California; and Civil Action No. C95-2048-EFL, entitled
"American Dental Technologies, Inc. v. Sunrise Technologies International, Inc.
et al." (collectively hereinafter, "Federal Court Actions");
WHEREAS, a judgment was entered against ADT in the lower court
proceedings of the State Court Action in the sum of $940,178.00, plus taxable
costs and interest, ADT having posted a cash deposit with the state court
pending an appeal in the State Court Action in the sum of $1,410,267.00;
WHEREAS, ADT and SUNRISE desire to settle and terminate the foregoing
litigation and as part of such settlement SUNRISE desires to obtain certain
patent licenses from ADT;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, ADT and SUNRISE agree as follows:
State Court Action
1. SUNRISE shall relinquish and forgive the judgment in the State Court
Action in its full amount of $940,178.00, plus costs, interest and attorney
fees. SUNRISE shall release ADT, its officers, agents, affiliates, and attorneys
from any and all claims and counterclaims arising prior
<PAGE>
to the effective date of this Agreement which were made or which could have been
made arising out of the subject matter of the State Court Action, including all
such claims for damages, costs, interest and attorney fees. SUNRISE will execute
all documents necessary to dismiss the State Court Action with prejudice and to
release the full amount of the cash deposit (plus interest) posted on appeal by
ADT immediately upon execution of this Agreement, each party to bear its own
costs and attorney fees. SUNRISE represents and warrants that it has made no
assignment or hypothecation of any judgment or claims, including but not limited
to claims for attorney fees, arising out of the State Court Action to any
creditor, attorney or other third party and agrees to indemnify and hold ADT
harmless from any such third party claim. As used in this Agreement,
"affiliates" shall mean any corporation of which fifty percent (51%) or more of
the voting stock is owned or controlled by a party to this Agreement.
2. ADT shall release SUNRISE, its officers, agents, affiliates and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the State Court Action, including all such
claims for damages, costs, interest and attorney fees. ADT will execute all
documents necessary to dismiss the State Court Action with prejudice immediately
upon execution of this Agreement, each party to bear its own costs and attorney
fees. ADT represents and warrants that it has made no assignment or
hypothecation of any claims, including but not limited to claims for attorney
fees, arising out of the State Court Action to any creditor, attorney or other
third party and agrees to indemnify and hold SUNRISE harmless from any such
third party claim.
Federal Court Actions
3. ADT shall release SUNRISE, its officers, agents, affiliates and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the Federal Court Actions, including all
such claims for damages, costs, interest and attorney fees. ADT further releases
SUNRISE with respect to SUNRISE's past Senior model and current MicroPrep
Associate and Director models, as described and identified in the depositions of
Mark Fernwood and Joseph Shaffer in the Federal Court Actions, from any and all
claims of infringement under patents issuing on any pending or presently
contemplated patent applications owned or controlled by ADT which relate to air
abrasive equipment or apparatus, other than such patents or applications
covering air abrasive dental systems or methods of treatment as otherwise
provided herein. ADT will execute all documents necessary to dismiss SUNRISE
from the Federal Court Actions with prejudice immediately upon execution of this
Agreement, each party to bear its own costs and attorney fees. In no event,
however, shall this paragraph 3 be interpreted to constitute a release of any
liability or damages, directly or indirectly, arising out of ADT's claims
against Danville Manufacturing or a dismissal of any of the claims in the
Federal Court Actions against Danville Manufacturing. Notwithstanding, upon
execution of this Agreement, ADT will offer to dismiss without prejudice all
pending litigation by ADT against Danville Manufacturing in return for a
dismissal without prejudice by Danville Manufacturing of all pending litigation
by Danville Manufacturing against ADT, each party to bear its own costs and
attorneys fees. ADT represents and warrants that it has made no assignment or
hypothecation of any claims, including but not limited to claims for attorney
fees, arising out of the Federal Court Actions to any creditor,
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attorney or other third party and agrees to indemnify and hold SUNRISE harmless
from any such third party claim.
4. SUNRISE shall release ADT, its officers, agents, affiliates and
attorneys from any and all claims and counterclaims arising prior to the
effective date of this Agreement which were made or which could have been made
arising out of the subject matter of the Federal Court Actions, including all
such claims for declaratory judgment, damages, costs, interest and attorney
fees. SUNRISE will execute all documents necessary to dismiss its claims in the
Federal Court Actions against ADT with prejudice immediately upon execution of
this Agreement, each party to bear its own costs and attorneys fees. SUNRISE
represents and warrants that it has made no assignment or hypothecation of any
claims, including but not limited to claims for attorney fees, arising out of
the State Court Action to any creditor, attorney or third party and agrees to
indemnify and hold ADT harmless from any such third party claim.
5. The dismissals submitted to the Court pursuant to paragraphs 3 and 4
of this Agreement shall include (i) a stipulation by SUNRISE that the patents
asserted in Civil Action No. C95-2048 (EFL), to wit, U.S. Patent No. 5,330,354,
U.S. Patent No. 5,350,299 and U.S. Patent No. 5,525,058 and the patent asserted
in Civil Action No. C94-1513 (ELF), to wit, U.S. Patent No. 5,275,561, are
acknowledged by SUNRISE to be valid; (ii) an order commensurate in scope with
the stipulation of section (i) of this paragraph 5; (iii) a stipulation by ADT
that the patents asserted in Civil Action No. C94-1512 (EFL), to wit, U.S.
Patent No. 4,893,440, U.S. Patent No. 4,733,503, U.S. Patent No. 4,708,534 and
U.S. Patent No. 4,635,897, and any non-dental air abrasive patents or patent
applications presently owned by ADT are not infringed by SUNRISE's past Senior
model and current MicroPrep Associate and Director models as described and
identified in the depositions of Mark Fernwood and Joseph Shaffer in the Federal
Court Actions; and (iv) an order commensurate in scope with the stipulation of
section (iii) of this paragraph 5.
Patent License
6. ADT hereby grants to SUNRISE a nonexclusive license under U.S.
Patent No. 5,275,561, U.S. Patent No. 5,330,354, U.S. Patent No. 5,350,299 and
U.S. Patent No. 5,525,058, and any foreign counterparts, reexaminations,
reissues, continuations or continuations-in-part based on the disclosures of the
patents of this paragraph 6, for the life of such patents, to make, use, lease
and sell SUNRISE's current MicroPrep Associate and Director models as described
and identified in the depositions of Mark Fernwood and Joseph Shaffer in the
Federal Court Actions, and future models to the extent such future models do not
infringe any non-dental patents or patent applications (for example, on helical
powder feed mechanisms) of ADT, throughout the world, but excluding those
territories (Japan, China, including Hong Kong, Taiwan, North Korea, South
Korea, India, Pakistan, Australia, New Zealand, Singapore, Thailand, Malaysia
and Indonesia) presently covered by agreements between ADT and Denics Co., Ltd.,
a/k/a Dental Innovative Corporation, a Japanese corporation. The license granted
in this paragraph 6 is non-transferable by assignment, sublicense or other means
of transfer except as provided in paragraphs 7 and 8 of this Agreement,
provided, further, that the period in which SUNRISE is licensed under this
Agreement, SUNRISE shall have the right to have the products of this paragraph 6
manufactured by a third party solely for SUNRISE. The license granted in
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this paragraph 6 is subject to the payments provided in paragraph 9 of this
Agreement. ADT represents and warrants that other than the patents licensed in
this paragraph 6, ADT does not presently own or hold licensable rights in any
other patents or patent applications covering the products of this paragraph 6.
7. The license granted in paragraph 6 of this Agreement is
non-transferable for a period of eighteen (18) months from the effective date of
this Agreement and SUNRISE shall make no such transfer or promise to transfer
within such eighteen (18) month period, except as provided in paragraph 8 of
this Agreement. After the expiration of such eighteen (18) month period, SUNRISE
shall have the right to transfer the license of paragraph 6 of this Agreement
upon the following terms and conditions: the transferee shall assume all
obligations of SUNRISE under this Agreement, including the obligation to make
the payments required by paragraph 9 of this Agreement; provided, however, that
no such transfer of the license after such eighteen (18) month period has
expired, but before the expiration of twenty-four (24) months after the
effective date of this Agreement, shall be made conditioned on the subsequent
sale or transfer of all of SUNRISE's dental air abrasive products business.
8. SUNRISE may at any time transfer the license of paragraph 6 of this
Agreement if such transfer is made with the transfer of all of SUNRISE's dental
air abrasive products business (for the purposes of this Agreement, the phrase
"transfer of all of SUNRISE's dental air abrasive products business" shall mean
any such transfer by asset sale or exchange or by stock transfer or exchange,
and shall further include any merger by or into, or consolidation with,
SUNRISE); provided, however, that, if such transfer occurs within two (2) years
of the effective date of this Agreement, then SUNRISE shall pay to ADT, in cash,
a transfer fee equal to ten percent (10%) of the gross consideration for the
transfer of the license and the dental air abrasive products business received
by SUNRISE, regardless of the form of the consideration (provided that, in the
event of a merger, such gross consideration shall be based on the fair market
value of the shares thereupon issued by SUNRISE or thereupon issued to SUNRISE
and/or its shareholders) and the transferee or surviving entity shall assume all
obligations of SUNRISE under this Agreement, including the obligation to make
the payments required by paragraph 9 of this Agreement. In the event such
transfer of all of SUNRISE's dental air abrasive products business shall occur
more than two (2) years after the effective date of this Agreement, then
SUNRISE's only obligation upon transfer shall be to require such transferee or
continuing entity to assume all obligations of SUNRISE under this Agreement,
including the obligation to make the payments required by paragraph 9 of this
Agreement.
Payments
9. Beginning on January 1, 1997, SUNRISE, or its permitted successor or
assignee, shall pay to ADT the sum of seven percent (7%) on the net sales price
(defined as gross sales price less freight, duties and taxes) on all air
abrasive products manufactured, sold or leased by SUNRISE, or its permitted
successor or assignee, which are manufactured (by or on behalf of SUNRISE), sold
or leased in a county in which ADT, presently or in the future, owns or controls
patents or patent applications on any dental air abrasive products or methods of
treatment, until the expiration of all such patents/patent applications. In the
event that SUNRISE, or its permitted successor or assignee, manufactures or has
manufactured on its behalf, and sells or leases (i.e.,
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manufactures and sells or manufactures and leases), air abrasive products wholly
within a country where ADT holds no such patents or patent applications or where
all such patents have expired, then no such payments shall be required. The
payments required under this paragraph 9 of this Agreement shall accrue when the
subject products are delivered, invoiced or paid for, whichever occurs first.
All payments shall be made in U.S. dollars. In no event shall a payment by
SUNRISE under this paragraph 9 be required for products that are both made and
sold prior to January 1, 1997.
10. SUNRISE, and any permitted successor or assignee, shall (i) make
the payments required in paragraph 9 of this Agreement on February 15th, May
15th, June 15th and November 15th for the preceding accounting quarter, with the
first payment to be made on May 15, 1997. SUNRISE shall keep accurate books and
records reflecting transactions made under this Agreement and shall make reports
at the time of such payments fully supporting the calculation of payments made,
including the number of units sold or leased and the sales price used to
determine payments. ADT shall have the right to inspect such books and records
through an independent certified accountant, not to exceed one such audit per
year.
Termination
11. ADT may terminate the license granted by paragraph 6 of this
Agreement only in the event of a material breach of this Agreement by SUNRISE,
and then only if, upon receiving notice of such breach SUNRISE fails to cure
such breach within thirty (30) days of such notice; such right of termination
shall not be in lieu of other remedies such as specific performance.
Patent Marking
12. SUNRISE shall apply statutory notice to its MicroPrep air abrasive
units sold in the United States substantially as follows: "This unit and its use
is protected by one or more of the following U.S. Patents: 5,275,561, 5,330,354,
5,350,299 and 5,525,058."
Notice
13. All notices required to be given under this Agreement shall be
given in writing and shall be sent by regular mail, postage prepaid, certified
mail or by recognized overnight express mail service to the parties at the
addresses below.
If to ADT, to:
Anthony D. Fiorillo
President and Chief Executive Officer
American Dental Technologies, Inc.
28411 Northwestern Highway, Suite 1100
Southfield, Michigan 48034-5541
Tel.: (810) 353-5300
Fax: (810) 353-0663
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With a copy to:
Dykema Gossett PLLC
1577 North Woodward Avenue, Suite 300
Bloomfield Hills, Michigan 48304
Attention: Robert L. Kelly, Esq.
Tel.: (810) 540-0849
Fax: (810) 540-0763
If to SUNRISE, to:
David W. Light
President and Chief Executive Officer
Sunrise Technologies International
47257 Fremont Boulevard
Fremont, California
Tel.:
Fax:
With a copy to:
Daniel Johnson, Esq.
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square, 4th Floor
Palo Alto, California 94306
Tel.: (415) 843-5000
Fax: (415) 857-0663
14. A notice sent pursuant to paragraph 13 of this Agreement shall be
deemed given on the date it is mailed, unless the intended recipient can
establish that such notice was not timely received.
Jurisdiction
15. The Court in the Federal Court Actions shall retain jurisdiction of
the parties and this Agreement for purposes of resolving any dispute which may
arise hereunder.
Governing Law
16. This Agreement is made in the County of Oakland, State of Michigan,
and shall be governed by the laws of the State of Michigan without regard to its
conflict of laws principles.
Warranties
17. Both parties represent that their undersigned representatives have
the full power and authority to enter into this Agreement. ADT represents and
warrants that it has the right and power to grant the license of paragraph 6 of
this Agreement, but makes no other warranties whatsoever regarding the patents
so licensed.
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Relationship of Parties
18. This Agreement is not intended by the parties to, and shall not,
constitute or create a joint venture, partnership or other business organization
and neither party shall be nor shall act as an agent of the other party. Neither
party shall use the other party's name in any marketing efforts.
Severabilitv
19. The invalidity of any provision of this Agreement shall not affect
the validity of any other provision of this Agreement.
Complete Agreement
20. This Agreement constitutes the entire agreement of the parties
regarding this subject matter and supercedes any and all prior or
contemporaneous oral or written agreements, understandings, negotiations or
discussions among the parties regarding this subject matter. Any amendments or
other modifications to this Agreement must be made in writing and must be duly
executed by an authorized representative or agent of each party.
Counterparts
21. This Agreement may be executed in multiple counterparts, each of
which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument.
Permitted Successors and Assigns
22. This Agreement, and all provisions herein, shall bind the parties
and their permitted successors and permitted assigns.
The parties have executed this Agreement as effective the date first
written above by their duly authorized agents.
AMERICAN DENTAL SUNRISE TECHNOLOGIES
TECHNOLOGIES, INC. INTERNATIONAL, INC.
- ------------------------------------ ---------------------------------------
By: Anthony D. Fiorillo By: David W. Light
President and Chief Executive President and Chief Executive
Officer Officer
Date: __________________________ Date:________________________________
Exhibit 10.11
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
U.S. NOTE AND WARRANT PURCHASE AGREEMENT
This agreement (this "Agreement") is made as of the Closing Date (as
hereinafter defined) by and between Sunrise Technologies International, Inc., a
Delaware corporation (the "Company"), with its principal office at 47257 Fremont
Boulevard, Fremont, CA 94538, Pennsylvania Merchant Group Ltd (the "Placement
Agent") and each of the purchasers who are signatories hereto and any other
purchasers who are made a party to this Agreement pursuant to Section 1.1(c)
(individually, a "Purchaser" and collectively, the "Purchasers").
RECITALS
The Company has engaged the Placement Agent as exclusive agent of the
Company in connection with the placement and sale (the "Offering") of $1,500,000
Convertible Subordinated Notes (the "Notes") with Warrants. The Notes will be
convertible into shares of the Company's $.001 par value common stock ("Common
Stock") commencing on the Closing Date (as hereinafter defined) at an initial
conversion price (the "Conversion Price") of $0.875 per share of Common Stock.
The Notes are Redeemable at the Company's option, in whole but not in part, at
any time on or after March 31, 1997, at a price equal to the principal of the
Notes then outstanding plus accrued and unpaid interest to the date of
redemption (the "Redemption Date"). Holders of the Notes will receive not more
than 60 nor fewer days than 30 days' notice prior to the Redemption Date, during
such time they may exercise their conversion rights. Each Purchaser will receive
one warrant to purchase Common Stock substantially in the form attached (the
"Warrants") for each $1.75 in Notes purchased by such Purchaser. Each Warrant
entitles the holder to purchase one share of Common Stock for $1.00 during the
five year period commencing on the initial Closing Date (as hereinafter
defined). The Notes and Warrants will be sold by the Company to Purchasers
pursuant to Regulations D and S under the Securities Act of 1933, as amended
(the "Act") (individually the "Regulation D Purchasers" and "Regulation S
Purchasers"). Regulation D Purchasers will purchase Notes and Warrants pursuant
to this Agreement and Regulation S Purchasers will purchase Notes and Warrants
pursuant to an Offshore Note and Warrant Purchase Agreement of even date
herewith (the "Offshore Agreement"). Offers and sales of Notes and Warrants will
only be made pursuant to the Confidential Private Offering Memorandum dated
February 5, 1997 (together with all amendments, supplements, exhibits and
attachments thereto, the "Offering Materials").
AGREEMENT
In consideration of the mutual promises, representations, warranties
and conditions set forth in this Agreement, the Company, each Purchaser
(severally and not jointly) and the Placement Agent, intending to be legally,
bound agree as follows:
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1. PURCHASE AND SALE OF NOTES AND WARRANTS.
1.1 Issue of Notes and Warrants.
(a) The Company has authorized the issuance and sale
of up to $1,500,000 Notes, up to 1,714,286 shares of Common Stock (the
"Conversion Shares") pursuant to the conversion of the Notes, up to 857,143
Warrants, and up to 857,143 additional shares of Common Stock (the "Warrant
Shares") pursuant to the exercise of the Warrants, pursuant to the provisions of
this Agreement and an Offshore Agreement made as of the Closing Date.
(b) In reliance upon the Purchaser's representations
and warranties contained in Section 4 hereof and upon the Placement Agent's
representations and warranties contained in Section 6 hereof, and subject to the
terms and conditions set forth herein, the Company hereby agrees to sell to each
Purchaser the aggregate amount of Notes set forth below such Purchaser's
signature on the subscription page bearing such Purchaser's name.
(c) In reliance upon the representations and
warranties of the Company contained herein, and subject to the terms and
conditions set forth herein, each Purchaser hereby agrees to purchase the amount
of Notes and Warrants set forth on the subscription page bearing such
Purchaser's name at the purchase price set forth above. Each Purchaser shall
severally, and not jointly, be liable for only the amount of Notes and Warrants
that appear on the subscription page hereof that relates to such Purchaser.
(d) The Company's agreement with each of the
Purchasers is a separate agreement, and the sale of the Notes and Warrants to
each of the Purchasers is a separate sale.
2. CLOSING DATE: DELIVERY.
2.1 Closing.
(a) The initial closing of the sale and purchase of
the Notes under this Agreement (the "Closing"), together with the initial
closing of the sale and purchase of Notes under the Offshore Agreement, shall be
held at 10:00 a.m. (Pacific Standard Time) on or before February 20, 1997 (the
"Closing Date"), at the offices of Thelen, Marrin, Johnson & Bridges, San Jose
CA, or at such other time and place as the Company and the Placement Agent may
agree. There is no minimum amount of notes and Warrants required for an initial
closing.
(b) From time to time prior to and following the
Closing Date, the Company may, but shall not be obligated to, offer and sell the
balance of the Notes and Warrants authorized but not sold as of the Closing Date
herein to other purchasers (the "Other Purchasers") at one or more subsequent
closings to be held no later than February 20, 1997 unless otherwise extended by
the Company and the Placement Agent. By executing this Agreement, the Purchasers
hereunder agree to the inclusion of such Other Purchasers as parties to this
Agreement and the Registration Rights Agreement referenced in Section 7.1(d)
herein (the "Registration Rights Agreement"), and it shall be a condition to
each subsequent closing that the Other Purchasers, if any, shall become parties
to this Agreement and the Registration Rights Agreement, subject to the terms
hereof and thereof. If such a subsequent closing is held, the terms "Closing"
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and "Closing Date", as used herein, shall be deemed to apply to the initial
closing and each such subsequent closing.
2.2 Delivery. At the Closing, subject to the terms and
conditions hereof, the Company shall deliver to each Purchaser the Notes
subscribed for by such Purchaser, dated as of the Closing Date, and Warrants,
against payment of the purchase price therefor by wire transfer, unless other
means of payment shall have been agreed upon by such Purchaser and the Company
and the Placement Agent, on the other hand.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Subject to and except as disclosed by the Company in the Private
Placement Materials, the Company hereby represents and warrants to each
Purchaser as of the date hereof as follows, and all such representations and
warranties shall be true and correct as of the Closing Date as if then made and
shall survive the Closing:
3.1 Organization. The Company and Laser Biotech, Inc. as its
subsidiary (the "Subsidiary") is a corporation, duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. The Company and the Subsidiary has all requisite power and
authority to own or lease its properties and to conduct its business as now
conducted. The Company holds all licenses and permits required for the conduct
of its business as now conducted, which, if not obtained, would have a material
adverse effect on the business, financial condition or results of operations of
the Company taken as a whole. The Company and the Subsidiary is qualified as a
foreign or domestic corporation and is in good standing in all states where the
conduct of its business or its ownership or leasing of property requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the business, financial condition or results of operations of
the Company taken as a whole. The Company has previously delivered a true and
complete copy of its Certificate of Incorporation ("Certificate") and Bylaws to
the Placement Agent.
3.2 Capitalization. The authorized, issued and outstanding
capital stock of the Company on September 30, 1996 is as set forth in the Report
on Form 10-Q (September 30, 1996) which is included in the Private Placement
Materials (Tab A). Since September 30, 1996, there has been no material change
in the capitalization of the Company, except as has been described in the
Private Placement Materials. All of the issued and outstanding shares of Common
Stock have been duly authorized, validly issued and are fully paid and
nonassessable. Except as stated in the Private Placement Materials and except
for rights granted under the Company's stock plans, there are no existing
subscriptions, options, warrants, calls, commitments, agreements, conversion or
other rights of any character (contingent or otherwise) to purchase or otherwise
acquire from the Company at any time, or upon the happening of any stated event,
any shares of the capital stock of the Company.
3.3 Authority. The Company has all requisite corporate power
and authority to enter into this Agreement, the Warrants, the Registration
Rights Agreement, and the warrant to purchase up to 85,714 shares of Common
Stock issued to the Placement Agent (the "Placement Agent Warrant"), and to
consummate the transactions contemplated hereby and thereby. The
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execution and delivery of this Agreement, the Warrant Agreement, the
Registration Rights Agreement and the Placement Agent Warrant and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of the Company, and
upon their execution and delivery by the Company, such documents will constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the indemnification and contribution
provisions of the Registration Rights Agreement may be limited by principles of
public policy, and subject as to enforceability to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or affecting
creditor's rights from time to time in effect and subject to general equity
principles.
3.4 Securities Filings. The Company has filed with the
Securities and Exchange Commission (the "SEC") the documents set forth in the
Private Placement Materials included herein under Tab A (the "SEC Filings"). The
Company has filed with the SEC all reports and all other filings required to be
filed with the SEC under the rules and regulations of the SEC.
(a) The SEC Filings, when filed, conformed in all
material respects to the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the SEC
thereunder as of their respective filing dates and did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
documents or portions thereof that were incorporated by reference in the SEC
Filings pursuant to the requirements of the Exchange Act, when such incorporated
documents or portions were first filed with the SEC, conformed in all material
respects with any applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder.
(b) The consolidated financial statements of the
Company included in the SEC Filings fairly presented in all material respects
the financial position and results of operations of the Company and the
Subsidiary at their respective dates and for the respective periods to which
they apply; and such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as otherwise stated therein.
(c) Notwithstanding any provision therein to the
contrary, it is understood by the Company and the Purchasers that the Company is
not representing or warranting any statement in the SEC Filings relating to
future, anticipated or possible circumstances, occurrences or developments.
3.5 Issuance of the Notes. The Notes, when issued against
payment therefor pursuant to the terms of this Agreement, will be duly and
validly authorized and issued, fully paid and nonassessable.
3.6 No Conflict with Law or Documents. The execution, delivery
and consummation of this Agreement, the Warrants and the Registration Rights
Agreement and the transactions contemplated hereby and thereby will not (a)
conflict with any provisions of the Articles or Bylaws of the Company or of the
Subsidiary; (b) result in any violation of or default or
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loss of a benefit under, or permit the acceleration of any obligation under (in
each case, upon the giving of notice, the passage of time, or both) any
mortgage, indenture, lease, agreement or other instrument, permit, franchise,
license, judgment, order, decree, law, ordinance, rule or regulation applicable
to the Company, the Subsidiary or their respective properties.
3.7 Consents, Approvals and Private Offering. Except for any
filings required under federal and applicable state securities laws, all of
which shall have been made as of the Closing Date to the extent required as of
such time, no consent, approval, order or authorization of, or resignation,
declaration or filing with, any federal, state, local or foreign governmental
authority is required to be made or obtained by the Company in connection with
the execution and delivery of this Agreement, the Registration Rights Agreement
and the consummation of the transactions contemplated hereby and thereby.
3.8 Absence of Certain Developments. Except as described in
the Private Placement, since September 30, 1996, the Company has not (a)
incurred or become subject to any material liabilities (absolute or contingent)
except current liabilities incurred, and liabilities under contracts entered
into, in the ordinary course of business, consistent with past practices; (b)
mortgaged, pledged or subjected to any lien, charge or other encumbrance any of
its assets, tangible or intangible; (c) sold, assigned or transferred any of its
assets or canceled any debts or obligations except in the ordinary course of
business, consistent with past practices; (d) suffered any extraordinary losses,
or waived any rights of substantial value; (e) entered into any material
transaction other than in the ordinary course of business, consistent with past
practices; or (f) otherwise had any change in its condition, financial or
otherwise, except as shown on or reflected in the consolidated balance sheet as
of September 30, 1996 that is included in the Company's Report on Form 10-Q for
the quarter ended September 30, 1996, except for changes in the ordinary course
of business, consistent with past practices, none of which individually or in
the aggregate has been materially adverse, and excepted further that the Company
continues to incur additional substantial losses of the nature set forth in
and/or otherwise contemplated by the Private Placement Materials. Except as
described in the SEC Filings, neither the Company nor the Subsidiary has entered
into any agreement since September 30, 1996 of the type that would be required
under the SEC's rules and regulations to be filed as an exhibit to a Report on
Form 10-K.
3.9 Litigation. Except as described in the Private Placement
Materials, to the Company's knowledge, there are no actions, suits, proceedings
or investigations pending against or affecting the Company or the Subsidiary
that in the aggregate could reasonably be anticipated to result in any material
adverse effect on the Company.
3.10 Registration Rights. Except for shares issued or issuable
in connection with the Company's existing stock option plans and those disclosed
in the Private Placement Materials the Company has not granted any rights to
have any of the Company's securities registered under the Act.
3.11 Disclosure. The Private Placement Materials taken as a
whole do not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
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3.12 Security Interest. In order to secure the Company's
obligations under the Notes and perfect the Purchasers' security interests in
all of the Company's pending and issued opthalmic patents, the Company has made
all the necessary filings and has not granted a security interest in such
patents to any other party.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents, warrants and covenants with
the Company as follows:
4.1 Legal Power. Purchaser has the requisite corporate,
partnership, trust or fiduciary power, as appropriate, and is authorized, if
Purchaser is a corporation, partnership or trust, to enter into this Agreement
and the Registration Rights Agreement, to purchase the Notes and Warrants
hereunder, and to carry out and perform its obligations under the terms of this
Agreement and the Registration Rights Agreement.
4.2 Due Execution. Each of this Agreement and the Registration
Rights Agreement has been duly authorized, if Purchaser is a corporation,
partnership, trust or fiduciary, and has been executed and delivered by the
Purchaser, and, upon due execution and delivery by the Company, this Agreement
and the Registration Rights Agreement will be valid and binding agreements of
the Purchaser and subject as to enforceability to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or affecting
creditor's rights from time to time in effect and subject to general equity
principles.
4.3 Investment Representations.
(a) Purchaser is acquiring the Notes for its own
account, not as nominee or agent, for investment and not with a view to or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act of 1933, as amended (the "Act"), except
pursuant to an effective registration statement under the Act.
(b) Purchaser understands that (i) the Warrants, the
Conversion Shares and the Warrant Shares (collectively, the "Securities") have
[not] been registered under the Act by reason of a specific exemption therefrom,
and may not be transferred or resold except pursuant to an effective
registration statement or exemption from registration; (ii) each of such
Securities (unless such Warrant Shares have been registered prior to the
exercise of such Warrants) will be endorsed with the following legends:
A) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
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FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS;
B) Any legend required to be placed thereon by applicable federal,
state, or Canadian Provincial securities laws;
and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Securities unless the conditions specified in the
foregoing legends are satisfied;
(c) Purchaser has received and reviewed the Private
Placement Materials. In addition, Purchaser has been furnished with such
materials and has been given access to such information relating to the Company
as it or its qualified representative has requested and has been afforded the
opportunity to ask questions regarding the Company and the Securities, all as
Purchaser has found necessary to make an informed investment decision.
(d) Purchaser is an "accredited investor" as such
term is defined in Rule 501 of the Act and was not formed for the specific
purpose of acquiring the Securities.
(e) Purchaser is not a resident of Canada or any
territory thereof, or of any jurisdiction outside the United States and its
territories.
4.4 Pennsylvania Requirements.
Each Purchaser who is a Pennsylvania resident, or which has
its principal place of business in Pennsylvania and is not an "institutional
investor" within the meaning of the Pennsylvania Securities Act of 1972 as
amended and the regulations thereunder, hereby agrees not to sell any of the
Securities for a period of 12 months from the date hereof, except in accordance
with the requirements of section 203(d) of such act and regulation 204.011
thereunder.
5. COVENANTS OF THE COMPANY.
5.1 Information.
So long as the Company is subject to the periodic reporting
requirements of the Exchange Act pursuant to Section 13 or l5(d), the Company
shall deliver to each holder of Notes or Warrants all annual, quarterly or other
reports furnished to the public security holders; provided that if the Company
is not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish to each holder of Notes or Warrants (i) as
soon as available, and in any event within 90 days after the end of each fiscal
year of the Company, a consolidated balance sheet of the Company and its
consolidated subsidiaries, if any, as of the end of such fiscal year and the
related consolidated statements of income, stockholders' equity and cash flows
for such fiscal year, setting forth in each case in comparative form the figures
for the previous fiscal year, all prepared in accordance with generally accepted
accounting principles and reported on by independent certified public
accountants of recognized national standing; and (ii) as soon as available, and
in any event within 45 days after the end of each of the first three fiscal
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quarters of each fiscal year of the Company, a consolidated balance sheet of the
Company and its consolidated subsidiaries, if any, as of the end of such quarter
and the related consolidated statements of income and stockholder's equity
(together with any other quarterly financial statements being prepared by the
Company at such time), setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
Company's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and consistency by the chief
financial officer or the chief accounting officer of the Company.
6. REPRESENTATIONS OF PLACEMENT AGENT; COMPENSATION OF PLACEMENT AGENT.
The Company has authorized the Placement Agent to conduct the private placement
of the Securities (the "Private Placement") under Regulation D and Regulation S
of the Act, and the Placement Agent represents and agrees with the Company as
follows:
6.1 Sales to Accredited Investors. Placement Agent has and
will only make offers and sales of the Securities to Regulation D Purchasers or
potential Regulation D Purchasers it reasonably believes to be "accredited
investors" as that term is defined in Rule 501(a) under the Act;
6.2 Regulation D Compliance. Offers and sales of the
Securities have and will be made in compliance with Regulation D, to the extent
applicable to the Placement Agent, and the Placement Agent has not and shall not
offer to sell the Securities by any form of general solicitation or general
advertising that is prohibited by Rule 502(c) promulgated under the Act.
6.3 Compliance Generally. The Placement Agent has and will
observe all securities laws and regulations applicable to it in any jurisdiction
in which it has or may offer, sell or deliver any of the Securities and it will
not, directly or indirectly, offer, sell or deliver any of the Securities or
distribute or publish any prospectus, circular, advertisement or other offering
material in relation to any of the Securities in or from any state in the United
States or country or jurisdiction except under circumstances that will result in
compliance with any applicable laws and regulations.
6.4 Sales Commissions. In consideration of the Placement
Agent's services hereunder, the Company shall pay to the Placement Agent in cash
on each Closing Date a commission equal to seven and one-half percent (7.5 %) of
the proceeds of the Securities sold at such Closing (the "Placement Fee").
6.5 Placement Agent Expenses. Upon the initial closing, the
Company shall reimburse the Placement Agent for its reasonable out-of-pocket
expenses of the Private Placement, including the reasonable fees and expenses of
the Placement Agent's counsel, up to a maximum of $50,000. This amount may
include expenses from other pending or abandoned transactions involving the
Placement Agent.
6.6 Placement Agent Warrant. At each Closing, the Company
agrees to sell to the Placement Agent a Warrant to purchase a number of shares
of the Company's Common Stock
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equal to five percent (5%) of the number of Conversion Shares sold into which
the Notes sold at such Closing are convertible (the "Placement Agent Warrant")
at a purchase price of $.001 per share of Common Stock covered by the Placement
Agent Warrant. The Placement Agent Warrant will be exercisable at any time
before the fifth anniversary of the initial Closing at a price of $0.875
(subject to adjustments for stock dividends, splits, combinations and certain
other issuances of Common Stock or Common Stock equivalents, all as provided in
the Placement Agent Warrant). The Placement Agent Warrant will be in a form
reasonably satisfactory to the Company and the Placement Agent.
6.7 Right of First Refusal to Manage Future Offerings. For a
period of one (1) year commencing upon the last Closing Date hereunder, the
Placement Agent shall have a right of first refusal to act as the managing
underwriter for any and all equity offerings (excluding offerings to Company
employees, or to others as consideration for the purchase of assets for use in
the Company's business, or in one or more business combinations) of any
securities of the Company, or any successor to or any subsidiary of the Company.
The Placement Agent must exercise this right of first refusal within thirty (30)
days of receipt of written notice from the Company, or its successor or
subsidiary, of its intention to offer securities for sale.
6.8 Blue Sky Compliance. The Placement Agent will comply with
the state securities or blue sky laws of each state in which the Securities have
been or will be offered ("Applicable Blue Sky Laws"). The Placement Agent has
ensured and will ensure that all applications, notices and other filings
required to be made under Applicable Blue Sky Laws have been or will be timely
made. The Placement Agent has ensured that all legends or other notices required
to be either printed in the Private Placement Memorandum or otherwise given to
offerees or purchasers of the Securities under Applicable Blue Sky Laws have
been so printed or given.
7. CONDITIONS TO CLOSING.
7.1 Conditions to Obligations of the Purchaser. Each
Purchaser's obligation to purchase the Securities at the Closing is subject to
the fulfillment, at or prior to such Closing, of all of the following
conditions:
(a) Representations and Warranties True; Performance
of Obligations. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on the
Closing Date with the same force and effect as if they had been made on and as
of said date; except as described in or contemplated by the Private Placement
Materials, the business, assets, financial condition and results of operations
of the Company shall not have been adversely affected in any material way prior
to the Closing Date; and the Company shall have performed all obligations and
conditions herein required to be performed by it on or prior to the Closing
Date.
(b) Proceedings and Documents. All corporate and
other proceedings in connection with the transactions contemplated at the
Closing hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Purchaser.
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(c) Qualifications, Legal Investment. All
authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the Securities pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of the
Closing Date. No stop order or other order enjoining the sale of the Securities
shall have been issued and no proceedings for such purpose shall be pending or,
to the knowledge of the Company, threatened by the SEC, or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the Securities
shall be legally permitted by all laws and regulations to which the Purchasers
and the Company are subject.
(d) Registration Rights Agreement. The Company shall
have entered into the Registration Rights Agreement in substantially the form
included in the Private Placement Materials (Tab C).
(e) Legal Opinion. Counsel to the Company shall have
provided a legal opinion to the Purchasers dated as of the Closing Date
reasonably acceptable to the Placement Agent.
7.2 Conditions to Obligations of the Company. The Company's
obligation to issue and sell the Securities at the Closing is subject to the
fulfillment to the Company's satisfaction, on or prior to the Closing, of the
following conditions:
(a) Representations and Warranties True. The
representations and warranties made by each Purchaser in Section 4 and by the
Placement Agent in Sec. 6 hereof shall be true and correct at the Closing Date
with the same force and effect as if they had been made on and as of the Closing
Date.
(b) Performance of Obligations. Each Purchaser and
the Placement Agent shall have performed and complied with all agreements and
conditions herein required to be performed or complied with by them on or before
the Closing Date, and each Purchaser shall have delivered payment to the Company
in respect of its purchase of Notes.
(c) Qualifications, Legal Investment. All
authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the Securities pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of the
Closing Date. No stop order or other order enjoining the sale of the Securities
shall have been issued and no proceedings for such purpose shall be pending or,
to the knowledge of the Company, threatened by the SEC or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the Securities
shall be legally permitted by all laws and regulations to which each Purchaser
and the Company are subject.
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8. MISCELLANEOUS.
8.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania as applied to
agreements among California residents, made and to be performed entirely within
the Commonwealth of Pennsylvania without regard to principles of conflict of
laws.
8.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto.
8.3 Entire Agreement. This Agreement and the Exhibits hereto
and thereto, and the other documents delivered pursuant hereto and thereto,
constitute the full and entire understanding and agreement among the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other party in any manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein or therein. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
8.4 Separability. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, it shall to the extent practicable,
be modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.5 Amendment and Waiver. Except as otherwise provided herein,
any term of this Agreement may be amended, and the observance of any term of
this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), with the written consent of the Company and the Purchaser and
with respect to any amendment or waiver of the provisions of Section 6, the
Placement Agent. Any amendment or waiver effected in accordance with this
section shall be binding upon each future holder of any security purchased under
this Agreement (including securities into which such securities have been
converted) and the Company.
8.6 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and the
Purchaser at the respective addresses included herein.
8.7 Fees and Expenses. The Company and the Purchasers shall
bear their own expenses and legal fees incurred on its behalf with respect to
this Agreement and the transactions contemplated hereby; provided, that in the
event that the transactions contemplated hereby close, the Company shall
reimburse the Placement Agent in accordance with the provisions of Section 6.5.
The fees and expenses for which the Company shall be liable hereunder shall in
no event
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exceed $50,000 in the aggregate. Purchasers acknowledge that the Placement Agent
will receive a commission equal to 7.5% of the aggregate amount sold in the
Offering and will be entitled to purchase for nominal consideration a five-year
warrant to purchase up to 85,714 shares of the Company's Common Stock at an
exercise price equal to $0.875, as described in the Private Placement Materials
under the heading "Summary of the Offering."
8.8 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
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Exhibit 10.12
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
OFFSHORE NOTE AND WARRANT PURCHASE AGREEMENT
This Offshore Common Stock Purchase Agreement (this
"Agreement") is made as of the Closing Date (as hereinafter defined) by and
between Sunrise Technologies International, Inc., a Delaware corporation (the
"Company), with its principal office at 47257 Fremont Boulevard, Fremont, CA
94538, Pennsylvania Merchant Group Ltd (the "Placement Agent") and each of the
purchasers who are signatories hereto and any other purchasers who are made a
party to this Agreement pursuant to Section 1(d) (individually, a "Purchaser"
and collectively, the "Purchasers").
RECITALS
The Company has engaged the Placement Agent as exclusive agent
of the Company in connection with the placement and sale (the "Offering") of
$1,500,000 Convertible Subordinated Notes (the "Notes") with Warrants. The Notes
will be convertible into shares of the Company's $.001 par value common stock
("Common Stock") commencing on the Closing Date (as hereinafter defined) at an
initial conversion price (the "Conversion Price") of $0.875 per share of Common
Stock. The Notes are Redeemable at the Company's option, in whole but not in
part, at any time on or after March 31, 1997, at a price equal to the principal
of the Notes then outstanding plus accrued and unpaid interest to the date of
redemption (the "Redemption Date"). Holders of the Notes will receive not more
than 60 nor fewer days than 30 days' notice prior to the Redemption Date, during
such time they may exercise their conversion rights. Each Purchaser will receive
one warrant to purchase Common Stock, substantially in the form attached (the
"Warrants") for each $1.75 in Notes purchased by such Purchaser. Each Warrant
entitles the holder to purchase one share of Common Stock for $1.00 during the
five year period commencing on the initial Closing Date (as hereinafter
defined). The Notes and Warrants will be sold by the Company to Purchasers
pursuant to Regulations D and S under the Securities Act of 1933, as amended
(the "Act") (individually the "Regulation D Purchasers" and "Regulation S
Purchasers"). Regulation S Purchasers will purchase Notes and Warrants pursuant
to this Agreement and Regulation D Purchasers will purchase the Notes and
Warrants pursuant to a U.S. Note and Warrant Purchase Agreement of even date
herewith (the "U.S. Agreement"). Offers and sales of Notes and Warrants will
only be made pursuant to the Confidential Private Offering Memorandum dated
February 5, 1997 (together with all amendments, supplements, exhibits and
attachments thereto, the "Private Placement Materials").
AGREEMENT
In consideration of the mutual promises, representations,
warranties and conditions set forth in this Agreement, the Company, each
Purchaser (severally and not jointly) and the Placement Agent intending to be
legally bound agree as follows:
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1. PURCHASE AND SALE OF NOTES AND WARRANTS.
1.1 Issue of Notes and Warrants.
(a) The Company has authorized the issuance and sale
of up to $1,500,000 Notes, and up to 1,714,286 share of Common Stock (the
"Conversion Shares") pursuant to the conversion of the Notes, up to 857,143
Warrants and up to 857,143 additional shares of Common Stock (the "Warrant
Shares") pursuant to the exercise of the Warrants, pursuant to the provisions of
this Agreement and the U.S. Agreement made as of the Closing Date
(b) In reliance upon the Purchaser's representations
and warranties contained in Section 4 hereof and upon the Placement Agent's
representations and warranties contained in Section 6 hereof, and subject to the
terms and conditions set forth herein, the Company hereby agrees to sell to each
Purchaser the aggregate amount of Notes and Warrants set forth below such
Purchaser's signature on the subscription page bearing such Purchaser's name.
(c) In reliance upon the representations and
warranties of the Company contained herein, and subject to the terms and
conditions set forth herein, each Purchaser hereby agrees to purchase the amount
of Notes and Warrants set forth on the subscription page bearing such
Purchaser's name at the purchase price set forth above. Each Purchaser shall
severally, and not jointly, be liable for only the amount of Notes and Warrants
that appear on the subscription page hereof that relates to such Purchaser.
(d) The Company's agreement with each of the
Purchasers is a separate agreement, and the sale of the Notes and Warrants to
each of the Purchasers is a separate sale.
2. CLOSING DATE; DELIVERY.
2.1 Closing.
(a) The initial closing of the sale and purchase of
the Notes under this Agreement (the "Closing"), together with the initial
closing of the sale and purchase of Notes under the U.S. Agreement, shall be
held at 10:00 a.m. (Pacific Standard Time) on or before February 20, 1997 (the
"Closing Date"), at the offices of Thelen, Marrin, Johnson & Bridges, San Jose
CA, or at such other time and place as the Company and the Placement Agent may
agree. There is no minimum amount of Notes required for an initial closing.
(b) From time to time prior to and following the
Closing Date, the Company may, but shall not be obligated to, offer and sell the
balance of the Notes authorized but not sold as of the Closing Date herein to
other purchasers (the "Other Purchasers") at one or more subsequent closings to
be held no later than February 20, 1997 unless otherwise extended by the Company
and the Placement Agent. By executing this Agreement, the Purchasers hereunder
agree to the inclusion of such Other Purchasers as parties to this Agreement and
the Registration Rights Agreement referenced in Section 7.l(d) herein (the
"Registration Rights Agreement"), and it shall be a condition to each subsequent
closing that the Other Purchasers, if any shall become parties to this Agreement
and the Registration Rights Agreement and subject to the terms hereof
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<PAGE>
and thereof. If such a subsequent closing is held, the terms "Closing" and
"Closing Date", as used herein, shall be deemed to apply to the initial closing
and each such subsequent closing.
2.2 Delivery. At the Closing, subject to the terms and
conditions hereof, the Company will deliver to each Purchaser the Notes
subscribed for by such Purchaser, dated as of the Closing Date, and Warrants,
against payment of the purchase price therefor by wire transfer, unless other
means of payment shall have been agreed upon by such Purchaser, on one hand, and
the Company, and the Placement Agent, on the other hand.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Subject to and except as disclosed by the Company in the
Private Placement Materials, the Company hereby represents and warrants to each
Purchaser as of the date hereof as follows, and all such representations and
warranties shall be true and correct as of the Closing Date as if then made and
shall survive the Closing:
3.1 Organization. Each of the Company and Laser Biotech, Inc.
as its subsidiary (the "Subsidiary") is a corporation, duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. The Company and the Subsidiary has all requisite power and
authority to own or lease its properties and to conduct its business as now
conducted. Each of the Company holds all licenses and permits required for the
conduct of its business as now conducted, which, if not obtained, would have a
material adverse effect on the business, financial condition or results of
operations of the Company taken as a whole. Each of the Company and the
Subsidiary is qualified as a foreign or domestic corporation and is in good
standing in all states where the conduct of its business or its ownership or
leasing of property requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the business, financial
condition or results of operations of the Company taken as a whole. The Company
has previously delivered a true and complete copy of its Certificate of
Incorporation ("Certificate") and Bylaws to the Placement Agent.
3.2 Capitalization. The authorized, issued and outstanding
capital stock of the Company on September 30, 1996 is as set forth in the Report
on Form 10-Q (September 30,1996) which is included in the Offering Materials
(Tab A). Since September 30, 1996, there has been no material change in the
capitalization of the Company, except as has been described in the Private
Placement Materials. All of the issued and outstanding shares of Common Stock
have been duly authorized, validly issued and are fully paid and nonassessable.
Except as stated in the Private Placement Materials and except for rights
granted under the Company's stock option plans, there are no existing
subscriptions, options, warrants, calls, commitments, agreements, conversion or
other rights of any character (contingent or otherwise) to purchase or otherwise
acquire from the Company at any time, or upon the happening of any stated event,
any shares of the capital stock of the Company.
3.3 Authority. The Company has all requisite corporate power
and authority to enter into this Agreement, the Warrants, Registration Rights
Agreement, and the warrant to purchase up to 85,714 shares of Common Stock
issued to the Placement Agent (the "Placement Agent Warrant"), and to consummate
the transactions contemplated hereby and thereby. The
-3-
<PAGE>
execution and delivery of this Agreement, the Warrants, the Registration Rights
Agreement and the Placement Agent Warrant and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of the Company, and upon their execution
and delivery by the Company, such documents will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as the indemnification and contribution provisions of the
Registration Rights Agreement may be limited by principles of public policy, and
subject as to enforceability to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditors'
rights from time to time in effect and subject to general equity principles.
3.4 Securities Filings. The Company has filed with the
Securities and Exchange Commission (the "SEC") the documents set forth in the
Private Placement Materials included herein under Tab A (the "SEC Filings"). The
Company has filed with the SEC all reports and all other filings required to be
filed with the SEC under the rules and regulations of the SEC.
(a) The SEC Filings conformed in all material
respects to the requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations of the SEC thereunder as of
their respective filing dates and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The documents or
portions thereof that were incorporated by reference in the SEC Filings pursuant
to the requirements of the Exchange Act, when such incorporated documents or
portions were first filed with the SEC, conformed in all material respects with
any applicable requirements of the Exchange Act and the rules and regulations of
the SEC thereunder.
(b) The consolidated financial statements of the
Company included in the SEC Filings fairly presented in all material respects
the financial position and results of operations of the Company and the
Subsidiary at their respective dates and for the respective periods to which
they apply; and such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved except as otherwise stated therein.
(c) Notwithstanding any provision therein to the
contrary, it is understood by the Company and the Purchasers that the Company is
not representing or warranting any statement in the SEC Filings relating to
future, anticipated or possible circumstances, occurrences or developments.
3.5 Issuance of the Notes. The Notes, when issued against
payment therefor pursuant to the terms of this Agreement, will be duly and
validly authorized and issued, fully paid and nonassessable.
3.6 No Conflict with Law or Documents. The execution, delivery
and consummation of this Agreement, the Warrants and the Registration Rights
Agreement and the transactions contemplated hereby and thereby will not (a)
conflict with any provisions of the Articles or Bylaws of the Company or the
Subsidiary; (b) result in any violation of or default or loss of a benefit
under, or permit the acceleration of any obligation under (in each case, upon
the
-4-
<PAGE>
giving of notice, the passage of time, or both) any mortgage, indenture, lease,
agreement or other instrument, permit, franchise, license, judgment, order,
decree, law, ordinance, rule or regulation applicable to the Company, the
Subsidiary or their respective properties.
3.7 Consents, Approvals and Private Offering. Except for any
filings required under federal and applicable state securities laws, all of
which shall have been made as of the Closing Date to the extent required as of
such time, no consent, approval, order or authorization of, or registration,
declaration or filing with, any federal, state, local or foreign governmental
authority is required to be made or obtained by the Company in connection with
the execution and delivery of this Agreement, the Registration Rights Agreement
and the consummation of the transactions contemplated hereby and thereby.
3.8 Absence of Certain Developments. Except as described in
the Private Placement Materials, since September 30, 1996, neither the Company
has (a) incurred or become subject to any material liabilities (absolute or
contingent) except current liabilities incurred, and liabilities under contracts
entered into, in the ordinary course of business, consistent with past
practices; (b) mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of its assets, tangible or intangible; (c) sold, assigned or
transferred any of its assets or canceled any debts or obligations except in the
ordinary course of business, consistent with past practices; (d) suffered any
extraordinary losses, or waived any rights of substantial value; (e) entered
into any material transaction other than in the ordinary course of business,
consistent with past practices; or (f) otherwise had any change in its
condition, financial or otherwise, except as shown on or reflected in the
consolidated balance sheet as of September 30, 1996 that is included in the
Company's Report on Form 10-Q for the quarter ended September 30, 1996, except
for changes in the ordinary course of business, consistent with past practices,
none of which individually or in the aggregate has been materially adverse, and
excepted further that the Company continues to incur additional substantial
losses of the nature set forth in and/or otherwise contemplated by the Private
Placement Materials. Except as described in the SEC Filings, neither the Company
nor the Subsidiary has entered into any agreement since September 30, 1996 of
the type that would be required under the SEC's rules and regulations to be
filed as an exhibit to a Report on Form 10-K.
3.9 Litigation. Except as described in the Private Placement
Materials, to the Company's knowledge, there are no actions, suits, proceedings
or investigations pending against or affecting the Company or the Subsidiary
that in the aggregate could reasonably be anticipated to result in any material
adverse effect on the Company.
3.10 Registration Rights. Except for shares issued or issuable
in connection with the Company's existing stock option plans and those disclosed
in the Private Placement Materials the Company has not granted any rights to
have any of the Company's securities registered under the Act.
3.11 Disclosure. The Private Placement Materials taken as a
whole do not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
-5-
<PAGE>
3.12 Security Interest. In order to secure the Company's
obligations under the Notes and perfect the Purchasers' security interests in
all of the Company's pending and issued ophthalmic patents, the Company has made
all the necessary filings and has not granted a security interest in such
patents to any other party.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents, warrants and covenants with
the Company as follows:
4.1 Legal Power. Purchaser has the requisite corporate,
partnership, trust or fiduciary power, as appropriate, and is authorized, if
Purchaser is a corporation, partnership or trust, to enter into this Agreement
and the Registration Rights Agreement, to purchase the Notes and Warrants
hereunder, and to carry out and perform its obligations under the terms of this
Agreement and the Registration Rights Agreement.
4.2 Due Execution. This Agreement and the Registration Rights
Agreement have been duly authorized, if Purchaser is a corporation, partnership,
trust or fiduciary, executed and delivered by Purchaser, and, upon due execution
and delivery by the Company, this Agreement and the Registration Rights
Agreement will be valid and binding agreements of Purchaser, and subject as to
enforceability to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws relating to or affecting creditors' rights from time to time in
effect and subject to general equity principles.
4.3 Investment Representations.
Each Purchaser represents and agrees that:
(a) Purchaser is acquiring the Notes for its own
account, not as a nominee or agent, for investment and not with a view to or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Act, except pursuant to an effective registration statement
under the Act;
(b) Such Purchaser is not a U.S. Person (as defined
in Regulation S) and is not an affiliate of the Company (as defined in
Regulation S);
(c) At the time such Purchaser's buy order for the
Notes and the Warrants was originated such Purchaser was outside the United
States, its territories and possessions;
(d) The Purchaser:
(i) will not, during the period commencing
on the latest Closing Data and ending on the day 40 days after the final Closing
Date (the "Restricted Period"), offer or sell any of the Securities in the
United States, its territories or possessions, or to a U.S. Person or for the
account or benefit of a U.S. Person (other than distributors), other than in
accordance with Rules 903 or 904 of Regulation S; and
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<PAGE>
(ii) will, after the expiration of the
Restricted Period, offer, sell, pledge or otherwise transfer the Shares only
pursuant to registration under the Act or an available exemption therefrom and,
in any case, in accordance with applicable state and foreign securities laws.
(e) None of such Purchaser, its affiliates or any
person acting on behalf of the Purchaser or any such affiliates has engaged, or
will engage, in any Directed Selling Efforts (as defined in Regulation S under
the Act) with respect to the Securities or any distribution, as that term is
used in the definition of Distributor (as defined in Rule 902CC) in Regulation S
under the Act, with respect to the Securities.
(f) The transactions contemplated by this Agreement:
(i) have not been pre-arranged with a
purchaser located in the United States, its territories or possessions, or who
is a U.S. Person; and
(ii) are not part of a plan or scheme to
evade the registration provisions of the Act.
(g) The Purchaser is purchasing the Notes for its own
account for the purpose of investment and not (A) with a view to, or for sale in
connection with, any distribution thereof or (B) for the account or on behalf of
any U.S. Person.
(h) The Purchaser is not a corporation that has been
formed principally for the purpose of investing in securities not registered
under the Act.
(i) Neither the Company, the Placement Agent nor any
person or entity acting on its or their behalf made to the Purchaser or any
person acting on its behalf in the United States any statement conveying a
purpose or intent to sell the Shares to the Purchaser. The person executing this
Agreement on behalf of the Purchaser was outside the United States, its
territories and possessions at the time of such execution.
(j) Neither the Purchaser, any affiliate of the
Purchaser, nor any person or entity acting on its or their behalf has undertaken
or carried out any activity for the purpose of, or that could reasonably be
expected to have the effect of, conditioning the market in the United States,
its territories or possessions, for any of the Shares.
(k) If the Purchaser offers and sells any of the
Securities during the Restricted Period, then it will do so only: (i) in
accordance with the provisions of Regulations S; (ii) pursuant to registration
of the Shares under the Act; or (iii) pursuant to an available exemption from
the registration requirements of the Act.
(1) Purchaser understands that the Shares have not
been registered under the Act by reason of a specific exemption therefrom, and
may not be transferred or resold except pursuant to an effective registration
statement or exemption from registration and each certificate representing the
Shares will be endorsed with the following legends:
-7-
<PAGE>
(i) THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES
ACT"), AND SUCH SECURITY MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES
ACT, OR (2) PURSUANT TO AN EXEMPTION
FROM REGISTRATION AS CONFIRMED IN
ANY OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY, AND IN EACH CASE IN
ACCORDANCE WITH ANY OTHER APPLICABLE
LAW.
(ii) Any legend required to be placed
thereon by applicable federal or state securities laws, and
(iii) the Company will instruct any transfer
agent not to register the transfer of any of the Securities unless the
conditions specified in the foregoing legends are satisfied.
(m) Receipt and review of Offering Materials. Each
Purchaser represents that Purchaser has received and reviewed the Private
Placement Materials and has been given full and complete access to the Company
and/or the Placement Agent for the purpose of obtaining such information as the
Purchaser or its qualified representative has reasonably requested and has been
afforded the opportunity to ask questions regarding the Company and the Shares,
all as Purchaser or its qualified representative has found necessary to make an
informed investment decision.
5. COVENANTS OF THE COMPANY.
5.1 Information.
So long as the Company is subject to the periodic reporting
requirements of the Exchange Act pursuant to Section 13 or l5(d), the Company
shall deliver to each holder of Notes or Warrants all annual, quarterly or other
reports furnished to its public security holders; provided that if the Company
is not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish to each holder of Notes or Warrants (i) as
soon as available, and in any event within 90 days after the end of each fiscal
year of the Company, a consolidated balance sheet of the Company and its
consolidated subsidiaries, if any, as of the end of such fiscal year and the
related consolidated statements of income, stockholders' equity and cash flows
for such fiscal year, setting forth in each case in comparative form the figures
for the previous fiscal year, all prepared in accordance with generally accepted
accounting principles and reported on by independent certified public
accountants of recognized national standing; and (ii) as soon as available, and
in any event within 45 days after the end of each of the first three
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<PAGE>
fiscal quarters of each fiscal year of the Company, a consolidated balance sheet
of the Company and its consolidated subsidiaries, if any, as of the end of such
quarter and the related consolidated statements of income and stockholder's
equity (together with any other quarterly financial statements being prepared by
the Company at such time), setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
Company's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and consistency by the chief
financial officer or the chief accounting officer of the Company.
6. REPRESENTATIONS OF PLACEMENT AGENT; COMPENSATION OF
PLACEMENT AGENT.
The Company has authorized the Placement Agent to conduct the
Private Placement of the Securities (the "Private Placement") under Regulation D
and Regulation S of the Act, and the Placement Agent represents and agrees with
the Company as follows:
6.1 Regulation S Compliance. Offers and sales of the
Securities to Regulation S Purchasers will be made in compliance with Regulation
S and have not and will not be made to any U.S. Person or for the account and
benefit of any U.S. Person. Neither the Placement Agent nor any of its employees
or affiliates or any person or entity acting on its behalf has or shall engage
in any directed selling efforts (as defined by Regulation S) with respect to the
Securities.
6.2 Compliance Generally. The Placement Agent has and will
observe all securities laws and regulations applicable to it in any jurisdiction
in which it has or may offer, sell or deliver Notes and it will not, directly or
indirectly, offer, sell or deliver Notes or distribute or publish any
prospectus, circular, advertisement or other offering material in relation to
the Notes in or from any state in the United States or country or jurisdiction
except under circumstances that will result in compliance with any applicable
laws and regulations.
6.3 Sales Commissions. In consideration of the Placement
Agent's services hereunder, the Company shall pay Placement Agent in cash on
each Closing Date a commission of seven and one-half percent (7.5 %) of the
proceeds of the Securities sold at such Closing (the "Placement Fee").
6.4 Placement Agent Expenses. Upon the initial closing, the
Company shall reimburse the Placement Agent for its reasonable out-of-pocket
expenses of the Private Placement, including the reasonable fees and expenses of
the Placement Agent's counsel, up to a maximum of $50,000. This amount may
include expenses from other pending or abandoned transactions involving the
Placement Agent.
6.5 Placement Agent Warrant. At each Closing, the Company
agrees to sell to the Placement Agent a Warrant to purchase a number of shares
of the Company's Common Stock equal to five percent (5%) of the number of
Conversion Shares into which the Notes sold at such Closing are convertible (the
"Placement Agent Warrant") at a purchase price of $.001 per share of Common
Stock covered by the Placement Agent Warrant. The Placement Agent Warrant will
be exercisable at any time before the fifth anniversary of the initial Closing
at a price of $0.875
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<PAGE>
(subject to adjustments for stock dividends, splits, combinations and certain
other issuances of Common Stock or Common Stock equivalents, all as provided in
the Placement Agent Warrant). The Placement Agent Warrant will be in a form
reasonably satisfactory to the Company and the Placement Agent.
6.6 Right of First Refusal to Manage Future Offerings. For a
period of one (1) year commencing upon the last Closing Date hereunder, the
Placement Agent shall have a right of first refusal to act as the managing
underwriter for any and all equity offerings (excluding offerings to Company
employees, or to others as consideration for the purchase of assets for use in
the Company's business, or in one or more business combinations) of any
securities of the Company, or any successor to or any subsidiary of the Company.
The Placement Agent must exercise this right of first refusal within thirty (30)
days of receipt of written notice from the Company, or its successor or
subsidiary, of its intention to offer securities for sale.
6.7 Blue Sky Compliance. The Placement Agent will comply with
the state securities or blue sky laws of each state in which the Securities have
been or will be offered ("Applicable Blue Sky Laws"). The Placement Agent has
ensured and will ensure that all applications, notices and other filings
required to be made under Applicable Blue Sky Laws have been or will be timely
made. The Placement Agent has ensured that all legends or other notices required
to be either printed in the Private Placement Memorandum or otherwise given to
offerees or purchasers of the Securities under Applicable Blue Sky Laws have
been so printed or given.
7. CONDITIONS TO CLOSING.
7.1 Conditions to Obligations of the Purchaser. Each
Purchaser's obligation to purchase the Securities at the Closing is subject to
the fulfillment, at or prior to such Closing, of all of the following
conditions:
(a) Representations and Warranties True; Performance
of Obligations. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on the
Closing Date with the same force and effect as if they had been made on and as
of said date; except as described in or contemplated by the Private Placement
Materials, the business, assets, financial condition and results of operations
of the Company shall not have been adversely affected in any material way prior
to the Closing Date; and the Company shall have performed all obligations and
conditions herein required to be performed by it on or prior to the Closing
Date.
(b) Proceedings and Documents. All corporate and
other proceedings in connection with the transactions contemplated at the
Closing hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Purchaser.
(c) Qualifications, Legal Investment. All
authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the Securities pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of the
Closing Date.
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<PAGE>
No stop order or other order enjoining the sale of the Securities shall have
been issued and no proceedings for such purpose shall be pending or, to the
knowledge of the Company, threatened by the SEC, or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the Securities
shall be legally permitted by all laws and regulations to which the Purchaser
and the Company are subject.
(d) Registration Rights Agreement. The Company shall
have entered into the Registration Rights Agreement in substantially the form
included in the Private Placement Materials (Tab C).
(e) Legal Opinion. Counsel to the Company shall have
provided a legal opinion to the Purchasers reasonably acceptable to the
Placement Agent.
7.2 Conditions to Obligations of the Company. The Company's
obligation to issue and sell the Securities at the Closing is subject to the
fulfillment to the Company's satisfaction, on or prior to the Closing, of the
following conditions:
(a) Representations and Warranties True. The
representations and warranties made by each Purchaser in Section 4 hereof and by
the Placement Agent in Section 6 hereof shall be true and correct at the Closing
Date with the same force and effect as if they had been made on and as of the
Closing Date.
(b) Performance of Obligations. Each Purchaser shall
have performed and complied with all agreements and conditions herein required
to be performed or complied with by them on or before the Closing Date, and each
Purchaser shall have delivered payment to the Company in respect of its purchase
of Securities.
(c) Qualifications, Legal Investment. All
authorizations, approvals, or permits, if any, of any governmental authority or
regulatory body of the United States or of any state that are required in
connection with the lawful sale and issuance of the Securities pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of the
Closing Date. No stop order or other order enjoining the sale of the Securities
shall have been issued and no proceedings for such purpose shall be pending or,
to the knowledge of the Company, threatened by the SEC or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the Securities
shall be legally permitted by all laws and regulations to which each Purchaser
and the Company are subject.
8. MISCELLANEOUS.
8.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the Commonwealth of Pennsylvania as applied to
agreements among California residents, made and to be performed entirely within
the Commonwealth of Pennsylvania without regard to principles of conflict of
laws.
-11-
<PAGE>
8.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto.
8.3 Entire Agreement. This Agreement and the Exhibits hereto
and thereto, and the other documents delivered pursuant hereto and thereto,
constitute the full and entire understanding and agreement among the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other party in any manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein or therein. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
8.4 Separability. In case any provision of this Agreement
shall be invalid, illegal, or unenforceable, it shall to the extent practicable,
be modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.5 Amendment and Waiver. Except as otherwise provided herein,
any term of this Agreement may be amended, and the observance of any term of
this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), with the written consent of the Company and the Purchaser. Any
amendment or waiver effected in accordance with this section shall be binding
upon each future holder of any security purchased under this Agreement
(including securities into which such securities have been converted) and the
Company.
8.6 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and the
Purchaser at the respective addresses included herein.
8.7 Fees and Expenses. The Company and the Purchasers shall
bear their own expenses and legal fees incurred on its behalf with respect to
this Agreement and the transactions contemplated hereby; provided, that in the
event that the transactions contemplated hereby close, the Company shall
reimburse the Placement Agent in accordance with the provisions of Section 6.5.
The fees and expenses for which the Company shall be liable hereunder shall in
no event exceed $50,000 in the aggregate. Purchasers acknowledge that the
Placement Agent will receive a commission equal to 7.5% of the aggregate amount
sold in the Offering and will be entitled to purchase for nominal consideration
a five-year warrant to purchase up to 85,714 shares of the Company's Common
Stock at an exercise price equal to $0.875, as described in the Private
Placement Materials under the heading "Summary of the Offering."
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<PAGE>
8.8 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
-13-
Exhibit 11.1
<TABLE>
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
Exhibit 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
Weighted average shares:
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Primary:
Common stock 26,414,218 14,935,468 10,129,283
Warrants and stock options ---- ---- ----
---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding 26,414,218 14,935,468 10,129,283
========== ========== ==========
Fully Diluted:
Common stock 26,414,218 14,935,468 10,129,283
Warrants and stock options ---- ---- ----
---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding 26,414,218 14,935,468 10,129,283
========== ========== ==========
<FN>
Fully diluted earnings per share are not presented on the face of the
Consolidated Statement of Operations since they are not materially different
than primary earnings per share.
</FN>
</TABLE>
EXHIBIT 21.1
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Laser Biotech, Inc. (a California corporation)
Sunrise Acquisition Corporation (a Delaware corporation)
EXHIBIT 23.1
SUNRISE TECHNOLOGIES INTERNATIONAL, INC.
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement
(Form S-8, No. 33-82314) and Registration Statement (Form S-8, No. 33-53466)
pertaining to the 1988 Stock Option Plan and in the Registration Statement (Form
S-8, No. 33-53448) pertaining to the 1992 Employee Stock Purchase Plan of
Sunrise Technologies International, Inc. of our report dated March 10, 1997 with
respect to the consolidated financial statements and schedule of Sunrise
Technologies International, Inc. included in the Annual Report (Form 10-K) for
the year ended December 31, 1996.
/s/ Ernst & Young LLP
Palo Alto, California
April 9, 1997
41
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