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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999, 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 number: 0-18053
LASERSCOPE
(Exact name of Registrant as Specified in its Charter)
California 77-0049527
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3052 Orchard Drive San Jose, California 95134-2011
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (408) 943-0636
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Common Share Purchase Rights
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's voting and non-voting common
equity held by non-affiliates of the Registrant was approximately $39,610,000 as
of March 17, 2000, based upon the closing sale price on the NASDAQ National
Market System reported for such date. Shares of Common Stock held by each
officer and director and by each person who owns 5% of more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
There were 15,429,750 shares of Registrant's Common Stock issued and outstanding
as of March 17, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates information by
reference from the definitive proxy statement for the Annual Meeting of
Shareholders to be held on June 23, 2000.
INTRODUCTORY STATEMENT, RISK FACTORS AND REFERENCES
Except for the historical information contained in this Annual Report on Form
10-K, the matters discussed herein are forward-looking statements made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that all forward-looking statements are subject to
certain risks and uncertainties that could cause the actual results to differ
materially from those projected.
RISK FACTORS
The Company's business, financial condition and results of operations have been,
and in the future may be, affected by a variety of factors, including those set
forth below and elsewhere in this report.
LIMITED WORKING CAPITAL; POTENTIAL NEED TO RAISE ADDITIONAL CAPITAL. As of
December 31, 1999, the Company's total assets and liabilities were $28.9 million
and $16.9 million, respectively. As of such date, the Company's working capital
was $6.8 million while cash and cash equivalents amounted to $1.4 million. The
Company's need for capital is affected by the current and anticipated demand for
its products as well as procurement and production lead times in its
manufacturing processes. Changes in these factors could have a material impact
on capital requirements.
On October 1, 1999, the Company entered into a $6.0 million asset-based
borrowing arrangement with a bank with collateral values based principally on
domestic accounts receivable. The arrangement, which expires in September 2000,
allows for an over-advance relative to the collateral of $1.9 million until
December 31, 1999, then $1.0 million until March 31, 2000, at which time further
over-advances will no longer be allowed. At December 31, 1999, the Company had
approximately $4.0 million in collateral available against the $4.3 million
outstanding. In addition, NWL has in place various bank lines totaling
approximately $3.0 million that expire in 2000 under which $3.0 million in
borrowings were outstanding at December 31, 1999.
To address its capital needs, on January 14, 2000 the Company completed a
private placement of its Common Stock providing net proceeds of approximately
$1.8 million to accredited investors. The Company issued 2,500,000 shares of its
Common Stock, no
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par value per share, at a price of $0.80 per share. The Company also issued
warrants to purchase 218,875 shares of its Common Stock.
Similarly, on February 11, 2000, the Company completed a private placement of
subordinate convertible debentures to affiliates of Renaissance Capital Group,
Inc., with net proceeds to the Company of approximately $2.9 million. The
debentures mature seven years from issuance and bear an interest rate of 8.00%.
The debentures are convertible into Common Stock of the Company, with an initial
conversion price, which is subject to adjustment, of $1.25. The private
placement also included warrants convertible into 240,000 shares of the
Company's Common Stock.
The Company anticipates that future changes in cash and working capital will be
dependent on a number of factors, including management's ability to manage
effectively non-cash assets such as inventory and accounts receivable. The
Company competes in a competitive industry where technological changes and
acceptance of new and alternative procedures by its customers is rapid.
Management's ability to anticipate and adapt to these changes will significantly
affect the Company's investment in inventory and the potential for further
valuation adjustments. In addition, the level of profitability of the Company
will have a significant impact on cash resources.
From time to time, the Company may also consider the acquisition of, or evaluate
investments in, certain products and businesses complementary to the Company's
business. Any such acquisition or investment may require additional capital
resources. The Company has historically financed acquisitions using its existing
cash resources. While the Company believes its existing cash resources will be
sufficient to fund its operating needs for the next twelve months, additional
financing either through its bank lines of credit or otherwise will be required
for the Company's currently envisioned long term needs.
There also can be no assurance that any additional financing will be available
on terms acceptable to the Company, or at all. In addition, future equity
financings could result in dilution to the Company's shareholders, and future
debt financings could result in certain financial and operational restrictions.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. At December 31, 1999,
the Company had an accumulated deficit of $39.2 million. The Company reported a
net loss of $7.6 million for the year ended December 31, 1999, and experienced
annual net losses of $9.8 million and $0.8 million for the years ended December
31, 1998 and 1997, respectively. There can be no assurance that the Company can
achieve or maintain profitability on a quarterly basis or at all.
GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL. Government
regulation in the United States and other countries is a significant factor in
the development, manufacturing and marketing of many of the Company's products
and in the Company's ongoing research and development activities.
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The Company and its products are regulated in the United States by the FDA under
the Federal Food, Drug and Cosmetic Act (the "FDC Act") and the Radiation
Control for Health and Safety Act. The FDC Act provides two basic review
procedures for medical devices. Certain products qualify for a Section 510(k)
("510(k)") procedure under which the manufacturer gives the FDA premarket
notification of the manufacturer's intention to commence marketing the product.
The manufacturer must, among other things, establish that the product to be
marketed is "substantially equivalent" to a previously marketed product. In some
cases, the manufacturer may be required to include clinical data gathered under
an investigational device exemption ("IDE") granted by the FDA allowing human
clinical studies.
In the case of the most recent FDA 510(k) pre-market notification, which was
submitted by the Company in order to obtain clearance to market one of its
products for hair removal, the Company believes that it has met all the FDA
requirements in order to be granted this clearance. However, there can be no
assurance that this marketing clearance will be granted on a timely basis, if at
all. It is possible that the FDA may require the Company to provide further
clinical data or to repeat the clinical trial completely, thereby delaying this
marketing clearance indefinitely.
If the product does not qualify for the 510(k) procedure, the manufacturer must
file a premarket approval application ("PMA") based on testing intended to
demonstrate that the product is both safe and effective. The PMA requires more
extensive clinical testing than the 510(k) procedure and generally involves a
significantly longer FDA review process. Approval of a PMA allowing commercial
sale of a product requires preclinical laboratory and animal tests and human
clinical studies conducted under an IDE establishing safety and effectiveness.
Generally, because of the amount of information required, the 510(k) procedure
takes less time than the PMA procedure.
To date, all of the Company's products (except for the 600 Series Dye Module)
have been marketed through the 510(k) procedure. Future applications, however,
may require clearance through the PMA procedure. There can be no assurance that
such marketing clearances can be obtained on a timely basis. Delays in receiving
such clearances could have a significant adverse impact on the Company. The FDA
may also require postmarket testing and surveillance programs to monitor certain
products.
Certain other countries require the Company to obtain clearances for its
products prior to marketing the products in those countries. The requirements
vary widely from country to country and are subject to change. The European
community is in the process of developing a new approach to the regulation of
medical products which may significantly change how medical devices are marketed
in those countries within the next several years. In February 1996, the Company
achieved ISO 9001 and CE (European Conformation) mark registration in
anticipation of this approach.
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The Company is also required to register with the FDA and state agencies, such
as the Food and Drug Branch of the California Department of Health Services, as
a medical device manufacturer. The Company is inspected on a routine basis by
both the FDA and the State of California for compliance with the FDA's Current
Good Manufacturing Practice regulations. Those regulations impose certain
procedural and documentation requirements upon the Company with respect to
manufacturing, testing and quality control activities. If violations of
applicable regulations are noted during these inspections, the continued
marketing of any products manufactured by the Company may be adversely affected.
In addition, the Company's laser products are covered by a performance standard
for laser products set forth in FDA regulations. The laser performance standard
imposes certain specific record-keeping, reporting, product testing, and product
labeling requirements on the Company. These requirements also include affixing
warning labels to the Company's laser systems, as well as the incorporation of
certain safety features in the design of the Company's products.
Complying with applicable governmental regulations and obtaining necessary
clearances or approvals can be time consuming and expensive, and there can be no
assurance that regulatory review will not involve delays or other actions
adversely affecting the marketing and sale of the Company's products. The
Company also cannot predict the extent or impact of future legislation or
regulations.
The Company is also subject to regulation under federal and state laws
regarding, among other things, occupational safety, the use and handling of
hazardous materials and protection of the environment. The Company believes that
it is in material compliance with these requirements.
INSURANCE REIMBURSEMENT. Demand for the Company's products is dependent, to a
significant extent, on government and private insurance reimbursement of
hospitals and physicians for health care costs, including, but not limited to,
reimbursement of capital equipment costs. Reductions or delays in such insurance
coverage or reimbursement may negatively impact hospitals' and physicians'
decision to purchase the Company's products, adversely affecting the Company's
future sales. A substantial portion of the Company's laser sales are for
aesthetic procedures that are generally not subject to reimbursement by
government or private health insurance. The general absence of insurance
coverage for such cosmetic procedures may restrict the development of this
market, adversely affecting the Company.
UNCERTAINTY OF TECHNOLOGICAL CHANGE; UNCERTAINTY OF NEW PRODUCT DEVELOPMENT AND
ACCEPTANCE. The Company operates in industries that are subject to rapid
technological change. The Company's ability to remain competitive and future
operating results will depend upon, among other things, the Company's ability to
anticipate and respond rapidly to such change by developing, manufacturing and
marketing technologically innovative products in sufficient quantities at
acceptable costs
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to meet such demand. Absent introduction of new products and enhancements, the
Company's products will likely become technologically obsolete, which could
result in the write-off of inventory as well as diminished revenues. Therefore,
the Company intends to continue to invest significant amounts in research and
development.
The Company's expenditures for research and development were approximately $4.5
million, $5.2 million and $3.4 million in 1999, 1998 and 1997, respectively. The
Company anticipates that its ability to compete will require significant
research and development expenditures with a continuing flow of innovative,
high-quality products. No assurance can be given that the Company will be
successful in designing, manufacturing or selling its enhanced or new products
in a timely manner. Nor can any assurance be given that a competitor could not
introduce a new or enhanced product or technology that could have an adverse
effect on the Company's competitive position.
The Company's current research and development programs are directed toward the
development of new laser systems and delivery devices. For example, new laser
systems for the emerging aesthetic market and other applications are currently
in development. However, there can be no assurance that the aesthetic market
will develop as anticipated or that the Company's product development efforts
will prove successful. Nor can any assurance be given that such new products, if
developed and introduced, will receive market acceptance.
DEPENDENCE ON SINGLE-SOURCE SUPPLIERS AND CERTAIN THIRD PARTIES. Certain of the
components used in the Company's laser products, including KTP crystals, molded
and cast components, power supplies, and certain optical components, are
purchased from single sources. While the Company believes that most of these
components are available from alternate sources, an interruption of these or
other supplies could adversely affect the Company. In particular, KTP crystals
that are used in the Company's best selling laser products are currently
available at appropriate quality levels from only one supplier, a division of
Litton Industries. This supplier has a second crystal growing and fabrication
facility at a second location in the United States geographically isolated from
its original production facility. While the Company believes that an alternative
supplier of KTP crystals could be qualified, if the supply of crystals from the
present supplier were interrupted there could be an adverse effect on the
Company's business and results of operations.
The Company has invested substantial efforts in developing a laser treatment
that when combined with PDT drugs may be an effective treatment for certain
types of cancer. Currently, QLT PhotoTherapeutics, Inc. is the sole supplier of
PDT drugs. The inability or refusal of QLT to supply drugs for use with the
Company's lasers would have a material adverse effect on sales of the Company's
laser for such treatment.
COMPETITION. The medical equipment market is highly competitive. The
Company's competitors are numerous and include some of the world's
largest organizations as well as smaller, highly-specialized firms.
The ability of the Company to compete effectively
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depends on such factors as market acceptance of its products, product
performance and price, customer support, the success and timing of new product
development, and continued development of successful channels of distribution.
Some of the Company's current and prospective competitors have or may have
significantly greater financial, technical, research and development,
manufacturing and marketing resources than the Company. In early 1998, the
medical equipment industry experienced significant consolidation when two of the
Company's largest competitors, ESC Medical Systems and Laser Industries,
combined to become the largest participant in the medical equipment industry. To
compete, the Company will need to continue to expand its product offerings,
periodically enhance its existing products and continue to expand its
distribution internationally.
The Company competes in the nonophthalmic surgical segment of the worldwide
medical laser market, in which lasers are used in hospital operating rooms,
outpatient surgery centers and individual physician offices for a wide variety
of procedures. A large number of companies participate in this market, many of
which have significantly greater financial and other resources than the Company.
Certain surgical laser manufacturers have targeted their efforts on narrow
segments of the market, such as angioplasty and lithotripsy. To the extent that
their products compete for the same capital equipment funds, these manufacturers
may be deemed to compete with the Company. More generally, surgical laser
manufacturers such as Laserscope compete with standard surgical methods and
other medical technologies and treatment modalities. There can be no assurance
that the Company can compete effectively against such competitors. In addition,
there can be no assurance that these or other companies will not succeed in
developing technologies, products or treatments that are more effective than the
Company's or that would render the Company's technology or products obsolete or
uncompetitive.
RELIANCE ON PATENTS AND LICENSES. The Company holds several patents issued in
the United States, generally covering surgical laser systems, delivery devices,
calibration inserts, the laser resonator and the connector used to attach
disposable and reusable instrumentation to the Company's laser systems.
In April 1992, the Company entered into a worldwide, license agreement with PDT,
Inc. ("PDTI") (now named Miravant) for licenses to PDTI's dye laser technology.
Under the terms of the agreement, the Company acquired a fully paid up license
to manufacture products using PDTI's dye laser technology while PDTI retains
ownership of the intellectual property licensed to the Company under the
agreement and has the right to manufacture, have manufactured, use, lease and
sell the dye laser technology for use in photodynamic therapy with PDTI
photodynamic drugs.
There can be no assurance that any licenses held by the Company or any patents
that have been issued to the Company or which may be issued as a result of the
Company's patent applications will provide any competitive advantages for the
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Company's products. There is also no assurance that any of the patents held now
or in the future by the Company will not be successfully challenged, invalidated
or circumvented in the future. In addition, there can be no assurance that
competitors, many of which have substantial resources and have made substantial
investments in competing technologies, will not seek to apply for and obtain
patents that will prevent, limit or interfere with the Company's ability to
make, issue, use and sell its products.
FAILURE TO ATTRACT OR RETAIN KEY PERSONNEL CAN ADVERSELY AFFECT RESULTS. The
Company is and will continue to be dependent upon the efforts and abilities of a
number of current key personnel. Any inability by the Company to attract and
retain key employees would have a material adverse effect on the business,
financial condition and results of operations of the Company.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. A number of factors affect the
Company's financial results and stock price, especially on a quarterly basis,
including the timing of shipments and orders. The Company's laser products are
relatively expensive pieces of medical capital equipment and the precise
shipment date of specific units can have a marked effect on the Company's
results of operations on a quarterly basis. Any delay in product shipments near
the end of a quarter could cause quarterly results to fall short of anticipated
levels. Furthermore, to the extent orders are received by the Company near the
end of a quarter, the Company may not be able to fulfill the order during the
balance of that same quarter. Moreover, the Company typically receives a
disproportionate percentage of its orders toward the end of each quarter. To the
extent that anticipated orders are not received or are delayed beyond the end of
the applicable quarter, the Company's revenues may be adversely affected and the
Company's revenues may be unpredictable from quarter to quarter. In addition,
because a significant portion of the Company's revenues in each quarter result
from orders received in that quarter, the Company establishes its production,
inventory and operating expenditure levels based on anticipated revenue levels.
Thus, if sales do not occur when expected, expenditure levels could be
disproportionately high and operating results for that quarter and potentially
future quarters, would be adversely affected. There can be no assurance that
revenue growth or profitability on a quarterly or annual basis will be
accomplished or will not fluctuate significantly from quarter to quarter.
PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE. The Company's development,
manufacture and sale of surgical, dermatological and therapeutic laser systems
and related surgical instrumentation and disposable supplies and accessories
entails significant risks of product liability claims. The Company has
experienced product liability claims from time to time, which it believes are
ordinary for its business. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes that these
actions will not ultimately have a material adverse impact on the Company's
financial position or results of operations.
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At present, the Company maintains product liability insurance on a "claims made"
basis with coverage of $10.0 million in the aggregate with a deductible of $0.1
million per occurrence and an annual maximum aggregate deductible of $0.5
million. There can be no assurance that such insurance coverage will be
available to the Company in the future at a reasonable cost, if at all, nor can
there be any assurance that other claims will not be brought against the Company
in excess of its insurance coverage.
FACTORS AFFECTING FINANCIAL RESULTS AND STOCK PRICE. A number of factors affect
the Company's financial results and stock price, particularly on a quarterly
basis. One such factor is the timing of shipments. The Company's laser products
are relatively expensive pieces of medical capital equipment and the precise
shipment date of specific units can have a marked effect on the Company's
results of operations on a quarterly basis. A delay in product shipments near
the end of a quarter could cause quarterly results to fall short of anticipated
levels.
A related factor is the timing of orders. To the extent orders are received by
the Company near the end of a quarter, the Company may not be able to fulfill
the order during the balance of that same quarter. Additionally, the Company
typically receives a disproportionate percentage of its orders toward the end of
each quarter. To the extent that anticipated orders are not received or are
delayed beyond the end of the applicable quarter, the Company's revenues may be
adversely affected and the Company's revenues may be unpredictable from quarter
to quarter. Further, there can be no assurance that revenue growth or
profitability on a quarterly or annual basis will be accomplished. Factors
affecting operating results include, but are not limited to: product mix,
competitive pricing pressures, material costs, revenue and expenses related to
new products and enhancements to existing products, as well as delays in
customer purchases in anticipation of new products or product enhancements by
the Company or its competitors.
The market price of the Company's common stock may be subject to significant
fluctuations. These fluctuations may be due to factors specific to the Company,
such as quarterly fluctuations in the Company's financial results, changes in
analysts' estimates of future results, changes in investors' perceptions of the
Company or the announcement of new or enhanced products by the Company or its
competitors as well as announcements relating to acquisitions and strategic
transactions by the Company or its competitors. In addition, such fluctuations
may be due to or exacerbated by general conditions in the medical equipment
industry or conditions in the financial markets generally. The stock market has
from time to time experienced extreme price and volume fluctuations,
particularly among stocks of high technology companies, which, on occasion, have
been unrelated to the operating performance of particular companies. Factors not
directly related to the Company's performance, such as negative industry reports
or disappointing earnings announcements by publicly traded competitors, may have
an adverse impact on the market price of the Company's common stock.
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As of March 1, 2000, we will have 15,111,637 shares of outstanding Common Stock.
The sale of a substantial number of shares of Common Stock, including the sale
of the Shares being registered hereby, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.
INTERNATIONAL BUSINESS. International revenues were 45.0% of total revenues in
the year ended December 31, 1999, compared to 42% of total revenues during the
comparable period in 1998. International sales are made through international
distributors and wholly- and majority-owned subsidiaries with payments to the
Company typically denominated in the local currencies of the United Kingdom,
France and Germany, and in U.S. dollars in the rest of the world. The Company
intends to continue expansion of its operations outside of the United States and
to enter additional international markets, requiring significant management
attention and financial resources and further subjecting the Company to the
risks of operating internationally. These risks include, but are not limited to,
changes in regulatory requirements, delays resulting from difficulty in
obtaining export licenses for certain technology, customs, tariffs and other
barriers and restrictions, and the burdens of complying with a variety of
foreign laws. The Company is also subject to general geopolitical risks in
connection with its international operations, such as differing economic
conditions, changes in political climate, differing tax structures and changes
in diplomatic and trade relationships. In addition, fluctuations in currency
exchange rates may negatively affect the Company's ability to compete in terms
of price against products denominated in local currencies. Accordingly, the
Company's future results could be materially adversely affected by changes in
these regulatory, geopolitical and other factors. The effect of foreign exchange
fluctuations on the Company in the years ended 1999 and 1998 were not material,
and the Company does not engage in hedging transactions for speculative or
trading purposes.
LEGAL PROCEEDINGS. The Company is a party to a number of legal proceedings
arising in the ordinary course of business. While it is not feasible to predict
or determine the outcome of the actions brought against it, the Company believes
that the ultimate resolution of these claims will not ultimately have a material
adverse effect on its financial position or results of operations.
INTEREST RATE RISK. The Company's exposure to market rate risk for changes in
interest rates relate primarily to the Company's investment and debt portfolios.
The Company has not used derivative financial instruments in its investment or
debt portfolios. The Company invests its excess cash in money market funds and
commercial paper. The Company's debt financing consists mainly of bank loans
requiring either fixed or variable rate interest payments. Investments in and
borrowings under both fixed-rate and floating-rate interest-earning instruments
carry a degree of interest rate risk. On the investment side, fixed-rate
securities may have their fair market value adversely affected due to a rise in
interest rates, while floating-rate securities may produce less income than
expected if interest rates fall. In addition, the Company's future investment
income may fall short of securities analyst expectations,
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due to changes in interest rates, or the Company may suffer losses in principal
if forced to sell securities which have declined in market value, due to changes
in interest rates. On the debt side, borrowings that require fixed-rate interest
payments require greater than current market rate interest payments if interest
rates fall, while floating rate borrowings may require greater interest payments
if interest rates rise. Additionally, the Company's future interest expense may
be greater than expected due to changes in interest rates.
WARRANTY OBLIGATIONS. A direct field service organization provides service for
the Company's products. The Company generally provides a twelve month warranty
on its laser systems. After the warranty period, maintenance and support is
provided on a variety of service contract bases or on an individual call basis.
The Company also has a "99.0% Uptime Guarantee" on its laser systems. Under
provisions of this guarantee, the Company extends the term of the related
warranty or contract if specified system uptime levels are not maintained.
Although most systems covered by this guarantee have achieved a 99.0% uptime
rate to date, there can be no assurance that the Company can maintain such
uptime rates in the future.
As of the date of this report, the Company's systems have operated without any
apparent Year 2000 related problems and appear to be Year 2000 compliant. The
Company is not aware that any of its primary vendors or systems maintained by
third parties have experienced significant Year 2000 compliance problems.
However, while no such problem has been discovered as of the date of this
report, Year 2000 issues may not become apparent immediately and, therefore, the
Company may be affected in the future. The Company will continue to monitor the
issue and work to remediate any Year 2000 issues that may arise. Through the
date of this report, the costs to Laserscope for year 2000 compliance have not
been significant.
NO DIVIDENDS. The Company has never paid any cash dividends on its Common Stock
and does not anticipate paying cash dividends on the Common Stock in the
foreseeable future. The payment of dividends on the Common Stock by the Company
will depend on its earnings, financial condition and other business and economic
factors affecting the Company at such time as the Board of Directors may
consider relevant.
"PENNY STOCK" RULES. The Company's Common Stock is presently traded on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System, which requires that a company have a minimum bid price
of $1.00 in order to qualify for continued listing. The Company's low bid price
in 1999 for each of the quarters June 30, September 30 and December 31 was $1
1/16, $1 and $5/8, respectively, and the Company's last traded price on March 1,
2000 was $3. If the Company fails to maintain its listing for its Common Stock
on the NASDAQ National Market System, and no other exclusion from the definition
of "penny stock" under the Exchange Act is available, then any broker engaging
in a transaction in the Company's
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securities would be required to provide any customer with a risk disclosure
document and the compensation of the broker/dealer in the transaction and
monthly account statements showing the market values of the Company's securities
held in the customer's accounts. The bid and offer quotations and compensation
information must be provided prior to effecting the transaction and must be
contained on the customer's confirmation. If brokers become subject to the
"penny stock" rules when engaging in transactions in the Company's securities,
they would become less willing to engage in such transactions, thereby making it
more difficult for purchasers in this Private Placement to dispose of the shares
of Common Stock.
DILUTION. Shareholders may experience dilution in the net tangible book value of
their investment upon the exercise of outstanding options and warrants granted
under the Company's stock option plans and other options, warrants and
outstanding convertible securities.
Other risks are detailed from time to time in the Company's press releases and
other public disclosure filings with the U.S. Securities and Exchange Commission
("SEC"), copies of which are available upon request from the Company.
References made in this Report to "Laserscope," the "Company," the "Registrant"
or "We" refer to Laserscope and its subsidiaries. References made in this Report
to "HSI" refer to Heraeus Surgical, Inc. References made in the Report to "NWL"
refer to NWL Laser-Technologie GmbH.
The following are registered trademarks of Laserscope which may be mentioned
herein: Laserscope, Dermastat, KTP/532, KTP/YAG, MicroBeam, Opthostat,
ClearView, Crossfire, Digilase, Infraguide, Illumina, Laserblade, Luxus,
Permaline, Pinnacle, Sureshot, Ultralase, Ultraline and Ultraspot.
The following are common law trademarks and service marks of Laserscope which
also may be mentioned herein: AccuStat, ADD, ADDStat, Ascent Medical Systems,
Aura, Aura SL, Dermastat, DiscKit, Dual FX, Everything You Need. Everything
Unique! (SM), Endostat, FiberLife, FocalStat, KTP/YAG, Laparostat, LaparoVac,
LDD, Lyra, Medical Insite (Web Site SM), MicronSpot, Microstat, Orion, People
Who Do More (SM), The Power Family (SM), Pulsar, SmartConnector, SmartScan,
SpineScope, SpineStat, StarPulse, ArthroGuide, Enhance, Hercules, InfraTips, On
Target, OrthoProbe, QuickPulse, Radiance, Resilient, SpinaLase, SuperPulse,
UroLine and Venus.
Photofrin and Optiguide are registered trademarks of QLT PhotoTherapeutics, Inc.
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<PAGE> 13
PART I
ITEM 1. BUSINESS
General Overview of Business
Laserscope(R) designs, manufactures, sells and services, on a worldwide basis,
an advanced line of medical laser systems and related energy devices for the
medical office, outpatient surgical center and hospital markets. The Company is
a pioneer in the development and commercialization of lasers and advanced
fiber-optic devices for a wide variety of applications, including photodynamic
therapy to treat cancer and other diseases. Laserscope's portfolio consists of
more than 350 products, including KTP/532(R), CO(2), Nd:YAG, Er:YAG, Ruby, Diode
and Dye medical laser systems, industrial laser systems and related energy
delivery devices.
Primary medical markets served by Laserscope include dermatology, aesthetic
surgery, urology, gynecology, ear, nose and throat surgery and photodynamic
therapy. Secondary markets include general surgery, neurosurgery, orthopedics,
gastroenterology and other surgical specialties.
Mission
Laserscope's corporate mission is to improve the quality and cost effectiveness
of health care by providing innovative medical products and services.
History
Laserscope was founded in 1982 and its first product was shipped in 1984. During
its initial years, the Company was funded by several venture capital firms and
by E.I. du Pont de Nemours & Company. Laserscope received the first in a series
of U.S. regulatory clearances in 1987 and completed its initial public offering
in December 1989. Laserscope is a California corporation.
Market Focus
Laserscope products are used in several surgical applications. Since the early
1990's, the ear, nose and throat (ENT), urology and gynecology (OB/GYN)
specialties have continued to represent the primary markets into which
Laserscope sells its broad range of laser systems and the majority of its energy
delivery devices and surgical instruments. As a percentage of total revenues in
1999, the ENT, urology and OB/GYN markets accounted for approximately 15%, 8%
and 7% of revenues, respectively.
Laserscope entered the dermatology/aesthetic surgery market in the mid 1990's
with several, highly-versatile laser systems. Laserscope's desktop-sized
Aura(TM) Laser System is among the industry's leading systems for the treatment
of red leg and facial
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veins. The Aura SL(TM) is specifically designed for the treatment of facial
veins. The Lyra(TM) is designed specifically for hair removal and for the
treatment of large leg veins. The Venus is engineered for skin resurfacing
(wrinkle removal) applications. The Levante(TM) Ruby Laser System is used for
hair and tattoo removal. As a percentage of total revenues in 1999, the
dermatology/aesthetic surgery market accounted for approximately 31% of
revenues.
The Company believes photodynamic therapy (PDT), a selective cancer treatment,
has long-term potential applications for its products. In the oncology
application of this modality, a photosensitizer drug is injected into a cancer
patient intravenously. After a short time, the drug selectively concentrates in
abnormal cells while largely clearing from normal tissue. The drug remains
inactive until exposed to laser light. When applied, the laser energy, delivered
through a disposable fiber-optic device, activates the drug and creates a toxic
form of oxygen that destroys the cancerous cells with minimal damage to healthy
cells.
The non-surgical, minimally-invasive approach of PDT allows the treating
physician to be much more precise in destroying cancer cells at the tumor site.
Both the photosensitizer drug injection and the laser treatment can be
performed, in many cases, on an outpatient basis. In December 1998, Laserscope
received approval from the FDA for its PDT Laser Systems and the photosensitizer
PHOTOFRIN(R), manufactured by QLT PhotoTherapeutics, Inc., as a treatment for
certain types of late-stage lung cancer. In January 1998, the FDA approved the
same laser-drug combination for the treatment of early-stage lung cancer. These
approvals followed an earlier FDA approval to treat certain late-stage
esophageal cancers. The Company is also involved in pursuing clinical studies on
other PDT applications, including some non-cancer applications, and is working
in collaboration with some of the leading pharmaceutical firms that have PDT
drugs in various stages of development.
Products
Laser Platforms:
The Company's Aura(TM) Laser System is a compact, highly portable, KTP/532
single wavelength laser designed for office use. Its integrated StarPulse
feature is designed for the removal of benign vascular and pigmented surface
lesions, including leg and facial telangiectasia (spider-like veins). It can
also be used as a continuous wave laser for surgical applications that include
endoscopic blepharoplasty, rhinoplasty, facelifts, tonsillectomy, wart removal
and snoring cessation.
The Aura SL(TM) is a new configuration of the Aura Laser System, modified to
treat facial spider veins only, including superficial pigmented lesions such as
age spots. Its special design provides greater patient comfort, quicker healing
and a lower price.
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<PAGE> 15
The Orion(TM) Laser System is a mid-size, more powerful system for outpatient
surgical centers and hospitals. It features dual KTP/532 and Nd:YAG wavelengths
as well as StarPulse. The range of applications includes ENT, OB/GYN, urology,
general surgery, neurosurgery, orthopedics, spine surgery, aesthetic surgery and
dermatology. Both the Aura and Orion systems are available with SmartScan, a
microprocessor-controlled beam-scanning device.
The Venus Erbium:YAG Laser System is among the most compact and powerful,
commercially available Erbium lasers for skin resurfacing and other medical
laser applications. Venus is one-half the size and weight of most other Erbium
systems on the market, providing an easy-to-use, in-office system for such
procedures as skin resurfacing or wrinkle removal. The Erbium:YAG wavelength is
more superficially absorbed by the skin than the CO(2) wavelength and provides a
gentler form of skin resurfacing, suitable for younger patients with mild
wrinkles or moderate sun damage, and can be used on both facial and non-facial
skin such as the hands.
The 800 Series KTP/YAG(TM) Surgical Laser System is designed for use in
hospitals. It is a high-power, dual-wavelength system with applications in
urology, OB/GYN, ENT, aesthetic surgery, orthopedics, general surgery,
neurosurgery, pulmonary surgery and gastroenterology. The KTP/532 beam
surgically cuts, vaporizes and coagulates tissue with minimal disruption to
adjacent areas. Cutting and vaporization are achieved hemostatically, making the
system effective for endoscopic as well as open surgical procedures.
Complementing the KTP/532 beam is the Nd:YAG infrared beam which provides deep
coagulation and powerful ablative capabilities. The 800 Series System, which
provides up to 40 watts of KTP/532 energy and 100 watts of Nd:YAG energy, can
also serve as a base laser system for Laserscope's PDT laser dye module,
enabling photodynamic therapy applications.
Laserscope's PDT systems include the Model 630 and 630XP PDT Dye Modules. The
Model 630 Dye Module provides 3.2 watts of power while the Model 630 XP Dye
Module provides 7.0 watts of power. Both systems operate at 630 nm for
photoactivation of Photofrin, and are portable and may be tunable to other
wavelengths.
Finally, the newest laser in the Laserscope laser system family is the Lyra(TM).
The Lyra is a variable long pulse Nd:YAG laser system and was specifically
designed for hair removal and leg vein applications. It is one of the most
powerful Nd:YAG systems on the market and is based on the Company's successful
Aura(TM) laser platform allowing for portability and high manufacturing
synergies.
Laser Devices, Instruments and Disposables:
Laserscope offers a broad line of surgical instrumentation, disposables, kits
and other accessories for use with its surgical laser systems. These products
include disposable optical fibers, diffusing fibers for PDT applications,
side-firing devices, individual custom
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<PAGE> 16
handpieces for specific surgical applications, scanning devices,
micromanipulators for microscopic surgery and various other devices,
procedure-specific kits and accessories.
The disposable optical fibers are available in different lengths and diameters
for different surgical applications and preferences. The handpieces, which are
used to hold and aim the optical fiber, give the surgeon the feel of a
traditional surgical tool. When used in contact with body tissue, they provide
tactile feedback similar to conventional surgery.
Sales and Marketing
The Company concentrates much of its marketing efforts for its laser products on
high volume surgical procedures such as the treatment of facial vascular
lesions, the treatment of leg veins and hair removal. Laserscope believes that
increased market awareness of both the benefits of laser procedures and the
drawbacks of conventional procedures is one of the most important factors in
expanding the market for its laser and laser-based products. As a result, the
Company has designed its marketing and sales strategy around a strong
educational effort to promote awareness of the versatility, safety, and
cost-effectiveness of its surgical laser systems.
Laserscope promotes its products through trade shows and exhibits covering most
of the surgical specialties, physician workshops and seminars, medical journal
advertising and direct mailings. The Company supports and participates in a
substantial number of workshops and seminars. For laser products, the workshops
usually include a demonstration of the Company's laser systems and provide
surgeons with hands-on experience using the Company's products.
Distribution
In the United States, the United Kingdom and France, the Company distributes its
products to hospitals, outpatient surgical centers and physician offices through
its own direct sales force. In Germany, Laserscope products are distributed by
NWL Laser-Technologie, GmbH. Elsewhere, Laserscope products are sold through
regional distributor networks throughout Europe, the Middle East, Latin America,
Asia and the Pacific Rim. Laserscope is both ISO 9001 and CE certified.
International Business
Revenues from Europe, Asia and the Pacific Rim continue to account for an
increasing percentage of total sales. Approximately 45% of Laserscope's 1999
revenues were derived from its international operations including export sales,
up from 42% in 1998 and 33% in 1997. The Company expects that international
sales will continue to represent a significant percentage of net sales in 2000.
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In March 1995, Laserscope entered into an agreement with NWL Laser-Technologie
("NWL") whereby the Company paid NWL approximately $1.6 million in exchange for
a cross-distribution and development agreement, a minority equity position in
NWL and an option to purchase all of the ownership interests in NWL. In June
1997, Laserscope exercised its option and paid an additional $1 million to
increase its equity position to a 52% interest in NWL. In January 1999,
Laserscope paid an additional $1.3 million to increase its equity position to
80%.
On February 18, 2000, the Company signed an agreement with Wavelight Laser
Technologie AG to sell its interest in NWL. The sale, which is pending Wavelight
shareholder approval, which the Company expects to occur on March 31, 2000,
would have an effective date of January 1, 2000. As part of the transaction, NWL
would continue to distribute Laserscope's products in all countries covered by
NWL's current distribution channels. The transaction is expected to net
approximately $4.0 million in cash to Laserscope and is not expected to generate
a material gain or loss when reported in Laserscope's first quarter 2000.
Installed Base of Lasers
Laserscope has more than 6,000 laser systems installed worldwide. The installed
base provides a market for service as well as the sale of devices, instruments
and disposables.
Service and Support
A direct field service organization provides service for the Company's
products. The Company generally provides a twelve-month warranty on its laser
systems. After expiration of the warranty period, maintenance and support is
provided on a variety of service contract bases or on an individual call basis
at the election of the customer. The Company also has a "99.0% Uptime Guarantee"
on its laser systems. Under provisions of this guarantee, the Company extends
the term of the related warranty or contract if specified system uptime levels
are not maintained.
Research and Development
The Company operates in an industry that is subject to rapid technological
changes. Laserscope's ability to remain competitive in its industry depends on,
among other things, its ability to anticipate and react to such technological
changes. Therefore, the Company intends to continue to invest significant
amounts in research and development.
Laserscope's current research and development programs are directed toward the
development of new laser systems and delivery devices. For example, new laser
systems for the aesthetic surgery market and other applications are currently in
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<PAGE> 18
development. However, there can be no assurance that the aesthetic surgery
market will develop as anticipated or that Laserscope's product development
efforts will prove successful. Nor can there be any assurance that such new
products, if developed and introduced, will receive market acceptance.
Manufacturing
The Company manufactures the laser resonators, system chassis and certain
accessories used in its laser systems in the United States. The Company's laser
manufacturing operations concentrate on the assembly and test of components and
subassemblies manufactured to the Company's designs and specifications by
outside vendors. The Company believes that it has sufficient manufacturing
capacity in its present facilities to support current operations at least
through the end of 2000. NWL also manufactures certain laser products at its
facility in Germany.
In addition to its laser manufacturing capability, the Company has a production
facility in the United States for certain of its disposable products. The
Company's Endostat fibers and Angled Delivery Devices are manufactured in this
facility
Certain of the components used in the Company's products, including potassium
titanyl phosphate (KTP) crystals, molded and cast components, power supplies,
and certain optical and electronic components, are purchased from single
sources. While the Company believes that most of these components are available
from alternative sources, an interruption of these or other supplies would
adversely affect the Company. KTP crystals are currently available at
appropriate quality levels from only one supplier, a division of Litton
Industries. This supplier has a second crystal growing and fabrication facility
at a second location in the United States which is geographically isolated from
its original production facility. While the Company believes that an alternative
supplier of KTP crystals could be qualified, an interruption in the supply of
crystals would have an adverse effect on the Company's business and results of
operations.
Employees
At December 31, 1999, the Company had 220 full-time employees. The Company
believes that it maintains competitive compensation, benefit, equity
participation and work environment policies to assist in attracting and
retaining qualified personnel. The Company believes that the success of its
business will depend, in part, on its ability to attract and retain such
personnel, who are in great demand, however, there can be no assurances that it
will be able to do so.
Competition
The medical equipment market is highly competitive. The ability of the Company
to compete effectively depends on such factors as market acceptance of its
products,
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<PAGE> 19
product performance and price, customer support, the success and timing of new
product development and continued development of successful channels of
distribution. Some of the Company's current and prospective competitors have or
may have significantly greater financial, technical, manufacturing and marketing
resources than the Company. In early 1998, the medical equipment industry
experienced significant consolidation when two of the Company's largest
competitors, ESC Medical Systems and Laser Industries, combined to become the
largest participant in the medical equipment industry. To compete, the Company
will need to continue to expand its product offerings, periodically enhance its
existing products and continue to expand its distribution internationally.
Product Liability Exposure
The business of the Company entails the risk of product liability claims. The
Company has experienced product liability claims from time to time, which it
believes are ordinary for its business. While it is not feasible to predict or
determine the outcome of the actions brought against it, the Company believes
that these actions will not ultimately have a material adverse impact on the
Company's financial position or results of operations.
At present, the Company maintains product liability insurance on a "claims made"
basis with coverage of $10.0 million in the aggregate with a deductible of $0.1
million per occurrence and an annual maximum aggregate deductible of $0.5
million. There can be no assurance that such insurance will be available at a
reasonable cost, if at all, in the future, nor can there be any assurance that
other claims will not be brought against the Company which would exceed
applicable insurance coverage.
Factors Affecting Financial Results and Stock Price
A number of factors affect the Company's financial results and stock price,
particularly on a quarterly basis. One such factor is the timing of shipments.
The Company's laser products are relatively expensive pieces of medical capital
equipment and the precise shipment date of specific units can have a marked
affect on the Company's results of operations on a quarterly basis. A delay in
product shipments near the end of a quarter could cause quarterly results to
fall short of anticipated levels.
A related factor is the timing of orders. To the extent orders are received by
Laserscope near the end of a quarter, the Company may not be able to fulfill the
order during the balance of that same quarter. Additionally, the Company
typically receives a disproportionate percentage of its orders toward the end of
each quarter. To the extent that anticipated orders are not received or are
delayed beyond the end of the applicable quarter, Laserscope's revenues may be
adversely affected and the Company's revenues may be unpredictable from quarter
to quarter. Further, there can be no assurance that revenue growth or
profitability on a quarterly or annual basis will be accomplished. Factors
affecting operating results include, but are not limited to:
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Product mix, competitive pricing pressures, material costs, revenue and expenses
related to new products and enhancements to existing products, as well as delays
in customer purchases in anticipation of new products or product enhancements by
the Company or its competitors.
The market price of Laserscope's common stock may be subject to significant
fluctuations. These fluctuations may be due to factors specific to Laserscope,
such as quarterly fluctuations in the Company's financial results, changes in
analysts' estimates of future results, changes in investors' perceptions of the
Company or the announcement of new or enhanced products or strategic
transactions by the Company or its competitors. In addition, such fluctuations
may be due to or exacerbated by general conditions in the medical equipment
industry or conditions in the financial markets generally.
Patents and Licenses
While the Company believes the patents that it has and for which it has applied
are of value, other factors are of greater competitive importance. Laserscope
holds several patents issued in the United States, generally covering surgical
laser systems, delivery devices, calibration inserts, the laser resonator and
the connector used to attach disposable and reusable instrumentation to the
Company's laser systems.
Government Regulation
Government regulation in the United States and other countries is a significant
factor in the development, manufacturing and marketing of many of the Company's
products and in the Company's ongoing research and development activities.
Laserscope and its products are regulated by the FDA under statutory
authorities, including the Federal Food, Drug and Cosmetic Act (the "FDC Act")
and the Radiation Control for Health and Safety Act.
The FDC Act provides two basic review procedures for medical devices. Certain
products may qualify for a Section 510(k) ("510(k)") procedure under which the
manufacturer gives the FDA premarket notification of the manufacturer's
intention to commence marketing the product. The manufacturer must, among other
things, establish that the product to be marketed is "substantially equivalent"
to a previously marketed product. In some cases, the manufacturer may be
required to include clinical data gathered under an investigational device
exemption ("IDE") granted by the FDA allowing human clinical studies.
If the product does not qualify for the 510(k) procedure, the manufacturer must
file a premarket approval application ("PMA") based on testing intended to
demonstrate that the product is both safe and effective. The PMA requires more
extensive clinical testing than the 510(k) procedure and generally involves a
significantly longer FDA review
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process. Approval of a PMA allowing commercial sale of a product requires
preclinical laboratory and animal tests and human clinical studies conducted
under an IDE establishing safety and effectiveness. Generally, because of the
amount of information required, the 510(k) procedure takes less time than the
PMA procedure.
To date, all of the Company's products (except for the 600 Series PDT Dye
Module) have been marketed through the 510(k) procedure. Future applications,
however, may require clearance through the PMA procedure. There can be no
assurance that such marketing clearances can be obtained on a timely basis.
Delays in receiving such clearances could have a significant adverse impact on
the Company. The FDA may also require post-market testing and surveillance
programs to monitor certain products.
Certain other countries require the Company to obtain clearances for its
products prior to marketing the products in those countries. The requirements
vary widely from country to country and are subject to change.
Laserscope is also required to register with the FDA and state agencies, such as
the Food and Drug Branch of the California Department of Health Services, as a
medical device manufacturer. The Company is inspected on a routine basis by both
the FDA and the State of California for compliance with the FDA's Current Good
Manufacturing Practice regulations. Those regulations impose certain procedural
and documentation requirements upon the Company with respect to manufacturing,
testing and quality control activities. If violations of applicable regulations
are noted during these inspections, the continued marketing of any products
manufactured by the Company may be adversely affected.
In addition, Laserscope's laser products are covered by a performance standard
for laser products set forth in FDA regulations. The laser performance standard
imposes certain specific record keeping, reporting, product testing and product
labeling requirements on the Company. These requirements also include affixing
warning labels to Laserscope's laser systems and the incorporation of certain
safety features in the design of the Company's products. The Company believes
that it is in material compliance with all of these requirements.
Complying with applicable governmental regulations and obtaining necessary
clearances or approvals can be time-consuming and expensive, and there can be no
assurance that regulatory review will not involve delays or other actions
adversely affecting the marketing and sale of Laserscope's products.
Furthermore, the Company cannot predict the extent or effect of future
legislation or regulations on its business.
Laserscope is also subject to regulation under federal and state laws regarding,
among other things, occupational safety, the use and handling of hazardous
materials and the protection of the environment. The Company believes that it is
in material compliance with these requirements.
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Acquisitions and Dispositions
On August 30, 1996, Laserscope consummated the acquisition of Heraeus Surgical,
Inc. ("HSI"), a Delaware Corporation and wholly owned subsidiary of Heraeus Med
GmbH ("Heraeus Med"), a company organized under the laws of the Federal Republic
of Germany. As consideration for HSI and certain of the assets and liabilities
of Heraeus Med's laser distribution operations, Laserscope paid Heraeus Med $2
million and issued to Heraeus Med 4,609,345 shares of Laserscope common stock
(the "Heraeus Shares"). The Heraeus Shares were issued pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"). On August 30, 1997, certain contractual
limitations on Heraeus Med's ability to transfer the Heraeus Shares expired.
During February and March of 1998, Heraeus Med began limited sales of the
Heraeus Shares pursuant to Rule 144 of the Securities Act and through March 13,
1998 had sold 271,000 shares. The balance of the shares was sold by Heraeus Med
in a private placement in May 1998.
During November 1998, the Company and Heraeus Medical, Inc. (a division of
Heraeus Med GmbH), signed a definitive agreement for the sale of certain assets
and liabilities related to the AMS product line. The product line was originally
purchased by Laserscope in the acquisition of Heraeus Surgical, Inc. The Company
received $905,000 in exchange for certain assets and liabilities relating to the
product line.
In December of 1998, the Company concluded that the majority of the remaining
book value the intangible assets acquired in the acquisition of Heraeus
Surgical, Inc. had been impaired and recorded an impairment loss. In addition,
the Company determined that specific inventories relating to certain product
lines acquired in the acquisition were excessive, and the Company adjusted the
value of these inventories accordingly. Laserscope determined this action in
late 1998, as part of a redirection in emphasis towards higher volume product
lines.
In March 1995, the Company entered into an agreement with NWL Laser-Technologie
("NWL") whereby the Company paid NWL's shareholders approximately $1.6 million
in exchange for a cross-distribution and development agreement, a minority
equity position in NWL and an option to purchase all of the ownership interests
in NWL. In June 1997, Laserscope exercised its option and paid an additional
$1.0 million to increase its equity position to a 52% interest in NWL. In
January 1999, the Company paid approximately $0.8 million cash and agreed to pay
$0.5 million on April 15, 1999 to acquire an additional 28% interest in NWL
bringing its ownership interest to 80%. The approximate purchase price
allocation for the transaction is $1.1 million for intangible assets and $0.2
million for additional interest in tangible assets.
On February 18, 2000, the Company signed an agreement with Wavelight Laser
Technologie AG to sell its interest in NWL The sale, which is pending Wavelight
shareholder approval, which the Company expects to occur on March 31, 2000,
would have an effective date of January 1, 2000. As part of the transaction, NWL
would
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continue to distribute Laserscope's products in all countries covered by NWL's
current distribution channels. The transaction is expected to net approximately
$4.0 million in cash to Laserscope and is not expected to generate a material
gain or loss when reported in Laserscope's first quarter 2000.
Recent Developments
To address its capital needs the Company recently completed a private placement
of its Common Stock to accredited investors providing net proceeds of
approximately $1.8 million to Laserscope. The transaction consisted of two
closings. The first for approximately $1.0 million in net proceeds in exchange
for 1,505,000 shares of the Company's common stock which closed on December 30,
1999. The second closing was for approximately $0.8 million in exchange for
995,000 shares of the Company's common stock which closed on January 14, 2000.
The shares had no par value per share and were issued at a price of $0.80 per
share. The Company also issued warrants to purchase 218,875 shares of its common
stock on the date of the second closing.
Similarly, on February 11, 2000, the Company completed a private placement of
subordinate convertible debentures with net proceeds to the Company of
approximately $2.9 million. The debentures mature seven years from issuance and
bear an interest rate of 8.00%. The debentures are convertible into common stock
of the Company, with an initial conversion price, which is subject to
adjustment, of $1.25. The private placement also included warrants convertible
into 240,000 shares of the Company's Common Stock.
The Company is in the process of registering the common stock, the underlying
common stock relating to the debentures and the underlying common stock relating
to the warrants on a form S-3. The Registration Statement was filed by the
Company on March 14, 2000.
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EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information with respect to the executive
officers of the Company, and their ages as of December 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert J. Pressley, Ph.D. 67 Chairman of the Board
Eric M. Reuter 38 President, Chief Executive Officer and Director
Robert Mathews 54 Executive Vice President
Kevin Candio 46 Vice President, Marketing & Sales
Van Frazier 47 Vice President, Quality and Regulatory Affairs
Dennis LaLumandiere 46 Vice President, Finance, Chief Financial
Officer and Assistant Secretary
Susan Smith 49 Vice President, International
</TABLE>
Robert J. Pressley, Ph.D. is a co-founder of the Company and has been a director
since its founding. Dr. Pressley was appointed Chairman of the Board of
Directors in June 1998. Dr. Pressley co-founded Candescent Technologies
Corporation (formerly named Silicon Video Corporation), a developer of
electronic products, and served as its President and Chief Executive Officer
from January 1991 to January 1994. Dr. Pressley also founded XMR, Inc., a
manufacturer of eximer lasers and laser systems, and served as its Chief
Executive Officer from March 1979 until March 1990. Dr. Pressley has been a
self-employed technology consultant since January 1995.
Eric M. Reuter joined the Company as Vice President, Research and Development in
September 1996 and was appointed President and Chief Executive Officer of the
Company in June 1999. Prior to joining Laserscope, from February 1994 to August
1996, Mr. Reuter was employed at the Stanford Linear Accelerator Center at
Stanford University (SLAC) as the Project Engineer for the B-Factory High Energy
Ring, an electron storage ring used for high energy physics research. From
February 1991 to January 1994, he served as a Senior Staff Engineer and Program
Manager in digital imaging at Siemens Medical Systems - Oncology Care Systems, a
medical device company.
Robert L. Mathews joined the Company as Executive Vice President in August 1999.
Before joining the Company, from December 1998 to August 1999, he was Executive
Vice President & General Manager of the MasterPlan Division of COHR, Inc., a
management consulting and independent service organization. From April 1997 to
December 1998, he was Vice President and General Manager of Diasonics Vingmed
Ultrasound, Inc., a medical device manufacturer. From April 1996 to April 1997,
he was Senior Director, Corporate Accounts at Spacelabs Medical, Inc., a medical
device manufacturer. From May 1995 to April 1996 Mr. Mathews was a self employed
business consultant and from February 1994 to May 1995 he was President and
Chief Executive Officer of Resonex Holdings Ltd., a medical device manufacturer.
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Kevin Candio has served as Laserscope's Vice President, Sales and Marketing
since June 1999. Prior to this position, he was Vice President, Sales and
Service from November 1997 to June 1999 and was Eastern Region Sales Manager for
the Company from November 1988 to November 1997. Before joining Laserscope, he
held various sales and sales management positions at Coopervision Surgical
Systems, a medical device company, from August 1983 to November 1988.
Van Frazier joined the Company as Director of Quality Assurance in January 1999
and was appointed Vice President, Quality and Regulatory Affairs in June 1999.
Before joining Laserscope, from October 1997 to January 1999, he was Director of
Quality Assurance and Regulatory Affairs of St. Jude Medical, a medical device
manufacturer. From January 1996 to October 1997, Mr. Frazier held various
regulatory management positions at Telectronics Pacing Systems, a medical device
manufacturer and from November 1991 to January 1996, he was Regulatory
Compliance Manager for Physio-Control, a medical device manufacturer.
Dennis LaLumandiere joined Laserscope in September 1989 as Corporate Controller.
Mr. LaLumandiere has served as Vice President, Finance since February 1995,
Chief Financial Officer since February 1996 and Assistant Secretary since
November 1996. Prior to joining Laserscope, from 1983 to 1989, Mr. LaLumandiere
held various financial and operations management positions at Raychem
Corporation, a multinational materials science company.
Susan J. Smith was appointed to the position of Vice President, International in
April 1999. Prior to this position, she held various sales and marketing
management positions with the Company from November 1990 to April 1999. Prior to
joining Laserscope, Ms. Smith held various marketing management positions at
Laser Photonics from March 1989 to November 1990. Ms. Smith terminated as an
officer of the Company in March 2000.
ITEM 2. PROPERTIES
Laserscope leases two buildings aggregating approximately 60,000 square feet in
San Jose, California under leases expiring in February 2001. The Company has
options to extend the leases at the then-current market rates. These facilities
house the Company's research and development and manufacturing operations as
well as the Company's principal sales, marketing, service and administrative
offices. The Company believes that these facilities are suitable for its current
operations and are adequate to support those operations through the end of 1999.
The Company also leases offices in the United Kingdom and France where the
Company's local sales and marketing staffs are based. NWL's facilities consist
of a leased office and a 35,000 square foot facility owned by NWL in Germany.
25
<PAGE> 26
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings arising in the normal course
of its business. These proceedings may include product liability and
employee-related issues. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes that the
ultimate resolution of these claims will not have a material adverse impact on
the Company's financial position or results of operations.
In 1997, a medical malpractice and product liability suit was filed against a
hospital, two physicians and Laserscope relating to a laser manufactured by
Heraeus Surgical, Inc. which was acquired by Laserscope in August 1996. Although
a trial date has been set, the Company is currently pursuing mediation through
an independent third party. While there can be no assurance as to the ultimate
disposition of the case, the Laserscope does not believe the outcome of the case
will have a material adverse impact on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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<PAGE> 27
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under the
symbol LSCP. As of March 17, 1999, the Company had approximately 800
shareholders of record.
The following table shows Lasercope's high and low selling prices for the years
ended December 31, 1999 and December 31, 1998 as reported by the Nasdaq National
Market System:
<TABLE>
1999
------------------------
High Bid Low Bid
-------- -------
<S> <C> <C>
First Quarter $ 2 3/4 $ 1 1/8
Second Quarter $ 1 15/16 $ 1 1/16
Third Quarter $ 1 17/32 $ 1
Fourth Quarter $ 1 1/4 $ 5/8
</TABLE>
<TABLE>
1998
------------------------
High Bid Low Bid
-------- -------
<S> <C> <C>
First Quarter $ 5 3/8 $ 2 7/16
Second Quarter $ 3 3/8 $ 2 1/16
Third Quarter $ 2 3/8 $ 1 1/16
Fourth Quarter $ 2 5/32 $ 15/16
</TABLE>
The Company has not paid dividends on its common stock and has no present plans
to do so. Provisions of the Company's bank line of credit prohibit the payment
of dividends without the bank's consent.
To address its capital needs Laserscope recently completed a private placement
of its Common Stock pursuant to Regulation D of the Securities Act of 1933 to
accredited investors providing gross proceeds of approximately $1.9 million to
Laserscope. The transaction consisted of two closings. The first was
approximately $1.1 million in gross proceeds in exchange for 1,505,000 shares of
the Company's common stock which closed on December 30, 1999. The second closing
was for approximately $0.8 million in exchange for 995,000 shares of the
Company's common stock which closed on January 14, 2000. The shares had no par
value per share and were issued at a price of $0.80 per share. The Company also
issued warrants to purchase 218,875 shares of
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<PAGE> 28
its common stock on the date of the second closing. The warrants are convertible
into shares of Laserscope's common stock at $1.25 per share and expire in 2005.
Similarly, on February 11, 2000, Laserscope completed a private placement of
subordinate convertible debentures pursuant to Regulation D of the Securities
Act of 1933 to affiliates of Renaissance Capital Group, Inc with gross proceeds
to the Company of $3.0 million. The debentures mature seven years from issuance
and bear an interest rate of 8.00%. The debentures are convertible into common
stock of the Company, with an initial conversion price, which is subject to
adjustment, of $1.25. The private placement also included warrants convertible
into 240,000 shares of the Company's common stock. The warrants are convertible
into shares of Laserscope's common stock at $1.50 per share and expire in 2005.
The proceeds from both of these financings will be used for general corporate
working capital.
ITEM 6. SELECTED FINANCIAL DATA
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
1999(1) 1998(2)(3) 1997(4)(5) 1996(6) 1995
-------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $ 40,990 $ 52,728 $ 61,349 $ 42,844 $ 30,133
Net loss (7,573) (9,796) (843) (1,692) (3,552)
Basic & diluted net
loss per share(7) (0.60) (0.79) (0.07) (0.18) (0.51)
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA (AT END OF PERIOD):
1999(1) 1998(2)(3) 1997(4)(5) 1996(6) 1995
-------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents &
short-term investments $ 1,449 $ 1,456 $ 2,465 $ 3,917 $ 2,278
Working capital 6,806 13,722 20,313 18,444 12,564
Total assets 28,956 36,593 47,306 44,469 23,582
Capital leases (excluding
current portion) 534 1,012 274 202 15
Other long term debt 862 1,693 2,970 -- --
Shareholders' equity 12,047 18,671 28,117 27,175 17,326
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
CONSOLIDATED QUARTERLY STATEMENT OF OPERATIONS DATA (UNAUDITED):
THREE MONTHS ENDED
-------------------------------------------------------
MAR. 31, JUN. 30,(1) SEP. 30, DEC. 31,(2)(3)
-------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
1999
- ----
Net revenues $ 11,866 $ 9,565 $ 9,892 $ 9,667
Gross Margin 5,510 3,009 4,482 4,343
Net income (loss) (639) (3,952) (1,308) (1,674)
Basic & diluted net income (loss)
per share (0.05) (0.31) (0.10) (0.13)
1998
- ----
Net revenues $ 13,591 $ 13,133 $ 12,779 $ 13,225
Gross Margin 6,570 5,512 5,803 3,271
Net loss (230) (1,977) (737) (6,852)
Basic and diluted net loss per share (0.02) (0.16) (0.06) (0.55)
</TABLE>
(1) The Company recorded $750,000 million inventory provision in the quarter
ended June 30, 1999.
(2) The Company sold assets & liabilities related to its AMS product line on
November 9, 1998 at a loss of $1.1 million.
(3) The Company recorded $2.1 million inventory provision in the quarter ended
December 31, 1998.
(4) The Company closed the acquisition of a 52% equity ownership of NWL
Laser-Technologie GmbH on June 13, 1997.
(5) The Company recorded $3.0 million inventory provision in the quarter ended
December 31, 1997.
(6) The Company closed the acquisition of Heraeus Surgical, Inc. on August 30,
1996.
(7) The net income (loss) per share amounts prior to December 1997 have been
restated to comply with Statement of Accounting Standard Number 128,
Earnings Per Share. (See Note 1 in Notes to the Consolidated Financial
Statements)
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<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL REVIEW - RESULTS OF OPERATIONS
The following table sets forth certain data from Laserscope's consolidated
statements of operations, expressed as a percentage of net revenues:
<TABLE>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
Cost of sales 57.7 59.9 59.1
----- ----- ----
Gross margin 42.3 40.1 40.9
Operating expenses:
Research and development 11.0 9.9 5.5
Selling, general and administrative 47.8 41.1 36.3
Impairment of intangible assets -- 3.6 --
----- ----- ----
58.8 54.6 41.8
Operating loss (16.5) (14.5) (.9)
Interest income (expense) and
other, net (2.2) (1.3) .3
Loss on sale of AMS -- (2.1) --
----- ----- ----
Loss before income taxes and
minority interest (18.7) (17.9) (.6)
Provision for income taxes -- .4 .6
----- ----- ----
Loss before minority interest (18.7) (18.3) (1.2)
Minority interest (.2) .3 .2
----- ----- ----
Net loss (18.5)% (18.6)% (1.4)%
===== ===== ====
</TABLE>
Laserscope sells its products to hospitals, outpatient surgery centers,
pay-per-use providers and individual physicians in the United States, Europe,
the Middle East, Latin America and the Pacific Rim. The Company sells in the
United States through its own direct sales force. The Company's export sales are
generated by its wholly and majority owned subsidiaries throughout the United
Kingdom, France and Germany and by independent distributors in the rest of the
world. Through December 31, 1999, sales outside of the United States have been
denominated in the local currencies of the United Kingdom, France and Germany,
and in U.S. dollars for the rest of the world.
During 1999, 1998 and 1997 fluctuations in foreign currencies did not materially
affect the results of operations reported by Laserscope. However, there is risk
exposure to the Company in a number of areas. Although Laserscope's revenues
denominated in U.S. dollars represented over 69% of total revenues in 1999, 71%
in 1998 and 81% in 1997, market risk exists in foreign countries where the
Company sells in U.S. dollars,
30
<PAGE> 31
and where a major strengthening of the U.S. dollar could have a material
negative impact on its business. In addition, the introduction of the euro as a
currency in several European countries could negatively affect Laserscope's
ability to sell its products in exchange for U.S. dollars in those countries. In
January 1999, the Company's subsidiary in France began to denominate its sales
and report its financial statements in the euro, while the other subsidiaries
have not yet adopted this practice. Through 1999, the Company believes it had
not sustained any adverse impact from the introduction of the euro. However, any
major strengthening of the U.S. dollar against the euro, the British Pound
Sterling or the German Mark could have a material adverse effect on the
Company's business. Finally, the Company currently sources the majority of
material for its manufacturing production in the country of manufacture, and
therefore has insignificant foreign exchange risk relative to the settlement of
liabilities.
1999 RESULTS COMPARED TO 1998.
During 1999, Laserscope's revenues decreased approximately $11.7 million, or
22%, from 1998. The Company experienced declines in revenues from the sales of
lasers, disposables and instrumentation, and services. Sales of these products
were approximately $23.3 million, $11.6 million and $6.1 million, respectively
in 1999, compared to $28.8 million, $12.1 million and $6.6 million,
respectively, in 1998. In addition, due to the sale of the assets and
liabilities of Ascent Medical Systems in November 1998, Laserscope had no sales
of AMS products in 1999 while sales of these products were $5.2 million in 1998.
Laserscope discontinued the sales of these products in November 1998 and sold
the assets and liabilities related to the product line to Heraeus Medical, Inc.
at that time.
During 1999, Laserscope's revenues from the sales of laser equipment decreased
19% to $23.3 million, or 57% of total net revenues, compared to $28.8 million,
or 55%, of total net revenues in 1998. Decreases in revenues from sales of laser
equipment resulted from lower unit sales with lower unit prices in most
geographic regions. Lower unit volume contributed to approximately 68% of the
decline in revenue while lower unit prices contributed to approximately 32% of
the decline. Laserscope believes that strong competition in the Unites States
private physician office market continues to negatively affect domestic laser
sales. Laserscope also believes that the negative economic conditions in the
Pacific Rim region have also affected its ability to increase sales in this
region. Consequently, the Company expects that its revenue mix trends in the
U.S. market will continue to shift toward lower-priced office lasers and that
economic conditions in the Pacific Rim region will continue to impact
Laserscope's revenues negatively.
Laserscope's net revenues from shipments of disposable supplies and
instrumentation were 5% lower in 1999 than 1998, and were approximately $11.6
million, or 28% of total revenues in 1999, compared to approximately $12.1
million, or 23%, in 1998. The decrease is principally attributable to reduced
shipments of disposable fiber-optic devices for hospital surgical procedures in
the United States and the Pacific Rim. The
31
<PAGE> 32
Company believes that sales of laser equipment in the United States, which have
trended towards lower-priced office lasers for aesthetic procedures and away
from lasers to be used in the hospital for non-aesthetic procedures, has
resulted in lower sales of disposable supplies and instrumentation. Office
lasers used in aesthetic procedures, although carrying one-time sales of
instrumentation, generally do not create a stream of sales of disposable
supplies. The Company expects revenues from the sales of instrumentation and
disposable supplies to depend on the Laserscope's ability to develop and promote
surgical procedures that use these products and to increase its installed base
of systems.
The Company's net service revenues during 1999 were 6% lower than 1998. These
revenues were $6.1 million, or 15%, of total net revenues in 1999, compared to
$6.6 million, or 12%, of total net revenues in 1998. The decrease is principally
attributable to lower domestic revenues resulting from reduced service contract
revenues from hospitals. Laserscope believes that future revenues will depend on
increases to the installed base of lasers as well as the acceptance of its
service contracts by its customers.
The Company believes that acceptance of lasers in aesthetic surgery,
dermatology, urology and ear, nose and throat surgery will continue to be
important to its business. In addition, the Company expects that the adoption of
photodynamic therapy by medical practitioners will be important. The Company
continues to invest in developing new instrumentation for emerging surgical
applications and in educating surgeons in the United States and internationally
to encourage the adoption of such new applications. Penetration of the
international market is generally increasing, and the Company continues to view
expansion of international sales as important to the Company's success. During
1999, international revenues accounted for 45% of total net revenues, compared
to 42% of total net revenues during 1998.
Laserscope's product gross margin as a percentage of net revenues was 45% in
each of 1999 and 1998. These percentages reflect charges recorded to provide for
inventory related to discontinued product lines totaling approximately $0.7
million in 1999 and $2.1 million in 1998. These charges reduced Laserscope's
product gross margin as a percentage of net revenues by 2 percentage points in
1999 and 5 percentage points in 1998. The increase in gross margin (without
respect to the inventory provisions) is primarily due to a shift in product mix
towards higher margin products. Laserscope expects that product gross margin as
a percentage of net revenues will be higher in 2000 than in 1999, because the
Company has reduced its fixed cost structure. However, the Company expects that
these amounts may vary from quarter to quarter during 2000 as it continues to
balance production volumes and inventory levels with product demand and as
product and distribution mix varies.
32
<PAGE> 33
Gross margin from service activities as a percentage of service revenues was 26%
in 1999 compared to 6% in 1998. The increase reflects a reduction to the fixed
cost structure in response to lower revenues. Laserscope expects that gross
margin as a percentage of net revenues from service activities in 2000 will be
similar to 1999 levels.
Research and development expenses are the result of activities related to the
development of new laser, instrumentation and disposable products and the
enhancement of the Company's existing products. In 1999, amounts spent on
research and development decreased 14% from amounts spent in 1998. The decline
was due to a narrowing of focus in product development activity with fewer
products in development. The Company expects that amounts spent in research and
development during 2000 will, as a percentage of net revenues, be approximately
equal to that which was spent in 1999.
Selling, general and administrative expenses decreased 10% in 1999, but
increased as a percentage of net revenues due to decreased revenues. The
decrease in spending primarily results from expense reduction measures
implemented in July 1999 partially offset by foreign bad debt expenses.
Laserscope expects selling, general and administrative expenses to remain at
similar levels during 2000 as the Company continues to invest in marketing
programs and educational support.
During 1998, the Company recognized an impairment loss on certain intangible
assets acquired in the acquisition of Heraeus Surgical, Inc, ("HSI"). The
intangible assets related to certain laser product lines that Laserscope
discontinued as of December 31, 1998 or early in 1999. The Company determined
this action in late 1998 as part of a redirection in emphasis towards higher
volume product lines. The Company expected that the undiscounted future cash
flows for these product lines would be significantly less than the carrying
value of the intangible assets relating to these product lines. Accordingly,
Laserscope recorded an impairment charge of $1.9 million in 1998 to adjust the
assets to their estimated fair value.
During 1998, the Company concluded the sale of certain assets and liabilities
related to the AMS product line to Heraeus Medical, Inc. (a division of Heraeus
Med GmbH). Laserscope purchased the product line in the acquisition of HSI and
revenues from sales of products in this line decreased in 1997 and 1998. Due to
these declines and a desire to redirect Laserscope's resources towards laser
products, the management of the Company sold the assets and liabilities related
to the product line in November 1998. Laserscope received $0.9 million, in
exchange for certain assets and liabilities relating to the product line. The
result of the transaction was a loss to the Company of $1.1 million.
In 1999 and 1998, Laserscope recorded $13,000 and $184,000, respectively, in
income tax provisions primarily attributable to the profits of NWL.
33
<PAGE> 34
Minority interest in 1999 and 1998 resulted from the minority ownership
participation in NWL's net results.
1998 RESULTS COMPARED TO 1997.
During 1998, Laserscope's revenues decreased approximately $8.6 million, or 14%,
from 1997. Almost half of the decrease was due to a decline in revenues from
sales of AMS products. These revenues accounted for approximately $5.2 million
of all revenues in 1998, compared to approximately $9.2 million in 1997.
Laserscope discontinued the sales of these products in November 1998 and sold
the assets and liabilities related to the product line to Heraeus Medical, Inc.
at that time. In addition, the Company experienced declines in revenues from the
sales of disposables and instrumentation, and services, which were approximately
$12.1 million and $6.6 million, respectively, in 1998, compared to $14.7 million
and $8.1 million, respectively, in 1997.
During 1998, Laserscope's revenues from the sales of laser equipment decreased
2% and were $28.8 million, or 55%, of total net revenues, compared to $29.3
million, or 48%, of total net revenues in 1997. Increases in revenues from sales
of laser equipment were due to a complete year of sales from NWL, which
contributed approximately $7.8 million of such revenues in 1998, compared to
approximately $4.8 million from June through December 1997. Offsetting the
increases contributed by NWL were reduced shipment levels in the United States
and Pacific Rim, and higher shipment levels in Europe. Overall, unit sales in
1998 were at approximately the same level as in 1997, with lower average unit
prices contributing to the 2% decline in revenue.
Laserscope's net revenues from shipments of disposable supplies and
instrumentation were 17% lower in 1998 than 1997, and were approximately $12.1
million, or 23%, of total revenues in 1998, compared to approximately $14.7
million, or 24%, in 1997. The decrease was principally attributable to reduced
shipments of disposable fiber-optic devices for hospital surgical procedures in
the United States and the Pacific Rim. The Company believes that trends in sales
of laser equipment in the United States, which have trended towards lower-priced
office lasers for aesthetic procedures and away from lasers to be used in the
hospital for non-aesthetic procedures, resulted in lower sales of disposable
supplies and instrumentation. Office lasers used in aesthetic procedures,
although often times carrying accompanying one-time sales of instrumentation,
generally do not create a stream of sales of disposable supplies.
The Company's net service revenues during 1998 were 18% lower than 1997. These
revenues were $6.6 million, or 12%, of total net revenues in 1998, compared to
$8.1 million, or 13%, of total net revenues in 1997. The decrease was
principally attributable to lower domestic revenues as a result of reduced
service contract revenues from hospitals.
34
<PAGE> 35
Laserscope's product gross margin as a percentage of net revenues in 1998 was
45%, compared to 44% in 1997. These percentages reflect $2.1 million in charges
recorded to provide for inventory related to discontinued product lines in 1998,
and $3.0 million in charges during 1997 to provide for inventory that the
Company considered to be potentially excessive. These charges reduced
Laserscope's product gross margin as a percentage of net revenues by 4
percentage points and 5 percentage points in 1998 and 1997, respectively. The
increase in gross margin (without respect to the inventory provisions) was due a
product mix shift away from AMS products and towards laser products. Since its
acquisition of HSI, Laserscope acted as a distributor for the majority of the
AMS products. These products were manufactured by other companies. Revenues from
sales of the AMS products generally generated lower gross margins than products
manufactured by the Company.
Gross margin from service activities as a percentage of service revenues was 6%
in 1998, compared to 23% in 1997. The decrease reflected a further decline in
service revenues without a corresponding reduction to the fixed cost structure,
together with inefficiencies in performing service activities supporting the
Company's AMS products.
Research and development expenses were the result of activities related to the
development of new laser, instrumentation and disposable products and the
enhancement of the Company's existing products. In 1998, amounts spent on
research and development increased 54% from amounts spent in 1997. The growth
was due to increased laser product development activity in the United States,
and, to a lesser extent, a full year of NWL's research and development expenses
in 1998 compared to six months in 1997.
Selling, general and administrative expenses decreased 3% in 1998, but increased
as a percentage of net revenues due to decreased revenues. The decrease
primarily results from the discontinuance of the AMS product line after the sale
of related assets and liabilities in November 1998.
During 1998, the Company recognized an impairment loss on certain intangible
assets acquired in the acquisition of Heraeus Surgical, Inc, ("HSI"). The
intangible assets relate to certain laser product lines that Laserscope
discontinued as of December 31, 1998 or intends to discontinue in early 1999.
The Company determined this action in late 1998 as part of a redirection in
emphasis towards higher volume product lines. The Company expected that the
undiscounted future cash flows for these product lines would be significantly
less than the carrying value of the intangible assets relating to these product
lines. Accordingly, Laserscope recorded an impairment charge of $1.9 million in
1998 to adjust the assets to their estimated fair value.
During 1998, the Company concluded the sale of certain assets and liabilities
related to the AMS product line to Heraeus Medical, Inc. (a division of Heraeus
Med GmbH). Laserscope purchased the product line in the acquisition of HSI and
revenues from sales of products in this line decreased in 1997 and 1998. Due to
these declines and a
35
<PAGE> 36
desire to redirect Laserscope's resources towards laser products, the management
of the Company sold the assets and liabilities related to the product line in
November 1998. Laserscope received $0.8 million, and rights to $0.1 million that
remained in escrow until November 1999, in exchange for certain assets and
liabilities relating to the product line. The result of the transaction was a
loss to the Company of $1.1 million.
In 1998 and 1997, Laserscope recorded $184,000 and $370,000, respectively, in
income tax provisions primarily attributable to the profits of NWL as well as
other foreign income and withholding taxes, and federal and state minimum taxes.
Minority interest in 1998 and 1997 resulted from the minority ownership
participation in NWL's net income.
FINANCIAL REVIEW - LIQUIDITY AND CAPITAL RESOURCES
Total assets and liabilities as of December 31, 1999 were $29.0 million and
$16.9 million, respectively, compared to assets and liabilities of $36.6 million
and $17.9 million, respectively, at December 31, 1998. Working capital decreased
$6.9 million from $13.7 million at December 31, 1998 to $6.8 million at December
31, 1999. Cash and cash equivalents were $1.5 million at each of December 31,
1999 and 1998. The decrease to working capital was primarily the result of the
net loss for the year.
Cash used by operating activities totaled $1.6 million. This was the combined
result of the following uses: Net loss - $7.6 million; reductions in accounts
payable - $1.9 million; warranty - $0.5 million; other accrued liabilities -
$0.4 million; deferred revenue - $0.3 million; accrued compensation - $0.2
million; and minority interest - $0.1 million; and increased other current
assets - $0.4 million. These uses were offset partially by in the following:
reductions in inventory - $3.3 million; reductions in accounts receivable - $2.9
million; depreciation - $1.8 million; amortization - $1.0 million, non-cash
inventory charges - $0.7 million and reduction of shareholder notes - $0.2
million.
Cash used by investing activities primarily consisted of an increased investment
in NWL of $1.3 million and capital expenditures of $0.6 million.
Cash provided by financing activities primarily consisted of a $3.0 million net
increase in bank borrowings and $1.2 million from the sale of common stock
partially offset by $0.4 million in payments on capital leases.
The Company has in place a $6 million asset based line of credit based on the
Company's eligible accounts receivable and inventory which expires in September
2000. The arrangement allows for an over-advance relative to the collateral of
$1.9 million until December 31, 1999, then $1.0 million until March 31, 2000, at
which time further over-advances will no longer be allowed. At December 31,
1999, the Company had approximately $4.0 million in collateral available against
the $4.3 million
36
<PAGE> 37
outstanding. At December 31, 1999, the Company was in compliance with all
financial covenants. In addition, NWL has in place various short-term revolving
bank lines totaling approximately $3.0 million that expire on various dates in
2000 and under which approximately $3.0 million in borrowings were outstanding
at December 31, 1999. At December 31, 1999, NWL had covenant violations with
certain of its bank lines and currently expects to renegotiate the terms of
these lines. However, there can be no assurance NWL will be able to accomplish
this in a timely manner, on acceptable terms, or at all.
Capital expenditures totaled $0.6 million and $1.0 million in 1999 and 1998,
respectively. These expenditures were primarily for computer systems and
leasehold improvements. Laserscope expects capital expenditures in 2000 to be at
levels similar to 1999.
To address its capital needs the Company recently completed a private placement
of its Common Stock to accredited investors providing net proceeds of
approximately $1.8 million to Laserscope. The transaction consisted of two
closings. The first for approximately $1.0 million in net proceeds in exchange
for 1,505,000 shares of the Company's Common stock which closed on December 30,
1999. The second closing was for approximately $0.8 million in exchange for
995,000 shares of the Company's Common Stock which closed on January 14, 2000.
The shares had no par value per share and were issued at a price of $0.80 per
share. The Company also issued warrants to purchase 218,875 shares of its Common
Stock on the date of the second closing.
Similarly, on February 11, 2000, the Company completed a private placement of
subordinate convertible debentures with net proceeds to the Company of
approximately $2.9 million. The debentures mature seven years from issuance and
bear an interest rate of 8.00%. The debentures are convertible into Common Stock
of the Company, with an initial conversion price, which is subject to
adjustment, of $1.25. The private placement also included warrants convertible
into 240,000 shares of the Company's Common Stock.
Laserscope anticipates that future changes in cash and working capital will
depend on a number of factors, including, but not limited to, management's
ability to effectively manage non-cash assets such as inventory and accounts
receivable. The Company competes in a competitive industry where technological
changes and acceptance of new and alternative procedures by its customers is
rapid. Management's ability to anticipate and adapt to these changes will
significantly affect the Company's investment in inventory and the potential for
inventory valuation adjustments. Historically, a source of liquidity for the
Company has been the sale of common stock under stock plans, principally
employee stock option and stock purchase plans. To the extent that the market
price of the common stock discourages the exercise of stock options, this source
of liquidity may be unavailable. At December 31, 1999, options to purchase
approximately 3.4 million shares of Laserscope's common stock were outstanding,
of
37
<PAGE> 38
which 1.6 million were exercisable at a weighted average exercise price of
$2.17. Finally, the level of profitability of the Company will have a
significant effect on cash resources.
From time to time, the Company may also consider the acquisition of, or evaluate
investments in, certain products and businesses complementary to the Company's
business. Any such acquisition or investment may require additional capital
resources. The Company has historically financed acquisitions using its existing
cash resources. While the Company believes its existing cash resources will be
sufficient to fund its operating needs for the next twelve months, additional
financing either through its bank lines of credit or otherwise will be required
for the Company's currently envisioned long term needs.
There also can be no assurance that any additional financing will be available
on terms acceptable to the Company, or at all. In addition, future equity
financings could result in dilution to the Company's shareholders, and future
debt financings could result in certain financial and operational restrictions.
PENDING SALE OF NWL
On February 18, 2000, the Company signed an agreement with Wavelight Laser
Technologie AG to sell its interest in NWL. The sale, which is pending Wavelight
shareholder approval, which the Company expects to occur on March 31, 2000,
would have an effective date of January 1, 2000. As part of the transaction, NWL
would continue to distribute Laserscope's products in all countries covered by
NWL's current distribution channels. The transaction is expected to net
approximately $4.0 million in cash to Laserscope and is not expected to generate
a material gain or loss when reported in Laserscope's first quarter 2000.
YEAR 2000
As of March 30, 2000 Laserscope's systems have operated without any apparent
Year 2000 related problems and appear to be Year 2000 compliant. The Company is
not aware that any of its primary vendors or systems maintained by third parties
have experienced significant Year 2000 compliance problems. However, while no
such problem has been discovered as of the date of this report, Year 2000 issues
may not become apparent immediately and, therefore, the Company may be affected
in the future. The Company will continue to monitor the issue and work to
remediate any Year 2000 issues that may arise. Through the date of this report,
the costs to Laserscope for year 2000 compliance have not been significant.
38
<PAGE> 39
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS No. 133), Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. We will be required to
implement SFAS No. 133 as of the beginning of our fiscal year 2001. Our foreign
currency exchange rate hedging activities have been insignificant to date, and
we do not believe that the impact of SFAS No. 133 will be material to our
financial position, results of operations or cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). Although Laserscope is currently
evaluating the impact of the SAB 101, the Company does not believe its adoption
will materially change Laserscope's financial position, results of operations,
or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including changes in interest
rates affecting the return on its investments, outstanding debt balances and
foreign currency fluctuations. In the normal course of business, the Company
employs established policies and procedures to manage its exposure to
fluctuations in interest rates and foreign currency values.
INTEREST RATE RISK
The Company's exposure to market rate risk for changes in interest rates relates
primarily to the Company's investment and debt portfolios. The Company has not
used derivative financial instruments in its investment or debt portfolios. The
Company invests its excess cash in money market funds and commercial paper. The
Company's debt financing consist of convertible debentures and bank loans
requiring either fixed or variable rate interest payments. Investments in and
borrowings under both fixed-rate and floating-rate interest-earning instruments
carry a degree of interest rate risk. On the investment side, fixed-rate
securities may have their fair market value adversely affected due to a rise in
interest rates, while floating-rate securities may produce less income than
expected if interest rates fall. In addition, the Company's future investment
income may fall short of expectations due to changes in interest rates or the
Company may suffer losses in principal if forced to sell securities which have
declined in market value due to changes in interest rates. On the debt side,
borrowings that require fixed-rate interest payments require greater than
current market rate interest payments if interest rates fall, while floating
rate borrowings may require greater interest payments if interest rates rise.
Additionally, the Company's future interest expense may be greater than expected
due to changes in interest rates.
FOREIGN CURRENCY RISK
International revenues denominated in currencies other than the U.S. dollar were
30% of total revenues in 1999. International sales are made through
international distributors and wholly- and majority-owned subsidiaries with
payments to the Company typically denominated in the local currencies of the
United Kingdom, France and Germany, and in U.S. dollars in the rest of the
world. The
39
<PAGE> 40
Company's international business is subject to risks typical of an international
business, including, but not limited to, differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, the Company's
future results could be materially adversely affected by changes in these or
other factors. The effect of foreign exchange rate fluctuations on the Company
in 1999 was not material, and the Company does not engage in hedging
transactions for speculative or trading purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Laserscope at December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999, the
report of independent auditors thereon and Supplementary Data are included as
separate sections in this Annual Report on Form 10-K in Item 6 "Selected
Financial Data" and Item 14, "Exhibits, Financial Statement Schedules and
reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Annual Report on
Form 10-K because the Company will file a definitive proxy statement prior to
April 30, 1999 pursuant to Regulation 14A (the "Proxy Statement") for its Annual
Meeting of Shareholders to be held June 23, 2000, and the information included
in the Proxy Statement is incorporated herein by reference.
40
<PAGE> 41
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors and executive officers
required by this Item 10 is incorporated by reference from the Company's Proxy
Statement for the 1999 Annual Meeting of Shareholders under the headings
"Election of Directors" and "Management," respectively.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference from the
Company's Proxy Statement for the 1999 Annual Meeting of Shareholders under the
heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference from the
Company's Proxy Statement for the 1999 Annual Meeting of Shareholders under the
heading "Election of Directors" and "Beneficial Ownership of Securities."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference from the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under the
heading "Certain Transactions."
41
<PAGE> 42
PART IV
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
<TABLE>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent
Auditors. F-1
Consolidated Balance Sheets at December 31, 1999
and 1998. F-2
Consolidated Statements of Operations - Years
ended December 31, 1999, 1998 and 1997. F-3
Consolidated Statements of Cash Flows - Years
ended December 31, 1999, 1998 and 1997. F-4
Consolidated Statements of Shareholders' Equity
- Years ended December 31, 1999, 1998 and 1997. F-5
Notes to Consolidated Financial Statements. F-6 through F-22
(2) The following financial statement schedule for
the years ended December 31, 1999, 1998 and 1997
is submitted herewith:
</TABLE>
<TABLE>
Page
----
<S> <C>
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules are omitted because
they are not applicable or the required
information is shown in the consolidated
financial statements or notes thereto.
(3) Exhibits included herein (numbered in accordance
with Item 601 of Regulation S-K):
</TABLE>
42
<PAGE> 43
<TABLE>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Acquisition Agreement between Laserscope and
Heraeus Med GmbH.(12)
2.1A Amendment Number One to Acquisition Agreement
between Laserscope and Heraeus Med GmbH.(14)
3.3 Seventh Amended and Restated Articles of
Incorporation of Registrant.(1)
3.4 By-laws of Registrant, as amended.(4)
4.1 Common Shares Rights Agreement dated as of
October 31, 1991 between Laserscope and American
Stock Transfer & Trust Company as Rights
Agent.(9)
4.1A First Amendment to Common Shares Rights
Agreements between the Company and American
Stock Transfer & Trust Company as Rights Agent
dated as of April 22, 1996.(10)
4.1B Second Amendment to Common Shares Rights
Agreement between the Company and American Stock
Transfer & Trust Company as Rights Agent dated
as of August 6, 1996.(11)
10.1A 1984 Stock Option Plan, as amended, and forms of
Incentive Stock Option Agreement and
Nonstatutory Stock Option Agreement.(4)
10.1B 1994 Stock Option Plan and forms of Incentive
Stock Option Agreement and Nonstatutory Stock
Option Agreement.(7)
10.2 1984 Stock Purchase Plan and form of Common
Stock Purchase Agreement.(2)
10.3 1989 Employee Stock Purchase Plan and form of
Subscription Agreement.(4)
10.3A 1999 Employee Stock Purchase Plan and form of
Subscription Agreement.(19)
10.4 401(k) Plan.(2)
10.6 Net Lease Agreement between the Registrant and
Realtec Properties dated October 7, 1987.(2)
10.6A Amendment No. 1 dated January 18, 1990 to Net
Lease Agreement between the Registrant and
Realtec Properties dated October 7, 1987.(2)
</TABLE>
43
<PAGE> 44
<TABLE>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.6B Net Lease Agreement between Registrant and
Realtec Properties dated December 14, 1989.(2)
10.6C Net Lease Agreement between Registrant and
Realtec Properties dated June 25, 1990.(3)
10.6D Amendment No. 2 dated November 10, 1992 to Net
Lease Agreement between Registrant and Realtec
Properties dated October 7, 1987.(5)
10.6E Amendment No. 3 dated April 19, 1994 to Net
Lease Agreement between Registrant and Realtec
Properties dated October 7, 1987.(6)
10.6F Amendment No. 1 dated April 19, 1994 to Net
Lease Agreement between Registrant and Realtec
Properties dated June 25, 1990.(6)
10.6G Amendment No. 1 dated April 19, 1994 to Net
Lease Agreement between Registrant and Realtec
Properties dated December 14, 1989.(7)
10.10 Form of indemnification agreement.(2)
10.11 Amended and Restated Loan and Security Agreement
between the Registrant and Silicon Valley Bank
Dated November 23, 1996.(13)
10.11A Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated
November 26, 1997.(14)
10.11B Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated March
18, 1998.(14)
10.11C Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated
September 3, 1998.(16)
10.11D Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated
November 25, 1998.(17)
10.11E Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated March
17, 1999.(17)
10.11F Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated March
30, 1999.(18)
10.11G Loan and Security Agreement between the
Registrant and Silicon Valley Bank dated October
1, 1999.(19)
10.13 1990 Directors' Stock Option Plan and form of
Option Agreement.(4)
</TABLE>
44
<PAGE> 45
<TABLE>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.14.1 Form of Laserscope Management Continuity
Agreement, as amended.(15)
10.18 1995 Directors' Stock Option Plan and form of
Option agreement.(8)
10.18A 1999 Director's Stock Option Plan.(19)
10.19 Common Stock Placement Agreement.(19)
10.19A Form of Common Stock Purchase Agreement.(19)
10.20 Convertible Loan Agreement.(19)
22.1 Subsidiaries of Registrant, as amended.(14)
23.1 Consent of Ernst & Young LLP, Independent
Auditors.(19)
25.1 Power of Attorney (see pages 48 through 49).(19))
27.1 Financial Data Schedule.(19)
</TABLE>
Reports on Form 8-K:
On February 10, 2000 the Company filed a Form 8-K referring to a press release
it had issued on January 18, 2000 announcing that it had completed a private
placement of common stock providing net proceeds to the Company of approximately
$1.8 million. The placement of common stock to accredited investors was managed
by Taglich Brothers Inc.
On March 1, 2000 the Company filed a Form 8-K referring to a press release it
had issued on February 22, 2000 announcing that it had completed a private
placement of subordinate convertible debentures providing net proceeds to the
Company of approximately $2.9 million. The placement to affiliates of
Renaissance Capital Group, Inc., was managed by Taglich Brothers Inc.
- --------------
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits," of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the Registrant's Registration
Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto
(File No. 33-31689), which became effective on November 29, 1989.
45
<PAGE> 46
(3) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990.
(4) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991.
(5) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
(6) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1994.
(7) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
(8) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K/A for the year ended December 31, 1995.
(9) Incorporated by reference to Exhibit 1 of the Registrant's Registration
Statement on Form 8-A filed November 15, 1991.
(10) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996.
(11) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", the Company's Form 8-A/A filed
September 4, 1996.
(12) Incorporated by reference to Exhibit A to the Definitive Proxy Statement
for the Special Meeting of Shareholders held August 29, 1996.
(13) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K/A for the year ended December 31, 1996.
(14) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K/A for the year ended December 31, 1997.
46
<PAGE> 47
(15) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1998.
(16) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998.
(17) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K/A for the year ended December 31, 1998.
(18) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1999.
(19) Filed herewith
47
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LASERSCOPE
Date: March 30, 2000 By: /s/ Eric M. Reuter
----------------------------------
Eric M. Reuter
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Eric M. Reuter and Dennis LaLumandiere as his
attorneys-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert J. Pressley Chairman of the Board of March 30, 2000
- ----------------------------- Directors
(Robert J. Pressley, Ph.D.)
/s/ Eric M. Reuter President, Chief Executive March 30, 2000
- ----------------------------- Officer and Director
(Eric M. Reuter) (Principal Executive Officer)
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dennis LaLumandiere Vice President of Finance, March 30, 2000
- ----------------------------- Chief Financial Officer and
(Dennis LaLumandiere) Assistant Secretary
(Principal Financial and
Accounting Officer)
/s/ E. Walter Lange Director March 30, 2000
- -----------------------------
(E. Walter Lange)
/s/ Rudiger Naumann-Etienne Director March 30, 2000
- -----------------------------
(Rudiger Naumann-Etienne,
Ph.D.)
/s/ Rodney Perkins Director March 30, 2000
- -----------------------------
(Rodney Perkins, M.D.)
</TABLE>
49
<PAGE> 50
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Laserscope
We have audited the accompanying consolidated balance sheets of Laserscope as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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
Laserscope at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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.
/s/Ernst & Young LLP
San Jose, California
February 24, 2000
F-1
<PAGE> 51
LASERSCOPE
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
(dollars in thousands) 1999 1998
- ---------------------- -------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,449 $ 1,456
Accounts receivable, net 9,500 12,433
Inventories 10,052 14,084
Other current assets 1,281 867
-------- --------
Total current assets 22,282 28,840
Property and equipment, net 3,949 5,146
Developed technology and other intangibles, net 2,598 2,089
Other assets 127 518
-------- --------
Total assets $ 28,956 $ 36,593
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,412 5,360
Accrued compensation 1,453 1,659
Short-term bank loans 7,361 3,538
Warranty 329 835
Deferred revenue 717 1,060
Other accrued liabilities 1,885 2,323
Current obligations under capital leases 319 343
-------- --------
Total current liabilities 15,476 15,118
Long-term liabilities:
Obligations under capital leases 534 786
Mortgages & other long term loans 862 1,693
-------- --------
Total long term liabilities 1,396 2,479
Commitments and contingencies
Minority interest 37 325
Shareholders' equity:
Common stock 14,193,043 shares outstanding
(12,525,818 in 1998) 52,467 51,268
Accumulated deficit (39,200) (31,627)
Accumulated other comprehensive income (1,027) (599)
Notes receivable from shareholders (193) (371
-------- --------
Total shareholders' equity 12,047 18,671
-------- --------
Total liabilities and shareholders' equity $ 28,956 $ 36,593
======== ========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 52
LASERSCOPE
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
(thousands, except per share amounts) 1999 1998 1997
- ------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net revenues:
Products $ 34,846 $ 46,148 $ 53,296
Services 6,144 6,580 8,053
-------- -------- --------
40,990 52,728 61,349
Cost of products and services:
Products 19,088 25,417 30,085
Services 4,558 6,155 6,194
-------- -------- --------
23,646 31,572 36,279
-------- -------- --------
Gross margin 17,344 21,156 25,070
Operating expenses:
Research and development 4,504 5,225 3,389
Selling, general and administrative 19,595 21,657 22,250
Impairment of intangible assets -- 1,937 --
-------- -------- --------
24,099 28,819 25,639
Operating loss (6,755) (7,663) (569)
Interest income (expense) and other, net (910) (701) 210
Loss on sale of AMS -- (1,082) --
-------- -------- --------
Loss before income taxes and minority interest (7,665) (9,446) (359)
Provision for income taxes 13 184 370
-------- -------- --------
Loss before minority interest (7,678) (9,630) (729)
Minority interest 105 (166) (114)
-------- -------- --------
Net loss $ (7,573) $ (9,796) $ (843)
======== ======== ========
Basic and diluted net loss per share $ (0.60) $ (0.79) $ (0.07)
======== ======== ========
Shares used in per share calculations 12,580 12,423 12,265
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 53
LASERSCOPE
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,573) $ (9,796) $ (843)
Adjustments to reconcile net loss to cash provided (used) by
operating activities:
Excess inventory charges 750 2,063 3,000
Impairment of intangible assets -- 1,937 --
Loss on sale of AMS -- 1,082 --
Depreciation 1,835 1,915 824
Amortization of licenses and intangibles 977 976 790
Repayment and write off of shareholder notes 178 -- --
Increase (decrease) from changes in:
Accounts receivable 2,833 449 65
Inventories 3,282 473 (841)
Other current assets (414) 250 280
Other assets -- (295) --
Accounts payable (1,948) 773 (4,404)
Accrued compensation (206) (51) (1,237)
Warranty (507) (206) 359
Deferred revenue (343) (453) (796)
Other accrued liabilities (437) 636 372
Minority interest (105) 165 160
-------- -------- --------
Cash used by operating activities (1,678) (82) (2,271)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (562) (987) (1,616)
NWL acquisition (1,278) -- (960)
Cash received from the sale of AMS 100 805 --
Other (428) 21 (402)
-------- -------- --------
Cash used by investing activities (2,168) (161) (2,978)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on obligations under capital leases (352) (249) (39)
Proceeds from the sale of common stock under stock plans 175 329 2,141
Proceeds from the sale of common stock in private placement,
net of issuance costs 1,024 -- --
Proceeds from bank loans 13,382 1,563 3,865
Repayment of bank loans (10,390) (2,409) (2,170)
-------- -------- --------
Cash provided (used) by financing activities 3,839 (766) 3,797
-------- -------- --------
Increase (decrease) in cash and cash equivalents (7) (1,009) (1,452)
Cash and cash equivalents, beginning of year 1,456 2,465 3,917
-------- -------- --------
Cash and cash equivalents, end of year $ 1,449 $ 1,456 $ 2,465
======== ======== ========
Supplemental cash flow information:
Cash paid for income taxes (net of refunds) $ 17 $ 25 $ 177
======== ======== ========
Cash paid for interest $ 572 $ 394 $ 393
======== ======== ========
Non cash financing activities:
Equipment leases $ 77 $ 891 $ 174
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 54
LASERSCOPE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other Notes Total
Accumulated Comprehensive Receivable from Shareholders'
(dollars in thousands) Common Stock Deficit Income (loss) Shareholders Equity
- ------------------------------------------- ----------- ----------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 48,798 (20,988) (260) (375) 27,175
Components of comprehensive income (loss):
Net loss (843) (843)
Translation adjustments (356) (356)
-------
Total comprehensive income (1,199)
Issuance of 479,275 shares
under stock plans 2,141 2,141
------- --------- --------- --------- -----
Balance at December 31, 1997 50,939 (21,831) (616) (375) 28,117
Components of comprehensive income (loss):
Net loss (9,796) (9,796)
Translation adjustments 17 17
--------
Total comprehensive income (9,779)
Issuance of 178,372 shares
under stock plans 329 329
Repayment of shareholder notes 4 4
----------- ----------- -------- -------- ---------
Balance at December 31, 1998 51,268 (31,627) (599) (371) 18,671
Components of comprehensive income (loss):
Net loss (7,573) (7,573)
Translation adjustments (428) (428)
-------
Total comprehensive income (8,001)
Issuance of 162,225 shares
under stock plans 175 175
Issuance of 1,505,000 shares in
private placement, net of issuance costs 1,024 1,024
Repayment and write off
of shareholder notes 178 178
----------- ----------- ---------- ------- --------
Balance at December 31, 1999 $52,467 $(39,200) $(1,027) $ (193) $12,047
=========== ============ ========== ====== ========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 55
LASERSCOPE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company primarily operates in one business segment, the medical systems
business. The Company develops, manufactures, markets and supports surgical
lasers and other surgical systems, related instrumentation and disposable
supplies. The Company markets its products and services in over thirty countries
worldwide to hospitals, outpatient surgery centers and physicians.
Basis of presentation
The accompanying consolidated financial statements include the Company and its
wholly and majority-owned subsidiaries. All intercompany transactions and
balances have been eliminated.
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 equivalents and short-term investments
The Company considers cash equivalents to be short-term financial instruments
that are readily convertible to cash, subject to no more than insignificant
interest rate risk and that have remaining maturities at the time of purchase of
three months or less.
At December 31, 1999 the Company had no cash equivalents. At December 31, 1998,
the Company's cash equivalents were in the form of institutional money market
accounts and totaled $0.4 million. At December 31, 1999 and 1998 the Company had
no investments in debt or equity securities.
Revenue recognition and product warranty
The Company generally recognizes revenue related to the sale of systems,
instrumentation and disposables at the time of shipment and provides currently
for the estimated cost to repair or replace products under warranty provisions
in effect at the time of the sale. Service revenue is recognized as the services
are provided or pro rata over the period of the applicable contract.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization.
The building is depreciated using the straight line method over an estimated
useful life of 25 years. Equipment is depreciated using principally accelerated
methods over estimated useful lives of three to seven years. Equipment under
capital leases is amortized over the period of the lease. Leasehold improvements
are amortized using the straight-line method over the remaining term of the
lease.
F-6
<PAGE> 56
Inventories
Inventories are stated at the lower of cost (computed on a first-in, first-out
basis) or market.
Net loss per share
Basic net income (loss) per share is calculated using the weighted average of
common stock outstanding. Diluted net income per share is calculated using the
weighted average of common stock outstanding plus dilutive common equivalent
shares from stock options.
Options to purchase 3,443,978, 2,615,317 and 2,428,397 shares of common stock
were outstanding at December 31, 1999, 1998 and 1997, respectively, but were not
included in the computation of diluted earnings (loss) per share because the
Company reported losses for the periods that ended at these dates and,
therefore, the effect would be antidilutive.
Foreign currency translation
The functional currencies of the Company's foreign subsidiaries are their local
currencies. Accordingly, all assets and liabilities related to their operations
are translated at the current exchange rates at the end of each period. The
resulting cumulative translation adjustments are recorded directly to the
translation adjustments account included in shareholders' equity. Revenues and
expenses are translated at average exchange rates in effect during the period.
Intangible assets related to acquisitions
Intangible assets related to the acquisitions of Heraeus Surgical, Inc. and NWL
Laser-Technologie GmbH included developed technology, distribution and
established workforces. These assets are amortized on a straight-line basis over
estimated useful lives from five to seven years. During the year ended December
31, 1998, the Company recorded an impairment loss to the intangible assets
related to the acquisition of Heraeus Surgical, Inc. (See Note 3)
Impairment of assets
The Company recognizes impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amounts. During the year ended December 31, 1998, the Company recognized such a
loss related to the write down of certain intangible assets acquired in the
acquisition of Heraeus Surgical, Inc. (See Note 3)
F-7
<PAGE> 57
Advertising expense
Advertising is expensed as incurred. Advertising costs were not significant in
1999, 1998 and 1997.
Comprehensive income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130) during the year ended December 31,
1998. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income (loss) is comprised of net loss plus
translation adjustments.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS No. 133), Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. We will be required to
implement SFAS No. 133 as of the beginning of our fiscal year 2001. Our foreign
currency exchange rate hedging activities have been insignificant to date, and
we do not believe that the impact of SFAS No. 133 will be material to our
financial position, results of operations or cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101. "Revenue
Recognition in Financial Statements" (SAB 101). Although Laserscope is
currently evaluating the impact of the SAB 101, the Company does not believe
its adoption will materially change Laserscope's financial position, results of
operations, or cash flows.
2. ACQUISITION OF NWL LASER-TECHNOLOGIE GMBH
In March 1995, Laserscope entered into an agreement with NWL Laser-Technologie
("NWL") whereby the Company paid NWL approximately $1.6 million in exchange for
a cross-distribution and development agreement, a minority equity position in
NWL and an option to purchase all of the ownership interests in NWL. In June
1997, Laserscope exercised its option and paid an additional $1 million to
increase its equity position to a 52% interest in NWL. In January 1999,
Laserscope paid an additional $1.3 million to increase its equity position to
80%. (See Note 17.)
F-8
<PAGE> 58
3. SALE AND IMPAIRMENT OF ASSETS AND LIABILITIES ACQUIRED IN THE ACQUISITION OF
HERAEUS SURGICAL, INC.
During November 1998, the Company and Heraeus Medical, Inc. (a division of
Heraeus Med GmbH), signed a definitive agreement for the sale of certain assets
and liabilities related to the AMS product line. The product line was originally
purchased by Laserscope in the acquisition of Heraeus Surgical, Inc. The Company
received $905,000 in exchange for certain assets and liabilities relating to the
product line. The result of the transaction was a loss to the Company of $1.1
million as detailed below:
<TABLE>
(in thousands)
- --------------
<S> <C>
Assets and liabilities sold:
Accounts receivable $1,078
Inventories 2,036
Licenses and intangibles assets 800
Accounts payable and accruals (1,580)
Warranty (280)
Deferred revenues (67)
------
Total 1,987
Proceeds:
Cash received 905
------
Net loss $1,082
======
</TABLE>
In December 1998, the Company concluded that the majority of the remaining book
value the intangible assets acquired in the acquisition of Heraeus Surgical,
Inc. had been impaired and recorded an impairment loss. In addition, the Company
determined that specific inventories relating to certain product lines acquired
in the acquisition were excessive, and the Company adjusted the value of these
inventories accordingly. Laserscope determined this action in late 1998, as part
of a redirection in emphasis towards higher volume product lines.
F-9
<PAGE> 59
4. SEGMENT INFORMATION
Laserscope's revenue base is derived from the sales of interrelated products and
services on a world wide basis. Although discrete components that earn revenues
and incur expenses exist, significant expenses such as research and development
and corporate administration are not incurred by nor allocated to these
operating units but rather are employed by the entire enterprise. Additionally,
the chief operating decision maker evaluates resource allocation not on a
product or geographic basis, but rather on an enterprise wide basis. Therefore,
the Company has concluded that it contains only one reportable segment which is
the medical systems business.
Revenues from sales to external customers by similar products and services and
by major geographic area for the years ended December 31 were:
<TABLE>
(in thousands) 1999 1998 1997
- -------------- ------- ------- -------
<S> <C> <C> <C>
By similar products and services
- --------------------------------
Laser equipment $23,263 $28,809 $29,301
Disposables & instrumentation 11,580 12,139 14,750
Service 6,147 6,574 8,053
AMS equipment(1) -- 5,206 9,245
------- ------- -------
Total $40,990 $52,728 $61,349
By major geographic area(2)
- ---------------------------
United States $22,551 $30,662 $41,190
Germany(3) 7,089 9,298 5,656
Rest of Europe(4) 8,268 8,384 8,104
Asia Pacific(4) 2,635 3,657 5,876
Rest of world(4) 447 727 523
------- ------- -------
Total $40,990 $52,728 $61,349
======= ======= =======
</TABLE>
(1) Laserscope sold certain assets and liabilities related to the AMS product
line in November 1998.
(2) Based on the location of the external customer.
(3) The Company acquired a 52% interest in NWL in June 1997 and further
increased its interest to 80% in January 1999.
(4) Individual countries within each of these geographic regions represent
less than 10% of total revenues
F-10
<PAGE> 60
Location of long lived assets by major geographic area at December 31 were:
<TABLE>
(in thousands) 1999 1998 1997
- -------------- ------- ------- -------
<S> <C> <C> <C>
United States $ 5,645 $ 6,167 $ 9,982
Germany 884 1,418 1,074
All others 145 168 152
------- ------- -------
Total $ 6,674 $ 7,753 $11,208
======= ======= =======
</TABLE>
5. ACCOUNTS RECEIVABLE
Accounts receivable at December 31 consisted of:
<TABLE>
(in thousands) 1999 1998
- -------------- -------- --------
<S> <C> <C>
Trade accounts receivable $ 10,251 $ 12,958
Less: allowance for doubtful accounts (751) (525)
-------- --------
$ 9,500 $ 12,433
======== ========
</TABLE>
6. INVENTORIES
Inventories at December 31 consisted of:
<TABLE>
(in thousands) 1999 1998
- -------------- ------- -------
<S> <C> <C>
Sub-assemblies and purchased parts $ 7,013 $ 9,371
Finished goods 3,039 4,713
------- -------
$10,052 $14,084
======= =======
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consisted of:
<TABLE>
(in thousands) 1999 1998
- -------------- -------- --------
<S> <C> <C>
Machinery and equipment $ 4,059 $ 4,008
Land and building 825 959
Office equipment and furniture 9,679 9,069
Leasehold improvements 3,513 3,402
-------- --------
18,076 17,438
Less accumulated depreciation and
amortization (14,127) (12,292)
-------- --------
$ 3,949 $ 5,146
======== ========
</TABLE>
F-11
<PAGE> 61
8. DEVELOPED TECHNOLOGY AND OTHER INTANGIBLES
Developed technology and other intangibles resulting from the acquisition of
Heraeus Surgical, Inc. and NWL Laser-Technologie GmbH at December 31 consisted
of:
<TABLE>
(in thousands) 1999 1998
- -------------- ------- -------
<S> <C> <C>
Heraeus Surgical, Inc.:
Developed technology $ 3,229 $ 3,229
Work force 400 400
------- -------
3,629 3,629
Less:
Asset impairment (1,937) (1,937)
Accumulated amortization (1,226) (1,196)
AMS sale (443) (443)
------- -------
Net Heraeus Surgical, Inc. 23 53
------- -------
NWL Laser-Technologie GmbH:
Developed technology 1,845 1,297
Distribution 1,183 832
Work force 658 462
------- -------
3,686 2,591
Less: accumulated amortization (1,111) (555)
------- -------
Net NWL Laser-Technologie GmbH 2,575 2,036
------- -------
Net developed technology and
other intangibles $ 2,598 $ 2,089
======= =======
</TABLE>
9. CREDIT LINES
The Company has in place a $6 million asset based line of credit based on the
Company's eligible accounts receivable and inventory which expires in September
2000. The arrangement allows for an over-advance relative to the collateral of
$1.9 million until December 31, 1999, then $1.0 million until March 31, 2000, at
which time further over-advances will no longer be allowed. At December 31,
1999, the Company had approximately $4.0 million in collateral available against
the $4.3 million outstanding. The credit line is secured by the assets of the
Company, and bears interest at a rate equivalent to the bank's prime rate plus
3% per annum (11.5% in December 1999). Provisions of the bank loan agreement
prohibit the payment of dividends on non-preferred stock, or the redemption,
retirement, repurchase or other acquisition of Company stock. The agreement
further requires the Company to maintain a minimum tangible net worth. As of
December 31, 1999, the Company was in compliance with all financial covenants.
In addition, NWL has in place various short-term revolving bank lines totaling
approximately $3.0 million that expire on various dates in 2000 and under which
approximately $3.0 million in borrowings were outstanding at December 31, 1999.
At December 31, 1999, NWL had covenant violations with certain of its bank lines
and currently expects to renegotiate the terms of these lines. However, there
can be no assurance NWL will be able to accomplish this in a timely manner, on
acceptable terms, or at all.
F-12
<PAGE> 62
10. LEASE OBLIGATIONS
The Company leases certain equipment under lease agreements that have been
accounted for as capital leases. Leased equipment and accumulated amortization
related to assets under capital leases at December 31 were as follows:
<TABLE>
(in thousands) 1999 1998
- -------------- ------ ------
<S> <C> <C>
Leased equipment $1,491 $1,414
Accumulated amortization 620 403
</TABLE>
There were $77,000 in additions to leased equipment in 1999, $891,000 in 1998
and $174,000 in 1997.
Amortization of equipment under capital leases is included in depreciation
expense.
The Company leases certain facilities and equipment under non-cancelable
operating leases. Rent expense under these leases amounted to approximately
$1,557,633, $1,805,000 and $1,625,000 in each of the three years ended December
31, 1999, 1998 and 1997 respectively.
Future minimum lease payments under capital and operating leases were as follows
at December 31, 1999:
<TABLE>
Capital Operating
(in thousands) Leases Leases
- -------------- ------- ---------
<S> <C> <C>
2000 357 1,198
2001 329 337
2002 244 150
2003 66 139
2004 and beyond - 342
---- ------
996 $2,166
======
Less amount representing interest 143
----
Present value of future minimum lease payments $853
====
</TABLE>
F-13
<PAGE> 63
F-14
11. LONG-TERM DEBT
Long term debt at December 31 consisted of:
<TABLE>
(in thousands) 1999 1998
- -------------- ------ ------
<S> <C> <C>
Mortgages secured by the NWL building with
principal and 8.1% interest payable in monthly
installments through March 2005 $ 346 $ 419
Unsecured Bavarian Development Agency loans
to NWL with principal and 5.2% interest due
September through December 2003 516 905
Other -- 369
------ ------
$ 862 $1,693
====== ======
</TABLE>
For each of the five years and beyond, long-term obligations are:
<TABLE>
Long-term debt
(in thousands) (Principal only)
- -------------- ----------------
<S> <C>
2001 26
2002 28
2003 537
2004 21
2005 and beyond 250
-----
$ 862
=====
</TABLE>
12. SHAREHOLDERS' EQUITY
The Company has 25,000,000 shares of no par value common stock authorized. In
addition, the Company has authorized 5,000,000 shares of undesignated preferred
stock with rights, preferences and privileges to be determined by the Company's
Board of Directors.
Private Placement of Common Stock
On December 30, 1999, Laserscope completed the first closing of a private
placement of common stock. In the transaction, the company issued 1,505,000
shares to accredited investors in exchange for proceeds (net of offering
expenses) of $1.0 million.
1994 and 1984 Stock Option Plans
During 1994 and 1984, the Company adopted stock option plans under which the
Board of Directors may grant incentive stock options to purchase shares of
common stock to employees of the Company at a price not less than the fair value
of the shares as of the date of grant. The Board of Directors may also grant
non-statutory stock options to employees and consultants, including directors
who serve as employees or consultants, at not less than 85% of the fair market
value of the shares as of the date of grant. Options issued pursuant to the 1984
plan vest and become exercisable over periods of up to five years and expire
five to ten years after the date of grant. Options issued pursuant to the 1994
plan vest and become exercisable over periods of up to four years and expire
five years after the date of grant.
F-14
<PAGE> 64
The 1984 Stock Option Plan expired by its terms with respect to any future
option grants effective in August 1994. At December 31, 1999, the 1984 Stock
Option Plan had options to purchase 247,931 shares of common stock outstanding,
all of which were exercisable.
The Company has reserved 2,750,000 shares of common stock of which there were
376,273 shares available for issuance pursuant to its 1994 stock option plan as
of December 31, 1999.
In 1998, the Company allowed employees to cancel outstanding options with
exercise prices greater than $2.00 per share that had been granted under the
1994 plan and replace them with new grants for a like number with the same
exercisability restrictions at the fair market value of the common stock at the
date of grant. None of these options had previously been repriced. Employees
elected to cancel and receive new grants to purchase an aggregate of 1,266,400
shares at an exercise price of $1.28. These options are included in the
cancellations and grants in 1998 in the table that summarizes plan activity for
the years ended December 31, 1999, 1998 and 1997.
1999 Retention Stock Option Plan
During 1999, the Company adopted a stock option plan under which the Board of
Directors may grant non-statutory options to purchase shares of common stock to
non-officer employees of the Company at a price not less than the fair value of
the shares as of the date of grant. Options issued pursuant to the 1999 plan
vest and become exercisable over periods of up to four years and expire five
years after the date of grant.
The Company has reserved 698,000 shares of common stock of which there were
76,000 shares available for issuance pursuant to its 1999 stock option plan as
of December 31, 1998
Directors' Stock Option Plans
The Company has reserved 600,000 shares of its common stock for issuance
pursuant to its 1999 and 1995 Directors' Stock Option Plans in aggregate. Under
these plans, non-employee directors of the Company have been granted options to
purchase up to 105,000 shares (45,000 shares pursuant to the1995 plan and 60,000
shares pursuant to the 1999 plan) of the Company's common stock exercisable at
the fair market value of such shares on the respective grant dates. Options
issued pursuant to these plans vest and become exercisable over three years from
the respective original date of issuance with respect to each optionee who
remains a director and expire five to ten years after the date of grant. There
were 225,000 shares available in aggregate for issuance pursuant to the 1995 and
1999 Directors' Stock Option Plans at December 31, 1999.
F-15
<PAGE> 65
The following table summarizes activity in the Company's stock option plans
during the years ended December 31, 1999, 1998 and 1997:
<TABLE>
Options Weighted Average
Outstanding Exercise Price
----------- ----------------
<S> <C> <C>
Balance, December 31, 1996 2,361,731 $3.84
Granted 715,600 $5.82
Exercised (374,661) $4.65
Canceled (274,273) $5.73
---------- -----
Balance, December 31, 1997 2,428,397 $4.08
Granted 1,872,927 $1.41
Exercised (53,960) $2.22
Canceled (1,632,047) $4.37
---------- -----
Balance, December 31, 1998 2,615,317 $2.03
Granted 1,508,553 $1.36
Exercised (28,685) $1.26
Canceled (651,207) $2.23
---------- -----
Balance, December 31, 1999 3,443,978 $1.70
</TABLE>
The following table displays a summary of relevant ranges of exercise prices for
options outstanding and options exercisable for the Company's stock option plans
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------- --------------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.94 - $1.25 978,150 4.65 $1.17 86,434 $1.25
$1.28 - $1.31 1,087,169 2.33 $1.28 684,760 $1.28
$1.50 584,400 5.66 $1.50 50,540 $1.50
$2.00 473,029 2.10 $2.00 473,008 $2.00
$2.31 - $5.88 321,230 2.27 $4.68 302,861 $4.83
------------- --------- ---- ----- --------- -----
$0.94 - $5.88 3,443,978 3.52 $1.70 1,597,603 $2.17
============= ========= ==== ===== ========= =====
</TABLE>
F-16
<PAGE> 66
1989 and 1999 Employee Stock Purchase Plans
During 1989 and 1999, the Company adopted Employee Stock Purchase Plans under
which qualified employees can purchase up to a specified maximum amount of the
Company's common stock through payroll deduction at 85% of its fair market
value. In July 1999, the Company's 1989 Employee Stock Purchase Plan expired by
its term and at its expiration date, approximately 650,000 shares had been
purchased under this plan. Laserscope has reserved 100,000 shares of common
stock, for issuance pursuant to its 1999 Employee Stock Purchase Plan. Under
this plan, At December 31, 1999, approximately 77,000 shares had been purchased
under this plan.
SFAS 123 Disclosure
The Company follows the intrinsic value method to account for its employee stock
options because, as discussed below, the alternative fair value accounting
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under the intrinsic value method when the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The fair value for Company employee stock options granted subsequent to December
13, 1994 was estimated at the date of grant using a Black-Scholes multiple
option pricing model with the following weighted average assumptions:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 5.47% 4.74% 5.98%
Dividend yield -- -- --
Weighted average expected
volatility factor 1.15 1.08 1.00
Expected life (in years) 3.57 3.70 4.00
</TABLE>
F-17
<PAGE> 67
The fair value of the employees' purchase plan rights using the Black-Scholes is
estimated using the following assumptions:
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 4.79% 5.16% 5.41%
Dividend yield -- -- --
Weighted average expected
volatility factor 1.31 0.70 1.00
Expected life (in years) 0.50 0.50 0.50
</TABLE>
The weighted average fair values of those purchase rights granted in 1999, 1998
and 1997 were $0.62, $0.63 and $1.81, respectively.
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 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 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.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, the Company's net loss and net
loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
(in thousands, except per share data) 1999 1998 1997
- ------------------------------------- ------- -------- -------
<S> <C> <C> <C>
Pro forma net loss $(9,236) $(11,150) $(2,202)
Pro forma basic and diluted loss per share $ (0.73) $ (0.90) $ (0.18)
</TABLE>
1991 Shareholder Rights Plan
In November 1991, the Company adopted a shareholder rights plan and distributed
a dividend of one right to purchase one share of common stock (a "Right") for
each outstanding share of common stock of the Company. The Rights become
exercisable in certain limited circumstances involving a potential business
combination transaction of the Company and are initially exercisable at a price
of $34 per share. Following certain other events after the Rights have become
exercisable, each Right entitles its
F-18
<PAGE> 68
holder to purchase for $34 an amount of common stock of the Company, or in
certain circumstances, securities of the acquiror, having a then current market
value of twice the exercise price of the Right. The Rights are redeemable at the
Company's option at $0.01 per Right before they become exercisable. Until a
Right is exercised, the holder of a Right, as such, has no rights as a
shareholder of the Company. The Rights expire on November 20, 2001.
13. EMPLOYEE SAVINGS AND INVESTMENT PLAN
In October 1989, the Company adopted a 401(k) savings and investment plan which
covers all employees. The Company has matched 50% of employee contributions to
the plan up to 5% of each employee's base compensation. Laserscope's matching
contributions were approximately $213,000, $260,000 and $257,000 in the years
ended December 31, 1999, 1998 and 1997, respectively.
14. INCOME TAXES
Significant components of the provision for income taxes were as follows (in
thousands):
<TABLE>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current federal taxes $ -- $ -- $ 20
Current state taxes -- -- 80
Current foreign taxes 13 184 270
---- ---- ----
Provision for income taxes $ 13 $184 $370
==== ==== ====
</TABLE>
Pretax loss from foreign operations was $501,000 in 1999, income of $395,000 and
a loss of $362,000, in 1998 and 1997, respectively.
Income taxes differ from the amount computed by applying the statutory federal
income tax rate of 35% to income (loss) before taxes. The reasons for the
differences and the tax effect of each are as follows (in thousands):
<TABLE>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed expected tax $(2,683) $(3,306) $ (126)
Operating loss with no carryback benefit 2,745 3,489 371
State taxes -- -- 80
Benefit of net operating loss carryforward (117) (68) (86)
Foreign taxes in excess of U.S. rate 13 64 107
Other 55 5 24
------- ------- -------
Provision for income taxes $ 13 $ 184 $ 370
======= ======= =======
</TABLE>
F-19
<PAGE> 69
The components of the deferred tax asset consisted of the following at December
31, 1999 and 1998(in thousands):
<TABLE>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 8,319 $ 7,100
General business credit carryforwards 1,701 1,310
Inventory reserves and adjustments 2,191 2,600
Other accruals and reserves not
currently deductible for tax purposes 1,734 1,062
Acquired intangibles 704 400
Other 1,074 1,078
-------- --------
Total deferred tax assets 15,723 13,550
Valuation for deferred tax assets (15,723) (13,550)
-------- --------
Deferred tax asset -- --
Deferred tax liabilities
Acquired intangibles -- --
-------- --------
Net deferred tax assets $ -- $ --
======== ========
</TABLE>
Because of the Company's lack of earnings history, the net deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $2,173,000 in 1999 and by $5,650,000 in 1998. Approximately
$820,000 of the valuation allowance is attributed to stock option deductions,
the benefit of which will be credited to paid-in-capital when realized.
For federal tax purposes, the Company has net operating losses and tax credits
of approximately $19,300,000 and $770,000 respectively, which expire in the
years 2000 through 2020. The Company also has net operating losses and tax
credit carry forwards of approximately $2,400,000 and $800,000, respectively,
for state tax reporting purposes. The state net operating loss will expire in
the years 2000 through 2005.
The availability of the Company's net operating loss and tax credit
carryforwards may be subject to a substantial limitation if it should be
determined that there has been a change in ownership of more than 50 percent of
the value of the Company's stock over a three year period.
F-20
<PAGE> 70
15. FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATIONS OF CREDIT RISK
The Company's trade receivables are made up of amounts due from its health care
industry customers, primarily in the United States, Europe and the Pacific Rim.
Any concentration of credit risk is reduced by the Company's
credit evaluation and collection practices and the relative lack of
concentration as well as geographical dispersion of customer accounts comprising
its accounts receivable. Bad debt expense has been insignificant.
The Company also has an Investment Policy approved by its Board of Directors
related to its short-term cash investment practices. That policy limits the
amount of credit exposure to any one financial institution and restricts
investments to certain types of financial instruments based on specified credit
criteria.
16. CONTINGENCIES
The Company is a party to a number of legal proceedings arising in the ordinary
course of its business. These actions may include product liability and
employee-related issues. While it is not feasible to predict or determine the
outcome of the actions brought against it, the Company believes that the
ultimate resolution of these claims will not ultimately have a material adverse
effect on its financial position or results of operations.
In 1997, a medical malpractice and product liability suit was filed against a
hospital, two physicians and Laserscope relating to a laser manufactured by
Heraeus Surgical, Inc. which was acquired by Laserscope in August 1996. Although
a trial date has been set, the Company is currently pursuing mediation through
an independent third party. While there can be no assurance as to the ultimate
disposition of the case, the Laserscope does not believe the outcome of the case
will have a material adverse impact on the Company's financial position or
results of operations.
17. SUBSEQUENT EVENTS
Final Closing of Private Placement of Common Stock
On January 14, 2000, the Company completed the final closing of a private
placement of common stock. In the transaction the Company received approximately
$1.8 million, net of issuance costs (of which approximately $1.0 million was
received on December 30, 1999) in exchange for 2.5 million shares of common
stock, including placement agent commission shares. In addition, the Company
issued warrants to purchase 218,875 shares of the Company's common stock at
$1.25 per share. The warrants expire in January 2005.
F-21
<PAGE> 71
Issuance of Subordinate Convertible Debentures
On February 14, 2000, the Company concluded a private placement of subordinate
convertible debentures. In the transaction, the Company received approximately
$2.9 million, net of expenses, in exchange for subordinate convertible
debentures which bear interest at a rate of 8% and which are convertible into
common stock of the Company at an initial conversion price of $1.25 per share.
In addition, the Company issued warrants to purchase approximately 240,000
shares of the Company's common stock at $1.50 per share. The warrants expire in
February 2005.
Pending Sale of NWL Laser-Technologie, GmbH
On February 18, 2000, the Company signed an agreement with Wavelight Laser
Technologie AG to sell its interest in NWL Laser-Technologie, GmbH. The sale,
which is pending Wavelight shareholder approval, which the Company expects to
occur on March 31, 2000, would have an effective date of January 1, 2000. As
part of the transaction, NWL would continue to distribute Laserscope's products
in all countries covered by NWL's current distribution channels. The transaction
is expected to net approximately $4.0 million in cash to Laserscope and is not
expected to generate a material gain or loss when reported in Laserscope's first
quarter 2000.
F-22
<PAGE> 72
SCHEDULE II
LASERSCOPE
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning End
Descriptions of Period Additions Deductions of Period
------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable:
Year ended December 31, 1997 $700 $100 $ -- $800
==== ==== ==== ====
Year ended December 31, 1998 $800 $161 $436 $525
==== ==== ==== ====
Year ended December 31, 1999 $525 $226 $ -- $751
==== ==== ==== ====
</TABLE>
<PAGE> 73
<TABLE>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Acquisition Agreement between Laserscope and
Heraeus Med GmbH.(12)
2.1A Amendment Number One to Acquisition Agreement
between Laserscope and Heraeus Med GmbH.(14)
3.3 Seventh Amended and Restated Articles of
Incorporation of Registrant.(1)
3.4 By-laws of Registrant, as amended.(4)
4.1 Common Shares Rights Agreement dated as of
October 31, 1991 between Laserscope and American
Stock Transfer & Trust Company as Rights
Agent.(9)
4.1A First Amendment to Common Shares Rights
Agreements between the Company and American
Stock Transfer & Trust Company as Rights Agent
dated as of April 22, 1996.(10)
4.1B Second Amendment to Common Shares Rights
Agreement between the Company and American Stock
Transfer & Trust Company as Rights Agent dated
as of August 6, 1996.(11)
10.1A 1984 Stock Option Plan, as amended, and forms of
Incentive Stock Option Agreement and
Nonstatutory Stock Option Agreement.(4)
10.1B 1994 Stock Option Plan and forms of Incentive
Stock Option Agreement and Nonstatutory Stock
Option Agreement.(7)
10.2 1984 Stock Purchase Plan and form of Common
Stock Purchase Agreement.(2)
10.3 1989 Employee Stock Purchase Plan and form of
Subscription Agreement.(4)
10.3A 1999 Employee Stock Purchase Plan and form of
Subscription Agreement.(19)
10.4 401(k) Plan.(2)
10.6 Net Lease Agreement between the Registrant and
Realtec Properties dated October 7, 1987.(2)
10.6A Amendment No. 1 dated January 18, 1990 to Net
Lease Agreement between the Registrant and
Realtec Properties dated October 7, 1987.(2)
</TABLE>
<PAGE> 74
<TABLE>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.6B Net Lease Agreement between Registrant and
Realtec Properties dated December 14, 1989.(2)
10.6C Net Lease Agreement between Registrant and
Realtec Properties dated June 25, 1990.(3)
10.6D Amendment No. 2 dated November 10, 1992 to Net
Lease Agreement between Registrant and Realtec
Properties dated October 7, 1987.(5)
10.6E Amendment No. 3 dated April 19, 1994 to Net
Lease Agreement between Registrant and Realtec
Properties dated October 7, 1987.(6)
10.6F Amendment No. 1 dated April 19, 1994 to Net
Lease Agreement between Registrant and Realtec
Properties dated June 25, 1990.(6)
10.6G Amendment No. 1 dated April 19, 1994 to Net
Lease Agreement between Registrant and Realtec
Properties dated December 14, 1989.(7)
10.10 Form of indemnification agreement.(2)
10.11 Amended and Restated Loan and Security Agreement
between the Registrant and Silicon Valley Bank
Dated November 23, 1996.(13)
10.11A Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated
November 26, 1997.(14)
10.11B Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated March
18, 1998.(14)
10.11C Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated
September 3, 1998.(16)
10.11D Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated
November 25, 1998.(17)
10.11E Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated March
17, 1999.(17)
10.11F Loan Modification Agreement between the
Registrant and Silicon Valley Bank dated March
30, 1999.(18)
10.11G Loan and Security Agreement between the
Registrant and Silicon Valley Bank dated October
1, 1999.(19)
10.13 1990 Directors' Stock Option Plan and form of
Option Agreement.(4)
</TABLE>
<PAGE> 75
<TABLE>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.14.1 Form of Laserscope Management Continuity
Agreement, as amended.(15)
10.18 1995 Directors' Stock Option Plan and form of
Option agreement.(8)
10.18A 1999 Director's Stock Option Plan.(19)
10.19 Common Stock Placement Agreement.(19)
10.19A Form of Common Stock Purchase Agreement.(19)
10.20 Convertible Loan Agreement.(19)
22.1 Subsidiaries of Registrant, as amended.(14)
23.1 Consent of Ernst & Young LLP, Independent
Auditors.(19)
25.1 Power of Attorney (see pages 48 through 49).(19))
27.1 Financial Data Schedule.(19)
</TABLE>
Reports on Form 8-K:
On February 10, 2000 the Company filed a Form 8-K referring to a press release
it had issued on January 18, 2000 announcing that it had completed a private
placement of common stock providing net proceeds to the Company of approximately
$1.8 million. The placement of common stock to accredited investors was managed
by Taglich Brothers Inc.
On March 1, 2000 the Company filed a Form 8-K referring to a press release it
had issued on February 22, 2000 announcing that it had completed a private
placement of subordinate convertible debentures providing net proceeds to the
Company of approximately $2.9 million. The placement to affiliates of
Renaissance Capital Group, Inc., was managed by Taglich Brothers Inc.
- --------------
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits," of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the Registrant's Registration
Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto
(File No. 33-31689), which became effective on November 29, 1989.
<PAGE> 76
(3) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990.
(4) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991.
(5) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
(6) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1994.
(7) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994.
(8) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K/A for the year ended December 31, 1995.
(9) Incorporated by reference to Exhibit 1 of the Registrant's Registration
Statement on Form 8-A filed November 15, 1991.
(10) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996.
(11) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", the Company's Form 8-A/A filed
September 4, 1996.
(12) Incorporated by reference to Exhibit A to the Definitive Proxy Statement
for the Special Meeting of Shareholders held August 29, 1996.
(13) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K/A for the year ended December 31, 1996.
(14) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K/A for the year ended December 31, 1997.
<PAGE> 77
(15) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1998.
(16) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998.
(17) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a)(3), "Exhibits", of the Registrant's Annual Report
on Form 10-K/A for the year ended December 31, 1998.
(18) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits", of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1999.
(19) Filed herewith
<PAGE> 1
EXHIBIT 10.3A
LASERSCOPE
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of Laserscope:
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the Common Stock of the Company.
(d) "COMPANY" means Laserscope, a California corporation.
(e) "COMPENSATION" means all regular straight time gross earnings,
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses and commissions (except to the extent that the exclusion of
any such items for all participants is specifically directed by the Board or its
committee).
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "CONTRIBUTIONS" means all amounts credited to the account of a
participant pursuant to the Plan.
(h) "CORPORATE TRANSACTION" means a sale of all or substantially
all of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan; provided however that the Board shall only
have the discretion to designate Subsidiaries if
<PAGE> 2
the issuance of options to such Subsidiary's Employees pursuant to the Plan
would not cause the Company to incur adverse accounting charges.
(j) "EMPLOYEE" means any person, including an Officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "OFFERING DATE" means the first business day of each Offering
Period of the Plan, except that, in the case where employees enroll in the plan
after the first business day of the Offering Period, the Offering Date shall
mean the first business day after the first Purchase Date of the Offering
Period.
Options granted on the first business day after the first
Purchase Date of the Offering Period will be subject to the same terms as the
option granted on the first business day of the Offering Period except that they
will have a different grant date (thus, potentially a different exercise price)
and, because they expire at the same time as the options granted on the first
business day of the such Offering Period, a shorter term.
(m) "OFFERING PERIOD" means a period of twelve (12) months
commencing on July 1 of each year, or, subject to the provisions of paragraph
11, a period of six (6) months commencing on or about January 1 of each year.
(n) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "PLAN" means this 1999 Employee Stock Purchase Plan.
(p) "PURCHASE DATE" means the last day of each Purchase Period of
the Plan.
(q) "PURCHASE PERIOD" means a period of six (6) months within an
Offering Period.
(r) "PURCHASE PRICE" means with respect to a Purchase Period an
amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below)
of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) of any
shareholder-approved increase in the number of Shares available for issuance
under the Plan, and (ii) all or a portion of such additional Shares are to be
issued with respect to one or more Offering Periods that are underway at the
time of such increase ("Additional Shares"), and (iii) the Fair Market Value of
a Share of Common Stock on the date of such increase (the "Approval Date Fair
Market Value") is higher than the Fair Market Value on the Offering Date for any
such Offering Period, then in such instance the Purchase Price with respect to
Additional Shares shall be 85% of the Approval Date Fair Market Value or the
Fair Market Value of a Share of Common Stock on the Purchase Date, whichever is
lower.
<PAGE> 3
(s) "SHARE" means a share of Common Stock, as adjusted in
accordance with Section 19 of the Plan.
(t) "SUBSIDIARY" means a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. ELIGIBILITY.
(a) Any person who is an Employee as of the Offering Date of a
given Offering Period shall be eligible to participate in such Offering Period
under the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
(a) OFFERING PERIODS. The Plan shall be implemented by a series of
Offering Periods of twelve (12) months' duration, with new Offering Periods
commencing on or about July 1 of each year (or at such other time or times as
may be determined by the Board of Directors; or, subject to the provisions of
paragraph 11, a period of six (6) months commencing on or about January 1 of
each year). The first Offering Period shall commence on July 1, 1999. The Plan
shall continue until terminated in accordance with Section 19 hereof. The Board
of Directors of the Company shall have the power to change the duration and/or
the frequency of Offering Periods with respect to future offerings without
shareholder approval if such change is announced at least five (5) business days
prior to the scheduled beginning of the first Offering Period to be affected.
(b) PURCHASE PERIODS. Each Offering Period shall consist of two
(2) consecutive purchase periods of six (6) months' duration. The last day of
each Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on July 1 shall end on the next December 31. A
Purchase Period commencing on January 1 shall end on the next June 30. The first
Purchase Period shall commence on July 1, 1999 and shall end on December 31,
1999. The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without shareholder
<PAGE> 4
approval if such change is announced at least five (5) business days prior to
the scheduled beginning of the first Purchase Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's Human Resources Department no later than five (5)
business days prior to the applicable Offering Date, unless a later time for
filing the subscription agreement is set by the Board for all eligible Employees
with respect to a given Offering Period. The subscription agreement shall set
forth the percentage of the participant's Compensation (subject to Section 6(a)
below) to be paid as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll
following the Offering Date and shall end on the last payroll paid on or prior
to the last Purchase Period of the Offering Period to which the subscription
agreement is applicable, unless sooner terminated by the participant as provided
in Section 10.
6. METHOD OF PAYMENT OF CONTRIBUTIONS.
(a) A participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent
(1%) and not more than ten percent (10%) (or such greater percentage as the
Board may establish from time to time before an Offering Date) of such
participant's Compensation on each payday during the Offering Period. All
payroll deductions made by a participant shall be credited to his or her account
under the Plan. A participant may not make any additional payments into such
account.
(b) A participant may discontinue his or her participation in the
Plan as provided in Section 10, or, on one occasion only during a Purchase
Period may increase or decrease the rate of his or her Contributions with
respect to the Purchase Period by completing and filing with the Company a new
subscription agreement authorizing a change in the payroll deduction rate. The
change in rate shall be effective as of the beginning of the next payroll period
following the date of filing of the new subscription agreement, if the agreement
is filed at least five (5) business days prior to such date and, if not, as of
the beginning of the next succeeding payroll period.
(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
participant's payroll deductions may be decreased during any Offering Period
scheduled to end during the current calendar year to 0% at such time that the
aggregate of all payroll deductions accumulated with respect to such Offering
Period and any other Offering Period ending within the same calendar year equal
$21,250. Payroll deductions shall re-commence at the rate provided in such
participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
<PAGE> 5
7. GRANT OF OPTION.
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however that the maximum number of
Shares an Employee may purchase during each Offering Period shall be determined
at the Offering Date by dividing $25,000 by the fair market value of a share of
the Company's Common Stock on the Offering Date, and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Purchase Date of
each Offering Period, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the Shares purchased
upon exercise of his or her option. Any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full Share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 below. Any other amounts left over in a participant's account after a
Purchase Date shall be returned to the participant.
10. VOLUNTARY WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by submitting a completed "Notice of Withdrawal" form to the
Company's Human Resources Department. All of the participant's Contributions
credited to his or her account will be paid to him or her promptly after receipt
of his or her notice of withdrawal and his or her option for the current
<PAGE> 6
period will be automatically terminated, and no further Contributions for the
purchase of Shares will be made during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status
as an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC WITHDRAWAL. If the Fair Market Value of the Shares on the
first Purchase Date of an Offering Period is less than the Fair Market Value of
the Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in a six-month Offering Period commencing on the first
business day subsequent to such Purchase Period.
12. INTEREST. No interest shall accrue on the Contributions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
100,000 Shares. If the Board determines that, on a given Purchase Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Offering Date of the applicable Offering Period, or (ii) the number
of shares available for sale under the Plan on such Purchase Date, the Board may
in its sole discretion provide (x) that the Company shall make a pro rata
allocation of the Shares of Common Stock available for purchase on such Offering
Date or Purchase Date, as applicable, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Purchase Date, and continue all Offering Periods then in effect, or (y) that the
Company shall make a pro rata allocation of the shares available for purchase on
such Offering Date or Purchase Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Purchase Date, and terminate any or all Offering Periods then in effect
pursuant to Section 20 below. The Company may make pro rata allocation of the
Shares available on the
<PAGE> 7
Offering Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's shareholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in
Shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any Shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end of
a Purchase Period but prior to delivery to him or her of such Shares and cash.
In addition, a participant may file a written designation of a beneficiary who
is to receive any cash from the participant's account under the Plan in the
event of such participant's death prior to the Purchase Date of an Offering
Period. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant (and his or her spouse, if any) at any time by written notice. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such Shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. TRANSFERABILITY. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
17. USE OF FUNDS. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.
<PAGE> 8
18. REPORTS. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the shareholders
of the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per Share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock (including any such change
in the number of Shares of Common Stock effected in connection with a change in
domicile of the Company), or any other increase or decrease in the number of
Shares effected without receipt of consideration by the Company; provided
however that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares subject to an
option.
(b) CORPORATE TRANSACTIONS. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or Subsidiary of
such successor corporation. In the event that the successor corporation refuses
to assume or substitute for outstanding options, each Purchase Period and
Offering Period then in progress shall be shortened and a new Purchase Date
shall be set (the "New Purchase Date"), as of which date any Purchase Period and
Offering Period then in progress will terminate. The New Purchase Date shall be
on or before the date of consummation of the transaction and the Board shall
notify each participant in writing, at least ten (10) days prior to the New
Purchase Date, that the Purchase Date for his or her option has been changed to
the New Purchase Date and that his or her option will be exercised automatically
on the New Purchase Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 10. For purposes of this Section 19,
an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to the transaction, the
holder of the number of Shares of Common Stock covered by the option at such
time (after giving effect to any
<PAGE> 9
adjustments in the number of Shares covered by the option as provided for in
this Section 19); provided however that if the consideration received in the
transaction is not solely common stock of the successor corporation or its
parent (as defined in Section 424(e) of the Code), the Board may, with the
consent of the successor corporation, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in Fair Market Value to the per Share
consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION.
(a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 19, no such termination of the
Plan may affect options previously granted, provided that the Plan or an
Offering Period may be terminated by the Board on a Purchase Date or by the
Board's setting a new Purchase Date with respect to an Offering Period and
Purchase Period then in progress if the Board determines that termination of the
Plan and/or the Offering Period is in the best interests of the Company and the
shareholders or if continuation of the Plan and/or the Offering Period would
cause the Company to incur adverse accounting charges as a result of a change
after the effective date of the Plan in the generally accepted accounting rules
applicable to the Plan. Except as provided in Section 19 and in this Section 20,
no amendment to the Plan shall make any change in any option previously granted
which adversely affects the rights of any participant. In addition, to the
extent necessary to comply with Rule 16b-3 under the Exchange Act, or under
Section 423 of the Code (or any successor rule or provision or any applicable
law or regulation), the Company shall obtain shareholder approval in such a
manner and to such a degree as so required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
<PAGE> 10
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon
approval by the Company's shareholders. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 20.
24. ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
<PAGE> 11
LASERSCOPE
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
Laserscope 1999 Employee Stock Purchase Plan (the "Plan") for the Offering
Period ______________, ____ to _______________, ____, and subscribe to purchase
shares of the Company's Common Stock in accordance with this Subscription
Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 10% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the
Purchase Date my participation in the Plan as provided in Section 10 of the
Plan. I also understand that I can increase or decrease the rate of my
Contributions on one occasion only during any Purchase Period by completing and
filing a new Subscription Agreement with such increase or decrease taking effect
as of the beginning of the payroll period following the date of filing of the
new Subscription Agreement, if filed at least five (5) business days prior to
the beginning of such payroll period. Further, I may change the rate of
deductions for future Offering Periods by filing a new Subscription Agreement,
and any such change will be effective as of the beginning of the next Offering
Period. In addition, I acknowledge that, unless I discontinue my participation
in the Plan as provided in Section 10 of the Plan, my election will continue to
be effective for each successive Offering Period.
5. I have received a copy of the Company's most recent description of
the Plan and a copy of the complete "Laserscope 1999 Employee Stock Purchase
Plan." I understand that my participation in the Plan is in all respects subject
to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the
name(s) of (name of employee or employee and spouse only):
<PAGE> 12
-------------------------------------
-------------------------------------
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print)
-------------------------------------
(First) (Middle) (Last)
- ------------------------------------- -------------------------------------
(Relationship) (Address)
-------------------------------------
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
date of any such disposition, and I will make adequate provision for federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the
2-year and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received compensation income only to the
extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares under the option, or (2) 15% of the fair market
value of the shares on the Offering Date. The remainder of the gain or loss, if
any, recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
change. I further understand that I should consult a tax advisor concerning the
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
<PAGE> 13
SIGNATURE:
---------------------------
SOCIAL SECURITY #:
-------------------
DATE:
--------------------------------
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
- -------------------------------------
(Signature)
- -------------------------------------
(Print name)
<PAGE> 14
LASERSCOPE
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation
in the Laserscope 1999 Employee Stock Purchase Plan (the "Plan") for the
Offering Period that began on _________ ___, _____. This withdrawal covers all
Contributions credited to my account and is effective on the first day of the
payroll period commencing after I submit this form to the Company's Human
Resources Department.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:
---------------------------- -------------------------------------
Signature of Employee
-------------------------------------
Social Security Number
<PAGE> 1
EXHIBIT 10.11G
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWER: LASERSCOPE
ADDRESS: 3052 ORCHARD DRIVE
SAN JOSE, CALIFORNIA 95134
DATE: OCTOBER 1, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above
(jointly and severally, the "Borrower"), whose chief executive office is located
at the above address ("Borrower's Address"). The Schedule to this Agreement (the
"Schedule") shall for all purposes be deemed to be a part of this Agreement, and
the same is an integral part of this Agreement. (Definitions of certain terms
used in this Agreement are set forth in Section 8 below.)
<PAGE> 2
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing, and subject to deduction of any Reserves for accrued
interest and such other Reserves as Silicon deems proper from time to time.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon. Regardless of the amount of
Obligations that may be outstanding from time to time, Borrower shall pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").
1.3 OVERADVANCES. * If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
*EXCEPT AS PROVIDED IN THE SCHEDULE,
1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Silicon and are
not refundable.
1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its
sole discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost, expense, or liability, including payments made by
Silicon, expenses, and reasonable attorneys' fees incurred by Silicon arising
out of or in connection with any Letters of Credit. Borrower agrees to be bound
by the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto. Borrower understands that
Letters of Credit may require Silicon to indemnify the issuing bank for certain
costs or liabilities arising out of claims by Borrower against such issuing
bank. Borrower hereby agrees to indemnify and hold Silicon harmless with respect
to any loss, cost, expense, or liability incurred by Silicon under any Letter of
Credit as a result of Silicon's indemnification of any such issuing bank. The
provisions of this Loan Agreement, as it pertains to Letters of Credit, and any
other present or future documents or agreements between Borrower and Silicon
relating to Letters of Credit are cumulative.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of
the Obligations when due, Borrower hereby grants to Silicon a security interest
in all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located: All Inventory, Equipment, Receivables, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Silicon's possession (including claims and credit balances), and all proceeds
(including proceeds of any insurance policies, proceeds of proceeds and claims
against third parties), all products and all books and records related to any of
the foregoing (all of the foregoing, together with all other property in which
Silicon may now or in the future be granted a lien or security interest, is
referred to herein, collectively, as the "Collateral").
<PAGE> 3
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is
and will continue to be, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule*. Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
* EXCEPT FOR (i) COLLATERAL AT OTHER LOCATIONS IN THE ORDINARY COURSE OF
BUSINESS, THE TOTAL VALUE OF WHICH COLLATERAL DOES NOT, AT ANY ONE TIME, EXCEED
$100,000, AND (ii) COLLATERAL WHICH, IN THE ORDINARY COURSE OF BUSINESS, IS IN
THE POSSESSION OF SALES AND SERVICE PEOPLE AND IN WAREHOUSES, WHICH COLLATERAL
SHALL BE IDENTIFIED IN WRITTEN REPORTS FROM BORROWER TO SILICON, WHICH BORROWER
SHALL PROVIDE TO SILICON MONTHLY AND FROM TIME TO TIME ON SILICON'S REQUEST.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. Borrower is not and will not become a lessee under any real property
lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises. Borrower will keep in full force and effect, and will comply with all
the terms of, any lease of real property where any of the Collateral now or in
the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Silicon have been, and will be,
prepared in conformity with generally accepted accounting principles and now and
in the future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last date
covered by any such statement provided to Silicon and the date hereof, there has
been no material adverse change in the financial condition or business of
Borrower. Borrower is now and will continue to be solvent.
<PAGE> 4
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Silicon as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and endorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Silicon transaction reports and loan requests, schedules and
assignments of all Receivables, and schedules of collections, all on Silicon's
standard forms; provided, however, that Borrower's failure to execute and
deliver the same shall not affect or limit Silicon's security interest and other
rights in all of Borrower's Receivables, nor shall Silicon's failure to advance
or lend against a specific Receivable affect or limit Silicon's security
interest and other rights therein. Loan requests received after 12:00 Noon will
not be considered by Silicon until the next Business Day. Together with each
such schedule and assignment, or later if requested by Silicon, Borrower shall
furnish Silicon with copies (or, at Silicon's request, originals) of all
contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Silicon an aged accounts receivable trial balance
in such
<PAGE> 5
form and at such intervals as Silicon shall request. In addition, Borrower shall
deliver to Silicon the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, immediately upon receipt thereof and in the same form as
received, with all necessary indorsements, all of which shall be with recourse.
Borrower shall also provide Silicon with copies of all credit memos within two
days after the date issued.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered, in kind, by Borrower to Silicon in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred, Borrower shall not be obligated to remit to Silicon the
proceeds of the sale of worn out or obsolete equipment disposed of by Borrower
in good faith in an arm's length transaction for an aggregate purchase price of
$25,000 or less (for all such transactions in any fiscal year). Borrower agrees
that it will not commingle proceeds of Collateral with any of Borrower's other
funds or property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for Silicon. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount (sending a copy to Silicon). In the event any attempted
return occurs after the occurrence of any Event of Default, Borrower shall (i)
hold the returned Inventory in trust for Silicon, (ii) segregate all returned
Inventory from all of Borrower's other property, (iii) conspicuously label the
returned Inventory as Silicon's property, and (iv) immediately notify Silicon of
the return of any Inventory, specifying the reason for such return, the location
and condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Silicon may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Receivables, by means of mail, telephone or otherwise, either in the name
of Borrower or Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
a Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Silicon be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Silicon from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably
<PAGE> 6
require, and Borrower shall provide evidence of such insurance to Silicon, so
that Silicon is satisfied that such insurance is, at all times, in full force
and effect. All such insurance policies shall name Silicon as an additional loss
payee, and shall contain a lenders loss payee endorsement in form reasonably
acceptable to Silicon. Upon receipt of the proceeds of any such insurance,
provided no Default or Event of Default has occurred and is continuing, Silicon
shall release to Borrower insurance proceeds, which shall be utilized by
Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. Silicon may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance, Silicon may, but is not obligated to, obtain the same at
Borrower's expense. Borrower shall promptly deliver to Silicon copies of all
reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time reasonably
specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one Business Day's notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $600 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter into
any other transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral, except for the sale of finished Inventory in the
ordinary course of Borrower's business, and except for the sale of obsolete or
unneeded Equipment in the ordinary course of business; (v) store any Inventory
or other Collateral with any warehouseman or other third party*; (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis; (vii) make any loans of any money or other assets; (viii) incur any
debts, outside the ordinary course of business, which would have a material,
adverse effect on Borrower or on the prospect of repayment of the Obligations;
(ix) guarantee or otherwise become liable with respect to the obligations of
another party or entity; (x) pay or declare any dividends on Borrower's stock
(except for dividends payable solely in stock of Borrower**); (xi) redeem,
retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's
stock; (xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or (xiii) pay total compensation, including salaries, fees,
bonuses, commissions, and all other payments, whether directly or indirectly, in
money or otherwise, to Borrower's executives, officers and directors (or any
relative thereof) in an amount in excess of the amount set forth on the
Schedule; or (xiv) dissolve or elect to dissolve. Transactions permitted by the
foregoing provisions of this Section are only permitted if no Default or Event
of Default would occur as a result of such transaction.
*EXCEPT FOR (i) COLLATERAL AT OTHER LOCATIONS IN THE ORDINARY COURSE OF
BUSINESS, THE TOTAL VALUE OF WHICH COLLATERAL DOES NOT, AT ANY ONE TIME, EXCEED
$100,000, AND (ii) COLLATERAL WHICH, IN THE ORDINARY COURSE OF BUSINESS, IS IN
THE POSSESSION OF SALES AND SERVICE PEOPLE AND IN WAREHOUSES, WHICH COLLATERAL
SHALL BE IDENTIFIED IN WRITTEN REPORTS FROM BORROWER TO SILICON, WHICH BORROWER
SHALL PROVIDE TO SILICON MONTHLY AND FROM TIME TO TIME ON SILICON'S REQUEST.
**AND EXCEPT THAT BORROWER MAY PAY DIVIDENDS ON ITS PREFERRED STOCK
PROVIDED NO EVENT OF DEFAULT OR EVENT WHICH WITH NOTICE OR LAPSE OF TIME WOULD
CONSTITUTE AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
<PAGE> 7
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"), subject to
Section 6.3 below.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice of termination is given to Silicon; or (ii) by Silicon at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Silicon under
this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount
equal to * , provided that no termination fee shall be charged if the credit
facility hereunder is replaced with a new facility from another division of
Silicon Valley Bank. The termination fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate equal
to the highest rate applicable to any of the Obligations.
*ONE PERCENT (1%) OF THE MAXIMUM CREDIT LIMIT IF THE EFFECTIVE DATE OF
TERMINATION OCCURS WITHIN SIX MONTHS AFTER THE DATE HEREOF, OR TWO PERCENT
(2.0%) OF THE MAXIMUM CREDIT LIMIT IF THE EFFECTIVE DATE OF TERMINATION OCCURS
THEREAFTER,
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right or
remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or (e) Borrower
shall fail to perform any other non-monetary Obligation, which failure is not
cured within * Business Days after the date due; or (f) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower or
any guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 30 days after the date commenced; or (k)
revocation or termination of, or limitation or denial of
<PAGE> 8
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or (l) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or against
any such third party under any bankruptcy or insolvency law; or (m) Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations terminates or in any way limits his subordination agreement; or
(n) ** without the prior written consent of Silicon; or (o) *** , or Borrower
shall conceal, remove or transfer any part of its property, with intent to
hinder, delay or defraud its creditors, or make or suffer any transfer of any of
its property which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law; or (p) there shall be a material adverse change in Borrower's
business or financial condition; or (q) Silicon, acting in good faith and in a
commercially reasonable manner, deems itself insecure because of the occurrence
of an event prior to the effective date hereof of which Silicon had no knowledge
on the effective date or because of the occurrence of an event on or subsequent
to the effective date. Silicon may cease making any Loans hereunder during any
of the above cure periods, and thereafter if an Event of Default has occurred.
*TEN
**A PERSON OR GROUP OF RELATED PERSONS ACQUIRES 20% OR MORE OF THE
OUTSTANDING EQUITY SECURITIES OF THE BORROWER OR GAINS THE POWER TO ELECT A
MAJORITY OF THE BOARD OF DIRECTORS OF BORROWER
***ONE OR MORE CREDITORS OF BORROWER HOLDING CLAIMS IN THE AGGREGATE
EXCEEDING $200,000 COMMENCE LITIGATION AGAINST BORROWER TO RECOVER SUCH CLAIMS
7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any
time thereafter, Silicon, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one or
more of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Silicon deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Silicon seek to take possession of any
of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and Borrower, and to remove the Collateral to such locations as Silicon
may deem advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Silicon shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Silicon shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Silicon to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Silicon's sole discretion,
to grant extensions of time to pay,
<PAGE> 9
compromise claims and settle Receivables and the like for less than face value;
(h) Offset against any sums in any of Borrower's general, special or other
Deposit Accounts with Silicon; and (i) Demand and receive possession of any of
Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or referring thereto. All reasonable
attorneys' fees, expenses, costs, liabilities and obligations incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations. Without limiting
any of Silicon's rights and remedies, from and after the occurrence of any Event
of Default, the interest rate applicable to the Obligations shall be increased
by an additional four percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in
cash or by cashier's check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Silicon may (but is not obligated to) direct
any prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Silicon shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default,
without limiting Silicon's other rights and remedies, Borrower grants to Silicon
an irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Silicon the same rights of access and other rights with respect
thereto as Silicon has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Silicon's rights under the foregoing power of attorney or any of Silicon's
other rights under this Agreement be deemed to indicate that Silicon is in
control of the business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral,
<PAGE> 10
Silicon shall have the option, exercisable at any time, in its sole discretion,
of either reducing the Obligations by the principal amount of purchase price or
deferring the reduction of the Obligations until the actual receipt by Silicon
of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Silicon shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and under
all other applicable laws, and under any other instrument or agreement now or in
the future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.
8. DEFINITIONS. AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE THE
FOLLOWING MEANINGS:
"Account Debtor" means the obligor on a Receivable.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which Silicon is open for business.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
"Eligible Inventory" means Inventory which Silicon, in its sole judgment,
deems eligible for borrowing, based on such considerations as Silicon may from
time to time deem appropriate. Without limiting the fact that the determination
of which Inventory is eligible for borrowing is a matter of Silicon's
discretion, Inventory which does not meet the following requirements will not be
deemed to be Eligible Inventory: Inventory which (i) consists of finished goods
or raw materials, in good, new and salable condition which is not perishable,
not obsolete or unmerchantable, and is not comprised of work in process,
packaging materials or supplies; (ii) meets all applicable governmental
standards; (iii) has been manufactured in compliance with the Fair Labor
Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Silicon's duly perfected, first priority security interest; and (vi) is situated
at a one of the locations set forth on the Schedule.
"Eligible Receivables" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "Minimum
Eligibility Requirements") are the minimum requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more than
90 days from its invoice date, (ii) the Receivable must not represent progress
billings, or be due under a fulfillment or requirements contract with the
Account Debtor, (iii) the Receivable must not be subject to any contingencies
(including Receivables arising from sales on consignment, guaranteed sale or
other terms pursuant to which payment by the Account Debtor may be conditional),
(iv) the Receivable must not be owing from an Account Debtor with whom the
Borrower has any dispute (whether or not relating to the particular Receivable),
(v) the Receivable must not be owing from an Affiliate of Borrower, (vi) the
Receivable must not be owing from an Account Debtor which is subject to any
insolvency or bankruptcy proceeding, or whose financial condition is not
acceptable to Silicon, or which, fails or goes out of a material portion of its
business, (vii) the Receivable must not be owing from the United States or any
department, agency or instrumentality thereof (unless there has been compliance,
to Silicon's satisfaction, with the United States Assignment of Claims Act),
(viii) the Receivable must not be owing from an Account Debtor located outside
the United States or Canada (unless pre-approved by Silicon in its discretion in
writing, or backed by a letter of credit satisfactory to Silicon, or FCIA
insured satisfactory to Silicon), (ix) the Receivable must not be owing from an
Account Debtor to whom Borrower is or may be liable for goods purchased from
such Account Debtor or otherwise. Receivables owing from one Account Debtor will
not be deemed Eligible Receivables to the extent they exceed 25% of the total
Receivables outstanding. In addition, if more than 50% of the Receivables owing
from an Account Debtor are outstanding more than 90 days from their invoice date
(without regard to unapplied credits) or are otherwise not eligible Receivables,
then all Receivables owing from that Account Debtor will be
<PAGE> 11
deemed ineligible for borrowing. Silicon may, from time to time, in its
discretion, revise the Minimum Eligibility Requirements, upon written notice to
the Borrower.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"Event of Default" means any of the events set forth in Section 7.1 of
this Agreement.
"General Intangibles" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit), and all materials and supplies of every kind, nature and description
which are or might be used or consumed in Borrower's business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, merchandise or other personal property, and all
warehouse receipts, documents of title and other documents representing any of
the foregoing.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and
Silicon.
"Permitted Liens" means the following: (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Silicon, which consent shall not
be unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
<PAGE> 12
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, securities accounts, investment
property, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, all merchandise returned
to or repossessed by Borrower, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.
"Reserves" means, as of any date of determination, such amounts as Silicon
may from time to time establish and revise in good faith reducing the amount of
Loans, Letters of Credit and other financial accommodations which would
otherwise be available to Borrower under the lending formula(s) provided in the
Schedule: (a) to reflect events, conditions, contingencies or risks which, as
determined by Silicon in good faith, do or may affect (i) the Collateral or any
other property which is security for the Obligations or its value (including
without limitation any increase in delinquencies of Receivables), (ii) the
assets, business or prospects of Borrower or any Guarantor, or (iii) the
security interests and other rights of Silicon in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Silicon's
good faith belief that any collateral report or financial information furnished
by or on behalf of Borrower or any Guarantor to Silicon is or may have been
incomplete, inaccurate or misleading in any material respect; or (c) in respect
of any state of facts which Silicon determines in good faith constitutes an
Event of Default or may, with notice or passage of time or both, constitute an
Event of Default.
Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in Silicon's sole discretion reversed and
re-applied, to the Obligations, in such order and manner as Silicon shall
determine in its sole discretion.
9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Silicon or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Silicon shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expiration of one Business
Day following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
all prior and
<PAGE> 13
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
9.8 WAIVERS. The failure of Silicon at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Silicon shall not waive
or diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon shall be liable for any claims, demands,
losses or damages, of any kind whatsoever, made, claimed, incurred or suffered
by Borrower or any other party through the ordinary negligence of Silicon, or
any of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon, but nothing herein shall relieve
Silicon from liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Borrower. In satisfying Borrower's obligation
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
but Borrower acknowledges and agrees that Levy, Small & Lallas is representing
only Silicon and not Borrower in connection with this Agreement. If either
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment. All attorneys' fees and
costs to which Silicon may be entitled pursuant to this Paragraph shall
immediately become part of Borrower's Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void. No consent by Silicon to any assignment shall release
Borrower from its liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Silicon, its directors, officers,
<PAGE> 14
employees, agents, accountants or attorneys, shall be barred unless asserted by
Borrower by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within one year after the first act,
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, and the service of a summons and complaint on an officer of
Silicon, or on any other person authorized to accept service on behalf of
Silicon, within thirty (30) days thereafter. Borrower agrees that such one-year
period is a reasonable and sufficient time for Borrower to investigate and act
upon any such claim or cause of action. The one-year period provided herein
shall not be waived, tolled, or extended except by the written consent of
Silicon in its sole discretion. This provision shall survive any termination of
this Loan Agreement or any other present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used
in this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
LASERSCOPE
BY
-----------------------------
PRESIDENT OR VICE PRESIDENT
BY
-----------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY
-----------------------------
TITLE
--------------------------
<PAGE> 15
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: LASERSCOPE
ADDRESS: 3052 ORCHARD DRIVE
SAN JOSE, CALIFORNIA 95134
DATE: OCTOBER 1, 1999
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
================================================================================
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of a total of $6,000,000
at any one time outstanding (the "Maximum Credit Limit"), or the sum
or (a) and (b) and (c) below:
(a) Receivable Loans. Loans (the "Receivable Loans") in an amount
up to 85% of the amount of Borrower's Eligible Receivables (as
defined in Section 8 above), plus
(b) Inventory Loans. Loans (the "Inventory Loans") in an amount up
to the lesser of:
(1) 25% of the value of Borrower's Eligible Inventory (as
defined in Section 8 above), calculated at the lower of
cost or market value and determined on a first-in,
first-out basis, or
(2) $1,500,000.
(c) Overadvance Loans. Loans (the "Overadvance Loans") in an
amount not to exceed $1,945,000 (the "Overadvance Loan
Limit"); provided that
(1) 90 days after the date hereof the Overadvance Loan Limit
shall be reduced to $945,000 (and to the extent the
Overadvance Loans exceed said amount on said date,
Borrower shall repay the excess to Silicon on said
date); and
(2) From and after 180 days after the date hereof, the
Overadvance Loan Limit shall be reduced to zero, all
outstanding Overadvance Loans shall be repaid in full,
and no further Overadvance Loans will be made.
(3) In the event Borrower issues any equity securities after
the date hereof, Borrower shall pay to Silicon the
greater of
<PAGE> 16
(i) an amount equal to 100% of the total consideration
received for such equity securities up to $1,000,000; or
(ii) 50% of the total consideration received by Borrower
for such equity securities. The sum so paid to Silicon
shall be applied to the outstanding Overadvance Loans,
and shall thereafter permanently reduce the Overadvance
Loan Limit by said amount.
Silicon shall have the right, at all times, to reserve from Loans
otherwise available to Borrower the sum of $10,000 in respect of
cash management services provided by Silicon to Borrower.
Without limiting the definition of "Eligible Receivables",
receivables owing to Borrower's subsidiaries shall not constitute
Eligible Receivables.
LETTER OF CREDIT SUBLIMIT
(Section 1.5): $200,000
================================================================================
2. INTEREST.
INTEREST RATE (Section 1.2):
A rate equal to the "Prime Rate" in effect from time to time, plus 3% per
annum. Interest shall be calculated on the basis of a 360-day year
for the actual number of days elapsed. "Prime Rate" means the rate
announced from time to time by Silicon as its "prime rate;" it is a
base rate upon which other rates charged by Silicon are based, and
it is not necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall change on each
date there is a change in the Prime Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): None
================================================================================
3. FEES (Section 1.4):
Loan Fee: (i) $50,000 which is fully earned on the date hereof and shall
be payable concurrently herewith, plus (ii) $25,000 which is fully
earned on the date hereof, but shall be payable six months after the
date hereof (or on any earlier termination of this Agreement).
<PAGE> 17
Collateral Monitoring
Fee: $2,000, per month, payable in arrears (prorated for any partial month
at the beginning and at termination of this Agreement).
================================================================================
4. MATURITY DATE
(Section 6.1): One year from the date of this Agreement.
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with each of the following
covenant(s). Compliance shall be determined as of the end of each
month:
MINIMUM TANGIBLE
NET WORTH: Borrower shall maintain a Tangible Net Worth of not less than
$6,000,000.
DEFINITIONS. For purposes of the foregoing financial covenants, the
following term shall have the following meaning:
"Tangible Net Worth" shall mean the excess of total assets over
total liabilities, determined in accordance with generally
accepted accounting principles, with the following
adjustments:
(A) there shall be excluded from assets: (i) notes, accounts
receivable and other obligations owing to the Borrower from
its officers or other Affiliates, and (ii) all assets which
would be classified as intangible assets under generally
accepted accounting principles, including without limitation
goodwill, licenses, patents, trademarks, trade names,
copyrights, capitalized software and organizational costs,
licenses and franchises
(B) there shall be excluded from liabilities: all indebtedness
which is subordinated to the Obligations under a subordination
agreement in form specified by Silicon or by language in the
instrument evidencing the indebtedness which is acceptable to
Silicon in its discretion.
================================================================================
6. REPORTING.
(Section 5.3):
Borrower shall provide Silicon with the following:
1. Monthly Receivable agings, aged by invoice date, within
fifteen days after the end of each month.
2. Monthly accounts payable agings, aged by invoice date,
and outstanding or held check
<PAGE> 18
registers, if any, within fifteen days after the end of each
month.
3. Monthly reconciliations of Receivable agings (aged by invoice
date), transaction reports, and general ledger, within fifteen
days after the end of each month.
4. Monthly perpetual inventory reports for the Inventory valued
on a first-in, first-out basis at the lower of cost or market
(in accordance with generally accepted accounting principles)
or such other inventory reports as are reasonably requested by
Silicon, all within fifteen days after the end of each month.
5. Monthly unaudited financial statements, as soon as available,
and in any event within thirty days after the end of each
month.
6. Monthly Compliance Certificates, within thirty days after the
end of each month, in such form as Silicon shall reasonably
specify, signed by the Chief Financial Officer of Borrower,
certifying that as of the end of such month Borrower was in
full compliance with all of the terms and conditions of this
Agreement, and setting forth calculations showing compliance
with the financial covenants set forth in this Agreement and
such other information as Silicon shall reasonably request,
including, without limitation, a statement that at the end of
such month there were no held checks.
7. Quarterly unaudited financial statements, as soon as
available, and in any event within forty-five days after the
end of each fiscal quarter of Borrower.
8. Annual operating budgets (including income statements, balance
sheets and cash flow statements, by month) for the upcoming
fiscal year of Borrower within thirty days prior to the end of
each fiscal year of Borrower.
9. Annual financial statements, as soon as available, and in any
event within 120 days following the end of Borrower's fiscal
year, certified by independent certified public accountants
acceptable to Silicon.
================================================================================
7. COMPENSATION
(Section 5.5): Without Silicon's prior written consent, Borrower shall not
pay total compensation, including salaries, withdrawals, fees,
bonuses, commissions, drawing accounts and other payments, whether
directly or indirectly, in
<PAGE> 19
money or otherwise, during any fiscal year to all of Borrower's
executives, officers and directors (or any relative thereof) as a
group in excess of 115% of the total amount thereof in the prior
fiscal year.
8. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): None
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Exhibit A hereto
MATERIAL ADVERSE
LITIGATION (Section 3.10): See Exhibit B hereto
================================================================================
9. ADDITIONAL PROVISIONS
(1) BANKING RELATIONSHIP. Borrower shall at all times maintain its
primary banking relationship with Silicon.
(2) RELEASE. Borrower hereby releases and forever discharges
Silicon, and Silicon's heirs, administrators, successors,
assigns, agents, shareholders, directors, officers, employees,
agents, attorneys, parent corporations, subsidiary
corporations, affiliated corporations, affiliates,
participants and each of them, from any and all claims, debts,
liabilities, demands, obligations, costs, expenses, actions
and causes of action, of every nature and description, known
and unknown, which Borrower now has or at any time may hold,
by reason of any matter, cause or thing occurred, done,
omitted or suffered to be done prior to the date of this
Agreement. Borrower waives the benefits of California Civil
Code Section 1542 which provides: "A general release does not
extend to claims which the creditor does not know or suspect
to exist in his favor at the time of exe-
<PAGE> 20
cuting the release, which if known by him must have materially
affected his settlement with the debtor."
(3) SUBORDINATION OF INSIDE DEBT. All present and future
indebtedness of the Borrower to its officers, directors and
shareholders ("Inside Debt") shall, at all times, be
subordinated to the Obligations pursuant to a subordination
agreement on Silicon's standard form. Borrower represents and
warrants that there is no Inside Debt presently outstanding,
except for the following: ___________________. Prior to
incurring any Inside Debt in the future, Borrower shall cause
the person to whom such Inside Debt will be owed to execute
and deliver to Silicon a subordination agreement on Silicon's
standard form.
(4) SUBSIDIARY TRANSFERS. Without limiting any of the other terms
or provisions of this Agreement, Borrower shall not make any
payments or transfers of money, property, rights or assets of
any kind or nature, in any transaction of any kind or nature
(including without limitation sales, loans, repayment of
loans, capital contributions, purchases, compensation
arrangements, consulting, services, licenses, or any other
transaction of any kind or nature) to any of its partially or
wholly-owned subsidiaries without the prior written consent of
Silicon, except for sales of Inventory by Borrower to its
subsidiaries in the ordinary course of business, in good faith
transactions, at the same prices as would be charged
unaffiliated buyers.
(5) SUBSIDIARY RECEIVABLES. Without limiting any of the other
terms or provisions of this Agreement, Borrower shall not at
any time permit the total outstanding Receivables owing to
Borrower from all of its partially and wholly-owned
subsidiaries combined, which arise after the date hereof, to
exceed 20% of Borrower's total Receivables.
(6) SUBSIDIARY STOCK. The Collateral includes, without limitation,
all of Borrower's shares of stock in its partially or
wholly-owned subsidiaries (including without limitation
foreign subsidiaries). Borrower shall, concurrently, deliver
certificates evidencing said stock to Silicon with duly
executed stock powers and all other documentation relating
thereto as Silicon shall specify.
<PAGE> 21
(7) SUBSIDIARY GUARANTIES AND SECURITY INTERESTS. Borrower shall,
prior to December 15, 1999, cause all of its foreign
subsidiaries (other than its German subsidiary) (the "Foreign
Subs") to execute and deliver to Silicon a Continuing
Guarantee, on such form as Silicon shall specify, with respect
to all of the Obligations, and documentation sufficient to
give Silicon a first-priority security interest in all of the
assets of the Foreign Subs to secure said Guarantee, on such
form as Silicon shall specify, and Borrower shall cause such
Guarantee and other documentation to continue in full force
and effect throughout the term of this Loan Agreement and so
long as any portion of the Obligations remains outstanding.
(8) Silicon agrees to permit Borrower to sell NWL, Borrower's
German subsidiary, in a good-faith arm's length transaction.
Proceeds of the sale shall be paid to Silicon to be applied
first to any outstanding Overadvance Loans and then to the
remaining Obligations. The Overadvance Loan Limit shall be
permanently reduced by any amounts so applied to the
Overadvance Loans.
Borrower: Silicon:
Laserscope SILICON VALLEY BANK
By By
----------------------------------- -----------------------------------
President or Vice President Title
--------------------------------
By
-----------------------------------
Secretary or Ass't Secretary
<PAGE> 1
EXHIBIT 10.18A
LASERSCOPE
1999 DIRECTORS' STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CHANGE OF CONTROL" means a sale of all or substantially all
of the Company's assets, or any merger or consolidation of the Company with or
into another corporation other than a merger or consolidation in which the
holders of more than 50% of the shares of capital stock of the Company
outstanding immediately prior to such transaction continue to hold (either by
the voting securities remaining outstanding or by their being converted into
voting securities of the surviving entity) more than 50% of the total voting
power represented by the voting securities of the Company, or such surviving
entity, outstanding immediately after such transaction.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" means the Common Stock of the Company.
(e) "COMPANY" means Laserscope, a Delaware corporation.
(f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
interruption or termination of service as a Director.
(g) "CORPORATE TRANSACTION" means a dissolution or liquidation of
the Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another corporation.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including any officer or
Director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
<PAGE> 2
(k) "OPTION" means a stock option granted pursuant to the Plan.
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
(m) "OPTIONEE" means an Outside Director who receives an Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee or
an affiliate of a shareholder owning ten percent (10%) or more of the voting
power of all classes of stock of the Company, or any parent or subsidiary of the
Company, or an employee or consultant of, or a service provider to, such
shareholder or any of its affiliates.
(o) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 1999 Directors' Stock Option Plan.
(q) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan IS 300,000 Shares of Common Stock (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan has been terminated, become available for future grant
under the Plan. In addition, any Shares of Common Stock that are retained by the
Company upon exercise of an Option in order to satisfy the exercise price for
such Option, shall be treated as not issued and shall continue to be available
under the Plan. If Shares that were acquired upon exercise of an Option are
subsequently repurchased by the Company, such Shares shall not in any event be
returned to the Plan and shall not become available for future grant under the
Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
<PAGE> 3
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.
(ii) Each Outside Director who is an Outside Director on the
effective date of this Plan, as determined in accordance with Section 6 of
hereof, shall be automatically granted an Option to purchase 60,000 Shares (the
"Continuing Director Option") on the effective date.
(iii) Each Outside Director who becomes an Outside Director
after the effective date of this Plan shall be automatically granted an Option
to purchase 60,000 Shares (the "New Director Option") on the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, in the event that a grant would cause the number of Shares subject
to outstanding Options plus the number of Shares previously purchased upon
exercise of Options to exceed the Pool, then each such automatic grant shall be
for that number of Shares determined by dividing the total number of Shares
remaining available for grant by the number of Outside Directors receiving an
Option on the automatic grant date. Any further grants shall then be deferred
until such time, if any, as additional Shares become available for grant under
the Plan through action of the shareholders to increase the number of Shares
which may be issued under the Plan or through cancellation or expiration of
Options previously granted hereunder.
(v) The terms of each Continuing Director Option granted
hereunder shall be as follows:
(1) the Continuing Director Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Section 9 below;
(2) the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the Continuing Option,
determined in accordance with Section 8 hereof; and
(3) the Continuing Director Option shall become
exercisable in installments cumulatively as to 20,000 Shares on January 1 of
each of the years 2000, 2001 and 2002.
(vi) The terms of each New Director Option granted hereunder
shall be as follows:
(1) the New Director Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Section 9 below;
<PAGE> 4
(2) the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the New Director Option,
determined in accordance with Section 8 hereof; and
(3) the New Director Option shall become exercisable
in installments cumulatively as to 20,000 Shares, on January 1 of each of the
years following the date of grant of the New Director Option, provided however
that, if as of the first January 1 following the date of grant of the New
Director Option, the Outside Director has not served on the Board for at least
six (6) months, the New Director Option shall not first become exercisable until
the next following January 1.
(c) POWERS OF THE BOARD. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 8(b) of the Plan, the fair market value of the Common Stock; (ii) to
determine the exercise price per Share of Options to be granted, which exercise
price shall be determined in accordance with Section 8 of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) SUSPENSION OR TERMINATION OF OPTION. If the Chief Executive
Officer or his or her designee reasonably believes that an Optionee has
committed an act of misconduct, such officer may suspend the Optionee's right to
exercise any option pending a determination by the Board (excluding the Outside
Director accused of such misconduct). If the Board (excluding the Outside
Director accused of such misconduct) determines an Optionee has committed an act
of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
engages in any conduct constituting unfair competition, induces any Company
customer to breach a contract with the Company or induces any principal for whom
the Company acts as agent to terminate such agency relationship, neither the
Optionee nor his or her estate shall be entitled to exercise any Option
whatsoever. In making such determination, the Board of Directors (excluding the
Outside Director accused of such misconduct) shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on Optionee's behalf at a
hearing before the Board or a committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director
<PAGE> 5
who has been granted an Option may, if he or she is otherwise eligible, be
granted an additional Option or Options in accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon
its approval by the stockholders of the Company, as described in Section 17 of
the Plan. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 13 of the Plan.
7. TERM OF OPTIONS. The term of each Option shall be ten (10) years
from the date of grant thereof unless an Option terminates sooner pursuant to
Section 9 below.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be 100% of the fair market
value per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be determined
by the Board; provided however that in the event the Common Stock is traded on
the NASDAQ National Market or listed on a stock exchange, the fair market value
per Share shall be the closing sales price on such system or exchange on the
date of grant of the Option (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding trading date), as reported in
The Wall Street Journal, or if there is a public market for the Common Stock but
the Common Stock is not traded on the NASDAQ National Market or listed on a
stock exchange, the fair market value per Share shall be the mean of the bid and
asked prices of the Common Stock in the over-the-counter market on the date of
grant, as reported in The Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System).
(c) FORM OF CONSIDERATION. The consideration to be paid for the
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) above; provided
<PAGE> 6
however that no Options shall be exercisable prior to shareholder approval of
the Plan in accordance with Section 17 below has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an Outside
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (to the extent
he or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the Option
shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b) above, in
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within twelve (12)
months from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she does
not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee:
<PAGE> 7
(i) During the term of the Option who is, at the time of his
or her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months following the date of death, by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living and remained
in Continuous Status as Director for six (6) months after the date of death.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired.
(ii) Within three (3) months after the termination of
Continuous Status as a Director, the Option may be exercised, at any time within
twelve (12) months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination. Notwithstanding the foregoing, in no event may the option be
exercised after its term set forth in Section 7 has expired.
To the extent that an Optionee was not entitled to exercise the
Option at the date of death or termination, as provided in Section 9(d)(i) or
(ii) above, or if he or she does not exercise such Option (to the extent he or
she was entitled to exercise) within the time specified above, the Option shall
terminate and the Shares underlying the unexercised portion of the Option shall
revert to the Plan.
10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the shareholders
of the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii),
(iii) and (iv) above, and the number of Shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been
<PAGE> 8
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of a
Corporate Transaction, each outstanding Option shall be assumed or an equivalent
option shall be substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation, unless the successor corporation does
not agree to assume the outstanding Options or to substitute equivalent options,
in which case the Options shall terminate upon the consummation of the
transaction; provided however that in the event of a Change of Control, each
Optionee shall have the right to exercise his or her Option as to all of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable, immediately prior to the consummation of such transaction.
For purposes of this Section 11(b), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon such Corporate Transaction or Change of Control, each
Optionee would be entitled to receive upon exercise of an Option the same number
and kind of shares of stock or the same amount of property, cash or securities
as the Optionee would have been entitled to receive upon the occurrence of such
transaction if the Optionee had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option at such
time (after giving effect to any adjustments in the number of Shares covered by
the Option as provided for in this Section 11); provided however that if such
consideration received in the transaction was not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon
exercise of the Option to be solely common stock of the successor corporation or
its Parent equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
(c) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
<PAGE> 9
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the shareholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the legal requirements relating to the administration
of stock option plans under applicable U.S. state corporate laws, U.S. federal
and applicable state securities laws, the Code, any stock exchange or NASDAQ
rules or regulations to which the Company may be subject and the applicable laws
of any other country or jurisdiction where Options are granted under the Plan,
as such laws, rules, regulations and requirements shall be in place from time to
time (the "Applicable Laws"). Such compliance shall be determined by the Company
in consultation with its legal counsel.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. SHAREHOLDER APPROVAL. If required by the Applicable Laws,
implementation and continuance of the Plan shall be subject to approval by the
shareholders of the Company. Such shareholder approval shall be obtained in the
manner and to the degree required under the Applicable Laws.
<PAGE> 1
EXHIBIT 10.19
COMMON STOCK PLACEMENT AGREEMENT
COMMON STOCK PLACEMENT AGREEMENT ("Agreement") dated as of the 29th day of
December, 1999, by and between LASERSCOPE, a California corporation (the
"Company") and TAGLICH BROTHERS, D'AMADEO, WAGNER & COMPANY, INCORPORATED
("Placement Agent").
W I T N E S S E T H :
WHEREAS, in reliance upon the representations, warranties, terms and
conditions hereinafter set forth, Placement Agent will use its best efforts to
privately place shares of Common Stock, no par value per share, of the Company
("Common Stock") for a minimum aggregate purchase price of $1 million ("Minimum
Amount") and a maximum an aggregate price of $2 million ("Maximum Amount"), at a
price of $.80 per share (the "Purchase Price"), and the persons and entities so
purchasing the Common Stock from time to time and the number of shares of Common
Stock being so purchased being as listed on Exhibit A to this Agreement (such
persons and entities being referred to individually as "Purchaser" and
collectively, as "Purchasers"); and
WHEREAS, the shares of Common Stock are being issued pursuant to the
Company's Confidential Private Placement Memorandum and Exhibits thereto dated
December 22, 1999, as the same may be amended and/or supplemented from time to
time (collectively, the "Memorandum"); and
WHEREAS, the shares of Common Stock are being issued pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "1933 Act").
NOW, THEREFORE, in consideration of the premises and the respective
promises hereinafter set forth, the Company and the Placement Agent hereby agree
as follows:
1. SALE AND PURCHASE OF COMMON STOCK.
(a) Subject to the terms and conditions of this Agreement, the
Company shall sell to the Purchasers shares of Common Stock for a minimum
aggregate purchase price of $1 million and a maximum aggregate purchase price of
$2 million.
(b) The initial sale and purchase described in Paragraph 1(a) of
this Agreement shall take place at a closing (the "Closing") at the offices of
ROBINSON SILVERMAN PEARCE ARONSHON & BERMAN LLP, 1290 Avenue of the Americas,
New York, NY 10104 or such other place as shall be acceptable to the Company and
Placement Agent on such date or dates as Placement Agent shall advise the
Company on two (2) business days notice or
<PAGE> 2
such shorter notice as shall be reasonably acceptable to the Company. In no
event shall the Initial Closing (as defined below) occur unless the Minimum
Amount is sold. Subsequent sales and purchases of Common Stock up to the Maximum
Amount shall take place at one or more Closings held on such dates as the
Company and Placement Agent shall mutually determine. The initial Closing
pursuant to this Agreement shall occur not later than December 31, 1999 unless
such date is extended for up to thirty (30) days by mutual agreement of the
Company and the Placement Agent, in their sole and absolute discretion. The
initial Closing hereunder shall be referred to as the "Initial Closing," the
final Closing hereunder shall be referred to as the "Final Closing" and the date
of the Final Closing shall be referred to as the "Final Closing Date."
(c) All defined terms used in this Agreement that are not
otherwise defined shall have the meanings ascribed to them in the Memorandum.
2. PAYMENT. At each Closing, the Company or its agent shall deliver to
Placement Agent, on behalf of the Purchasers, the original executed and sealed
Common Stock certificates being purchased by the Purchasers, against its receipt
of payment therefor by certified or bank check drawn on a bank located in the
United States, or by Federal wire transfer, in the amount of the aggregate
purchase price for such Common Stock being sold, less the amount of fees payable
to Placement Agent pursuant to Paragraph 10(a) of this Agreement. All Common
Stock being purchased by the Purchasers shall be issued in the respective names
of the Purchasers in accordance with instructions provided by Placement Agent
not later than the day of Closing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to and covenants and agrees with the Placement Agent, as
of the date hereof and as of the date of each Closing, as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and is qualified
and in good standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted by the Company or the property owned or leased
by the Company requires such qualification. Except as set forth in the
Memorandum and in the exhibits annexed to the Memorandum (collectively, the
"Exhibits"), the Company has no subsidiaries and does not own any equity
interest and has not made any loans or advances to or guarantees of indebtedness
to any person, corporation, partnership or other entity. Each of Laserscope
France S.A., NWL Laser-Technologie, GmbH, a Laserscope Company and Laserscope
(UK) Ltd., each a wholly-owned subsidiary of the Company (collectively, the
"Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and each
Subsidiary is qualified and in good standing as a foreign corporation in each
jurisdiction in which the nature of its business or the property owned or leased
by the Subsidiary requires such qualification. Except as disclosed in the
Memorandum and in the attached Schedule of
<PAGE> 3
Exceptions, no Subsidiary has any subsidiary and no Subsidiary owns any equity
interest in any other entity and no Subsidiary has made any loans or advances to
or guarantees of indebtedness to any person, corporation, partnership or other
entity. Except as disclosed in the attached Schedule of Exceptions, the Company
owns all of the issued and outstanding shares of common stock of each of the
Subsidiaries free and clear of any lien, claim, encumbrance, pre-emptive rights
or contractual rights of first refusal.
(b) The authorized capital of the Company consists of 25,000,000
shares of Common Stock and 5,000,000 shares of preferred stock, of which, as of
the date of this Agreement, (i) 12,611,637 shares of Common Stock are issued and
outstanding, (ii) 0 shares of Common Stock are held in treasury, (iii) no shares
of preferred stock are issued and outstanding (the "Preferred Stock"), and (iv)
4,221,251 shares of Common Stock have been reserved for issuance upon exercise
of outstanding debentures, options, warrants and other rights to acquire Common
Stock and upon the exercise of options granted pursuant to the Company's stock
option plans and pursuant to other agreements, excluding the shares of Common
Stock (the "PAW Exercise Shares") issuable upon exercise of the Placement Agent
Warrants (as defined below). Except as set forth in the Memorandum, the Company
is not a party to any agreement to issue, nor has it issued, any warrants,
options or rights or preferred stock, notes or other evidence of indebtedness or
other securities, instruments or agreements upon the exercise or conversion of
which or pursuant to the terms of which additional shares of capital stock of
the Company may become issuable. No holder of any of the Company's securities
has preemptive rights or contractual rights of first refusal.
(c) The Company has the full right, power and authority to
execute, deliver and perform under this Agreement, the Common Stock and the
Placement Agent Warrants. This Agreement has been duly executed by the Company
and, at each Closing, the Common Stock and the Placement Agent Warrants being
issued will have been duly executed by the Company, and this Agreement, the
Common Stock and the Placement Agent Warrants and the transactions contemplated
by this Agreement and the Placement Agent Warrants have been duly authorized by
all necessary corporate action and each constitutes, the legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
(d) All of the issued and outstanding shares of Common Stock and
Preferred Stock of the Company have been duly and validly authorized and issued
and are fully paid and nonassessable, with no personal liability attaching to
the holders thereof, and such shares of Common Stock and Preferred Stock have
not been issued in violation of the preemptive rights or rights of first refusal
of any holder of securities of the Company. All of the issued and outstanding
shares of Common Stock and Preferred Stock of the Company have been issued
pursuant to either a current effective registration statement under the 1933 Act
or an exemption from the registration requirements of the 1933 Act and were
issued in accordance with all applicable Federal and state securities laws. All
of the issued and outstanding shares of common stock of each Subsidiary have
been duly and validly authorized and issued and are fully paid and
nonassessable, with no personal liability attaching to the Company.
(e) The shares of Common Stock to be issued at each Closing and
the PAW Exercise Shares have been validly authorized for issuance and, when
issued pursuant to this
<PAGE> 4
Agreement and the terms of the Subscription Documents Booklet executed by each
Purchaser or the Placement Agent Warrants, as the case may be, will be duly and
validly authorized and issued, fully paid and nonassessable and free from
preemptive rights or rights of first refusal held by any person.
(f) The following financial statements of the Company (hereinafter
collectively, the "Financial Statements") are included in the Memorandum: (i)
consolidated balance sheets as of December 31, 1998 and consolidated statements
of operations, shareholders' equity and cash flows for the fiscal year ended
December 31, 1998 and the related notes thereto, which have been audited by
Ernst & Young LLP, independent certified public accountants, (ii) consolidated
balance sheets as of December 31, 1997 and consolidated statements of
operations, shareholders' equity and cash flows for the fiscal year ended
December 31, 1997, and the related notes thereto, which have been audited by
Ernst & Young LLP, independent certified public accountants, and (iii) unaudited
balance sheet as of March 31, 1999, June 30, 1999 and September 30, 1999 and
unaudited statement of operations, stockholders' equity and cash flows for the
fiscal quarter ended March 31, 1999, June 30, 1999 and September 30, 1999, and
the related notes thereto, which have been prepared by the Company. The
Financial Statements, which are included in the Company's Form 10-K Annual
Report for the year ended September 30, 1998 ("Form 10-K"), the Company's Form
10-Q Quarterly Report for the fiscal quarter ended March 31, 1999, the Company's
Form 10-Q Quarterly Report for the fiscal quarter ended June 30, 1999 and the
Company's Form 10-Q Quarterly Report for the fiscal quarter ended September 30,
1999 (collectively "Forms 10-Q"), were prepared in accordance with generally
accepted accounting principles consistently applied and present and reflect
fairly the financial position of the Company at the respective balance sheet
dates and the results of its operations and cash flows for the periods then
ended, provided, however, that the financial statements included in the Forms
10-Q are subject to normal year-end adjustments and lack footnotes and other
presentation items. During the period of Ernst & Young LLP's engagement as the
Company's independent certified public accountants, there has been no
disagreements between the accounting firm and the Company on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure and no events required to be reported on a current report on
Form 8-K relating to the relationship between the Company and the accounting
firm. The Company has made and kept books and records and accounts which are in
reasonable detail and which fairly and accurately reflect the activities of the
Company, subject only to year-end adjustments.
(g) The Company has good and marketable title to all of its
material property and assets and, except as set forth in the Memorandum or the
Financial Statements or as disclosed in the attached Schedule of Exceptions,
none of such property or assets of the Company is subject to any lien, mortgage,
pledge, encumbrance or other security interest.
(h) Except as may be disclosed in the Memorandum, since September
30, 1999, there has not been any material adverse change in the financial
condition or in the operations, business or prospects of the Company or any of
the Subsidiaries from that shown in the Financial
<PAGE> 5
Statements or any damage or destruction, not covered by insurance, which affects
the business, property or assets of the Company or any of the Subsidiaries.
(i) Except as set forth in the Exhibits to the Memorandum, the
Company has not filed any Current Reports on Form 8-K or other reports filed
with the Securities and Exchange Commission (the "SEC") subsequent to September
30, 1999.
(j) Neither the execution or delivery of this Agreement, the
Common Stock or the Placement Agent Warrants by the Company nor the performance
by the Company of the transactions contemplated by this Agreement or the
Placement Agent Warrants: (i) requires the consent, waiver, approval, license or
authorization of or filing with or notice to any person, entity or public
authority (except any filings required by Federal or state securities laws,
which filings have been or will be made by the Company on a timely basis); (ii)
violates or constitutes a default under or breach of any law, rule or regulation
applicable to the Company; or (iii) conflicts with or results in a breach or
termination of any provision of, or constitutes a default under, or will result
in the creation of any lien, charge or encumbrance upon any of the property or
assets of the Company with or without the giving of notice, the passage of time
or both, pursuant to (A) the Company's articles of incorporation (as amended) or
by-laws, (B) any mortgage, deed of trust, indenture, note, loan agreement,
security agreement, contract, lease, license, alliance agreement, joint venture
agreement, or other agreement or instrument, or (C) any order, judgment, decree,
statute, regulation or any other restriction of any kind or character to which
the Company is a party or by which any of the assets of the Company may be
bound.
(k) Except as disclosed in the Memorandum, neither the Company nor
any of the Subsidiaries has any indebtedness to any officer, director, 5%
stockholder or other Affiliate (as defined in the Rules and Regulations of the
Securities and Exchange Commission (the "SEC") under the 1933 Act) of the
Company.
(l) The Company and each of the Subsidiaries is in compliance with
all laws, rules and regulations of all Federal, state and local government
agencies having jurisdiction over the Company and each of the Subsidiaries or
affecting the business, assets or properties of the Company or any of the
Subsidiaries, except where the failure to comply does not and will not have a
material adverse effect on the business, financial condition or results of
operations of the Company or its Subsidiaries, taken as a whole (a "Material
Adverse Effect"). The Company and each of the Subsidiaries possesses all
licenses, permits, consents, approvals and agreements which are required to be
issued by any and all applicable Federal, state or local authorities necessary
for the operation of their respective business and/or in connection with their
respective assets or properties, except where the failure to possess such
licenses, permits, consents, approvals or agreements does not and will not have
a Material Adverse Effect.
(m) Neither the Company nor any of the Subsidiaries is in default
under any note, loan agreement, security agreement, mortgage, contract,
franchise agreement, distribution agreement, lease, alliance agreement, joint
venture agreement, agreement, license, permit,
<PAGE> 6
consent, approval or instrument to which it is a party, and no event has
occurred which, with or without the lapse of time or giving of notice, or both,
would constitute such default thereof by the Company or any of the Subsidiaries
or would cause acceleration of any obligation of the Company or any of the
Subsidiaries or would adversely affect the business, operations, financial
condition or prospects of the Company or any of the Subsidiaries, except where
such default or event, whether with or without the lapse of time or giving of
notice, or both, does not and will not have a Material Adverse Effect. To the
best of the knowledge of the Company, no party to any note, loan agreement,
security agreement, mortgage, contract, franchise agreement, distribution
agreement, lease, alliance agreement, joint venture agreement, agreement,
license, permit, consent, approval or instrument with or given to the Company or
any of the Subsidiaries is in default thereunder and no event has occurred with
respect to such party, which, with or without the lapse of time or giving of
notice, or both, would constitute a default by such party or would cause
acceleration of any obligations of such party.
(n) To the best of the Company's knowledge, except as set forth in
the Memorandum, no officer, director or 5% stockholder of the Company and no
Affiliate of any such person either (i) holds any interest in any corporation,
partnership, business, trust, sole proprietorship or any other entity which is
engaged in a business similar to that conducted by the Company or any of the
Subsidiaries (other than a passive immaterial interest in a public company
engaged in any such business) or (ii) engages in business with the Company or
any of the Subsidiaries.
(o) Except as set forth in the Memorandum or disclosed in the
attached Schedule of Exceptions, there are no material (i.e., involving an
asserted liability in excess of one hundred thousand dollars ($100,000)) claims,
actions, suits, proceedings or labor disputes, inquiries or investigations
(whether or not purportedly on behalf of the Company or any of the
Subsidiaries), pending or, to the best of the Company's knowledge, threatened,
against the Company or any of the Subsidiaries, at law or in equity or by or
before any Federal, state, county, municipal or other governmental department,
SEC, National Association of Securities Dealers, Inc. ("NASD"), board, bureau,
agency or instrumentality, domestic or foreign, whether legal or administrative
or in arbitration or mediation, nor is there any basis for any such action or
proceeding. Neither the Company, any of the Subsidiaries nor any of their
respective assets are subject to, nor is the Company or any of the Subsidiaries
in default with respect to, any order, writ, injunction, judgment or decree that
could adversely affect the financial condition, business, assets or prospects of
the Company or any of the Subsidiaries.
(p) The accounts receivable of the Company and the Subsidiaries
represent receivables generated from the sale of goods and services in the
ordinary course of business. The Company knows of no material disputes
concerning accounts receivable of the Company and the Subsidiaries not disclosed
in the Memorandum.
(q) Except as set forth in the Memorandum or disclosed in the
attached Schedule of Exceptions, neither the Company nor any of the Subsidiaries
has (i) any written employment
<PAGE> 7
contracts and no oral employment contracts not terminable at will by the Company
or any Subsidiary, as applicable, with any 5% percent shareholder, officer or
director of the Company or any Subsidiary, as applicable, (ii) any consulting
agreement or other compensation agreement with any 5% percent shareholder,
officer or director of the Company or any Subsidiary, as applicable, or (iii)
any agreement or contract with any 5% percent shareholder, officer or director
of the Company or any Subsidiary, as applicable, that will result in the payment
by the Company or any Subsidiary, as applicable, or the creation of any
commitment or obligation (absolute or contingent), of the Company or any
Subsidiary, as applicable, to pay any severance, termination, "golden
parachute," or similar payment to any present or former personnel of the Company
or any Subsidiary, as applicable, following termination of employment. No
director, executive officer or other key employee of the Company or any
Subsidiary, as applicable, has advised the Company that he or she intends to
resign as director and/or executive officer of the Company or any Subsidiary, as
applicable, or to terminate his or her employment with the Company or the
Subsidiary, as applicable.
(r) The accounts payable of the Company and the Subsidiaries
represent bona fide payables to third parties incurred in the ordinary course of
business and represent bona fide debts for services and/or goods provided to the
Company and the Subsidiaries.
(s) Except as set forth in the Memorandum, neither the Company nor
any of the Subsidiaries is a party to a labor agreement with respect to any of
their respective employees with any labor organization, union, group or
association and there are no employee unions (nor any similar labor or employee
organizations). There is no labor strike or labor stoppage or slowdown pending,
or, to the knowledge of the Company, threatened against the Company or any of
the Subsidiaries nor has the Company or any of the Subsidiaries experienced in
the last five (5) years any work stoppage or other labor difficulty. The Company
is in compliance with all applicable laws, rules and regulations regarding
employment practices, employee documentation, terms or conditions of employment
and wage and hours and the Company is not engaged in any unfair labor practices,
except where the failure to comply has not and will not have a Material Adverse
Effect. There are no unfair labor practice charges or complaints against the
Company or any of the Subsidiaries pending before the National Labor Relations
Board or any other governmental agency.
(t) Except as disclosed in the Memorandum or the attached Schedule
of Exceptions, there are no employee pension, retirement or other benefit plans,
maintained, contributed to or required to be contributed to by the Company or
any of the Subsidiaries covering any employee or former employee of the Company
or any of the Subsidiaries. Neither the Company nor any of the Subsidiaries has
any material liability or obligation of any kind or nature, whether accrued or
contingent, matured or unmatured, known or unknown, under any provision of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or any
provision of the Internal Revenue Code of 1986, as amended, specifically
relating to persons subject to ERISA.
<PAGE> 8
(u) The Company and each of the Subsidiaries has timely filed with
the appropriate taxing authorities all returns in respect of taxes required to
be filed through the date hereof and each has timely paid all taxes that each is
required to pay or has established an adequate reserve therefor, except where
the Company or the Subsidiary, as applicable, has timely filed for extensions.
There are no pending or, to the knowledge of the Company, threatened audits,
investigations or claims for or relating to any liability of the Company or any
of the Subsidiaries in respect of taxes.
(v) Neither the Company nor any of the Subsidiaries has any
liabilities of any kind or nature whether accrued or contingent, matured or
unmatured, known or unknown, except as set forth in the Financial Statements,
the Memorandum and those liabilities incurred by the Company and each of the
Subsidiaries in the ordinary course of business since September 30, 1999.
(w) Except as set forth in the Memorandum, no customer of the
Company or any of the Subsidiaries during fiscal year 1998 accounted for more
than 5% of the revenues of the Company (on a consolidated basis) and to the best
of the Company's knowledge, no customer, other than the customers identified in
the Memorandum, will account for more than 5% of the Company's revenues (on a
consolidated basis) during fiscal year 1999 or fiscal year 2000.
(x) There are no finder's fees or brokerage commissions payable
with respect to the transactions contemplated by this Agreement, except as
provided in Paragraph 10 of this Agreement, and the Company agrees to indemnify
and hold harmless the Placement Agent from and against any and all cost, damage,
liability, judgment and expense (including reasonable fees and expenses of
counsel) arising out of or relating to claims for such fees or commissions (and
to pay the Placement Agent pursuant to a separate agreement between the Company
and the Placement Agent).
(y) Except as set forth in the Memorandum or the attached Schedule
of Exceptions, the Company is not currently and has not during the past six (6)
months been engaged in negotiations with respect to: (i) any merger or
consolidation of the Company where the Company would not be the surviving
entity; or (ii) the sale of the Company, any of its Subsidiaries or any of their
assets other than sales in the ordinary course of business.
(z) The Company and each of the Subsidiaries has the right to
conduct their respective business in the manner in which their respective
business has been heretofore conducted. To the knowledge of the Company, the
conduct of such businesses by the Company and each of the Subsidiaries does not
violate or infringe upon the patent, copyright, trade secret or other
proprietary rights of any third party, and neither the Company nor any of the
Subsidiaries has received any notice of any claim of any such violation or
infringement.
(aa) The Company and each of the Subsidiaries is currently in
compliance in all respects with all applicable Environmental Laws (as defined
below), including, without
<PAGE> 9
limitation, obtaining and maintaining in effect all permits, licenses, consents
and other authorizations required by applicable Environmental Laws and the
Company and each Subsidiary is currently in compliance with all such permits,
licenses, consents and other authorizations, except where the failure to comply
does not and will not have a Material Adverse Effect. Neither the Company nor
any of its Subsidiaries has received notice from any property owner, landlord,
tenant or Governmental Authority (as defined below) that Hazardous Wastes (as
defined below) are being improperly used, stored or disposed of at any property
currently or formerly owned or leased by the Company or any of its Subsidiaries
or that any soil or ground water contamination has emanated from any such
property. For purposes hereof, the term "Environmental Laws" means,
collectively, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization
Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances
Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended,
any other "Superfund" or "Superlien" law or any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to, or imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereafter in effect. For purposes hereof, the term "Governmental Authority"
shall mean the Federal Government of the United States of America, any state or
any political subdivision of the Federal Government or any state, including but
not limited to courts, departments, commissions, boards, bureaus, agencies,
ministries or other instrumentalities. For purposes hereof, the term "Hazardous
Wastes" shall mean any regulated quantity of hazardous substances as listed by
the United States Environmental Protection Agency ("EPA") and the list of toxic
pollutants designated by the United States Congress and/or the EPA or defined by
any other Federal, state or local statute, law, ordinance, code, rule,
regulation, order, or decree regulating, relating to or imposing liability for
standards of conduct concerning any hazardous, toxic substance or material.
(bb) The information contained in the Financial Statements and the
Memorandum, taken together, describe in all material respects the business and
financial condition of the Company and its Subsidiaries, and such material,
taken together, does not contain any misstatement of a material fact or omit to
state a material fact necessary to make the information not misleading. The
Purchasers and Placement Agent shall be entitled to rely on such material
notwithstanding any investigation they or any of them may have made.
4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION. The
representations and warranties of the Company set forth in Section 3 of this
Agreement shall survive the execution and delivery of the Common Stock. The
indemnification obligations of the Company as set forth in the indemnification
rider identified as Exhibit B (the "Indemnification Rider") to the December 15,
1999 engagement letter between the Company and the Placement Agent, as same
shall be supplemented and/or amended, is hereby incorporated herein by reference
in its entirety as if more fully set forth herein and the provisions of the
Indemnification Rider shall apply and be applicable to, among other things, all
representations and warranties of the Company.
<PAGE> 10
5. USE OF PROCEEDS. The net proceeds from the sale of the Common Stock
will be used by the Company as disclosed in the Memorandum.
6. UNREGISTERED SECURITIES. None of the Common Stock, the Placement
Agent Warrants or the PAW Exercise Shares have been registered under the 1933
Act, in reliance upon the applicability of Section 4(2), 4(6) and/or Rule 506 of
Regulation D of the 1933 Act to the transactions contemplated hereby. The
certificates representing the Common Stock and the Placement Agent Warrants will
bear an investment legend and the certificate representing the PAW Exercise
Shares issued prior to their respective registration under Section 3 of the
Common Stock Purchase Agreement (a copy of which is annexed as an exhibit to the
Memorandum) and Section 7 below will also bear investment legends.
7. REGISTRATION RIGHTS AND "PIGGY-BACK" REGISTRATION RIGHTS.
(a) The Company shall prepare and file with the SEC, within sixty
(60) days following the Final Closing Date, a registration statement
("Registration Statement") on the appropriate form under the 1933 Act, with
respect to the shares of Common Stock sold in the Private Placement, any
Placement Agent Shares (as defined below) and the PAW Exercise Shares
(collectively, the "Registrable Securities"). The Company shall use its best
efforts to have the Registration Statement declared effective as soon as
possible after filing, but in no event later than one hundred and thirty-five
(135) days following the Final Closing Date and shall keep such Registration
Statement effective and current continuously for three (3) years or until such
earlier date as all of the Registrable Securities have been sold. If the
Registration Statement is not filed within sixty (60) days following the Final
Closing Date, each holder of such Registrable Securities (including transferees
authorized under applicable securities laws) (each a "Registered Holder") shall
be entitled to receive from the Company in cash a payment (the "Filing Payment")
equal to (A) the product of the number of Registrable Securities held by the
Registered Holder and the Purchase Price, multiplied by (B) the product of three
percent (3%) and the number of thirty (30) day periods, or any part thereof,
beyond said sixty (60) day period until the Registration Statement is filed with
the SEC. In addition, if the Registration Statement has been filed but is not
declared effective within one hundred and thirty-five (135) days following the
Final Closing Date, each Registered Holder also shall be entitled to receive in
cash from the Company a payment (the "Effectiveness Payment" and together with
the Filing Payment, the "Registration Payments") equal to (Y) the product of the
number of Registrable Securities held by the Registered Holder and the Purchase
Price, multiplied by (Z) the product of two percent (2%) and the number of
thirty (30) day periods, or any part thereof, beyond said one hundred and
thirty-five (135) day period until the Registration Statement is declared
effective. The Company shall pay the Registration Payments, if any, to the
Registered Holders within thirty (30) days after the earlier to occur of (i) the
filing or effectiveness of the Registration Statement, as applicable, or (ii)
the end of the calendar quarter during which the sixty (60) day or one hundred
and thirty-five day period expired, as applicable, and then quarterly
thereafter.
<PAGE> 11
(b) If the Company effects any registration under the 1933 Act of
any Registrable Securities pursuant to Paragraphs 7(a) above or 7(g) below, the
Company shall indemnify, to the extent permitted by law, and hold harmless each
Registered Holder whose Registrable Securities are included in such registration
statement (each, a "Seller"), any underwriter, any officer, director, employee
or agent of any Seller or underwriter, and each other person, if any, who
controls any Seller or underwriter within the meaning of Section 15 of the 1933
Act, against any losses, claims, damages or liabilities, judgment, fines,
penalties, costs and expenses, joint or several, or actions in respect thereof
(collectively, the "Claims"), to which each such indemnified party becomes
subject, under the 1933 Act or otherwise, insofar as such Claims arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement or prospectus or any amendment or
supplement thereto or any document filed under a state securities or blue sky
law (collectively, the "Registration Documents") or insofar as such Claims arise
out of or are based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated therein or necessary
to make the statements made therein not misleading, and will reimburse any such
indemnified party for any legal or other expenses reasonably incurred by such
indemnified party in investigating or defending any such Claim; provided that
the Company shall not be liable in any such case to a particular indemnified
party to the extent such Claim is based upon an untrue statement or alleged
untrue statement of a material fact or omission or alleged omission of a
material fact made in any Registration Document in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such indemnified party specifically for use in the preparation of such
Registration Document.
(c) In connection with any registration statement in which any
Seller is participating, each Seller, severally and not jointly, shall
indemnify, to the extent permitted by law, and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each other person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act, each other Seller and each underwriter,
any officer, director, employee or agent of any such other Seller or underwriter
and each other person, if any, who controls such other Seller or underwriter
within the meaning of Section 15 of the 1933 Act against any Claims to which
each such indemnified party may become subject under the 1933 Act or otherwise,
insofar as such Claims (or actions in respect thereof) are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Document, or insofar as any Claims are based upon the omission or
alleged omission to state in any Registration Document a material fact required
to be stated therein or necessary to make the statements made therein not
misleading, and will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in investigating or
defending any such claim; provided, however, that such indemnification or
reimbursement shall be payable only if, and to the extent that, any such Claim
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any Registration Document in reliance
upon and in conformity with written information furnished to the Company by the
Seller specifically for use in the preparation thereof.
<PAGE> 12
(d) Any person entitled to indemnification under Paragraphs 7(b)
or 7(c) above shall notify promptly the indemnifying party in writing of the
commencement of any Claim if a claim for indemnification in respect thereof is
to be made against an indemnifying party under this Paragraph 7(d), but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
Paragraph 7(b) or 7(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that (i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; (ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there are legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any reasonable expenses therefor; provided, that no indemnifying
party shall be subject to any liability for any settlement of a Claim made
without its consent (which may not be unreasonably withheld, delayed or
conditioned). If the indemnifying party assumes the defense of any Claim
hereunder, such indemnifying party shall not enter into any settlement without
the consent of the indemnified party if such settlement attributes liability to
the indemnified party.
(e) If for any reason the indemnity provided in Paragraphs 7(b) or
7(c) above is unavailable, or is insufficient to hold harmless, an indemnified
party, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other from the
transactions contemplated by this Agreement. If, however, the allocation
provided in the immediately preceding sentence is not permitted by applicable
law, or if the indemnified party failed to give the notice required by Paragraph
7(d) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
indemnifying party and the indemnified party as
<PAGE> 13
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable in respect of any Claim shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such Claim. Notwithstanding the
foregoing, no underwriter or controlling person thereof, if any, shall be
required to contribute, in respect of such underwriter's participation as an
underwriter in the offering, any amount in excess of the amount by which the
total price at which the Registrable Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The obligation of any
underwriters to contribute pursuant to this paragraph (e) shall be several in
proportion to their respective underwriting commitments and not joint.
(f) The provisions of Paragraphs 7(b) through 7(e) of this
Agreement shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.
(g) The Registered Holders shall have certain "piggy-back"
registration rights with respect to the Registrable Securities as hereinafter
provided:
A. If at any time after the Final Closing Date, the Company
shall file with the SEC a registration statement under the 1933 Act registering
any shares of Common Stock, the Company shall give written notice to each Seller
thereof prior to such filing.
B. Within fifteen (15) days after such notice from the
Company, each Registered Holder shall give written notice to the Company whether
or not the Registered Holder desires to have all of the Registered Holder's
Registrable Securities included in the registration statement. If a Registered
Holder fails to give such notice within such period, such Registered Holder
shall not have the right to have Registered Holder's Registrable Securities
registered pursuant to such registration statement. If a Registered Holder gives
such notice, then the Company shall include such Registered Holder's Registrable
Securities in the registration statement, at the Company's sole cost and
expense, subject to the remaining terms of this Paragraph 7(g).
C. If the registration statement relates to an underwritten
offering, and the underwriter shall determine in writing that the total number
of shares of Common Stock to be
<PAGE> 14
included in the offering, including the Registrable Securities, shall exceed the
amount which the underwriter deems to be appropriate for the offering, the
number of shares of the Registrable Securities shall be reduced in the same
proportion as the remainder of the shares in the offering and each Registered
Holder's Registrable Securities included in such registration statement will be
reduced proportionately. For this purpose, if other securities in the
registration statement are derivative securities, their underlying shares shall
be included in the computation. The Registered Holders shall enter into such
agreements as may be reasonably required by the underwriters and the Registered
Holders shall pay to the underwriters commissions relating to the sale of their
respective Registrable Securities.
D. Each Registered Holder shall have two (2) opportunities
to have the Registrable Securities registered under this Paragraph 7(g).
E. A Registered Holder shall furnish in writing to the
Company such information as the Company shall reasonably require in connection
with a registration statement.
(h) If and whenever the Company is required by the provisions of
this Paragraph 7 to use its best efforts to register any Registrable Securities
under the 1933 Act, the Company shall, as expeditiously as possible under the
circumstances:
A. Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective as soon as possible after filing
and remain effective.
B. Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement current and
effective and to comply with the provisions of the 1933 Act, and any regulations
promulgated thereunder, with respect to the sale or disposition of all
Registrable Securities covered by the registration statement required to effect
the distribution of the securities, but in no event shall the Company be
required to do so for a period of more than five (5) years following the
effective date of the registration statement.
C. Furnish to the Registered Holders participating in the
offering, copies (in reasonable quantities) of summary, preliminary, final,
amended or supplemented prospectuses, in conformity with the requirements of the
1933 Act and any regulations promulgated thereunder, and other documents as
reasonably may be required in order to facilitate the disposition of the
securities, but only while the Company is required under the provisions hereof
to keep the registration statement current.
D. Use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions of the United States as the
Registered Holders participating in the offering shall reasonably request, and
do any and all other acts and things which may be reasonably necessary
<PAGE> 15
to enable each participating Registered Holder to consummate the disposition of
the Registrable Securities in such jurisdictions.
E. Notify each Registered Holder selling Registrable
Securities, at any time when a prospectus relating to any such Registrable
Securities covered by such registration statement is required to be delivered
under the 1933 Act, of the Company's becoming aware that the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, and promptly prepare and furnish to each
such Registered Holder selling Registrable Securities a reasonable number of
copies of a prospectus supplemented or amended so that, as thereafter delivered
to the purchasers of such Registrable Securities, such prospectus shall not
include 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 in the light of the circumstances then existing.
F. As soon as practicable after the effective date of the
registration statement, and in any event within eighteen (18) months thereafter,
make generally available to Registered Holders participating in the offering an
earnings statement (which need not be audited) covering a period of at least
twelve (12) consecutive months beginning after the effective date of the
registration statement which earnings statement shall satisfy the provisions of
Section 11(a) of the 1933 Act, including, at the Company's option, Rule 158
thereunder. To the extent that the Company files such information with the SEC
in satisfaction of the foregoing, the Company need not deliver the above
referenced earnings statement to Registered Holders.
G. Upon request, deliver promptly to counsel for each
Registered Holder participating in the offering copies of all correspondence
between the SEC and the Company, its counsel or auditors and all memoranda
relating to discussions with the SEC or its staff with respect to the
registration statement and permit each such Registered Holder to do such
investigation at such Registered Holder's sole cost and expense, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary. Each Registered Holder
agrees that it will use its best efforts not to interfere unreasonably with the
Company's business when conducting any such investigation and each Registered
Holder shall keep any such information received pursuant to this Paragraph 7G
confidential.
H. Provide a transfer agent and registrar located in the
United States for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement.
I. List the Registrable Securities covered by such
registration statement on such exchanges and/or on the NASDAQ Stock Market as
the Common Stock is then currently listed upon.
<PAGE> 16
J. Pay all Registration Expenses (as defined below)
incurred in connection with a registration of Registrable Securities, whether or
not such registration statement shall become effective; provided that each
Registered Holder shall pay all underwriting discounts, commissions and transfer
taxes, and their own counsel and accounting fees, if any, relating to the sale
or disposition of such Registered Holder's Registrable Securities pursuant to a
registration statement. As used herein, "Registration Expenses" means any and
all reasonable and customary expenses incident to performance of or compliance
with the registration rights set forth herein, including, without limitation,
(i) all SEC and stock exchange or NASDAQ Stock Market registration and filing
fees, (ii) all fees and expenses of complying with state securities or blue sky
laws (including reasonable fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Securities but no other expenses of the underwriters or their counsel), (iii)
all printing, messenger and delivery expenses, and (iv) the reasonable fees and
disbursements of counsel for the Company and the Company's independent public
accountants.
(i) The Company acknowledges that there is no adequate remedy at
law for failure by it to comply with the provisions of this Paragraph 7 and that
such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Paragraph 7 may be specifically
enforced. In the event that the Company shall fail to file such registration
statement when required pursuant to Paragraph 7(a) above or to keep any
registration statement effective as provided in this Paragraph or otherwise
fails to comply with its obligations and agreements in this Paragraph 7, then,
in addition to any other rights or remedies Sellers may have at law or in
equity, including without limitation, the right of rescission, the Company shall
indemnify and hold harmless each holder of Placement Agent Warrants from and
against any and all manner or loss which they may incur as a result of such
failure. In addition, the Company shall also reimburse such holders for any and
all reasonable legal fees and expenses incurred by them in enforcing their
rights pursuant to this Paragraph 7, regardless of whether any litigation was
commenced; provided, however, that the Company shall not be liable for the fees
and expenses of more than one law firm, which firm shall be designated by the
Placement Agent.
8. CONDITIONS. The following obligations of the Company shall be
satisfied or fulfilled on or prior to the date of each Closing, unless otherwise
agreed to in writing by the Placement Agent:
(a) The Company shall have delivered to the Placement Agent, at
the Initial Closing, (i) a currently-dated long-form good standing certificate
or telegram from the Secretary of State where the Company is incorporated and
each other jurisdiction in which the Company is qualified to do business as a
foreign corporation; (ii) the articles of incorporation (as amended) of the
Company and each Subsidiary, as currently in effect, certified by the Secretary
of State of the state where the Company and each Subsidiary is incorporated;
(iii) by-laws of the Company certified by the secretary of the Company; and (iv)
certified resolutions of the Board of Directors
<PAGE> 17
of the Company approving this Agreement, the sale of the Common Stock and the
Placement Agent Warrants, and the registration of the Registrable Securities.
(b) There shall have occurred no event which has a Material
Adverse Effect on the Company or any of the Subsidiaries or any of their
respective businesses, assets, prospects or the Company's securities since the
date of this Agreement.
(c) No litigation or administrative proceeding shall have been
threatened or commenced against the Company or any of the Subsidiaries which (i)
seeks to enjoin or otherwise prohibit or restrict the consummation of the
transactions contemplated by this Agreement or (ii) if adversely determined,
would have a Material Adverse Effect on the Company or the Company's securities.
(d) The Company shall have delivered to the Placement Agent a
certificate of its principal executive and financial officers as to the matters
set forth in Paragraphs 8(a), (b) and (c) of this Agreement and to the further
effect that (i) neither the Company nor any Subsidiary is in default, in any
respect, under any note, loan agreement, security agreement, mortgage, deed of
trust, indenture, contract, alliance agreement, lease, license, joint venture
agreement, agreement or other instrument to which it is a party, except as
disclosed in the Financial Statements or the Memorandum and except where such
default has not and will not have a Material Adverse Effect; (ii) the Company's
representations and warranties contained in this Agreement are true and correct
in all respects on such date with the same force and effect as if made on such
date; (iii) there has been no amendment or changes to the Company's or
Subsidiaries' articles of incorporation or by-laws or authorizing resolutions
from those delivered pursuant to Paragraph 8(a) of this Agreement; and (iv) no
event has occurred which, with or without the lapse of time or giving of notice,
or both, would constitute a breach or default thereof by the Company or any
Subsidiary or would cause acceleration of any obligation of the Company or any
Subsidiary, or could adversely affect the business, operations, financial
condition or prospects of the Company.
(e) The Placement Agent shall have received the opinion of Orrick,
Herrington & Sutcliffe LLP, counsel for the Company, dated as of the Closing
date in form and substance reasonably satisfactory to the Placement Agent and
its counsel.
(f) The Company shall have prepared and filed or delivered to
counsel for filing with the SEC and any states in which such filing is required,
a Form D relating to the sale of the Common Stock and such other documents and
certificates as are required.
(g) Subscriptions for at least the Minimum Amount of Common Stock
shall have been accepted by the Company.
(h) In addition to the right of the Placement Agent to terminate
this Agreement and not consummate the transactions contemplated by this
Agreement as a result of the failure of the Company to comply with any of its
obligations set forth in this Agreement, this Agreement
<PAGE> 18
may be terminated by the Placement Agent by written notice to the Company at any
time prior to the Initial Closing if, in the Placement Agent's sole judgment,
(i) the Company and/or Subsidiaries shall have sustained a loss that is material
to the Company or its Subsidiaries, taken as a whole, whether or not insured, by
reason of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree; (ii) trading in
securities on any exchange or system shall have been suspended or limited either
generally or specifically with respect to the Company's Common Stock; (iii)
material governmental restrictions have been imposed on trading in securities
generally or specifically with respect to the Company's Common Stock (not in
force and effect on the date of this Agreement); (iv) a banking moratorium shall
have been declared by Federal or New York State authorities; (v) an outbreak of
major international hostilities or other national or international calamity
shall have occurred; (vi) the Congress of the United States or any state
legislative body shall have passed or taken any action or measure, or such
bodies or any governmental body or any authoritative accounting institute, or
board, or any governmental executive shall have adopted any orders, rules or
regulations, which the Placement Agent reasonably believes is likely to have a
Material Adverse Effect on the business, financial condition or financial
statements of the Company or the market for the Common Stock; (vii) the Common
Stock shall have been delisted from NASDAQ or the Company shall have received
notice from NASDAQ advising the Company of its intention to have the Common
Stock delisted from NASDAQ, whether conditional or otherwise, or the Company
shall fail to meet the requirements for continued listing on NASDAQ; or (viii)
there shall have been, in the Placement Agent's judgment, a material decline in
the Dow Jones Industrial Index or the market price of the Common Stock at any
time subsequent to the date of this Agreement.
9. COVENANTS OF THE COMPANY. The Company agrees at all times as long as
the Placement Agent Warrants may be exercised, to keep reserved from the
authorized and unissued Common Stock, such number of shares of Common Stock as
may be, from time to time, issuable upon exercise of the Placement Agent
Warrants.
10. FEES.
(a) In connection with the offering of the Common Stock the
Company will pay the Placement Agent a commission equal to ten (10%) percent of
the gross cash raised. The Placement Agent, in its sole and absolute discretion
and with the consent of the Company, can elect to receive, in lieu of all or
part of the cash commission, shares of Common Stock valued at the Purchase Price
(the "Placement Agent Shares"). In addition, the Placement Agent shall receive
five (5) year Warrants (the "Placement Agent Warrants") to purchase shares of
the Company's common stock equal to ten (10%) percent of the number of shares of
Common Stock sold. The exercise price of the Placement Agent Warrants will be
equal to 120% of the price at which the Common Stock is sold. Shares of Common
Stock may be offered by certain other broker/dealers and the Placement Agent may
allot a portion of its compensation to such other broker/dealers.
<PAGE> 19
(b) In addition, the Company will pay the Placement Agent a fee
equal to 10 percent (10%) of the gross proceeds, if any, received subsequent to
the Closing or subsequent to the termination of this Placement Agreement, as
applicable, from any party introduced to the Company by the Placement Agent;
provided that such proceeds shall have been received by the Company within one
(1) year after the date of such introduction and the Placement Agent shall have
notified the Company by December 31, 1999 that such introduction has been made.
(c) The Company shall reimburse the Placement Agent for up to
twenty-five thousand ($25,000) of its reasonable expenses (including reasonable
fees and expenses of its counsel) incurred directly in connection with the
transaction contemplated by this Agreement.
(d) All payments in connection with the sale of the Common Stock
shall be made pursuant to the terms and conditions of the escrow agreement dated
as of December 29,1999 between the Placement Agent and American Stock Transfer &
Trust Company, an executed copy of which has been delivered to and acknowledged
by the Company.
11. NOTICES. All notices provided for in this Agreement shall be in
writing signed by the party giving such notice, and delivered personally or sent
by overnight courier or messenger against receipt thereof or sent by registered
or certified mail, return receipt requested, or by facsimile transmission, if
confirmed by mail as provided in this Paragraph 11. Notices shall be deemed to
have been received on the date of personal delivery or facsimile or, if sent by
certified or registered mail, return receipt requested, shall be deemed to be
delivered on the third business day after the date of mailing. Notices shall be
sent to the following addresses:
TO THE COMPANY:
LASERSCOPE
3052 Orchard Drive
San Jose, CA 95134-2011
TELECOPIER: (408) 943-1462
Attention: Dennis LaLumandiere, Chief Financial Officer
WITH A COPY TO:
ORRICK, HERRINGTON & SUTCLIFFE LLP
400 Sansome Street
San Francisco, CA 94111
TELECOPIER: (415) 773-5759
Attention: Peter Lillevand, Esq.
TO PLACEMENT AGENT:
TAGLICH BROTHERS, D'AMADEO, WAGNER
<PAGE> 20
& COMPANY, INCORPORATED
100 Wall Street
New York, NY 10005
TELECOPIER: (212) 509-6587
Attention: Mr. Richard C. Oh
WITH A COPY TO:
ROBINSON SILVERMAN PEARCE AROHNSON
& BERMAN LLP
1290 Avenue of the Americas
New York, New York 10104
TELECOPIER: (212) 541-4630
Attention: Robert G. Leonard, Esq.
or to such other address as any party shall designate in the manner provided in
this Paragraph 11.
12. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof, superseding any and all prior or
contemporaneous oral and prior written agreements and understandings. This
Agreement may not be modified or amended nor may any right be waived except by a
writing which expressly refers to this Agreement, states that it is a
modification, amendment or waiver and is signed by all parties with respect to a
modification or amendment or the party granting the waiver with respect to a
waiver. No course of conduct or dealing and no trade custom or usage shall
modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such state. Each party hereby consents to
the exclusive jurisdiction of the Federal and state courts situated in New York
County, New York in connection with any action arising out of or based upon this
Agreement and the transactions contemplated by this Agreement.
(c) This Agreement shall be binding upon and inure to the benefit
of the parties hereto, and their respective personal representatives, successors
and permitted assigns.
(d) In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
(e) Each party shall, without payment of any additional
consideration by any other party, at any time on or after the date of any
Closings take such further action and execute such other and further documents
and instruments as the other party may request in order to provide the other
party with the benefits of this Agreement.
<PAGE> 21
(f) The captions and headings contained herein are solely for
convenience and reference and do not constitute a part of this Agreement.
(g) All references to any gender shall be deemed to include the
masculine, feminine or neuter gender, the singular shall include the plural and
the plural shall include the singular.
(h) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same document.
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first aforesaid.
LASERSCOPE TAGLICH BROTHERS, D'AMADEO, WAGNER
& COMPANY, INCORPORATED
By: /s/ Dennis LaLumandiere By: /s/ Richard c. Oh
---------------------------------- -------------------------------------
Name: Dennis LaLumandiere Name: Richard C. Oh
Title: Chief Financial Officer Title: Vice President
<PAGE> 1
EXHIBIT 10.19A
LASERSCOPE
COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT ("Agreement") made as of this 22nd day of
December, 1999 between LASERSCOPE, a California corporation, with its principal
offices at 3052 Orchard Drive, San Jose, California 95134-2011 (the "Company")
and the undersigned (the "Subscriber").
W I T N E S S E T H :
WHEREAS, the Company desires to issue, in a private placement, shares of
common stock, no par value per share (the "Common Stock"), at a price of $0.80
per share, with a minimum aggregate offering price of $1,000,000 (the "Minimum
Amount") and a maximum aggregate offering price of $2,000,000 (the "Maximum
Amount"); and
WHEREAS, Subscriber desires to acquire shares of Common Stock having an
aggregate purchase price set forth on the signature page hereof (the "Purchase
Price").
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
1. SUBSCRIPTION FOR SECURITIES AND REPRESENTATIONS BY SUBSCRIBER.
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company for a
price of $0.80 per share, shares of Common Stock having the Purchase Price
(hereinafter, collectively, the "Shares") and the Company agrees to sell the
Shares to the Subscriber for the Purchase Price, subject to the Company's right
to sell to the Subscriber such lesser amount of Shares as it may, in its sole
and absolute discretion, deem necessary or desirable. The Purchase Price is
payable, at or prior to the closing of this Agreement, by wire transfer or by
check, subject to collection, as set forth in the "INSTRUCTIONS TO SUBSCRIBERS"
contained in the Subscription Documents Booklet of which this Agreement is a
part.
1.2 The Subscriber recognizes that the purchase of the Shares
involves a high degree of risk in that (i) the Shares have not been registered
under the Securities Act of 1933, as amended
<PAGE> 2
("1933 Act"), and the Company has no obligation to register the Shares, except
as set forth in Section 3 below; (ii) an investment in the Shares is highly
speculative and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Shares; (iii) the
Subscriber may not be able to liquidate the Subscriber's investment; and (v) the
Subscriber could sustain the loss of Subscriber's entire investment. Such risks
are more fully set forth in the Company's Confidential Private Placement
Memorandum dated December 21, 1999, including the exhibits thereto, as the same
may thereafter be supplemented and/or amended (collectively, the "Memorandum").
1.3 The private placement of the Common Stock by the Company (the
"Private Placement") pursuant to the Memorandum shall continue for a period
commencing on the date of the Memorandum and ending on the date set forth in the
Memorandum.
1.4 The Subscriber represents as follows:
(a) The Subscriber represents that the Subscriber is an
Accredited Investor (as defined in Rule 501 of Regulation D promulgated under
the 1933 Act) as indicated by the Subscriber's responses to the Confidential
Investor Questionnaire, a copy of which is included in the Subscription
Documents Booklet, and that the Subscriber is able to bear the economic risk of
an investment in the Shares.
(b) The Subscriber acknowledges that the Subscriber has
significant prior investment experience, including investment in non-listed and
non-registered securities. The Subscriber recognizes the highly speculative
nature of this investment. The Subscriber acknowledges that the Subscriber has
carefully read the Memorandum, including but not limited to, the Company's Form
10-K for the fiscal year ended December 31, 1998 and the Company's Form 10-Qs
for the fiscal quarters ended March 31, 1999, June 30, 1999 and September 30,
1999.
(c) The Subscriber hereby acknowledges that this Private
Placement and the Memorandum have not been reviewed by the United States
Securities and Exchange Commission ("SEC") or by a state securities regulator
because it is intended to be a nonpublic offering pursuant to Sections 4(2) and
4(6) of the 1933 Act and Rule 506 of Regulation D promulgated thereunder. The
Subscriber represents that the Shares are being purchased for the Subscriber's
own account, for investment purposes only and not for distribution or resale to
others. The Subscriber agrees that the Subscriber will not sell or otherwise
transfer the Shares unless they are registered under the 1933 Act or unless an
exemption from such registration is available.
<PAGE> 3
(d) The Subscriber understands that the Shares have not been
registered under the 1933 Act by reason of a claimed exemption under the
provisions of the 1933 Act which depends, in part, upon the Subscriber's
investment intention. In this connection, the Subscriber understands that it is
the position of the SEC that the statutory basis for such exemption would not be
present if the Subscriber's representation merely meant that the Subscriber's
present intention was to hold the Shares for a short period, such as the capital
gains period of tax statutes, for a deferred sale, for a market rise, or for any
other fixed period. The Subscriber realizes that, in the view of the SEC, a
purchase now with an intent to resell after a pre-determined amount of time
would represent a purchase with an intent inconsistent with the Subscriber's
representation to the Company, and the SEC might regard such a sale or
disposition as a deferred sale to which such exemptions are not available.
(e) The Subscriber understands that Rule 144 (the "Rule")
promulgated by the SEC under the 1933 Act requires, among other conditions, a
one year holding period prior to the resale (in limited amounts and subject to
certain other restrictions) of securities acquired in a non-public offering
without having to satisfy the registration requirements under the 1933 Act. The
Subscriber understands that the Company makes no representation or warranty
regarding its fulfillment in the future of any reporting requirements under the
Securities Exchange Act of 1934, as amended, or its dissemination to the public
of any current financial or other information concerning the Company, as is
required by the Rule as one of the conditions of its availability. The
Subscriber understands and hereby acknowledges that the Company is the only
entity that can register the Shares under the 1933 Act and that the Company is
under no obligation to register the Shares under the 1933 Act, with the
exception of certain registration obligations set forth in Section 3 below. The
Subscriber acknowledges that the Company may, if it desires, permit the transfer
of the Shares out of the Subscriber's name only when the Subscriber's request
for transfer is accompanied by an opinion of counsel reasonably satisfactory to
the Company that neither the sale nor the proposed transfer results in a
violation of the 1933 Act or any applicable state "blue sky" laws and subject to
the provisions of Section 1.4(f) hereof.
(f) The Subscriber consents to the placement of a legend on
any certificate or other document evidencing the Shares stating that they have
not been registered under the 1933 Act and under applicable state securities
laws and setting forth or referring to the restrictions on transferability and
sale thereof.
(g) The Subscriber understands that the Company will review
this Agreement and the Confidential Investor Questionnaire; and it is further
agreed that the Company reserves
<PAGE> 4
the unrestricted right to reject or limit any subscription and to close the
Private Placement at any time.
(h) The Subscriber hereby represents that the address of
Subscriber furnished by the Subscriber at the end of this Agreement is the
Subscriber's principal residence, if the Subscriber is an individual, or its
principal business address, if the Subscriber is a corporation or other entity.
(i) The Subscriber has had a reasonable opportunity to ask
questions of and receive answers from the Company concerning the Company and the
Private Placement, and all such questions, if any, have been answered to the
full satisfaction of the Subscriber; and the Company shall provide Subscriber
with the opportunity to ask additional questions of and receive answers (all of
which information shall be limited to information in the public realm) from the
Company concerning the Company during the period which the Subscriber owns the
Shares.
(j) The Subscriber has such knowledge and expertise in
financial and business matters that the Subscriber is capable of evaluating the
merits and risks involved in an investment in the Shares.
(k) The Subscriber has full power and authority to execute
and deliver this Agreement and to perform the obligations of the undersigned
hereunder; and this Agreement is a legally binding obligation of the undersigned
enforceable in accordance with its terms.
(l) Except as set forth in this Agreement and the
Memorandum, no representations or warranties have been made to the Subscriber by
the Company, the Placement Agent (as defined in the Memorandum) or any of their
respective agents, employees or affiliates and in entering into this
transaction, the Subscriber is not relying on any information, other than that
contained in the Memorandum, the public documents of the Company (e.g., latest
Form 10-K and Form 10-Q; collectively, the "Public Documents") and the results
of an independent investigation by the Subscriber.
(m) The Subscriber agrees that Subscriber will not sell or
otherwise transfer the Shares unless they are registered under the 1933 Act and
applicable state "blue sky" laws or unless an exemption from such registration
is available. The Subscriber represents that (i) the Subscriber has adequate
means of providing for the Subscriber's current needs and possible personal
contingencies, (ii) the Subscriber has no need for liquidity in this investment,
(iii) the Subscriber is able to bear the substantial economic risk of an
investment in the Shares for an indefinite period, and (iv) at the present time
the Subscriber could afford a complete loss of such investment.
<PAGE> 5
(n) It is understood that all documents, records and books
pertaining to this investment have been made available for the inspection by the
Subscriber's attorney and/or accountant and/or the Subscriber's purchaser
representative and the Subscriber, and that the books and records of the Company
will be available upon reasonable notice during business hours at its principal
place of business.
2. TERMS OF SUBSCRIPTION.
The Offering of the Common Stock is being made on a "best efforts"
basis as more particularly set forth in the Memorandum.
3. REGISTRATION RIGHTS.
(a) The Company shall prepare and file with the SEC, within sixty
(60) days following the Final Closing Date (as defined in the Memorandum), a
registration statement ("Registration Statement") on the appropriate form under
the 1933 Act, with respect to the Shares (the "Registrable Securities"). The
Company shall use its best efforts to have the Registration Statement declared
effective as soon as possible after filing, but in no event later than one
hundred and thirty-five (135) days following the Final Closing Date and shall
keep such Registration Statement effective and current continuously for three
(3) years or until such earlier date as all of the Registrable Securities have
been sold. If the Registration Statement is not filed within sixty (60) days
following the Final Closing Date, each holder of such Registrable Securities
(including transferees authorized under applicable securities laws) (each a
"Registered Holder") shall be entitled to receive from the Company in cash a
payment (the "Filing Payment") equal to (A) the product of the number of
Registrable Securities held by the Registered Holder and the Purchase Price,
multiplied by (B) the product of three percent (3%) and the number of thirty
(30) day periods, or any part thereof, beyond said sixty (60) day period until
the Registration Statement is filed with the SEC. In addition, if the
Registration Statement has been filed but is not declared effective within one
hundred and thirty-five (135) days following the Final Closing Date, each
Registered Holder also shall be entitled to receive in cash from the Company a
payment (the "Effectiveness Payment" and together with the Filing Payment, the
"Registration Payments") equal to (Y) the product of the number of Registrable
Securities held by the Registered Holder and the Purchase Price, multiplied by
(Z) the product of two percent (2%) and the number of thirty (30) day periods,
or any part thereof, beyond said one hundred and thirty-five (135) day period
until the Registration Statement is declared effective. The Company shall pay
the Registration Payments, if any, to the
<PAGE> 6
Registered Holders within thirty (30) days after the earlier to occur of (i) the
filing or effectiveness of the Registration Statement, as applicable, or (ii)
the end of the calendar quarter during which the sixty (60) day or one hundred
and thirty-five day period expired, as applicable, and then quarterly
thereafter. The Registration Statement will, among other things, also register
all other shares of Common Stock sold in the Private Placement, any Placement
Agent Shares (as defined in the Memorandum) and the shares of Common Stock
issuable upon exercise of the Placement Agent Warrants (as defined in the
Memorandum).
(b) In the event the Company effects any registration under the
1933 Act of any Registrable Securities pursuant to Section 3(a) above or 3(g)
below, the Company shall indemnify, to the extent permitted by law, and hold
harmless any person or entity whose Registrable Securities are included in such
registration statement (each, a "Seller"), any underwriter, any officer,
director, employee or agent of any Seller or underwriter, and each other person,
if any, who controls any Seller or underwriter within the meaning of Section 15
of the 1933 Act, against any losses, claims, damages, liabilities, judgment,
fines, penalties, costs and expenses, joint or several, or actions in respect
thereof (collectively, the "Claims"), to which each such indemnified party
becomes subject, under the 1933 Act or otherwise, insofar as such Claims arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement or prospectus or any
amendment or supplement thereto or any document filed under a state securities
or blue sky law (collectively, the "Registration Documents") or insofar as such
Claims arise out of or are based upon the omission or alleged omission to state
in any Registration Document a material fact required to be stated therein or
necessary to make the statements made therein not misleading, and will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in investigating or defending any such Claim; provided
that the Company shall not be liable in any such case to a particular
indemnified party to the extent such Claim is based upon an untrue statement or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact made in any Registration Document in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such indemnified party specifically for use in the preparation of such
Registration Document.
(c) In connection with any registration statement in which any
Seller is participating, each Seller, severally and not jointly, shall
indemnify, to the extent permitted by law, and hold harmless the Company, each
of its directors, each of its officers who have signed the registration
statement, each other person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act, each other Seller and each
<PAGE> 7
underwriter, any officer, director, employee or agent of any such other Seller
or underwriter and each other person, if any, who controls such other Seller or
underwriter within the meaning of Section 15 of the 1933 Act against any Claims
to which each such indemnified party may become subject under the 1933 Act or
otherwise, insofar as such Claims (or actions in respect thereof) are based upon
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Document, or insofar as any Claims are based upon the
omission or alleged omission to state in any Registration Document a material
fact required to be stated therein or necessary to make the statements made
therein not misleading, and will reimburse any such indemnified party for any
legal or other expenses reasonably incurred by such indemnified party in
investigating or defending any such claim; provided, however, that such
indemnification or reimbursement shall be payable only if, and to the extent
that, any such Claim arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Registration Document in reliance upon and in conformity with written
information furnished to the Company by the Seller specifically for use in the
preparation thereof.
(d) Any person entitled to indemnification under Section 3(b) or
3(c) above shall notify promptly the indemnifying party in writing of the
commencement of any Claim if a claim for indemnification in respect thereof is
to be made against an indemnifying party under this Section 3(d), but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
Section 3(b) or 3(c) above, except to the extent that such failure shall
materially adversely affect any indemnifying party or its rights hereunder. In
case any action is brought against the indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it chooses, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party;
and, after notice from the indemnifying party to the indemnified party that it
so chooses, the indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that (i) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; (ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of
<PAGE> 8
professional conduct, the indemnified party shall have the right to assume or
continue its own defense as set forth above (but with no more than one firm of
counsel for all indemnified parties in each jurisdiction, except to the extent
any indemnified party or parties reasonably shall have concluded that there are
legal defenses available to such party or parties which are not available to the
other indemnified parties or to the extent representation of all indemnified
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct) and the indemnifying party shall be liable
for any reasonable expenses therefor; provided, that no indemnifying party shall
be subject to any liability for any settlement of a Claim made without its
consent (which may not be unreasonably withheld, delayed or conditioned). If the
indemnifying party assumes the defense of any Claim hereunder, such indemnifying
party shall not enter into any settlement without the consent of the indemnified
party if such settlement attributes liability to the indemnified party.
(e) If for any reason the indemnity provided in Section 3(b) or
3(c) above is unavailable, or is insufficient to hold harmless, an indemnified
party, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other from the
transactions contemplated by this Agreement. If, however, the allocation
provided in the immediately preceding sentence is not permitted by applicable
law, or if the indemnified party failed to give the notice required by Section
3(d) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable in respect of any Claim shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim. Notwithstanding the foregoing, no
underwriter or controlling person thereof, if any, shall be required to
contribute, in respect of such underwriter's participation as an underwriter in
the offering, any amount in excess of the amount by which the total price at
which the Registrable Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any
<PAGE> 9
damages which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The obligation of any
underwriters to contribute pursuant to this paragraph (e) shall be several in
proportion to their respective underwriting commitments and not joint.
(f) The provisions of Section 3(b) through 3(e) of this Agreement
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract and shall
remain operative and in full force and effect regardless of any investigation
made or omitted by or on behalf of any indemnified party and shall survive the
transfer of the Registrable Securities by any such party.
(g) The Registered Holders shall have certain "piggy-back"
registration rights with respect to the Registrable Securities as hereinafter
provided:
A. If at any time after the date of the Final Closing Date,
the Company shall file with the SEC a registration statement under the 1933 Act
registering any shares of Common Stock (other than a Registration Statement on
Form S-4 or Form S-8 or any successor to such forms), the Company shall give
written notice to each Registered Holder thereof prior to such filing.
B. Within fifteen (15) days after such notice from the
Company, each Registered Holder shall give written notice to the Company whether
or not the Registered Holder desires to have all of the Registered Holder's
Registrable Securities included in the registration statement. If a Registered
Holder fails to give such notice within such period, such Registered Holder
shall not have the right to have such Registered Holder's Registrable Securities
registered pursuant to such registration statement. If a Registered Holder gives
such notice, then the Company shall include such Registered Holder's Registrable
Securities in the registration statement, at the Company's sole cost and
expense, subject to the remaining terms of this Section 3(g).
C. If the registration statement relates to an underwritten
offering, and the underwriter shall determine in writing that the total number
of shares of Common Stock to be included in the offering, including the
Registrable Securities, shall exceed the amount which the underwriter deems to
be appropriate for the offering, the number of shares of the Registrable
Securities shall be reduced in the same proportion as the remainder of the
shares in the offering and each Registered
<PAGE> 10
Holder's Registrable Securities included in such registration statement will be
reduced proportionately. For this purpose, if other securities in the
registration statement are derivative securities, their underlying shares shall
be included in the computation. The Registered Holders shall enter into such
agreements as may be reasonably required by the underwriters and the Registered
Holders shall pay to the underwriters commissions relating to the sale of their
respective Registrable Securities.
D. The Registered Holders shall have two (2) opportunities
to have the Registrable Securities registered under this Section 3(g).
E. The Registered Holder shall furnish in writing to the
Company such information as the Company shall reasonably require in connection
with a registration statement.
(h) If and whenever the Company is required by the provisions of
this Section 3 to use its best efforts to register any Registrable Securities
under the 1933 Act, the Company shall, as expeditiously as possible under the
circumstances:
A. Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective as soon as possible after filing
and remain effective.
B. Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement current and
effective and to comply with the provisions of the 1933 Act, and any regulations
promulgated thereunder, with respect to the sale or disposition of all
Registrable Securities covered by the registration statement required to effect
the distribution of the securities, but in no event shall the Company be
required to do so for a period of more than three (3) years following the
effective date of the registration statement.
C. Furnish to the Sellers participating in the offering,
copies (in reasonable quantities) of summary, preliminary, final, amended or
supplemented prospectuses, in conformity with the requirements of the 1933 Act
and any regulations promulgated thereunder, and other documents as reasonably
may be required in order to facilitate the disposition of the securities, but
only while the Company is required under the provisions hereof to keep the
registration statement current.
D. Use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions of the United States as the
Sellers participating
<PAGE> 11
in the offering shall reasonably request, and do any and all other acts and
things which may be reasonably necessary to enable each participating Seller to
consummate the disposition of the Registrable Securities in such jurisdictions.
E. Notify each Seller selling Registrable Securities, at
any time when a prospectus relating to any such Registrable Securities covered
by such registration statement is required to be delivered under the 1933 Act,
of the Company's becoming aware that the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, and promptly prepare and furnish to each such
Seller selling Registrable Securities a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include 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 in
the light of the circumstances then existing.
F. As soon as practicable after the effective date of the
registration statement, and in any event within eighteen (18) months thereafter,
make generally available to Sellers participating in the offering an earnings
statement (which need not be audited) covering a period of at least twelve (12)
consecutive months beginning after the effective date of the registration
statement which earnings statement shall satisfy the provisions of Section 11(a)
of the 1933 Act, including, at the Company's option, Rule 158 thereunder. To the
extent that the Company files such information with the SEC in satisfaction of
the foregoing, the Company need not deliver the above referenced earnings
statement to Seller.
G. Upon request, deliver promptly to counsel of each Seller
participating in the offering copies of all correspondence between the SEC and
the Company, its counsel or auditors and all memoranda relating to discussions
with the SEC or its staff with respect to the registration statement and permit
each such Seller to do such investigation at such Seller's sole cost and
expense, upon reasonable advance notice, with respect to information contained
in or omitted from the registration statement as it deems reasonably necessary.
Each Seller agrees that it will use its best efforts not to interfere
unreasonably with the Company's business when conducting any such investigation
and each Seller shall keep any such information received pursuant to this
Section confidential.
H. Provide a transfer agent and registrar located in the
United States for all such Registrable Securities covered
<PAGE> 12
by such registration statement not later than the effective date of such
registration statement.
I. List the Registrable Securities covered by such
registration statement on such exchanges and/or on the NASDAQ as the Common
Stock is then currently listed upon.
J. Pay all Registration Expenses incurred in connection
with a registration of Registrable Securities, whether or not such registration
statement shall become effective; provided that each Seller shall pay all
underwriting discounts, commissions and transfer taxes, and their own counsel
fees, if any, relating to the sale or disposition of such Seller's Registrable
Securities pursuant to a registration statement. As used herein, "Registration
Expenses" means any and all reasonable and customary expenses incident to
performance of or compliance with the registration rights set forth herein,
including, without limitation, (i) all SEC and stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
fees and expenses of complying with state securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities but no other expenses
of the underwriters or their counsel), (iii) all printing, messenger and
delivery expenses, and (iv) the reasonable fees and disbursements of counsel for
the Company and the Company's independent public accountants.
(i) The Company acknowledges that there is no adequate remedy at
law for failure by it to comply with the provisions of this Section 3 and that
such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Section 3 may be specifically
enforced. In the event that the Company shall fail to file such registration
statement when required pursuant to Section 3(a) above or to keep any
registration statement effective as provided in this Section 3 or otherwise
fails to comply with its obligations and agreements in this Section 3, then, in
addition to any other rights or remedies the Registered Holders may have at law
or in equity, including without limitation, the right of rescission, the Issuer
shall indemnify and hold harmless the Registered Holders from and against any
and all manner or loss which they may incur as a result of such failure. In
addition, the Issuer shall also reimburse the Registered Holders for any and all
reasonable legal fees and expenses incurred by them in enforcing their rights
pursuant to this Section 3, regardless of whether any litigation was commenced.
4. MISCELLANEOUS.
<PAGE> 13
4.1 All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given (a)
when delivered by hand, (b) one business day after the business day of
transmission if sent by telecopier (with receipt confirmed), provided that a
copy is mailed by certified mail, return receipt requested, or (c) one business
day after the business day of deposit with the carrier, if sent for next
business day delivery by Express Mail, Federal Express or other recognized
express delivery service (receipt requested), in each case addressed to the
Company at the address indicated on the first page of this Agreement marked
"Attention: Gerard A. Herlihy", and to the Subscriber at the Subscriber's
address indicated on the last page of this Agreement (or to such other
addresses, the telecopier numbers as a party may designate as to itself by
notice to the other parties).
4.2 This Agreement shall not be changed, modified or amended
except by a writing signed by the parties to be charged, and this Agreement may
not be discharged except by performance in accordance with its terms or by a
writing signed by the party to be charged.
4.3 This Agreement shall be binding upon and inure to the benefit
of the parties hereto and to their respective heirs, legal representatives,
successors and assigns. This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter thereof and merges
and supersedes all prior discussions, agreements and understandings of any and
every nature among them.
4.4 Notwithstanding the place where this Agreement may be executed
by any of the parties hereto, the parties expressly agree that all the terms and
provisions hereof shall be construed in accordance with and governed by the laws
of the State of New York. The parties hereby agree that any dispute which may
arise between them arising out of or in connection with this Agreement shall be
adjudicated before a court located in New York and they hereby submit to the
exclusive jurisdiction of the courts of the State of New York and of the federal
courts in New York with respect to any action or legal proceeding commenced by
any party, and irrevocably waive any objection they now or hereafter may have
respecting the venue of any such action or proceeding brought in such a court or
respecting the fact that such court is an inconvenient forum, relating to or
arising out of this Agreement or any acts or omissions relating to the sale of
the securities hereunder, and consent to the service of process in any such
action or legal proceeding by means of registered or certified mail, return
receipt requested, in case of the address set forth below or such other address
as the undersigned shall furnish in writing to the other.
<PAGE> 14
4.5 This Agreement may be executed in counterparts. Upon the
execution and delivery of this Agreement by the Subscriber, this Agreement shall
become a binding obligation of the Subscriber with respect to the purchase of
the Shares as herein provided; subject, however, to the right hereby reserved to
the Company to enter into the same agreements with other subscribers and to add
and/or to delete other persons as subscribers.
4.6 The holding of any provision of this Agreement to be invalid
or unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.
4.7 It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party.
4.8 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Agreement.
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
TO BE COMPLETED BY SUBSCRIBER
-------------------------------------
Print Name
Signature for Individual Subscriber Signature of Subscriber
Other than Individual
By:
----------------------------------
Signature
Name:
----------------------------------
Title:
----------------------------------
----------------------------------
Address
----------------------------------
City State Zip Code
----------------------------------
Aggregate Purchase Price
----------------------------------
Social Security or Employer Identification
Number
SUBSCRIPTION ACCEPTED:
LASERSCOPE
By:
----------------------------------
Name:
Title:
Date:
-----------------------------
<PAGE> 1
EXHIBIT 10.20
CONVERTIBLE LOAN AGREEMENT
DATED FEBRUARY 11, 2000
BY AND AMONG
LASERSCOPE
AS BORROWER
AND
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
AND
RENAISSANCE US GROWTH & INCOME TRUST PLC
AS LENDERS
AND
RENAISSANCE CAPITAL GROUP, INC.
AS AGENT FOR THE LENDERS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I - DEFINITION OF TERMS....................................................1
Section 1.01. Definitions..................................................1
Section 1.02. Other Definition Provisions..................................8
ARTICLE II - LOAN PROVISIONS.......................................................8
Section 2.01. The Loan.....................................................8
Section 2.02. Use of Proceeds..............................................9
Section 2.03. Interest Rate and Interest Payments..........................9
Section 2.04. Maturity.....................................................9
Section 2.05. Mandatory Principal Repayment................................9
Section 2.06. Redemption...................................................9
Section 2.07. Conversion...................................................10
Section 2.09. Finder's Fees................................................10
Section 2.10. Taxes........................................................10
Section 2.11. Conversion Rights............................................11
Section 2.12. Security Agreement, Pledge Agreement.........................11
ARTICLE III - CONDITIONS PRECEDENT.................................................11
Section 3.01. Document Requirements........................................11
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER............................13
Section 4.01. Organization and Good Standing...............................13
Section 4.02. Authorization and Power......................................13
Section 4.03. No Conflicts or Consents.....................................13
Section 4.04. Enforceable Obligations......................................14
Section 4.05. No Liens.....................................................14
Section 4.06. Financial Condition..........................................14
Section 4.07. No Default...................................................14
Section 4.08. Material Agreements..........................................14
Section 4.09. No Litigation................................................15
Section 4.10. Taxes........................................................15
Section 4.11. Capitalization...............................................15
Section 4.12. Use of Proceeds..............................................16
Section 4.13. Employee Matters.............................................16
Section 4.14. Employee Benefit Plans.......................................17
Section 4.15. Compliance with Laws.........................................17
Section 4.16. Licenses and Permits.........................................18
Section 4.17. Contracts....................................................18
Section 4.18. Shares Issuable Upon Conversion..............................18
Section 4.19. Insider......................................................18
Section 4.20. Subsidiaries.................................................19
Section 4.21. Casualties...................................................19
Section 4.22. Investment Company Act.......................................19
Section 4.23. Sufficiency of Capital.......................................19
Section 4.24. Corporate Names..............................................19
Section 4.25. Insurance....................................................20
Section 4.26. Intellectual Property........................................20
Section 4.27. Real Property................................................20
Section 4.28. Environmental................................................21
Section 4.29. Survival of Representations and Warranties...................22
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.30. Full Disclosure..............................................22
ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER......................................23
Section 5.01. Financial Statements, Reports and Documents..................23
Section 5.02. Preparation of Budgets.......................................24
Section 5.03. Payment of Taxes and Other Indebtedness......................24
Section 5.04. Maintenance of Existence and Rights; Conduct of Business.....24
Section 5.05. SEC Filings..................................................25
Section 5.06. Notice.......................................................25
Section 5.07. Compliance with Loan Documents...............................25
Section 5.08. Compliance with Material Agreements..........................25
Section 5.09. Operations and Properties....................................25
Section 5.10. Books and Records; Access....................................25
Section 5.11. Compliance with Law..........................................26
Section 5.12. Insurance....................................................26
Section 5.13. Authorizations and Approvals.................................26
Section 5.14. ERISA Compliance.............................................26
Section 5.15. Further Assurances...........................................26
Section 5.16. Indemnity by Borrower........................................27
Section 5.17. Reservation of Shares........................................28
Section 5.18. Ownership of Subsidiaries....................................28
Section 5.19. Retention of Stock Ownership.................................28
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER........................................28
Section 6.01. Limitation on Indebtedness...................................28
Section 6.02. Limitation on Liens..........................................28
Section 6.03. Limitation on Investments....................................29
Section 6.04. Alteration of Material Agreements............................29
Section 6.05. Transactions with Affiliates.................................29
Section 6.06. Limitations on Acquisition of Nonrelated Business............29
Section 6.07. Limitation on Sale of Properties.............................29
Section 6.08. Fiscal Year and Accounting Method............................30
Section 6.09. Liquidation..................................................30
Section 6.10. Material Amendments to Articles of Incorporation or Bylaws...30
Section 6.11. Executive Compensation.......................................30
Section 6.12. Restricted Payments..........................................30
Section 6.13. Consolidation or Merger......................................31
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS......................31
Section 7.01. Financial Ratios.............................................31
ARTICLE VIII - EVENTS OF DEFAULT...................................................31
Section 8.01. Events of Default............................................31
Section 8.02. Remedies Upon Event of Default...............................32
Section 8.03. Performance by the Lenders...................................33
Section 8.04. Payment of Expenses Incurred by the Lenders..................33
ARTICLE IX - REGISTRATION RIGHTS...................................................34
Section 9.01. "Piggy-Back" Registration...................................34
Section 9.02. Shelf Registration..........................................35
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9.03. Obligations of Borrower.....................................36
Section 9.04. Furnish Information.........................................37
Section 9.05. Expenses of Registration....................................37
Section 9.06. Indemnification Regarding Registration Rights...............37
Section 9.07. Reports Under the 1934 Act..................................39
Section 9.08. Assignment of Registration Rights...........................40
Section 9.9. Other Matters...............................................40
ARTICLE X - BOARD OF DIRECTORS.....................................................41
Section 10.01. Board Representation or Attendance by Observer..............41
Section 10.02. Limitation of Authority of Persons Designated as a
Director Nominee............................................41
Section 10.03. Nonliability of the Lenders.................................42
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS....................................42
Section 11.01. The Lenders' Representations and Warranties to
Other Lenders...............................................42
Section 11.02. Waiver of Loan Provisions or Interest or
Principal Payments..........................................43
Section 11.03. Agency......................................................43
ARTICLE XII - MISCELLANEOUS........................................................44
Section 12.01. Strict Compliance...........................................44
Section 12.02. Waivers and Modifications...................................44
Section 12.03. Limitation on Liability.....................................45
Section 12.04. Choice of Forum; Consent to Service of
Process and Jurisdiction....................................45
Section 12.05. Arbitration.................................................45
Section 12.06. Invalid Provisions..........................................47
Section 12.07. Maximum Interest Rate.......................................47
Section 12.08. Participations and Assignments of the Debentures............48
Section 12.09. Confidentiality.............................................48
Section 12.10. Binding Effect..............................................49
Section 12.11. No Third Party Beneficiary..................................49
Section 12.12. Entirety....................................................49
Section 12.13. Headings....................................................49
Section 12.14. Survival....................................................50
Section 12.15. Multiple Counterparts.......................................50
Section 12.16. Knowledge of Borrower.......................................50
Section 12.17. Notices.....................................................50
Section 12.18. Governing Law...............................................52
</TABLE>
<PAGE> 5
THIS CONVERTIBLE LOAN AGREEMENT (this "Agreement"), dated as of February
__, 2000, by and among LASERSCOPE, a California corporation ("Borrower"),
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC., a Texas corporation, and
RENAISSANCE US GROWTH & INCOME TRUST PLC, a public limited company registered in
England and Wales (individually referred to as Renaissance III and Renaissance
PLC, respectively, and together with any permitted assignees or successors in
interest individually referred to as each or any "Lender" and collectively
referred to as the "Lenders"), and RENAISSANCE CAPITAL GROUP, INC., a Texas
corporation, as agent for the Lenders (the "Agent").
WITNESSETH:
WHEREAS, Borrower seeks to obtain THREE MILLION DOLLARS ($3,000,000) from
the Lenders to be used for general corporate purposes in accordance with Section
2.02 hereof in exchange for the issuance of Debentures; and
WHEREAS, Borrower has requested that the Lenders provide the Loan as
herein provided, and that the Lenders are willing to furnish such to Borrower
upon the terms and subject to the conditions and for the considerations
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other valuable consideration, receipt and sufficiency of which is
acknowledged, the parties hereto agree as follows:
ARTICLE I - DEFINITION OF TERMS
SECTION 1.01. DEFINITIONS.
For the purposes of this Agreement, the following terms shall have the
respective meanings assigned to them in this Article I or in the section or
recital referred to below:
"Acquisition Indebtedness" shall mean Indebtedness or mandatorily
redeemable preferred stock of Borrower or a Subsidiary incurred in connection
with, or to provide all or any portion of the funds or credit support utilized
to consummate, the transaction or series of related transactions pursuant to
which such Subsidiary became a Subsidiary or was acquired by Borrower.
"Affiliate" with respect to any Person shall mean a person that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person.
<PAGE> 6
"Capital Expenditure" shall mean an expenditure for assets that is
properly classifiable as a capital expenditure in accordance with GAAP.
"Capital Lease" shall mean any lease of property, real or personal,
which would be properly classifiable as a capital lease in accordance with GAAP.
"Common Stock"shall mean Borrower's common stock, no par value.
"Consolidated Current Assets" shall mean, for any Person as of any date,
the assets of such Person and its consolidated subsidiaries which would be
reflected as current assets on a consolidated balance sheet for such Person and
its subsidiaries prepared as of such date in accordance with GAAP.
"Consolidated Current Liabilities" shall mean, for any Person as of any
date, the liabilities of such Person and its consolidated subsidiaries which
would be reflected as current liabilities on a consolidated balance sheet for
such Person and its subsidiaries prepared as of such date in accordance with
GAAP. For purposes of calculating compliance with any covenant contained in this
Agreement or any other Loan Document, the principal amount of Consolidated
Current Liabilities shall include any balance under any revolving credit
facility of the Borrower, regardless of whether such revolving credit facility
would be reflected as a current liability in accordance with GAAP.
"Consolidated Net Income" shall mean, for any Person for any period,
consolidated net income of such Person and its consolidated subsidiaries for
such period which would be reflected in accordance with GAAP, but excluding (a)
any gain or loss arising from the sale of capital assets, (b) any gain or loss
arising from any write-up or write-down of assets, (c) income or loss of any
other Person, substantially all of the assets of which have been acquired by
such Person in any manner, to the extent that such earnings or losses were
realized by such other Person prior to the date of such acquisition, (d) income
or loss of any Person in which the Person has any ownership interest (other than
consolidated subsidiaries of such Person), unless such earnings have actually
been received or paid by the Person or its consolidated subsidiaries in the form
of cash distributions or additional cash calls, (e) income or loss of any other
Person to which assets of the Person or its consolidated subsidiaries shall have
been sold, transferred or disposed of, or into which the Person shall have
merged, to the extent that such earnings or losses of any other Person arise
prior to the date of such transaction, (f) any gain or loss
<PAGE> 7
arising from the acquisition of any securities of the Person or any of its
consolidated subsidiaries, and (g) any extraordinary gain or loss realized by
such Person or any of its consolidated subsidiaries during such period.
"Consolidated Trailing Twelve Months Free Cash Flow" shall mean for any
Person, for the immediately preceding twelve-month period ended on such date,
Consolidated Net Income of such Person for such twelve-month period, plus (a)
all deferred income tax expense of such Person and its Consolidated Subsidiaries
for such twelve-month period, (b) all depreciation expense of such Person and
its Consolidated Subsidiaries for such twelve-month period, and (c) all
amortization expense of such Person and its Consolidated Subsidiaries for such
twelve-month period, less capital expenditures of such Person and its
Consolidated Subsidiaries for such twelve-month period.
"Conversion " or "Conversion Rights" shall mean exchange of, or the
rights to exchange, the Principal Amount of the Loan, or any part thereof, for
fully paid and nonassessable Common Stock on the terms and conditions provided
in the Debenture.
"Current Liabilities" shall mean all liabilities classified in
accordance with GAAP as current liabilities.
"Current Ratio" shall mean, for any Person as of any date, the ratio
of such Person's Consolidated Current Assets to Consolidated Current Liabilities
as of such date.
"Debentures" shall mean the Debentures executed by Borrower and
delivered pursuant to the terms of this Agreement, together with any renewals,
extensions or modifications thereof.
"Debtor Laws" shall mean all applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, receivership, insolvency,
reorganization or similar laws from time to time in effect affecting the rights
of creditors or debtors generally.
"Default" or "Event of Default" shall mean any of the events
specified in Article VIII.
"Dividends," in respect of any corporation, shall mean (i) cash
distributions or any other distributions on, or in respect of, any class of
capital stock of such corporation, except for distributions made solely in
shares of stock of the same class, and (ii) any and all funds, cash and other
payments made in respect of the redemption, repurchase or acquisition of such
stock, unless such stock shall be redeemed or acquired through the exchange of
such stock with stock of the same class.
<PAGE> 8
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, together with all rules and regulations issued pursuant
thereto.
"Fixed Charge Coverage Ratio" shall mean for Borrower for the
immediately preceding twelve-month period ended on such date, the ratio of (a)
Consolidated Trailing Twelve Months Free Cash Flow, to (b) Borrower's total
scheduled payments of principal on Indebtedness for the same twelve-month
period, excluding Indebtedness under Borrower's revolving credit loans and
mandatory redemption payments as set forth herein.
"GAAP" shall mean United States generally accepted accounting
principles applied on a consistent basis, set forth in the Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants or the Financial Accounting Standards Board or their successors,
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis shall mean
that the accounting principles observed in a current period are comparable in
all material respects to those applied in a preceding period.
"Governmental Authority" shall mean any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or a Subsidiary or any
of its or their businesses, operations or properties.
"Guaranty" of any Person shall mean any contract, agreement or
understanding of such Person pursuant to which such Person in effect guarantees
the payment of any Indebtedness of any other Person (the "Primary Obligor") in
any manner, whether directly or indirectly, including, without limitation,
agreements: (i) to purchase such Indebtedness or any property constituting
security therefor; (ii) to advance or supply funds primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the Primary Obligor
to make payment; or (iii) otherwise to assure the holder of the Indebtedness of
the Primary Obligor against loss in respect thereof, except that "Guaranty"
shall not include the endorsement by Borrower or a Subsidiary in the ordinary
course of business of negotiable instruments or documents for deposit or
collection.
"Holder" shall mean the owner of Registrable Securities.
"Indebtedness" shall mean, with respect to any Person, without
duplication, the following indebtedness, obligations and liabilities of such
Person: (i) indebtedness for borrowed money; (ii) all obligations of such Person
in respect of any Guaranty; (iii) all obligations of such Person in respect of
any Capital Lease, (iv) all obligations, indebtedness and liabilities secured by
any lien or any
<PAGE> 9
security interest on any property or assets of such Person, but only to the
extent so secured; and (v) all preferred stock of such Person which is subject,
at the time of calculation of Indebtedness, to a mandatory redemption
requirement, valued at the greater of its involuntary redemption price or
liquidation preference plus accrued and unpaid dividends, and all extensions,
renewals, modifications and amendments thereto.
"Investment" in any Person shall mean any investment, whether by
means of share purchase, loan, advance, capital contribution or otherwise, in or
to such Person, the Guaranty of any Indebtedness of such Person, or the
subordination of any claim against such Person to other Indebtedness of such
Person; provided however, that "Investment" shall not include (i) any demand
deposits in a duly chartered state or national bank or other cash equivalent
investments (ii) any loans permitted by Section 6.12, or (iii) any acquisitions
of equity in any other Person.
"IRS Code" shall mean the Internal Revenue Code of 1986, as amended,
together with all rules and regulations issued thereunder.
"Lien" shall mean any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention arrangement, or any
other interest in property designed to secure the repayment of Indebtedness,
whether arising by agreement or under any statute or law, or otherwise.
"Loan" shall mean the money lent to Borrower pursuant to this
Agreement, along with any accrued, unpaid interest thereon.
"Loan Closing" or "Loan Closing Date" shall mean the disbursement of
Loan funds.
"Loan Documents" shall mean this Agreement, the Debentures and any
other agreements or documents required to be executed or delivered by Borrower
pursuant to the terms of this Agreement (and any amendments or supplements
hereto or modifications hereof).
"Lock-Up Agreement" shall mean the "lock-up" agreements to be
executed by certain executive officers, directors and principal shareholders of
Borrower pursuant to Section 5.19 of this Agreement.
"Material Adverse Effect" or "Material Adverse Change" shall mean
(i) any change, factor or event that shall (a) have a material adverse effect
upon the validity or enforceability of any Loan Documents, (b) have a material
adverse effect upon the financial condition, results of operations, business,
properties, operations or assets of Borrower or its Subsidiaries taken as a
whole or (c) have a material adverse effect upon the ability of Borrower to
fulfill its
<PAGE> 10
obligations under the Loan Documents, or (ii) any event that causes an Event of
Default or which, with notice or lapse of time or both, could reasonably be
expected to become an Event of Default.
"Obligation" shall mean: (i) all present and future Indebtedness,
obligations and liabilities of Borrower to the Lenders arising pursuant to this
Agreement, regardless of whether such Indebtedness, obligations and liabilities
are direct, indirect, fixed, contingent, joint, several, or joint and several;
(ii) all present and future Indebtedness, obligations and liabilities of
Borrower to the Lenders arising pursuant to or represented by the Debentures and
all interest accruing thereon, and reasonable attorneys' fees incurred in the
enforcement or collection thereof; (iii) all present and future indebtedness,
obligations and liabilities of Borrower and any Subsidiary evidenced by or
arising pursuant to any of the Loan Documents; (iv) all costs incurred by the
Lenders or Agent, including, but not limited to, reasonable attorneys' fees and
legal expenses related to this transaction and (v) all renewals, extensions and
modifications of the indebtedness referred to in the foregoing clauses, or any
part thereof.
"Permits" shall have the meaning set forth in Section 4.16.
"Permitted Indebtedness" shall mean Indebtedness outstanding as of
the date hereof or incurred in compliance with Section 6.01 and the other terms
of this Agreement that constitutes (i) Senior Obligations, (ii) obligations
under Capital Leases, (iii) letters of credit, (iv) Current Liabilities, (v)
debt associated with Permitted Liens, (vi) any other Subordinated Debt, (vii)
Acquisition Indebtedness, (viii) purchase money Indebtedness, (ix) Indebtedness
of foreign Subsidiaries, (x) intercompany Indebtedness, (xi) Indebtedness under
this Agreement or the Debentures, and (xii) any refunding, refinancing or
extension of any of the above.
"Permitted Liens" shall mean: (i) Liens (if any) granted for the
benefit of the Lenders; (ii) Liens to secure the Permitted Indebtedness; (iii)
pledges or deposits made to secure payment of worker's compensation insurance
(or to participate in any fund in connection with worker's compensation
insurance), unemployment insurance, pensions or social security programs; (iv)
Liens imposed by mandatory provisions of law such as for carriers', landlord's,
materialmen's, mechanics', warehousemen's, vendors' and other like Liens arising
in the ordinary course of business, securing Indebtedness whose payment is made
within 30 days of the date such Lien arises, or that are being contested in good
faith by appropriate proceedings as to which adequate reserves have been
established to the extent required by GAAP; (v) Liens for taxes, assessments and
governmental charges or levies imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due
<PAGE> 11
and payable or if the same are being contested in good faith and as to which
adequate cash reserves have been provided or if an extension is obtained with
respect thereto; (vi) Liens arising from good faith deposits in connection with
tenders, leases, bids or contracts (other than contracts involving the borrowing
of money), pledges or deposits to secure public or statutory obligations and
deposits to secure (or in lieu of) surety, stay, appeal or customs bonds and
deposits to secure the payment of taxes, assessments, customs duties or other
similar charges; (vii) encumbrances consisting of zoning restrictions,
easements, reservations, licenses, covenants and other minor irregularities of
title or other restrictions on the use of real property (whether owned or
leased), provided that such items do not materially impair the intended use of
such property, and none of which is violated by Borrower's existing structures
or land use; (viii) mortgages, financing statements, equipment leases or other
encumbrances incurred in connection with the acquisition of property or
equipment or the replacement of existing property or equipment, provided that
such liens shall be limited to the property or equipment then being acquired;
(ix) Liens which secure Senior Obligations; (x) Liens listed in Schedule 4.05,
and (xi) replacements of any of the foregoing.
"Person" shall include an individual, a corporation, a joint
venture, a general or limited partnership, a trust, an unincorporated
organization or a government or any agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan maintained
by Borrower for employees of Borrower and/or any Subsidiaries and covered by
Title IV of ERISA, or subject to the minimum funding standards under Section 412
of the IRS Code.
"Principal Amount" shall mean, as of any time, the then aggregate
outstanding face amount of the Debentures after any conversions or redemptions
and after giving effect to any installment payments received by the Lenders.
"Registrable Securities" shall mean (i) the Common Stock issuable
upon Conversion of the Debentures, and (ii) any Common Stock issued upon
Conversion of the Debentures or upon exercise of any warrant, right or other
security that is issued with respect to the Common Stock by way of (a) stock
dividend; (b) any other distribution with respect to, or in exchange for, or in
replacement of Common Stock; (c) stock split; and (d) in connection with a
combination of shares, recapitalization, merger, or consolidation excluding in
all cases, however, any Common Stock that is not a Restricted Security and any
Registrable Securities sold or transferred by a Person in a transaction in which
the rights under this Agreement are not assigned.
<PAGE> 12
"Registrable Securities Then Outstanding" shall mean an amount equal
to the number of Registrable Securities outstanding which have been issued
pursuant to the Conversion of the Debentures.
"Renaissance III" shall mean Renaissance Capital Growth & Income
Fund III, Inc., a Texas corporation.
"Renaissance PLC" shall mean Renaissance US Growth & Income Trust
PLC, a public limited company registered in England and Wales.
"Renaissance Group" shall mean Renaissance Capital Group, Inc., a
Texas corporation.
"Restricted Security" shall mean a security that has not been (i)
registered under the 1933 Act or (ii) distributed to the public pursuant to Rule
144 (or any similar provisions that are in force) under the 1933 Act.
"SEC" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the 1933 Act and the 1934 Act.
"1933 Act" shall refer to the Securities Act of 1933, as amended, or
any similar federal statute and rules and regulations promulgated thereunder,
all as the same may be in effect from time to time.
"1934 Act" shall refer to the Securities Exchange Act of 1934, as
amended, or any similar federal statute and rules and regulations promulgated
thereunder, all as the same may be in effect from time to time.
"1940 Act" shall refer to the Investment Company Act of 1940, as
amended, or any similar federal statute and rules and regulations promulgated
thereunder, all as the same may be in effect from time to time.
"Senior Documents" means all loan documents evidencing the Senior
Obligations, as each may now or hereafter be amended, modified, supplemented,
renewed or extended from time to time.
"Senior Obligations" means one or more senior debt facilities
(including loans and other extensions of credit under the Senior Documents) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, capital expenditure loans, receivables
financings (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables)
<PAGE> 13
or letters of credit, as now existing or hereafter incurred, and in each case,
as amended, restated, modified, renewed or extended from time to time.
"Solvent" shall mean, with respect to any Person on a particular
date, that on such date: (i) the fair value of the assets of such Person is
greater than the total amount of liabilities of such Person; (ii) the estimated
present fair salable value, in the ordinary course of business, of the assets of
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured; (iii) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business; (iv) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature; and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Subordinated Debt" shall mean any indebtedness of Borrower or any
Subsidiaries, now existing or hereafter incurred, which indebtedness is, by its
terms, junior in right of repayment to the payment of the Debentures.
"Subsidiary" or "Subsidiaries" shall mean any or all corporations or
entities whether now existing or hereafter acquired of which over 50% the Voting
Shares or equity interests are owned, directly or indirectly, by Borrower.
"Total Capitalization" shall mean for any Person, total Indebtedness
plus shareholders' equity as defined in accordance with GAAP.
"Voting Shares" of any corporation shall mean shares of any class or
classes (however designated) having ordinary voting power for the election of at
least a majority of the members of the Board of Directors (or other governing
bodies) of such corporation, other than shares having such power only by reason
of the happening of a contingency.
<PAGE> 14
SECTION 1.02. OTHER DEFINITION PROVISIONS.
(a) All terms defined in this Agreement shall have the above-defined
meanings when used in the Debentures or any other Loan Documents, certificate,
report or other document made or delivered pursuant to this Agreement, unless
the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural
and vice versa.
(c) The words "hereof," "herein," "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(d) References to financial statements and reports shall be deemed to be
a reference to such statements and reports prepared in accordance with GAAP.
(e) Accounting terms not specifically defined above in this Agreement
shall be construed in accordance with GAAP.
ARTICLE II - LOAN PROVISIONS
SECTION 2.01. THE LOAN.
(a) Subject to the terms and conditions of this Agreement, and the
compliance with such terms and conditions by all parties, each Lender agrees to
lend to Borrower, and Borrower agrees to borrow from the Lenders, the aggregate
sum of THREE MILLION DOLLARS ($3,000,000) as follows:
RENAISSANCE CAPITAL GROWTH & INCOME III, INC. $1,500,000
RENAISSANCE US GROWTH & INCOME TRUST PLC $1,500,000
(b) The Loan shall be disbursed at Loan Closing, subject to the
conditions provided hereunder, and shall be evidenced by the Debentures, in the
Principal Amounts specified above. The Debentures shall rank pari passu with all
Indebtedness of Borrower, other than the Senior Obligations and the Subordinated
Debt.
(c) Unless otherwise mutually agreed, the Loan Closing shall be at the
offices of Renaissance Capital Group, Inc., 8080 North Central Expressway, Suite
210, Dallas, Texas.
(d) If, within 15 days of the date of this Agreement, (i) Borrower has
failed to comply with the conditions precedent to the Loan Closing as specified
in Article III hereof (unless compliance
<PAGE> 15
with such conditions in whole or in part has been waived or modified by the
Lenders in their sole discretion) or (ii) the Loan Closing has not occurred
(unless the date of such Loan Closing has been mutually extended), other than as
a result of any failure of Lenders to comply with the terms of this Agreement,
then, in either such case, the obligations of the Lenders under this Agreement
shall terminate; provided, however, that Borrower shall be obligated for payment
of the fees and expenses provided in Section 2.08 due and payable as of such
date of termination unless the Loan Closing has not occurred as a result of a
failure of the Lenders to comply with the terms of this Agreement.
SECTION 2.02. USE OF PROCEEDS.
(a) Borrower intends to use the Loan proceeds for general corporate
purposes.
(b) Borrower hereby acknowledges that the proceeds from the Loan shall
be of benefit to Borrower for the growth of its business by providing capital
which will provide additional opportunities for Borrower.
SECTION 2.03. INTEREST RATE AND INTEREST PAYMENTS.
Interest on the Principal Amount outstanding from time to time shall
accrue at the rate of 8.00% per annum, with the first installment of accrued,
unpaid interest being due and payable on APRIL 1, 2000 and subsequent payments
of accrued, unpaid interest being due and payable on the first day of each month
thereafter. Overdue principal and interest on the Debentures shall bear interest
at the prime rate, in effect from time to time, of Bank One, Dallas, Texas, plus
6%. Interest on the Principal Amount of each Debenture shall be calculated, from
time to time, on the basis of the actual days elapsed in a year consisting of
365 days.
SECTION 2.04. MATURITY.
If not sooner redeemed or converted, the Debentures shall mature on
FEBRUARY __, 2007, at which time all the remaining unpaid principal, interest
and any other charges then due under this Agreement shall be due and payable in
full. The Debentures may be prepaid without premium or penalty and shall be
prepaid pro rata with any prepayments of Indebtedness (other than Senior
Obligations) which is pari passu with or subordinated to the Debentures.
SECTION 2.05. MANDATORY PRINCIPAL REPAYMENT.
The Debentures shall be subject to mandatory principal repayment as
provided in the Debentures.
<PAGE> 16
SECTION 2.06. REDEMPTION.
The Debentures shall be subject to redemption as provided in the
Debentures.
SECTION 2.07. CONVERSION.
The Debentures shall be subject to conversion as provided in the
Debentures.
SECTION 2.08. FEES AND EXPENSES.
Upon Loan Closing, Borrower shall pay at Loan Closing to Agent a closing
fee equal to 1.0% of the Loan proceeds as well as any unpaid portion of the
commitment fee, closing expense fee and due diligence fee, all as referenced in
the Preliminary Outline of Terms dated December 8, 1999 among the parties
thereto.
SECTION 2.09. FINDER'S FEES.
Borrower represents to the Lenders that, except as set forth in Schedule
2.09, no placement fees, commissions, brokerage or finder's fees were incurred
by Borrower in connection with this Agreement or the Debentures. Borrower shall
be responsible for the payment of all such placement fees, commissions,
brokerage or finder's fees.
<PAGE> 17
SECTION 2.10. TAXES.
(a) Each Debenture shall be convertible into shares of Common Stock and
on such terms as are stated in the Debentures. Such conversion shall be made
without deduction for any present or future taxes, duties, charges or
withholdings (herein "Taxes"), unless such withholding or deduction is required
by law. If Borrower shall be required by law to deduct any Taxes for which
Borrower is responsible under the preceding sentence from any sum payable
hereunder to the Lenders: (i) the sum payable shall be increased so that after
making all required deductions, the Lenders shall receive an amount equal to the
sum it would have received had no such deductions been made; (ii) Borrower shall
make such deductions; and (iii) Borrower shall pay the full amount deducted to
the relevant taxing authority or other authority in accordance with applicable
law. Notwithstanding the foregoing, Borrower shall not be obligated to make
payments of additional amounts to Lenders as described in clause (i) of this
Section 2.10(a) with respect to any Taxes which are imposed or withheld because
of any failure by Lenders to comply with certification, documentation,
information reporting or similar requirements necessary to obtain relief or an
exemption from such Taxes. Borrower shall be entitled to any refunds or returns
from any such taxing authority to the extent Borrower paid such refunded Taxes.
(b) Except as otherwise set forth in this Agreement or the other Loan
Documents, Borrower shall pay any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies imposed by a
taxing authority within the United States which arise from any payment made
hereunder or under the Loan Documents or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or the other Loan
Documents (hereinafter referred to as "Other Taxes").
(c) Borrower shall indemnify the Lenders for the full amount of Taxes
(which Borrower would be obligated to make payments of additional amounts to
Lenders under Section 2.10(a) above) and Other Taxes reasonably paid by the
Lenders or any liability (including any penalties or interest assessed because
of Borrower's defaults) arising therefrom or with respect thereto imposed by a
taxing authority within the United States, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within thirty (30) days from the date the Lenders make written demand therefor.
The Lenders shall subrogate any and all rights and claims relating to such Taxes
and Other Taxes to Borrower upon payment of said indemnification.
(d) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower in this Section 2.10 shall
survive the payment in full of the Obligation.
<PAGE> 18
(e) Borrower shall have no liability or obligation with respect to taxes
on income recognized by the Lenders with respect to the Debentures.
SECTION 2.11. CONVERSION RIGHTS.
Each Debenture shall be convertible into shares of Common Stock on such
terms and in such amounts as are stated in the Debenture. The holders of the
shares issued upon exercise of the right of conversion as provided in said
Debenture shall be entitled to all the rights of the Lenders as stated in this
Agreement or the other Loan Documents, to the extent such rights are
specifically stated to survive the surrender of the Debenture for conversion as
therein provided.
SECTION 2.12. SECURITY AGREEMENT, PLEDGE AGREEMENT.
The due and prompt performance of the Obligations of Borrower to the
Lenders under the Loan Agreement and the Debentures shall be secured by all
tangible and intangible assets of Borrower (exclusive of mortgages on real
property) and shall be evidenced by a security agreement executed by and between
the Lenders and the Borrower. Financing statements shall be executed in favor of
the Lenders by Borrower and the Subsidiaries. Borrower shall enter into a pledge
agreement with the Lenders pledging its shares in certain of the Subsidiaries to
the extent provided for therein. There shall be no prior security interests on
any such assets other than Permitted Liens.
ARTICLE III - CONDITIONS PRECEDENT
SECTION 3.01. DOCUMENT REQUIREMENTS.
The obligation of the Lenders to advance funds at the Loan Closing Date
hereof is subject to the condition precedent that, on or before the date of such
advance, the Lenders shall have received the following:
(a) Debentures. Duly executed Debentures from Borrower in the Principal
Amount of Loan, each in amounts as requested by the Lenders, styled "Compass
Bank FBO Renaissance Capital Growth and Income Fund III, Inc.," and "Compass
Bank FBO Renaissance U.S. Growth and Income Trust PLC," which shall be in form
and substance acceptable to the Lenders and their counsel.
(b) Pledge Agreement and Borrower's Security Agreement. Duly executed
pledge agreement and security agreement from Borrower, which shall be in form
and substance acceptable to the Lenders and their counsel.
<PAGE> 19
(c) CEO's Certificate. A true and correct certificate signed by the
chief executive officer of Borrower and dated as of the Loan Closing Date
stating that, to the best knowledge and belief of such officer, after reasonable
and due investigation and review of matters pertinent to the subject matter of
such certificate: (i) all of the representations and warranties contained in
Article IV hereof and the other Loan Documents are true and correct in all
material respects as of the Loan Closing Date; and (ii) no event has occurred
and is continuing, or would result from the Loan, which constitutes, or with
notice or lapse of time or both would constitute, a Default or an Event of
Default.
(d) Assistant Secretary's Certificates. A signed certificate of the
Secretary of Borrower which shall certify (i) a copy of the Articles of
Incorporation of Borrower and all amendments thereto, certified by the Secretary
of State of the state of incorporation and dated within a recent date prior to
Loan Closing; (ii) a copy of the Bylaws of Borrower and all amendments thereto
certified by the Secretary of Borrower as of the date of such certification;
(iii) copies of resolutions, as adopted by Borrower's Board of Directors,
approving the execution, delivery and performance, as applicable, of this
Agreement, the Debentures, and the other Loan Documents, including the
transactions contemplated herein, stating that such resolutions have been duly
adopted, are true and correct, have not been altered or repealed and are in full
force and effect; (iv) certificates of good standing (or other similar
instrument) for Borrower issued by the appropriate official of the state of
incorporation of Borrower dated a recent date prior to Loan Closing; and (v) the
names of the officers of Borrower authorized to sign the Loan Documents to be
executed by such officer, together with the true signatures of each of such
officers. It is herewith stipulated and agreed that the Lenders may thereafter
rely conclusively on the validity of this certificate as a representation of the
officers of Borrower duly authorized to act with respect to the Loan Documents
until such time as the Lenders shall receive a further certificate of the
Secretary or Assistant Secretary of Borrower canceling or amending the prior
certificate and submitting the signatures of the officers thereupon authorized
in such further certificate.
(e) Legal Opinion. A legal opinion from counsel to Borrower, in form and
substance satisfactory to the Lenders and their counsel.
(f) "Lock-Up" Agreement. "Lock-Up" Agreements, in form and substance
satisfactory to the Lenders and their counsel.
(g) Other Documents. Such other information, documents and agreements as
may reasonably be required by the Lenders and the Lenders' counsel to
substantiate Borrower's compliance with the
<PAGE> 20
requirements of this Agreement and the Lenders' compliance with the 1940 Act.
(h) Investment of Rudi Naumann. Mr. Rudi Naumann shall have purchased
prior to the closing of the Loan $80,000 of the Borrower's securities.
(i) Issuance of Stock Options. The Board of Directors of Borrower shall
consider the issuance to Eric M. Reuter a substantial number of employee stock
options at its next meeting.
(j) NASD Compliance. The Borrower shall have given notice of the Loan
and the terms of the Debentures to NASD, and the applicable period for NASD to
raise any objections shall have expired.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER
All references in this Article to Borrower shall include the Subsidiaries,
unless the context otherwise requires. To induce the Lenders to make the Loan
hereunder, Borrower represents and warrants to the Lenders that:
SECTION 4.01. ORGANIZATION AND GOOD STANDING.
Borrower is duly organized and existing in good standing under the laws of
the state of its incorporation, is duly qualified as a foreign corporation and
in good standing in all states in which failure to qualify would have a Material
Adverse Effect, and has the corporate power and authority to own its properties
and assets and to transact the business in which it is engaged and is or will be
qualified in those states wherein it proposes to transact material business
operations in the future except where the failure to be so qualified will not
have a Material Adverse Effect on the business, operations or financial
condition of Borrower.
SECTION 4.02. AUTHORIZATION AND POWER.
Borrower has the corporate power and requisite authority to execute,
deliver and perform the Loan Documents to be executed by Borrower. Borrower is
duly authorized to, and has taken all corporate action necessary to authorize,
execute, deliver and perform the Loan Documents executed by Borrower. Borrower
is and will continue to be duly authorized to perform the Loan Documents
executed by Borrower.
<PAGE> 21
SECTION 4.03. NO CONFLICTS OR CONSENTS.
Except as disclosed on Schedule 4.03, neither the execution and delivery
of the Loan Documents, nor the consummation of any of the transactions therein
contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any judgment, license, order or permit
applicable to Borrower, or any indenture, loan agreement, mortgage, deed of
trust, or other agreement or instrument to which Borrower is a party or by which
Borrower is or becomes bound, or to which Borrower is or becomes subject, or
violate any provision of the charter or bylaws of Borrower or trigger any
preemptive rights or rights of first refusal of any third party, in each case,
the failure of which to so comply with would not have a Material Adverse Effect
on Borrower or any of the transactions contemplated by any Loan Document. No
consent, approval, authorization or order of any court or governmental authority
or third party is required in connection with the execution and delivery by
Borrower of the Loan Documents or to consummate the transactions contemplated
hereby or thereby except those that have been obtained.
SECTION 4.04. ENFORCEABLE OBLIGATIONS.
The Loan Documents have been duly executed and delivered by Borrower and
are the legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms except as limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and general principals of equity.
SECTION 4.05. NO LIENS.
Except for Permitted Liens, all of the properties and assets owned or
leased by Borrower are free and clear of all Liens and other adverse claims of
any nature, and Borrower has good and marketable title to such properties and
assets. A true and complete list of all known or recorded Liens for borrowed
money is disclosed on Schedule 4.05.
SECTION 4.06. FINANCIAL CONDITION.
Borrower has delivered to the Lenders the balance sheet of Borrower as of
December 31, 1998, and the related statement of income, stockholders' equity and
statement of cash flow for the year then ended, audited by its independent
certified public accountant. Borrower has also delivered to the Lenders the
unaudited balance sheet of Borrower as of December 31, 1999 and the related
unaudited statement of income, stockholders' equity and statement of cash flow
for the twelve (12) months then ended. Such financial statements fairly present
the financial condition of Borrower as of such dates
<PAGE> 22
and have been prepared in accordance with GAAP (except that unaudited financial
statements omit certain footnotes); and as of the date hereof, there are no
obligations, liabilities or Indebtedness (including contingent and indirect
liabilities and obligations) of Borrower which are (separately or in the
aggregate) material and are not reflected in such financial statements or
otherwise disclosed herein or in the Schedules. Since the date of the
above-referenced year end financial statements and quarterly financial
statements, there have not been, except as disclosed in Schedule 4.06: (i) any
Material Adverse Change; (ii) any Dividend declared or paid or distribution made
on the capital stock of Borrower or any capital stock thereof redeemed or
repurchased; (iii) any incurrence of long-term debt by Borrower; (iv) any
salary, bonus or compensation increases to any officers, key employees or agents
of Borrower, other than in the ordinary course of business and consistent with
past practice; or (v) any other material transaction entered into by Borrower,
except in the ordinary course of business and consistent with past practice.
SECTION 4.07. NO DEFAULT.
No event has occurred and is continuing which constitutes, or with notice
or lapse of time or both, would constitute, a Default or an Event of Default
under this Agreement.
SECTION 4.08. MATERIAL AGREEMENTS.
Neither Borrower nor any Subsidiary nor any other party is in default, and
no event has occurred and is continuing which, with notice or lapse of time or
both, would constitute a default, under any contract, lease, loan agreement,
indenture, mortgage, security agreement, license agreement or other agreement or
obligation to which it is a party or by which any of its properties is subject
which could reasonably be expected to have a Material Adverse Effect, except as
described on Schedule 4.08. To the best knowledge of Borrower, it is not a party
to, or bound by, any contract or agreement, the faithful performance of which is
so onerous so as to create or to likely create a Material Adverse Effect on the
business, operations or financial condition of Borrower.
<PAGE> 23
SECTION 4.09. NO LITIGATION.
Except as disclosed on Schedule 4.09, there are no actions, suits,
investigations, arbitrations or administrative proceedings pending or, to the
best knowledge of Borrower, threatened, against Borrower, and there has been no
change in the status of any of the actions, suits, investigations, litigation or
proceedings disclosed to the Lenders which could reasonably be expected have a
Material Adverse Effect on Borrower or on any transactions contemplated by any
Loan Document. Borrower has not received any claim that Borrower currently
violates any federal, state or local law, ordinance, rule or regulation, which
could have an adverse effect on its business and, to the best of Borrower's
knowledge, no such claim is or has been threatened; and, except as disclosed on
Schedule 4.09, there have been no developments adverse to Borrower with respect
to any pending or threatened claim, action or proceeding of an administrative or
judicial nature.
SECTION 4.10. TAXES.
All tax returns required to be filed by Borrower in any jurisdiction have
been filed and all taxes (including mortgage recording taxes) and other
governmental taxing authority assessments, fees and charges upon Borrower or
upon any of its properties, income or franchises now due have been paid, in each
case, except where the same are being contested in good faith by appropriate
proceedings, as disclosed on Schedule 4.10.
Except as disclosed on Schedule 4.10, Borrower has not received any notice
of deficiency or other adjustment from any taxing authority that is unresolved
as of the Loan Closing. No audit or examination, claim or proposed assessment by
any taxing authority is pending or, to the best knowledge of Borrower,
threatened against Borrower or any of its properties. All ad valorem and other
property taxes imposed on Borrower, or that may become a lien on Borrower's
assets and that are due and payable, have been paid in full. Borrower has
withheld or collected from each payment made to each of its U.S. employees the
amount of all taxes (including federal income taxes, Federal Insurance
Contributions Act taxes, and state and local income, payroll, and wage taxes,
among others) required to be withheld or collected.
SECTION 4.11. CAPITALIZATION.
The authorized capital stock of Borrower consists of 25, 000,000 shares of
Common Stock, no par value, of which 15,111,637 shares of Common Stock are
issued and outstanding as of the date hereof. All of such outstanding shares
have been duly authorized and validly issued are fully paid and nonassessable,
and were not issued in violation of the preemptive rights or rights of first
refusal of any person.
<PAGE> 24
Schedule 4.11 sets forth all stock options, warrants, conversion rights,
subscription rights, preemptive rights, rights of first refusal and other rights
or agreements to acquire securities of Borrower and any shares held in treasury
or reserved for issue upon exercise of such stock options, warrants or
conversion rights, subscription rights and other rights or agreements to acquire
securities, including the date of termination of such rights and the
consideration therefor. As of the Loan Closing Date, Borrower does not have
class of securities with respect to which a member of a national securities
exchange, broker, or dealer may extend or maintain credit to or for a customer
pursuant to rules or regulation adopted by the Board of Governors of the Federal
Reserve System under Section 7 of the 1934 Act. Borrower has, and will continue
to have as long as the Debentures remain outstanding, authorized and reserved an
adequate number of shares of Common Stock to permit Conversion of the
Debentures.
SECTION 4.12. USE OF PROCEEDS.
Borrower intends to use proceeds from the Loan as disclosed in Section
2.02 hereof.
SECTION 4.13. EMPLOYEE MATTERS.
(a) Except as set forth on Schedule 4.13, Borrower is not a party to any
collective bargaining agreement and is not aware of any activities of any labor
union that is currently seeking to represent or organize its employees;
(b) Borrower is in compliance with all federal, state and municipal laws
respecting employment and employment practices, occupational health and safety,
and wages and hours, and is not engaged in any unfair labor practice, and there
are no arrears in the payment of wages or social security taxes except such
laws, the failure of which to so comply with, will not have a Material Adverse
Effect on Borrower or any of the transactions contemplated by any Loan Document;
(c) there is no unfair labor practice complaint against Borrower pending
before the National Labor Relations Board or any state or local agency;
(d) to the best knowledge of Borrower, there is no pending labor strike
or other material labor trouble affecting Borrower (including, without
limitation, any organizational drive);
(e) to the best knowledge of Borrower, there is no material labor
grievance pending against Borrower;
<PAGE> 25
(f) there is no pending representation question respecting the employees
of Borrower before any local, state or federal agency;
(g) except as set forth on Schedule 4.13, there are no pending
proceedings arising out of or under any collective bargaining agreement to which
Borrower is a party, or to the best knowledge of Borrower, any basis for which a
claim may be made under any collective bargaining agreement to which Borrower is
a party; and
(h) there are no pending proceedings arising out of any employment
discrimination claim or any basis for which any such claim may be made.
SECTION 4.14. EMPLOYEE BENEFIT PLANS.
Schedule 4.14 lists (i) any "employee benefit plans" as described in the
Employee Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder ("ERISA") (other than a defined contribution
pension plan not requiring any contribution by Borrower, paid time-off policy or
vacation/holiday/sick leave policy, and employee group life and health plans
that are fully funded through commercial insurance) and (ii) any defined benefit
"employee pension benefit plans" (as defined in ERISA). Neither Borrower nor, to
the best knowledge of Borrower, any other person has engaged in a transaction
with respect to any employee benefit plan listed or required to be listed on
Schedule 4.14 which could subject any such plan, Borrower or the Lenders to a
penalty under ERISA or a tax under the Internal Revenue Code of 1986, as amended
(the "Code"), except for those transactions which could not reasonably be
expected to have a Material Adverse Effect. Each of the employee benefit plans
listed or required to be listed on Schedule 4.14 has been operated and
administered in accordance with applicable law, including without limitation
ERISA, except for any such failure which would not subject Borrower or the
Lenders to any penalty or other liability and except for any such failure which
would not have an adverse effect upon the applicable plan or any participant
therein. Borrower has not incurred nor presently expects to incur any liability
under Title IV of ERISA that could result in liability to the Lenders or
Borrower. Each employee benefit plan listed or required to be listed on Schedule
4.14 that is a group health plan within the meaning of Section 5000(b)(1) of the
Code is in compliance with the provisions of Section 4980B(f) of the Code,
except for any such non-compliance which would not subject Borrower or the
Lenders to any penalty or liability and except for any such failure which would
not have an adverse effect upon the applicable plan or any participant therein.
There is not any pending or, to the best knowledge of Borrower, threatened claim
by or on behalf of any employee benefit plan, by any employee covered under any
such plan, or otherwise
<PAGE> 26
involving any employee benefit plan (other than routine non-contested claims for
benefits).
SECTION 4.15. COMPLIANCE WITH LAWS.
Each of Borrower and the Subsidiaries has all requisite licenses, permits
and certificates, including drug, environmental, health and safety permits, from
federal, state and local authorities necessary to conduct its business and own
and operate its assets (collectively, the "Permits") except such Permits, the
failure of which to so hold, would not have a Material Adverse Effect on
Borrower or any of the transactions contemplated by any Loan Document. Except as
set forth on Schedule 4.15, neither Borrower nor any Subsidiary is in violation
of any law, regulation or ordinance relating to its business, operations and
properties, which individually or in the aggregate could have a Material Adverse
Effect, and the business and operations of Borrower or any Subsidiary do not
violate, in any material respect, any federal, state, local or foreign laws,
regulations or orders, including, without limitation, the U.S. Food, Drug and
Cosmetic Act and the U.S. Radiation Control for Health and Safety Act. Except as
set forth on Schedule 4.15, Borrower and the Subsidiaries have not received any
notice or communication from any federal, state, local or foreign governmental
or regulatory authority or agency, including, without limitation, the U.S. Food
and Drug Administration and the Food and Drug Board of the California Department
of Health Services of any such violation or noncompliance. Borrower and the
Subsidiaries have not engaged in any practices in violation of any antitrust law
or regulation of any federal, state, local or foreign Governmental Authority.
SECTION 4.16. LICENSES AND PERMITS.
Borrower and the Subsidiaries have all licenses and franchises relating to
the operation of their respective businesses as are necessary and required for
such ownership and operation, all of which are in good standing and, except as
expressly set forth on Schedule 4.16, are not subject to renewal within less
than one (1) year except such licenses and franchises, the failure of which to
so hold, would not have a Material Adverse Effect on Borrower or any of the
transactions contemplated by any Loan Document.
<PAGE> 27
SECTION 4.17. CONTRACTS.
Schedule 4.17 lists all contracts to which Borrower or the Subsidiaries
are a party involving obligations in respect of the business for payment,
performance of services or delivery of goods in excess of $60,000 or which
require Borrower to continue to perform for a period of longer than twelve (12)
months (the "Scheduled Contracts"). Borrower has delivered to the Lenders true
and correct copies of all the Scheduled Contracts. All of such Scheduled
Contracts are valid and binding obligations of Borrower or the Subsidiaries, are
in full force and effect, and, to the best knowledge of Borrower or the
Subsidiaries, are enforceable against the parties thereto in accordance with
their respective terms. Borrower or the Subsidiaries have not received any
notice that the other parties to the Scheduled Contracts are (i) in default
under such Scheduled Contracts or (ii) consider Borrower to be in default
thereunder. Except as expressly noted in Schedule 4.17, to the best knowledge of
Borrower or the Subsidiaries, no party to any of the Scheduled Contracts intends
to terminate or adversely modify its agreement(s) with respect thereto or
adversely change the volume of business done thereunder.
SECTION 4.18. SHARES ISSUABLE UPON CONVERSION.
The shares of Common Stock of Borrower when issued to the Lenders upon
conversion of the Debentures will be duly and validly issued, fully paid and
nonassessable and in compliance with all applicable securities laws. Such
issuance will not give rise to preemptive rights, rights of first refusal or
similar rights by any other security holder of Borrower.
SECTION 4.19. INSIDER.
(a) Neither Borrower, nor any Person having "control" (as that term is
defined in the 1940 Act or in the regulations promulgated pursuant thereto) of
Borrower is an "executive officer," "director," or "principal shareholder" (as
those terms are defined in the 1940 Act) of any Lender.
(b) Borrower's SEC reports disclose all material transactions required
to be disclosed therein.
(c) All agreements between Borrower and any of its officers, directors,
and principal shareholders, including employment agreements, are disclosed in
reports and filings made with the SEC or listed on Schedule 4.19.
<PAGE> 28
SECTION 4.20. SUBSIDIARIES.
(a) All of the Subsidiaries of Borrower are listed on Schedule 4.20.
Except as disclosed on Schedule 4.20, Borrower owns all of the outstanding
capital stock or other equity interests of the Subsidiaries, free and clear of
all adverse claims, other than Liens securing the Senior Obligations. All of
such outstanding capital stock of each Subsidiary has been duly and validly
authorized and issued and is fully paid and nonassessable. All such Subsidiaries
are duly organized and existing in good standing under the laws of the
respective jurisdictions of their incorporation or organization, are duly
qualified as foreign corporations and in good standing in all jurisdictions in
which failure to qualify would have a Material Adverse Effect, and have the
corporate power and authority to own their respective properties and assets and
to transact the business in which they are engaged and are or will be qualified
in those jurisdictions wherein they propose to transact material business
operations in the future.
(b) Except as disclosed on Schedule 4.20, Borrower does not own any
equity or long-term debt interest in any other Person, or any right or option to
acquire any such interest in any such Person.
(c) There are no restrictions on the payment of dividends by or advances
from any Subsidiary to Borrower.
SECTION 4.21. CASUALTIES.
Except as disclosed on Schedule 4.21, neither the business nor the
properties of Borrower is currently affected by any environmental hazard, fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or other casualty (whether or not covered
by insurance).
SECTION 4.22. INVESTMENT COMPANY ACT.
Borrower is not an "investment company," as defined in Section 3 of the
1940 Act, nor a company that would be an investment company, except for the
exclusions from the definition of an investment company in Section 3(C) of the
1940 Act, and Borrower is not controlled by such a company.
SECTION 4.23. SUFFICIENCY OF CAPITAL.
Borrower is, and after consummation of this Agreement and giving effect to
all Indebtedness incurred and transactions contemplated in connection herewith
will be, Solvent.
SECTION 4.24. CORPORATE NAMES.
<PAGE> 29
Borrower has not, during the preceding five (5) years, done business under
or used any assumed, fictitious or trade names.
SECTION 4.25. INSURANCE.
All of the insurable properties of Borrower are insured for its benefit
under valid and enforceable policies issued by insurers of recognized
responsibility in amounts and against such risks and losses as is customary in
Borrower's industry. Borrower maintains product liability insurance under valid
and enforceable policies issued by insurers of recognized responsibility in
amounts and against such risks and losses as is customary in Borrower's
industry. Schedule 4.25 sets forth all of Borrower's insurance policies.
SECTION 4.26. INTELLECTUAL PROPERTY.
Borrower owns or is licensed to use all material trademarks, service
marks, trade names, patents and copyrights presently used to conduct its
business, except those for which the failure to obtain could not be reasonably
expected to have a Material Adverse Effect. To the best of its knowledge,
Borrower has the right to use such intellectual property rights without
infringing or violating the rights of any third parties. No claim has been
asserted by any person to the ownership of or right to use any such rights or
challenging or questioning the validity or effectiveness of any such license or
agreement. Borrower is not in default of any such license agreements in any
material respect, and no event has occurred and is continuing which, with notice
or lapse of time or both, would constitute a material default. Each license
agreement is enforceable in accordance with its terms and has not been canceled,
abandoned or terminated, nor has Borrower received notice thereof. There are no
claims for trademark or copyright infringement pending or threatened against
Borrower or the Subsidiaries or their respective officers or directors. Neither
Borrower nor any Subsidiary is currently using copyrightable material for which
Borrower or any Subsidiary needs, but does not have, a license to conduct its
existing business. Neither Borrower nor any Subsidiary is currently using any
trademarks for which Borrower or any Subsidiary needs, but does not have, a
valid character or trademark license to conduct its existing business.
SECTION 4.27. REAL PROPERTY.
(a) Set forth on Schedule 4.27 is a list of the addresses of each parcel
of real property leased to Borrower, as indicated on the Schedule. Borrower owns
no real estate.
(b) Borrower has delivered to the Lenders true and correct copies of all
of its leases or subleases and all related amendments,
<PAGE> 30
supplements and modifications and related documents (the "Scheduled Lease
Documents"), which require payments or contingent payments by Borrower or any of
the Subsidiaries subsequent to the date hereof in excess of $25,000. There are
no other agreements, written or oral, between Borrower and any third parties
claiming an interest in Borrower's interest in the Scheduled Leases or otherwise
relating to Borrower's use and occupancy of any leased real property. All such
leases are valid and binding obligations of the parties thereto, are in full
force and effect and enforceable against the parties thereto in accordance with
their terms; and no event has occurred including, but not limited to, the
executed, delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby which (whether with or without notice, lapse of
time or both) would constitute a default thereunder. No property leased under
any lease which the Lenders have agreed to assume is subject to any lien,
encumbrance, easement, right-of-way, building or use restriction, exception,
variance, reservation or limitation as might in any respect interfere with or
impair the present and continued use thereof in the usual and normal conduct of
Borrower's business.
SECTION 4.28. ENVIRONMENTAL.
(a) Borrower is currently in compliance with all Environmental Laws (as
defined below) which compliance includes, but is not limited to, the possession
by Borrower of all permits and other governmental authorization required under
applicable Environmental Laws, and compliance in all material respects with the
terms and conditions thereof, except in any case where the failure to be in
compliance would not have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.28, Borrower has not stored,
disposed of or arranged for disposal of any Materials of Environmental Concern
(as defined below) on any of the real property, except in compliance with
applicable Environmental Laws.
(c) Borrower has not received any communication (written or oral),
whether from a governmental authority, citizens group, employee or otherwise,
that alleges that Borrower is not in full compliance with Environmental Laws,
and there are no circumstances that may prevent or interfere with such full
compliance in the future. There is no Environmental Claim (as defined below)
pending or, to Borrower's best knowledge, threatened against, or which has been
made known to, Borrower.
(d) Except as set forth on Schedule 4.28, during the period the
facilities have been held by Borrower, its affiliates or, to Borrower's best
knowledge, its predecessors in interest, there have been no actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the generation, handling,
<PAGE> 31
transportation, treatment, storage, release, emission, discharge, presence or
disposal of any Hazardous Substance (as defined below), that could form the
basis of any Environmental Claim against Borrower under any Environmental Law in
effect at, or at any time prior to, the Loan Closing.
(e) Without in any way limiting the generality of the foregoing, (i)
there are no underground storage tanks located on the property leased by
Borrower or the Subsidiaries, (ii) there is no asbestos contained in or forming
part of any building, building component, structure or office space leased by
Borrower or the Subsidiaries, and (iii) no polychlorinated biphenyls ("PCBs")
are used or stored at any property owned or leased by Borrower or the
Subsidiaries.
The following terms shall have the following meanings:
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (a) the presence, or release into the
environment, of any Hazardous Substances at any location, whether or not owned
or operated by Borrower or (b) circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law.
"Environmental Laws" means the federal, state and local
environmental, health or safety laws, regulations, ordinances, rules and
policies and common law in effect on the date hereof and the Loan Closing Date
relating to the use, refinement, handling, treatment, removal, storage,
production, manufacture, transportation or disposal, emissions, discharges,
releases or threatened releases of materials of environmental concern, or
otherwise relating to protection of the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), as the same may be amended or modified to the date hereof and the Loan
Closing Date, including, without limitation, the statutes listed below:
Federal Resources Conservation and Recovery Act of 1976, 42
U.S.C. Section 6901, et seq.
Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601, et seq.
Federal Clean Air Act, 42 U.S.C. Section 7401, et seq.
Federal Water Pollution Control Act, Federal Clean Water Act
of 1977, 33 U.S.C. Section 1251, et seq.
<PAGE> 32
Federal Insecticide, Fungicide and Rodenticide Act, Federal
Pesticide Act of 1978, 7 U.S.C. Section 136, et seq.
Federal Hazardous Materials Transportation Act, 48 U.S.C.
Section 1801, et seq.
Federal Toxic Substances Control Act, 15 U.S.C. Section 2601,
et seq.
Federal Safe Drinking Water Act, 42 U.S.C. Section 300f, et
seq.
"Hazardous Substances" means any toxic or hazardous waste,
pollutants or substances, including, without limitation, asbestos, PCBs,
petroleum products and byproducts, substances defined or listed as "hazardous
substance," "toxic substance," "toxic pollutant" or similarly identified
substance or mixture, in or pursuant to any Environmental Law.
SECTION 4.29. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties of Borrower herein shall survive the
Loan Closing and the delivery of the Debentures, and any investigation at any
time made by or on behalf of the Lenders shall not diminish the Lenders' right
to rely on Borrower's representations and warranties as herein set forth.
SECTION 4.30. FULL DISCLOSURE.
Neither the representations, warranties, schedules, financial statements
referenced in Section 4.06, nor any business plan, offering memorandum,
prospectus, SEC registration statement, report or proxy statement, certificate,
document or written statement to be delivered or caused to be delivered by
Borrower or any of its agents or representatives to the Lenders in connection
with this Agreement, contains or will contain, as of the date thereon, any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to keep the statements contained herein or therein from being
misleading in any material respect.
ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER
So long as any part of the Debentures remains unpaid or has not been
redeemed or converted hereunder, and until such payment, redemption or
conversion in full, unless the Lenders shall otherwise consent in writing,
Borrower agrees that:
<PAGE> 33
SECTION 5.01. FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS.
(a) Borrower shall accurately and fairly maintain its books of account
in accordance with GAAP, retain such firm of independent certified public
accountants, requested by Borrower and approved by the Lenders, to make annual
audits of its accounts in accordance with generally accepted auditing standards.
(b) Borrower shall provide the following reports and information to each
Lender:
(i) As soon as available, and in any event within forty-five (45)
days after the close of each fiscal quarter, Borrower's quarterly reports on
Form 10-Q with exhibits for said period. As soon as available, Borrower's
reports on Form 8-K with any exhibits.
(ii) As soon as available, and in any event within ninety (90) days
after the close of each fiscal year, Borrower's annual report on Form 10-K with
exhibits for said period.
(iii) Each fiscal quarter, concurrent with the periodic report
required above, a certificate executed by the Chief Financial Officer or Chief
Executive Officer of Borrower, (A) stating that a review of the activities of
Borrower during such fiscal period has been made under his supervision and that
Borrower has observed, performed and fulfilled each and every obligation and
covenant contained herein and is not in default under any of the same or, if any
such default shall have occurred, specifying the nature and status thereof, and
(B) stating that Borrower and the Subsidiaries are in compliance as of the end
of such fiscal quarter with the agreed minimum financial ratios and standards
set forth in Schedule 7.01 to this Agreement.
(iv) Promptly (but in any event within five (5) business days) upon
becoming aware of the existence of any condition or event which constitutes a
Default or which, with notice or the passage of time or both would become a
Default or an Event of Default, written notice specifying the nature and period
of existence thereof and the action which Borrower is taking or proposes to take
with respect thereto.
(v) Promptly (but in any event within five (5) business days) upon
the receipt thereof by Borrower or the Board of Directors of Borrower, copies of
all reports, all management letters and other detailed information submitted to
Borrower or the Board by independent accountants in connection with each annual
or interim audit or review of the accounts or affairs of Borrower made by such
accountants.
<PAGE> 34
(vi) Promptly (but in any event within five (5) business days),
such other information relating to the finances, budgets, properties, business
and affairs of Borrower and each Subsidiary, as the Lenders or the Agent may
reasonably request from time to time.
(vii) Promptly upon its becoming available, one copy of each
financial statement, report, press release, notice or proxy statement sent by
Borrower to stockholders generally, and of each regular or periodic report,
registration statement or prospectus filed by Borrower with any securities
exchange or the SEC or any successor agency, and of any order issued by any
Governmental Authority in any proceeding to which Borrower is a party.
SECTION 5.02. PREPARATION OF BUDGETS.
(a) Prior to the beginning of Borrower's fiscal year Borrower agrees to
prepare and submit to the Board and furnish to each Lender a copy of, an annual
plan for such year which shall include, without limitation, plans for expansion,
if any, plans for incurrences of Indebtedness and projections regarding other
sources of funds, quarterly projected capital and operating expense budgets,
cash flow statements, profit and loss statements and balance sheet projections,
itemized in such detail as the Board may request.
(b) Borrower shall furnish to the Lenders monthly financial reports,
including budgets (as currently used by management in the conduct of business)
within 30 days of the end of each month thereafter. (c) Borrower agrees that it
will review its operations with Agent. Such operations reviews will be in such
depth and detail as Agent shall reasonably request and will be held as
reasonably necessary, generally once a fiscal quarter.
SECTION 5.03. PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Borrower shall, and shall cause its Subsidiaries to, pay and discharge (i)
all taxes and other governmental taxing authority assessments, charges or levies
imposed upon it or upon its income or profits, or upon any property belonging to
it, before delinquent, (ii) all lawful claims (including claims for labor,
materials and supplies), which, if unpaid, will give rise to a Lien upon any of
its property, other than a Permitted Lien, and (iii) all of its other
Indebtedness in accordance with their respective terms, except as prohibited
hereunder; provided, however, that Borrower and its Subsidiaries, if any, shall
not be required to pay any such tax, assessment, charge, levy or other claim if
and so long as the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and appropriate accruals and
reserves therefor have been established in accordance with GAAP.
<PAGE> 35
SECTION 5.04. MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.
Subject to Section 6.13, Borrower shall, and shall cause its operating
Subsidiaries to, preserve and maintain their respective corporate existence and
all of their respective material rights and privileges necessary in the normal
conduct of their respective businesses, and to conduct their respective
businesses in an orderly and efficient manner consistent with good business
practices and in accordance with all valid regulations and orders of any
Governmental Authority. Borrower shall keep its principal place of business
within the United States.
SECTION 5.05. SEC FILINGS.
So long as Borrower has a class of securities registered pursuant to
Section 12 of the 1934 Act, Borrower shall duly file, when due, all reports and
proxy statements required of a company whose securities are registered for
public trading under and pursuant to the 1934 Act and any rules and regulations
issued thereunder, and to preserve and maintain its registration thereunder.
SECTION 5.06. NOTICE.
Borrower shall promptly notify the Lenders of (i) any Material Adverse
Change, (ii) any default under any Senior Obligations, other Indebtedness having
an aggregate principal amount in excess of $50,000, material agreement, contract
or other instrument to which it is a party or by which any of its properties are
bound, or any acceleration of the maturity of any Indebtedness having an
aggregate principal amount in excess of $50,000, if any, (iii) any material
adverse claim against or affecting Borrower or its Subsidiaries, if any, or any
of its properties, and (iv) the commencement of, and any determination in, any
material litigation with any third party or any proceeding before any
Governmental Authority.
SECTION 5.07. COMPLIANCE WITH LOAN DOCUMENTS.
Borrower shall, and shall cause each of its Subsidiaries to, promptly
comply with any and all covenants and provisions of the Loan Documents.
SECTION 5.08. COMPLIANCE WITH MATERIAL AGREEMENTS.
Borrower shall, and shall cause each of its Subsidiaries to, comply in all
material respects with all material agreements,
<PAGE> 36
indentures, mortgages or documents binding on it or affecting its properties or
business.
SECTION 5.09. OPERATIONS AND PROPERTIES.
Borrower shall, and shall cause each of its Subsidiaries to, act prudently
and in accordance with customary industry standards in managing or operating its
assets, properties, business and investments. Borrower shall, and shall cause
each of its Subsidiaries to, keep in good working order and condition, ordinary
wear and tear excepted, all of its assets and properties which are necessary to
the conduct of its business.
SECTION 5.10. BOOKS AND RECORDS; ACCESS.
Borrower shall, and shall cause each of its Subsidiaries to, maintain
complete and accurate books and records of its transactions in accordance with
good accounting practices. Borrower shall give each duly authorized
representative of the Lenders access during all normal business hours, upon
reasonable notice, to, and shall permit such representative to examine, copy or
make excerpts from, any and all books, records and documents in the possession
of Borrower and its Subsidiaries and relating to its affairs, and to inspect any
of the properties of Borrower and its Subsidiaries; provided that the Lender
agrees that any such inspection will be performed so as not to interfere with
Borrower's normal business operations. Borrower shall make a copy of this
Agreement, along with any waivers, consents, modifications or amendments,
available for review at its principal office by the Lenders or the Lenders'
representatives.
SECTION 5.11. COMPLIANCE WITH LAW.
Borrower shall, and shall cause each of its Subsidiaries to, comply in all
material respects with all applicable laws, rules, regulations, ordinances and
all orders and decrees of any Governmental Authority applicable to it or any of
its properties, businesses, or operations.
SECTION 5.12. INSURANCE.
Borrower shall, and shall cause each of its Subsidiaries to, maintain such
worker's compensation insurance, liability insurance and insurance on its
properties, assets and business, now owned or hereafter acquired, against such
casualties, risks and contingencies, and in such types and amounts, as are
consistent with customary practices and standards of companies engaged in
similar businesses.
<PAGE> 37
SECTION 5.13. AUTHORIZATIONS AND APPROVALS.
Borrower shall, and shall cause each of its Subsidiaries to, promptly
obtain, from time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable it
to comply with its obligations hereunder and under the other Loan Documents.
SECTION 5.14. ERISA COMPLIANCE.
Borrower shall (i) at all times, make prompt payment of all contributions
required under all Plans, if any, and shall meet the minimum funding standards
set forth in ERISA with respect to its Plans subject to ERISA, if any, (ii)
notify the Lenders immediately of any fact in connection with any of its Plans,
which might constitute grounds for termination thereof by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer such Plan, together with a statement,
if requested by the Lenders, as to the reason therefor and the action, if any,
proposed to be taken with respect thereto, and (iii) furnish to the Lenders,
upon their request, such additional information concerning any of its Plans as
may be reasonably requested.
SECTION 5.15. FURTHER ASSURANCES.
Borrower shall, and shall cause each of its Subsidiaries to, make, execute
or endorse, and acknowledge and deliver or file or cause the same to be done,
all such notices, certifications and additional agreements, undertakings,
transfers, assignments, or other assurances, and take any and all such other
action, as the Lenders may, from time to time, deem reasonably necessary or
proper in connection with any of the Loan Documents, or the obligations of
Borrower or its Subsidiaries, if any, thereunder, which the Lenders may request
from time to time.
SECTION 5.16. INDEMNITY BY BORROWER.
<PAGE> 38
Borrower shall indemnify, save, and hold harmless the Lenders and their
directors, officers, lenders, attorneys, and employees (singularly or
collectively, the "Indemnitee") from and against (i) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee if
the claim, demand, action or cause of action directly or indirectly relates to
this Agreement and the other Loan Documents issued pursuant thereto, the use of
proceeds of the Loans, or the relationship of Borrower and the Lenders under
this Agreement or any transaction contemplated pursuant to this Agreement, (ii)
any administrative or investigative proceeding by any Governmental Authority
directly or indirectly related to a claim, demand, action or cause of action
described in clause (i) above, and (iii) any and all liabilities, losses, costs,
or expenses (including reasonable attorneys' fees and disbursements) that any
Indemnitee suffers or incurs as a result of any of the foregoing; provided,
however, that Borrower shall have no obligation under this Section 5.16 to the
Lenders with respect to any of the foregoing arising out of the gross negligence
or willful misconduct of the Lenders or their assignees or the breach by any
Lender or their assignees of this Agreement or any other Loan Document or other
document executed in connection with any of the aforesaid, the breach by the
Lenders or their assignees of any intercreditor or participation agreement or
commitment with other parties, the violation or alleged violation of any law,
rule or regulation by the Lenders or their assignees, or from the transfer or
disposition by the Lenders of any Debenture or the Common Stock issued upon
conversion of the Debenture. If any claim, demand, action or cause of action is
asserted against any Indemnitee, such Indemnitee shall promptly notify Borrower,
but the failure to so promptly notify Borrower shall not affect Borrower's
obligations under this Section unless such failure materially prejudices
Borrower's right or ability to participate in the contest of such claim, demand,
action or cause of action, as hereinafter provided. In the event that such
Indemnitee's failure to properly notify Borrower materially prejudices
Borrower's right or ability to participate in the contest of such claim, demand,
action, or cause of action, then said Indemnitee shall have no right to receive,
and Borrower shall have no obligation to pay, any indemnification amounts
hereunder. Borrower may elect to defend any such claim, demand, action or cause
of action (at its own expense) asserted against said Indemnitee and, if
requested by Borrower in writing and so long as no Default or Event of Default
shall have occurred and be continuing, such Indemnitee (at Borrower's expense)
shall in good faith contest the validity, applicability and amount of such
claim, demand, action or cause of action and shall permit Borrower to
participate in such contest. Any Indemnitee that proposes to settle or
compromise any claim or proceeding for which Borrower may be liable for payment
to or on behalf of an Indemnitee hereunder shall give Borrower written notice of
the terms of such proposed settlement or compromise reasonably in advance of
settling or compromising such claim or proceeding and shall obtain Borrower's
written concurrence
<PAGE> 39
thereto. In the event that said Indemnitee fails to obtain Borrower's prior
written consent to any such settlement or compromise, said Indemnitee shall have
no right to receive and Borrower shall have no obligation to pay any
indemnification amounts hereunder. Each Indemnitee may employ counsel, which
counsel shall be reasonably acceptable to Borrower, in enforcing its rights
hereunder and in defending against any claim, demand, action, or cause of action
covered by this Section 5.16; provided, however, that each Indemnitee shall
endeavor in connection with any matter covered by this Section 5.16 which also
involves any other Indemnitee, use reasonable efforts to avoid unnecessary
duplication of effort by counsel for all Indemnitees, including by allowing
Borrower to select one lawyer for all parties, such selection to be subject to
the approval of such parties, which approval shall not be unreasonably withheld.
Any obligation or liability of Borrower to any Indemnitee under this Section
5.16 shall survive the expiration or termination of this Agreement and the
repayment of the Debentures.
SECTION 5.17. RESERVATION OF SHARES.
Borrower shall at all times reserve and keep available sufficient
authorized and unissued shares of Common Stock to effect the conversion of the
Debentures.
SECTION 5.18. OWNERSHIP OF SUBSIDIARIES.
Borrower shall own at all times its current percentages of the capital
stock, or other equity interests in, of the Subsidiaries, except NWL
Laser-Technology GmbH.
SECTION 5.19. RETENTION OF STOCK OWNERSHIP.
(a) Borrower shall not offer, sell or otherwise dispose of any shares of
Common Stock or securities exercisable or convertible into shares of Common
Stock for a period of twelve (12) months following the Loan Closing without the
written approval of the Lenders, other than (i) Common Stock issued upon the
conversion of any of the Debentures; (ii) Common Stock issued upon exercise of
any presently outstanding employee stock options; and (iii) Common Stock issued
upon exercise of any presently outstanding warrants.
(b) Rudi Naumann and Eric M. Reuter will execute and deliver Lock-Up
Agreements at the Loan Closing which shall provide that they will not offer,
sell or otherwise dispose of the shares of Common Stock beneficially owned or
controlled by them (including subsequently acquired shares or securities
exercisable or convertible into shares), for a period of six (6) months
following the Loan Closing.
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER
<PAGE> 40
So long as any part of the Debentures has not been redeemed or converted
hereunder, and until such redemption or conversion in full, unless the Lenders
shall otherwise consent in writing, Borrower agrees that:
SECTION 6.01. LIMITATION ON INDEBTEDNESS.
At Loan Closing, Borrower and its Subsidiaries shall not have any material
outstanding Indebtedness, except Indebtedness arising under this Agreement, the
Debentures, the Guaranties, Permitted Indebtedness or as set forth in Schedule
6.01. Except for senior obligations for operations and/or acquisitions, Borrower
and its Subsidiaries will not incur or guarantee any Indebtedness senior to or
pari passu with the Debentures, without the consent of the Lenders.
SECTION 6.02. LIMITATION ON LIENS.
Borrower shall not, and shall not permit its Subsidiaries to, create,
cause, incur, permit, suffer to exist any Lien upon any of its properties or
assets, other than Permitted Liens.
SECTION 6.03. LIMITATION ON INVESTMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, make or have
outstanding any Investments in any Person, except for Borrower's or any
Subsidiary's acquisition or ownership of stock of or other equity interests in
Subsidiaries (including Persons that will be Subsidiaries after giving effect to
such Investments), loans and other transactions between Borrower and any
Subsidiaries, short term bank deposits, money market investments,
investment-grade commercial paper, government securities and such other "cash
equivalent" investments as the Lenders may from time to time reasonably approve,
and customer obligations and receivables arising out of sales or leases made or
the rendering of services in the ordinary course of business.
SECTION 6.04. ALTERATION OF MATERIAL AGREEMENTS.
Borrower shall not, and shall not permit its Subsidiaries to, consent to
or permit any alteration, amendment, modification, release, waiver or
termination of any material agreement to which it is party, other than in the
ordinary course of business.
SECTION 6.05. TRANSACTIONS WITH AFFILIATES.
Except as disclosed in Schedule 6.05, Borrower shall not, and shall not
permit its Subsidiaries to, enter into any transaction not in the ordinary
course of business with, or pay any management fees to, any Affiliate, except
for intercompany transactions, without the consent of the Lenders, unless the
terms thereof (i) are no less
<PAGE> 41
favorable to Borrower or such Subsidiary than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
an Affiliate, or (ii) if such transaction involves an amount less than $10,000,
are set forth in writing and have been approved by a majority of the members of
the Board of Directors having no personal stake in the transaction.
Notwithstanding the foregoing, Borrower may grant options to employees or
directors if otherwise permitted under this Agreement.
SECTION 6.06. LIMITATIONS ON ACQUISITION OF NONRELATED BUSINESS.
Borrower shall not, and shall not permit its Subsidiaries to, engage in
any line of business or acquire any new product lines or business or acquire any
companies unless such new product line or business of Borrower acquired is
primarily involved in, or substantially similar or related to, Borrower's
current lines of business.
SECTION 6.07. LIMITATION ON SALE OF PROPERTIES.
Borrower shall not, and shall not permit its Subsidiaries to, (i) sell,
assign, convey, exchange, lease or otherwise dispose of any of its properties,
rights, assets or business (including the capital stock of its operating
Subsidiaries), whether now owned or hereafter acquired, without the consent of
the Lenders, except in the ordinary course of business, or (ii) sell, assign or
discount any accounts receivable, except in the ordinary course of business
(which shall include receivable financing or securitization), in each case
without the consent of the Lenders, and except for the sale of the capital stock
or assets of NWL Laser-Technology GmbH.
SECTION 6.08. FISCAL YEAR AND ACCOUNTING METHOD.
Borrower shall not, and shall not permit its Subsidiaries to, change its
fiscal year or method of accounting, except as permitted by GAAP.
SECTION 6.09. LIQUIDATION.
Borrower shall not, and shall not permit its Subsidiaries to, (i) dissolve
or liquidate (except for dissolution or liquidation of inactive Subsidiaries in
the ordinary course of business) or (ii) enter into any other transaction that
has a similar effect.
<PAGE> 42
SECTION 6.10. MATERIAL AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.
Borrower shall not, and shall not permit its Subsidiaries to, amend its
Certificate or Articles of Incorporation (or other charter document) or bylaws
in any material respect, without the consent of the Lenders.
SECTION 6.11. EXECUTIVE COMPENSATION.
(a) Borrower will not increase the salary, bonus, or other compensation
programs (whether in cash, securities, or other property, and whether payment is
deferred or current) of its five most senior executive officers, unless such
compensation increase is approved by a majority of the Board or a Compensation
Committee of the Board, a majority of whom shall be nonemployee Directors.
(b) Borrower shall not implement any bonus, profit sharing or other
incentive plans, until such plans are formally adopted by the majority of the
Board or a Compensation Committee of the Board, a majority of whom shall be
nonemployee Directors. Borrower's executive compensation shall be consistent
with the general compensation policies adopted by the Compensation Committee of
the Board.
SECTION 6.12. RESTRICTED PAYMENTS.
Borrower shall not (i) without the consent of the Lenders, declare or pay
any Dividend (other than stock dividends) or make any other cash distribution on
(a) any Common Stock, (b) any Preferred Stock, if at the time of such
declaration or payment, Borrower is in Default with respect to the Loan, (ii)
purchase, redeem, or otherwise acquire any shares of Common Stock or any shares
of Preferred Stock, without the consent of the Lenders, (iii) make any payments
of Indebtedness (other than Senior Obligations) which are pari passu or
subordinated to the Debentures, if at the time of such payment, Borrower is in
Default with respect to the Loan, or (iv) make any prepayments of Indebtedness
(other than Senior Obligations) which are pari passu or subordinated to the
Debentures, unless the Debentures are prepaid on a pro rata basis, without the
consent of the Lenders. Borrower shall not permit its Subsidiaries to enter into
any agreements restricting the payment of dividends from the Subsidiaries to
Borrower, without the consent of the Lenders.
<PAGE> 43
SECTION 6.13. CONSOLIDATION OR MERGER.
Borrower shall not consolidate with or merge into any other corporation,
unless the surviving corporation after such merger or consolidation will not be
in Default and the surviving corporation becomes a party to this Agreement.
Subsidiaries shall only consolidate with or merge into Borrower or another
Subsidiary; provided, however, that a Subsidiary may merge or consolidate with
any other entity as long as such Subsidiary is the surviving corporation of such
merger or consolidation, and Borrower is not in Default.
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
SECTION 7.01. FINANCIAL RATIOS.
So long as any of the Debentures have not been redeemed or converted
hereunder, and until such redemption or conversion has been made in full, or
unless the Lenders shall otherwise consent in writing, Borrower, on a
consolidated basis, shall be in compliance with the agreed minimum financial
ratios and standards provided in Schedule 7.01, as of the end of each fiscal
quarter of Borrower and as set forth in its most recent quarterly compliance
certificates delivered pursuant to Section 5.01.
ARTICLE VIII - EVENTS OF DEFAULT
SECTION 8.01. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any one or more of the following
events (herein collectively called "Events of Default") shall occur and be
continuing:
(a) Borrower shall fail to pay when due (or shall state in writing an
intention not to pay or its inability to pay) any installment of principal of,
any Debenture or failure to pay within 5 days after such amounts are due, any
interest or any fee, expense or other payment required hereunder;
(b) Any representation or warranty made under this Agreement, or any of
the other Loan Documents, or in any certificate or statement furnished or made
to Agent pursuant hereto or in connection herewith or with the Loans hereunder,
or in any Subsidiary Document shall prove to be untrue or inaccurate in any
material respect as of the date on which such representation or warranty was
made;
(c) Default shall occur in the performance of any of the covenants or
agreements of Borrower or of its Subsidiaries contained herein, or in any of the
other Loan Documents or in any Subsidiary Document;
<PAGE> 44
(d) Except as set forth on the attached Schedule 8.01(d), Default shall
occur in the payment of any Senior Obligations or in the payment of any other
Indebtedness having an aggregate principal amount in excess of $50,000, and
results in the acceleration of such Indebtedness or nonmonetary default shall
occur in respect of any note, loan agreement or credit agreement relating to any
Indebtedness having an aggregate principal amount in excess of $50,000, and such
default continues for more than the period of grace, if any, specified therein
and results in the acceleration of such Indebtedness or any Indebtedness having
an aggregate principal amount in excess of $50,000, shall become due before its
stated maturity by acceleration of the maturity, or any indebtedness having an
aggregate principal amount in excess of $50,000, shall become due by its terms
and shall not be promptly paid or extended;
(e) Any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against Borrower in accordance with the respective terms,
or shall in any way be terminated or become or be declared by any court or by
Borrower or any Subsidiary in any legal proceeding to be ineffective or
inoperative, or shall in any way whatsoever cease to give or provide the
respective rights, titles, interests, remedies, powers or privileges stated
therein to be created thereby;
(f) Borrower or its Subsidiaries shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian, intervenor or liquidator of
itself, or of all or substantially all of such Person's assets, (ii) file a
voluntary petition in bankruptcy, admit in writing that such Person is unable to
pay such Person's debts as they become due or generally not pay such Person's
debts as they become due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or insolvency
laws, (v) file an answer admitting the material allegations of, or consent to,
or default in answering, a petition filed against such Person in any bankruptcy,
reorganization or insolvency proceeding, or (vi) take corporate action for the
purpose of effecting any of the foregoing;
(g) An involuntary petition or complaint shall be filed against Borrower
or any of its Subsidiaries seeking bankruptcy or reorganization of such Person
or the appointment of a receiver, custodian, trustee, intervenor or liquidator
of such Person, or all or substantially all of such Person's assets, and such
petition or complaint shall not have been dismissed within sixty (60) days of
the filing thereof or an order, order for relief, judgment or decree shall be
entered by any court of competent jurisdiction or other competent authority
approving a petition or complaint seeking reorganization of Borrower or its
subsidiary or appointing a receiver, custodian,
<PAGE> 45
trustee, intervenor or liquidator of such Person, or of all or substantially all
of such Person's assets;
(h) Any final judgment(s) for the payment of money in excess of the sum
of $100,000 in the aggregate shall be rendered against Borrower or any
Subsidiary and such judgment or judgments shall not be satisfied or discharged
prior to the date on which any of its assets could be lawfully sold to satisfy
such judgment; or
(i) Borrower shall fail to issue and deliver shares of Common Stock as
provided herein upon conversion of the Debentures.
SECTION 8.02. REMEDIES UPON EVENT OF DEFAULT.
(a) If an Event of Default shall have occurred and be continuing, then
the Lenders may exercise any one or more of the following rights and remedies,
and any other remedies provided in any of the Loan Documents, as the Lenders in
their sole discretion may deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of any
payments or installments received by the Lenders) of, and all interest then
accrued but unpaid on, the Debentures and any other liabilities hereunder to be
forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the
Debentures to the contrary notwithstanding;
(ii) reduce any claim to judgment; and
(iii) without notice of default or demand, pursue and enforce any of
the Lenders' rights and remedies under the Loan Documents and the Subsidiary
Documents, or otherwise provided under or pursuant to any applicable law or
agreement, all of which rights may be specifically enforced.
(b) In the event of a violation by Borrower of the negative covenants
set forth in Article VI, the Lenders may, in their sole discretion, (i) waive
compliance with the covenants, provided Borrower is in compliance with Section
7.01 hereof; or (ii) require Borrower to redeem the Debentures at the higher of
market value or the unpaid principal amount of the Debentures, together with an
amount equal to an 18% annual yield on the principal amount through the
Redemption Date, whichever is greater.
SECTION 8.03. PERFORMANCE BY THE LENDERS.
<PAGE> 46
Should Borrower or any Subsidiary fail to perform any covenant, duty or
agreement contained herein or in any of the other Loan Documents or in any
Subsidiary Document, any Lender or Agent may perform or attempt to perform such
covenant, duty or agreement on behalf of Borrower. In such event, Borrower
shall, at the request of any Lender or Agent, promptly pay any amount reasonably
expended by any Lender or Agent in such performance or attempted performance to
any Lender or Agent at its principal office, together with interest thereon, at
the interest rate specified in the Debenture, from the date of such expenditure
until paid. Notwithstanding the foregoing, it is expressly understood that any
Lender or Agent assumes no liability or responsibility for the performance of
any duties of Borrower or any Subsidiary hereunder or under any of the other
Loan Documents or under any Subsidiary Document.
SECTION 8.04. PAYMENT OF EXPENSES INCURRED BY THE LENDERS.
Upon the occurrence of a Default or an Event of Default, which occurrence
is not cured within the notice provisions, if any, provided herein, Borrower
agrees to pay and shall pay all costs and expenses (including reasonable
attorneys' fees and expenses) incurred by any Lender or Agent in connection with
the preservation and enforcement of the Lenders' rights under this Agreement,
the Debentures or any other Loan Document.
ARTICLE IX - REGISTRATION RIGHTS
SECTION 9.01. "PIGGY-BACK" REGISTRATION.
If Borrower proposes to register any of its capital stock under the 1933
Act in connection with the public offering of such securities for its own
account or for the account of its security holders, other than Holders of
Registrable Securities pursuant hereto (a "Piggy-Back Registration Statement"),
except for (i) a registration relating solely to the sale of securities to
participants in Borrower's stock plans or employee benefit plans or (ii) a
registration relating solely to an transaction for which Form S-4 may be used,
then:
(a) Borrower shall give written notice of such determination to each
Holder of Registrable Securities, and each such Holder shall have the right to
request, by written notice given to Borrower within 15 days of the date that
such written notice was mailed by Borrower to such Holder, that a specific
number of Registrable Securities held by such Holder be included in the
Piggy-Back Registration Statement (and related underwritten offering, if any);
(b) If the Piggy-Back Registration Statement relates to an underwritten
offering, the notice given to each Holder shall specify the name or names of the
managing underwriter or underwriters for such
<PAGE> 47
offering. In addition, such notice shall also specify the number of securities
to be registered for the account of Borrower and for the account of its
shareholders (other than the Holders of Registrable Securities), if any;
(c) If the Piggy-Back Registration Statement relates to an underwritten
offering, each Holder of Registrable Securities to be included therein must
agree (i) to sell such Holder's Registrable Securities on the same basis as
provided in the underwriting arrangement approved by Borrower, and (ii) to
timely complete and execute all questionnaires, powers of attorney, indemnities,
hold-back agreements, underwriting agreements and other documents required under
the terms of such underwriting arrangements or by the SEC or by any state
securities regulatory body;
(d) If the managing underwriter or underwriters for the underwritten
offering under the Piggy-Back Registration Statement determines that inclusion
of all or any portion of the Registrable Securities in such offering would
materially adversely affect the ability of the underwriters for such offering to
sell all of the securities requested to be included for sale in such offering at
the best price obtainable therefor, the aggregate number of Registrable
Securities that may be sold by the Holders shall be limited to such number of
Registrable Securities, if any, that the managing underwriter or underwriters
determine may be included therein without such adverse effect as provided below.
If the number of securities proposed to be sold in such underwritten offering
exceeds the number of securities that may be sold in such offering, there shall
be included in the offering, first, up to the maximum number of securities to be
sold by Borrower for its own account and for the account of other stockholders
(other than Holders of Registrable Securities), as they may agree among
themselves, and second, as to the balance, if any, Registrable Securities
requested to be included therein by the Holders thereof (pro rata as between
such Holders based upon the number of Registrable Securities initially proposed
to be registered by each), or in such other proportions as the managing
underwriter or underwriters for the offering may require; provided, however,
that in the event that the number of securities proposed to be sold in such
underwritten offering exceeds the number of securities that may be sold in such
offering pursuant to the terms and conditions set forth above and the Piggy-Back
Registration Statement is a result of public offering by Borrower of its
securities for its own account, there shall be included in the offering, first,
up to the maximum number of securities to be sold by Borrower for its own
account and second, as to the balance, if any, securities to be sold for the
account of Borrower's stockholders (both the Holders of Registrable Securities
requested and such other stockholders of Borrower requested to be included
therein) on a pro rata basis;
<PAGE> 48
(e) Holders of Registrable Securities shall have the right to withdraw
their Registrable Securities from the Piggy-Back Registration Statement, but if
the same relates to an underwritten offering, they may only do so during the
time period and on the terms agreed upon among the underwriters for such
underwritten offering and the Holders of Registrable Securities;
(f) The exercise of the registration rights of the Holders with respect
to any specific underwritten offering shall be subject to a 90-day delay at the
request of the managing underwriter;
(g) The Holders will advise Borrower at the time a registration becomes
effective whether the Registrable Securities included in the registration will
be underwritten or sold directly by the Holders;
(h) If an underwriter requests a reasonable lock-up period of Borrower
and/or all sellers of Borrower's registered securities, the Holders will agree
to such lock-up, provided that this provision shall be limited to persons or
groups that hold ten percent (10%) or more of the Registrable Securities Then
Outstanding; and
(i) All demand and piggy-back registration rights of the Holders shall
terminate when all of the Registrable Securities Then Outstanding may be sold
pursuant to Rule 144(k).
SECTION 9.02. SHELF REGISTRATION.
Borrower shall file a "shelf" registration statement under the 1933 Act
(the "Shelf Registration") covering all of the Registrable Securities within 180
days of the date of the Debentures, and Borrower shall use its best efforts to
cause the Shelf Registration to be declared effective and to keep the Shelf
Registration continuously effective until all of the Registrable Securities
registered therein cease to be Registrable Securities. The securities shall
cease to be Registrable Securities (a) when the Shelf Registration shall have
become effective under the 1933 Act and such securities shall have been disposed
of pursuant to the Shelf Registration, or (b) such securities shall have been
sold as permitted by Rule 144 under the 1933 Act or the date on which the
Registrable Securities may be sold pursuant to Rule 144(k), whichever is the
first to occur. Borrower agrees, if necessary, to supplement or amend the Shelf
Registration, as required by the registration form utilized by Borrower or by
the instructions applicable to such registration form or by the 1933 Act, and
Borrower agrees to furnish to the holders of the Registrable Securities copies
of any such supplement or amendment prior to its being used.
<PAGE> 49
SECTION 9.03. OBLIGATIONS OF BORROWER.
Whenever required to effect the registration of any Registrable Securities
pursuant to this Agreement, Borrower shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use all reasonable efforts to cause such
registration statement to become effective, and keep such registration statement
effective until the sooner of all such Registrable Securities having been
distributed, or until 120 days have elapsed since such registration statement
became effective (subject to extension of this period as provided below);
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement, or 120 days have elapsed since such registration
statement became effective (subject to the extension of this period as provided
below);
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that Borrower shall not be required in connection therewith or as a
condition thereto to qualify as a broker-dealer in any states or jurisdictions
or to do business or to file a general consent to service of process in any such
states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with the managing
underwriter of such offering, in usual and customary form reasonably
satisfactory to Borrower and the Holders of a majority of the Registrable
Securities to be included in such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement;
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which
<PAGE> 50
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; and
(g) In the event of the notification provided for in Section 9.04(f)
above, Borrower shall use its best efforts to prepare and file with the SEC (and
to provide copies thereof to the Holders) as soon as reasonably possible an
amended prospectus complying with the 1933 Act, and the period during which the
prospectus referred to in the notice provided for in Section 9.04(f) above
cannot be used and the time period prior to the use of the amended prospectus
referred to in this Section 9.04(g) shall not be counted in the 120 day period
of this Section 9.04.
SECTION 9.04. FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of Borrower to
take any action pursuant to this Article IX that the selling Holders shall
furnish to Borrower any and all information reasonably requested by Borrower,
its officers, directors, employees, counsel, agents or representatives, the
underwriter or underwriters, if any, and the SEC or any other Governmental
Authority, including, but not limited to: (i) such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities, as shall be required to effect the registration
of their Registrable Securities; and (ii) the identity of and compensation to be
paid to any proposed underwriter or broker-dealer to be employed in connection
therewith.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, Borrower shall
give the Holders of Registrable Securities on whose behalf such Registrable
Securities are to be registered and their underwriters, if any, and their
respective counsel and accountants, at such Holders' sole cost and expense
(except as otherwise set forth herein), such access to copies of Borrower's
records and documents and such opportunities to discuss the business of Borrower
with its officers and the independent public accountants who have certified its
financial statements as shall be reasonably necessary in the opinion of such
Holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the 1933 Act.
SECTION 9.05. EXPENSES OF REGISTRATION.
All expenses, other than underwriting discounts and commissions applicable
to the Registrable Securities sold by selling Holders,
<PAGE> 51
incurred in connection with the registration of the Registrable Securities
pursuant to this Article, including, without limitation, all registration,
filing and qualification fees, printer's expenses, and accounting and reasonable
legal fees and expenses of Borrower, shall be borne by Borrower; provided,
however, selling Holders shall be responsible for all costs of their due
diligence and legal counsel and other advisors in connection with a registration
of Registrable Securities.
SECTION 9.06. INDEMNIFICATION REGARDING REGISTRATION RIGHTS.
If any Registrable Securities are included in a registration statement
under this Article:
(a) To the extent permitted by law, Borrower will indemnify and hold
harmless each Holder, the officers and directors of each Holder, any underwriter
(as defined in the 1933 Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the 1933 Act or the
1934 Act, against any losses, claims, damages, liabilities (joint or several) or
any legal or other costs and expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action to which they may become subject under the 1933 Act, the 1934 Act or
state law, insofar as such losses, claims, damages, costs, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (each a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact with respect
to Borrower or its securities contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements therein; (ii) the omission or alleged omission to
state therein a material fact with respect to Borrower or its securities
required to be stated therein or necessary to make the statements therein not
misleading; or (iii) any violation or alleged violation by Borrower of the 1933
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state securities law.
Notwithstanding the foregoing, the indemnity agreement contained in this Section
9.07(a) shall not apply and Borrower shall not be liable (i) in any such case
for any such loss, claim, damage, costs, expenses, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person, or (ii) for amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
prior written consent of Borrower, which consent shall not be unreasonably
withheld.
(b) To the extent permitted by law, each Holder who participates in a
registration pursuant to the terms and conditions of this
<PAGE> 52
Agreement shall indemnify and hold harmless Borrower, each of its directors and
officers who have signed the registration statement, each Person, if any, who
controls Borrower within the meaning of the 1933 Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the 1933 Act, the
1934 Act or any state securities law, each of Borrower's employees, agents,
counsel and representatives, any underwriter and any other Holder selling
securities in such registration statement, or any of its directors or officers,
or any person who controls such Holder, against any losses, claims, damages,
costs, expenses, liabilities (joint or several) to which Borrower or any such
director, officer, controlling person, employee, agent, representative,
underwriter, or other such Holder, or director, officer or controlling person
thereof, may become subject, under the 1933 Act, the 1934 Act or other federal
or state law, only insofar as such losses, claims, damages, costs, expenses or
liabilities or actions in respect thereto arise out of or are based upon any
Violation, in each case to the extent and only to the extent that such Violation
occurs in reliance upon and in conformity with written information furnished by
such Holder expressly for use in connection with such. Each such Holder will
indemnify any legal or other expenses reasonably incurred by Borrower or any
such director, officer, employee, agent representative, controlling person,
underwriter or other Holder, or officer, director or of any controlling person
thereof, in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 9.07(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, costs, expenses, liability or action if such
settlement is effected without the prior written consent of the Holder, which
consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9.07 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9.07, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
of such counsel to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve the indemnifying party of its obligations under this Section
<PAGE> 53
9.07, except to the extent that the failure results in a failure of actual
notice to the indemnifying party and such indemnifying party is materially
prejudiced in its ability to defend such action solely as a result of the
failure to give such notice.
(d) If the indemnification provided for in this Section 9.07 is
unavailable to an indemnified party under this Section in respect of any losses,
claims, damages, costs, expenses, liabilities or actions referred to herein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, costs, expenses, liabilities or actions
in such proportion as is appropriate to reflect the relative fault of Borrower,
on the one hand and of the Holder, on the other, in connection with the
Violation that resulted in such losses, claims, damages, costs, expenses,
liabilities or actions. The relative fault of Borrower, on the one hand, and of
the Holder, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of the material fact or
the omission to state a material fact relates to information supplied by
Borrower or by the Holder, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
(e) Borrower, on the one hand, and the Holders, on the other, agree that
it would not be just and equitable if contribution pursuant to this Section 9.07
were determined by a pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of losses, claims, damages, costs, expenses, liabilities and
actions referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any reasonable legal or
other expenses incurred by such indemnified party in connection with defending
any such action or claim. Notwithstanding the provisions of this Section 9.07,
neither Borrower nor the Holders shall be required to contribute any amount in
excess of the amount by which the total price at which the securities were
offered to the public exceeds the amount of any damages which Borrower or each
such Holder has otherwise been required to pay by reason of such Violation. No
person guilty of fraudulent misrepresentations (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation.
SECTION 9.07. REPORTS UNDER THE 1934 ACT.
So long as Borrower has a class of securities registered pursuant to
Section 12 of the 1934 Act, with a view to making available to the Holders the
benefits of Rule 144 promulgated under the 1933 Act ("Rule
<PAGE> 54
144") and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of Borrower to the public without registration or
pursuant to a registration on Form S-3, if applicable, Borrower agrees to use
its reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other documents
required of Borrower under the 1933 Act and the 1934 Act;
(c) Use its best efforts to include all Common Stock covered by such
registration statement on NASDAQ if the Common Stock is then quoted on NASDAQ;
or list all Common Stock covered by such registration statement on such
securities exchange on which any of the Common Stock is then listed; or, if the
Common Stock is not then quoted on NASDAQ or listed on any national securities
exchange, use its best efforts to have such Common Stock covered by such
registration statement quoted on NASDAQ or, at the option of Borrower, listed on
a national securities exchange; and
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, (i) forthwith upon request a copy of the most recent annual or
quarterly report of Borrower and such other SEC reports and documents so filed
by Borrower, and (ii) such other information (but not any opinion of counsel) as
may be reasonably requested by any Holder seeking to avail himself of any rule
or regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.
SECTION 9.08. ASSIGNMENT OF REGISTRATION RIGHTS.
Subject to the terms and conditions of this Agreement, and the Debentures,
the right to cause Borrower to register Registrable Securities pursuant to this
Agreement may be assigned by Holder to any transferee or assignee of such
securities; provided that said transferee or assignee is a transferee or
assignee of at least ten percent (10%) of the Registrable Securities and
provided that Borrower is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; and provided, further, that such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act; it
being the intention that so long as Holder holds any Registrable Securities
hereunder, either Holder or its transferee or assignee of at least ten percent
may exercise the demand right to registration and piggy-back registration rights
hereunder. Other than as set forth above, the parties hereto hereby
<PAGE> 55
agree that the registration rights hereunder shall not be transferable or
assigned and any contemplated transfer or assignment in contravention of this
Agreement shall be deemed null and void and of no effect whatsoever.
SECTION 9.9. OTHER MATTERS.
(a) Each Holder of Registrable Securities hereby agrees by acquisition
of such Registrable Securities that, with respect to each offering of the
Registrable Securities, whether each Holder is offering such Registrable
Securities in an underwritten or nonunderwritten offering, such Holder will
comply with Regulation M or such other or additional anti-manipulation rules
then in effect until such offering has been completed, and in respect of any
nonunderwritten offering, in writing will inform Borrower, any other Holders who
are selling shareholders, and any national securities exchange upon which the
securities of Borrower are listed, that the Registrable Securities have been
sold and will, upon Borrower's request, furnish the distribution list of the
Registrable Securities. In addition, upon the request of Borrower, each Holder
will supply Borrower with such documents and information as Borrower may
reasonably request with respect to the subject matter set forth and described in
this Section 9.10.
(b) Each Holder of Registrable Securities hereby agrees by acquisition
of such Registrable Securities that, upon receipt of any notice from Borrower of
the happening of any event which makes any statement made in the registration
statement, the prospectus or any document incorporated therein by reference,
untrue in any material respect or which requires the making of any changes in
the registration statement, the prospectus or any document incorporated therein
by reference, in order to make the statements therein not misleading in any
material respect, such Holder will forthwith discontinue disposition of
Registrable Securities under the prospectus related to the applicable
registration statement until such Holder's receipt of the copies of the
supplemented or amended prospectus, or until it is advised in writing by
Borrower that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus.
ARTICLE X - BOARD OF DIRECTORS
SECTION 10.01. BOARD REPRESENTATION OR ATTENDANCE BY OBSERVER.
(a) Borrower herewith agrees that Agent shall have the right from time
to time to designate a nominee to serve as a member of the Board of Directors of
Borrower. In the event of a monetary Default under Section 8.01 hereof, the
Agent shall have the right to designate
<PAGE> 56
one (1) additional nominee to serve as a member of the Board of Directors of
Borrower. Borrower will nominate and use its best efforts to secure the election
of such designee(s) as Director(s) of Borrower. During such time as Agent has
not exercised such rights, the Agent shall have the right to designate an
observer, who shall be entitled to attend and participate (but not vote) in all
meetings of the Board of Directors and to receive all notices, reports,
information, correspondence and communications sent by Borrower to members of
the Board of Directors. All costs and expenses incurred in connection therewith
by any such designated Director or observer, or by Agent on behalf of such
Director of observer, shall be reimbursed by Borrower.
(b) Any such Director or observer shall, if requested to do so, absent
himself or herself from the meeting in the event of, and so long as, the
Directors are considering and acting on matters pertaining to any rights or
obligations of Borrower or the Lender under this Agreement, the Debentures, the
other Loan Documents or the Subsidiary Documents.
SECTION 10.02. LIMITATION OF AUTHORITY OF PERSONS DESIGNATED AS A DIRECTOR
NOMINEE.
It is provided and agreed that the actions and advice of any person while
serving pursuant to Section 10.01 as a Director or an observer at meetings of
the Board of Directors shall be construed to be the actions and advice of that
person alone and not be construed as actions of the Lender as to any notice of
requirements or rights of Lender under this Agreement, the Debentures, the other
Loan Documents or the Subsidiary Documents nor as actions of the Lender to
approve modifications, consents, amendments or waivers thereof; and all such
actions or notices shall be deemed actions or notices of the Lender only when
duly provided in writing and given in accordance with the provisions of this
Agreement.
SECTION 10.03. NONLIABILITY OF THE LENDERS.
The relationship between Borrower and the Lenders is, and shall at all
times remain, solely that of borrower and lender. The Lenders neither undertake
nor assume any responsibility or duty to Borrower to review, inspect, supervise,
pass judgment upon, or inform Borrower of any matter in connection with any
phase of Borrower's business, operations, or condition, financial or otherwise.
Borrower shall rely entirely upon its own judgment with respect to such matters,
and any review, inspection, supervision, exercise of judgment, or information
supplied to Borrower by the Lenders, or any representative or agent of the
Lenders, in connection with any such matter is for the protection of the
Lenders, and neither Borrower nor any third party is entitled to rely thereon.
<PAGE> 57
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS
SECTION 11.01. THE LENDERS' REPRESENTATIONS AND WARRANTIES TO OTHER LENDERS.
Each Lender represents and warrants to the other Lenders and the Agent:
(a) It is legal for it to make its portion of the Loan, and the making
of such portion of the Loan complies with laws applicable to it;
(b) It has made, without reliance upon any other Lenders, its own
independent review (including any desired investigations and inspections) of,
and it accepts and approves, the Loan, this Agreement and the associated
documents and all other matters and information which it deems pertinent. It
acknowledges that the Loan Documents and the Subsidiary Documents are a complete
statement of all understandings and respective rights and obligations between
and among the Lenders, Subsidiaries and Borrowers regarding the Loan;
(c) None of the Lenders have made any express or implied representation
or warranty to any other Lender with respect to this transaction;
(d) It will, independently and without reliance upon any other Lender,
and based upon such documents and information as it shall deem appropriate at
the time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and will make such
investigation as it deems necessary to inform itself as to the Loan, the Loan
Documents, the Subsidiary Documents, Borrower and any collateral; provided,
however, nothing contained in this Section shall limit Agent's obligation to
provide the other Lenders with the information and documents Agent is expressly
required to deliver under this Agreement;
(e) The relationship of each Lender is, and shall at all times remain,
solely that of each Lender of its respective Loan. The Lenders are not partners
or joint venturers in connection with the Loan; and
(f) The Loan Documents executed by the Lenders are valid and binding
obligations of the Lenders.
SECTION 11.02. WAIVER OF LOAN PROVISIONS OR INTEREST OR PRINCIPAL PAYMENTS.
<PAGE> 58
A waiver of an interest or principal payment, a declaration of a Default
or any amendment, modification or waiver of this Agreement or the Debentures
will require the consent of the Lenders.
SECTION 11.03. AGENCY.
(a) Each of the Lenders hereby designates and appoints Renaissance Group
as its Agent under this Agreement and authorizes the Agent to take such action
on its behalf under the provisions of this Agreement and the other Loan
Documents and the Subsidiary Documents and to exercise such powers as are set
forth herein or therein, together with such other powers as are reasonable
incidental thereto. In performing its functions and duties under this Agreement,
the Agent shall act solely as agent of the Lenders and does not assume and shall
not be deemed to have assumed any obligation toward or relationship of agency or
trust with or for Borrower. The Agent may perform any of its duties under this
Agreement, or under the other Loan Documents or the Subsidiary Documents, by or
through its agents or employees.
(b) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement, in the other Loan Documents or in the
Subsidiary Documents. Except as expressly provided herein, the duties of the
Agent shall be mechanical and administrative in nature. The Agent shall have and
may use its sole discretion with respect to exercising or refraining from taking
any actions which the Agent is expressly entitled to take or assert under this
Agreement, the other Loan Documents and the Subsidiary Documents. The Agent
shall not have by reason of this Agreement a fiduciary relationship with respect
to the Lenders. Nothing in this Agreement, any of the other Loan Documents or
any of the Subsidiary Documents, express or implied, is intended to or shall be
construed to impose upon the Agent any obligations in respect of this Agreement,
any of the other Loan Documents or any of the Subsidiary Documents except as
expressly set forth herein or therein. If the Agent seeks the consent or
approval of the Lenders to the taking or refraining from taking any action
hereunder, the Agent shall send notice thereof to the Lenders. The Agent may
employ agents, co-agents and attorneys-in-fact and shall not be responsible to
the Lenders or Borrower, except as to money or securities received by it or its
authorized agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
(c) Neither the Agent nor any of its officers, directors, employees or
agents shall be liable to the Lenders for any action taken or omitted by it or
any of them under this Agreement, any of the other Loan Documents or any of the
Subsidiary Documents, or in connection herewith or therewith, except that no
Person shall be relieved of any liability imposed by law, intentional tort or
gross negligence. The Agent shall not be not be responsible to the Lenders for
any recitals, statements, representations or warranties contained
<PAGE> 59
in this Agreement or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility, or sufficiency of this Agreement, any of the
other Loan Documents or any of the Subsidiary Documents or any of the
transactions contemplated thereby, or for the financial condition of any of
Borrowers. The Agent shall not be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions or conditions of
this Agreement, any of the other Loan Documents or any of the Subsidiary
Documents or the financial condition of Borrower, or the existence or possible
existence of any Default or Event of Default. Agent shall give the Lenders
notice of any Default or Event of Default of which Agent has actual notice. The
Agent may at any time request instructions from the Lenders with respect to any
actions or approvals which by the terms of this Agreement, of any of the other
Loan Documents or of any of the Subsidiary Documents the Agent is permitted or
required to take or to grant, and if such instructions are promptly requested,
the Agent shall be absolutely entitled to refrain from taking any action or to
withhold any approval and shall not be under any liability whatsoever to any
Person for refraining from any action or withholding any approval under any of
the Loan Documents or any of the Subsidiary Documents until it shall have
received such instructions from the Lenders. Without limiting the foregoing, the
Lenders shall not have any right of action whatsoever against the Agent as a
result of the Agent acting or refraining from acting under this Agreement, any
of the other Loan Documents or any of the Subsidiary Documents in accordance
with the instructions of the Lenders.
(d) The Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement, any of the other Loan Documents or any of the Subsidiary
Documents and its duties hereunder or thereunder, upon advice of counsel
selected by it.
(e) To the extent that the Agent is not reimbursed and indemnified by
Borrower, the Lenders will reimburse and indemnify the Agent for and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this Agreement, any of the other
Loan Documents, or any of the Subsidiary Documents or any action taken or
omitted by the Agent under this Agreement, any of the other Loan Documents or
any of the Subsidiary Documents. The obligations of the Lenders under this
indemnification provision shall survive the payment in full of the Loans and the
termination of this Agreement.
<PAGE> 60
ARTICLE XII - MISCELLANEOUS
SECTION 12.01. STRICT COMPLIANCE.
Any waiver by the Lenders of any breach or any term or condition of this
Agreement, the other Loan Documents shall not be deemed a waiver of any other
breach, nor shall any failure to enforce any provision of this Agreement or the
other Loan Documents operate as a waiver of such provision or of any other
provision, nor constitute nor be deemed a waiver or release of Borrower for
anything arising out of, connected with or based upon this Agreement or the
other Loan Documents.
SECTION 12.02. WAIVERS AND MODIFICATIONS.
All modifications, consents, amendments or waivers (herein "Waivers") of
any provision of this Agreement, the Debentures or any other Loan Documents, and
any consent to departure therefrom, shall be effective only if the same shall be
in writing by the Lenders and then shall be effective only in the specific
instance and for the purpose for which given. No notice or demand given in any
case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand. No failure to
exercise, and no delay in exercising, on the part of Agent or any Lender, any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise any other right. The rights of any Lender hereunder or under the other
Loan Documents shall be in addition to all other rights provided by law.
SECTION 12.03. LIMITATION ON LIABILITY.
The duties, warranties, covenants and promises arising from the Loan
Documents and the Subsidiary Documents of each Lender to Borrower shall be
several and not joint, and Borrower shall have no legal or equitable cause of
action against any Lender (or its successors or assigns) for any liability of
any other Lender (or its successors or assigns).
<PAGE> 61
SECTION 12.04. CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS AND JURISDICTION.
Any suit, action or proceeding against Borrower with respect to this
Agreement or the Debentures or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
or in the United States federal courts located in the State of Texas, as each
Lender in its sole discretion may elect, and Borrower hereby submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action or proceeding. Borrower hereby irrevocably waives any objections which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any Debenture brought
in such courts, and hereby further irrevocably waives any claim that any such
suit, action or proceeding brought in any such court has been brought in any
inconvenient forum.
SECTION 12.05. ARBITRATION.
(a) Upon the demand of the Lenders or Borrower (collectively the
"parties"), made before the institution of any judicial proceeding or not more
than 60 days after service of a complaint, third party complaint, cross-claim or
counterclaim or any answer thereto or any amendment to any of the above, any
Dispute (as defined below) shall be resolved by binding arbitration in
accordance with the terms of this arbitration clause. A "Dispute" shall include
any action, dispute, claim, or controversy of any kind, whether founded in
contract, tort, statutory or common law, equity, or otherwise, now existing or
hereafter occurring between the parties arising out of, pertaining to or in
connection with this Agreement, any document evidencing, creating, governing, or
securing any indebtedness guaranteed pursuant to the terms hereof, or any
related agreements, documents, or instruments (the "Documents"). The parties
understand that by this Agreement they have decided that the Disputes may be
submitted to arbitration rather that being decided through litigation in court
before a judge or jury and that once decided by an arbitrator the claims
involved cannot later be brought, filed, or pursued in court. IF BORROWER SHALL
FAIL TO PAY (OR SHALL STATE IN WRITING AN INTENTION NOT TO PAY OR ITS INABILITY
TO PAY) NOT LATER THAN FIVE (5) DAYS AFTER THE DUE DATE, ANY INSTALLMENT OF
INTEREST ON OR PRINCIPAL OF, ANY DEBENTURE OR ANY FEE, EXPENSE OR OTHER PAYMENT
REQUIRED HEREUNDER, THE LENDERS MAY, AT THEIR OPTION, ENFORCE THEIR RIGHTS
OUTSIDE THE ARBITRATION PROVISION FOUND IN THIS SECTION 12.05 OR ANY DEBENTURE.
(b) Arbitrations conducted pursuant to this Agreement, including
selection of arbitrators, shall be administered by the American Arbitration
Association ("Administrator") pursuant to the Commercial Arbitration Rules of
the Administrator. Arbitrations conducted pursuant to the terms hereof shall be
governed by the provisions of the Federal Arbitration Act (Title 9 of the United
States Code), and
<PAGE> 62
to the extent the foregoing are inapplicable, unenforceable or invalid, the laws
of the State of Texas. Judgment upon any award rendered hereunder may be entered
in any court having jurisdiction; provided, however, that nothing contained
herein shall be deemed to be a waiver by any party that is a bank of the
protections afforded to it under 12 U.S.C. 91 or similar governing state law.
Any party who fails to submit to binding arbitration following a lawful demand
by the opposing party shall bear all costs and expenses, including reasonable
attorneys' fees, incurred by the opposing party in compelling arbitration of any
Dispute.
(c) No provision of, nor the exercise of any rights under, this
arbitration clause shall limit the right of any party to (i) foreclose against
any real or personal property collateral or other security, (ii) exercise
self-help remedies (including repossession and set off rights) or (iii) obtain
provisional or ancillary remedies such as injunctive relief, sequestration,
attachment, replevin, garnishment, or the appointment of a receiver from a court
having jurisdiction. Such rights can be exercised at any time except to the
extent such action is contrary to a final award or decision in any arbitration
proceeding. The institution and maintenance of an action as described above
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the Dispute to arbitration, nor render inapplicable the
compulsory arbitration provisions hereof. Any claim or Dispute related to
exercise of any self-help, auxiliary or other exercise of rights under this
section shall be a Dispute hereunder.
(d) Arbitrator(s) shall resolve all Disputes in accordance with the
applicable substantive law of the State of Texas. Arbitrator(s) may make an
award of attorneys' fees and expenses if permitted by law or the agreement of
the parties. All statutes of limitation applicable to any Dispute shall apply to
any proceeding in accordance with this arbitration clause. Any arbitrator
selected to act as the only arbitrator in a Dispute shall be required to be a
practicing attorney with not less than five (5) years practice in commercial law
in the State of Texas. With respect to a Dispute in which the claims or amounts
in controversy do not exceed five hundred thousand dollars ($500,000), a single
arbitrator shall be chosen and shall resolve the Dispute. In such case the
arbitrator shall have authority to render an award up to but not to exceed five
hundred thousand dollars ($500,000), including all damages of any kind
whatsoever, costs, fees and expenses. Submission to a single arbitrator shall be
a waiver of all parties' claims to recover more than five hundred thousand
dollars ($500,000). A Dispute involving claims or amounts in controversy
exceeding five hundred thousand dollars ($500,000) shall be decided by a
majority vote of a panel of three arbitrators ("Arbitration Panel"), one of whom
must possess the qualifications to sit as a single arbitrator in a Dispute
decided by one arbitrator. If the arbitration is consolidated with one conducted
pursuant to the terms
<PAGE> 63
of a guaranty of the Indebtedness, then the Arbitration Panel shall be one which
meets the criteria set forth between the Lenders and Borrower. Arbitrator(s)
may, in the exercise of their discretion, at the written request of a party, (i)
consolidate in a single proceeding any multiple party claims that are
substantially identical and all claims arising out of a single loan or series of
loans, including claims by or against borrower(s), guarantors, sureties and/or
owners of collateral if different from Borrower, and (ii) administer multiple
arbitration claims as class actions in accordance with Rule 23 of the Federal
Rules of Civil Procedure. The arbitrator(s) shall be empowered to resolve any
dispute regarding the terms of this Agreement or any Dispute or any claim that
all or any part (including this provision) is void or voidable but shall have no
power to change or alter the terms of this Agreement. The award of the
arbitrator(s) shall be in writing and shall specify the factual and legal basis
for the award.
(e) To the maximum extent practicable, the Administrator, the
arbitrator(s) and the parties shall take any action reasonably necessary to
require that an arbitration proceeding hereunder be concluded within 180 days of
the filing of the Dispute with the Administrator. The arbitrator(s) shall be
empowered to impose sanctions for any party's failure to proceed within the
times established herein. Arbitration proceedings hereunder shall be conducted
in Texas at a location determined by the Administrator. In any such proceeding a
party shall state as a counterclaim any claim which arises out of the
transaction or occurrence or is in any way related to the Loan Documents which
does not require the presence of a third party which could not be joined as a
party in the proceeding, The provisions of this arbitration clause shall survive
any termination, amendment, or expiration of the Loan Documents and repayment in
full of sums owed to the Lenders by Borrower unless the parties otherwise
expressly agree in writing. Each party agrees to keep all Disputes and
arbitration proceedings strictly confidential, except for disclosures of
information required in the ordinary course of business of the parties or as
required by applicable law or regulation.
SECTION 12.06. INVALID PROVISIONS.
If any provision of any Loan Document is held to be illegal, invalid or
unenforceable under present or future laws during the term of this Agreement,
such provision shall be fully severable; such Loan Document shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of such Loan Document; and the remaining provisions of such
Loan Document shall remain in full force and effect and shall not be affected by
the illegal, invalid or unenforceable provision or by its severance from such
Loan Document. Furthermore, in lieu of each such illegal, invalid or
unenforceable provision shall be added as part of such Loan
<PAGE> 64
Document a provision mutually agreeable to Borrower and the Lenders as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable. In the event Borrower and the Lenders are
unable to agree upon a provision to be added to the Loan Document within a
period of ten (10) business days after a provision of the Loan Document is held
to be illegal, invalid or unenforceable, then a provision acceptable to
independent arbitrators, such to be selected in accordance with the provisions
of the American Arbitration Association, as similar in terms to the illegal,
invalid or unenforceable provision as is possible and be legal, valid and
enforceable shall be added automatically to such Loan Document. In either case,
the effective date of the added provision shall be the date upon which the prior
provision was held to be illegal, invalid or unenforceable.
SECTION 12.07. MAXIMUM INTEREST RATE.
(a) Regardless of any provision contained in any of the Loan Documents,
the Lenders shall never be entitled to receive, collect or apply as interest on
the Debentures any amount in excess of interest calculated at the Maximum Rate,
and, in the event that any Lender ever receives, collects or applies as interest
any such excess, the amount which would be excessive interest shall be deemed to
be a partial prepayment of principal and treated hereunder as such; and, if the
principal amount of the Obligation is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds interest calculated at the
Maximum Rate, Borrower and the Lenders shall, to the maximum extent permitted
under applicable law, (i) characterize any nonprincipal payment as an expense,
fee or premium rather than as interest, (ii) exclude voluntary prepayments and
the effects thereof, and (iii) amortize, pro rate, allocate and spread, in equal
parts, the total amount of interest throughout the entire contemplated term of
the Debentures; provided that, if the Debentures are paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds interest calculated
at the Maximum Rate, the Lenders shall refund to Borrower the amount of such
excess or credit the amount of such excess against the principal amount of the
Debentures and, in such event, the Lenders shall not be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate
of interest permitted by applicable law on such day that at any time, or from
time to time, may be contracted for, taken, reserved, charged or received on the
Indebtedness evidenced by the Debentures under the laws which are presently in
effect of the United States of America and the laws of any other jurisdiction
which are or
<PAGE> 65
may be applicable to the holders of the Debentures and such Indebtedness or, to
the extent permitted by law, under such applicable laws of the United States of
America and the laws of any other jurisdiction which are or may be applicable to
the holder of the Debentures and which may hereafter be in effect and which
allow a higher maximum nonusurious interest rate than applicable laws now allow.
SECTION 12.08. PARTICIPATIONS AND ASSIGNMENTS OF THE DEBENTURES.
(a) The Lenders and the Agent shall have the right to enter into a
participation agreement with any other party or its Affiliates with respect to
the Debentures, or to sell all or any part of the Debentures, but any
participation or sale shall not affect the rights and duties of any such Lender
or the Agent hereunder vis-a-vis Borrower. In the event that all or any portion
of the Loan shall be, at any time, assigned, transferred or conveyed to other
parties, any action, consent or waiver (except for compromise or extension of
maturity), to be given or taken by any Lender or the Agent hereunder (herein
"Action"), shall be such action as taken by the holders of a majority in amount
of the Principal Amount of the Debentures then outstanding, as such holders are
recorded on the books of Borrower and represented by the Agent as described in
subsection (b) below.
(b) Assignment or sale of the Debentures shall be effective on the books
of Borrower only upon (i) endorsement of the Debenture, or part thereof, to the
proposed new holder, along with a current notation of the amount of payments or
installments received and net Principal Amount yet unfunded or unpaid, and
presentment of such Debenture to Borrower for issue of a replacement Debenture,
or Debentures, in the name of the new holder; and (ii) delivery of an opinion of
counsel, reasonably satisfactory to Borrower, that transfer shall not require
registration or qualification under applicable state or federal securities laws.
(c) The Debentures may be sold, transferred or assigned only to
Affiliates of the Lenders or permitted transferees in multiples of $100,000.
SECTION 12.09. CONFIDENTIALITY.
<PAGE> 66
(a) All financial reports or information that are furnished to the
Lenders or Holders, or their respective director designees or other
representatives, pursuant to this Agreement or pursuant to the Debentures, the
other Loan Documents or the Subsidiary Documents shall be treated as
confidential unless and to the extent that such information has been otherwise
disclosed by Borrower, but nothing herein contained shall limit or impair the
Lenders' or Holders' right to disclose such reports to any appropriate
Governmental Authority, or to use such information to the extent pertinent to an
evaluation of the Obligation, or to enforce compliance with the terms and
conditions of this Agreement, or to take any lawful action which the Lenders or
Holders deem necessary to protect their respective interests under this
Agreement.
(b) The Lenders and the Agent shall use their reasonable efforts to
protect and preserve the confidentiality of such information, except for such
disclosure as shall be required for compliance by the Lenders or their
respective director designees with SEC reporting requirements or any
administrative or judicial proceeding or otherwise as a matter of law. The
provisions of Section 5.01 notwithstanding, Borrower may refuse to provide
information as required pursuant thereto to an assignee or successor in interest
to the Lenders, unless and until such assignee or successor shall have executed
an agreement to maintain the confidentiality of the information as provided
herein.
SECTION 12.10. BINDING EFFECT.
The Loan Documents shall be binding upon and inure to the benefit of
Borrower and the Lenders and their respective successors, assigns and legal
representatives; provided, however, that Borrower may not, without the prior
written consent of the Lenders, assign any rights, powers, duties or obligations
thereunder.
SECTION 12.11. NO THIRD PARTY BENEFICIARY.
The parties do not intend the benefits of this Agreement to inure to any
third party, nor shall this Agreement be construed to make or render the Lenders
liable to any materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by Borrower, or for debts or claims accruing to any
such persons against Borrower. Notwithstanding anything contained herein, in the
Debentures, in any other Loan Document or in any Subsidiary Document, no conduct
by any or all of the parties hereto, before or after signing this Agreement, any
other Loan Document nor any Subsidiary Document, shall be construed as creating
any right, claim or cause of action against the Lenders, or any of their
respective officers, directors, agents or employees, in favor of any
materialman, supplier, contractor, subcontractor, purchaser or lessee of any
property owned by Borrower, nor to any other person or entity other than
Borrower.
<PAGE> 67
SECTION 12.12. ENTIRETY.
This Agreement and the Debentures, the other Loan Documents, the
Subsidiary Documents and any other documents or instruments issued or entered
into pursuant hereto and thereto contain the entire agreement between the
parties and supersede all prior agreements and understandings, written or oral
(if any), relating to the subject matter hereof and thereof.
SECTION 12.13. HEADINGS.
Section headings are for convenience of reference only and, except as a
means of identification of reference, shall in no way affect the interpretation
of this Agreement.
SECTION 12.14. SURVIVAL.
All representations and warranties made by Borrower herein shall survive
delivery of the Debentures and the making of the Loans.
SECTION 12.15. MULTIPLE COUNTERPARTS.
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same agreement, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
SECTION 12.16. KNOWLEDGE OF BORROWER.
As used herein or in any of the other Loan Documents, all references "to
Borrower's best knowledge" or "to the knowledge of Borrower" or words or phrases
of similar import (whether or not modified by any additional phrase) shall in
each case mean the knowledge of Borrower, the Subsidiaries or their respective
executive officers, directors and principal shareholders.
SECTION 12.17. NOTICES.
(a) Any notices or other communications required or permitted to be
given by this Agreement or any other documents and instruments referred to
herein must be (i) given in writing and personally delivered, mailed by prepaid
certified or registered mail or sent by overnight service, such as FedEx, or
(ii) made by telex or facsimile transmission delivered or transmitted to the
party to whom such notice or communication is directed, with confirmation
thereupon given in writing and personally delivered or mailed by prepaid
certified or registered mail.
<PAGE> 68
(b) Any notice to be mailed, sent or personally delivered shall be
mailed or delivered to the principal offices of the party to whom such notice is
addressed, as that address is specified herein below. Any such notice or other
communication shall be deemed to have been given (whether actually received or
not) on the day it is mailed, postage prepaid, or sent by overnight service or
personally delivered or, if transmitted by telex or facsimile transmission, on
the day that such notice is transmitted; provided, however, that any notice by
telex or facsimile transmission, received by any Borrower or the Lenders after
4:00 p.m., Standard Time, at the recipient's address, on any day, shall be
deemed to have been given on the next succeeding business day. Any party may
change its address for purposes of this Agreement by giving notice of such
change to the other parties.
If to Borrower to:
Laserscope
305 Orchard Drive
San Jose, California 95134
Attn.: Eric M. Reuter
Chief Executive Officer
Telephone (408) 943-0636
Facsimile (408) 943-9630
with a copy to:
Orrick, Herrington & Sutcliff LLP
400 Sansome Street
San Francisco, California 94111
Attn.: Peter Lillevand, Esq.
Telephone (415) 392-1122
Facsimile (415) 773-5759
If to the Lenders to:
Renaissance Capital Growth & Income Fund III, Inc.
Renaissance US Growth & Income Trust PLC
c/o Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
Attn.: Robert C. Pearson
Senior Vice President
Telephone (214) 891-8294
Facsimile (214) 891-8291
<PAGE> 69
with a copy to:
Norman R. Miller, Esq.
Wolin, Ridley & Miller LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
Telephone (214) 939-4906
Facsimile (214) 939-4949
If to Agent to:
Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
Attn.: Robert C. Pearson
Senior Vice President
Telephone (214) 891-8294
Facsimile (214) 891-8291
with a copy to:
Norman R. Miller, Esq.
Wolin, Ridley & Miller LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
Telephone (214) 939-4906
Facsimile (214) 939-4949
Any notice delivered personally in the manner provided herein will be
deemed given to the party to whom it is directed upon the party's (or its
agent's) actual receipt. Any notice addressed and mailed in the manner provided
here will be deemed given to the party to whom it is addressed at the close of
business, local time of the recipient, on the fourth business day after the day
it is placed in the mail, or, if earlier, the time of actual receipt.
SECTION 12.18. GOVERNING LAW.
THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND DELIVERED,
AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS
OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS
LOAN AGREEMENT.
<PAGE> 70
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
executed and delivered, as of the date and year first above written.
BORROWER:
LASERSCOPE
By: /s/ Eric M Reuter
----------------------------------
Eric M. Reuter
Chief Executive Officer
LENDERS:
RENAISSANCE CAPITAL GROWTH & INCOME
FUND III, INC.
By: /s/ Russell Cleveland
----------------------------------
Name: Russell Cleveland
--------------------------------
Title:
-------------------------------
RENAISSANCE US GROWTH & INCOME
TRUST PLC
By: Renaissance Capital Group, Inc.
Investment Manager
By: /s/ Russell Cleveland
----------------------------------
Name: Russell Cleveland
--------------------------------
Title:
-------------------------------
AGENT:
RENAISSANCE CAPITAL GROUP, INC.
By: /s/ Russell Cleveland
----------------------------------
Name: Russell Cleveland
--------------------------------
<PAGE> 71
SCHEDULES TO CONVERTIBLE LOAN AGREEMENT
<TABLE>
<S> <C>
Schedule 2.08 Schedule of Brokers/Finders
Schedule 4.03 Schedule of Conflicts or Consents
Schedule 4.05 Schedule of Permitted Liens
Schedule 4.06 Schedule of Any Material Adverse Change
Schedule 4.08 Schedule of Material Agreements
Schedule 4.09 Schedule of Litigation
Schedule 4.10 Schedule of Unpaid Taxes
Schedule 4.11 Schedule of Capitalization
Schedule 4.13 Schedule of Employee Matters
Schedule 4.14 Schedule of Employee Benefit Plans
Schedule 4.15 Schedule of Compliance with Laws Matters
Schedule 4.16 Schedule of Licenses and Permits
Schedule 4.17 Schedule of Contracts
Schedule 4.19 Schedule of Agreements between Borrower and any of its
officers, directors, and principal shareholders,
including employment agreements
Schedule 4.20 Schedule of Subsidiaries
Schedule 4.21 Schedule of Casualties
Schedule 4.25 Schedule of Insurance
Schedule 4.27 Schedule of Real Property
Schedule 4.28 Schedule of Environmental Matters
Schedule 6.01 Schedule of Limitation on Indebtedness
Schedule 6.05 Schedule of Transactions with Affiliates
Schedule 7.01 Schedule of Financial Ratios
</TABLE>
<PAGE> 72
SCHEDULE 7.01
FINANCIAL RATIOS
Borrower shall maintain the following financial covenants in accordance with the
definitions set forth below:
1. DEBT TO TOTAL EQUITY. The ratio of total liabilities to total equity which
shall not exceed 2.00 to 1.00 during each quarter prior to the sale of NWL
Laser-Technology GmbH and 1.50 to 1.00 during each quarter thereafter.
2. CURRENT RATIO. Maintain at all times a current ratio ("current ratio"
being defined as the quotient of current assets divided by current
liabilities) of 1.00 to 1.00.
3. INTEREST COVERAGE. "Interest coverage" is defined as a fraction in which
the numerator is the sum of the trailing twelve (12) months' net income
before taxes, interest and depreciation and the denominator is the
trailing twelve (12) months' interest expense. Interest coverage must not
be less than 1.50 to 1.00.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No.333-55843 and 333-32252) of Laserscope and the related Prospectus, as
well as in the Registration Statements (Form S-8 No. 33-38831, 33-40506
33-53052, 33-53158, 33-63603 33-82524, 333-07089, 333-07101, 333-07103,
333-07095, 333-11787, 333-11795, 333-31213 and 333-31233, 333-60441, 333-60443,
333-60445 and 333-92713) pertaining to the 1984 Stock Option Plan, the 1989
Employee Stock Purchase Plan, the 1994 Stock Option Plan, the 1995 Directors'
Stock Option Plan the 1995 Replacement Option Plan, the 1999 Directors' Stock
Option Plan, the 1999 Retention Stock Option Plan, and the 1999 Employee Stock
Purchase Plan of Laserscope, of our report dated February 24, 2000, with respect
to the consolidated financial statements and schedule of Laserscope included in
the Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
San Jose, California
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,449
<SECURITIES> 0
<RECEIVABLES> 10,251
<ALLOWANCES> 751
<INVENTORY> 10,052
<CURRENT-ASSETS> 22,282
<PP&E> 18,076
<DEPRECIATION> 14,127
<TOTAL-ASSETS> 28,956
<CURRENT-LIABILITIES> 15,476
<BONDS> 0
0
0
<COMMON> 52,467
<OTHER-SE> (40,420)
<TOTAL-LIABILITY-AND-EQUITY> 28,956
<SALES> 40,990
<TOTAL-REVENUES> 40,990
<CGS> 23,646
<TOTAL-COSTS> 23,646
<OTHER-EXPENSES> 24,099
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 910
<INCOME-PRETAX> (7,560)
<INCOME-TAX> 13
<INCOME-CONTINUING> (7,573)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,573)
<EPS-BASIC> (.60)
<EPS-DILUTED> (.60)
</TABLE>
