U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 31, 1997
or
[ ] Transition report under section 13 or 15(d) of the
Securities Exchange Act of 1934 for transition period
from to .
Commission file number 0-17594
ION LASER TECHNOLOGY, INC.
(Name of small business issuer in its charter)
UTAH 87-0410364
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3828 South Main Street
Salt Lake City, Utah 84115
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number: (801) 262-5555)
Securities registered under Section 12(b) of the Act: Common Stock,
par value $.001
Name of each exchange on which registered: American Stock Exchange
Securities registered under Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
Issuer's net revenues for the fiscal year ended March 31, 1997 were
$7,082,546.
The aggregate market value of the registrant's Common Stock held by non-
affiliates as of June 26, 1997 was approximately $36,987,884, based on the
closing sale price of the issuer's stock as reported by the American Stock
Exchange on such date.
The number of shares of common stock of the Registrant outstanding as of
June 26, 1997 was 5,616,427.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE> PART I
ITEM 1. BUSINESS
Introduction
Ion Laser Technology, Inc. ("ILT" or the "Company") develops,
manufactures, markets and services dental lasers used in cosmetic, general
and periodontal dentistry to allow the dentist to perform non-invasive and
minimally invasive procedures that assist in improving the appearance and
care of the dental patient. Additionally, ILT develops, manufactures and
distributes water-cooled argon and carbon dioxide ("CO2") lasers, and air-
cooled argon and krypton ion lasers used in industrial, scientific and
medical applications.
In February 1996, the Company was first to receive United States Food and
Drug Administration ("FDA") clearance to market laser tooth whitening. In
spring 1996, the Company began commercial introduction to the dental market
of its proprietary and patent-pending dual-laser tooth whitening system
("BriteSmile Laser Tooth Whitening" or "LTW "), marketed under the
trademark "BriteSmile ." Thousands of patients have had their smile
brightened with the BriteSmile dual-laser method. The Company is expanding
distribution of LTW domestically and internationally, including the
reagents used in each patient treatment.
The Company acquired the assets of Brite Smile, Inc., an Alabama
corporation ("BSI"), in March 1996, through a wholly-owned subsidiary,
BriteSmile, Inc., a Utah corporation ("BriteSmile"). BriteSmile
manufactures and distributes laser tooth whitening chemical kits as well as
at-home and in-office use tooth bleaching reagents under the BriteSmile
brand name and under other trademarks owned by the Company.
The Company's D-2000 CO2 laser system is used as part of LTW system and can
also be used with a different power setting for oral soft-tissue surgery to
vaporize or sever tissue with minimal blood loss and scarring to offer
increased patient comfort, decreased treatment time and decreased post-
operative trauma compared to conventional surgical methods not involving
the use of lasers. The 6800A-WL argon laser (which replaces the 5500A-WL,
5500ACL, and 5500PCU) is the other half of the dual-laser LTW system which
also cures dental composite materials, such as fillings and aesthetic
restorations, eight times faster than traditional curing methods. ILT
also offers a curing only, low-powered argon laser, the 6800PCL (which
replaces the 5500A-PCL).
ILT's products are also used in a variety of industrial and scientific
applications: semiconductor manufacturing, photolithography, meteorology,
digital storage, materials processing and manufacturing, microscopic
research, confocal microscopy, ramon spectroscopy, holography,
biostimulation and gene research, laser radar, photo type-setting, disco
special effects, planetarium shows, stage shows and high-speed printers.
The Company began as a laser manufacturing concern for the industrial
markets and was incorporated in the state of Utah June 7, 1984. It began
to focus on the dental market with research and development in 1989. In
December 1993, ILT sold its first CO2 laser for dental use, the D1000 for
soft tissue applications. In August 1994, the Company introduced the first
curing-only argon laser with the proprietary multi-plex system. In April
1995, the first stand along argon laser, upgradeable to a multi-plex
system, was introduced.
The primary manufacturing facilities of the Company are located in Salt
Lake City, Utah, with some manufacturing conducted at a facility in
Shanghai, China known as Ion Laser Shanghai, a joint venture of which the
Company owns 26% with rights to own up to 51%.
Recent Business Developments
During the Company's fiscal year ended March 31, 1997, management of the
Company focused its resources on expanding its business in the dental
market, particularly the laser tooth whitening and composite curing fields.
On May 12, 1997, the Company closed a private placement of 428,572 shares
of Common Stock of the Company (the "Shares"), and options to purchase
500,000 shares of Common Stock (the "Options"), pursuant to a Securities
Purchase Agreement dated as of May 8, 1997 (the "May 1997 Purchase
Agreement"). The total consideration received by the Company for the
Shares and the Options in this offering was $3,000,000. The Options are
exercisable at any time until the close of business on May 1, 2007, at an
exercise price of $9.00 per share. The Shares and Options were sold to two
purchasers, Richard S. Braddock, Chairman of the Board of Directors of the
Company, and LCO Investments Limited, a corporation organized under the
laws of Guernsey, Channel Islands, both of whom were already shareholders
of the Company and are either accredited persons or non-U.S. persons as
defined by rules promulgated by the SEC under the Securities Act of 1933.
The Shares, and the shares of Common Stock underlying the Options, are
restricted and may not be transferred or sold, except as permitted by the
May 1997 Purchase Agreement, for a period of one year after their
acquisition by the purchasers. The Shares, including the shares issuable
upon exercise of the Options, are subject to certain piggy-back and demand
registration rights, as provided by a separate Registration Rights
Agreement between the Company and the purchasers dated as of May 8, 1997.
On June 25, 1997, the Company entered into a binding letter of intent with
Dental/Medical Diagnostic Systems, Inc. ("DMD"), an internationally
recognized distributor of dental products, including intra-oral cameras.
DMD distributes its products through more than 40 exclusive sales
representatives in the United States and through international distributors
around the world. The arrangement is subject to board approval of both
companies and to the execution of a definitive agreement. The principal
terms as outlined in the letter of intent provide for DMD to become a non-
exclusive distributor of LTW and an exclusive distributor of the Argo HP ,
the Company's new dental composite curing device.
The Laser Industry Overview
Laser ("Light Amplification by Stimulated Emission of Radiation")
technology has been in a constant state of change and evolution since its
introduction in the early 1960's. Initially developed primarily for
research, industrial and military purposes, a wide variety of medical
applications for lasers rapidly emerged. Lasers now are used in a variety
of medical applications such as ophthalmology, gynecology, urology,
dermatology, plastic surgery, and general surgery. When used in medical
procedures, lasers generally are believed to reduce pain and infection,
promote more rapid healing, reduce bleeding, reduce scarring, improve
precision, and decrease the time necessary to perform medical procedures.
The use of lasers for dental applications has been slower to develop. One
reason for this slower development in dental applications is the highly
reflective quality of tooth enamel and dentin, which requires a more
powerful laser to obtain the desired results. High-powered lasers
typically emit more heat, and high levels of heat can harm the pulp of the
tooth. This concern has prevented the use of lasers for such applications
as cutting tooth enamel, especially in children. However, there are many
other dental procedures for which low-powered lasers have been developed,
such as the use of the Company's lasers for curing composites used in place
of metal fillings, for gingival surgery, and more recently, for tooth
whitening procedures.
ILT Product Lines
Dental Markets
The Company's principal product line includes lasers and other products
manufactured for dental applications in three primary areas: composite
curing, tooth whitening and soft tissue procedures.
Composite Curing. Composites have become popular substitutes and
replacements for amalgams, typically gold and silver, for restoration of
cavities. Composites can be color matched to the tooth and do not raise
the same safety concerns associated with the removal of metal fillings from
the mouth. Composites are typically hardened (cured) using a curing light
and, when cured, have the appearance of normal tooth enamel. The light of
the argon laser has been determined to cure composites much faster and to
produce stronger restorations than traditional curing lights. Since March
1993, the Company has marketed an argon curing laser to the dental
profession known as the Precision Curing Laser ("PCL"). The argon curing
system sells for approximately $9,500 to $18,000, depending upon the number
of operatories the laser supports. In addition to the PCL, the Company has
developed a laser handpiece and delivery system for use in the curing
process. The PCL generates between 275 and 485 milliwatts of power at the
handpiece. Through the use of a multiplexer developed by the Company, a
single laser can be used to deliver a beam to as many as four different
operatories. The multiplexer uses fiber optics to transmit the beam from
the laser unit to each operatory, where a handpiece is activated by
depressing a foot pedal. The Company has obtained a patent on the
multiplexer and on the collimated beam handpiece used in connection with
the PCL.
The Company recently received clearance from the FDA to begin marketing a
new device in the United States for composite curing and light-activated
tooth whitening. The patent pending device, known as the "Argo HP Sub-
Second " ("Argo HP"), utilizes new and proprietary technology to activate
light-sensitive dental materials in less than a second. The Argo HP is
believed by the Company to be the fastest and most efficient non-laser
curing device on the market.
Tooth Whitening - The BriteSmile Process. Dentists use a number of
bleaching products to whiten teeth. Most of these products are prescribed
by the dentist for home use. Traditional methods of tooth whitening
(including some marketed by the Company) include the use of various
chemical treatments, some of which require multiple applications, with
sometimes limited success. Most recently, one such method known as "power
bleaching" has been developed. This method involves coating the teeth with
a peroxide solution which hopefully will bleach blemishes from the dental
surface. To speed up the bleaching effect, heat is applied using a heat
lamp or heating iron. This process can cause discomfort to the patient
resulting from penetration of the peroxide to soft tissues in the patient's
mouth or from prolonged exposure to the heat source. In addition, the
process typically can be performed only on the upper or lower set of teeth
at one time, requiring multiple visits to the dentist before the procedure
is complete. The risks of this procedure also include possible damage to
the pulp within the tooth due to intense or prolonged heat exposure. These
methods sometimes are not effective on certain types of teeth or severely
stained teeth.
In March 1996, the Company acquired the assets and technology of BSI,
established in 1989 to market hydrogen peroxide-based tooth whitening
products. The primary products of BSI included the original BriteSmile
at-home bleaching gel, flavorings for the BriteSmile gel, the ACCELplus 50
in-office bleaching product, and an acid-etch gel. The most recent
addition to the product line is the patent-pending laser tooth whitening
system utilizing the Company's own high-powered argon and CO2 lasers (the
BriteSmile LTW system). The LTW system covers two primary components: a
dual-laser whitening process and a host of catalysts and activators used in
the process. These features are the subject of patent applications
acquired by the Company in the BSI acquisition. The Company has been
advised by the United States Patent and Trademark Office that a patent
covering the BriteSmile LTW system will issue on July 8, 1997. The issued
patent will include 37 claims to provide patent protection for the use of
argon and/or CO2 lasers in conjunction with chemical whitening agents to
effect the whitening of teeth, as well as the chemical whitening agents
themselves.
In contrast to the low-powered, heat-lamp assisted bleaching procedure of
tooth whitening, LTW uses a proprietary mixture of peroxide and catalysts
to accelerate bleaching, in conjunction with a high-powered argon laser. A
second application, using a different catalyst, is followed by brief
exposure to low-power laser light, activating the peroxide and the catalyst
to accelerate the bleaching process. BriteSmile LTW is usually done in a
single office visit of about two and one-half hours. Conventional
alternate methods currently in use require the patient to be fitted with a
mouth piece filled with chemicals which the patient wears for several hours
daily or over night for three to eight weeks. This procedure is less
effective, slower to produce results, and requires discipline and
commitment on the part of the patient. Because LTW can be done in a single
visit to the dentist's office, the results are immediate and the impact on
the patient more dramatic.
Soft Tissue Procedures. Dental lasers may be used for certain periodontal
procedures, treatment of early forms of gum disease and pre-surgical or
preventative periodontal procedures. Although the Company has received
clearance for CO2 lasers for these procedures, to date the Company has
chosen to emphasize the tooth whitening market for its dental lasers.
Scientific/Industrial Markets
The Company's product line includes air-cooled argon and krypton ion lasers
for scientific and industrial markets. The Company's first commercial
product was an air-cooled argon gas laser, from which the Company
eventually developed four models with varying power output, including an
internal mirror argon laser, a single frequency argon laser, a krypton ion
laser and a water-cooled (higher powered) argon laser. In its
scientific/industrial product line, the Company does not manufacture its
products for specific applications or end uses. Rather, the line consists
of lasers of various power levels which meet particular performance
specifications, but the incorporation and use of these products in
particular systems or for specific applications is the responsibility of
the Company's customers. A majority of these products are sold to
customers who (i) manufacture products that have lasers as components, (ii)
conduct research, or (iii) otherwise determine which model has the
appropriate power output and other performance characteristics suited to
their desired end use or adapted or integrated into their own products.
The prices of the Company's scientific/industrial lasers vary between
approximately $5,000 and $12,000, depending upon the type of laser, the
power output, and the accessories ordered with the laser. Lasers are
manufactured using fabricated sheet metal, and electronic and other
component parts. With few exceptions, the Company has several sources of
supply readily available for each component. In those instances where the
Company has elected to use a single source of supply, the Company believes
it would not be difficult to locate alternative sources if necessary.
Medical Markets
Lasers are used in the medical industry for eye surgery, gall bladder
removal, lesion removal and dermatological treatments, and various soft
tissue procedures. The Company manufactures a CO2 laser developed for
cutting skin tissue. This laser has been approved for a variety of
surgical procedures in both the dental and the medical markets, although it
has been marketed to date primarily to the dental profession. It operates
at various power output ranges, with a maximum output of six watts. In
September 1994, the Company introduced a second generation CO2 laser, known
as the Genesis 2000, which includes several available upgrades. Medical
laser sales historically have not been a significant part of the Company's
business.
Alliance with Pratt & Whitney
In October 1995, the Company established a strategic alliance with Pratt &
Whitney (an affiliate of United Technologies, Inc.) to jointly develop
unique, low-cost laser and laser-specific composite materials for
industrial and dental applications. Under the agreement, the Company has
the exclusive use of any new products for dental and medical applications,
while Pratt & Whitney maintains the rights to all developed technologies in
its core business. The two companies will share any technologies related
to other industries.
Patents, Trademarks and Licenses
The basic technology for laser manufacture has been well known since the
early 1960's. A patent covering certain aspects of the laser was granted
in 1987 to Patlex Corporation ("Patlex") and continues in effect until the
year 2004. The Company manufactures certain of its products under license
from this patent holder to avoid infringing upon those patent rights. The
royalty paid to Patlex under this agreement is an amount equal to 2% of net
foreign laser sales and 5% of net domestic laser sales. See Note 7 to the
financial statements. This obligation will expire in 2004. No royalty is
paid on sales of lasers to the United States Government or its contract
parties.
The Company holds several patents covering certain aspects of its laser
technology developed by the Company. On January 29, 1991, the U.S. Patent
Office issued a patent for a laser resonator. This is a device that
automatically compensates for changes in optical characteristics of the
laser resulting from changes in temperature which occur during use. This
allows the device to maintain an appropriate, constant temperature within
ranges to meet the required precision in its optical elements, despite the
build-up of heat naturally occurring during continuous operation of the
laser.
The Company obtained a patent in May 1993 for a krypton or "mixed gas" ion
laser which uses a combination of gases to produce a controlled laser
output of multiple wavelengths or frequencies. This feature is not
available in a laser using a single type of gas. The Company receives
royalties on the sale and use of this product.
The Company received a patent in May 1995 on its multiplexer system. The
multiplexer permits laser beam delivery from a single laser through fiber
optics to multiple locations.
On April 1, 1997, the United States Patent Office issued a patent to the
Company on its "high-speed curing handpiece". The handpiece allows the
laser beam to be collimated such that the energy level of the beam of light
remains consistent.
As part of the BSI acquisition, the Company acquired certain intellectual
property including two patents relating to the use of hydrogen-peroxide
and/or fluoride in the whitening of teeth. The first patent relates to the
method of protecting the mucous membranes of the mouth while treating teeth
(through use of a soft tissue protectant gel) and the second relates to the
composition of the protective gel. Each of these patents were issued in
1991 and are enforceable through the year 2008. In addition, the Company
has a patent pending on laser tooth whitening and has been advised by the
United States Patent and Trademark Office that this patent will issue on
July 8, 1997. The issued patent will include 37 claims to provide patent
protection for the use of argon and/or CO2 lasers in conjunction with
chemical whitening agents to effect the whitening of teeth, as well as the
chemical whitening agents themselves.
The Company owns the rights to the registered trademarks "BriteSmile" (name
and logo), "White Smile," and "Muco-Pro," used in connection with the tooth
whitening business. The Company also owns logo and word trademarks
associated with the name "Ion Laser" and "Ion Laser Technology," and "ILT."
Although the Company intends to continue to apply for patents as advised by
patent counsel, there can be no assurance that such patents will issue or
that, when they have issued, the same will not be infringed upon by third
parties or that they will cover all aspects of the product or system to
which they relate. Management generally believes that the Company's
success depends more on its ability to maintain state-of-the-art technology
and to market its products on a price-competitive and value-added basis,
than on any legal protection that patents may provide. The Company relies,
and will continue to rely, on trade secrets, know-how and other unpatented
proprietary information in its business. Certain key employees of the
Company are required to enter into confidentiality and non-competition
agreements to protect the confidential information of the Company.
However, there is no assurance that these agreements would be enforceable
if they are breached or, if enforced, that they would adequately protect
the Company or provide an adequate remedy for the damage that may be caused
by such a breach.
Government Regulation
The Company's business is subject to various state and federal statutes and
regulations, particularly the manufacture and sale of lasers having medical
and dental applications, such as the CO2 laser and the PCL. These products
are subject to the provisions of the Safe Medical Devices Act of 1990 and
the Federal Food, Drug and Cosmetic Act of 1938, including its amendments
of 1976 and 1992 (the "Act"), administered by the FDA. The Act generally
classifies medical devices into categories and establishes varying degrees
of labeling and market clearance procedures for such categories. The
Company is subject to FDA standards and procedures governing the
manufacture of its "medical" lasers and to FDA inspection for compliance
with such standards. Among other things, the Company is required to
manufacture these products in accordance with Good Manufacturing Practices
regulations ("GMP") and is subject to periodic audits by the FDA.
Compliance with GMP requires that the Company implement strict quality
control procedures, greater documentation and record keeping, and that it
hire highly qualified and specialized personnel. Although only the medical
and dental lasers are subject to these requirements, the Company has
elected to implement and apply GMP to its manufacturing activities for all
of its laser products.
The FDA approval process is expensive and can be very lengthy. There are
two principal methods by which FDA approval may be obtained. The least
expensive and less time-consuming method is to seek FDA market clearance
through a "pre-market" notification filing under Section 510(k) of the Act.
This procedure requires the Company to submit evidence proving that the
covered "device" for which the approval is sought is "substantially
equivalent" to devices on the market before the Amendment was adopted in
1976 or devices that have been approved pursuant to the 510(k) procedure
since that time.
Pursuant to this notification procedure, the Company has received clearance
for both its argon and CO2 lasers, permitting the Company to market these
products for oral soft tissue procedures to the dental market, certain
medical uses, composite curing, and LTW, under classifications that do not
require pre-market approval.
The alternate, pre-market approval ("PMA"), process for obtaining FDA
approval of devices regulated under the Act requires the applicant to first
obtain an Investigational Device Exemption and to conduct clinical testing
designed to show the safety, efficacy and potential hazards of the product.
The review period under the PMA process is 180 days from the date of
filing, but unlike the pre-market notification procedure described above,
approval is not automatic if not rejected during that 180-day period. The
PMA application process is more complex, time consuming and expensive than
the 510(k) process. The Company has not been required to use the PMA
process for its products to date.
The FDA also imposes requirements on manufacturers and sellers of regulated
products, which include labeling, manufacturing practices, record keeping
and reporting. The FDA also may impose post-marketing practices, record
keeping and reporting requirements. Although the FDA notification and
approval process and compliance with the record keeping and manufacturing
requirements is costly and time-consuming, the failure to receive requisite
approvals, or significant delays in obtaining such approvals, would prevent
the Company from bringing products to the market and could have a
materially adverse effect on the Company's business.
The Company also is subject to regulation under the Radiation Control for
Health and Safety Act, administered by the Center for Devices and
Radiological Health ("CDRH") of the FDA. This law requires laser
manufacturers to file new product and annual reports and to maintain
quality control, product testing and sales records. The law also requires
manufacturers to incorporate certain design and operating features in
lasers sold to end-users and to certify and label each laser sold to an
end-user as belonging to one of four classes, based on the level of
radiation from the laser that is accessible to users. Warning labels must
be affixed and certain protective devices installed, depending on the class
of the product. CDRH has the power to levy fines and impose other remedies
for violation of these regulations.
In addition to federal regulation of the Company's products, the Company
also must comply with foreign laws in certain foreign countries that are
similar in scope to those mentioned above. Foreign sales of the Company's
lasers are subject to approval by the regulatory authority in the country
in which sales are made. Regulatory requirements vary widely from country
to country and may affect, among other things, the necessity to obtain
electrical approvals or to perform clinical testing and pursue application
and/or notification procedures similar to those of the United States.
Although the Company has sold lasers from its industrial line in countries
in Europe, the electrical safety requirements differ from country to
country and between industrial and medical (including dental) products.
Presently, the Company does not market its dental and medical lasers in
certain countries because of these different requirements.
As technological advances change and modify the products and their uses,
governmental agencies in the United States and in foreign jurisdictions may
adopt additional rules and regulations that may affect the Company's
ability to develop and market its products.
Marketing
Since 1995, the Company has devoted much of its resources to promotion and
development of the LTW. The Company currently is developing and using
direct marketing to both dentists and consumers in order to increase the
awareness of LTW in the domestic market. It is the belief of management
that there is an extensive market for the Company's LTW products and
services, and that the best method to exploit this market is through
educating both dentists and consumers as to the products provided by the
Company for this service.
Since the acquisition by the Company of BSI and the BriteSmile LTW system,
the Company has entered into agreements with and marketed laser activated
tooth whitening products and the related BriteSmile chemicals to more than
one hundred independent, practicing dentists. Also, the Company sells and
markets chemicals for use in dentist-prescribed in-office and at-home tooth
whitening regimens, including the BriteSmile bleaching product and
flavorings for the BriteSmile gel. Foreign markets for such consumable
products include Thailand, Canada, Mexico, Korea, Singapore, India and
Spain. Third-party vendors are used by the Company for manufacturing and
packaging its consumable products and bringing them into new markets. The
Company considers these relationships to be serviceable and stable but
believes that, if necessary, other vendors who have already been identified
could provide these services in the future.
In addition to its direct-response marketing program, the Company recently
signed a binding letter of intent with Dental/Medical Diagnostic Systems,
Inc. ("DMD"), under which DMD has agreed in principle to undertake the
distribution of the Company's products. DMD is a leader in the placement
of intra-oral dental cameras and distributes products through fourteen
regional managers and approximately 40 exclusive sales representatives in
the United States and through agreements with distributors in Europe,
Canada, Japan, China, South America and Australia. The arrangement with
DMD is subject to execution of definitive agreements and board approval.
Assuming a definitive agreement is concluded, DMD will market and
distribute the LTW products on a non-exclusive basis. DMD also will become
the exclusive world-wide distributor of the Company's new, patent-pending
Argo HP dental composite curing device which utilizes a newly developed,
proprietary light-energy source to activate dental materials in less than
one second, which will make it the fastest and most efficient, non-laser
activating device in the dental market. The Argo HP has recently received
clearance from the FDA to be marketed in the United States for dental
composite curing and light activated tooth whitening.
While the Company's industrial and scientific lasers are sold at trade
shows and through independent distributors, dental products are primarily
sold directly by the Company's internal sales staff, although domestic and
foreign independent representatives are also authorized to sell the dental
products. A few dental dealers are distributing the Company's "at home"
tooth whitening products, but most sales are made through dentists who
prescribe treatment. The Company uses trade journal advertising, field
salespersons, brochures, mailings, trade shows, and high profile dentists
to promote sales of dental products. No customer accounted for more than
10% of net sales of the Company in fiscal 1997 or 1996.
During fiscal 1997, the Company spent significant resources developing a
direct-response marketing campaign to penetrate the laser tooth whitening
market. The costs involved in developing this campaign included research
to identify key target markets within the dental community, communication
of the campaign and follow-on support. The campaign primarily entailed a
strategy of identifying key geographical markets and establishing dental
advisory contacts within those markets, through which sales of the
Company's LTW products take place. A portion of the costs associated with
this direct-response marketing campaign have been capitalized and will be
amortized over the period of expected benefit from the campaign.
Additionally, the Company uses a pull strategy by advertising its LTW
system to potential patients. Costs incurred in connection with general
consumer awareness were expensed as incurred.
The costs incurred in the marketing of these products included research to
determine the target market among consumers for the LTW products, the
preparation of direct marketing campaigns aimed at professionals and one
for consumers, and the development of a public relations and marketing
campaign to educate consumers about LTW and BriteSmile. A portion of these
costs have been capitalized and included in intangible assets of the
Company. See note 1 to the financial statements included in this report.
For industrial and scientific products, customers may be categorized as
either original equipment manufacturers ("OEMs") or research users. OEMs
manufacture their own equipment utilizing a Company-manufactured laser as a
component part. Examples of these OEM products include laser printers,
bar-code scanners and color separators. OEMs in fiscal 1997 accounted for
approximately 14% of the Company's sales or approximately $1,001,506.
Research purchasers include laboratories operated by universities,
government agencies or private institutions and accounted for approximately
3% of the Company's sales, or approximately $195,000. Research lasers are
typically more expensive systems, because research laboratories tend to
include many accessories and options in their orders.
The Company had backlog orders of approximately $600,000 as of March 31,
1997. Backlog orders are orders scheduled for future delivery. When
ordering, customers generally specify the desired delivery date. OEMs
generally order several months in advance and arrange for lasers to be
delivered to fit their own manufacturing schedules. No customer has ever
scheduled an order to be delivered more than 12 months from the date of
order. Most backlog orders at March 31, 1997 were scheduled for delivery
within six months of that date. In the past, the Company has experienced
very little difficulty meeting delivery dates. During fiscal 1997,
however, the Company experienced an increase in warranty claims, primarily
relating to the argon lasers sold as part of the LTW system. The Company
believes that measures taken to change vendors and the launch of the new
6800 Argon Laser for tooth whitening will reduce such claims in future
periods, but there can be no assurance that similar problems will not
continue or arise in the future.
Foreign/Domestic Distribution Methods
Foreign and domestic sales over the past two fiscal years are summarized as
follows:
1997 1996
----------- -----------
Domestic Sales $ 6,233,264 $ 2,944,329
Foreign Sales 849,282 1,302,623
----------- -----------
Total Sales $ 7,082,546 $ 4,246,952
=========== ===========
In the United States, products are sold directly by the Company from its
facility in Salt Lake City, Utah. Domestic sales leads are developed by
attending trade shows, advertising in trade magazines, and listing the
products in trade buyers guides. Outside the United States, products are
marketed and sold by independent distributors who buy the Company's
products at wholesale prices denominated in U.S. currency, and resell the
products into their local markets. Presently, the Company's industrial and
scientific products are marketed through the offices of the following
independent representatives:
France: Italy: Switzerland:
Optilas S.A.Laser Optronic GMP SA Electro-
Z.I. LA Petite Montagne Sud Via Iglesias, 29A Optic/Laser
CE 1834 20128 Milano 19, bv. des Baumettes
9109 Evry Cedex PO Box CH. 1020 Renens 1
Spain: Germany: Taiwan:
Optilas Iberica, S.A. Ortel VertriebsGMBH Superbin Company, LTD
Maria Tuibua, Arbeiostrasse 5 3F, 339, Sec.
5 Edificio Auge VI D-85386 Eching 2 Ho Ping East Rd.
28050 Madrid Taipei
Japan: Netherlands: United Kingdom:
Japan Lasers Company, Inc. Opitilas B.V. AG Electro Optics Ltd
2-14-1, Nishiwaseda P.O. Box 222 Tarporley Business
Shinjuku, Tokyo 169 2400 ae alphen Centre
A/D RIJN Holland Tarporley
Cheshire, CW6 9UY
Korea: Sweden:
EO Technics Martinsson Elektronik AG
3 Fl Youngjin Bd BOX 9060
1660-12 Bongchon-7 dong Instrumentvagen 16
Kwanak-gu, Seoul S-12609 Hagersten
Competition
The Company is aware of several companies that offer laser and tooth
whitening products for the dental market. The Company attempts to continue
to market most of its products at more affordable prices than its
competitors. The price of the BriteSmile LTW system is approximately
$40,000. The price includes the Company's argon and CO2 lasers, training
and an initial supply of reagents. Company management believes that the
Company must keep its product line technology current and continue to
pursue new market niches if it is to remain competitive. Research and
development efforts of the Company focus on bringing new technology to the
market at a lower price than the competition and continually updating the
features and applications of the product line. In fiscal 1997 and 1996,
the Company spent $232,949 and $104,094, respectively, on research and
development. It expects to continue to allocate a similar percentage of
its revenues to research and development in fiscal 1998.
The Company does not believe that any single competitor of the Company
dominates the marketplace. In the dental market, the principal competition
for lasers is provided by Luxar, Sunrise Technology, Biolase and Premier.
Competition for dentist-prescribed home bleaching products is from
Opalescence, Night White and Rembrandt. There continue to be numerous
entrants into the in-office tooth whitening market. Some of the Company's
current and potential competitors may have greater financial and marketing
resources available to them than the Company.
The Company is aware of several competitors who currently sell lasers into
the dental market for use in laser tooth whitening. Additionally, other
competitors sell chemicals for use in whitening teeth with the use of
lasers, although the Company is not aware of any other entity which
manufactures and/or distributes both lasers and chemicals for use in laser
tooth whitening.
In the industrial/scientific market, the major competitors of the Company
include Omnichrome, American Laser, and Uniphase. The Company believes that
there are fewer than a dozen companies worldwide manufacturing air cooled
argon lasers.
The Chinese Joint Venture
In April 1989, the Company formed a wholly-owned subsidiary, Ion Laser
Technology Development Company, a Utah corporation ("ILT Development").
ILT Development was formed for the purpose of entering into a joint venture
with Shanghai Laser Technology Company ("SLTC") and Shanghai Minhang United
Development Company Ltd. ("Minhang"), two companies headquartered in
Shanghai, China. Minhang is an administrative organization responsible for
the development, construction and management of activities within the
Shanghai Minhang Economy and Technology Development Zone, an area
established under the auspices of the Shanghai Municipal Government,
Shanghai, China. The joint venture operates under the name "Shanghai Ion
Laser Technology Company Limited" (the "Joint Venture") and manufactures,
markets and services lasers and related equipment from facilities located
in the People's Republic of China. The Company presently owns a 26%
interest in and has an option to acquire up to 51% of the Joint Venture, at
a purchase price that would give the selling investor a 10% annualized
return on its original investment. The Company's Vice-Chairman, Lynn B.
Barney, serves as Vice Chairman of the Joint Venture's board. The Joint
Venture's facility in China manufactures and sells lasers throughout China
and also sells systems to the Company for resale and shipment to other
markets outside China. The facility is one of only two such facilities in
all of China and has the capability of producing the Company's non-dental
argon laser product line. The facility also serves as a service and
distribution center for sales in the Pacific Rim area. Future plans
include expanding the manufacturing activities of the Joint Venture to
include the Company's medical and dental product line. The Company
believes that the lower labor costs of the Joint Venture make manufacturing
of high-volume product lines more cost-effective than manufacturing the
same products in the U.S., where such products have historically lower per-
unit profit margins.
In July 1992, the Joint Venture parties admitted a fourth member, Shanghai
JiuShi Company ("JiuShi"). JiuShi is a government affiliated investment
company with significant real estate and other commercial holdings
throughout China.
SLTC is an affiliate of the Shanghai Institute of Laser Technology
("Shanghai Institute"), established in December 1987. It is engaged in the
development of laser technology, manufacture of laser products and the
acquisition of foreign technology for expansion of its production.
Shanghai Institute was established in 1970. It has approximately 500
employees, including approximately 150 scientists and engineers. The
Shanghai Institute is engaged mainly in research and development of laser
technology and applications. A factory attached to the institute includes
a mechanical workshop, optics workshop and electronics workshop.
Profits and losses of the Joint Venture are allocated and distributed among
the members in proportion to their respective ownership interests, which in
turn are established by the capital contributions made by each of the
parties. The respective ownership interests of the partners as of the date
of this report are as follows: SLTC - 30.36%, Minhang - 24%, ILT
Development - 25.64%, and Jiu Shi - 20%.
The Joint Venture employs approximately eleven persons, including two
engineers, a general manager and an assistant general manager. It
purchases most of the components used to assemble its argon lasers directly
from the Company. For the year ended March 31, 1997, the Joint Venture
purchased approximately $38,800 in products from the Company.
Product Liability
The Company may become subject from time to time to suits alleging
negligence, product liability or related causes of action, although no such
action is currently pending. The Company maintains product liability
insurance coverage for its products. While the Company intends to continue
to insure against such actions, there can be no assurance that the Company
will be successful in maintaining such coverage or that the limits of such
policies will be adequate or renewable at prices or on terms which are
sufficient for the Company's business. A successful claim against the
Company in excess of any insurance coverage could have a material adverse
effect upon the Company and its financial condition. Claims against the
Company, regardless of the merit or eventual outcome of such claims, also
may have a material adverse effect on the Company's reputation and
business. Product liability insurance for the fiscal years ended March 31,
1997 and 1996 cost the Company approximately $26,000 and $39,000,
respectively.
Employees
As of the date of this report, the Company has 78 full-time employees.
None of the Company's employees are represented by a union and the Company
is not aware of any efforts to unionize any employees. The Company
believes its labor relations are satisfactory. The Chinese Joint Venture
in which the Company is a minority owner employs approximately 11 persons.
Under Chinese law, these employees are represented by a trade union which
represents the rights of the employees in management of the business.
ITEM 2. PROPERTIES
The Company occupies 35,000 square feet in a building it acquired in April
1991, and renovated at that time. The building is located at 3828 South
Main Street, Salt Lake City, Utah. Approximately 15,000 square feet of the
building is used for production, 3,000 square feet for warehousing and
7,000 square feet for administration, research and development. The
facility also houses a six operatory dental training center which was
constructed to train and educate dentists in the use of lasers in dental
applications of the LTW system. This property is subject to first and
second mortgages related to the long-term debt of the Company.
The Joint Venture in China owns a 12,000 square foot manufacturing facility
in Shanghai, equipped for the manufacture of the Company's argon laser
line.
During the past year, the Company entered into a five-year lease agreement
for dental facilities located in Birmingham, Alabama. The Birmingham
facilities consist of a dental office and dental equipment initially used
by the Company for training dentists in the LTW system until March 1, 1997.
Training coordination for LTW has been moved since that date to the
Company's new state-of-the-art training facility in Salt Lake City and the
Company is reexamining the future use of the Birmingham facilities.
ITEM 3. LEGAL PROCEEDINGS
On or about November 27, 1996, a lawsuit was filed against the Company by
Jerry B. Black in the Circuit Court of Jefferson County, Alabama. Other
defendants include BSI, David K. Yarborough, Judy B. Yarborough and
BriteSmile. The Company acquired the BSI assets from Yarborough in 1996.
The lawsuit is based on allegations of misappropriation of confidential and
proprietary information and/or trade secrets on the part of the defendants.
Specifically, Black claims that he identified a material that could be used
to isolate teeth during whitening procedures and to protect the gums and
other soft tissues of the mouth. Black claims that this technique was not
previously known when he disclosed it to Yarborough in February 1995 and
that Yarborough promised to keep the technique confidential. Instead,
according to Black, Yarborough incorporated the technique into the method
for whitening teeth which he sold to the Company in March 1996. Black
seeks to recover both compensatory and punitive damages from the defendants
in an unspecified amount.
The parties have engaged in limited written discovery and only the
deposition of Yarborough has taken place. The parties intend to conduct
significant further discovery, including the deposition of Black. Because
the case is still in the discovery stage, the Company cannot predict with
any certainty whether plaintiff's claims are meritorious, nor can it
predict in any meaningful way the potential liability of the Company, if
any. However, management of the Company believes that the plaintiff's
claims are without merit and is proceeding aggressively in defense of the
plaintiff's claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders during the fourth quarter
of fiscal 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
Since 1995, the Company's common stock has been listed for trading on the
American Stock Exchange ("AMEX"). Prior to that time, the Company's common
stock was traded in the over-the-counter market. The following table sets
forth, for each full quarterly period during the past two fiscal years, and
subsequent interim periods for which financial statements are presented in
this report, if any, high and low sales price information as reported by
AMEX or other electronic services, as the case may be.
1995 High Sales Low Sales
---------------------------------------------------------
March 31 $ 1.000 $ 0.5625
June 30 $ 0.875 $ 0.5625
September 30 $ 3.000 $ 0.6250
December 31 $ 4.375 $ 1.8125
1996
---------------------------------------------------------
March 31 $20.000 $ 3.938
June 30 $30.875 $13.625
September 30 $19.625 $ 9.750
December 31 $13.875 $ 8.250
1997
---------------------------------------------------------
March 31 $12.500 $ 6.375
As of June 26, 1997, there were approximately 295 holders of record of the
Company's stock. This number excludes the Company's estimate of the number
of beneficial owners of shares held in street name, the accuracy of which
cannot be guaranteed.
The Company has not paid any cash dividends on its common stock since its
inception. The policy of the Board of Directors is to retain earnings to
support growth; therefore, the Company does not anticipate paying any cash
dividends on its common stock in the foreseeable future.
Recent Sales of Unregistered Securities
In addition to the issuance of shares upon exercise of options or otherwise
as reported elsewhere in this report, within the past three years the
Company has issued securities in transactions summarized below without
registration of the securities under the Securities Act of 1933, as amended
(the "Securities Act").
Fiscal 1995
Effective August 30, 1995, the Company issued options to purchase up to
50,000 shares of Common Stock to a former director, Jeffrey W. Holmes.
Such options became exercisable at any time after August 29, 1996 at an
exercise price of $.625 per share. Mr. Holmes resigned as a director of
the Company on January 31, 1996.
In September 1995, the Company sold 160,000 restricted shares of its Common
Stock to Edward D. Bagley, then a director of the Company, and Mr. Bagley's
son and father. The net proceeds of such sale were $100,000.
Fiscal 1996
On February 6, 1996, the Company entered into an agreement to purchase
substantially all of the assets of Bright Smile, Inc., an Alabama
corporation, owned by David Yarborough. The purchase price paid to
Yarborough was $800,000, payable by the issuance of 200,000 restricted
shares of the Company's Common Stock. Yarborough was employed by the
Company's Brite Smile subsidiary from the time of the acquisition until his
resignation on June 13, 1997.
On March 31, 1996, the Company sold a total of 300,000 restricted shares of
Common Stock and options to acquire an additional 1,000,000 shares of
Common Stock to three accredited investors as that term is defined under
Rule 501 of Regulation D under the Securities Act. The total purchase
price for these shares and options was $5,000,000. The options were
exercisable at $20.00 per share through March 31, 2006.
Fiscal 1997 and To Date
Subsequent to the year ended March 31, 1997, but prior to the date of this
report, on May 8, 1997, the Company sold a total of 428,572 restricted
shares of Common Stock and options to purchase 500,000 additional shares of
Common Stock to two accredited investors for a total purchase price of
$3,000,000. The options are exercisable at $9.00 per share through May 1,
2007. In addition, the Company repriced certain of the options issued in
the March 31, 1996 private placement described above held by these same
investors so that they are also exercisable at $9.00 per share, rather than
$20.00 per share as originally granted.
With respect to all of the foregoing offers and sales of restricted and
unregistered securities by the Company, the Company relied on the
provisions of Sections 3(b) and 4(2) of the Securities Act and rules and
regulations promulgated thereunder, including, but not limited to Rules
505 and 506 of Regulation D, in that such transactions did not involve any
public offering of securities and were exempt from registration under the
Securities Act. The offer and sale of the securities in each instance was
not made by any means of general solicitation, the securities were acquired
by the investors without a view toward distribution, and all purchasers
represented to the Company that they were sophisticated and experienced in
such transactions and investments and able to bear the economic risk of
their investment. A legend was placed on the certificates and instruments
representing these securities stating that the securities evidenced by such
certificates or instruments, as the case may be, have not been registered
under the Securities Act and setting forth the restrictions on their
transfer and sale. Each investor also signed a written agreement that the
securities would not be sold without registration under the Securities Act
or pursuant to an applicable exemption from such registration.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto
contained elsewhere in this report. The discussion of these results should
not be construed to imply any conclusion that any condition or circumstance
discussed herein will necessarily continue in the future.
When used in this report, the words "believes," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes
no obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or
circumstances after the date of this report, or to reflect the occurrence
of unanticipated events.
RESULTS OF OPERATIONS
Net Sales
Sales for the fiscal year ended March 31, 1997 totaled $7,082,546, compared
to $4,246,952 in the prior fiscal year, an increase of approximately
$2,836,000 or 67%. Dental sales, the primary emphasis of the Company,
increased $2,910,000 in the year ended March 31, 1997, from $2,150,000 in
1996 to $5,060,000 in 1997. The growth both in dental sales and in sales
generally in fiscal 1997 was due primarily to continued growth in the sale
of laser composite curing and whitening products associated with the
Company's BriteSmile LTW system.
Management anticipates continued growth in sales in the dental division
with the LTW product line and the other tooth whitening chemical products
at rates comparable to those of fiscal 1997.
With the increased emphasis in fiscal 1997 on the dental and tooth
whitening market, industrial and scientific sales decreased for the second
consecutive fiscal year. Total scientific and industrial sales in fiscal
1997 were $1,450,733, compared to $1,834,576 in fiscal 1996. The decrease
of $384,000, compared to a decrease of $687,000 for the previous year, is
largely due to the Company's continued and increasing emphasis on the
dental market. Management intends to continue to concentrate the majority
of the Company's resources in the dental market. Although management
anticipates continued revenue from the Company's industrial and scientific
operations, it does not expect this segment of the business to be a
significant contributor to growth.
Cost of Sales
The Company's cost of sales decreased from 63% of sales in fiscal year 1996
to 59% of sales in fiscal year 1997. The decrease is due to the sale of
higher margin LTW system products, including tooth whitening reagents.
Although the LTW system products are sold at a better margin than other
products of the Company, warranty costs on this product line were higher
than other product lines during fiscal year 1997. The Company has
identified two specific areas which made up the majority of these costs:
failure of the power supply used in the argon whitening laser, and failures
of the fiber optic launch on the argon system. The Company has addressed
these issues as follows. First, the Company recently contracted with a
third-party supplier for a new power supply, pursuant to which arrangement
the vendor will be financially responsible for any warranty claims
associated with this new power supply. Second, Model 6800 of the argon
tooth whitening laser, introduced in May 1997, uses a different fiber optic
launch and is expected to significantly reduce the Company's warranty
claims in fiscal 1998.
Management expects that as the product mix moves toward greater sales of
LTW systems and tooth whitening reagents, the cost of sales as a percent of
sales should continue to decrease.
Selling & Administrative Expenses
Administrative expenses increased from approximately 13.4% of sales in
fiscal 1996 (or approximately $571,394), to 18.2% of sales in fiscal 1997
(or approximately $1,291,628). This significant increase is due to several
factors. As a consequence of the Company's acquisition of Brite Smile, the
Company maintained administration of that segment of the business in
Alabama and continued to maintain its principal offices in Utah for part of
the year. The BriteSmile administration and product line have now been
consolidated with the operations at Salt Lake City. The Company also has
spent more of its resources on shareholder relations, computer systems
administration and human resources than in past periods. Although
management plans to continue to spend resources in these areas in equal or
greater amounts than previous years, the Company anticipates that as
revenues grow, administrative expenses as a percent of sales should
decrease.
Selling expenses in fiscal 1997 were $2,161,874 or 30.5% of sales, compared
to $747,549 or approximately 17.6% of sales in fiscal 1996. Marketing
dollars continue to be used to penetrate the dental market. The Company
uses several forms of marketing to contact potential users of its products,
including advertising in trade magazines, attending trade shows, mailing
literature to target markets, and the utilization of field sales persons
and high profile dentists. Management expects to continue to spend
resources on marketing and selling at levels similar to those spent in the
past.
During fiscal 1997, the Company spent significant resources developing a
direct-response marketing campaign to penetrate the laser tooth whitening
market. The costs involved in developing this campaign included research
to identify key target markets within the dental community, communication
of the campaign and follow-on support. The campaign primarily entailed a
strategy of identifying key geographical markets and establishing dental
advisory contacts within those markets, through which sales of the
Company's LTW products take place. A portion of the costs associated with
this direct-response marketing campaign have been capitalized and will be
amortized over the period of expected benefit from the campaign.
Additionally, the Company uses a pull strategy by advertising its LTW
system to potential patients. Costs incurred in connection with general
consumer awareness were expensed as incurred.
Research & Development Expenses
Research and development expenses were $232,949 and $104,094 in fiscal 1997
and 1996, respectively. This is an increase of $129,000 in fiscal 1997.
The Company continues to maintain a research and development team currently
focused on the development of new dental products and the improvement of
existing product lines. The increase in research and development expenses
is largely attributable to the development of the Argo HP. This product
has been developed as a low-cost, high speed (less than one second) curing
device for curing composites in dental applications. The product received
FDA market clearance in March 1997 and management expects to begin shipment
of the product during the third quarter of fiscal 1998. The Company
expects research and development expenditures to continue at a similar
level as a percentage of sales in fiscal 1998.
In October 1995, the Company entered into a joint venture agreement with
Pratt & Whitney, a subsidiary of United Technologies, Inc. Under the
agreement, engineers from United Technologies are working in unison with
Dental Research Laboratories towards the development of a low-cost laser
system and a laser specific composite resin. Should this development
project yield products for sale to the public, the Company will retain all
rights to sale of these products to the dental and medical markets.
Interest Income and Expense
Interest income in fiscal 1997 was $110,000. This income was related to
cash deposits made in connection with a $5,000,000 private placement of the
Company's securities in March 1996. Management does not expect interest
income to continue at that level during fiscal 1998.
Interest expense decreased from approximately $148,000 during fiscal 1996
to approximately $109,000 in fiscal 1997. The main element of the fiscal
1997 interest expense was interest on the long-term mortgage on the
Company's Salt Lake facility. The decrease in this expense is largely due
to the payment of the balance of the Company's line of credit in April 1996
and its ability to operate without drawing on such line in any material
amount during fiscal 1997.
Income Taxes
The Company had insignificant income tax expense during fiscal 1997 due to
the use of net operating loss carry forwards available to the Company. For
further information on income taxes and the remaining net operating loss
carry forward available to the Company, see Note 4 of the Consolidated
Financial Statements.
Inflation
The Company actively strives to contain costs on parts from suppliers by
renegotiating purchase order contracts. Inflation has not been a major
factor in the past and is not seen as a major factor that will impact the
Company's earnings in the immediate future.
Net Income (Loss)
The Company incurred a net loss of ($779,252) in fiscal 1997, compared to net
income of $17,423 in fiscal 1996. The loss is due primarily to lower sales
during the fourth quarter of fiscal 1997 (approximately $500,000 less than the
previous quarter), and increased marketing and warranty expenses expenses.
The gross margins associated with the whitening laser products are higher than
those of other product lines currently sold by the Company, and the Company
expects the factors that resulted in the net loss during fiscal 1997 will not
be present to the same degree or have the same adverse impact in fiscal 1998.
There can be no assurance, however, that future net losses will not occur
or, if they occur, that they will be less than the loss sustained in fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position decreased $5,026,690 during fiscal 1997. During
this period, operating activities used $2,868,235 mainly due to increases in
inventories purchased to meet the growth in sales in the laser tooth
whitening market. Capital investment used $1,551,862 due to purchases of
machinery and equipment used in production processes and computer systems used
in sales, production and administration of the Company. Additionally, the
Company's net cash position was reduced as a result of the net loss described
above.
In this section, the term "Current Ratio" means current assets divided by
current liabilities. "Working Capital" means current assets less current
liabilities.
The Company paid down its line of credit in April 1996, which used
approximately $600,000. The Company also redeemed approximately 218,000
shares of its common stock during the period at a cost of $400,000. The
Company received proceeds of $385,000 upon the exercise of options to
acquire 210,000 shares of common stock of the Company.
Accordingly, the Company's Current Ratio and Working Capital at March 31,
1997 and 1996 were as follows:
1997 1996
------------- ---------------
Current Ratio 4.5 4.4
Working Capital $ 3,563,894 $ 6,044,412
In April 1997, the Company completed a private placement of its common
stock in which it obtained proceeds of approximately $3,000,000. Also, in
April 1997, the Company obtained a line of credit with a bank whereby the
Company can borrow up to $1,200,000 for operating capital. The line of
credit is secured by inventory and accounts receivable of the Company. The
Company believes that cash flow from sales, proceeds from the sale of its
securities following the end of fiscal 1997, and amounts available under
the Company's bank line of credit, will be sufficient to meet the Company's
needs for at least the next twelve months.
Subsequent to the end of fiscal 1997, in April 1997, the Company completed
a private placement of common stock and obtained net proceeds of
approximately $3,000,000. Also, in April 1997, the Company obtained a line
of credit with a bank under which the Company may borrow up to $1,200,000
for operating capital. The line of credit is secured by inventory and
accounts receivable.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This statement replaces the previous standard
Accounting Principles Board ("APB") Opinion No. 15, "Earnings per Share."
Effective for periods ending after December 15, 1997, SFAS No. 128 requires
companies to report both "basic" and "diluted" earnings per share. "Basic"
earnings per share does not include the addition of common stock
equivalents to the shares outstanding. "Diluted" earnings per share
requires the addition of common stock equivalents to the shares
outstanding. Average shares outstanding is the denominator used in "basic"
earnings per share calculations. Accordingly, "basic" earnings per share
will be higher than "diluted" earnings per share. For the Company,
"diluted" earnings per share under the new standard is approximately
equivalent to "primary" earnings per share under APB No. 15, which has
historically been reported. The impact of SFAS No. 128 on the Company's
earnings per share is not expected to be significant.
ITEM 7. FINANCIAL STATEMENTS
The Company's consolidated financial statements and associated notes are
set forth on pages F-1 through F-18.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth the name, age and position of each director and
officer of the Company as of March 31, 1997:
NAME AGE CURRENT POSITION(S) (1)
- ---------------------------------------------------------------------------
E. Wyatt Cannady 59 President, Chief Executive
Officer and Director
Richard S. Braddock 55 Chairman of the Board of
Directors
David E. Neff 43 Director
Andrew J. Hofmeister 37 Director
Milton G. Adair 64 Director
Lynn B. Barney 50 Vice Chairman of the Board of
Directors
Michael A. Williams 46 Vice President of
Operations
J. Ray Kemple 65 Vice President - Quality
Control & Regulatory Affairs
Dean E. Hutchings 36 Chief Financial Officer,
Secretary, Treasurer
(1) All directors serve for one year and until their successors are
elected and qualified. All officers serve at the pleasure of the
Board of Directors. There are no family relationships between any of
the officers and directors.
E. Wyatt Cannady
Mr. Cannady became the President and Chief Executive Officer of the Company
on February 24, 1997. He was appointed a member of the Board of Directors
of the Company in April 1997. Prior to joining the Company, Mr. Cannady
served from July 1994 to February 1997 as the President and Chief Executive
Officer of Spectranetics Corp., a Colorado Springs, Colorado, firm engaged
in the business of designing and manufacturing medical devices. From
January 1992 to June 1994, Mr. Cannady was the President and Chief
Executive Officer of Loredan Biomedical, Inc., Sacramento, California, also
engaged in the development and manufacture of medical devices.
Richard S. Braddock
Mr. Braddock became the Chairman of the Company's Board of Directors in
April 1996. He serves on the Board of Directors for Eastman Kodak Company,
IBN Ltd., True North Communications, Inc. (formerly Foote, Cone and
Belding), E*Trade Securities, Inc., Cadbury Schweppes Public Limited
Company, and Lincoln Center for the Performing Arts. Mr. Braddock joined
Citicorp in 1973 and held a variety of positions both domestically and
abroad. He was elected President and Chief Operating Officer for Citicorp
and its principal subsidiary, Citibank in January 1990. In 1992, Mr.
Braddock left Citibank to work for Medco Containment Services as CEO until
its acquisition by Merck. Mr. Braddock graduated from Dartmouth College in
1963 with a degree in history, and he received his MBA from Harvard
Graduate School of Business Administration in 1965.
David E. Neff
Mr. Neff became a member of the Board of Directors in April 1996. Since
March 1991, he has been the Executive Vice President, General Counsel for
Q-Lube, Inc. (formerly Quaker State Minit-Lube, Inc.) Mr. Neff has held
various positions with Q-Lube since 1984 and is currently a Director for
the company. Mr. Neff is an attorney, and a member of the Utah State Bar.
Mr. Neff received a Law Degree from Brigham Young University in 1983 and a
B.S. Degree from the University of Utah in 1978.
Andrew J. Hofmeister
Mr. Hofmeister became a member of the Board of Directors in April 1996. He
is presently President and Chief Executive Officer of Excimer Vision
Leasing, a company that leases excimer lasers to ophthalmologists for the
treatment of myopia and astigmatism. Prior to joining Excimer Vision
Leasing, from 1988 to 1996, Mr. Hofmeister was with McKinsey & Company,
Inc., a management consulting firm from 1984 to 1988. At McKinsey, he held
various positions from Associate to Senior Engagement Manager. Mr.
Hofmeister graduated from St. Olaf College in 1981, and from Stanford
Graduate School of Business in 1987.
Milton G. Adair
Mr. Adair became a member of the Board of Directors in April 1996. In June
1997, Mr. Adair became a director of Medizone International, Inc. and has
agreed to become its President and CEO. From January 1996 until May 1997,
Mr. Adair was the President of Biomune Systems, Inc. He continues to serve
as a director of Biomune Systems, Inc. a public research and development
firm in Salt Lake City, Utah. It develops products to use whey protein in
treating various involving compromises of the immune system, such as AIDS.
Since June 1995, Mr. Adair has also been a director H.P. Diagnostics, a
Salt Lake City research and development company in the human medical
diagnostic field. From July 1995 until December 31, 1995, Mr. Adair worked
with Grayson & Associates, an investment banking firm. From 1991 and until
his employment with Gray son & Associates, Mr. Adair was the Chief
Executive Officer and President of Gull Laboratories, Inc., an AMEX-listed
manufacturer and distributor of diagnostic medical test kits. He was a
director and a member of the Executive Committee of the Rocky Mountain
World Trade Center in Denver from 1990 to 1992. From 1984 to 1991, he was
President and CEO of Mountain Medical Equipment, Inc. in Denver, Colorado.
Prior to that, he was President of Orbit Medical, a venture company
specializing in automated immunoassays. From 1977 to 1984, Mr. Adair was
employed by Becton Dickinson, serving as Vice President and General Manager
of the Automated Radioimmunoassay division.
Lynn B. Barney
Mr. Barney became the Vice Chairman of the Board of Directors in February
1997. From 1988 to February 1997, Mr. Barney was the Chief Executive
Officer of the Company. From April 1989 to February 24, 1996, Mr. Barney
also served as the President of the Company. Mr. Barney has been a member
of the Board of Directors since 1989. Prior to joining the Company, Mr.
Barney was the President, CEO, and director of Cottonwood Security Bank, a
bank which he organized and founded in 1978, and sold in 1985. Mr. Barney
received his bachelors degree from the University of Utah in 1971 and an
MBA from the same institution in 1973.
Michael A. Williams
Mr. Williams has been employed by the Company since November 1985. His
positions have included brazing technician, quality control inspector, and
quality control manager. Since October 1988, Mr. Williams has been the
general manager responsible for all aspects of manufacturing including
purchasing, material control and production. From 1974 to November 1985,
Mr. Williams was employed by Canyon Courts, Inc., a company specializing in
the construction of tennis courts, running tracks, and other recreational
surfaces.
J. Raymond Kemple
Mr. Kemple has been employed by the Company since August 1992, and became
Vice President Quality Control and Regulatory Affairs in May 1994. He has
held management positions in operations, purchasing, manufacturing,
engineering, quality/reliability assurance, and regulatory affairs. He has
been instrumental in bringing the Company into conformance with FDA
regulations, and working towards ISO 9000, a manufacturing quality
registration. Mr. Kemple came to ILT from Comptronics, a contract
manufacturing company located in San Jose, California.
Dean E. Hutchings
Mr. Hutchings has been employed by the Company since June 1993 as its Chief
Financial Officer. Prior to joining the Company, Mr. Hutchings, a
Certified Public Accountant, worked for five years with Deloitte & Touche,
a public accounting firm.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who beneficially own more than 10 percent
of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10 percent shareholders
are required by regulation of the Securities and Exchange Commission to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely upon its review of the copies of such forms furnished to it
during the fiscal year ended March 31, 1997, and representations made by
certain persons subject to this obligation that such filings were not
required to be made, the Company believes that all reports required to be
filed by these individuals and persons under Section 16(a) were filed in a
timely manner and the Company is not aware of any transactions in its
outstanding securities by or on behalf of any director, executive officer
or 10 percent holder, which would require the filing of any report pursuant
to Section 16(a) during the fiscal year ended March 31, 1997, that was not
filed with the Commission.
ITEM 10. EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation paid by the
Company for services rendered during fiscal years 1997, 1996 and 1995 for
the two persons who served as the Company's Chief Executive Officer during
the last fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation (1) Awards
----------------------------------------------------------
Name and Principal
Position Year Salary Bonus Options
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. Wyatt Cannady
President and CEO
since February 24, 1997 1997 $ 19,080 (2) $ 25,000 (3) 225,000 (4)
Lynn B. Barney
President and CEO
until February 24, 1997 1997 $110,000 $ -0- 5,000
1996 77,809 -0- 200,000
1995 77,809 50,000 -0-
_________________
</TABLE>
(1) Compensation deferred at the election of the executive,
pursuant to the Ion Laser Technology Profit Sharing Plan, is
included in the year earned.
(2) Base salary for the period February 24, 1997 through March 31,
1997.
(3) Signing bonus pursuant to Employment Agreement effective
February 24, 1997.
(4) Vest and become exercisable at the rate of 18,750 each April 1,
July 1, October 1 and January 1, commencing April 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price
Name Granted Fiscal Year ($/Sh) Expiration Date
------------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
E. Wyatt Cannady 225,000 (1) 73.8% $ 9.00 Feb. 24, 2007
Lynn B. Barney -0- --
---------------------
</TABLE>
(1) Vest and become exercisable at the rate of 18,750 each April 1,
July 1, October 1 and January 1, commencing April 1997.
<TABLE>
<CAPTION
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND MARCH 31, 1997 OPTION VALUES
Value of
Number of Securities Unexercised
Underlying/Unexercised In-the-Money
Shares Value Options at Options at
Acquired on Realized March 31, 1997 March 31, 1997 (1)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------ ------------ ---------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
E. Wyatt Cannady 0 0 18,750 206,250 $ 0 $ 0
Lynn B. Barney 0 0 229,100 48,000 $1,627,228 $ 354,000
______________
</TABLE>
(1) Potential unrealized value is calculated as the fair market
value at March 31, 1997 ($8.625 per share) less the option
exercise price times the number of shares.
Compensation Committee
The Compensation Committee of the Board of Directors is comprised of all
outside directors. The committee meets periodically and is required to
review the compensation of the Company's officers.
The current level of compensation for the Chief Executive Officer is a base
salary, which was established in February 1997.
Compensation of Directors
During the fiscal year ended March 31, 1996, and pursuant to a resolution
of the Board of Directors effective January 1, 1992, outside directors of
the Company were compensated at the rate of $6,000 per annum, guaranteed
for a minimum of five years, as long as the directors were willing and able
to serve on the Board. Such amounts were payable on June 1 of each year.
In addition, under that compensation arrangement, outside directors were
reimbursed for actual costs incurred in connection with service as
directors. Directors who also were employees of the Company received no
additional compensation for service on the Board.
Pursuant to this arrangement, in July 1992, the Company granted a total of
175,000 options to members of the Company's Board in lieu of the annual
cash payment. These options are currently exercisable, 100,000 at a price
of $2.0625 per share and 75,000 at a price of $3.25 per share. None of the
persons who hold these options are currently serving on the Board. The
options may be assigned under certain conditions and the shares underlying
the options have registration rights. The options granted to directors as
described in this paragraph are exercisable until June 30, 1997.
Additionally, effective August 30, 1995, the Company issued options to
purchase up to 50,000 shares of the Company's Common Stock to Jeffrey W.
Holmes, a former outside director. Such options became exercisable after
August 29, 1996 at the exercise price of $0.625 per share. Mr. Holmes
resigned as a director on January 31, 1996.
Subsequent to March 31, 1996, the Board adopted a new compensation program
for directors pursuant to which all directors receive options to purchase
5,000 shares of common stock per year for each year during which they serve
as a director. The Chairman of the Board is to receive options to purchase
15,000 shares of common stock per year. The exercise price of such options
shall be 100% of the fair market price on the date of grant. Additionally,
outside directors are to receive cash payment in the amount of $500 per
meeting physically attended; outside directors receive no cash compensation
for telephonic participation. As under the former director compensation
program, actual expenses incurred by outside directors will be compensated.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 26, 1997, regarding
beneficial stock ownership of (i) all persons known to the Company to be
beneficial owners of more than 5% of the outstanding common stock; (ii)
each director and executive officer; and (iii) all officers and directors
of the Company as a group. Each of the persons in the table below has sole
voting power and sole dispositive power as to all of the shares shown as
beneficially owned by them except as otherwise indicated.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name and Address Beneficially Owned Outstanding Shares
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Executive Officers and Directors
E. Wyatt Cannady
1022 East Floret Lane, #12S
Midvale, Utah 84047 18,750 (1) *
Lynn B. Barney
3663 Brighton Point Drive
Salt Lake City, Utah 84121 243,100 (2) 4.16%
Richard S. Braddock
10 Gracie Square
New York, NY 10028 478,047 (3) 8.05%
David E. Neff
1385 West 2200 South
Salt Lake City, Utah 84119 10,000 (4) *
Milton G. Adair
4215 Park Terrace Drive
Salt Lake City, Utah 84124 10,000 (5) *
Andrew Hofmeister
1355 Peachtree St. N.E., Suite 1100
Atlanta, Georgia 30309 10,000 (6) *
All Officers and Directors
as a Group (9 persons) 775,397 12.47%
5% Beneficial Owners
LCO Investments Limited
Canada Court
Upland Road
St. Peter Port
Guernsey
Channel Islands 2,063,192 (7) 29.39%
Edward D. Bagley
8 Shadow Wood Lane
Sandy, Utah 84092 361,003 (8) 6.43%
_________________
</TABLE>
* Constitutes less than 1%.
(1) Represents shares Mr. Cannady has the right to acquire within
60 days through the exercise of options to purchase shares of
common stock at $9.00 per share.
(2) Includes 14,000 shares held by Mr. Barney's 401(k) retirement
plan. Also includes shares Mr. Barney has the right to acquire
within 60 days through the exercise of options to purchase
shares of common stock as follows: 77,100 shares at $0.60 per
share; 20,000 at $0.625 per share; 32,000 shares at $1.25 per
share; and 100,000 shares at $2.50 per share.
(3) Includes 15,000 shares Mr. Braddock has the right to acquire at
$15.00 per share upon the exercise of options granted to him as
the Chairman of the Company's Board of Directors as of May 2,
1996, 15,000 shares Mr. Braddock has the right to acquire upon
the exercise of options granted to him as of May 1, 1997, and
293,333 shares subject to purchase at $9.00 per share upon the
exercise of additional options held by Mr. Braddock.
(4) Includes 5,000 shares Mr. Neff has the right to acquire at
$15.00 per share upon the exercise of options granted to him as
a director on May 2, 1996, and 5,000 shares Mr. Neff has the
right to acquire upon the exercise of options granted to him as
of May 1, 1997.
(5) Includes 5,000 shares Mr. Adair has the right to acquire at
$15.00 per share upon the exercise of options granted to him as
a director on May 2, 1996, and 5,000 shares Mr. Adair has the
right to acquire upon the exercise of options granted to him as
of May 1, 1997.
(6) Includes 5,000 shares Mr. Hofmeister has the right to acquire
at $15.00 per share upon the exercise of options exercisable at
$15.00 per share granted to him as a director on May 2, 1996,
and 5,000 shares Mr. Hofmeister has the right to acquire upon
the exercise of options granted to him as of May 1, 1997.
(7) Includes 1,173,334 shares subject to purchase within 60 days
upon the exercise of certain options, and 243,100 shares
beneficially owned by Lynn B. Barney as disclosed herein, of
which 229,100 shares are receivable upon Mr. Barney's exercise
of options. LCO Investments Limited also claims beneficial
ownership as to those shares because Mr. Barney has agreed to
grant to LCO Investments certain voting rights with respect to
such shares.
(8) Mr. Bagley is a former director of the Company. The amount
indicated includes 42,000 shares owned of record by Mr.
Bagley's wife, Carolyn Bagley, although Mr. Bagley disclaims
beneficial ownership of such shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 12, 1997, the Company closed a private placement of 428,572 shares
of Common Stock of the Company (the "Shares"), and options to purchase
500,000 shares of Common Stock (the "Options"), pursuant to a Securities
Purchase Agreement dated as of May 8, 1997 (the "May 1997 Purchase
Agreement"). The total consideration received by the Company for the
Shares and the Options in this offering was $3,000,000. The Options are
exercisable at any time until the close of business on May 1, 2007, at an
exercise price of $9.00 per share. The Shares and Options were sold to LCO
Investments Limited, a corporation organized under the laws of Guernsey,
Channel Islands, and Richard S. Braddock, the Chairman of the Board of the
Company (the "Purchasers"). The Shares, and the shares of Common Stock
underlying the Options, are restricted and may not be transferred or sold,
except as permitted by the May 1997 Purchase Agreement, for a period of one
year after their acquisition by the Purchasers. The Shares, including the
shares issuable upon exercise of the Options, are subject to certain
piggyback and demand registration rights, as provided by a separate
Registration Rights Agreement dated as of May 8, 1997.
The Purchasers had invested in the Company previously by purchasing 280,000
shares of Common Stock and options to purchase 966,667 shares of Common
Stock under a Securities Purchase Agreement dated as of April 1, 1996 (the
"Original Purchase Agreement") for a total purchase price of $4,683,334.
As further consideration for the May 1997 purchase described above, the
Company also agreed to amend the option agreements granted to the
Purchasers in April 1996, relating to an aggregate of 966,667 shares of
Common Stock, (the "Old Options"), such that: (i) the purchase price of
the shares underlying the Old Options was changed from $20.00 per share to
$9.00 per share, and (ii) any provisions in the Old Options, or in the
Original Purchase Agreement, purporting to restrict by contractual
agreement the resale of shares of Common Stock underlying the Old Options
for a period of two years from April 1, 1996, were deleted.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission:
(a) Exhibits
Exhibit
Number Title of Document
- -------------- -----------------------------------------------------
2 Asset Purchase Agreement and Plan of Reorganization by
and among Brite Smile, Inc., an Alabama corporation,
BriteSmile, Inc., a Utah corporation, and David K.
Yarborough, together with the exhibits and schedules
forming part of the Asset Purchase Agreement
(incorporated by reference to the Company's Current
Report on Form 8-K dated March 7, 1996).
3.01 Articles of Incorporation and Amendments thereto
(incorporated by reference to the Company's Registration
Statement and Amendments thereto on Form 10 initially
filed August 8, 1990).
3.02 Bylaws adopted May 2, 1996, (incorporated by reference to
the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1996).
10.01 Manufacturing and Office Space Lease (incorporated by
reference to the Company's Registration Statement and
Amendments thereto on Form 10 initially filed August 8,
1990).
10.02 The Contract for the Joint Venture (incorporated by
reference to the Company's Registration Statement and
Amendments thereto on Form 10 initially filed August 8,
1990).
10.03 Technology Transfer Contract for the Joint Venture
(incorporated by reference to the Company's Registration
Statement and Amendments thereto on Form 10 initially
filed August 8, 1990).
10.04 Articles of Association for the Joint Venture
(incorporated by reference to the Company's Registration
Statement and Amendments thereto on Form 10 initially
filed August 8, 1990).
10.05 1990 Stock Option Plan for Employees of the Company,
(incorporated by reference to the Company's Annual Report
on Form 10-KSB for the fiscal year ended March 31, 1996).
10.06 Securities Purchase Agreement dated April 1, 1996 for
300,000 shares of Common Stock and Options to Purchase
1,000,000 shares of Common Stock at $20 per share,
between the Company, LCO Investments Limited, Pinnacle
Fund L.P., and Richard S. Braddock (incorporated by
reference to the Current Report on Form 8-K of the
Company dated April 1, 1996).
10.07 Registration Rights Agreement dated April 1, 1996 between
the Company, LCO Investments Limited, Richard S.
Braddock, and Pinnacle Fund, L.P. (incorporated by
reference to the Current Report on Form 8-K of the
Company dated April 1, 1996).
10.08 Employment Agreement dated April 25, 1997, effective
February 24, 1997, between the Company and E. Wyatt
Cannady, filed herewith.
10.09 1997 Stock Option and Incentive Plan of the Company,
filed herewith.
10.10 Securities Purchase Agreement dated May 8, 1997 for
428,572 shares of Common Stock and Options to Purchase
500,000 shares of Common Stock at $9.00 per share, among
the Company, LCO Investments Limited, and Richard S.
Braddock, filed herewith.
10.11 Registration Rights Agreement dated May 8, 1997 among the
Company, LCO Investments Limited, and Richard S.
Braddock, filed herewith.
21 Subsidiaries of the Company, incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year
ended March 31, 1996, previously filed.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the last
quarter of the period covered by this report.
<PAGE>
SIGNATURES
In accordance with Section 13 and/or 15(d) of the Securities Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Ion Laser Technology, Inc.
By: /s/ Dean E. Hutchings
------------------------------
Dean E. Hutchings
Chief Financial Officer
Dated June 26, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
- ----------------------------- ----------------------------------------- -------------
/s/ E. Wyatt Cannady President, Chief Executive Officer June 27, 1997
- -------------------------------- and Director (Principal Executive Officer)
E. Wyatt Cannady
/s/ Richard S. Braddock Chairman of the Board of Directors June 27, 1997
- --------------------------------
Richard S. Braddock
/s/ Lynn B. Barney Vice Chairman of the Board June 27, 1997
- --------------------------------
Lynn B. Barney
/s/ Milton G. Adair Director June 27, 1997
- --------------------------------
Milton G. Adair
/s/ David E. Neff Director June 30, 1997
- --------------------------------
David E. Neff
/s/ Andrew J. Hofmeister Director June 30, 1997
- --------------------------------
Andrew J. Hofmeister
</TABLE>
<PAGE>
Consolidated Financial Statements
Ion Laser Technology, Inc.
Years ended March 31, 1997 and 1996
with Report of Independent Auditors
<PAGE>
Ion Laser Technology, Inc.
Consolidated Financial Statements
Years ended March 31, 1997 and 1996
Contents
Report of Independent Auditors..............................................F-1
Consolidated Financial Statements
Consolidated Balance Sheets............................................F-2
Consolidated Statements of Operations .................................F-4
Consolidated Statements of Changes in Redeemable Common Stock
and Shareholders' Equity ..............................................F-5
Consolidated Statements of Cash Flows .................................F-6
Notes to Consolidated Financial Statements ............................F-7
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Ion Laser Technology, Inc.
We have audited the accompanying consolidated balance sheets of Ion Laser
Technology, Inc., and subsidiaries as of March 31, 1997 and 1996 and the
related consolidated statements of operations, changes in redeemable common
stock and shareholders' equity, and cash flows for the years ended March 31,
l997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Ion Laser Technology, Inc., and subsidiaries as of March 31, 1997 and 1996
and the consolidated results of their operations and their cash flows for the
years ended March 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
June 13, 1997
Salt Lake City, Utah
/s/ Ernst & Young LLP
F-1
<PAGE>
Ion Laser Technology, Inc.
Consolidated Balance Sheets
March 31
1997 1996
-----------------------------
Assets
Current assets: $ 55,222 $ 5,081,912
Cash and cash equivalents
Accounts receivable, less allowance
of $104,875 and $40,000 at March 31,
1997 and 1996, respectively 1,412,625 1,253,458
Inventories 2,872,167 1,348,861
Prepaid expenses 226,326 125,997
Deferred taxes and other 20,515 19,564
------------------------------
Total current assets 4,586,855 7,829,792
Property, plant and equipment, net 2,592,035 1,617,769
Investment in joint venture 189,360 197,917
Goodwill, less accumulated amortization
of $261,134 and $197,551 at March 31,
1997 and 1996, respectively 1,246,334 1,209,051
Patent costs, less accumulated amortization
of $8,775 and $6,746 at March 31,
1997 and 1996, respectively 414,493 129,582
Receivable from joint venture 232,945 220,656
Other assets 455,827 44,114
------------------------------
Total assets $ 9,717,849 $11,248,881
==============================
See accompanying notes.
F-2
<PAGE>
Ion Laser Technology, Inc.
Consolidated Balance Sheets (continued)
March 31
1997 1996
-----------------------------
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 45,529 $ 676,340
Accounts payable 676,059 329,037
Accrued liabilities 194,551 665,642
Accrued warranty costs 76,348 97,497
Current portion of long-term debt 30,474 16,864
------------------------------
Total current liabilities 1,022,961 1,785,380
Long-term debt, less current portion 845,583 819,890
Redeemable common stock; 150,000 shares
issued and outstanding at March 31, 1996 - 338,540
Commitments
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares - 50,000,000
including all shares designated as
redeemable common stock as shown above
Issued and outstanding shares -
5,144,030 and 4,933,630 at March 31,
1997 and 1996, respectively 5,144 4,934
Additional paid-in capital 8,793,074 8,469,829
Accumulated deficit (898,613) (119,361)
Cumulative translation adjustment ( 50,300) (50,331)
------------------------------
Total shareholders' equity 7,849,305 8,305,071
------------------------------
Total liabilities and shareholders' equity $9,717,849 $11,248,881
==============================
See accompanying notes.
F-3
<PAGE>
Ion Laser Technology, Inc.
Consolidated Statements of Operations
Year ended March 31
1997 1996
--------------------------------
Net sales $7,082,546 $4,246,952
Cost of products sold 4,205,273 2,691,948
--------------------------------
Gross margin 2,877,273 1,555,004
Selling and administrative expenses 3,453,502 1,318,943
Research and development expenses 232,949 104,094
--------------------------------
(809,178) 131,967
Interest expense (109,310) (148,137)
Interest income 110,057 980
Other income 40,180 32,613
--------------------------------
Net income (loss) before income taxes (768,251) 17,423
Income tax expense 11,001 -
--------------------------------
Net income (loss) $ (779,252) $ 17,423
================================
Earnings (loss) per common share $ (.15) $ .01
================================
See accompanying notes.
F-4
<PAGE>
Ion Laser Technology, Inc.
Consolidated Statements of Changes in Redeemable Common Stock and
Shareholders' Equity
Years ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Redeemable
Common Stock Common Stock Additional Retained Cumulative Total
---------------------------------------------- Paid-In Earnings Translation Shareholders'
Shares Amount Shares Amount Capital (Deficit) Adjustment Equity
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
March 31, 1995 3,861,630 $3,862 $2,715,946 $(136,784) $(58,251) $2,524,773
Sale of common
stock and
exercise of
stock options 150,000 $ 312,500 1,072,000 1,072 5,753,883 5,754,955
Accretion of
redeemable stock - 26,040 - - - - - -
Foreign currency
translation
adjustment - - - - - - 7,920 7,920
Net income - - - - - 17,423 - 17,423
--------------------------------------------------------------------------------------------------------
Balance at
March 31, 1996 150,000 338,540 4,933,630 4,934 8,469,829 (119,361) (50,331) 8,305,071
Exercise of stock
options 210,400 210 384,705 384,915
Redemption of
redeemable stock (150,000) (338,540) (61,460) (61,460)
Foreign currency
translation
adjustment 31 31
Net loss (779,252) (779,252)
--------------------------------------------------------------------------------------------------------
Balance at March 31,
1997 - $ - 5,144,030 $5,144 $8,793,074 $(898,613) $(50,300) $7,849,305
========================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Ion Laser Technology, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended March 31
1997 1996
-------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ (779,252) $ 17,423
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 255,433 143,124
Provision for losses on accounts receivable 64,875 19,688
Income (loss) from joint venture operations 8,557 (6,169)
Stock issued for services -- 30,800
Other -- 7,920
Changes in operating assets and liabilities:
Accounts receivable (226,281) (622,033)
Inventories (1,523,306) (78,730)
Prepaid expenses (100,329) (51,908)
Other assets (411,713) 4,880
Accounts payable and accrued liabilities (135,070) 422,835
Accrued warranty costs (21,149) 17,497
Income taxes payable -- (8,563)
-------------------------------
Net cash used in operating activities (2,868,235) (103,236)
Investing activities
Patent costs (286,940) (12,612)
Additions to property, plant and equipment (1,264,922) (178,106)
-------------------------------
Net cash used in investing activities (1,551,862) (190,718)
Financing activities
Proceeds from issuance of note payable -- 23,749
Payments on debt (591,508) (15,497)
Proceeds from sale of common stock and exercise of
stock options 384,915 5,285,426
Redemption of common stock (400,000) --
-------------------------------
Net cash provided by financing activities (606,593) 5,293,426
-------------------------------
Net increase (decrease) in cash and cash equivalents (5,026,690) 4,999,472
Cash and cash equivalents at beginning of year 5,081,912 82,440
-------------------------------
Cash and cash equivalents at end of year $ 55,222 $5,081,912
===============================
Supplemental disclosure of cash flow information:
Interest paid $ 109,310 $ 142,233
Taxes paid $ 400
Supplemental schedule of non-cash activities
Acquisitions:
Fair value of assets acquired $ 777,121
Issuance of common stock $ (777,121)
</TABLE>
See accompanying notes.
F-6
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements
March 31, 1997
1. Accounting Policies
Description of Business
Ion Laser Technology, Inc. (the Company) is a Utah corporation in the business
of developing, manufacturing and selling lasers. The Company sells to the
medical market, original equipment manufacturers (OEMs) and also to industrial
and scientific users. The Company, under its "BriteSmile" trademark, sells
both lasers and related reagents to the dental markets which are used in a
process to whiten teeth. The Company grants credit to most customers without
requiring collateral.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Ion Laser Technology Development Company, and
ILT Systems BriteSmile, Inc. The Company's 26% interest in a foreign joint
venture is accounted for by the equity method. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost or market, determined on a
first-in, first-out basis, and consist of the following at March 31:
1997 1996
-----------------------------
Raw materials $1,038,156 $ 512,604
Work in progress 1,118,504 445,726
Finished goods 715,507 390,531
-----------------------------
$2,872,167 $ 1,348,861
=============================
F-7
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Property, Plant and Equipment
Property, plant and equipment, stated at cost, consists of the following at
March 31:
1997 1996
------------------------------------
Land $ 100,000 $ 100,000
Buildings and improvements 1,195,287 1,193,061
Machinery and equipment 1,012,262 807,888
Office furniture and equipment 317,308 149,585
Computer equipment 438,904 146,328
Construction in progress 417,596 23,087
------------------------------------
3,481,357 2,419,949
Less accumulated depreciation (889,322) (802,180)
------------------------------------
$ 2,592,035 $ 1,617,769
====================================
The Company uses the straight-line method to depreciate the cost of assets over
their estimated useful lives as follows:
Asset Classification Useful Lives
---------------------------------------------------------------------
Buildings and improvements 40
Machinery and equipment 5-7
Office furniture and equipment 5-7
Computer equipment 5
Depreciation expense was $150,566 for 1997.
Revenue Recognition
Revenue on product sales is recognized upon shipment. Reserves for sales
returns and allowances are recorded in the same period that the revenues from
product sales are recognized.
Intangible Assets
Goodwill is the result of costs in excess of the value of the net tangible
assets obtained in the acquisitions of Ion Laser Technology, Inc., and Brite
Smile, Inc., and is amortized using the straight-line
F-8
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Intangible Assets (continued)
method over 40 and 17 years, respectively. The cost of patents is amortized
over the estimated useful life of the patents, generally 17 years. The Company
periodically evaluates whether circumstances have occurred that indicate the
remaining useful life of intangible assets may warrant revision or that the
remaining balance may not be recoverable.
Advertising Costs
During fiscal year 1997, the Company incurred certain costs in connection with
its BriteSmile direct-response marketing program. A portion of those costs,
approximately $400,000, related to the production and communication of the
program have been deferred as other assets and are being amortized
over a three year period based on the ratio of revenues recognized from the
direct-response campaign in each respective period to the total expected
revenues over the three year period. The remaining costs associated with the
marketing program, primarily relating to broad based advertising and product
publicity, have been expensed as incurred. Total marketing expense for 1997
was approximately $868,000.
Product Warranties
Under the Company's product warranty programs, the Company has agreed to
replace certain products or issue a replacement credit during the warranty
period of generally 12 months. Costs associated with these warranty programs
are determined on the basis of estimated net future costs and are accrued at
the time of sale. The Company periodically revises these estimates, based on
actual costs. Warranty costs for 1997 and 1996 were $285,972 and $136,016,
respectively.
Earnings (Loss) Per Share
Earnings (loss) per share is computed based on the weighted average number of
shares of common stock and common stock equivalent shares outstanding during
each fiscal year. Common stock equivalent shares consist primarily of stock
options that have antidilutive effect when applying the treasury stock
method. During 1997, no common stock equivalents were included in the
computation of loss per share as their effect would be antidilutive. The
weighted average number of shares used in calculating earning (loss) per share
was 5,202,027 and 4,268,902 at March 31, 1997 and 1996, respectively.
F-9
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Accounting Policies (continued)
Income Taxes
The Company uses the liability method of accounting for income taxes pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Under the liability method, deferred tax assets and liabilities are
provided on differences between financial reporting and taxable income, using
the enacted tax rates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Reclassifications
Certain reclassifications, none of which affect net income, have been made to
the prior year amounts in order to conform to the current year financial
statement presentation.
Foreign Currency Translation
For the Company's investment in Shanghai Ion Laser Technology (the "Joint
Venture"), the functional currency has been determined to be the
Chinese Renminbi and, therefore, the investment in the Joint Venture is
translated at year-end exchange rates; the Company's portion of the Joint
Venture's net loss is translated at average exchange rates prevailing during
the year. Such translation adjustments are recorded as a separate component of
shareholders' equity.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at March 31, 1997 and 1996, and revenues and
expenses for the years then ended. Actual results could differ from the
estimates and assumptions used.
F-10
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Notes Payable
The Company had a revolving line of credit with a bank which expired June 15,
1996 under which the Company could borrow up to $800,000, with interest at the
bank's prime rate (8.25% at March 31, 1996) plus 1.75% and collateralized by
accounts receivable and inventories. As of March 31, 1997 and 1996, the
balance due on the line of credit was $0 and $660,626, respectively.
3. Long-term Debt
Long-term debt consists of the following:
March 31,
1997
------------
Debt payable to the Small Business Administration
with interest at 7.619% per annum and payments of
principal and interest of $3,932 due monthly through
November 2012, collateralized by a second mortgage
on the Company's building and improvements. $404,767
Debt payable to a bank with interest at 1.5% over prime
rate (9% at March 31, 1997), and payments of principal
and interest of $3,581 due monthly through November
2002, collateralized by a first mortgage on the
Company's building and improvements, with a final
payment due November, 2002 of $301,876. 471,290
------------
876,057
Less current portion of long-term debt 30,474
------------
$845,583
============
F-11
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
3. Long-term Debt (continued)
The fair value of accounts payable, notes payable and long-term debt
approximates the recorded values. Principal maturities of long-term debt
during each of the next five fiscal years and thereafter are:
Fiscal Year Amount
--------------- ---------
1998 $ 30,474
1999 33,279
2000 36,207
2001 36,774
2002 25,197
Thereafter 714,126
---------
$876,057
=========
4. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets are as follows:
March 31, March 31,
1997 1996
--------------------------------
Deferred tax assets (liabilities):
Inventory overhead capitalization $ 67,369 $ 38,331
Product warranty accruals 32,223 36,366
Allowance for bad debt 39,118 14,920
Vacation accrual 5,975 5,975
Equity method investment 18,675 15,484
Inventory reserve 24,791 8,952
Property and equipment depreciation 58,294 17,465
Net operating loss carryforwards 379,004 81,104
Tax credits 90,085 90,085
Deferred marketing (148,791) --
Other (28,549) 14,220
--------------------------------
Total deferred tax asset 538,194 322,902
Valuation allowance for deferred
tax asset (538,194) (303,338)
--------------------------------
Net deferred tax asset $ -- $ 19,564
================================
F-12
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
Significant components of the income tax expense (benefit) are as follows:
March 31, March 31,
1997 1996
--------------------------
Current:
Federal $ -- $ --
State -- 8,562
--------------------------
Total current -- 8,562
--------------------------
Deferred:
Federal 11,001 --
State -- (8,562)
--------------------------
Total deferred 11,001 (8,562)
--------------------------
$ 11,001 $ --
==========================
The provision for income taxes reconciles to the amounts computed by applying
the statutory federal rate to earnings (loss) before taxes as follows:
1997 1996
--------------------------
Tax expense (benefit) at U.S. statutory rates $ (264,945) $ 5,923
State income taxes (benefit) (25,715) 1,955
Amortization of goodwill 7,138 7,138
Other, net 59,667 1,963
Change in valuation allowance 234,856 (16,979)
--------------------------
$ 11,001 $ --
==========================
The Company has approximately $90,000 of tax credits that under current tax
law can be used to offset future income tax liabilities. These credits will
begin expiring March 31, 2007 if not utilized. The Company also has
approximately $1,115,000 of federal net operating loss carryforwards that
begin to expire March 31, 2008. The net change in the valuation allowance for
fiscal 1997 was $234,856.
5. Brite Smile Acquisition
On March 7, 1996, the Company acquired certain assets and assumed certain
liabilities of Brite Smile, Inc., in exchange for 200,000 restricted shares of
the Company's common stock. This restricted stock had an estimated value of
$800,000 on the date of closing. BriteSmile's results of operations since
March 7, 1996 are included in the accompanying financial statements. Holders
F-13
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
5. Brite Smile Acquisition (continued)
of these restricted shares had the right within 12 months following the closing
of the acquisition, to require the Company to repurchase up to an aggregate of
$250,000 of the restricted common stock, at the then current market price of the
Company's common stock. Share values of the maximum amount of $250,000 of the
common stock exchanged in the acquisition has been included in redeemable common
stock at March 31, 1996. During 1997, the stock was redeemed by the Company for
an aggregate price of $250,000.
Additionally, in 1997 the Company adjusted the recorded values of the assets
acquired to accurately reflect the final determination of fair value of those
assets. These adjustments resulted in an increase in goodwill of approximately
$107,000.
Unaudited pro forma operating results for fiscal 1996 assuming the acquisition
of Brite Smile at the beginning of fiscal 1996 is as follows:
1996
-----------
Net sales $4,840,700
===========
Net income $ 164,700
===========
Earnings per share $ .04
===========
6. Shareholders' Equity
During 1990, the Company adopted an employee stock option plan, which was
approved by the shareholders on September 5, 1990. Under the terms of the
plan, the Company's stock to be offered shall be common stock and the
aggregate number of shares of stock to be delivered upon the exercise of all
options granted shall not exceed 6,000,000 shares. The Company has reserved
6,000,000 shares for future issuance under this plan. The option price per
share is determined by the board of directors, but shall be no less than the
fair market value on the date of the grant.
F-14
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
6. Shareholders' Equity (continued)
A summary of the Company's stock option activity and related information for
fiscal years 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
-----------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,800,500 $11.95 656,500 $ 2.36
Granted -- 1,482,000 $13.76
Exercised (210,400) $ 1.81 (327,000) $ 1.25
Forfeited/expired (42,500) $ 1.25 (11,000) $ 1.25
---------- ----------
Outstanding at end of year 1,547,600 $13.13 1,800,500 $11.95
========== ==========
</TABLE>
Exercise prices for outstanding options as of year-end ranged from $0.60 to
$20.00 and the weighted-average remaining contractual life of those options is
8.4 years.
The Company's pro forma compensation expense under the fair value method,
utilizing the Black-Scholes option valuation model, for stock options granted
in 1997 and 1996 was $15,600 for 1997 and $13,700 for 1996. Pro forma net
income (loss) would have been $(794,852) in 1997 and $3,723 in 1996. Earnings
(loss) per share would have been $(0.15) per share for 1997 and $0 per share
for 1996 for both primary and fully diluted earnings (loss) per share.
The fair value for these options was estimated at the date of grant assuming
an expected volatility of 72%, with no dividend yield. Other assumptions for
1997 and 1996 are as follows: an average risk-free interest rate of 6.6%, and
average option lives of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of fair value of its employee stock options.
F-15
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
6. Shareholders' Equity (continued)
Because the fair value method of accounting for stock-based compensation has
not been applied to options granted prior to April 1, 1995, the preceding pro
forma compensation cost may not be representative of that to be expected in
future years.
As of March 31, 1997, stock options for 1,460,500 shares of common stock are
exercisable.
The Company sold 325,000 shares of its common stock at $1.00 per share in a
private placement offering during the first quarter of the fiscal year ended
March 31, 1995. Proceeds from this offering, net of commissions and direct
costs, totaled approximately $315,000. In connection with this offering,
options to purchase 325,000 shares of common stock at $1.25 were issued in
1994 and were exercised in 1996.
In September, 1995, the Company sold 160,000 shares of restricted common stock
in a private placement for a price of $100,000.
In October, 1995, the Company sold 200,000 shares of restricted common stock
to United Technologies, Inc. as part of a joint venture agreement in exchange
for $125,000. The Company had the right to repurchase 100,000 shares of this
stock at a price of $1.50 per share at any time through October 30, 1996.
United Technologies, Inc. also had the right to put those 100,000 shares to
the Company at a redemption price of $1.50 at any time, beginning November 1,
1996 through October 30, 1997 if the Company does not exercise its option to
repurchase the stock. The redeemable shares were recorded at their original
issue price as redeemable common stock. During 1997, 100,000 shares of the stock
were redeemed by the Company for an aggregate price of $150,000.
In February, 1996, the Company issued restricted common stock in conjunction
with the acquisition of Brite Smile, Inc. (see Note 5).
In March, 1996, the Company completed a private placement of 300,000 shares of
its common stock resulting in total consideration of $5,000,000. In addition,
the purchasers received options to purchase 1,000,000 shares of common stock
at $20 per share.
F-16
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
7. Commitments
Retirement Plan
On November 11, 1987, the Company adopted a Profit Sharing and Cash or
Deferred Compensation Arrangement. All employees with at least one year of
service and who have reached the age of twenty-one may participate. At the
election of the Board of Directors, the Company may contribute to either plan
subject to the limitations provided in the Internal Revenue Code. The Company
made no contributions to the plan during 1996 or 1997. At March 31, 1997 there
is no unfunded deferred benefit under these plans.
Patent Licensing and Royalty Agreements
The Company entered into a licensing agreement effective October 1, 1988,
whereby it is required to pay royalties on the net sales price of certain
laser products sold, equal to 5% on United States and Canadian sales, 2% on
foreign sales and no royalties on sales to the United States Government or its
contracted entities.
Royalty payments made under this agreement for the years ended March 31, 1997
and 1996 were $119,217 and $90,577, respectively.
8. Joint Venture
On March 31, 1989, the Company entered into a joint venture agreement with
Shanghai Laser Technology Company and Shanghai Minhang United Development
Company, Ltd., both of the People's Republic of China. The Joint Venture
operates as Shanghai Ion Laser Technology Company Limited and produces,
markets and services various lasers and related equipment from operations
located in the People's Republic of China. As of March 31, 1997, the Company
has a 26% ownership interest in the Joint Venture. The Company's share of the
Joint Venture's net loss for fiscal 1997 and 1996 was $8,588 and $1,484,
respectively and is included in other expenses. During the fiscal years ended
March 31, 1997 and 1996, the Company had sales to the Joint Venture of
approximately $38,800 and $66,658, respectively. In addition, as of March 31,
1997 and 1996 the Company had amounts receivable from the Joint Venture of
approximately $232,945 and $220,656, respectively. The Company has an option
to purchase up to a total of 51% of the outstanding stock of the Joint
Venture, at a purchase price that would give the selling investor a 10%
annualized return on its original investment.
F-17
<PAGE>
Ion Laser Technology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Export Sales and Major Customers
The breakdown of total export sales by geographic area for the years ended
March 31, 1997 and 1996 was as follows:
1997 1996
------------------------------------------
Europe 43% 52%
Asia 36% 25%
Canada 16% 20%
All other 5% 3%
------------------------------------------
Total export sales 100% 100%
------------------------------------------
Total export sales $849,282 $1,302,603
==========================================
There were no customers for which sales exceeded 10% of total revenues during
fiscal 1996 and 1997. Such export sales are transacted in U.S. dollars.
10. New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share". This statement replaces the previous standard
Accounting Principles Board ("APB") Opinion No. 15, "Earnings per Share".
Effective for periods ending after December 15, 1997, SFAS No. 128 requires
companies to report both "basic" and "diluted" earnings per share. "Basic"
earnings per share does not include the addition of common stock equivalents
to the shares outstanding. "Diluted" earnings per share requires the addition
of common stock equivalents to the shares outstanding. Average shares
outstanding is the denominator used in "basic" earnings per share
calculations. Accordingly, "basic" earnings per share will be higher than
"diluted" earnings per share. For Ion Laser, "diluted" earnings per share
under the new standard is approximately equivalent to "primary" earnings per
share under APB No. 15, which has historically been reported. The impact of
SFAS No. 128 on the Company's earnings per share is not expected to be
significant.
11. Subsequent Event
In April 1997, the Company completed a private placement of 428,572 shares of
its common stock resulting in total proceeds of $3,000,000. In connection
therewith, options to purchase 500,000 shares of the Company's common stock
were granted at an exercise price of $9.00 per share. Additionally, as further
consideration, the Company amended the exercise price of certain options
granted in 1996, relating to an aggregate of 966,667 shares of the Company's
common stock, from $20.00 per share to $9.00 per share. Also, in April, the
Company obtained a line of credit with a bank whereby the Company can borrow up
to $1,200,000 for operating capital. The line is secured by inventory and
receivables.
F-18
ION LASER TECHNOLOGY, INC.
a Utah corporation
1997 Stock Option and Incentive Plan
ARTICLE I
GENERAL
1.01. Purpose.
The purposes of this 1997 Stock Option and Incentive Plan (the "Plan")
are to: (1) closely associate the interests of the management of Ion Laser
Technology, Inc., a Utah corporation, and its Affiliates (collectively
referred to as the "Company") with the shareholders of the Company by
reinforcing the relationship between participants' rewards and shareholder
gains; (2) provide management with an equity ownership in the Company
commensurate with Company performance, as reflected in increased shareholder
value; (3) maintain competitive compensation levels; and (4) provide an
incentive to management to remain with the Company, whether as an employee or
as a non-employee director, and to put forth maximum efforts for the success
of its business.
1.02. Administration.
(a) Pursuant to the corporate laws of the State of Utah, the Board of
Directors of the Company, or a Committee appointed by the Board consisting
solely of two or more non-employee directors, (the "Committee"), shall
administer the Plan and shall approve any transaction under the Plan involving
a grant, award or other acquisition from the Company. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board. From
time to time, the Board may increase or change the size of the Committee, and
appoint new members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
or remove all members of the Committee.
(b) The Committee shall have the authority, without limitation, in
its sole discretion, subject to and not inconsistent with the express
provisions of the Plan, and from time to time, to:
(i) administer the Plan and to exercise all the powers an
authorities either specifically granted to it under the Plan or necessary
or advisable in the administration of the Plan;
(ii) designate the directors, employees or classes of employees
eligible to participate in the Plan from among those described in Section 1.03
below;
(iii) grant awards provided in the Plan in such form, amount and
under such terms as the Committee shall determine;
(iv) determine the purchase price of shares of Common Stock
covered by each Option (the "Option Price");
(v) determine the Fair Market Value of Common Stock for
purposes of Options or of determining the appreciation of Common Stock with
respect to Stock Appreciation Rights;
(vi) determine the time or times at which Options and/or Stock
Appreciation Rights shall be granted;
(vii) determine the terms and provisions of the various Option or
Stock Appreciation Rights Agreements (none of which need be identical or
uniform) evidencing Options or Stock Appreciation Rights granted under the Plan
and to impose such limitations, restrictions and conditions upon any such award
as the Committee shall deem appropriate; and
(viii) interpret the Plan, adopt, amend and rescind rules and
regulations relating to the Plan, and make all other determinations and take
all other action necessary or advisable for the implementation and
administration of the Plan.
The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the
Committee or any delegate may employ one or more persons to render advice with
respect to any responsibility the Committee or such person may have under the
Plan.
(c) All decisions, determinations and interpretations of the
Committee on all matters relating to the Plan shall be in its sole discretion
and shall be final, binding and conclusive on all Optionees and the Company.
(d) One member of the Committee shall be elected by the Board as
chairman. The Committee shall hold its meetings at such times and places as
it shall deem advisable. All determinations of the Committee shall be made by
a majority of its members either present in person or participating by
conference telephone at a meeting or by written consent. The Committee may
appoint a secretary and make such rules and regulations for the conduct of its
business as it shall deem advisable, and shall keep minutes of its meetings.
(e) No member of the Board or Committee shall be liable for any
action taken or decision or determination made in good faith with respect to
any Option, Stock Appreciation Right, the Plan, or any award thereunder.
(f) For purposes of this Section 1.02, a "non-employee director"
shall mean a director who: (i) is not currently an officer of the Company or
a parent or subsidiary of the Company, or otherwise currently employed by the
Company or a parent or subsidiary of the Company; (ii) does not receive
compensation, either directly or indirectly, from the Company or a parent or
subsidiary of the Company, for services rendered as a consultant or in any
capacity other than as a director, except for an amount that does not exceed
the dollar amount for which disclosure would be required pursuant to Item
404(a) of Regulation S-K promulgated by the Securities and Exchange
Commission; (iii) does not possess an interest in any other transaction for
which disclosure would be required pursuant to Item 404(a) of Regulation S-K;
and (iv) is not engaged in a business relationship for which disclosure would
be required pursuant to Item 404(b) of Regulation S-K.
(g) Unless such holding period is waived by the Company, officers or
directors of the Company who are subject to the short-swing profits provisions
of Section 16 of the Securities Exchange Act of 1934 (the "34 Act") and who
acquire shares of Company stock pursuant to this Plan, must hold such shares
for a period of six months following the date of acquisition, provided that
this condition shall be satisfied with respect to stock options or other
derivative securities granted to such officers or directors if at least six
months elapse from the date of grant of the Option to the date of disposition
by Optionee of the Option (other than upon exercise), or the shares of Common
Stock underlying the Option.
1.03. Eligibility for Participation
Participants in the Plan shall be selected by the Committee, and awards
under the Plan, as described in Section 1.04 below, may be granted by the
Committee, to directors, officers and key employees of the Company and to
other key individuals such as consultants and non-employee agents to the
Company whom the Committee believes have made or will make an essential
contribution to the Company; provided, however, that Incentive Stock Options
may only be granted to executive officers and other key employees of the
Company who occupy responsible managerial or professional positions, who have
the capability of making a substantial contribution to the success of the
Company, and who agree, in writing, to remain in the employ of, and to render
services to, the Company for a period of at least one (1) year from the date
of the grant of the award. The Committee has the authority to select
particular employees within the eligible group to receive awards under the
Plan. In making this selection and in determining the persons to whom awards
under the Plan shall be granted and the form and amount of awards under the
Plan, the Committee shall consider any factors deemed relevant in connection
with accomplishing the purposes of the Plan, including the duties of the
respective persons and the value of their present and potential services and
contributions to the success, profitability and sound growth of the Company.
A person to whom an award has been granted is sometimes referred to herein as
an "Optionee." An Optionee shall be eligible to receive more than one Option
and/or Stock Appreciation Right during the term of the Plan, but only on the
terms and subject to the restrictions hereinafter set forth.
1.04. Types of Awards Under Plan.
Awards under the Plan may be in the form of any one or more of the
following:
(a) "Stock Options" which are nonqualified stock options, the tax
consequences of which are governed by the provisions of Section 83 of the
Internal Revenue Code (the "Code"), as described in Article II;
(b) "Incentive Stock Options" which are statutory stock options, the
tax consequences of which are governed by Section 422 of the Code, as
described in Article III;
(c) "Reload Options" which are also nonqualified stock options, the
tax consequences of which are governed by Section 83 of the Code, as described
in Article IV;
(d) "Alternate Rights" which are Stock Appreciation Rights, the tax
consequences of which are governed by Section 83 of the Code, as described in
Article V; and/or
(e) "Limited Rights" which are also Stock Appreciation Rights, the
tax consequences of which are governed by Section 83 of the Code, as described
in Article VI.
(f) "Stock Bonuses" which are compensation, the tax consequences of
which are governed by Section 83 of the Code, as described in Article VII.
(g) "Cash Bonuses" which are compensation, the tax consequences of
which are governed by Section 61 of the Code, as described in Article VIII.
1.05. Aggregate Limitation on Awards.
(a) Except as may be adjusted pursuant to Section 9.12(i) below,
shares of stock which may be issued as Stock Bonuses or upon exercise of
Options or Alternate Rights under the Plan shall be authorized and unissued or
treasury shares of Common Stock of the Company ("Common Stock"). The number
of shares of Common Stock the Company shall reserve for issuance as Stock
Bonuses or upon exercise of Options or Alternate Rights to be granted from
time to time under the Plan, and the maximum number of shares of Common Stock
which may be issued under the Plan, shall not exceed in the aggregate
1,000,000 shares of Common Stock. In the absence of an effective registration
statement under the Securities Act of 1933 (the "Act"), all Stock Bonuses,
Options and Stock Appreciation Rights granted and shares of Common Stock
subject to their exercise will be restricted as to subsequent resale or
transfer, pursuant to the provisions of Rule 144 promulgated under the Act.
(b) For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when cash is used
as full payment for shares issued upon exercise of an Option;
(ii) only the shares issued (including the shares, if any,
withheld for tax withholding requirements) as a result of an exercise of
Alternate Rights shall be counted; and
(iii) only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when shares of
Common Stock are used as full or partial payment for shares issued upon
exercise of an Option.
(iv) all shares issued (including the shares, if any, withheld
for tax withholding requirements) as Stock Bonuses shall be counted.
(c) In addition to shares of Common Stock actually issued pursuant to
Stock Bonuses or the exercise of Options or Alternate Rights, there shall be
deemed to have been issued a number of shares equal to the number of shares of
Common Stock in respect of which Limited Rights shall have been exercised.
(d) Shares tendered by a participant as payment for shares issued
upon exercise of an Option shall be available for issuance under the Plan.
Any shares of Common Stock subject to an Option or Stock Appreciation Right
granted without a related Option, which for any reason is canceled,
terminated, unexercised or expires in whole or in part shall again be
available for issuance under the Plan, but shares subject to an Option or
Alternate Right which are not issued as a result of the exercise of Limited
Rights shall not again be available for issuance under the Plan.
1.06. Effective Date and Term of Plan.
(a) The Plan shall become effective as of the 31st day of January,
1997, the date the Plan is adopted by the Board (the "Effective Date").
(b) No awards shall be granted under the Plan after or on the 31st
day of January, 2007, which date is ten (10) years after the Effective Date
(the "Plan Termination Date"). Provided, however, that the Plan and all
awards made under the Plan prior to such Plan Termination Date shall remain in
effect until such awards have been satisfied or terminated in accordance with
the Plan and the terms of such awards.
ARTICLE II
STOCK OPTIONS
2.01. Award of Stock Options.
The Committee may from time to time, and subject to the provisions of the
Plan, and such other terms and conditions as the Committee may prescribe,
grant to any participant in the Plan one or more options to purchase for cash
or for Company shares the number of shares of Common Stock allotted by the
Committee ("Stock Options"). The date a Stock Option is granted shall mean
the date selected by the Committee as of which the Committee allots a specific
number of shares to a participant pursuant to the Plan.
2.02. Stock Option Agreements.
The grant of a Stock Option shall be evidenced by a written Stock Option
Agreement, executed by the Company and the holder of a Stock Option (the
"Optionee"), stating the number of shares of Common Stock subject to the Stock
Option evidenced thereby, and in such form as the Committee may from time to
time determine.
2.03 Stock Option Price.
The Option Price per share of Common Stock deliverable upon the exercise
of a Stock Option shall be 100% of the Fair Market Value of a share of Common
Stock on the date the Stock Option is granted, unless the Committee shall
determine, in its sole discretion, that there are circumstances which
reasonably justify the establishment of a lower or higher Option Price.
2.04. Term and Exercise.
Unless otherwise provided by the Committee or in the Stock Option
Agreement pertaining to the Stock Options, each Stock Option shall be fully
exercisable beginning after the date of its grant and ending not later than
ten years after the date of grant thereof (the "Option Term"). No Stock
Option shall be exercisable after the expiration of its Option Term.
2.05 Manner of Payment.
Each Stock Option Agreement shall set forth the procedure governing the
exercise of the Stock Option granted thereunder, and shall provide that, upon
such exercise in respect of any shares of Common Stock subject thereto, the
Optionee shall pay to the Company, in full, the Option Price for such shares
with cash or with Common Stock previously owned by Optionee.
2.06 Death of Optionee.
(a) Upon the death of the Optionee, any rights to the extent exercisable
on the date of death may be exercised by the Optionee's estate, or by a person
who acquires the right to exercise such Stock Option by bequest or inheritance
or by reason of the death of the Optionee, provided that such exercise occurs
within both the remaining effective term of the Stock Option and three years
after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the fact
that the Optionee's employment may have terminated prior to death, but only to
the extent of any rights exercisable on the date of death.
2.07 Retirement or Disability.
Upon termination of the Optionee's employment by reason of retirement or
permanent disability (as each is determined by the Committee), the Optionee
may, within three years from the date of termination, exercise any Stock
Options to the extent such options are exercisable during such three year
period.
2.08 Termination for Other Reasons.
Except as provided in Sections 2.06, 2.07, or 9.12(f), or except as
otherwise determined by the Committee, all Stock Options shall terminate six
months after the termination of the Optionee's employment.
2.9 Effect of Exercise.
The exercise of any Stock Option shall cancel that number of related
Alternate Rights and/or Limited Rights, if any, which is equal to the number
of shares of Common Stock purchased pursuant to said Stock Option.
ARTICLE III
INCENTIVE STOCK OPTIONS
3.01 Award of Incentive Stock Options.
The Committee may, from time to time and subject to the provisions of the
Plan and such other terms and conditions as the Committee may prescribe, grant
to any participant in the Plan one or more "incentive stock options", which
are intended to qualify as such under the provisions of Section 422 of the
Code, to purchase for cash or for Company shares the number of shares of
Common Stock allotted by the Committee ("Incentive Stock Options"). The date
an Incentive Stock Option is granted shall mean the date selected by the
Committee as of which the Committee shall allot a specific number of shares to
a participant pursuant to the Plan.
3.02 Incentive Stock Option Agreements.
The grant of an Incentive Stock Option shall be evidenced by a written
Incentive Stock Option Agreement, executed by the Company and the holder of an
Incentive Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Incentive Stock Option evidenced thereby, and in
such form as the Committee may from time to time determine.
3.03 Incentive Stock Option Price.
Except as provided in Section 3.10 below, the Option Price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall
be 100% of the Fair Market Value of a share of Common Stock on the date the
Incentive Stock Option is granted.
3.04 Term and Exercise.
Except as provided elsewhere herein, or unless otherwise provided by the
Committee, or in the Stock Option Agreement pertaining to the Incentive Stock
Option, each Incentive Stock Option shall be fully exercisable beginning after
the date of its grant and ending not later than ten years after the date of
grant thereof (the "Option Term"). No Incentive Stock Option shall be
exercisable after the expiration of its Option Term.
3.05 Maximum Amount of Incentive Stock Option Grant.
The aggregate Fair Market Value (determined on the date the Incentive
Stock Option is granted) of Common Stock subject to an Incentive Stock Option
granted to any Optionee by the Committee in any calendar year shall not exceed
$100,000. Multiple Incentive Stock Options may be granted to an Optionee in
any calendar year, which Multiple Incentive Stock Options may in the aggregate
exceed such $100,000 Fair Market Value limitation, so long as each such
Incentive Stock Option within the Multiple Incentive Stock Option award does
not exceed such $100,000 Fair Market Value limitation and so long as no two
such Incentive Stock Options may be exercised by the Optionee in the same
calendar year.
3.06 Death of Optionee.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate or
by a person who acquires the right to exercise such Incentive Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided
that such exercise occurs within both the remaining Option Term of the
Incentive Stock Option and three years after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the fact
that the Optionee's employment may have terminated prior to death, but only to
the extent of any Incentive Stock Options exercisable on the date of death.
3.07 Retirement or Disability.
Upon the termination of the Optionee's employment by reason of permanent
disability or retirement (as each is determined by the Committee), the
Optionee may, within three years from the date of such termination of
employment, exercise any Incentive Stock Options to the extent such Incentive
Stock Options were exercisable at the date of such termination of employment.
Notwithstanding the foregoing, the tax treatment available pursuant to Section
422 of the Code, upon the exercise of an Incentive Stock Option will not be
available to an Optionee who exercises any Incentive Stock Options more than
(i) 12 months after the date of termination of employment due to permanent
disability or (ii) three months after the date of termination of employment
due to retirement.
3.08 Termination for Other Reasons.
Except as provided in Sections 3.06, 3.07 or 9.12(f), or except as
otherwise determined by the Committee, all Incentive Stock Options shall
terminate six months after the date of termination of the Optionee's
employment.
3.09 Applicability of Stock Options Sections and Other Restrictions.
Sections 2.05, Manner of Payment; and 2.09, Effect of Exercise,
applicable to Stock Options, shall apply equally to Incentive Stock Options.
Said Sections are incorporated by reference in this Article III as though
fully set forth herein. In addition, the Optionee shall be prohibited from
the sale, exchange, transfer, pledge, hypothecation, gift or other disposition
of the shares of Common Stock underlying the Incentive Stock Options until the
later of either two (2) years after the date of granting the Incentive Stock
Option or one (1) year after the transfer to the Optionee of such underlying
Common Stock after the Optionee's exercise of such Incentive Stock Options.
3.10 Employee/Ten Percent Shareholders.
In the event the Committee determines to grant an Incentive Stock Option
to an employee who is also a Ten Percent Stockholder, as defined in 9.07(i)
below, (i) the Option Price shall not be less than 110% of the Fair Market
Value of the shares of Common Stock of the Company on the date of grant of
such Incentive Stock Option, and (ii) the exercise period shall not exceed 5
years from the date of grant of such Incentive Stock Option. Fair Market
Value shall be as defined in 9.07(c) below.
ARTICLE IV
RELOAD OPTIONS
4.01. Authorization of Reload Options.
Concurrently with the award of Stock Options and/or the award of
Incentive Stock Options to any participant in the Plan, the Committee may,
subject to the provisions of the Plan, particularly the provisions of Section
9.11 below, and such other terms and conditions as the Committee may
prescribe, authorize reload options to purchase for cash or for Company shares
a number of shares of Common Stock allotted by the Committee ("Reload
Options"). The number of Reload Options shall equal (i) the number of shares
of Common Stock used to exercise the underlying Stock Options or Incentive
Stock Options and (ii) to the extent authorized by the Committee, the number
of shares of Common Stock used to satisfy any tax withholding requirement
incident to the exercise of the underlying Stock Options or Incentive Stock
Options. The grant of a Reload Option will become effective upon the exercise
of underlying Stock Options, Incentive Stock Options or other Reload Options
through the use of shares of Common Stock held by the Optionee for at least 12
months. Notwithstanding the fact that the underlying Option may be an
Incentive Stock Option, a Reload Option is not intended to qualify as an
"incentive stock option" under Section 422 of the Code.
4.02. Reload Option Amendment.
Each Stock Option Agreement and Incentive Stock Option Agreement shall
state whether the Committee has authorized Reload Options with respect to the
underlying Stock Options and/or Incentive Stock Options. Upon the exercise of
an underlying Stock Option, Incentive Stock Option or other Reload Option, the
Reload Option will be evidenced by an amendment to the underlying Stock Option
Agreement or Incentive Stock Option Agreement.
4.03. Reload Option Price.
The Option Price per share of Common Stock deliverable upon the exercise
of a Reload Option shall be the Fair Market Value of a share of Common Stock
on the date the grant of the Reload Option becomes effective, unless the
Committee shall determine, in its sole discretion, that there are
circumstances which reasonably justify the establishment of a lower Option
Price.
4.04. Term and Exercise.
The term of each Reload Option shall be equal to the remaining Option
Term of the underlying Stock Option and/or Incentive Stock Option.
4.05. Termination of Employment.
No additional Reload Options shall be granted to Optionees when Stock
Options, Incentive Stock Options and/or Reload Options are exercised pursuant
to the terms of this Plan following termination of the Optionee's employment.
4.06. Applicability of Stock Options Sections.
Sections 2.05, Manner of Payment; 2.06 Death of Optionee; 2.07,
Retirement or Disability; 2.08, Termination for Other Reasons; and 2.09,
Effect of Exercise, applicable to Stock Options, shall apply equally to Reload
Options. Said Sections are incorporated by reference in this Article IV as
though fully set forth herein.
ARTICLE V
ALTERNATE STOCK APPRECIATION RIGHTS
5.01. Award of Alternate Rights.
Concurrently with or subsequent to the award of any Option to purchase
one or more shares of Common Stock, the Committee may, subject to the
provisions of the Plan and such other terms and conditions as the Committee
may prescribe, award to the Optionee with respect to each share of Common
Stock, a related alternate stock appreciation right, permitting the Optionee
to be paid the appreciation on the Option in Common Stock in lieu of
exercising the Option ("Alternate Right").
5.02. Alternate Rights Agreement.
Alternate Rights shall be evidenced by written agreements in such form as
the Committee may from time to time determine.
5.03. Term and Exercise.
An Optionee who has been granted Alternate Rights may, from time to time,
in lieu of the exercise of an equal number of Options, elect to exercise one
or more Alternate Rights and thereby become entitled to receive from the
Company payment in Common Stock the number of shares determined pursuant to
Sections 5.04 and 5.05. Alternate Rights shall be exercisable only to the
same extent and subject to the same conditions and within the same Option
Terms as the Options related thereto are exercisable, as provided in this
Plan. The Committee may, in its discretion, prescribe additional conditions
to the exercise of any Alternate Rights.
5.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled upon the
exercise of each Alternate Right shall be equal to 100% of the amount, if any,
by which the Fair Market Value of a share of Common Stock on the exercise date
exceeds the Fair Market Value of a share of Common Stock on the date the
Option related to said Alternate Right was granted or became effective, as the
case may be.
5.05. Form of Payment.
Upon exercise of Alternate Rights, the Company shall pay Optionee the
amount of payment determined pursuant to Section 5.04 in Common Stock. The
number of shares to be paid shall be determined by dividing the amount of
payment determined pursuant to Section 5.04 by the Fair Market Value of a
share of Common Stock on the exercise date of such Alternate Rights. As soon
as practicable after exercise, the Company shall deliver to the Optionee a
certificate or certificates for such shares of Common Stock.
5.06. Effect of Exercise.
The exercise of any Alternate Rights shall cancel an equal number of
Stock Options, Incentive Stock Options, Reload Options and Limited Rights, if
any, related to said Alternate Rights.
5.07. Retirement or Disability.
Upon termination of the Optionee's employment (including employment as a
director of the Company after an Optionee terminates employment as an officer
or key employee of the Company) by reason of permanent disability or
retirement (as each is determined by the Committee), the Optionee may, within
three years from the date of such termination, exercise any Alternate Rights
to the extent such Alternate Rights are exercisable during such three year
period.
5.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Section 5.07 or 9.12(f), or except as otherwise
determined by the Committee, all Alternate Rights shall terminate six months
after the date of termination of the Optionee's employment or three years
after the death of the Optionee.
ARTICLE VI
LIMITED RIGHTS
6.01. Award of Limited Rights.
Concurrently with or subsequent to the award of an Option or Alternate
Right, the Committee may, subject to the provisions of the Plan and such other
terms and conditions as the Committee may prescribe, award to the Optionee
with respect to each share of Common Stock underlying such Option or Alternate
Right, a related limited right permitting the Optionee, during a specified
limited time period, to be paid the appreciation on the Option in cash in lieu
of exercising the Option ("Limited Right").
6.02. Limited Rights Agreement.
Limited Rights granted under the Plan shall be evidenced by written
agreements in such form as the Committee may from time to time determine.
6.03. Term and Exercise.
An Optionee who has been granted Limited Rights may, from time to time,
in lieu of the exercise of an equal number of Options and Alternate Rights
related thereto, elect to exercise one or more Limited Rights and thereby
become entitled to receive from the Company payment in cash in the amount
determined pursuant to Sections 6.04 and 6.05. Limited Rights shall be
exercisable only to the same extent and subject to the same conditions and
within the same Option Terms as the Options or Alternate Rights related
thereto are exercisable, as provided in this Plan. The Committee may, in its
discretion, prescribe additional conditions to the exercise of any Limited
Rights.
Notwithstanding any other provision in this Section 6.03 to the contrary,
Limited Rights are exercisable in full for a period of seven months following
the date of a Change in Control of the Company (the "Exercise Period").
As used in the Plan, a "Change of Control" shall be deemed to have
occurred if (a) individuals who are currently directors of the Company
immediately prior to a Control Transaction shall cease, within one year of
such Control Transaction, to constitute a majority of the Board (or of the
Board of Directors of any successor to the Company, or to all or substantially
all of its assets), or any entity, person or Group other than the Company or a
Subsidiary Corporation of the Company acquires shares of the Company in a
transaction or series of transactions that result in such entity, person or
Group directly or indirectly owning beneficially fifty-one percent (51%) or
more of the outstanding shares of the Company.
As used herein, "Control Transaction" shall be (i) any tender offer for
or acquisition of capital stock of the Company, (ii) any merger,
consolidation, reorganization or sale of all or substantially all of the
assets of the Company which has been approved by the shareholders, (iii) any
contested election of directors of the Company, or (iv) any combination of the
foregoing which results in a change in voting power sufficient to elect a
majority of the Board. As used herein, "Group" shall mean persons who act in
concert as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities
Exchange Act of 1934, as amended.
6.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled upon the
exercise of each Limited Right shall be equal to 100% of the amount, if any,
which is equal to the difference between the Fair Market Value per share of
Common Stock covered by the related Option or Alternative Right on the date
the Option or Alternate Right was granted and the Fair Market Value per share
of such Common Stock on the exercise date.
6.05. Form of Payment.
Payment of the amount to which an Optionee is entitled upon the exercise
of Limited Rights, as determined pursuant to Section 6.04, shall be paid by
the Company solely in cash.
6.06. Effect of Exercise.
If Limited Rights are exercised, the Options and Alternate Rights, if
any, related to such Limited Rights cease to be exercisable to the extent of
the number of shares with respect to which the Limited Rights were exercised.
Upon the exercise or termination of the Options and Alternate Rights, if any,
related to such Limited Rights, the Limited Rights granted with respect
thereto terminate to the extent of the number of shares as to which the
related Options and Alternate Rights were exercised or terminated.
6.07. Retirement or Disability.
Upon termination of the Optionee's employment (including employment as a
director of this Company after an Optionee terminates employment as an officer
or key employee of this Company) by reason of permanent disability or
retirement (as each is determined by the Committee), the Optionee may, within
three years from the date of termination, exercise any Limited Right to the
extent such Limited Right is exercisable during such three year period.
6.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Sections 6.07, 6.09 or 9.12(f), or except as
otherwise determined by the Committee, all Limited Rights granted under the
Plan shall terminate three months after the date of termination of the
Optionee's employment or three years after the death of the Optionee.
6.09. Termination Related to a Change in Control.
The requirement that an Optionee be terminated by reason of retirement or
permanent disability or be employed by the Company at the time of exercise
pursuant to Sections 6.07 and 6.08 respectively, is waived during the Exercise
Period as to any Optionee who (i) was employed by the Company at the time of
the Change in Control and (ii) is subsequently terminated by the Company other
than for cause, or who voluntarily terminates if such termination was the
result of a good faith determination by the Optionee that as a result of the
Change in Control he is unable to effectively discharge his present duties or
the duties of the position which he occupied just prior to the Change in
Control. As used in this Plan, "for cause" shall mean willful misconduct or
dishonesty or conviction of or failure to contest prosecution for a felony, or
excessive absenteeism unrelated to illness.
ARTICLE VII
STOCK BONUSES
7.01 Terms, Conditions and Restrictions.
The Committee may from time to time, and subject to the provisions of the
Plan and such other terms and conditions as the Committee may prescribe, grant
to any participant in the Plan one or more Stock Bonuses as compensation the
number of shares of Common Stock allotted by the Committee ("Stock Bonuses").
Stock awarded as a Stock Bonus shall be subject to the terms, conditions and
restrictions determined by the Committee at the time of the award. The
Committee may require the recipient to sign an agreement as a condition of the
award. The agreement may contain such terms, conditions, representations, and
warranties as the Committee may require.
ARTICLE VIII
CASH BONUSES
8.01 Grant.
The Committee may from time to time, and subject to the provisions of the
Plan and such other terms and conditions as the Committee may prescribe, grant
to any participant in the Plan one or more cash bonuses as compensation ("Cash
Bonuses"). The Committee may grant Cash Bonuses under the Plan outright or in
connection with (i) an Option or Stock Appreciation Right granted or
previously granted or (ii) a Stock Bonus awarded, or previously awarded.
Bonuses will be subject to rules, terms, and conditions as the Committee may
prescribe.
8.02 Cash Bonuses in Connection with Options and Stock Appreciation
Rights.
Cash Bonuses granted in connection with Options will entitle an Optionee
to a Cash Bonus when the related Option is exercised (or surrendered in
connection with exercise of a Stock Appreciation Right related to the Option)
in whole or in part. Cash Bonuses granted in connection with Stock
Appreciation Rights will entitle the holder to a Cash Bonus when the Stock
Appreciation Right is exercised. Upon exercise of an Option, the amount of
the Cash Bonus shall be determined by multiplying the amount by which the
total Fair Market Value of the shares to be acquired upon the exercise exceeds
the total Option Price for the shares by the applicable bonus percentage.
Upon exercise of a Stock Appreciation Right, the cash bonus shall be
determined by multiplying the total Fair Market Value of the shares or cash
received pursuant to the exercise of the Stock Appreciation Right by the
applicable bonus percentage. The bonus percentage applicable to a Cash Bonus
shall be determined from time to time by the Committee but shall in no event
exceed thirty percent.
8.03 Cash Bonuses in Connection with Stock Bonuses.
Cash Bonuses granted in connection with Stock Bonuses will entitle the
person awarded such Stock Bonuses to a Cash Bonus either at the time the Stock
Bonus is awarded or at such time as restrictions, if any, to which the Stock
Bonus is subject lapse. If a Stock Bonus awarded is subject to restrictions
and is repurchased by the Company or forfeited by the holder, the Cash Bonus
granted in connection with such Stock Bonus shall terminate and may not be
exercised. Whether any Cash Bonus is to be awarded and, if so, the amount and
timing of such Cash Bonus shall be determined from time to time by the
Committee.
ARTICLE IX
MISCELLANEOUS
9.01. General Restriction.
Each award under the Plan shall be subject to the requirement that, if at
any time the Committee shall determine that (i) the listing, registration or
qualification of the shares of Common Stock subject or related thereto upon
any securities exchange or under any state or Federal law, or (ii) the consent
or approval of any government regulatory body, or (iii) an agreement by the
grantee of an award with respect to the disposition of shares of Common Stock,
is necessary or desirable as a condition of, or in connection with, the
granting of such award or the issue or purchase of shares of Common Stock
thereunder, such award may not be exercised or consummated in whole or in part
unless and until such listing, registration, qualification, consent, approval
or agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
9.02. Withholding Taxes.
Whenever the Company proposes or is required to issue or transfer shares
of Common Stock under the Plan, the Company shall, to the extent permitted or
required by law, have the right to require the grantee, as a condition of
issuance of a Stock Bonus or exercise of its Options or Stock Appreciation
Rights, to remit to the Company no later than the date of issuance or
exercise, or make arrangements satisfactory to the Committee regarding payment
of, any amount sufficient to satisfy any Federal, state and/or local taxes of
any kind, including, but not limited to, withholding tax requirements prior to
the delivery of any certificate or certificates for such shares. If the
participant fails to pay the amount required by the Committee, the Company
shall have the right to withhold such amount from other amounts payable by the
Company to the participant, including but not limited to, salary, fees or
benefits, subject to applicable law. Alternatively, the Company may issue or
transfer such shares of Common Stock net of the number of shares sufficient to
satisfy any such taxes, including, but not limited to, the withholding tax
requirements. For withholding tax purposes, the shares of Common Stock shall
be valued on the date the withholding obligation is incurred.
9.03. Right to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant to the Plan
shall confer upon any participant the right to continue in the employment of
the Company or affect any right which the Company may have to terminate the
employment of such participant.
9.04. Non-Uniform Determinations.
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive awards, the form, amount
and timing of such awards, the terms and provisions of such awards and the
agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards
under the Plan, whether or not such persons are similarly situated.
9.05. Rights as a Shareholder.
The recipient of any award under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for shares of
Common Stock are issued to him or her.
9.06 Fractional Shares.
Fractional shares shall not be granted under any award under this Plan,
unless the provision of the Plan which authorizes such award also specifies
the terms under which fractional shares or interests may be granted.
9.07. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated in the following definitions:
(a) "AFFILIATE" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with the Company.
(b) "DISABILITY" shall mean an Optionee's inability to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment that can be expected to result in death or that has
lasted or can be expected to last for a continuous period of not less than one
year.
(c) "FAIR MARKET VALUE" per share in respect of any share of Common
Stock as of any particular date shall mean (i) the closing sales price per
share of Common Stock reflected on a national securities exchange for the last
preceding date on which there was a sale of such Common Stock on such
exchange; or (ii) if the shares of Common Stock are then traded on an
over-the-counter market, the average of the closing bid and asked prices for
the shares of Common Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Common Stock in such market;
or (iii) in case no reported sale takes place, the average of the closing bid
and asked prices on the National Association of Securities Dealers' Automated
Quotations System ("NASDAQ") or any comparable system, or if the shares of
Common Stock are not listed on NASDAQ or comparable system, the closing sale
price or, in case no reported sale takes place, the average of the closing bid
and asked prices, as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose; or (iv) if the shares of Common Stock are not then listed on a
national securities exchange or traded in an over-the-counter market, such
value as the Committee in its discretion may determine in any such other
manner as the Committee may deem appropriate. In no event shall the Fair
Market Value of any share of Common Stock be less than its par value. In the
case of Incentive Stock Options, the Fair Market Value shall not be discounted
for restrictions, lack of marketability and other such limitations on the
enjoyment of the Common Stock. In the case of other type of Options, the Fair
Market Value of the Common Stock shall be so discounted.
(d) "OPTION" means Stock Option, Incentive Stock Option or Reload
Option.
(e) "OPTION PRICE" means the purchase price per share of Common Stock
deliverable upon the exercise of an Option.
(f) "PARENT CORPORATION" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Optionee's
employer corporation if, at the time of granting an Option, each of the
corporations other than the Optionee's employer corporation owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(g) "STOCK APPRECIATION RIGHT" shall mean Alternate Right or Limited
Right.
(h) "SUBSIDIARY CORPORATION" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the
Optionee's employer corporation if, at the time of granting an Option, each of
the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(i) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the time
an Incentive Stock Option is granted, is an employee of the Company who owns
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its Parent or Subsidiary
Corporations.
9.08. Leaves of Absence and Performance Targets.
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan in respect of any leave
of absence taken by the recipient of any award. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine (i)
whether or not any such leave of absence shall constitute a termination of
employment within the meaning of the Plan and (ii) the impact, if any, of such
leave of absence on awards under the Plan theretofore made to any recipient
who takes such leave of absence. The Committee shall also be entitled to make
such determination of performance targets, if any, as it deems appropriate and
to impose them upon an Optionee as a condition of continued employment.
9.09. Newly Eligible Employees.
The Committee shall be entitled to make such rules, regulations,
determinations and awards as it deems appropriate in respect of any employee
who becomes eligible to participate in the Plan or any portion thereof, after
the commencement of an award or incentive period.
<PAGE>
9.10. Adjustments.
In the event of any change in the outstanding Common Stock by reason of a
stock dividend or distribution, recapitalization, merger, consolidation,
split-up, combination, exchange of shares or the like, the Committee may
appropriately adjust the number of shares of Common Stock which may be issued
under the Plan, the number of shares of Common Stock subject to Options
theretofore granted under the Plan, the Option Price of Options theretofore
granted under the Plan, the performance targets referred to in Section 9.08
and any and all other matters deemed appropriate by the Committee.
9.11. Amendment of the Plan.
The Committee may at any time and from time to time terminate or modify
or amend the Plan in any respect, including in response to changes in
securities, tax or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements. The termination or any modification or
amendment of the Plan shall not, without the consent of a participant, affect
his other rights under an award previously granted to him or her.
9.12. General Terms and Conditions of Options.
Each Option shall be evidenced by a written Option Agreement between the
Company and the Optionee, which agreement, unless otherwise stated in Articles
II, III or IV of the Plan, shall comply with and be subject to the following
terms and conditions:
(a) Number of Shares. Each Option Agreement shall state the number
of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically
identify the portion, if any, of the Option which constitutes an Incentive
Stock Option and the portion, if any, which constitutes a Non-qualified Stock
Option in the form of either a Stock Option or a Reload Option.
(c) Option Price. Each Option Agreement shall state the Option Price
which, in the case of Incentive Stock Options (except to the extent provided
in Article III above), shall be not less than 100% of the undiscounted Fair
Market Value of the shares of Common Stock of the Company on the date of grant
of the Option. The Option Price shall be subject to adjustment as provided in
9.13(i) hereof. The date on which the Committee adopts a resolution expressly
granting an Option shall be considered the day on which such Option is
granted. No Options shall be granted under the Plan more than 10 years after
the date of adoption of the Plan by the Board, but the validity of Options
previously granted may extend and be validly exercised beyond that date.
Except as provided in Section 3.10 above, Options granted under the Plan shall
be for a period determined by the Committee as provided in Section 9.12(e),
below.
(d) Medium and Time of Payment. The Option Price shall be paid in
full at the time of exercise in cash or in shares of Common Stock having a
Fair Market Value equal to such Option Price or in a combination of cash and
such shares, and may be effected in whole or in part (i) with monies received
from the Company at the time of exercise as a compensatory cash payment, or
(ii) with monies borrowed from the Company pursuant to repayment terms and
conditions as shall be determined from time to time by the Committee, in its
discretion, separately with respect to each exercise of Options and each
Optionee; provided, however, that each such method and time for payment and
each such borrowing and terms and conditions of repayment shall be permitted
by and be in compliance with applicable law, and provided, further, if the
Option Price is paid with monies borrowed from the Company, such fact shall be
noted conspicuously on the certificate evidencing such shares in accordance
with applicable law.
(e) Term and Exercise of Options. Options shall be exercisable over
the exercise period as and at the times and upon the conditions that the
Committee may determine, as reflected in the Option Agreement; provided,
however, that the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances, as it, in its sole discretion, deems appropriate. The exercise
period shall be determined by the Committee for all Options; provided, however
that such exercise period shall not exceed 10 years from the date of grant of
such Option. The exercise period shall be subject to earlier termination as
provided in Sections 9.12(f) and 9.12(g) hereof. An Option may be exercised,
as to any or all full shares of Common Stock as to which the Option has become
exercisable, by giving written notice of such exercise to the Committee;
provided, however, that an Option may not be exercised at any one time as to
fewer than 100 shares (or such number of shares as to which the Option is then
exercisable if such number of shares is less than 100).
(f) Termination. Except as provided in Section 9.12(e) and in this
Section 9.12(f) hereof, an Option may not be exercised unless the Optionee is
then in the employ of the Company or a Parent, division or Subsidiary
Corporation (or a corporation issuing or assuming the Option in a transaction
to which Code Section 424(a) applies), and unless the Optionee has remained
continuously so employed since the date of grant of the Option. If the
employment of an Optionee shall terminate (other than by reason of death,
disability or retirement), all Options of such Optionee that are exercisable
at the time of such termination may, unless earlier terminated in accordance
with their terms, be exercised within six months after such termination;
provided, however, that if the employment of an Optionee shall terminate for
cause, all Options theretofore granted to such Optionee shall, to the extent
not theretofore exercised, terminate forthwith. Nothing in the Plan or in any
Option shall limit the Company's rights under Section 9.03 above. No Option
may be exercised after the expiration of its term.
(g) Death, Disability or Retirement. If an Optionee shall die while
employed by the Company, a Parent or a Subsidiary Corporation thereof, or die
within three months after the termination of such Optionee's employment other
than for cause, or if the Optionee's employment shall terminate by reason of
disability or retirement, all Options theretofore granted to such Optionee (to
the extent otherwise exercisable) may, unless earlier terminated in accordance
with their terms, be exercised by the Optionee or by the Optionee's estate or
by a person who acquired the right to exercise such Option by bequest or
inheritance or otherwise by reason of the death or disability of the Optionee,
at any time within three years after the date of death, disability or
retirement of the Optionee. If the Optionee's employment shall terminate by
reason of removal for cause, all Options theretofore granted to such Optionee
shall terminate immediately upon removal and may not be exercised.
(h) Non-transferability of Options. For the purpose of preserving to
the Company the right and ability to register the exercise of Options on Form
S-8 under the Act, including exercises of Options by former employees and the
executors, administrators or beneficiaries of the estates of deceased
employees, Options granted under the Plan shall not be transferable otherwise
than (i) by will; (ii) by the laws of descent and distribution; or (iii) to a
revocable inter vivos trust for the primary benefit of the Optionee and his or
her spouse. Options may be exercised, during the lifetime of the Optionee,
only by the Optionee, his or her guardian, legal representative or the Trustee
of an above described trust. Except as permitted by the preceding sentences,
or unless the Committee determines that the ability to register the underlying
shares on Form S-8 need not be preserved, no Option granted under the Plan or
any of the rights and privileges thereby conferred shall be transferred,
assigned, pledged, or hypothecated in any way (whether by operation of law or
otherwise), and no such Option, right, or privilege shall be subject to
execution, attachment, or similar process. Upon any attempt so to transfer,
assign, pledge, hypothecate, or otherwise dispose of the Option, or of any
right or privilege conferred thereby, contrary to the provisions of this Plan,
or upon the levy of any attachment or similar process upon such Option, right,
or privilege, the Option and such rights and privileges shall immediately
become null and void.
(i) Effect of Certain Changes.
(A) If there is any change in the number of shares of Common Stock
through the declaration of stock dividends, or through recapitalization
resulting in stock splits, or combinations or exchanges of such shares, the
number of shares of Common Stock available for awards under the Plan pursuant
to Section 1.05 above, the number of such shares covered by the outstanding
Options and the price per share of such Options shall be proportionately
adjusted by the Committee to reflect any increase or decrease in the number of
issued shares of Common Stock; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated.
(B) In the event of the proposed dissolution or liquidation of the
Company, in the event of any corporate separation or division, including, but
not limited to split-up, split-off or spin-off, or in the event of a merger,
consolidation or other reorganization of the Corporation with another
corporation, the Committee may provide that the holder of each Option then
exercisable shall have the right to exercise such Option (at its then Option
Price) solely for the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such dissolution,
liquidation, or corporate separation or division, or merger, consolidation or
other reorganization by a holder of the number of shares of Common Stock for
which such Option might have been exercised immediately prior to such
dissolution, liquidation, or corporate separation or division, or merger,
consolidation or other reorganization; or the Committee may provide, in the
alternative, that each Option granted under the Plan shall terminate as of a
date to be fixed by the Committee; provided, however, that not less than
90-days' written notice of the date so fixed shall be given to each Optionee,
who shall have the right, during the period of 90 days preceding such
termination, to exercise the Options as to all or any part of the shares of
Common Stock covered thereby, including, if so determined by the Committee,
shares as to which such Options would not otherwise be exercisable; provided,
further, that failure to provide such notice shall not invalidate or affect
the action with respect to which such notice was required.
(C) If while unexercised Options remain outstanding under the Plan, the
stockholders of the Corporation approve a definitive agreement to merge,
consolidate or otherwise reorganize the Company with or into another
corporation or to sell or otherwise dispose of all or substantially all of its
assets, or adopt a plan of liquidation (each, a "Disposition Transaction"),
then the Committee may: (i) make an appropriate adjustment to the number and
class of shares available for awards under the Plan pursuant to Section 1.05
above, and to the amount and kind of shares or other securities or property
(including cash) receivable upon exercise of any outstanding options after the
effective date of such transaction, and the price thereof, or, in lieu of such
adjustment, provide for the cancellation of all options outstanding at or
prior to the effective date of such transaction; (ii) provide that
exercisability of all Options shall be accelerated, whether or not otherwise
exercisable; or (iii) in its discretion, permit Optionees to surrender
outstanding options for cancellation; provided, however, that if the
stockholders approve such Disposition Transaction within five years of the
date of adoption of this Plan and before the Company is taken public, the
Committee shall provide for the alternative in (ii) above. Upon any
cancellation of an outstanding Option pursuant to this 9.12(i)(C), the Optionee
shall be entitled to receive, in exchange therefor, a cash payment under any
such Option in an amount per share determined by the Committee in its sole
discretion, but not less than the difference between the per share exercise
price of such Option and the Fair Market Value of a share of Company Common
Stock on such date as the Committee shall determine.
(D) Paragraphs (B) and (C) of this Section 9.12(i) shall not apply to a
merger, consolidation or other reorganization in which the Company is the
surviving corporation and shares of Common Stock are not converted into or
exchanged for stock, securities of any other corporation, cash or any other
thing of value. Notwithstanding the preceding sentence, in case of any
consolidation, merger or other reorganization of another corporation into the
Company in which the Company is the surviving corporation and in which there
is a reclassification or change (including a change to the right to receive
cash or other property) of the shares of Common Stock (other than a change in
par value, or from par value to no par value, or as a result of a subdivision
or combination, but including any change in such shares into two or more
classes or series of shares), the Committee may provide that the holder of
each Option then exercisable shall have the right to exercise such Option
solely for the kind and amount of shares of stock and other securities
(including those of any new direct or indirect parent of the Company),
property, cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger by the holder of the number
of shares of Common Stock for which such Option might have been exercised.
(E) In the event of a change in the Common Stock of the Company as
presently constituted which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par
value or without par value, the shares resulting from any such change shall be
deemed to be the Common Stock within the meaning of the Plan.
(F) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive,
provided that each Incentive Stock Option granted pursuant to Article III of
this Plan shall not be adjusted in a manner that causes such option to fail to
continue to qualify as an Incentive Stock Option within the meaning of Section
422 of the Code.
(G) Except as hereinbefore expressly provided in this Section 9.12(i),
the Optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock or any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class or by reason of any dissolution, liquidation, merger, consolidation
or other reorganization or spin-off of assets or stock of another corporation;
and any issue by the Company of shares of stock of any class shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number
of price of shares of Common Stock subject to the Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structures or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or part of its business or
assets.
(j) Rights as a Shareholder. An Optionee or a transferee of an Option
shall have no right as a shareholder with respect to any shares covered by the
Option until the date of the issuance of a certificate evidencing such
shares. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distribution of other rights
for which the record date is prior to the date such certificate is issued,
except as provided in Section 9.12(i) hereof.
(k) Other Provisions. The Option Agreement authorized under the Plan
shall contain such other provisions, including, without limitation, (A) the
imposition of restrictions upon the exercise of an Option; (B) in the case of
an Incentive Stock Option, the inclusion of any condition not inconsistent
with such Option qualifying as an Incentive Stock Option; and (C) conditions
relating to compliance with applicable federal and state securities laws, as
the Committee shall deem advisable.
9.13. Effects of Headings
The Section and Subsection headings contained herein are for convenience
only and shall not affect the construction hereof.
ADOPTED BY RESOLUTION OF THE BOARD OF DIRECTORS, EFFECTIVE THE 31st DAY OF
JANUARY, 1997.
_________________________________________
________________________, Secretary
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") executed the 25 day of
April, 1997, but effective as of the 24th day of February, 1997 (the "Effective
Date"), is made by and between ION LASER TECHNOLOGY, INC., a Utah corporation
having its principal place of business in Salt Lake City, Utah (the "Company"),
and E. WYATT CANNADY, a resident of California (the "Executive").
RECITALS
A. The Company desires to retain the services of the Executive, not
presently a shareholder, officer nor director of the Company, and the Executive
desires to render such services, upon the terms and conditions contained herein.
B. The Board of Directors of the Company (the "Board"), by appropriate
resolutions, authorized the employment of the Executive as provided for in this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants contained herein, the
above recitals and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DUTIES
1.01 Duties. The Company hereby employs the Executive, and the Executive
hereby accepts employment, as the Company's President and Chief Executive
Officer upon the terms and conditions contained herein. The Executive shall
exercise the authority and assume the responsibilities: (i) specified in the
Company's Bylaws; (ii) of a President and Chief Executive Officer of a
corporation of the size and nature of the Company; and (iii) prescribed by the
Board from time to time. Promptly after the Effective Date (but, in no case
more than three (3) months thereafter), the Board shall cause the Executive to
be elected as a director of the Board and the Board shall use its reasonable
best efforts to cause the Executive to remain as a director during the entire
Contract Term, as such term is defined under Article II.
1.02 Other Business. During the Contract Term, and excluding any periods
of vacation, sick leave or disability to which the Executive is entitled, the
Executive agrees to devote the Executive's full attention and time to the
business and affairs of the Company and, to the extent necessary to discharge
the duties assigned to the Executive hereunder, to use the Executive's best
efforts to perform faithfully and efficiently such duties. Notwithstanding the
foregoing, but subject to (i) the advance approval of the Chairman of the Board,
and (ii) the provisions of Article VI hereof, the Executive shall be entitled to
serve on the board of directors of up to two (2) publicly held companies other
than the Company and a reasonable number of privately held companies either
operated or controlled by the Executive or a relative or family member of the
Executive.
ARTICLE II
TERM OF AGREEMENT
The term of this Agreement shall commence on the Effective Date and shall
terminate at 11:59 p.m. Mountain Standard Time on March 31, 2000 (the "Contract
Term") unless sooner terminated hereunder.
ARTICLE III
COMPENSATION
During the Contract Term, the Company shall pay, or cause to be paid to the
Executive in cash in accordance with the normal payroll practices of the Company
for senior executive officers (including deductions, withholdings and
collections as required by law), the following:
3.01 Annual Base Salary. In installments not less frequently than
monthly, an annual base salary ("Annual Base Salary") equal to: (i) One Hundred
Seventy-Five Thousand Dollars ($175,000) for the period commencing on the
Effective Date and ending on March 31, 1998, (ii) One Hundred Ninety-Five
Thousand Dollars ($195,000) for the period commencing on April 1, 1998 and
ending on March 31, 1999; and (iii) an amount determined by the Board, but in
no case less than One Hundred Ninety-Five Thousand Dollars ($195,000) for the
period commencing on April 1, 1999 and ending on March 31, 2000; and
3.02 Annual Bonus. A cash bonus (the "Annual Bonus") to be paid each
year, subject to the achievement of goals established by the Board in accordance
with this Section 3.02, at the same time bonuses are generally paid to other
senior executives of the Company for the relevant fiscal year. Each year of the
Contract Term the Board shall approve objective and quantifiable annual goals
which shall be reduced to writing and presented to the Executive on or before
the sixtieth (60th) day after the Effective Date or the commencement of the
Company's fiscal year, as appropriate. The Annual Bonus potential shall be fifty
percent (50%) of the Executive's Annual Base Salary.
ARTICLE IV
OTHER BENEFITS
4.01 Incentive Savings and Retirement Plans. The Executive shall be
entitled to participate, during the Contract Term, in all incentive (including
annual and long-term incentives), savings and retirement plans, practices,
policies and programs available to other senior executives of the Company.
4.02 Signing Bonus. The Executive shall be entitled to a cash bonus of
Twenty-Five Thousand Dollars ($25,000) (the "Signing Bonus") for signing this
Agreement and accepting the Company's offer to become its President and Chief
Executive Officer. The Signing Bonus shall be paid to the Executive during the
first payroll period after the Effective Date.
4.03 Welfare Benefits. Immediately upon the Effective Date and
throughout the Contract Term, the Executive and/or the Executive's family, as
the case may be, shall be entitled to participate in, and shall receive all
benefits under, all welfare benefit plans, practices, policies and programs
provided by the Company (including without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, dependent
life, accidental death and travel accident insurance plans and programs) at a
level that is equal to other senior executives of the Company.
4.04 Fringe Benefits. Immediately upon the Effective Date and throughout
the Contract Term, the Executive shall be entitled to participate in all fringe
benefit programs provided by the Company to its senior executives.
4.05 Expenses. During the Contract Term, the Executive shall be entitled
to receive prompt reimbursement for all reasonable employment-related expenses
which are tax deductible by the Company as business expenses and incurred by the
Executive. The Executive shall be reimbursed upon the Company's receipt of
accountings in accordance with practices, policies and procedures applicable to
senior executives of the Company.
4.06 Office and Support Staff. During the Contract Term, the Executive
shall be entitled to an office, furnishings, other appointments, personal
secretarial assistance and other assistance, commensurate with the position of
President and Chief Executive Officer of the Company, all of which shall be
adequate for the performance of the Executive's duties.
4.07 Vacation. The Executive shall be entitled to twenty (20) paid
vacation days per fiscal year commencing April 1, 1997. Such paid vacation days
shall accrue without cancellation, expiration or forfeiture.
4.08 Living Accommodations. Commuting and/or Relocation Costs. In view
of the fact that the Executive's primary residence is not within the vicinity of
the Company's headquarters, the Company shall, for a period of one (1) year
after the Effective Date, reimburse the Executive for (i) the reasonable costs
of commuting from his current residence to the Company's headquarters and (ii)
the reasonable costs of securing and maintaining temporary, secondary living
accommodations near the Company's headquarters. During the Contract Term,
should the Executive determine to relocate his primary residence to within 50
miles of the Company's headquarters, the Company shall reimburse the Executive
for reasonable relocation expenses.
4.09 Stock Options. The Executive is hereby granted options to purchase
225,000 shares (the "Options") of the Company's common voting stock par value
$.001 per share (the "Common Stock"), at an exercise price per share of $9.00.
Subject to (i) the terms of the Company's 1996 Long-Term Incentive and Stock
Investment Plan or any successor plan thereto (the "Stock Plan") and (ii)
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), the
Options shall be qualified Incentive Stock Options under Section 422 of the
Code. Eighteen Thousand Seven Hundred Fifty (18,750) Options shall vest and
become exercisable on each April 1, July 1, October 1, and January 1 of the
Contract Term. All Options shall be issued pursuant to the Stock Plan. A copy
of the Stock Plan shall have been delivered to the Executive prior to the
Effective Date.
ARTICLE V
CHANGE OF CONTROL
5.01 Definitions. The following terms shall have the meaning set forth
below:
(a) The term "Continuing Directors" shall mean those members of the
Board at any relevant time (i) who were directors on the Effective Date or (ii)
who subsequently were approved for nomination, election or appointment to the
Board by at least two-thirds of the Continuing Directors on the Board at the
time of such approval (the directors described in subsection (ii) are referred
to herein as the "Approved Directors").
(b) The term "Change in Control" shall mean a change in control of
beneficial ownership of the Company's voting securities of a nature that would
be required to be reported pursuant to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or any similar item on a successor or revised form; provided, however, that a
Change in Control shall be deemed to have occurred when:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
representing thirty percent (30%) or more of the combined voting power of the
Company's then outstanding voting securities; or
(ii) During any period of two consecutive years, the
individuals who at the beginning of such period constituted the Board, together
with any Approved Directors elected during such period, cease for any reason to
constitute at least a majority of the Board; provided, however, that if a Change
in Control under this clause (b)(ii) has not occurred, the Continuing Directors
(by a vote of at least two-thirds of the Continuing Directors then on the Board)
may: (1) approve in advance an acquisition resulting in a change of beneficial
ownership as described in clause (b)(i), in which case it shall not constitute
a Change in Control; or (2) if at any time after such an acquisition as
described in clause (b)(i), no person beneficially owns securities of the
Company representing 30% or more of the combined voting power of the Company's
then outstanding securities, declare that a Change in Control has ceased, in
which case the provisions of this Article V shall not apply from that time
forward, unless another Change in Control occurs; or
(iii) The shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
(c) The term "Good Reason," in connection with the termination by
the Executive of his employment with the Company subsequent to a Change of
Control, shall mean:
(i) A diminution in the responsibilities, title or office of
the Executive such that he does not serve as President or Chief Executive
Officer of the Company (which diminution was not for "Cause" (as defined below)
or the result of the Executive's disability), or the assignment (without the
Executive's express written consent) by the Company to the Executive of any
significant duties that are inconsistent with the Executive's position, duties,
responsibilities and status as President and Chief Executive Officer of the
Company;
(ii) Any reduction by the Company in the Executive's Annual
Base Salary as the same may be increased from time to time in accordance with
this Agreement;
(iii) The Company's transfer or assignment of the Executive,
without the Executive's prior express written consent, to any location other
than the Company's principal place of business in Salt Lake County, Utah,
except for required travel on Company business to an extent that does not
constitute a substantial abrupt departure from the Executive's normal business
travel obligations;
(iv) The failure by the Company to continue in effect any
material benefit or compensation plan, life insurance plan, health and medical
benefit plan, disability plan or any other benefit plan in which the Executive
is a participant, or the taking of any action by the Company that would
adversely affect the Executive's right to participate in, or materially reduce
the Executive's benefits under, any of such plans or benefits, or deprive the
Executive of any material fringe benefit enjoyed by the Executive;
(v) The failure by the Board to cause the Executive to be
elected to the Board within three (3) months after the Effective Date; and
(vi) The failure of the Executive to serve as a director of
the Board (except if such decision not to serve was made voluntarily by the
Executive) at any time from his initial election to the Board through the end of
the Contract Term.
(d) The terms "Parachute Payments" and "Excess Parachute Payments"
shall each have the meanings attributed to them under Section 280G of the Code,
or any successor section, and any regulations which may be promulgated in
connection with said section.
5.02 Severance Payments. In the event that, during the Contract Term,
both (a) a Change of Control occurs, and (b) within six (6) months after such
Change in Control occurs, the Executive's employment is terminated either (1) by
the Company for any reason other than (A) for Cause (as defined below), (B) as
a result of the Executive's death or disability or (C) as a result of the
Executive's retirement in accordance with the Company's general retirement
policies, or (2) by the Executive for Good Reason, then:
(i) the Executive shall be paid, within thirty (30) days
after such termination, an amount in cash equal to all Annual Base Salary then
and thereafter payable hereunder;
(ii) the Company shall maintain in full force and effect for
the shorter of the Contract Term or one (1) year after termination, all employee
health and medical benefit plans and programs including, without limitation, the
Executive's 401(k) Plan, in which the Executive, his family, or both, were
participants immediately prior to termination; provided that such continued
participation is possible under the general terms and provisions of such plans
and programs; provided, however, that if the Executive becomes eligible to
participate in a health and medical benefit plan or program of another employer
which confers substantially similar benefits, the Executive shall cease to
receive benefits under this subparagraph in respect of such plan or program,
(iii) all of the Options and other stock options, warrants and
other similar rights granted by the Company to the Executive, if any, shall
immediately and entirely be vested and shall be immediately delivered to the
Executive without restriction or limitation of any kind (except for normal
transfer restrictions); and
(iv) the Annual Bonus, if any, or portion thereof then earned
shall be paid in a lump sum payment to the Executive; provided however, that if
the Annual Bonus, if any, has not been earned by the Executive at the date of
termination but the Executive otherwise would have been entitled to the Annual
Bonus, if any, at the end of the Company's next fiscal year or next period
designated by the Company for the determination of bonuses for senior executives
(the "Bonus Determination Date"), the Company shall pay the Annual Bonus, if
any, to the Executive within ten (10) business days after the Bonus
Determination Date, pro rated in amount to the date of the Executive's
termination.
Any obligation owed or amount payable pursuant to this Section together
with any compensation pursuant to Article III that is payable for services
rendered through the effective date of termination, shall constitute the sole
obligation of the Company payable with respect to the termination of the
Executive as provided in this Section.
5.03 Parachute Payment Limitation. Notwithstanding any other provision
of this Agreement, if the severance payments under Section 5.02 of this
Agreement, together with any other Parachute Payments made by the Company to the
Executive, if any, are characterized as Excess Parachute Payments, then the
following rules shall apply:
(a) The Company shall compute the net value to the Executive of all
such severance payments after reduction for the excise taxes imposed by Section
4999, of the Code and for any normal income taxes that would be imposed on the
Executive if such severance payments constituted the Executive's sole taxable
income;
(b) The Company shall next compute the maximum amount of severance
payments that can be provided without any such payments being characterized as
Excess Parachute Payments, and reduce the result by the amount of any normal
income taxes that would be imposed on the Executive if such reduced severance
benefits constituted the Executive's sole taxable income;
(c) If the amount derived in Section 5.03(a) is greater than the
amount derived in Section 5.03(b), then the Company shall pay the Executive the
full amount of severance payments without reduction. If the amount derived in
Section 5.03(a) is not greater than the amount derived in Section 5.03(b), then
the Company shall pay the Executive the maximum amount of severance payments
that can be provided without any such payments being characterized as Excess
Parachute Payments.
5.04 No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in Section 5.02 by seeking other employment
or otherwise, nor shall the amount of any payment provided for in Section 5.02
be reduced by any compensation earned by the Executive as a result of employment
by another company, self-employment or otherwise.
ARTICLE VI
RESTRICTIVE COVENANTS
6.01 Trade Secrets. Confidential and Proprietary Business Information.
(a) The Company has advised the Executive and the Executive has
acknowledged that it is the policy of the Company to maintain as secret and
confidential all Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and effort to the
Company. "Protected Information" means trade secrets, confidential and
proprietary business information of the Company, any information of the Company
other than information which has entered the public domain (unless such
information entered the public domain through effects of or on account of the
Executive), and all valuable and unique information and techniques acquired,
developed or used by the Company relating to its business, operations,
employees, customers and suppliers, which give the Company a competitive
advantage over those who do not know the information and techniques and which
are protected by the Company from unauthorized disclosure, including but not
limited to, customer lists (including potential customers), sources of supply,
processes, plans, materials, pricing information, internal memoranda, marketing
plans, internal policies, and products and services which may be developed from
time to time by the Company and its agent or employees.
(b) The Executive acknowledges that the Executive will acquire
Protected Information with respect to the Company and its successors in
interest, which information is a valuable, special and unique asset of the
Company's business and operations and that disclosure of such Protected
Information would cause irreparable damage to the Company.
(c) Either during or after termination of employment by the
Company, the Executive shall not, directly or indirectly, divulge, furnish or
make accessible to any person, firm, corporation, association or other entity
(otherwise than as may be required in the regular course of the Executive's
employment) nor use in any manner, any Protected Information, or cause any such
information of the Company to enter the public domain.
6.02 Non-Competition
(a) The Executive agrees that the Executive shall not during the
Executive's employment with the Company, and, for a period of eighteen (18)
months after the termination of this Agreement, directly or indirectly, in any
capacity, engage or participate in, or become employed by or render advisory or
consulting or other services in connection with any Prohibited Business as
defined in Section 6.02(c).
(b) The Executive agrees that the Executive shall not during the
Executive's employment with the Company, and, for a period of eighteen (18)
months after the termination of this Agreement, make any financial investment,
whether in the form of equity or debt, or own any interest, directly or
indirectly, in any Prohibited Business. Nothing in this Section 6.02(b) shall,
however, restrict the Executive from making any investment in any company whose
stock is listed on a national securities exchange; provided that (i) such
investment does not give the Executive the right or ability to control or
influence the policy decisions of any Prohibited Business, and (ii) such
investment does not create a conflict of interest between the Executive's duties
hereunder and the Executive's interest in such investment.
(c) For purposes of this Section 6.02, "Prohibited Business" shall
be defined as any business and any branch, office or operation thereof, which is
a competitor of the Company and which has established or seeks to establish
contact, in whatever form (including, but not limited to solicitation of sales,
or the receipt or submission of bids), with any entity who is at any time a
client, customer or supplier of the Company (including but not limited to all
subdivisions of the federal government.)
6.03 Non-Solicitation. From the date hereof until two (2) years after
the Executive's termination of employment with the Company, the Executive shall
not, directly or indirectly (a) encourage any employee or supplier of the
Company or its successors in interest to leave his or her employment with the
Company or its successors in interest, (b) employ, hire, solicit or cause to be
employed, hired or solicited (other than by the Company or its successors in
interest), or encourage others to employ or hire any person who within two (2)
years prior thereto was employed by the Company or its successors in interest,
or (c) establish a business with, or encourage others to establish a business
with, any person who within two (2) years prior thereto was an employee or
supplier of the Company or its successors in interest.
6.04 Disclosure of Employee-Created Trade Secrets Confidential and
Proprietary Business Information. The Executive agrees to promptly disclose to
the Company all Protected information developed in whole or in part by the
Executive during the Executive's employment with the Company and which relates
to the Company's business. Such Protected Information is, and shall remain, the
exclusive property of the Company. All writings created during the Executive's
employment with the Company (excluding writings unrelated to the Company's
business) are considered to be "works-for-hire" for the benefit of the Company
and the Company shall own all rights in such writings.
6.05 Survival of Undertakings and Injunctive Relief.
(a) The provisions of Sections 6.01, 6.02, 6.03 and 6.04 shall
survive the termination of the Executive's employment with the Company
irrespective of the reasons therefor.
(b) The Executive acknowledges and agrees that the restrictions
imposed upon the Executive by Sections 6.01, 6.02, 6.03 and 6.04 and the purpose
of such restrictions are reasonable and are designed to protect the Protected
Information and the continued success of the Company without unduly restricting
the Executive's future employment by others. Furthermore, the Executive
acknowledges that, in view of the Protected Information which the Executive has
or will acquire or has or will have access to and in view of the necessity of
the restrictions contained in Sections 6.01, 6.02, 6.03 and 6.04, any violation
of any provision of Sections 6.01, 6.02, 6.03 and 6.04 hereof would cause
irreparable injury to the Company and its successors in interest with respect to
the resulting disruption in their operations. By reason of the foregoing the
Executive consents and agrees that if the Executive violates any of the
provisions of Sections 6.01, 6.02, 6.03 or 6.04 of this Agreement, the Company
and its successors in interest as the case may be, shall be entitled, in
addition to any other remedies that they may have, including money damages, to
an injunction to be issued by a court of competent jurisdiction, restraining
the Executive from committing or continuing any violation of such Sections of
this Agreement.
In the event of any such violation of Sections 6.01, 6.02, 6.03 and 6.04
of this Agreement, the Executive further agrees that the time periods set forth
in such Sections shall be extended by the period of such violation.
ARTICLE VII
TERMINATION
7.01 Termination of Employment. The Executive's employment may be
terminated at any time during the Contract Term by mutual agreement of the
parties, or as otherwise provided in this Article.
7.02 Termination for Cause. The Company may terminate the Executive's
employment for Cause by giving the Executive seven (7) days prior written notice
of such termination. For purposes of this Agreement, "Cause" for termination
shall mean
(i) the willful failure or refusal to carry out the
reasonable directions of the Board, which directions are consistent with the
Executive's duties as set forth under this Agreement, other than a failure
resulting from the Executive's complete or partial incapacity due to physical or
mental illness or impairment;
(ii) a conviction for a violation of a state or federal
criminal law involving the commission of a felony;
(iii) a willful act by the Executive that constitutes gross
negligence in the performance of the Executive's duties under this Agreement and
which materially injures the Company. No act, or failure to act, by the
Executive shall be considered "willful" unless committed without good faith and
without a reasonable belief that the act or omission was in the Company's best
interest;
(iv) a material breach of the terms of this Agreement, which
breach has not been cured by the Executive within fifteen (15) days of written
notice of said breach by the Company;
(v) unethical business practices in connection with the
Company's business; or
(vi) habitual use of alcohol or drugs.
Upon termination for Cause, the Executive shall not be entitled to payment of
any compensation other than salary and benefits under this Agreement earned up
to the date of such termination and any stock options, warrants or similar
rights which have vested at the date of such termination.
7.03 Termination Without Cause. Should the Executive's employment be
terminated for a reason other than as specifically set forth in Sections 7.01
and 7.02 or Article V above:
(i) all of the Options and other stock options, warrants and
other similar rights, if any, granted by the Company to the Executive which are
vested at the date of termination shall remain vested plus that number of the
Options and other stock options, warrants and other similar rights, if any, that
would vest during the period immediately following the date of termination set
forth in the table below shall become vested as of the date of termination and
all such vested Options and other stock options, warrants and other similar
rights, if any, shall be immediately delivered to the Executive without
restriction or limitation of any kind (except for normal transfer restrictions);
(ii) all benefits provided to the Executive and/or the
Executive's family shall be continued for the relevant period specified in the
table below, and
(iii) the Company shall continue to pay the Executive his
Annual Base Salary, in accordance with the Company's normal practices for other
senior executives, for the period specified in the table below:
Termination Period Number of Months
- ------------------- ----------------
2/1/97 - 8/1/97 6
8/1/97 - 11/1/97 9
11/1/97 - 3/31/00 12
7.04 Employment Assistance, Office. In the event the Executive is
terminated for any reason other than Cause, for a period equal to the shorter
of (i) six (6) months after the Executive's termination or (ii) until the
Executive accepts an offer of full-time employment, the Company will make
available to the Executive at its headquarters, temporary office space and
reasonable administrative staff to assist the Executive in seeking employment.
ARTICLE VIII
MISCELLANEOUS
8.01 Assignment, Successors. This Agreement may not be assigned by
either party hereto without the prior written consent of the other party. This
Agreement shall be binding upon and inure to the benefit of the Executive and
the Executive's estate and the Company and any assignee of or successor to the
Company.
8.02 Beneficiary. If the Executive dies prior to receiving all of the
Annual Base Salary payable hereunder, such Annual Base Salary shall be paid in
a lump sum payment to the beneficiary designated in writing by the Executive
("Beneficiary") and if no such Beneficiary is designated, to the Executive's
estate.
8.03 Nonalienation of Benefits. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or involuntary, prior to actually being received by the
Executive, and any such attempt to dispose of any right to benefits payable
hereunder shall be void.
8.04 Severability. If all or any part of this Agreement is declared by
any court or governmental authority to be unlawful or invalid, such unlawfulness
or invalidity shall not serve to invalidate any portion of this Agreement not
declared to be unlawful or invalid. Any paragraph or part of a paragraph so
declared to be unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such paragraph or part of a paragraph to
the fullest extent possible while remaining lawful and valid.
8.05 Amendment and Waiver. This Agreement shall not be altered, amended
or modified except by written instrument executed by the Company and the
Executive. A waiver of any term, covenant, agreement or condition contained in
this Agreement shall not be deemed a waiver of any other term, covenant,
agreement or condition and any waiver of any other term, covenant, agreement or
condition, and any waiver of any default in any such term, covenant, agreement
or condition shall not be deemed a waiver of any later default thereof or of any
other term, covenant, agreement or condition.
8.06 Notices. All notices and other communications hereunder shall be in
writing and delivered by hand or by first class registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Company: ION LASER TECHNOLOGY, INC.
3828 South Main Street
Salt Lake City, Utah 84115
With a copy to: DURHAM, EVANS, JONES & PINEGAR
Attn: Jeffrey M. Jones, Esq.
50 South Main Street, Suite 850
Salt Lake City, Utah 84144
If to the Executive: E. Wyatt Cannady
34300 Lantern Bay Drive
Villa 65
Dayna Point, CA 92629-3804
Either party may from time to time designate a new address by notice given in
accordance with this Section. Notice and communications shall be effective when
actually received by the addressee.
8.07 Counterpart Originals. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
8.08 Entire Agreement. This Agreement forms the entire agreement between
the parties hereto with respect to any severance payment and with respect to the
subject matter contained in the Agreement.
8.09 Applicable Law. The provisions of this Agreement shall be
interpreted and construed in accordance with the laws of the state of Utah,
without regard to its choice of law principles.
8.10 Effect on Other Agreements. This Agreement shall supersede all
prior agreements, promises and representations regarding employment by the
Company and severance or other payments contingent upon termination of
employment. Notwithstanding the foregoing, the Executive shall be entitled to
any other severance plan applicable to other senior executives of the Company.
8.11 Extension or Renegotiation. The parties hereto agree that at any
time prior to the expiration of this Agreement, they may extend or renegotiate
this Agreement upon mutually agreeable terms and conditions.
IN WITNESS WHEREOF the parties have executed this Employment Agreement on
the date first written above.
ION LASER TECHNOLOGY, INC., a Utah
corporation
By: /s/ Richard S. Braddock
-----------------------------------
Name: Richard S. Braddock
Title: Chairman
E. WYATT CANNADY, an individual
/s/ E. Wyatt Cannady
_____________________________
E. Wyatt Cannady
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE, AND WILL BE OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF FEDERAL AND STATE LAW BY
VIRTUE OF THE COMPANY'S INTENDED COMPLIANCE WITH SECTION 4(2) OF THE ACT, THE
PROVISIONS OF REGULATION D PROMULGATED THEREUNDER AND PARALLEL EXEMPTIONS
UNDER STATE LAW, AND THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE ACT.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY REGULATORY
AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
428,572 Shares of Common Stock
(Par Value $.001 Per Share)
Options to Purchase 500,000 Shares Common Stock
At $9.00 per Share, Exercisable Until May 1, 2007
Securities Purchase Agreement
Ion Laser Technology, Inc.
3828 South Main Street
Salt Lake City, Utah 84121
Attn: E. Wyatt Cannady
President and Chief Executive Officer
Gentlemen:
In connection with the offer and proposed issuance of up to $3,000,000
in Common Stock and options to purchase Common Stock (the "Offering") by Ion
Laser Technology, Inc., a Utah corporation ("ILT" or the "Company"), in
reliance on exemptions from the registration requirements of the U.S.
Securities Act of 1933, as amended (the "Act"), and similar provisions of
state law, the undersigned purchasers (collectively, the "Purchasers") and the
Company hereby agree as follows:
1. Purchase of Securities. Subject to the terms and conditions of
this Agreement, each of the Purchasers hereby agrees to acquire, and the
Company agrees to sell, the following securities (collectively the "Purchased
Securities"):
1.1 Common Stock. Each of the Purchasers shall purchase and the
Company shall sell to each such Purchaser that number of shares of the
Company's Common Stock, par value $.001 per share (the "Common Shares"),
set forth opposite such Purchaser's name on Schedule I to this
Agreement. The consideration for the issuance of the Common Shares
shall be $7.00 per share. The total purchase price (the "Purchase
Price") for the 428,572 shares of Common Stock being purchased hereunder
shall be Three Million Dollars ($3,000,000). Each Purchaser shall pay
his or its portion of the Purchase Price in full at Closing, as
hereinafter defined, via wire transfer to the Company on or before the
Closing Date, as that term is defined in Section 5 of this Agreement.
Wire instructions shall be provided to Purchasers by the Company prior
to the Closing.
1.2 Options to Acquire Common Stock. As additional
consideration for the Purchase Price, the Company shall grant to each of
the Purchasers, in addition to the Common Shares, options to purchase up
to that number of shares of Common Stock set forth opposite such
Purchaser's name on Schedule I hereto over a ten-year period at a price
of $9.00 per share (the "New Options"). The rights of each Purchaser to
acquire Common Stock under the New Options shall be as set forth in
written option agreements in the form attached to this Agreement as
Exhibit "A" (the "New Option Agreements") and by this reference made a
part hereof.
2. Amendment of Old Options. The Company hereby agrees to amend that
certain Option Agreement No. 001 dated April 1, 1996 issued to LCO Investments
Limited, relating to 773,334 shares of Common Stock, and that certain Option
Agreement No. 002 dated April 1, 1996 issued to Richard S. Braddock
("Braddock"), relating to 193,333 shares of Common Stock (together the "Old
Options"), such that: (i) the purchase price of the shares underlying the Old
Options shall be changed from $20.00 per share to $9.00 per share, and (ii)
any provisions in the Old Options, or in the original Securities Purchase
Agreement dated April 1, 1996 between the Company and the Purchasers,
purporting to restrict by contractual agreement the resale of shares of Common
Stock underlying the Old Options for a period of two years from April 1, 1996,
shall be deleted. The amendments to the Old Options shall be in the form set
forth in Exhibit "B" (the "Amended Option Agreements") and by this reference
made a part hereof.
3. Delivery of Share Certificates and Option Agreements. At the
Closing, the Company shall deliver to Purchasers certificates representing the
Common Shares, which shall be fully paid and nonassessable upon issuance, as
well as the New Option Agreements and the Amended Option Agreements. The
Common Shares and the New Options shall be issued in increments and in the
names of the Purchasers as set forth in Schedule I hereto.
4. Registration Rights and Exchange Filings. The Common Shares and
the shares of Common Stock underlying the exercise of the New Options shall be
subject to certain registration rights, as provided in that certain
Registration Rights Agreement attached hereto as Exhibit "C" and by reference
made a part hereof. (Such Registration Rights Agreement, together with this
Securities Purchase Agreement, the New Option Agreements, and the Amended
Option Agreements, constitute the "Transaction Documents"). In addition, ILT
shall make appropriate filings under the rules of the American Stock Exchange
("AMEX") in order that the Common Shares and the shares of Common Stock
underlying the New Options will be included in the Company's listing with the
AMEX.
5. Closing. Payment of the Purchase Price by the Purchasers and
delivery of the Common Shares and the fully executed New Option Agreements and
Amended Option Agreements by ILT shall be deemed to be the completion of the
transactions contemplated by this Agreement ("Closing"). Closing shall occur
concurrently with the execution of this Agreement (the "Closing Date"), or
such later date as the parties may hereafter agree in writing (the "Closing
Date").
6. Failure of Any Purchaser to Close. The Company shall not be
obligated to issue and sell any of the Purchased Securities unless all 428,572
of the Common Shares and all of the New Options to be purchased and sold
hereunder are purchased by the Purchasers. In the event any Purchaser fails
to purchase at the Closing any of the Common Shares and New Options scheduled
to be purchased by him or it, the other Purchasers shall have the right to
purchase at the Closing (or on such other date as the Company and such
Purchaser(s) shall agree) the Common Shares and New Options that are not so
purchased, and the Company shall issue and sell such Common Shares and New
Options to such other Purchaser(s).
7. Use and Disposition of Proceeds. The gross proceeds of this
transaction will be Three Million Dollars ($3,000,000). The Company intends
to use the proceeds as follows:
Approximate
Application of Proceeds Dollar Amount Percentage
Promote BriteSMILE products $1,500,000 50%
Equipment and improvements 300,000 10%
Research and development 500,000 17%
Working capital and payment
of offering expenses 700,000 23%
========== ====
Total $3,000,000 100%
The foregoing represents the Company's present intention and best estimates
with respect to the use of the offering proceeds. Pending use of the net
proceeds for the above purposes, the Company intends to invest the funds in
certificates of deposit or other fully-insured investment grade securities.
Any funds received from the exercise of the New Options will be added to
working capital. Purchasers acknowledge and agree that the Company shall have
immediate access to such funds, according to the Company's management's
discretion, following the Closing and delivery of the Common Shares and the
New Options to Purchasers.
8. Special Covenants.
8.1 Financial Reports. While any of the New Options remain
outstanding and unexercised, ILT shall provide Purchasers with copies of
its annual report to shareholders, annual report on Form 10-KSB (or such
other form as ILT may be qualified to use for such purpose), quarterly
reports on Form 10-QSB (or such other form as may properly be available
to ILT for such reports), any report on Form 8-K, and internally
prepared (unaudited) financial statements, to the extent prepared by
ILT. In the case of the reports described above which are filed with
the Securities and Exchange Commission, copies of the same will be
provided to Purchasers within five (5) working days of filing with the
Commission. In the case of the other documents, to the extent the same
are prepared by ILT, they shall be provided on or before the 20th day
following the month then ended.
8.2 At the Closing, or as soon thereafter as practical (but in
no event later than May 7, 1997), the Company shall deliver to
Purchasers a Cashflow Analysis, including estimations of the rate at
which the proceeds of this Offering will be used by the Company.
9. Representations and Warranties of Purchasers. To induce the
Company's acceptance of this Agreement, each Purchaser hereby represents and
warrants, severally as to itself or himself and not jointly, to the Company
and its agents and attorneys as follows:
9.1 Accredited Status. Purchaser is an "accredited investor"
within the meaning of Section 501(a) of Regulation D under the Act or is
not a "U.S. Person" as that term is defined under Rule 902(o)(1) of
Regulation S under the Act, because the undersigned is [THE UNDERSIGNED
MUST INITIAL ALL OF THE FOLLOWING PARAGRAPHS WHICH ACCURATELY DESCRIBE
THE UNDERSIGNED'S STATUS]:
(1) Purchaser is an accredited person because Purchaser
is:
(a) A director or executive officer of the Company.
(Initial)
(b) A natural person whose net worth (i.e. the
excess of his/her total assets over his/her total
liabilities, including the value of his/her personal
residence), individually or jointly with his/her spouse, as
of the date hereof, exceeds $1,000,000.
(Initial)
(c) A natural person who had an individual income
in excess of $200,000 in each of the past two years, or
whose joint income with that person's spouse during each of
the past two was in excess of $300,000, and who reasonably
expects to reach the same income level in the present year.
(Initial)
(d) A corporation or partnership, not formed for
the specific purpose of acquiring the securities offered,
with total assets in excess of $5,000,000.
(Initial)
(e)A broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934.
(Initial)
(f) An entity in which all of the equity owners
are "accredited investors" pursuant to one of the categories
set forth above.
(Initial)
(g) None of the above.
(Initial)
(2) Purchaser is not a "U.S. Person" as defined under
Regulation S because (mark and complete each applicable item):
(a) Purchaser is a corporation organized under
the laws of __________________, which is outside the
United States and is not a territory or possession of the
United States and in addition to the foregoing, Purchaser
was not formed by a U.S. Person for the purpose of
investment in securities not registered under the Act and
Purchaser will not purchase the Purchased Securities on
behalf of a U.S. Person as defined by the Act.;
(Initial)
(b) Purchaser is a natural person resident in
________________ and a citizen of _____________________.
(Initial)
9.2 Liquidity. Purchaser presently has sufficient liquid assets
to pay that portion of the Purchase Price to be paid by such Purchaser
hereunder. Purchaser's overall commitments to investments that are not
readily marketable is not disproportionate to Purchaser's total assets,
and Purchaser's investment in the Company will not cause such overall
commitment to become excessive. Purchaser has adequate means of
providing for its current needs and contingencies and has no need for
liquidity in its investment in the Company or for a source of income
from the Company. Purchaser is capable of bearing the economic risk and
the burden of the investment contemplated by this Agreement, including,
but not limited to, the possibility of the complete loss of the value of
the Purchased Securities and the limited transferability of the
Purchased Securities, which may make the liquidation of the Purchased
Securities impossible in the near future.
9.3 Organization, Standing, Authorization. If not an
individual, Purchaser is duly organized, validly existing, and in good
standing under the laws of the country of organization described in
Schedule I hereto and has the requisite power and authority to enter
into this Agreement, acquire the Purchased Securities and execute and
deliver any documents or instruments in connection with this Agreement.
The execution and delivery of this Agreement, and all other documents
and instruments executed by Purchaser in connection with any of the
transactions contemplated by this Agreement have been duly authorized by
all required action of Purchaser's members or managers. The person
executing, on Purchaser's behalf, this Agreement and any other documents
or instruments executed by Purchaser in connection with this Agreement
is duly authorized to do so.
9.4 Absence of Conflicts. Purchaser represents and warrants
that the execution and delivery of this Agreement and any other document
or instrument executed in connection with this Agreement, and the
consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding
on Purchaser, or the provision of any indenture, instrument or agreement
to which Purchaser is a party or is subject, or by which Purchaser or
any of their properties is bound, or conflict with or constitute a
material default thereunder, or result in the creation or imposition of
any lien pursuant to the terms of any such indenture, instrument or
agreement, or constitute a breach of any fiduciary duty owed by such
Purchaser to any third party, or require the approval of any third-party
pursuant to any material contract, agreement, instrument, relationship
or legal obligation to which Purchaser are subject or to which any of
their properties, operations or management may be subject.
9.5 Sole Party in Interest. Purchaser represents that it is the
sole and true party in interest, and no other person or entity has or
will have upon the issuance of the Purchased Securities any beneficial
ownership interest in the Purchased Securities or any portion of the
Purchased Securities, whether direct or indirect, other than the equity
holders or beneficiaries of such Purchaser.
9.6 Investment Purpose. Purchaser represents that it is
acquiring the Purchased Securities for its own account and for
investment purposes and not on behalf of any other person or entity or
for or with a view to resale or distribution.
9.7 Knowledge and Experience. Purchaser is experienced in
evaluating and making speculative investments, and has the capacity to
protect Purchaser's interests in connection with the acquisition of the
Purchased Securities. Purchaser has such knowledge and experience in
financial and business matters in general, and investments in the laser
industry in particular, that Purchaser is capable, on Purchaser's
behalf, of evaluating the merits and risks of Purchaser's investment in
the Company. Purchaser has been informed that an investment in the
Company is speculative and has concluded that Purchaser's proposed
investment is appropriate in light of its overall investment objectives
and financial situation.
9.8 Investment Advisors. No party has received or will receive
any compensation or other remuneration for advising Purchaser with
respect to this investment, and Purchaser represents that no investment
advisor or purchaser representative has been consulted or retained in
connection with Purchaser's decision to invest in the Company.
9.9 Disclosure, Access to Information. Purchaser confirms that
it has received and thoroughly read and is familiar with and understands
this Agreement, and that all documents, records, books and other
information pertaining to Purchaser's investment in the Company
requested by Purchaser have been made available for inspection and
copying and that there are no additional materials or documents that
have been requested by Purchaser that have not been made available by
the Company. Purchaser further acknowledges that on behalf of the
Purchasers and as Purchasers representatives, since May 2, 1996,
Braddock and Andrew Hofmeister have served as members of the Board of
Directors of the Company. Purchaser further acknowledges that the
Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Purchaser has reviewed or received copies of any such reports that have
been requested by it. Without limiting the generality of the foregoing,
Purchaser acknowledges that it has received and has reviewed copies of
the following documents and materials, all of which are incorporated
herein by reference:
(1) Articles of Incorporation of the Company, as amended;
(2) Bylaws of the Company, as amended;
(3) Asset Purchase Agreement with Brite Smile, Inc., dated
as of February 6, 1996;
(4) Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1995 and 1996;
(5) Quarterly Reports on Form 10-QSB for the quarters
ended June 30, September 30, and December 31, 1995 and
1996;
9.10 Exclusive Reliance on this Agreement. In making the
decision to purchase the Purchased Securities, Purchaser has relied
exclusively upon information included in this Agreement or incorporated
herein by reference pursuant to Section 9.9, and not on any other
representations, promises or information, whether written or verbal, by
any person.
9.11 Accuracy of Unincorporated Documents and Other
Unincorporated Materials. To the extent Purchaser has received
documents or other materials, other than as expressly incorporated
herein by reference pursuant to Section 9.9, and subject to Section 9.15
of this Agreement, Purchaser acknowledges the following with respect to
such documents and materials:
(1) Such documents and materials and any projections
contained therein may be incomplete, may contain errors or
misstatements, and do not purport to adequately describe the
transactions contemplated by this Agreement or the status of the
development of the Company's technology. Purchaser agrees that
such documents and materials cannot be relied upon in making a
decision as to whether to purchase the Purchased Securities and
acknowledges that there can be no assurance that any of the
projections contained therein will be accomplished by the Company;
and
(2) Purchaser has been advised and fully understands that
any summaries, projections, forecasts or estimates included in
such documents and materials, including those relating to product
development schedules and projections, possible revenues, income,
profitability of the Company or an investment therein inherently
involve uncertainties and may be affected by circumstances in the
future which cannot be reasonably predicted and are beyond the
control of the Company. Further, the projections, forecasts and
estimates are speculative and may be optimistic, and there can be
no assurance that any of the projections, forecasts or estimates
will be reached, or that the Company will successfully produce a
commercially viable product or that the Company will realize any
income or profits or that any dividends or distributions of
profits will be paid on the Company's securities. The use of the
words "believes," "estimates," "anticipates" and similar
expressions are intended to identify forward-looking statements,
all of which are subject to certain risks and uncertainties that
could cause actual results to differ materially from those
projected. Purchaser should not place undue reliance on such
forward-looking statements, which speak only as of the date(s)
made. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
9.11 Residency. Each Purchaser has its principal place of
business as set forth in Schedule I hereto.
9.12 Advice of Counsel. Purchaser understands the terms and
conditions of this Agreement, has investigated all issues to Purchaser's
satisfaction, has consulted with such of Purchaser's own legal counsel
or other advisors as Purchaser deems necessary, and is not relying, and
has not relied on the Company for an explanation of the terms or
conditions of this Agreement or any document or instrument related to
the transactions contemplated thereby. Purchaser further acknowledges,
understands and agrees that, in arranging for the preparation of this
Agreement and all other documents and materials related thereto, the
Company has not attempted to procure, and has not procured, legal
representation for Purchaser.
9.13 Accuracy of Representations and Information. All
representations made by Purchaser in this Agreement and all documents
and instruments related to this Agreement, and all information provided
by Purchaser to the Company concerning Purchaser and its financial
position is correct and complete in all material respects as of the date
hereof. If there is any material change in such information before the
actual issuance of the Purchased Securities, Purchaser immediately will
provide such information to the Company.
9.14 No Representations. None of the following have ever been
represented, guaranteed, or warranted to Purchaser by the Company or any
of its employees, agents, representatives or affiliates, or any broker
or any other person, expressly or by implication:
(1) The approximate or exact length of time that
Purchaser will be required to remain as owner of the
Purchased Securities;
(2) The percentage of profit or amount of or type of
consideration, profit or loss (including tax write-offs or
other tax benefits) to be realized, if any, as a result of
an investment in the Purchased Securities; or
(3) The past performance or experience on the part
of the Company or any affiliate or their associates, agents
or employees, or of any other person as being indicative of
future results of an investment in the Purchased Securities.
9.15 Federal Tax Matters. Purchaser has reviewed and understands
the federal income tax aspects of its purchase of the Purchased
Securities, and has received such advice in this regard as Purchaser
deems necessary from qualified sources such as attorneys, tax advisors
or accountants, and is not relying on any representative or employee of
the Company for such advice.
9.16 No Brokers or Finders. Purchaser represents that no third
person has in any way brought the parties together or been instrumental
in the negotiation, execution, or consummation of this Agreement or any
instrument, document or agreement related to this Agreement, or will
receive a fee or any compensation for doing so. Purchaser agrees to
indemnify the Company against any claim by any third person for any
commission, brokerage fee, finders fee, or other payment with respect to
this Agreement or the transactions contemplated hereby based upon any
alleged agreement or understanding between such party and such third
person, whether expressed or implied, arising from the actions of such
party. The covenants set forth in this Section 9.17 shall survive the
Closing Date and the consummation of the transactions contemplated by
this Agreement.
10. Certain Risk Factors. Purchasers have been informed about and
fully understand that there are risks associated with an investment in the
Company. Such risks may include, but not necessarily be limited to, the
following:
10.1 Forward Looking Statements. Statements contained in the
Company's annual and quarterly reports on Forms 10-KSB and 10-QSB that
are not purely historical are forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. Such statements include statements
regarding the Company's expectations, beliefs, hopes, intentions or
strategies regarding the future. All forward looking statements
included in such reports are based on information available to the
Company on the date thereof and the Company assumes no obligation to
update any such statements. The Company cautions that actual results
could differ materially from those in such forward looking statements.
Among other things, the Company's business and its results of operations
may be affected by factors which could cause actual results to differ
materially from those described in the forward looking statements
contained in the reports. Such factors include, but are not limited to,
the following additional risks set forth in this section 10.
10.2 Government Regulation. The Company's products are subject
to the provisions of the Federal Food, Drug and Cosmetic Act (the "Act")
and the Safe Medical Devices Amendment of the Act. The Act is
administered by the Food and Drug Administration ("FDA") and similar
laws are administered by similar agencies in other countries. The Act
generally classifies medical devices into categories, and establishes
varying degrees of labeling and marketing clearance procedures. The
Company is subject to FDA standards and procedures governing the
manufacture of medical devices and to FDA inspection for compliance with
such standards. The Company has obtained FDA clearance for the use of
its lasers in the tooth whitening process. The Company is required to
manufacture its regulated products in accordance with Good Manufacturing
Procedures ("GMP") and is subject to periodic audits by the FDA. In
addition, the use of the Company's products may be regulated by various
state agencies. Although the Company believes it has been and is now in
compliance with the FDA's rules and GMP, there can be no assurance that
the Company's products will be able to comply successfully with any such
requirements or regulations. Federal and state regulations regarding
the manufacture and sale of medical devices are subject to future
change. The Company cannot predict what material impact, if any, such
changes might have on its business. In addition, the introduction of
the Company's products in foreign markets will require obtaining foreign
regulatory clearances. There can be no assurance that the Company will
be able to obtain regulatory clearances for all of its products in the
U.S. or in foreign markets. Although the Company believes that it will
continue to be able to comply with all applicable regulations of the
FDA, including GMP guidelines, current regulations depend heavily on
administrative interpretations, and there can be no assurance that
future interpretations made by the FDA or other regulatory bodies, with
possible retroactive effect, will not adversely affect the Company.
10.3 Certain Restrictions on Dental Technicians Related to Laser
Procedures. Many dentists who have acquired and who desire to acquire
the Company's laser tooth whitening system also desire to utilize a
dental hygienist and/or dental technician to perform many aspects of the
laser tooth whitening procedure. The dental licensing boards or similar
regulatory bodies in several states of the United States have recently
promulgated or proposed rules which prohibit dental hygienists and/or
dental technicians from operating or using lasers in connection with
dental procedures, including tooth whitening procedures. Dental
licensing boards or similar regulatory bodies in other states and
countries can and may adopt similar rules, the effect of which is to
discourage some dentists from acquiring the Company's laser tooth
whitening system because they are not able to utilize less expensive
employees and staff (dental hygienists and/or dental technicians) for a
significant portion of the laser tooth whitening procedure. The Company
has determined to challenge rules adopted by states prohibiting dental
hygienists and/or dental technicians from operating laser equipment in
tooth whitening procedures. Further, the Company has determined to
initiate rulemaking procedures in other states which would expressly
allow dental hygienists, and in some cases, dental technicians, to
utilize lasers in tooth whitening procedures. However, there can be no
assurance that the Company's efforts opposing rules prohibiting dental
hygienists and/or dental technicians from operating lasers in tooth
whitening procedures or advancing rules allowing such will be
successful. To the extent that state licensing boards or similar
regulatory bodies in a majority of the states of the United States
and/or in foreign countries adopt rules prohibiting dental hygienists
and/or dental technicians from operating lasers in tooth whitening
procedures, the Company believes that the appeal of its laser tooth
whitening products as a significant profit center for dentists engaged
in cosmetic dentistry practices will be reduced.
10.4 Technological Obsolescence. The business of designing and
manufacturing technical products such as lasers is characterized by
rapid technological change. In addition, there is increasing
competition in the creation and manufacture of tooth whitening compounds
used in the tooth whitening process. Although the Company has obtained
or applied for patents on certain aspects of its technology and
processes used by it, there can be no assurance that the Company's
competitors will not develop or manufacture products technologically
superior to those of the Company. The Company also relies upon trade
secrets and no assurance can be given that others will not independently
develop substantially equivalent proprietary information and techniques
or otherwise gain access to the Company's trade secrets or disclose such
technology, or that the Company can meaningfully protect its rights to
unpatented trade secrets. The Company requires its key employees,
consultants and advisors to execute confidentiality agreements upon the
commencement of an employment or consulting relationship with the
Company.
10.5 Competition. The Company operates in a highly competitive
industry and competes with firms which may have greater financial
resources, broader experience and more substantial marketing operations
than the Company. Other laser manufacturers have also begun to market
and use lasers in the tooth whitening process. Although the Company
believes its process to be superior to those of its competitors, there
can be no assurance that the Company will be able to effectively compete
with larger, better financed companies in the same industry.
10.6 Product Liability. Manufacturers and distributors of
products used in the medical industry are from time to time subject to
lawsuits alleging product liability, negligence or related theories of
recovery, which have become an increasingly frequent risk of doing
business in these industries. Although lawsuits may arise or claims may
be asserted based on product liability or other legal theories against
the Company, all such actions have been insured against and there are no
such actions pending. While the Company does not anticipate any such
lawsuits, there can be no assurance that the Company will not be
subjected to claims for and suffer substantial losses arising out of the
use of any of its products which may be defective. Such claims and
losses, and the expense of defending against such claims, would be
costly and could have a materially adverse effect on the Company's
results of operations. Although the Company presently maintains product
liability insurance coverage, there can be no assurance that such
coverage will be available for such risks in the future or that, if
available, it would prove sufficient to cover potential claims or that
the present amount of insurance can be maintained in force at an
acceptable cost. Furthermore, the assertion of such claims, regardless
of their merit or eventual outcome, also may have a material adverse
effect on the Company, its business reputation and its operations.
10.7 Dependence Upon Market Acceptance of Company's Products.
The Company's ability to expand its product line and market its new
products and processes (including the BriteSmile process) will depend
upon the willingness of potential customers to purchase the products, in
many instances to replace products presently purchased from the
Company's competitors. In addition, there can be no assurance that any
new products or technologies developed or acquired by the Company,
including those currently being developed by the Company, will be
accepted by the industry. The Company currently has limited marketing
capabilities and will need to hire additional sales and marketing
personnel for the new products. There can be no assurance that any
sales and marketing effort undertaken by the Company will be successful.
Furthermore, marketing is expensive and amounts spent to promote the
products and processes of the Company will affect its results of
operations.
10.8 Dependence on Patents and Proprietary Rights. The Company
has several United States patents and has filed additional patent
applications in the U.S. Patent and Trademark Office. These patents and
pending applications relate to the Company's multiplexer, collinated
beam delivery system for composite curing, laser resonator, krypton or
"mixed gas" ion laser device, and the BriteSmile process. The Company
believes patents and proprietary rights have been and will continue to
be important in enabling the Company to compete. However, there can be
no assurance that the pending patents will issue or, if they do issue,
that they and the other patents of the Company will not be challenged or
circumvented or will provide the Company with any competitive advantages
or that any patents will issue from pending patent applications.
Failure to obtain patents in certain foreign countries may materially
adversely affect the ability of the Company to compete effectively in
certain international markets. The Company also relies on trade secrets
that it seeks to protect, in part, through confidentiality agreements
with employees and other parties. There can be no assurance that these
agreements will not be breached, that the Company would have adequate
remedies for any breach or that the Company's trade secrets will not
otherwise become known to or independently developed by competitors.
The Company may become involved from time to time in litigation to
determine the enforceability, scope and validity of proprietary rights.
Any such litigation could result in substantial cost to the Company and
divert the efforts of its management and technical personnel and
adversely affect results of operations.
10.9 Risks of Foreign Sales; Foreign Operations. The Company's
expanded marketing strategy includes increased marketing of its products
in foreign countries. Accordingly, the Company's business is subject to
many of the risks of international operations, including tariff
restrictions, foreign currency fluctuations, currency control
regulations, competing or conflicting manufacturing standards,
government regulation and approval policies for medical testing and
therapy devices and licensing requirements. In addition to the foreign
sales activity of the Company, since 1989 the Company has been engaged
in manufacturing operations in Shanghai, China, through its wholly-owned
subsidiary, Ion Laser Technology Development Company and its ownership
in Shanghai Laser Technology Company, a Chinese joint venture. The
joint venture manufactures and sells lasers to markets in China and
other parts of the world. In recent years, the political and economic
climate in China has been subject to volatile change. Political and
economic changes in the future could adversely affect the Company's
investment in the joint venture.
10.10 Recent Net Loss; Possible Future Losses. Although the
Company realized a modest net profit in its last fiscal year, the
Company realized net losses in prior years. The Company's operations
continue to use significant amounts of cash as the Company endeavors to
promote its BriteSmile tooth whitening products and services. Although
the Company has experienced revenue growth since its inception, there
can be no assurance that such growth will continue or that net losses
will not be incurred in future operating periods.
10.11 Backlog; Quality Assurance. The Company has recently
increased its production capacity and is in the process of adding to
that capacity at its Salt Lake City facility. The increased demand for
its lasers and for the chemical reagents used in the tooth whitening
process resulting from increased sales activity in this industry has
resulted in an increase in orders for the Company's products.
Inventories of finished products and work in progress have increased
substantially. In the past nine months the Company has experienced
delays in delivering some finished products to customers. In some cases
there have also been an unusually high number of warranty claims related
to delivered product. While some quality assurance problems may
reasonably be expected as a new product line is started or as new
personnel are hired and trained to meet increasing demand, warranty
claims are a significant expense to the Company and the delays caused by
backlogs or by quality assurance problems adversely affect operating
results. The Company constantly works to improve quality and to reduce
backlog, but there can be no assurance that these trends will not
continue in the foreseeable future.
10.12 Change in Business Focus. The Company is currently
transitioning its business to rely more heavily on the sale of laser
tooth whitening chemicals and lasers used in the cosmetic dental market.
In addition to the foregoing, factors that may affect the Company's
results of operations include the volume and timing of orders received,
changes in the mix of product sold, market acceptance of the Company's
products, competitive pricing pressures, the Company's ability to meet
increasing demand, the Company's ability to introduce new products on a
timely basis, the timing of new product announcements and introductions
by the Company or its competitors, changing customer requirements,
delays in meeting new product qualifications, the time of research and
development, and the timing and extent of expenses related tosuch
research and development.
10.13 Future Capital Requirements. In the course of expansion,
there is no guarantee that the Company will be able to raise adequate
capital to fund subsequent growth, whether via the capital markets,
private placements, lines of credit or other means.
10.14 Absence of Dividend Policy. The Company has never declared
or paid any cash dividends on its shares and does not anticipate paying
cash dividends in the foreseeable future.
10.15 Immediate and Substantial Dilution. The Purchasers will
incur immediate, substantial dilution of their interests, because the
net tangible book value per share of the common stock after the offering
will be substantially less than the price per share paid by the
Purchasers.
11. Manner of Sale. At no time were Purchasers presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
12. Restricted Shares. Purchasers understand and acknowledge that
neither the Purchased Securities nor the Common Stock underlying the New
Options have been registered under the Act, or any state securities laws, and
that they will be issued in reliance upon certain exemptions from the
registration requirements of those laws, and thus cannot be resold unless they
are registered under the Act or unless the Company has first received an
opinion of competent securities counsel that an exemption from registration is
available for such resale. As to certain of the Purchasers which are not U.S.
persons within the meaning of Regulation S, the offer and sale contemplated
hereunder has been and will be made in an "offshore transaction" with no
"directed selling efforts" in the U.S. (all within the meaning of Regulation
S), and each such Purchaser has agreed and hereby confirms that during the
Holding Period (as defined below) commencing on the Closing Date, no offer or
sale of any Purchased Securities shall be made in the U.S. or to a "U.S.
person" (as defined in Regulation S) or for the account or benefit of a "U.S.
person." The "Holding Period" shall expire on the 360th day after the Closing
Date. With regard to the restrictions on resales of the Purchased Securities
or any security underlying or into which the Purchased Securities are or may
be convertible, Purchasers are aware (i) of the limitations and applicability
of Securities and Exchange Commission Rule 144; (ii) that the Company will
issue stop transfer orders to its stock transfer agent in the event of
attempts to improperly transfer any such securities; and (iii) that a
restrictive legend will be placed on certificates representing the Purchased
Securities and any security underlying or into which any of the Purchased
Securities are or will be convertible, which legend will read substantially as
follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
PURSUANT TO A CLAIM OF EXEMPTION FROM THE REGISTRATION OR
QUALIFICATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND STATE SECURITIES LAWS AND THEREFORE HAVE NOT BEEN
REGISTERED UNDER THE ACT OR UNDER THE SECURITIES LAWS OF ANY
STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED WITHOUT COMPLIANCE WITH THE REGISTRATION
OR QUALIFICATION PROVISIONS OF THE ACT OR APPLICABLE STATE LAWS,
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS [AS TO HOLDERS WHICH ARE NOT "U.S. PERSONS" WITHIN
THE MEANING OF REGULATION S]. SUBJECT TO CERTAIN REGISTRATION
RIGHTS, THE HOLDER OF THESE SECURITIES HAS AGREED AND COVENANTED
NOT TO OFFER OR SELL THESE SECURITIES IN THE UNITED STATES, ITS
TERRITORIES OR POSSESSIONS, OR TO PERSONS KNOWN TO BE NATIONALS OR
RESIDENTS OF THE UNITED STATES, UNTIL THE 361ST DAY FOLLOWING THE
CLOSING DATE, 1998, AND THEREAFTER ONLY IF THE SHARES ARE
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREUNDER IS AVAILABLE. FURTHERMORE, THE COMPANY
WILL INSTRUCT ITS STOCK TRANSFER AGENT NOT TO RECOGNIZE ANY SALE
OF THESE SECURITIES UNLESS THE COMPANY HAS FIRST RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS SECURITIES
COUNSEL, THAT AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS
AVAILABLE.
13. Indemnification. The Company agrees to indemnify each of the
Purchasers and their respective officers, employees and agents, and hold them
harmless from and against any and all liability, damage, cost or expense,
including attorney's fees, incurred on account or arising out of any
inaccuracy in or breach of the declarations, covenants, agreements,
representations, and warranties by the Company set forth herein.
14. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchasers as follows:
14.1 Organization, Standing, Etc. The Company is duly organized,
validly existing, and in good standing under the laws of the State of
Utah, and has the requisite power and authority to enter into and
perform this Agreement and to execute and perform under the documents,
instruments and agreements related to this Agreement.
14.2 Authorization. The execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all required action of the Company, including any
necessary approval by its Board of Directors or shareholders, and each
of the Transaction Documents and all instruments and agreements to be
delivered in connection therewith constitute its legal, valid and
binding obligation, enforceable against the Company in accordance with
their respective terms, subject to laws of general application relating
to the rights of creditors generally.
14.3 Absence of Conflicts. Neither the execution and delivery of
the Transactions Documents or any other agreement or instrument to be
delivered to the Purchasers in connection therewith, nor the
consummation of the transactions contemplated thereby, by the Company,
shall (i) conflict with or result in a breach of or constitute a
violation or default under (A) any provision of the Articles of
Incorporation or By-laws, each as amended to date, or the Company, or
(B) the provision of any indenture, instrument or agreement to which the
Company is a party or by which it or any of its properties is bound, or
(C) any order, writ, judgment, award, injunction, decree, law, statute,
rule or regulation, license or permit applicable to the Company; (ii)
result in the creation or imposition of any lien pursuant to the terms
of any such indenture, instrument or agreement, or constitute a breach
of any fiduciary duty owned by the Company to any third party, or (iii)
require the approval of any third party pursuant to any material
contract, agreement, instrument, relationship or legal obligation to
which the Company is subject or to which it or any of its properties,
operations or management may be subject.
14.4 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock par value $.001 per share.
As of April 30, 1997, 5,177,855 shares of Common Stock were issued and
outstanding, 118,875 shares were held in the company's treasury, and
1,862,600 shares were reserved for issuance in connection with options
outstanding as shown on Schedule II, attached. All of the outstanding
shares of Common Stock are, and the Common Shares and the shares of
Common Stock to be issued to the Purchasers pursuant to exercise of the
New Options will be, when paid for and issued, duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive rights.
14.5 Financial Statements. The Company, the Company's annual
reports on Form 10-KSB for the fiscal years ended March 31, 1995 and
1996 (the "10-K's"), and its quarterly reports on Form 10-QSB for the
periods ended June 30, September 30, and December 31, 1995 and 1996 (the
"10-Qs"), and all 8-K's filed by the Company since March 31, 1995 (the
"8-K's) and its 1995 and 1996 Annual Proxy Statements, copies of which
have been filed with or furnished to the Securities and Exchange
Commission, were when filed or furnished, accurate in all material
respects and did not include any untrue statement of material fact or
omit to state material facts necessary to make the statements therein
not misleading. The financial statements included in the 10-K's and
the 10-Qs present fairly the financial position of the Company at such
dates and the results of its operations and cash flows for the periods
then ended, in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods covered by such
statements.
14.6 Litigation, Etc. Except as disclosed in the 10-K's and the
10-Q's and 8-K's, there are no suits, actions or legal, administrative,
arbitration or other proceedings or governmental investigations or other
controversies pending, or to the knowledge of the Company threatened, or
as to which the Company has received any notice, claim or assertion,
which involve a potential cost or liability to the Company which would
singly or in the aggregate, materially or adversely affect the financial
condition, results of operations, business or prospects of the company.
The Company is not in default with respect to any order, writ,
injunction or decree of any court or before any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign affecting or relating to
it which is material to the financial condition, results of operations
or business of the Company.
14.7 No Material Adverse Change. Since March 31, 1996, other
than as disclosed in 1996 10-Qs and 8-Ks, there has been no material
adverse change in the assets, business, prospects, operations or
financial condition of the Company.
14.8 Brokers and Finders. Neither the Company nor any person
acting on behalf of the Company has employed any broker, agent or
finder, or incurred any liability for any brokerage fees, agents'
commissions or finders' fees, in connection with the transactions
contemplated herein. The Company agrees to indemnify Purchasers against
any claim by any third person for any commission, brokerage fee, finders
fee, or other payment with respect to this Agreement or the transactions
contemplated hereby based upon any alleged agreement or understanding
between such party and such third person, whether expressed or implied,
arising from the actions of such party. The covenants set forth in this
Section 14.8 shall survive the Closing Date and the consummation of the
transactions contemplated by this Agreement.
14.9 Regulatory Compliance. To the best knowledge of the
Company, it has operated and is currently operating in compliance in all
material respects with all laws, rules, regulations, orders, decrees,
licenses or permits applicable to it or to its business. The Company
has not received any notice from the FDA or any other governmental
agency or authority of any noncompliance by the Company with any law,
rule, regulation, order, decree, license or permit applicable to it or
its business or properties.
14.10 Articles of Incorporation and By-laws. The Company has
delivered to the Purchasers copies of its Articles of Incorporation and
all amendments thereto, which copies are complete and correct. The
Company is not in default under or in violation of any provisions of its
Articles of Incorporation. The Company's Articles of Incorporation have
not been amended since the date of certification thereof and no action
has been taken for the purpose of effecting any amendment thereto. The
Company has delivered to the Purchasers copies of its By-laws and all
amendments thereto, which copies are complete and correct. The Company
is not in default under or in violation of any provision of its By-laws.
14.11 Product Liability. The Company has not received any notice,
claim or assertion regarding an actual or alleged liability of the
Company with respect to any of its products.
14.12 OEM Relationships. The Company has not received any notice,
claim or assertion from or with respect to any OEM counterparty of the
Company regarding intention of such OEM party to either discontinue its
relationship with the Company or develop or market products in
competition with the Company.
14.13 Patents and Proprietary Rights. The Company received FDA
market clearance for the argon laser in February 1996. The Company also
received formal notice of allowance for its initial patent application
concerning laser teeth whitening in April, 1997. The Company has no
reason to believe that any of its patents or proprietary rights
infringes upon or otherwise violates the patents or proprietary rights
of any other party. Except for the demand letter dated March 14, 1996
received from BioLase Technology, Inc. and an action filed in the
Circuit Court of Jefferson County, Alabama, against the Company, Dr.
David Yarborough and others by Jerry B. Black, the company has not
received any notice, claim or assertion that its patents or proprietary
rights infringe upon or otherwise violate the patents or proprietary
rights of any other party.
14.14 Unincorporated Documents or Materials. With respect to any
document or other materials received by the Purchasers from the Company
or its representatives which are incorporated herein by reference
pursuant to Section 9.9 hereof, (i) the Company has no reason to believe
any of such documents and materials or any projections contained therein
contain errors or misstatements or do not adequately describe the
transactions contemplated by this Agreement or the status of the
development of the Company's technology, and (ii) such documents,
materials and projections were prepared by the Company and its
management in good faith.
14.15 Information. To the best knowledge of the Company, the
information concerning the Company set forth in this Agreement is
complete and accurate in all material respects and does not contain any
untrue statement of a material fact or omit to state a material fact
required to make the statements made, in light of the circumstances
under which they were made, not misleading. The Company is not aware of
any facts or circumstances existing or any event which has had or which
reasonably could be expected to have in the future a material adverse
effect with respect to the financial condition, business, affairs or
prospects of the Company since the last day of its most recent fiscal
year which is not otherwise disclosed in the documents provided to
Purchasers hereunder.
14.16 Nature of Company. The Company is not an open ended
investment company or a unit investment trust, registered or required to
be registered, or a closed end investment company required to be
registered, but not registered, under the Investment Company Act of
1940.
15. Confidentiality. Purchasers acknowledge and agree that the
Company has provided them with certain information about the Company that is
proprietary and confidential in connection with the consummation of the
transactions contemplated by this Agreement (the "Confidential Information").
Purchasers covenant to preserve the confidentiality of the Confidential
Information and to use the Confidential Information only for the purpose of
determining to proceed with the transactions contemplated by this Agreement,
except that information (i) in the public domain without violation of any
confidentiality agreement, if known by the party receiving it before receipt,
or (ii) received from a third party without violation of a non-disclosure
obligation of that third party of the party delivering or disclosing
information shall not be considered Confidential Information subject to this
Section 15.
16. Nondisclosure. Except as required by applicable securities laws,
rules and regulations, prior to the Closing Date, no press release or other
announcement concerning the proposed transactions will be issued except by
mutual consent of the parties. This Agreement and all negotiations and
discussions between the parties in connection with this Agreement shall be
strictly confidential and will not be disclosed in any manner prior to the
Closing Date, except to employees and agents of the parties on a need-to-know
basis, as required by applicable law or regulations or as otherwise agreed by
the parties. After Closing, disclosure shall be at the sole discretion of the
Company.
17. Conditions to Closing. Closing of the transactions contemplated
by this Agreement shall be contingent upon the satisfaction of the following
conditions precedent:
17.1 Approvals, Waivers, Etc. ILT shall have delivered to
Purchasers evidence of all approvals of its board of directors,
government or third-parties which may be required for the sale of the
Purchased Securities, in full force and effect as of the Closing Date.
17.2 Securities Laws Filings. ILT shall have made or obtained
all federal, state or local government filings, permits and
authorizations (including without limitation federal and state
securities laws filings) necessary for the sale of the Purchased
Securities.
17.3 Opinions. The Company shall have delivered to the
Purchasers an opinion of counsel to the Company that any shares of
Common Stock of the Company issued since the Securities Purchase
Agreement dated April 1, 1996 were validly issued, fully paid and non-
assessable, that the Purchased Securities, when paid for and issued,
will be validly issued, fully paid and non-assessable, and that the
Transaction Documents have been duly authorized and constitute legal and
binding obligations of the Company enforceable according to their terms.
18. General Provisions.
18.1 Attorneys' Fees. In the event of a default in the
performance of this Agreement or any document or instrument executed in
connection with this Agreement, the defaulting party, in addition to all
other obligations of performance hereunder, shall pay reasonable
attorneys' fees and costs incurred by the non-defaulting party to
enforce performance of this Agreement.
18.2 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah, including
choice of law rules.
18.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so signed shall be deemed to be an
original, and such counterparts together shall constitute one and the
same instrument.
18.4 Entire Agreement. This Agreement, and the Exhibits,
Schedules and other attachments referred to herein (all of which are
incorporated in this Agreement by reference) collectively set forth the
entire agreement between the parties as to the subject matter hereof,
supersede any and all prior or contemporaneous agreements or
understandings of the parties relating to the subject matter of this
Agreement (including without limitation the letter agreement between the
Company and CAP Advisors Limited dated April 9, 1997), and may not be
amended except by an instrument in writing signed by all of the parties
to this Agreement.
18.5 Expenses. The parties shall be responsible for and shall
pay their own costs and expenses, including without limitation
attorneys' fees and accountants' fees and expenses, in connection with
the conduct of the due diligence inquiry, negotiation, execution and
delivery of this Agreement and the instruments, documents and agreements
executed in connection with this Agreement. Notwithstanding the
foregoing, the Company shall pay any stock transfer taxes payable in
connection with the issue and sale of the Purchased Securities to the
Purchasers.
18.6 Headings. The headings of the sections and paragraphs of
this Agreement have been inserted for convenience of reference only and
do not constitute a part of this Agreement.
18.7 Notices. All notices or other communications provided for
under this Agreement shall be in writing, and mailed, telecopied or
delivered by hand delivery or by overnight courier service, to the
parties at their respective addresses as indicated below or at such
other address as the parties may designate in writing:
(1) If to Purchaser, then to the address set forth in
Schedule I hereto.
(2) If to the Company:
Ion Laser Technology, Inc.
3828 South Main Street
Salt Lake City, Utah 84115
Fax: (801) 262-5770
With a copy to:
Jeffrey M. Jones, Esq.
DURHAM, EVANS, JONES & PINEGAR, P.C.
Key Bank Tower, Suite 850
50 South Main Street
Salt Lake City, Utah 84144
Fax: (801) 363-1835
All notices and communications shall be effective as follows: When
mailed, upon three (3) business days after deposit in the mail (postage
prepaid); when telecopied, upon confirmed transmission of the telecopied
notice; when hand delivered, upon delivery; and when sent by overnight
courier, the next business day after deposit of the notice with the
overnight courier.
18.8 Severability. Should any one or more of the provisions of
this Agreement be determined to be illegal or unenforceable, all other
provisions of this Agreement shall be given effect separately from the
provision or provisions determined to be illegal or unenforceable and
shall not be affected thereby.
18.9 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors, but
shall not be assignable by Purchasers without the prior written consent
of the Company.
18.10 Survival of Representations, Warranties and Covenants
Closing. All warranties, representations, indemnities and agreements
made in this Agreement by a party hereto shall survive the date of this
Agreement, the Closing Date, the consummation of the transactions
contemplated by this Agreement, and the issuance by the Company of the
Purchased Securities.
IN WITNESS WHEREOF, the party named below has caused this Agreement to
be executed, as of the date first above written.
LCO INVESTMENTS LIMITED
BY: /s/ Michael C. M. Young
- ----------------------------
NAME: Michael C. M. Young
TITLE: Director
DATE: May 8, 1997
/s/ Richard S. Braddock
- ----------------------------
RICHARD S. BRADDOCK
DATE: May 8, 1997
ACCEPTED AND AGREED:
ION LASER TECHNOLOGY, INC.
BY: /s/ E. Wyatt Cannady
- ----------------------------
NAME: E. Wyatt Cannady
TITLE: President and CEO
DATE: May 8, 1997
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") between Ion Laser
Technology, Inc., a Utah corporation (the "Company"), on the one hand, and LCO
Investments Limited, a company organized under the laws of Guernsey, Channel
Islands ("LCO"), and Richard S. Braddock ("Braddock"), on the other, is made
and entered into as of May 8, 1997. LCO and Braddock are referred to herein
individually as a "Holder" and collectively as the "Holders".
Recitals
A.The Company and the Holders have entered into that certain
Securities Purchase Agreement (the "Purchase Agreement") of even date with
this Agreement, pursuant to which the Holders have agreed to purchase and the
Company has agreed to sell shares of its Common Stock, par value $.001 per
share (the "Common Shares") and certain options to acquire Common Stock (the
"Options"), which Common Shares and the Common Stock issuable upon exercise of
the Options (collectively, "Registrable Securities") are restricted and not
registered under the Securities Act of 1933, as amended, (the "Act") or under
the provisions of any state securities law.
B.The Holders would not have agreed to execute the Purchase
Agreement or to consummate the transactions contemplated by the Purchase
Agreement unless the Company had agreed to enter into this Agreement.
Agreement
In consideration of the promises contained in this Agreement and in the
Purchase Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which the parties acknowledge by their signatures below,
the Company and the Holders agree as follows:
1.Piggyback Registrations. If at any time after 180 days from the
date of this Agreement the Company proposes to file a registration statement
covering proposed sales by it or any of its shareholders of shares of its
capital stock in a manner which would permit registration of shares of common
stock for sale to the public (other than a registration statement (i) covering
only shares issuable upon (a) the exercise of employee stock options or pur-
suant to an employee stock purchase, dividend reinvestment or similar plan, or
(b) the exercise of a convertible security other than the Options, or (ii)
under a Registration Statement filed on Form S-4 or S-8 or any similar form
under the Act or (iii) pursuant to Section 2, below), the Company will give
prompt notice to each Holder of such proposed registration (which notice shall
describe the proposed filing date and the date by which the registration
rights granted pursuant to this Section 1 must be exercised, the nature and
method of any such sale or disposition of securities and shall include a
listing of the jurisdictions, if any, in which the Company proposes to
register or qualify the securities under the applicable state securities or
"Blue Sky" laws of such jurisdictions). At the request of any Holder given
within thirty (30) calendar days after the receipt of such notice by Holder
(which request shall specify the number of shares such Holder requests to be
included in such registration), the Company will use its best efforts to cause
all shares as to which registration has been requested by such Holder to be
included in such registration statement for sale or disposition in accordance
with the method described in the initial notice given to such Holder and
subject to the same terms and conditions as the other shares of capital stock
being sold, and thereafter shall cause such registration statement to be filed
and become effective; provided, however, that the Company shall be permitted
to (A) withdraw the registration statement for any reason in its sole and
exclusive discretion and upon the written notice of such decision to the
Holders shall be relieved of all of its obligations under this Section 1 with
respect to that particular registration; or (B) exclude all or any portion of
the shares sought to be registered by the Holders from such registration
statement if the offering of the shares is an underwritten offering and to the
extent that, in the judgment of the managing underwriter of the offering, the
inclusion of such shares would be materially detrimental to the offering of
the remaining shares of capital stock, or such delay is necessary in light of
market conditions. Any shares sought to be registered by a Holder so excluded
from a registration statement shall be excluded pro rata based on the total
number of shares of capital stock being sold by all selling security holders
(other than the Company).
2. Demand Registration. If at any time after 180 days from the date
of this Agreement the Company shall be requested in writing by LCO (and LCO
then holds more than 50% of the total number of issued and outstanding
Registrable Securities at such time) to effect the registration under the Act
of shares of the Company's Common Stock then owned by Holders (which request
shall specify the aggregate number of shares intended to be offered and sold
by Holders, shall describe the nature or method of the proposed offer and sale
thereof and shall contain an undertaking by Holders to cooperate fully with
the Company in order to permit the Company to comply with all applicable
requirements of the Act and the rules and regulations thereunder and to obtain
acceleration of the effective date of the registration statement contemplated
thereby), the Company shall effect the registration of such securities on an
appropriate form under the Act, provided that:
2.1 LCO's rights under this Section 2 shall be exercisable only
if the shares as to which LCO requests registration have an aggregate value of
at least $3,000,000 based on the average of the closing bid price for the
Company's common stock as listed on the American Stock Exchange or any other
exchange on which the Company's common stock then may be traded for the thirty
(30) trading-day period immediately preceding the date of such request for
registration;
2.2 the Company's Board of Directors, with the advice of such
investment bankers or securities professionals as the Board shall deem
necessary, shall have determined in good faith that the cost of complying with
the request for registration under this Section 2 would not have a materially
adverse effect upon the Company, its operations or the market for the
Company's common stock, provided, however, that if the Company's Board of
Directors determines in good faith that the cost of complying with the request
for registration would have a material adverse effect upon the Company, its
operations or the market for the Company's common stock, the Company may
decline Holders' request to register Holders' Registrable Securities under the
Act, provided further, however, that in such event the Company may not
thereafter again decline LCO's request for registration based upon this
Section 2(ii) so long as such subsequent request is received by the Company
more than 120 days after LCO's request for registration which was declined
based upon this Section 2(ii);
2.3 LCO shall be entitled to only one demand registration
pursuant to this Agreement, provided, however that any request for
registration pursuant to this Section 2 which does not result in the
declaration of effectiveness of a registration statement (which effectiveness
is maintained continuously for at least 120 days or such shorter period ending
when all shares to which LCO has requested registration in accordance herewith
have been sold in accordance with such registration) covering the offer and
sale of shares owned by Holders and requested to be included in such
registration statement, whether as a result of the withdrawal of the
registration statement by the Company or through other action or inaction of
the Company or for any other reason except for the voluntary decision of
Holders to terminate the registration after the request for such registration
has been delivered to the Company, shall not be counted in determining the
number of times registration rights have been exercised pursuant to this
Section 2;
2.4 the Company shall be entitled to postpone the filing of any
registration statement otherwise required to be prepared and filed by it
pursuant to this Section 2, if at the time it receives a request for such
registration, the Company's underwriter determines that such registration and
offering would materially interfere with any existing or then presently
contemplated financing, acquisition, corporate reorganization or other
material transaction involving the Company, and the Company promptly gives LCO
written notice of such determination, provided, however, that such
postponement shall not extend beyond the time that such material interference
continues to exist; and
2.5 LCO shall have no right to demand registration with respect
to any shares within ninety (90) calendar days after the effective date of any
registration statement previously filed by the Company.
3. Registration Procedures. If and whenever this Agreement
contemplates that the Company will effect the registration under the Act of
any shares held by the Holders, the Company shall:
3.1 prepare and file with the Securities and Exchange Commission
(the "SEC") a registration statement on the appropriate form with respect to
such shares and use its best efforts to cause such registration statement to
become and remain effective as provided herein, provided that before filing
any amendments or supplements to a registration statement or prospectus,
including documents incorporated by reference after the initial filing of the
registration statement, the Company will furnish to the Holders and the
underwriters, if any, copies of all such documents proposed to be filed at
least two business days prior thereto, which documents will be subject to the
reasonable review of such Holders and underwriters, and the Company will not
file an amendment to a registration statement or prospectus or any supplement
thereto (including such documents incorporated by reference) to which Holders
holding a majority of the Registrable Securities covered by such registration
statement or the underwriters, if any, shall reasonably object;
3.2 prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith and to take such other action as may be necessary to keep
such registration statement effective until the earlier of (i) the completion
of the distribution of shares so registered, or (ii) expiration of the 120 day
period following immediately the effective date of such registration statement
(at which time unsold shares may be deregistered), and otherwise comply with
applicable provisions of the Act and the rules and regulations promulgated
under the Act;
3.3 furnish to Holders and their counsel, and to each
underwriter of the shares to be sold by the Holders, without charge, such
number of copies of one or more preliminary prospectuses, any supplements
thereto and a final prospectus and any supplements thereto in conformity with
the requirements of the Act, and such other documents as the Holders or such
underwriter may reasonably request, in order to facilitate the public sale or
other disposition of such shares;
3.4 if, during any period in which, in the opinion of the
Company's counsel, a prospectus relating to the shares is required to be
delivered under the Act in connection with any offer or sale contemplated by
any registration statement, any event known to the Company occurs as a result
of which the prospectus would include an untrue statement of material fact or
omit to state any material fact necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend or supplement the related prospectus
to comply with the Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or the respective rules and regulations thereunder, to notify
the Holders promptly and to prepare and file with the SEC an amendment or
supplement, whether by filing such documents pursuant to the Act or the
Exchange Act as may be necessary to correct such untrue statement or omission
or to make any registration statement or the related prospectus comply with
such requirements and to furnish to Holders and their counsel such amendment
or supplement to such registration statement or prospectus;
3.5 timely to file with the SEC (i) any amendment or supplement
to any registration statement or to any related prospectus that is required by
the Act or the Exchange Act or requested by the SEC, and (ii) all documents
(and any amendments to previously filed documents) required to be filed by the
Company pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange Act;
3.6 within five days of filing with the SEC of (i) any amendment
or supplement to any registration statement, (ii) any amendment or supplement
to the related prospectus, or (iii) any document incorporated by reference in
any of the foregoing or any amendment of or supplement to any such
incorporated document, to furnish a copy thereof to Holders;
3.7 to advise Holders and their counsel promptly (i) when any
post-effective amendment to any registration statement becomes effective and
when any further amendment of or supplement to the prospectus shall be filed
with the SEC, (ii) of any request or proposed request by the SEC for an
amendment or supplement to any registration statement, to the related
prospectus, to any document incorporated by reference in any of the foregoing
or for any additional information, (iii) of the issuance by the SEC of any
stop order suspending the effectiveness of any registration statement or any
order directed to the related prospectus or any document incorporated therein
by reference or the initiation or threat of any stop order proceeding or of
any challenge to the accuracy or adequacy of any document incorporated by
reference in such prospectus, (iv) of receipt by the Company of any
notification with respect to the suspension of the qualification of the shares
for sale in any jurisdiction or the initiation or threat of any proceeding for
such purpose, and (v) of the happening of any event which makes untrue any
statement of a material fact made in any registration statement or the related
prospectus as amended or supplemented or which requires the making of a change
in such registration statement or such prospectus as amended or supplemented
in order to make any material statement therein not misleading;
3.8 on or before the date a registration statement is declared
effective, use its best efforts to register or qualify the shares covered by
such registration statement under the securities or blue sky laws of such
jurisdictions as the Holders shall reasonably request, considering the nature
and size of the offering, and do such other acts and things as may be
reasonably necessary to enable the Holders to consummate the public sale or
other disposition in each such jurisdiction of such shares; provided, however,
that the Company shall not be obligated to qualify as a foreign corporation to
do business under the laws of any jurisdiction in which it has not been
qualified, or to file any general consent to service of process;
3.9 use its best efforts to cause all shares sold pursuant to
any registration statement to be listed on each national securities exchange,
if any, on which such shares are then listed;
3.10enter into customary agreements (including, if applicable,
an underwriting agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the disposition of
such Registrable Securities;
3.11make reasonably available for inspection by any Holders, any
underwriter participating in any disposition pursuant to the registration
statement, and any attorney, accountant or other agent retained by any such
Holder or underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents and properties of
the Company (collectively, the "Records") as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
registration statement. Records and other information which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records, in the opinion of counsel reasonably
acceptable to the Company, is necessary to avoid or correct a misstatement or
omission in the registration statement, or (ii) the release of such records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction. The Holders agree that they will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential;
3.12use its best efforts to obtain a "cold comfort" letter from
the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by "cold comfort" letters as the
Holders holding a majority of the Registrable Securities being sold, or the
managing underwriter, reasonably request;
3.13use its best efforts to obtain an opinion or opinions from
counsel for the Company in customary form;
3.14make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the registration statement at the
earliest possible moment; and
3.15cooperate with the Holders and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing securities to
be sold under the registration statement, and enable such securities to be in
such denominations and registered in such names as the managing underwriter or
underwriters, if any, or such Selling Holders may request.
4.Agreements of Holders. Holders (i) upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Subsection
3.4 shall forthwith discontinue Holders' disposition of securities included in
the registration statement until Holders receive copies of the supplemented or
amended prospectus, and (ii) if so directed by the Company, shall deliver to
the Company, at the Company's expense, all copies (other than permanent file
copies) then in Holders' possession of the prospectus covering such securities
that was in effect at the time of receipt of such notice.
5.Withdrawal. If Holders disapprove of the terms of any offering,
the sole remedy of Holders shall be to withdraw Holders' securities therefrom
by giving written notice to the Company and any managing underwriter (if any).
Holders' securities of the Company so withdrawn from the offering also shall
be withdrawn from registration.
6.Participation in Underwritten Registrations. In the case of any
registration under Section 2, if Holders or the Company determine to enter
into an underwriting agreement in connection therewith, or in the case of a
registration under Section 1, if the Company determines to enter into an
underwriting agreement in connection therewith, (i) all shares of Holders'
securities to be included in such registration shall be subject to an
underwriting agreement, which shall be in customary form and contain such
terms as are customarily contained in such agreements, and (ii) no person may
participate in any such registration unless such person (A) agrees to sell
such person's securities on the basis provided in such underwriting
arrangement, and (B) completes and executes all questionnaires, powers-of-
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
7. Registration Expenses. With respect to each registration effected
pursuant to Section 1 and to the first such registration under Section 2 of
this Agreement, the Company shall pay the following fees, disbursements and
expenses: all registration and filing fees, printing expenses, auditors'
fees, listing fees, registrar and transfer agent's fees, fees and
disbursements of counsel to the Company, reasonable fees and disbursements of
not more than one counsel to Holders in the case of the first such
registration under Section 2 of this Agreement, expenses (including reasonable
fees and disbursements of counsel) of complying with applicable securities or
"Blue Sky" laws, and the fees of any securities exchange in connection with
the review of such offering. The underwriting discounts and commissions
allocable to the shares included in any offering shall be borne by the
Holders' thereof.
8. Indemnification.
8.1 In each case of a registration of shares under the
Securities Act pursuant to this Agreement, the Company will indemnify and hold
harmless the Holders, their officers and directors, each underwriter (as
defined in the Act), and each other person, if any, who controls any of the
Holders or any such underwriter within the meaning of the Act or the Exchange
Act, from and against any and all losses, claims, damages and liabilities
(including the fees and expenses of counsel in connection therewith), arising
out of any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such shares were
registered under the Act, any prospectus or preliminary prospectus contained
therein, or any amendment or supplement thereto (including, in each case,
documents incorporated by reference therein), or arising out of any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements made therein not misleading,
except insofar as such losses, claims, damages or liabilities arise out of any
such untrue statement or omission or alleged untrue statement or omission
based upon information relating to any of the Holders, Holders' counsel, or
any underwriter, and furnished to the Company in writing by any of the Holders
or such counsel or underwriter; provided that the foregoing indemnification
with respect to a preliminary prospectus shall not inure to the benefit of any
underwriter (or the benefit of any person controlling such underwriter) from
whom the person asserting any such losses, claims, damages or liabilities
purchased shares to the extent such losses, claims, damages or liabilities
result from the fact that a copy of the final prospectus had not been sent or
given to such person at or prior to written confirmation of the sale of such
shares to such person.
8.2 In each case of a registration of shares under the Act
pursuant to this Agreement, Holders will indemnify and hold harmless the
Company, its directors, its officers who sign the registration statement, its
attorneys, each underwriter and each person, if any, who controls the Company
or such underwriter within the meaning of the Act or the Exchange Act, to the
same extent as the foregoing indemnity from the Company to the Holders, but
only with reference to information provided to the Company in writing by the
Holders and furnished to the Company by the Holders expressly for use in the
registration statement, any publicly available report of the Holders published
within the time frame of the registration statement, any prospectus or
preliminary prospectus contained therein, or any amendment or supplement
thereto.
8.3 In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"Indemnified Party") shall promptly notify the person against whom such
indemnity may be sought (the "Indemnifying Party") in writing and the
Indemnifying Party, upon request of the Indemnified Party, shall retain
counsel reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party and any others the Indemnifying Party may designate in such
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any Indemnified Party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party has agreed to the retention of such counsel at its expense, or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnifying Party and the Indemnified Party, the Indemnifying Party
proposes that the same counsel represent both the Indemnified Party and the
Indemnifying Party and representation of both parties by the counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood, where the expense of separate counsel shall be borne by the
Indemnifying Party pursuant to the foregoing sentence, that the Indemnifying
Party shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one
separate firm qualified in such jurisdiction to act as counsel for such
Indemnified Party. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff,
the Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment.
8.4 The indemnification pursuant to this Section 8 shall be on
such other terms and conditions as are at the time customary and reasonably
required by underwriters in public offerings, including providing for
contribution in the event indemnification provided in this Section 8 is
unavailable or insufficient.
9. Holdback Agreement. Holders agree not to effect any public sale
or distribution of the Company's shares of capital stock during the seven (7)
calendar days prior to and the ninety (90) calendar day period beginning on
the effective date of any underwritten registration statement effected
pursuant to this Agreement (except as part of such underwritten registration)
unless the managing underwriter or underwriters with respect to such offering
otherwise agree.
10. Selection of Underwriters. The Company will have the right to
select the investment banking firm(s) acting as managing underwriter in
connection with any underwritten public offering; provided, that in the event
the offering is pursuant to a demand registration hereunder, Holders of a
majority of the issued and outstanding shares of Common Stock held by all
Holders at such time shall have the sole rights to select such managing
underwriter.
11.Survival. The indemnification provisions of Section 8 shall not
terminate and shall survive forever.
12.Rule 144.The Company agrees that it will use its best efforts
to file in a timely manner all reports required to be filed by it pursuant to
the Exchange Act and, at any time and upon request of the Holders, will
furnish such Holders and others with such information as may be necessary to
enable the Holders to effect sales of Registrable Securities without
registration pursuant to Rule 144 under the Act.
13. General.
13.1 Assignment. Except in connection with the transfer by a
Holder of not less than 30,000 shares of Common Stock or Options to Purchase
30,000 shares of Common Stock, such Holders' rights under this Agreement shall
not be transferable without the written consent of the Company. Any attempted
assignment or other transfer of this Agreement in contravention of this
Section 13.1 shall be null and void.
13.2Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so signed shall be deemed to be an original,
and such counterparts together shall constitute one and the same instrument.
13.3 Entire Agreement. This Agreement sets forth the entire
agreement between the parties as to the subject matter hereof, supersedes any
and all prior or contemporaneous agreements or understandings of the parties
relating to the subject matter of this Agreement, and may not be amended
except by an instrument in writing signed by all of the parties to this
Agreement.
13.4 Governing Law. The laws of the State of Utah (without
giving effect to the choice of law provisions thereof) shall govern the
interpretation and enforcement of this Agreement.
13.5Headings. The headings of the sections and paragraphs of
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
13.6Notices. All notices or other communications provided for
under this Agreement shall be in writing, and mailed, telecopied or delivered
by hand delivery or by overnight courier service, to the parties at their
respective addresses as indicated below or at such other address as the
parties may designate in writing:
If to LCO:
LCO Investments Limited
Canada Court
Upland Road, St. Peter Port
Guernsey, Channel Islands
If to Braddock:
10 Gracie Square
New York, NY 10028
In each instance with a copy to:
Richard & O'Neil, LLP
885 Third Avenue
New York, NY 10022
Attn: Craigh Leonard, Esq.
If to the Company:
Ion Laser Technology, Inc.
3828 South Main Street
Salt Lake City, Utah 84115
Attn: Wyatt Cannady, President and CEO
With a copy to:
Durham, Evans, Jones & Pinegar
50 South Main, Suite 850
Salt Lake City, Utah 84144
Attn: Jeffrey M. Jones, Esq.
All notices and communications shall be effective as follows: When mailed,
upon three (3) business days after deposit in the mail (postage prepaid); when
telecopied, upon confirmed transmission of the telecopied notice; when hand
delivered, upon delivery; and when sent by overnight courier, the next
business day after deposit of the notice with the overnight courier.
13.7 Remedies. Any person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
DATED: May 8, 1997.
ION LASER TECHNOLOGY, INC., a Utah corporation
By: /s/ E. Wyatt Cannady
----------------------------
E. Wyatt Cannady, President and CEO
LCO INVESTMENTS LIMITED
By /s/ Michael C. M. Young
----------------------------
Michael C. M. Young
Its Director
/s/ Richard S. Braddock
----------------------------
Richard S. Braddock
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