<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1997
REGISTRATION NO. 333-32983
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
FARO TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
FLORIDA 3829 59-3157093
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
125 TECHNOLOGY PARK
LAKE MARY, FLORIDA 32746
(407) 333-9911
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
GREGORY A. FRASER, PH.D.
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FARO TECHNOLOGIES, INC.
125 TECHNOLOGY PARK
LAKE MARY, FLORIDA 32746
(407) 333-9911
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
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<S> <C>
MARTIN A. TRABER, ESQ. JEFFREY M. STEIN, ESQ.
RUSSELL T. ALBA, ESQ. KING & SPALDING
FOLEY & LARDNER 191 PEACHTREE STREET, N.E.
100 NORTH TAMPA STREET, SUITE 2700 ATLANTA, GEORGIA 30303-1763
TAMPA, FLORIDA 33602 (404) 572-4600
(813) 229-2300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value... 2,645,000 shares $12.00 $31,740,000 $9,618(3)
========================================================================================================================
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(1) Includes 345,000 shares of Common Stock that would be purchased upon
exercise of an over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Section 6(b) and Rule 457(o) of the Securities Act of 1933.
(3) Previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 26, 1997
2,300,000 SHARES
[FARO LOGO]
COMMON STOCK
------------------------
Of the 2,300,000 shares of Common Stock offered hereby, 1,700,000 shares
are being issued and sold by FARO Technologies, Inc. (the "Company") and 600,000
shares are being sold by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any proceeds from the sale of Common Stock by the Selling Shareholders.
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price of the
Common Stock will be between $10.00 and $12.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.
The Company has applied to have the Common Stock quoted on the Nasdaq Stock
Market's National Market under the symbol "FARO."
------------------------
SEE "RISK FACTORS" ON PAGES 6 THROUGH 11 FOR CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share.................... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------
Total(3)..................... $ $ $ $
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</TABLE>
(1) Excludes additional compensation to be received by the Representatives of
the Underwriters in the form of warrants. The Company and the Selling
Shareholders have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting expenses, estimated at $500,000, payable by the Company.
(3) The Selling Shareholders have granted the Underwriters a 30-day option to
purchase up to 345,000 additional shares of Common Stock on the same terms
and conditions as the securities offered hereby solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
other conditions including the right of the Underwriters to withdraw, cancel,
modify or reject any order in whole or in part. It is expected that delivery of
the shares will be made on or about , 1997, at the office of Raymond
James & Associates, Inc., St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC. HANIFEN, IMHOFF INC.
The date of this Prospectus is , 1997.
<PAGE> 3
The following six photographs appear here:
1. Individual using a FAROArm to measure a jet aircraft engine.
2. Individuals using a FAROArm to measure an automobile body during the
manufacturing process.
3. Individual using a FAROArm to measure an automobile subcomponent during
the manufacturing process.
4. Individual using a FAROArm to measure a contoured surface.
5. All six models of the FAROArm manufactured by the Company, including
three different sizes of the Bronze Series FAROArm and three different sizes of
the Silver Series FAROArm.
6. Close-up of a Silver Series FAROArm.
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT AND STABILIZING TRANSACTIONS, THE PURCHASE OF
SUCH SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus (i) has been adjusted to reflect a 1 for
1.422272107 reverse split of the issued and outstanding shares of Common Stock
effective at June 30, 1997, and (ii) assumes no exercise of the Underwriters'
over-allotment option. Investors should carefully consider the information set
forth under the heading "Risk Factors." As used herein, the terms "FARO" and the
"Company" refer to FARO Technologies, Inc. and its subsidiaries, except where
the context indicates otherwise.
THE COMPANY
FARO Technologies, Inc. ("FARO" or the "Company") designs, develops,
markets and supports portable, software-driven, three-dimensional ("3-D")
measurement systems that are used in a broad range of manufacturing and
industrial applications. The Company's principal products are the FAROArm(R)
articulated measuring device and its companion AnthroCam(R) software. Together,
these products integrate the measurement and quality inspection function with
computer-aided design ("CAD"), computer-aided manufacturing ("CAM") and
computer-aided engineering ("CAE") technology to improve productivity, enhance
product quality and decrease rework and scrap in the manufacturing process. The
Company's products bring precision measurement, quality inspection and
specification conformance capabilities, integrated with leading CAD software, to
the factory floor. The Company is a pioneer in the development and marketing of
3-D measurement technology for manufacturing and industrial applications and
currently holds or has pending 17 patents in the United States, ten of which
also are held or pending in other jurisdictions. The Company's products have
been purchased by more than 600 customers worldwide, ranging from small machine
shops to such large manufacturing and industrial companies as General Motors,
Chrysler, Ford, Boeing, Lockheed Martin, General Electric, Westinghouse
Electric, Caterpillar and Komatsu Dresser.
The processes of product design and manufacturing have evolved rapidly
during the past decade through the adoption of 3-D software and CAD/CAM
technology. This evolution has been driven by increasing global and competitive
pressures for shorter product cycles, greater customization and higher quality
and lower cost products. Despite such technological advances in design and
manufacturing, the measurement and quality inspection function of the
manufacturing process generally remains limited to manual, analog technology or
traditional, fixed-based coordinate measurement machines ("CMMs") that are
largely restricted to a metrology laboratory and often lengthen the
manufacturing process. These global and competitive pressures have created a
significant demand for measurement systems that bridge the gap between the
virtual 3-D world of the CAD process and the physical 3-D world of the factory
floor. The Company believes that the FAROArm(R) and AnthroCam(R) provide that
bridge by integrating CAD/CAM technology into a manufacturer's design,
production and measurement and quality inspection processes, serving a much
broader range of the manufacturing process than traditional measurement tools.
The FAROArm(R) is a portable, six-axis, instrumented, articulated device
that approximates the range of motion and dexterity of the human arm.
AnthroCam(R) is the Company's proprietary companion software for the FAROArm(R).
This CAD-based measurement software provides an interface between the FAROArm(R)
and CAD technology for design, manufacturing and measurement and quality
inspection applications. The Company's products provide its customers an
affordable way to integrate CAD technology throughout the manufacturing process.
These products are based on an open architecture and are designed to be used by
shop personnel with minimal prior computer or CAD experience and to be operated
in the often harsh environments typical of manufacturing facilities.
The Company's objective is to enhance its position as a leading provider of
portable, software-driven, 3-D measurement systems. To achieve this objective,
the Company has adopted the following principal strategies: (i) focus on the
portable 3-D measurement market; (ii) increase sales force and distribution;
(iii) further penetrate its installed customer base; (iv) increase international
sales; (v) leverage its technology; and (vi) expand its product line and service
offerings.
3
<PAGE> 5
As a result of the implementation of the Company's strategies, total sales
have increased from $4.5 million in 1994 to $14.7 million in 1996 and $10.3
million for the first six months of 1997. The Company's operating results have
improved from an operating loss of $247,000 in 1994 to operating income of $2.7
million in 1996 and $2.1 million for the first six months of 1997.
The Company commenced operations in Canada in 1982 and reincorporated in
Florida in 1992. The Company's executive offices and principal operating
facilities are located at 125 Technology Park, Lake Mary, Florida 32746 and its
telephone number is (407) 333-9911.
THE OFFERING
Common Stock offered by the Company........... 1,700,000 shares
Common Stock offered by the Selling
Shareholders.................................. 600,000 shares
Common Stock to be outstanding after the
Offering...................................... 8,700,000 shares(1)
Use of Proceeds............................... Repayment of indebtedness,
capital expenditures, working
capital and general corporate
purposes, including possible
acquisitions. See "Use of
Proceeds."
Nasdaq National Market Symbol................. FARO
- ---------------
(1) Excludes 383,513 shares of Common Stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $1.53 per
share.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
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<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................. $4,508,837 $9,862,242 $14,656,337 $6,460,113 $10,318,535
Cost of sales..................... 2,222,085 4,987,779 6,486,268 2,744,994 4,188,280
---------- ---------- ----------- ---------- -----------
Gross profit...................... 2,286,752 4,874,463 8,170,069 3,715,119 6,130,255
Operating expenses:
Selling......................... 1,569,014 2,008,301 3,731,762 1,653,693 2,512,066
General and administrative...... 521,040 503,184 744,206 349,645 622,092
Depreciation and amortization... 270,615 341,494 230,799 125,388 124,646
Research and development........ 173,400 363,871 730,124 236,539 394,839
Employee stock options(1)....... -- 106,700 23,100 11,550 364,146
---------- ---------- ----------- ---------- -----------
Total operating
expenses.............. 2,534,069 3,323,550 5,459,991 2,376,815 4,017,789
---------- ---------- ----------- ---------- -----------
Income (loss) from operations..... (247,317) 1,550,913 2,710,078 1,338,304 2,112,466
Other income...................... 11,706 62,212 25,145 7,814 46,067
Interest expense.................. (192,543) (355,468) (212,669) (122,806) (65,853)
---------- ---------- ----------- ---------- -----------
Income (loss) before income
taxes........................ (428,154) 1,257,657 2,522,554 1,223,312 2,092,680
Income tax expense (benefit)...... -- (342,000) 1,115,892 541,152 837,072
---------- ---------- ----------- ---------- -----------
Net income (loss)....... $ (428,154) $1,599,657 $ 1,406,662 $ 682,160 $ 1,255,608
========== ========== =========== ========== ===========
Net income (loss) per common share
and common equivalent share..... $ (0.06) $ 0.22(2) $ 0.19 $ 0.09 $ 0.17
Weighted average common shares and
common equivalent shares(3)..... 7,149,690 7,166,740 7,349,042 7,354,292 7,333,290
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
-------------------------
AS
ACTUAL ADJUSTED(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 4,976,323 $21,033,554
Total assets................................................ 10,558,549 25,949,113
Total debt.................................................. 1,500,436 --
Total shareholders' equity.................................. 5,349,468 22,240,468
</TABLE>
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(1) Reflects compensation expense incurred upon the vesting of options having an
exercise price less than the fair market value of the Common Stock on the
date of grant. The weighted average exercise price of such vested options is
$0.36 per share.
(2) Includes a benefit of $0.11 per share resulting from a reduction in the
deferred tax asset valuation allowance.
(3) Includes 7,000,000 common shares outstanding in each period plus the effect
of stock options granted, using the Treasury Stock Method, assuming an
initial public offering price of $11.00 per share. See Notes 1 and 12 to the
Consolidated Financial Statements.
(4) Adjusted to give effect to the sale of 1,700,000 shares of Common Stock
offered by the Company hereby (assuming an initial public offering price of
$11.00 per share) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
An investment in the shares offered hereby involves a high degree of risk,
including the risks described below. Prospective investors should carefully
consider the following risk factors together with the other information
contained in this Prospectus before purchasing the shares offered hereby.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have varied in the past and may
vary significantly in the future depending on many factors including, among
others, the size, timing and recognition of revenue from significant orders;
increases in operating expenses required for product development and new product
marketing; the timing and market acceptance of new products and product
enhancements; customer order deferrals in anticipation of new products and
product enhancements; the Company's success in expanding its sales and marketing
programs; and general economic conditions. Further, the Company's operating
results have been, and are expected to continue to be, highly sensitive to the
length of the Company's sales cycle, from initial contact through product
shipment. Moreover, the Company has historically incurred higher expenses
relating to marketing and production in the first and second quarters of each
year. Based upon all of the foregoing factors, the Company believes that its
quarterly revenue, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its results of
operations may not be meaningful and that, in any event, such comparisons should
not be relied upon as indications of future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."
EMERGING MARKET; DEPENDENCE ON A SINGLE PRODUCT LINE
The products from which the Company derives substantially all of its
revenues were introduced in 1993, and the Company's future performance will
depend on market acceptance of these products. The measurement industry is
currently dominated by manufacturers of hand-measurement tools and traditional,
fixed-base coordinate measurement machines ("CMMs"). As a result, the Company's
focus on a new measurement technology requires its customers to reevaluate their
historical measurement procedures and methodologies. There can be no assurance
that the Company's products will attain broad market acceptance. The inability
of the Company's products to attain broad market acceptance would have a
material adverse effect on the Company's results of operations and financial
condition.
The Company has developed and marketed two closely interdependent products
(the FAROArm(R) and AnthroCam(R)) for use in the 3-D measurement field.
Substantially all of the Company's revenues are currently derived from sales of
these products, and the Company plans to continue its business strategy of
focusing on the portable, software-driven, 3-D measurement market for the
foreseeable future. Consequently, the Company's financial performance will
depend on continued market acceptance of these products and, to a lesser extent,
on the Company's introduction and market acceptance of related products. If the
Company's products are not widely accepted in the 3-D measurement field, the
Company will have reduced sales and will be required to make increased
expenditures on research and development for new applications in other fields or
new products. There can be no assurance that such efforts to develop new
products or diversify the Company's products into other fields would be
successful. Management believes that continued market acceptance of the
Company's products will depend largely on the Company's ability to enhance and
broaden its product line. Additionally, other factors adversely affecting sales
of the Company's products, such as delays in development, significant hardware
or software flaws, incompatibility with significant software or negative
evaluation of the Company's products, could have a material adverse effect on
the Company's results of operations and financial condition. See
"Business -- The FARO Strategy" and "Business -- FARO Products."
COMPETITION
The broad market for measurement devices for manufacturing and industrial
applications, which consists primarily of hand-measurement tools and CMMs, is
highly competitive. Manufacturers of hand-measurement
6
<PAGE> 8
tools and CMMs include a significant number of well-established companies that
are substantially larger and possess substantially greater financial, technical
and marketing resources than the Company. The Company's products compete on the
basis of portability, accuracy, application features, ease-of-use, quality,
price and technical support. These entities or others may develop products or
technologies that will directly compete with those of the Company. Furthermore,
there can be no assurance that the Company will have sufficient resources to
make additional investments in such products and technologies or that the
Company's product development efforts will allow the Company to compete
successfully as the industry evolves.
Based on its sales, its research and development activities and its
experience in the industry, the Company believes there is a worldwide trend
toward CAD-based factory-floor metrology, which has resulted in the introduction
of CAD-based inspection software for conventional CMMs by most of the large CMM
manufacturers. Certain CMM manufacturers also are miniaturizing, and in some
cases increasing the mobility of, their conventional CMMs. There can be no
assurance that CMM manufacturers will not alter their products to provide
functions which are competitive with those of the Company's products.
The Company also competes with a number of smaller companies that market
articulated arm measuring devices. There can be no assurance that such companies
will not devote additional resources to the development and marketing of
products that compete with those of the Company. See "Business -- Competition."
UNCERTAINTY OF PATENTS; DEPENDENCE ON PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company's success will depend in large part on the Company's ability to
obtain patent protection with respect to its products and processes, defend
patents once obtained, maintain trade secrets and operate without infringing
upon the patents and proprietary rights of others and obtain appropriate
licenses to patents or proprietary rights held by third parties, both in the
United States and in foreign countries.
There can be no assurance that the Company will develop or obtain the
rights to products or processes that are patentable, that patents will issue
from any of the pending applications or that claims allowed will be sufficient
to protect the technology licensed to the Company. In addition, no assurance can
be given that any patents issued to or licensed by the Company will not be
challenged, invalidated, infringed or circumvented, or that the rights granted
thereunder will provide competitive advantages to the Company.
The Company may be required to obtain licenses with respect to certain
technology for which it does not have patents or to develop or obtain
alternative technology. There can be no assurance that the Company will be able
to obtain any such license on acceptable terms or at all. If such licenses are
not obtained, the Company could be delayed in or prevented from pursuing the
development or commercialization of its products, which would have a material
adverse effect on the Company.
Litigation may also be necessary to enforce any patents to which the
Company has rights or to determine the scope, validity and enforceability of
other parties' proprietary rights, which may affect the Company's products or
processes. An adverse outcome in any patent litigation or interference
proceeding could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require
the Company to cease using such technology, any of which could have a material
adverse effect on the Company.
The Company also relies on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants and others. There can be
no assurance that these agreements will not be breached or terminated, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently discovered by
competitors. The Company relies on certain technologies to which it does not
have exclusive rights or which may not be patentable or proprietary and thus may
be available to competitors.
The Company has 17 patent applications and patents in the United States,
ten of which have been filed in foreign countries. The Company also has 16
registered trademarks in the United States and 12 trademark applications pending
in the United States and the European Union. The laws of some foreign countries
may not protect the Company's proprietary rights to the same extent as do the
laws of the United States.
7
<PAGE> 9
The Company is aware of certain risks involving certain patent rights of
the Company. Kosaka Laboratory, Ltd. ("Kosaka") has notified the Company that
the Company by virtue of its "Leap Frog" technology used in the FAROArm is
infringing U.S. Pat. No. 4,430,796 to Kosaka. The Company believes it has
identified prior art which it believes supports the Company's use of the
technology.
The Company is aware that three companies have been or are infringing the
claims on the Company's U.S. Pat. Nos. 5,251,127 and 5,305,203, which are
directed to the medical field, an area in which the Company is no longer active.
The Company has granted nonexclusive license agreements to two companies which
provide for minimum annual royalty payments, one of which obligates the Company
to enforce the patents against infringers if the sales of products amount to
more than $5,000,000. The Company is currently in negotiations with two other
companies which it believes are infringing the '127 and '203 patents. If a
license agreement with either party is not executed, the Company would be
obligated to enforce the patents or compromise the existing license agreements.
A German competitor previously sold a CMM similar to the FAROArm that is
covered by a German form of limited patent protection and is also covered by one
or more claims of a pending German utility patent application which covers the
basic CMM technology of the Company. As a result, the German company redesigned
its arm to avoid infringement. However, the Company's patent rights in Germany
could be challenged in court and could be opposed following publication. Either
event could narrow the scope of patent protection in Germany which would have a
material adverse effect on the Company.
TECHNOLOGICAL CHANGE
The market for the Company's products has only recently emerged and is
characterized by rapid technological change. Any technology in the measurement
industry, including the Company's technology, may be rendered obsolete or
non-competitive by future discoveries and developments. As a result, the
Company's growth and future financial performance depends upon its ability to
introduce new products and enhance existing products that accommodate the latest
technological advances and customer requirements. There can be no assurance that
any such products will be successfully introduced or will achieve market
acceptance. In addition, the Company believes that a substantial amount of
capital will be required for future research and development. Any failure by the
Company to anticipate or respond adequately to changes in technology and
customer preferences, or any significant delays in product development or
introductions, could have a material adverse effect on its results of operations
and financial condition. There can be no assurance that technological
developments will not render actual and proposed products or technologies of the
Company uneconomical or obsolete.
DEPENDENCE ON KEY PERSONNEL
The development of new products, enhancements to existing products, and the
success of the Company are largely dependent upon the efforts, direction and
guidance of Simon Raab and Gregory A. Fraser, the Company's founders. The
Company's continued growth and success also depends in part on its ability to
attract and retain qualified managers and on the ability of its executive
officers and key employees to manage its operations successfully. The loss of
any of the Company's senior management or key personnel, particularly Messrs.
Raab or Fraser, or its inability to attract and retain key management personnel
in the future, could have a material adverse effect on the Company's results of
operations and financial condition. The Company currently carries key man life
insurance policies on Messrs. Raab and Fraser in the amount of $3.0 million
each. See "Management."
MANAGEMENT OF GROWTH
The Company has grown rapidly in recent years, with sales increasing from
$4.5 million in 1994 to $14.7 million in 1996, and this growth has from time to
time placed burdens on the Company's managerial resources and systems. As part
of its business strategy, the Company intends to continue pursuing rapid growth,
which is likely to place substantial demands on the Company's financial,
managerial, operational and other resources. Effective management of growth will
require the addition and training of personnel throughout the Company,
8
<PAGE> 10
expanded customer services and support, expanded operational, financial and
management information systems and the implementation of additional control
procedures, including those related to the Company's international operations.
There can be no assurance that the Company will be able to maintain its recent
rate of revenue growth, continue its profitable operations or manage future
growth successfully. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
INTERNATIONAL OPERATIONS
In 1995, 1996 and the first six months of 1997, international sales
accounted for $2.1 million, $3.8 million and $2.7 million, or 21.6%, 26.1% and
26.0%, respectively, of the Company's total sales. The Company anticipates that
international sales will account for an increasing portion of the Company's
total sales. The Company's international business is subject to special risks,
including fluctuating exchange rates, uncertainties in patent enforcement or the
protection of other proprietary rights, changes in import and export controls
and changes in tax policies, trade policies, tariffs, product safety and other
regulatory requirements, in addition to currency controls and political and
economic risks. A portion of the Company's sales is in foreign currencies and
changes in the value of these foreign currencies relative to the United States
dollar could affect the Company's results of operations and financial position,
and gains and losses on translation to United States dollars could contribute to
fluctuations in the Company's results of operations. Although the Company has
not historically engaged in any hedging transactions to limit risks of currency
fluctuations, it intends to do so in the future. There can be no assurance that
engaging in hedging transactions would materially reduce the effects of
fluctuations in foreign currency exchange rates on the Company's results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
DEPENDENCE ON KEY SUPPLIERS
The Company purchases the major component parts for the FAROArm(R) from
third parties and conducts final assembly, customization and inspection of the
FAROArm(R) at its manufacturing facility. Although there is more than one
potential supplier of each of these components, the Company currently relies on
single sources of supply for several components. Accordingly, the Company is
vulnerable to the possible business interruption of its suppliers, and the
Company could experience temporary delays or interruptions while alternative
sources of supply are secured. Any such delays or interruptions could have a
material adverse effect on the Company's results of operations and financial
condition.
In particular, the Company currently purchases the vast majority of the
transducers used in certain models of the FAROArm(R) from a single supplier
located in Europe. Although there are a number of alternative suppliers for this
class of transducers, switching to these suppliers could result in temporary
delays or interruptions. While the Company maintains supplies of such
transducers for at least several months in its inventories, any reductions or
interruptions in supply, or material increases in the price of these components,
could cause the Company to suffer disruptions in the operation of its business
or to incur higher costs, which could have a material adverse effect on the
Company's results of operations and financial condition.
CYCLICALITY OF END USER MARKETS
A significant portion of the Company's sales are to manufacturers in the
automotive, aerospace and heavy equipment industries. Each of these industries
experiences cyclicality and may be adversely affected during recessionary
periods. The cyclical nature of these industries may exert significant influence
on the Company's revenues and results of operations. The volume of orders for
and prices of the Company's products are likely to be adversely impacted by
decreases in capital spending by a significant portion of its end users during
recessionary periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
DEPENDENCE ON KEY CUSTOMERS
Sales to the Company's ten largest customers represented an aggregate of
28.1% and 17.5% of the Company's sales in 1996 and the first six months of 1997,
respectively. Sales to Boeing represented 10.0% of the Company's sales in 1996.
No customer represented 10.0% or more of the Company's sales in the first six
9
<PAGE> 11
months of 1997. The Company does not maintain long-term purchase agreements with
any of its customers, all of which may unilaterally reduce or discontinue their
purchases of the Company's products. The Company's loss of, or the failure to
continue to make additional sales to, any of its key customers could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business -- Customers."
WARRANTY LIABILITY AND MAINTENANCE CONTRACTS
The Company provides an initial one-year basic warranty, without additional
charge, on all its products. Historically, warranty costs associated with
providing the basic warranty have not been material. Additionally, the Company
currently offers its customers one, two and three year extended maintenance
contracts for its products. The Company recognizes the revenue from these sales
ratably over the contract term and recognizes the cost of claims as incurred.
While the Company's deferred revenues have been sufficient to cover the expenses
of such claims, there can be no assurance that such deferred revenues will be
adequate in the future. The occurrence of a significant number of extended
warranty claims could have a material adverse effect on the Company's results of
operations and financial condition.
PRODUCT LIABILITY AND INSURANCE COVERAGE
The Company licenses and supports certain specialty products based on its
articulated arm technology that are used in medical applications. The sale of
the Company's medical products entails a risk of product liability claims.
Although no claims have been asserted to date, product liability or other claims
might be asserted against the Company by persons who allege that the use of the
Company's products resulted in injury or other adverse effects, and such claims
could involve large amounts of alleged damages and significant defense costs.
Although the Company currently maintains product liability insurance, the
liability limits or scope of the Company's insurance policies could be
inadequate to protect against potential claims. In addition, the Company's
insurance policies are subject to annual renewal. Although the Company has been
able to obtain product liability insurance in the past, the cost and
availability of this insurance varies and such coverage could be difficult to
obtain in the future. A successful claim against the Company in excess of its
available insurance coverage could have a material adverse effect on the
Company's results of operations and financial condition. In addition, the
Company's business reputation could be adversely affected by product liability
claims, regardless of their merit or the eventual outcome of such claims.
CONTROL BY PRINCIPAL SHAREHOLDERS; ANTI-TAKEOVER CONSIDERATIONS
Upon the conclusion of this offering, Messrs. Simon Raab and Gregory A.
Fraser will, in the aggregate, beneficially own approximately 39.2% of the
outstanding Common Stock (36.9% if the Underwriters' over-allotment option is
exercised in full). As a result, Messrs. Raab and Fraser will retain significant
voting power with respect to the election of the Company's directors and the
outcome of other matters requiring shareholder approval. The voting power of
Messrs. Raab and Fraser, together with the staggered Board of Directors and the
anti-takeover effects of certain provisions contained in both the Florida
Business Corporation Act and in the Company's Articles of Incorporation and
Bylaws (including, without limitation, the ability of the Board of Directors of
the Company to issue shares of Preferred Stock and to fix the rights and
preferences thereof), may have the effect of delaying, deferring, or preventing
an unsolicited change in the control of the Company, which may adversely affect
the market price of the Common Stock. See "Management," "Principal and Selling
Shareholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have outstanding
8,700,000 shares of Common Stock. Of these shares, 4,062,792 shares, including
the 2,300,000 shares of Common Stock sold in this offering (2,645,000 shares if
the Underwriters' over-allotment option is exercised in full), will be freely
tradeable by persons other than affiliates of the Company without restriction
under the Securities Act of 1933, as amended (the "Securities Act"). The
remaining 4,637,208 shares of Common Stock will be "restricted" securities
within the meaning of Rule 144 under the Securities Act and may not be sold in
the absence of registration
10
<PAGE> 12
under the Securities Act unless an exemption from registration is available. All
of such shares will be beneficially owned by persons who are affiliates of the
Company and, commencing 90 days after the date of this Prospectus, would be
eligible for public sale subject to the volume and other limitations of Rule
144. However, the Company's directors, executive officers and principal
shareholders and the Selling Shareholders have agreed not to sell, contract to
sell, offer, or otherwise dispose of or transfer any shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of Common
Stock or any rights to purchase any of the foregoing for a period of 180 days
after the date of this Prospectus without the prior written consent of Raymond
James & Associates, Inc. The sale of a substantial number of shares of Common
Stock could adversely affect the market price of the Common Stock. See "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has not been a public market for the Common
Stock, and there is no assurance that an active trading market will develop or
continue following this offering. Accordingly, purchasers in this offering may
experience difficulty in selling or otherwise disposing of their shares of
Common Stock. In addition, there is no assurance that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price for the Common Stock will be determined by
negotiations among the Company, the Selling Shareholders and the Underwriters
based on several factors, and may not be indicative of the market price for the
Common Stock after this offering. See "Underwriting."
The Company believes that various factors such as general economic
conditions, changes or volatility in the financial markets, and quarterly or
annual variations in the Company's financial results could cause the market
price of the Common Stock to fluctuate substantially.
DILUTION TO NEW INVESTORS
The initial public offering price is substantially higher than the per
share net tangible book value of the Common Stock. Purchasers of Common Stock in
this offering will incur immediate and substantial dilution of $8.51 per share
in the net tangible book value of their shares of Common Stock. See "Dilution."
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company (after deducting underwriting discounts and
estimated offering expenses payable by the Company) from the sale of 1,700,000
shares of Common Stock offered by the Company, assuming an initial public
offering price of $11.00 per share, are estimated to be approximately $16.9
million. The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders."
The Company intends to use approximately $1.5 million of the net proceeds
of this offering to repay indebtedness incurred to finance operations, which
accrues interest at the 30-day commercial paper rate plus 2.7% per annum (8.31%
at June 30, 1997), and matures in September 1999. Although it has no specific
plan for the use of the balance of the offering proceeds, the Company will
generally use the balance of such proceeds for expansion of the Company's sales
and marketing activities for existing and new products, investment in new
technologies, including product development, capital expenditures and for
working capital and general corporate purposes, including possible acquisitions.
The Company has not yet identified the specific amounts of proceeds to be
expended for these respective corporate purposes. The amounts actually expended
for each purpose may vary significantly depending on a number of factors,
including future revenue growth, the amount of cash generated or used by the
Company's operations, the progress of the Company's new product development
efforts, technological advances and the status of competitive products.
Currently, the Company has no arrangements or understandings with respect to any
acquisition. Pending any such uses, the Company plans to invest the net proceeds
of this offering in short-term, investment grade securities or money market
instruments. The Company has undertaken this offering to strengthen its capital
position by repaying all of its outstanding indebtedness and to provide equity
capital for the execution of its strategy.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently anticipates that all of its earnings will be
retained for development and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future. Any future determination to
pay cash dividends will be at the discretion of the Board of Directors and will
be dependent upon the Company's financial condition, results of operations,
capital requirements, limitations which may be included in loan and other
agreements and such other factors as the Board of Directors deems relevant.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
the capitalization of the Company (i) at June 30, 1997, and (ii) as adjusted to
give effect to the sale by the Company of 1,700,000 shares of Common Stock
offered hereby (assuming an initial public offering price of $11.00 per share)
and the application of the estimated net proceeds therefrom as described under
"Use of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the notes thereto contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1997
------------------------
AS
ACTUAL ADJUSTED
---------- -----------
<S> <C> <C>
Current portion of long-term debt........................... $ 666,667 $ --
========== ===========
Long-term debt, less current portion........................ $ 833,769 $ --
---------- -----------
Shareholders' equity:
Class A Preferred Stock, $0.001 par value, 10,000,000
shares authorized; no shares issued and outstanding.... -- --
Common Stock, $0.001 par value, 20,000,000 shares
authorized; 7,000,000 shares issued and outstanding,
8,700,000 shares issued and outstanding as
adjusted(1)............................................ 7,000 8,700
Additional paid-in capital.................................. 4,827,544 21,716,844
Retained earnings........................................... 1,067,243 1,067,243
Unearned compensation....................................... (508,334) (508,334)
Cumulative translation adjustments.......................... (43,985) (43,985)
---------- -----------
Total shareholders' equity........................ 5,349,468 22,240,468
---------- -----------
Total capitalization.............................. $6,183,237 $22,240,468
========== ===========
</TABLE>
- ---------------
(1) Excludes 383,513 shares of Common Stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $1.53 per
share. In July 1997, the Company's Board of Directors and shareholders
approved the Company's Amended and Restated Articles of Incorporation (the
"Articles of Incorporation"), which increased the authorized shares of
Common Stock to 50,000,000 shares.
13
<PAGE> 15
DILUTION
The net tangible book value of the Company at June 30, 1997 was $4.7
million, or $0.68 per share of Common Stock. Net tangible book value per share
represents the amount of the Company's tangible net worth (total assets less
patents and total liabilities) divided by the total number of shares of Common
Stock outstanding. After giving effect to the sale of 1,700,000 shares of Common
Stock by the Company in this offering (assuming an initial public offering price
of $11.00 per share) and the application of the estimated net proceeds therefrom
(after deducting underwriting discounts and estimated offering expenses payable
by the Company), the pro forma net tangible book value of the Company at June
30, 1997 would have been $21.6 million, or $2.49 per share of Common Stock. This
represents an immediate increase in net tangible book value of $1.81 per share
to existing shareholders and an immediate dilution of $8.51 per share to
purchasers of shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $11.00
Net tangible book value before this offering................ $0.68
Increase attributable to new investors...................... 1.81
-----
Pro forma net tangible book value after this offering....... 2.49
------
Dilution to new investors................................... $ 8.51
======
</TABLE>
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the Company's existing shareholders and to be paid by new
investors in this offering (assuming an initial public offering price of $11.00
per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)......... 7,000,000 80.5% $ 3,832,264 17.0% $ 0.55
New investors.................... 1,700,000 19.5 18,700,000 83.0 11.00
--------- ------ ----------- ------
Total.................. 8,700,000 100.0% $22,532,264 100.0% 2.59
========= ====== =========== ======
</TABLE>
- ---------------
(1) Does not reflect the sale of 600,000 shares of Common Stock by the Selling
Shareholders in this offering (945,000 shares if the over-allotment option
is exercised in full) and excludes 383,513 shares of Common Stock issuable
upon the exercise of outstanding stock options. See "Management -- Stock
Option Plans." To the extent outstanding stock options are exercised, there
will be further dilution to new investors.
Assuming the over-allotment option is not exercised, sales by the Selling
Shareholders in this offering will reduce the number of shares held by existing
shareholders to 6,400,000 shares (or 73.6% of the total number of shares of
Common Stock outstanding after this offering) and will increase the number of
shares held by new investors to 2,300,000 shares (or 26.4% of the total number
of shares of Common Stock outstanding after this offering).
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below are derived from the consolidated
financial statements of the Company and its subsidiaries at December 31, 1994,
1995 and 1996 and for the years then ended, which are included elsewhere in this
Prospectus and have been audited by Deloitte & Touche LLP, independent public
accountants. The selected consolidated financial data at December 31, 1992 and
1993 and for the years then ended have been derived from audited consolidated
financial statements not included herein. The selected consolidated financial
data for the six months ended June 30, 1996 and June 30, 1997 have been derived
from the Company's unaudited consolidated financial statements. In the opinion
of management, all unaudited consolidated financial statements used to derive
the information presented have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of the results
for the periods presented. The information for the six months ended June 30,
1997 is not necessarily indicative of the operating results to be expected for
any future period. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the Consolidated Financial Statements and related
notes and other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................... $4,727,637 $5,106,270 $4,508,837 $9,862,242 $14,656,337 $6,460,113 $10,318,535
Cost of sales.................. 2,359,693 2,266,296 2,222,085 4,987,779(1) 6,486,268 2,744,994 4,188,280
---------- ---------- ---------- ---------- ----------- ---------- -----------
Gross profit................... 2,367,944 2,839,974 2,286,752 4,874,463 8,170,069 3,715,119 6,130,255
Operating expenses:
Selling...................... 1,839,527 1,971,177 1,569,014 2,008,301 3,731,762 1,653,693 2,512,066
General and administrative... 454,606 424,026 521,040(2) 503,184 744,206 349,645 622,092
Depreciation and
amortization............... 122,613 211,682 270,615 341,494(3) 230,799 125,388 124,646
Research and development..... 282,829 276,489 173,400 363,871 730,124 236,539 394,839
Employee stock options(4).... -- -- -- 106,700 23,100 11,550 364,146
---------- ---------- ---------- ---------- ----------- ---------- -----------
Total operating
expenses............. 2,699,575 2,883,374 2,534,069 3,323,550 5,459,991 2,376,815 4,017,789
---------- ---------- ---------- ---------- ----------- ---------- -----------
Income (loss) from
operations................... (331,631) (43,400) (247,317) 1,550,913 2,710,078 1,338,304 2,112,466
Other income................... 4,035 12,648 11,706 62,212 25,145 7,814 46,067
Interest expense............... (76,780) (110,504) (192,543) (355,468) (212,669) (122,806) (65,853)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Income (loss) before income
taxes...................... (404,376) (141,256) (428,154) 1,257,657 2,522,554 1,223,312 2,092,680
Income tax expense (benefit)... -- -- -- (342,000) 1,115,892 541,152 837,072
---------- ---------- ---------- ---------- ----------- ---------- -----------
Net income (loss)...... $ (404,376) $ (141,256) $ (428,154) $1,599,657 $ 1,406,662 $ 682,160 $ 1,255,608
========== ========== ========== ========== =========== ========== ===========
Net income (loss) per common
share and common equivalent
share........................ $ (0.06) $ (0.02) $ (0.06) $ 0.22(5) $ 0.19 $ 0.09 $ 0.17
Weighted average common shares
and common equivalent
shares(6).................... 7,149,690 7,149,690 7,149,690 7,166,740 7,349,042 7,354,292 7,333,290
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, 1997
-------------------------------------------------------------- ----------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(7)
---------- ---------- ---------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $ 193,499 $ (109,760) $ (718,564) $1,321,517 $3,832,424 $4,976,323 $21,033,554
Total assets................... 3,406,815 3,877,445 4,229,551 5,479,698 7,815,668 10,558,549 25,949,113
Total debt..................... 1,430,000 2,100,000 2,925,000 2,200,000 1,501,267 1,500,436 --
Total shareholders' equity..... 1,299,290 1,158,034 637,580 2,343,937 3,773,699 5,349,468 22,240,468
</TABLE>
(footnotes on following page)
15
<PAGE> 17
- ---------------
(1) Includes $531,186 from a change in the estimated life of product development
costs. See Note 1 to the Consolidated Financial Statements, "Product Design
Costs."
(2) Includes $146,541 for costs incurred in a terminated private stock offering.
(3) Includes a charge for unamortized patent costs of $192,570 due to the
discontinuance of certain products sold in the medical field.
(4) Reflects compensation expense incurred upon the vesting of options having an
exercise price less than the fair market value of the Common Stock on the
date of grant. The weighted average exercise price of such vested options is
$0.36 per share.
(5) Includes a benefit of $0.11 per share resulting from a reduction in the
deferred tax asset valuation allowance.
(6) Includes 7,000,000 common shares outstanding in each period plus the effect
of stock options granted, using the Treasury Stock Method, assuming an
initial public offering price of $11.00 per share. See Notes 1 and 12 to the
Consolidated Financial Statements.
(7) Adjusted to give effect to the sale of 1,700,000 shares of Common Stock
being offered by the Company hereby (assuming an initial public offering
price of $11.00 per share) and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Consolidated Financial Statements of the Company, including the notes thereto,
included elsewhere in this Prospectus.
OVERVIEW
The Company designs, develops, markets and supports portable,
software-driven, 3-D measurement systems that are used in a broad range of
manufacturing and industrial applications. The Company's principal products are
the FAROArm(R) articulated measuring device and its companion AnthroCam(R)
software. Together, these products integrate the measurement and quality
inspection function with CAD and CAM technology to improve productivity, enhance
product quality and decrease rework and scrap in the manufacturing process. The
Company's products have been purchased by more than 600 customers worldwide,
ranging from small machine shops to such large manufacturing and industrial
companies as General Motors, Chrysler, Ford, Boeing, Lockheed Martin, General
Electric, Westinghouse Electric, Caterpillar and Komatsu Dresser.
From its inception in 1982 through 1992, the Company focused on providing
computerized, 3-D measurement devices to the orthopedic and neurosurgical
markets. During this period, the Company introduced a knee laxity measurement
device, a diagnostic tool for measuring posture, scoliosis and back flexibility,
and a surgical guidance device utilizing a six-axis articulated arm.
In 1992, in an effort to capitalize on a demand for 3-D portable
measurement tools for the factory floor, the Company made a strategic decision
to target its core measurement technology to the manufacturing and industrial
markets. In order to focus on manufacturing and industrial applications of its
technology, the Company phased out the direct sale of its medical products and
entered into licensing agreements with two major neurosurgical companies for its
medical technology. Since that time, sales to the manufacturing and industrial
markets have increased to 96.5% of sales in 1996 and 98.0% of sales in the six
months ended June 30, 1997. In 1995, the Company made a strategic decision to
target international markets. The Company established sales offices in France
and Germany in 1996 and the United Kingdom in 1997. International sales
represented 21.6% of sales in 1995, 20.5% of sales in 1996 and 26.0% of sales in
the six months ended June 30, 1997.
The Company derives revenues primarily from the sale of the FAROArm(R), its
six-axis articulated measuring device, and AnthroCam(R), its companion 3-D
measurement software. The majority of the Company's revenues are derived from
the sale of its bundled hardware and software measurement systems. Revenue
related to these products is recognized upon shipment.
Revenue growth has resulted primarily from increased unit sales due to an
expanded sales effort that included the addition of sales personnel at existing
offices, the opening of new sales offices, expanded promotional efforts and the
addition of new product features. Additionally, during this period, the Company
lowered its prices on its bundled 3-D measurement systems to stimulate volume.
The Company expects to continue its revenue growth through further penetration
of its installed customer base, expansion of its domestic and international
sales force and expansion of its product line and service offerings. See
"Business -- The FARO Strategy."
In addition to providing a one-year basic warranty without additional
charge, the Company offers its customers one, two and three-year extended
maintenance contracts, which include on-line help services, software upgrades
and hardware warranties. In addition, the Company sells training and technology
consulting services relating to its products. The Company recognizes the revenue
from extended maintenance contracts ratably over the contract term and
recognizes the cost of claims as incurred.
Cost of sales consists primarily of materials, production, overhead and
labor. Selling expenses consist primarily of salaries and commissions to sales
and marketing personnel, and promotion, advertising, travel and
telecommunications expenses. General and administrative expenses consist
primarily of salaries for administrative personnel, rent, utilities and
professional and legal expenses. Research and development expenses represent
salaries, equipment and third-party services.
17
<PAGE> 19
Accounting for wholly-owned foreign subsidiaries is maintained in the
currency of the respective foreign jurisdiction and, therefore, fluctuations in
exchange rates may have an impact on intercompany accounts reflected in the
Company's Consolidated Financial Statements. Although the Company has not
historically engaged in any hedging transactions to limit risks of currency
fluctuations, it intends to do so in the future.
RESULTS OF OPERATIONS
The following table sets forth for the periods presented the percentage of
sales represented by certain items in the Company's Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ----------------
1994 1995 1996 1996 1997
----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 49.3 50.6 44.3 42.5 40.6
----- ----- ----- ----- -----
Gross profit................................... 50.7 49.4 55.7 57.5 59.4
Operating expenses:
Selling...................................... 34.8 20.4 25.5 25.6 24.3
General and administrative................... 11.6 5.1 5.1 5.4 6.0
Depreciation and amortization................ 6.0 3.5 1.6 1.9 1.2
Research and development..................... 3.8 3.7 5.0 3.7 3.8
Employee stock options....................... -- 1.1 0.2 0.2 3.5
----- ----- ----- ----- -----
Total operating expenses............. 56.2 33.7 37.3 36.8 38.9
----- ----- ----- ----- -----
Income (loss) from operations.................. (5.5) 15.7 18.5 20.7 20.5
Other income................................... 0.3 0.6 0.2 0.1 0.4
Interest expense............................... (4.3) (3.6) (1.5) (1.9) (0.6)
----- ----- ----- ----- -----
Income (loss) before income taxes.............. (9.5) 12.8 17.2 18.9 20.3
Income tax expense (benefit)................... -- (3.5) 7.6 8.4 8.1
----- ----- ----- ----- -----
Net income (loss).................... (9.5)% 16.2% 9.6% 10.6% 12.2%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Sales. Sales increased $3.9 million, or 59.7%, from $6.5 million for the
first six months of 1996 to $10.3 million for the first six months of 1997. The
increase was primarily the result of increased unit sales due to an expanded
sales effort that included the addition of sales personnel at existing offices,
the opening of new sales offices, expanded promotional efforts and the addition
of new product features. International sales increased $1.5 million, or 123.4%,
from $1.2 million for the first six months of 1996 to $2.7 million for the first
six months of 1997. This growth was attributable to the opening of the Company's
European sales offices in France and Germany in 1996 and the United Kingdom in
1997 and an increase in the number of international distributors.
Gross profit. Gross profit increased $2.4 million, or 65.0%, from $3.7
million for the first six months of 1996 to $6.1 million for the first six
months of 1997. Gross margin increased from 57.5% for the first six months of
1996 to 59.4% for the first six months of 1997. This margin increase was
attributable to a reduction in product costs as a result of technological
improvements, purchasing economies and production efficiencies, partially offset
by a decrease in average unit prices.
Selling expenses. Selling expenses increased $858,000, or 51.9%, from $1.7
million for the first six months of 1996 to $2.5 million for the first six
months of 1997. This increase was a result of the Company's expansion of sales
and marketing staff in the United States and Europe ($430,000) and expanded
promotional efforts ($460,000) offset by a decline in office expenses ($31,000).
Selling expenses as a percentage of sales decreased from 25.6% for the first six
months of 1996 to 24.3% for the first six months of 1997.
18
<PAGE> 20
General and administrative expenses. General and administrative expenses
increased $272,000, or 77.9%, from $350,000 for the first six months of 1996 to
$622,000 for the first six months of 1997. This increase resulted from the
hiring of additional administrative personnel, including network services and
accounting personnel ($133,000), increases in professional and legal expenses
($89,000) and other general and administrative expenses ($51,000). General and
administrative expenses as a percentage of sales increased from 5.4% for the
first six months of 1996 to 6.0% for the first six months of 1997.
Research and development expenses. Research and development expenses
increased $158,000, or 66.9%, from $237,000 for the first six months of 1996 to
$395,000 for the first six months of 1997. This increase was primarily a result
of increased personnel costs ($190,000) relating to the introduction of new
electronic circuitry, enhanced mechanical features and 32-bit functionality
offset by a reduction in material costs ($31,000). Research and development
expenses as a percentage of sales increased from 3.7% for the first six months
of 1996 to 3.8% for the first six months of 1997.
Employee stock options expenses. Employee stock options expenses increased
$353,000 from $12,000 for the first six months of 1996 to $364,000 for the first
six months of 1997. This increase was primarily attributable to the grant of
52,733 options in May 1997, which was made at an exercise price below the fair
market value of the Common Stock on the date of grant.
Interest expense. Interest expense decreased $57,000, or 46.4%, from
$123,000 for the first six months of 1996 to $66,000 for the first six months of
1997. This reduction was attributable to the refinancing of the Company's
indebtedness, resulting in a reduced principal balance and lower interest rate.
Income tax expense. Income tax expense increased $296,000, or 54.7%, from
$541,000 for the first six months of 1996 to $837,000 for the first six months
of 1997. The provision for income taxes as a percentage of income before income
taxes was 44.2% in the first six months of 1996 and 40.0% in the first six
months of 1997.
Net income. Net income increased $573,000, or 84.1%, from $682,000 for the
first six months of 1996 to $1.3 million for the first six months of 1997.
1996 COMPARED TO 1995
Sales. Sales increased $4.8 million, or 48.6%, from $9.9 million in 1995
to $14.7 million in 1996. This increase was attributable to a shift in product
mix to higher priced Silver Series models of the FAROArm(R) and increased unit
sales resulting from completion of the Company's shift in focus from the medical
market to the manufacturing and industrial markets.
Gross profit. Gross profit increased $3.3 million, or 67.6%, from $4.9
million in 1995 to $8.2 million in 1996. Gross margin increased from 49.4% in
1995 to 55.7% in 1996. This increase was due to a reduction in product costs as
a result of technological improvements and to an increase in sales of higher
margin Silver Series models of the FAROArm(R). In addition, gross profit for
1995 was adversely affected by a $531,000 charge to cost of sales relating to a
change in the estimated life of product design costs.
Selling expenses. Selling expenses increased $1.7 million, or 85.8%, from
$2.0 million in 1995 to $3.7 million in 1996 primarily as a result of the
Company's expansion of sales and marketing staff ($784,000), the opening of
additional sales offices in the United States and Europe in the second half of
1996 ($354,000) and increased promotional and related selling expenses
($409,000). Selling expenses as a percentage of sales increased from 20.4% in
1995 to 25.5% in 1996.
General and administrative expenses. General and administrative expenses
increased $241,000, or 47.9%, from $503,000 in 1995 to $744,000 in 1996. This
increase was primarily a result of additional accounting personnel ($105,000)
and increased cost of supplies and other expenses, including occupancy costs
($109,000). General and administrative expenses as a percentage of sales
remained unchanged at 5.1% in 1996 compared to 1995.
Research and development expenses. Research and development expenses
increased $366,000, or 100.7%, from $364,000 in 1995 to $730,000 in 1996. This
increase was a result of the hiring of additional personnel to design and
develop improved hardware, software and product functionality ($228,000) and
increased research and development materials and other expenses ($138,000).
Research and development expenses as a percentage of sales increased from 3.7%
in 1995 to 5.0% in 1996.
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<PAGE> 21
Employee stock options expenses. Employee stock options expenses decreased
$84,000, or 78.4%, from $107,000 in 1995 to $23,000 in 1996. The Company did not
grant options in 1996, and compensation expense relating to options granted in
1995 was significantly lower in 1996 than in 1995.
Interest expense. Interest expense decreased $143,000, or 40.2%, from
$355,000 in 1995 to $213,000 in 1996 due to a reduction in the amount of the
Company's indebtedness.
Income tax expense. Income tax expense increased $1.5 million from a
benefit of $342,000 in 1995 to an expense of $1.1 million in 1996. The provision
for income taxes as a percentage of income before income taxes was 44.2% in
1996. In 1995, the Company had an income tax benefit as a result of the reversal
of a deferred tax valuation allowance.
Net income. Net income decreased $193,000, or 12.1%, from $1.6 million in
1995 to $1.4 million in 1996.
1995 COMPARED TO 1994
Sales. Sales increased $5.4 million, or 118.7%, from $4.5 million in 1994
to $9.9 million in 1995. The increase was due to increased unit sales resulting
from a shift in focus from the medical market to the manufacturing and
industrial markets and the Company's release of its AnthroCam(R) software in
late 1994. The release of AnthroCam(R) led to increased sales of the Company's
FAROArm(R) products, particularly of higher priced Silver Series models.
Gross profit. Gross profit increased $2.6 million, or 113.2%, from $2.3
million in 1994 to $4.9 million in 1995 due to an increase in 1995 in sales of
Silver Series models of the FAROArm(R) and AnthroCam(R) software, compared to
Bronze Series models and the Company's medical and surgical products. Gross
margins as a percentage of sales declined from 50.7% in 1994 to 49.4% in 1995,
primarily because of price reductions made to increase sales volume and a
$531,000 charge to cost of sales relating to a change in the estimated life of
product design costs.
Selling expenses. Selling expenses increased $439,000, or 28.0%, from $1.6
million in 1994 to $2.0 million in 1995. This increase was primarily a result of
the hiring of additional personnel related to the Company's continued expansion
of sales to manufacturing and industrial markets ($281,000) and related
marketing activities ($158,000). Selling expenses as a percentage of sales
decreased from 34.8% in 1994 to 20.4% in 1995. This decrease was due to an
increase in sales without a commensurate increase in selling expenses.
General and administrative expenses. General and administrative expenses
decreased $18,000, or 3.4%, from $521,000 in 1994 to $503,000 in 1995. General
and administrative expenses as a percentage of sales decreased from 11.6% in
1994 to 5.1% in 1995. This decrease reflects a one-time expense of $147,000 in
1994 related to a terminated private stock offering. Net of this one-time
expense, general and administrative expenses increased $129,000, or 34.4%, from
$374,000 in 1994 due to increases in legal fees ($39,000) and administrative
salaries and insurance associated with the Company's growth and increased
occupancy costs ($113,000.) However, general and administrative expenses
decreased as a percentage of sales from 8.3% in 1994 to 5.1% in 1995.
Research and development expenses. Research and development expenses
increased $190,000, or 109.8%, from $173,000 in 1994 to $364,000 in 1995. This
increase was attributable to an accounting change relating to production design
costs ($260,000), which was partially offset by a decrease in personnel costs
($70,000). Research and development expenses as a percentage of sales decreased
from 3.8% in 1994 to 3.7% in 1995.
Employee stock options expenses. The Company granted stock options for the
first time in 1995 under its 1993 Stock Option Plan. As a result, the Company
recognized employee stock options expenses of $107,000 in 1995 compared to none
in 1994.
Interest expense. Interest expense increased $163,000, or 84.6%, from
$193,000 in 1994 to $355,000 in 1995. This increase was due to new borrowings
that were obtained to finance additional working capital needs to complete the
transition from the medical market to the manufacturing and industrial markets.
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<PAGE> 22
Income tax expense. The Company recognized an income tax benefit of
$342,000 in 1995 compared to no provision for income taxes in 1994. In 1994, the
deferred income tax benefit of $146,000 was offset by a valuation allowance due
to the Company's history of operating losses. In 1995, the Company's income tax
provision was offset by a corresponding reduction in its deferred tax valuation
allowance. In addition, the remaining deferred tax asset valuation allowance was
reversed because the Company had commenced profitable operations.
Net income (loss). The Company's net income (loss) for 1995 increased $2.0
million from a net loss of $428,000 in 1994 to net income of $1.6 million in
1995.
QUARTERLY RESULTS
The following table sets forth certain unaudited statements of income data
for each of the eight quarters in the period ending June 30, 1997. This data has
been derived from unaudited financial statements which, in the opinion of
management, have been prepared on the same basis as the audited financial
statements and include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the results for the periods
presented. The results of operations for the interim periods are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------------
1995 1996 1997
----------------------- ------------------------------------------------- -----------------------
SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales..................... $1,855,175 $3,233,317 $3,037,610 $3,422,503 $4,083,193 $4,113,031 $4,889,471 $5,429,064
Cost of sales............. 658,225 1,687,246 1,186,666 1,558,328 1,756,120 1,985,154 1,948,549 2,239,731
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit.............. 1,196,950 1,546,071 1,850,944 1,864,175 2,327,073 2,127,877 2,940,922 3,189,333
Operating expenses:
Selling................. 383,026 699,756 731,549 922,144 940,900 1,137,169 1,158,559 1,353,507
General and
administrative........ 104,328 63,981 166,166 183,479 195,216 199,345 302,523 319,569
Depreciation and
amortization.......... 37,231 37,231 80,450 44,938 48,682 56,729 58,873 65,773
Research and
development........... 18,320 244,626 93,580 142,959 191,917 301,668 178,073 216,766
Employee stock
options............... -- 106,700 5,775 5,775 5,775 5,775 3,270 360,876
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 542,905 1,152,294 1,077,520 1,299,295 1,382,490 1,700,686 1,701,298 2,316,491
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations.... 654,045 393,777 773,424 564,880 944,583 427,191 1,239,624 872,842
Other income.............. 3,558 3,217 2,770 5,044 12,866 4,465 (5,810) 51,877
Interest expense.......... (85,696) (72,358) (64,147) (58,659) (53,650) (36,213) (34,262) (31,591)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes................... 571,907 324,636 712,047 511,265 903,799 395,443 1,199,552 893,128
Income tax expense
(benefit)............... (155,521) (88,280) 314,986 226,166 399,810 174,930 479,821 357,251
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............ $ 727,428 $ 412,916 $ 397,061 $ 285,099 $ 503,989 $ 220,513 $ 719,731 $ 535,877
========== ========== ========== ========== ========== ========== ========== ==========
Net income (loss) per
common share and common
equivalent share........ $ 0.10 $ 0.06 $ 0.05 $ 0.04 $ 0.07 $ 0.03 $ 0.10 $ 0.07
Weighted average common
shares and common
equivalent shares....... 7,149,690 7,217,891 7,354,292 7,354,292 7,354,292 7,333,290 7,333,290 7,333,290
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date through a combination of
cash flow from operations, borrowings and private equity financings.
Net cash provided by operating activities for the six months ended June 30,
1997 was $268,000 compared to $732,000 for the six months ended June 30, 1996.
Net cash provided by operating activities in this period decreased primarily due
to increases in accounts receivable. Net cash provided by operating activities
for 1996 was $1.5 million compared to $936,000 for 1995. Net cash provided by
operating activities in 1996 increased primarily due to increases in accounts
payable and unearned service revenues.
Net cash used in investing activities was $413,000 for the six months ended
June 30, 1997 compared to $265,000 for the six months ended June 30, 1996. Net
cash used in investing activities was $550,000 for 1996 compared to $285,000 for
1995. Net cash used in investing activities increased for the six months ended
June 30, 1997 and for 1996 primarily due to increased purchases of property and
equipment and increased patent costs.
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<PAGE> 23
Net cash used in financing activities for the six months ended June 30,
1997 was $1,000 compared to $300,000 for the six months ended June 30, 1996. The
$300,000 of net cash used in financing activities in the first six months of
1996 primarily reflects the repayment of related party loans. Net cash used in
financing activities for 1996 was $715,000 compared to $725,000 for 1995. Net
cash used in financing activities decreased primarily due to the repayment of
related party loans of $2.2 million in 1996, offset by proceeds from debt of
$1.6 million.
The Company has a loan agreement in the form of a term note and a line of
credit that matures in September 1999. The Company had available borrowings
under the line of credit in the amount of $443,000 at June 30, 1997. Advances
outstanding under the loan bear interest at the 30-day commercial paper rate
plus 2.7% per annum (8.31% at June 30, 1997). Principal payments of $611,000,
$667,000 and $223,000 will be due in 1997, 1998 and 1999, respectively.
Outstanding borrowings under this loan agreement at June 30, 1997 were
approximately $1.5 million. The loan is collateralized by substantially all of
the Company's assets. The loan agreement contains restrictive covenants,
including the maintenance of certain amounts of working capital and tangible net
worth and limits on loans to related parties. In April 1997, the Company also
obtained a one-year secured $1.0 million line of credit from the same lender
which bears interest at the 30-day commercial paper rate plus 2.65% per annum
(8.26% at June 30, 1997). Approximately $1.5 million of the proceeds of this
offering will be used to repay all of the Company's outstanding long term
indebtedness.
The Company's principal commitments at June 30, 1997 were leases on its
headquarters and regional offices, and there were no material commitments for
capital expenditures at that date. The Company believes that the proceeds of
this offering, cash generated from operations and borrowings under its credit
facilities will be sufficient to satisfy its working capital and capital
expenditure needs at least through 1998.
The proposed expansion of the Company's sales force is anticipated to
increase the Company's selling, general and administrative expenses over the
next 18 months. The Company believes that it will have adequate capital to cover
these expenses at least through 1998.
The proposed expansion of the Company's headquarters is not anticipated to
have a material impact on its capital needs. Because this facility is leased
(see "Certain Transactions"), the impact of expansion is limited to increased
rent expense and associated costs of tenancy of approximately $150,000 per year
upon completion of the expansion.
FOREIGN EXCHANGE EXPOSURE
Sales outside the United States represent a significant portion of the
Company's total revenues. Currently, the majority of the Company's revenues and
expenses are invoiced and paid in U.S. dollars. In the future, the Company
expects a greater portion of its revenues to be denominated in foreign
currencies. Fluctuations in exchange rates between the U.S. dollar and such
foreign currencies may have a material adverse effect on the Company's business,
results of operations and financial condition, particularly its operating
margins, and could also result in exchange losses. The impact of future exchange
rate fluctuations on the results of the Company's operations cannot be
accurately predicted. Historically, the Company has not managed the risks
associated with fluctuations in exchange rates but intends to undertake
transactions to manage such risks in the future. To the extent that the
percentage of the Company's revenues derived from international sales increases
in the future, the risks associated with fluctuations in foreign exchange rates
will increase. The Company may use forward foreign exchange contracts with
foreign currency options to hedge these risks.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations in recent years and does not expect inflation to have a
material impact on its operations in 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." This Statement
establishes standards for computing and presenting
22
<PAGE> 24
earnings per share ("EPS") and applies to all entities with publicly held common
stock or potential common stock. This Statement replaces the presentation of
primary EPS and fully diluted EPS with a presentation of basic EPS and diluted
EPS, respectively. Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average number of
common shares outstanding for the period. Similar to fully diluted EPS, diluted
EPS reflects the potential dilution of securities that could share in the
earnings. This Statement is effective for the Company's financial statements for
the year ended December 31, 1997.
CERTAIN FORWARD-LOOKING INFORMATION
Certain matters discussed in this Prospectus are forward-looking statements
within the meaning of the federal securities laws. Although the Company believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, there can be no assurance that its expectations
will be achieved. Factors that could cause actual results to differ materially
from the Company's current expectations include market acceptance of the
Company's products, which consist of two closely interdependent products, the
amount and timing of expenses associated with the development and marketing of
new products, the Company's ability to protect and continue to develop its
proprietary technology in the face of competition and technological change,
risks associated with the Company's international operations, general economic
conditions and the other risks set forth under the caption "Risk Factors."
23
<PAGE> 25
BUSINESS
GENERAL
The Company designs, develops, markets and supports portable,
software-driven, 3-D measurement systems that are used in a broad range of
manufacturing and industrial applications. The Company's principal products are
the FAROArm(R) articulated measuring device and its companion AnthroCam(R)
software. Together, these products integrate the measurement and quality
inspection function with computer-aided design ("CAD"), computer-aided
manufacturing ("CAM") and computer-aided engineering ("CAE") technology to
improve productivity, enhance product quality and decrease rework and scrap in
the manufacturing process. The Company's products bring precision measurement,
quality inspection and specification conformance capabilities, integrated with
leading CAD software, to the factory floor. The Company is a pioneer in the
development and marketing of 3-D measurement technology in manufacturing and
industrial applications and currently holds or has pending 18 patents in the
United States, eight of which also are held or pending in other jurisdictions.
The Company's products have been purchased by more than 600 customers worldwide,
ranging from small machine shops to such large manufacturing and industrial
companies as General Motors, Chrysler, Ford, Boeing, Lockheed Martin, General
Electric, Westinghouse Electric, Caterpillar and Komatsu Dresser.
INDUSTRY BACKGROUND
The creation of physical products involves the processes of design,
engineering, production and measurement and quality inspection. These basic
processes have been profoundly affected by the computer hardware and software
revolution that began in the 1980s. CAD software was developed to automate the
design process, providing manufacturers with computerized 3-D design capability.
Today, most manufacturers use some form of CAD software to create designs and
engineering specifications for new products and to quantify and modify designs
and specifications for existing products. The benefits of CAD are significant.
The CAD process offers a three-dimensional, highly-efficient and inherently
flexible alternative to traditional design methods. Many manufacturers have also
recently adopted CAM technology, in which CAD data directs machines in the
manufacturing process. CAM has further improved the efficiency and quality of
the production of manufactured goods. According to International Data
Corporation, the worldwide market for mechanical CAD, CAM and CAE-based software
products amounted to $3.0 billion in 1996 and is expected to grow at a rate of
at least 15.5% per year to $5.6 billion in 2000.
A significant aspect of the manufacturing process which traditionally has
not benefitted from computer-aided technology is measurement and quality
inspection. Historically, manufacturers have measured and inspected products
using hand-measurement tools such as scales, calipers, micrometers and plumb
lines for simple measuring tasks, test fixtures for certain large manufactured
products and traditional coordinate measurement machines ("CMMs") for objects
that require higher precision measurement. However, the broader utility of each
of these measurement methods is limited. Although hand-measurement tools are
often appropriate for simple measurements, their use for complex measurements is
time-consuming and limited in adaptability. Test fixtures (customized fixed
tools used to make comparative measurements of production parts to "master
parts") are relatively expensive and must be reworked or discarded each time a
dimensional change is made in the part being measured. In addition, these manual
measuring devices do not permit the manufacturer to compare the dimensions of an
object with its CAD model.
Conventional CMMs are generally large, fixed-base machines that provide
very high levels of precision but have only recently begun to provide a link to
the CAD model of the object being measured. Fixed-base CMMs require that the
object being measured be brought to the CMM and that the object fit within the
CMM's measurement grid. In addition, conventional CMMs generally operate in
metrology laboratories or environmentally-stable quality inspection departments
of manufacturing facilities rather than on the factory floor. According to Frost
& Sullivan, an independent industry research group, the worldwide market for
fixed-base CMMs amounted to $1.2 billion in 1995.
Isolation from the factory floor and the relatively small measurement grids
of CMMs limit their utility to small, readily portable workpieces that require
high levels of measurement precision. As manufactured subassemblies increase in
size and become integrated into even larger assemblies, they become less
24
<PAGE> 26
transportable, thus diminishing the utility of a conventional CMM. Consequently,
manufacturers must continue to use hand-measuring tools or expensive customized
test fixtures to measure large or unconventionally shaped objects.
An increasingly competitive global marketplace has created a demand for
higher quality products with shorter life cycles. While manufacturers previously
designed their products to be in production for longer periods of time, current
manufacturing practices must accommodate more frequent product introductions and
modifications, while satisfying more stringent quality and safety standards. In
most cases, only a relatively small percentage of the components of a
manufactured product requires highly precise measurements (less than
one-thousandth of an inch). Conventional CMMs provide manufacturers with very
precise measurement capabilities and cost up to $2 million per unit. However,
they are not responsive to manufacturers' increasing need for cost-effective
intermediate precision measurement capabilities. The Company believes that a
greater percentage of components requires intermediate precision measurements
(between one- and twenty-thousandths of an inch). In the absence of intermediate
precision measuring systems, manufacturers often are unable to make appropriate
measurements or part-to-CAD comparisons during the manufacturing process,
resulting in decreased productivity, poor product quality and unacceptable
levels of product rework and scrap. Manufacturers increasingly require more
rapid design, greater control of the manufacturing process, tools to compare
components to their CAD specifications and the ability to measure precisely
components that cannot be measured or inspected by conventional CMMs. Moreover,
they increasingly require measurement capabilities to be integrated into the
manufacturing process and to be available on the factory floor.
THE FARO SOLUTION
The Company designs, develops, markets and supports portable,
software-driven, 3-D measurement systems that are used in a broad range of
manufacturing and industrial applications. The Company's principal products, the
FAROArm(R) articulated measuring device and its companion AnthroCam(R) software,
integrate the measurement and quality inspection function with CAD and CAM
technology to improve productivity, enhance product quality and decrease rework
and scrap in the manufacturing process. The Company's products overcome many
limitations of hand-measurement tools, test fixtures and conventional CMMs by
incorporating the following features:
Integration with CAD Technology. The Company's products provide a
bridge between the virtual 3-D world of the CAD process and the physical
3-D world of the factory floor. The interface to CAD allows manufacturers
to integrate design, production and measurement and quality inspection
processes on a common software platform. The Company believes that this
integration creates significant savings by reducing the need for test
fixtures and improves productivity by reducing production set-up times.
Finally, the Company's integration with CAD technology significantly
enhances product quality by maximizing the opportunities to make precise
measurements based on engineering specifications within the manufacturing
process.
Six-Axis Articulating Arm. The FAROArm(R) incorporates a six-axis
instrumented, articulating device that approximates the range of motion and
dexterity of the human arm. The flexibility of the FAROArm(R) enables the
user to measure complex shapes and ergonomic structures and to reach
behind, underneath and into previously inaccessible spaces, such as
interior surfaces of aircraft or automobiles. The flexibility of the
FAROArm(R) allows customers to measure more accurately and efficiently than
previously possible.
Portability and Adaptability. The FAROArm(R) is lightweight, portable
and designed for operation in the often harsh environments typical of
manufacturing facilities. The FAROArm(R) can be moved to multiple locations
on the factory floor to measure large parts and assemblies that cannot be
easily moved to a conventional CMM. This portability extends 3-D
measurement to previously inaccessible areas of the factory floor and
eliminates the travel time to and from quality inspection departments.
Levels of Precision Responsive to Industry Needs. The Company's
products respond to manufacturers' need for intermediate levels of
measurement precision. Although high levels of precision (less than
one-thousandth of an inch) are required for certain manufacturing
applications, the FAROArm(R) satisfies the greater demand for measurements
that require intermediate precision (one- to twenty-
25
<PAGE> 27
thousandths of an inch). The Company's products meet the precision
measurement requirements of a substantial portion of products in the
manufacturing process and address the underserved market for intermediate
precision measurement systems.
Broad Affordability. The Company offers various models of the
FAROArm(R) ranging in price from $14,000 to $70,000, while conventional
CMMs range in price from $20,000 to $2 million. The relatively low cost of
the Company's products compared to conventional CMMs has afforded
manufacturers the opportunity to introduce cost-effective measurement and
quality inspection functions throughout the manufacturing process.
Manufacturers are able to purchase multiple units to be used at different
locations within a single manufacturing facility and to introduce
measurement and quality inspection at additional points in the
manufacturing process.
Ease of Use. The Company's software products have been specifically
designed to be used by production line personnel with minimal prior
computer or CAD experience. The bundled hardware and software system is
designed to require minimal training for production line personnel to reach
proficiency with the product. To take a measurement, the operator simply
touches the object to be measured with a probe at the end of the arm and
presses a button. The FAROArm(R) is also ergonomically designed to
facilitate use in typical factory floor applications.
Paperless Data Collection. The FAROArm(R) allows for paperless data
collection by a connected computer hosting related CAD application
software. This function responds to current trends toward automated
statistical process controls for facilitating data analysis. Paperless data
collection improves productivity and eliminates the risk of error in
transcribing the collected information.
Open Architecture. The FAROArm(R) and AnthroCam(R) have been designed
as an open architecture system, allowing the user to unbundle the hardware
and software to interface the FAROArm(R) with other CAD-based software
packages and to interface AnthroCam(R) with other 3-D measurement devices.
In addition, the Company's software and hardware are built in accordance
with computer and communications industry standards so that these products
may be integrated with a broad range of application software packages.
THE FARO STRATEGY
The Company's objective is to strengthen its position as the leading
provider of portable, software-driven, 3-D measurement systems. To achieve this
objective, the Company has adopted the following principal strategies:
Focus on the Portable 3-D Measurement Market. The Company believes it
is a pioneer in the development and marketing of portable, software-driven,
3-D measurement systems. Based on current sales of all portable 3-D
measurement systems to date, the Company believes that the market for these
products is substantial, but is currently underserved. The Company expects
its intensive efforts to document and publicize new applications to lead to
a greater market awareness of the benefits of the Company's technology.
Increase Sales Force and Distribution. The Company has implemented an
integrated team sale process and has developed strategic relationships with
third party distributors which the Company believes have increased sales
effort efficiency. The Company intends to add additional personnel to its
existing sales offices and to open additional sales offices and add
distributors to provide geographic coverage in territories with strong
manufacturing and industrial bases.
Further Penetrate its Installed Customer Base. The Company has more
than 600 customers that use its products in a broad range of manufacturing
and industrial applications. Many of these customers are large
manufacturers with multiple facilities. For many of its customers, the
Company's products are used only at certain manufacturing facilities or by
certain divisions. Accordingly, the Company will seek to leverage
successful installations of its products to encourage adoption at
additional customer sites.
Increase International Sales. The Company believes that substantial
international demand exists for portable, software-driven, 3-D measurement
systems. Therefore, the Company plans to extend its significant commitment
to international sales and support to take advantage of worldwide market
opportunities. International sales represented 20.5% of the Company's sales
for 1996 and 26.0% for the
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first six months of 1997. The Company intends to increase international
sales by expanding its current sales organization in Europe and entering
new markets, such as the Pacific Rim and Latin America.
Leverage its Technology. The Company has made a substantial
investment in the development of its technology, employs a number of
proprietary manufacturing processes and currently holds or has pending 18
patents in the United States, eight of which are also held or pending in
other jurisdictions. The Company believes that the foundation of its
successes to date has been the technological superiority and affordability
of its products. The Company intends to leverage its existing technology to
lower the cost of producing, and enhance the functionality, of its
products.
Expand its Product Line and Service Offerings. The Company intends to
introduce new products to meet the requirements of its customers. The
Company also intends to capitalize on its experience in solving unique
production problems to increase revenues through technical service
offerings. In addition, the Company may seek to acquire complementary
businesses or technologies to expand its product and service offerings.
FARO PRODUCTS
The Company designs, develops, markets and supports portable,
software-driven, 3-D measurement systems that are used in a broad range of
manufacturing and industrial applications. The Company's principal products are
the FAROArm(R) articulated measuring device and its companion AnthroCam(R)
software. Together, these products integrate the measurement and quality
inspection function with CAD and CAM technology to improve productivity, enhance
product quality and decrease rework and scrap in the manufacturing process. The
following is a schematic diagram of the Company's Silver Series FAROArm(R):
SILVER SERIES MODEL
A schematic drawing of the Company's Silver Series FAROArm showing (i) six
numbered axes of motion, (ii) an on-board controller and (iii) a probe,
hardgrip and data switch on one end and a laptop computer connected at the
other end with the Company's Autro Cam logo on the computer screen.
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<PAGE> 29
FAROArm(R)
The FAROArm(R) is a portable, six-axis, instrumented, articulated device
that approximates the range of motion and dexterity of the human arm. Each
articulated arm is comprised of three major joints, each of which may consist of
one, two or three axes of motion. The FAROArm(R) is available in a variety of
sizes, configurations and precision levels that are suitable for a broad range
of applications. To take a measurement, the operator simply touches the object
to be measured with a probe at the end of the arm and presses a button. Data can
be captured as either individual points or a series of points. Digital
rotational transducers located at each of the joints of the arm measure the
angles at those joints. This rotational measurement data is transmitted to an
on-board controller that converts the arm angles to precise locations in 3-D
space using "xyz" position coordinates and "ijk" orientation coordinates.
The FAROArm(R) has been designed as an open architecture system. The
communications parameters of the on-board processors have the ability to combine
advanced sensing probes, integrate with conventional CMM software and
communicate with different CAD software packages and a variety of computer
operating systems. This open architecture is designed to provide for easy
integration of the FAROArm(R) into the manufacturing environment. The customer's
ability to use an installed base of computing hardware and software further
reduces the cost of installation and training while initiating the transition to
the Company's preferred group of CAD-based products. To encourage integration of
the FAROArm(R) into the manufacturing environment, the Company provides a group
of seamless interface drivers for leading CAD/CAM packages, including
AutoCAD(R), CADKey(R) and SURFCAM(R). The Company also provides a full serial
communication command protocol to the FAROArm(R) for customers who write their
own interfaces.
The Company offers several models of the FAROArm(R) under two product
lines: the Silver Series and the Bronze Series.
Silver Series. The Silver Series models are the Company's higher precision
(P.003 to P.007 inches) measuring devices and are available in six, eight and
twelve foot measurement diameters. These models are most frequently used for
factory floor inspection and fit-checking applications. Depending on the size,
configuration and precision level, the Silver Series models are priced between
$50,000 and $70,000 when sold as a turnkey system including hardware and
AnthroCam(R) software and between $30,000 and $60,000 without AnthroCam(R)
software.
Bronze Series. The Bronze Series models are the Company's medium precision
(P.012 to P.016 inches) measuring devices and are available in six, eight and
ten foot measurement diameters. These models are most frequently used for
applications that do not require high-level precision, such as 3-D modeling,
mold production and reverse-engineering applications. Depending on the size,
configuration and precision level, the Bronze Series models are priced between
$30,000 and $50,000 when bundled with AnthroCam(R) software and between $14,000
and $23,000 without AnthroCam(R) software.
AnthroCam(R)
AnthroCam(R) is the Company's proprietary measurement software. It is built
on the AutoCAD/AutoSurf software development platform, which allows users to
benefit from extensive hardware, software, interfacing and product support
libraries and teaching products. AnthroCam(R) software is offered with the
FAROArm(R) and is also offered as an unbundled product. When unbundled from the
FAROArm(R), AnthroCam(R) sells for $15,000.
AnthroCam(R) is the Company's software-based bridge to CAD and CAM; it
allows users to compare measurements of manufactured components with complex CAD
data. In conventional design applications, curved or ergonomic shapes are
typically modeled physically and then converted into data for manufacturing.
AnthroCam(R) provides an alternative to the time and expense of this physical
modeling process with a digital solution. For older parts without data files,
AnthroCam(R) enables pre-existing parts to be measured in order to adapt them to
current manufacturing technologies.
AnthroCam(R) has been designed as an open architecture system, allowing for
efficient integration into the manufacturing environment. The Company provides a
full serial communication command protocol to the
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AnthroCam(R) software for customers who write interfaces to their own software.
The Company also provides comprehensive training and support for AnthroCam(R)
and offers this product in a number of international versions.
AnthroCam(R) is a Windows-based, 32-bit application written for the most
recent PC-based technology. AnthroCam(R) has been entirely designed and
programmed by the Company utilizing field input and industry wide beta site
installations. AnthroCam(R) is written as an AutoCAD runtime extension (ARX)
that is the AutoCAD(R) Application Programming Interface (API). The software is
written in the C++ development language using Microsoft Foundation Class (MFC)
standards. The software fully implements UNICODE standards for worldwide
translation allowing the Company to create foreign language versions to enter
international markets more effectively.
Specialty Products
The Company licenses and supports certain specialty products based on its
articulated arm technology that are used in medical and multimedia applications.
License and support fees from these products do not represent a significant
portion of the Company's revenues and the Company does not intend to actively
market these products.
CUSTOMERS
The Company's products have been purchased by more than 600 customers
ranging from small machine shops to large manufacturing and industrial
companies. The Company's ten largest customers by revenue represented an
aggregate of 28.1% and 17.5% of the Company's total revenues in 1996 and the six
months ended June 30, 1997, respectively. Sales to Boeing represented 10.0% of
the Company's sales in 1996. No customer represented 10.0% or more of the
Company's sales in the first six months of 1997. The following table
illustrates, by vertical market, the Company's diverse customer base:
AEROSPACE
Boeing
GE Aircraft Engines
Lockheed Martin
Nordam Repair Division
Northrop Grumman
Orbital Sciences
Dee Howard
APPAREL AND FOOTWEAR
Nike
Reebok
AUTOMOTIVE
AO Smith
Chrysler
Ford
General Motors
Honda
Hyundai
Johnson Controls
Lear Corporation
Mercedes Benz
Porsche
Samsung Motors
Toyota
Vehma International
BUSINESS AND CONSUMER
MACHINES
Corning Asahi
Xerox
ELECTRIC UTILITIES AND
MANUFACTURERS
General Electric
Southern California Edison
Tennessee Valley Authority
Westinghouse Electric
FARM/LAWN EQUIPMENT
New Holland North America
Toro
HEAVY EQUIPMENT
MANUFACTURERS
Caterpillar
Komatsu Dresser
Champion Road Machinery
Texas Steel
PERSONAL ROAD/
WATER/SNOW CRAFT
Harley Davidson
Polaris Industries
PLASTICS
Able Design Plastics
Paramount Plastics
Thermoform Plastics
CUSTOMER CASE STUDIES
The following case studies illustrate the use of the Company's products and
services by its customers:
Chrysler Canada Corporation. Chrysler Canada Corporation ("Chrysler")
manufactures the Dodge Ram truck, van and wagon at its Windsor, Ontario
plant. This plant builds approximately 420
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vehicles per shift, with two shifts per day. Chrysler discovered certain
fit problems with its large panels and bodyside assemblies. Previous
inspection tools, such as test fixtures, templates and patterns, could not
meet Chrysler's requirements for on-site product measurement. The
FAROArm(R) was originally introduced as an interim solution. Chrysler
identified one of its three production lines as its "ideal" or "good" line
and used the FAROArm(R) to compare the products produced by the lines and
adjust the two "bad" lines. Within two weeks, Chrysler experienced
significantly improved product quality. The Company's "interim" solution
resulted in measurable production improvements for the plant, together with
significant capital savings as custom test fixtures were replaced with the
FAROArm(R).
Champion Road Machinery. Champion Road Machinery ("Champion") is a
worldwide manufacturer of road graders. Similar to a snow plow, road
graders are essential for shaping and smoothing new roadbeds, and are also
used in surface mining, dam work and land reclamation. Champion identified
the need to reduce the number of "reworks" or the custom fit of
subassemblies to its frames because of dimensional variations.
Historically, each time component parts did not fit together, Champion
corrected the deviations on a case-by-case basis by custom-fitting the
parts. With the FAROArm(R) and its companion AnthroCam(R) software,
Champion was able to capture measurement data from the parts and identify
the origin of the variations, which allowed it to address the source of the
problems rather than continue to make individual adjustments. Champion's
use of the FAROArm(R) resulted in a systematic solution for a recurring and
expensive manufacturing problem.
Southern California Edison. Southern California Edison ("SCE") is a
large public utility company. Like other utilities, SCE experienced
significant expense and customer dissatisfaction as a result of lengthy
downtimes. During routine turbine overhauls, scheduled and unscheduled
maintenance and forced outage conditions, SCE typically made numerous
repairs and modifications to make its equipment functional. Common problems
encountered by SCE included obsolete parts, long turnaround times for
replacement parts and difficulty in returning damaged parts to full
functionality. Using the FAROArm(R), SCE was able to measure large damaged
blades and create CAD drawings for quick manufacture of replacements. This
allowed SCE to bring its power generation units online without undue delay
and expense.
Texas Steel. Texas Steel is a foundry that produces steel castings
for off-road, mining, oil field and construction equipment. Its castings
weigh as much as 25,000 pounds and have diameters as large as twelve feet.
Texas Steel used the FAROArm(R) to improve the accuracy of dimensional
checks of these large castings, and found it to be safer, faster and more
efficient than its previous measurement methods. Texas Steel reported a 75%
time-savings in making these checks by using the FAROArm(R). In addition,
the FAROArm(R) allowed Texas Steel to measure exceptionally large parts
where such measurements were not possible with previous methods. The ease
of use of the FAROArm(R) and AnthroCam(R) also encouraged Texas Steel to
expand the range of parts checked, further increasing production quality.
Polaris Industries, Inc. Polaris Industries, Inc. ("Polaris") is a
leading manufacturer of all-terrain vehicles ("ATVs"). To satisfy its own
stringent quality standards, Polaris engineers routinely check all ATV
subassemblies and weldments to ensure quality and reduce the number of
reworks caused by dimensional variations. Before Polaris began using the
FAROArm(R), measuring the subassemblies took approximately 2.5 hours.
Polaris' engineers would manually measure various points on the
subassemblies to ensure that they matched blueprint specifications. These
measurements were difficult to make because of the complex size and shape
of the subassemblies. Using the FAROArm(R), Polaris reduced the measurement
time for subassemblies to approximately 15 minutes. Polaris reports that
its use of the FAROArm(R) has resulted in a significant increase in
productivity.
SALES AND MARKETING
The Company directs its sales and marketing efforts from its headquarters
in Lake Mary, Florida. At June 30, 1997, the Company employed 40 sales
professionals who operate from the Company's five domestic regional sales
offices located in Chicago, Dallas, Detroit, Los Angeles and Seattle, and three
international sales
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offices located in London, Paris and Stuttgart. The Company also utilizes three
domestic and 12 international distributors in territories where the Company does
not have regional sales offices.
The Company uses a process of integrated lead qualification and sales
demonstration. Once a customer opportunity is identified, the Company employs a
team-based sales approach involving inside and outside sales personnel who are
supported by application engineers.
The Company employs a variety of marketing techniques, including direct
mail, trade shows, and advertising in trade journals, and proactively seeks
publicity opportunities for customer testimonials. Management believes that
word-of-mouth advertising from the Company's existing customers provides an
important marketing advantage. The Company also has a computerized sales and
marketing software system with telemarketing, lead tracking and analysis, as
well as customer support capabilities. Each of the Company's sales offices is
linked electronically to the Company's headquarters.
In June 1996, the Company entered into an OEM agreement with Mitutoyo
Corporation ("Mitutoyo"), a Japanese company that is the world's largest
manufacturer of metrology tools. Mitutoyo markets the FAROArm(R) in Japan under
the name SPINARM(R). The agreement, which grants Mitutoyo a non-exclusive right
to sales in Japan, expires in June 1999 and is renewable for successive one year
terms.
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends on its ability to
achieve technological leadership, which will require ongoing enhancements of its
products and the development of new applications and products that provide 3-D
measurement solutions. Accordingly, the Company intends to continue to make
substantial investments in the development of new technologies, the
commercialization of new products that build on the Company's existing
technological base and the enhancement and development of additional
applications for its products.
The Company's research and development efforts are directed primarily at
enhancing the technology of its current products and developing new and
innovative products that respond to specific requirements of the emerging market
for 3-D measurement systems. The Company's research and development efforts have
been devoted primarily to mechanical hardware, electronics and software. The
Company's engineering development efforts will continue to focus on the
FAROArm(R) and AnthroCam(R) products. Significant efforts are also being
directed toward the development of new measurement technologies and additional
features for existing products. See "-- Technology."
At June 30, 1997, the Company employed 16 scientists and technicians in its
research and development efforts. Research and development expenses were
$173,000, $364,000 and $730,000 in 1994, 1995 and 1996, respectively, and
$395,000 in the first six months of 1997. Research and development activities,
especially with respect to new products and technologies, are subject to
significant risks, and there can be no assurance that any of the Company's
research and development activities will be completed successfully or on
schedule, or, if so completed, will be commercially accepted. See "Risk
Factors -- Technological Change."
TECHNOLOGY
The primary measurement function of the FAROArm(R) is to provide
orientation and position information with respect to the probe at the end of the
FAROArm(R). This information is processed by software and can be compared to the
desired dimensions of the CAD data of a production part or assembly to determine
whether the measured data conforms to meet dimensional specifications.
To accomplish this measurement function, the FAROArm(R) is designed as an
articulated arm with six or seven joints. The arm consists of aluminum links and
rotating joints that are combined in different lengths and configurations,
resulting in human arm-like characteristics. Each joint is instrumented with a
rotational transducer, a device used to measure rotation, which is based on
optical digital technology. The position and orientation of the probe in three
dimensions is determined by applying trigonometric calculations at each joint.
The position of the end of a link of the arm can be determined by using the
angle measured and the known
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length of the link. Through a complex summation of these calculations at each
joint, the position and orientation of the probe is determined.
The Company's products are the result of a successful integration of
state-of-the-art developments in mechanical and electronic hardware and
applications software. The unique nature of the Company's technical developments
is evidenced by the Company's numerous U.S. and international patents. The
Company maintains low cost product design processes by retaining development
responsibilities for all electronics, hardware and software.
Mechanical Hardware. The FAROArm(R) is designed to function in diverse
environments and under rigorous physical conditions. The arm monitors its
temperature to adjust for environments ranging from -10 degrees to +50 degrees
Celsius. The arm is constructed of pre-stressed precision bearings to resist
shock loads. Low production costs are attained by the proprietary combination of
reasonably priced electromechanical components accompanied by the optimization
and on-board storage of calibration data. Many of the Company's innovations
relate to the environmental adaptability of its products. Significant features
include integrated counter-balancing, configuration convertibility and
temperature compensation.
Electronics. The rotational information for each joint is processed by an
on-board computer that is designed to handle complex analyses of joint data as
well as communications with a variety of host computers. The Company's
electronics are based on digital signal processing and surface mount
technologies. The Company's products meet all mandatory electronic safety
requirements. Advanced circuit board development, surface mount production and
automated testing methods are used to ensure low cost and high reliability.
Software. AnthroCam(R) is a Windows-based, 32-bit application written for
the most recent PC-based technology. AnthroCam(R) has been entirely designed and
programmed by the Company utilizing field input and industry wide beta site
installations. AnthroCam(R) is written as an AutoCAD runtime extension (ARX)
that is the AutoCAD(R) Application Programming Interface (API). The software is
written in the C++ development language using Microsoft Foundation Class (MFC)
standards. The software fully implements UNICODE standards for worldwide
translation allowing the Company to create foreign language versions to enter
international markets more effectively. The software is developed with the
cooperation of diverse user beta sites and a well developed system for tracking
and implementing market demands.
INTELLECTUAL PROPERTY
The Company holds or has pending 17 patents in the United States, ten of
which also are held or pending in other jurisdictions. The Company also has 16
registered trademarks in the United States and 12 trademark applications pending
in the United States and the European Union.
The Company relies on a combination of contractual provisions and trade
secret laws to protect its proprietary information. There can be no assurance
that the steps taken by the Company to protect its trade secrets and proprietary
information will be sufficient to prevent misappropriation of its proprietary
information or to preclude third-party development of similar intellectual
property.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. The Company
intends to vigorously defend its proprietary rights against infringement by
third parties. However, policing unauthorized use of the Company's products is
difficult, particularly overseas, and the Company is unable to determine the
extent to which piracy of its software products exists. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as the laws of the United States.
The Company does not believe that any of its products infringe on the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to current
or future products. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company or at all, which could have a material adverse effect upon the
Company's business, operating results
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and financial condition. See "Risk Factors -- Uncertainty of Patents; Dependence
on Patents, Licenses and Proprietary Rights."
MANUFACTURING AND ASSEMBLY
The Company manufactures its products primarily at its headquarters in Lake
Mary, Florida. Manufacturing consists primarily of assembling components and
subassemblies purchased from suppliers into finished products. The primary
components, which include machined parts and electronic circuit boards, are
produced by subcontractors according to the Company's specifications. All
products are assembled, calibrated and finally tested for accuracy and
functionality before shipment. In limited circumstances, the Company performs
in-house circuit board assembly and part machining. The Company's facilities and
operations are in the process of completing requirements for ISO 9000
registration.
COMPETITION
The broad market for measurement devices, which includes hand-measurement
tools, test fixtures and conventional, fixed-base CMMs, is highly competitive.
Manufacturers of hand-measurement tools and traditional CMMs include a
significant number of well-established companies that are substantially larger
and possess substantially greater financial, technical and marketing resources
than the Company. There can be no assurance that these entities or others will
not succeed in developing products or technologies that will directly compete
with those of the Company. The Company will be required to make continued
investments in technology and product development to maintain its technological
advantage over its competition. There can be no assurance that the Company will
have sufficient resources to make such investments or that the Company's product
development efforts will be sufficient to allow the Company to compete
successfully as the industry evolves. The Company's products compete on the
basis of portability, accuracy, application features, ease-of-use, quality,
price and technical support.
The Company's only significant direct competitor is a joint venture of
Romer SRL (France) and Romer, Inc. (California). The Company is aware of a
direct competitor in Germany and two new direct competitors in Italy, each of
which the Company believes currently has negligible sales. The Company also has
an established, indirect competitor in Japan that markets a measuring device
that is mobile but not portable. There can be no assurance that such companies
will not devote additional resources to the development and marketing of
products that compete with those of the Company.
The worldwide trend toward CAD-based factory floor metrology has resulted
in the introduction of CAD-based inspection software for conventional CMMs by
most of the large CMM manufacturers. Certain CMM manufacturers are
miniaturizing, and in some cases increasing the mobility of, their conventional
CMMs. Nonetheless, these CMMs still have small measurement volumes, lack the
adaptability typical of portable, articulated arm measurement devices and lose
accuracy outside the controlled environment of the metrology lab.
BACKLOG
At June 30, 1997, the Company had orders representing $1.9 million in
sales, compared to $1.5 million at June 30, 1996. The Company expects to ship
all such outstanding orders by August 31, 1997. The Company affords its
customers the right to cancel any order at any time before the product is
shipped. Historically, the number of canceled orders has been negligible.
Nonetheless, there can be no assurance that all orders in backlog will be
shipped, and backlog may not be indicative of future sales.
EMPLOYEES
At June 30, 1997, the Company had 104 full time employees, consisting of 40
sales/application engineering staff, 27 production staff, 16 research and
development staff, 13 administrative staff, and eight customer service
specialists. None of the Company's employees is represented by a labor
organization, and the Company is not a party to any collective bargaining
agreements. The Company believes its employee relations are good. Management
believes that its future growth and success will depend in part on its ability
to retain
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and continue to attract highly skilled personnel. The Company anticipates that
it will obtain the additional personnel required to satisfy the staffing
requirements caused by its planned expansion over the next 18 months.
FACILITIES
The Company's headquarters and principal operations are located in a leased
building in Lake Mary, Florida containing approximately 18,000 square feet. The
Company currently is in the process of increasing the size of its headquarters
facility to 36,000 square feet. The expanded facility will be used to increase
the Company's production, research and development, and training capabilities.
The Company believes that, after this expansion, its headquarters will be
adequate for its foreseeable needs and that it will be able to locate suitable
space for additional regional offices as those needs develop. The Company's
expanded facilities will constitute a fully-functional and technologically
current headquarters, administrative and operations center and production
facility. The Company anticipates that the expanded facility will be fully
utilized within 18 months of its completion.
The Company's planned expansion will require additional space for sales,
administrative and production personnel as well as for actual fabrication
activities. The Company believes that it will be able to meet these needs as it
continues to expand.
In addition, the Company has five sales offices in the United States and
three sales offices in Europe. The following table sets forth additional
information concerning these sales offices:
<TABLE>
<CAPTION>
LOCATION DATE OPENED
- -------- ------------
<S> <C>
Coventry, United Kingdom.................................... May 1997
Paris, France............................................... April 1996
Stuttgart, Germany.......................................... April 1996
Chicago, Illinois........................................... March 1996
Dallas, Texas............................................... March 1996
Los Angeles, California..................................... March 1996
Seattle, Washington......................................... March 1995
Detroit, Michigan........................................... January 1995
</TABLE>
LEGAL PROCEEDINGS
The Company is not a party to any litigation, and is not aware of any
pending or threatened litigation, that is expected to have a material adverse
effect on the Company or its business.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers and directors of the Company, as well as certain key
employees, and their ages as of August 1, 1997 are as follows:
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
- ---- --- -------- --------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Simon Raab, Ph.D........................ 44 Chairman of the Board, President, Chief 2000
Executive Officer and Director
Gregory A. Fraser, Ph.D................. 42 Chief Financial Officer, Executive Vice 1999
President, Secretary, Treasurer and
Director
Hubert d'Amours......................... 58 Director 2000
Philip R. Colley........................ 59 Director 1999
Andre Julien............................ 54 Director 2000
Martin M. Koshar........................ 64 Director 1999
Alexandre Raab.......................... 72 Director 1998
Norman H. Schipper, Q.C................. 67 Director 1998
KEY EMPLOYEES:
Daniel T. Buckles....................... 42 Vice President -- Sales
Ali S. Sajedi........................... 37 Chief Engineer
</TABLE>
Simon Raab, Ph.D., a co-founder of the Company, has served as the Chairman
of the Board, Chief Executive Officer and a director of the Company since its
inception in 1982 and as President since 1986. Mr. Raab holds a Ph.D. in
Mechanical Engineering from McGill University, Montreal, Canada, a Masters of
Engineering Physics from Cornell University and a Bachelor of Science in Physics
with a minor in Biophysics from the University of Waterloo, Canada.
Gregory A. Fraser, Ph.D., a co-founder of the Company, has served as Chief
Financial Officer and Executive Vice President since May 1997 and as Secretary,
Treasurer and a director of the Company since its inception in 1982. Mr. Fraser
holds a Ph.D. in Mechanical Engineering from McGill University, Montreal,
Canada, a Masters of Theoretical and Applied Mechanics from Northwestern
University and a Bachelor of Science and Bachelor of Mechanical Engineering from
Northwestern University.
Hubert d'Amours has been a director since 1990. Mr. d'Amours has served as
president of Montroyal Capital Inc. and Capimont Inc., two venture capital
investment firms, since 1990. Mr. d'Amours also serves as a director of a number
of privately held companies.
Philip R. Colley has been a director since 1984. Mr. Colley has been the
President of Colley, Borland and Vale Insurance Brokers Ltd. in Ontario, Canada,
since 1967.
Andre Julien has been a director since 1986. Mr. Julien was a co-founder in
1970 and a major shareholder until 1977 of Performance Sail Craft, Inc., a
Montreal-based sailboat manufacturer which produces the Laser(TM) sailboat. From
1969 until his retirement in 1994, Mr. Julien was president and the owner of
Chateau Paints, Inc., a coatings and paint manufacturer in Montreal Canada.
Since his retirement in 1994, Mr. Julien has sat on boards of directors of, and
provided consulting services to, a number of private companies.
Martin M. Koshar has been a director since 1992. From 1988 until his
retirement in 1992, Mr. Koshar was President of the Aerospace and Naval Division
of Martin Marietta Corporation, where he managed the production of various
aircraft structures, the VLS missile launching system and various SONAR systems
and
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undersea recovery devices. Since his retirement in 1992, Mr. Koshar has provided
consulting services to a number of organizations, including Lockheed Martin and
the U.S. Army Missile Command.
Alexandre Raab has been a director since the Company's inception in 1982.
Mr. Raab has served as the Chairman of the Board of Advanced Agro Enterprises, a
privately held company in Ontario, Canada, since 1991. From 1953 through 1990,
Mr. Raab was the principal shareholder and Chief Executive Officer of White Rose
Nurseries, Ltd., a privately held horticultural firm. Mr. Raab is the father of
Simon Raab.
Norman H. Schipper, Q.C., has been a director since the Company's inception
in 1982. Mr. Schipper has been a partner in the Toronto office of the law firm
of Goodman, Phillips & Vineberg since 1962.
Daniel T. Buckles has been Vice President -- Sales for the Company since
May 1997. From 1993 to May 1997, he served as the Director of Marketing for the
Company's Industrial Products Group. From 1991 to 1993, Mr. Buckles was the
Manager of Product Assurance Technical Operations for the Aerospace and Naval
Division of Martin Marietta Corporation. From 1987 to 1991, Mr. Buckles held
program management positions for a variety of advanced development and
manufacturing programs at Martin Marietta Corporation. From 1976 to 1987, Mr.
Buckles held various program management and manufacturing positions at the
Submarine Signal Division of Raytheon Company. Mr. Buckles holds a Bachelor of
Arts in Theoretical and Quantitative Economics and a Masters of Business
Administration from the University of Massachusetts -- Dartmouth.
Ali S. Sajedi has been Chief Engineer for the Company since its inception
in 1982. Mr. Sajedi has been responsible for implementation of research and
development plans and for production oversight of the Company's self-managed
production team. Mr. Sajedi holds a Bachelor of Mechanical Engineering from
McGill University.
COMMITTEES OF THE BOARD
The Board of Directors has established the following committees:
Audit Committee. The Audit Committee is comprised of Messrs. d'Amours,
Julien and Simon Raab and is responsible for reviewing the independence,
qualifications and activities of the Company's independent certified accountants
and the Company's financial policies, control procedures and accounting staff.
The Audit Committee recommends to the Board the appointment of the independent
certified public accountants and reviews and approves the Company's financial
statements. The Audit Committee also reviews transactions between the Company
and any officer or director or any entity in which an officer or director of the
Company has a material interest.
Compensation Committee. The Compensation Committee is comprised of Messrs.
Koshar (committee chair), d'Amours and Julien and is responsible for
establishing the compensation of the Company's directors, officers and other
managerial personnel, including salaries, bonuses, termination arrangements and
other benefits. In addition, the Committee administers the Company's 1993 Stock
Option Plan, 1997 Employee Stock Option Plan and 1997 Non-Employee Director
Stock Option Plan.
COMPENSATION OF DIRECTORS
Directors who are executive officers of the Company do not receive
compensation for service as members of either the Board of Directors or
committees thereof. Directors who are not executive officers of the Company
receive $1,000 for each Board meeting and $500 for each committee meeting
attended. The outside directors also receive options to purchase Common Stock
under the Company's 1997 Non-Employee Director Stock Option Plan. See "-- Stock
Option Plans -- 1997 Non-Employee Director Stock Option Plan."
The Company's 1997 Non-Employee Directors' Fee Plan permits non-employee
directors to elect to receive directors' fees in the form of Common Stock rather
than cash. Shares issued in lieu of cash directors' fees are issued at the end
of the quarter in which the fees are earned, with the number of shares being
based on the fair market value of the Common Stock for the five trading days
immediately preceding the last business
36
<PAGE> 38
day of the quarter. Directors may defer the receipt of fees for federal income
tax purposes, whether payable in cash or in shares.
In May 1997, in consideration for his serving on the Board of Directors,
the Company granted Martin M. Koshar options under the 1993 Stock Option Plan to
purchase 52,732 shares of Common Stock at an exercise price of $0.36 per share.
These options become exercisable in full upon the completion of this offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. d'Amours, Julien and
Koshar. Compensation decisions for 1996 were made by the Compensation Committee.
There have been no transactions during the last three years between the Company
and members of the Compensation Committee or entities in which they own an
interest.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid to the Company's Chief Executive Officer and each of the Company's other
most highly compensated executive officers who earned more than $100,000 in
salary and bonus for the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
- --------------------------- --------- --------
<S> <C> <C>
Simon Raab, Ph.D.
President and Chief Executive Officer..................... $130,000 --
Gregory A. Fraser, Ph.D.
Chief Financial Officer and Executive Vice President...... $111,467 $11,643
</TABLE>
STOCK OPTION PLANS
The Company maintains three stock option plans to attract, motivate and
retain key employees and members of the Board of Directors who are not employees
of the Company.
1993 Stock Option Plan. The Company's 1993 Stock Option Plan (the "1993
Plan") provides for the grant of incentive or nonqualified stock options to key
employees and nonqualified stock options to non-employee directors. An aggregate
of 703,100 shares of Common Stock may be granted under the 1993 Plan. The 1993
Plan is administered by the Compensation Committee of the Board of Directors,
which has broad discretion in the granting of awards. As of August 25, 1997, 21
key employees and one non-employee director held an aggregate of 383,513 options
under the 1993 Plan with ten-year terms and a weighted average exercise price of
$1.53 per share. The executives named in the Summary Compensation Table do not
hold any options under the 1993 Plan.
1997 Employee Stock Option Plan. The Company also has adopted a 1997
Employee Stock Option Plan (the "1997 Plan") that provides for the grant to key
employees of the Company of incentive or nonqualified stock options. An
aggregate of 750,000 shares of Common Stock may be granted under the 1997 Plan.
The 1997 Plan is administered by the Compensation Committee of the Board of
Directors, which has broad discretion in the granting of awards. The exercise
price of all options granted under the 1997 Plan must be at least equal to the
fair market value of the Common Stock on the date of grant. Options granted
under the 1997 Plan will be exercisable after the period or periods specified in
the option agreement with respect to such grants and expire ten years from the
date of grant. As of August 25, 1997, no options have been granted under the
1997 Plan. It is anticipated that upon completion of this offering, Simon Raab
will be granted 80,000 options, Gregory A. Fraser will be granted 60,000 options
and approximately 74 other employees will be granted options to purchase a total
of 220,000 shares of Common Stock at the initial public offering price (except
for options granted at 110% of the initial public offering price to qualify for
treatment as incentive
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<PAGE> 39
stock options). These options will become exercisable in one-third increments on
each anniversary of the date of grant, commencing in 1998.
1997 Non-Employee Director Stock Option Plan. The Company's 1997
Non-Employee Director Stock Option Plan (the "Non-Employee Plan") provides for
the grant of nonqualified stock options to purchase up to 250,000 shares of
Common Stock to members of the Board of Directors who are not employees of the
Company. As of August 25, 1997, no options had been granted under the
Non-Employee Plan. Under the formula grant provisions of the Non-Employee Plan;
(i) each outside director will be granted options to purchase 3,000 shares of
Common Stock upon the completion of this offering; (ii) thereafter, on the date
on which a new outside director is first elected or appointed, he or she will
automatically be granted options to purchase 3,000 shares of Common Stock; and
(iii) each outside director also will be granted options to purchase 3,000
shares of Common Stock annually on the day following the annual meeting of
shareholders. The Non-Employee Plan also permits discretionary option grants
approved by the Board of Directors, and it is anticipated that upon completion
of this offering the Board will grant an aggregate of 160,000 options pursuant
to these provisions. All options granted under the Non-Employee Plan will have
an exercise price equal to the then fair market value of the Common Stock.
Options will become exercisable in one-third increments on each anniversary of
the date of grant.
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<PAGE> 40
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of August 1, 1997 and as adjusted to reflect the
sale of Common Stock offered hereby, with respect to: (i) each director and
executive officer of the Company; (ii) all directors and executive officers of
the Company as a group; (iii) each person known by the Company to be the
beneficial owner of five percent or more of the outstanding Common Stock; and
(iv) the Selling Shareholders. Except as otherwise indicated, the Company
believes that all beneficial owners named below have sole voting and investment
power with respect to all shares of Common Stock beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING SHARES THE OFFERING
------------------- BEING -------------------
NAME OF BENEFICIAL OWNER(1) NUMBER(2) PERCENT OFFERED NUMBER(2) PERCENT
- --------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Simon Raab, Ph.D.(3)............................. 3,102,723 44.3% 165,000 2,937,723 33.8%
Gregory A. Fraser, Ph.D.......................... 542,265 7.7 75,995 466,270 5.4
Hubert d'Amours(4)............................... 59,572 * 7,800 51,772 *
Phillip R. Colley(5)............................. 144,611 2.1 14,395 130,216 1.5
Alexandre Raab(6)................................ 463,158 6.6 0 463,158 5.3
Martin M. Koshar(7).............................. 52,732 * 0 52,732 *
Norman H. Schipper, Q.C.(8)...................... 166,529 2.4 21,804 144,725 1.7
Andre Julien(9).................................. 510,139 7.3 66,795 443,344 5.1
All directors and executive officers as a group
(8 persons).................................... 5,041,729 71.5 351,789 4,689,940 53.6
OTHER SELLING SHAREHOLDERS:
William Alcamo................................... 19,944 * 2,611 17,333 *
Alexis Nihon Credit Inc.......................... 43,686 * 5,720 37,966 *
Thomas Beck(10).................................. 341,298 4.9 44,687 296,611 3.4
Alec Bloom....................................... 13,106 * 1,716 11,390 *
Charles Rosner Bronfman Family Trust............. 87,373 1.3 11,440 75,933 *
Capital CDPQ, Inc................................ 144,959 2.1 18,980 125,979 1.4
Stephen Cole..................................... 2,440 * 319 2,121 *
Consumers Glass Company Ltd. Pension Fund........ 119,145 1.7 15,600 103,545 1.2
William and Gail Cornwall........................ 20,683 * 2,708 17,975 *
Fiducie de Quebec................................ 26,211 * 3,432 22,779 *
Island City Investments Ltd...................... 19,858 * 2,600 17,258 *
Josyd Inc........................................ 11,915 * 1,560 10,355 *
John Leopold..................................... 5,834 * 764 5,070 *
Les Fiduciares de la Cite et du District de
Montreal....................................... 26,211 * 3,432 22,779 *
Levesque Beaubien Geoffrion Inc.................. 11,915 * 1,560 10,355 *
L'Industrielle-Alliance, Compagnie d'Assurance
sur la Vie..................................... 48,055 * 6,292 41,763 *
O. Jack Mandel................................... 95,931 1.4 12,561 83,370 1.0
Remi Marcoux..................................... 15,886 * 2,080 13,806 *
Marleau Lemire Inc............................... 11,915 * 1,560 10,355 *
Mar-Pick Enterprises, Inc........................ 14,485 * 1,442 13,043 *
Nicanco Holdings Inc............................. 11,915 * 1,560 10,355 *
Nodel Investments Limited........................ 11,915 * 1,560 10,355 *
Power Corporation of Canada...................... 43,686 * 5,720 37,966 *
Rash Holdings Reg'd.............................. 15,886 * 2,080 13,806 *
Redpoll Holdings Ltd............................. 17,475 * 2,288 15,187 *
Richard Renaud................................... 131,595 1.9 17,230 114,365 1.3
Michael Rosenbloom............................... 13,106 * 1,716 11,390 *
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER
THE OFFERING SHARES THE OFFERING
------------------- BEING -------------------
NAME OF BENEFICIAL OWNER(1) NUMBER(2) PERCENT OFFERED NUMBER(2) PERCENT
- --------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Ali S. Sajedi(11)................................ 184,563 2.6 24,166 160,397 1.8%
Martin Scheim.................................... 8,334 * 1,091 7,243 *
Lionel Schipper.................................. 165,387 2.4 21,655 143,732 1.7
James Scott...................................... 162,431 2.3 21,268 141,163 1.6
Starjay Holdings Inc............................. 13,106 * 1,716 11,390 *
T.N.G. Corporation Inc........................... 23,035 * 3,016 20,019 *
Stephen Vineberg................................. 15,886 * 2,080 13,806 *
</TABLE>
- ---------------
* Less than 1%
(1) The business address for each of the officers and directors is 125
Technology Park, Lake Mary, Florida 32746. The business address for
Alexandre Raab is 675 Cochrane Drive, Suite 504, Markham, Ontario, Canada
L3R 0B8.
(2) Except as noted, all shares are held beneficially and of record.
(3) Represents shares owned by Xenon Research, Inc. All of the outstanding
capital stock of Xenon Research, Inc. is owned by Mr. Raab and Diana Raab,
his spouse.
(4) Includes 29,786 shares owned by Mr. d'Amours' spouse. Of the shares being
sold by this shareholder, 3,900 shares are being sold by Mr. d'Amours and
3,900 shares are being sold by his wife.
(5) Includes 49,995 shares owned by 483663 Ontario Ltd. Mr. Colley owns a
controlling interest in 483663 Ontario Ltd. Of the shares being sold by
this shareholder, 9,110 shares are being sold by Mr. Colley and 5,285
shares are being sold by 483663 Ontario Ltd.
(6) Represents shares owned by Geanal Holdings, Inc. All of the outstanding
capital stock of Geanal Holdings, Inc. is owned by Mr. Raab and his spouse.
(7) Represents options which become exercisable upon consummation of this
offering.
(8) Represents 2,420 shares owned by Mr. Schipper and 164,109 shares owned by
Shanklin Investments. Mr. Schipper owns a controlling interest in Shanklin
Investments.
(9) Represents 438,652 shares owned by Philanderer Tree, Inc. ("Tree") and
71,487 shares owned by Philanderer Six Inc. ("Six"), over which Mr. Julien
has shared voting and investment power. Tree and Six are private investment
companies of which Mr. Julien is an executive officer, director and
shareholder and are selling 57,435 shares and 9,360 shares, respectively,
in the offering.
(10) Includes 300,851 shares owned by H.T. Beck Investments. Mr. Beck owns a
controlling interest in H.T. Beck Investments. Of the shares being sold by
this shareholder, 5,296 shares are being sold by Mr. Beck and 39,391 shares
are being sold by H.T. Beck Investments.
(11) Mr. Sajedi has been the Chief Engineer for the Company since its inception
in 1982. See "Management."
CERTAIN TRANSACTIONS
The Company leases its headquarters from Xenon Research, Inc. ("Xenon"), a
44.3% shareholder. All of the issued and outstanding capital stock of Xenon is
owned by Simon Raab, the Company's President and Chief Executive Officer, and
Diana Raab, Mr. Raab's wife. The term of the lease expires on February 28, 2001,
and the Company has two five-year renewal options. Base rent under the lease was
$150,000 for 1996 and $148,000 for both 1995 and 1994. Upon completion of the
expansion of the leased facility, base rent will increase to $300,000 per year.
Base rent during renewal periods will reflect changes in the U.S. Bureau of
Labor Statistics Consumer Price Index for all Urban Consumers. The terms of the
lease were approved by an independent committee of the Company's Board of
Directors upon review of an independent market study of comparable rental rates
and such terms are, in the opinion of the Board of Directors, no less favorable
than those that could be obtained on an arms-length basis.
In June 1994, the Company obtained a $3.5 million line of credit from Xenon
which was secured by substantially all of the Company's assets. Advances under
the line accrued interest at a varying interest rate that was determined by an
independent committee of the Company's Board of Directors after an independent
review of interest rates charged by lenders on comparable loans to third
parties. The Company repaid the
40
<PAGE> 42
outstanding balance and terminated the line in September 1996. The Company also
received an unsecured $100,000 demand, non-interest bearing loan from Simon Raab
in November 1995, which the Company repaid in January 1996.
The Audit Committee of the Board of Directors is responsible for reviewing
all future transactions between the Company and any officer, director or
principal shareholder of the Company or any entity in which an officer, director
or principal shareholder has a material interest. Any such transactions must be
on terms no less favorable than those that could be obtained on an arms-length
basis from independent third parties.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred
Stock, par value $0.001 per share. As of the date of this prospectus, 7,000,000
shares of Common Stock held by 47 holders of record and no shares of Preferred
Stock were issued and outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted upon by the shareholders. The Company's
Articles of Incorporation do not provide for cumulative voting. Subject to
preferences that might be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. Holders of
Common Stock have no conversion, preemptive or other rights to subscribe for
additional shares or other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. The issued and outstanding shares of
Common Stock are, and the shares offered hereby will be upon payment therefor,
fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Company's Common Stock and,
in certain instances, could adversely affect the market price of such stock. In
the event of issuance, the Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. No shares of Preferred Stock are outstanding and the
Company has no present intention to issue any shares of its Preferred Stock.
CERTAIN STATUTORY AND OTHER PROVISIONS
Statutory Provisions. The Company is subject to several anti-takeover
provisions under Florida law that apply to public corporations organized under
Florida law unless the corporation has elected to opt out of those provisions in
its Articles of Incorporation or (depending on the provision in question) its
Bylaws. The Company has not elected to opt out of these provisions. The Florida
Business Corporation Act (the "Florida Act") prohibits the voting of shares in a
publicly held Florida corporation that are acquired in a "control share
acquisition" unless the board of directors approves the control share
acquisition or the holders of a majority of the corporation's voting shares
(exclusive of shares held by officers of the corporation, inside directors or
the acquiring party) approve the granting of voting rights as to the shares
acquired in the control share acquisition. A "control share acquisition" is
defined as an acquisition that immediately thereafter entitles the acquiring
party to, directly or indirectly, exercise voting power in the election of
directors within any of the following
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<PAGE> 43
ranges: (i) one-fifth or more but less than one-third of such voting power, (ii)
one-third or more but less than a majority of such voting power and (iii) a
majority or more of such voting power. This statutory voting restriction is not
applicable in certain circumstances set forth in the Florida Act.
The Florida Act also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless (i) the transaction is approved by a majority of
disinterested directors, (ii) the Company has not had more than 300 shareholders
of record during the past three years, (iii) the interested shareholder has
owned at least 80% of the Company's outstanding voting shares for at least five
years, (iv) the interested shareholder is the beneficial owner of at least 90%
of the voting shares (excluding shares acquired directly from the Company in a
transaction not approved by a majority of the disinterested directors), (v)
consideration is paid to the holders of the Company's shares equal to the
highest amount per share paid by the interested shareholder for the acquisition
of Company shares in the last two years or fair market value and certain other
conditions are met or (vi) the transaction is approved by the holder of
two-thirds of the Company's voting shares other than those owned by the
interested shareholder. An interested shareholder is defined as a person who,
together with affiliates and associates, beneficially owns (as defined in
Section 607.0901(1)(e) of the Florida Act) more than 10% of the Company's
outstanding voting shares.
Classified Board of Directors. The Company's Articles of Incorporation and
Bylaws provide that the Board of Directors of the Company will be divided into
three classes, with staggered terms of three years for each class. The term of
one class expires each year. The Company's Articles of Incorporation provide
that any vacancies on the Board of Directors will be filled only by the
affirmative vote of a majority of the directors then in office, even if less
than a quorum. The Articles of Incorporation of the Company also provide that
any director may be removed from office, but only for cause and only upon the
affirmative vote of the holders of at least two-thirds of the Common Stock.
Special Voting Requirements. The Company's Articles of Incorporation
provide that all actions taken by the shareholders must be taken at an annual or
special meeting of the shareholders or by written consent of the holders of not
less than two-thirds of the Company's outstanding voting shares. The Articles of
Incorporation provide that special meetings of the shareholders may be called
only by the President, the Chairman of the Board, a majority of the members of
the Board of Directors, or the holders of not less than 50% of the Company's
outstanding voting shares. Under the Company's Bylaws, shareholders will be
required to comply with advance notice provisions with respect to any proposal
submitted for shareholder vote, including nominations for elections to the Board
of Directors. The Articles of Incorporation and Bylaws of the Company contain
provisions requiring the affirmative vote of the holders of at least two-thirds
of the Common Stock to amend certain provisions of the Company's Articles of
Incorporation and Bylaws.
Stock Option Plans. The 1997 Plan and the Non-Employee Plan each provides
that in the event of (i) the adoption of a plan or reorganization, merger, share
exchange or consolidation of the Company with one or more other entities as a
result of which the holders of the outstanding shares of Common Stock would
receive less than 50% of the voting power of the capital stock or other
interests of the surviving or resulting corporation or entity; (ii) the adoption
of a plan of liquidation or the approval of the dissolution of the Company;
(iii) the approval by the board of directors of an agreement providing for the
sale or transfer of substantially all of the assets of the Company; or (iv) the
acquisition of more than 20% of the outstanding shares of Common Stock by any
person within the meaning of Rule 13(d)(3) of the Securities Exchange Act of
1934, as amended, if such acquisition is not preceded by a prior expression of
approval by the board of directors, then in each such case the options granted
thereunder shall become immediately exercisable in full. Notwithstanding the
foregoing, if a successor corporation or other entity as contemplated above
agrees to assume the outstanding options or to substitute substantially
equivalent options, the options issued thereunder shall not be immediately
exercisable but shall remain exercisable in accordance with the terms of the
1997 Plan or the Non-Employee Plan, as applicable, and the applicable stock
option agreements.
Indemnification and Limitation of Liability. The Florida Act authorizes
Florida corporations to indemnify any person who was or is a party to any
proceeding (other than an action by, or in the right of, the
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<PAGE> 44
corporation), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation or other entity, against liability incurred in connection with such
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or on behalf of a corporation, indemnification may
not be made if the person seeking indemnification is adjudged liable, unless the
court in which such action was brought determines such person is fairly and
reasonably entitled to indemnification. The indemnification provisions of the
Florida Act require indemnification if a director or officer has been successful
on the merits or otherwise in defense of any action, suit or proceeding to which
he or she was a party by reason of the fact that he or she is or was a director
or officer of the corporation. The indemnification authorized under Florida law
is not exclusive and is in addition to any other rights granted to officers and
directors under the Articles of Incorporation or Bylaws of the corporation or
any agreement between officers and directors and the corporation. A corporation
may purchase and maintain insurance or furnish similar protection on behalf of
any officer or director against any liability asserted against the officer or
director and incurred by the officer or director in such capacity, or arising
out of the status, as an officer or director, whether or not the corporation
would have the power to indemnify him or her against such liability under the
Florida Act.
The Company's Articles of Incorporation provide for the indemnification of
directors and executive officers of the Company to the maximum extent permitted
by Florida law and for the advancement of expenses incurred in connection with
the defense of any action, suit or proceeding that the director or executive
officer was a party to by reason of the fact that he or she is or was a director
or executive officer of the Company.
Under the Florida Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper personal benefit. As a result, shareholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available.
The foregoing provisions of the Florida Act and the Company's Articles of
Incorporation and Bylaws could have the effect of preventing or delaying a
person from acquiring or seeking to acquire a substantial equity interest in, or
control of, the Company.
WARRANTS
The Company has agreed to grant to the Representatives and their designees
warrants (the "Representatives' Warrants") to purchase up to 100,000 shares of
Common Stock for a period of five years from the date of this Prospectus at 110%
of the initial public offering price. The Representatives' Warrants may not be
transferred for one year from the date of this Prospectus, except to the
officers, employees, affiliates, partners and shareholders of the
Representatives.
REGISTRATION RIGHTS
The Representatives' Warrants provide that the Company will file a shelf
registration statement relating to the shares of Common stock issuable pursuant
to the Warrants (the "Warrant Shares") no later than one day following the one
year anniversary of the effective date of this Registration Statement.
Additionally, the Company shall use its best efforts to (i) have the shelf
registration statement declared effective as soon as reasonably practicable and
(ii) keep the shelf registration statement continuously effective from the date
the shelf registration statement is declared effective until the earlier of the
expiration date of the Warrants, the date that all the Warrant Shares are
eligible for sale pursuant to Rule 144(k) under the Securities Act or any
successor or comparable provision without restriction or the date that all of
the Warrant Shares have been sold. The Company has agreed to pay the costs and
expenses incurred in connection with the shelf registration
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<PAGE> 45
statement, other than underwriting discounts and commissions and the fees and
expenses of counsel to the Warrantholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Firstar Trust
Company, Milwaukee, Wisconsin.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have 8,700,000
shares of Common Stock outstanding. Of these shares, 4,062,792 shares, including
the 2,300,000 shares of Common Stock sold in this offering (2,645,000 shares if
the Underwriters' over-allotment option is exercised in full), will be freely
tradeable by persons other than affiliates of the Company, without restriction
under the Securities Act. The remaining 4,637,208 shares of Common Stock will be
"restricted" securities within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available. All of such shares will be
beneficially owned by persons who are affiliates of the Company and, commencing
90 days after the date of this Prospectus, would be eligible for public sale
subject to the volume and other limitations of Rule 144. However, the Company's
directors, executive officers and principal shareholders and the Selling
Shareholders have agreed not to sell, contract to sell, offer or otherwise
dispose of or transfer any shares of Common Stock or securities convertible into
or exchangeable or exercisable for shares of Common Stock or any rights to
purchase any of the foregoing for a period of 180 days after the date of this
Prospectus without the prior written consent of Raymond James & Associates, Inc.
In general, Rule 144, as currently in effect, allows a shareholder
(including persons who are deemed "affiliates" of the Company) who has
beneficially owned restricted shares for at least one year (including the prior
holding period of any prior owner other than an affiliate) to sell within any
three-month period that number of shares which does not exceed the greater of
(i) 1% of the outstanding shares of the Common Stock or (ii) the average weekly
trading volume during the four calendar weeks preceding such sale. Sales under
Rule 144 also are subject to certain manner of sale and notice requirements and
the availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not an "affiliate" of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned shares for at least two years (including the holding period
of any prior owner other than an affiliate) is entitled to sell such shares
under Rule 144 without regard to the limitations described above. Shares
properly sold in reliance on Rule 144 to persons who are not "affiliates"
thereafter are freely tradeable without restriction or registration under the
Securities Act.
Before this offering, there has been no public market for the Common Stock.
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
44
<PAGE> 46
UNDERWRITING
The Underwriters named below, acting through their representatives, Raymond
James & Associates, Inc. and Hanifen, Imhoff, Inc. (the "Representatives") have
severally agreed, subject to the terms and conditions of the underwriting
agreement by and among the Company, the Selling Shareholders and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company and
the Selling Shareholders the number of shares of Common Stock set forth opposite
their respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Raymond James & Associates, Inc.............................
Hanifen, Imhoff Inc.........................................
---------
Total............................................. 2,300,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares offered hereby, if any are purchased. The Company and
the Selling Shareholders have been advised by the Representatives that the
Underwriters propose initially to offer the shares to the public at the offering
price set forth on the cover page of this Prospectus and to certain selected
dealers, including the Underwriters, at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. The public offering price and concession may be changed after the
initial offering to the public. The Representatives have informed the Company
and the Selling Shareholders that the Underwriters do not intend to confirm
sales to any accounts over which they exercise discretionary authority.
The Underwriting Agreement provides for indemnification among the Company,
the Selling Shareholders and the Underwriters against certain liabilities in
connection with this offering, including liabilities under the Securities Act.
The Company, each of its officers and directors and the Selling
Shareholders have agreed not to, directly or indirectly, issue, sell, contract
to sell, offer or otherwise dispose of or transfer any shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of Common
Stock or any rights to purchase any of the foregoing, other than shares offered
hereby, without the consent of Raymond James & Associates, Inc. for a period of
180 days following the effectiveness of this Registration Statement. This
restriction does not apply to certain issuances of Common Stock by the Company
pursuant to its stock option plans. See "Shares Eligible for Future Sale."
The Selling Shareholders have granted to the Underwriters an option
exercisable during a 30-day period after the date of this Prospectus to purchase
up to an aggregate of 345,000 additional shares at the same price per share as
the Selling Shareholders receive for the 600,000 shares which the Underwriters
have agreed to purchase from the Selling Shareholders, for the sole purpose of
covering over-allotments, if any. To the extent that the Underwriters exercise
such option, each Underwriter will be committed, subject to certain conditions,
to purchase a number of the additional shares of Common Stock proportionate to
each Underwriter's initial commitment.
The Company has agreed to grant to the Representatives and their designees
warrants (the "Representatives' Warrants") to purchase up to 100,000 shares of
Common Stock for a period of five years from the date of this Prospectus (the
"Warrant Exercise Term") at 110% of the initial public offering price. The
Representatives' Warrants may not be transferred for one year from the date of
this Prospectus, except to the
45
<PAGE> 47
officers, employees, affiliates, partners and shareholders of the
Representatives. During the Warrant Exercise Term, the holders of the
Representatives' Warrants are given the opportunity to profit from a rise in the
market price of the Common Stock. Any profit realized by the Representatives on
the sale of the Representatives' Warrants or the underlying shares of Common
Stock may be deemed additional underwriting compensation.
The foregoing contains a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement that is on file as an exhibit to the Registration
Statement of which this Prospectus is a part.
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering will be determined by negotiation among the
Company, the Selling Shareholders and the Representatives. Among the factors to
be considered in determining the initial public offering price will be
prevailing market and economic conditions, revenues and earnings of the Company,
market valuations of other companies engaged in activities similar to the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management and
other factors deemed relevant.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions. In
"passive" market making, market makers in the Common Stock who are Underwriters
or prospective underwriters may, subject to certain limitations, make bids for
or purchases of the Common Stock until the time, if any, at which a stabilizing
bid is made. Penalty bids permit the Representatives to reclaim a selling
concession from a syndicate member when shares of Common Stock originally sold
by such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on The Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Shareholders by Foley &
Lardner, Tampa, Florida. The validity of the Common Stock offered hereby will be
passed upon for the Underwriters by King & Spalding, Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements at December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996 included in
this Prospectus and in the registration statement, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing herein
and in the registration statement, and have been so included herein in reliance
upon the report of said firm given upon their authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part)
under the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the
46
<PAGE> 48
Commission. Statements contained in the Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference and the exhibits and schedules thereto. For
further information regarding the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules which may be obtained from the Commission at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the Registration Statement can be
obtained from the Commission's web site at http://www.sec.gov.
The Company intends to furnish its shareholders written annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited financial statements
for the first three quarters of each calendar year.
47
<PAGE> 49
FARO TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (Unaudited)............................. F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 and the Six Months Ended
June 30, 1996 and 1997 (Unaudited)........................ F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996 and the Six
Months Ended June 30, 1997 (Unaudited).................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 and the Six Months Ended
June 30, 1996 and 1997 (Unaudited)........................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of FARO Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of FARO
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 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
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, such consolidated financial statements present fairly, in
all material respects, the financial position of FARO Technologies, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
February 24, 1997
(September 10, 1997 as to Note 11)
F-2
<PAGE> 51
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................... $ 3,921 $ 263,342 $ 117,537
Accounts and notes receivable -- net of allowance...... 2,177,764 2,992,681 4,852,362
Inventories............................................ 2,068,287 3,298,744 3,778,618
Prepaid expenses....................................... 96,306 40,871 25,127
Deferred taxes......................................... 111,000 102,500 193,978
----------- ---------- -----------
Total current assets........................... 4,457,278 6,698,138 8,967,622
----------- ---------- -----------
PROPERTY AND EQUIPMENT -- At cost:
Leasehold improvements................................. 14,938 14,938 14,938
Machinery and equipment................................ 245,195 700,799 923,159
Furniture and fixtures................................. 492,681 453,892 496,477
----------- ---------- -----------
Total.......................................... 752,814 1,169,629 1,434,574
Less accumulated depreciation.......................... 425,435 568,279 669,966
----------- ---------- -----------
Property and equipment -- net.......................... 327,379 601,350 764,608
----------- ---------- -----------
PATENTS -- net of accumulated amortization of $186,223,
$270,925 and $293,884, respectively.................... 441,041 486,480 611,795
DEFERRED TAXES........................................... 254,000 29,700 214,524
----------- ---------- -----------
TOTAL ASSETS................................... $ 5,479,698 $7,815,668 $10,558,549
=========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt...................... $ -- $ 611,111 $ 666,667
Related party loans.................................... 2,200,000 -- --
Accounts payable and accrued liabilities............... 735,828 1,710,814 1,850,670
Income taxes payable................................... 23,000 128,216 777,306
Current portion unearned service revenues.............. -- 185,180 413,876
Customer deposits...................................... 176,933 230,393 282,780
----------- ---------- -----------
Total current liabilities...................... 3,135,761 2,865,714 3,991,299
----------- ---------- -----------
UNEARNED SERVICE REVENUES -- less current portion -- 286,099 384,013
LONG-TERM DEBT -- less current portion................... -- 890,156 833,769
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY:
Class A preferred stock -- par value $.001, 10,000,000
shares authorized, no shares issued and
outstanding......................................... -- -- --
Common stock -- par value $.001, 20,000,000 shares
authorized, 7,000,000 issued and outstanding........ 7,000 7,000 7,000
Additional paid-in capital............................. 3,971,764 3,961,564 4,827,544
Retained earnings (accumulated deficit)................ (1,595,027) (188,365) 1,067,243
Unearned compensation.................................. (39,800) (6,500) (508,334)
Cumulative translation adjustments..................... -- -- (43,985)
----------- ---------- -----------
Total shareholders' equity..................... 2,343,937 3,773,699 5,349,468
----------- ---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $ 5,479,698 $7,815,668 $10,558,549
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 52
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES.............................. $4,508,837 $9,862,242 $14,656,337 $6,460,113 $10,318,535
COST OF SALES...................... 2,222,085 4,987,779 6,486,268 2,744,994 4,188,280
---------- ---------- ----------- ---------- -----------
Gross profit............. 2,286,752 4,874,463 8,170,069 3,715,119 6,130,255
---------- ---------- ----------- ---------- -----------
OPERATING EXPENSES:
Selling.......................... 1,569,014 2,008,301 3,731,762 1,653,693 2,512,066
General and administrative....... 521,040 503,184 744,206 349,645 622,092
Depreciation and amortization.... 270,615 341,494 230,799 125,388 124,646
Research and development......... 173,400 363,871 730,124 236,539 394,839
Employee stock options........... -- 106,700 23,100 11,550 364,146
---------- ---------- ----------- ---------- -----------
Total operating
expenses............... 2,534,069 3,323,550 5,459,991 2,376,815 4,017,789
---------- ---------- ----------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS...... (247,317) 1,550,913 2,710,078 1,338,304 2,112,466
---------- ---------- ----------- ---------- -----------
OTHER INCOME (EXPENSE):
Other income..................... 11,706 62,212 25,145 7,814 46,067
Interest expense................. (192,543) (355,468) (212,669) (122,806) (65,853)
---------- ---------- ----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES............................ (428,154) 1,257,657 2,522,554 1,223,312 2,092,680
INCOME TAX EXPENSE (BENEFIT)....... -- (342,000) 1,115,892 541,152 837,072
---------- ---------- ----------- ---------- -----------
NET INCOME (LOSS)........ $ (428,154) $1,599,657 $ 1,406,662 $ 682,160 $ 1,255,608
========== ========== =========== ========== ===========
PER COMMON SHARE AND COMMON
EQUIVALENT SHARE:
NET INCOME (LOSS)........ $ (0.06) $ 0.22 $ 0.19 $ 0.09 $ 0.17
========== ========== =========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES......... 7,149,690 7,166,740 7,349,042 7,354,292 7,333,290
========== ========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 53
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL CUMULATIVE EARNINGS
------------------- PAID-IN UNEARNED TRANSLATION (ACCUMULATED
SHARES AMOUNTS CAPITAL COMPENSATION ADJUSTMENT DEFICIT) TOTAL
--------- ------- ---------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.............. 7,000,000 $7,000 $3,825,264 $ -- $ -- $(2,766,530) $1,065,734
Net loss...................... -- -- -- -- -- (428,154) (428,154)
--------- ------ ---------- --------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1994............ 7,000,000 7,000 3,825,264 -- -- (3,194,684) 637,580
Granting of employee stock
options........................... -- -- 146,500 (39,800) -- -- 106,700
Net income.................... -- -- -- -- -- 1,599,657 1,599,657
--------- ------ ---------- --------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1995............ 7,000,000 7,000 3,971,764 (39,800) -- (1,595,027) 2,343,937
Employee stock options, forfeitures
and amortization of unearned
compensation...................... -- -- (10,200) 33,300 -- -- 23,100
Net income.................... -- -- -- -- -- 1,406,662 1,406,662
--------- ------ ---------- --------- -------- ----------- ----------
BALANCE, DECEMBER 31, 1996............ 7,000,000 7,000 3,961,564 (6,500) -- (188,365) 3,773,699
Granting of employee and director
stock options (unaudited)......... -- -- 865,980 (501,834) -- -- 364,146
Currency translation adjustment
(unaudited)....................... -- -- -- -- (43,985) -- (43,985)
Net income for period
(unaudited)................. -- -- -- -- -- 1,255,608 1,255,608
--------- ------ ---------- --------- -------- ----------- ----------
BALANCE, JUNE 30, 1997 (unaudited).... 7,000,000 $7,000 $4,827,544 $(508,334) $(43,985) $ 1,067,243 $5,349,468
========= ====== ========== ========= ======== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 54
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ---------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................... $ (428,154) $1,599,657 $ 1,406,662 $ 682,160 $ 1,255,608
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization........... 270,615 341,494 230,799 125,388 124,646
Private placement costs................. 146,541 -- -- -- --
Product design costs.................... -- 531,186 -- -- --
Employee stock options.................. -- 106,700 23,100 11,550 364,146
Provision for bad debts................. 31,207 24,806 28,432 -- --
Provision for obsolete inventory........ -- 27,629 -- -- --
Deferred income taxes................... -- (365,000) 232,800 365,000 (276,302)
Changes in operating assets and
liabilities:
Decrease (Increase) in:
Accounts receivable................... (241,474) (1,147,174) (843,349) (159,992) (1,903,666)
Notes receivable...................... 80,994 47,947 -- -- --
Inventory............................. (35,821) (453,120) (1,230,457) (861,615) (479,874)
Prepaid expenses and other assets..... (22,971) (47,193) 55,435 (7,659) 15,744
Increase (Decrease) in:
Accounts payable and accrued
liabilities........................... (94,359) 126,925 990,993 419,081 139,856
Income taxes payable.................... -- 23,000 105,216 44,652 649,090
Unearned service revenues............... -- -- 471,278 162,218 326,610
Customer deposits....................... 49,619 118,865 53,460 (48,410) 52,387
----------- ---------- ----------- --------- -----------
Net cash provided by (used in)
operating activities............. (243,803) 935,722 1,524,369 732,373 268,245
----------- ---------- ----------- --------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment....... (89,266) (210,868) (416,162) (194,026) (264,945)
Payment of patent costs................... (122,120) (74,088) (134,046) (71,178) (148,274)
Payments for product design costs......... (304,703) -- -- -- --
----------- ---------- ----------- --------- -----------
Net cash used in investing
activities....................... (516,089) (284,956) (550,208) (265,204) (413,219)
----------- ---------- ----------- --------- -----------
FINANCING ACTIVITIES:
Proceeds from related party loans......... 2,525,000 -- -- -- --
Repayment of related party loans.......... -- (725,000) (2,200,000) (300,000) --
Proceeds from debt........................ -- -- 1,625,816 -- --
Payments on debt.......................... (1,700,000) -- (140,556) -- (831)
----------- ---------- ----------- --------- -----------
Net cash (used in) provided by
financing activities............. 825,000 (725,000) (714,740) (300,000) (831)
INCREASE (DECREASE) IN CASH................. 65,108 (74,234) 259,421 167,169 (145,805)
CASH, BEGINNING OF PERIOD................... 13,047 78,155 3,921 3,921 263,342
----------- ---------- ----------- --------- -----------
CASH, END OF PERIOD......................... $ 78,155 $ 3,921 $ 263,342 $ 171,090 $ 117,537
=========== ========== =========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................... $ 182,399 $ 352,987 $ 256,654 $ 127,237 $ 19,226
=========== ========== =========== ========= ===========
Cash paid for income taxes................ $ -- $ -- $ 777,876 $ 135,500 $ 464,283
=========== ========== =========== ========= ===========
Translation adjustment effect on accounts
receivable.............................. $ -- $ -- $ -- $ -- $ (43,985)
=========== ========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 55
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business. FARO Technologies, Inc. (the "Company") develops,
manufactures, markets and supports portable, software-driven, 3-D measurement
systems that are used in a broad range of manufacturing and industrial
applications. The Company has two wholly-owned subsidiaries, FARO Worldwide,
Inc. and FARO FRANCE, s.a.s., which distribute the Company's 3-D measurement
equipment throughout Europe through two primary offices located in France and
Germany. FARO FRANCE, s.a.s., commenced operations in July 1996.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and all wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Revenue Recognition, Product Warranty and Extended Maintenance
Contracts. Revenue related to the Company's 3-D measurement equipment is
recognized on the shipping date, as the Company considers the earnings process
substantially complete as of the shipping date. Revenue from sales of software
only is not recognized unless remaining obligations under the sales agreement
are insignificant. Revenues related to extended maintenance plans, which include
hardware warranties and software upgrades, are recognized ratably over the
period services are performed. The Company warrants its products against defects
in design, materials and workmanship for one year. A provision for estimated
future costs relating to warranty expenses is recorded when products are
shipped. Costs relating to extended maintenance plans are recognized as
incurred.
One customer accounted for approximately 10% of total sales for the year
ended December 31, 1996.
Inventories. Inventories are stated at the lower of cost (determined on
the first-in, first-out method) or market value. In order to achieve a better
matching of production costs with the revenues generated in production, certain
fixed overhead costs and certain general and administrative costs that are
related to production are capitalized into inventory when they are incurred and
are charged to cost of sales as product costs at the time of sale. General and
administrative expenses for the years ended 1996 and 1995 remaining in inventory
totaled approximately $68,000 and $60,000, respectively.
Sales demonstration inventory is comprised of measuring devices utilized by
sales representatives to present the Company's products to customers. The
products remain in sales demonstration inventory for up to six months and are
subsequently sold at prices that produce slightly reduced gross margins.
Property and Equipment. Property and equipment are recorded at cost.
Depreciation is computed using the straight-line and declining-balance methods
over the estimated useful lives of the various classes of assets as follows:
<TABLE>
<S> <C>
Machinery and equipment..................................... 5 years
Furniture and fixtures...................................... 5 years
Computer equipment.......................................... 2 years
</TABLE>
Leasehold improvements are amortized on the straight-line basis over the lesser
of the life of the asset or term of the lease.
Patents. Patents are recorded at cost. Amortization is computed using the
straight-line method over the lives of the patents, which is 17 years. In
addition, unamortized patents of $192,570 relating to certain products sold in
the medical field were charged to amortization expense in 1995 due to the
discontinuance of those products.
Research and Development. Research and development costs incurred in the
discovery of new knowledge and the resulting translation of this new knowledge
into plans and designs for new products, prior to
F-7
<PAGE> 56
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the attainment of the related products' technological feasibility, are recorded
as expenses in the period incurred.
Product Design Costs. Prior to 1995, costs incurred in the refinement of
products after technological feasibility is attained were capitalized and
amortized using the straight-line method over the 5-year estimated lives of the
related products. However, based on the current rate of technological
development, products now have estimated lives of less than one year. As a
result, the $531,186 unamortized balance of product design costs at January 1,
1995 was charged to cost of product sales in 1995, and such costs incurred since
that date are recorded as costs in the period in which they are incurred.
Income Taxes. The Company utilizes the asset and liability method to
measure and record deferred income tax assets and liabilities. Under the asset
and liability method, deferred tax assets and liabilities are recognized for the
future consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
Private Placement Costs. Costs incurred relating to a terminated private
stock offering, in the amount of $146,541, were charged to general and
administrative expense in 1994.
Earnings Per Common Share and Common Equivalent Share. Earnings per common
share and common equivalent share for the years ended December 31, 1994, 1995
and 1996 were computed as follows: (i) 7,000,000 common shares issued and
outstanding each year, plus (ii) 149,690 common shares issuable under the 1997
stock options granted under the 1993 stock option plan based on the Treasury
Stock Method assuming an initial public offering price of $11.00 per share, plus
(iii) common shares issuable under the 1995 stock options granted under the 1993
stock option plan of 17,050 in 1995 and 199,352 in 1996, respectively, based on
the Treasury Stock Method assuming an initial public offering price of $11.00
per share.
The Company intends to file a registration statement with the Securities
and Exchange Commission for the initial public offering of 1,700,000 shares of
its common stock at an estimated price of $11 per share. The Company plans on
utilizing a portion of the proceeds from the sale of such stock to retire debt.
On a supplemental basis, for the year ended December 31, 1996 and the six months
ended June 30, 1997, net income per common share and common equivalent share
would have been $.20 and $.17, respectively, had such transaction been made
effective December 31, 1995.
Concentration of Credit Risk. Financial instruments which potentially
expose the Company to concentrations of credit risk consist principally of
operating demand deposit accounts. The Company's policy is to place its
operating demand deposit accounts with high credit quality financial
institutions.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Standards. Effective January 1, 1996, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS No. 121) which requires that long-lived assets and certain
intangibles to be held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The adoption of SFAS No. 121 did not have a
material impact on the Company.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 establishes a fair
value based method of accounting for stock-based employee compensation plans;
however, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
F-8
<PAGE> 57
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Under the fair value based method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. The Company has elected to
continue to account for its employee stock compensation plans under APB Opinion
No. 25 with pro forma disclosures of net earnings and earnings per share, as if
the fair value based method of accounting defined in SFAS No. 123 has been
applied. See Note 8.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
This Statement establishes standards for computing and presenting earnings per
share ("EPS") and applies to all entities with publicly held common stock or
potential common stock. This Statement replaces the presentation of primary EPS
and fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing earnings
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Similar to fully diluted EPS, diluted EPS reflects
the potential dilution of securities that could share in the earnings. This
Statement is effective for the Company's financial statements for the year ended
December 31, 1997. The proforma effect of applying SFAS No. 128 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic income (loss) per common share.......... $(0.06) $ 0.23 $ 0.20 $ 0.10 $ 0.18
Diluted income (loss) per common share and
common equivalent share..................... (0.06) 0.22 0.19 0.09 0.17
</TABLE>
On June 30, 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective for
fiscal years beginning after December 15, 1997. Management has not determined
the effect of this statement on its financial statement disclosure.
Reclassifications. Certain reclassifications have been made in the 1994
and 1995 financial statements to conform to the 1996 presentation.
Interim Financial Information. Interim Financial Information at June 30,
1997 and for the six months ended June 30, 1996 and 1997 is unaudited. The
unaudited interim financial statements reflect all adjustments, consisting of
only normal recurring adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods.
Information for the interim periods is not necessarily indicative of results to
be achieved for the full year.
2. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable are net of an allowance for doubtful accounts
of $25,002, $5,655 and $9,534 as of December 31, 1994, 1995 and 1996,
respectively.
F-9
<PAGE> 58
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials...................................... $1,063,219 $1,888,227 $1,954,451
Finished goods..................................... 387,234 472,408 593,472
Sales demonstration................................ 617,834 938,109 1,230,695
---------- ---------- ----------
$2,068,287 $3,298,744 $3,778,618
========== ========== ==========
</TABLE>
4. LONG-TERM DEBT
The Company has a loan agreement (the "Agreement") in the form of a term
note and a line of credit. The Agreement combines the equivalent of three
successive one-year term loans, each equal to that portion of the loan that will
be fully amortized in the ensuing year, with a line of credit equal to that
portion of the loan that will not be amortized in the ensuing year. The Company
has available borrowings under the line of credit in the amount of $443,177 as
of December 31, 1996. Principal is due in the amount of $611,111 in 1997,
$666,667 in 1998 and $223,489 in 1999. Interest accrues at the 30-day commercial
paper rate plus 2.7% (8.1% at December 31, 1996) and is payable monthly. The
loans are collateralized by the Company's accounts and notes receivable,
inventory, property and equipment, intangible assets, and deposits. The
Agreement contains restrictive covenants, including the maintenance of certain
amounts of working capital and tangible net worth and limits on loans to related
parties, and prohibits the Company from declaring dividends.
5. RELATED PARTY TRANSACTIONS
The Company leases its plant and office building from Xenon Research, Inc.
("Xenon"), a 44.3% shareholder. The lease expires on February 28, 2001, and the
Company has two five-year renewal options. The base rent during renewal periods
will reflect changes in the U.S. Bureau of Labor Statistics, Consumer Price
Index for all Urban Consumers. Rent expense under this lease was approximately
$148,000 for both 1994 and 1995 and $150,000 for 1996.
Related party loans payable consisted of the following:
Xenon Research, Inc. Revolving line of credit, which was repaid and
terminated in 1996. Interest was at prime plus 5% (13.5% at December 31,
1995) and amounted to $192,543 in 1994, $355,468 in 1995 and $185,585 in
1996.
Stockholder Loan. An unsecured noninterest bearing $100,000 note was
outstanding at December 31, 1995 and repaid during 1996.
F-10
<PAGE> 59
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The components of the expense (benefit) for income taxes is comprised of
the following as of December 31:
<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ----------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ 23,000 $ 721,700
State............................................ -- -- 161,392
---------- --------- ----------
-- 23,000 883,092
---------- --------- ----------
Deferred:
Federal.......................................... (334,000) 221,100
State............................................ -- (31,000) 11,700
---------- --------- ----------
-- (365,000) 232,800
---------- --------- ----------
$ -- $(342,000) $1,115,892
========== ========= ==========
</TABLE>
Income taxes for the years ended December 31, 1994, 1995 and 1996 differ
from the amount computed by applying the federal statutory corporate rate to
income before income taxes. The differences are reconciled as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate............. $(145,600) $ 428,000 $ 857,700
State income taxes, net of federal benefit.......... -- 46,000 114,200
Research and development credit..................... -- (30,000) --
Nondeductible items................................. -- -- 61,000
Other............................................... -- -- 82,992
Change in deferred tax asset valuation allowance.... 145,600 (786,000) --
--------- --------- ----------
Total income tax expense (benefit)........ $ -- $(342,000) $1,115,892
========= ========= ==========
</TABLE>
The components of the Company's net deferred tax asset at December 31, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory write-down...................................... $ 97,000 $ --
Other..................................................... 14,000 9,400
Employee stock options.................................... 40,000 51,300
Unearned service revenue.................................. -- 186,200
Net operating loss carryforwards and alternative minimum
tax credits............................................ 197,000 --
Research and development credits.......................... 134,000 --
-------- --------
Gross deferred assets....................................... 482,000 246,900
-------- --------
Deferred tax liabilities:
Patent amortization....................................... 83,000 88,200
Depreciation.............................................. 6,000 26,500
Other..................................................... 28,000 --
-------- --------
Gross deferred tax liabilities.............................. 117,000 114,700
-------- --------
Net deferred tax asset............................ $365,000 $132,200
======== ========
</TABLE>
F-11
<PAGE> 60
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS
The following is a schedule of future minimum lease payments required under
noncancelable leases, including leases with related parties (see Note 5), in
effect at December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ --------
<S> <C>
1997...................................................... $236,200
1998...................................................... 205,600
1999...................................................... 168,400
2000...................................................... 166,700
2001...................................................... 27,800
--------
Total future minimum lease payments............. $804,700
========
</TABLE>
8. EMPLOYEE STOCK OPTION PLAN
In 1993, the Company adopted the 1993 Stock Option Plan (the "Plan"). The
Company reserved 703,100 shares of common stock for issuance to eligible
participants under the Plan. Options granted under the Plan generally vest over
a four-year period and are exercisable ten years from the date of the grant. The
exercisability of such options accelerates in the event of an initial public
offering of the Company's common stock. On December 19, 1995, the Company
granted options to purchase shares of common stock of the Company to certain
employees at an exercise price of $0.36. At December 31, 1995, the estimated
fair value of one share of common stock was determined to be $1.07, based on a
third-party offer for Company stock.
Compensation cost charged to operations was $0, $106,700 and $23,100 in
1994, 1995 and 1996 respectively. Compensation cost was based on the difference
between the estimated fair value of the stock and its exercise price, multiplied
by the number of shares vested in each year.
SFAS No. 123 Required Disclosure
If compensation cost for stock options was determined based on the fair
value at the grant dates for 1995 and 1996 consistent with the method prescribed
by SFAS No. 123, the Company's net income and income per share would have been
adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net income:
As reported............................................... $1,599,657 $1,406,662
Pro forma................................................. 1,572,628 1,382,140
Income per share:
As reported............................................... $ 0.22 $ 0.19
Pro forma................................................. 0.22 0.19
</TABLE>
Under SFAS No. 123, the fair value of each option is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for options in 1995: dividend yield of 0%,
expected volatility of 90%, risk-free interest rate of 5.63%, and expected life
of 10 years. There were no stock options granted in 1996.
F-12
<PAGE> 61
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of options under the Company's stock-based
compensation plans as of December 31, 1995 and 1996, and changes during the
years ending on those dates is presented below:
<TABLE>
<CAPTION>
1995 1996
-------------------- -------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISED EXERCISED
OPTIONS PRICE OPTIONS PRICE
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year............... -- 210,902 $0.36
Granted........................................ 210,902 $0.36 --
Exercised...................................... -- --
Forfeited...................................... -- (20,390) 0.36
-------- -------
Outstanding at end of year..................... 210,902 0.36 190,512 0.36
======== =======
Grants exercisable at year-end................. -- --
Weighted-average fair value of options granted
during the year.............................. $225,700 --
</TABLE>
The following table summarizes information about the outstanding grants at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------
NUMBER WEIGHTED-
OUTSTANDING AVERAGE WEIGHTED-
AT REMAINING AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE
YEAR GRANTED PRICE 1996 LIFE PRICE
- ------------ -------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
1995......................................... $0.36 190,512 10 $0.36
</TABLE>
No options were exercisable as of December 31, 1996. Non-exercisable
options become exercisable in 2005 unless the Company completes a public
offering of its common stock. In that case, all vested options become
exercisable immediately and unvested options become exercisable immediately upon
vesting.
9. BENEFIT PLAN
During 1996, the Company established a defined contribution retirement plan
(401(k) Plan) for its employees, which provides benefits for all employees
meeting certain age and service requirements. The Company may make a
discretionary contribution each Plan year as determined by its Board of
Directors. Discretionary contributions or employer matches can be made to the
participant's account but cannot exceed 4% of the participant's annual
compensation. The Company made no contribution to the 401(k) Plan in 1996.
10. SEGMENT INFORMATION
Revenues are segmented according to the country in which the customer is
located.
<TABLE>
<CAPTION>
UNITED OTHER
STATES ASIA EUROPE CANADA FOREIGN TOTAL
----------- ---------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1996..................... $10,829,543 $1,606,916 $1,292,592 $715,728 $211,558 $14,656,337
Year ended December 31,
1995..................... 7,727,400 385,361 625,730 850,271 273,480 9,862,242
Year ended December 31,
1994..................... 4,059,837 -- -- -- 449,000 4,508,837
----------- ---------- ---------- -------- -------- -----------
</TABLE>
11. SUBSEQUENT EVENTS
All per share amounts, number of common shares and capital accounts in the
accompanying financial statements have been restated to give retroactive effect
for all periods presented for a 1 for 1.422272107 reverse stock split effective
June 30, 1997. The par value of the common stock was not changed. As a result,
F-13
<PAGE> 62
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,956, representing the reduction in par value for the shares no longer issued
was transferred to additional paid-in capital from common stock.
On January 1, 1997, the Company granted certain employees options to
purchase 140,269 shares of common stock at $3.57 per share, vesting over the
earlier to occur of ten years from the date of grant or a period of three years
commencing with an initial public offering of the Company's stock. The options
are exercisable upon the earlier to occur of (i) ten years from the date of
grant, or (ii) upon completion of vesting after the consummation of the
Company's initial public offering. The Company obtained an independent appraisal
as of January 1, 1997 which was used to determine compensation expense
associated with the options granted. The fair value per share of common stock
outstanding at January 1, 1997 was determined to be $7.32.
12. SUPPLEMENTAL INTERIM INFORMATION (UNAUDITED)
On May 1, 1997, as consideration for his serving on the Board of Directors,
a director was granted options for 52,732 shares of common stock at $0.36 per
share, exercisable upon the earlier to occur of (i) ten years from the date of
grant, or (ii) upon completion of the Company's initial public offering. Such
options are deemed to be immediately vested; consequently, the associated
compensation expense is reported in the six months ended June 30, 1997. The
Company obtained an independent appraisal as of May 1, 1997 which was used to
determine compensation expense associated with the options granted. The fair
value per share of common stock outstanding at May 1, 1997 was determined to be
$8.11.
In July 1997, the Company adopted the 1997 Employee Stock Option Plan (the
"1997 Plan") that provides for the grant to key employees of the Company of
incentive or nonqualified stock options. An aggregate of 750,000 shares of
common stock are reserved for issuance pursuant to the 1997 Plan. The 1997 Plan
is administered by the Compensation Committee of the Board of Directors, which
has broad discretion in the granting of awards. The exercise price of all
options granted under the 1997 Plan must be at least equal to the fair market
value of the common stock on the date of grant. Options granted under the 1997
Plan will be exercisable after the period or periods specified in the option
agreement with respect to such grants and expire ten years from the date of
grant. As of the date of this Prospectus, no options have been granted under the
1997 Plan. It is anticipated that upon completion of this offering, Simon Raab
will be granted 80,000 options, Gregory A. Fraser will be granted 60,000 options
and approximately 74 other employees will be granted options to purchase a total
of 220,000 shares of common stock at the initial public offering price (except
for options granted at 110% of the initial public offering price to qualify for
treatment as incentive stock options). These options will become exercisable in
one-third increments on each anniversary of the date of grant, commencing in
1998.
In July 1997, the Company adopted the 1997 Non-Employee Director Stock
Option Plan (the "Non-Employee Plan") which provides for the grant of
nonqualified stock options to purchase up to 250,000 shares of common stock to
members of the Board of Directors who are not employees of the Company. As of
the date of this Prospectus, no options had been granted under the Non-Employee
Plan. Each outside director will be granted options to purchase 3,000 shares of
common stock upon the completion of this offering. Thereafter, on the date on
which a new outside director is first elected or appointed, he or she will
automatically be granted options to purchase 3,000 shares of common stock. Each
outside director also will be granted options to purchase 3,000 shares of common
stock annually on the day following the annual meeting of shareholders. All
options granted under the Non-Employee Plan will have an exercise price equal to
the then fair market value of the common stock. Options will become exercisable
in one-third increments on each anniversary of the date of grant.
In April 1997, the Company obtained a one-year unsecured $1.0 million line
of credit which bears interest at the 30-day commercial paper rate plus 2.65%
per annum (8.26% at June 30, 1997). No borrowings existed under the line of
credit at June 30, 1997.
F-14
<PAGE> 63
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER TO SELL IS NOT AUTHORIZED OR IN WHICH THE PERSON IS NOT AUTHORIZED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 24
Management............................ 35
Principal and Selling Shareholders.... 39
Certain Transactions.................. 40
Description of Capital Stock.......... 41
Shares Eligible for Future Sale....... 44
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Additional Information................ 46
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,300,000 SHARES
[FARO LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
RAYMOND JAMES &
ASSOCIATES, INC.
HANIFEN, IMHOFF INC.
, 1997
======================================================
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 9,618
NASD filing fee............................................. 3,674
Nasdaq listing fee.......................................... 39,250
Transfer agent expenses and fees............................ 10,000
Printing and engraving...................................... 100,000
Accountants' fees and expenses.............................. 100,000
Consultants' fees and expenses.............................. 75,000
Legal fees and expenses..................................... 125,000
Miscellaneous............................................... 37,458
--------
Total............................................. $500,000
========
</TABLE>
- ---------------
* All of the above fees, costs and expenses above will be paid by the Company.
Other than the SEC filing fee and NASD filing fee, all fees and expenses are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify directors and executive officers to the fullest extent now or
hereafter permitted by the Florida Act. In addition, the Company may enter into
Indemnification Agreements with its directors and executive officers in which
the Registrant has agreed to indemnify such persons to the fullest extent now or
hereafter permitted by the Florida Act.
The indemnification provided by the Florida Act and the Company's Bylaws is
not exclusive of any other rights to which a director or officer may be
entitled. The general effect of the foregoing provisions may be to reduce the
circumstances which an officer or director may be required to bear the economic
burden of the foregoing liabilities and expense.
The Company may obtain a liability insurance policy for its directors and
officers as permitted by the Florida Act which may extend to, among other
things, liability arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has not sold any of its securities within the past three years.
II-1
<PAGE> 65
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
3.1 -- Amended and Restated Articles of Incorporation of the
Company
3.2** -- Bylaws of the Company
4.1 -- Specimen Certificate for the Company's Common Stock
5.1 -- Opinion of Foley & Lardner dated September 10, 1997
10.1 -- 1993 Stock Option Plan, as amended
10.2 -- 1997 Employee Stock Option Plan
10.3 -- 1997 Non-Employee Director Stock Option Plan
10.4 -- 1997 Non-Employee Directors' Fee Plan
10.5** -- Term WCMA Loan and Security Agreement dated September 24,
1996, between the Company and Merrill Lynch Business
Financial Services, Inc.
10.6** -- WCMA Note, Loan and Security Agreement dated April 23, 1997,
between the Company and Merrill Lynch Business Financial
Services, Inc.
10.7** -- Business Lease dated March 1, 1991, between the Company (as
successor-by-merger to FARO Medical Technologies (U.S.),
Inc.) and Xenon Research, Inc.
10.8** -- OEM Purchase Agreement dated June 7, 1996, between the
Company and Mitutoyo Corporation
10.9** -- Nonexclusive Unique Application Reseller Agreement dated
September 9, 1996, between the Company and Autodesk, Inc.
10.10** -- Form of Patent and Confidentiality Agreement between the
Company and each of its employees
11.1** -- Statement re computation of per share earnings
21.1** -- List of subsidiaries of the Company
23.1 -- Consent of Foley & Lardner (included in Exhibit 5.1)
23.2 -- Consent of Deloitte & Touche LLP
24.1** -- Power of Attorney relating to subsequent amendments
27.1** -- Financial Data Schedule -- six months ended June 30, 1997
(for SEC filing purposes only)
27.2** -- Financial Data Schedule -- year ended December 31, 1996 (for
SEC filing purposes only)
</TABLE>
- ---------------
** Previously filed.
(b) Financial Statement Schedules.
Financial statement schedules have been omitted either because they are not
applicable or because the information that would be included in such schedules
is included elsewhere in this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any
II-2
<PAGE> 66
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rules 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Orlando, and State of Florida, on this
10th day of September, 1997.
FARO TECHNOLOGIES, INC.
By: /s/ GREGORY A. FRASER
------------------------------------
Gregory A. Fraser
Executive Vice President, Secretary,
Treasurer, Chief Financial Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board of September 10, 1997
- ----------------------------------------------------- Directors, President and
Simon Raab Chief Executive Officer
/s/ GREGORY A. FRASER Director, Executive Vice September 10, 1997
- ----------------------------------------------------- President, Secretary,
Gregory A. Fraser Treasurer, Chief Financial
Officer
* Controller September 10, 1997
- -----------------------------------------------------
Ronald F. Kiser
* Director September 10, 1997
- -----------------------------------------------------
Hubert d'Amours
* Director September 10, 1997
- -----------------------------------------------------
Philip Colley
* Director September 10, 1997
- -----------------------------------------------------
Alexandre Raab
* Director September 10, 1997
- -----------------------------------------------------
Norman H. Schipper
* Director September 10, 1997
- -----------------------------------------------------
Martin Koshar
Director September 10, 1997
- -----------------------------------------------------
Andre Julien
* By: /s/ GREGORY A. FRASER
-----------------------------------------------
Gregory A. Fraser
Attorney-in-fact
</TABLE>
II-4
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
3.1 -- Amended and Restated Articles of Incorporation of the
Company
3.2** -- Bylaws of the Company
4.1 -- Specimen Certificate for the Company's Common Stock
5.1 -- Opinion of Foley & Lardner dated September 10, 1997
10.1 -- 1993 Stock Option Plan, as amended
10.2 -- 1997 Employee Stock Option Plan
10.3 -- 1997 Non-Employee Director Stock Option Plan
10.4 -- 1997 Non-Employee Directors' Fee Plan
10.5** -- Term WCMA Loan and Security Agreement dated September 24,
1996, between the Company and Merrill Lynch Business
Financial Services, Inc.
10.6** -- WCMA Note, Loan and Security Agreement dated April 23, 1997,
between the Company and Merrill Lynch Business Financial
Services, Inc.
10.7** -- Business Lease dated March 1, 1991, between the Company (as
successor-by-merger to FARO Medical Technologies (U.S.),
Inc.) and Xenon Research, Inc.
10.8** -- OEM Purchase Agreement dated June 7, 1996, between the
Company and Mitutoyo Corporation
10.9** -- Nonexclusive Unique Application Reseller Agreement dated
September 9, 1996, between the Company and Autodesk, Inc.
10.10** -- Form of Patent and Confidentiality Agreement between the
Company and each of its employees
11.1** -- Statement re computation of per share earnings
21.1** -- List of subsidiaries of the Company
23.1 -- Consent of Foley & Lardner (included in Exhibit 5.1)
23.2 -- Consent of Deloitte & Touche LLP
24.1** -- Power of Attorney relating to subsequent amendments
27.1** -- Financial Data Schedule -- six months ended June 30, 1997
(for SEC filing purposes only)
27.2** -- Financial Data Schedule -- year ended December 31, 1996 (for
SEC filing purposes only)
</TABLE>
- ---------------
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
2,645,000 Shares
FARO TECHNOLOGIES, INC.
Common Stock
UNDERWRITING AGREEMENT
St. Petersburg, Florida
September __, 1997
RAYMOND JAMES & ASSOCIATES, INC.
HANIFEN, IMHOFF INC.
As Representatives of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Ladies and Gentlemen:
FARO Technologies, Inc., a Florida corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell an
aggregate of 1,700,000 authorized and unissued shares (the "Company Firm
Shares") of the Company's common stock, par value $.001 per share, to the
several Underwriters named in Schedule I hereto (the "Underwriters"). Certain
shareholders of the Company, named in Schedule II hereto (the "Selling
Shareholders"), acting severally and not jointly, propose, subject to the terms
and conditions stated herein, to issue and sell an aggregate of 600,000
authorized and outstanding shares (the "Shareholder Firm Shares") of the
Company's common stock, par value $.001 per share, to the Underwriters. The
Company Firm Shares and the Shareholder Firm Shares are hereafter collectively
referred to as the "Firm Shares." In addition, the Selling Shareholders, acting
severally and not jointly, have agreed to sell to the Underwriters, upon the
terms and conditions set forth herein, up to an additional 345,000 authorized
and outstanding shares of the Company's common stock, par value $.001 per share
(the "Additional Shares"), solely to cover over-allotments by the Underwriters,
if any. The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "Shares." The Company's common stock, par value $.001 per
share, including the Shares, is hereinafter referred to as the "Common Stock."
Raymond James & Associates, Inc. and Hanifen, Imhoff Inc. are acting as the
representatives of the several Underwriters and in such capacity are hereinafter
referred to as the "Representatives."
Each of the Company and each Selling Shareholder agrees with the several
Underwriters as follows:
<PAGE> 2
SECTION 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1 (File No.
333-32983), including a prospectus subject to completion, relating to the
Shares. Such registration statement (including all financial schedules and
exhibits), as amended at the time when it became effective and as thereafter
amended by any post-effective amendment, together with any registration
statement filed by the Company with respect to the foregoing pursuant to Rule
462(b) under the Act, is referred to in this Agreement as the "Registration
Statement." The term "Prospectus" as used in this Agreement means (i) the
prospectus in the form included in the Registration Statement, or (ii) if the
prospectus included in the Registration Statement omits information in reliance
upon Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act or as part of a
post-effective amendment to the Registration Statement after the Registration
Statement becomes effective, the prospectus as first so filed, or (iii) if the
prospectus included in the Registration Statement omits information in reliance
upon Rule 430A under the Act and such information is included in a term sheet
(as described in Rule 434(c) under the Act) filed with the Commission pursuant
to Rule 424(b) under the Act, the prospectus included in the Registration
Statement and such term sheet, taken together. The prospectus subject to
completion in the form included in the Registration Statement at the time of the
initial filing of such Registration Statement with the Commission and as such
prospectus is amended from time to time until the date upon which the
Registration Statement was declared effective by the Commission is referred to
in this Agreement as the "Prepricing Prospectus."
SECTION 2. AGREEMENTS TO SELL AND PURCHASE.
The Company hereby agrees to sell the Company Firm Shares, and each
Selling Shareholder hereby agrees to sell such number of Shareholder Firm Shares
as is set forth opposite such Selling Shareholder's name on Schedule II hereto,
to the Underwriters and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Shareholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company and the Selling
Shareholders the aggregate number of Firm Shares set forth opposite the name of
such Underwriter in Schedule I hereto (or such number of Firm Shares as adjusted
pursuant to Section 10 hereof), at a purchase price of $_________ per Share (the
"purchase price per Share").
Upon the basis of the representations, warranties and agreements of the
Company and the Selling Shareholders herein contained and subject to all the
terms and conditions set forth herein, the Underwriters shall have the right for
30 days from the date upon which the Registration Statement is declared
effective by the Commission to purchase from the Selling Shareholders, from time
to time, and each Selling Shareholder agrees to sell to the Underwriters subject
to conditions set forth below, any or all of the Additional Shares as is set
forth opposite such Selling Shareholders's name on Schedule II, at the purchase
price per Share for the Firm Shares. The Additional Shares shall, if purchased,
be purchased solely for the purpose of covering any
-2-
<PAGE> 3
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments as you may determine to avoid fractional shares) which bears the
same proportion to the total number of Additional Shares to be purchased by the
Underwriters as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Shares as adjusted
pursuant to Section 10 hereof) bears to the total number of Firm Shares.
SECTION 3. TERMS OF PUBLIC OFFERING. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus.
SECTION 4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of the Firm Shares and payment therefor shall be made at the
offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, four business
days after the date hereof (the "Closing Date"). The place of closing for the
Firm Shares and the Closing Date may be varied by agreement between you and the
Company.
Delivery to the Underwriters of and payment for any Additional Shares to
be purchased by the Underwriters shall be made at the offices of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m.,
St. Petersburg, Florida time, on such date or dates (the "Additional Closing
Date" (which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than three nor latter than ten
business days after the giving of the notice hereinafter referred to), as shall
be specified in a written notice from you on behalf of the Underwriters to the
Company, of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. Such notice may be given to the Company by
you at any time within 30 days after the date upon which the Registration
Statement is declared effective by the Commission. The place of closing for the
Additional Shares and the Additional Closing Date may be varied by agreement
between you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and such denominations as
you shall request prior to 1:00 p.m., St. Petersburg, Florida time, on the
second full business day preceding the Closing Date or the Additional Closing
Date, as the case may be. Such certificates shall be made available to you in
St. Petersburg, Florida for inspection and packaging not later than 9:30 a.m.,
St. Petersburg, Florida time, on the business day immediately preceding the
Closing Date or the Additional Closing Date, as the case may be. The
certificates evidencing the Firm Shares and any Additional Shares to be
purchased hereunder shall be delivered to you on the Closing Date or the
Additional Closing Date, as the case may be, against payment of the purchase
price therefor by wire transfer or certified or official bank check or checks
payable in same day funds. If the Representatives so elect, delivery of the
Shares may be made by credit through full fast transfer to the accounts at the
Depository Trust Company designated by the Representatives.
-3-
<PAGE> 4
The certificates in negotiable form for the Shareholder Firm Shares and
the Additional Shares have been placed in custody (for deliver under this
Agreement) under the Custody Agreement (as defined below). Each Selling
Shareholder agrees that the certificates for the Shares for such Selling
Shareholder so held in custody are subject to the interests of the Underwriters
hereunder, that the arrangements made by such Selling Shareholder for such
custody, including the Power of Attorney (as defined below) is to that extent
irrevocable and that the obligations of such Selling Shareholder hereunder shall
not be terminated by the act of such Selling Shareholder or by operation of law,
whether by the death or incapacity of such Selling Shareholder or the occurrence
of any other event, except as specifically provided herein or in the Custody
Agreement. If any Selling Shareholder should die or be incapacitated, or if any
other such event should occur, before the delivery of the certificates for the
Shares to be sold by such Selling Shareholder hereunder, such Shares, except as
specifically provided herein or in the Custody Agreement, shall be delivered by
the Custodian (as defined below) in accordance with the terms and conditions of
this Agreement as if such death, incapacity or other event had not occurred,
regardless of whether the Custodian shall have received notice of such death or
other event.
SECTION 5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants
and agrees with the several Underwriters as follows:
(a) The Company will use its reasonable best efforts to cause the
Registration Statement and any amendment thereto to become effective, if it has
not already become effective, and will advise you promptly and, if requested by
you, will confirm such advice in writing (i) when the Registration Statement has
become effective and when any post-effective amendment to the Registration
Statement or any registration statement filed pursuant to Rule 462(b) under the
Act relating to the Registration Statement is filed or becomes effective, (ii)
if information is omitted from the Registration Statement pursuant to Rule 430A
under the Act, when the Prospectus or term sheet (as described in Rule 434(b)
under the Act) has been timely filed pursuant to Rule 424(b) under the Act,
(iii) of any request by the Commission for amendments or supplements to the
Registration Statement, any Prepricing Prospectus or the Prospectus or for
additional information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction or the
initiation (or threatened initiation) of an proceeding for such purposes, and
(v) within the period of time referred to in Section 5(e) below, of any change
in the Company's condition (financial or other), business, prospects,
properties, net worth or results of operations, or of any event that comes to
the attention of the Company that makes any statement made in the Registration
Statement or the Prospectus (as then amended or supplemented) untrue in any
material respect or that requires the making of any additions thereto or changes
therein in order to make the statements therein not misleading in any material
respect, or of the necessity to amend or supplement the Prospectus (as then
amended or supplemented) to comply with the Act or any other law. If at any time
the Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
-4-
<PAGE> 5
(b) The Company will furnish to you, without charge, three signed
copies of the Registration Statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits
thereto, and will also furnish to you, without charge, such number of conformed
copies of the Registration Statement as originally filed and of each amendment
thereto as you may reasonably request.
(c) The Company will not file any amendment to the Registration
Statement, file any registration statement pursuant to Rule 462(b) under the Act
or make any amendment or supplement to the Prospectus of which you shall not
previously have been advised (with a reasonable opportunity to review such
amendment, registration statement or supplement) or to which you have reasonably
objected after being so advised, or which is not in compliance with the Act. The
Company will prepare and file with the Commission any amendments or supplements
to the Registration Statement or Prospectus which, in the opinion of counsel of
the several Underwriters may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters.
(d) The Company has delivered or will deliver to you, without
charge, in such quantities as you have requested or may hereafter reasonably
request, copies of each form of the Prepricing Prospectus. The Company consents
to the use, in accordance with the Act and the securities or "blue sky" laws of
the jurisdictions in which the Shares are offered by the several Underwriters
and by dealers, prior to the date of the Prospectus, of each Prepricing
Prospectus so furnished by the Company.
(e) As soon after the execution and delivery of this Agreement as
is practicable (but in no event later than 48 hours from the execution and
delivery of this Agreement) and thereafter from time to time for such period as
in the reasonable opinion of counsel for the Underwriters a prospectus is
required by the Act to be delivered in connection with sales by any Underwriter
or a dealer, and for so long a period as you may request for the distribution of
the Shares, the Company will deliver to each Underwriter and each dealer,
without charge, as many copies of the Prospectus (and of any amendment or
supplement thereto) as they may reasonably request. The Company consents to the
use of the Prospectus (and of any amendment or supplement thereto) in accordance
with the Act and the securities or "blue sky" laws of the jurisdictions in which
the Shares are offered by the several Underwriters and by all dealers to whom
Shares may be sold, both in connection with the offering and sale of the Shares
and for such period of time thereafter as the Prospectus is required by the Act
to be delivered in connection with sales by any Underwriter or dealer. If at any
time prior to the later of (i) the completion of the distribution of the Shares
pursuant to the offering contemplated by the Registration Statement or (ii) the
expiration of prospectus delivery requirements with respect to the Shares under
Section 4(3) of the Act and Rule 174 thereunder, any event shall occur that in
the judgment of the Company or in the opinion of counsel for the Underwriters is
required to be set forth in the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or if it is
necessary to supplement or amend the Prospectus to comply with the Act or any
other law, the Company will promptly prepare and, subject to Sections 5(a) and
5(c) hereof, file with the Commission an appropriate supplement or amendment
thereto, and will furnish to each
-5-
<PAGE> 6
Underwriter and to each dealer who has previously requested Prospectuses,
without charge, a reasonable number of copies thereof.
(f) The Company will cooperate with you and counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or "blue sky" laws of such jurisdictions as you may reasonably
designate and will file such consents to service of process or other documents
as may be reasonably necessary in order to effect and maintain such registration
or qualification for so long as required to complete the distribution of the
Shares; provided that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction where it
is not now so subject. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements and
reports in each year as are or may be required by the laws of such jurisdiction.
In the event that the qualification of the Shares in any jurisdiction is
suspended, the Company shall so advise you promptly in writing.
(g) The Company will make generally available to its security
holders a consolidated earnings statement (in form complying with the provisions
of Rule 158 under the Act), which need not be audited, covering a 12-month
period commencing after the effective date of the Registration Statement and
ending not later than 15 months thereafter, as soon as practicable after the end
of such period, which consolidated earnings statement shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act, and will
advise you in writing when such statement has been so made available.
(h) During the period ending five years from the date hereof, the
Company will furnish to you and, upon your request, to each of the other
Underwriters, (i) as soon as available, a copy of each report or definitive
proxy statement of the Company filed with the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the National Association
of Securities Dealers, Inc. (the "NASD"), the Nasdaq Stock Market or any
national securities exchange or mailed to shareholders, and (ii) from time to
time such other information concerning the Company as you may reasonably
request. Until the termination of the offering of the Shares, the Company will
timely file all documents, and any amendments to previously filed documents,
required to be filed by it pursuant to Sections 13, 14 or 15(d) of the Exchange
Act. The Company will file Form SR as required by the Act.
(i) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provision hereof (except Section 11), or if this
Agreement shall be terminated by the Underwriters because of any inability,
failure or refusal on the part of the Company or any Selling Shareholder to
perform any agreement herein or to comply with any of the terms or provisions
hereof or to fulfill any of the conditions of this Agreement, the Company agrees
to reimburse you and the other Underwriters for all out-of-pocket expenses
(including travel expenses and reasonable fees and expenses of counsel for the
Underwriters but excluding wages and salaries paid by you) incurred by you in
connection herewith, provided, however, that if this
-6-
<PAGE> 7
Agreement shall be terminated by the Company for any reason, the Company's
obligation to reimburse the Underwriters shall be limited to a maximum amount of
$50,000.
(j) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
statements set forth under the caption "Use of Proceeds" in the Prospectus.
(k) If information is omitted from the Registration Statement
pursuant to Rule 430A under the Act, the Company will timely file the Prospectus
or a term sheet (as described in Rule 434(b) under the Act) pursuant to Rule
424(b) under the Act.
(l) For a period of 180 days after the date of the Prospectus as
first filed with the Commission pursuant to Rule 424(b) under the Act, without
the prior written consent of Raymond James & Associates, Inc., the Company will
not, directly or indirectly, issue, sell, contract to sell, offer or otherwise
dispose of or transfer any shares of Common Stock or securities convertible into
or exchangeable or exercisable for shares of Common Stock (collectively,
"Company Securities") or any rights to purchase Company Securities, except (i)
to the Underwriters pursuant to this Agreement, (ii) pursuant to and in
accordance with the Company's stock option plans described in the Prospectus, or
(iii) pursuant to the exercise or conversion of warrants, stock options,
preferred stock or convertible debentures issued and outstanding at the time of
effectiveness of the Registration Statement and described in the Registration
Statement.
(m) Prior to the Closing Date or the Additional Closing Date, as
the case may be, the Company will furnish to you, as promptly as possible,
copies of any unaudited interim consolidated financial statements of the Company
and its Subsidiaries (as defined below) for any period subsequent to the periods
covered by the financial statements appearing in the Prospectus.
(n) The Company will comply with all provisions of any
undertakings contained in the Registration Statement.
(o) The Company will not, directly or indirectly, take any action
that would constitute or any action designed, or which might reasonably be
expected to cause or result in or constitute, under the Act or otherwise,
stabilization nor manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(p) The Company will use its reasonable best efforts to qualify or
register its Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of ) the "blue sky" laws of each state where
necessary to permit market making transactions and secondary trading, and will
comply with such "blue sky" laws and will continue such qualifications,
registrations and exemptions in effect for a period of five years after the date
hereof.
(q) For so long as the Company's Common Stock is listed
therewith, the Company will comply with the filing and other requirements of
the Nasdaq National Market.
-7-
<PAGE> 8
(r) If at any time during the 90-day period after the first date
that any of the Shares are released by you for sale to the public, any rumor,
publication, or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Common Stock (including
the Shares) has been or is likely to be materially affected (regardless of
whether such rumor, publication, or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice from you of
advising the Company to the effect set forth above, promptly consult with
Raymond James & Associates, Inc. concerning the advisability and substance of,
and, if appropriate, disseminate a press release or other public statement
reasonably satisfactory to you responding to or commenting on such rumor,
publication, or event.
(s) The Company shall not invest or otherwise use the proceeds
received by the Company from its sale of the Shares, or otherwise conduct its
business, in such a manner as would require the Company or any Subsidiary (as
defined below) to register as an investment company under the Investment Company
Act of 1940, as amended.
(t) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of its incorporation or the rules of the Nasdaq National
Market or any national securities exchange on which the Common Stock is then
listed, a registrar (which, if permitted by applicable laws and rules, may be
the same entity as the transfer agent) for its Common Stock.
(u) The Company hereby agrees that this Agreement shall be deemed,
for all purposes, to have been made and entered into in Pinellas County,
Florida. The Company agrees that any dispute hereunder shall be litigated solely
in the Circuit Court of the State of Florida in Pinellas County, Florida or in
the United States District Court for the Middle district of Florida, Tampa
Division, and further agrees to submit itself to the personal jurisdiction of
such courts.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company,
Simon Raab and Gregory A. Fraser, jointly and not severally, represent and
warrant to each Underwriter and the Company represents and warrants to each
Selling Shareholder on the date hereof, and shall be deemed to represent and
warrant to each Underwriter and each Selling Shareholder on the Closing Date and
the Additional Closing Date, that:
(a) The Registration Statement has been declared effective by the
Commission under the Act and no post-effective amendment to the Registration
Statement has been filed as of the date of this Agreement. Each Prepricing
Prospectus included as part of the Registration Statement as originally filed or
as part of any amendment or supplement thereto, or filed pursuant to Rule 424(a)
under the Act, complied when so filed in all material respects with the
provisions of the Act, except that this representation and warranty does not
apply to statements in or omissions from such Prepricing Prospectus (or any
amendment or supplement thereto) made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
or on behalf of any Underwriter through you expressly for use therein.
(b) The Prepricing Prospectus included as part of the Registration
Statement declared effective by the Commission complies as to form in all
material respects with the requirements of
-8-
<PAGE> 9
the Act and, to the knowledge of the Company, the Commission has not issued any
order preventing or suspending the use of any Prepricing Prospectus. The
Registration Statement, in the form in which it became effective and also in
such form as it may be when any post-effective amendment thereto shall become
effective, and any registration statement filed pursuant to Rule 462(b) under
the Act, complies and will comply in all material respects with the provisions
of the Act and does not and will not at any such times contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except that this representation and warranty does not apply to statements in or
omissions from the Registration Statement (or any amendment or supplement
thereto) made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein. The Prospectus, and any
supplement or amendment thereto, when filed with the Commission under Rule
424(b) under the Act, complies and will comply in all material respects with the
provisions of the Act and does not and will not at any such times contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that this representation and
warranty does not apply to statements in or omissions from the Prospectus (or
any amendment or supplement thereto) made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company in writing
by or on behalf of any Underwriter through you expressly for use therein.
(c) The capitalization of the Company is as set forth in the
Prospectus as of the date set forth therein. All the outstanding shares of
Common Stock (including without limitation the Shareholder Firm Shares and the
Additional Shares) and other securities of the Company have been duly authorized
and validly issued, are fully paid and nonassessable and are free of any
preemptive or similar rights; all offers and sales of the capital stock,
warrants, options and debt or other securities or the Company and the
Subsidiaries (as defined below) prior to the date hereof (including without
limitation the Shareholder Firm Shares and the Additional Shares) were made in
compliance with the Act and all other applicable state, federal and foreign laws
or regulations, or any actions under the Act or any state, federal or foreign
laws or regulations in respect of any such offers or sales are effectively
barred by effective waivers or statutes of limitation; the Shares to be issued
and sold to the Underwriters by the Company hereunder have been duly authorized
and, when issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive or similar rights; the securities of
the Company conform to the description thereof in the Registration Statement and
the Prospectus (or any amendment or supplement thereto); the form of certificate
for the Shares conforms to the corporate law of the State of Florida; and the
delivery of certificates for the Shares to be issued and sold by the Company
pursuant to the terms of this Agreement and payment for such Shares will pass
good and valid title to such shares, free and clear of any voting trust
arrangements, liens, encumbrances, equities, claims or defects in title to the
several Underwriters purchasing such Shares in good faith and without notice of
any lien, claim or encumbrance.
(d) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Florida with full
corporate power and authority to own,
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<PAGE> 10
lease and operate its properties and to conduct its business as presently
conducted and as described in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction or place where
the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure to so register or
qualify does not have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the Company.
(e) FARO Worldwide, Inc., a Florida corporation, and FARO France,
S.A.S., a French corporation (individually a "Subsidiary" and collectively, the
"Subsidiaries"), are each corporations duly organized and validly existing in
good standing under the laws of their respective jurisdictions of incorporation
or organization with full corporate power and authority to own, lease and
operate their respective properties and to conduct their respective businesses
as presently conducted and as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and are each duly
registered and qualified to conduct their respective businesses and are in good
standing in each jurisdiction or place where the nature of their respective
properties or the conduct of their respective businesses require such
registration or qualification, except where the failure to so register or
qualify does not have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the Company
and the Subsidiaries, taken as a whole. All of the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable, and are owned by the Company directly (except
that 50% of the outstanding shares of capital stock of FARO France, S.A.S. are
owned directly by FARO Worldwide, Inc., a wholly owned subsidiary of the
Company), free and clear of any lien, adverse claim, security interest, equity
or other encumbrance. Except for the Subsidiaries, the Company does not own a
material interest in or control, directly or indirectly, any other corporation,
partnership, joint venture, association, trust or other business organization.
(f) There are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened, against the Company or any Subsidiary,
or to which the Company or any Subsidiary, or to which any of their respective
properties, is subject, that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) but are not
described as required. There is no action, suit, inquiry, proceeding, or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the best knowledge of the
Company, threatened against or involving the Company or any Subsidiary
(including without limitation any such action, suit, inquiry, proceeding or
investigation relating to any product alleged to have been manufactured or sold
by the Company or any Subsidiary and alleged to have been unreasonably
hazardous, defective, or improperly designed or manufactured), nor, to the
knowledge of the Company, is there any basis for any such action, suit, inquiry,
proceeding, or investigation. There are no agreements, contracts, indentures,
leases or other instruments that are required to be described in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto) or to be filed as an exhibit to the Registration Statement that are not
described or filed as required by the Act. All such contracts to which the
Company or any Subsidiary is a party have been duly authorized, executed and
delivered by the Company or the respective Subsidiary, constitute valid
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<PAGE> 11
and binding agreements of the Company or the respective Subsidiary and are
enforceable against the Company or the respective Subsidiary in accordance with
the terms thereof.
(g) Neither the Company nor any Subsidiary is (i) in violation of
(A) its articles of incorporation or bylaws or other charter documents, or (B)
any law, ordinance, administrative or governmental rule or regulation applicable
to the Company or any Subsidiary or (C) of any decree of any court or
governmental agency or body having jurisdiction over the Company or any
Subsidiary, or (ii) in default in any material respect in the performance of any
obligation, agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any material agreement, indenture, lease or
other instrument to which the Company or any Subsidiary is a party or by which
the Company or any Subsidiary or any of their respective properties may be bound
except, in the case of (i)(B), (i)(C) and (ii) above, where such violation or
default would not have a material adverse effect on the Company and the
Subsidiaries, taken as a whole.
(h) The execution and delivery of this Agreement, and the
performance by the Company of its obligations under this Agreement, have been
duly and validly authorized by the Company, and this Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except insofar as the indemnification and contribution provisions
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles.
(i) None of the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby (i) is or may be void or
voidable by any person or entity, (ii) requires any consent, approval,
authorization or other order of or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except such as may be required for the registration of the Shares
under the Act and the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and compliance with the securities or Blue Sky laws of various
jurisdictions, all of which will be, or have been, effected in accordance with
this Agreement) or conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the articles of incorporation or
bylaws or other charter documents, of the Company or any subsidiary, or (iii)
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, any agreement, indenture, lease or other instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties may be bound, or violates any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any Subsidiary or any of their respective
properties, or results in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any Subsidiary
pursuant to the terms of any agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary may be bound or
to which the property or assets of the Company or any Subsidiary is subject.
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<PAGE> 12
(j) Except as described in the Prospectus, the Company does not
have outstanding and at the Closing Date (and the Additional Closing Date, if
applicable) will not have outstanding any options to purchase, or any warrants
to subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any shares of Common Stock or any
such warrants or convertible securities or obligations. Except as has been
complied with or waived, no holder of securities of the Company or any other
person has rights to the registration of any securities of the Company because
of the filing of the Registration Statement.
(k) Deloitte & Touche LLP, the certified public accountants who
have certified the consolidated financial statements filed as part of the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), are independent public accountants as required by the Act. The
consolidated financial statements, together with related schedules and notes,
forming part of the Registration Statement and the Prospectus (and any amendment
or supplement thereto), present fairly the historical consolidated financial
position, results of operations and changes in financial position of the Company
and the Subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved and
all adjustments necessary for a fair presentation of the results for such period
have been made; and the other financial and statistical information and data set
forth in the Registration Statement and Prospectus (and any amendment or
supplement thereto) is accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company. No
financial statements or schedules are required to be included in or incorporated
by reference into the Registration Statement that have not been so included or
incorporated.
(l) Subsequent to the respective dates as of which such
information is given in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), neither the Company nor any Subsidiary has
incurred any liability or obligation, direct or contingent, or entered into any
transaction, whether or not in the ordinary course of business, that is material
to the Company and the Subsidiaries, taken as a whole, and there has not been
(i) any material change in or dividend paid on the capital stock, (ii) any
material increase in the short-term debt or long-term debt, of the Company or
any Subsidiary, or (iii) any material adverse change, or any development
involving or which may reasonably be expected to involve a potential future
material adverse change, in the condition (financial or other), business, net
worth or results of operations of the Company and the Subsidiaries, taken as a
whole.
(m) The Company and the Subsidiaries have good and marketable
title to all property (real and personal) described in the Registration
Statement and the Prospectus (or any amendment or supplement thereto) as being
owned by the Company or such Subsidiary, free and clear of all liens, claims,
security interests or other encumbrances except such as are described in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto) or such as are not materially burdensome and do not interfere in any
material respect with the use of the property or the conduct of the business of
the Company and the Subsidiaries, taken as a whole, and the property (real and
personal) held under lease by the Company or any Subsidiary, as
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<PAGE> 13
applicable, is held by them under valid, subsisting and enforceable leases with
only such exceptions as in the aggregate are not materially burdensome and do
not interfere in any material respect with the conduct of the business of the
Company and the Subsidiaries, taken as a whole.
(n) The Company has not distributed and will not distribute prior
to the Closing Date (or the Additional Closing Date, if any) any offering
material in connection with the offering and sale of the Shares other than the
Prepricing Prospectus and the Registration Statement, the Prospectus or other
materials permitted by the Act and distributed with the prior written approval
of the Underwriters. The Company has not taken, directly or indirectly, any
action which constituted or any action designed, or which might reasonably be
expected to cause or result in or constitute, under the Act or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares. The Company acknowledges that the
Underwriters may engage in passive market making transactions in the Common
Stock on The Nasdaq Stock Market in accordance with Regulation M under the
Exchange Act.
(o) Neither the Company nor any Subsidiary is an "investment
company," an "affiliated person" of, or "promoter" or "principal underwriter"
for an investment company within the meaning of the Investment Company Act of
1940, as amended.
(p) The Company and the Subsidiaries have all permits, licenses,
franchises, approvals, consents and authorizations of governmental or regulatory
authorities or private persons or entities (hereinafter "permit or "permits") as
are necessary to own their respective properties and to conduct their respective
businesses in the manner described in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subject to such
qualifications as may be set forth therein, and as are necessary to allow the
use of the Company's products in the industries discussed in the Registration
Statement and the Prospectus (or any amendment or supplement thereto)
(including, without limitation, in the health care industry and the aircraft
manufacturing industry), except where the failure to have obtained any such
permit has not had and will not have a material adverse effect upon the
condition (financial or other) or the business of the Company and the
Subsidiaries, taken as a whole; the Company and the Subsidiaries have fulfilled
and performed all of their material obligations with respect to each such permit
and no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination of any such permit or result in any other
material impairment of the rights of the holder of any such permit, subject in
each case to such qualification as may be set forth in the Prospectus; and,
except as described in the Prospectus, such permits contain no restrictions that
are materially burdensome to the Company and the Subsidiaries, taken as a whole.
(q) The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the business in which they are engaged;
and the Company has no reason to believe that the Company and the Subsidiaries
will not be able to renew their existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue their respective businesses at a comparable cost.
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<PAGE> 14
(r) The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(s) Neither the Company nor any Subsidiary has, directly or
indirectly, at any time during the past five years (i) made any unlawful
contribution to any candidate for political office, or failed to disclose fully
any contribution in violation of law, or (ii) made any payment to any federal,
state or foreign governmental official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof or applicable foreign
jurisdictions.
(t) Except as set forth in the Registration Statement and the
Prospectus, to the knowledge of the Company neither the Company nor any
Subsidiary has violated any environmental, safety or similar law applicable to
their respective businesses, nor any federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any applicable
federal or state wages and hours laws, nor any provisions of the Employee
Retirement Income Security Act or the rules and regulations promulgated
thereunder, which in each case might result in any material adverse change in
the business, prospects, financial condition or results of operation of the
Company and the Subsidiaries, taken as a whole. To the best of the Company's
knowledge, no labor disturbance by the employees of the Company or any of the
Subsidiaries exists or is imminent; and the Company is not aware of any existing
or imminent labor disturbances by the employees of any of its principal
suppliers, subassemblers, value added resellers, subcontractors, original
equipment manufacturers, dealers or distributors that might be expected to
result in any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and the
Subsidiaries, taken as a whole. No collective bargaining agreement exists with
any of the Company's or any Subsidiary's employees and, to the Company's
knowledge, no such agreement is imminent. To the knowledge of the Company,
neither the employment by the Company or any Subsidiary of their key personnel
nor the activities of such individuals at the Company or any Subsidiary
conflicts with, constitutes a breach of, or otherwise violates any employment,
noncompetition, nondisclosure or similar agreement or covenant by which such
individuals may be bound.
(u) The Company and the Subsidiaries own and have full right,
title and interest in and to, or have the right to use, each material trade
name, trademark, service mark, patent, copyright, license, and other rights and
all know-how (including trade secrets and other unpatented and/or proprietary or
confidential information, systems, or procedures) (collectively, "Intellectual
Property Rights") under which the Company and the Subsidiaries conduct all or
any portion of their respective businesses, which Intellectual Property Rights
are adequate to conduct such businesses as conducted or as proposed to be
conducted or as described in the Registration Statement and the Prospectus (or
any amendment or supplement thereto); except as otherwise
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<PAGE> 15
disclosed in the Registration Statement and the Prospectus (or any amendment or
supplement thereto), neither the Company nor any Subsidiary has created any lien
or encumbrance on, or granted any right or license with respect to, its
respective Intellectual Property Rights; there is no claim pending against the
Company or any Subsidiary with respect to any of their respective Intellectual
Property Rights; neither the Company nor any Subsidiary has received notice
that, nor is the Company aware that, any Intellectual Property Right which they
use or have used in the conduct of their respective businesses infringed or
infringes upon or conflicted or conflicts with the rights of any third party,
which infringement or conflict could have a material adverse effect upon the
condition (financial or other) of the Company and the Subsidiaries, taken as a
whole; and the Company is not aware of any facts which, with the passage of time
or otherwise, would cause the Company or any Subsidiary to infringe upon or
otherwise violate the Intellectual Property Rights of any third party.
(v) All federal, state, local and foreign tax returns required to
be filed by or on behalf of the Company and any Subsidiary with respect to all
periods ended prior to the date of this Agreement have been filed (or are the
subject of valid extension) with the appropriate federal, state, local and
foreign authorities (except where such failure to file would not have a material
adverse effect on the Company and the Subsidiaries, taken as a whole) and all
such tax returns, as filed, are accurate in all material respects. All federal,
state, local and foreign taxes (including estimated tax payments) required to be
shown on all such tax returns or claimed to be due from or with respect to the
respective businesses of the Company and the Subsidiaries have been paid or
reflected as a liability on the consolidated financial statements of the Company
for appropriate periods (except for any such tax the failure of which to pay
would not have a material adverse effect on the Company and the Subsidiaries,
taken as a whole). All deficiencies asserted as a result of any federal, state,
local or foreign tax audits have been paid or finally settled and no issue has
been raised in any such audit which, by application of the same or similar
principles, reasonably could be expected to result in a proposed deficiency for
any other period not so audited. No state of facts exist or has existed which
would constitute grounds for the assessment of any material tax liability with
respect to the periods that have not been audited by appropriate federal, state
local or foreign authorities. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal, state,
local or foreign tax return for any period.
(w) The Company and its Subsidiaries have obtained all required
permits, licenses, and other authorizations, if any, which are required under
federal, state, local and foreign statutes, ordinances and other laws relating
to pollution or protection of the environment, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, chemicals, or industrial, hazardous, or toxic materials or wastes
into the environment (including, without limitation, ambient air, surface water,
ground water, land surface, or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
hazardous, or toxic materials or wastes, or any regulation rule, code, plan,
order, decree, judgment, injunction, notice, or demand letter issued, entered,
promulgated, or approved thereunder ("Environmental Laws") the failure of which
to obtain would have a material adverse effect on the Company and its
Subsidiaries, taken as a whole. The Company and its Subsidiaries
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<PAGE> 16
are in material compliance with all terms and conditions of all required
permits, licenses and authorizations, and are also in material compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables contained in the
Environmental Laws. There is no pending or, to the best knowledge of the
Company, threatened, civil or criminal litigation, notice of violation, or
administrative proceeding relating in any way to the Environmental Laws
(including notices, demand letters, or claims under the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and
similar foreign, state, or local laws) involving the Company or any Subsidiary.
There have not been and there are not any past, present, or foreseeable future
events, conditions, circumstances, activities, practices, incidents, actions, or
plans which may interfere with or prevent continued compliance, or which may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, demand, suit, proceeding, hearing, study, or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release, or threatened release into the environment, of any
pollutant, contaminant, chemical, or industrial, hazardous, or toxic material or
waste, including, without limitation, any liability arising, or any claim,
action, demand, suit, proceeding, hearing, study, or investigation which may be
brought, under RCRA, CERCLA, or similar foreign, state or local laws, in each
case which individually or in the aggregate would have a material adverse effect
on the Company and its Subsidiaries, taken as a whole.
(x) The Company and the Subsidiaries are in compliance with all
provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to
Disclosure of doing Business with Cuba; if the Company or any Subsidiary
commences engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported or incorporated by reference in the Prospectus, if any,
concerning the business of the Company or any Subsidiary with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate in
a form acceptable to the Department.
SECTION 6A. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder, severally and not jointly, represents and warrants to
each Underwriter and the Company on the date hereof, and shall be deemed to
represent and warrant to each Underwriter and the Company on the Closing Date
and the Additional Closing Date, that:
(a) Such Selling Shareholder has full right, power and authority
to sell, assign, transfer and deliver the Shares to be sold by such Selling
Shareholder hereunder; and upon delivery of such Shares hereunder and payment of
the purchase price as herein contemplated, each of the Underwriters purchasing
such Shares in good faith and without notice of any lien, claim or encumbrance
will obtain good and valid title to the Shares purchased by it from such Selling
Shareholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or
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<PAGE> 17
equitable interest, including any liability for estate or inheritance taxes, or
any liability to or claims of any creditor, devisee, legatee or beneficiary of
such Selling Shareholder.
(b) Such Selling Shareholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
a Power of Attorney (the "Power of Attorney") appointing Simon Raab and
Gregory A. Fraser as attorneys-in-fact (collectively, the "Attorneys" and
individually, an "Attorney") and a Letter of Transmittal and Custody Agreement
(the "Custody Agreement") with Firstar Trust Company, as custodian (the
"Custodian"); each of the Power of Attorney and the Custody Agreement
constitutes a valid and binding agreement of such Selling Shareholder,
enforceable against such Selling Shareholder in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of such
Selling Shareholder 's Attorneys, acting alone, is authorized to execute and
deliver this Agreement and the certificate referred to in Section 9(i) hereof on
behalf of such Selling Shareholder, to determine the purchase price to be paid
by the several Underwriters to such Selling Shareholder as provided in Section 2
hereof, to authorize the delivery of the Shares to be sold by the Selling
Shareholders under this Agreement and to duly endorse (in blank or otherwise)
the certificate or certificates representing such Shares or a stock power or
powers with respect thereto, to accept payment therefor, and otherwise to act on
behalf of such Selling Shareholder in connection with this Agreement.
Certificates in negotiable form for all Shares to be sold by such Selling
Shareholder under this Agreement, together with a stock power or powers duly
endorsed in blank by such Selling Shareholder, have been placed in custody with
the Custodian for the purpose of effecting delivery hereunder.
(c) All authorizations, approvals, consents and orders necessary
for the execution and delivery by such Selling Shareholder of the Power of
Attorney and the Custody Agreement, the execution and delivery by or on behalf
of such Selling Shareholder of this Agreement and the sale and delivery of the
Shares to be sold by the Selling Shareholders under this Agreement (other than
such authorizations, approvals or consents as may be necessary under state or
other securities or Blue Sky laws) have been obtained and are in full force and
effect; such Selling Shareholder, if other than a natural person, has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its organization as the type of entity that it purports to be;
and such Selling Shareholder has full right, power, and authority to enter into
and perform its obligations under this Agreement and such Power of Attorney and
Custody Agreement, and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Shareholder under this Agreement.
(d) Such Selling shareholder will not offer, sell or otherwise
dispose ofany shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or any rights to purchase or acquire, Common
Stock, during the period from the date of this Agreement to the date 180 days
following the effective date of the Registration Statement, inclusive, without
the prior written consent of Raymond James & Associates, Inc.
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<PAGE> 18
(e) Certificates in negotiable form for all Shares to be sold by
such Selling shareholder under this Agreement, together with a stock power or
powers duly endorsed in blank by such Selling Shareholder, have been placed in
custody with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by such Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Shareholder and constitutes the valid
and binding agreement of such Selling Shareholder, enforceable against such
Selling Shareholder in accordance with its terms, except insofar as the
indemnification and contribution provisions hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;; and the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach of or default under
any material bond, debenture, note or other evidence of indebtedness, or any
material contract, indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder or any Selling Shareholder Shares hereunder may
be bound or, to the best of such Selling Shareholder's knowledge, result in any
violation of any law, order, rule, regulation, writ, injunction or decree of any
court or governmental agency or body or, if such Selling Shareholder is other
than a natural person, result in any violation of any provisions of the charter,
bylaws or other organizational documents of such Selling Shareholder.
(g) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Shareholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder and the Shares to be sold by
such Selling Shareholders under this Agreement that is contained in the
representations and warranties of such Selling Shareholder in such Selling
Shareholder's Power of Attorney or set forth in the Registration Statement is,
and on the Closing Date will be, true, correct and complete, and does not, and
on the Closing Date will not, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
such statements not misleading and any such statement that are set forth in the
Prospectus is, and on the Closing Date will be, true, correct and complete, and
does not , and on the Closing Date will note, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make such statements therein, in light of the circumstances under
which they were made, not misleading.
(j) Such Selling Shareholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date and
will advise one of its Attorneys prior to the
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<PAGE> 19
Closing Date if any statement to be made on behalf of such Selling Shareholder
in the certificate contemplated by Section 9(i) would be inaccurate if made as
of the Closing Date.
(k) Such Selling Shareholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Shareholders to the Underwriters pursuant to
this Agreement; and such Selling Shareholder does not own any capital stock of
the Company or warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company, other than those described in the
Registration Statement and the Prospectus.
(l) Such Selling Shareholder is not aware (without having
conducted any investigation or inquiry) that any of the representations and
warranties of the Company set forth in Section 6 above is untrue or inaccurate.
SECTION 7. EXPENSES. The Company hereby agrees with the several
Underwriters that the Company will pay or cause to be paid the costs and
expenses associated with the following: (i) the preparation, printing or
reproduction, and filing with the Commission of the Registration Statement
(including financial statements and exhibits thereto), each Prepricing
Prospectus, the Prospectus, each registration statement filed pursuant to Rule
462(b) under the Act, and each amendment or supplement to any of them; (ii) the
printing (or reproduction) and delivery (including postage, air freight charges
and charges for counting and packaging) of such copies of the Registration
Statement, each Prepricing Prospectus, the Prospectus, each registration
statement filed pursuant to Rule 462(b) under the Act, and all amendments or
supplements to any of them, as may be reasonably requested for use in connection
with the offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the offering of the Shares; (iv) the printing
(or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Shares;
(v) the listing of the Shares on the Nasdaq National Market; (vi) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 5(f)
hereof (including the reasonable fees and expenses of counsel for the
Underwriters relating to the preparation, printing or reproduction, and delivery
of the preliminary and supplemental Blue Sky Memoranda and such registration and
qualification) which fees will not exceed, in the aggregate, $5,000; (vii) the
filing fees in connection with any filings required to be made with the NASD in
connection with the offering; (viii) the transportation and other expenses
incurred by or on behalf of representatives of the Company in connection with
the presentations to prospective purchasers of the Shares; (ix) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company; (x) the preparation,
printing and distribution of bound volumes of the relevant transaction documents
for the Representatives and their counsel; and (xi) the performance by the
Company of its other obligations under this Agreement. If the transactions
contemplated hereby are not consummated by reason of any failure, refusal or
inability on the part of the Company or any Selling Shareholder to perform any
agreement on its part to be performed hereunder or to fulfill any condition of
the Underwriters'
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<PAGE> 20
obligations hereunder, the Company will reimburse the several Underwriters for
all reasonable out-of-pocket expenses (including fees and disbursements of
counsel for the several Underwriters) incurred by the Underwriters in
investigating, preparing to market or marketing the Shares.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION. Each of the Company, Simon
Raab and Gregory A. Fraser agrees to indemnify and hold harmless you and each
other Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any breach
of any representation, warranty, agreement or covenant of the Company contained
herein or any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, any amendment or supplement thereto, or
in any Registration Statement filed pursuant to Rule 462(b) under the Act, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prepricing
Prospectus, the Prospectus, or any amendment or supplement thereto, or arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading or arising out of or based upon any untrue statement or alleged
untrue statement of any material fact contained in any audio or visual materials
used in connection with the marketing of the Shares, including, without
limitation, slides, videos, films and tape recordings, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
an untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to an Underwriter furnished in writing to the
Company by or on behalf of any Underwriter through you expressly for use in
connection therewith or arise out of materials prepared solely by the
Underwriters without the knowledge of the Company or any of its representatives
based upon material information obtained from sources other than, directly or
indirectly, the Company or its representatives, provided, further, that the
indemnity agreement contained in this subsection with respect to any Prepricing
Prospectus and the Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such loss, claim, damage, liability or action
purchased any of the Shares which are the subject thereof if a copy of the
Prospectus (as amended or supplemented, if the Company shall have furnished any
amendment or supplement thereto to such Underwriter which shall correct the
untrue statement or alleged untrue statement or omission or alleged omission
which is the basis of the loss, claim, damage, liability or action for which
indemnification is sought) was not delivered or given to such person at or prior
to the written confirmation of the sale to such person. This indemnification
shall be in addition to any liability that the Company may otherwise have.
Each Selling Shareholder other than Simon Raab and Gregory A. Fraser,
severally and not jointly, agrees to indemnify and hold harmless you and each
other Underwriter and each person, if any, who controls any underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities
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<PAGE> 21
and expenses (including reasonable costs of investigation) arising out of or
based upon any breach of any representation, warranty, agreement or covenant of
such Selling Shareholder contained herein or any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus, the
Registration Statement, the Prospectus, any amendment or supplement thereto, or
in any Registration Statement filed pursuant to Rule 462(b) under the Act, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with respect to information relating to such
Selling Shareholder furnished in writing by or on behalf of such Selling
Shareholder through you expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, any amendment or supplement thereto, or
any Registration Statement filed pursuant to Rule 462(b) under the Act. This
indemnification shall be in addition to any liability that the Selling
Shareholders or any Selling Shareholder may otherwise have.
If any action or claim shall be brought against any Underwriter or any
person controlling any Underwriter in respect of which indemnity may be sought
against the Company, Simon Raab, Gregory A. Fraser or any other Selling
Shareholder, such Underwriter or such controlling person shall promptly notify
in writing the party(s) against whom indemnification is being sought (the
"indemnifying party" or "indemnifying parties"), but the omission so to notify
the indemnifying party(s) shall not relieve such indemnifying party(s) from any
liability which it may have to such Underwriter or such controlling person. In
case any such action shall be brought against any Underwriter or controlling
person and it shall notify the indemnifying party(s) of the commencement
thereof, the indemnifying party(s) shall be entitled to participate therein and,
to the extent that it shall wish, jointly with any other indemnifying party(s)
similarly notified, to assume the defense thereof, with counsel satisfactory to
such Underwriter or controlling person (who shall not, except with the consent
of the Underwriter or controlling person, be counsel to the indemnifying
party(s)), and, after notice from the indemnifying party(s) to such Underwriter
or controlling person of its election so to assume the defense thereof, the
indemnifying party(s) shall not be liable to such Underwriter or controlling
person under such subsection for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such Underwriter or
controlling person, in connection with the defense thereof other than reasonable
costs of investigation. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter or such controlling person unless (i) the
indemnifying party(s) has (have) agreed in writing to pay such fees and
expenses, (ii) the indemnifying party(s) has (have) failed to assume the defense
and employ counsel reasonably acceptable to the Underwriter or such controlling
person, or (iii) the named parties to any such action (including any impleaded
parties) include both such Underwriter or such controlling person and the
indemnifying party(s), and such Underwriter or such controlling person shall
have been advised by its counsel that representation of such indemnified party
and any indemnifying party(s) by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the indemnifying party(s) shall not have
the right to assume the defense of such action on behalf of such Underwriter or
such controlling person).
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<PAGE> 22
The indemnifying party(s) shall not be liable for any settlement of any such
action effected without its (their) written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, the indemnifying party(s) agrees to indemnify and hold harmless any
Underwriter and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment, but in
the case of a judgment only to the extent stated in the immediately preceding
paragraph.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement, and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, and each Selling Shareholder,
to the same extent as the foregoing indemnity from the Company, Simon Raab,
Gregory A. Fraser or any other Selling Shareholder to each Underwriter, but only
with respect to information relating to such Underwriter furnished in writing by
or on behalf of such underwriter through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, any
amendment or supplement thereto, or any Registration Statement filed pursuant to
Rule 462(b) under the Act. If any action or claim shall be brought or asserted
against the Company, any of its directors, any such officers, or any such
controlling person or any Selling Shareholder based on the Registration
Statement, the Prospectus or any Prepricing Prospectus, any amendment or
supplement thereto, or any Registration Statement filed pursuant to Rule 462(b)
under the Act, and in respect of which indemnity may be sought against any
Underwriter pursuant to this paragraph, such Underwriter shall have the rights
and duties given to the Company, Simon Raab, Gregory A. Fraser or any other
Selling Shareholder by the preceding paragraph (except that if the Company,
Simon Raab, Gregory A. Fraser or any other Selling Shareholder shall have
assumed the defense thereof such Underwriter shall not be required to do so, but
may employ separate counsel therein and participate in the defense thereof, but
the fees and expenses of such counsel shall be at such Underwriter's expense),
and the Company, its directors, any such officers, and any such controlling
persons and the Selling Shareholders shall have the rights and duties given to
the Underwriters by the immediately preceding paragraph. This indemnification
shall be in addition to any liability the Underwriters or any Underwriter may
otherwise have.
If the indemnification provided for in this Section 8 is unavailable to
an indemnified party under the first, second or fourth paragraph hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party(s), in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, Simon Raab, Gregory A. Fraser or any other Selling Shareholder, as
applicable, on the one hand and the Underwriters on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company, Simon Raab, Gregory A. Fraser or any other
Selling Shareholder, as applicable, on the one hand and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, Simon
Raab, Gregory A. Fraser
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<PAGE> 23
or any other Selling Shareholder, as applicable, on the one hand and the
Underwriters on the other hand shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Shares (before deducting
expenses) received by the Company, Simon Raab, Gregory A. Fraser or any other
Selling Shareholder, as applicable, bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus; provided that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company, Simon Raab,
Gregory A. Fraser or any other Selling Shareholder, as applicable, or the
Underwriters from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company, Simon Raab, Gregory A.
Fraser or any other Selling Shareholder, as applicable, and the underwriting
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Company, Simon Raab, Gregory A. Fraser or any other
Selling Shareholder, as applicable on the one hand and the Underwriters on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, Simon Raab,
Gregory A. Fraser or any other Selling Shareholder, as applicable, on the one
hand or by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
In any event, neither the Company, Simon Raab, Gregory A. Fraser nor any
other Selling Shareholder will, without the prior written consent of the
Representatives, settle or compromise or consent to the entry of any judgment in
any proceeding or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not the
Representatives or any person who controls the Representatives within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding) unless such settlement, compromise or
consent (i) includes an unconditional release of all Underwriters and such
controlling persons from all liability arising out of such claim, action, suit
or proceeding and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of any Underwriter or
controlling person.
The Company, Simon Raab, Gregory A. Fraser, the other Selling
Shareholders and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 8 was determined by a pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the fifth paragraph of this Section 8.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in the fifth paragraph of
this Section 8 shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price of the Shares underwritten by it and distributed to the public exceeds the
amount of any damages which such Underwriter has otherwise been required
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<PAGE> 24
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 8 are several
in proportion to the respective numbers of Firm Shares set forth opposite their
names in Schedule I hereto (or such numbers of Firm Shares increased as set
forth in Section 10 hereof) and not joint.
Notwithstanding the foregoing, the liability of each Selling Shareholder,
other than Simon Raab and Gregory A. Fraser, under the representations and
warranties contained in Section 6A hereof and under the indemnity agreements
contained in the provisions of this Section 8 shall be limited to an amount
equal to the initial public offering price of the Shares sold by such Selling
Shareholder to the Underwriters minus the amount of the underwriting discount
paid thereon to the Underwriters by such Selling Shareholder. The Company and
such Selling Shareholders may agree, as among themselves and without limiting
the rights of the Underwriters under this Agreement, as to the respective
amounts of such liability for which they each shall be responsible.
In any proceeding relating to the Registration Statement, any Preliminary
Prospectus, the Prospectus, any supplement or amendment thereto, or any
registration statement filed pursuant to Section 462(b) of the Act, each party
against whom contribution may be sought under this Section 8 hereby consents to
the jurisdiction of any court having jurisdiction over any other contributing
party, agrees that process issuing from such court may be served upon him or it
by any other contributing party and consents to the service of such process and
agrees that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party is a
party.
Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party(s) to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Selling Shareholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any person controlling the Company, or any Selling Shareholder, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, to the Company, its directors or officers, or any
person controlling the Company, or any Selling Shareholder, shall be entitled to
the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 8.
SECTION 9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
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<PAGE> 25
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York City time, on the date hereof, or at such later
date and time as shall be consented to in writing by you, and all filings
required by Rules 424(b) and 430A under the Act shall have been timely made; and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction.
(b) Subsequent to the effective date of the Registration
Statement there shall not have occurred any change, or any development
involving, or which might reasonably be expected to involve, a potential future
material adverse change, in the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole, not contemplated by the Prospectus (or any
supplement thereto), that in your reasonable opinion, as Representatives of the
several Underwriters, would materially and adversely affect the market for the
Shares.
(c) You shall have received on the Closing Date (and the
Additional Closing Date, if any) an opinion of Foley & Lardner, counsel for the
Company, dated the Closing Date (and the Additional Closing Date, if any),
satisfactory to you and your counsel, to the effect that:
(i) The Company is a corporation duly incorporated under the
laws of the State of Florida, and validly existing in good standing, with
full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement thereto),
and is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure to so register or qualify does
not have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operation of the Company
and the Subsidiaries, taken as a whole.
(ii) Each Subsidiary is a corporation duly incorporated and
validly existing in good standing under the laws of the jurisdiction of
its organization, with full corporate power and authority to own, lease
and operate its properties and to conduct its business as described in
the Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure to so register or
qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of
operation of the Company and the Subsidiaries, taken as a whole. All
issued and outstanding shares of capital stock of each Subsidiary have
been validly issued and are fully paid and nonassessable and, to such
counsel's knowledge, free and clear of all liens, encumbrances, equities
and claims. To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other
entity other than FARO Worldwide, Inc., a Florida corporation, and FARO
France, S.A. S., a French corporation;
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<PAGE> 26
(iii) The authorized capital stock and other securities of the
Company conform in all material respects as to matters of Florida or
federal law to the description thereof contained in the Prospectus under
the caption "Description of Capital Stock."
(iv) All shares of capital stock or other securities of the
Company outstanding prior to the issuance of the Shares to be issued and
sold by the Company hereunder have been duly authorized and validly
issued, are fully paid and nonassessable and have not been issued in
violation of any co-sale right, registration right, right of first
refusal, preemptive right, or other similar right that has been described
in the Registration Statement, the Prepricing Prospectus or the
Prospectus.
(v) To such counsel's knowledge, (A) all offers and sales of
the Company's capital stock or other securities prior to the date hereof
were made in compliance with the registration provisions of the Act and
the registration provisions of all other applicable state and federal
laws or regulations or any actions under the Act, or any state or federal
laws or regulations, or pursuant to applicable exemptions therefrom or
(B) any actions thereunder are effectively barred by effective waivers or
statutes of limitation or similar laws.
(vi) The Shares to be issued and sold to the Underwriters by the
Company, and the Shares to be sold by the Selling Shareholders, hereunder
have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and, to such
counsel's knowledge, free and clear of all liens, encumbrances, equities
and claims and will not have been issued in violation of any co-sale
right, registration right, right of first refusal, preemptive right, or
other similar right that has been described in the Registration
Statement, the Prepricing Prospectus or the Prospectus.
(vii) The form of certificates for the Shares conforms to the
requirements of the applicable corporate laws of the State of Florida.
(viii) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel after reasonable inquiry, no
stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose are pending before or
threatened by the Commission.
(ix) The Company has all requisite corporate power and authority
to enter into this Agreement and to issue, sell and deliver the Shares to
be sold by it to the Underwriters as provided herein, and this Agreement
has been duly authorized, executed and delivered by the Company and is a
valid, legal and binding agreement of the Company enforceable against the
Company in accordance with its terms, except as enforceability thereof
may be limited by (A) the application of bankruptcy, reorganization,
insolvency and other laws affecting creditors' rights generally, and (B)
equitable principles being applied at the discretion of a court before
which any
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<PAGE> 27
proceeding may be brought; and the Company has adequate authorization and
has taken all action necessary to authorize the indemnification
provisions contained in Section 8 herein, provided, however that such
counsel may specifically refrain from opining as to the validity of the
indemnification provisions hereof insofar as they are or may be held to
be violative of public policy (under either state or federal law) against
such types of provisions in the context of the offer, offer for sale, or
sale of securities.
(x) Neither the Company nor any Subsidiary is in violation of
its respective articles of incorporation or bylaws or other charter
documents, and to the knowledge of such counsel after reasonable inquiry,
neither the Company nor any Subsidiary is in default in the performance
of any material obligation, agreement or condition contained in any bond,
indenture, note or other evidence of indebtedness or in any other
agreement material to the Company and the Subsidiaries, taken as a whole.
(xi) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, compliance by the
Company with all provisions hereof nor consummation by the Company of the
transactions contemplated hereby conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, articles
of incorporation or bylaws or other charter documents, of the Company or
any Subsidiary, or any agreement, indenture, lease or other instrument to
which the Company or any Subsidiary, or any of their respective
properties, is bound, that is or was required to be filed by the Company
with the Commission, or is known to such counsel after reasonable
inquiry, or will result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any
Subsidiary, nor will any such action result in any violation of any
existing law, regulation, ruling (assuming compliance with all applicable
federal and state securities and "blue sky" laws), judgment, injunction,
order or decree known to such counsel after reasonable inquiry,
applicable to the Company or any Subsidiary, or any of their respective
properties.
(xii) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative
agency or other governmental body, agency or official is required on the
part of the Company (except such as have been obtained under the Act or
such as may be required under state securities or "blue sky" laws
governing the purchase and distribution of the Shares and the clearance
of the underwriting arrangements with the National Association of
Securities Dealers, Inc.) for the valid issuance and sale of the Shares
to the Underwriters under this Agreement.
(xiii) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements
and the notes thereto and the schedules and other financial and
statistical data included or incorporated by reference therein, as to
which such counsel need not express any opinion) comply as to form in all
material respects with the requirements of the Act.
(xiv) To the knowledge of such counsel after reasonable inquiry,
(A) there are no legal or governmental proceedings pending or threatened
against the Company or any
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<PAGE> 28
Subsidiary, or to which the Company or any Subsidiary, or any of their
respective properties, are subject, that are required to be described in
the Registration Statement or Prospectus (or any amendment or supplement
thereto) or any document incorporated by reference therein that are not
described as required therein, and (B) there are no agreements,
contracts, indentures, leases or other instruments, that are required to
be described in the Registration Statement or the Prospectus (or any
amendment or supplement thereto) or any document incorporated by
reference therein or to be filed as an exhibit to the Registration
Statement or incorporated by reference therein that are not described or
filed as required, as the case may be.
(xv) To the knowledge of such counsel after reasonable inquiry,
neither the Company nor any Subsidiary is in violation of any law,
ordinance, administrative or governmental rule or regulation applicable
to the Company or any Subsidiary or of any decree of any court or
governmental agency or body having jurisdiction over the Company or any
Subsidiary except where such violation does not and will not have a
material adverse effect on the condition (financial or other), business,
properties, net worth or results of operation of the Company and the
Subsidiaries, taken as a whole.
(xvi) To the knowledge of such counsel after reasonable inquiry,
(A) the Company and the Subsidiaries have such permits, licenses,
franchises, approvals, consents and authorizations of governmental or
regulatory authorities ("permits"), as are necessary to own their
respective properties and to conduct their respective businesses in the
manner described in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), subject to such qualifications as may
be set forth therein; (B) the Company and the Subsidiaries have fulfilled
and performed all of their respective material obligations with respect
to such permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or result
in any other material impairment of the rights of the holder of any such
permit, subject in each case to such qualification as may be set forth in
the Registration Statement and the Prospectus (or any amendment or
supplement thereto); and (C) except as described in the Registration
Statement and the Prospectus (or any amendment or supplement thereto),
such permits contain no restrictions that are materially burdensome to
the Company and the Subsidiaries, taken as a whole.
(xvii) Such counsel has reviewed all agreements, contracts,
indentures, leases or other documents or instruments referred to in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto) (other than routine contracts entered into by the Company or any
Subsidiary for the purchase of materials or the sale of products, entered
into in the normal course of business) and such agreements, contracts,
indentures, leases or other documents or instruments are fairly
summarized or disclosed therein, and filed as exhibits thereto or
incorporated by reference therein as required.
(xviii) The statements under the captions "Risk Factors -- Control
by Principal Shareholders; Anti-Takeover Considerations," "-- Shares
Eligible for Future Sale," "Description of Capital Stock" and "Shares
Eligible for Future Sale" in the Registration
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<PAGE> 29
Statement and the Prospectus, insofar as such statements constitute a
summary of documents referred to therein or matters of Florida or federal
law, are accurate summaries and fairly and correctly summarize and
present in all material respects the information called for with respect
to such documents and matters. Such counsel has no reason to believe that
the descriptions in the Registration Statement and the Prospectus (or any
amendment or supplement thereto) of statutes, regulations or legal or
governmental proceedings are other than accurate or fail to present
fairly the information required to be shown.
(xix) Neither the Company nor any Subsidiary is, nor will any of
them become, as a result of the consummation of the transactions
contemplated hereby and the application of the net proceeds therefrom as
set forth in the Registration Statement and the Prospectus (or any
amendment or supplement thereto) under the caption "Use of Proceeds," an
"investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended.
(xx) To the knowledge of such counsel after reasonable inquiry,
neither the Company nor any Subsidiary has received written notice from
any third party alleging that their employment of any individual or the
activities of any individual at the Company or any Subsidiary conflicts
with, constitutes a breach of, or otherwise violates any employment,
noncompetition, nondisclosure or similar agreement or covenant by which
such individual may be bound, and such counsel has no reason to believe
that the employment by the Company or any Subsidiary of any individual or
the activities of any individual at the Company or any Subsidiary
conflicts with, constitutes a breach of, or otherwise violates any
employment, noncompetition, nondisclosure or similar agreement or
covenant by which such individual may be bound.
In rendering such opinion, counsel may rely upon an opinion or opinions,
each dated the Closing Date (and the Additional Closing Date, if applicable), of
other counsel as to the laws of a jurisdiction other than the State of Florida,
provided that (1) each such local counsel is acceptable to you, (2) each such
opinion so relied upon is addressed to counsel and you, (3) such reliance is
expressly authorized by each opinion so relied upon and a copy of each such
opinion is delivered to you and is in form and substance satisfactory to you,
and (4) counsel shall state in their opinion that they believe that they and you
are justified in relying thereon. In rendering such opinion, local counsel may
rely, to the extent they deem such reliance proper, as to matters of fact upon
certificates of officers of the Company and of government officials. Copies of
all such certificates shall be furnished to you and your counsel on the Closing
Date (and the Additional Closing Date, if applicable).
In rendering such opinion, in each case where such opinion is qualified
by "the knowledge of such counsel after reasonable inquiry," such counsel may
rely as to matters of fact upon certificates of executive and other officers and
employees of the Company as you and such counsel shall deem are appropriate and
such other procedures as you and such counsel shall mutually agree; provided,
however, in each such case, such counsel shall state that it has no
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<PAGE> 30
knowledge contrary to the information contained in such certificates or
developed by such procedures and knows of no reason why you should not
reasonably rely upon the information contained in such certificates or developed
by such procedures.
In addition to the opinion set forth above, such counsel shall state that
during the course of the preparation of the Registration Statement and the
Prospectus, and any amendments or supplements thereto, nothing has come to the
attention of such counsel which has caused it to believe and such counsel does
not believe that the Registration Statement, as of the time it became effective
under the Act, the Prospectus or any amendment or supplement thereto, on the
date it was filed pursuant to Rule 424(b), as of the respective dates when such
documents were filed with the Commission, and the Registration Statement, or any
amendment or supplement thereto, as of the Closing Date (except for the
financial statements and notes and schedules thereto and other financial and
statistical information contained therein or omitted therefrom as to which no
opinion need be expressed), contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and the Prospectus, or any amendment
or supplement thereto, as of the Closing Date (except for the financial
statements and notes and schedules thereto and other financial and statistical
information contained therein or omitted therefrom as to which no opinion need
be expressed, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. With respect to such statement, counsel shall state that
although such counsel did not undertake to determine independently the accuracy,
completeness and fairness of the statements contained in the Registration
Statement or in the Prospectus and takes no responsibility therefor (except to
the extent specifically set forth herein), such counsel did participate in
discussions and meetings with officers and other representatives of the Company
and discussions with the auditor for the Company in connection with the
preparation of the Registration Statement and the Prospectus, and it is on the
basis of the foregoing (relying as to certain factual matters on the information
provided to such counsel and not on an independent investigation) that such
counsel is making such statement.
(d) You shall have received on the Closing Date (and the
Additional Closing Date, if any), an opinion of counsel for the Selling
Shareholders, dated the Closing Date (and the Additional Closing Date, if any),
satisfactory to you and your counsel, to the effect that:
(i) Each Selling Shareholder that is not a natural person has
full right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein; the Power of Attorney and Custody Agreement of each
Selling Shareholder that is not a natural person has been duly authorized
by such Selling Shareholder has been duly executed and delivered by or on
behalf of such Selling Shareholder; and the Power of Attorney and Custody
Agreement of each Selling Shareholder constitutes the valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles;
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<PAGE> 31
(ii) Each of the Selling Shareholders has full right, power and
authority to enter into and to perform its obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be sold
by such Selling Shareholder hereunder;
(iii) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Shareholder and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its
terms, except insofar as the indemnification and contribution provisions
hereunder may be limited by applicable law and except as the enforcement
hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles;
(iv) Upon the delivery of and payment for the Shares as
contemplated in this Agreement, each of the Underwriters will receive
valid marketable title to the Shares purchased by it from such selling
Shareholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such opinion, such
counsel may assume that the Underwriters are without notice of any defect
in the title of any of such Selling Shareholders to the Shares being
purchased from such Selling Shareholders;
In rendering such opinion, counsel may rely upon an opinion or opinions,
each dated the Closing Date (and the Additional Closing Date, if applicable), of
other counsel as to the laws of a jurisdiction other than the State of Florida,
provided that (1) each such local counsel is acceptable to you, (2) each such
opinion so relied upon is addressed to counsel and you, (3) such reliance is
expressly authorized by each opinion so relied upon and a copy of each such
opinion is delivered to you and is in form and substance satisfactory to you,
and (4) counsel shall state in their opinion that they believe that they and you
are justified in relying thereon. In rendering such opinion, local counsel may
rely, to the extent they deem such reliance proper, as to matters of fact upon
certificates of officers of the Company and of government officials. Copies of
all such certificates shall be furnished to you and your counsel on the Closing
Date (and the Additional Closing Date, if applicable).
In rendering such opinion, in each case where such opinion is qualified
by "the knowledge of such counsel after reasonable inquiry," such counsel may
rely as to matters of fact upon certificates of executive and other officers and
employees of the Company as you and such counsel shall deem are appropriate and
such other procedures as you and such counsel shall mutually agree; provided,
however, in each such case, such counsel shall state that it has no knowledge
contrary to the information contained in such certificates or developed by such
procedures and knows of no reason why you should not reasonably rely upon the
information contained in such certificates or developed by such procedures.
In addition to the opinion set forth above, such counsel shall state that
during the course of the preparation of the Registration Statement and the
Prospectus, and any amendments or
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<PAGE> 32
supplements thereto, nothing has come to the attention of such counsel which has
caused it to believe and such counsel does not believe that the Registration
Statement, as of the time it became effective under the Act, the Prospectus or
any amendment or supplement thereto, on the date it was filed pursuant to Rule
424(b), as of the respective dates when such documents were filed with the
Commission, the Registration Statement, or any amendment or supplement thereto,
as of the Closing Date (except for the financial statements and notes and
schedules thereto and other financial and statistical information contained
therein or omitted therefrom as to which no opinion need be expressed),
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and the Prospectus, or any amendment or supplement thereto, as of
the Closing Date (except for the financial statements and notes and schedules
thereto and other financial and statistical information contained therein or
omitted therefrom as to which no opinion need be expressed, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. With respect to such
statement, counsel shall state that although such counsel did not undertake to
determine independently the accuracy, completeness and fairness of the
statements contained in the Registration Statement or in the Prospectus and
takes no responsibility therefor (except to the extent specifically set forth
herein), such counsel did participate in discussions and meetings with officers
and other representatives of the Company and discussions with the auditor for
the Company in connection with the preparation of the Registration Statement and
the Prospectus, and it is on the basis of the foregoing (relying as to certain
factual matters on the information provided to such counsel and not on an
independent investigation) that such counsel is making such statement.
(e) On each Closing Date there shall have been furnished to you
the opinion (addressed to the Underwriters) of _______________, patent counsel
to the Company, dated such Closing Date (or the Additional Closing Date, if any)
and in form and substance satisfactory to counsel for the Underwriters to the
effect that such counsel is familiar with that portion of the technology used by
the Company and any Subsidiary in its business concerning which such counsel has
been consulted and has read the Registration Statement and the Prospectus (or
any amendment or supplement thereto), including in particular the portions of
the Registration Statement and the Prospectus referring to patents, trade
secrets, trademarks, service marks or other proprietary information or
materials, including such information or material licensed by the Company or any
Subsidiary (the "Technology Portion"), to the effect that:
(i) to the best of such counsel's knowledge, all information
submitted to the Patent and Trademark Office in connection with the
prosecution of patent applications on behalf of the Company or any
Subsidiary has been accurate, and neither such counsel, nor to the best
of such counsel's knowledge, the Company, any Subsidiary or any other
person, have made any misrepresentation or concealed any material
information from the Patent and Trademark Office in connection with the
prosecution of such applications;
(ii) such counsel has no knowledge of any fact which would
preclude the Company and the Subsidiaries from having clear title to the
respective patents and patent applications of the Company and the
Subsidiaries referred in the Technology Portion. To
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<PAGE> 33
the best of such counsel's knowledge, neither the Company nor any
Subsidiary lacks or will be unable to obtain any rights or licenses to
use any patent or know-how necessary to conduct the respective businesses
now conducted or proposed to be conducted by the Company and the
Subsidiaries as described in the Registration Statement and the
Prospectus (any amendment or supplement thereto). To the best of such
counsel's knowledge, none of the patents owned by the Company or any
Subsidiary is unenforceable or invalid. To the best of such counsel's
knowledge, neither the Company nor any Subsidiary has received any notice
of infringement or of conflict with rights or claims of others with
respect to any patents, trademarks, service marks, trade names,
copyrights or know-how that could result in a material adverse effect
upon the Company and the Subsidiaries, takes as a whole. Such counsel is
not aware of any patents of others which are infringed by specific
products or processes referred to in the Registration Statement and the
Prospectus (or any amendment or supplement thereto) in such manner as to
materially and adversely affect the Company and the Subsidiaries, taken
as a whole;
(iii) to the best of such counsel's knowledge, there are no
legal, administrative or other governmental proceedings pending relating
to patent rights, trade secrets, trademarks, service marks or other
proprietary information or materials of the Company or any Subsidiary,
and to the best of such counsel's knowledge no such proceedings are
threatened or contemplated by governmental authorities or others, other
than as described in the Registration Statement and the Prospectus (or
any amendment or supplement thereto);
(iv) such counsel does not know of any material contracts or
other material documents relating to the Company's proprietary
information, other than those filed as exhibits to the Registration
Statement;
(v) the statements under the captions "Risk Factors --
Dependence on Proprietary Technology" and "Business -- Intellectual
Property" in the Prospectus, insofar as such statements constitute a
summary of documents referred to therein or matters of law, are accurate
summaries and fairly and correctly present, in all material respects, the
information called for with respect to such documents and matters;
provided, however, that such counsel may rely on representations of the
Company with respect to the factual matters contained in such statements,
and provided that such counsel shall state that nothing has come to the
attention of such counsel which leads them to believe that such
representations are not true and correct in all materials respects; and
(vi) such counsel has no reason to believe and does not believe
that the Registration Statement or the Prospectus (or any amendment or
supplement thereto) (A) contains any untrue statement of a material fact
with respect to patents, trade secrets, trademarks, service marks or
other proprietary information owned or used by the Company or any
Subsidiary, or (B) omits to state any material fact relating to patents,
trade secrets, trademarks, service marks or other proprietary information
owned or used by the Company or any Subsidiary which omission would make
the statements made misleading.
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<PAGE> 34
(f) You shall have received on the Closing Date (and the
Additional Closing Date, if any) an opinion of King & Spalding, counsel for the
Underwriters, dated the Closing Date (and the Additional Closing Date, if any),
with respect to the issuance and sale of the Firm Shares, the Registration
Statement and other related matters as you may reasonably request, and the
Company and its counsel shall have furnished to your counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(g) You shall have received letters addressed to you and dated
the date hereof and the Closing Date (and the Additional Closing Date, if any)
from Deloitte & Touche LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(h) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any change in the capital stock or other securities of the Company
nor any material increase in the short-term or long-term debt of the Company
(other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or any amendment
or supplement thereto); (iii) there shall not have been since the respective
dates as of which information is given in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), except as may otherwise be
stated in the Registration Statement and Prospectus (or any amendment or
supplement thereto), any material adverse change (present or potential future)
in the condition (financial or other), business properties, net worth or results
of operations of the Company and the Subsidiaries shall not have any liabilities
or obligations, direct or contingent (whether or not in the ordinary course of
business) that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); and (iv) all of the
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the date hereof and on
and as of the Closing Date as if made on and as of the Closing Date, and you
shall have received a certificate, dated the Closing Date and signed by the
chief executive officer and the chief financial officer of the Company (or such
other officers as are acceptable to you) to the effect set forth in this Section
9(g) and in Section 9(h) hereof.
(i) The Company shall not have failed in any material respect at
or prior to the Closing Date to have performed or complied with any of its
agreements herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(j) You shall be satisfied that, and you shall have received a
certificate dated the Closing Date, from the Attorneys for each Selling
Shareholder to the effect that, as of the Closing Date, they have not been
informed that: (i) the representations and warranties made by such Selling
Shareholder herein are not true or correct in any material respect on the
Closing Date; or (ii) such Selling Shareholder has not complied with any
obligation or satisfied any condition which is required to be performed or
satisfied on his or its part at or prior to the Closing Date.
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<PAGE> 35
(k) The Company and the Selling Shareholders shall have furnished
or caused to have been furnished to you such further certificates and documents
as you shall be reasonably requested.
(l) At or prior to the Closing Date, you shall have received the
written commitment of each of the Company's directors, executive officers and
shareholders set forth on Schedule III hereto, not to offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or any rights to purchase or acquire, Common
Stock, during the period from the time of effectiveness of the Registration
Statement to the date 180 days following the effective date of the Registration
Statement, inclusive, without the prior written consent of Raymond James &
Associates, Inc., which commitments shall be in full force and effect as of the
Closing Date (and the Additional Closing Date, if any).
(m) The Shares shall be listed on the Nasdaq National Market,
subject to notice of issuance.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and your counsel.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of the Additional Closing
Date of the conditions set forth in this Section 9, except that, if the
Additional Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (j) shall be dated
the Additional Closing Date and the opinions and letters referred to in
paragraphs (c) through (f) shall be revised to reflect the sale of Additional
Shares.
SECTION 10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective upon the later of (a) the execution and delivery hereof by the parties
hereto, or (b) release of notification of the effectiveness of the Registration
Statement by the Commission.
If any one or more of the Underwriters shall fail or refuse to purchase
Firm Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Firm Shares, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in the Agreement Among Underwriters,
to purchase the Firm Shares which such defaulting Underwriter or Underwriters
agreed, but failed or refused to purchase. If any Underwriter or Underwriters
shall fail or refuse to purchase Firm Shares and the aggregate number of Firm
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares and arrangements satisfactory to you and the
Company for the purchase of such Firm Shares are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company or any Selling
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<PAGE> 36
Shareholder. In any such case that does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven (7) days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any such default of any such Underwriter under this Agreement.
SECTION 11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or the Additional Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, American Stock Exchange or The Nasdaq
Stock Market shall have been suspended or materially limited, (ii) trading of
any securities of the Company, including the Shares, on the New York Stock
Exchange, American Stock Exchange or The Nasdaq Stock Market shall have been
suspended or materially limited, whether as the result of a stop order by the
Commission or otherwise, (iii) a general moratorium on commercial banking
activities in New York or Florida shall have been declared by either federal or
state authorities, (iv) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions or other material event the effect
of which on the financial markets of the United States is such as to make it, in
your judgment, impracticable or inadvisable to market the Shares or to enforce
contracts for the sale of the Shares, or (v) the Company or any Subsidiary shall
have, in the sole judgment of the Representatives, sustained any loss or
interference, material to the Company and the Subsidiaries, taken as a whole,
with their respective businesses or properties from fire, flood, hurricane,
accident, or other calamity, whether or not covered by insurance, or from any
labor disputes or any legal or governmental proceeding, or there shall have been
any material adverse change (including, without limitation, a material change in
management or control of the Company) in the condition (financial or otherwise),
business prospects, net worth, or results of operations of the Company and the
Subsidiaries, taken as a whole, except in each case as described in, or
contemplated by, the Prospectus (excluding any amendment or supplement thereto).
Notice of such cancellation shall be promptly given to the Company and its
counsel by telegraph, telecopy or telephone and shall be subsequently confirmed
by letter.
All representations, warranties, covenants and agreements of the Company
and the Selling Shareholders herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person,
or by or on behalf of the Company or any Selling Shareholder, or any of their
officers, directors or controlling persons, and shall survive the delivery of
the Shares to the several Underwriter hereunder or termination of this
Agreement.
SECTION 12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set
forth under the caption "Underwriting" in any Prepricing Prospectus and in the
Prospectus, constitute
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<PAGE> 37
all the information furnished by or on behalf of the Underwriters through you or
on your behalf as such information is referred to in Sections 6(a), 6(b) and 8
hereof.
SECTION 13. NOTICES; SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, notice given pursuant to any of the provisions of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of the
Company at 125 Technology Park, Lake Mary, Florida 32746, Attention: Simon Raab,
Chief Executive Officer (with a copy to Martin A. Traber, Foley & Lardner, 100
North Tampa Street, Suite 2700, Tampa, Florida 33602; or (ii) if to you, as the
Underwriters, to (A) Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida 33716, Attention: Bruce M. Kelleher, Jr.; and (B) Hanifen,
Imhoff Inc., 1125 17th Street, Suite 1500, Denver, Colorado 80202, Attention:
Douglas S. Robinson (with a copy to King & Spalding, 191 Peachtree Street, Suite
4900, Atlanta, Georgia 30303, Attention: Jeffrey M. Stein; or (iii) if to one or
more of the Selling Shareholders, to Simon Raab or Gregory A. Fraser, as
Attorney-in-Fact for the Selling Shareholders, at 125 Technology Park, Lake
Mary, Florida 32746.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, its directors and officers and the other controlling
persons referred to in Section 8 hereof, and the Selling Shareholders, and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Neither of the terms "successor" and "successors and assigns" as used in this
Agreement shall include a purchaser from you of any of the Shares in his status
as such purchaser.
SECTION 14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of Florida
without reference to choice of law principles thereunder. This Agreement may be
signed in various counterparts which together shall constitute one and the same
instrument. This Agreement shall be effective when, but only when, at least one
counterpart hereof shall have been executed on behalf of each party hereto.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
FARO TECHNOLOGIES, INC.
By:
-------------------------------------
Simon Raab
President and Chief Executive Officer
SIMON RAAB
-------------------------------------
GREGORY A. FRASER
-------------------------------------
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<PAGE> 38
SELLING SHAREHOLDERS
By:
--------------------------------
Attorney-in-Fact for the
Selling Shareholders
named in Schedule II hereto
CONFIRMED as of the date first
above mentioned, on behalf of
itself and the other several
Underwriters named in Schedule I
hereto.
RAYMOND JAMES & ASSOCIATES, INC.
HANIFEN, IMHOFF INC.
By: RAYMOND JAMES & ASSOCIATES, INC.
By:
-----------------------------------
Authorized Representative
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<PAGE> 39
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Name Firm Shares
- ---- -----------
<S> <C>
Raymond James & Associates Inc................................
Hanifen, Imhoff Inc.
Total......................................................... 2,300,000
==========
</TABLE>
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<PAGE> 40
SCHEDULE II
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Number of
Number of Additional
Name Firm Shares Shares
- ---- ----------- ----------
<S> <C> <C>
Xenon Research, Inc................................. 165,000
Gregory A. Fraser................................... 75,995
Hubert d'Amours..................................... 3,900
_________ d'Amours.................................. 3,900
Phillip R. Colley.................................. . 9,110
483663 Ontario Ltd.................................. 5,285
Norman H. Schipper Q.C.............................. [21,804]
Philanderer Tree, Inc............................... 57,435
Philanderer Six Inc................................. 9,360
William Alcamo...................................... 2,611
Alexis Nihon Credit Inc............................. 5,720
Thomas Beck......................................... 5,296
H.T. Beck Investments............................... 39,391
Alec Bloom.......................................... 1,716
Charles Rosner Bronfman Family Trust................ 11,440
Capital CDPQ, Inc................................... 18,980
Stephen Cole........................................ 319
Consumers Glass Company Ltd. Pension
Fund........................................... 15,600
William and Gail Cornwall........................... 2,708
Fiducie de Quebec................................... 3,432
Island City Investments Ltd......................... 2,600
Josyd Inc........................................... 1,560
John Leopold........................................ 764
Les Fiduciares de la Cite et de District de
Montreal....................................... 3,432
Levesque Beaubien Geoffrion Inc..................... 1,560
L'Industrielle-Alliance, Compagnie d'Assurance
sur la Vie..................................... 6,292
O. Jack Mandel...................................... 12,561
Remi Marcoux........................................ 2,080
Marleau Lemire Inc.................................. 1,560
Mar-Pick Enterprises, Inc........................... 1,442
Nicanco Holdings Inc................................ 1,560
Nodel Investments Limited........................... 1,560
Power Corporation of Canada......................... 5,720
Rash Holdings Reg'd................................. 2,080
Redpoll Holdings Ltd................................ 2,288
Richard Renaud...................................... 17,230
Michael Rosenbloom.................................. 1,716
Ali S. Sajedi....................................... 24,166
Martin Scheim....................................... 1,091
Lionel Schipper..................................... 21,655
James Scott......................................... 21,268
Starjay Holdings Inc................................ 1,716
T.N.G. Corporation Inc.............................. 3,016
Stephen Vineberg.................................... 2,080
TOTAL...................................... 600,000
========= =========
</TABLE>
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<PAGE> 41
SCHEDULE III
LOCK-UP AGREEMENTS
Name
- ----
Simon Raab
Gregory A. Fraser
Hubert d'Amours
Phillip R. Colley
Alexandre Raab
Martin M. Koshar
Norman H. Schipper
Andre Julien
William Alcamo
Alexis Nihon Credit Inc.
Thomas Beck
Alec Bloom
Charles Rosner Bronfman Family Trust
Capital CDPQ, Inc.
Stephen Cole
Consumers Glass Company Ltd. Pension Fund
William and Gail Cornwall
Fiducie de Quebec
Nicholas Hoare
Island City Investments Ltd.
Josyd Inc.
John Leopold
Les Fiduciares de la Cite et de District de Montreal
Levesque Beaubien Geoffrion Inc
L'Industrielle-Alliance, Compagnie d'Assurance sur la Vie
O. Jack Mandel
Remi Marcoux
Marleau Lemire Inc.
Mar-Pick Enterprises, Inc.
Nicanco Holdings Inc.
Nodel Investments Limited
Power Corporation of Canada
Rash Holdings Reg'd
Redpoll Holdings Ltd.
Richard Renaud
Michael Rosenbloom
Ali S. Sajedi
Martin Scheim
Lionel Schipper
James Scott
Starjay Holdings Inc.
T.N.G. Corporation Inc.
Stephen Vineberg
-41-
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FARO TECHNOLOGIES, INC.
Pursuant to Sections 607.1006 and 607.1007 of the Florida Business
Corporation Act (the "FBCA"), FARO Technologies, Inc. adopts these Amended and
Restated Articles of Incorporation:
FIRST: The name of the Corporation is FARO TECHNOLOGIES, INC.
SECOND: The Corporation's Articles of Incorporation are amended and
restated in their entirety to read as follows:
ARTICLE 1
NAME
The name of the Corporation is: FARO TECHNOLOGIES, INC.
ARTICLE 2
BUSINESS AND ACTIVITIES
The Corporation may, and is authorized to, engage in any activity or
business now or hereafter permitted under the laws of the United States and of
the State of Florida.
ARTICLE 3
CAPITAL STOCK
3.1 Authorized Shares. The total number of shares of all classes of
capital stock that the Corporation shall have the authority to issue shall be
60,000,000 shares, of which 50,000,000 shares shall be Common Stock having a
par value of $0.001 per share ("Common Stock") and 10,000,000 shares shall be
Preferred Stock, having a par value of $0.001 per share ("Preferred Stock").
The Board of Directors is expressly authorized, pursuant to Section 607.0602 of
the FBCA, to provide for the classification and reclassification of any
unissued class or series of Common Stock or Preferred Stock and the issuance
thereof in one or more classes or series without the approval of the
shareholders of the Corporation, all within the limitations set forth in
Section 607.0601 of the FBCA.
3.2 Common Stock.
(A) Relative Rights. The Common Stock shall be subject to all of the
rights, privileges, preferences, and priorities of the Preferred Stock as set
forth in the Articles of Amendment to these Articles of Incorporation that may
hereafter be filed pursuant to Section 607.0602 of the FBCA to establish or
reclassify a class or series of the Preferred Stock. Except as otherwise
provided in these Articles of Incorporation, each share of Common Stock shall
have the same rights as, and be identical in all respects to, all of the other
shares of Common Stock.
<PAGE> 2
(B) Voting Rights. Except as otherwise provided by the FBCA or these
Articles of Incorporation, and except as may be determined by the Board of
Directors with respect to the Preferred Stock, only the holders of Common Stock
shall be entitled to vote for the election of directors of the Corporation and
for all other corporate purposes. Upon any such vote, each holder of Common
Stock shall, except as otherwise provided by the FBCA, be entitled to one vote
for each share of Common Stock held by such holder. Cumulative voting in the
election of directors shall not be permitted.
(C) Dividends. Whenever there shall have been paid, or declared
and set aside for payment, to the holders of the shares of any class of stock
having preference over the Common Stock as to the payment of dividends, the
full amount of dividends and of sinking fund or retirement payments, if any, to
which such holders are respectively entitled in preference to the Common Stock,
then the holders of record of the Common Stock, and the holders of any class or
series of stock entitled to participate therewith as to dividends, shall be
entitled to receive dividends, when, as, and if declared by the Board of
Directors, out of any assets legally available for the payment of dividends
thereon.
(D) Dissolution, Liquidation, Winding Up. In the event of any
dissolution, liquidation, or winding up of the Corporation, whether voluntary
or involuntary, the holders of record of the Common Stock then outstanding, and
all holders of any class or series of stock entitled to participate therewith
in whole or in part as to the distribution of assets, shall become entitled to
participate in the distribution of assets of the Corporation remaining after
the Corporation shall have paid, or set aside for payment, to the holders of
any class of stock having preference over the Common Stock in the event of
dissolution, liquidation, or winding up, the full preferential amounts, if any,
to which they are entitled and shall have paid or provided for payment of all
debts and liabilities of the Corporation.
3.3 Preferred Stock.
(A) Issuance, Designations, Powers. The Board of Directors is
expressly authorized, subject to the limitations prescribed by the FBCA and
these Articles of Incorporation, to provide, by resolution and by filing
Articles of Amendment to these Articles of Incorporation, which shall be
effective without shareholder action pursuant to Section 607.0602(4) of the
FBCA, for the issuance from time to time of the shares of Preferred Stock, to
reclassify the Preferred Stock or designate one or more series of such class
and provide for the issuance thereof, to establish from time to time the number
of shares to be included in each such class or series, to fix the designations,
powers, preferences, and other rights of each such class or series, and to fix
the qualifications, limitations, and restrictions thereon, including, but
without limiting the generality of the foregoing, the following:
(1) the number of shares constituting that class or series
and the distinctive designation of that class or series;
2
<PAGE> 3
(2) the dividend rate on the shares of that class
or series, whether dividends shall be cumulative, noncumulative, or partially
cumulative and, if so, from which date or dates, and the relative rights of
priority, if any, of payments of dividends on shares of that class or series;
(3) whether that class or series shall have voting rights,
in addition to the voting rights provided by the FBCA, and, if so, the terms of
such voting rights;
(4) whether that class or series shall have conversion
privileges, and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(5) whether or not the shares of that class or series shall
be redeemable, and, if so, the terms and conditions of such redemption,
including the dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates as the Board of
Directors shall determine;
(6) whether that class or series shall have a
sinking fund for the redemption or purchase of shares of that class or series,
and, if so, the terms and amount of such sinking fund;
(7) the rights of the shares of that class or
series in the event of voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation, and the relative rights of priority, if any, of
payment of shares of that class or series; and
(8) any other relative powers, preferences, and
rights of that class or series, and qualifications, limitations, or
restrictions on that class or series.
(B) Dissolution, Liquidation, Winding Up. In the event of any
liquidation, dissolution, or winding up of the Corporation, whether voluntary
or involuntary, the holders of Preferred Stock of each class or series shall be
entitled to receive only such amount or amounts as shall have been fixed by the
Articles of Amendment to these Articles of Incorporation or by the resolution
or resolutions of the Board of Directors providing for the issuance of such
class or series.
3.4 No Preemptive Rights. Except as the Board of Directors may
otherwise determine, no shareholder of the Corporation shall have any
preferential or preemptive right to subscribe for or purchase from the
Corporation any new or additional shares of capital stock, or securities
convertible into shares of capital stock, of the Corporation, whether now or
hereafter authorized.
3
<PAGE> 4
ARTICLE 4
BOARD OF DIRECTORS
4.1 Classification. Except as otherwise provided pursuant to the
provisions of these Articles of Incorporation or Articles of Amendment filed
pursuant to Section 3.3 hereof relating to the rights of the holders of any
class or series of Preferred Stock, voting separately by class or series, to
elect additional directors under specified circumstances, the number of
directors of the Corporation shall be as fixed from time to time by or pursuant
to these Articles of Incorporation or by bylaws of the Corporation (the
"Bylaws"). The directors, other than those who may be elected by the holders of
any class or series of Preferred Stock voting separately by class or series,
shall be classified, with respect to the time for which they severally hold
office, into three classes, Class I, Class II and Class III, each of which
shall be as nearly equal in number as possible, and shall be adjusted from time
to time in the manner specified in the Bylaws to maintain such proportionality.
Each initial director in Class I shall hold office for a term expiring at the
2000 annual meeting of the shareholders; each initial director in Class II
shall hold office for a term expiring at the 1999 annual meeting of the
shareholders; and each initial director in Class III shall hold office for a
term expiring at the 1998 annual meeting of the shareholders. Notwithstanding
the foregoing provisions of this Section 4.1, each director shall serve until
such director's successor is duly elected and qualified or until such
director's earlier death, resignation, or removal. At each annual meeting of
the shareholders, the successors to the class of directors whose term expires
at that meeting shall be elected to hold office for a term expiring at the
annual meeting of the shareholders held in the third year following the year of
their election and until their successors shall have been duly elected and
qualified or until such director's earlier death, resignation, or removal.
4.2 Removal.
(A) Removal For Cause. Except as otherwise provided pursuant to the
provisions of these Articles of Incorporation or Articles of Amendment filed
pursuant to Section 3.3 hereof relating to the rights of the holders of any
class or series of Preferred Stock, voting separately by class or series, to
elect directors under specified circumstances, any director or directors may be
removed from office at any time, but only for cause (as defined in Section
4.2(B) hereof) and only by the affirmative vote, at a special meeting of the
shareholders called for such a purpose, of not less than sixty-six and
two-thirds percent (66 2/3%) of the total number of votes of the then
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, but
only if notice of such proposed removal was contained in the notice of such
meeting. At least 30 days prior to such special meeting of the shareholders,
written notice shall be sent to the director or directors whose removal will be
considered at such meeting. Any vacancy on the Board of Directors resulting
from such removal or otherwise shall be filled only by vote of a majority of
the directors then in office, although less than a quorum, and any director so
chosen shall hold office until the next election of the class for which such
director shall have been chosen and until his or her successor shall have been
elected and qualified or until any such director's earlier death, resignation,
or removal.
4
<PAGE> 5
(B) "Cause" Defined. For the purposes of this Section 4.2,
"cause" shall mean (i) misconduct as a director of the Corporation or any
subsidiary of the Corporation which involves dishonesty with respect to a
substantial or material corporate activity or corporate assets, or (ii)
conviction of an offense punishable by one or more years of imprisonment (other
than minor regulatory infractions and traffic violations that do not materially
and adversely affect the Corporation).
4.3 Change of Number of Directors. In the event of any increase or
decrease in the authorized number of directors, the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to maintain
such classes as nearly equal as possible. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
4.4 Directors Elected by Holders of Preferred Stock. Notwithstanding
the foregoing, whenever the holders of any one or more classes or series of
Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect one or more directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies, and other features of such directorships shall be governed by the
terms of these Articles of Incorporation, as amended by Articles of Amendment
applicable to such classes or series of Preferred Stock, and such directors so
elected shall not be divided into classes pursuant to this Article 4 unless
expressly provided by the Articles of Amendment applicable to such classes or
series of Preferred Stock.
4.5 Exercise of Business Judgment. In discharging his or her duties as
a director of the Corporation, a director may consider such factors as the
director considers relevant, including the long-term prospects and interests of
the Corporation and its shareholders, the social, economic, legal, or other
effects of any corporate action or inaction upon the employees, suppliers, or
customers of the Corporation or its subsidiaries, the communities and society
in which the Corporation or its subsidiaries operate, and the economy of the
State of Florida and the United States.
4.6 Number of Directors. The number of directors constituting the
Board of Directors of the Corporation is eight. The number of directors may be
increased or decreased from time to time as provided in the Bylaws, but in no
event shall the number of directors be less than three or more than 15.
ARTICLE 5
ACTION BY SHAREHOLDERS
5.1 Call For Special Meeting. Special meetings of the shareholders of
the Corporation may be called at any time, but only by (a) the President or
Chairman of the Board of the Corporation, (b) a majority of the directors in
office, although less than a quorum, and (c) the holders of at least fifty
percent (50%) of the total number of votes of the then outstanding shares
5
<PAGE> 6
of capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class.
5.2 Shareholder Action by Written Consent. Any action required or
permitted to be taken by the shareholders of the Corporation must be effected
at a duly called annual or special meeting of the shareholders, and may not be
effected by any consent in writing by such shareholders, unless such written
consent is effected by the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the total number of votes of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
ARTICLE 6
INDEMNIFICATION
6.1 Provision of Indemnification. The Corporation shall, to the
fullest extent permitted or required by the FBCA, including any amendments
thereto (but in the case of any such amendment, only to the extent such
amendment permits or requires the Corporation to provide broader
indemnification rights than prior to such amendment), indemnify its Directors
and Executive Officers against any and all Liabilities, and advance any and all
reasonable Expenses, incurred thereby in any Proceeding to which any such
Director or Executive Officer is a Party or in which such Director or Executive
Officer is deposed or called to testify as a witness because he or she is or
was a Director or Executive Officer of the Corporation. The rights to
indemnification granted hereunder shall not be deemed exclusive of any other
rights to indemnification against Liabilities or the advancement of Expenses
which a Director or Executive Officer may be entitled under any written
agreement, Board of Directors' resolution, vote of shareholders, the FBCA, or
otherwise. The Corporation may, but shall not be required to, supplement the
foregoing rights to indemnification against Liabilities and advancement of
Expenses by the purchase of insurance on behalf of any one or more of its
Directors or Executive Officers whether or not the Corporation would be
obligated to indemnify or advance Expenses to such Director or Executive
Officer under this Article. For purposes of this Article, the term "Directors"
includes former directors of the Corporation and any director who is or was
serving at the request of the Corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, including, without limitation, any employee benefit plan (other
than in the capacity as an agent separately retained and compensated for the
provision of goods or services to the enterprise, including, without
limitation, attorneys-at-law, accountants, and financial consultants). For
purposes of this Article, the term "Executive Officers" includes those
individuals who are or who were at any time "executive officers" of the
Corporation as defined in Securities and Exchange Commission Rule 3b-7
promulgated under the Securities Exchange Act of 1934, as amended. All other
capitalized terms used in this Article 6 and not otherwise defined herein have
the meaning set forth in Section 607.0850 of the FBCA. The provisions of this
Article 6 are intended solely for the benefit of the indemnified parties
described herein and their heirs and personal representatives and shall not
create any rights in
6
<PAGE> 7
favor of third parties. No amendment to or repeal of this Article 6 shall
diminish the rights of indemnification provided for herein prior to such
amendment or repeal.
ARTICLE 7
AMENDMENTS
7.1 Articles of Incorporation. Notwithstanding any other
provision of these Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding that a lesser percentage may be specified by
law) the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the
total number of votes of the then outstanding shares of the capital stock of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required (unless separate voting by
classes is required by the FBCA, in which event the affirmative vote of
sixty-six and two-thirds percent (66 2/3%) of the number of shares of each
class or series entitled to vote as a class shall be required), to amend or
repeal, or to adopt any provision inconsistent with the purpose or intent of,
Articles 4, 5, 6, or this Article 7 of these Articles of Incorporation. Notice
of any such proposed amendment, repeal, or adoption shall be contained in the
notice of the meeting at which it is to be considered. Subject to the
provisions set forth herein, the Corporation reserves the right to amend,
alter, repeal, or rescind any provision contained in these Articles of
Incorporation in the manner now or hereafter prescribed by law.
7.2 Bylaws. The shareholders of the Corporation may adopt or amend a
bylaw which fixes a greater quorum or voting requirement for shareholders (or
voting groups of shareholders) than is required by the FBCA. The adoption or
amendment of a bylaw that adds, changes, or deletes a greater quorum or voting
requirement for shareholders must meet the same quorum or voting requirement
and be adopted by the same vote and voting groups required to take action under
the quorum or voting requirement then in effect or proposed to be adopted,
whichever is greater.
ARTICLE 8
REGISTERED OFFICE AND AGENT
The address of the Registered Office of the Corporation is
101 E. Kennedy Blvd., Ste 4100, Tampa, Florida 33602 and the Registered Agent
at such address is Richard A. Schlosser.
ARTICLE 9
PRINCIPAL OFFICE AND MAILING ADDRESS
The address of the Principal Office of the Corporation and its mailing
address is 125 Technology Park, Lake Mary, Florida 32746. The location of the
Principal Office and the mailing address shall be subject to change as may be
provided in the Bylaws.
THIRD: The foregoing amendment and restatement of the Corporation's
Articles of Incorporation amends the Corporation's Articles of Incorporation
and was adopted and approved by a majority
7
<PAGE> 8
of the shareholders of the Corporation by a written consent of shareholders
pursuant to Section 607.0704 of the FBCA, and the number of votes cast
by the shareholders was sufficient for approval.
FOURTH: The foregoing amendment and restatement of the Corporation's
Articles of Incorporation will become effective upon the filing of these
Amended and Restated Articles of Incorporation with the Florida Department of
State.
IN WITNESS WHEREOF, these Amended and Restated Articles of
Incorporation have been signed on behalf of the Corporation this 10th day of
September, 1997.
/s/ Gregory A. Fraser
---------------------------
Gregory A. Fraser
Executive Vice President
and Chief Financial Officer
8
<PAGE> 1
EXHIBIT 4.1
<TABLE>
INCORPORATED UNDER THE LAWS
OF THE STATE OF FLORIDA
<S> <C>
NUMBER SHARES
FC [FARO LOGO ATTACHED]
COMMON CUSIP
STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE REGISTERED HOLDER OF
SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE, FULLY PAID AND NON-ASSESSABLE OF
FARO Technologies, Inc.
transferable only on the books of the Corporation by the holder hereof, in person or by duly authorized Attorney,
upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby
are issued and shall be held subject to all the provisions of the Corporation's Articles of Incorporation and any
amendments thereof, copies of which are on file with the Transfer Agent, to all the provisions of which the holder
hereof by acceptance of this Certificate assents. This Certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
------------------------------------
Secretary [FARO SEAL] countersigned and registered
FIRSTAR TRUST COMPANY
P.O. BOX 2077
Milwaukee, Wisconsin 532
TRANSFER AGENT AND ???
AUTHORIZED SIGNATURE
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE> 2
FARO Technologies, Inc. (the "Company") will furnish to any holder of its
Common Stock or Preferred Stock, upon request and without charge, a full
statement of the designations, preferences and relative participating, optional
or other special rights of each class of stock and the qualifications,
limitations or restrictions of such designations, preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-- Custodian
TEN ENT -- as tenants by the entireties -------------- -------------
JT TEN -- as joint tenants with right (Gift) (Minor)
of survivorship and not as under Uniform Gifts to Minors Act
tenants in common
-------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received hereby sell, assign and transfer unto
---------------------
[PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE]
[ ]
----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING
ZIP CODE OF ASSIGNEE)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
shares
---------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ______________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:
----------------
Signature:
--------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
-----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO SEC RULE 17 Ad-15.
<PAGE> 1
EXHIBIT 5.1
OPINION OF COUNSEL
September 10, 1997
FARO Technologies, Inc.
125 Technology Park
Lake Mary, FL 32746
Ladies and Gentlemen:
This firm has acted as counsel to FARO Technologies, Inc., a Florida
corporation (the "Company"), in connection with its Registration Statement on
Form S-1 (File No. 333-32983) relating to the sale by the Company and certain
selling shareholders (the "Selling Shareholders") of up to 2,300,000 of the
Company's common stock, $.001 par value (the "Shares").
For purposes of rendering this opinion, we have examined and relied
upon the original or a copy, certified to our satisfaction, of (1) the Articles
of Incorporation and Bylaws of the Company, (2) resolutions of the Board of
Directors of the Company authorizing the offering and the issuance of the Shares
and related matters, (3) the Registration Statement and exhibits thereto, and
(4) such other documents and instruments as we have deemed necessary or
appropriate to render the opinions expressed in this letter. In making the
foregoing examinations, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies, and the
authenticity of all such copies.
Based upon the foregoing examination, we are of the opinion that (1)
the Shares to be sold by the Company pursuant to the Registration Statement
have been duly and validly authorized and, when issued and delivered in
accordance with the Underwriting Agreement (a form of which has been filed as
Exhibit 1.1 to the Registration Statement), will be validly issued, fully paid
and nonassessable, and (2) the Shares to be sold by the Selling Shareholders
pursuant to the Registration Statement have been duly and validly authorized
and issued and are fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus included in the Registration Statement. Nothing in
this letter shall be construed to cause us to be considered "experts" within the
meaning of Section 11 of the Securities Act of 1933, as amended.
Very truly yours,
Foley & Lardner
<PAGE> 1
Exhibit 10.1
FARO TECHNOLOGIES, INC.
1993 STOCK OPTION PLAN
ARTICLE I
General
1.1 Purpose. This incentive stock option and nonqualified stock
option plan (the "Plan") is established to promote the interests of FARO
TECHNOLOGIES, INC. (the "Corporation") and its stockholders by enabling the
Corporation, through the granting of stock options, to attract and retain
personnel for the Corporation and its subsidiaries, and to provide additional
incentive to such personnel to increase their stock ownership in the
Corporation. It is intended that those options issued pursuant to the
provisions of the Plan relating to incentive stock options shall constitute
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder,
or any statute or regulation of similar import.
1.2 Administration.
(a) The incentive stock option and nonqualified stock
option provisions of the Plan shall be administered by the Board of Directors
of the Corporation, and the Board of Directors may delegate such administration
to a committee appointed by the Board of Directors of the Corporation (the
"Committee"). The Committee shall consist of not less than two (2) nor more
than five (5) persons, each of whom shall be a member of the Corporation's
Board of Directors not eligible to receive any stock option under the Plan.
The Board of Directors may from time to time remove members from, or add
members to, the Committee. Vacancies on the Committee, howsoever caused, shall
be filled by the Board of Directors. In the event that the Board of Directors
elects not to delegate such administration to the Committee, all references
herein to the Committee shall be deemed to refer to the Board of Directors.
(b) The Committee shall select one of its members as
chairman, and shall hold meetings at such time and places as it may determine.
The acts of a majority of the Committee at which a quorum is present, or acts
reduced to or approved in writing by a majority of the members of the
Committee, shall be valid acts of the Committee.
(c) Subject to the provisions of the Plan, the Committee
shall have full authority, in its discretion: (1) to determine the employees of
the Corporation and its subsidiaries to whom stock options shall be granted;
(2) to determine the time or times at which stock options shall be granted; (3)
to determine whether an eligible employee shall be granted an incentive stock
option, a nonqualified stock option or any combination thereof; (4) to
determine the option price of the shares subject to each stock option; (5) to
determine the time or times when each stock option becomes exercisable and the
duration of any stock option period; and (6) to interpret the Plan and the
stock options granted hereunder, and to prescribe, amend and
<PAGE> 2
rescind rules and regulations with respect thereto. The interpretation and
construction by the Committee of any provision of the Plan over which it has
discretionary authority or of any option granted hereunder shall be final and
conclusive.
(d) No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
stock option granted hereunder.
1.3 Eligible Employees. A stock option may be granted to any
employee of the Corporation or of a subsidiary (who may or may not be an
officer or member of the Board of Directors), with the exceptions only of (a)
with respect to the incentive stock options granted under the Plan, employees
who cannot qualify for the benefits of incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended, and (b) with respect to
all provisions of the Plan, members of the Committee and and other members of
the Board of Directors who are not otherwise employees of the Corporation.
1.4 Stock Subject to the Plan.
(a) The stock subject to the stock options under the Plan
shall be shares of common stock of the Corporation, par value $0.001 per share,
which shares may be, in whole or in part, either authorized but unissued shares
or issued shares held in the treasury. The aggregate number of shares that may
be issued upon the exercise of stock options granted under the Plan shall not
exceed 500,000 shares of common stock, which limitation shall be subject to
adjustment as provided in Article IV of the Plan.
(b) If a stock option is surrendered or for any other
reason ceases to be exercisable in whole or in part, the shares of common stock
that are subject to such option, but as to which the option has not been
exercised, shall again become available for offering under the Plan.
ARTICLE II
Terms and Conditions of Incentive Stock Options
Any incentive stock option ("ISO") granted pursuant to the Plan shall
be authorized by the Committee and shall be evidenced by certificates or
agreements in such form as the Committee from time to time shall approve, which
certificates or agreements shall comply with and be subject to the terms and
conditions hereinafter specified.
2.1 Number of Shares. Each ISO shall state the number of shares
to which it pertains.
2
<PAGE> 3
2.2 Option Price. Each ISO shall state the option price, which
price shall be determined by the Committee in its discretion. In no event,
however, shall such price be less than 100% of the fair market value of the
shares of common stock of the Corporation (determined under Article IV of the
Plan) on the date of the granting of the ISO; or, in the case of an individual
who owns (at the time the option is granted) more than 10% of the total
combined voting power of all classes of stock of the Corporation or of a parent
or subsidiary corporation (a "10% stockholder"), shall such price be less than
110% of such fair market value.
2.3 Method of Payment. Each ISO shall state the method of payment
of the ISO price upon the exercise of the ISO. The method of payment stated in
the ISO shall include payment (a) in United States dollars in cash or by check,
bank draft or money order payable to the order of the Corporation, or (b) in
the discretion of and in the manner determined by the Committee, by the
delivery of shares of common stock of the Corporation already owned by the
optionee, or (c) by any other legally permissible means acceptable to the
Committee at the time of grant of the ISO, or (d) in the discretion of the
Committee, through a combination of (a), (b) and (c) of this paragraph 2.3. If
the option price is paid in whole or in part through the delivery of shares of
common stock, the decision of the Committee with respect to the fair market
value of such shares shall be final and conclusive.
2.4 Term and Exercise of Options. No ISO shall be exercisable
either in whole or in part prior to twelve (12) months from the date it is
granted. No ISO shall be exercisable after the expiration of ten (10) years
from the date it is granted; or, in the case of a 10% stockholder, no ISO shall
be exercisable after the expiration of five (5) years from the date it is
granted. Not less than one hundred (100) shares may be exercised at any one
time unless the number exercised is the total number at the time exercisable
under the ISO.
Within the limits described above, the Committee may impose additional
requirements on the exercise of ISOs, including, but without limitation, the
number of shares covered by the ISO that become eligible to be exercised in any
year and the expiration date of the option. Subject to the provisions of the
Plan and any other terms and conditions the Committee deems appropriate, the
Committee in its discretion also may accelerate the time at which an ISO may be
exercised if, under previously established exercise terms, such ISO was not
immediately exercisable in full.
2.5 Additional Limitations on Exercise of Options. An optionee
may hold and exercise more than one ISO, but only on the terms and subject to
the restrictions hereafter set forth. The aggregate fair market value
(determined as of the time an ISO is granted) of the common stock of the
Corporation with respect to which ISOs are exercisable for the first time by
any employee in any calendar year under the Plan and under all other incentive
stock option plans of the Corporation and any parent and subsidiary
corporations of the Corporation (as those terms are defined in Section 425 of
the Internal Revenue Code of 1986, as amended) shall not exceed $100,000.
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<PAGE> 4
2.6 Notice of Grant of Option. Upon the granting of any ISO to an
employee, the Committee shall promptly cause such employee to be notified of
the fact that such ISO has been granted. The date on which the Committee
approves the grant of an ISO shall be considered to be the date on which such
ISO is granted.
2.7 Death or Other Termination of Employment.
(a) In the event that an optionee (i) shall cease to be
employed by the Corporation or a subsidiary because of his discharge for
dishonesty, or because he violated any material provision of any employment or
other agreement between him and the Corporation or a subsidiary, or (ii) shall
voluntarily resign or terminate his employment with the Corporation or a
subsidiary under or followed by such circumstances as would constitute a breach
of any material provision of any employment or other agreement between him and
the Corporation or a subsidiary, or (iii) shall have committed an act of
dishonesty not discovered by the Corporation or a subsidiary prior to the
cessation of his employment but that would have resulted in his discharge if
discovered prior to such date, or (iv) shall, either before or after cessation
of his employment with the Corporation or a subsidiary, without the written
consent of his employer or former employer, use (except for the benefit of his
employer or former employer) or disclose to any other person any confidential
information relating to the continuation or proposed continuation of his
employer's or former employer's business or any trade secrets of the
Corporation or a subsidiary obtained as a result of or in connection with such
employment, or (v) shall, either before or after the cessation of his
employment with the Corporation or a subsidiary, without the written consent of
his employer or former employer, directly or indirectly, give advice to, or
serve as an employee, director, officer, partner or trustee of, or in any
similar capacity with, or otherwise directly or indirectly participate in the
management, operation, or control of, or have any direct or indirect financial
interest in, any corporation, partnership, or other organization that directly
or indirectly competes in any respect with the Corporation or its subsidiaries,
then forthwith from the happening of any such event, any ISO then held by him
shall terminate and become void to the extent that it then remains unexercised.
In the event that an optionee shall cease to be employed by the Corporation or
a subsidiary for any reason other than his death or one or more of the reasons
set forth in the immediately preceding sentence, subject to the conditions that
no option shall be exercisable after the expiration of ten (10) years from the
date it is granted, or, in the case of a 10% stockholder, five (5) years from
the date it is granted, such optionee shall have the right to exercise the ISO
at any time within three (3) months after such termination of employment to the
extent his right to exercise such ISO had accrued pursuant to this Article II
at the date of such termination and had not previously been exercised; such
three-month limit shall be increased to one (1) year for any optionee who
ceases to be employed by the Corporation or a subsidiary because he is disabled
(within the meaning of Section 22 (e) (3) of the Internal Revenue Code of 1986,
as amended) or who dies during the three month period, and the ISO may be
exercised within such extended time limit by the optionee or, in the case of
death, the personal representative of the optionee or by any person or persons
who shall have acquired the ISO directly from the optionee by bequest or
inheritance. Whether an authorized leave of absence or absence for military or
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<PAGE> 5
governmental service shall constitute termination of employment for purposes of
the Plan shall be determined by the Committee, whose determination shall be
final and conclusive.
(b) In the event that an optionee shall die while in the
employ of the Corporation or a parent or subsidiary corporation and shall not
have fully exercised any ISO, the ISO may be exercised, subject to the
conditions that no ISO shall be exercisable after the expiration of ten (10)
years from the date it is granted, or, in the case of a 10% stockholder, five
(5) years from the date it is granted, to the extent that the optionee's right
to exercise such ISO had accrued pursuant to this Article II at the time of his
death and had not previously been exercised, at any time within one (1) year
after the optionee's death, by the personal representative of the optionee or
by any person or persons who shall have acquired the ISO directly from the
optionee by bequest or inheritance, in the case of death.
(c) No ISO shall be transferable by the optionee
otherwise than by will or the laws of descent and distribution.
(d) During the lifetime of the optionee, the ISO shall be
exercisable only by him and shall not be assignable or transferable and no
other person shall acquire any rights therein.
2.8 Rights as a Stockholder. An optionee shall have no rights as
a stockholder with respect to any shares covered by his ISO until the date of
the issuance of a stock certificate to him for such shares after exercise of
the ISO. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is
issued, except as provided in Article IV.
2.9 Modification, Extension and Renewal of Options. Subject to
the terms and conditions and within the limitations of the Plan, the Committee
may modify, extend or renew outstanding ISOs granted under the Plan, or accept
the surrender of outstanding ISOs (to the extent not theretofore exercised) and
authorize the granting of new options in substitution therefor (to the extent
not theretofore exercised. The Committee shall not, however, modify any
outstanding ISOs so as to specify a lower option price or accept the surrender
of outstanding ISOs and authorize the granting of new options in substitution
therefor specifying a lower option price. Notwithstanding the foregoing,
however, no modification of an ISO shall, without the consent of the optionee,
alter or impair any of the rights or obligations under any ISO theretofore
granted under the Plan.
2.10 Listing and Registration of Shares. Each ISO shall be subject
to the requirement that if at any time the Committee shall determine, in its
discretion, that the listing, registration or Qualification of the shares
covered thereby upon any securities exchange or under any state or federal
laws, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting
of such ISO or the issuance or purchase of shares thereunder, such ISO may not
be exercised unless and until such listing,
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<PAGE> 6
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
Notwithstanding anything in the Plan to the contrary, if the provisions of this
paragraph 2.10 become operative, and if, as a result thereof, the exercise of
an ISO is delayed, then and in that event, the term of the ISO shall not be
affected.
2.11 Other Provisions. The ISO certificates or agreements
authorized under the Plan shall contain such other provisions, including,
without limitation, restrictions upon the exercise of the ISO, as the Committee
shall deem advisable. Any such certificate or agreement shall contain such
limitations and restrictions upon the exercise of the ISO as shall be necessary
in order that such ISO will be an incentive stock option as defined in Section
422 of the Internal Revenue Code of 1986, as amended, or to conform to any
change in the law.
ARTICLE III
Terms and Conditions of Nonqualified Stock Options
Any nonqualified stock option ("NSO") granted pursuant to the Plan
shall be authorized by the committee and shall be evidenced by certificates or
agreements in such form as the Committee from time to time shall approve, which
certificates or agreements shall comply with and be subject to the terms and
conditions hereinafter specified.
3.1 Number of Shares. Each NSO shall state the number of shares
to which it pertains.
3.2 Option Price. Each NSO shall state the option price, which
price shall be determined by the Committee in its discretion.
3.3 Method of Payment. Each NSO shall state the method of payment
of the NSO price upon the exercise of the NSO.
3.4 Term, Exercise and Transfer of Options.
(a) No NSO shall be exercisable after the expiration of
ten (10) years from the date it is granted. Not less than one hundred (100)
shares may be exercised at any one time unless the number exercised is the
total number at the time exercisable under the NSO. Within the limits
described above, the Committee may impose additional requirements on the
exercise of NSOs.
(b) No NSO shall be transferable by the optionee
otherwise than by will or the laws of descent and distribution.
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<PAGE> 7
(c) During the lifetime of the optionee, the NSO shall be
exercisable only by him and shall not be assignable or transferable and no
other person shall acquire any rights therein.
3.5 Notice Grant of Option. Upon the granting of any NSO to an
employee, the committee shall promptly cause such employee to be notified of
the fact that such NSO has been granted. The date on which the Committee
approves the grant of an NSO shall be considered to be the date on which such
NSO is granted.
3.6 Rights as a Stockholder. An optionee shall have no rights as
a stockholder with respect to any shares covered by his NSO until the date of
the issuance of a stock certificate to him for such shares after exercise of
the NSO. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is
issued, except as provided in Article IV.
ARTICLE IV
Miscellaneous
4.1 Stock Adjustments.
(a) In the event of any increase or decrease in the
number of issued shares of common stock of the Corporation resulting from a
stock split or other division or consolidation of shares or the payment of a
stock dividend (but only on the common stock) or any other increase or decrease
in the number of such shares effected without any receipt of consideration by
the Corporation, then, in any such event, the number of shares of common stock
that remain available under the Plan, the number of shares of common stock
covered by each outstanding option, and the purchase price per share of common
stock covered by each outstanding option shall be proportionately and
appropriately adjusted for any such increase or decrease.
(b) Subject to any required action by the stockholders,
if any change occurs in the shares of common stock of the Corporation by reason
of any recapitalization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, or of any similar change affecting the
shares of common stock of the Corporation, then, in any such event, the number
and type of shares covered by each outstanding option, and the purchase price
per share of common stock covered by each outstanding option, shall be
proportionately and appropriately adjusted for any such change. A dissolution
or liquidation of the Corporation shall cause each outstanding option to
terminate.
(c) In the event of a change in the common stock of the
Corporation as presently constituted that is limited to a change of all of its
authorized shares with par value into
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<PAGE> 8
the same number of shares with a different par value or without par value, the
shares resulting from any change shall be deemed to be shares of common stock
within the meaning of the Plan.
(d) To the extent that the foregoing adjustments relate
to stock or securities of the Corporation, such adjustments shall be made by,
and in the discretion of, the Committee, whose determination in that respect
shall be final, binding and conclusive; provided, however, that any ISO granted
pursuant to this Plan shall not be adjusted in a manner that causes such ISO to
fail to continue to qualify as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.
(e) Except as hereinabove expressly provided in this
paragraph 4.1, an optionee shall have no rights by reason of any division or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in number of shares of stock of any
class or by reason of any dissolution, liquidation, merger or consolidation, or
spin-off of assets or stock of another corporation; and any issuance by the
Corporation of shares of stock of any class, securities convertible into shares
of stock of any class or warrants or options for shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of common stock subject to the
option.
(f) The grant of any option pursuant to the Plan shall
not affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate, or to dissolve, to liquidate,
to sell, or to transfer all or any part of its business or assets.
4.2 Fair Market Value of Stock. For purposes of this Plan, the
"fair market value of the shares of the common stock of the Corporation" shall
mean the closing price, on the date of grant of any ISO (or, if there is no
closing price, then the closing bid price), of the Corporation's common stock
as reported on the Composite Tape, or if not reported thereon, then such price
as reported in the trading reports of the principal securities exchange in the
United States on which such stock is listed, or if such stock is not listed on
a securities exchange in the United States, the closing price on the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System (NASDAQ), or NASDAQ's successor, or if not
reported on NASDAQ, the fair market value of such stock as determined by the
Committee in good faith and based on all relevant factors.
4.3 Term of the Plan. The ISOs and NSOs may be granted pursuant
to the provisions of the Plan from time to time within a period of ten (10)
years from the date the Plan is adopted by the Board of Directors of the
Corporation, or the date the Plan is approved by the stockholders, whichever is
earlier.
4.4 Amendment of the Plan. The Board of Directors of the
Corporation may, insofar as permitted by law, from time to time, with respect
to any shares at the time not subject to stock options, suspend, discontinue or
terminate the Plan or revise or amend it in any respect
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<PAGE> 9
whatsoever. However, the Plan may not, without the approval of the
stockholders, be amended in any manner that will cause incentive stock options
issued under it to fail to meet the requirements of incentive stock options as
defined in Section 422 of the Internal Revenue Code of 1986, as amended.
4.5 Incentive Stock Option Plan. Except as provided in the Plan,
the Plan shall not affect the terms and conditions of any incentive stock
options heretofore or hereafter granted to any employee of the Corporation
under any incentive stock Option plan of the Corporation or any parent or
subsidiary corporation; nor shall the Plan affect any of the rights of any
employee to whom such incentive stock option or options have been granted.
4.6 Application of Funds. The proceeds received by the
Corporation from the sale of common stock pursuant to stock Options will be
used for general corporate purposes.
4.7 No Obligation to Exercise. The granting of any stock option
under the Plan shall impose no obligation upon any optionee to exercise such
stock option.
4.8 No Implied Rights to Employees. The existence of the Plan,
and the granting of options under the Plan, shall in no way give any employee
the right to continued employment, give any employee the right to receive any
options or any additional options under the Plan, or otherwise provide any
employee any rights not specifically set forth in the Plan or in any options
granted under the Plan.
4.9 Approval of Stockholders. The Plan shall not take effect
until approved by the holders of a majority of the outstanding shares of
common stock of the Corporation, which approval must occur within the period
beginning twelve (12) months before and ending twelve (12) months after the
date the Plan is adopted by the Board of Directors.
Date Plan Approved Date Plan Approved
by Directors: by Stockholders:
January 26, 1993 January 26, 1993
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<PAGE> 10
FIRST AMENDMENT TO FARO TECHNOLOGIES, INC.
1993 STOCK OPTION PLAN
----------------------
Upon recommendation by the Board of Directors of FARO Technologies,
Inc. (the "Corporation") and subject to the adoption by the stockholders of
the Corporation, the following sets forth and constitutes an amendment to the
FARO Technologies, Inc. 1993 Stock Option Plan (the "Plan").
1. Section 1.3 - Eligible Employees. Section 1.3 of the Plan is
amended by deleting the current language of Section 1.3 in its entirety and
substituting the following therefor, to wit:
"1.3 Eligible Employees. A stock option may be granted to any
employee of the Corporation or of a subsidiary (who may or may
not be an officer or member of the Board of Directors), or to
any member of the Board of Directors who is not an employee of
the Corporation, with the exception only of, with respect to the
incentive stock options granted under the Plan, employees or
nonemployee directors who cannot qualify for the benefits of
incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended."
2. Section 1.4 - Stock Subject to the Plan. The Plan is further
amended by increasing the maximum aggregate number of shares that may be issued
upon the exercise of stock options granted under the Plan by 500,000 shares,
which has the effect of setting the aggregate amount of shares available for
issuance pursuant to options granted under the Plan at 1,000,000 shares.
3. All Other Terms Unaffected. Except as otherwise set forth in this
Amendment, the terms and provisions of the Plan shall remain in full force and
effect and not otherwise affected hereby.
IN WITNESS WHEREOF, the undersigned officer of the Corporation
certifies the recommendation by the Board of Directors and the approval by the
requisite number of stockholders of the Corporation of this Amendment.
Date Plan Approved by Directors Date Plan Approved by Shareholders
and Recommended to Shareholders
- -------------------------------------- ---------------------------------
Certified by:
-------------------------
Title:
--------------------------------
<PAGE> 1
EXHIBIT 10.2
FARO TECHNOLOGIES, INC.
1997 EMPLOYEE STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. PURPOSE OF PLAN............................................................................... 1
2. DEFINITIONS................................................................................... 1
3. LIMITS ON OPTIONS............................................................................. 2
4. GRANTING OF OPTIONS........................................................................... 3
5. TERMS OF STOCK OPTIONS........................................................................ 3
6. EFFECT OF CHANGES IN CAPITALIZATION........................................................... 5
7. DELIVERY AND PAYMENT FOR SHARES; REPLACEMENT OPTIONS.......................................... 6
8. NO CONTINUATION OF EMPLOYMENT AND DISCLAIMER OF RIGHTS........................................ 7
9. ADMINISTRATION................................................................................ 7
10. NO RESERVATION OF SHARES...................................................................... 8
11. AMENDMENT OF PLAN............................................................................. 8
12. TERMINATION OF PLAN........................................................................... 9
13. EFFECTIVE DATE................................................................................ 9
</TABLE>
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FARO TECHNOLOGIES, INC.
1997 EMPLOYEE STOCK OPTION PLAN
1. PURPOSE OF PLAN
The purpose of this Plan is to enable FARO Technologies, Inc. (the
"Company") and its Subsidiaries to compete successfully in attracting,
motivating and retaining Employees with outstanding abilities by making it
possible for them to purchase Shares on terms that will give them a direct and
continuing interest in the future success of the businesses of the Company and
its Subsidiaries and encourage them to remain in the employ of the Company or
one or more of its Subsidiaries. Each Option is intended to be an Incentive
Stock Option, except to the extent that (a) any such Option would exceed the
limitations set forth in Section 3.(c) hereof and (b) for Options specifically
designated at the time of grant as not being Incentive Stock Options.
2. DEFINITIONS
For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the United States Internal Revenue Code of 1986,
as amended.
(c) "Committee" means the Committee described in Section 9
hereof.
(d) "Effective Date" means the effective date of any registration
statement with respect to the Shares under the Securities Exchange Act
of 1934, as amended.
(e) "Employee" means a person who is regularly employed on a
salary basis by the Company or any Subsidiary, including an officer or
director of the Company or any Subsidiary who is also an employee of
the Company or a Subsidiary.
(f) "Fair Market Value" means, with respect to a Share, if the
Shares are then listed and traded on a registered national or regional
securities exchange, or quoted on The National Association of
Securities Dealers' Automated Quotation System (including The Nasdaq
Stock Market's National Market), the average closing price of a Share
on such exchange or quotation system for the five trading days
immediately preceding the date of grant of an Option, or, if Fair
Market Value is used herein in connection with any event other than
the grant of an Option, then such average closing price for the five
trading days immediately preceding the date of such event. If the
Shares are not traded on a registered securities exchange or quoted in
such a quotation system, the Committee shall determine the Fair Market
Value of a Share.
<PAGE> 4
(g) "Incentive Stock Option" means an option granted under this
Plan and which is an incentive stock option within the meaning of
section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute.
(h) "Option" means an option granted under this Plan, whether or
not such option is an Incentive Stock Option.
(i) "Optionee" means any person who has been granted an Option
which Option has not expired or been fully exercised or surrendered.
(j) "Plan" means the Company's 1997 Employee Stock Option Plan.
(k) "Rule 16b-3" means Rule 16b-3 promulgated pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended, or any
successor rule.
(l) "Share" means one share of voting common stock, par value
$.001 per share, of the Company, and such other stock or securities
that may be substituted therefor pursuant to Section 6 hereof.
(m) "Subsidiary" means any "subsidiary corporation" within the
meaning of Section 424(f) of the Code.
3. LIMITS ON OPTIONS
(a) The total number of Shares with respect to which Options may
be granted under the Plan shall not exceed in the aggregate 750,000
Shares, subject to adjustment as provided in Section 6 hereof. If any
Option expires, terminates or is terminated for any reason prior to
its exercise in full, the Shares that were subject to the unexercised
portion of such Option shall be available for future grants under the
Plan.
(b) No Incentive Stock Option shall be granted to any Employee
who at the time such option is granted, owns capital stock of the
Company possessing more than 10% of the total combined voting power or
value of all classes of capital stock of the Company or any
Subsidiary, determined in accordance with the provisions of Section
422(b)(6) and 424(d) of the Code, unless the option price at the time
such Incentive Stock Option is granted is at least 110 percent (110%)
of the Fair Market Value of the Shares subject to the Incentive Stock
Option and such Incentive Stock Option is not exercisable by its terms
after the expiration of five (5) years from the date of grant.
(c) An Incentive Stock Option shall be granted hereunder only to
the extent that the aggregate Fair Market Value (determined at the
time the Incentive Stock Option is granted) of the Shares with respect
to which such Incentive Stock Option and any other "incentive stock
option" (within the meaning of Section 422 of the Code) are
exercisable
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<PAGE> 5
for the first time by any Optionee during any calendar year (under the
Plan and all other plans of the Optionee's employer corporation and
its parent and subsidiary corporations within the meaning of Section
422(d) of the Code) does not exceed $100,000. This limitation shall be
applied by taking Incentive Stock Options and any such other
"incentive stock options" into account in the order in which such
Incentive Stock Options and any such other "incentive stock options"
were granted.
(d) No Optionee shall, in any calendar year, be granted
Options to purchase more than 150,000 Shares. Options granted to the
Optionee and cancelled during the same calendar year shall be counted
against such maximum number of Shares. In the event that the number of
Options which may be granted is adjusted as provided in the Plan, the
above limit shall automatically be adjusted in the same ratio.
4. GRANTING OF OPTIONS
The Committee is authorized to grant Options to selected Employees
pursuant to the Plan beginning on the Effective Date. Subject to the provisions
of the Plan, the Committee shall have exclusive authority to select the
Employees to whom Options will be awarded under the Plan, to determine the
number of Shares to be included in such Options, and to determine such other
terms and conditions of Options, including terms and conditions which may be
necessary to qualify Incentive Stock Options as "incentive stock options" under
Section 422 of the Code. The date on which the Committee approves the grant of
an Option shall be considered the date on which such Option is granted, unless
the Committee provides for a specific date of grant which is subsequent to the
date of such approval.
5. TERMS OF STOCK OPTIONS
Subject to Section 3 hereof, the terms of Options granted under this
Plan shall be as follows:
(a) The exercise price of each Share subject to an Option
shall be fixed by the Committee. Notwithstanding the prior sentence,
the option exercise price of an Incentive Stock Option shall be fixed
by the Committee but shall in no event be less than 100% of the Fair
Market Value of the Shares subject to such Option.
(b) Options shall not be assignable or transferable by the
Optionee other than by will or by the laws of descent and distribution
except that the Optionee may, with the consent of the Committee,
transfer without consideration Options that do not constitute Incentive
Stock Options to the Optionee's spouse, children or grandchildren (or
to one or more trusts for the benefit of any such family members or to
one or more partnerships in which any such family members are the only
partners).
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<PAGE> 6
(c) Each Option shall expire and all rights thereunder shall
end at the expiration of such period (which shall not be more than ten
(10) years) after the date on which it was granted as shall be fixed by
the Committee, subject in all cases to earlier expiration as provided
in subsections (d) and (e) of this Section 5.
(d) During the life of an Optionee, an Option shall be
exercisable only by such Optionee (or Optionee's permitted assignee in
the case of Options that do not constitute Incentive Stock Options) and
only within one (1) month after the termination of the Optionee's
employment with the Company or a Subsidiary, other than by reason of
the Optionee's death, permanent disability or retirement with the
consent of the Company or a Subsidiary as provided in subsection (e) of
this Section 5, but only if and to the extent the Option was
exercisable immediately prior to such termination, and subject to the
provisions of subsection (c) of this Section 5. If the Optionee's
employment is terminated for cause, or the Optionee terminates his
employment with the Company, Options granted at any one time by the
Company which have not become exercisable with respect to all such
Options (even if a portion of such Options have become exercisable)
shall terminate immediately on the date of termination of employment.
Cause shall have the meaning set forth in any employment agreement
then in effect between the Optionee and the Company or any of its
Subsidiaries, or if the Optionee does not have any employment
agreement, cause shall mean (i) if the Optionee engages in conduct
which has caused, or is reasonably likely to cause, demonstrable and
serious injury to the Company, or (ii) if the Optionee is convicted of
a felony, as evidenced by a binding and final judgment, order or
decree of a court of competent jurisdiction, which substantially
impairs the Optionee's ability to perform his or her duties to the
Company.
(e) If an Optionee: (i) dies while employed by the Company or
a Subsidiary or within the period when an Option could have otherwise
been exercised by the Optionee; (ii) terminates employment with the
Company or a Subsidiary by reason of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) of
such Optionee; or (iii) terminates employment with the Company or a
Subsidiary as a result of such Optionee's retirement, provided that the
Company or such Subsidiary has consented in writing to such Optionee's
retirement, then, in each such case, such Optionee, or the duly
authorized representatives of such Optionee (or Optionee's permitted
assignee in the case of Options that do not constitute Incentive Stock
Options), shall have the right, at any time within three (3) months
after the death, disability or retirement of the Optionee, as the case
may be, and prior to the termination of the Option pursuant to
subsection (c) of this Section 5, to exercise any Option to the extent
such Option was exercisable by the Optionee immediately prior to such
Optionee's death, disability or retirement. In the discretion of the
Committee, the three-month period referenced in the immediately
preceding sentence may be extended for a period of up to one year.
4
<PAGE> 7
(f) Subject to the foregoing terms and to such additional
terms regarding the exercise of an Option as the Committee may fix at
the time of grant, an Option may be exercised in whole at one time or
in part from time to time.
(g) Options granted pursuant to the Plan shall be evidenced by
an agreement in writing setting forth the material terms and conditions
of the grant, including, but not limited to, the number of Shares
subject to options. Option agreements covering Options need not contain
similar provisions; provided, however, that all such option agreements
shall comply with the terms of the Plan.
(h) The Committee is authorized to modify, amend or waive any
conditions or other restrictions with respect to Options, including
conditions regarding the exercise of Options.
6. EFFECT OF CHANGES IN CAPITALIZATION
(a) If the number of outstanding Shares is increased or
decreased or changed into or exchanged for a different number or kind
of shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split, combination of shares,
exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected
without receipt of consideration by the Company, a proportionate and
appropriate adjustment shall be made by the Committee in (i) the
aggregate number of Shares subject to the Plan, (ii) the maximum number
of Shares for which Options may be granted to any Employee during any
calendar year, and (iii) the number and kind of shares for which
Options are outstanding, so that the proportionate interest of the
Optionee immediately following such event shall, to the extent
practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding Options shall not change the aggregate option
price payable with respect to Shares subject to the unexercised portion
of the Options outstanding but shall include a corresponding
proportionate adjustment in the option price per Share.
(b) Subject to Section 6.(c) hereof, if the Company shall be
the surviving corporation in any reorganization, merger, share
exchange or consolidation of the Company with one or more other
corporations or other entities, any Option theretofore granted shall
pertain to and apply to the securities to which a holder of the number
of Shares subject to such Option would have been entitled immediately
following such reorganization, merger, share exchange or
consolidation, with a corresponding proportionate adjustment of the
option price per Share so that the aggregate option price thereafter
shall be the same as the aggregate option price of the Shares
remaining subject to the Option immediately prior to such
reorganization, merger, share exchange or consolidation.
5
<PAGE> 8
(c) In the event of: (i) the adoption of a plan of
reorganization, merger, share exchange or consolidation of the Company
with one or more other corporations or other entities as a result of
which the holders of the Shares as a group would receive less than
fifty percent (50%) of the voting power of the capital stock or other
interests of the surviving or resulting corporation or entity; (ii) the
adoption of a plan of liquidation or the approval of the dissolution of
the Company; (iii) the approval by the Board of an agreement providing
for the sale or transfer (other than as a security for obligations of
the Company or any Subsidiary) of substantially all of the assets of
the Company; or (iv) the acquisition of more than twenty percent (20%)
of the outstanding Shares by any person within the meaning of Rule
13(d)(3) under the Securities Exchange Act of 1934, as amended, if such
acquisition is not preceded by a prior expression of approval by the
Board, then, in each such case, any Option granted hereunder shall
become immediately exercisable in full, subject to any appropriate
adjustments in the number of Shares subject to such Option and the
option price, regardless of any provision contained in the Plan or any
stock option agreement with respect thereto limiting the exercisability
of the Option for any length of time. Notwithstanding the foregoing, if
a successor corporation or other entity as contemplated in clause (i)
or (iii) of the preceding sentence agrees to assume the outstanding
Options or to substitute substantially equivalent options, then the
outstanding Options issued hereunder shall not be immediately
exercisable, but shall remain exercisable in accordance with the terms
of the Plan and the applicable stock option agreements.
(d) Adjustments under this Section 6 relating to Shares or
securities of the Company shall be made by the Committee, whose
determination in that respect shall be final and conclusive. Options
subject to grant or previously granted under the Plan at the time of
any event described in this Section 6 shall be subject to only such
adjustments as shall be necessary to maintain the proportionate
interest of the options and preserve, without exceeding, the value of
such options. No fractional Shares or units of other securities shall
be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding
upward to the nearest whole Share or unit.
(e) The grant of an Option pursuant to the Plan shall not
affect or limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge, consolidate, dissolve or
liquidate, or to sell or transfer all or any part of its business or
assets.
7. DELIVERY AND PAYMENT FOR SHARES; REPLACEMENT OPTIONS
(a) No Shares shall be delivered upon the exercise of an
Option until the option price for the Shares acquired has been paid in
full. No Shares shall be issued or transferred under the Plan unless
and until all legal requirements applicable to the issuance or transfer
of such Shares have been complied with to the satisfaction of the
Committee
6
<PAGE> 9
and adequate provision has been made by the Optionee for satisfying
any applicable federal, state or local income or other taxes incurred
by reason of the exercise of the Option. Any Shares issued by the
Company to an Optionee upon exercise of an Option may be made
only in strict compliance with and in accordance with applicable state
and federal securities laws.
(b) Payment of the option price for the Shares purchased
pursuant to the exercise of an Option and of any applicable withholding
taxes shall be made, as determined by the Committee and set forth in
the option agreement pertaining to such Option: (i) in cash or by check
payable to the order of the Company; (ii) through the tender to the
Company of Shares, which Shares shall be valued, for purposes of
determining the extent to which the option price has been paid thereby,
at their Fair Market Value on the date of exercise; or (iii) by a
combination of the methods described in (a) and (b) hereof; provided,
however, that the Committee may in its discretion impose and set forth
in the option agreement pertaining to an Option such limitations or
prohibitions on the use of Shares to exercise Options as it deems
appropriate. The Committee also may authorize payment in accordance
with a cashless exercise program under which, if so instructed by the
Optionee, Shares may be issued directly to the Optionee's broker upon
receipt of the option price in cash from the broker.
(c) To the extent that the payment of the exercise price for
the Shares purchased pursuant to the exercise of an Option is made with
Shares as provided in Section 7.(b) hereof, then, at the discretion of
the Committee, the Optionee may be granted a replacement Option under
the Plan to purchase a number of Shares equal to the number of
Shares tendered as permitted in Section 7.(b) hereof, with an exercise
price per Share equal to the Fair Market Value on the date of grant
of such replacement Option and with a term extending to the expiration
date of the original Option.
8. NO CONTINUATION OF EMPLOYMENT AND DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or option agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain in the employ of the Company or any Subsidiary,
or to interfere in any way with the right and authority of the Company or any
Subsidiary either to increase or decrease the compensation of any individual at
any time, or to terminate any employment or other relationship between any
individual and the Company or any Subsidiary. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
Optionee or beneficiary under the terms of the Plan. An Optionee shall have none
of the rights of a shareholder of the Company until all or some of the Shares
covered by an Option are fully paid and issued to such Optionee.
7
<PAGE> 10
9. ADMINISTRATION
(a) The Plan is intended to comply with Rule 16b-3. Subject to
the provisions of subsection (b) of this Section 9, the Plan shall be
administered by the Committee which shall interpret the Plan and make
all other determinations necessary or advisable for its administration,
including such rules and regulations and procedures as it deems
appropriate. The Committee shall consist of not fewer than two members
of the Board each of whom shall qualify (at the time of appointment to
the Committee and during all periods of service on the Committee) in
all respects as a "disinterested person" as defined in Rule 16b-3 and
as an outside director as defined in Section 162(m) of the Code and
regulations thereunder. Subject to the provisions of subsection (b) of
this Section 9, in the event of a disagreement as to the interpretation
of the Plan or any amendment hereto or any rule, regulation or
procedure hereunder or as to any right or obligation arising from or
related to the Plan, the decision of the Committee shall be final and
binding upon all persons in interest, including the Company, the
Optionee and the Company's shareholders.
(b) Notwithstanding any provision of the Plan to the contrary,
if any determination or interpretation to be made by the Committee with
regard to any question arising under the Plan or any option agreement
entered into hereunder is not required to be made by the Committee
under Rule 16b-3, such determination or interpretation may be made by
the Board, and shall be final and binding upon all persons in interest,
including the Company, the Optionee and the Company's shareholders;
provided, however, that the Board shall not make any such determination
or interpretation that would result in the Plan's noncompliance with
Rule 16b-3.
(c) No member of the Committee or the Board shall be liable
for any action taken or decision made, or any failure to take any
action, in good faith with respect to the Plan or any Option granted or
option agreement entered into hereunder.
10. NO RESERVATION OF SHARES
The Company shall be under no obligation to reserve or to retain in its
treasury any particular number of Shares in connection with its obligations
hereunder.
11. AMENDMENT OF PLAN
The Board, without further action by the shareholders, may amend this
Plan from time to time as it deems desirable and shall make any amendments which
may be required so that Options intended to be Incentive Stock Options shall at
all times continue to be Incentive Stock Options for purpose of the Code;
provided, however, that no amendment shall be made without shareholder approval
if such approval would be required to comply with Rule 16b-3 or the Code.
8
<PAGE> 11
12. TERMINATION OF PLAN
This Plan shall terminate ten (10) years from the Effective Date. The
Board may, in its discretion, suspend or terminate the Plan at any time prior to
such date, but such termination or suspension shall not adversely affect any
right or obligation with respect to any outstanding Option.
13. EFFECTIVE DATE
The Plan shall become effective on the Effective Date and Options
hereunder may be granted at any time on or after that date. If the shareholders
of the Company fail to approve the Plan within one year after the Effective
Date, any Incentive Stock Option granted hereunder shall be null, void and of no
effect.
9
<PAGE> 1
EXHIBIT 10.3
FARO TECHNOLOGIES, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. PURPOSE OF PLAN............................................................................... 1
2. DEFINITIONS................................................................................... 1
3. LIMITS ON OPTIONS............................................................................. 2
4. GRANTING AND TERMS OF OPTIONS................................................................. 2
5. EFFECT OF CHANGES IN CAPITALIZATION........................................................... 4
6. DELIVERY AND PAYMENT FOR SHARES............................................................... 5
7. NO CONTINUATION AS A DIRECTOR AND DISCLAIMER OF RIGHTS........................................ 6
8. ADMINISTRATION................................................................................ 6
9. NO RESERVATION OF SHARES...................................................................... 6
10. AMENDMENT OF PLAN............................................................................. 6
11. TERMINATION OF PLAN........................................................................... 6
12. EFFECTIVE DATE................................................................................ 7
</TABLE>
i
<PAGE> 3
FARO TECHNOLOGIES, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE OF PLAN
The purpose of this Plan is to enable FARO Technologies, Inc. (the
"Company") and its Subsidiaries to compete successfully in attracting,
motivating and retaining Non-Employee Directors with outstanding abilities by
making it possible for them to purchase Shares on terms that will give them a
direct and continuing interest in the future success of the businesses of the
Company and its Subsidiaries and encourage them to remain as directors of the
Company or one or more of its Subsidiaries.
2. DEFINITIONS
For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the United States Internal Revenue Code of 1986,
as amended.
(c) "Effective Date" means the effective date of any registration
statement with respect to the Shares under the Securities Exchange Act of 1934,
as amended.
(d) "Fair Market Value" means, with respect to a Share, if the Shares
are then listed and traded on a registered national or regional securities
exchange, or quoted on The National Association of Securities Dealers' Automated
Quotation System (including The Nasdaq Stock Market's National Market), the
average closing price of a Share on such exchange or quotation system for the
five trading days immediately preceding the date of grant of an Option, or, if
Fair Market Value is used herein in connection with any event other than the
grant of an Option, then such average closing price for the ten trading days
immediately preceding the date of such event. If the Shares are not traded on a
registered securities exchange or quoted in such a quotation system, the Board
shall determine the Fair Market Value of a Share.
(e) "Non-Employee Director" shall mean any member of the Company's
Board of Directors who is not an employee of the Company or any Subsidiary.
(f) "Option" means an option granted under this Plan, which Option
shall not be an incentive stock option within the meaning of Section 422 of the
Code, or the corresponding provision of any subsequently enacted tax statute.
<PAGE> 4
(g) "Optionee" means any person who has been granted an Option which
Option has not expired or been fully exercised or surrendered.
(h) "Plan" means the Company's 1997 Non-Employee Director Stock Option
Plan.
(i) "Rule 16b-3" means Rule 16b-3 promulgated pursuant to Section 16(b)
of the Securities Exchange Act of 1934, as amended, or any successor rule.
(j) "Share" means one share of voting common stock, par value $.001 per
share, of the Company, and such other stock or securities that may be
substituted therefor pursuant to Section 5 hereof.
(k) "Subsidiary" means any "subsidiary corporation" within the meaning
of Section 424(f) of the Code.
3. LIMITS ON OPTIONS
The total number of Shares with respect to which Options may be granted
under the Plan shall not exceed in the aggregate 250,000 Shares, subject to
adjustment as provided in Section 5 hereof. If any Option expires, terminates
or is terminated for any reason prior to its exercise in full, the Shares that
were subject to the unexercised portion of such Option shall be available for
future grants under the Plan.
4. GRANTING AND TERMS OF OPTIONS
(a) Each Non-Employee Director shall on the Effective Date
automatically be granted an Option to purchase 3,000 Shares. Thereafter, on the
date on which a Non-Employee Director, other than a Non-Employee Director who is
serving as such on the Effective Date, is first elected or appointed as a
Non-Employee Director during the existence of the Plan, such Non-Employee
Director shall automatically be granted an Option to purchase 3,000 Shares.
(b) Each Non-Employee Director (if he or she continues to serve in such
capacity) shall, on the day following the annual meeting of shareholders in each
year during the time the Plan is in effect, automatically be granted an Option
to purchase 3,000 Shares; provided, however, that a person who is first elected
as a Non-Employee Director on the date of an annual meeting of shareholders and
who receives on that date an option pursuant to Section 4.(a) hereof shall not
be eligible to begin to receive grants pursuant to this Section 4.(b) until the
day following the next succeeding annual meeting of shareholders.
(c) Notwithstanding the provisions of Section 4.(a) and 4.(b) hereof,
Options shall be automatically granted to Non-Employee Directors under the Plan
only for so long as the Plan remains in effect and a sufficient number of
Shares are available hereunder for the granting of such Options.
2
<PAGE> 5
(d) The exercise price of each Share subject to an Option shall be
equal to 100% of the Fair Market Value of the Shares on the date of grant of
such Option.
(e) Options shall not be assignable or transferable by the Optionee
other than by will or by the laws of descent and distribution except that the
Optionee may, with the consent of the Board of Directors, transfer without
consideration Options to the Optionee's spouse, children or grandchildren (or to
one or more trusts for the benefit of any such family members or to one or more
partnerships in which any such family members are the only partners).
(f) Each Option shall expire and all rights thereunder shall end at the
expiration of ten (10) years after the date on which it was granted, subject in
all cases to earlier expiration as provided in subsections (g) and (h) of this
Section 4.
(g) During the life of an Optionee, an Option shall be exercisable only
by such Optionee and only within one (1) month after the date on which the
Optionee ceases to be a Non-Employee Director, other than by reason of the
Optionee's death or resignation from the Board with the consent of the Company
as provided in subsection (h) of this Section 4, but only if and to the extent
the Option was exercisable immediately prior to such date, and subject to the
provisions of the subsections (f) and (i) of this Section 4. If the Optionee is
removed as a Director for cause (as defined in the Company's Articles of
Incorporation, as amended from time to time), all Options of the Optionee shall
terminate immediately on the date of removal.
(h) If an Optionee: (i) dies while a Non-Employee Director or within
the period when an Option could have otherwise been exercised by the Optionee;
or (ii) ceases to be a Non- Employee Director as a result of such Optionee's
resignation from the Board, provided that the Company has consented in writing
to such Optionee's resignation, then, in each such case, such Optionee, or the
duly authorized representatives of such Optionee, shall have the right, at any
time within one (1) year after the death or after such resignation of the
Optionee, as the case may be, and prior to the termination of the Option
pursuant to subsections (f) and (i) of this Section 4, to exercise any Option to
the extent such Option was exercisable by the Optionee immediately prior to such
Optionee's death or resignation.
(i) The Optionee may exercise the Option (subject to the limitations on
exercise set forth in subsection (f) of this Section 4), in whole or in part, as
follows: (i) the Option may not be exercised to any extent prior to one (1) year
following the date of grant; and (ii) the Option may be exercised to the extent
of 33 1/3% of the Shares subject to such Option after one year following the
date of grant and may be exercised to the extent of an additional 33 1/3% of
the Shares subject to such Option after each of the second and third years
following the date of grant; provided, however, that in the event a Director
serves his entire initial term as a Director, all Options granted prior to such
time shall become immediately exercisable and any Options granted pursuant to
Section 4.(b) shall become exercisable one (1) year following the date of grant.
3
<PAGE> 6
(j) An Option may be exercised in whole at one time or in part from
time to time, subject to subsection (i) of this Section 4.
(k) Options granted pursuant to the Plan shall be evidenced by an
agreement in writing setting forth the material terms and conditions of the
grant, including, but not limited to, the number of Shares subject to Options.
(l) Options granted under the Plan on terms other than those by
sections 4(a) through 4(k) above may only be granted upon specific approval of
each grant by the Board of Directors of the Company.
5. EFFECT OF CHANGES IN CAPITALIZATION
(a) If the number of outstanding Shares is increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any recapitalization, reclassification,
stock split, combination of shares, exchange of shares, stock dividend or other
distribution payable in capital stock, or other increase or decrease in such
shares effected without receipt of consideration by the Company, a proportionate
and appropriate adjustment shall be made by the Board of Directors in (i) the
number and type of Shares subject to the Plan and which thereafter may be made
the subject of Options under the Plan pursuant to Section 3 hereof (but without
any adjustment in the number of Shares that are the subject of Options to be
granted under the Plan pursuant to Section 4.(a) and 4.(b) hereof) and (ii) the
number and kind of shares for which Options are outstanding, so that the
proportionate interest of the Optionee immediately following such event shall,
to the extent practicable, be the same as immediately prior to such event. Any
such adjustment in outstanding Options shall not change the aggregate option
price payable with respect to Shares subject to the unexercised portion of the
Options outstanding but shall include a corresponding proportionate adjustment
in the option price per Share. Any change in capitalization of the Company under
this section shall not change the number of Shares that will be the subject of
Options to be granted under Sections 4.(a) and 4.(b) hereof subsequent to the
change in capitalization.
(b) Subject to Section 5.(c) hereof, if the Company shall be the
surviving corporation in any reorganization, merger, share exchange or
consolidation of the Company with one or more other corporations or other
entities, any Option theretofore granted shall pertain to and apply to the
securities to which a holder of the number of Shares subject to such Option
would have been entitled immediately following such reorganization, merger,
share exchange or consolidation, with a corresponding proportionate adjustment
of the option price per Share so that the aggregate option price thereafter
shall be the same as the aggregate option price of the Shares remaining subject
to the Option immediately prior to such reorganization, merger, share exchange
or consolidation.
(c) In the event of: (i) the adoption of a plan of reorganization,
merger, share exchange or consolidation of the Company with one or more other
corporations or other entities as a result of which the holders of the Shares as
a group would receive less than fifty percent (50%) of the voting power of the
capital stock or other interests of the surviving or resulting corporation or
entity; (ii) the adoption of a plan of liquidation or the approval of the
dissolution of the Company; (iii) the approval by the Board of an agreement
providing for the sale or transfer
4
<PAGE> 7
of the assets of the Company; or (iv) the acquisition of more than twenty
percent (20%) of the outstanding shares by any person within the meaning of Rule
13(d)(3) under the Securities Exchange Act of 1934 if such acquisition is not
preceded by a prior expression of approval by the Board, then, in each such
case, any Option granted hereunder shall become immediately exercisable in full,
subject to any appropriate adjustments in the number of Shares subject to such
Option and the option price, regardless of any provision contained in the Plan
with respect thereto limiting the exercisability of the Option for any length of
time. Notwithstanding the foregoing, if a successor corporation or other entity
as contemplated in clause (i) or (iii) of the preceding sentence agrees to
assume the outstanding Options or to substitute substantially equivalent
options, then the outstanding Options issued hereunder shall not be immediately
exercisable, but shall remain exercisable in accordance with the terms of the
Plan and the applicable stock option agreements.
(d) Adjustments under this Section 5 relating to Shares or securities
of the Company shall be made by the Board, whose determination in that respect
shall be final and conclusive. Options subject to grant or previously granted
under the Plan at the time of any event described in this Section 5 shall be
subject to only such adjustments as shall be necessary to maintain the
proportionate interest of the Options and preserve, without exceeding, the
value of such Options. No fractional Shares or units of other securities shall
be issued pursuant to any such adjustment, and any fractions resulting from any
such adjustment shall be eliminated in each case by rounding upward to the
nearest whole Share or unit.
(e) The grant of an Option pursuant to the Plan shall not affect or
limit in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
6. DELIVERY AND PAYMENT FOR SHARES
(a) No Shares shall be delivered upon the exercise of an Option until
the option price for the Shares acquired has been paid in full. No shares shall
be issued or transferred under the Plan unless and until all legal requirements
applicable to the issuance or transfer of such Shares have been complied with to
the satisfaction of the Board. Any Shares issued by the Company to an Optionee
upon exercise of an Option may be made only in strict compliance with and in
accordance with applicable state and federal securities laws.
(b) Payment of the option price for the Shares purchased pursuant to
the exercise of an Option shall be made: (i) in cash or by check payable to the
order of the Company; (ii) through the tender to the Company of Shares, which
Shares shall be valued, for purposes of determining the extent to which the
option price has been paid thereby, at their Fair Market Value on the date of
exercise; or (iii) by a combination of the methods described in (i) and (ii)
hereof. Payment also may be made in accordance with a cashless exercise program
under which, if so instructed by the
5
<PAGE> 8
Optionee, Shares may be issued directly to the Optionee's broker upon receipt of
the option price in cash from the broker.
7. NO CONTINUATION AS A DIRECTOR AND DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or option agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain a director of the Company or any Subsidiary. The
Plan shall in no way be interpreted to require the Company to transfer any
amounts to a third party trustee or otherwise hold any amounts in trust or
escrow for payment to any Optionee or beneficiary under the terms of the Plan.
An Optionee shall have none of the rights of a shareholder of the Company until
all or some of the Shares covered by an Option are fully paid and issued to such
Optionee.
8. ADMINISTRATION
The Plan is intended to meet the requirements of Rule 16b-3(c)(2)(ii)
adopted under the Securities Exchange Act of 1934, as amended, and accordingly
is intended to be self-governing. To this end, the Plan requires no
discretionary action by any administrative body with regard to any transaction
under the Plan. To the extent, if any, that any questions of interpretation
arise, these shall be resolved by the Board.
9. NO RESERVATION OF SHARES
The Company shall be under no obligation to reserve or to retain in its
treasury any particular number of Shares in connection with its obligations
hereunder.
10. AMENDMENT OF PLAN
The Board, without further action by the shareholders, may amend this
Plan from time to time as it deems desirable; provided, that (i) no such
amendment shall be made without shareholder approval if such approval would be
required to comply with Rule 16b-3 and (ii) the provisions of Sections 4.(a)
and 4.(b) shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act
of 1974, as amended, or the rules and regulations promulgated thereunder.
11. TERMINATION OF PLAN
This Plan shall terminate ten (10) years from the Effective Date. The
Board may, in its discretion, suspend or terminate the Plan at any time prior to
such date, but such termination or suspension shall not adversely affect any
right or obligation with respect to any outstanding Option.
6
<PAGE> 9
12. EFFECTIVE DATE
The Plan shall become effective on the Effective Date and Options
hereunder may be granted at any time on or after that date, subject to approval
of the Plan by the Company's shareholders within one year after the Effective
Date by a majority of the votes cast at a duly held meeting of the shareholders
of the Company at which a quorum representing a majority of all outstanding
stock is present, either in person or by proxy, and in a manner that satisfies
the requirements of Rule 16b-3. Upon approval of the Plan by the shareholders of
the Company as set forth above, all Options granted under the Plan on or after
the Effective Date shall be fully effective as if the shareholders of the
Company had approved the Plan on the Effective Date.
7
<PAGE> 1
EXHIBIT 10.4
FARO TECHNOLOGIES, INC.
1997 NON-EMPLOYEE DIRECTORS' FEE PLAN
1. ESTABLISHMENT. FARO Technologies, Inc. (the "Company") hereby
establishes a plan for the members of its Board of Directors who are
not employees of (i) the Company, or (ii) any of its subsidiaries
("Non-Employee Directors"), as described herein, which shall be known
as the FARO TECHNOLOGIES, INC. 1997 NON-EMPLOYEE DIRECTORS' FEE PLAN
(the "Plan").
2. PURPOSE. The purpose of the Plan is to advance the Company's growth and
success, and to advance its interests by attracting and retaining
well-qualified Non-Employee Directors upon whose judgment the Company
is largely dependent for the successful conduct of its operations and
by providing such individuals with incentives to put forth maximum
efforts for the long-term success of the Company's business.
3. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan (the
"Effective Date") is the later of (i) the date of its approval by the
shareholders of the Company, or (ii) the effective date of any
registration statement with respect to the common stock of the Company
("Common Stock") under the Securities Exchange Act of 1934, as amended.
4. STOCK SUBJECT TO THE PLAN. Subject to adjustment in accordance with
the provisions of paragraph 8, the total number of shares of Common
Stock available for awards during the term of this Plan shall be
250,000 shares. Shares of Common Stock to be delivered under the Plan
shall be made available from presently authorized but unissued Common
Stock or authorized and issued shares of Common Stock reacquired and
held as treasury shares, or a combination thereof. In no event shall
the Company be required to issue fractional shares of Common Stock
under the Plan. Whenever under the terms of the Plan a fractional
share of Common Stock would otherwise be required to be issued, there
shall be issued in lieu thereof one full share of Common Stock.
5. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the
"Committee") appointed from time to time by the Board of
Directors consisting of not less than two members of the Board
of Directors who do not qualify as Non-Employee Directors.
(b) Subject to the express provisions of the Plan, the Committee
shall have authority to interpret the Plan, to the extent
provided by law.
(c) Neither the Committee nor any member thereof shall be liable
for any act, omission, interpretation, construction or
determination made in connection with the Plan in good faith.
<PAGE> 2
6. ELECTION TO RECEIVE ANNUAL RETAINER FEES IN SHARES.
(a) Share Election. Subject to paragraph 7, each Non-Employee
Director may elect (a "Share Election") to receive all or any
portion of any annual retainer fee, committee fees, or meeting
fees earned in each calendar year for services on the Board of
Directors (collectively, the "Retainer Fees"), in the form of
Common Stock. A Share Election, or a modification or
revocation of a Share Election by a subsequent Share Election,
shall be effective with respect to Retainer Fees earned
commencing on the first day of the calendar month following
the date that the election is delivered. A Share Election
(including a modification or revocation of a Share Election by
a subsequent Share Election) must be in writing and delivered
to the Secretary of the Company as specified in the preceding
sentence, except that (A) a Share Election with respect to
Retainer Fees to be earned in 1997 may be made at any time
until the date 30 days after the Effective date of the Plan
and (B) any Non-Employee Director who commences his or her
directorship subsequent to January 1 of a calendar year (a
"New Director") may make a Share Election during the 30-day
period immediately following the commencement of his or her
directorship. A Share Election, once made, shall remain in
effect, and be irrevocable, unless modified or revoked by a
subsequent Share Election in accordance with the provisions
hereof.
(b) Transfer of Shares. Shares of Common Stock issuable to a
Non-Employee Director with respect to a Share Election shall
be transferred to such Non- Employee Director effective as of
the last business day of each fiscal quarter in which the
Retainer Fees are earned. The total number of shares of Common
Stock to be so transferred shall be determined by dividing
one-quarter of the annual Retainer Fees by the Fair Market
Value of a share of Common Stock. For purposes of this Plan,
"Fair Market Value" means if the Common Stock is then listed
and traded on a registered national or regional securities
exchange, or quoted on The National Association of Securities
Dealers' Automated Quotation System (including The Nasdaq
Stock Market's National Market), the average closing price of
a share on such exchange or quotation system for the five
trading days immediately preceding the last business day of
the applicable quarter (or such other relevant date as may be
specifically set forth herein). If the Common Stock is not
traded on a registered securities exchange or quoted on such a
quotation system, the Committee shall determine the Fair
Market Value of a share. The Retainer Fees payable for a
quarter shall be proportionately adjusted for a Non-Employee
Director who does not serve as a director for the entire
quarter.
7. DEFERRAL ELECTION.
(a) Deferral Election. Each Non-Employee Director may elect (a
"Deferral Election") to not currently receive all or any
portion of the shares of Common Stock that would otherwise be
transferred pursuant to paragraph 6, or any of his or her
Retainer Fees that would otherwise be payable in cash. A
Deferral Election must be in
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writing and delivered to the Secretary of the Company prior to
the calendar year in which the Retainer Fees to which the
Deferral Election relates are earned, except that (A) a
Deferral Election with respect to 1997 may be made at any time
until the date 30 days after the Effective Date of the Plan
and (B) any New Director may make a Deferral Election during
the 30-day period immediately following the commencement of
his or her directorship. A Deferral Election once made shall
be irrevocable for the calendar year with respect to which it
is made and shall remain in effect, and be irrevocable, for
future calendar years unless modified or revoked by a
subsequent Deferral Election in accordance with the provisions
hereof.
(b) Notional Accounts. A Non-Employee Director who makes a
Deferral Election with respect to a Share Election shall have
the number of deferred shares of Common Stock (including
fractions of a share) credited to a "Notional Share Account"
for the Non- Employee Director in the form of "Notional Share
Units." A Non-Employee Director who makes a Deferral Election
with respect to Retainer Fees that are not subject to a Share
Election shall have the amount of deferred Retainer Fees
credited to a "Notional Cash Account" for the Non-Employee
Director. Collectively, the amounts deferred in a
Non-Employee Director's Notional Share Account and Notional
Cash Account shall hereafter be referred to as the "Deferred
Amounts."
(c) Cash Dividends. A Non-Employee Director who makes a Deferral
Election with respect to a Share Election shall have no
rights or other entitlements with respect to any regular cash
dividends which are paid by the Company on outstanding Common
Stock. Notwithstanding the foregoing, in the event that any
Extraordinary Dividends (as hereinafter defined) are paid by
the Company on outstanding Common Stock, on the payment date
therefor, there shall be credited to the Non-Employee
Director's Notional Share Account a number of additional
Notional Share Units equal to (i) the aggregate Extraordinary
Dividends that would be payable on the outstanding shares of
Common Stock equal to the number of Notional Share Units
credited to such Notional Share Account on the record date
for the Extraordinary Dividend, divided by (ii) the Fair
Market Value of a share of Common Stock as of the last
business day immediately preceeding the date of payment of the
dividend. For these purposes, an "Extraordinary Dividend"
shall mean a dividend or distribution consisting of cash
and/or other property (other than securities of a type
described in Section 8 hereof) which exceeds ten percent
(10%), on an annualized basis, of the average of the closing
prices of the Common Stock for the ten (10) trading days
immediately prior to the date of declaration of such
dividend.
(d) Notional Cash Accounts. At the election of a Non-Employee
Director, a Director's Notional Cash Account shall be (i)
credited with interest at an annual rate equal to the sum of
the daily interest earned at a rate equal to the yield from
time to time on U.S. Treasury obligations maturing in seven
years as reported in The Wall Street Journal (Eastern
Edition) and compounded monthly, or such other rate specified
by the Committee, or (ii) credited or debited with the annual
investment returns relating to such investment vehicle or
vehicles as may be made available by the Committee from time
to time, if any, and selected by the Non-Employee Director,
or such combination of (i) and (ii) as the Non-Employee
Director designates by written notice to the Secretary of the
Company.
(e) Distributions. Subject to subsection 7.(k), a Non-Employee
Director's Deferred Amounts shall become payable as soon as
practicable following the earliest of (i) the date irrevocably
selected by the Non-Employee Director in his or her Deferral
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Election, (ii) the Non-Employee Director's death or (iii) the
Non-Employee Director's total and permanent disability, as
determined by the Committee.
(f) Form of Payments. All payments from a Notional Share
Account shall be made in shares of Common Stock by issuing
Common Stock for Notional Share Units on a one-for-one basis.
All payments from a Notional Cash Account shall be made in
cash.
(g) Manner of Payments. Subject to subsection 7.(k), in his or her
Deferral Election, each Non-Employee Director shall elect to
receive payment of his or her Deferred Amounts either in a
lump sum or in two to fifteen substantially equal annual
installments. In the event of a Non-Employee Director's death,
payment of the remaining portion of the Director's Deferred
Amounts will be made to the director's beneficiary in a lump
sum as soon as practicable following the director's death.
(h) Hardship Distribution. Notwithstanding any Deferral Election,
in the event of severe financial hardship to a Non-Employee
Director resulting from a sudden and unexpected illness,
accident or disability of the Non-Employee Director or other
similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the
Non-Employee Director, all as determined by the Committee, a
Non-Employee Director may withdraw a portion of the Notional
Share Units in his or her Notional Share Account and/or cash
in his or her Notional Cash Account by providing written
notice to the Secretary of the Company. Withdrawals of
amounts shall only be permitted to the extent reasonably
necessary to meet the emergency need due to the severe
financial hardship.
(i) Designation of Beneficiary. Each Non-Employee Director or
former Non- Employee Director entitled to payment of Deferred
Amounts hereunder from time to time may designate any
beneficiary or beneficiaries (who may be designated
concurrently, contingently, or successively) to whom any such
Deferred Amounts are to be paid in case of the Non-Employee
Director's death before receipt of any or all of such Deferred
Amounts. Any designation will revoke all prior designations by
the Non-Employee Director or former Non-Employee Director,
shall be in a form prescribed by the Company and will be
effective only when filed by the Non-Employee Director or
former Non-Employee Director, during his or her lifetime, in
writing with the Secretary of the Company. References in this
Plan to a director's "beneficiary" at any date shall include
such persons designated as concurrent beneficiaries on the
director's beneficiary designation form then in effect. In the
absence of any such designation, any balance remaining in a
Non-Employee Director's or former Non-Employee Director's
Notional Share Account and/or Notional Cash Account at the
time of the director's death shall be paid to such
director's estate in a lump sum.
(j) No Account Transfers. A Non-Employee Director may not transfer
or convert a Notional Share Account to a Notional Cash
Account or vice versa.
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(k) Changes With Respect to Distributions. With the consent of the
Company, a Non-Employee Director may (i) postpone the date on
which Deferred Amounts are to become payable pursuant to
subsection 7.(e)(i), or (ii) change the manner in which the
Deferred Amounts are to be paid pursuant to subsection
7.(g), provided in each case that any such change is made
prior to the calendar year in which such payments are to
commence.
(l) No Assets. No stock, cash or other property will be
deliverable to a Non- Employee Director in respect of the
Non-Employee Director's Deferred Amounts until the date or
dates identified pursuant to this Section 7, and all Deferred
Amounts shall be reflected in one or more unfunded accounts
established for the Non-Employee Director by the Company.
Payment of the Company's obligation will be from general
funds, and no special assets (stock, cash or otherwise) have
been or will be set aside as security for this obligation.
(m) No Transfers. A Non-Employee Director's rights to payments
under this Section 7 are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or garnishment by a Non-Employee Director's
creditors or the creditors of his or her beneficiaries,
whether by operation of law or otherwise, and any attempted
sale, transfer, assignment, pledge, or encumbrance with
respect to such payment shall be null and void, and shall be
without legal effect and shall not be recognized by the
Company.
(n) Unsecured Creditor. The right of a Non-Employee Director to
receive payments under this Section 7 is that of a general,
unsecured creditor of the Company, and the obligation of the
Company to make payments constitutes a mere promise by the
Company to pay such benefits in the future. Further, the
arrangements contemplated by this Section are intended to be
unfunded for tax purposes and for purposes of Title I of
ERISA.
8. ADJUSTMENT PROVISIONS. If the number of outstanding shares of Common
Stock is increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company
by reason of any merger, consolidation, recapitalization,
reclassification, stock split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock,
or other increase or decrease in such shares effected without receipt
of consideration by the Company, a proportionate and appropriate
adjustment shall be made by the Company in the number and kind of
shares reserved for issuance under the Plan and in the number of
Notional Share Units credited to each Non-Employee Director's Notional
Share Account as is necessary to preserve, without exceeding, the
value reflected by the Non-Employee Director's Notional Share Account.
9. TERMINATION AND AMENDMENT OF PLAN. The Plan shall terminate ten (10)
years from the date that it is adopted by the Board of Directors,
unless sooner terminated as hereinafter provided. The Board of
Directors may at any time terminate the Plan. The Board of Directors
may amend the Plan as it shall deem advisable including (without
limiting the
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generality of the foregoing) any amendments deemed by the Board of
Directors to be necessary or advisable to assure conformity of the Plan
with any requirements of state and federal laws or regulations now or
hereafter in effect; provided, however, that (a) the Board of Directors
may not, without further approval by the shareholders of the Company,
make any modifications which, under Rule 16b-3, require such approval
and (b) no amendment shall affect adversely any of the rights of any
Non- Employee Director, without such Non-Employee Director's consent,
under any election theretofore in effect under the Plan.
10. RIGHTS AS A SHAREHOLDER. A Non-Employee Director shall have no rights
as a shareholder with respect to Common Stock of the Company
until the date of issuance of the stock certificate to him. Except as
provided in paragraph 8, no adjustment will be made for dividends or
other rights for which the record date is prior to the date such Common
Stock is issued. The shares of Common Stock granted to each
Non-Employee Director are not transferable by the recipient for a
period of six months after the Grant Date (or, for a director elected
between Grant Dates, the date of the director's election), except in
the event of the death or disability of the recipient. All certificates
evidencing shares granted to a Non-Employee Director shall bear an
appropriate legend evidencing such transfer restrictions.
11. GOVERNING LAW. The Plan, all awards hereunder, and all determinations
made and actions taken pursuant to the Plan shall be governed by the
internal laws of the state in which the Company is incorporated, to the
extent not otherwise governed by the Internal Revenue Code or the laws
of the United States.
12. UNFUNDED PLAN. This Plan shall be unfunded. No person shall have any
rights greater than those of a general creditor of the Company.
13. WITHHOLDING. The Company shall have the right to deduct from all
amounts deferred pursuant to a Deferral Election and/or payments made
under the Plan any federal, state, or local income taxes or FICA
required to be withheld with respect to such compensation. Each
Non-Employee Director shall be entitled to irrevocably elect, at least
six months prior to the date shares of Common Stock would otherwise be
delivered hereunder, to have the Company withhold shares of Common
Stock having an aggregate Fair Market Value as of such date equal to
the amount required to be withheld.
14. CHANGE OF CONTROL. Anything in this Plan to the contrary
notwithstanding, upon the occurrence of a Change of Control: (a) all
Notional Share Units credited to any Non-Employee Director's Share
Account shall be converted into Common Stock and together with all
Deferred Amounts credited to a Notional Cash Account shall be
transferred as soon as practicable in a lump sum to each Non-Employee
Director; and (b) any Retainer Fees earned in respect of the fiscal
quarter in which the Change of Control occurs shall be paid in cash as
soon as practicable. For purposes of the Plan, a "Change of Control"
means: (i) the adoption of a plan of reorganization, merger, share
exchange or consolidation of the Company with one or more other
corporations or other entities as a result of which the holders of
Common Stock as a group would receive less than fifty percent (50%) of
the
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voting power of the capital stock or other interests of the surviving
or resulting corporation or entity; (ii) the adoption of a plan of
liquidation or the approval of the dissolution of the Company; (iii)
the approval by the Board of Directors of an agreement providing for
the sale or transfer of the assets of the Company; or (iv) the
acquisition of more than twenty percent (20%) of the outstanding shares
by any person within the meaning of Rule 13(d)(3) under the Securities
Exchange Act of 1934 if such acquisition is not preceded by a prior
expression of approval by the Board.
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders of
FARO Technologies, Inc.
Jacksonville, Florida
We consent to the use in this Amendment No. 2 to the Registration Statement
(Registration No. 333-32983) relating to 2,645,000 shares of Common Stock of
FARO Technologies, Inc. on Form S-1 of our report dated February 24, 1997
(September 10, 1997 as to Note 11), appearing in the Prospectus, which is a part
of this Registration Statement, and to the references to us under the headings
"Selected Consolidated Financial Data" and "Experts" in such Prospectus.
Deloitte & Touche LLP
Jacksonville, Florida
September 10, 1997
