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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[x]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to __________
Commission file number 0-27908
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
(Name of small business issuer in its charter)
New York 16-1446679
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15 Link Drive, Binghamton, NY 13904
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (607) 722-3800
Securities registered pursuant to Section 12(b) of the Exchange Act:
(Title of class) (Name of each exchange on
which registered)
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
Redeemable Warrants
(Title of class)
Check whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ x ]
The issuer's revenues for its most recent fiscal year (year ended
December 31, 1996) were $.00.
The aggregate market value on March 3, 1997 of the voting stock held by
non-affiliates computed by reference to the last sales price on that date
was approximately $19,438,610.62. As of March 3, 1997, 3,530,838 shares
of Common Stock, par value $.01 per share (the "Common Stock"), were
outstanding.
Transitional Small Business Disclosure Format
(check one)YES [ ] NO [X]
DOCUMENTS INCORPORATED BY REFERENCE.
Issuer's Proxy Statement relating to the 1997
Annual Meeting of Stockholders
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PART I
Item 1. Description of Business
General
The Company is a late development stage company focused on developing and
producing high power semiconductor diode lasers ("HPDLs") which meet the
quality standards of existing HPDLs at lower cost. In furtherance of such
goals, the Company has been engaged, since its inception in 1993,
primarily in developing and improving upon the use of patent-pending
technology (known as Desorption Mass Spectrometric Control ("DMS"))
to control and increase the reliability of a commonly known laser
manufacturing process referred to as Molecular Beam Epitaxy ("MBE").
The use of the DMS technology (exclusively licensed to the Company by the
United States Air Force (the "Air Force") through the year 2004 pursuant
to a license agreement (the "License Agreement") to control the MBE
production of HPDLs not only offers significant cost advantages over the
MBE production of HPDLs without DMS but, more importantly, also offers
significant cost advantages over the currently prevailing manufacturing
process for HPDLs known as Metal Organic Chemical Vapor Deposition
("MOCVD"). In addition, the Company has been granted an exclusive
(see "Strategy") worldwide license from Northwestern University relating
to aluminum free HPDLs, which generate greater power and evidence
substantially longer life and greater reliability than existing HPDLs.
(See "Strategy"). The Company intends to capitalize upon such advantages
to produce HPDLs which meet or exceed the quality standards of existing
HPDLs, at lower cost, thereby permitting the Company to reduce the prices
charged for HPDLs and facilitate newmarket applications for HPDL products.
The Company has recently established its manufacturing operations at a
newly constructed, state-of-the-art, ultra-high technology facility in
Broome County, New York. The site was acquired through a sale and lease
back transaction with the Broome County Industrial Development Agency (the
"Broome County IDA"). The Company currently utilizes 15,000 square feet at
such location and plans to ultimately expand its operations to 60,000
square feet.
The Company was incorporated in New York in September of 1993.
Industry Background
Lasers produce a beam of radiation in the electromagnetic spectrum which
can be varied in intensity and wavelength depending upon the desired
application. This variable intensity enables high-powered lasers to be
used as power sources in a broad range of applications, including the
materials processing, fiber optic, telecommunications, printing,
medical, dental, automotive, machining, and data storage industries.
HPDLs are increasingly replacing traditional technologies, including
other types of high power lasers, in these and other applications, as
HPDLs are generally less complex, smaller, more reliable, more durable
and/or more powerful than their predecessor technologies. As a result,
while worldwide sales of HPDLs in 1994 were approximately $100 million,
they are expected to reach in excess of $1 billion by 2001, according to
industry surveys conducted by two separate marketing firms retained by
the Company.
The kind and number of applications that can benefit from utilizing HPDLs
include all applications requiring intense and efficient power,
particularly where reliability, long useful life (without adjustment or
replacement of parts) and, in some applications, smaller size and/or
adaptability to fiber optic coupling are significant. The immense
variety and magnitude of these applications and potential applications is
creating an expanding demand for HPDLs and, if lower prices for HPDLs can
be achieved, it is anticipated that new applications requiring lower
priced HPDLs will create significant additional demand.
There are currently three main types of high power lasers:
carbon dioxide lasers: carbon dioxide lasers are the oldest form of high
power lasers still in wide-spread use today. However, they are cumbersome,
costly to purchase and cannot be easily coupled to fiber optics.
The principal market for carbon dioxide lasers is
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materials processing where the relative power inefficiency, bulk and
waste emitting operating qualities of the carbon dioxide laser are not
significant deterrents to their continued use. The market for new
purchases of carbon dioxide lasers has shrunk dramatically in the last
few years in favor of solid state lasers.
Solid State Lasers: Solid state lasers improve upon many of the
troublesome carbon dioxide laser characteristics by virtue of their higher
efficiency, reduced cost and easy ability to be coupled to fiber optics
and their ability to incorporate HPDLs as a power source. As a result,
solid state lasers have increasingly dominated the medical laser device
market and largely replaced the purchase of new carbon dioxide lasers.
Solid state lasers are increasingly incorporating HPDLs to pump or boost
their power output more efficiently, creating a significant part of the
current HPDL market. The principal drawbacks of solid state lasers are
that they have a relatively short operating life, require frequent
maintenance, including adjustments and parts replacement, require more
energy consumption than HPDLs and are otherwise less
efficient than HPDLs.
HPDLs: HPDLs, which have been incorporated increasingly as power sources
in solid state lasers, are starting to replace solid state lasers in
certain applications because of the longer operating life associated
with HPDLs and because HPDLs require little or no maintenance. HPDLs
also have a distinct advantage over solid state lasers in terms of
efficiency. HPDLs convert approximately 80% to 90% of their electrical
input into photon energy while solid state lasers without HPDLs to pump
or boost their power output may convert only about 5% to 10% of their
energy input into photon output. This efficiency explains why HPDLs
have increasingly been utilized as a power source to boost a solid
state laser's output and why, when such efficiency is combined with
the HPDLs' other advantages over carbon dioxide lasers and solid state
lasers, HPDLs represent an increasing share of the high power
laser markets.
Strategy
The Company intends to compete against the existing MOCVD-produced
HPDLs by producing HPDLs which exceed the quality standards of such
products and can be produced at substantially lower costs. The Company
believes that its new manufacturing technology will permit it to reduce
the prices charged for, and to be a high volume manufacturer of,
HPDLs of superior power and longevity and greater reliability.
The Company will seek to capitalize on such opportunities through
its manufacturing, marketing and research strategies.
The Company's manufacturing strategy is to take advantage of the
advance in HPDL manufacturing technology made possible through its
DMS/MBE process and through its acquisition of rights relating to
aluminum free HPDLs. The Company will control all stages of
HPDL manufacturing, including all aspects of the processing and
packaging of its HPDL products, at its own manufacturing facility where
it utilizes the full benefit of its research and development efforts to
date. The new state-of-the-art equipment recently acquired by the
Company for its manufacturing facility incorporates the developments
and modifications which the Company had previously made to the DMS/MBE
equipment used at the U.S. Air Force's Wright Laboratory
pursuant to the Cooperative Research and Development Agreement
(the "Wright CRDA"). The Wright CRDA expired in September 1996. The
Company plans to carry out a program of continuous improvement and
expansion of its manufacturing capabilities through the ongoing purchase
of equipment incorporating further improvements, as developed, and the
expansion of its manufacturing space, as needed, to capitalize on
anticipated commercial market acceptance of its products.
The Company believes that it has established, within the HPDL marketplace,
the credibility of its products, i.e. their comparable quality to those
of current HPDL manufacturers and their substantially lower cost. The
Company's initial marketing strategy is focused on finding potential
customers to consider the applicability of its products to existing and
new uses. The Company believes that once the quality of its product line
and the lower prices charged for its products is fully recognized, it will
be able to achieve significant market penetration. The Company will also
participate in appropriate trade shows and publicize its improvements in
scientific and trade journals.
The Company engages in ongoing research and development efforts to
improve its manufacturing process and new product development.
In addition to its prior research and development work on the DMS/MBE
process with the Air Force under the Wright CRDA, the Company is working,
with the Air Force Rome laboratory, under another CRDA (the "Rome CRDA")
on developing less expensive HPDLs for use in powering fiber optic
devices. The Company is also involved in research and development
partnerships with a number of academic institutions which provide the
Company,
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through their research collaboration, with access to new technologies,
new product applications, quality control measures, testing equipment,
and experienced research personnel.
In September 1996, the Company entered into a license agreement
(the "Northwestern License") with Northwestern University granting the
Company exclusive (see "Strategy") worldwide rights relating to aluminum
free HPDLs under patent rights of Northwestern University. Under the
Northwestern License, an initial licensing fee was paid along with the
issuance of a small number of shares of the Common Stock. An additional
small issuance of shares of the Common Stock will occur in September
1997. The Northwestern License also provides for royalties on net sales
as well as a share of any payments received by the Company with respect
to sub-license fees. Certain obligations must be
met by the Company in order to maintain the Northwestern License, all of
which the Company believes that it will fully satisfy.
In connection with the Northwestern License, the Company entered into a
consulting agreement with Professor Manijeh Razeghi of the Center for
Quantum Devices at Northwestern University. Professor Razeghi is the
inventor of Northwestern's patented technology. In consideration for
her consulting services, the Company issued 120,000 shares of
Common Stock to Professor Razeghi.
With the benefit of the Northwestern License, the Company is aggressively
completing plans for the manufacture and sale of aluminum free HPDLs.
The significant advantage over existing HPDLs is the ability of
aluminum free HPDLs to generate five times greater power while evidencing
substantially longer life and greater reliability. The Company has
received substantial interest in the aluminum free HPDLs and believes it
will offer major competitive advantages to the aluminum based products
of its competitors. The Company has been advised by another company that
it believes that the Northwestern License does not cover the production of
aluminum free HDPLs under manufacturing methods other than MOCVD.
Northwestern University and the Company believe that the patent rights and
the Northwestern License cover a broader range of production methods and
plan to take all steps necessary to protect their interests. The Company
believes that attempts by others to develop equivalent aluminum free
technology will infringe on its exclusive rights, which the Company, in
coordination with Northwestern University, plans to strongly enforce.
Manufacturing Facility
Initially, the Company has installed and is operating a single-wafer
V-80H DMS controlled MBE machine at its manufacturing facility, which
machine is capable of producing one three-inch HPDL wafer every 3
to 4 hours. (An HPDL wafer is the completed crystal structure on which
layers of material have been deposited. The Company's HPDL products are
produced from the completed HPDL wafers.) The Company's manufacturing
facility includes all related facilities and equipment necessary for such
production, such as a 4,500 sq. ft. class 1,000 clean room and the
tooling and testing equipment for its production processing line.
The Company intends (based on its current expectations that a second
MBE machine and production line will be required to meet anticipated
product demand during 1997, of which there can be no assurance) to
install a multi-wafer DMS controlled MBE machine, with the capability
of producing five three-inch HPDL wafers or three four-inch wafers at
one time, in 1997. Thereafter, further expansion and additional
equipment and production lines can be effected, as needed.
As a result of a Sale and Leaseback arrangement, the Company leases from
the Broome County EDA a 60,000 square foot manufacturing site located at
15 Link Drive, Binghamton, New York. Currently, the Company has utilized
15,000 square feet of such site. However, after planned construction in
1997 and 1998, the remainder of the site (approximately 45,000 square
feet) will be utilized. The lease provides for an annual rent of $1.00
per year for a term of 20 years. The Company is responsible for the
payment of abated taxes and governmental assessments, all utility and
other charges incurred, and all payment-in-lieu of tax charges for the
Town of Kirkwood, the County of Broome and the Windsor Central School
District. In consideration of the tax abatement program, the Company is
responsible for creating a certain number of jobs. The Company believes
that this facility is more than adequate for its current and projected
administrative and manufacturing needs.
The MBE equipment acquired by the Company for its new manufacturing
facility incorporates significant improvements developed by the Company
in connection with its prior research and development activities under
the Wright CRDA. As a result, the equipment should be substantially
superior to that used under the Wright CRDA, since much of the Air
Force's equipment is older and has been modified many times.
Manufacturing and Products
General
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The manufacturing process for the growth of HPDL wafers and the further
manufacturing steps necessary to process and package these wafers into
bars, chips and multi-bar stacked arrays in original equipment
manufacturer ("OEM") or end user ready format is a highly technical
process. The general description of these processes which follows
necessarily simplifies the essentials and by its nature does not include
many of the more intricate elements involved in successfully carrying out
the complex growth and manufacture of HPDLs.
Growth
The two principal growth methods which have been developed to manufacture
HPDLs are MOCVD, the process that the Company believes is used by most of
its competitors (including SDL, Inc.), and MBE, the process which
the Company is using. MOCVD has been the prevailing manufacturing process,
to date, even though the yields of acceptable or usable wafers
associated with this process (when compared with the total number of
wafers grown) are believed to be as low as 10%. The MBE process has
historically had even lower useable wafer yields. However, by monitoring
and controlling the MBE production process with its licensed DMS
technology, the Company has developed what it believes to be a process
capable of producing significantly higher yields of acceptable or usable
wafers (which meet the quality standards of existing MOCVD
produced HPDLs) and, thus, of producing such wafers at a significantly
reduced cost per wafer.
The Company's HPDL manufacturing method, the MBE method,
is a process of growing HPDLs by depositing very thin layers of
crystalline material on a wafer substrate, using intense heat in an
ultra high vacuum environment maintained under strict clean room
conditions. The process involves vaporizing aluminum, gallium and
arsenic in their metallic (molecular) forms (as opposed to a gaseous
form, such as that used in the MOCVD growth process, which would be
subject to extensive regulation) under intense heat, causing atoms
of aluminum, gallium and arsenic to travel from their sources to the
heated wafer. This process results in the depositing of layers of
aluminum, gallium and arsenic on the wafer. The MBE growth environment
utilizes a vacuum at pressures so low that individual molecules are
unlikely to collide with one another; hence, they travel in a
molecular beam. It should be noted that the Company will also be
producing aluminum free wafers under the Northwestern License.
Prior to the development of DMS, the MBE process had limited success in
producing repeatable, high quality wafers that met the precise
specifications necessary for HPDLs. This resulted from an inability to
sufficiently control the growth process on a layer by layer basis.
With DMS hardware and software controls added to MBE, the Company has
the ability to produce uniform HPDLs with significantly higher yields of
acceptable or useable wafers.
An additional cost advantage associated with the DMS controlled MBE
process is that while 100% of the wafers produced with MOCVD require
testing (due to the inherent lack of uniformity and reproducibility of
the MOCVD process output), only a 20% sample of the wafers produced with
the DMS/MBE process needs to be tested (due to the inherent uniformity of
the MBE output when DMS is used to control the process). In addition,
while an MOCVD wafer growth production run takes less time than an MBE
wafer growth production run, the time required to load and unload the
wafers and to prepare each wafer for growth is less with the MBE process.
As a result, overall production times associated with the MOCVD and the
MBE/DMS growth manufacturing processes are basically equivalent.
Since the Company acquired the exclusive rights to the aluminum-free
technology from Northwestern University (see "Strategy"), the Company
has embarked upon a development program to ascertain the most cost
effective production technique for this technology. The Company is
evaluating MOCVD, gas source MBE and solid source MBE/DMS. The Company
currently has a number of aluminum-free wafers in processing and expects
to have preliminary results on this new product line within the next
several months.
To date, the Company has purchased approximately 175 AlGaInAs
wafers from a variety of sources including those grown
by MBE, MOCVD, and DMS/MBE and the Company expects to continue to do so
for the forseeable future.
Processing
After the growth process is completed and the wafers have been tested-a
complicated process requiring dedicated testing equipment-the acceptable
wafers are processed and cut (a process referred to as cleaving) into
one centimeter individual laser bars. Each laser bar contains multiple
laser chips or laser emitters. The actual number varies depending upon
the desired power characteristics of the laser chip or emitter. The
surface of the bars is then given optical facet coatings in order to
create the laser beam path that is formed by the laser mirrors.
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Processing is a complex skill requiring specialized training and ability.
Although, once grown (regardless of whether on a single-wafer or a
multi-wafer machine), wafers can be processed in batches, such processing
takes expensive dedicated equipment and generally requires several weeks
to complete. The Company has hired and continues to interview a number of
highly skilled processing engineers and continues to interview candidates
for positions in processing who are thoroughly familiar with all facets of
this highly specialized technical manufacturing process.
Because of the higher uniformity of the wafers grown using the DMS
controlled MBE process, the Company expects to be able to produce as many
as 400 laser bars from each three-inch wafer produced on a single-wafer
MBE machine. Thus, from a single wafer, the Company anticipates that it
could produce up to 4,000 single laser emitters or chips, based on one
industry processing standard of approximately 10 chips per bar. However,
due to the increased handling involved with the manufacture of single
chips, the yields of commercially acceptable products are substantially
lower with such production. In addition, while certain HPDL customers do
buy single chips, such chips generally must each be individually packaged
into user ready format. In addition to packaged chips and bars, the
Company intends to market a portion of its output to customers wishing to
purchase unpackaged laser chips or bars (at lower prices than packaged
products). These unpackaged HPDL products are not currently offered for
sale by most of the Company's principal competitors.
Packaging
The final steps in the production process are the actual assembly and
packaging of the fully processed chips and bars into an OEM or end user
ready format. The Company's packages include a range of products, from
single chip devices, such as the C-Mount, the 9mm package and the TO-18
package, to multiple chip devices, such as the single-LD bar package and
the stacked array package. Customers' applications and preferences
dictate which package is best for their needs, and adaptations of
packages for specific product requirements can be designed. Wherever
appropriate, portions of the packaging process may be subcontracted by
the Company. Each packaging configuration can be utilized for different
applications with the principal differences being the power of the laser
diode device or its output and/or coupling connections. The sizes of
the typical HPDL products are merely a function of industry convention.
Thus, the one centimeter single-laser bar size could be easily modified
by the Company or its competitors to a different size. Various laser chip
and bar package configurations, currently in production and offered for
sale, are described below:
C-Mount
This is a single-chip packaging configuration where a laser diode chip
is mounted on a copper heatsink with a piece of ceramic insulator
soldered on. The C-mount package can be used for diode chips with an
output power of up to 2 watts. The end products can be easily
incorporated into the customers' OEM systems.
9mm Package
This is also a single-chip packaging configuration mounted in a different
manner than that of the C-Mount. The 9mm package incorporates a copper
heatsink to which a cap with a window is added. This is a hermetically
sealed package and can be used in rough industrial environments. Diode
chips with up to 1 watt output power can be mounted on the 9mm packages,
and the resulting units are ready for OEM's to fit into their
applications.
TO-18 Package
A single-chip packaging configuration mounted differently than the
C-Mount and 9mm package. The TO-18 package is unique in that it has a
base with threads on it. It is also a hermetically sealed package, and
can take laser chips with output power of up to 1 Watt.
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Single-LD Bar Package #1 (LD#1)
This single laser diode bar package is designed to accommodate a
one-centimeter-long 15-Watt laser diode bar. It consists of a copper base
plate, an electrical insulating plate and a copper top plate. The diode
laser bar is mounted P-side down on the copper base plate, and the N-side
of the bar is connected to the copper top plate electrically. This
packaged configuration creates a product that is deliverable to either
OEM or commercial end users.
Single-LD Bar Package #2 (LD#2)
This single bar package is similar to LD#1, but with a smaller base plate.
It is designed for laser diode bars with a 10 Watt or less output power.
The packaged laser bar can be deliverable to either OEM or commercial
end users.
Single-LD Bar Package #3 (LD#3)
This particular bar package is intended for laser diode bars with an
output power of 20 Watts or more. It is similar to LD#1 in design except
that it has a thicker base plate. The packaged unit can be deliverable
to either OEM or commercial end users.
Stacked-Array Package
A stacked-array package is a packaging configuration that stacks a number
of single laser diode bars together onto a compact heatsink to increase
the overall power and brightness of the device. The packaged products are
deliverable to either OEM or commercial end users.
Fiber-Coupled Laser Diode Bar Package
This is a packaging configuration that takes one or several single-LD bar
packages and couples the output beam from those diodes into a single
fiber or fiber bundle. The result of the fiber coupling process is much
higher output brightness and more user-friendly beam delivering system.
Suppliers
The Company's products require, during each step of the manufacturing
process, high quality raw materials and components which the Company
purchases from others. The Company believes that numerous suppliers exist
for all of the raw materials and components that it will need and that
such items are readily available on commercially reasonable terms;
however, the Company's ability to continue to manufacture its products
will depend upon its ability to maintain commercial relationships with at
least some of such suppliers. The Company does maintain, and intends to
continue to maintain, supply agreements with several of its key suppliers
of raw materials. In other cases the Company intends to purchase raw
materials, sub-assemblies and components pursuant to purchase orders in
the ordinary course of business. The Company's production is also
dependent upon its suppliers satisfying the Company's performance and
quality specifications and dedicating sufficient production capacity to
meet the Company's scheduled delivery times.
Marketing
The overall laser market is quite competitive; however, once such market
is segmented into laser type and component suppliers, the different niche
markets (particularly the markets involving high technology and high cost
products) have a much smaller number of competitors. The marketing
approach of the Company is to promote its line of high quality lower
cost lasers to new and existing market segments as well as creating new
applications that were once impenetrable due to the high cost of laser
components. The Company believes that the credibility of its products has
been established as its customers' expectations are continually being met.
Orders of Prototype and test units are being replaced with production units.
The Company believes that expanded recognition of the Company's credibility
on a domestic and international level, when combined with its lower product
costs, will enable significant market penetration. Other marketing
activities of the Company include participating in appropriate trade shows,
publicizing advancements in scientific and trade journals, developing
international trade companies for representation and other creative marketing
techniques.
The Company's marketing program is designed to address some of the
activities described above with a strong focus on identifying potential
customers and increasing the visibility of the Company. The goal of the
initial marketing program is to create advance demand, and obtain advance
orders, for the Company's proposed products, which will then be produced
by the Company.
The Company's marketing program involves or has involved the following:
PHASE I (FIRST QUARTER OF 1996 TO THIRD QUARTER OF 1996)
Pre-market the sale of high quality, low cost HPDL wafers for use in
specific applications in established markets (materials processing and
medical devices)
Introductory press releases in key laser journals
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PHASE II (FOURTH QUARTER OF 1996 TO THIRD QUARTER OF 1997)
Establish sales and marketing staff
Target niche markets where the Company's products
and cost advantage are crucial
Target new and emerging markets
Strategic alliances/partnerships in key
markets and/or developing markets
Employ sales representative firms and distributors
in key foreign countries
The Company has begun to seek and consummate strategic alliances/
partnerships in specific end-user markets. The Company has and will
continue to focus its efforts on various corporations, both
international and domestic, in the materials processing, medical,
printing and telecommunications industries. The Company will approach
these companies initially for performance testing of the Company's
products. It is then the intention of the Company to negotiate and
develop various product research and development programs with these
specific companies.
PHASE III (COMMENCING IN THE FOURTH QUARTER OF 1997)
Establish strategic joint ventures in key markets
As, and if, the Company positions itself as a low cost supplier of HPDLs,
the Company will seek to commercialize new products developed in its
strategic ventures and create new markets for HPDL utilization.
Research and Development
The Company has been engaged in substantial research and development
activities since its inception. Due to the nature of its business,
research and development will be a significant ongoing activity of the
Company. The Company incurred research and development expenses of
approximately $166,000 and $2,074,000 for the years ended
December 31, 1995 and 1996, respectively. All of these amounts were
spent on Company sponsored research and development, including
approximately $1,093,000 for consulting contracts and license rights
associated with the aluminum free process.
DMS Research and Development
The Company is continuing to work on improvements in the DMS/MBE
technology to make it substantially easier to operate. This will enable
skilled technicians to perform most of the functions which currently
require an operator with advanced scientific training. Among other
benefits, new software will substantially reduce the instructions and
settings that the operator must enter, thereby reducing the risk of
error and increasing potential yields.
Precision Laser Machining Consortium
Precision Laser Machining Consortium (the "Consortium") consists of 20
major U.S. laser companies, brought together by the Defense Advanced
Research Project Agency's (DARPA) dual-use technology program. Major
objectives of the Consortium are to develop a new generation of laser
machine tools, advanced laser systems, and laser-assisted manufacturing
processes, provide high performance, affordable systems for the U.S.
military, and produce commercial products for a fiercely competitive global
marketplace. The Company became an associate member of the Consortium in
April, 1996. The major function of the Company in the Consortium is to
develop and manufacture high power, low-cost and reliable semiconductor
laser diodes for pumping solid state lasers.
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Joint Research and Development Projects
The Company plans to engage in research and development ventures with
industry partners and academic research laboratories to provide the
Company with access to new technologies, product applications, quality
control measures, testing techniques and packaging techniques.
The Company also plans to continue its research and development
activities with the U.S. Air Force under an existing CRDA.
The Rome CRDA involves research and development relating to the use of
HPDLs as a direct power source in powering fiber lasers (without the need
for coupling devices) and extends through May 1997. The Company is
currently engaged in other research and development activities with
research laboratories at a number of academic institutions. Typically
each research laboratory has specific interests and capabilities in areas
of HPDL technology that are relevant to one or more functions of the
Company. For example, one such research laboratory specializes in testing
techniques while another specializes in packaging techniques. It is
anticipated that the number of these relationships will continue to grow.
Internal Research and Development Programs
The Company is conducting several internal research and development
programs associated with high power semiconductor laser technology in
different departments of the Company. The Company works closely with
scientists and researchers at Northwestern University to optimize the
aluminum free laser structure and develop a complete manufacturing
procedure for low-cost, high power aluminum free semiconductor lasers.
Some special processing and packaging techniques developed for aluminum
free lasers will reduce the manufacturing cost dramatically. Computer
simulation and theoretical modeling of thermal distribution and heat
dissipation scheme for high power semiconductor laser array (laser bar)
are used to optimize stripe geometry and device structure of the laser
array in order to obtain maximum laser power output and small temperature
variation under certain operating conditions. By further improving the
laser design and using high-precision processing, single-mode HPDLs
deliver stable single-mode output, which is essential for the application
of optical data storage. For the applications of medical, optical data
storage, diode pumped solid state lasers, and military, the Company plans
to extend the laser operating wavelength range to the visible light
(less than 700 nm) by using phosphide-based semiconductor material.
The achievements of these research programs may improve the performance
of the Company's current products, and should enable the Company to
develop new products for emerging markets of HPDLs.
9
<PAGE>
Equipment Financing
The Company received a commitment from Finova in the amount of $3,500,000
for the purchase and lease back to the Company of equipment, furnishings
and fixtures purchased in connection with the equipping and furnishing
of the Company's new manufacturing facility and other purchases made
prior to June 26,1996. As of December 31,1996, the Company had sold and
leased back from FINOVA equipment, furnishings and fixtures valued at
approximately $896,000 and through March 1997 had utilized the remainder
of the commitment. Prospective cash obligations associated with this sale
and leaseback will approximate $1,000,000 annually through the year 2000.
In connection with this transaction, the Company issued to Finova 58,334
warrants, each warrant to purchase one share of Common Stock at an exercise
price of $5.00 per share. The warrants can not be assigned,
sold, transferred or otherwise disposed of prior to February 27, 1998.
Insurance
The products that the Company markets are intended for use by commercial
end users and OEMs in their end products. Some of the Company's products
may become critical components in medical and surgical devices or in
printing, data storage, and data transmission and communications
systems. The use of these products is regulated by the Center for
Disease and Radiological Health because the misuse or mishandling of a
product could result in injury from exposure to the laser light emissions.
A malfunction of the Company's products in any application could result in
tort lawsuits based on injuries resulting from such malfunctions, or in
contract damages lawsuits resulting from the high costs of repairing or
replacing the Company's HPDLs in applications such as satellites or
fiber cables or due to lost profits for data transmission down time. The
Company plans to reduce the risk of such losses through warranty
disclaimers and liability limitation clauses in its sales agreements and
by maintaining product liability insurance. Currently the Company
maintains product liability insurance in the amount of $1,000,000 per
occurrence with a $2,000,000 aggregate limit, which it believes is
adequate coverage for its operations and products. There can be no
assurance, however, that this insurance will be sufficient to cover
potential claims or that adequate levels of coverage will be available
in the future at reasonable cost. A partially uninsured or completely
uninsured claim against the Company could have a material adverse effect
on the Company.
Intellectual Property
The Company is assuming an aggressive position in patenting and
licensing HPDLs structures and related technology. The Company has four
pending patent applications, two patent applications for HPDL, a process
patent application for manufacturing high powered lasers, and a diode
laser array package patent application. The four patent applications are
designated for worldwide foreign filing. It is the Company's intention
to file patent applications for all inventions which are not held as trade
secrets, such as those routinely employed in the Company's manufacturing
processes and products. The Company requires each of its employees to
sign a Employee Invention and Non-Disclosure Agreement to protect the
Company's trade secrets, as well as providing for assignment of the
inventions.
The Company has an active portfolio of license patents from the
U.S. Air Force and Northwestern University. The Company has licensed
U.S. Patent No. 5,543,170 entitled "Desorption Mass Spectrometric Control
of Alloy Composition During Molecular Beam Epitaxy" from the U.S. Air
Force. The Company has licensed two patents from Northwestern University,
U.S. Patent No. 5,384,151 entitled "InGaAsP/GaAs Diode Laser",and U.S.
Patent No. 5,389.396 entitled "InGaAsP/GaAs Diode Laser". The Company has
also licensed a pending patent application from Northwestern University,
and is currently engaged in discussions to license additional patents and
patent applications from Northwestern University. The Company has a
consulting relationship with Professor Manijeh Razeghi of Northwestern
University, who is the inventor of the licensed patents from Northwestern
University. (See "Strategy").
10
<PAGE>
Competition
The Company's market is highly competitive. The Company faces current or
potential competition from direct competitors, potential entrants,
suppliers of potential new technologies and suppliers of existing
alternative technologies. Various niche markets have been developed by
application-specific OEMs who seek to create competitive advantages in
individual markets through function and price. These OEMs are attempting
to increase their competitive advantage by purchasing higher quality,
lower cost components for assembly into their laser systems, thereby
allowing their end products to have a price advantage.
Most of the Company's competitors have substantially greater financial,
personnel, technological, marketing, administrative and other resources
than the Company. Among the largest of the Company's competitors are SDL,
Inc., Siemens AG, Opto Power Corporation, Coherent, Inc. and Spire Corp. In
the HPDL market, SDL, Inc. was reported to account for more than a 38% share
in 1993, almost three times the share of its closest competitor. SDL, Inc.'s
market share is thought to have increased since 1993 as some competitors
have abandoned the business because costs of research and development and
acquiring the latest manufacturing equipment were too great.
The Company believes that all current competitors of the Company utilize MOCVD
production methods, with the lone exception of Coherent, Inc. (who just entered
this market last year through strategic acquisitions), and can be expected
to vigorously assert the claim that this technology is superior to that
of the Company's DMS/MBE technology and the Company's aluminum free
technology. By entering the HPDL market, which is dominated by several
large companies, and by using DMS/MBE technology, the Company faces
intense competitive pressure and may be unsuccessful even if its products
and manufacturing process are superior to those of its competitors. The
Company expects that both direct and indirect competition will increase
in the future. Additional competition could adversely affect the
Company's results of operations through price reductions and loss of
market share.
Potential new technologies may emerge to compete with the
Company's products. Both the Company and its competitors are working to
develop new technologies and improvements and modifications to existing
technologies, which will render present products obsolete. There can be
no assurances that the Company will continue its development efforts,
or that such efforts, if continued, will be successful. In addition,
there can be no assurance that markets will develop for any such
products, or that any such products would be competitive with other
technologies or products that may be developed by others. As the markets
for the Company's products grow, new competitors are likely to emerge
and present competitors may increase their market share.
Employees
The Company currently has 34 full-time employees, none of whom are
represented by a union. 16 of these employees have extensive backgrounds
in high power semiconductor laser growth and manufacture. The remaining
18 employees include eight in production and production support, two in
quality control, three in finance and five in corporate management and
administrative. The Company has never experienced a work stoppage.
Governmental Regulations
The Company is subject to a variety of federal, state and local laws
and regulations concerning the storage, use, discharge and disposal of
toxic, volatile, or otherwise hazardous or regulated chemicals or
materials used in its manufacturing processes. Further, the Company is
subject to other safety, labeling and training regulations as required by
local, state and federal law. The Company has established an
environmental and safety compliance program to meet the requirements of
applicable federal, state and local laws. There can be no assurance that
changes in regulations and laws will not have an adverse economic effect
on the Company. Further, such regulations could restrict the Company's
ability to expand its operations. Any failure by the Company to obtain
required permits or operate within regulations for, control the use of,
or adequately restrict the discharge of, hazardous or regulated
substances or materials under present or future regulations could subject
the Company to substantial liability, require costly changes in the
Company's manufacturing processes or facilities or cause its operations
to be suspended.
11
<PAGE>
Item 2. Description of Properties
As a result of a Sale and Leaseback arrangement, the Company leases from
the Broome County IDA a 60,000 square foot manufacturing site located at
15 Link Drive, Binghamton, New York. Currently, the Company has utilized
15,000 square feet of such site. However, after planned construction in
1997 and 1998, the remainder of the site (approximately 45,000 square
feet) will be utilized. The lease provides for an annual rent of $1.00
per year for a term of 20 years. The Company is responsible for the
payment of abated taxes and governmental assessments, all utility and
other charges incurred, and all payment-in-lieu of tax charges for the
Town of Kirkwood, the County of Broome and the Windsor Central School
District. In consideration of the tax abatement program, the Company is
responsible for creating a certain number of jobs. The Company believes
that this facility is more than adequate for its current and projected
administrative and manufacturing needs.
Item 3. Legal Proceedings
The Company is currently engaged in a dispute with Theodore Konopelski
("Konopelski"), a director and a former employee and officer of the Company.
The dispute involves the termination of Konopelski's employment for cause.
An arbitration proceeding was instituted by Konopelski in Syracuse, New
York challenging his termination under his employment contract.
Konopelski is seeking damages in the aggregate of $500,000. The
arbitration is currently proceeding and the Company believes that the
termination was proper and that no amount should be awarded to
Konopelski. Subsequent to the commencement of the arbitration, the
Company brought an action against Konopelski in the New York Supreme
Court (Broome County) alleging violation by Konopelski of his obligations
under the terms of a non-disclosure agreement. The Court issued a
temporary restraining order barring Konopelski from making any
disclosures or using confidential information or trade secrets, which
remains in effect. The Company believes that it will
prevail in the arbitration as well as all matters with respect to the
enforcement of Konopelski's non-disclosure obligations. Konopelski
alleges that he ceased to be a director on August 4, 1996 by virute
of his removal by the Company. The Company maintains that Konopelski
was removed as an officer and employee and that if he chooses not to
consider himself as a director, it is his choice alone.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1996.
12
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
Since March 19, 1996, shares of the Common Stock have traded on the
NASDAQ Small Cap Market ("NASDAQ"). The following table sets forth, for
the periods indicated and as reported by NASDAQ, the high and low last
sales prices for shares of the Common Stock.
Quarter Ended
High Low
March 29, 1996 5 1/2 5 1/8
June 28, 1996 6 7/8 6 5/8
September 30, 1996 7 3/4 7 1/4
December 31, 1996 7 1/2 7
Holders of Common Stock
Based upon information supplied to the Company by its transfer agent, the
number of stockholders of record of the Common Stock on March 3, 1997 was
approximately 174. The Company believes that there are in excess of 300
beneficial owners of the Common Stock whose shares are held in "Street
Name".
Dividends
The Company has never paid cash dividends with respect to the Common
Stock. The Company intends to retain future earnings, if any, that may
be generated from the Company's operations to help finance the operations
and expansion of the Company and accordingly does not plan, for the
foreseeable future, to pay dividends to holders of the Common Stock. Any
decision as to the future payment of dividends on the Common Stock will
depend on the results of operations and financial position of the Company
and such other factors as the Company's Board of Directors (the "Board"),
in its discretion, deems relevant. In addition, arrangements with
present or future lenders may restrict the payment of dividends.
13
<PAGE>
The Company has sold the following unregistered securities during the
past three years (all share numbers set forth below have been updated to
reflect stock splits):
<TABLE>
<CAPTION>
Total Total Cash Other
Date of Sale Securities Sold Offering Price Consideration Paid Consideration Purchasers
<S> <C> <C> <C> <C> <C>
January 1994 12,314 shares of Common $ 25,000 $ 25,000 Consultant to the Company
Stock
March 1994 104,128 shares of Common
Stock $ 396,392 $396,392 Investors known to management
December 1994-
April 1995 105,946 shares of Common $ 215,105 $215,105 Existing shareholders and
Stock; 105,946 warrants to investors known to Management
purchase Common Stock at
$2.54 per share
March-April 1995 9,850 shares of Common $ 20,000 $ 20,000 Company founders
Stock; 9,850 warrants to
purchase Common Stock at
$2.54 per share
June-July 1995 354,632 shares of Common $ 900,000 $900,000 Accredited Investor known to
Stock the Company's Management
June 1995 39,405 shares of Common $ 100,000 $100,000 Accredited Investor known to
Stock the Company's Management
November 1995(1) 45,390 shares of Common $ 115,291 $115,291 Previous associate of the
Stock Company
December 1995 2,877 shares of Common $ 7,300 $7,300 in services Consultant to the Company
Stock performed for the
Company
December 1995 35,463 shares of Common $ 90,000 $90,000 in services Consultant to the Company
Stock performed for the
Company
January 1996 150,000 Bridge Shares and $ 750,000 $750,000 Accredited Investors
Bridge Notes in the
aggregate amount of
$750,000(2)
September 1996 2,731 shares of Common $ 22,188 $22,188 for rights Licensor of the Company
Stock to a technology
November 1996 120,000 shares of Common $1,050,000 $1,050,000 in Consultant to the Company
Stock services performed
for the Company
January 1997 58,334 warrants to purchase $ 167,710 $167,710 in lease Lessor of equipment to the
Common Stock at $5.00 per related fees Company
share
</TABLE>
(1) Represents amount allocated to settlement of a potential dispute
with a prior associate of the Company. An equal number of shares were
contributed by the two founders of the Company to the Company immediately
prior to such issuance.
(2) Subsequently included in the Company's Registration Statement on Form
S-1 (the "Registration Statement"), declared effective on March 19, 1996.
14
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements in this Report under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and elsewhere constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, including,
without limitation, statements regarding future cash requirements. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially
different from any future results, performance, or achievements expressed
or implied by such forward-looking statements. Such factors include,
among others, the following: Delays in product development; failure to
receive or delays in receiving regulatory approval; lack of
enforceability of patents and proprietary rights; general economic and
business conditions; industry capacity; industry trends; demographic
changes; competition; material costs and availability; the loss of any
significant customers; changes in business strategy or development plans;
quality of management; availability, terms and deployment of capital;
business abilities and judgment of personnel; availability of qualified
personnel; changes in, or the failure to comply with, government
regulations; and other factors referenced in this Report.
Overview
The Company was in the late development stage as of December 31, 1996
and has recently begun the commercialization of many of its
proposed products. Since its inception in 1993, the Company had been
engaged primarily in research and development, business and financial
planning, recruitment of key management and technical personnel, raising
capital to fund operations and the development of its HPDL product
prototypes. As a result, the Company has not generated any product sales
revenue from operations through December 31, 1996. The Company has
completed the construction and equipping of the first phase of its
manufacturing facility and has begun the commercialization of its
products and the generation of revenues. The Company has a sales order
backlog of approximately $ 1,800,000 as of March 20, 1997. The Company
also continues to secure licensing agreements for the production,
marketing and sale of technologically improved products which
complement their existing product line. In connection therewith, the
Company entered into an exclusive licensing agreement with Northwestern
University whereby the Company has been granted the right to produce,
market and sell aluminum free HPDLs worldwide. (See "Strategy"). Laboratory
research has demonstrated vast improvements with devices produced using
this technology. The Company believes the aluminum free technology will
give the Company both a significant technological advantage over the
competition as well as a significantly broader market base within which
the Company can sell its products. It is believed that it will take six
to nine months to commercialize and market this technology, although no
assurance can be provided that the Company can achieve these goals.
15
<PAGE>
Results of Operations
As noted above, the Company did not have any revenues from commercial
sales of its product through December 31, 1996. Revenues realized as a
result of the sale of research products has been offset against research
and development expense. The Company began operating it's commercial
production facility in February 1997 upon the completion of the
construction and the equipping of such facility.
The Company incurred research and development expenditures of $200,667,
$165,755 and $2,073,436 for the years ended December 31, 1994, 1995 and
1996, respectively. Expenditures incurred in 1994 and 1995 were
primarily associated with the CRDA with the Air Force's Wright
Laboratory which served to facilitate the development of the technology
which is the cornerstone of the Company's manufacturing process. Also
incurred in these periods were salary and material costs relating to the
development of the Company's HDPL prototypes. The slight decrease in 1995
when compared to 1994 was primarily the result of timing of required
payments to the Air Force. During 1996 the Company continued its research
with the Air Force on a much smaller scale and expanded its own research
efforts in the development of HPDL prototypes. Research and development
expenditures in 1996 increased by approximately $1,900,000 when compared to
1995. This increase is the result of increased spending on salaries,
materials and subcontracting costs associated with the commercialization of
the Company's product line. Also, costs associated with the securing of the
license to produce, market and sell the aluminum free technology,
amounting to approximately $1,100,000, is reflected in research and
development expense in 1996. These costs were funded through the
commitment to issue 122,731 shares of the Company's unregistered Common
Stock.
General and administrative expenses were $278,108, $1,011,584 and
$1,240,676 for the years ended December 31, 1994, 1995 and 1996,
respectively. General and administrative expenses include salaries,
depreciation of equipment, insurance, travel and professional fees.
The increase of approximately $733,000 in 1995, as compared to the year
ended December 31, 1994, was due to increased salary costs, an increase
in professional fees associated with the commissioning of marketing
studies, consultations related to the development of a business plan,
the recognition of non-cash compensation expense of approximately
$262,000 associated with the Company's grant of certain stock options
and the recognition of a non-cash expense of approximately $115,000
relating to the issuance of stock, to an unrelated individual, in
settlement of a potential dispute. The increase of approximately
$229,000 in 1996, as compared to the year ended December 31, 1995, is
due to increased number of employees and salaries and more specifically
to increases in financing costs ($85,000) associated with bridge
financing, marketing expenses ($74,000) associated with the
commercialization of the Company's products, facilities expense
($96,000), travel, meetings, legal, accounting and brokerage fees
associated with the commercialization effort and the legal and reporting
requirements associated with the Company's securities ($156,000), employee
recruiting and relocation expenses ($45,000) associated with increased
employee levels and office and related expenses ($80,000) associated with
increased business and marketing activities. The increase in General and
Administrative expenses was partially offset by a one time reduction in
consulting costs amounting to $248,000 representing the market value of
35,463 shares of the Common Stock previously issued in 1995 in exchange
for consulting services provided to the Company.
Interest income was $5,773, $26,942 and $237,253 for the years ended
December 31, 1994, 1995 and 1996, respectively. The increase in interest
income of approximately $21,000 for the year ended December 31, 1995 and
$211,000 for the year ended December 31, 1996 is associated with higher
levels of cash invested in each year as a result of increased stockholder
investment through private placements in 1995 and the initial public
offering in 1996.
The Company completed a bridge financing in January 1996. As part of
such financing, the Company issued certain promissory notes and shares
of Common Stock and, in connection therewith, recorded loan discount and
deferred financing costs of $295,000 and $75,000 respectively. The
Company's net interest income in 1996 includes the interest on promissory
notes, and amortization of the loan discount and deferred financing costs
of $13,114 and $51,585, respectively. Upon repayment of the promissory
notes, the Company recognized an extraordinary loss in the amount of
$305,301, representing the unamortized portions of the loan discount and
deferred financing costs.
16
<PAGE>
Liquidity and Capital Resources
The Company's capital requirements have been and will continue to be
significant. During the period from inception through December 31, 1996
the Company has raised capital, net of expenses, of approximately
$9,100,000 through the public and private placement of its debt and
equity securities and has been dependent on these sources to fund its
capital requirements. The Company's cash and cash equivalents at
December 31, 1996 were $4,266,168 as compared to $531,042 at December 31,
1995, an increase of $3,735,126. The increase in cash and cash
equivalents is primarily the result of $8,254,184 provided through
financing activities offset by the use of $1,231,730 in operating
activities and $3,287,328 used for the purchase of property, machinery,
equipment and furnishings.
The $8,254,184 of proceeds provided by financing activities were derived
from net proceeds of $7,078,985 realized from the Company's initial
public offering, net proceeds of approximately $625,000 from the private
placement of bridge notes and shares, net proceeds of $234,763 from the
issuance of additional shares purchased by the Company's underwriter
through an over-allotment option, net proceeds of $336,724 from Warrants
exercised from the December 1994 private placement and the March 1996
initial public offering and options exercised by an employee (for a
total of $7,895,472 in aggregrate stock sales) and proceeds of $816,000
from amortgage loan on the Company's new facility, offset by the early
repayment of the bridge notes ($750,000) and repayment of $81,796 on other
long term notes. The Company has available an unused, secured line of
credit in the amount of $1,000,000 for purposes of providing working
capital, if necessary. The line bears interest at prime plus 1.5% and
matures December 18, 1997.
During 1996, the Company received a commitment from Finova in the amount of
$3,500,000 for the purchase and lease back to the Company of equipment,
furnishings and fixtures purchased in connection with the equipping and
furnishing of the Company's new manufacturing facility and other purchases
made prior to June 26, 1996. As of December 31,1996, the Company had sold
and leased back from Finova equipment, furnishings and fixtures valued at
approximately $896,000 and through March 1997 had utilized the remainder
of this commitment. Prospective cash obligations associated with this sale
and leaseback will approximate $1,000,000 annually through the year 2000.
<PAGE>
Item 7. Financial Statements
Semiconductor Laser International Corporation
(A Development Stage Enterprise)
Index to Financial Statements
Page
Report of Independent Public Accountants 18
Financial Statements:
Balance Sheets as of December 31, 1995 and 1996 19
Statement of Operations for the Years Ended December 31,
1994, 1995 and 1996 20
Statement of Changes in Shareholders Equity for the Years
Ended December 31, 1994, 1995 and 1996 21
Statement of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 22
Notes to Financial Statements 23-28
17
<PAGE>
Report of Independent Public Accountants
To The Board of Directors and Shareholders of
Semiconductor Laser International Corporation
In our opinion, the accompanying balance sheet and the related
statements of operations, of changes in shareholders equity and of cash
flows present fairly, in all material respects, the financial position
of Semiconductor Laser International Corporation at December 31, 1995
and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Morristown, NJ
March 5, 1997
18
<PAGE>
Semiconductor Laser International Corporation
(A Development Stage Enterprise)
Balance Sheet
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
----------- -------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents.................................. $ 491,971 $ 4,266,168
Restricted cash............................................ 39,071 --
Accounts receivable, net of allowance for doubtful.........
accounts of $ 0 and $ 25,000, respectively................. 5,335 61,047
Inventory.................................................. 2,600 6,316
---------- ------------
Total current assets................................... 538,977 4,333,531
Deferred financing cost..................................... 134,431 --
Plant, Property and Equipment, net.......................... 162,175 3,035,929
Intangible assets, net of accumulated amortization of
$1,348 and $2,022, respectively............................. 2,022 1,348
Deposits and other assets................................... 4,130 655,928
---------- ------------
Total assets........................................... $ 841,735 $ 8,026,736
========== ============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable............................................ $ 208,940 $ 1,142,272
Accrued expenses and other liabilities...................... 134,331 92,199
Current portion of long-term debt........................... 81,787 25,948
Total current liabilities.............................. 425,058 1,260,419
Long-term debt.............................................. 19,882 809,926
Accrued royalty payments.................................... 100,000 100,000
---------- -----------
Total liabilities...................................... 544,940 2,170,345
---------- -----------
Commitments and contingencies ( Note 11)
Shareholders' Equity
Common stock, $.01 par value, 20,000,000 shares authorized,
1,393,653 shares issued and outstanding December 31, 1995;
3,409,607 shares issued and outstanding December 31, 1996... 13,936 34,096
Common stock issuable....................................... -- 1,123,438
Treasury Stock, 35,463 Shares............................... -- (248,241)
Additional paid-in capital.................................. 2,035,065 10,081,464
Deficit accumulated during the development stage............ (1,752,206) (5,134,366)
----------- -----------
Total shareholders' equity.............................. 296,795 5,856,391
----------- -----------
Total liabilities and shareholders' equity.............. $ 841,735 $8,026,736
=========== ===========
</TABLE>
See accompanying notes to financial statements
19
<PAGE>
Semiconductor Laser International Corporation
(A Development Stage Enterprise)
Statement of Operations
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Cumulative
December 31, December 31, December 31, From
1994 1995 1996 Inception
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development expenses $200,667 $ 165,755 $ 2,073,436 $2,439,858
General and administrative expenses 278,108 1,011,584 1,240,676 2,559,175
Royalties 100,000 ---- ---- 100,000
------------- ------------- ------------- ------------
Loss from operations (578,775) (1,177,339) (3,314,112) (5,099,033)
Interest income 5,773 26,942 237,253 269,968
------------- ------------- ------------- ------------
Loss before extraordinary item (573,002) (1,150,397) (3,076,859) (4,829,065)
Extraordinary loss on early
extinguishment of debt ---- ---- (305,301) (305,301)
------------- ------------- ------------- ------------
Net loss after extraordinary item ($ 573,002) ($1,150,397) ($3,382,160) ($ 5,134,366)
============= ============= ============= ============
Net loss per share:
Loss before extraordinary item ($ 0.50) ($ 0.92) ($ 1.03) ($ 1.62)
Extraordinary item $ 0.00 $ 0.00 ($ 0.10) ($ 0.10)
------------- ------------- ------------- ------------
Net loss ($ 0.50) ($ 0.92) ($ 1.13) ($ 1.72)
============= ============= ============= ============
Weighted average shares outstanding 1,147,800 1,250,248 2,984,170 2,984,170
============= ============= ============= ============
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
<TABLE>
<CAPTION>
<S>
Semiconductor Laser International
Corporation
(A Development Stage Enterprise)
Statement of Changes in Shareholders' Equity (Net Capital Deficiency)
Deficit Total
Accumulated Shareholders'
Common Stock Treasury Stock Additional During the Common Equity
---------- ---------- ---------- ---------- Paid-In Development Stock (net capital
Shares Value Shares Value Capital Stage Issuable deficiency)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------
<C> <C> <C> <C> <C> <C> <C> <C>
<S>
Issuance of common stock.................. 152,027 $1,520 --- --- $6,196 --- --- $7,716
Sale of stock for equipment............... 256,156 2,562 --- --- 10,439 --- --- 13,001
Stock issued for costs incurred........... 320,820 3,208 --- --- 13,075 --- --- 16,283
Net loss for the period from inception
(September 21, 1993) to December 31, 1993. --- --- --- --- --- ($28,807) --- (28,807)
---------- ---------- ---------- ---------- ---------- -------- -------- ---------
Balance at December 31, 1993.............. 729,003 7,290 --- --- 29,710 ($28,807) --- 8,193
Issuance of common stock, January, March
and December 1994......................... 192,344 1,923 --- --- 552,269 --- --- 554,192
Net loss for the year ended 1994.......... --- --- --- --- --- (573,002) (573,002)
----------- ---------- --------- ---------- ---------- -------- -------- ---------
Balance at December 31, 1994.............. 921,347 9,213 581,979 (601,809) (10,617)
Issuance of common stock, January, March,.
April, June and July 1995................. 434,147 4,340 979,336 983,676
Stock contributed by shareholders, --- --- ---
November 1995............................. (45,390) (454) 454 --- --- 0
Stock issued in settlement of potential --- --- ---
dispute, November 1995.................... 45,390 454 114,837 --- --- 115,291
Stock issued for services rendered, --- --- 0
December 1995............................. 38,339 383 96,915 --- --- 97,298
Compensatory stock options 261,544 --- --- 261,544
Net loss for the year ended 1995.......... --- --- (1,150,397) --- (1,150,397)
----------- ---------- --------- --------- --------- ----------- -------- -----------
Balance at December 31, 1995.............. 1,393,653 13,936 2,035,065(1,752,206) --- 296,795
Issuance of common stock as a component of
"Bridge Financing", January 1996.......... 150,000 1,500 243,500 --- --- 245,000
Issuance of common stock, Initial Public
Offering, March 1996...................... 1,700,000 17,000 7,061,985 --- --- 7,078,985
Issuance of common stock, over allotment
option, April 1996........................ 55,000 550 234,214 --- --- 234,764
Issuance of common stock, warrant exercise 101,983 1,020 298,810 --- --- 299,830
Warrant redemption, July 1996............. (3,599) --- --- (3,599)
Issuance of common stock, compensatory
stock option exercise, July 1996.......... 1,971 20 8,849 --- --- 8,869
Common stock issuable for services to be
rendered, August 1996 --- $51,250 51,250
Common stock issuable for services rendered,
September 1996............................. --- 22,188 22,188
Warrants issued in exchange for services to
Finova..................................... --- --- 167,710 --- --- 167,710
Issuance of common stock, warrant exercise,
November 1996............................. 7,000 70 34,930 --- --- 35,000
Common stock issuable for services rendered,
November 1996............................. --- 1,050,000 1,050,000
Company common stock returned to
Company, December 1996................... --- --- (35,463)($248,241) --- --- --- (248,241)
Net loss for the year ended 1996......... --- --- --- --- --- (3,382,160) --- (3,382,160)
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Balance at December 31, 1996............. 3,409,607 $34,096 (35,463)($248,241)$10,081,464($5,134,366)$1,123,438 $5,856,391
========== ========== ========== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
21
<PAGE>
Semiconductor Laser International Corporation
(A Development Stage Enterprise)
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Cumulative
December 31, December 31, December 31, From
1994 1995 1996 Inception
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 573,002) ($ 1,150,397) ($ 3,382,160) ($ 5,134,366)
Adjustments to reconcile net loss to cash used
In operating activities:
Depreciation and amortization 5,137 23,779 71,981 100,897
Expenses settled through the issuance of
Common shares and options ---- 384,135 854,172 1,254,590
Amortization of debt discount ---- ---- 64,699 64,699
Extraordinary loss on early extinguishment ---- ---- ---- ----
of debt 305,301 305,301
Change in assets and liabilities:
(Increase) in accounts receivable (1,010) ( 4,325) (55,712) (61,047)
Decrease (increase) in inventory (3,760) 1,160 (3,716) (6,316)
(Increase) in deposits and other assets (4,050) (80) (111,926) (116,056)
(Increase) decrease in deferred financing cost ---- (134,431) 134,431 ----
Increase in accounts payable 33,840 175,100 933,332 1,142,272
Increase (decrease) in accrued expenses and
other liabilities 66,536 54,326 (42,132) 92,199
Increase in accrued royalty payments 100,000 ---- ---- 100,000
------------ ------------ ------------- -----------
Net cash used in operating activities (376,309) (650,733) (1,231,730) (2,257,827)
------------ ------------ ------------- -----------
Cash flows from investing activities:
Purchase of plant, property and equipment, net (8,226) (163,706) (4,182,934) 4,359,676)
Sale of equiptment, pursuant to sale and ---- ---- 895,606 895,606
leaseback agreement
Increase in intangible assets ---- ---- ---- (3,370)
------------ ------------ ------------- -----------
Net cash used in investing activities (8,226) (163,706) (3,287,328) (3,467,440)
------------ ------------ ------------- -----------
Cash flows from financing activities:
Proceeds from long term debt ---- 101,669 1,441,000 1,542,669
Payments on long-term debt ---- 0 (831,796) (831,796)
Issuance of stock, net of expenses 554,192 1,073,674 7,644,980 9,280,562
------------ ------------ ------------- -----------
Net cash provided by financing activities 554,192 1,175,343 8,254,184 9,991,435
------------ ------------ ------------- -----------
Net (decrease) increase in cash, cash equivalents,
and restricted cash 169,657 360,904 3,735,126 4,266,168
Cash, cash equivalents, and restricted cash at
beginning of period 481 170,138 531,042 ----
------------ ------------ ------------- -----------
Cash, cash equivalents, and restricted cash at
end of period $ 170,138 $ 531,042 $4,266,168 $4,266,168
============ ============ ============= ===========
</TABLE>
22
<PAGE>
Semiconductor Laser International Corporation
(A Development Stage Enterprise)
Notes to Financial Statements December 31, 1996
1. Organization
Semiconductor Laser International Corporation (the"Company") was
incorporated in New York State on September 21, 1993 (inception)
to produce high power semiconductor diode laser wafers and bars
("HPDLs"), and to market these products worldwide.
The Company's primary activities since incorporation, as a development
stage enterprise, had been research and development, business and
financial planning, raising capital and constructing and equipping its
manufacturing facility. The Company previously relied on facilities
provided through the Wright Cooperative Research and Development
Agreement (CRDA) with the U.S. Air Force for the development and
quality control testing of its HPDLs. The CRDA expired in September
1996 and was not renewed. The Company has since completed the construction
of its manufacturing facility in Binghamton, New York, where it expects
to conduct all activities.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the period. Actual results could differ from those estimates.
Cash equivalents
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with an initial maturity of
three months or less to be cash equivalents.
Inventory
Inventory is valued at the lower of cost or market. Cost is determined
by the first in, first out (FIFO) method and the cost of finished goods
includes costs to purchase materials and subcontracted labor costs.
Deferred financing costs
Costs incurred in the preparation of the Company's initial public offering
were deferred and offset against the proceeds received from the offering.
Depreciation and amortization
Property, plant and equipment are recorded at cost and depreciated over
the assets' estimated useful lives ranging from three to twenty years.
Depreciation is computed using the straight-line method for financial
reporting and the modified accelerated cost recovery system for income
tax purposes. Expenditures for major renewals and betterments that
extend the useful lives of the property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense
as incurred.
Intangible assets are amortized using the straight-line method over five
years.
Research and development
Research and development costs are expensed as incurred. Included in
research and development expenses are costs related to development of
prototypes of $28,135,$51,013 and $ 2,073,476 for the years ended
December 31, 1994, 1995 and 1996, respectively.
Income taxes
The Company follows the asset and liability approach for deferred income
taxes. This method provides that deferred tax assets and liabilities are
recorded, using currently enacted tax rates, based upon the difference
between the tax bases of assets and liabilities and their carrying
amounts for financial statement purposes. A valuation allowance is
recorded when it is more likely than not that deferred tax assets will
not be realized.
Net loss per share
Net loss per share is computed using the weighted average number of
common shares outstanding and dilutive common share equivalents.
Common shares issued, and options and warrants granted, by the Company
during the twelve months preceding the offering date have been included
in the calculation of common and common equivalent shares outstanding as
if they were outstanding for all periods presented using the treasury
stock method and an initial public offering price of $5.00 per share.
Options and warrants granted prior to the aforementioned twelve-month
period and subsequent to the Company's initial public offering have
been included in the calculation of common and common equivalent shares
outstanding when dilutive.
23
<PAGE>
3. Inventories
Inventories at December 31, 1996 and 1995 consist solely of raw materials
and supplies. Since the Company was in the development stage and had not
yet commenced commercial production, the cost of prototypes, including
the cost of raw materials and subcontracted labor costs, has been charged
to research and development expenses.
4. Property, Plant and Equipment
Building and equipment consists of the following:
December 31,
1995 1996
Property........................ $ 0 $ 174,609
Plant........................... 0 1,680,600
Machinery and equipment......... 151,861 936,208
Furniture and fixtures.......... 8,144 267,262
Automobiles..................... 29,738 76,124
_________ ___________
189,743 $ 3,134,803
Less: accumulated depreciation.. (27,568) (98,874)
__________ ___________
$162,175 $ 3,035,929
========== ===========
Depreciation expense for the years ended December 31,
1994, 1995 and 1996, was $4,463, $23,105 and $71,306, respectively.
During 1996, the Company sold and leased back, under a sale and
leaseback program, machinery and equipment and furniture and fixtures
amounting to approximately $895,000 and expects to sold and leased back,
in 1997, approximately $820,000 of assets included in property, plant
and equipment at December 31,1996 (see Note 11).
5. Deposits and Other Assets
Deposits and other assets consist of the following:
December 31,
1995 1996
Deposits under master lease agreement $ - $ 279,267
Equipment deposit - 342,267
Unamortized service contract costs - 29,895
Other 4,130 4,499
_______ _________
$ 4,130 $ 655,928
======= =========
6. Accrued Royalty Payments
In June 1994, the Company entered into an exclusive licensing agreement
under which it has access to proprietary semiconductor laser device and
manufacturing technology and can manufacture, market and distribute its
products worldwide. The Company's rights under this agreement are for a
period of ten years calling for a running royalty of 0.5% of gross
sales for products utilizing this technology. In each of the final five
years of this agreement, the Company is obligated to pay a minimum annual
royalty of $20,000. Such minimum royalty payments aggregating $100,000
have been reflected in the accompanying financial statements. Royalties
payable under the terms of the agreement are expensed as incurred.
No royalty payments were made during the years ended
December 31, 1994, 1995 and 1996.
7. Accrued expenses and other liabilities
Accrued expenses and other liabilities consist of the following:
December 31,
1995 1996
Accrued payroll and benefits $ 32,690 $ 37,078
Litigation accruals 50,000 -
Accrued financing costs 20,490 -
Professional fees 20,000 46,251
Other accrued expenses 11,151 8,600
_________ ________
$ 134,331 $ 92,199
The Company had been engaged in separate litigation with two companies
which were retained to assist the Company in raising equity. These
litigations were settled during 1996 for an aggregate amount of $60,000.
24
<PAGE>
8. Debt
Long-term debt is comprised of the following:
December 31,
1995 1996
Bank term loan, principal and interest
at prime (8.5% at December 31, 1995)
plus 1% payable monthly through
November 27, 1996 $ 77,909 $ -
Bank term loan, principal and interest
at 10% payable monthly through
December 28, 2000 23,760 19,874
Bank term loan, principal and interest
at 10% (adjustable after December 2001)
payable monthly through December 2006 - 816,000
________ ________
101,669 835,874
Less current portion 8,787 25,948
________ ________
$ 19,882 $809,926
======== ========
Both loans are secured by assets purchased with the proceeds of the
loans. The bank term loan due December 2006 prohibits the Company
from payment of dividends, except from net income accrued after the
date of the loan agreement, and requires that the Company maintain
certain financial ratios and indicators. The Company was in full
compliance with the provisions of this term loan at December 31, 1996.
Aggregate annual principal payments applicable to long-term debt over
the next five years are $162,490.
The Company has available an unused, secured line of credit in the
amount of $1,000,000 for purposes of providing working capital, if
necessary. The line bears interest at prime plus 1.5% on the outstanding
balance and matures December 18, 1997.
9. Income taxes
There was no provision for income taxes for the years ended December 31,
1994, 1995 and 1996.
Deferred income tax assets (liabilities) consisted of the following:
December 31,
1995 1996
Depreciation and amortization $ (1,874) $ (91,190)
Accruals 65,130 39,000
Compensatory Stock Options 102,002 105,453
Net operating loss carryforward 510,112 1,939,035
__________ ___________
675,370 1,992,298
Valuation allowance (675,370) (1,992,298)
___________ ____________
$ - $ -
=========== ============
Net operating loss carry forwards, of approximately $5,100,000, expire in
the years 2008 to 2011. Internal Revenue Code Section 382 places a
limitation on the utilization of Federal net operating loss carry forwards
when an ownership change, as defined by tax law, occurs. Generally,
an ownership change as defined occurs when a greater than
50 percent change in ownership takes place. The annual utilization
of net operating loss carryforward generated prior to such changes
in ownership will be limited, in any one year, to a percentage of
fair market value of the Company at the time of the ownership change.
A valuation allowance is recorded when it is more likely than not that
deferred taxes will not be realized. Because the Company is still in the
development stage and future income is uncertain, management has
determined that a valuation allowance against all deferred tax assets
is necessary at December 31, 1995 and 1996.
25
<PAGE>
<TABLE>
<CAPTION>
10. Common Stock
Options
The following summarizes stock option activity:
Exercise
Number of Price per
Shares share Expiration Date
<S> <C> <C> <C>
Outstanding at Dec. 31, 1993 and 1994 1,971 $ .25 October 1998
Granted in Nov. 1995, to officers 68,957 $ .05 November 1999
Granted in Nov. 1995, to Directors in
exchange for services 19,702 $ .05 November 1999
Granted under Employee
Stock Option Plan 11,000 $5.00 November 2005
_______
Outstanding at Dec. 31, 1995 101,630 $ .05-$5.00
Granted under Employee
Stock Option Plan 93,000 $5.00-$9.25 May-Dec.2006
Options exercised (1,971) $ .25
_______
Outstanding at Dec. 31, 1996 192,659 $ .05-$9.25
=======
</TABLE>
1,971, 90,630 and 182,159 options were exercisable at December 31, 1994,
1995 and 1996, respectively, at a weighted average exercise price of
$0.25, $0.25 and $3.02, respectively.
On November 20, 1995, the Board of Directors canceled options for 88,659
shares with an exercise price of $2.54 and options for an equal amount of
shares were issued at an exercise price of $.05 per share and an
expiration date of November 19, 1999. Non-cash compensation expense of
$261,544 was recognized related to such options.
On October 23, 1995, the Board of Directors adopted the Company's 1995
Employee Stock Option Plan (the "Plan") which provides for the granting
of options and stock awards for up to 250,000 shares of the Company's
Common Stock. Awards under the plan are discretionary and are administered
by a committee of the Board of Directors. The exercise price of the
options shall not be less than the fair market value at the date of the
grant. Options granted under the plan vest over varying periods after
the date of the grant and expire ten years after the date of the grant.
During 1996 the Company granted options to purchase 93,000 shares under
the Plan, including 36,000 options to executive officers of the Company.
Of the 93,000 options granted, 37,000 are subject to the approval of the
Board of Directors. Such options have exercise prices ranging from $5.00
to $9.25, vesting periods through December 1999 and expire in the year
2006.
As permitted by Statement of Financial Accounting Standards ("SFAS")
No. 123, the Company continues to account for options in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, and its related interpretations. Had the compensation
cost for the options issued in 1996 to officers and employees been
determined based upon the fair value at the grant date in accordance
with methodology prescribed under SFAS No. 123, the Company's net loss
would have increased by approximately $263,000 (or $.09 per share)
in 1996 and approximately $14,000 (or $.01 per share) in 1995.
The weighted average fair value of the options granted in 1996 and 1995
was estimated at $2.77 and $2.83, respectively, on the dates of grant,
using the Black-Sholes option pricing model which included the
following assumptions stated on a weighted average basis:
1995 1996
____ ____
Dividend Yield 0% 0%
Volatility 55.32% 54.08%
Risk Free Interest Rate 5.7 % 6.14%
Expected Life 5 years 3.7 years
Warrants
Warrants were issued in connection with common stock issued at various
times from December 1994 through April 1995. Each warrant entitled the
holder to purchase one share of common stock for $2.94 per share.
Warrants were issued in connection with the Company's initial public
offering in March 1996. Also, in July 1996, the underwriter of the
Company's initial public offering exercised it's overallotment option to
purchase an additional 255,000 warrants. Of the 1,955,000 warrants issued,
1,948,000 were outstanding at December 31, 1996.
On January 3, 1997, the Company issued 58,384 warrants in connection with
an operating lease agreement (see Note 11). The warrants cannot be
exercised prior to February 1997 and entitle the warrant holder to
purchase an equal amount of common stock at $5.00 per share. The value
of such warrants, as determined by the market price at time of issue,
has been reflected in the financial statements as an other asset and
additional paid in capital in the amount of $167,710.
On June 13, 1996, the Company notified holders of warrants issued in a
December 1994 private placement of the Company's common stock and
warrants (the private placement), of its intent to exercise its right
to redeem warrants issued in that private placement if such warrants
were not exercised prior to July 15, 1996. As a result, the holders of
101,983 Warrants exercised their right to purchase a like amount of
shares of the Company's common stock at an exercise price of $2.94 per
share on July 15, 1996. The Company redeemed the remaining 13,844
warrants at a redemption price of $0.26 per warrant.
26
<PAGE>
Bridge Financing
On January 18, 1996 the Company completed a private offering of fifteen
units (the "Bridge Financing"), each unit consisting of a note
(bearing interest at 9%) in the principal amount of $50,000 and 10,000
shares of common stock, at a price of $50,000 per unit. The principal
amount of the notes was due and payable on the earlier of the
consummation of a public offering or January 18, 1997. The Company
realized net proceeds from the Bridge Financing of approximately
$625,000, which net proceeds were allocated between the notes
and shares included in the Bridge Financing based on their relative
fair values at the date of such Bridge Financing. The $295,000 portion
of the Bridge Financing's gross proceeds which were allocated to the
shares (the "loan discount") and the $75,000 portion of the Bridge
Financing's offering costs which were allocated to the notes
(the "deferred financing costs") were being amortized commencing
January 18, 1996. Upon early retirement of the notes, the Company
recognized an extraordinary loss of $305,301 representing the
unamortized loan discount and deferred financing costs.
Initial Public Offering
On March 19, 1996 the Company sold 1,700,000 shares of common stock at
$5.00 per share and 1,700,000 warrants to purchase 1,700,000 shares of
common stock at $.10 per warrant through an initial public offering
(the "offering") and realized net proceeds from the offering of
$7,078,995, a portion of which was used to repay the notes from the
Bridge Financing.
On April 3, 1996, the underwriter of the Company's offering notified the
Company of its intent to exercise, in part, its over-allotment option to
purchase shares of the Company's common stock. As a result, the Company
issued and sold an additional 55,000 shares of its common stock at the
initial public offering price of $5.00 per share. The net proceeds to
the Company, after expenses and underwriting discounts and commissions,
were approximately $234,800. The option has since lapsed as to its
unexercised portion.
Treasury Stock
The Company holds 35,463 shares of its common stock in treasury. The
treasury shares are the result of a return of shares to the Company
by a stockholder who had received the shares as compensation for services
provided in 1995. The shares have been valued at their fair market
value of $248,241 on the date of contribution and have been included in
the accompanying financial statements as Treasury Stock and as a
reduction in general and administrative expenses.
11. Commitments and Contingencies
Operating Leases
In October 1996, the Company entered into a master equipment lease
agreement with FINOVA Technology Finance, Inc. ("FINOVA"). The agreement
provides for the sale and ultimate leaseback by the Company of up to
$3,500,000 of equipment, furnishings and fixtures. As part of the
consideration for the agreement, the Company issued a warrant certificate
for 58,334 warrants entitling FINOVA to purchase a corresponding number
of shares of the Company's common stock at $5.00 per share. The warrants
cannot be assigned, sold, transferred or otherwise disposed of prior to
February 27, 1998. The warrants are currently exercisable. The warrants
have been valued at $167,710, the fair market value of the Company's
warrants at the date of issuance and such value is being amortized over
the term of the lease.
Rent expense under noncancellable operating leases was $25,563 for
the year ended December 31, 1996.
The Company had previously leased its office facility and furniture under
an operating lease on a month to month basis. Rent expense related to
those leases for the years ended December 31, 1994, 1995 and 1996 was
$4,800, $4,780 and $42,755, respectively.
Future minimum payments under noncancellable operating leases, including
the Finova lease agreement, at December 31,1996, are as follows:
Year Ending
December 31,
1997 $ 263,940
1998 263,940
1999 263,940
2000 263,940
__________
$1,055,760
==========
27
<PAGE>
Litigation
The Company is currently engaged in a dispute with a director and former
officer of the Company involving the employment termination of the former
officer for cause. The former officer is challenging the termination
under an employment agreement entered into in 1995 and seeking damages
in the aggregate of $500,000. The dispute is currently part of an
arbitration proceeding. The Company believes the termination was proper
and that no amount should be awarded to the former officer. Subsequent
to the commencement of the arbitration, the Company brought an action
against the former officer in the New York Supreme Court (Broome County)
alleging violations by the former officer of his obligations under the
terms of a non-disclosure agreement. The court has issued a temporary
restraining order barring the former officer from making any disclosure or
using confidential information or trade secrets, which remains in effect.
The Company believes it will prevail with respect to the enforcement of
the former officer's non-disclosure obligations.
Agreements
Northwestern License Agreement
The Company entered into a licensing agreement with Northwestern
University (the "Northwestern License") on September 1, 1996. The
Northwestern license is for the exclusive rights to produce, market and
sell aluminum free HPDLs worldwide using certain patents and know how,
as defined in the Northwestern license, owned by Northwestern University.
Under the terms of the Northwestern license, the rights expire upon the
expiration of the patents or ten years from the date of the first
commercial sale in countries where no patent rights exist. The Company
also has the right to terminate the Northwestern license after three years.
Northwestern University has the right to terminate the Northwestern license
after three years if the Company does not have products, based on the
technology, available for sale.
In consideration for the Northwestern license, the Company has committed
to pay Northwestern University a non-refundable license fee of $21,000
plus $10,000 of the Company's unregistered common stock (1,231 shares).
In addition, the Company will issue 1,500 shares of unregistered common
stock, valued at $12,188 as of the date of the Northwestern license,
one year from the date of the agreement. These amounts are reflected as
research and development expense as of December 31, 1996. Royalties are
also required for sales derived from this technology and are based on net
sales volume on a sliding scale from 4% to 1%.
In November 1996, the Company entered into an agreement with a Professor
at Northwestern University for services as an advisor to transfer the
aluminum free technology to the Company for commercial production. In
consideration for the agreement, the Company has committed to issue
120,000 shares of the Company's unregistered common stock to the
Professor. The fair market value of the Company's unregistered common
stock granted, as of the date of the agreement, was $1,050,000 and has
been included in the accompanying financial statements as common stock
issuable at December 31, 1996 and research and development expenses.
28
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
29
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Information called for by Item 9 will be set forth under the heading
"Election of Directors" in the Company's 1997 definitive Proxy Statement,
to be completed prior to April 30, 1997, which is incorporated herein by
this reference.
Item 10. Executive Compensation
Information called for by Item 10 will be set forth under the heading
"Executive Compensation" in the Company's 1997 definitive Proxy Statement,
to be completed prior to April 30, 1997, which is incorporated herein by
this reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information called for by Item 11 will be set forth under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's 1997 definitive Proxy Statement, to be completed prior to
April 30, 1997, which is incorporated herein by this reference.
Item 12. Certain Relationships and Related Transactions
Information called for by Item 12 will be set forth under the heading
"Certain Relationships and Related Transactions" in the Company's 1997
definitive Proxy Statement, to be completed prior to April 30, 1997,
which is incorporated herein by this reference.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits.
3.2 By-Laws of the Company.(1)
4.1 Form of Underwriter's Warrant Agreement, dated as of March 19, 1996,
between the Company and Whale Securities Co., L.P.(1)
4.2 Form of Warrant Agreement dated as of March 19, 1996, among the
Company, Whale Securities Co., L.P. and American Stock Transfer &
Trust Company.(1)
4.3 Warrant, dated January 3, 1997, between the Company and Finova
Technology Finance, Inc.
10.1 License Agreement, dated June 3, 1994, by and between the Company and
the Air Force. (1)
10.2 CRDA, dated January 19, 1994 between the Company and Wright
Laboratories of the Air Force.(1).
10.3 Amendment, effective January 19, 1994 to CRDA between the Company
and Wright Laboratories of the Air Force.(1)
10.4 CRDA, dated May 1995, between the Company and Rome Laboratory of the
Air Force.(1)
10.5 Employment Agreement, dated as of October 1, 1995 between the
Company and Geoffrey T. Burnham.(1)
10.6 Employment Agreement, dated as of October 1, 1995 between the
Company and Susan M. Burnham.(1)
10.7 Employment Agreement, dated as of October 1, 1995, by and between
the Company and Theodore W. Konopelski.(1)
10.8 Consulting Agreement, dated November 10, 1995, by and between the
Company and George W. Barrett. (1)
10.9 1995 Stock Option Plan of the Company.(1)
10.10 Real Property Lease, dated as of August 23, 1995, by and between
Manufacturers and Traders Trust Company and the Company. (1)
10.11 Form of Private Warrants (1)
10.12 Form of Consulting Agreement between the Company and Whale
Securities Co., L.P.. (1)
10.13 Master Equipment Lease Agreement with Finova.
10.14 Northwestern License.
11.1 Statement re: computation of per share earnings
21.1 Subsidiaries of the Company
- ----------
(1) Incorporated by reference to Registrant's Registration Statement on
form S-1 (Reg. No. 333-754) which was declared effective by the Securities
and Exchange Commission on March 19, 1996.
(b) Reports on Form 8-K
None.
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SEMICONDUCTOR LASER INTERNATIONAL
CORPORATION
/s/ Geoffrey T. Burnham
March 27, 1997 By:______________________________
Geoffrey T. Burnham, Chairman of
the Board, President and Chief
Executive Officer (principal executive
officer)
In accordance with the requirements of the Exchange Act, this Report
has been signed by the following persons in the capacities and on the
dates stated.
Signature Title Date
/s/ Geoffrey T. Burnham
- ----------------------------- Chairman of the Board, President
Geoffrey T. Burnham and Chief Executive Officer
(principal executive officer) March 27, 1997
/s/ Susan M. Burnham
- ----------------------------- Vice President, Treasurer
Susan M. Burnham and Director March 27, 1997
/s/ Nicholas L. Prioletti, Jr.
- ----------------------------- Chief Financial Officer
Nicholas L. Prioletti, Jr. (principal financial and
accounting officer) March 27, 1997
/s/ David L. Koffman
- ---------------------
David L. Koffman Director March 27, 1997
/s/ Brian J. Thompson
- ---------------------
Brian J. Thompson Director March 27, 1997
- ---------------------
George W. Barrett Director March , 1997
- ---------------------
Theodore W. Konopelski Director March , 1997
31
<PAGE>
[TYPE] EX-4.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR
QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR QUALIFICATION OR AN EXEMPTION THEREFROM UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY SUCH STATE LAWS WHICH MAY BE
APPLICABLE AND ARE TRANSFERABLE ONLY UPON THE CONDITIONS SPECIFIED IN THIS
WARRANT CERTIFICATE.
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
WARRANT CERTIFICATE
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
January 3, 1997
Void after 5:00 p.m. Eastern Standard Time on March 19, 2000
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION, a New York corporation
(the "Company"), hereby certifies that, for value received, FINOVA
TECHNOLOGY FINANCE, INC., a Delaware corporation ("Finova"), or permitted
registered assigns is the registered owner of 58,334 subject to full
compliance by Finova with the terms of the Master Equipment Lease Agreement
dated October 7, 1996 and the Commitment Letter to the Company from Finova
dated September 26, 1996 and accepted by the Company on September 27, 1996
(the "Agreement") or, if Finova shall fail to aquire all equipment under
the Agreement despite compliance by the Company with the terms thereof the
number of warrants shall be the product resulting from multiplying 58,334
by a fraction, the numerator of which is the cost of equipment leased to
the Company under the Agreement and the denominator of which is $3,500,000
(the Warrants"). Each Warrant entitles the registered holder to purchase
one share, as adjusted from time to time as provided herein, of the common
stock of the company, par value $0.01 per share (the "Common Stock"; each
such share being a "Warrant Share" and all such shares being the "Warrant
Shares")at the exercise price of Five and no/100 ($5.00) dollars per share
(as adjusted from time to time as provided herein (the "Exercise Price"),
commencing on February 27, 1997 (the "Exercise Date"), and expiring on or
before 5:00 p.m. Eastern Standard Time on March 19, 2000 ( the "Expiration
Date"), all subject to the following term and conditions:
Section 1. Registration. The Company shall register each Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record holder of such Warrant from time
to time. The Company may deem and treat the registered holder of each
Warrant as the absolute owner thereof for the purpose of any exercise
thereof or any distribution to the holder thereof, and for all other
purposes. The Company shall not at any time close the Warrant Register
so as to result in preventing or delaying the exercise or transfer of
the Warrants.
Section 2. Registration of Transfers; Issuance of New Warrant
Certification.
2.1 Registration of Transfers. Prior to February 27, 1998, Finova shall
not assign, sell, transfer or otherwise dispose of any of the Warrants
other than to an individual or entity controlling, controlled by or
under common control with Finova ("Affiliate"). After February 27, 1998,
the Company, shall register the transfer of any Warrants in the Warrant
Register, so long as either a registration statement under the Securities
Act of 1933, as amended, is effective with respect thereto or such
transaction is exempt from registration, upon surrender of this Warrant
Certificate, with the Form of Assignment attached hereto as Annex A duly
filled in and executed, to the Company at the office of the Company
specified in or pursuant to Section 10. Upon any such registration of
transfer, a new Warrant Certificate, in substantially the form of this
Warrant Certificate, evidencing the Warrants so transferred shall be
issued to the transferee and a new Warrant Certificate, in similar form,
evidencing the remaining Warrants not so transferred, if any, shall be
issued to the then registered holder thereof.
2.2 Issuance of New Warrant Certificates. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant Certificate and (i) in the case of any
such loss, theft or destruction upon delivery of indemnity, if requested,
satisfactory to the Company in form and amount and (ii) in the case of
any such mutilation, upon surrender of this Warrant Certificate for
cancellation at the office of the Company at which the Warrant
Register is kept, the Company, at its expense, will execute and deliver,
in lieu thereof, a new Warrant Certificate representing the right to
purchase at the Exercise Price then in effect a like aggregate number
of Warrant Shares.
Section 3. Exercise of Warrant; Issuance of Exercise Shares.
3.1 Exercise of Warrant. Subject to the provisions of this Warrant
Certificate, including adjustments to the number of Warrant Shares
issuable on the exercise of each Warrant and to the Exercise Price
pursuant to Section 6, the registered holder of each Warrant shall have
the right, commencing on the Exercise Date until on or prior to the
Expiration Date, to purchase from the company, and the Company shall
be obligated to issue and sell to such holder of a Warrant, at the
Exercise Price one fully paid Warrant Share; provided, however, that
by exercising any Warrants at any time and from time to time prior to
or on February 27, 1998, Finova (i) agrees not to assign, sell, transfer
or otherwise dispose of any Warrant Shares thus acquired until after
February 27, 1998 to any individual or entity other than an Affiliate and
(ii) agrees that appropriate legends may be placed on and stop transfer
notations maintained against the certificate evidencing such Warrant
Shares to that effect. The Warrants and all rights hereunder shall
expire on the Expiration Date and shall be wholly null and void to the
extent the Warrants are not exercised before it expires.
3.2 Issuance of Warrant Shares.
(a) Subject to Sections 4 and 8, upon (i) surrender of this Warrant
Certificate, with the form of Election to Purchase attached hereto as
Annex B duly filled in and executed, to the Company at the office of the
Company specified in or pursuant to Section 10, or at such other address
as the Company may specify in writing to the then registered holder of
the Warrants, and (ii) payment of the Exercise Price multiplied by the
number of Warrant Shares then issuable upon exercise of the Warrants
being exercised in lawful money of the United States of America, all
as specified by the registered holder of this Warrant Certificate in
the Form of Election to Purchase, the Company shall promptly issue and
cause to be delivered to or upon the written order of the registered
holder of such Warrants, and in such name or names as such registered
holder may designate, a certificate for the Warrant Shares issued upon
such exercise of such Warrants; subject to the proviso set forth in the
first sentence of Section 3.1. Any person so designated to be named
therein shall be deemed to have become the holder of record of such
Warrant Shares as of the Date of Exercise of such Warrants.
The "Date of Exercise" of any Warrant means the date on which the
Company shall have received (i) this Warrant Certificate, with the
Form of Election to Purchase appropriately filled in and executed,
and (ii) payment of the Exercise Price for such Warrant.
(b) The Warrants evidenced by this Warrant Certificate shall be
exercisable either as an entirety or, from time to time, for part only
of the number of Warrants evidenced hereby. If fewer than all of the
Warrants evidenced by this Warrant Certificate are exercised at any
time, the Company shall issue, at its expense, a new Warrant Certificate,
in substantially the form of this Warrant Certificate, for the remaining
number of Warrants evidenced by this Warrant Certificate.
(c) the Warrants may only be exercised to purchase full shares of
Common Stock and the Company shall not be required to issue fractions
of shares of Common Stock on the exercise of Warrants. However, if
the registered holder of Warrants exercises all the Warrants and such
exercise would result in the issuance of a fractional share, the Company
will pay to such registered holder, in lieu of the issuance of any
fractional share otherwise issuable, an amount of cash based on the
market value of the Common Stock of the Company on the last trading
day prior to the exercise date.
Section 4. Payment of Taxes. The Company will pay any documentary
stamp taxes attributable to the initial issuance of Warrant Shares
issuable upon the exercise of Warrants; provided, however, that the
Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of any
certificates of Warrant Shares in a name other than that of the
registered holder of the Warrants in respect of which such Warrant
Shares are issued, and in such case the Company shall not be required
to issue or deliver any certificate for Warrant Shares or any Warrant
Certificates until the person requesting the same has paid to the
Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid or that such person has an
exemption from the payment of such tax.
Section 5. Reservation and Issuance of Warrant Shares.
5.1 Reservation of Warrant Shares. The Company agrees and covenants
that at all times prior to the Expiration Date it will have authorized,
and hold in reserve and keep available, free from preemptive rights,
for the purpose of enabling it to satisfy any obligation to issue
Warrant Shares upon the exercise of the Warrants, the number of Warrant
shares deliverable upon full exercise of the Warrants.
5.2 Issuance of Warrant Shares. The Company agrees and covenants that
all Warrant Shares issuable upon issuance in accordance with the terms
of this Warrant Certificate will be duly authorized, validly issued,
fully paid and non-assessable and free and clear of all taxes or other
governmental charges with respect to the issuance thereof and from all
liens, charges and security interests created by the Company.
Section 6. Adjustments of Exercise Price.
The Exercise Price shall be subject to adjustment from time to time
as follows:
(i) In case the Company shall at any time after the date hereof pay
a dividend in shares of Common Stock or make a distribution in shares of
Common Stock, then upon such dividend or distribution the Exercise Price
in effect immediately prior to such dividend or distribution shall
forthwith be reduced to a price determined by dividing:
(A) an amount equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution
multiplied by the Exercise Price in effect immediately prior to such
dividend or distribution, by
(B) The total number of shares of common Stock outstanding immediately
after such dividend or distribution.
For the purposes of any computation to be made in accordance with the
provisions of this clause (i), the following provisions shall be
applicable: Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the date following
the date fixed for the determination of stockholders entitled to receive
such dividend or other distribution.
(ii) In case the Company shall at any time split or subdivide or
combine the outstanding Common Stock, the Exercise Price shall forthwith
be proportionately decreased in the case of split or subdivision or
increased in the case of combination to the nearest one cent. Any such
Adjustment shall become effective at the time such subdivision or
combination shall become effective.
(iii) Within a reasonable time after the close of each quarterly fiscal
period of the Company during which the Exercise Price has been adjusted,
the Company shall provide the registered holder with notice showing in
detail the facts requiring all such adjustments occurring during such
period and the Exercise Price after each such adjustment; provided
that failure to give any such notice shall not affect the validity of
any such adjustment.
(iv) Notwithstanding anything contained herein to the contrary, no
adjustment of the Exercise Price shall be made if the amount of such
adjustment shall be less than $.05, but in such case any adjustment that
would otherwise be required then to be made shall be carried forward and
shall be made at the time and together with the next subsequent, if any,
adjustment which, together with any adjustment so carried forward, shall
amount to not less than $.05.
(v) In the event that the number of outstanding shares of Common Stock
is increased by a stock dividend payable in Common Stock or by a
subdivision of the outstanding Common Stock, then, from and after the
time at which the adjusted Exercise Price becomes effective pursuant
to this Section 6 by reason of such dividend or subdivision, the number
of Warrant Shares issuable upon the exercise of each Warrant shall be
increased in proportion to such increase in outstanding shares. In the
event that the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding Common Stock, then,
from and after the time at which the adjusted Exercise Price becomes
effective pursuant to this Section 6 by reason of such combination,
the number of Warrant Shares issuable upon the exercise of each Warrant
shall be decreased in proportion to such decrease in the outstanding
shares of Common Stock.
(vi) In case of any reorganization or reclassification of the
outstanding Common stock (other than a change in par value, or from par
value to no par value, or as a result of a subdivision or combination),
or in case of any consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger
in which the Company is the continuing corporation and which does not
result in any reclassification of the outstanding Common Stock), or in
case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, the registered
holder of the Warrants shall thereafter have the right to purchase the
kind and amount of shares of Common stock and other securities and
property receivable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance by a holder of the number
of shares of Common Stock which the registered holder of the Warrants
shall then be entitled to purchase; such adjustments shall apply with
respect to all such changes occurring between the date of this Warrant
Agreement and the date of exercise of such Warrant.
(vii) Subject to the provisions of this Section 6, in case the Company
shall, at any time prior to the exercise of the Warrants, make any
distribution of its assets to holders of its Common Stock as a
liquidating or a partial liquidating dividend, then if the
registered holder of the Warrants who exercises the Warrants after the
record date for the determination of those holders of Common Stock
entitled to such distribution of assets as a liquidating or partial
liquidating dividend shall be entitled to receive for a Exercise Price
per Warrant, in addition to each share of Common Stock, the amount of
such distribution (or, at the option of the Company, a sum equal to the
value of any such assets at the time of such distribution as determined
by the Board of Directors of the Company in good faith), which would have
been payable to the registered holder of the Warrants had it been the
holder of record of the Common Stock receivable upon exercise of the
Warrants on the record date for the determination of those entitled
to such distribution.
(viii) In case of the dissolution, liquidation or winding up of the
Company, all rights under this Warrant Certificate shall terminate on
a date fixed by the Company, such date to be no earlier than ten (10)
days prior to the effectiveness of such dissolution, liquidation or
winding up and not later than five (5) days prior to such effectiveness.
Notice of such termination of purchase rights shall be given to the
registered holder of this Warrant, at least thirty (30) days prior to
such termination date.
(ix) In case the Company shall, at any time prior to the expiration of
the Warrants and prior to the exercise thereof, offer to the holders of
its Common Stock any rights to subscribe for additional shares of any
class of the Company, then the Company shall give written notice thereof
to the registered holder of this Warrant not less than thirty (30) days
prior to the date on which the books of the Company are closed or a
record date is fixed for the determination of the stockholders
entitled to such subscription rights. Such notice shall specify the
date as to which the books shall be closed or record date fixed with
respect to such offer of subscription and the right of the registered
holder of this Warrant to participate in such offer of subscription
shall terminate if the Warrants shall not be exercised on or before
the date of such closing of the books or such record date.
(x) Any adjustment pursuant to the aforesaid provisions shall be made
on the basis of the number of shares of Common stock which the registered
holder of the Warrants would have been entitled to acquire by the
exercise of the Warrants immediately prior to the event giving rise
to such adjustment.
(xi) Irrespective of any adjustments in the Exercise price or the number
or kind of Warrant Shares purchasable upon exercise of the Warrants,
Exercise Warrant Certificates thereafter entered into may continue
to express the same price and number and kind of shares as are stated
in this Warrant Certificate.
(xii) The Company may retain a firm of independent public accountants
(who may be any such firm regularly employed by the Company) to make
any computation required under this Section 6, and any certificate
setting forth such computation signed by such firm shall be conclusive
evidence of the correctness of any computation made under this Section 6.
(xiii) If at any time, as a result of an adjustment made pursuant to
paragraph (vi) above, the registered holder of Warrants shall become
entitled to purchase any securities other than shares of Common Stock,
thereafter the number of such securities so purchasable upon exercise
of each Warrant and the Exercise Price for such shares shall be subject
to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common
Stock contained in paragraphs (i), (ii) and (v) above.
Section 7. Warrant holder not Deemed Stockholder. The registered holder
of Warrants, as such, shall not be entitled to vote or to receive
dividends or be deemed the holder of Common Stock that may at any time
be issuable upon exercise of the Warrants for any purpose whatsoever,
nor shall anything contained herein be construed to confer upon the
registered holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or
to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or
conveyance or otherwise), or to receive notice of meetings, or to
receive dividends or subscription rights, until the registered holder
of Warrants shall have exercised the Warrants and been issued shares of
Common Stock in accordance with the provisions hereof.
Section 8. Registration of Warrant Shares.
(a) Neither the Warrants nor the Warrant Shares have been registered
under the Securities Act of 1933, as amended (such Act, or any similar
Federal statute then in effect, being the "Securities Act").
(b) The registered holder of this Warrant Certificate, by acceptance
hereof, represents that it is acquiring the Warrants to be issued to it
for its own account and not with a view to the distribution thereof,
and agrees not to sell, transfer, pledge or hypothecate any Warrants
or any Warrant Shares unless a registration statement is effective for
such Warrants or Warrant Shares under the Securities Act or in the
opinion of such holder's counsel (a copy of which opinion shall be
delivered to the Company) such transaction is exempt from the
registration requirements of the Securities Act; provided that Warrants
and Warrant shares issued to such holder may be transferred to any
Affiliate of such holder, without any such registration or opinion,
subject to the foregoing restriction on any further sale, transfer,
pledge or hypothecation by such affiliate.
(c) The Company will use its best efforts to comply with (i) the
reporting requirements of Sections 13 and 15(d) of the securities
Exchange Act of 1934 (whether or not the Company is required to do
so pursuant to such Sections) and (ii) all other reporting requirements
of the Securities and Exchange Commission (such Commission or any
successor to any or all of its functions being "Commission") from
time to time in effect and relating to the availability of an exemption
from the Securities Act for sale of restricted securities (including,
without limitation, Rule 144 promulgated by the Commission under the
Securities Act). The Company also will cooperate with the registered
holder of this Warrant Certificate and with each registered holder of
any Warrant Shares in supplying such information as may be necessary for
any such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of
restricted securities.
Section 9. One Time Only Demand Registration Right.
(a) Making the Demand. On one occasion only at such time after
February 27, 1998 when one or more registered holders of Warrants or
Warrant Shares shall make a written request to the Company to register
under the Securities Act, in the aggregate, not less than 29,168 Warrant
Shares either issuable upon exercise of such Warrants or held by such
holder or holders, the Company within ninety days after such request is
effective shall promptly give written notice of such request (the
"Requesting Holders"), such notice stating the estimated approximate date
of filing such registration statement, and shall there-upon promptly use
its best efforts (i) to register the Warrant Shares of or pertaining to the
holder or holders making such request and each other holder of Warrants or
Warrant Shares from whom written request for registration is effective or
received on or before the later to occur of (A) the twentieth day after
the effective date of such notice by the Company and (B) the thirtieth day
prior to the estimated date of filing specified in such notice, and to (ii)
to keep such registration in effect a minimum of ninety days. Subject to
clause (c) below, the Company may include in such registration other
securities for sale for its own account or for the account of any other
person.
(b) Selection of Underwriters. If the requested registration pursuant
to this subsection 9.1 involves an underwritten offering, the
underwriter thereof shall be selected by the Company.
(c) Priority in Demand Registrations. If the requested registration
pursuant to this subsection 9.1 involves an underwritten offering, and
the managing underwriter shall advise the Company in writing (with a
copy to each holder of Warrant Shares requesting registration) that, in
its opinion, the number of securities requested to be included in such
registration (including securities of the Company which are not Warrant
Shares exceeds the number which can be sold in such offering, the
Company will include in such registration to the extent of the number
of which the Company is so advised can be sold in such offering (i)
first, Warrant Shares requested to be included in such registration by
the Requesting Holders, pro rata among such securities requested to be
included by such Holders, (ii) second, other Warrant Shares requested to
be included in such registration, pro rata among the holders thereof
requesting such registration on the basis of the number of shares of
such securities requested to be included by such holders, and (iii)
third, other securities of the Company proposed to be included in such
registration, in accordance with the priorities, if any, then existing
among the Company and the holders of such other securities.
9.2 Registration Procedures. In connection with the registration
pursuant to this Section 9, the Company will:
(a) prepare and (within sixty days after the end of the period within
which requests for registration may be given to the Company or in any
event as soon thereafter as possible) file with the Commission the
requisite registration statement to effect such registration and use its
best efforts to cause such registration statement to become effective,
provided, however, that the Company may discontinue any registration of
its securities which are not Warrant Shares at any time prior to the
effective date of the registration statement relating thereto;
(b) prepare and file with the commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a minimum of ninety days and to comply with
the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement; provided
that if less than all the Warrant shares are withdrawn from registration
after the expiration of such period, the shares to be so withdrawn
shall be allocated pro rata among the holders thereof on the basis of
the respective numbers of Warrant Shares held by them included in such
registration;
(c) furnish to each seller of Warrant Shares covered by such
registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller may reasonably request;
(d) use its best efforts to register or qualify all Warrant Shares and
other securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller thereof
shall reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and
take any other action which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of
the securities owned by such seller;
(e) use its best efforts to cause all Warrant Shares covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Warrant
Shares;
(f) furnish to each seller of Warrant Shares a signed counterpart,
addressed to such seller (and the underwriters, if any), of
(i) an opinion of counsel for the Company, dated the effective date of
such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), reasonably satisfactory in form and substance
to such seller, and
(ii) a "comfort" letter, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have
certified the Company's financial statements included in such
registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with respect
to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in accordance with
public offerings of securities and, in the case of the accountants'
letter, such other financial matters, such as seller (or the
underwriters, if any) may reasonably request;
(g) notify each seller of Warrant Shares covered by such registration
statement, at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and at the request of
any such seller promptly prepare and furnish to such seller a reasonable
number of copies of a supplement to or amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchasers of
such securities, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not mis-
leading in the light of the circumstances under which they were made;
(h) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11 (a) of the
Securities Act, and not file any amendment or supplement to such
registration statement or prospectus to which any such seller shall
have reasonably objected on the grounds that such amendment or supple-
ment does not comply in all material respects with the requirements
of the Securities Act or of the rules or regulations thereunder, having
been furnished with a copy thereof at least five business days prior to
the filing thereof;
(i) provide a transfer agent and registrar for all Warrant Shares
covered by such registration statement not later than the effective date
of such registration statement; and
(j) use its best efforts to list all Common Stock covered by such
registration statement on any securities exchange on which any of the
Common Stock is then listed.
The Company may require each seller of Warrant Shares as to which the
registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing.
Each holder of the Warrant Shares agrees by acquisition of such Warrant
Shares that upon receipt of any notice from the Company of the happening
of any event of the Kind described in clause (g) of this subsection 9.2,
such holder will forthwith discontinue such holder's disposition of
Warrant Shares pursuant to the registration statement relating to such
Warrant Shares until such holder's receipt of the copies of the supple-
mented or amended prospectus contemplated by clause (g) of this sub-
section 9.2, and, if so directed by the Company, will deliver to the
Company at the Company's expense) all copies, other than permanent file
copies, then in such holder's possession of the prospectus relating to
such Warrant Shares current at the time of receipt of such notice. In
the event the Company shall give any such notice, the period referred to
in clause (b) of this subsection 9.2 shall be extended by a number of
days equal to the number of days during the period from and including
the giving of notice pursuant to clause (g) of this subsection 9.2 to
and including the date when each seller of any Warrant Shares covered
by such registration statement shall have received the copies or the
supplemented or amended prospectus contemplated by clause (g)of this
subsection 9.2.
9.3 Underwritten Offering.
(a) Demand Underwritten Offering. If requested by the underwriters
for an underwritten offering by holders of Warrant Shares pursuant to
the registration requested under subsection 9.1, the Company will enter
into an underwriting agreement with such underwriters for such offering,
such agreement to be satisfactory in substance and form to each holder
and the underwriters and to contain such representations and warranties
by the Company and such other terms as are customarily contained in
agreements of this type, including, without limitation, indemnities to
the effect and to the extend provided in subsection 9.5. The holders of
Warrant Shares to be distributed by such underwriters shall be parties to
such underwriting agreement and may, at their option, require that any
or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders
of Warrant shares and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement
be conditions precedent to the obligations of such holders of Warrant
Shares. No holder of Warrant Shares shall be required to make any
representations or warranties to or agreements with the company or
the underwriters other than representations, warranties or agreements
regarding such holder and such holder's intended method of distribution
and any other representation required by law.
(b) Hold back Agreements.
(i) Each holder of Warrant Shares agrees by acquisition of such Warrant
Shares, if so required by the managing underwriter, not to effect any
public sale or distribution of such securities, during the 7 days prior
to and the 90 days after an underwritten registration pursuant to this
Section 9 has become effective or, if the managing underwriter advises
the Company in writing that, in its opinion, no such public sale or
distribution should be effected for a specific period longer than 90 days
after such underwritten registration in order to complete the sale and
distribution of securities included in such registration and the Company
gives notice to such holder of Warrant Shares of such advice, during a
reasonable longer period after such underwritten registration, except
as part of such underwritten registration, whether or not such holder
participates in such registration.
(ii) The Company agrees (A) not to effect any public sale or
distribution of its equity securities or securities convertible into
or exchangeable or exercisable for any of such securities during the
7 days prior to and the 90 days after any underwritten registration
pursuant to this Section 9 has become effective, except as part of such
underwritten registration and except pursuant to registrations on Form
S-8 or any successor or similar form thereto, and (B) to cause each
holder of its equity securities or any securities convertible into or
exchangeable or exercisable for any of such securities, in each case
purchased from the Company at any time after the date of this Warrant
(other than in a public offering) to agree not to effect any such public
sale or distribution of such securities, during such period or, in either
case, if the managing underwriter advises the Company in writing that,
in its opinion, no such public sale or distribution should be effected
for a specified period longer than 90 days after such underwritten
registration in order to complete the sale and distribution of
securities included in such registration, during a reasonable longer
period after such underwritten registration, except as part of such
underwritten registration.
9.4 Preparation; Reasonable Investigation. In connection with the
preparation and filing of the registration statement under the
Securities Act, the Company will give the holders of Warrant Shares
registered under such registration statement, their underwriters, if
any, and their respective counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them
such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be
necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act.
9.5 Indemnification.
(a) Indemnification by the Company. In the event of such registration
of the Warrant Shares under the Securities Act, the Company will, and
hereby does, indemnify and hold harmless the seller of any Warrant
Shares covered by such registration statement, its directors and
officers, each other person who participates as an underwriter in the
offering or sale of such securities and each other person or entity,
if any, who controls such seller or any such underwriter within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which such seller or any such
director or officer or underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration
statement under which the Warrant Shares were registered under
the Securities Act, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein no misleading, and the Company will
reimburse such seller and each such director, officer, underwriter
and each such director, officer, underwriter and controlling person
for any Legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided that the Company shall not
be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission of alleged omission made in such
registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance
upon and in conformity with written information furnished to the Company
through an instrument duly executed by such seller specifically stating
that it is for use in the preparation thereof, and, provided further that
the Company shall not be liable to any person or entity who
participates as an underwriter, in the offering or sale of Warrant
Shares or any other person, if any, who controls such underwriter
within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability, (or action or
proceeding in respect thereof) or expense arises out of such person's
or entity's failure to send or give a copy of the final prospectus
to the person or entity asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Warrant Shares to such person
or entity if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller
or any such director, officer, underwriter or controlling person and
shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. The Company may require, as a
condition to including any Warrant Shares in the registration statement
filed pursuant to this Section 9, that the Company shall have received
an undertaking satisfactory to it from the prospective seller of such
securities, to indemnify and hold harmless (in the same manner and to
the same extent as set forth in clause (a) of this subsection 9.5) the
Company the Company each officer of the Company and each other person,if
any, who controls within the meaning of the Securities Act, with respect
to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission
or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed by such seller specifically stating that it is for use in the
preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such
securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding clauses of this
subsection 9.5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, promptly give
written notice to the indemnifying party, provided that the failure of
any indemnified party to give notice as provided herein shall not
relieve the indemnifying party to its obligations under the preceding
clauses of this subsection 9.5, except to the extent that the
indemnifying party is actually prejudiced by such failure to give
notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgement a
conflict of interest between such indemnified and indemnifying parties
may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for
any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall consent to entry of any
judgment or enter into any settlement without the consent of the
indemnified party which does not include as a unconditional term
thereof the giving by the claimant or plaintiff to such indemnified
party of a release from all liability in respect to such claim or
litigation.
(d) Other Indemnification. Indemnification similar to that specified in
the preceding clauses of this subsection 9.5 (with appropriate
modifications) shall be given by the Company and each seller of Warrant
Shares with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of
governmental authority other than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
subsection 9.5 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
9.6 Registration Expenses.
(a) All fees, disbursements and expenses (collectively, the
"Registration Expenses") incurred by the Company in connection with the
registration pursuant to Section 9, and all reasonable fees and
disbursements of one counsel for the holders of Warrants or Warrant
Shares, shall be borne by the Company, including, without limitation,
all registration and filing fees, all costs of preparation and printing
(in such quantities as the holders of Warrants or Warrant Shares, or
the underwriters, may reasonably request) of any registration statement
and related prospectus and any amendments or supplements thereto, all
fees and disbursements of counsel for the Company, the expenses of
complying with applicable securities or blue sky laws, and all costs in
connection with the preparation and delivery of such legal opinions,
auditors' comfort letters or other closing documents as the holders of
Warrants or Warrant Shares, or as the underwriters shall reasonably
request.
(b) All underwriting commissions allocable to the Warrant Shares in
connection with the registration pursuant to this Section 9 shall be
allocated among the holders of Warrant Shares pro rata according to the
number of Warrant Shares being registered by each such holder or in such
other manner as such holders may agree.
Section 10. Notices. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been (a) when
received, if delivered in person; (b) when sent, if sent by telecopier
and confirmed within forty-eight (48) hours by letter mailed or delivered
to the party to be notified at its address set forth herein; or (c) five
(5) business days following the mailing thereof is mailed by certified
first class mail, postage prepaid, return receipt requested, in any such
case as follows:
If to the Company, to:
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
15 Link Drive
Binghamton, New York 13904
Attention: Dr. Geoffrey T. Burnham,
President and Chief Executive Officer
Telecopier: (607) 754-5974
and a copy thereof (which shall not constitute notice) to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Walter M. Epstein, Esq.
Telecopier: (212) 698-7825
FINOVA TECHNOLOGY FINANCE, INC.
10 Waterside Drive
Farmington, Connecticut 06032
Telecopier: (860) 676-1814
or to such address as any party shall notify the other in writing
pursuant to this Section 10.
Section 11. Survival of Rights and Duties. This Warrant Certificate
shall terminate and be of no further force and effect on the earlier of
(i) 5:00 p.m. Eastern Standard Time on the Expiration Date, or (ii) the
date on which all of the Warrants have been exercised, except that the
provisions of Sections 4, 5.2 and 9 shall continue in full force and
effect after such termination date.
Section 12. Successors and Assigns. This Warrant Certificate shall be
binding upon and inure to the benefit of the Company, its successors and
assigns, and the registered holder or holders from time to time of the
Warrants and Warrant Shares.
Section 13. Severability. If for any reason any provision, paragraph
or term of this Warrant Certificate is held to be invalid or enforceable,
all other valid provisions herein shall remain in full force and effect
and all terms, provisions and paragraphs of the Warrant Certificate
shall be deemed to be severable.
Section 14. Governing Law. This Warrant Certificate shall be governed
by and construed in accordance with the laws of the State of New York
without regard to its conflict of laws provisions.
Section 15. Headings. Paragraph and subparagraph headings used herein
are included for convenience or reference only shall not affect the
construction of this Warrant Certificate nor constitute a part of this
Warrant Certificate for any other purpose.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed as the date and year first above written.
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
By:________________________
Name: Geoffrey T. Burnham
Title: Pres. & CEO
ATTEST:
____________________________
Name: Linda Dickinson
Title: Assistant Secretary
Annex A
Form of Assignment'
FOR VALUE RECEIVED, ___________hereby sells, assigns and transfers to
each assignee set forth below all of the rights of the undersigned in
and to the number of Warrants (as defined in and evidenced by the
foregoing Warrant Certificate) set opposite the name of such assignee
below and in and to the foregoing Warrant Certificate with respect to
said Warrants and the shares of Common Stock issuable upon exercise of
said Warrants:
Name of Assignee Address Number of Warrants
If the total of said Warrants shall not be all the Warrants evidenced
by the foregoing Warrant Certificate, the undersigned requests that a
new Warrant Certificate evidencing the Warrants not so assigned be
issued in the name of and delivered to the undersigned.
Name of
Holder (Print):_______________________
Dated:_____________, 19_____ (By:)_________________________________
(Title:)
___________________________________
No assignment is permitted prior to February 27, 1998.
Annex B
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise Warrants
Evidence by the Foregoing Warrant Certificate)
To Semiconductor Laser International Corporation:
The undersigned hereby irrevocably elects to exercise _______Warrants
evidenced by the foregoing Warrant Certificate for, and to purchase
thereunder,_____________full shares of Common Stock issuable upon
exercise of said Warrants and delivery of $________________(in cash as
provided for in the foregoing Warrant Certificate) and any applicable
taxes payable by the undersigned pursuant to such Warrant Certificate.
The undersigned requests that certificates for such shares be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
_________________________________
________________________________ ___________________________________
(Please print name and address)
______________________________________________________________________
If said number of Warrants shall not be all the Warrants evidenced by
the foregoing Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so exercised be issued
in the name of and delivered to
______________________________________________________________________
(Please print name and address)
______________________________________________________________________
______________________________________________________________________
1 If Warrants are exercised prior to February 27, 1998, Warrant Shares
must be issued in the name of Finova Technology Finance, Inc., a Delaware
corporation, and the Election to Purchase must include the following
undertaking: The undersigned agrees not to assign, sell, transfer or
otherwise dispose of such shares of Common Stock prior to February 27,
1998 any individual or entity other than an Affiliate.
Dated:_______________. 19_____ Name of
Holder (Print):______________________
(By:)________________________________
(Title:)
<PAGE>
[TYPE] EX-10.13
Exhibit 10.13
MASTER EQUIPMENT LEASE AGREEMENT
Dated as of OCTOBER 7, 1996
between
FINOVA TECHNOLOGY FINANCE, INC.
(LESSOR)
AND
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
(LESSEE)
SCHEDULE B
Table of Stipulated Loss Values
This is Schedule B to Rent Schedule No. 1 to Master Equipment Lease
Agreement dated October 7, 1996 between FINOVA TECHNOLOGY FINANCE, Inc.
("Lessor") and SEMICONDUCTOR LASER INTERNATIONAL CORPORATION ("Lessee").
Stipulated Loss Values for each item of Equipment shall be determined by
multiplying Acquisition Cost for such item (as set forth in the Rental
Schedule) by the percentage shown below for the applicable Payment Date:
If Casualty If Casualty
Occurrence Occurrence
Occurs On Occurs On
Or After Or After
Payment Percentage Payment Percentage
No. Amount No. Amount
1 112.749% 25 64.445%
2 110.849% 26 62.305%
3 108.940% 27 60.153%
4 107.022% 28 57.991%
5 105.094% 29 55.818%
6 103.157% 30 53.634%
7 101.209% 31 51.439%
8 99.252% 32 49.233%
9 97.286% 33 47.016%
10 95.309% 34 44.788%
11 93.322% 35 42.549%
12 91.326% 36 40.299%
13 89.320% 37 38.037%
14 87.303% 38 35.764%
15 85.277% 39 33.480%
16 83.240% 40 31.184%
17 81.193% 41 28.877%
18 79.136% 42 26.559%
19 77.069% 43 24.228%
20 74.991% 44 21.886%
21 72.903% 45 19.533%
22 70.804% 46 17.167%
23 68.695% 47 14.790%
24 66.576% 48 12.401%
If casualty occurs before payment no. 112.749%
TABLE OF CONTENTS
SECTION PAGE
1. Agreement for Lease of Equipment...............................1
2. Delivery and Acceptance of Equipment...........................1
3. Disclaimer of Warranties.......................................2
4. Primary Term...................................................2
5. Rent...........................................................2
6. Lessee's Representations and Warranties........................3
7. Identification Marks...........................................4
8. Fees and Taxes.................................................5
9. General Indemnity..............................................5
10. Use of Equipment; Location; Liens.............................6
11. Maintenance And Repairs; Additions to
Equipment.....................................................6
12. Loss, Damage or Destruction of Equipment......................7
13. Reports; Inspections..........................................8
14. Insurance.....................................................8
15. Return of Equipment...........................................9
16. Lessor's Ownership; Equipment To Be and
Remain Personal Property.....................................11
17. Other Covenants..............................................11
18. Events of Default............................................12
19. Assignment and Transfer by Lessor............................15
20. Recording and Filing; Expenses...............................16
21. Automatic Lease Term Renewal.................................16
22. Quite Enjoyment..............................................16
23. Failure or Indulgence Not Waiver;
Additional Rights of Lessor..................................16
24. Sublease.....................................................16
25. Purchase Option..............................................17
26. Notices......................................................17
27. Entire Agreement; Severability; Amendment or
Cancellation of Lease........................................18
28. Waiver of Jury...............................................18
29. Restriction of Limitation Periods
and Damages..................................................18
30. Governing Law; Consent to Jurisdiction
and Service..................................................18
31. Lessor's Right to Perform for Lessee.........................18
32. Agreement for Lease Only.....................................18
33. Binding Effect...............................................18
34. General......................................................18
35. Definitions..................................................19
MASTER EQUIPMENT LEASE AGREEMENT
MASTER EQUIPMENT LEASE AGREEMENT dated as of October 7, 1996 between
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION hereinafter called
"Lessee"), a New York Corporation that has its executive office and
principal place of business at 148 Vestal Parkway East, Vestal, NY 13850
and FINOVA TECHNOLOGY FINANCE, INC. FORMERLY NAMED FINANCING FOR SCIENCE
INTERNATIONAL, INC. (hereinafter called "Lessor"), a Delaware corporation
with its principal place of business at 10 Waterside Drive, Farmington,
Connecticut 06032-3065
In consideration of the mutual covenants hereinafter contained, Lessee
and Lessor agree as follows:
1. Agreement for Lease of Equipment. Lessor shall lease to Lessee and
Lessee shall lease from Lessor, upon the terms and conditions specified
in this Maser Lease and the applicable Rental Schedule, the Equipment as
described in the applicable Rental Schedule including Schedule A of such
Rental Schedule and this Master Lease. Each Rental Schedule shall
incorporate the terms of this Master Lease and shall constitute a
separate lease (the term "this Lease" shall refer collectively to the
applicable Rental Schedule and this Master Lease). Only the signed copy
of each Renal Schedule and not this Master Lease shall constitute chattel
paper the possession of which can perfect a security interest. In the
event of a conflict between the provisions of this Master Lease and the
provisions of any Rental Schedule, the provisions of the Rental Schedule
shall prevail.
2. Delivery and Acceptance of Equipment. (a) Lessor and Lessee agree that
the vendor of the Equipment to Lessor or, as to any Equipment to be sold
by Lessee to Lessor and leased back, the vendor of the Equipment to
Lessee (in either case, the "Vendor") will be responsible to deliver the
Equipment to Lessee at the location specified in the applicable Rental
Schedule. Such delivery shell be delivery of the Equipment by Lessor to
Lessee under this Lease unless such Equipment is to be sold by Lessee to
Lessor and leased back. Provided that no Event of Default has occurred,
no event which with the passage of time or giving of notice would be an
Event of Default has occurred, and is continuing, and the conditions set
forth in the next following paragraph have been met and the Equipment is
not to be sold by Lessee to Lessor and leased back, Lessor hereby
authorizes Lessee, acting as Lessor's agent, to accept for Lessor, and in
Lessor's name, the Equipment from the vendor upon delivery pursuant to
the purchase contract for the Equipment. Such acceptance shall be
acceptance of the Equipment by Lessee under this Lease. Lessee agrees to
confirm any acceptance of the Equipment by Lessee by executing a
Certificate of Inspection and Acceptance and providing the same to Lessor
in accordance with the notice provision hereof on or about the Lease
Commencement Date, but no later than the date for payment to the Vendor.
(b) Conditions precedent to every progress payment and Lease Term
Commencement shall include that (i) no payment shall be past due to
Lessor or any assign of Lessor from Lessee or any Guarantor
(as hereinafter defined), whether as a lessee, a guarantor or in some
other capacity; (ii) Lessee shall be in compliance with the provisions
of this Lease; (iii) all documentation then required by Lessor's counsel
shall have been received by Lessor; (iv) Lessee shall not be in default
under any material contract to which Lessee is a party or by which Lessee
or the property of Lessee is bound; and (v) there shall not have been any
material adverse change or threatened material adverse change in the
financial or other condition, business, operations, properties, assets or
prospects of Lessee, or any Manufacturer (as hereinafter defined) since
March 31, 1996, or from the written information that has been supplied to
Lessor prior to September 26, 1996 by Lessee, or any Manufacturer.
3. Disclaimer of Warranties. LESSEE ACKNOWLEDGES THAT IT HAS SELECTED
BOTH THE EQUIPMENT AND EVERY MANUFACTURER AND OTHER VENDOR OF THE
EQUIPMENT. THAT LESSEE HAS NOT RELIED UPON LESSOR FOR SUCH SELECTION
AND THAT LESSEE HAS A COPY OF THE PURCHASE CONTRACT(S) FOR LESSOR'S
PURCHASE OF THE EQUIPMENT. LESSOR HAS NOT MADE AND SHALL NOT BE DEEMED
TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS
TO THE MERCHANTABILITY, FITNESS FOR USE, FITNESS FOR A PARTICULAR PURPOSE
OR TITLE OF THE EQUIPMENT (OR ANY PART THEREOF) OR AS TO COMPLIANCE WITH
SPECIFICATIONS, COMPLIANCE WITH GOVERNMENTAL REGULATIONS, QUALITY,
SELECTION, INSTALLATION, SUITABILITY, PERFORMANCE, CONDITION, DESIGN,
ABSENCE OF DEFECTS, OPERATION, OR NON-INFRINGEMENT OF PATENT,
COPYRIGHT, TRADEMARK OR OTHER INTELLECTUAL PROPERTY RIGHTS OF THE
EQUIPMENT (OR ANY PART THEREOF). LESSEE SHALL LEASE THE EQUIPMENT
'AS IS, WHERE IS". LESSOR HEREBY DISCLAIMS ANY AND ALL SUCH WARRANTIES
OR REPRESENTATIONS, EXPRESS OR IMPLIED. LESSEE AND LESSOR AGREE THAT
ALL RISKS INCIDENT TO THE MATTERS REFERRED TO IN THIS SECTION ARE TO BE
BORNE BY LESSEE. Lessor has and shall have no responsibility for the
installation, adjustment or servicing of the Equipment. The provisions of
this Section have been negotiated and are intended to be a complete
exclusion and negation of any representations or warranties by Lessor,
express or implied, with respect to the Equipment that may arise pursuant
to any law now or hereafter in effect, or otherwise. In no event shall
defect in, or unfitness of, any or all of the Equipment, or any breach of
warranty or representation by any or every Manufacturer or other Vendor
relieve Lessee of the obligation to pay rent or to make any other
payments required hereunder or to perform any other obligation hereunder.
Without limiting the generality of the foregoing. Lessor shall not be
responsible or liable for any (i) defect, either latent for patent, in
any of the Equipment or for any direct or consequential damages
therefrom, (ii) loss of use of any of the Equipment or for any loss of
profits or any interruption in Lessee's inability to use any or all of
the Equipment for any reason whatsoever, or (iii) in the event that any
Vendor delays for fails to make delivery of any or all of the Equipment
or fails to fulfill or comply with any purchase contract or order. For
as long as no Event of Default shall have occurred and is continuing
hereunder, Lessor hereby transfers and assigns to Lessee during the
Lease Term (as hereinafter defined) all right and interest of Lessor in
any Manufacturer's and other Vendor's warranties with respect to any and
all of the Equipment, and agrees to execute all documents reasonably
necessary to effect such transfer and assignment, except that to the
extent any rights of Lessor with respect to the Equipment may not be
assigned or otherwise be available to Lessee, Lessor shall instead use
reasonable efforts to enforce such rights against such Manufacturers or
other Vendors but only upon the request and at the expense of Lessee.
4. Primary Term. The Primary Term for each item of the Equipment shall
commence on the Lease Commencement Date provided for by the Rental
Schedule for such Equipment, and unless sooner terminated pursuant to
the provisions of the Lease, shall be for the number of calendar months
set forth in such Rental Schedule, plus the number of days remaining in
any partial calendar month if the Lease Commencement Date occurs on other
than the first day of a month. Notwithstanding the foregoing, the
provisions of this Master Lease on indemnification of Lessor by Lessee
shall apply between Lessor and Lessee with respect to any Equipment
from the time that any order for the Equipment is placed by Lessor.
5. Rent. (a) Lessee shall pay to Lessor in cash or by check as rent for
the Equipment during the Lease Term, the amounts provided for in the
Rental Schedule ("Basic Rent") for such Equipment on the dates
designated therein ("Payment Dates"), at the location of Lessor set
fourth therein, or at such other address or to such other person or
entity as Lessor, from time to time, may designate.
(b) Lessee shall also pay to Lessor, upon notice by lessor to Lessee
that payment is due, any sums other then for Basic Rent that Lessee at
any time shall be required to pay Lessor pursuant to the provisions of
this Lease, including but not limited to sums payable by reason of
payments by Lessor made with express consent of lessee to any Vendors in
advance of the delivery of such Equipment or the commencement of the
Lease Term for such Equipment, together with every additional charge,
interest and cost which may be added for non-payment or late payment of
any such sums or of Basic Rent. All such sums shall be additional rent
("Additional Rent"), Lessor shall provide Lessee with notice as to the
amount of any Additional Rent. The due date for the Additional Rent
shall be three business days after the notice is deemed to be given, if
Lessee shall fail to pay any Additional Rent, Lessor shall have all
rights, powers and remedies with respect thereto as are provided herein
or by law in the case of non-payment of Basic Rent.
(c) With respect to any amount of Basic Rent or Additional Rent not
received by Lessor within five days from when due hereunder, Lessee
shall pay to Lessor interest on such amount from the due date thereof
until payment is received by Lessor at two percent per month or the
highest rate of interest on amounts past due that is not unlawful,
whichever is lower (the "Default Interest Rate"). Additionally, with
respect to each such instance of late payment, Lessee shall pay to
Lessor, within five days of notification that such payment is due, a
collection fee of $500, which fee approximates Lessor's administrative
costs, at minimum, to collect such unpaid Basic Rent or Additional Rent.
The charges incurred for any months for Default Interest and collection
fees shall be deemed waived not invoiced to Lessee within 60 days from
the end of such month.
(d) LESSEE AGREES THAT TIME IS OF THE ESSENCE TO LESSOR IN LESSEE'S
MAKING PAYMENTS OF BASIC RENT AND ADDITIONAL RENT WHEN SUCH
PAYMENTS
BECOME DUE.
(e) This Lease is a net-net-net lease and, notwithstanding any other
provisions of this Lease, it is intended that Basic Rent and Additional
Rent shall be paid without notice, demand, counterclaim, setoff,
deduction or defense and without abatement, suspension, deferment,
diminution or reduction. Lessee shall perform all its obligations under
this Lease at its sole cast and expense. Except to the extent otherwise
expressly specified herein, the obligations and liabilities of Lessee
hereunder shall in no way be released, discharged or otherwise affected
for any reason, including, without limitation: (i) any defect in the
condition, quality or fitness for use of the Equipment or any part
thereof;(ii) any damage to, removal, abandonment, salvage, loss,
scrapping or destruction of or any requisition or taking of the
Equipment or any part thereof; (iii) any restriction, prevention or
curtailment of or interference with any use of the Equipment or any part
thereof; (iv) any defect in title or rights to the Equipment or any lien
on such title or rights or on the Equipment; (v) any change, waiver,
extension, indulgence or other action or omission in respect of any
obligation or liability of Lessor; (vi) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or
other like proceedings relating to Lessee or any action taken with
respect to this Lease by any trustee or receiver of Lessee or by court, in
any such proceeding; (vii) any claim that Lessee has or might have
against any Person (as hereinafter defined), including without
limitation Lessor; (viii) any failure on the part of Lessor to perform or
comply with any of the terms hereof or of any other agreement; (ix) any
invalidity, unenforceability or disaffirmance of this Lease or any
provision hereof against or by Lessee; or (x) any other occurrence
whatsoever, whether similar or dissimilar to the foregoing, whether or
not Lessee or Lessor shall have notice or knowledge of any of the
foregoing. To the extent permitted by law, Lessee waives all rights now
or hereafter conferred by statute or otherwise to quit, terminate,
cancel, rescind or surrender this Lease, or to any diminution or
reduction of Basic Rent or Additional Rent payable by Lessee hereunder.
However, the provisions of this paragraph (e) shall not be deemed to
restrict the right of Lessee to bring an action against Lessor for its
breach of its obligations under or in respect of this Lease.
6. Lessee's Representations and Warranties. Lessee represents and
warrants (and if requested by Lessor, promptly will provide supporting
documents to the effect and an opinion of counsel substantially in the
form requested by Lessor) that as of the date that Lessee signs this
Master Lease, as of any date that Lessor makes a payment to a Vendor
prior to the date all Equipment has been accepted for lease hereunder, as
of each date that any Equipment is accepted for lease hereunder and as of
each Lease Commencement Date pursuant to a Rental Schedule hereunder: (i)
all items of the Equipment are new and unused as of the Lease
Commencement Date, unless otherwise specified in the applicable Rental
Schedule in which event the specified items of the Equipment shall have
been delivered new to Lessee by their suppliers not more than 180 days
prior to their Lease Term Commencement; (ii) Lessee is duly organized,
validly existing and in good standing under the laws of the jurisdiction
of its organization, and is qualified and in good standing to do business
wherever necessary to carry on its present business and operations,
including the jurisdictions where the Equipment is or will be located;
(iii) Lessee has the power to enter into this lease and the other
instruments and documents executed by Lessee in connection herewith
(together with this Lease, the "Transactional Documents") and to pay and
perform its obligations under this Leaves and the other Transactional
Documents; (iv) this Lease and the other Transactional Documents have
been duly authorized, executed and delivered by Lessee, and constitute
the valid, legal and binding obligations of Lessee enforceable in
accordance with their terms; (v) no vote or consent of, or notice to, the
holders of any class of stock of Lessee is required , or if required,
such vote or consent has been obtained or given, to authorized the
execution, delivery and performance of this Leaves and the other
Transactional Documents by Lessee; (vi) neither the execution and delivery
by Lessee of this Lease and the other Transactional Documents, nor the
consummation by Lessee of the transactions contemplated hereby or
thereby, nor compliance by Lessee with eh provisions hereof or thereof,
conflicts with or results in a breach of any of the provisions of any
Certificate of Incorporation or By-laws or partnership or trust
agreement or certificate of Lessee, or of any applicable law, judgment,
order, writ, injunction, decree, award, rule or regulation of any court,
administrative agency or other governmental authority, or of any
indenture, mortgage, deed of trust other agreement or instrument of any
nature to which Lessee is a party or by which it or its property is
bound or affected or pursuant to which it is constituted, or constitutes
a default under any thereof or will result in the creation of any lien,
charge, security interest or other encumbrance upon any of the
Equipment, other than the interests therein of Lessor or any Assignee
(as hereinafter defined), or upon any other right or property of Lessee
or will in any manner adversely affect Lessor's or any Assignee's right,
title and interest in any of the Equipment; (vii) no consent, approval,
withholding of objection or other authorization of or by any court,
administrative agency, other governmental authority or any other Person
is required, except such consents, approvals or other authorizations
which have been duly obtained and are in full force and effect and copies
of which have been furnished Lessor, in connection with the execution,
delivery or performance by Lessee, or the consummation by Lessee, of the
transactions contemplated by this Lease and the other Transactional
Documents : (viii) there are no actions, suits or proceedings pending,
or, to the knowledge of Lessee, threatened, in any court or before any
administrative agency or other governmental authority against or
affecting Lessee, which, if adversely decided would or could,
individually or in the aggregate, materially and adversely affect the
financial or other condition, business, operations, properties, assets or
prospects of Lessee or the ability of Lessee to preform any of its
obligations under this Lease or under the other Transactional Documents,
except for any such actions, suits or proceedings that Lessee has
described in writing to Lessor; (ix) no Event of Default or event or
Default, exists or is continuing; (x) there has been no material adverse
change or threatened change in Lessee's financial or other condition,
business, operations, properties, assets or prospects since the date of
Lessee's most recent financial statements reported on by an independent
public accounting firm prior to the date of this Master Lease, since the
dates of each such Person's interim and annual financial statements, if
any, subsequent to such prior statements, or from the written
information that has been supplied to Lessor by Lessee; (xi) Lessee
possesses any and all authorizations, certifications and licenses which
are or may be required to use and operate the Equipment; (xii) the
Acquisition Cost pursuant to the applicable Rental Schedule of each item
of the Equipment does not exceed the fair and usual price for like
quantity purchases of such item and reflects all discounts, rebates and
allowances for the Equipment given to Lessee or any affiliate of Lessee
by any Vendor or other Person including, without limitation, discounts
for advertising, prompt payment, testing or other services; (xiii) all
information supplied to Lessor by Lessee is correct and does not omit any
statement necessary to make the information supplied not misleading; and
(xiv)the financial statements of Lessee have been prepared in accordance
with generally accepted accounting principles consistently applied and
accurately and completely present the financial condition and the results
of operations of Lessee at the dates of and for the periods covered by
such statements.
7. Identification Marks. To the extent reasonably requested by Lessor or
if required by applicable law, Lessee shall affix to the Equipment at
Lessee's expense signs, labels, or other forms of notice to disclose
Lessor's ownership of, and the interest of any Assignee in, the
Equipment. Lessee shall keep and maintain such signs, labels or other
forms of notice affixed to the Equipment throughout the Lease Term.
Lessor may furnish such signs, labels or other forms of notice to Lessee.
Except as otherwise directed by Lessor, Lessee shall not allow the name
of any person other then Lessor to be placed on any part of the Equipment
as a designation that might reasonably be interpreted as a claim of
ownership.
8. Fees and Taxes. Lessee agrees to pay promptly when due, and to
indemnify and hold Lessor harmless from, all license, title,
registration and recording fees whatsoever, all taxes including,
without limitation, sales, use, franchise, personal property, excise,
import, export and stamp taxes and customs duties, and all charges
together with any penalties, fines or interest thereon which are
assessed, levied or imposed by any governmental or taxing authority
against Lessor with respect to any or all of the Equipment or the
purchase, acquisition, ownership, construction, installation, shipment,
delivery, lease, possession, use, maintenance, condition, operation,
control, return or other disposition thereof or the rents, receipts or
earnings arising therefrom which accrue or are payable with respect to
the Equipment or this Lease or which are assessed, are based on a
valuation date, or are due during or with respect to the Lease Term or any
subsequent period until the Equipment has been returned to Lessor
pursuant to the provisions of this Lease or until the Equipment has been
purchased by Lessee pursuant to any purchase option provisions of this
Lease, excluding, however, any taxes measured by Lessor's net income
from the general operation of Lessor's business including without
limitation, the leasing of Equipment hereunder. In the event any fees,
taxes or charges payable by Lessee pursuant to the next preceding
sentence are paid by Lessor, or if Lessor is required to collect or pay
any thereof, Lessee shall reimburse Lessor therefor (plus any penalties,
fines or interest thereon) promptly upon demand. Unless and until Lessor
notifies Lessee in writing to the contrary, Lessee shall file and pay any
personal property taxes levied or assessed on the Equipment directly to
the levying authority. Upon Lessor's written request, Lessee shall
submit to Lessor satisfactory evidence of payment by Lessee of any or all
amounts for which Lessee is required to make payment or to indemnify
Lessor hereunder that are paid by Lessee, and of the filing of any and
all reports, returns and other documentation required in connection with
any such payment. In the event Lessor elects to pay the personal
property taxes directly to a levying authority, Lessor shall submit to
Lessee a copy of its personal property tax return and its receipt for the
full amount of such personal property taxes so paid by Lessor. All of
the obligations of Lessee under this Section shall continue in full force
and effect notwithstanding any expiration, termination, recission or
cancellation of this Lease. Lessee acknowledges that Lessor may not be
exempt form the payment of any of the amounts referred to herein, even
though Lessee might have been exempt therefrom if it were the owner of
purchaser of the Equipment, and Lessee agrees that this Section shall
apply, and the amounts due from it hereunder shall be due, whether or not
Lessee might itself have otherwise been exempt from any such payments.
Subject to the foregoing, Lessee shall have the right to contest in good
faith any such taxes levied or imposed by any governmental for taxing
authority, provided that Lessee shall have given Lessor not less than ten
days prior notice of its intention to contest and full particulars of the
proposed contest, in the opinion of Lessor the proposed contest will not
adversely effect the interests of Lessor or any Assignee, and Lessee
either shall have paid the taxes or provided for a bond or other security
so that none of the Equipment will be subject to seizure, confiscation or
forfeiture. For purposes of this Section, the term "Lessor" shall
include each member of Lessor's affiliated group, if any.
9. General Indemnity. (a) Lessee shall indemnify Lessor and any Assignee
(as hereinafter defined), and their respective agents and servants,
against, and agrees to defend, protect, save and keep them harmless from,
any and all liabilities, obligations, losses, damages, penalties, claims,
actions, suits, costs, expenses and disbursements, including attorneys'
fees and expenses and costs for customs, completion, performance and
appeal bonds, of whatsoever kind and nature (including, without
limitation, for negligence, tort liability, damages by reason of strict
or absolute liability, punitive damages, and indirect and consequential
damages, but excluding any such amounts imposed or incurred as a result
of Lessor's gross negligence or willful misconduct), imposed on or
incurred by or assessed against Lessor and/or any Assignee, in any way
relating to or arising out of (i) the failure of Lessee to provide or
obtain any certificates, documents, consents, authorizations, clearances,
licenses, permits required hereunder or under any of the other
Transactional Documents, or (ii) the ordering, construction,
installation, delivery, testing, ownership, lease, possession, use,
maintenance, operation, control, movement, import, export, shipment,
condition, or return of the Equipment (including but not limited to
latent and other defects, whether or not discoverable by Lessor or
Lessee, and claim for patent, trademark, copyright, software or other
intellectual property infringement) until such time as the Equipment
shall have been returned to Lessor pursuant to the provisions of this
Lease or until the Equipment shall have been purchased by Lessee
pursuant to any purchase option provisions of this Lease.
(b) The obligations of Lessee under this Section shall survive the
payment of all known obligations under and any expiration, termination,
rescission or cancellation of this Lease, and are expressly made for the
benefit of and shall be enforceable by Lessor, its successors and any
Assignee.
10. Use of Equipment; Location; Liens. (a) During the Lease Term, Lessee
warrants and agrees that the Equipment shall be used and operated and
otherwise be in compliance with any established operating procedures
therefor of any Manufacturer and all applicable statutes, regulations and
orders of any governmental body having power to regulate the Equipment
and its use by Lessee. Lessee shall bear and pay all costs of such
compliance. Lessee shall not permit the Equipment to be used or
maintained in any manner or condition that would violate, or could result
in the termination of, the insurance policies carried by Lessee pursuant
to the provisions of this Lease on insurance, or in any manner or
condition or for any purpose for which, in the opinion of any
Manufacturer, the Equipment is not designed or suited.
(b) Lessee agrees that without Lessor's prior written consent, it will
not remove any of the Equipment from the location specified in the
Rental Schedule for such Equipment or permit any of the Equipment to be
used by anyone other than Lessee, Lessee's employees or a responsible
independent contractor engaged by Lessee.
(c) During the Lease Term and until the Equipment has been returned to
Lessor pursuant to the provisions of this Lease or until the Equipment is
purchased by Lessee pursuant to any purchase option provisions of this
Lease, Lessee will not directly or indirectly create, incur, assume or
suffer to exist any mortgage, security interest, lien or encumbrance on
the Equipment or Lessor's or any Assignee's title thereto or interest
therein, except in the name of Lessor and its successor(s) and any
Assignee. Lessee, at its own expense, will promptly take such action as
may be necessary to keep the Equipment free and clear of, and to duly
discharge, any such mortgage, security interest, lien or encumbrance not
excepted above.
(d) Lessee agrees to procure and maintain in effect all licenses,
certificates, permits and other approvals and consents required by
federal, state and local laws and regulations in connection with
Lessee's possession, use, operation and maintenance of the Equipment.
During the Lease Term, Lessee agrees that 100 percent of the use of
the Equipment shall be "qualified business use" as that term is and
shall be from time to time defined by the Internal Revenue Code of
1986, as amended.
(e) Lessee shall cooperate fully with Lessor or any Assignee to
perfect and record their respective interests in connection with the
Transactional Documents including, without limitation, the filing of
financing statements and will pay such Persons their reasonable costs
related thereto. Lessee authorizes Lessor to file financing statements
that are signed only by Lessor or that are signed for Lessee by Lessor
in any jurisdiction when permitted by law or local authority. Lessee
hereby grants to Lessor power-of-attorney to act as Lessee's attorney-
in-fact to sign Lessee's name on financing statements as "Debtor".
11. Maintenance and Repairs; Additions to Equipment. (a) Lessee shall,
for the entire Lease Term, at its sole expense, maintain all the
Equipment in good, safe and efficient operation repair, appearance and
condition, reasonable wear and tear excepted, will keep all components
of the Equipment properly calibrated and aligned, will make all required
adjustments, replacements and repairs and will obtain and install any
upgrades for the Equipment that are announced and available for sale by
a Manufacturer (collectively, "maintenance and repairs"). Such
maintenance and repairs shall include, but not be limited to, all
recommended or advised by a Manufacturer, all required or advised by
cognizant governmental agencies or regulatory bodies and all commonly
performed by prudent business and/or professional practice. Except
for emergency repairs and repairs to auxiliary items included in the
Equipment, all maintenance and repairs to any item of the Equipment
shall be made by the Manufacturer or, upon prior written approval by
Lessor which approval will not be unreasonably withheld, delayed or
conditioned, those of substantially equal skill or knowledge in
maintaining and repairing the Equipment.
(b) Lessee shall not modify the Equipment without the prior written
consent of Lessor. Any replacements, substitutions, additions,
attachments, accessions, parts, fittings, accessories, modifications,
enhancements, maintenance and repairs and other upgrades to the
Equipment whenever made shall be considered accessions to the Equipment
and shall automatically become the property of Lessor.
(c) All instruction manuals, published statements of capabilities and
technical specifications, service, maintenance and repair records,
installation, qualification, certification and calibration reports,
usage logs, and printed material relating to the Equipment shall be
deemed part of the Equipment. Computer programs, programming codes,
operating systems, data processing instructions, series of instructions
or statements which are machine readable, and any like symbols or signals
usable by an electronic data processing system (collectively "Software")
that has been or shall be installed or entered in the Equipment shall
become a part of the Equipment except for any Software that is
proprietary Software of Lessee and is not a modification, change,
enhancement or improvement to any Software which is identified or listed
in the description of specific items of the Equipment in or attached to
a Rental Schedule. Whenever Lessee acquires Software licenses from other
parties, with respect to the Software such licenses shall automatically
and without further action by Lessee be assigned to Lessor and become
through assignment a part of the Equipment transferable to any future
user of the Equipment for use with the Equipment.
12. Loss, Damage or Destruction of Equipment. (a) Lessee shall bear
all risks of damage to, taking of, or theft, loss or destruction of,
any or all of the Equipment commencing as of the date of this Master
Lease and continuing throughout the Lease Term and until such Equipment
has been returned to Lessor or purchased by Lessee pursuant to any
purchase option provisions of this Lease. Except as otherwise herein
expressly provided, no damage to, taking of or theft, loss or destruction
of any Equipment shall impair any obligation of Lessee to Lessor under
this Lease, including, without limitation, the obligation to pay Basic
Rent.
(b) In the event that any item of Equipment shall become damaged from
any cause whatsoever, Lessee agrees to promptly notify Lessor in writing
of such fact, fully informing Lessor of the details thereof. If any
item of Equipment is damaged (unless the same, in the opinion of Lessor
is irreparably damaged, in which case the provisions of this Lease with
respect to a Casualty Occurrence shall apply), Lessee shall, at its sole
cost and expense, place the same in good repair, condition and working
order or replace the same with "like property" having the same value and
operating capabilities and useful life at least equal to the damaged
Equipment prior to the date of such damage, which property shall
thereupon become subject to this Lease with title thereto in Lessor. In
the event that an item of Equipment has been damaged, but not
irreparably, if no Event of Default has occurred and is continuing
hereunder, upon receipt by Lessor of evidence, satisfactory to Lessor,
that such repair, restoration or replacement has been completed, and
an invoice therefor, Lessor shall release to Lessee or its supplier the
proceeds of any insurance received by Lessor as a result of such damage
for the purpose of reimbursing Lessee for the costs of repairing,
restoring or replacing such item.
(c) In the event that any item of Equipment shall become lost, stolen,
destroyed or irreparably damaged from any cause whatsoever, or if any
item of Equipment or Lessor's title thereto shall requisitioned or
seized by any governmental authority (each such occurrence being herein
called a "Casualty Occurrence") during the Lease Term and until it has
been returned to Lessor pursuant to the provisions of this Lease or
until the Equipment is purchased by Lessee pursuant to any purchase
option provisions of this Lease, Lessee shall promptly notify Lessor in
writing of such fact, fully informing Lessor of all details of the
Casualty Occurrence in question, and shall pay Lessor in cash the
greater of (i) the "Stipulated Loss Value" as set forth in the Table of
Stipulated Loss Values attached to the Rental Schedule pursuant to
which such item of Equipment is leased hereunder, calculated as of the
date of the Casualty Occurrence, or (ii) the Fair Market Value (as
hereinafter defined) of the item of Equipment in question as of the date
of the Casualty Occurrence. This payment shall be made within 60 days
following the Casualty Occurrence, together with the Basic Rent accrued
and unpaid with respect to such Equipment as of the date of the Casualty
Occurrence, plus all Additional Rent or amounts owing with respect to
such Equipment on such date of payment.
(d) Upon the payment of the greater of the Stipulated Loss Value or Fair
Market Value of the Equipment in question in accordance with the terms of
this Section, and the payment of all Basic Rent, Additional Rent and any
other sums then due hereunder, this Lease shall terminate with respect
to the Equipment or part thereof suffering the Casualty Occurrence and
all Lessor's rights and title to such Equipment shall pas to Lessee,
"as is" and "where is", without any representation or warranty by, or
recourse to, Lessor, as provided by the provisions of this Master Lease
on disclaimer of warranties and as evidenced by duly executed bill of
sale naming Lessor as the seller and Lessee as the buyer.
(e) Provided that no Event of Default has occurred and no event that
with the passage of time or giving of notice, or both, would be an Event
of Default has occurred and is continuing, any insurance proceeds
received as the result of a Casualty Occurrence with respect to any or
all items of the Equipment shall be applied in reduction of Lessee's
obligation to pay the greater of the Fair Market Value or the Stipulated
Loss Value for such item if not already paid by Lessee to Lessor, or,
if already paid by Lessee, to the reimbursement of Lessee therefor, and
the balance of the insurance proceeds, if any, shall be paid to Lessee.
13. Reports; Inspections. Lessee will cause to be furnished to Lessor,
if requested, from time-to-time a statement showing the condition and
such other information regarding the Equipment as Lessor may reasonably
request and, except if an uncured Event of Default shall exist, it shall
not be deemed reasonable for Lessor to make such request more often than
annually, except in connection with damages or casualty loss subject to
section 12 above. Lessor and any Assignee shall have the right, upon
reasonable notice to Lessee, to inspect the Equipment including Lessee's
records with respect to the Equipment, to copy such records, and to
inspect and copy Lessee's records with respect to the financial statements
Lessee is required to furnish Lessor or has warranted to Lessor pursuant
to this Lease. Any inspection by Lessor or any Assignee shall not be
deemed to be approval or acknowledgment by Lessor or such Assignee of
the safety, freedom from defects, performance or compliance with
specifications or governmental requirements of the Equipment or of the
conformity of the Equipment or such financial statements to the
requirements or warranties of this Lease, and the disclaimers set forth
in the provisions of this Master Lease on disclaimer of warranties shall
apply to any such inspection. Lessee shall pay or reimburse Lessor for
Lessor's reasonable costs and travel expenses for one such inspection
per year, and for Lessor's reasonable costs, travel expenses and salaries
and the charges and such expenses of Lessor's advisers for the
inspection following an inspection which encountered a material breach
of requirements of this Lease or the warranties of Lessee pursuant to
this Lease.
14. Insurance. During the Lease Term and until all Equipment has been
returned to Lessor pursuant to the provisions of this Lease or until the
Equipment is purchased by Lessee pursuant to any purchase option
provisions of this Lease, Lessee shall procure and maintain at its
expense with reputable insurers acceptable to Lessor (i) insurance on
all of the Equipment in an amount not less than the greater of the
Equipment's Stipulated Loss Value or Fair Market Value replacement cost
insuring against all risks of loss or damage to the Equipment and
against such other risks as Lessee would, in the prudent management of
its properties, maintain with respect to similar equipment owned by it,
and (ii) comprehensive public liability and property damage insurance,
in such amounts as shall be satisfactory to Lessor but for not less
than the greater of $1,000,000 or upon reasonable request from Lessor
greater amounts customarily maintained by parties similar to Lessee for
similar leased equipment with similar contemplated use, insuring Lessor
and any Assigned, as their interests may appear, against liability for
death, bodily injury and property damage arising out of or resulting
from the design, construction, manufacture, ownership, use, operation,
lease or maintenance of, or otherwise in connection with, the Equipment.
On the policies referred to in clause (i), such insurance shall name
Lessor (and any Assignees) as a loss payee so that (and Lessor and
Lessee hereby agree that) the insurance proceeds payable under such
policies to Lessor will be payable and paid to Lessor (and to any
Assignees). On the policies referred to in clause (ii), such insurance
will name Lessor (and any Assignees) as a n additional insured as its
interests may appear. All such policies shall provide that they may not
be invalidated against Lessor (or any Assignees) because of any
violation of a condition or a breach of warranty of the policies or
application therefor by Lessee, that they may not be altered or
canceled except after 30 days' prior written notice to Lessor, and that
Lessor and any Assignee have the right not the obligation to pay the
premiums with respect to coverage required by this Lease in order to
continue such insurance in effect or to obtain like coverage. Under the
policies of insurance required to be maintained by Lessee pursuant to
this Master Lease, Lessee agrees to waive any right of subrogation and to
cause the insurance carrier to waive any right of subrogation in each
instance as such right may exist against Lessor or any Assignee and for
any and all loss or damage to the Equipment. Lessor is hereby appointed
Lessee's attorney-in-fact to endorse any check or draft which may be
payable to Lessee in order to collect the proceeds of such insurance.
Lessee shall deliver to Lessor, prior to the beginning of the Lease Term
with respect to any of the Equipment and at such other time or times as
Lessor may request, a certificate or other evidence satisfactory to
Lessor of the maintenance of such insurance. Lessor shall be under no
duty to examine such policies, certificates or other evidence of
insurance or to advise Lessee in the event that its insurance is not in
compliance with this Lease. In the event of failure on the part of
Lessee to provide such insurance, Lessor may, at its option, but without
obligation, provide such insurance and add the amount of the premiums
to the rents due hereunder, and Lessee shall, upon Lessor's demand, pay
the same as Additional Rent.
15. Return of Equipment. (a) At the end of the Lease Term for any
Equipment Lessee at its sole expense shall forthwith return possession
of such Equipment without omissions to Lessor by:
(i) properly preparing, crating and/or assembling such Equipment(in
accordance with the Manufacturer's instructions if such instructions
exist) for shipment by common carrier with all containers and pieces
labeled with model, part and unit numbers and descriptions; and
(ii) shipping such Equipment by common carrier, with insurance and
freight prepaid, to a place designated by Lessor within a 1,000 mile
radius of the specified location under this Lease for such Equipment.
Lessor shall pay additional shipping charges incurred because of
distances in excess of such 1,000 miles.
The insurance required by clause (ii) above shall provide that in the
event of loss such insurance shall pay Lessor in cash directly the
greater of (A) the full replacement value of such Equipment and (B) the
"Stipulated Loss Value" as set forth in the Exhibit to the Rental
Schedule calculated as of the Payment Date next preceding the date of
loss. Lessee acknowledges that "full replacement value" may exceed
Fair Market Value.
(b) When the Equipment is returned to Lessor it shall be complete. The
condition of the Equipment including Software upon receipt by Lessor
shall be not less than (i) meeting all specifications for such fully
upgraded equipment as published most currently by the respective
Equipment vendor(s), Manufacturer(s) or supplier(s) (collectively
referred to, together with their successors and assigns, if any, as
"Vendors"). (ii) in fully operational condition, reasonable wear and
tear excepted (iii) capable of being installed and operated in the
normal course by another user, (iv) for each item of the Equipment for
which the Vendor has a program of maintenance and service including
certification for reinstallation and for qualification under the
maintenance and service program certified in writing by the Vendor that
the items of the Equipment are in compliance with the conditions
specified in this paragraph, are accepted by the Vendor for
reinstallation and are qualified for the usual and customary service and
maintenance program of the Vendor, (v) legally qualified for future use
or operation of the Equipment by another lessee or purchaser of the
Equipment making the same use of the equipment that Lessee shall have
made, (vi) free of defects, visible or concealed, including, but not
limited to, damage or malfunction of any kind, dents, fractures, chips,
scratches, stains, defacements, discoloration's, rust, corrosion,
electrical shorts, fluid restrictions or blockages, disconnection's,
breakage or the like, (vii) safe for routine and usual operation,
(viii) in compliance with any and all pertinent governmental or
regulatory rules, laws or guidelines for its operation or use, (ix)
free of Lessee's markings or labelings, and (x) free of any advertising
or insignia not requested by Lessor that was placed on the Equipment
of Lessee.
(c) Lessor reserves the right to inspect the Equipment within 30 days
of its return to verify compliance with the provisions of this Master
Lease on Equipment maintenance and repairs and additions and on return
of Equipment. Should there be less than full compliance, Lessor at its
option may (i) perform or cause to be performed through service
organizations of its own choosing such maintenance and repairs,
including upgrades, replacements, the obtaining of paid-up Software
licenses and other services, as it deems necessary to effect such
compliance, (ii) required Lessee to perform or cause to be performed
such maintenance and repairs, including upgrades, replacements, the
obtaining of paid-up Software licenses and other services, as Lessor
deems necessary to effect such compliance and/or (iii) reasonably
estimate the costs to effect such compliance. Lessee shall pay to
Lessor the reasonable costs for performance of (i) or (ii) above,
or the estimated costs under (iii) above, in any such case including
the reasonable costs of the inspection(s). If maintenance and repairs,
including upgrades, replacements, and the obtaining of paid-up Software
licenses and other services, are necessary to place any of the Equipment
under any Rental Schedule in the condition required by this Lease,
Lessee shall continue to pay to Lessor monthly Additional Rent at the
last prevailing rate during the Lease Term for Basic Rent on the
Equipment under such Rental Schedule for the reasonable period of delay
until all such required maintenance and repairs can be performed, or
for the period of time reasonably necessary to accomplish such
maintenance and repairs. For any such period that applies, Lessee
shall continue to provide the insurance required during the Lease Term.
However, Lessor's acceptance of such rent and provision of insurance
during such period shall not constitute a renewal of the Lease Term, a
wavier of Lessor's right to prompt return of such Equipment in the
condition required by this Section, or a waiver of Lessor's right to
possession of such Equipment.
(d) Should the inspection reveal any item(s) of the Equipment to be
missing, Lessee shall be responsible for paying to Lessor promptly the
greater of the Stipulated Loss Value or the Fair Market Value of such
item(s) of the Equipment computed as the last Payment Date prior to the
end of the Lease Term, plus the amount of any impairment of the Fair
Market Value of the remaining item(s) of the Equipment due to the
absence of such missing item(s) of the Equipment.
(e) In the event that Lessee fails to return any of the Equipment when
required, at the election of Lessor effected by notice to Lessee, the
Lease Term for such Equipment shall be extended on a month-to-month
basis on the same terms as previously in effect, and Lessee shall pay
to Lessor monthly in advance Basic Rent for such Equipment at the last
prevailing rate during the unextended Lease Term, until such Equipment
has been returned to Lessor pursuant to the provisions of this Lease.
Notwithstanding any month-to-month continuance of this Lease, Lessor may
resort to any remedies available to it under this Lease, at law or in
equity, to recover such Equipment at any time following the end of such
extended Lease Term.
(f) Not less than 180 days prior to expiration of the Lease Term, if
Lessee has not given notice of the exercise of any purchase option and
Lessor has not given notice of the exercise of any option to require
Lessee to purchase such Equipment, Lessee shall give Lessor notice that
Lessee shall be returning the Equipment forthwith upon the expiration of
the Lease Term unless otherwise notified by Lessor and either (i) that
the Equipment is in the condition required by this Lease upon the return
of the Equipment or (ii) specifying the respects in which the condition
of the Equipment is not in compliance with such requirements and the
measures that Lessee shall take to bring the Equipment into compliance.
16. Lessor's Ownership; Equipment To Be and Remain Personal Property.
(a) Lessee acknowledges and agrees that it does not have, and by
execution of this Lease and/or payments and performance hereunder it
shall not have or obtain, any title to the Equipment, nor any
property right or interest, legal or equitable, therein, except its
rights as Lessee hereunder and subject to the terms hereof. Lessee
shall not have or claim a security interest and shall not seek or obtain
replevin, detinue, specific performance, sequestration, claim and
delivery, or like remedies in or for this Lease, any rents under
this Lease, any or all of the Equipment, any items of personal
property identified to become items of the Equipment, or any
proceeds of any or all of the foregoing.
(b) All of the Equipment shall be and remain personal property notwith-
standing the manner in which the Equipment may be attached or affixed to
realty. Upon the expiration, cancellation or termination of the Lease
Term of any or all of the Equipment, Lessee shall have the obligation,
and Lessor shall have the right, to remove, or cause the removal of,
such Equipment from the premises where the same is then located, for
return to Lessor pursuant to the provisions of the Master Lease on
return of Equipment and, if applicable, on Events of Default, whether or
not any of the Equipment is affixed or attached to realty or to any
building. In the exercise of its rights, Lessor shall not be liable for
any damage to the realty or any such building or other real or personal
property occasioned by any removal of the Equipment by Lessee or Lessor
or the agents of Lessee or Lessor unless caused by Lessor's gross
negligence or willful misconduct. Lessee further covenants and agrees
that Lessee will, at the request of Lessor, obtain and deliver to Lessor
concurrently with the execution and delivery of each Rental Schedule, a
waiver, in recordable form, from the owner and any landlord, tenant or
holder of any lien or encumbrance on the realty or building(s) on or in
which any of the Equipment described in such Rental Schedule shall be
located, under which such owner, landlord, tenant and holder (i) agree
and consent that such Equipment is and shall be personal property,
owned by and removable by Lessor upon the expiration, cancellation or
termination of the Lease Term thereof, and (ii) waive any rights of
distraint or similar rights with respect to with respect to such
Equipment.
(c) If Lessee is unable to return, or is prevented from returning, any
of the Equipment to Lessor upon the expiration, cancellation or
termination of the Lease Term as required under the provisions of this
Master Lease on return of Equipment, for any reason whatsoever,
including, but not limited to , the assertion by any third party of any
claim against such Equipment is affixed or attached to, or installed in,
the realty or any building(s) thereon or any other personal or real
property, or from the failure of any owner, landlord or tenant of said
realty (or the building(s) thereon) or the holder of any lien or
encumbrance to execute the waiver in writing of such fact, for all
purposes of this Lease such Equipment shall be deemed to have been the
subject of a Casualty Occurrence. Thereupon, Lessee shall pay to Lessor
the amounts provided for by the provisions of this Master Lease on loss,
damage or destruction of Equipment, with respect to such Equipment, at
the time, in the manner, and with the consequences provided by such
provisions.
(d) Notwithstanding the foregoing provisions of the Section, without
Lessor's prior written consent, Lessee shall not permit any of the
Equipment to be attached or affixed to, imbedded in or incorporated into
any building, structure, real estate or other personal or real property
in such manner as to constitute the same an "attachment" to personal
property or a "fixture" to real property as such terms are defined in
Article 9 of the Uniform Commercial Code.
17. Other Covenants. (a) Lessee agrees to furnish, upon Lessor's
request, such financial, business and operational information concerning
Lessee, as Lessor or its assigns may reasonably request during the Lease
Term. Additionally, Lessee shall furnish to Lessor and its assigns
without notice or demand therefor two complete copies of its (i)
quarterly interim financial statements within 45 days of the close of
each of the first three fiscal quarters of every year, certified by the
chief financial officer of, respectively, Lessee and (ii) annual
financial statements within 90 days of the close of each fiscal year
reported on by independent accountants without material adverse
qualification or comment. All such financial statements shall be
prepared in accordance with generally accepted accounting principles
consistently applied, and shall accurately and completely present
Lessee's financial condition and results of operations at the dates of
and for the periods covered by such statements.
(b) Lessee shall promptly furnish to Lessor copies of (i) filings that
Lessee or any Guarantor makes with the SEC or other government agencies
under the securities laws including but not limited to definitive proxy
statements, registration statements, prospectuses and tender offer
filings, and reports on holdings or acquisitions of securities, relating
to proxy solicitations, and on Form 10-K, 10-Q, 8-K or similar forms,
and any amendments to such filings, (ii) press releases of Lessee or any
Guarantor, and (iii) new products (or service) announcements of Lessee or
any Guarantor.
(c) If Lessee or any Guarantor or a general partner of Lessee or any
Guarantor is a corporation, Lessee shall give Lessor notice of all
meetings of the stockholders or directors of such corporation and copies
of all materials that are furnished to the stockholders or directors for
the meetings at the same time that the notice or materials are sent to
the stockholders or directors. If Lessee or any Guarantor or a general
partner of Lessee or any Guarantor is a partnership, Lessee shall give
Lessor notice of all meetings of such partnership and copies of all
materials are sent to the partners. Lessor shall have the right to
have its representative attend any and all such meetings at the expense,
including travel costs, of Lessee.
(d) There shall be no actual or threatened conflict with, or violation
of, any applicable statute, regulation, standard or rule relating to
Lessee, its present or future operations, or the Equipment.
(e) All information supplied to Lessor or its assigns by Lessee or any
Guarantor shall be correct in all material respects and shall not omit
any statement necessary to make the information supplied not be
materially misleading. There shall be no material breach of the
representations and warranties made by Lessee in connection with this
Lease or by any Guarantor in connection with a Guaranty (as hereinafter
defined).
(f) Lessee shall give Lessor notice of any change in the address of the
executive office or principal place of business of Lessee not less than
15 days prior to the change.
(g) Without the express written consent of Lessor, which consent shall
not be unreasonably withheld, delayed or conditioned, no change shall
occur in the control that results in a change in the senior management
of Lessee.
(h) Lessee shall not make any payment or distribution of money, checks,
securities or property to any Person in contravention of the provisions
of any Guaranty or subordination that such Person has made in favor of
Lessor or its assigns of which Lessee shall have notice or knowledge.
18. Events of Default. If one or more of the following events
(hereinafter called "Events of Default" or an "Event of Default") shall
occur:
(i) default shall be made in the payment of any Basic Rent or Additional
Rent due under this Master Lease or under any Rental Schedule hereto,
and any such default shall continue for more than 10 days after the due
date thereof;
(ii) any representation or warranty by Lessee or any Guarantor made in
this Master Lease or in any Guaranty or other Transactional Document or
certificate furnished to Lessor in connection with this Lease or
pursuant hereto shall at any time prove to be incorrect in any material
respect;
(iii) Lessee shall make or permit any unauthorized assignment or
transfer of this Master Lease or any Rental Schedule to this Master
Lease or of any of Lessee's rights and obligations hereunder or
thereunder, or Lessee shall make or permit any unauthorized sublease or
transfer of any Equipment or the possession of any Equipment;
(iv) Lessee shall default in the observance and/or performance of any
other covenant, condition or agreement on the part of Lessee to be
observed and/or performed under this Master Lease, under any Rental
Schedule hereto, or under any other Transactional Document, which
default is not governed by paragraphs (i),(ii) or (iii) above, and such
default shall continue for 30 days after written notice from Lessor to
Lessee specifying the default and demanding the same to be remedied;
(v) Lessee or any Guarantor shall make an assignment for the benefit of
creditors, or cease being in substantially the same line or lines of
business in which it is presently engaged, or generally fail to pay its
debts as they become due, or become insolvent or commence a voluntary
case under the federal Bankruptcy Code as now or hereafter constituted or
any other applicable federal or state bankruptcy, insolvency or similar
law, or admit in writing its inability to pay its debts as they mature,
or consent to the appointment of a trustee or receiver, or a trustee or
a receiver shall be appointed for Lessee or any Guarantor or for a
substantial part of Lessee's or any Guarantor's property without such
party's consent and such appointment shall be not dismissed for a period
of 60 days; there shall have been entered a decree or order for relief
by a court having jurisdiction in respect of Lessee or any Guarantor,
or approving as properly filed a petition seeking a reorganization,
arrangement, adjustment or composition of or in respect of Lessee or any
Guarantor in an involuntary proceeding or case under any applicable
federal or state bankruptcy, insolvency or other similar law, or
appointing a receiver, liquidator, assignee, custodian, trustee or
similar official of Lessee or any Guarantor or of any substantial part
of its property, or ordering the winding-up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and
in effect for a period of 60 days, or there shall have been filed a
petition by or against Lessee or any Guarantor under any bankruptcy
law or other insolvency law and, if petition is filed against Lessee or
such Guarantor, the petition is not withdrawn or dismissed within 60
days after the date of filing; or Lessee or any Guarantor shall cease
doing business as a going concern or shall liquidate or be dissolved;
(vi) Lessee or any Guarantor shall, without the prior written consent of
Lessor, enter into a merger, consolidation or division, effect a share
exchange of its outstanding stock for the stock of another corporation,
make a tender offer for equity securities of a publicly held entity, or
sell or otherwise dispose of all or a major part of its assets or of
assets that produce all or a major part of its revenues or profits;
provided, however, that Lessee or any Guarantor, without violating the
provisions of this clause, may consolidate with or merge with a
corporation or other entity organized under the laws of one of the
states of the United States (the surviving entity, a "successor"),
or sell (except by means of a sale and leaseback arrangement) all or
substantially all of its business and assets to such a successor, on the
condition that any successor expressly assume in writing all of the
obligations of Lessee pursuant to this Lease or of such Guarantor
pursuant to its guaranty, and that the net tangible assets and the net
worth (determined in accordance with generally accepted accounting
principles) of the successor after the consolidation, merger or sale
shall be at least equal to the net tangible assets and the net worth
of Lessee or such Guarantor, as the case may be, immediately prior to the
consolidation, merger or sale;(vii) there shall occur under any other
lease,contract or agreement between Lessee and Lessor, an Event of Default,
as defined in such lease, contract or agreement;
(viii) any of the Equipment shall be attached, levied upon, encumbered,
pledged, seized or taken under any judicial process (except for any
attachment, levy, encumbrance or pledge caused to be placed on the
Equipment by Lessor) and such proceedings shall not be vacated, or fully
stayed, within 30days thereof;
(ix) at any time there shall occur under (A) any lease between Lessee
and a party other than Lessor as lessor or (B) under any lease wholly
or partially guaranteed by Lessee, the exercise by the lessor of its
possessory remedies or commencement of legal proceedings by the lessor
for default under the lease; provided that the aggregate future
payments remaining to be made or guaranteed by Lessee exceed $10,000,
and that under a lease described in (B) above within ten days of
notice to Lessee of such exercise of remedies and demand for payment
by Lessee any such amount guaranteed by lessee remains unpaid; or
(x) any obligation of Lessee or any Guarantor for payment of borrowed
money or the acquisition of assets by purchase, conditional sale or
other arrangement is not paid or refinanced at maturity, whether by
acceleration or otherwise, or is declared due and payable prior to the
stated maturity thereof by reason of default or other violation of the
terms of any promissory note or agreement evidencing or governing such
obligation, and Lessor has given Lessee an opportunity to either cure the
purported Event of Default or supply information satisfactory to Lessor
that it does not, in fact, exist;
this Lease shall be declared in default, immediately and without notice
upon the occurrence of an Event of Default specified in clause (V) above,
and in the case of any other Event of Default, upon lessor at any time
at its option subsequent to such Event of Default giving notice to
Lessee that this Lease is declared in default. At any time after this
Lease has been declared in default, Lessor may exercise one or more of
the following remedies, to the extent not then prohibited by law, as
Lessor in its sole discretion may elect;
(I)to proceed by appropriate court action or actions at law or in equity
or in bankruptcy to enforce performance by Lessee of the covenants and
terms of this Lease and/or to recover damages for the breach thereof;
(II)to terminate or cancel this Lease upon written notice to Lessee
whereupon all rights of Lessee to use the Equipment shall immediately
terminate, but Lessee shall not be relieved of any obligations under
this Lease;
(III)whether or not this Lease be so terminated or canceled, and without
notice to Lessee, to repossess and/or to render inoperable the Equipment
wherever found, with or without legal process, and for this purpose
Lessor and/or its agents may enter upon any premises of or under the
control or jurisdiction of Lessee or any agent of Lessee without
liability for suit, action or other proceeding by Lessee and remove the
Equipment therefrom; Lessee hereby expressly waives any claims for
damages occasioned by such repossession unless due to Lessor's gross
negligence or willful misconduct; LESSEE HEREBY EXPRESSLY WAIVES ANY
AND ALL RIGHTS, INCLUDING RIGHTS TO NOTICE OR A JUDICIAL HEARING, WITH
RESPECT TO REPOSSESSION OF THE EQUIPMENT AFTER AN EVENT OF DEFAULT;
(IV)to hold or to use any Equipment returned to Lessor or repossessed by
Lessor for any purpose whatsoever, to sell any Equipment at a private or
public, cash or credit sale, provided that Lessee, shall have been given
not less than ten days notice of the earliest date when any such sale may
occur, and to re-lease any Equipment, in all the foregoing events free
and clear of any rights of Lessee and without any duty to account to
Lessee with respect to such action or inaction;
(V)whether or not Lessor shall have exercised, or shall hereafter at any
time exercise, any of its other rights with respect to an item of the
Equipment, upon written notice to Lessee, to demand that Lessee pay to
Lessor, and Lessee shall pay to Lessor on the date specified in such
notice, as liquidated damages for loss of a bargain and not as a penalty
(in lieu of the Basic Rent for such Equipment that prior to the Event of
Default was to have been paid on Payment Dates subsequent to the date
specified in such notice),the sum equal to the excess, if any, of 125% of
the Stipulated Loss Value for such item of Equipment computed as of the
latest Payment Date when all Basic Rent and Additional Rent then due and
payable has been fully paid over whichever of the following three amounts
Lessor, in its sole discretion, shall designate in such notice;
(A) the present value of the fair market rental value (determined as
hereafter provided in this Section) of such item of the Equipment for
the remainder of the Lease Term as of the date specified in such notice,
the present value to be computed on the basis of a seven percent per
annum rate of discount from the respective dates upon which such rent
would be paid,
(B) the fair market sales value (determined as hereafter provided in
this Section) of such item of Equipment as of the date specified in such
notice, or
(C) if Lessor shall have sold or re-leased any item of Equipment pursuant
to clause (IV) above, the net proceeds of such sale or release,
plus interest at the Default Interest Rate (a) on such sum from the
such Payment Date until paid and (b) on whichever of such tree amounts is
so designated by Lessor from such Payment Date until whichever one of the
following shall be applicable to the designated amount; the time when the
fair market rental or sales value shall have been so determined or the
time when the Equipment shall have been sold or re-leased; and
(VI)to forthwith recover from Lessee, and Lessee shall be fully liable
for, all Basic Rent that shall accrue until the date that the Equipment
is returned to or repossessed by Lessor and any Additional Rent
including collections fees, whenever accrued, and interest at the Default
Interest Rate.
In addition to the foregoing, Lessor may also recover from Lessee all
costs and expenses arising out of Lessee's default, including, without
limitation, expenses of repossession of the Equipment and the storage,
inspection, repair, reconditioning, sale and re-leasing thereof, and
reasonable attorneys' fees incurred by Lessor in exercising any of its
rights or remedies hereunder. For the purposes of this Section only,
"fair market rental value" and "fair market sales value" shall be
determined by an appraisal shall be borne by Lessee. No remedy referred
to in this Section is intended to be exclusive, but each shall be
cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity or in bankruptcy.
Lessor shall have no duty to pay Lessee any surplus from sale or lease
of the Equipment, or in the fair market rental or sales value of the
Equipment, above all amounts payable by Lessee to Lessor. The exercise
by Lessor of any one or more remedies shall not be deemed to preclude
the simultaneous or later exercise by Lessor of any or all such
previously exercised remedies and any and all other remedies.
19. Assignment and Transfer by Lessor. (a) Lessor may at any time and
from time to time assign to one or more security assignees (all herein
called an "Assignee") for the purpose of securing a loan to Lessor or
for any other purpose, and at its sole discretion, may also sell or
transfer to one or more Persons (herein called the "Transferee" and
also called an "Assignee"), in any case subject to the rights of Lessee
under this Lease but without notice to or consent of Lessee, this Lease,
any other Transactional Documents, any or all of the Equipment, and all
sums at any time due and to become due or at any time owing or payable
by Lessee to Lessor under this Lease or pursuant to any or all of the
Transaction Documents. The Secured Party shall not be obligated to
perform any duty, covenant or condition required to be performed by
Lessor under this Lease or any other Transactional Documents.
(b) Lessee agrees that notwithstanding any assignment to a Secured
Party, each and every covenant, agreement, representation and warranty
of Lessor under this Lease shall be and remain the sole liability of
Lessor and of every successor in interest of Lessor (excluding any
Secured Party) or, in the case of assignment to a Transferee, shall
become and remain the sole liability of the Transferee if so agreed to
by the Transferee and if not so agreed to shall be and remain the sole
liability of Lessor. Lessee further agrees and acknowledges that any
assignment, sale or transfer by Lessor could not and shall not
materially change any duty or obligation of Lessee or materially
increase any burden or risk of Lessee.
(c) Lessee further acknowledges and agrees that from and after the
receipt by Lessee of written notice of an assignment from Lessor,
Lessee shall comply with the directions or demands given in writing
by the Secured Party or (to the extent not inconsistent with the
directions or demands of the Secured Party) by the Transferee, and the
Secured Party or Transferee shall have the right to exercise (either in
its own name or in the name of the Lessor) all rights, privileges, and
remedies of Lessor provided for herein. Lessee agrees that any
obligation to a Secured Party as a result of the assignment of this
Lease to a Secured Party as aforesaid shall not be reduced or minimized
by reason of any claim, defense, counterclaim, set-off, abatement,
reduction or recoupment or other right that Lessee might otherwise have
been able to assert against Lessor, any prior Assignee or any
Transferee. After any assignment to a Secured Party and unless and
until Lessee is otherwise notified by the Secured Party, this Lease may
not be amended or modified, and no consent or waiver hereunder shall be
effective, without the prior written consent of the Secured Party.
Lessee agrees to execute and Lessor or any Transferee or Secured Party
may record any instruments and documents relating to such assignment,
mortgage or security interest desired by Lessor or any Transferee or
Secured Party. Lessee shall promptly provide any such instruments and
documents that are requested by Lessor or any Assignee including
certificates indicating any claim, defense, counterclaim, setoff,
abatement, reduction, recoupment or other right that Lessee may have
against Lessor or any Assignee, the date to which Basic Rent has been
paid under each Rental Schedule hereunder and that this Lease is in
effect without default or amendment, or the extent of such default or
amendment, as the case may be.
20. Recording and Filing; Expenses. Lessee will, upon demand of Lessor,
at Lessee's cost and expense, do and perform any other act and will
execute, acknowledge, deliver, file, register, record and deposit (and
will re-file, re-register, re-record or re-deposit whenever required)
any and all instruments required by law or requested by Lessor (or any
Assignee) including, without limitation, financing statements under the
Uniform Commercial Code (which, notwithstanding the intent of Lessor
and Lessee that this is a true lease, Lessor shall have the right to
file wherever and whenever Lessor requires), for the purpose of
providing proper protection to the satisfaction of Lessor (and/or any
Assignee) of Lessor's title to any Equipment (and/or of any Assignee's
security interest in the Equipment)or for the purpose of carrying out
the intention of this Lease. Lessee will also pay, or will upon demand
reimburse Lessor for, all reasonable costs and expenses incurred by
Lessor in connection with this Lease, any other Transactional Documents,
and any related transactions, closings, assignments, sales and transfers
to any Secured Party or Transferee, enforcement of Lessor's rights under
this Lease and the other Transactional Documents, proceeding involving
Lessee or any Guarantor as a Debtor under any chapter of the Bankruptcy
Code, filings, documentation of this an any related transactions, and
fees and costs of attorney's for Lessor in connection therewith.
21. Automatic Lease Term Renewal. In the event that at the expiration
of the Primary Term Lessee does not exercise the purchase option set
forth in this Master Lease with respect to the Equipment subject to
such Rental Schedule for an additional term of twelve months (the "
Renewal Term") at a monthly Basic Rent equal to one an one half percent
(1.5%) of the Acquisition Cost of such Equipment, plus any applicable
sales and other taxes, that shall be paid monthly in advance.
22. Quiet Enjoyment. So long as no Event of Default has occurred and
is continuing hereunder, Lessee shall have peaceful and quiet use and
enjoyment of the Equipment during the Lease Term as against acts of
Lessor or anyone claiming solely by, through or under Lessor including
any Secured Party or Transferee.
23. Failure or Indulgence not Waiver; Additional Rights of Lessor.
(a) Except as otherwise expressly provided herein, no failure to
exercise, and no delay in exercising, any right, power or remedy
hereunder on the part of Lessor shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or remedy
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, to be effective, must be in
writing. A waiver of any covenant, term or condition contained herein
shall not be construed as a waiver of any subsequent breach of the same
covenant, term or condition. Receipt by Lessor of any Basic Rent or
Additional Rent with knowledge of the breach of any provision hereof
shall not constitute a waiver of such breach.
(b) Lessor shall be entitled to injunctive relief in case of the
violation or attempted or threatened violation of any of the provisions
hereof, to a decree compelling performance of any of the provisions
hereof, and to any other remedy allowed in law or in equity.
24. Sublease. Lessee shall not sublease the Equipment, relinquish
possession of the Equipment, or assign, pledge or hypothecate this
Lease or any of Lessee's rights or obligations hereunder, in whole or
in part, without the prior written consent of Lessor. Nevertheless,
any such sublease and the rents, profits and proceeds therefrom shall be
the property of Lessor and, unless Lessor has consented to such
sublease, Lessor within 30 days after receiving notice thereof in
accordance with the provisions of this Master Lease on notices shall
have the right to declare the sublease void from its purported
commencement, to terminate the sublease or to accept the sublease. Any
such attempted relinquishment of possession, assignment, pledge or
hypothecation by Lessee without such consent shall be null and void.
25. Purchase Option. (a) If (i) no Event of Default, and no event
which with the giving of notice or lapse of time, or both, would
constitute an Event of Default, has occurred and then remains unremedied
to Lessor's satisfaction, and (ii) this Lease shall not have been earlier
terminated, Lessee shall be entitled, at its option, upon written notice
to Lessor, as hereinafter provided, to purchase all, but not less than
all, items of the Equipment then subject to a Rental Schedule, at the
expiration of the Primary Term for such items of the Equipment or, as
the expiration of any Renewal Term for such items of the Equipment, for
an amount, with respect to each such item of the Equipment, payable in
immediately available funds, equal to the Fair Market Value thereof as
determined by an Appraisal, plus any applicable sales, excise or other
taxes imposed as a result of such sale (other than net income taxes
attributable to such sale). Lessor's sale of any item of the Equipment
shall be on an "as-is", "where-is" basis, without any representation or
warranty by or recourse to Lessor, as provided by the provisions of this
Master Lease on disclaimer of warranties, and shall be subject to such
additional terms and conditions as may be specified in the Rental
Schedule, except that Lessor shall warrant against prior sale by Lessor
other than to Lessee and against any security interests granted by
Lessor. If Lessee intends to exercise said purchase option, Lessee shall
give written notice to Lessor to such effect at least 180 days prior to
the earliest expiration of the Primary Term of the item(s) of the
Equipment subject to the particular Rental Schedule with respect to which
Lessee intends to exercise its purchase option, or, if a Renewal Term is
then in effect, at least 180 days prior to the earliest expiration of the
then current Renewal Term of the item(s) of the Equipment subject to the
particular Rental Schedule with respect to which Lessee intends to
exercise its purchase option. If lessee fails to give such written
notice to Lessor as aforesaid, it shall be conclusively presumed that
Lessee has elected not to exercise such purchase option. If Lessee gives
such written notice, Lessee shall be obligated to buy, and Lessor shall
be obligated to sell, such Equipment on the terms herein provided.
(b) If Lessee has elected to exercise its purchase option, as provided
in this Section, as soon as practicable following Lessor's receipt of
the written notice from Lessee of Lessee's intent to exercise such
option, Lessor and Lessee shall consult for the purpose of determining
the Fair Market Value of each such item of the Equipment as of the end
of the Primary Term thereof, or, if this Lease has been renewed pursuant
to any provisions of this Lease on option to renew, as of the end of the
then current Renewal Term thereof, and any values agreed upon in writing
shall constitute the Fair Market Value of each such item of the Equipment
for the purposes of this Section. In so consulting, Lessor and Lessee
may refer to books containing indexes of standard values for used equip-
ment of relevant type and age and to the records of Lessee and similar
users which tabulate the history of revenues and various other economic
benefits derived from the use of the Equipment. If Lessor and Lessee
have failed to agree upon such value prior to the 150th day before the
expiration of the Primary Term, or, if this Lease has been renewed,
prior to the 150th day before the expiration of the then current Renewal
Term, on and after such 150th day either party may request that such
value be determined by Appraisal.
(c) Notwithstanding any election by Lessee to purchase, the provisions
of this Lease shall continue in full force and effect until the transfer
of ownership of such Equipment upon the date of purchase by the delivery
of a Bill of Sale by Lessor.
26. Notices. Any notice or other communication required or permitted to
be given by either party hereto to the other party shall be deemed to
have been given upon its receipt, in writing, by the receiving party at
its address set forth below, or at such other address as the receiving
party shall have furnished to the other party by notice pursuant to this
Section.
If to Lessee: Semiconductor Lesser International Corporation
148 Vestal Parkway East
Vestal, NY 13850
If to Lessor: FINOVA Technology Finance, Inc.
10 Waterside Drive
Farmington, CT 06032-3065
27. Entire Agreement; Severability; Amendment or Cancellation of Lease.
This Lease, and the commitment letter of Lessor to Lessee dated September
26, 1996, as accepted by Lessee September 27, 1996, constitute the com-
plete and exclusive statement of the terms of the agreement between the
parties with respect to the leasing of the Equipment by Lessor or Lessee.
Any provision of this Lease which is prohibited or unenforceable in any
jurisdiction shall be, as to such jurisdiction, ineffective to the extent
of such prohibition or unenforceability without invalidating the re-
maining provisions hereof, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. LESSEE ACKNOWLEDGES RECEIPT OF A
COPY OF THIS MASTER LEASE. Lessor and Lessee agree that neither this
Lease nor Lessee's acceptance or deemed acceptance of any or all of the
Equipment may be canceled, waived, altered, amended, repudiated, term-
inated, rescinded, revoked or modified, except by a writing signed by
Lessee and a duly authorized representative of Lessor.
________________________________
Signature of Lessee
28. Waiver of Jury. Lessor and Lessee waive any right to trail by jury
in any action or proceeding relating in any way to this Lease.
29. Restriction of Limitation Periods and Damages. Any action for
breach of warranty or in respect of or relating to the Equipment of this
Lease that may be brought by Lessee against Lessor or any Assignee must
be commenced with one year after the cause of action accrues. Lessee
shall not make any claim in respect of or relating to the Equipment of
this Lease against Lessor or any Assignee for special consequential or
punitive damages.
30. Governing Law; Consent to Jurisdiction and Service. This Lease
shall be governed by and construed in accordance with the laws of the
State of Connecticut (other than the conflicts of laws provisions).
Lessee agrees that any legal action or proceeding against Lessee in
respect of or relating to this Lease or the Equipment may be brought
in any state or federal court sitting in the city of Hartford in the
State of Connecticut. Lessee hereby irrevocably consents and submits
to the nonexclusive personal jurisdiction of said courts and irrevocably
agrees that all claims in any such action or proceeding may be heard and
determined in and enforced by any such court. Lessee irrevocably
consents to the service of summons, notice, or other process relating
to any such action or proceeding by delivery thereof to it by hand or by
mail in the manner set forth in the provisions of this Master Lease on
notices.
31. Lessor's Right to Perform for Lessee. If Lessee fails to duly and
promptly perform any of its obligations under this Lease or fails to
comply with any of the covenants or agreements contained herein, Lessor
may itself perform such obligations or comply with such covenants or
agreements, for the account of Lessee, without thereby waiving any
default, and any amount paid or expense (including, without limitation,
reasonable attorney's fees) reasonably incurred by Lessor in connection
with such performance or compliance shall, together with interest thereon
at the Default Interest Rate, be payable by Lessee to Lessor on demand.
32. Agreement for Lease Only. Lessor and Lessee agree that this Lease
is and is intended to be a true lease (and not a lease in the nature of
a security interest) and further agree to treat this Lease as a true
lease for all purposes, without limitation, tax purposes.
33. Binding Effect. This Lease shall insure to the benefit of and be
binding upon the parties hereto and their respective permitted successors
and assigns.
34. General. The captions in this Master Lease and each Rental Schedule
are for convenience of reference only. There shall be only one original
executed copy of this Master Lease and of each Rental Schedule. This
Master Lease is and each Rental Schedule shall be executed in the State
of Connecticut by Lessor's having countersigned the same in the State of
Connecticut, and are to be and shall be performed in the State of Conn-
ecticut by reason of the requirements therein for payment by Lessee to
Lessor to be made in the State of Connecticut.
35. Definitions. The following terms, not elsewhere defined, shall have
the following meanings for all purposes hereof:
"Acquisition Cost" of any item of the Equipment shall mean an amount
equal to the sum of (i) the purchase price of such item of the Equipment
paid by Lessor pursuant to the purchase order for such item of the Equip-
ment assigned to or given by Lessor, plus(ii) any excise, sales or use
tax, freight, installation, set-up and other costs that are paid by
Lessor on or with respect to such item of the Equipment on or about the
time of Lessor's purchase of the Equipment or the Lease Commencement Date
and that Lessor does not request Lessee to directly reimburse to Lessor.
"Appraisal" shall mean the following procedure whereby recognized
independent qualified equipment appraisers shall mutually agree upon the
amount in question. The party seeking Appraisal shall deliver a written
notice to that effect to the other party appointing its appraiser, and
within 15 days after receipt of such notice, the other party shall, by
written notice, appoint its appraiser. If within 15 days after appoint-
ment of the two appraisers as described above, the two appraisers are
unable to agree upon the amount in question, a third appraiser shall be
chosen within five days thereafter by mutual agreement of the first two
appraisers, or if the first two appraisers fail to agree upon the
appointment of a third appraiser, such appointment shall be made by an
authorized representative of the American Arbitration Association. The
appraisal of the third appraiser shall be given within a period of ten
days after the selection of the third appraiser. The average of the
three appraisers shall be binding and conclusive on Lessor and Lessee.
Lessor and Lessee each shall pay the fees of the appraiser appointed
by it and shall share equally the fees and expenses of the third
appraiser, if any, and those of the American Arbitration Association,
if applicable.
"Certificate of Inspection and Acceptance" shall mean a certificate in
the form designated by Lessor whereby Lessee evidences its acceptance of
one or more items of the Equipment for lease hereunder.
"Fair Market Value" shall mean, with respect to the Equipment in
question, the amount which would be paid for that Equipment in an arm's-
length sale transaction between an informed and willing buyer (not a used
equipment or scrap dealer) who wants the Equipment to be as described
in the next following sentence and is under no compulsion to buy, and an
informed and willing seller under no compulsion to sell. In determining
the Fair Market Value, it shall be assumed (whether or not the same be
true) that the Equipment is fully operational, installed and in
economically productive service and that all maintenance and repairs in-
cluding upgrades, replacements and other services required by this Lease
have been performed and that the Equipment is in such condition to comply
fully with the requirements of this Lease, including provisions of this
Master Lease governing the return of Equipment. The costs of removal
from the location of current use and installation at another location
for use shall not be a deduction in determining the Fair Market Value.
Upon any exercise by Lessee of the purchase option provided for by this
Master Lease at the expiration of the Primary Term for the Equipment
subject to a Rental Schedule, Lessor and Lessee agree that the Fair
Market Value shall not be less than ten percent (10%) or more than
twenty percent (20%) of the Acquisition Cost of such Equipment.
"Guarantor" shall mean a guarantor of any or all of the obligations
of Lessee pursuant to this Lease.
"Guaranty" shall mean a writing containing a guaranty of any or all of
the obligations of Lessee pursuant to this Lease.
"Lease Commencement Date" with respect to an item of Equipment shall mean
the date of commencement of the Lease Term of the item as provided by
the applicable Rental Schedule.
"Lease Term" with respect to an item of the Equipment shall mean the
Primary Term plus any and all Renewal Terms plus any period during which
Lessee retains the Equipment on a month-to-month basis pursuant to
provisions of this Master Lease governing the return of the Equipment.
The Lease Term shall include the Lease Commencement Date and the date
on which the Lease Term ends.
"Manufacturer" shall mean the Person that manufactures the item of the
Equipment in question.
"Master Lease" shall mean this Master Equipment Lease Agreement.
"Person" shall mean an individual, a corporation, a partnership, an
association, a joint-stock company, a trust, an estate, any incorporated
organization or similar association, a government or political sub-
division, or any other entity.
"Rental Schedule" shall mean each schedule, executed by Lessor and
Lessee pursuant to this Master Lease, providing for a description of
some or all of the Equipment to be leased hereunder, the place or
places where such Equipment shall be located, its Acquisition Cost,
the Basic Rent payable by Lessee with respect thereto, the Primary Term
thereof, the Lease Commencement Date with respect thereto, and such other
matters as Lessor and Lessee may agree upon.
"Stipulated Loss Value" shall mean the amount specified in the Table of
Stipulated Loss Values applicable to the items of the Equipment subject
to a Rental Schedule, as provided by the Schedule B attached to the
Rental Schedule. Except as otherwise provided in a writing signed by
Lessor and Lessee, the Stipulated Loss Value immediately prior to the
end of the Primary Term for any items of the Equipment shall be the
Stipulated Loss Value throughout any Renewal Term(s) for such items,
and thereafter until such items are returned to Lessor pursuant to the
provisions of this Lease or purchased by Lessee pursuant to any then
applicable purchase option provisions of this Lease.
IN WITNESS WHEREOF, the duly authorized representatives of Lessor and
Lessee have executed this Master lease as of the date first above
written.
LESSOR: LESSEE:
FINOVA TECHNOLOGY SEMICONDUCTOR LASER
FINANCE, INC. INTERNATIONAL CORPORATION
By:_________________________ By:_____________________________
Title:______________________ Title:__________________________
ATTEST: ATTEST:
By:_________________________ By:_____________________________
Title:______________________ Title:__________________________
form1(lam11.22.96)
PAGE>
[TYPE] EX-10.14
EXHIBIT 10.14
LICENSE AGREEMENT
This Agreement made this 1st. day of September, 1996, (the "Effective
Date"), by and between Northwestern University, an Illinois corporation
having a principal office at 633 Clark Street, Evanston, Illinois 60208
(hereinafter referred to as "Northwestern") and Semiconductor Laser
International Corporation, a New York corporation having a principal
office at 421 East Main Street, Endicott, NY 13760 (hereinafter referred
to as "SLI")(each a "Party" and collectively the "Parties").
WITNESSETH
WHEREAS, Northwestern is the owner of certain patent rights and know-how
relating to "Aluminum-Free High Power Compound Semiconductor Lasers
utilizing structures formed from Group III and Group V of the Periodic
Table of Elements that have wavelengths between 660 and 1100 nm and that
do not contain Aluminum, and has the right to grant licenses hereunder,
subject only to a royalty-free, nonexclusive license heretofore granted
to the United States Government;
WHEREAS, Northwestern desires to have the patent rights and know-how
developed and commercialized to benefit the public and is willing to
grant a license hereunder;
WHEREAS, SLI has represented to Northwestern that SLI will commit itself
to a thorough, vigorous and diligent program to develop and subsequently
manufacture, market and sell products utilizing the patent rights and
know-how;
WHEREAS, SLI desires to obtain a license under the patent rights and
know-how upon the terms and conditions hereafter set forth;
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 "Affiliate" shall mean any corporation, firm, partnership or other
entity which controls, is controlled by or is under common control with
a Party. For the purposes of this definition, "control" shall include
direct or indirect ownership of at least fifty percent (50%) of the
outstanding equity voting stock or securities convertible into or
exchangeable for such stock (or such lesser percentage which is the
maximum allowed to be owned by a foreign corporation in a particular
jurisdiction) of a Party or other entity.
1.2 "Field" shall mean all industrial, medical, dental,
telecommunications, data storage printing and reprographics and military
applications.
1.3 "Know-How" shall mean any and all technical information existing as
of the Effective Date or generated during the term of this Agreement
which is owned or controlled by Northwestern and directly relates to
Licensed Products and shall include, without limitation, manufacturing
data and any other information relating to the Licensed Products and
useful for the development, commercialization or safety and
effectiveness of the License Products.
1.4 "Licensed Products" shall mean all "Aluminum-Free" High Power
Compound Semiconductor Lasers that are formed from Group III and
Group V of the Periodic Table of Elements that have wavelengths between
660 and 1100 nm and that do not contain Aluminum and that are contained
in the claims of US Patent Nos. 5,384,151 and 5,389,396.
1.5 "Net Sales" shall mean the gross amount invoiced by SLI, its
Affiliates or its sublicensees, to third parties for the sale of Licensed
Products, less amounts actually invoiced or allowed with respect to
trade credits, discounts, rebates and allowances actually granted on
account of price adjustments, rebate programs, billing errors or the
rejection or return of goods, sales taxes, tariffs, and custom duties.
If a Licenced Product is sold as a part of a combination, Net Sales for
the purposes of determining royalties on the Licensed Product(s) in the
combination shall be calculated by multiplying Net Sales by the fraction
A/A+B, where A is the invoice price of the Licensed Product(s) sold
separately and B is the invoice price of the other active ingredients in
the combination.
1.6 "Patent Rights" shall mean the patents and patent applications
listed on Exhibit A attached hereto and incorporated herein by reference,
and all substitutions, additions, extensions, reissues, renewals,
divisions, continuations-in-part thereof and any foreign counterparts
thereto.
1.7 "Territory" shall mean worldwide.
ARTICLE II - GRANT
2.1 Northwestern hereby grants to SLI and its Affiliates an exclusive
license under Patent Rights and Know-How to make, have made, use and
sell Licensed Products in the Territory in the Field.
2.2 The grant under Paragraph 2.1 shall be subject to the obligations of
Northwestern and of SLI to the United States Government under ant and
applicable laws, regulations, and executive orders including those set
forth in 35 U.S.C (section)200. et seq.
2.3 Northwestern retains the right to utilize Patent Rights and Know-How
for noncommercial research purposes.
2.4 Northwestern hereby grants to SLI the right to grant sublicenses
consistent with this Agreement provided that SLI shall be responsible
for the performance of its sublicensees, including the payment of
royalties. SLI shall promptly notify Northwestern in writing that a
sublicense has been granted, and SLI agrees to provide a copy of each
sublicense to Northwestern upon Northwestern's request. SLI may
negotiate such terms as it chooses for each sublicense, provided that
Northwestern shall receive a royalty for all sales made by sublicensee(s)
and payments from sublicensee(s) at a rate of not less than that in
Sections 5.4 and 5.5 of this agreement.
ARTICLE III - CONFIDENTIAL INFORMATION
3.1 Northwestern and SLI each agree that all information contained in
documents marked "Confidential" which are forwarded to one by the other
shall be received in strict confidence, used only for the purposes of
this Agreement, and not disclosed by the recipient, its agents or
employees to any third party without the prior written consent of an
authorized officer of the disclosing Party, unless such information (a)
was in the public domain at the time of disclosure, (b) later became part
of the public domain through no act or omission of the recipient, its
employees, agents, successors or assigns, (c) was lawfully disclosed to
the recipient by a third party having right to disclose it, (d) was
already known by the recipient at the time of disclosure, (e) was
independently developed, (f) is required to be disclosed by law or
regulation or by court or administrative agency order, or (g) is
required to be submitted to a government agency to obtain and maintain
the approvals and clearances of Licensed Products. Disclosure may also
be made to Affiliates, distributors customers, and agents, to
nonclinical and clinical investigators, and to consultants, where
necessary or desirable and with appropriate safeguards to protect the
confidential underlying disclosure. Northwestern and SLI also agree that
confidential information may be orally disclosed by one Party to the
other Party. Such information shall be confirmed in writing and
designated "Confidential" within thirty (30) days of disclosure for the
provisions of this Article III to apply.
3.2 Each Party's obligation of confidence hereunder shall be fulfilled
by using at least the same degree of care with the other Party's
confidential information as it uses to protect its own confidential
information. This obligation shall exist while this Agreement is in force
and for a period of two (2) years thereafter except in the event of
termination by Northwestern for breach on the part of SLI, in which event
SLI's obligation to maintain the information confidential will exist for
a period of ten (10) years after the termination for breach.
3.3 This Agreement may be distributed solely (a) to those employees,
agents and independent contractors of Northwestern and SLI who have a
need to know its contents, (b) to those persons whose knowledge of its
contents will facilitate performance of the obligations of the parties
under this Agreement, (c) to those persons, if any, whose knowledge of
its contents is essential in order to permit SLI or Northwestern to
maintain or secure the benefits under policies of insurance, or (d) as
may be required by law or regulation or by court or administrative
agency order.
3.4 The burdens of confidentiality stated in Sections 3.1, 3.2 and 3.3 of
this Agreement shall be extended to any and all Sub-Licensees.
ARTICLE IV - MILESTONES AND DUE DILIGENCE
4.1 SLI shall, upon execution of this Agreement, submit to Northwestern a
preliminary development and business plan that sets forth an outline of
SLI's intended efforts to develop and commercialize Licensed Products.
Such plan shall include a summary of personnel, expenditures and
estimated timing for the development of Licensed Products and estimates
of the market potential for Licensed Products,
4.2 SLI shall comply with the following milestones:
(a) Licensed Products will be processed by SLI - March, 1997
(b) Licensed Products will be packaged by SLI - June, 1997
(c) Licensed Products will be tested by SLI - September, 1997
(d) Licensed Products will be grown by SLI - February, 1998
(e) Licensed Products will be sold by SLI - May, 1998
SLI agrees to devote that level of resource to the commercialization of
a Licensed Product as other companies in the industry customarily devote
to products of similar commercial potential.
ARTICLE V - PAYMENT
In consideration of the license granted by Northwestern to SLI under
this Agreement, SLI shall pay to Northwestern the following:
5.1 A non-creditable, non-refundable licensing fee of $21,000.00 will be
paid to Northwestern within 30 days after the Effective Date of this
Agreement. An additional license fee consisting of common stock of SLI
worth $10,000.00 as determined by the closing price of the stock on
NASDAQ, on the Effective Date of this Agreement. A further license fee
consisting of fifteen hundred (1500) shares of common stock of SLI
(adjusted for splits, reverse splits, mergers, combinations, or any
other event or events of like character between the Effective Date of
this Agreement and the date of delivery) shall be delivered to
Northwestern one (1) year from the Effective Date of this Agreement.
5.2 A running royalty equal to 4% of the first $1,000,000 of Net Sales,
3% of the next $4,000,000 of Net Sales, 2% of the next $20,000,000 of Net
Sales and 1% on all Net Sales above $25,000,000 for all Licensed Products
sold in countries covered by Patent Rights and 1% of Net Sales in
countries not covered by Patent Rights.
5.3 In addition to the running royalties under Paragraph 5.4, Forty
percent (40%) of any payments, including, but not limited to, sublicense
issue fees or milestones received from sublicensees as consideration for
Patent Rights, Know-How or Licensed Products.
5.4 In the event of a permitted assignment of this agreement, Five
percent (5%) of any payments received from such assignee as
consideration for Patent Rights, now-How or Licensed Products.
ARTICLE VI - PAYMENT, REPORTS AND RECORDS
6.1 Payment Dates and Reports
Within sixty (60) days after the end of each calendar quarter of each
year during the term of this Agreement (including the last day of any
calendar quarter following the expiration of this Agreement), SLI shall
pay to Northwestern, all royalties accruing during such calendar quarter.
Such payments shall be accompanied by a statement showing the Net Sales
of each License Product by SLI and its sublicensees in each country, the
applicable royalty rate and the calculation of the amount of royalty due.
6.2 Accounting
a. Payments in U.S. Dollars
All dollar sums referred to in this Agreement are expressed in U.S.
dollars and the Net Sales used for calculating the royalties and other
sums payable to Northwestern by SLI pursuant to Paragraph 6.1 shall be
computed in U.S. dollars. All payments of such sums and royalties shall
be made in U.S. dollars. For the purposes of determining the amount of
royalties due, the amount of Net Sales in any foreign currency shall be
computed converting such amount into U.S. dollars at the prevailing
commercial rate of exchange for purchasing U.S. dollars with such foreign
currency in question as quoted Citibank in New York on the last business
day of the calendar quarter for which the relevant royalty payment is to
be made by SLI.
b .Blocked Royalties
Notwithstanding the foregoing, if by reason of any restrictive exchange
laws or regulations SLI or any Affiliate or sublicensee hereunder shall
be unable to convert to U.S. dollars an amount equivalent to the royalty
payable by SLI hereunder in respect of Licensed Product sold for funds
other than U.S. dollars, SLI shall notify Northwestern promptly with an
explanation of the circumstances. In such event, all royalties due
hereunder in respect of the transaction so restricted (or the balance
thereof due hereunder and not paid in funds other than U.S. dollars as
hereinafter provided) shall be deferred and paid in U.S. dollars as soon
as reasonably possible after to the extent that such restrictive
exchange laws or regulations are lifted so as to permit such conversion
to United States dollars, of which lifting SLI shall promptly notify
Northwestern. At its option, Northwestern shall meanwhile have the right
to request the payment (to it or to a nominee), and upon such request
SLI shall pay, or cause to be paid, all such amounts (or such portions
thereof as are specified by Northwestern) in funds, other than U.S.
dollars, designated by Northwestern and legally available to SLI under
such then existing restrictive exchange laws or regulations.
6.3 Records
SLI shall keep, and shall cause its Affiliates and sublicensees to keep,
for three (3) years from the date of payment of royalties, complete and
accurate records of sales of each Licensed Product by SLI, its
Affiliates and its sublicensees in sufficient detail to enable the
accruing royalties to be determined accurately. Northwestern shall
have the right during this period of three (3) years after receiving any
report with respect to royalties due and payable to appoint, at its
expense, an independent certified public accountant to inspect the
relevant records of SLI, its Affiliates and its sublicensees to verify
such report. Northwestern shall submit the name of said accountant to
SLI for approval; said approval shall not be unreasonably withheld. SLI
shall make its records and those of its Affiliates and sublicensees
available for inspection by such independent certified public accountant
during regular business hours at such place or places where such records
are customarily kept, upon reasonable notice from Northwestern to the
extent necessary to verify the accuracy of the reports and payments with
not more than one (1) inspection per calendar year. Northwestern agrees
to hold in strict confidence all information concerning royalty payments
and reports and all information learned in the course of any audit or
inspection, except to the extent necessary for Northwestern to reveal
such information in order to enforce its rights under this Agreement or
as may be required by law. If royalties are understated by ten percent
(10%)or more in SLI's favor, the SLI shall, within ten (10) days of
receipt of the audit report, pay the balance due Northwestern plus all
reasonable costs of the audit or inspection and interest at the prime
rate as quoted by Citibank in New York form the date at which such
balance would have otherwise been due and payable. If royalties are
understated by less than ten percent (10%), SLI shall include such
understated amount with the next scheduled payment pursuant to Paragraph
6.1
ARTICLE VII - PUBLICATION
Northwestern will be free to publish the results of any research related
to Patent Rights, Know-How or Licensed Products and use any information
for purposes of research, teaching, and other educationally-related
matters. In order to avoid loss of Patent Rights as a result of
premature disclosure of patent able information, Northwestern shall submit
any prepublication or predisclosure material to the SLI for review at
least thirty (30) days prior to planned submission for publication or
disclosure. SLI shall notify Northwestern within thirty (30) days after
it receives such material: (1) whether it desires to file patent
applications on any inventions contained in the material and in such
case, Northwestern shall proceed to file a patent application at the
expense of SLI and add such patent application to Exhibit A. SLI may
request a delay in publication, but in no event shall the delay in
publication exceed thirty (30) days; or (2) whether such materials
contain confidential information of SLI. If materials contain
confidential information of SLI, Northwestern shall, at SLI's request,
delete said confidential information form the intended publication.
ARTICLE VIII - PATENT PROSECUTION
8.1 Northwestern shall maintain during the term of this Agreement the
Patent Rights in the United States.
8.2 Payment of all fees and costs relating to the filing, prosecution,
and maintenance of Northwestern and all maintenance fees and costs after
the Effective Date of this Agreement shall be the responsibility of SLI
and shall be made to Northwestern by SLI within thirty (30) days of
receipt by SLI of an invoice for such fees and costs.
ARTICLE IX - INFRINGEMENT
9.1 SLI shall inform Northwestern promptly in writing of any alleged
infringement of the Patent Rights by a third party and of any available
evidence thereof.
9.2 During the term of this Agreement, Northwestern shall have the right,
but shall not be obligated, to prosecute at its own expense all
infringements of the Patent Rights and, in furtherance of such right,
SLI hereby agrees that Northwestern may include SLI as a party plaintiff
in such suit, without expense to SLI. The total cost of any such
infringement action commenced or defended solely by Northwestern shall be
borne by Northwestern and Northwestern shall keep any recovery or damages
for past infringement derived therefrom.
9.3 If within six (6) months after having been notified of any alleged
infringement, Northwestern shall have been unsuccessful in persuading the
alleged infringer to desist and shall not have brought and shall not be
diligently prosecuting an infringement action, or if Northwestern shall
notify SLI at any time prior thereto of its intention not to bring suit
against any alleged infringer, then, and in those events only, SLI shall
have the right, but shall not be obligated, to prosecute at its own
expense any infringement of the Patent Rights, and SLI may, for such
purposes, use the name of Northwestern as party plaintiff; provided,
however, that such right to bring such infringement action shall remain
in effect only for so long as the license granted herein remains
exclusive. No settlement, consent judgment or other voluntary final
deposition of the suit may be entered into without the consent of
Northwestern, which consent shall not unreasonably be withheld. SLI
shall indemnify Northwestern against any order for costs that may be made
against Northwestern in such proceedings SLI shall keep any recovery or
damages for past infringement derived therefrom; provided, however, that
such recovery, less expenses, including reasonable attorneys' fees, shall
be treated as Net Sales for the purpose of calculating running royalties
under Paragraph 5.4
9.4 In the event that a declaratory judgment action alleging invalidity
or noninfringement of any of the Patent Rights shall be brought against
SLI, Northwestern, at its option, shall have the right, within thirty
(30) days after it receives notice of the commencement of such action, to
intervene and take over the sole defense of the action at its own expense
9.5 In any infringement suit that either Party may institute to enforce
the Patent Rights pursuant to this Agreement, the other party hereto
shall, at the request and expense of the Party initiating such suit,
cooperate in all respects and, to the extent possible, have its
employees testify when requested and make available relevant records,
papers, information, samples, specimens, and the like.
9.6 SLI, during the term of this Agreement, shall have the sole right
in accordance with the terms and conditions herein to sublicense any
alleged infringer for future use of the Patent Rights. Any up-front fees
as part of such a sublicense shall be shared equally between SLI and
Northwestern; other royalties shall be treated pursuant to Paragraph 5.4.
ARTICLE X - PRODUCT LIABILITY
10.1 SLI shall at all times during the terms of this Agreement and
thereafter, indemnify, defend and hold Northwestern, its trustees,
directors, officers, employees and Affiliates, harmless against all
claims, proceedings, demands and liabilities of any kind whatsoever,
including legal expenses and reasonable attorneys' fees, arising out of
the death of or injury to any person or persons or out of any damage to
property, or resulting from the production, manufacture, sale, use,
lease, consumption or advertisement of the Licensed Product(s) or
arising from any obligation of SLI hereunder.
10.2 SLI shall obtain and carry in full force and effect commercial,
general liability insurance which shall protect SLI and Northwestern
with respect to events covered by paragraph 10.1 above. Such insurance
shall be written by a reputable insurance company authorized to do
business in the State of Illinois, shall list Northwestern as an
additional named insured thereunder, shall be endorsed to include product
liability coverage and shall require thirty (30) days written notice to
be given to Northwestern prior to any cancellation or material change
thereof. Beginning on the "Effective Date" of the "Agreement", the limits
of such insurance shall not be less than One Million Dollars ($1,000,000)
per occurrence with an aggregate or Two Million Dollars ($2,000,000) for
personal injury, death or property damage. Beginning in 1998 or when the
Licensed Products appear in the SLI catalog, whichever comes first, the
limits of the aforementioned insurance shall be increased to Five Million
Dollars ($5,000,000) per occurrence with an aggregate of Ten Million
Dollars ($10,000,000). SLI shall provide Northwestern with Certificates
of Insurance evidencing the same.
10.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
NORTHWESTERN, ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND
AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF
ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING AND THE ABSENCE
OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN
THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY
GIVEN BY NORTHWESTERN THAT THE PRACTICE BY SLI OF THE LICENSE GRANTED
HEREUNDER SHALL NOT INFRINGE THE PATENT RIGHTS OF ANY THIRD PARTY.
IN NO EVENT SHALL NORTHWESTERN, ITS TRUSTEES, DIRECTORS, OFFICERS,
EMPLOYEES AND AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY
AND LOST PROFITS, REGARDLESS OF WHETHER NORTHWESTERN SHALL BE ADVISED,
SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY.
ARTICLE XI - TERM AND TERMINATION
11.1 This Agreement shall become effective on the Effective Date. Unless
sooner terminated as provided for below, this Agreement shall continue
in effect, on a country-by-country basis, until (a) the expiration of the
last to expire of any Patent Rights, or (b) ten (10) years from the date
of the first commercial sale in countries where no Patent Rights exist.
11.2 SLI shall have the right to terminate this Agreement in whole or in
part anytime after three (3) years form the Effective Date by giving
Northwestern ninety (90) days written notice.
11.3 Northwestern shall have the right to terminate or render this
license non-exclusive at any time after three (3) years from the
Effective Date if SLI does not have the Licensed Product available for
sale in its catalog or a product is dropped from its catalog, either
directly or through sublicense, subject only to allowance for technical
difficulties in bringing the Licensed Product to market. Such allowance
is conditioned on SLI's having notified Northwestern, in writing at the
earliest reasonable time, that it is experiencing such difficulties and
of the steps it is taking to resolve those difficulties. If, within 180
days after such notice, SLI has not resolved such difficulties, notified
Northwestern in writing of such resolution, and listed the Licensed
Products in its catalog, Northwestern shall have the immediate right to
terminate this Agreement or to render it non-exclusive.
11.4 The provisions of Article III (Confidentiality), Article VI
(Payments, Reports and Records), Article X (Product Liability) and
Article XIII (Dispute Resolution) shall survive termination or expiration
of this Agreement in accordance with their terms.
11.5 If (1) either Party breaches any material obligations imposed by
this Agreement; (2) either Party makes any general assignment for the
benefit of its creators (consent not being unreasonably withheld to allow
SLI to purchase Northwestern's Patent Rights in the event Northwestern
makes a general assignment); (3) a petition is filed by or against either
Party, or any proceeding is initiated against either Party as a debtor,
under and bankruptcy or insolvency law, unless the laws then in effect
void the effectiveness of this provision; or (4) a receiver, trustee, or
any similar officer is appointed to take possession, custody, or control
of all or any part of either Party's assets or property, then the other
Party may, at its option, send a written notice that it intends to
terminate the license granted by this Agreement.
11.6 If the Party in breach does not cure the breach, negate the
assignment, obtain a dismissal of the proceeding, or have the
appointment vacated and regaining its assets within ninety (90) days
from the notice date, then the other Party shall have the right to
terminate the license granted immediately upon the date of mailing of a
written notice of termination to the Party in breach.
11.7 Upon termination of this Agreement for any cause, nothing herein
shall be construed to release either Party of any obligation that has
matured prior to the effective date of such termination. SLI may, after
the date of such termination, sell all Licensed Products that it may have
on hand at the date of termination, provided that it pays the earned
royalty thereon as provided in this Agreement.
11.8 In the event of termination for breach by SLI, SLI agrees to no
longer use any of the Patent Rights or Know-How under which it has been
granted a license and will turn over and assign to Northwestern its
Regulatory Approvals and data and material related to price and
Regulatory Approvals at no charge with the right to sublicense.
11.9 Upon termination of this Agreement, any and all existing sublicense
agreements shall be immediately assigned to Northwestern and Northwestern
agrees to keep them in force to the extent that Northwestern is capable
of performing as a licenser in place of SLI.
ARTICLE XII - ASSIGNMENT
This Agreement shall not be assignable by either Party without prior
written consent of the other, except that any Party may assign this
Agreement to any Affiliate, to a successor in interest (including the
surviving company in any consolidation or merger), or to an assignee of
substantially all the business and assets of such Party, or with respect
SLI, to an assignee of all or substantially all of the business to which
this Agreement relates.
ARTICLE XIII - DISPUTE RESOLUTION
13.1 The Parties agree to effect all reasonable efforts to resolve any
and all disputes between them in connection with this Agreement in an
amicable manner.
13.2 The Parties agree that any dispute that arises in connection with
this Agreement and which cannot be amicably resolved by the parties
shall be resolved by a binding Alternative Dispute Resolution (ADR) in
the manner set forth in Paragraph 13.3 through Paragraph 13.5.
13.3 If a Party intends to begin ADR to resolve a dispute such Party
shall provide written notice to the other Party informing the other
Party of such intention and the issues to be resolved. Within ten (10)
business days after its receipt of such notice, the other Party may, by
written notice to the Party initiating ADR, add additional issues to be
resolved, If the Parties cannot agree upon the selection of a neutral
within twenty (20) business days following receipt of the original ADR
notice, a neutral shall be selected by the then President of the Center
for Public Resources (CPR), 680 Fifth Avenue, New York, New York 10019.
The neutral shall be a single individual having experience in the high
power semiconductor laser industry who shall preside in resolution of
any disputes between the Parties. The neutral selected shall not be an
employee, director or shareholder of either Party or an Affiliate or
sublicensee.
13.4 Each Party shall have ten (10) business days from the date the
neutral is selected to object in good faith to the selection to that
person. If either Party makes such an objection, the then President of
the CPR shall, as soon as possible thereafter, select another neutral
under the same conditions as set forth above. This second selection shall
be final.
13.5 The ADR shall be conducted in the following manner:
(a) No later than forty-five (45) business days after selection, the
neutral shall hold a hearing to resolve each of the issues identified
by the Parties.
(b) At least five (5) days prior to the hearing, each Party must submit
to the neutral and serve on the other Party a proposed ruling on each
issue to be resolved. Such proposed ruling shall contain no argument on or
analysis of the facts or issues, and shall be limited to not more than
fifty (50) pages.
(c) The neutral shall not require or permit any discovery by any means,
including depositions, interrogatories or production of documents.
(d) Each Party shall be entitled to no more than eight (8) hours of
hearing to present testimony or documentary evidence. The testimony of
both Parties shall be presented during consecutive calendar days. Such
time limitation shall apply to any direct, cross or rebuttal testimony,
but such time limitation shall only be charged against the Party
conducting such direct, cross or rebuttal testimony. It shall be the
responsibility of the neutral to determine whether the parties have had
the eight (8) hours to which each is entitled.
(e) Each Party shall have the right to be represented by counsel. The
neutral shall have the sole discretion with regard to the admissibility
of any evidence.
(f) The neutral shall rule in each disputed issue within thirty (30)
days following the completion of the testimony of both Parties. Such
ruling shall adopt in its entirety the proposed ruling of one of the
parties on each disputed issue.
(g) ADR shall take place in Chicago, Illinois. All costs incurred for a
hearing room shall be shared equally between the Parties.
(h) The neutral shall be paid a reasonable fee plus expenses, which fees
and expenses shall be shared equally by the Parties.
(i) The ruling shall be binding on the Parties and may be entered as an
enforceable judgement by a state or federal court having jurisdiction of
the Parties.
13.6 This Section XIII shall survive any termination of this Agreement.
ARTICLE XIV - NOTICES AND PAYMENTS
Any payment, notice or other communication to this Agreement shall be
sufficiently made or given on the date of mailing if sent to such Party
by certified first class mail, postage prepaid, addressed to it at its
address below or as it shall designate by written notice given to the
other Party:
In the case of Northwestern:
Director
Technology Transfer Program
Northwestern University
1801 Maple Avenue
Evanston, Illinois 60201
In the case of SLI:
Dr. Geoffrey T. Burnham
President and CEO
Semiconductor Laser International Corporation
421 East Main Street
Endicott, New York 13760
Tel. 607-754-0112
Fax. 607-754-5974
ARTICLE XV - GENERAL
15.1 Force Majeure. Neither party shall be liable to the other for its
failure to perform any of its obligations under this Agreement, except
for payment obligations, during any period in which such performance is
delayed because rendered impracticable or impossible due to circumstances
beyond its reasonable control, including without limitation earthquakes,
governmental regulation, fire, flood, labor difficulties, interruption of
supply of key raw materials, civil disorder and acts of God, provided
that the Party experiencing the delay promptly notifies the other Party
of the delay.
15.2 Severability. In the event any provision of this Agreement is held
to be invalid or unenforceable, the valid or enforceable portion thereof
and the remaining provisions of this Agreement will remain in full force
and effect.
15.3 Applicable Law. This Agreement is made in accordance with and shall
be governed and construed under the laws of the State of Illinois,
excluding its choice of law rules.
15.4 Entire Agreement. This Agreement and the exhibits attached hereto
constitute the entire, final, complete and exclusive agreement between
the Parties and supersede all previous agreements or representations,
written or oral, with respect to the subject matter of this Agreement.
This Agreement may not be modified or amended except in writing signed
by a duly authorized representative of each Party.
15.5 Headings. The headings for each article and section in this
Agreement have been inserted for convenience or reference only and are
not intended to limit or expand on the meaning of the language contained
in the particular article or section.
15.6 Independent Contractors. The Parties are not employees or legal
representatives of the other party for any purpose. Neither Party shall
have the authority to enter into any contracts in the name of or in
behalf of the other Party.
15.7 Advertising. SLI shall not use the name of the inventor listed in
this Agreement, of any institution with which the inventor has been or is
connected, nor the name of Northwestern in any advertising, promotional
or sales literature, without prior written consent obtained from
Northwestern in each case.
15.8 Waiver. Any waiver (express or implied) by either Party of any
breach of this Agreement shall not constitute a waiver of any other or
subsequent breach.
15.9 Counterparts. This Agreement may be executed in counterparts with
the same force and effect as if each of the signatories had executed the
same instrument.
15.10 Patent Marking. SLI agrees to mark the shipping and boxing packages
for the Licensed Products sold in the United States with all applicable
United States patent numbers. All Licensed Products shipped to or sold
in other countries shall be marked in such a manner as to conform with the
patent laws and practice of the country of manufacture or sale.
In Witness Whereof, the Parties have executed this Agreement effective on
the date first set forth above.
Semiconductor Laser International Corporation
By: _______________________________
Geoffrey T. Burnham
President & CEO
Northwestern University
By: ________________________________
C. William Kern
VP for Research & Graduate Studies
By: ________________________________
Manijeh Razeghi
Professor, Electrical Engineering
Principal Investigator
EXHIBIT A
Patent Number 5,384,151
INGAASP/GAAS Diode Laser
Manijeh Razeghi
Issued January 24, 1995
Patent Number 5,389,396
INGAASP/GAAS Diode Laser
Manijeh Razeghi
Issued February 14, 1995
<PAGE>
[TYPE] EX-11.1
<TABLE>
<CAPTION>
Exhibit 11.1
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
PERIOD ENDED DECEMBER 31, 1996
"CHEAP STOCK" METHOD
Shares redeemed using
Shares issued or proceeds from shares
warrants and options issued deemed exercise Weighted average
deemed exercised of warrants and options Net shares outstanding
<S> <C> <C> <C> <C>
1993 Shares outstanding (Note 1) 729,003 0 729,003 729,003
1994 Shares outstanding (Note 1) 192,344 0 192,344 192,344
1995 Shares outstanding 472,306 0 472,306 472,306
1995 Options 88,659 (887) 87,772 87,772
1996 'cheap stock' 150,000 (59,000) 91,000 91,000
1996 IPO shares 1,700,000 0 1,700,000 1,323,770
Overallotment purchase 55,000 0 55,000 40,123
Warrants exercised 2,957 0 2,957 1,495
Warrants exercised 99,026 0 99,026 45,996
Options exercised 1,971 0 1,971 915
IPO warrants exercised 7,000 0 7,000 899
Treasury shares (35,463) 0 (35,463) (1,453)
Weighted average shares outstanding 2,984,170
</TABLE>
<TABLE>
<CAPTION>
<S>
PERIOD ENDED DECEMBER 31, 1995
"CHEAP STOCK" METHOD
Shares redeemed using
Shares issued or proceeds from shares
warrants and options issued deemed exercise Weighted average
deemed exercised of warrants and options Net shares outstanding
<S> <C> <C> <C> <C>
1993 Shares outstanding (Note 1) 728,961 0 728,961 728,961
1994 Shares outstanding (Note 1) 192,332 0 192,332 192,332
1995 Shares outstanding (Note 1) 22,178 0 22,178 21,569
1995 'cheap stock' 450,102 (226,659) 223,443 223,443
1993 Options 1,970 (201) 1,769 1,769
1994 & 1995 Warrants 98,068 (116,081) (18,013) (18,013)
1995 'cheap' options 88,657 (887) 87,770 87,770
1995 'cheap' warrants 17,730 (3,545) 14,185 14,185
Anti-dilutive options (1,769)
Weighted average shares outstanding 1,250,248
</TABLE>
PERIOD ENDED DECEMBER 31, 1994
"CHEAP STOCK" METHOD
<TABLE>
<CAPTION>
Shares redeemed using
Shares issued or proceeds from shares
warrants and options issued deemed exercise Weighted average
deemed exercised of warrants and options Net shares outstanding
<S> <C> <C> <C> <C>
1993 Shares outstanding 728,961 0 728,961 728,961
1994 shares outstanding 192,344 0 192,344 93,441
1995 'cheap'stock 450,102 (226,659) 223,443 223,443
1995 'cheap'options 88,657 (887) 87,770 87,770
1995 'cheap'warrants 17,730 (3,545) 14,185 14,185
Weighted average shares outstanding 1,147,800
Note 1 : Shares and warrants issued in 1995, more than one year prior to IPO
Note 2 : Computed using the weighted average method
</TABLE>
<PAGE>
[TYPE] EX-21.1
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION,
a Delaware corporation
</PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-30-1996
<CASH> 4,266,168
<SECURITIES> 0
<RECEIVABLES> 61,047
<ALLOWANCES> 0
<INVENTORY> 6,316
<CURRENT-ASSETS> 4,333,531
<PP&E> 3,035,929
<DEPRECIATION> 71,306
<TOTAL-ASSETS> 8,026,736
<CURRENT-LIABILITIES> 1,260,419
<BONDS> 0
0
0
<COMMON> 34,096
<OTHER-SE> 5,822,295
<TOTAL-LIABILITY-AND-EQUITY> 8,026,736
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,314,112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,305
<INCOME-PRETAX> (3,076,659)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,076,659)
<DISCONTINUED> 0
<EXTRAORDINARY> (305,301)
<CHANGES> 0
<NET-INCOME> (3,382,160)
<EPS-PRIMARY> (1.72)
<EPS-DILUTED> (1.72)
