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, 1998
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)
Delaware 16-1494566
(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, 1998) were $2,197,736.
The aggregate market value on March 22, 1999, of the voting stock held by
non-affiliates computed by reference to the last sales price on that date
was approximately $ 3,797,135. As of March 22, 1999, 12,150,832 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.
None
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PART I
In addition to historical information, this Annual Report contains forward
looking statements relating to such matters as anticipated financial and
operating performance, business prospects, technological developments, new
products research and development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for forward
looking statements. Semiconductor Laser International Corporation
(the "Company" or "SLI") notes that a variety of factors could cause the
Company's actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward looking statements. The
risks and uncertainties that may affect the operation, performance, development
and results of the Company's business include, but are not limited to, those
matters discussed herein. Readers are cautioned not to place undue reliance on
these forward looking statements, which reflect managements analysis only as of
the date hereof. The Company undertakes no obligation to publicly revise these
forward looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
documents the Company files from time to time with the Securities and Exchange
Commission.
Item 1. Description of Business
General
Semiconductor Laser International Corporation is a manufacturer of high
power semiconductor diode lasers ("HPDLs"). SLI currently manufactures HPDLs
for a variety of applications across numerous industries, including medical,
manufacturing, optical storage, telecommunications, printing and military. SLI
is a component supplier of HPDLs. Most of SLI's customers are original
equipment manufacturers ("OEMs").
The Company manufactures its products at a newly constructed,
high technology facility in Broome County, New York built to the Company's
specifications. The Company currently utilizes 15,000 square feet at such
location, including a 4,500 square feet class 1,000 clean room.
The Company was incorporated in New York in September of 1993 and
reincorporated in Delaware in September 1997.
Recent Developments
June 1998 Private Placement
On June 8, 1998, the Company completed a private placement (the "Private
Placement") of 1,650,000 shares of its Common Stock, at an aggregate purchase
price of $1,237,500. The shares of Common Stock were issued and sold by the
Company without registration under the Securities Act in reliance upon the
exemption from registration afforded by Section 4(2) of the Securities Act and
Section 506 of Regulation D promulgated under the Securities Act in that they
were sold solely to "accredited investors" as defined in Rule 501 (a) of the
Securities Act. The placement agent for the shares, Empire Consulting Company,
LTD,(the "Placement Agent") was paid $194,665 for commissions and expenses.
After deducting the Placement Agent's commissions and expenses of $194,665 in
the aggregate, the net proceeds of the Private Placement to the Company were
approximately $1,042,835. The net proceeds of the Private Placement are
substantially depleted and have been used for working capital and general
corporate purposes.
The Company has registered the shares of Common Stock issued in the
Private Placement on a Registration Statement on Form S-3/A which was declared
effective by the Securities and Exchange Commission on December 30, 1998.
bmp Transaction
The Company entered into a Securities Purchase Agreement (the "Securities
Purchase Agreement"), dated as of February 5, 1999, between the Company and
bmp Mobility AG Venture Capital ("bmp"). Pursuant to the Securities Purchase
Agreement, bmp has agreed to make a two tranche equity investment in the
Company in an amount ranging between $2,050,000 and $2,750,000. The first
tranche of the investment was consummated on February 8, 1999 by the parties,
and bmp has purchased 2,000,000 newly issued shares of the Company's common
stock (the "Common Stock"), par value $0.01 per share, at a price of $0.375
per share, for an aggregate purchase price of $750,000. In the second tranche
of the investment, bmp has agreed to purchase between 650,000 and 1,000,000
shares of the Company's Series B Convertible Preferred Stock (the "Preferred
Stock"), par value $0.01 per share, at a purchase price of $2.00 per share,
for a total investment of between $1.3 million and $2 million. Such Preferred
Stock would be convertible at a five to one ratio into shares of Common Stock,
but is only convertible by unaffiliated transferees of bmp. The shares issued
and to be issued to bmp contain certain demand and piggyback registration rights
and the preferred stock contains certain anti-dilution rights.
The consummation of the second tranche of the investment is subject to
certain customary conditions, including stockholder approval, if required by
the Nasdaq SmallCap Market;, the absence of any material adverse
change, and the extension by BSB Bank and Trust ("BSB") of the Company's $1.0
million secured line of credit (the "Line of Credit") until May 31, 2000.
BSB has already agreed to extend the maturity of the Line of Credit until June
30, 2000 upon consummation of the second tranche of the investment, subject to
the absence of any material adverse change in the business. In addition, BSB
has agreed to advance an additional $450,000 under the Line of Credit, to
extend the maturity of the Line of Credit from March 31, 1999 to June 30,
1999, and to waive the requirement that the Company maintain the Line of
Credit balance within its collateral base formula until the earlier of June
30, 1999 or the date of receipt by the Company of funds arising out of the
second tranche of the investment. The Company anticipates that the
consummation of the second tranche of the investment will take place between
March 31, 1999 and May 31, 1999, depending on the need for stockholder
approval, although there can be no assurance that the second tranche will be
consummated. See "Notes to Financial Statements - Note 9 and Note 11".
In consideration for the modifications to the Line of Credit, the Company
issued to BSB, on February 16, 1999, warrants to purchase an aggregate of
500,000 shares of the Common Stock, at an exercise price of $0.575 per share.
The warrants expire on February 16, 2004 and contain certain registration
rights.
The Company believes that, in addition to providing equity capital, bmp
will be a strategic investor who will help the Company expand distribution in
the European market. In connection with the equity investment, bmp intends to
assist the Company in organizing and structuring the distribution system
relating to the Company's products and services throughout Europe. To date,
bmp has begun to assist the Company in such respect, and has facilitated the
execution of a distributor agreement between the Company and a western
European distributor. The Company has entered into a Distributor Agreement,
dated February 22, 1999, with LG Laser Graphics GmbH ("Laser Graphics"), an
entity in which bmp has invested, whereby Laser Graphics has been granted
rights to distribute the Company's products on an exclusive basis throughout
Germany, Switzerland and Austria, and on a non-exclusive basis worldwide
outside of Germany, Switzerland and Austria.
Nasdaq Proceeding
The Company received notice from The Nasdaq Stock Market ("Nasdaq") that
the Common Stock may be delisted from the Nasdaq SmallCap Market,
based on having a bid price below $1.00 and its maintenance of net tangible
assets at below $2 million. On March 18, 1999, the Company participated in an
oral hearing before a Panel authorized by the Nasdaq Board of Directors in
Washington, D.C. regarding the Company's continued listing on the Nasdaq
SmallCap Market. The Company presented a two-step plan for reattaining
compliance with these requirements, consisting of a reverse stock split and the
completion of the second tranche of the bmp investment. Nasdaq has not made
any determination regarding the status of the Common Stock at this time and the
Company is not able to predict the outcome of the hearing. If delisted, the
Common Stock would likely be quoted on the OTC Bulletin Board. Any delisting
could cause the market price of the Common Stock to decline and could make it
much more difficult to buy or sell Common Stock on the open market.
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 optical data storage and Digital Video Disc ("DVD")
markets. 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.
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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 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.
Strategy
The Company's manufacturing strategy is to take advantage of the advances
in HPDL manufacturing technology made possible through its improvements to the
Desorption Mass Spectrometric ("DMS")/Molecular Beam Epitaxy ("MBE") process
and through its acquisition of rights relating to aluminum free HPDLs. The
Company currently controls all stages of HPDL manufacturing, including all
aspects of wafer growth, 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 equipment acquired by the Company for its manufacturing
facility incorporates the developments and modifications which the Company
had previously made to the DMS/MBE technology.
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. 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 market penetration. The Company
participates in trade shows and publicizes its improvements in product
literature.
The Company has an exclusive ten year license on the DMS technology as it
applies to laser technology, pursuant to its License Agreement with the Air
Force. The Air Force has received a patent with respect to the DMS
technology. The License Agreement is not assignable, other than to the
Company's subsidiaries, without the prior written approval of the
Air Force. Under the License Agreement, the Company is obligated to pay
royalties of .5% on all gross sales (other than sales to or for the U.S.
Government) of each laser or laser related product that was produced utilizing
any method defined in the Air Force's patent. In addition to the royalty
payments, the Company is obligated to pay a minimum royalty of $20,000 beginning
with the fifth year of the License Agreement (March 30, 1999). The Company was
required under the License Agreement to satisfy the Air Force that it had taken
effective steps to exploit the licensed technology commercially. The Company
has made improvements to the technology and according to the License Agreement,
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these improvements are the sole property of the Company. After 2004, unless
extended, the License Agreement will become nonexclusive. The Air Force has a
royalty free right to employ the DMS technology in non-commercial production of
HPDLs for its own use. Initially, the Company used the Air Force patent to
develop products. More recently, Company scientists have developed an optical
system to replace DMS, which is an electrical system. The Company's system works
similarly to DMS to control the temperature of the substrate but the Company
believes that its system is simpler to use and easier to control. As a result,
the Company does not rely on DMS for any current products. The Company is
current on administrative payments to the Air Force to keep this license in
good standing, but there are no royalty payments due because the Company is
not using the technology for products sold. The Company believes that the
License Agreement could become valuable to the Company in the future, but that
it is not critical at this time.
In September 1996, the Company entered into a license agreement (the
"Northwestern License") with Northwestern University granting the
Company exclusive 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 a number of shares of Common Stock. An
additional issuance of Common Stock occurred in November 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.
The Company believes that the patent rights and the Northwestern License
cover all production methods, including, but not limited to MBE and Metal
Organic Chemical Vapor Deposition ("MOCVD"). The Company believes that
attempts by others to develop equivalent aluminum free technology could
infringe on its exclusive rights. Enforcement of these rights will require
coordination by the Company with Northwestern University. The Company
believes that the exclusive right granted under the Northwestern
License constitutes an as of yet undetermined competitive advantage.
Coherent, Inc., a competitor of the Company, has advised the Company and
Northwestern University that it believes that the patent rights under the
Northwestern License do not cover the manufacture of aluminum free products
other than by MOCVD. Alternatively, Coherent, Inc. claims that its products
do not infringe on the Northwestern patents. The Company is reviewing its
options with respect to such infringements. At this time, no litigation has been
instituted by the Company, Northwestern or any third party with respect to the
scope of the patent rights under the Northwestern License and no assurance can
be given either as to what enforcement action, if any, will be taken by
Northwestern and the Company or as to the outcome of any such action, if taken.
Northwestern has indicated to the Company that it will not institute any
litigation at this time.
The Company has not taken advantage of the aluminum free technology, as
of yet, because of financial constraints and because with improvements in
standard aluminum containing diode technology there has been an uncertain
competitive advantage in aluminum free technology. However, in March 1999,
the Company has converted one of its MBE machines so that it may begin to
produce aluminum free HPDLs in order to maximize its flexibility, with more
than one form of technology. The Company hopes that production of aluminum
free HPDLs will commence by June 1999. The Company believes that the
potential advantage over existing HPDLs is the ability of aluminum free HPDLs
to generate greater power while evidencing longer life and greater
reliability.
Northwestern has the right to terminate the Northwestern License after
September 1999 if the Company does not manufacture products based upon the
applicable aluminum free technology that are available for sale by such time.
There can be no assurance that the Company will have the financial resources
to exploit this technology successfully or that if exploited, such technology
will prove to be superior to other technologies. In addition, there can be no
assurance that the conversion of the MBE machine to allow the production of
aluminum free HPDLs will not adversely affect the Company's production of
standard aluminum containing diodes.
Current and Future Markets
The Company has been selling its products to customers for use in a wide
range of applications. A purchaser of the Company's products will typically
incorporate the products into a particular device or application developed by
such purchaser. Depending upon a customer's needs, the products purchased
from the Company can either be sold in an unpackaged processed form or in a
packaged processed form. In situations where packaged products are sold, they
generally provide the Company with a substantially higher profit margin.
There are many industries which are currently engaged in product and
design programs for which specialized HPDLs will be essential. The development
of one or more of these areas could greatly increase the demand for the
Company's products. It should be noted that the Company may be required to
expand its operations in order to meet such potential demand and that there can,
however, be no assurance that such increased demand for the Company's products
will occur or that the Company will be able to sufficiently expand its
operations to meet such increased demand. See Item 6. "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Overview."
The Company is currently engaged in a dispute with one of its key
customers, Rocky Mountain Instruments ("RMI"). RMI disputes the amounts owed
to the Company regarding certain orders, has made claims regarding defects in
certain of the units delivered and is currently late in making payments on
such orders. The Company believes that RMI owes approximately $468,571
(including a late charge) to the Company. RMI accounted for approximately 38.9%
of the Company's net sales for fiscal 1998 to date. Of the initial purchase
order for 500 units, only 97 have been delivered to date and RMI has indicated
that it does not want the remaining units. While the Company believes that RMI
is obligated to accept such units and intends to enforce its rights, it has
reduced its backlog by approximately $1.5 million. The parties are currently
engaged in discussions with regard to the settlement of this dispute and it is
premature to assess the outcome. There can be no assurance that RMI will
remain a customer of the Company. Loss of RMI as a customer may have a
material adverse impact on the net sales and financial condition of the
Company if the Company is not successful in expanding its customer network.
Manufacturing Facility
The Company is currently operating a single-wafer V-80H DMS controlled MBE
machine at its manufacturing facility. The Company's manufacturing facility
(15,000 square feet) includes all related facilities and equipment necessary for
production, such as a 4,500 sq. ft. class 1,000 clean room and the tooling and
testing equipment for its production processing line.
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On December 18, 1996 the Company entered into an agreement (the "Sale and
Leaseback Agreement") with the Broome County IDA, in which the Company sold and
leased back its manufacturing facilities and equipment. See "Item 2.
"Description of Properties."
Manufacturing and Products
General
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 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, 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 improved control
technology, the Company has developed what it believes to be a process
capable of producing commercially acceptable or usable wafers (which meet the
quality standards of existing MOCVD produced HPDLs).
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Processing
After the growth process is completed and the wafers have been tested (a
complicated process requiring dedicated testing equipment) 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.
Packaging
The Company currently offers numerous packages, fitting the chips and bars
for unique applications, higher power output and fiber optic coupling. Although
many of the bars and chips are sold unpackaged, the Company offers packaging
as a way to attract additional customers.
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 9 mm package and the 5.6 mm package, to
multiple chip devices up to 40 watts CW, such as the single-LD bar, LT-bar, LS
bar and SLD-bar packages and the stacked array packages and various fiber
coupled lasers up to 35 watts CW and 100 watts QCW. 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
wavelength. 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.
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 most of
its suppliers. 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. Recently, because of cash flow
problems, the Company has experienced a shortage of supply for certain critical
components. The Company has worked out acceptable terms with most of its
suppliers, but has been placed on a cash only basis with many of them.
Markets and Marketing
In the optical storage industry, diode lasers are used with CD, CD-ROM,
Laserdisc, magneto-optic drives, and, most recently, Digital Video Disc (DVD).
In the automotive industry, these lasers are used in manufacturing for
precision machining and welding. In the medical and dental fields, diode
lasers have provided the means for advanced laser surgery. In the printing and
engraving industry, they have made possible products such as laser printers
and copiers. Diode lasers have also enhanced military products in laser sight
and missile guidance applications. Through their use with fiber-optics, diode
lasers have materially improved transmission speeds for the telecommunications
industry. As laser performance is becoming more reliable and uniform across
these industries, manufacturers have turned to laser products as alternatives
to traditional technologies.
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Lasers are continually being refined and advanced. One of the most significant
HPDL developments has been with respect to the power output of lasers. The
maximum power outputs are now about 40 Watts and 120 Watts for CW and QCW bars,
respectifully. Although prices vary according to the power output, wavelength
and packaging, the average cost per watt has been reduced to less than half
that of just a few years ago.
The most significant development, however, concerns laser wavelength. Until
recently, HPDL applications were limited to the infrared (IR) portion of the
electromagnetic spectrum. Just below the infrared range of the spectrum,
otherwise known as the visible range, scientists were only able to produce low
power lasers. These low power visible lasers can be used with products such as
CD players, laser pointers, barcode scanners and remote controls. Although
this is still a growing market, applications are limited due to the lack of
power output and shorter wavelength. Advancements, however, have enabled
manufacturers to produce high power visible lasers and thus have opened the
door to many new products and markets.
The primary application using this high power visible laser, or "red laser",
is the recordable digital storage technology known as DVD. DVD is a digital
technology similar to CD and CD-ROM, but with additional advantages due to the
shorter wavelength and more powerful beam of the high power red lasers.
DVD products are designed to compliment and eventually replace many of the
current CD technology applications, such as music CD's, CD-ROM and Laserdisc.
In addition, DVD will provide a new market of recordable products across
several industries, similar to cassette tapes, floppy discs, VCR's and hard
drives, but with the enhanced quality and much greater storage capacity.
The market potential is one of the strengths of the laser industry. A drawback
is that it may attract more competition to an industry that has historically
had very low profit margins. In addition, there is an industry
requirement for research and development which in turn requires capital
resources. Also, as DVD products will be sold to the consuming public as
opposed to other high power laser products that are sold mostly to industry,
if consumer tastes have been miscalculated or change, then acceptance of DVD
may not reach forecasted levels.
The overall laser market is quite competitive. The marketing approach of the
Company is to promote its line of high power semiconductor lasers to new and
existing market segments as well as creating new applications that were once
impenetrable due to the high cost of laser diodes. The Company believes that
the credibility of its products is being established as its customers'
expectations are being met. To date, a substantial number of orders have been
for prototype or test units, resulting in relatively low sales volumes and
higher unit costs. The Company hopes to see an increase in production unit
orders based upon the acceptance of its products by customers. 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.
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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
marketing program is to create demand, and obtain orders, for the Company's
proposed products, which will then be produced by the Company.
Research and Development
Subject to the availability of capital, the Company has been engaged in
research and development activities since its inception. Due to the nature of
its business, research and development will continue. The Company incurred
research and development expenses of $2,073,436, $651,242 and $7,273 for the
years ended December 31, 1996, 1997 and 1998, respectively. The Company has
curtailed its R & D activities as it concentrates on products.
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.
Joint Research and Development Projects
The Company has in the past engaged in research and development ventures with
Government Laboratories and academic research laboratories to provide the
Company with access to new technologies, product applications, quality
control measures, testing techniques and packaging techniques.
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 slow as the
Company moves more and more into production.
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Internal Research and Development Programs
Subject to the availability of capital, the Company is conducting several
internal research and development programs associated with high power
semiconductor laser technology, infrared and visible in different departments
of the Company. However, the number of these programs has been decreased.
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 has five pending U.S. patent applications, two patent
applications for HPDL's, a patent application for an optical image rotating
device, a diode laser array package patent application and a beam splitter
patent application. Two of the 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.
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The Company has an active portfolio of license patents from the
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 three patents from Northwestern University,
U.S. Patent No. 5,384,151 entitled "InGaAsP/GaAs Diode Laser", U.S.
Patent No. 5,389.396 entitled "InGaAsP/GaAs Diode Laser" and U.S. Patent
No. 5,663,976 entitled "Diode Laser" and a divisional patent application. 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 and others. The
Company has a consulting relationship with Professor Manijeh Razeghi of
Northwestern University, who is the inventor of the licensed patents from
Northwestern University.
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
addition several large corporations have been developing DVD lasers, such as
Hitachi, Toshiba, Mitsubishi and Sony.
The Company believes that all current competitors of the Company utilize MOCVD
production methods, with the lone exception of Coherent, Inc. (which
entered this market through strategic acquisitions), and can be
expected to vigorously assert the claim that this technology is superior to
that of the Company's MBE technology and Northwestern's aluminum free
technology. By entering the HPDL market, which is dominated by several
large companies, and by using 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
customers.
Potential new technologies may emerge to compete with the
Company's products. Both the Company and its competitors are working to
develop new products and improvements and modifications to existing
products, 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.
10
<PAGE>
Employees
The Company currently has 31 full-time employees, none of whom are
represented by a union. There are 17 employees in production and production
support, 2 in finance and 12 in corporate management and administration.
The Company has never experienced a work stoppage. At December 31, 1997, the
Company had 38 full-time employees.
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. 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.
Item 2. Description of Properties
The Company's principal executive offices and sole manufacturing facility are
located in approximately 15,000 square feet of space in Broome County, New York.
On December 18, 1996, the Company entered into an agreement (the "Sale and
Leaseback agreement") with the Broome County IDA, in which the Company sold and
leased back its manufacturing facilities and equipment. The Company entered
into the Sale and Leaseback Agreement in order to take advantage of certain
benefits offered by the Broome County IDA to induce economic expansion through
tax abatement and expansion of employment levels. The sale price was $1.00 and
the lease payment is $1.00 per year for twenty years. In accordance with the
terms of the Sale and Leaseback Agreement, the Company has the unilateral right
at any time to purchase from the Broome County IDA all assets sold to them for
the price of $1.00. The Sale and Leaseback Agreement also provides that the
Company would make payments in lieu of taxes at a rate dependent upon
employment levels. All rights of ownership of the facilities and equipment
remain with the Company. This agreement was not reflected on the books of the
Company as a sale and leaseback transaction as the monetary value of the
transactions and the property rights did not represent in substance a true sale
and leaseback transaction. Under the agreement, the Company is expected to
create 5 - 10 new jobs per year to achieve up to a 40% reduction in property
taxes and up to 101 new jobs per year to achieve property tax reductions of up
to 70%. The Company has not yet received any property tax reductions and
does not expect to in the near future.
11
<PAGE>
Item 3. Legal Proceedings
The Company is currently engaged in litigation with a former employee, Dr. Keith
Evans, who the Company brought an action against for a breach of
confidentiality obligations and defamation of character. Dr. Evans has
responded with a counter claim alleging defamation of character and is
seeking $500,000 in damages. The litigation is presently in the discovery
stage. The Company believes the counter claim is without merit and is
vigorously defending such action and that the ultimate outcome of such action
will not have a material impact on the financial condition or results of
operations of the Company.
Investigations. Since April 1998, the Company has been responding to
informal requests for information from the Securities and Exchange Commission.
In August 1998, the Company learned that in June 1998, the Commission had issued
a formal order of investigation to determine whether violations of certain
aspects of the federal securities laws had occurred in connection with the
Company. Pursuant to this formal order of investigation, the Company and
certain of its current and former officers and directors have produced
documents pursuant to subpoenas from the Northeast Regional Office of the
Commission. The investigation is in its early stages and the Company is not
able to speculate as to the specific subject matter of the investigation on the
Company. There can be no assurance as to the timeliness of the completion of
the investigation or as to the final result thereof, and no assurance can be
given that the final result of the investigation will not have a material
adverse effect on the Company. The Company is cooperating with the
investigation, and has responded and will continue to respond to requests for
information in connection with the investigation.
In August 1998, the Company learned that the United States Attorney's Office for
the Southern District of New York is investigating whether violations of
securities laws have occurred in connection with the Company's public
disclosures. The Company is cooperating with the investigation and has
responded to a grand jury subpoena issued in connection with the
investigation. There can be no assurance as to the timeliness of the completion
of the investigation or as to the final result thereof, and no assurance can be
given that the final result of the investigation will not have a material
adverse effect on the Company or its current management. Management believes
that there are meritorious defenses to the issues raised by this investigation
and intends to defend this matter vigorously.
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, 1998.
12
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
The Company's Common Stock is traded on the NASDAQ Small Cap Market
("NASDAQ")under the symbol "SLIC". The following table sets forth, for the
periods indicated and as reported by NASDAQ, the high and low sales prices for
shares of the Common Stock. See "Recent Developments - NASDAQ Proceeding."
Quarter Ended High Low
--------------------- --------- ---------
March 31, 1998 1 17/32 1 7/16
June 30, 1998 1 1/2 1 1/4
September 30, 1998 31/32 15/16
December 31, 1998 7/16 3/8
March 31, 1997 9 1/2 5 1/8
June 30, 1997 6 1/2 4 3/4
September 30, 1997 5 1/2 3 3/4
December 31, 1997 5 3/8 1 7/32
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 February 17, 1999 was
approximately 583. The Company believes that there are in excess of 1,700
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
Date Cash
of Total Consideration Other
Sale Securities Sold Offering Price Paid Consideration Purchasers
---- --------------- -------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Jan 150,000 Bridge $ 750,000 $ 750,000 Accredited
1996(1) Shares and Bridge Investors
Notes in the
aggregate amount
of $750,000
Sep 1996 2,731 shares of $ 22,188 $22,188 for Licensor
Common Stock rights to a of the
technology Company
Nov 1996 120,000 shares of $1,050,000 $1,050,000 Consultant
Common Stock in services to the
performed Company
for the
Company
Jan 1997 58,334 warrants $ 167,710 $167,710 in Lessor of
to purchase lease re- equipment
Common Stock lated fees to the
at $5.00 per Company
Share
Jan 1997 1,231 shares of $ 10,000 $10,000 for Licensor of
Common Stock rights to a the Company
technology
Oct 1997 2,000,000 shares $2,975,000 $2,975,000 Accredited
of Series A 8% Investors
Convertible
Preferred Stock
Oct 770,000 warrants $1,201,347 $1,201,347 Consultants
1997(3) to purchase in services to the
Common Stock at performed Company
prices ranging for the
from $3.4688 to Company
$5.3438 per share
Nov 1997 1,500 shares of $ 2,856 $2,856 for Licensor of
Common Stock rights to a the Company
technology
Nov 1997 50,000 shares of $ 188,770 $188,770 in Consultant
Common Stock services to the
performed Company
for the
Company
Dec 55,000 shares of $ 96,250 $96,250 in Consultant
1997(2) Common Stock services to the
performed Company
for the
Company
Jun 1,650,000 shares $1,237,500 $1,237,500 Accredited
1998(4) of Common Stock Investors
Dec 1998 112,280 warrants $41,073 in Legal
to purchase Services Counsel to
Common Stock at Performed the Company
$0.375 per share for the
Company
Feb 1999 2,000,000 shares $ 750,000 $ 750,000 Accredited
of Common Stock Investor
Feb 1999 500,000 warrants Waiver of Financial
to purchase Financial Institution
Common Stock at Covenants (lender to
$0.575 per share of and ex- the Company)
tension of
the Line of
Credit with
BSB
</TABLE>
(1) Subsequently included in the Company's Registration Statement on Form
S-1, declared effective on March 19, 1996.
(2) Subsequently included in the Company's Registration Statement on Form S-3
declared effective on January 14, 1998.
(3) Underlying shares of common stock included in Company's Registration
Statement on Form S-3 declared effective on January 14, 1998.
(4) Subsequently included in Company's Registration Statement on Form S-3
declared effective on December 30, 1998.
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 and Plan of Operation" and elsewhere constitute or may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Litigation Reform Act"),
including, without limitation, statements regarding future cash requirements.
The Company desires to avail itself of certain "safe harbor" provisions of the
Litigation Reform Act and is therefore including this special note to enable
the Company to do so. 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: inability to obtain additional financing on
acceptable terms, manufacturing delays due to equipment or technical problems,
delays in product development; costs associated with and outcome of pending
investigations described elsewhere herein; 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 considered a development stage company until April 1, 1997.
During 1997, the Company began 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. The Company has since 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 sales revenues. The
Company is seeking to increase sales in order to fully utilize its production
capacity. Increasing sales levels and higher utilization of production capacity
are critical to the Company's financial success. Financial resources and
liquidity during this period of growth are of utmost importance and concern to
the Company.
Coherent, Inc., a competitor of the Company, has advised the
Company and Northwestern University that it believes that the patent rights
under the Northwestern License do not cover the manufacture of aluminum free
products other than by MOCVD. See Item 1. "Description of Business-Strategy"
15
<PAGE>
The manufacture of semiconductor lasers such as those sold by the Company is
a highly complex and precise process, requiring production in a highly
controlled and clean environment with the utilization of materials free of
defects and contamination. These factors have a significant impact on
production yields and product reliability which in turn affect operating
results and future customer acceptance. The Company as well as other
semiconductor laser manufacturers have, from time to time, experienced
technical production problems which have resulted in adverse financial
consequences. No assurance can be given that the Company's systems,
procedures, procurement efforts and production process are such that these
problems will not be experienced in the future.
Since the onset of commercial production, the Company, on occasion, has
been unable to manufacture certain products in quantities sufficient to meet
the demands of its existing customer base and that of new customers based upon
equipment and/or other technical problems arising at various points during the
production process. At this time the Company is experiencing technical
difficulty with its fiber coupling subcontractors and has been unable to ship
certain products for several months. Recent events including the investigation
and cash flow problems have placed considerable strain on Company management,
financial, manufacturing and other resources. Lack of financial resources
could have a material adverse impact on the Company's business and results of
operations.
The Company has not generated material revenues or profits to date.
Results of Operations
Sales in 1998 were $2,197,736 as compared to $478,924 for 1997. This increase
was attributable to the continued penetration of the commercial markets. This
increase was offset by the Company's inability to ship certain units to a key
customer, RMI, due to a dispute. See "Item 1. Business - Current and Future
Markets."
Sales in 1997 were approximately $479,000 as compared to $0 for
1996, primarily the result of the Company beginning commercial operation
April 1, 1997. Prior to this date, the Company was not in commercial
production, but was using subcontractors to produce prototype products and,
in accordance with financial recognition requirements applicable to Development
Stage Enterprises, was offsetting the revenue and cost associated with the
sale of such prototypes against research and development expenses.
Cost of sales, which includes materials, production labor and certain overheads
was $3,093,343 in 1998 as compared to $1,482,579 in 1997. The increase was
attributable to the increases in levels of production labor and overheads
associated with the onset of commercial production. Cost of sales levels are
expected to exceed sales levels until sales levels commensurate with production
capacity are achieved. Subject to raising sufficient capital, the Company
expects sales levels to increase in the future, thus steadily increasing
production levels to levels approximating full capacity, although no such
assurance can be provided.
Cost of sales, which includes materials, production labor and certain overheads
was approximately $1,483,000 in 1997 as compared to $0 in 1996. The increase was
attributable to the cost of prototype units produced prior to commercial
operation (April 1, 1997) being charged to research and development expenses
and increases in levels of production labor and overheads associated with the
onset of commercial production.
16
<PAGE>
Research and Development expenditures were $7,273 in 1998 as
compared to $651,242 in 1997. The decrease in such
expenditures is primarily associated with a change in focus from R & D
to production.
Research and Development expenditures were approximately $651,000 in 1997 as
compared to approximately $2,073,000 in 1996. The decrease in such
expenditures is primarily associated with production labor and certain
overheads associated with the sale of prototype units through April 1,
1997, being charged to research and development expenses as compared to
recognition of these same costs as cost of sales subsequent to April 1, 1997.
Also, in 1996, costs associated with the Northwestern Agreement and the
associated consulting contract, amounting to approximately $1,081,000 were
recognized as research and development expenses in 1996.
Sales and Marketing expenses were $395,339 in 1998 as compared to
$368,513 in 1997. The increase of $26,826 was attributable to increased levels
of marketing activities incurred in the achievement of the sales increase
from 1997 to 1998. The increases were related to increased print media
advertising and brochures offset by a decrease in trade show expense.
Sales and Marketing expenses were approximately $369,000 in 1997 as compared to
approximately $173,000 in 1996. The increase of approximately $196,000 was
attributable to increased levels of marketing activities incurred as the
Company approached and entered the commercial operation stage. The increases
were related to increased print media advertising and participation in trade
shows.
General and Administrative expenses were $2,882,320 in 1998 as
compared to $4,082,360 in 1997. The decrease of approximately
$1,200,000 was attributable primarily to the absence of a one time
charge recorded in 1997 of approximately $1,150,000 associated
with the value of common stock warrants issued in connection with
a broad based financial public relations/investor relations program.
An increase of bad debt expense was recorded in 1998 of approximately
$485,000. The primary amounts offsetting this increase were Depreciation
expenses decreasing in 1998 by approximately $33,000 due to a
reclassification of certain depreciation to Cost of Goods Sold in 1998 and a
decrease in recruiting expenses of approximately $20,000 in 1998
due to a reduced rate of hiring compared to 1997. Additionally, certain
expenses in 1998 classified as Cost of Goods Sold were previously classified
as General and Administrative aggregating a total of $485,000. This change in
classification had no impact on net income or loss per share.
General and Administrative expenses were approximately $4,082,000 in 1997 as
compared to approximately $1,067,000 in 1996. The increase of approximately
$3,015,000 was attributable primarily to the transition of the Company from a
development stage enterprise to commercial operation. In connection therewith,
insurance costs increased $68,000 as a result of increased property and
equipment value's, the addition of Directors and Officers insurance and higher
workman's compensation insurance as a result of an increased number of
employees. Salaries and fringe benefit costs increased approximately $355,000
as a result of additional employee levels and the replacement of previous
employees at higher rates. Legal and consulting fees increased approximately
$600,000 as a result of increased litigation activities, increased financial
consulting activities associated with financing alternatives and the absence
of a one time credit recorded in 1996 associated with the contribution to the
Company by a financial consultant of common stock previously issued. Such
credit amounted to approximately $248,000 in 1996. Increases in equipment,
furniture and fixture leasing costs amounted to approximately $479,000,
including equipment leasing costs charged to general and administrative costs
prior to the onset of commercial operation. Subsequent to commercial operation,
these costs were recognized as a component of cost of sales. Increases
amounting to approximately $223,000 were experienced in the areas of repairs
and maintenance, property taxes, utilities, depreciation, recruiting and
telephone expenses all being associated with the increase in activities and
assets values associated with the transition from development stage to full
commercial operation. Also, in 1997 the Company incurred a one time charge of
approximately $1,150,000 associated with the value of common stock warrants
issued in connection with a broad based financial public relations/investor
relations program. The Company, late in 1997, also settled certain outstanding
litigation at a cost of $140,000.
Interest income decreased approximately $63,000 from 1998 compared to 1997
as a result of lower levels of invested cash occasioned by operating demands.
Interest income decreased approximately $131,000 from 1997 compared to 1996
as a result of lower levels of invested cash occasioned by the operating
demands associated with the transition to commercial operation and the lack of
significant sales revenue.
17
<PAGE>
Liquidity and Capital Resources
The Company's cash and cash equivalents at December 31, 1998 were $112,695 as
compared to $1,934,574 at December 31, 1997, a net decrease of $1,821,879 for
the twelve months ended December 31, 1998. The net decrease was the result of
$1,561,015 provided by financing activities offset by the use of $176,502 in in-
vesting activities and $3,206,392 in operating activities.
The $1,384,513 provided by financing and investing activities was derived from
the private placement of 1,650,000 shares of Common Stock and the proceeds from
the use of the line of credit offset by the purchase of plant, property and
equipment net of depreciation and payments on the long-term debt.
The Company's cash and cash equivalents at December 31, 1997 were $1,934,574 as
compared to $4,266,168 at December 31, 1996, a net decrease of $2,331,594 for
the twelve months ended December 31, 1997. The net decrease was the result of
$3,080,465 provided by financing and investing activities offset by the use of
$5,412,059 in operating activities.
The $3,080,465 provided by financing and investing activities was derived from
the private placement of 2,000,000 shares of Series A 8% Convertible Preferred
Stock (subsequently converted to Common Stock), the exercise of Common Stock
options and the net result of a sale and leaseback transaction and the timing
thereof. Proceeds from long term debt were offset by principal payments on the
same and pre-existing long term debt.
The Company has a $1,000,000 secured line of credit with BSB for purposes of
providing working capital. The line of credit bears interest at prime plus
2.5% on the used portion and matures June 30,1999. At December 31, 1999, the
Company had $550,000 outstanding under this Line of Credit and no additional
availability under the eligibility formula. On February 5, 1999, the Company
entered into the Securities Purchase Agreement with bmp and completed the
first tranche of a two tranche equity investment in the Company. Accordingly,
it issued 2,000,000 shares of Common Stock for an aggregate purchase price
of $750,000. In the second tranche of the investment, bmp has agreed to
purchase between 650,000 and 1,000,000 shares of Preferred Stock at a
purchase price of between $1.3 million and $2 million. In connection with
such investment, BSB has agreed to waive certain financial covenants and to
extend the maturity of the Line of Credit until June 30, 2000 upon
consummation of the second tranche of the investment, subject to the absence
of any material adverse change in the business. In addition, BSB has agreed
to advance an additional $450,000 under the Line of Credit, to extend the
maturity of the Line of Credit from March 31, 1999 to June 30, 1999, and to
waive the requirement that the Company maintain the Line of Credit balance
within its collateral base formula until the earlier of June 30, 1999 or the
date of receipt by the Company of funds arising out of the second tranche of
the investment. The Company anticipates that the consummation of the second
tranche of the investment will take place between March 31, 1999 and May 31,
1999, depending on the need for stockholder approval. The Company issued
warrants to purchase an aggregate of 500,000 shares of Common Stock to BSB,
at an exercise price of $0.575 per share, in consideration for the
modifications to the Line of Credit. The warrants expire in 2004 and
contain certain registration rights. See Item 1. "Description of
Business-Recent Developments" and Note 9 and Note 11 to the Financial
Statements.
The Company has incurred net losses from inception (September 21, 1993)
and has an accumulated deficit at December 31, 1998 of $16,960,039. Such
losses have resulted from the Company's activities as a development stage
company and have been financed primarily out of proceeds from the Company's
initial public offering and private equity financing. The Company expects
that its cash and working capital requirements will continue to be
significant as its operations expand. Potential sources for such cash
and working capital requirements are revenue growth and additional private
equity financing. It is anticipated that the Company will continue to incur
losses for the immediate future until it is able to achieve profitable
operations or to generate sales sufficient to support its operations.
The Company is currently seeking to issue additional equity capital
through a private placement. The need to raise equity capital at current stock
prices is likely to result in substantial dilution to shareholders and could
result in a change of control. Assuming the consummation of the second tranche
of the bmp investment in the minimum amount of $1,300,000, the Company
estimates that it would have sufficient cash flow to operate until
approximately October 31, 1998. Assuming the consummation of the second
tranche in the maximum amount of $2,000,000, the Company estimates that it
would have sufficient cash flow to operate until the end of December, 1999.
bmp has contractually committed to purchase between $1.3 million and $2.0
million of additional equity capital of the Company, subject to the satisfaction
of certain customary conditions. However, without an infusion of additional
equity, such as the second tranche of the bmp investment, the Company
estimates that it has sufficient cash flow to operate only through
approximately May 31, 1999. In addition, the extension of the Line of Credit
by BSB until June 30, 2000 is conditioned upon the consummation of the second
tranche. At this time, BSB has extended the maturity of the Line of Credit
until June 30, 1999. All of these aforementioned estimates assume the
current level of sales and the current level of fixed and variable costs. If
the level of sales increases, these dates may be later, and alternatively, if
current sales levels decrease, these dates may be sooner. The Company is
also taking actions to reduce operating expenses. Legal fees associated with
pending investigations (See Item 3. Legal Proceedings) could be an additional
drain on the Company's cash flow.
There can be no assurance that the Company will be able to obtain
additional financing, including any institutional financing, when needed, on
commercially reasonable terms or at all. Additionally, there can be no
assurance that the second tranche of the bmp investment will be consummated.
In addition, the Company is currently engaged in a dispute with one of
its key customers, Rocky Mountain Instruments. See Item 1. "Description of
Business - Current and Future Markets."
18
<PAGE>
Item 7. Financial Statements
Semiconductor Laser International Corporation
Index to Financial Statements
Page
Report of Independent Public Accountants F-1
Financial Statements:
Balance Sheets as of December 31, 1997 and 1998 F-2
Statement of Operations for the Years Ended December 31,
1996, 1997 and 1998 F-3
Statement of Changes in Shareholders Equity for the Years
Ended December 31, 1996, 1997 and 1998 F-4
Statement of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998 F-5
Notes to Financial Statements F6-F17
<PAGE>
F-1
Report of Independent Accountants
To The Board of Directors and Shareholders of
Semiconductor Laser International Corporation
In our opinion, the accompanying balance sheets 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, 1997
and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, 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.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has incurred net losses since
inception (September 21, 1993) and at December 31, 1998 has an accumulated
deficit of $16,960,039 and a working capital deficit of $955,447 that raise
substantial doubt about its ability to continue as a going concern. Manage-
ment's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
Florham Park, NJ
February 22, 1999
<PAGE>
F-2
Semiconductor Laser International Corporation
Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
----------- ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents............. $ 1,934,574 $ 112,695
Accounts receivable, net of allowance.
for doubtful accounts of $49,610 and
$560,645, respectively.............. 201,070 296,193
Inventory............................. 139,201 333,806
Prepaid expenses and other assets..... 70,717 180,853
----------- -----------
Total current assets............... 2,345,562 923,547
Plant, property and equipment, net..... 2,719,816 2,691,926
Intangible assets, net of accumulated..
amortization of $2,696 and $3,370,....
respectively.......................... 674 --
Deposits and other assets.............. 591,320 123,957
----------- -----------
Total assets...................... $ 5,657,372 $ 3,739,430
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable...................... $ 512,447 $ 1,127,589
Notes payable ( Line of Credit )...... -- 550,000
Accrued expenses and other liabilities 161,545 164,235
Current portion of long-term debt..... 36,394 37,170
----------- -----------
Total current liabilities........... 710,386 1,878,994
Long-term debt........................... 798,283 765,687
Accrued royalty payments................. 100,000 100,000
----------- -----------
Total liabilities................... 1,608,669 2,744,681
----------- -----------
Commitments and contingencies ( Note 11)
Shareholders' Equity
Common stock, $.01 par value, 20,000,000
shares authorized; 8,389,552 shares
issued and outstanding December 31,
1997; 10,039,552 shares issued and
outstanding December 31, 1998.......... 83,896 100,396
Common stock issuable................... -- 41,073
Treasury Stock, 35,463 Shares........... (248,241) (248,241)
Additional paid-in capital.............. 17,035,225 18,061,560
Accumulated deficit..................... (12,822,177) (16,960,039)
------------ ------------
Total shareholders' equity........... 4,048,703 994,749
------------ ------------
Total liabilities and shareholders'..
equity............................... $ 5,657,372 $3,739,430
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
F-3
Semiconductor Laser International Corporation
Statements of Operations
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales -- $ 478,924 $ 2,197,736
Cost of sales -- (1,482,579) (3,093,343)
------------ ------------ ------------
Gross margin -- (1,003,655) ( 895,607)
Operating expenses:
Research and development $ 2,073,436 651,242 7,273
Sales and marketing 173,329 368,513 395,339
General and administrative 1,067,347 4,082,360 2,882,320
------------ ------------ ------------
Loss from operations (3,314,112) (6,105,770) (4,180,539)
Interest income 237,253 105,959 42,677
------------ ------------ ------------
Loss before
extraordinary item (3,076,859) (5,999,811) (4,137,862)
Extraordinary loss on early
extinguishment of debt (305,301) -- --
------------- ------------- ------------
Net loss after
extraordinary item (3,382,160) (5,999,811) (4,137,862)
Less: Beneficial conversion
feature -- (1,688,000) --
------------- ------------- ------------
Net loss applicable to
common stock $(3,382,160) $(7,687,811) $(4,137,862)
============= ============= ============
Net loss per share:
Loss before extraordinary
item $ (1.04) $ (2.15) $ (0.44)
Extraordinary item (0.10) 0.00 0.00
------------- ------------- -------------
Net loss applicable to
common stock $ (1.14) $ (2.15) $ (0.44)
============= ============= =============
Weighted average shares
outstanding 2,949,884 3,572,458 9,320,785
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
F-4
<TABLE>
<CAPTION>
Semiconductor Laser International Corporation
Statements of Changes in Shareholders' Equity
Common Additional Total
Preferred Common Stock Treasury Paid-In Accumulated Shareholders'
Stock Stock Issuable Stock Capital Deficit Equity
--------- --------- ----------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bal. at Dec.31,1995
(1,393,653 shares
issued and outstding) $ 13,936 $ 2,035,065 $(1,752,206) $ 296,795
Issuance of common
stock as a component
of "Bridge Financing" 1,500 243,500 245,000
January 1996,
(150,000 shares)
Issuance of common
stock, Initial Public
Offering, March 1996,
(1,700,000 shares) 17,000 7,061,985 7,078,985
Issuance of common
stock, overallotment
option, April 1996
(55,000 shares) 550 234,214 234,764
Issuance of common
stock, warrant exercise
July 1996
(101,983 shares) 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 shares) 20 8,849 8,869
Common stock issuable
for services to be
rendered, August 1996 51,250 51,250
Common stock issuable
for services to be
rendered, September
1996 (2,731 shares) 22,188 22,188
Warrants issued in
exchange for services
to be rendered,Oct. 1996 167,710 167,710
Issuance of common
stock, warrant exercise
Nov.1996, (7,000 shs.) 70 34,930 35,000
Commmon stock issuable
for services rendered
Nov.1996 (120,000 shares) 1,050,000 1,050,000
Company common stock
contributed to Company
December 1996, (35,463
shares) (248,241) (248,241)
Net loss for the year
ended Dec. 31, 1996 (3,382,160) (3,382,160)
--------- --------- ----------- --------- ---------- ----------- -----------
Bal. at Dec.31, 1996
(3,409,607 shares
issued and outstanding) 34,096 1,123,438 (248,241) 10,081,464 (5,134,366) 5,856,391
Issuance of common
stock issuable, January
1997, (121,231 shares) 1,212 (1,072,188) 1,070,976 0
Issuance of common
stock, option exercise
May 1997, (9,851 shares) 99 394 493
Issuance of common
stock, option exercise
July 1997, (29,553 shares) 296 1,182 1,478
Issuance of Series A 8%
Convertible Preferred
Stock, October 1997,
(2,000,000 shares) 20,000 2,817,480 2,837,480
Beneficial conversion
feature associated
with Series A 8%
Convertible Preferred
Stock, October 1997 1,688,000 (1,688,000) 0
Warrants issued for
services rendered,
October 1997
(770,000 warrants) 1,198,789 1,198,789
Issuance of common
stock issuable,
Nov.1997, (10,000 shares) 100 (51,250) 51,150 0
Issuance of common
stock for services
rendered, November
1997, (1,500 shares) 15 2,571 2,586
Issuance of common stock
associated with the sale of
Series A 8% Convertible
Preferred Stock, Nov.1997,
(40,000 shares) 400 137,120 137,520
Issuance of common
stock for services
rendered, December 1997
(55,000 shares) 550 78,540 79,090
Issuance of common stock
associated with the
conversion of Series A 8%
Convertible Preferred Stock
December 1997,
(4,712,810 shares) (20,000) 47,128 (92,441) (65,313)
Net loss for the year
ended Dec.31, 1997 (5,999,811) (5,999,811)
--------- --------- ----------- --------- ----------- ------------ ------------
Bal. at Dec.31, 1997
(8,389,552 shares
issued and outstanding) 0 83,896 0 (248,241) 17,035,225 (12,822,177) 4,048,703
--------- --------- ----------- --------- ----------- ------------ ------------
Issuance of common
stock, private placement
(1,650,000 shares) 16,500 1,026,335 1,042,835
Common stock issuable
for services rendered,
Dec.1998 (111,280 shares) 41,073 41,073
Net loss for the year
ended Dec. 31,1998 (4,137,862) (4,137,862)
--------- --------- ----------- --------- ----------- ------------- ------------
Bal. At Dec. 31, 1998
(10,039,552 shares
issued and outstanding) $0 $100,396 $41,073 $(248,241) $18,061,560 $(16,960,039) $ 994,749
========= ========= =========== ========= =========== ============= ============
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
F-5
Semiconductor Laser International Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(3,382,160) $(5,999,811) $(4,137,862)
Adjustments to reconcile
net loss to cash used in
operating activities:
Depreciation and amort. 71,981 126,344 205,066
Expenses settled through
the issuance of Common
shares, options and
warrants 854,172 1,282,379 41,073
Amortization of debt
discount 64,699 - -
Extraordinary loss on
early extinguishment
of debt 350,301 - -
Change in assets and
liabilities:
(Increase) in accounts
receivable (55,712) (140,023) (95,123)
(Increase) in inventory (3,716) (132,885) (194,605)
(Increase) in prepaid
exp. and other assets - (70,717) (110,136)
(Increase) decrease
in deposits and other
assets (111,926) 64,608 462,287
Decrease in deferred
financing cost 134,431 - 5,076
Increase (decrease) in
accounts payable 933,332 (629,825) 615,142
Increase (decrease) in
accrued expenses and
other liabilities (42,132) 69,346 2,690
------------ ------------ ------------
Net cash used in operating
activities (1,231,730) (5,430,584) (3,206,392)
------------ ------------ ------------
Cash flows from investing
activities:
Purchase of plant, property
and equip., net: (4,182,934) (2,463,450) (176,502)
Sale of equipment, pursuant
to sale andl leaseback
agreement 895,606 2,676,856 -
------------ ------------ ------------
Net cash provided by (used
in) investing activities (3,287,328) 213,406 (176,502)
------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from long-term
debt 1,441,000 31,306 -
Payments on long-term debt (831,796) (32,503) (31,820)
Proceeds from issuance of
stock, net of expenses 7,644,980 2,886,781 1,042,835
Proceeds from short-term
debt - - 550,000
------------ ------------ ------------
Net cash provided by
financing activities 8,254,184 2,885,584 1,561,015
------------ ------------ ------------
Net (decrease) increase
in cash, cash equivalents,
and restricted cash 3,735,126 (2,331,594) (1,821,879)
Cash, cash equivalents,
and restricted cash at
beginning of period 531,042 4,266,168 1,934,574
------------ ------------ ------------
Cash, cash equivalents,
and restricted cash at
end of period $ 4,266,168 $ 1,934,574 $ 112,695
============ ============ ============
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
F-6
Semiconductor Laser International Corporation
Notes to Financial Statements December 31, 1998
1. Organization
Semiconductor Laser International Corporation (the"Company") was
incorporated in New York State in September 1993 (inception) and, subsequently,
reincorporated in Delaware in September 1997, 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 had 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 is conducting
all activities.
Effective April 1, 1997, the Company ceased operating as a development stage
enterprise as it began commercial production of its products.
2. Financial Resources and Liquidity
The Company has incurred net losses from inception (September 21, 1993) and
has at December 31, 1998 an accumulated deficit of $16,960,039 and a working
capital deficit of $955,447. Such losses have resulted primarily from the
Company's activities as a development stage enterprise and have been financed
primarily from proceeds from the Company's initial public offering and private
equity financing (see Note 11). The Company expects that its cash and working
capital requirements will continue to be significant as its operations expand.
The Company expects that such cash and working capital requirements will be
satisfied through a combination of revenue growth and additional private equity
financing.
However, there is no assurance that the Company will be able to obtain funds
to support its operations. As a result of the foregoing, there remains
substantial doubt as to the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
3. 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.
<PAGE>
F-7
Inventory
Inventory is valued at the lower of cost or market. Cost is determined
by the first in, first out (FIFO) method.
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 accelerated methods 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.
Impairment of long-lived assets
Assessments of the recoverability of long-lived assets are conducted when
events or circumstances occur that indicate that the carrying value of the
asset may not be recoverable. The measurement of impairment is based on the
ability to recover such carrying value from the future undiscounted cash flows
of related operations.
Revenue Recognition
Revenue recognition is based on the terms of the underlying sales agreements
(purchase orders or contracts). Revenue for fixed price milestone contracts is
recognized upon the completion and billing of the milestone. Customers
entering into long-term contracts with the Company include the U.S. Government,
prime or subcontractors for which the U.S. Government may be the end customer,
and other domestic end-users.
Warranty Costs
The Company provides for the recognition of the potential for rework to its
products by establishing a warranty reserve based on an historic analysis
of past experience.
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 $500,526 and $7,273 for the years ended December 31, 1997 and
1998, 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.
<PAGE>
F-8
Net loss per share
In December 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earnings per Share ("FAS 128") which requires the
presentation of basic and diluted earnings per share in a Company's financial
statements for reporting periods ending subsequent to December 15, 1997.
Previously reported per share information contained in the accompanying
consolidated financial statements has been restated to give effect to the
adoption of FAS 128.
Net loss per share is computed using the weighted average number of
common shares outstanding.
As of December 31, 1998, the Company had outstanding warrants and options to
purchase 2,946,334 and 148,455 shares of common stock, respectively, which are
not included in the calculation of earnings per share for the twelve months
ended December 31, 1998, and would not be included in such calculation due to
the anti-dilutive nature of these instruments.
4. Inventories
Inventories at December 31, 1997 and 1998 consist solely of raw materials
and supplies. During the period 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.
5. Plant, Property and Equipment
Plant, property and equipment consists of the following:
December 31, December 31,
1997 1998
----------- -----------
Land $ 175,459 $ 175,459
Building 2,097,215 2,099,861
Machinery and equipment 420,711 587,097
Furniture and fixtures 151,888 159,358
Automobiles 76,124 76,124
----------- -----------
2,921,397 3,097,899
Less: accumulated depreciation (201,581) (405,973)
----------- -----------
$ 2,719,816 $ 2,691,926
=========== ===========
Depreciation expense for the years ended December 31,
1996, 1997 and 1998, was $71,306 , $125,670 and $204,392, 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, in 1997, sold and leased back
approximately $2,677,000 of machinery, equipment, furniture and fixtures.
No gain or loss was realized in either year relative to the sale and leaseback
transactions.
<PAGE>
F-9
6. Deposits and Other Assets
Deposits and other assets consist of the following:
December 31,
-------------------------
1997 1998
----------- -----------
Deposits under master lease agreement $ 562,506 $ 90,017
Other 28,814 33,940
----------- -----------
$ 591,320 $ 123,957
=========== ===========
7. Accrued Royalty Payments
In 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, 1996,
1997 and 1998.
8. Accrued expenses and other liabilities
Accrued expenses and other liabilities consist of the following:
December 31,
--------------------------
1997 1998
----------- ------------
Accrued payroll and benefits $ 54,371 $ 66,040
Professional fees 94,719 85,261
Other accrued expenses 12,455 12,934
----------- ------------
$ 161,545 $ 164,235
=========== ============
<PAGE>
F-10
9. Debt
Long-term debt consists of the following:
December 31,
--------------------------
1997 1998
------------ -----------
Bank term loan, principal and interest
at 10% payable monthly through
January 2002 $ 42,269 $ 31,974
Bank term loan, principal and interest
at 10% (adjustable after December 2001)
payable monthly through December 2006 792,408 770,883
------------ -----------
834,677 802,857
Less current portion (36,394) (37,170)
------------ -----------
$ 798,283 $ 765,687
============ ===========
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. At December 31, 1998, the Company
was not in compliance with the covenants of the bank term loan due
December 2006. However, a waiver of the right to demand payment
for this non-compliance has been provided by the lender covering any period
prior to June 30, 1999.
Aggregate annual principal payments applicable to long-term debt are as follows:
1999 - $ 37,170
2000 - 44,004
2001 - 42,918
2002 - 39,085
2003 - 43,237
therafter - 596,443
---------
$ 802,857
=========
The Company has available a secured line of credit ( asset based ) in the
amount of $1,000,000 for purposes of providing working capital. The line
bears interest at prime plus 2.5% (prime being 7.75% at December 31, 1998)
on the outstanding balance and matures June 30, 1999. The Company has
utilized $550,000 of this line of credit at December 31, 1998. The Company
was not in compliance with the financial covenants at December 31, 1998,
however, has obtained a waiver from default under the Loan Agreement with
respect to Affirmative Covenants-"Financial Covenants and Ratios" and Events of
Default-"Change of Ownership" for the period ending December 31, 1998 through
the period ending June 30, 1999. This waiver is in conjunction with an equity
investment in the Company by a third party investor. See Note 11. There can
be no assurance that any additional extension of this waiver can be negotiated.
10. Income taxes
There was no provision for income taxes for the years ended December 31,
1996, 1997 and 1998.
Deferred income tax assets (liabilities) consisted of the following:
December 31,
----------------------------
1997 1998
----------- ------------
Depreciation and amortization $ (120,885) $ (143,546)
Accruals 39,000 39,000
Compensatory Stock Options 105,453 56,668
Bad Debt Expense - 199,226
Net operating loss carryforward 3,860,628 5,295,520
----------- ------------
3,884,196 5,446,868
Valuation allowance $ (3,884,196) $(5,446,868)
----------- ------------
$ - $ -
=========== ============
<PAGE>
F-11
Net operating loss carry forwards of approximately $10,000,000 expire in
the years 2008 to 2013. 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. 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 has only recently
transitioned from the development stage and future income is uncertain,
management has determined that a full valuation allowance against all deferred
tax assets is necessary at December 31, 1997 and 1998.
11. Common Stock
Options
The following summarizes stock option activity:
<TABLE>
<CAPTION>
Exercise
Number of Price per
Shares Share Expiration Date
--------- ------------- ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 189,159 $ 0.05-$9.25
Granted 113,550 $8.19-$0.6875 March 2000-Dec.2001
Options exercised (39,404) $ 0.05
Options forfeited (50,500) $ 5.00-$9.00
Options canceled (76,500) $ 0.72-$9.25
---------
Outstanding at December 31, 1997 136,305 $0.05-$0.6875
Granted-Employees 24,000 $ 0.656-0.938 Apr.02-Nov.05
Granted-Directors 5,000 $ 1.50 March 2008
Options forfeited (16,850) $ 0.6875
---------
Outstanding at December 31, 1998 148,455 $0.656-$1.50
=========
</TABLE>
<PAGE>
F-12
189,159, 102,755 and 122,455 options were exercisable at December 31,
1996, 1997 and 1998, respectively, at a weighted average exercise price of
$3.24, $0.38 and $0.90, respectively.
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. On August 17, 1998 at the Annual Meeting, the Company's
stockholders voted to approve the amendments to the Company's Stock Option Plan
increasing the total number of shares of the Company's common stock available
for options to be granted from 250,000 shares to 1,000,000 shares and permit
the Board to grant additional options to non-employee directors. 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 over
varying periods up to ten years after the date of the grant.
In 1998, the Company granted options to purchase 29,000 shares under the Plan,
including options for 5,000 shares to directors of the Company, with exercise
prices ranging from $0.656 to $1.50 per share with varying vesting periods
through November 2002 and expiration dates through November 2005. 16,850
options expired unexercised in 1998 under the terms of the Plan.
As permitted by Statement of Financial Accounting Standards ("SFAS")
No. 123 "Accounting for Stock-Based Compensation", 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 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 $0.09 per share) in
1996, $27,000 (or $0.01 per share) in 1997 and $14,000(or $0.002 per share)
in 1998. The weighted average fair value of the options granted in 1996, 1997
and 1998 was estimated at $2.77, $0.31 and $0.70 per option, respectively, on
the dates of grant, using the Black-Sholes option pricing model which included
the following assumptions stated on a weighted average basis:
1996 1997 1998
---------- ---------- ----------
Dividend Yield 0% 0% 0%
Volatility 54.08% 63.13% 65.78%
Risk Free Interest Rate 6.14% 5.68% 4.84%
Expected Life 3.7 years 2.9 years 4.9 years
<PAGE>
F-13
Warrants
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 its overallotment option to
purchase an additional 255,000 warrants.
On January 3, 1997, the Company issued 58,384 warrants in connection with
an operating lease agreement (see Note 12). The warrants could not be
exercised prior to February 1998 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 a prepaid lease in the
amount of $167,710 and is being amortized over the term of the lease.
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.
In October 1997, in connection with a private placement of the Company's
Series A 8% Convertible Preferred Stock (the "October Private Placement"), the
Company issued to Marketing Direct Concepts, Inc., a financial public relations
firm, the following warrants, all having a term of three years:
Number of Warrants Exercise Price
------------------ --------------
600,000 $3.4688
75,000 $3.4688
25,000 $4.3438
25,000 $4.8438
25,000 $5.3438
Also, in connection with the October Private Placement, the Company issued
20,000 warrants with a term of two years and an exercise price of $3.75 to a
financial consultant of the Company. The value of the Warrants issued in
connection with the October Private Placement has been estimated at
approximately $1,200,000 and has been reflected as a charge to the results of
operation for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Warrants Issued and Outstanding at December 31, 1998
<S> <C> <C>
Issued Number Price
---------- ----------- ---------
March, 1996 1,693,000 $5.00
July, 1996 255,000 $5.00
January, 1997 170,000 $5.00
January, 1997 58,384 $5.00
October, 1997 750,000 Various
October, 1997 20,000 $3.75
-----------
Balance at December 31, 1998 2,946,384
===========
</TABLE>
<PAGE>
F-14
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 in 1996, 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 for the year ended
December 31, 1998.
October 1997 Private Placement
In October 1997, the Company completed a private placement (the "Private
Placement") of 10 Units (the "Units"), each Unit consisting of 200,000 shares
of Series A 8% Convertible Preferred Stock (the "Convertible Preferred
Stock"), for an aggregate purchase price of $3,500,000. After deducting the
Placement Agent's commissions and expenses of $525,000 and other expenses of
the offering aggregating $138,000, the net proceeds of the Private Placement
to the Company were approximately $2,837,000.
<PAGE>
F-15
The shares of Convertible Preferred Stock underlying the Units were convertible
in whole or in part, at the option of the holder thereof and upon notice to the
Company, into fully paid and nonassessable shares of Common Stock at the
Conversion Rate, as defined.
On December 30, 1997, the holders of all 2,000,000 outstanding shares of the
Convertible Preferred Stock converted their shares of Convertible Preferred
Stock into 4,712,810 shares of Common Stock in the aggregate, in accordance
with the terms of the conversion formula. A Registration of the securities
issued upon conversion became effective January 14, 1998.
In accordance with the Emerging Issues Task Force Topic D-60 "Accounting for
the Issuance of Convertible Preferred Stock and Debt Securities with a
Nondetachable Conversion Feature", the Company has accounted for the conversion
right associated with conversion on or before December 5, 1997 as a
"Beneficial Conversion Feature". The Beneficial Conversion Feature has been
calculated as the product of the difference between the quoted market price of
the Common Stock on December 5, 1997 and the price paid for the Convertible
Preferred Stock applied to the number of shares of Convertible Preferred Stock
fully paid as of October 27, 1997, and amounted to $1,688,000 and has been
recorded by the Company as a charge to income available to Common Stockholders
and as an increase to additional paid-in capital.
The Convertible Preferred Stock issued on December 11, 1997, was immediately
convertible into 1,098,732 shares of Common Stock, based on the conversion
formula in effect and the market price of the Company's Common Stock.
Had such shares of Convertible Preferred Stock been converted on December 11,
1997, the value of the Common Stock issued upon conversion would have been
less than the price paid for the Convertible Preferred Stock. Therefore, no
Beneficial Conversion Feature was recognized.
Also, in connection with the October Private Placement, the Company entered
into a one-year agreement with Marketing Direct Concepts, Inc. ("MDC") for
ongoing financial public relations services. Under the agreement, the Company
will receive a range of financial public relations services, including the
establishment of contact with a number of brokers, the preparation of certain
reports, the establishment of a web site and the arrangement of broker
teleconferences. In consideration for these services, the Company is
obligated to pay a fee of $195,000, 40,000 shares of non-registered common
stock, 150,000 three-year warrants at exercise prices at or above the closing
bid price of the Company's Common Stock as of October 27, 1997 and 600,000
three-year warrants exercisable at $3.4688. The value of the warrants
(approximately $1,200,000) and a portion of the cash fee have been charged to
the results of operations for the year ended December 31, 1997.
June 1998 Private Placement
On June 8, 1998, the Company completed a private placement (the "Private
Placement") of 1,650,000 shares of its Common Stock, at an aggregate purchase
price of $1,237,500. The shares of Common Stock were issued and sold by the
Company without registration under the Securities Act in reliance upon the
exemption from registration afforded by Section 4(2) of the Securities Act and
Section 506 of Regulation D promulgated under the Securities Act in that they
were sold solely to "accredited investors" as defined in Rule 501 (a) of the
Securities Act. The placement agent for the shares, Empire Consulting Company,
LTD,(the "Placement Agent") was paid $194,665 for commissions and expenses.
After deducting the Placement Agent's commissions and expenses of $194,665 in
the aggregate, the net proceeds of the Private Placement to the Company were
approximately $1,042,835. In connection with the Private Placement the Company
has agreed with the Placement Agent that it would enter into an agreement with a
financial public relations firm to be selected by the Placement Agent pursuant
to which the Company would receive a range of services including the
establishment of contact with a number of brokers, the preparation of certain
reports and the arrangement of broker teleconferences. In consideration of the
services to be provided, the Company has paid to the Placement Agent the sum of
$49,125.
The Company has registered the shares of Common Stock issued in the
Private Placement on a Registration Statement on Form S-3/A which was declared
effective by the Securities and Exchange Commission on December 30, 1998.
bmp Transaction
The Company entered into a Securities Purchase Agreement (the "Securities
Purchase Agreement"), dated as of February 5, 1999, between the Company and
bmp Mobility AG Venture Capital ("bmp"). Pursuant to the Securities Purchase
Agreement, bmp has agreed to make a two tranche equity investment in the
Company in an amount ranging between $2,050,000 and $2,750,000. The first
tranche of the investment was consummated on February 8, 1999 by the parties,
and bmp has purchased 2,000,000 newly issued shares of the Company's common
stock (the "Common Stock"), par value $0.01 per share, at a price of $0.375
per share, for an aggregate purchase price of $750,000. In the second tranche
of the investment, bmp has agreed to purchase between 650,000 and 1,000,000
shares of the Preferred Stock at a purchase price of $2.00 per share, for a
total investment of between $1.3 million and $2 million. Such Preferred
Stock would be convertible at a five to one ratio into shares of Common Stock,
but is only convertible by unaffiliated transferees of bmp. The shares issued
and to be issued in this private placement contain certain demand and piggyback
registration rights and certain anti-dilution rights.
The consummation of the second tranche of the investment is subject to
certain customary conditions, including stockholder approval, if required by
the Nasdaq SmallCap Market, the absence of any material adverse
change, and the extension by BSB Bank and Trust ("BSB") of the Company's $1.0
million secured line of credit (the "Line of Credit") until May 31, 2000.
BSB has already agreed to extend the maturity of the Line of Credit until June
30, 2000 upon consummation of the second tranche of the investment, subject to
the absence of any material adverse change in the business. In addition, BSB
has agreed to advance an additional $450,000 under the Line of Credit, to
extend the maturity of the Line of Credit from March 31, 1999 to June 30,
1999, and to waive the requirement that the Company maintain the Line of
Credit balance within its collateral base formula until the earlier of June
30, 1999 or the date of receipt by the Company of funds arising out of the
second tranche of the investment.
The Company has entered into a Distributor Agreement, dated February 22,
1999, with LG Laser Graphics GmbH ("Laser Graphics"), an entity in which bmp
has invested, whereby Laser Graphics has been granted rights to distribute
the Company's products on an exclusive basis throughout Germany, Switzerland
and Austria, and on a non-exclusive basis worldwide outside of Germany,
Switzerland and Austria. The agreement provides for certain discounts on
products sold to Laser Graphics.
In conjunction with the bmp investment, the Company issued to BSB Bank & Trust
Company, on February 16, 1999, warrants to purchase an aggregate of 500,000
shares of the Company's common stock at an exercise price of $0.575 per share.
The warrants expire on February 16, 2004, and contain certain registration
rights. The value of the warrants, as determined by the market price at the
date of issue, will be reflected as deferred financing costs in the Company's
financial statements and will be amortized over the period commencing from date
of issue to May 31, 2000.
<PAGE>
F-16
12. Commitments, Contingencies and Other Matters
Operating Leases
In October 1996, the Company entered into a master equipment lease
agreement with FINOVA Technology Finance, Inc. ("FINOVA"). The agreement
provided 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
could not have been 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, $1,024,280
and $963,093 for the years ended December 31, 1996, 1997 and 1998,
respectively.
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 year ended December 31, 1996 was $42,755.
Future minimum payments under noncancellable operating leases, including
the Finova lease agreement, at December 31, 1998, are as follows:
Year Ending
December 31,
----------------
1999 $1,009,000
2000 1,009,000
2001 213,000
----------
$2,231,000
==========
Litigation
The Company is currently engaged in litigation with a former employee who the
Company sought action against relative to a breach of confidentiality and
defamation of character. The former employee has responded with a counter claim
alleging defamation of character and is seeking $500,000 in damages. The
litigations are presently in the discovery stage. The Company believes the
counter claim is without merit and is vigorously defending such action and that
the ultimate outcome of such action will not have a material impact on the
financial condition or results of operations of the Company.
Since April 1998, the Company has been responding to informal requests for
information from the Securities and Exchange Commission. In August 1998, the
Company learned that in June 1998, the Commission had issued
a formal order of investigation to determine whether violations of certain
aspects of the federal securities laws had occurred in connection with the
Company. Pursuant to this formal order of investigation, the Company and
certain of its current and former officers and directors have produced
documents pursuant to subpoenas from the Northeast Regional Office of the
Commission. The investigation is in its early stages and the Company is not
able to speculate as to the specific subject matter of the investigation on the
Company. There can be no assurance as to the timeliness of the completion of
the investigation or as to the final result thereof, and no assurance can be
given that the final result of the investigation will not have a material
adverse effect on the Company. The Company is cooperating with the
investigation, and has responded and will continue to respond to requests for
information in connection with the investigation.
In August 1998, the Company learned that the United States Attorney's Office for
the Southern District of New York is investigating whether violations of
securities laws have occurred in connection with the Company's public
disclosures. The Company is cooperating with the investigation and has
responded to a grand jury subpoena issued in connection with the
investigation. There can be no assurance as to the timeliness of the completion
of the investigation or as to the final result thereof, and no assurance can be
given that the final result of the investigation will not have a material
adverse effect on the Company or its current management. Management believes
that there are meritorious defenses to the issues raised by this investigation
and intends to defend this matter vigorously.
<PAGE>
F-17
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 paid 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
issued 1,500 shares of unregistered common stock, valued at $2,586. These
amounts have been charged to research and development expense. 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 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.
19
<PAGE>
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
<PAGE>
20
PART III
Item 9. Directors, Executive Officers; Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
- - -------------------------- --- --------------------------------------
<S> <C> <C>
Dr. Geoffrey T. Burnham ...... 50 Chairman, President, Chief Executive Officer
Susan M. Burnham ............. 43 Vice President, Treasurer and Director
Leonard E. Lundberg........... 52 Chief Financial Officer
George Barrett ............... 65 Director
Dr. Brian Thompson ........... 66 Director
</TABLE>
Dr. Geoffrey T. Burnham, a founder of the Company, has also served as its
Chairman, President, and Chief Executive Officer, since its incorporation in
September 1993, and devoted his full-time efforts to the establishment of the
Company commencing in May 1993. From April 1990 through July 1990, Dr. Burnham
served as a consultant to, and from July 1990 until May 1993, he was employed
by, Northeast Semiconductor, Inc. ("NSI"), and served as its President and as
a director from October 1991 through May 1993. Dr. Burnham resigned from NSI
upon its acquisition in a hostile take-over. Approximately five months after
his resignation, NSI filed for Chapter 7 bankruptcy protection. Prior to April
1990, Dr. Burnham had over 16 years of experience in the laser field, including
10 years in the semiconductor laser field, holding management positions with
Hercules Aerospace Corporation (1987 to 1989), General Optronics Corporation,
a company involved in manufacturing laser equipment for telecommunications
applications (1984 to 1986) and General Electric Co. ("General Electric")
(1975 to 1984). Dr. Burnham founded and directed General Electric's Laser
Business Venture for five years. In addition, he was corporate liaison between
General Electric and the University of Rochester on General Electric's
Consortium on Inertial Confinement Fusion. Dr. Burnham also served as General
Electric's Corporate technical Recruiter at the University of Rochester as well
as Chairman of the United States government's laser section of the Military
Critical Technologies List. Dr. Burnham is married to Susan Burnham.
Susan M. Burnham has been Vice President, Treasurer and a director of the
Company since its incorporation in September 1993. From May 1993 to September
1993, Ms. Burnham assisted Dr. Burnham in the establishment of the Company and,
from February 1992 through April 1993, Ms. Burnham was not employed. From
August 1986 through January 1992, she served as a national account executive
in marketing and sales for MLI Industries Inc., a company involved in turn-key
subcontract manufacturing of electronic components, electro-mechanical
assemblies, and copy machine refurbishment and manufacturing, and was
responsible for handling all major company accounts, as well as all new
accounts. She established a customer base that included several divisions of
General Electric, IBM and Eastman Kodak Company, initiating partnership
agreements for all major customers. Ms. Burnham was employed by General
Electric from December 1977 through July 1984 during which time she held
administrative positions in various laser and electronic programs with a
particular emphasis on the monitoring of operating budgets. Ms. Burnham is
married to Dr. Burnham.
<PAGE>
21
Leonard E. Lundberg has been Chief Financial Officer of the Company since
November, 1998. From March, 1998 through November, 1998 Mr. Lundberg was
employed as CFO by Miller Aviation, Inc., a company engaged in providing general
aviation services. Miller Aviation, Inc. and Corporate Wings, Inc. merged in
October, 1998 at which time Mr. Lundberg resigned. From January, 1996 until
February, 1998 Mr. Lundberg was employed by Maines Paper & Food Service, Inc.,
a company engaged in the food and paper warehousing and distribution business,
in the capacity of Vice President of Finance. Previously, Mr. Lundberg held
the position of Corporate Controller of Taylor Industries, Inc. from 1988
until 1995. Taylor Industries is involved in the meat packing and rendering
industries. Mr. Lundberg's employment before 1988 has included various
corporate positions at ITT, Sperry Univac(Unisys)and RCA as well as
independent consulting to various industries.
George W. Barrett was elected as a director of the Company in December 1993.
Mr. Barrett has been Operations Manager of Universal Telephone & Telegraph, a
long distance telephone company, since June 1996. Prior to that, from October
1995 through February 1996, Mr. Barrett was an independent consultant,
providing general business management services. From October 1989 through
September 1995, he was President and General Manager of Engineered Systems
Division (Datron Inc.), a publicly owned company engaged in the manufacture of
aircraft arresting systems. Mr. Barrett was president of Auxilec, Inc., a
subsidiary of a publicly owned company engaged in the manufacture of aircraft
generation systems, from January 1988 to May 1989, Division President of
Simmonds Precision Engine Systems, a publicly held company engaged in the
manufacture of aircraft ignition systems, from January 1986 to August 1987 and
Vice President of Lucas Aerospace Inc., a publicly owned company engaged in the
manufacture of engine control systems, from October 1971 to December 1985.
Dr. Brian Thompson was elected as a director of the Company in December 1993.
He is Provost Emeritus, Professor Emeritus of Optics and Distinguished
University Professor of the University of Rochester. From July 1984 to July
1994, he was Provost of the University of Rochester. He is the author of more
than 150 scientific and technical papers, has won numerous awards for his
contributions to optics and is serving or has served on the editorial boards
of many international journals. Dr. Thompson is a member of the Board of
Directors of Welch Allyn, Inc., a company involved in manufacturing medical
instrumentation and Boydell & Brewer, a publishing company, and is also a
member of the Link Foundation's Board of Trustees.
All directors hold office until the next annual meeting of shareholders and
until their successors have been elected and duly qualified.
The Company has agreed, for a period of five years following the Effective
Date, if so requested by Whale Securities Co., L.P., the Underwriter
(the "Underwriter"), of the Company's initial public offering (the
"Public Offering"), to nominate and use its best efforts to elect a designee
of the Underwriter to the Board or, at the Underwriter's option, as a nonvoting
advisor to the Board. The Underwriter has not yet exercised its right to
designate such person.
Board Committees
The company has a Compensation Committee and Audit Committee.
Compensation Committee
The function of the Compensation Committee is to make recommendations
to the Board with respect to compensation of executive officers. In
addition, the Compensation Committee administers the Company's 1995 Stock
Option Plan (the "Option Plan"), as amended, determining the persons to whom
options should be granted and the number of options to be granted to such
persons. The Compensation Committee also administers plans and programs
relating to the employee benefits, incentives and compensation. Messrs.
Barrett and Thompson are the current members of the Compensation Committee.
Audit Committee
The function of the Audit Committee is to, among other things, make
recommendations to the Board of Directors regarding the selection of
independent auditors, review and evaluate the result and scope of the audit and
other services provided by the Company's independent auditors, review the
Company's financial statements and review and evaluate the Company's internal
control functions. Messrs. Barrett and Thompson are the current members of the
Audit Committee.
<PAGE>
22
Indemnification and Exculpation of Directors and Officers
Pursuant to Section 722 of the New York General Corporation Law, the
Company's By-laws provide that the Company shall, to the fullest extent
permitted by law, indemnify all directors, officers, incorporators,
employees and agents of the Company against liability for certain of their
acts. The Company's Certificate of Incorporation provides that, with
certain exceptions, no director of the Company will be liable to the
Company for monetary damages as a result of certain breaches of fiduciary
duties as a director. Exceptions to this include a breach of the
director's duty of loyalty, acts or omission not in good faith or which
involve intentional misconduct or knowing violation of law, improper
declaration of dividends and transactions from which the director derived
an improper personal benefit.
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and information furnished by the
reporting person, during the fiscal year ended December 31, 1998 all
Section 16(a) filing requirements applicable to the Company's officers,
directors and greater than 10% beneficial owners were complied with.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth the cash and other compensation paid
by the Company to Dr. Geoffrey T. Burnham, its President and Chief Executive
Officer, during the fiscal years ended December 31, 1998, 1997 and 1996.
No other executive officer of the Company received aggregate compensation and
bonuses which exceeded $100,000 during such years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Award
-------------------------------- -----------
Year Ended Securities
Name and Principal Position December 31, Salary($) Bonus($) Underlying
Option
--------------------------- ------------ --------- -------- -----------
<S> <C> <C> <C> <C>
Dr. Geoffrey T. Burnham, 1998 $ 133,000 - -
Chairman, President and 1997 $ 127,395 - -
Chief Executive Officer 1996 $ 116,269 - -
</TABLE>
_____________
<PAGE>
23
Employment Agreements
The Company entered into employment agreements with Dr. Geoffrey T. Burnham and
Susan M. Burnham in October 1995. Each of Dr. Burnham's and Ms. Burnham's
employment agreements provides for an initial three-year term, commencing on
October 1, 1995, and each requires full-time service to the Company.
Dr. Burnham's agreement provides for a base salary $110,000 per annum, and
Ms. Burnham's agreement provides for a base salary $75,000 per annum. Each of
the agreements provides for continuing automatic one-year extensions to
maintain its three-year term, until the agreement is terminated by either
party. Certain fringe benefits are also provided, including split dollar life
insurance and certain expense allowances. Dr. Burnham and Ms. Burnham also may
be granted annual increases of 10% per annum at the discretion of the Board and
bonuses based upon meeting defined goals established by the Board. No such
bonuses have been awarded to date. All such bonuses and other increases were
required to be approved by the Underwriter for a period of three years
following the Effective Date. These agreements also provide that the Company
will continue to pay the base salary to the employee or the employee's legal
representative in the event of the employee's termination due to disability
or death, for a period commencing at the time of such termination and ending
at the end of the employment term. The agreements contain provisions
prohibiting the employee from competing with the Company during the term of
employment and for a period of two years thereafter. Dr. Burnham's agreement
provides that he will serve as Chairman of the Board, and Ms. Burnham's
agreement provides that she will serve as a director on the Board.
<PAGE>
24
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of March 31, 1999 based
on information obtained from the persons named below, relating to the
beneficial ownership of shares of Common Stock by (i) each beneficial
owner of more than 5% of the outstanding Common Stock, (ii) each director,
(iii) each named executive officer and (iv) all current executive officers
and directors of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature Percentage of
of Beneficial Outstanding Shares
Name and Address of Beneficial Owner(1) Ownership (2) Owned (2)
- - --------------------------------------- ----------------- ------------------
<S> <C> <C>
Geoffrey T. Burnham..................... 431,894(3) 2.7%
Susan M. Burnham........................ 431,894(4) 2.7%
Leonard E. Lundberg..................... 0 *
Brian J. Thompson....................... 17,351(5) *
692 Mount Hope Avenue
Rochester, NY 14620
George Barrett.......................... 17,841(6) *
119 High Crest Drive
West Milford, NJ 07840
bmp Mobility AG Venture Capital......... 2,367,650(7) 15.0%
Charlottenstrade 16, D-10117
Berlin
Germany
All Directors and executive officers as
a group (5 persons)............... 898,980(8) 5.7%
</TABLE>
_________________
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner
identified is 15 Link Drive, Binghamton, NY 13904.
(2) Unless otherwise indicated, the Company believes that all persons
named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
A person is deemed to be the beneficial owner of securities that
can be acquired by such person within 60 days from March 31, 1999
upon the exercise of options, warrants or convertible securities.
Each beneficial owner's percentage ownership is determined by
assuming that options, warrants or convertible securities that are
held by such person (but not those held by any other person) and
which are exercisable within 60 days of March 31, 1999 have been
exercised or converted. Assumes a base of 12,150,832 shares of Common
Stock outstanding, before any consideration is given to outstanding
options or warrants.
(3) Includes 23,823 shares held in trust by Dr. Burnham as trustee, as
to which Dr. Burnham disclaims any beneficial interest; 4,925 shares,
and 4,925 shares issuable upon exercise of Private Warrants (as defined in
Footnote 8), held in an IRA trust for the benefit of Dr. Burnham; certain
non-plan options to purchase 39,404 shares; and 165,405 shares owned by
Susan Burnham,the wife of Dr. Burnham, and 31,000 shares issuable upon the
exercise of options granted to Ms. Burnham pursuant to the Company's 1995
Stock Option Plan, as amended(the "Option Plan"), as to which Dr.
Burnham disclaims any beneficial interest.
(4) Includes 162,412 shares owned by Dr. Burnham; 23,823 shares held in
trust by Dr. Burnham as trustee; 4,925 shares, and 4,925 shares
issuable upon exercise of Private Warrants, held in an IRA trust for
the benefit of Dr. Burnham; and 39,404 shares issuable upon exercise
of certain non-plan options held by Dr. Burnham, as to all of which Susan
Burnham disclaims any beneficial interest; and 31,000 shares issuable
upon the exercise of Option Plan options granted to Ms. Burnham.
(5) Consists of certain non-plan options to purchase 9,851 shares and Option
Plan options to purchase 7,500 shares.
(6) Consists of 10,341 purchased shares and Option Plan options to purchase
7,500 shares.
(7) Consists of 2,000,000 shares of common stock purchased February 8,1999
and 367,650 shares previously owned
(8) Includes an aggregate of 93,170 shares of Common Stock issuable
upon the exercise of Option Plan options, certain non-plan options and
warrants (the "Private Warrants"), through April 1995 to investors in the
Company's December 1994 private placement, to purchase 4,925 shares of
Common Stock purchased by Dr. Burnham and warrants purchased in the
Company's initial public offering.
<PAGE>
25
Item 12. Certain Relationships and Related Transactions
bmp Transaction
The Company entered into the Securities Purchase Agreement dated as of
February 5, 1999, between the Company and bmp. Pursuant to the Securities
Purchase Agreement, bmp has agreed to make a two tranche equity investment in
the Company in an amount ranging between $2,050,000 and $2,750,000. The first
tranche of the investment was consummated on February 8, 1999 by the parties,
and bmp has purchased 2,000,000 newly issued shares of the Company's Common
Stock, at a price of $0.375 per share, for an aggregate purchase price of
$750,000. In the second tranche of the investment, bmp has agreed to purchase
between 650,000 and 1,000,000 shares of the Preferred Stock at a purchase price
of $2.00 per share, for a total investment of between $1.3 million and $2
million. Such Preferred Stock would be convertible at a five to one ratio
into shares of Common Stock, but is only convertible by unaffiliated transferees
of bmp.
The consummation of the second tranche of the investment is subject to
certain customary conditions, including stockholder approval, if required by
the Nasdaq SmallCap Market, the absence of any material adverse
change, and the extension by BSB of the Company's $1.0 million Line of Credit
until May 31, 2000. BSB has already agreed to extend the maturity of the Line of
Credit until June 30, 2000 upon consummation of the second tranche of the
investment, subject to the absence of any material adverse change in the
business. In addition, BSB has agreed to advance an additional $450,000 under
the Line of Credit, to extend the maturity of the Line of Credit from March 31,
1999 to June 30, 1999, and to waive the requirement that the Company maintain
the Line of Credit balance within its collateral base formula until the earlier
of June 30, 1999 or the date of receipt by the Company of funds arising out of
the second tranche of the investment. The Company anticipates that the
consummation of the second tranche of the investment will take place between
March 31, 1999 and May 31, 1999, depending on the need for stockholder
approval. See "Notes to Financial Statements - Note 9 and Note 11".
The Company believes that, in addition to providing equity capital, bmp
will be a strategic investor who will help the Company expand distribution in
the European market. In connection with the equity investment, bmp intends to
assist the Company in organizing and structuring the distribution system
relating to the Company's products and services throughout Europe. To date,
bmp has begun to assist the Company in such respect, and has facilitated the
execution of a distributor agreement between the Company and a western
European distributor. The Company has entered into a Distributor Agreement,
dated February 22, 1999, with Laser Graphics, an entity in which bmp has
invested, whereby Laser Graphics has been granted rights to distribute the
Company's products on an exclusive basis throughout Germany, Switzerland and
Austria, and on a non-exclusive basis worldwide outside of Germany,
Switzerland and Austria.
Any future transactions, if any, between the Company and its officers,
directors and/or greater than 5% shareholders will continue to be on terms no
less favorable to the Company than could be obtained from independent third
parties and will be approved by a majority of the independent, disinterested
directors of the Company.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits.
3.2 By-Laws of the Company.(1)
3.3 Certificate of Ownership and Merger.(1)
4.1 Form of Underwriter's Warrant Agreement, dated as of March 19, 1996,
between the Company and Whale Securities Co., L.P.(2)
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.(2)
4.3 Warrant, dated January 3, 1997, between the Company and Finova
Technology Finance, Inc.(4)
4.4 Corrected Certificates of Designations of Series A 8% Convertible
Preferred Stock.(3)
4.5 Certificate of Correction of Certificate of Designations of Series A 8%
Convertible Preferred Stock, filed with the Secretary of the State of
Delaware on November 4, 1997.(3)
4.6 Certificate of Correction of Certificate of Designations of Series A 8%
Convertible Preferred Stock, filed with the Secretary of the State of
Delaware on December 15, 1997.(3)
4.7 Specimen Certificate of Registrant's Series A 8% Convertible Preferred
Stock.(3)
4.8 Specimen Certificate of Registrant's Common Stock.(2)
4.9 Form of Warrant dated October 23, 1997 between the Registrant and World
Capital Funding, Inc.(3)
4.10 Form of Warrant between the Registrant and Marketing Direct Concepts,
Inc.(3)
4.11 Form of Subscription Agreement between the Registrant and each purchaser
of the Registrant's Series A 8% Convertible Preferred Stock.(3)
4.12 Form of Option Agreement dated October 27, 1997 between the Registrant
and State Street Securities, Inc.(3)
4.13 Amendment to Option Agreement dated December 30, 1997 between the
Registrant and State Street Securities, Inc.(3)
4.14 Form of Voting Proxy.(3)
* 4.15 Warrant between the Registrant and BSB Bank & Trust Company
10.1 License Agreement, dated June 3, 1994, by and between the Company and
the Air Force. (1)
<PAGE>
26
10.2 CRDA, dated January 19, 1994 between the Company and Wright
Laboratories of the Air Force.(2)
10.3 Amendment, effective January 19, 1994 to CRDA between the Company
and Wright Laboratories of the Air Force.(2)
10.4 CRDA, dated May 1995, between the Company and Rome Laboratory of the
Air Force.(2)
10.5 Employment Agreement, dated as of October 1, 1995 between the
Company and Geoffrey T. Burnham.(2)
10.6 Employment Agreement, dated as of October 1, 1995 between the
Company and Susan M. Burnham.(2)
10.7 Employment Agreement, dated as of October 1, 1995, by and between
the Company and Theodore W. Konopelski.(2)
10.8 Consulting Agreement, dated November 10, 1995, by and between the
Company and George W. Barrett.(2)
10.9 1995 Stock Option Plan of the Company.(2)
10.10 Real Property Lease, dated as of August 23, 1995, by and between
Manufacturers and Traders Trust Company and the Company.(2)
10.11 Form of Private Warrants (2)
10.12 Form of Consulting Agreement between the Company and Whale
Securities Co., L.P.(2)
10.13 Master Equipment Lease Agreement with Finova(4)
10.14 Northwestern License(4)
* 10.15 Line of Credit Commitment Letter between the Registrant and BSB
Bank & Trust Company
* 10.16 Amendment to Line of Credit Commitment Letter between the
Registrant and BSB Bank & Trust Company
* 10.17 Securities Purchase Agreement, dated February 5, 1999, between the
Registrant and bmp Mobility AG Venture Capital, together with the Form
of the Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of the Registrant, the Registration Rights
Agreement, and the Opinion of Counsel to the Registrant
* 10.18 Registration Rights Agreement, dated February 5, 1999, between the
Registrant and bmp Mobility AG Venture Capital
* 27.1 Financial Data Schedule
- - ----------
* Filed herewith
(1) Incorporated by reference to Registrant's Annual Report on Form 10KSB for
the year ended December 31, 1997
(2) 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.
(3) Incorporated by reference to Registrant's Registration Statement on
Form S-3 (Reg. No. 333-39879) which was declared effective on January 14, 1998.
(4) Incorporated by reference to Registrant's Annual Report on Form 10KSB for
the year ended December 31, 1996
(b) Reports on Form 8-K
On February 10,1999, the Company filed with the SEC a Current Report on Form
8-K with respect to the equity infusion by bmp.
<PAGE>
27
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
March 31, 1999 By: /s/ Geoffrey T. Burnham
______________________________
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 31, 1999
- - ---------------------------- Vice President, Treasurer
Susan M. Burnham and Director March , 1999
/s/ Leonard E. Lundberg
- - ------------------------------ Chief Financial Officer,
Leonard E. Lundberg Principal Financial Officer
and Principal Accounting
Officer March 31, 1999
/s/ Brian J. Thompson
- - -----------------------------
Brian J. Thompson Director March 29, 1999
/s/ George W. Barrett
- - -----------------------------
George W. Barrett Director March 29, 1999
<PAGE>
[TYPE] EX-4.15
Void after February 16, 2004
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS WARRANT AND
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT. THIS WARRANT AND SUCH SHARES MAY
NOT BE TRANSFERRED EXCEPT UPON CONDITIONS SPECIFIED IN THIS WARRANT, AND NO
TRANSFER OF THIS WARRANT OR SUCH SHARES SHALL BE VALID OR EFFECTIVE UNLESS AND
UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
-----------------------
COMMON STOCK PURCHASE WARRANT
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION, a Delaware corporation
(the "Company"), having its principal office at 15 Link Drive, Binghamton, New
York 13904, hereby certifies that, for value received, BSB BANK & TRUST
COMPANY, or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company at any time on or from time to time after February
16, 1999 and before 5:00 P.M., New York City time, on February 16, 2004, Five
Hundred Thousand (500,000) fully paid and non-assessable shares of Common
Stock of the Company, at the price per share (the "Purchase Price") of
Fifty-Seven and One-Half Cents ($0.575). The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants") originally issued as of the Original Issue Date (as defined below)
and evidencing the right to purchase an aggregate of Five Hundred Thousand
(500,000) shares of Common Stock of the Company, subject to adjustment as
provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" includes the Company and any corporation which
shall succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes all stock of any class or
classes (however designated) of the Company, authorized upon the Original
Issue Date or thereafter, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of the Company (even though the right so
to vote has been suspended by the happening of such a contingency).
(c) The term "Convertible Preferred Stock" shall mean the Company's
"Series A 8% Convertible Preferred Stock" as authorized by the Company's
Certificate of Incorporation as amended through the Original Issue Date.
(d) The "Original Issue Date" is February 16, 1999, the date as of
which this Warrant was first issued.
(e) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of this Warrant at any time shall be
entitled to receive, or shall have received, upon the exercise of this
Warrant, in lieu of or in addition to Common Stock, or which at any time shall
be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to section 6 or otherwise.
(e) The term "Purchase Price per share" shall be the then applicable
exercise price for one share of Common Stock.
(f) The terms "registered" and "registration" refers to a
registration effected by filing a registration statement in compliance with
the Securities Act, to permit the disposition of Common Stock (or Other
Securities) issued or issuable upon the exercise of this Warrant, and any
post-effective amendments and supplements filed or required to be filed to
permit any such disposition.
(g) The term "Securities Act" means the Securities of Act of 1933 as
the same shall be in effect at the time.
1. Registration, etc.
1.1 In the event that the Company, at any time within the six (6)
year period commencing on the Original Issue Date, proposes to file a
registration statement (other than a registration statement on Form S-4, S-8
or similar forms) or maintains the effectiveness of a registration statement
on a general form of registration under the Securities Act and relating to
securities issued or to be issued by it, then it shall give written notice of
such proposal to the record owner of this Warrant and any shares of Common
Stock issued upon exercise thereof. If, within thirty (30) days after the
giving of such notice, the record owner of this Warrant or shares of Common
Stock issued upon its exercise shall request in writing that all or any of
such Common Stock or Other Securities issued or issuable upon exercise of this
Warrant be included in such proposed registration, the Company will, at its
own expense, also register such securities as shall have been requested in
writing; provided, however, that:
(a) such record owner shall deliver to the Company a statement in
writing from the beneficial owners of such securities that they have a bona
fide intent to sell, transfer or otherwise dispose of such securities;
(b) the Company shall not be required to include any of such
securities if, by reason of such inclusion, the Company shall be required to
prepare and file a registration statement on a form promulgated by the
Securities and Exchange Commission substantially different from that which the
Company otherwise would use;
(c) such record owner shall cooperate with the Company in the
preparation of such registration statement to the extent required to furnish
information concerning such record owner therein; and
(d) if any underwriter or managing agent is purchasing or arranging
for the sale of the securities then being offered by the Company under such
registration statement, then such record owner (i) shall agree to have the
securities being so registered by such record owner sold to or by such
underwriter or managing agent on terms substantially equivalent to the terms
upon which the Company is selling the securities so registered, or (ii) at the
request of such underwriter or managing agent, shall delay the sale of such
securities for the 30 day period commencing with the effective date of the
registration statement; provided that any such request to delay inclusion of
securities to be registered by such record owner shall be allocated pari passu
among all holders of Company securities who are asserting registration rights
in connection with such registration statement to the extent not inconsistent
with any applicable registration rights of such other holders of Company
securities in existence on the Original Issue Date.
1.2 In connection with the filing of a registration statement
pursuant to subsection 1.1 of this section 1, the Company shall:
(a) notify the record owner as to the filing thereof and of all
amendments thereto filed prior to the effective date of said registration
statement;
(b) notify the record owner promptly after it shall have received
notice thereof, of the time when the registration statement becomes effective
or any supplement to any prospectus forming a part of the registration
statement has been filed;
(c) prepare and file without expense to the record owner any
necessary amendment or supplement to such registration or prospectus as may be
necessary to comply with Section 10(a)(3) of the Securities Act or advisable
in connection with the proposed distribution of the securities by such record
owner;
(d) use its reasonable best efforts to qualify the shares of Common
Stock or Other Securities being so registered for sale under the securities or
blue sky laws of not more than two (2) states as such registered owners may
designate in writing and to register or obtain the approval of any federal or
state authority which may be required in connection with the proposed
distribution, except, in each case, in a jurisdiction in which the Company
must either qualify to do business or file a general consent to service of
process as a condition to the qualification of such securities;
(e) notify such registered owner of any stop order suspending the
effectiveness of the registration statement and use its reasonable best
efforts to remove such stop order;
(f) undertake to keep said registration statement and prospectus
effective for a period of six (6) months after such shares of Common Stock
first become free to be sold under such registration statement;
(g) furnish to such registered owner as soon as available, copies of
any such registration statement and each preliminary or final prospectus and
any supplement or amendment required to be prepared pursuant to the foregoing
provisions of this paragraph 1, all in such quantities as such owners may from
time to time reasonably request; and
(h) furnish to BSB BANK & TRUST COMPANY without cost one set of the
Exhibits to such registration statement.
1.3 The record owners of the shares of Common Stock or Other
Securities being so registered agree to pay all of the underwriting discounts
and commissions, transfer taxes, registration fees and their own counsel fees
with respect to the securities owned by them and being registered. The
Company agrees that the costs and expenses which it is obligated to pay in
connection with a registration statement to be filed pursuant to subsection
1.1 above include, but are not limited to, the fees and expenses of counsel
for the Company, the fees and expenses of its accountants and all other costs
and expenses incident to the preparation, printing and filing under the
Securities Act of any such registration statement, each prospectus and all
amendments and supplements thereto, the costs incurred in connection with the
qualification of such securities for sale in not more than two (2) states,
including fees and disbursements of counsel for the Company, and the costs of
supplying a reasonable number of copies of the registration statement, each
preliminary prospectus, final prospectus and any supplements or amendments
thereto to such registered owners.
1.4 The Company agrees to enter into an appropriate cross-indemnity
agreement with any underwriter (as defined in the Securities Act) for such
registered owners in connection with the filing of a registration statement
pursuant to subsection 1.1 hereof.
1.5 In the event that the Company shall file any registration
statement including therein all or any part of shares of Common Stock or Other
Securities issued or issuable upon exercise of the Warrants, the Company and
the holder of such securities shall enter into an appropriate cross-indemnity
agreement whereby the Company shall indemnify and hold harmless the holder
against any losses, claims, damages or liabilities (or actions in respect
thereof) arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, or
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make statements therein not misleading and
each such holder shall indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement and
each person, if any, who controls the Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities (or actions
in respect thereof) arising out of or based upon any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement, or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make statement therein not
misleading, if the statement or omission was made in reliance upon and in
such holder expressly for use in such registration statement.
2. Sale or Exercise Without Registration. If, at the time of any
exercise, transfer or surrender for exchange of this Warrant or of Common
Stock (or Other Securities) previously issued upon the exercise of this
Warrant, this Warrant or Common Stock (or Other Securities) shall not be
registered under the Securities Act, the Company may require, as a condition
of allowing such exercise, transfer or exchange, that the record owner or
transferee of this Warrant or Common Stock (or Other Securities), as the case
may be, furnish to the Company a satisfactory opinion of counsel to the effect
that such exercise, transfer or exchange may be made without registration
under the Securities Act, provided that the disposition thereof shall at all
times be within the control of such record owner or transferee, as the case
may be, and provided further that nothing contained in this section 2 shall
relieve the Company from complying with any request for registration pursuant
to section 1 hereof. The first holder of this Warrant represents to the
Company that it is acquiring this Warrant for investment and not with a view
to the distribution thereof.
3. Exercise of Warrant; Partial Exercise; Exercise by Surrender.
3.1 Exercise in Full. Subject to the provisions hereof, this Warrant
may be exercised in full by the record owner hereof by surrender of this
Warrant, with the form of subscription at the end hereof duly executed by such
record owner, to the Company at its principal office accompanied by payment,
in cash or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock called for on the face of this Warrant (without giving effect to any
adjustment therein) by the Purchase Price.
3.2 Partial Exercise. Subject to the provisions hereof, this Warrant
may be exercised in part by surrender of this Warrant in the manner and at the
place provided in subsection 3.1 except that the amount payable by the record
owner upon any partial exercise shall be the amount obtained by multiplying
(a) the number of shares of Common Stock (without giving effect to any
adjustment therein) designated by the record owner in the subscription at the
end hereof by (b) the Purchase Price. Upon any such partial exercise, the
Company at its expense will forthwith issue and deliver to or upon the order
of the record owner hereof a new Warrant or Warrants of like tenor, in the
name of the record owner hereof or as such record owner (upon payment by such
record owner of any applicable transfer taxes) may request, calling in the
aggregate on the face or faces thereof for the number of shares of Common
Stock equal (without giving effect to any adjustment therein) to the number of
such shares called for on the face of this Warrant minus the number of such
shares designated by the record owner in the subscription at the end hereof.
3.3 Definition of Market Price. As used herein, the phrase "Market
Price" at any date shall be deemed to be (i) if the principal trading market
for such securities is an exchange, the last reported sale price, or, in case
no such reported sale takes place on such date, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported on any consolidated tape, (ii) if the principal market for
such securities is the over-the-counter market, the high bid price on such
date as set forth by NASDAQ or, if the security is not quoted on NASDAQ, the
high bid price as set forth in the National Quotation Bureau sheet listing
such securities for such day. Notwithstanding the foregoing, if there is no
reported closing price or high bid price, as the case may be, on the date next
preceding the event requiring an adjustment hereunder, then the Market Price
shall be determined as of the latest date prior to such day for which such
closing price or high bid price is available, or if the securities are not
quoted on NASDAQ, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
3.4 Company to Reaffirm Obligations. The Company will, at the time
of any exercise of this Warrant, upon the request of the record owner hereof,
acknowledge in writing its continuing obligation to afford to such record
owner any rights (including, without limitation, any right to registration of
the shares of Common Stock or Other Securities issued upon such exercise) to
which such record owner shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant, provided that if the record
owner of this Warrant shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford such record
owner any such rights.
4. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within ten (10) days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be issued in
the name of and delivered to the record owner hereof, or as such record owner
(upon payment by such record owner of any applicable transfer taxes) may
direct, a certificate or certificates for the number of full paid and non-assess
able shares of Common Stock (or Other Securities) to which such record owner
shall be entitled upon such exercise, plus, in lieu of any fractional share to
which such record owner would otherwise be entitled, cash equal to such
fraction multiplied by the then current market value of one full share,
together with any other stock or other securities and property (including
cash, where applicable) to which such record owner is entitled upon such
exercise pursuant to section 5 or otherwise.
5. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time after the
Original Issue Date the holders of Common Stock (or Other Securities) shall
have received or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive,
without payment therefor
(a) other or additional stock or other securities or property (other
than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation, by way
of dividend other than a dividend payable out of earned surplus of the
Company), or
(c) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up, recapitalization,
combination of shares or similar corporate rearrangement,
then, and in each such case the record owner of this Warrant, upon the
exercise hereof as provided in section 3, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this section 5) which such record
owner would hold on the date of such exercise if on the Original Issue Date he
had been the holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from the
Original Issue Date to and including the date of such exercise, retained such
shares and all such other or additional (or less) stock and other securities
and property (including cash in the cases referred to in subdivisions (b) and
(c) of this section 5) receivable by him as aforesaid during such period,
giving effect to all adjustments called for during such period by sections 6
and 7 hereof.
6. Reorganization, Consolidation, Merger, etc.
In case the Company after the Original Issue Date shall (a) effect a
reorganization, (b) consolidate or merge with any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, the record owner of this Warrant, upon the
exercise hereof as provided in section 3 at any time after the consummation of
such reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall be entitled to receive (and the Company
shall be entitled to deliver), in lieu of the Common Stock (or Other
Securities) issuable upon such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash)
to which such record owner would have been entitled upon such consummation or
in connection with such dissolution, as the case may be, if such record owner
had so exercised this Warrant immediately prior thereto, all subject to
further adjustment thereafter as provided in sections 5 and 7 hereof.
7. Other Adjustments.
7.1 General. In any case to which sections 5 and 6 hereof are not
applicable, where the Company shall issue or sell shares of its Common Stock
after the Original Issue Date and prior to the expiration of this Warrant
either (a) in the case of securities traded on an exchange other than the
proposed purchase by bmp-AG (or its nominee) in the amount of Seven Hundred
Fifty Thousand Dollars ($750,000.00) (the "First Purchase") or the second
proposed sale of Common Stock or Convertible Preferred Stock to bmp-AG (or its
nominee) in an amount not less than One Million Three Hundred Thousand
Dollars ($1,300,000.00) (the "Second Purchase"), for a consideration per share
less than the then current Market Price or (b) in the case of securities
privately placed for sale by the Company, for a consideration per share less
than Seventy-Five Percent (75%) of the then current Market Price (as such term
is defined above) (hereinafter, the "Lower Exercise Price"), then the Purchase
Price in effect hereunder shall simultaneously with such issuance or sale be
equitably adjusted by the Board of Directors of the Company in good faith
and/or the number of shares of Common Stock issuable upon exercise hereof
shall be increased, so that the record owner of this Warrant does not suffer
any dilution.
7.2 Convertible Securities. In case the Company shall issue or sell
any securities convertible into Common Stock of the Company including, but not
limited to, the Convertible Preferred Stock ("Convertible Securities") after
the date hereof other than the Second Purchase, there shall be determined the
price per share for which Common Stock is issuable upon the conversion or
exchange thereof, such determination to be made by dividing (a) the total
amount received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (b) the maximum number of shares of Common Stock of
the Company issuable upon the conversion or exchange of all of such
Convertible Securities.
If the price per share so determined shall be less than the applicable
Purchase Price per share, then such issue or sale shall be deemed to be an
issue or sale for cash (as of the date of issue or sale of such Convertible
Securities) of such maximum number of shares of Common Stock at the price per
share so determined, provided that, if such Convertible Securities shall by
their terms provide for an increase or increases, with the passage of time, in
the amount of additional consideration, if any, to the Company, or in the rate
of exchange, upon the conversion or exchange thereof, the adjusted Purchase
Price per share shall, forthwith upon any such increase becoming effective, be
readjusted to reflect the same, and provided further, that upon the expiration
of such rights of conversion or exchange of such Convertible Securities, if
any thereof shall not have been exercised, the adjusted Purchase Price per
share shall forthwith be readjusted and thereafter be the price which it would
have been had an adjustment been made on the basis that the only shares of
Common Stock so issued or sold were issued or sold upon the conversion or
exchange of such Convertible Securities, and that they were issued or sold for
the consideration actually received by the Company upon such conversion or
exchange, plus the consideration, if any, actually received by the Company for
the issue or sale of all of such Convertible Securities which shall have been
converted or exchanged.
7.3 Rights and Options. In case the Company shall grant any rights
or options to subscribe for, purchase or otherwise acquire Common Stock, there
shall be determined the price per share for which Common Stock is issuable
upon the exercise of such rights or options, such determination to be made by
dividing (a) the total amount, if any, received or receivable by the Company
as consideration for the granting of such rights or options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such rights or options, by (b) the maximum number of shares of
Common Stock of the Company issuable upon the exercise of such rights or
options.
If the price per share so determined shall be less than the applicable
Purchase Price per share, then the granting of such rights or options shall be
deemed to be an issue or sale for cash (as of the date of the granting of such
rights or options) of such maximum number of shares of Common Stock at the
price per share so determined, provided that, if such rights or options shall
by their terms provide for an increase or increases, with the passage of time,
in the amount of additional consideration payable to the Company upon the
exercise thereof, the adjusted Purchase Price per share shall, forthwith upon
any such increase becoming effective, be readjusted to reflect the same, and
provided, further, that upon the expiration of such rights or options, if any
thereof shall not have been exercised, the adjusted Purchase Price per share
shall forthwith be readjusted and thereafter be the price which it would have
been had an adjustment been made on the basis that the only shares of Common
Stock so issued or sold were those issued or sold upon the exercise of such
rights or options and that they were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration,
if any, actually received by the Company for the granting of all such rights
or options, whether or not exercised.
7.4 Minimum Adjustment. No adjustment shall be made under this
Article 7 if the amount of any such adjustment would be an amount less than
five percent (5%) of the Purchase Price then in effect, but any such amount
shall be carried forward and an adjustment in respect thereof shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall
aggregate an increase or decrease of five percent (5%) or more.
8. Further Assurances. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of stock upon the exercise of all
Warrants from time to time outstanding.
9. Certificate of Chief Financial Officer as to Adjustments. In each case
of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of this Warrant, the Company at its
expense will promptly cause the Company's Chief Financial Officer to compute
such adjustment or readjustment in accordance with the terms of this Warrant
and prepare a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based, and the number of shares of Common Stock outstanding or deemed to be
outstanding provided that if any similar certificate is provided by the
Company's regularly retained auditor to the holder of any other warrant of the
Company, the Company's regularly retained auditor shall provide this
certificate to the record owner of this Warrant. The Company will forthwith
mail a copy of each such certificate to the record owner of this Warrant.
10. Notices of Record Date, etc.
In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend payable out of
earned surplus of the Company) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of all
or substantially all the assets of the Company to or consolidation or merger of
the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
record owner of this Warrant a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right and (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange
their shares of Common Stock (or Other Securities) for securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to
date therein specified.
11. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Warrant, all shares of Common Stock (or
Other Securities) from time to time issuable upon the exercise of this
Warrant.
12. Listing on Securities Exchanges; Registration. If the Company at any
time after the Original Issue Date shall list any Common Stock on any national
securities exchange and shall register such Common Stock under the Securities
Exchange Act of 1934 (as then in effect, or any similar statute then in
effect), the Company will, at its expense, to the extent permitted by the
rules of such exchange, simultaneously list on such exchange, upon official
notice of issuance upon the exercise of this Warrant, and maintain such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant, and the Company will so list on any national
securities exchange, will so register and will maintain such listing of, any
Other Securities if and at the time that any securities of like class or
similar type shall be listed on such national securities exchange by the
Company.
13. Exchange of Warrants. Subject to the provisions of section 2 hereof,
upon surrender for exchange of this Warrant, properly endorsed, to the
Company, the Company at its own expense will issue and deliver to or upon the
order of the record owner thereof a new Warrant of like tenor, in the name of
such record owner or as such record owner (upon payment by such record owner
of any applicable transfer taxes) may direct, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock called for on
the face of this Warrant.
14. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
15. Warrant Agent. The Company may, by written notice to each record
owner of this Warrant, appoint an agent having an office in New York, New
York, for the purpose of issuing Common Stock (or Other Securities) upon the
exercise of this Warrant pursuant to section 3, exchanging this Warrant
pursuant to section 13, and replacing this Warrant pursuant to section 14, or
any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such agent.
16. Negotiability, etc. This Warrant is issued upon the following terms,
to all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) subject to the provisions hereof, title to this Warrant may be
transferred, in whole but not in part, by endorsement (by the holder hereof
executing the form of assignment at the end hereof) and delivery in the same
manner as in the case of a negotiable instrument transferable by endorsement
and delivery;
(b) subject to the foregoing, any person in possession of this
Warrant properly endorsed is authorized to represent himself as absolute owner
hereof and is empowered to transfer absolute title hereto by endorsement and
delivery hereof to a bona fide purchaser hereof for value; each prior taker or
owner waives and renounces all of his equities or rights in this Warrant in
favor of each such bona fide purchaser and each such bona fide purchaser shall
acquire absolute title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the record owner hereof as the absolute owner hereof for
all purposes, notwithstanding any notice to the Company.
17. Notices, etc. All notices and other communications from the Company
to the record owner of this Warrant shall be mailed by first class registered
or certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such record owner, or, until an address is so
furnished, to and at the address of the last record owner of this Warrant who
has so furnished an address to the Company.
18. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant is being delivered in the State of New
York and shall be construed and enforced in accordance with and governed by
the internal laws of such State. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
19. Extended Expiration.
The right to exercise this Warrant shall expire at 5:00P.M., New York City
time, on February 16, 2004.
20. Drag-Along Rights.
The rights of the holder of this Warrant are subject to the holder's
agreement to the following: In the event that the Company's Board of
Directors approve a sale of the Company (pursuant to a merger or other
business combination transaction, sale of outstanding stock or otherwise) to a
third party not affiliated with bmp-AG (an "Approved Sale"), the holder of
this Warrant (or shares issued upon exercise hereof) shall consent to and
raise no objections against such Approved Sale (including exercising any
statutory right of appraisal) and shall take all necessary and desirable
action in such holder's capacity, if any, as a stockholder of the Company to
facilitate such Approved Sale. If the Approved Sale is structured as a sale
of stock, notwithstanding Section 6 above, the holder shall agree to sell all
of such holder's Warrants and any shares of Common Stock and Other Securities
on the terms and conditions approved by the Board of Directors; provided,
however, that the obligations of the holder pursuant to this Section 20 are
conditioned upon all holders of Common Stock concurrently receiving the same
form and amount of consideration per share of Common Stock pursuant to such
Approved Sale or, if any holders of Common Stock are given an option as to the
form and amount of consideration to be received, all such holders, including
the holder of this Warrant, are given the same option.
21. Assignability. This Warrant is fully assignable, in whole but not in
part, at any time, subject to applicable securities laws.
Dated: February 16, 1999 SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
/s/ Geoffrey T. Burnham
By: _____________________________
Geoffrey T. Burnham
President
[Corporate Seal]
Witness:
______________________________
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
15 Link Drive
Binghamton, NY 13904
The undersigned, the record owner of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, * shares of Common Stock of SEMICONDUCTOR
LASER INTERNATIONAL CORPORATION, and herewith make payment of $_____________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to, ____________________, whose address is
___________________________________.
Dated: __________________
______________________________
(Signature must conform in all respects to name
of record owner as specified on the face of the Warrant)
______________________________
(Address)
_________________
* Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for
additional Common Stock or any other stock or other securities or property or
case which, pursuant to the adjustment provisions of the Warrant, may be
deliverable upon exercise.
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto ________________________ the right represented by the within Warrant to
purchase shares of Common Stock of SEMICONDUCTOR LASER INTERNATIONAL
CORPORATION to which the within Warrant relates, and appoints _____________ as
Attorney-in-Fact to transfer such right on the books of _________________ with
full power of substitution in the premises. The Warrant being transferred
hereby is the Common Stock Purchase Warrant initially issued by SEMICONDUCTOR
LASER INTERNATIONAL CORPORATION as of February __, 1999.
Dated: _________________
______________________________
(Signature must conform in all respects to name
of record owner as specified on the face of the Warrant)
______________________________
(Address)
______________________________
Signature guaranteed by a Bank or
Trust Company having its principal
office in New York City or by a Member
Firm of the New York or American
Stock Exchange
[TYPE] EX-10.15
December 4, 1996
Dr. Geoffrey T. Burnham, President & CEO
Semiconductor Laser International Corporation
421 East Main Street
Endicott, New York 13760
THIS COMMITMENT LETTER IS ISSUED TO YOU IN REPLACEMENT OF OUR PREVIOUS
COMMITMENT LETTER TO YOU DATED SEPTEMBER 4, 1996.
Dear Dr. Burnham:
We are pleased to inform you that BSB Bank & Trust Company ("Bank") has
approved your application for a Secured Line of Credit in the amount of
$1,000,000.00 subject to the following terms and conditions:
BORROWER: Semiconductor Laser International Corporation
421 East Main Street
Endicott, New York 13760
LINE OF CREDIT
AMOUNT: One Million Dollars and No Cents ($1,000,000.00).
PURPOSE: Provide working capital.
INTEREST RATE: Variable rate based on BSB Prime Rate plus One and
One-Half Percent (1.5%).
MATURITY: One (1) Year.
REPAYMENT: Interest only monthly shall be billed. Prepayments made be
made by the Borrower without any fee, penalty, or premium
whatsoever.
COLLATERAL: First security interest in all assets of the Borrower, in
accordance with the provisions of the Uniform Commercial Code
and subject to permitted liens, including, but not limited to,
all accounts and general intangibles, all inventory, all
equipment, machinery, furniture, etc., whether now owned or
hereafter acquired.
INSURANCE: The Borrower shall provide proof of and maintain fire and
extended coverage insurance covering the collateral and with
liability insurance in amounts and companies reasonably
acceptable to us. The Bank shall be named as Lender Loss
Payee on the policy.
Semiconductor Laser International Corporation
December 4, 1996
Page two
AVAILABILITY
OF FUNDS: Credit availability under this line of credit is subject to
execution and delivery of such documentation as the Bank
deems necessary and appropriate and the receipt of, and
continuing satisfaction of the Bank with, current financial
and other material information relative to the Borrower, which
current information will be furnished by the Borrower to the
Bank as it may from time to time reasonably request.
The Borrower understands and agrees that Bank shall have no
obligation to make advances under this line of credit if: a)
Borrower is in default under the terms of a Loan Agreement
to be drawn between Bank and Borrower or any related
documents or any other agreement that Borrower has with Bank;
b) Borrower becomes insolvent, files a petition in bankruptcy
or similar proceeding, or is adjudged as bankrupt; or c) there
occurs a material adverse change in Borrower's financial
condition or in the value of the collateral, taken together
as a whole, securing this line of credit or any loan Borrower
has with Bank.
Availability of funds under this line of credit shall be
reviewed on a monthly basis, based on company prepared
financial statements, and shall be limited to the lesser of
$1,000,000.00, or an amount representing the sum of 85% of
accounts receivable 90 days or less from invoice date, plus 30%
of inventories, with a maximum inventory value eligibility of
$250,000.00.
OTHER
REQUIREMENTS: A) The Borrower shall maintain its operating deposit
accounts with the Bank during the term of this loan.
B) The Borrower shall provide the Bank with audited statements
of its financial condition, with all schedules, prepared by
the accounting firm of Price Waterhouse, LLP, or any other
Certified Public Accountant reasonably acceptable to the
Bank, and with copies of its Federal Corporate Tax Return,
with all schedules, on an annual basis within 120 days of
its fiscal year end.
Semiconductor Laser International Corporation
December 4, 1996
Page three
OTHER Borrower shall also provide the Bank with copies of its
REQUIREMENTS SEC Form 10-K on an annual basis within 120 days of its
(CONTINUED) fiscal year end and with copies of its SEC Form 10-Q
filings on a quarterly basis within ninety days of
quarter end.
C) In connection with this credit facility, the Borrower will
execute a Loan Agreement requiring the Borrower to adhere
to the following financial covenants, in addition to other
representations, warranties, and affirmative and
negative covenants, as of the Borrower's year-end financial
statements:
1) Minimum Current Ratio of 2.0 to 1. Current Ratio is
defined as the ratio of Current Assets to Current
Liabilities.
2) Minimum Working Capital of $1,500,000, of which, a
minimum of $500,000 shall be maintained in cash and
cash equivalents. Working Capital is defined as the
difference between Current Assets and Current
Liabilities.
3) Minimum Total Net Worth of $5,000,000.
4) Maximum Total Liabilities to Total Net Worth of 1.0
to 1.
5) Payment of dividends to any class of shareholders
shall be prohibited, except out of net income accrued
after the date of the loan agreement.
OTHER FEES
AND EXPENSES: All fees, expenses, and charges incurred with respect to
this financing shall be for the account of the Borrower.
EXPIRATION OF
COMMITMENT: This Commitment will, at our option and without further
notice, terminate unless the closing is held not later than
January 15, 1997.
Semiconductor Laser International Corporation
December 4, 1996
Page four
ACCEPTANCE: If the terms and conditions of this Commitment are
acceptable to you, please acknowledge your agreement by
signing and returning the enclosed duplicate hereof to us
at our address. If such acceptance is not received by us
within thirty (30) days from the date hereof, this
Commitment shall be of no further force or effect.
Very truly yours, ACCEPTED AND AGREED TO THIS
18 DAY OF December, 1996.
/s/ J.B.Wescott
John B. Westcott Semiconductor Laser International
Vice President Corporation
(607) 779-3518
/s/ Geoffrey T. Burnham
By:_____________________________
President & CEO
Its:____________________________
Enclosure
cc: Walter Epstein, Esq.
Lillian L. Levy, Esq.
[TYPE] EX-10.16
February 3, 1999
Dr. Geoffrey T. Burnham, President and Chief Executive Officer
Semiconductor Laser International Corporation
15 Link Drive
Binghamton, NY 13904
By facsimile to: 722-5045
Re: Amendment of Commitment Letter dated January 13, 1999
Dear Dr. Burnham:
BSB Bank & Trust Company ("Bank") has amended its Commitment Letter to you
dated January 13, 1999 as follows: It being the intention that any captions with
the same heading in this letter that are also in the January 13, 1999 letter,
shall replace the captions and text from the January 13, 1999 letter.
EXPIRATION: Availability of funds under this line of credit shall cease
and this commitment shall expire on June 30, 1999.
EXTENSION OF
EXPIRATION: At the Borrower's request, following the Borrower's receipt of
funds contemplated by the Second Purchase (as hereinafter
defined) and so long as no Event of Default under the
Borrower's Loan Agreement with the Bank dated December 18,
1996 (including any default with respect to the collateral base
formula) shall exist, Bank shall extend the expiration date of
this Line of Credit to May 31, 2000.
Upon Borrower's request and application for such Extension of
Expiration, Bank agrees to review the interest rate to be
charged on this Line of Credit.
AVAILABILITY
OF FUNDS: Each loan request shall constitute Borrower's representation
and warranty, and it shall be a condition of granting such
request, that as of the date of such loan request, Borrower
shall be in compliance with all terms, conditions, and
obligations of Borrower's Loan Agreement with the Bank dated
December 18, 1996, except as such terms, conditions, and
obligations may have been waived or modified in writing by
Bank, and that no material adverse change in the financial
condition or business operations of the Borrower shall have
occurred.
Semiconductor Laser International Corporation
February 3, 1999
Page two
Availability of funds under this line of credit shall be
reviewed monthly, based on company prepared financial
statements, and shall be limited to the lesser of
$1,000,000.00, or an amount representing the sum of 85% of
eligible accounts receivable 90 days or less from invoice date,
plus 30% of inventories, with a maximum inventory value
eligibility of $250,000.00, plus available unrestricted cash
balances owned by the Borrower.
NOTWITHSTANDING THE FOREGOING LIMITATION, upon the receipt of
the funds arising from the first proposed sale of
Semiconductor Laser International Corporation common stock to
bmp-AG (or its nominee) in the amount of $750,000.00 (the
"First Purchase"), and until the earlier of June 30, 1999, or
the date of receipt by Borrower of funds arising from the
second proposed sale of Semiconductor Laser International
Corporation common stock to bmp-AG (or its nominee) in the
minimum amount of $1,300,000.00 (the "Second Purchase"), Bank
agrees to waive the requirement for the Borrower to maintain
the Line of Credit balance within the foregoing collateral
base formula.
WARRANTS At the closing of this modification of the Borrower's existing
Line of Credit, Borrower shall deliver to Bank (or its
designee)warrants to purchase Five Hundred Thousand (500,000)
shares of the common stock of the Borrower ("Warrants").
Terms of the Warrants shall be determined by the mutual
agreement of Borrower and Bank, but shall in any event provide
that the Warrants:
(1) shall be exercisable for a period of five (5) Years from
issue date,
(2) shall be issued with an exercise price equal to $0.575 per
share, and
Semiconductor Laser International Corporation
February 3, 1999
Page three
WARRANTS (3) shall provide anti-dilutive protection to the Bank with
(continued) respect to any future third party sale(s) or issuance(s)
of Borrower's common stock (other than those contemplated
to bmp-AG with respect to the First Purchase and Second
Purchase) at a per share price less than the then
current market price of Borrower's Common Stock (in the
case of a public offering of stock) or at a per share price
less than Seventy-Five Percent (75%) of the then current
market price of Borrower's Common Stock (in the case of
a private placement of stock).
WAIVER: At the closing of this modification, Bank shall provide
its written waiver of Borrower's Default under Borrower's
Loan Agreement with the Bank dated December 18, 1996,
with respect to "Affirmative Covenants" contained
therein regarding "Financial Covenants and Ratios" and with
respect to "Events of Default" contained therein regarding
"Change of Control," for the period ending December 31,
1998 and through the period ending June 30, 1999.
Waiver of Default under these covenants will be granted
only in the present instance and only for the period
specified. Such waiver will not constitute a continuing
waiver between the Bank and Borrower of any rights of
the Bank or of any obligations of Borrower as to any
future transactions.
OTHER
REQUIREMENTS: A) It is a condition of this modification that Borrower
shall be in receipt of the funds arising from the
First Purchase.
C) It is a condition of this modification that Borrower
shall deliver to Bank, on or before the date of the
closing of this modification, all payments of
interest and principal then due and owed to Bank on
all obligations of Borrower to Bank.
ALL OTHER TERMS AND CONDITIONS OF BANK'S COMMITMENT LETTER DATED JANUARY 13,
1999 REMAIN IN FORCE AND UNCHANGED.
FEES AND EXPENSES: All fees, expenses, and charges incurred with respect to
this modification shall be for the account of the
Borrower.
Semiconductor Laser International Corporation
February 3, 1999
Page four
EXPIRATION OF
COMMITMENT: This Commitment will, at our option and without further
notice, terminate unless the closing is held not later
than February 10, 1999.
ACCEPTANCE: If the terms and conditions of this Commitment are
acceptable to you, please acknowledge your agreement by
signing and returning the enclosed duplicate hereof to
us at our address. If such acceptance is not received
by us within five (5) days from the date hereof, this
Commitment shall be of no further force or effect.
Very truly yours,
/s/ J.B. Wescott
John B. Westcott
Administrative Vice President
(607) 779-3518
cc: Lilllian L. Levy, Esq.
Accepted and agreed to this 3rd day of February, 1999.
Semiconductor Laser International Corporation
/s/ Geoffrey T. Burnham
By: __________________________________
President & CEO
Its : __________________________________
[TYPE] EX-10.17
______________________________
SECURITIES PURCHASE AGREEMENT
______________________________
COMMON STOCK
AND SERIES B
CONVERTIBLE PREFERRED STOCK
OF
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
Dated as of February 5, 1999
TABLE OF CONTENTS
Section Page
1. Definitions 1
2. Issuance, Purchase and Sale of Securities 7
2.1 Authorization of the Securities 7
2.2 Sale and Purchase of the Securities 8
3. Closing of Sale of Securities 8
3.1 First Closing 8
3.2 Second Closing 8
4. Deliveries at First and Second Closings 9
4.1 Deliveries by the Company to the Purchaser
on the First Closing Date 9
(a) Common Stock 9
(b) Opinion of Counsel 9
(c) Registration Rights Agreement 9
4.2 Deliveries by the Purchaser to the Company
on the First Closing Date 9
(a) Purchase Price 9
(b) Registration Rights Agreement 9
4.3 Deliveries by the Company to the Purchaser
on the Second Closing Date 9
(a) Series B Preferred Stock 9
(b) Opinion of Counsel 9
4.4 Deliveries by the Purchaser to the Company
on the Second Closing Date 10
5. Representations and Warranties, Etc 10
5.1 Organization and Qualification; Authority 10
5.2 Corporate Authorization 10
5.3 No Conflict; Requisite Consents 10
5.4 Capitalization 11
5.5 Litigation; Defaults 11
5.6 No Material Adverse Effect 11
5.7 Employee Programs 12
5.8 Private Offerings 13
5.9 Company SEC Documents 13
5.10 Financial Statements; No Undisclosed Liabilities 13
5.11 Environmental Regulation, Etc 14
5.12 Properties and Assets 14
5.13 Employment Practices 15
5.14 Intellectual Property 15
5.15 Material Contracts 15
5.16 Taxes 16
5.17 Licenses; Compliance with Laws 17
5.18 Transactions with Affiliates 18
5.19 Confidential Information 18
5.20 Insurance 18
5.21 Substantial Customers and Suppliers 18
5.22 Registration Rights 18
5.23 Distribution Rights 18
5.24 Dividends 19
5.25 Year 2000 19
5.26 Disclosure 19
6. Representations and Warranties of the Purchaser 19
7. Covenants of the Company 20
7.1 Ordinary Course 20
7.2 Issuance of Securities 20
7.5 Financial Information 21
7.6 Return and Other Tax Information 21
7.7 Stamp Taxes 21
7.8 FIRPTA 21
7.9 Regulatory Approval 22
7.10 Warrants and Options 22
7.11 Public Announcements 22
7.12 Co-investment Rights 22
8. Rights and Obligations of the Purchaser 23
8.1 Reservation of Securities 23
8.2 No Right to Convert Preferred Stock into
Common Stock 23
8.3 Anti-Dilution Provisions - Adjustment of
Number of Shares of Capital Stock 23
8.5 Notice to the Holder 23
9. Conditions to Closing 24
9.1 Conditions to the Company's Obligations
to Consummate the First Closing 24
9.2 Conditions to the Purchaser's Obligations
to Consummate the First Closing 25
9.3 Conditions to the Company's Obligations 25
9.4 Conditions to the Purchaser's Obligations
to Consummate the Second Closing 26
10. Restrictions on Transfer 27
10.1 Restrictive Legends 27
10.2 Notice of the Proposed Transfer; Opinion
of Counsel 28
11. Miscellaneous 28
11.1 Indemnification; Expenses, Etc 28
11.2 Survival of Representations, Warranties,
Covenants and Indemnification 30
11.3 Amendment and Waiver 30
11.4 Notices, Etc 30
11.5 Expenses 31
11.6 Entire Agreement 31
11.7 Successors and Assigns 31
11.8 Termination 31
11.9 Descriptive Headings 32
11.10 Governing Law 32
11.11 Consent to Jurisdiction; Waiver of Immunities 32
11.12 Counterparts 33
SCHEDULES
SCHEDULE 5.2 -- Authorization
SCHEDULE 5.3 -- Consents
SCHEDULE 5.4 -- Capitalization
SCHEDULE 5.5 -- Litigation; Defaults
SCHEDULE 5.6 -- Material Developments
SCHEDULE 5.7 -- Benefits; ERISA
SCHEDULE 5.10 -- Undisclosed Liabilities
SCHEDULE 5.11 -- Environmental
SCHEDULE 5.12 -- Properties and Assets
SCHEDULE 5.13 -- Employment Practices
SCHEDULE 5.14 -- Intellectual Property
SCHEDULE 5.15 -- Material Contracts
SCHEDULE 5.16 -- Taxes
SCHEDULE 5.17 -- Compliance with Laws
SCHEDULE 5.18 -- Transactions with Affiliates
SCHEDULE 5.20 -- Insurance
SCHEDULE 5.21 -- Customers and Suppliers
SCHEDULE 5.22 -- Registration Rights
SCHEDULE 5.23 -- Distribution Rights
EXHIBITS
EXHIBIT A -- Certificate of Designations of Series B Preferred Stock
EXHIBIT B -- Form of Registration Rights Agreement
EXHIBIT C -- Form of Opinion of Swidler Berlin Shereff Friedman, LLP
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("Agreement"), dated as of February 5,
1999, between Semiconductor Laser International Corporation, a Delaware
corporation (the "Company") and bmp Mobility AG Venture Capital, a German
stock corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company desires to raise capital through the sale by the
Company of equity securities resulting in gross proceeds of up to two million
seven hundred fifty thousand U.S. dollars ($2,750,000)(the "Financing"); and
WHEREAS, on the First Closing Date (as defined below) the Company desires
to issue and sell to the Purchaser, and the Purchaser desires to purchase from
the Company, an aggregate of two million (2,000,000) shares of the Company's
common stock, $.01 par value per share (the "Common Stock"), for an aggregate
purchase price of seven hundred fifty thousand U.S. dollars ($750,000), on the
terms, and subject to conditions, set forth in this Agreement; and
WHEREAS, on the Second Closing Date (as defined below) the Company
desires to issue and sell to the Purchaser, and the Purchaser desires to
purchase from the Company, an aggregate of not less than six hundred fifty
thousand (650,000) and not more than one million (1,000,000) shares of the
Company's Series B Convertible Preferred Stock, $.01 par value per share (the
"Series B Preferred Stock), for an aggregate purchase price of up to two
million U.S. dollars ($2,000,000), on the terms, and subject to the
conditions, set forth in this Agreement,
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and agreements set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. Definitions. For purposes hereof unless the context otherwise
requires, the following terms shall have the meanings indicated. All
accounting terms not otherwise defined herein, shall have the respective
meanings accorded to them under GAAP (as defined below). Unless the context
otherwise requires, (i) references to a "Schedule" or an "Exhibit" are to a
Schedule or an Exhibit attached to this Agreement, (ii) references to a
"section" are to a section of this Agreement and (iii) any of the following
terms may be used in the singular or the plural, depending on the reference.
"Affiliate" means any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with another Person (ii) which beneficially owns or holds 20%
or more of any class of the outstanding Voting Stock of such other Person, or
(iii) which is a relative or spouse of such person, or any relative of such
spouse, who has the same home as such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through
ownership of Voting Stock, by Contract or otherwise.
"Agreement" means this Agreement, as amended, modified or
supplemented from time to time, in accordance with the terms hereof, together
with any exhibits, schedules or other attachments thereto.
"Benefit Plans" has the meaning ascribed thereto in Section 5.7
hereof.
"BSB" has the meaning ascribed thereto in Section 7.2 hereof.
"Business Day" means any day that is not a Saturday, a Sunday or a
day on which banking institutions in New York, New York or Berlin, Germany are
authorized or obligated by Law, executive order or government decree to be
closed.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated and whether voting or non-voting) of such Person's capital stock,
whether outstanding on the Closing Date or issued after the Closing Date and
any and all rights, warrants or options exercisable or exchangeable for or
convertible into such capital stock.
"Certificate of Designations" means the Certificate of Designations
of the Series B Preferred Stock, substantially in the form of Exhibit A
hereto.
"Charter Documents" has the meaning ascribed thereto in Section 5.1
hereof.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations promulgated thereunder, as amended from time to time.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
"Common Stock" has the meaning ascribed thereto in the introduction
hereof.
"Company" has the meaning ascribed thereto in the introduction
hereof.
"Company Financial Statements" has the meaning ascribed thereto in
Section 5.10 hereof.
"Company Properties" has the meaning ascribed thereto in Section
5.11 hereof.
"Company SEC Documents" has the meaning ascribed thereto in Section
5.9 hereof.
"Contracts" has the meaning ascribed thereto in Section 5.15 hereof.
"Environmental Law" means (i) any federal, state and local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, (x) relating to the
protection, preservation or restoration of the environment, (including,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any
other natural resource), or to human health or safety, or (y) the exposure to,
or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as now or hereafter in effect. The
term Environmental Law includes, without limitation, the United States federal
Comprehensive Environmental Response Compensation and Liability Act of 1980,
the United States Superfund Amendments and Reauthorization Act, the United
States federal Water Pollution Control Act of 1972, the United States federal
Clean Air Act, the United States federal Clean Water Act, the United States
federal Resource Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments thereto), the United State federal Solid
Waste Disposal and the United States federal Toxic Substances Control Act, the
United States federal Insecticide, Fungicide and Rodenticide Act, the United
States federal Occupational Safety and Health Act of 1970, each as amended and
as now or hereafter in effect, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to, or threatened as a result of,
the presence of or exposure to any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974,
and the rules and regulations promulgated thereunder, as amended.
"ERISA Affiliate" means any trade or business (whether incorporated
or unincorporated) which is a member of a group described in Section 414(b),
(c), (m) or (o) of the Code, of which the Company also is a member.
"ERISA Affiliate Title IV Plan" has the meaning ascribed thereto in
Section 5.7 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, and the
rules and regulations of the Commission promulgated thereunder, as amended.
"Fair Market Value" means, with respect to the grant of options
under the 1995 Plan for the purchase of shares of Common Stock, the higher of
(a) the Market Price on the date of issuance of the options for the purchase
of shares of Common Stock or (b) the average closing sales price per share of
Common Stock for the ten (10) trading days immediately preceding the date of
issuance of options for the purchase of Common Stock.
"Financing" has the meaning ascribed thereto in the introduction
hereof.
"First Closing" has the meaning ascribed thereto in Section 3.1
hereof.
"First Closing Date" has the meaning ascribed thereto in Section 3.1
hereof.
"First Closing Purchase Price" has the meaning ascribed thereto in
Section 2.2(a) hereof.
"GAAP" means generally accepted accounting principles and practices
set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as may be adopted by a significant
segment of the accounting profession that are applicable to the circumstances
as of the date of determination.
"Governmental Authority" means any governmental or
quasi-governmental authority including, without limitation, any federal,
state, territorial, county, municipal or other governmental or
quasi-governmental agency, board, branch, bureau, commission, court,
arbitration panel, department, authority, body or other instrumentality or
political unit or subdivision or official thereof, whether domestic or
foreign.
"Hazardous Substance" means any substance presently or hereafter
listed, defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether by
type or by quantity, including any substance containing any such substances as
a component. Hazardous Substance includes, without limitation, any toxic
waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous
waste, special waste, industrial substance or petroleum or any derivative or
by-product thereof, radon, radioactive material, asbestos, asbestos containing
material, urea formaldehyde foam insulation, lead and polychlorinated
biphenyl.
"Holder" means any Person who now holds or shall hereafter acquire
and hold the Securities.
"Indemnified Party" or "Indemnified Parties" has the meaning
ascribed thereto in Section 11.1(a) hereof.
"Intellectual Property" means patents, patent applications, patented
or unpatented inventions, design rights (including, without limitation,
trademarks and service marks), copyrights, know-how and trade secrets, and all
other intellectual property rights and forms of protection of a similar nature
having equivalent or similar effect as any of the foregoing rights, which may
subsist anywhere in the world.
"Law" means any statute, ordinance, code, rule, regulation or order
enacted, adopted, promulgated, applied or followed by any Governmental
Authority.
"License" or "Licenses" has the meaning ascribed thereto in Section
5.18 hereof.
"Lien" means any security agreement, financing statement (whether or
not filed) mortgage, lien (statutory or otherwise), charge, pledge,
hypothecation, conditional sales agreement, adverse claim, title retention
agreement or other security interest, encumbrance, lien, charge, restrictive
agreement, mortgage, deed of trust, indenture, pledge, option, limitation,
exception to or other title defect in or on any interest or title of any
vendor, lessor, lender or other secured party under any conditional sale,
lease, consignment, or bailment given for security purposes, trust receipt or
other title retention agreement with respect to any Property or asset of such
Person, whether direct, indirect, accrued or contingent.
"Line of Credit" has the meaning ascribed thereto in Section 7.2
hereof.
"Losses'' has the meaning ascribed thereto in Section 11.1(a)
hereof.
"Market Price" means, with respect to the shares of Common Stock
issuable upon the exercise of options granted under the 1995 Plan, (a) if the
shares are listed or admitted for trading on any national securities exchange
or included in The Nasdaq National Market or Nasdaq SmallCap Market, the last
reported sales price as reported on such exchange or market; (b) if the shares
are not listed or admitted for trading on any national securities exchange or
included in The Nasdaq National Market or Nasdaq SmallCap Market, the average
of the last reported bid and asked quotation for the shares as reported on
NASDAQ or a similar service if NASDAQ is not reporting such information; (c)
if the shares are not listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market or quoted by NASDAQ or a similar service, the average of the
last reported bid and asked quotation for the shares as quoted by a market
maker in the shares (or if there is more than one market maker, the bid and
asked quotation shall be obtained from two market makers and shall be the
average of the lowest bid and highest asked quotation). In the absence of any
available public quotations for the Common Stock, the Board of Directors of
the Company shall determine in good faith the fair value of the Common Stock,
which determination shall be set forth in a certificate by the Secretary of
the Company.
"Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), assets, liabilities, business, liquidity,
capital resources, results of operations or prospects of the Company,
provided, however, that facts which are disclosed in the Company SEC Documents
filed prior to the date of this Agreement or which affect the industry
generally, or failure to meet financial projections, or delisting of the
Common Stock from the Nasdaq SmallCap Market shall not be deemed a material
adverse effect within the meaning of this definition.
"NASDAQ" means The Nasdaq Stock Market, Inc.
"1995 Plan" has the meaning ascribed thereto in Section 7.2 hereof.
"Notice" has the meaning ascribed thereto in Section 7.12 hereof.
"Person" means any individual, entity or group, including, without
limitation, any corporation, limited liability company, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Preferred Stock" means the preferred stock, par value $.01 per
share, of the Company.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Purchaser" has the meaning ascribed thereto in the introduction
hereof.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof, by and among the Company and the
Purchaser, substantially in the form of Exhibit B hereto, as amended, modified
or supplemented from time to time in accordance with the terms thereof,
together with any exhibits, schedules or other attachments thereto.
"Regulation D" means Regulation D under the Securities Act.
"Regulation S" means Regulation S under the Securities Act.
"Restricted Security" has the meaning ascribed thereto in Section
10.2 hereof.
"Returns" means all returns, declarations, reports, estimates,
information returns and settlements of any nature regarding Taxes required to
be filed by any Person and relating to the Company.
"Reverse Stock Split" has the meaning ascribed thereto in Section
7.4 hereof.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission under
the Securities Act, and any successor rule or regulation thereto.
"Second Closing" has the meaning ascribed thereto in Section 3.2
hereof.
"Second Closing Date" has the meaning ascribed thereto in Section
3.2 hereof.
"Second Closing Purchase Price" has the meaning ascribed thereto in
Section 2.2(b) hereof.
"Securities" means all of or any portion of the Common Stock and the
Series B Preferred Stock.
"Securities Act" means the Securities Act of 1933, and the rules and
regulations of the Commission promulgated thereunder, as amended.
"Series A Preferred Stock" has the meaning ascribed thereto in
Section 5.4(a).
"Series B Preferred Stock" has the meaning ascribed thereto in the
introduction hereof.
"Subsidiary" means with respect to any Person, any corporation,
association or other business entity of which securities representing more
than 50% of the combined voting power of the total Voting Stock (or in the
case of an association or other business entity which is not a corporation,
more than 50% of the equity interest) is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. When used herein without reference to any
Person, "Subsidiary" means a Subsidiary of the Company.
"Taxes" means any federal, state, local, foreign or other taxes,
fees and charges of any nature whatsoever imposed by any jurisdiction or
governmental or taxing authority thereof or therein (including, without
limitation, income (net or gross), gross receipts, profits, alternative or
add-on minimum, franchise, license, capital, capital stock, intangible,
services, premium, mining, transfer, sales, use, ad valorem, payroll, wage,
severance, windfall profits, import, excise, custom, stamp, withholding or
estimated taxes), fees, duties, assessments, withholding or governmental
charges of any kind whatsoever (including interest, penalties, additions to
tax or additional amounts with respect to such items).
"Transaction Documents" means, collectively, this Agreement, the
Certificate of Designations, the Registration Rights Agreement and any and all
agreements, exhibits, schedules, certificates, instruments and other documents
delivered pursuant hereto and thereto.
"U.S. Person" has the meaning ascribed thereto in Section 6(a)
hereof.
"Voting Stock" means any class or classes of capital stock pursuant
to which the holders thereof have the general voting power under ordinary
circumstances to vote for the election of directors, managers or trustees of
any Persons (irrespective of whether or not at the time, capital stock of any
class or classes will have, or might have, voting power by the reason of the
happening of any contingency).
2. Issuance, Purchase and Sale of Securities.
2.1 Authorization of the Securities. The Company has authorized
the issuance and sale of the Securities in the aggregate amount of up to two
million seven hundred fifty thousand U.S. dollars ($2,750,000) to be acquired
by the Purchaser in accordance with the terms of this Agreement. The Series B
Preferred Stock shall have the voting powers, dividend rights, liquidation
rights, designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations and restrictions
thereof, set forth in the Certificate of Designations, which shall be filed
with the Secretary of State of the State of Delaware prior to the Second
Closing Date (as defined below).
2.2 Sale and Purchase of the Securities. Subject to the terms
and conditions of this Agreement:
(a) On the First Closing Date (as defined below), the
Company will issue, sell and deliver to the Purchaser and the Purchaser will
purchase from the Company, two million (2,000,000) shares of Common Stock. At
the First Closing (as defined below), subject to the terms and conditions of
this Agreement, the Purchaser shall be obligated to purchase such shares and
shall pay a purchase price in the amount of thirty seven and one half cents
($0.375) per share or an aggregate of seven hundred fifty thousand U.S.
dollars ($750,000) (the "First Closing Purchase Price") to the Company by
certified check or wire transfer of immediately available funds.
(b) On the Second Closing Date (as defined below), subject
to the conditions set forth in this Agreement, the Company will issue, sell
and deliver to the Purchaser and the Purchaser will purchase from the Company,
not less than six hundred fifty thousand (650,000) and not more than one
million (1,000,000) shares of Series B Preferred Stock, each such share
convertible into five shares of Common Stock. The number of shares of Series
B Preferred Stock which the Purchaser shall purchase on the Second Closing
Date between six hundred fifty thousand (650,000) and one million (1,000,000)
shall be determined by the Purchaser. At the Second Closing (as defined
below), a purchase price (the "Second Closing Purchase Price") in the amount
of two U.S. dollars ($2.00) per share or an aggregate of not less than one
million three hundred thousand U.S. dollars ($1,300,000) and not more than two
million U.S. dollars ($2,000,000) shall be payable by the Purchaser to the
Company in cash by wire transfer of immediately available funds.
3. Closing of Sale of Securities.
3.1 First Closing. The closing of the purchase and sale of the
Common Stock pursuant to Section 2.2(a) hereof (the "First Closing") shall
take place at the offices of Swidler Berlin Shereff Friedman LLP, 919 Third
Avenue, New York, New York 10022 on February 5, 1999 or at such other place
and date as the parties may agree (such date on which the First Closing shall
have actually occurred, the "First Closing Date"). At the First Closing, the
Company will deliver or cause to be delivered to the Purchaser two million
(2,000,000) shares of Common Stock against payment of the First Closing
Purchase Price.
3.2 Second Closing. The closing of the purchase and sale of
the Series B Preferred Stock pursuant to Section 2.2(b) hereof (the "Second
Closing") shall take place at the offices of Swidler Berlin Shereff Friedman
LLP, 919 Third Avenue, New York, New York 10022 following the satisfaction of
the conditions set forth in this Agreement or at such other place and date as
the parties may agree, but not earlier than March 31, 1999 (such date on which
the Second Closing shall have actually occurred, the "Second Closing Date").
At the Second Closing, the Company will deliver or cause to be delivered to
the Purchaser, not less than six hundred fifty thousand (650,000) and not more
than one million (1,000,000) shares of Series B Preferred Stock against
payment of the Second Closing Purchase Price.
4. Deliveries at First and Second Closings.
4.1 Deliveries by the Company to the Purchaser on the First
Closing Date. At the First Closing, the Company will deliver or cause to be
delivered to the Purchaser, against payment of the First Closing Purchase
Price as provided herein:
(a) Common Stock. The Common Stock, as provided in Section
3.1 hereof;
(b) Opinion of Counsel. An opinion of Swidler Berlin
Shereff Friedman, LLP, counsel for the Company, substantially in the form set
forth in Exhibit C, addressed to the Purchaser, dated the First Closing Date;
and
(c) Registration Rights Agreement. The Registration Rights
Agreement, duly executed by the Company.
4.2 Deliveries by the Purchaser to the Company on the First
Closing Date. At the First Closing, the Purchaser will deliver or cause to be
delivered to the Company the following:
(a) Purchase Price. Purchaser's payment of the First
Closing Purchase Price; and
(b) Registration Rights Agreement. The Registration Rights
Agreement, duly executed by the Purchaser.
4.3 Deliveries by the Company to the Purchaser on the Second
Closing Date. At the Second Closing, the Company will deliver or cause to be
delivered to the Purchaser, against payment of the Second Closing Purchase
Price as provided herein:
(a) Series B Preferred Stock. The Series B Preferred Stock
as provided in Section 3.2 hereof; and
(b) Opinion of Counsel. An opinion of Swidler Berlin
Shereff Friedman, LLP, counsel for the Company, substantially in the form set
forth in Exhibit C, addressed to the Purchaser, dated the Second Closing Date.
4.4 Deliveries by the Purchaser to the Company on the Second
Closing Date. At the Second Closing, the Purchaser will deliver or cause to
be delivered to the Company the Second Closing Purchase Price.
5. Representations and Warranties, Etc. In order to induce the
Purchaser to purchase the Securities, the Company represents and warrants to
the Purchaser that, except as set forth on the disclosure schedule hereto:
5.1 Organization and Qualification; Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company has no Subsidiaries. The Company
has full corporate power and authority and all necessary government approvals
to own and lease its properties and carry on its business as presently
conducted or as intended to be conducted, is duly qualified, registered or
licensed as a foreign corporation to do business and is in good standing in
each jurisdiction in which the ownership or leasing of its properties or the
character of its present operations makes such qualification, registration or
licensing necessary, except where the failure to so qualify or be in good
standing would not have a Material Adverse Effect. The Company has heretofore
delivered to the Purchaser's counsel complete and correct copies of (i) the
certificate of incorporation and (ii) the by-laws of the Company, each as
amended to date and as presently in effect (collectively, the ''Charter
Documents").
5.2 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the other Transaction
Documents are within the Company's corporate power and authority. The
execution and delivery of this Agreement and the other Transaction Documents
by the Company and the performance by the Company of its obligations hereunder
and thereunder, have been duly authorized by all requisite corporate action
and no other corporate proceedings on the part of the Company other than those
listed on Schedule 5.2 are necessary to authorize this Agreement and the other
Transaction Documents. This Agreement and the other Transaction Documents
have been duly executed and delivered by duly authorized officers of the
Company and, assuming the due authorization, execution and delivery thereof by
all parties thereto other than the Company, constitute legal, valid and
binding obligations of the Company, enforceable against it in accordance with
its terms, except as may be limited by bankruptcy, reorganization, moratorium,
fraudulent conveyance and insolvency laws and by other laws affecting the
rights of creditors generally and except as may be limited by the availability
of equitable remedies.
5.3 No Conflict; Requisite Consents. The execution, delivery
and performance by the Company of this Agreement and the other Transaction
Documents do not and will not (i) contravene or conflict with the Charter
Documents, (ii) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company under any provision of any written agreement or other instrument
binding upon the Company or require the consent of any third party under any
Law applicable to the Company or any License held by the Company, (iii)
conflict with or result in a violation or breach of any term or provision of
any Law applicable to the Company, or (iv) result in the creation or
imposition of any Lien on any asset of the Company, except, with respect to
each of the occurrences or results referred to in clauses (ii) and (iv) of
this sentence, the third party consents set forth in Schedule 5.3 and such
items which would not have a Material Adverse Effect.
5.4 Capitalization.
(a) As of February 5, 1999, the authorized Capital Stock
of the Company consists of 20,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock, of which 10,150,832 shares of Common Stock and no
shares of Preferred Stock are currently issued and outstanding. Prior to
December 30, 1997, the Company also had issued and outstanding 2,000,000
shares of Series A 8% Convertible Preferred Stock (the "Series A Preferred
Stock"), all of which have been converted into shares of Common Stock, and
there are no shares of Series A Preferred Stock issued and outstanding.
(b) All issued and outstanding shares of the Company's
Capital Stock are validly issued, fully paid and nonassessable. Except as set
forth on Schedule 5.4, there are no (i) outstanding subscriptions, options,
warrants or rights (including conversion rights and preemptive rights),
agreements, calls, convertible securities, arrangements or commitments of any
character to which the Company is a party relating to any unissued Capital
Stock or other securities of the Company or otherwise obligating the Company
to grant, issue or sell any such options, warrants or rights or (ii) shares of
Common Stock reserved for issuance upon the exercise of any warrants, options
granted or to be granted under any stock option plan or any options previously
granted outside of any stock option plan.
5.5 Litigation; Defaults. There is no action, suit, proceeding
or investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, or any properties of the Company, before or
by any Governmental Authority or any other Person, which would (i) have a
Material Adverse Effect, or (ii) impair the ability of the Company to perform
any material obligation which the Company has under any Transaction Document,
except as set forth on Schedule 5.5 or Schedule 5.11. Except as set forth on
Schedule 5.5, the Company is not in violation of, or in default under (and
there does not exist any event or condition which, after notice or lapse of
time or both, would constitute such a default under), any term of its Charter
Documents, or of any term of any agreement, Contract, instrument, judgment,
decree, writ, determination, arbitration award, or Law applicable to the
Company or to which the Company is bound, or to any Properties of the Company.
5.6 No Material Adverse Effect. Except as set forth in Schedule
5.6, since September 30, 1998, there has been (i) no event or condition which
has had or is reasonably likely to result in a Material Adverse Effect, and
(ii) no acquisition or disposition of any material assets by the Company (or
any Contract or arrangement therefor), or any other material transaction,
otherwise than for fair value in the ordinary course of business, except in
any such case as set forth in the Company SEC Documents.
5.7 Employee Programs.
(a) Schedule 5.7 lists each material benefit arrangement,
including (i) any employment or consulting agreement, (ii) any arrangement
providing for insurance coverage or workers' compensation benefits, (iii) any
incentive bonus or deferred bonus arrangement, (iv) any arrangement providing
termination allowance, severance or similar benefits, (v) any equity
compensation plan, (vi) any deferred compensation plan and (vii) any
compensation policy and practice. The Company does not provide, and does not
have an obligation to provide, or make contributions to provide any
compensation or benefits to its current or former employees or directors of
the Company, other than any plans, programs or other arrangements which only
provide for the payment of cash compensation currently from the general assets
of the Company on a payday by payday basis as base salary or hourly wages for
current services and other than policies for vacation, sick days and holidays,
medical, disability and life insurance and except as set forth on Schedule 5.7
(individually, a "Benefit Plan," and collectively, the "Benefit Plans").
(b) Except as disclosed on Schedule 5.7:
(i) No ERISA Affiliate (other than the Company) provides, or has
an obligation to provide, contributions, compensation or benefits of or under
any plan, program or arrangement which is subject to Title IV of ERISA ("ERISA
Affiliate Title IV Plan").
(ii) The Company has furnished or made available to the
Purchaser a true, complete and current copy of each written Benefit Plan and
any amendments thereto, and a summary of each other Benefit Plan.
(iii) No assets have been set aside in a trust or other separate
account to pay directly or indirectly any benefits under any Benefit Plan or
to the extent assets have been set aside, all assets are shown on the books
and records of such trust or separate account at their fair market value as of
the date of any report last provided with respect to such trust.
(iv) Each Benefit Plan and each ERISA Affiliate Title IV Plan
has been established, maintained and administered in compliance in all
material respects with all applicable Laws.
(v) The Company has not incurred any material liability for any
tax or penalty with respect to any Benefit Plan, ERISA Affiliate Title IV Plan
or any group health plan (as described in Section 5000 of the Code) of an
ERISA Affiliate including, without limitation, any tax or penalty under ERISA
or under the Code.
(vi) The Company has not terminated or withdrawn from, or sought
a funding waiver with respect to, any Benefit Plan which is subject to Title
IV of ERISA.
(vii) To the knowledge of the Company, there is no proposed or
actual material audit or investigation by any Governmental Authority with
respect to any Benefit Plan or ERISA Affiliate Title IV Plan.
(viii) The Company has no obligation to make, or reimburse
another employer, directly or indirectly, for making, contributions to a multi
employer plan as described in Title IV of ERISA.
5.8 Private Offerings. Neither the Company nor any Person acting
on its behalf (other than the Purchaser, as to whom the Company makes no
representations) has offered or sold the Securities by means of any general
solicitation or general advertising within the meaning of Rule 502(c) under
the Securities Act. No securities of the same class or series as the Series B
Preferred Stock have been issued and sold by the Company prior to the date
hereof. The Securities shall bear substantially the same legend set forth in
Section 10.1 hereof for so long as required by the Securities Act. Assuming
the truth of the Purchaser's representations and acknowledgments contained in
Section 6 hereof, the offer and sale of the Securities are and will be exempt
from the registration and prospectus delivery requirements of the Securities
Act.
5.9 Company SEC Documents. The Company has filed with the
Commission, and has heretofore made available to the Purchaser, true and
complete copies of its Annual Report on Form 10-KSB for the year ended
December 31, 1997, its quarterly report on Form 10-QSB for the quarter ended
September 30, 1998, Amendment No. 2 to its Registration Statement on Form S-3,
dated December 23, 1998 and its definitive proxy statement dated July 28,
1998, (collectively, the "Company SEC Documents"). As of their respective
dates, the Company SEC Documents did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
5.10 Financial Statements; No Undisclosed Liabilities. The
financial statements of the Company included or incorporated by reference in
the Company SEC Documents (the "Company Financial Statements") have been
prepared in accordance with GAAP applied on a consistent basis (except as may
be indicated therein or in the notes thereto) and fairly present in all
material respects the financial position of the Company as at the dates
thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of any unaudited interim financial statements, to
normal year-end adjustments and any other adjustments described therein).
Since September 30, 1998, the Company has not incurred any liabilities or
obligations of any nature, whether or not accrued, absolute, contingent or
otherwise, that would have a Material Adverse Effect, other than liabilities
(i) disclosed on Schedule 5.10, or in the Company SEC Documents, (ii)
adequately provided for in the Company Financial Statements or disclosed in
any related notes thereto, (iii) not required under GAAP to be reflected in
the Company Financial Statements, or disclosed in any related notes thereto or
(iv) incurred in connection with this Agreement or the other Transaction
Documents.
5.11 Environmental Regulation, Etc. Except as set forth on
Schedule 5.11, (i) the business as presently or formerly engaged in by the
Company is and has been conducted in compliance with all applicable
Environmental Law, including, without limitation, having all permits, licenses
and other approvals and authorizations, during the time the Company engaged in
such business, (ii) the Properties presently or formerly owned or operated by
the Company (including, without limitation, soil, groundwater or surface water
on, under or adjacent to the properties, and buildings thereon) (the "Company
Properties") do not contain any Hazardous Substance other than as permitted
under applicable Environmental Law (provided, however, that with respect to
Company Properties formerly opened or operated by the Company, such
representation is limited to the period the Company owned or operated such
Company Properties), (iii) the Company has not received any notices, demand
letters or request for information from any federal, state, local or foreign
governmental entity or any third party indicating that the Company may be in
violation or, liable under, any Environmental Law in connection with the
ownership of operation of the Company's business, (iv) there are no civil,
investigations or proceedings pending or to the knowledge of the Company
threatened against the Company with respect to the Company or the Company
Properties relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be
filed, by the Company concerning the release of any Hazardous Substance or the
threatened or actual violation of any Environmental Law on or at the Company
Properties, (vi) no Hazardous Substance has been disposed of, transferred,
released or transported from any of the Company Properties during the time
such Company Property was owned or operated by the Company, other than as
permitted under applicable Environmental Law, (vii) there have been no
environmental investigations, studies, audits, tests, reviews or other
analyses conducted by or which are in the possession of the Company relating
to the Company or the Company Properties which have not been delivered to the
Purchaser prior to the date hereof, (viii) to the knowledge of the Company
there are no underground storage tanks, on, in or under any of the Company
Properties and no underground storage tanks have been closed or removed from
any Company Properties which are or have been in the ownership of the Company
(provided, however, that with respect to Company Properties formerly owned or
operated by the Company, the representations in this subsection (viii) are
limited to the period the Company owned or operated such Company Properties),
(ix) there is no asbestos present in any Company Property presently owned or
operated by the Company, (x) to the knowledge of the Company none of the
Company Properties has been used at any time by the Company as a sanitary
landfill or hazardous waste disposal site and (xi) the Company has not
incurred, and none of the Company Properties are presently subject to, any
material liabilities (fixed or contingent) relating to any suit, settlement,
court order, administrative order, judgment or claim asserted or arising under
any Environmental Law.
5.12 Properties and Assets. The Company has good record and
marketable fee title to all real Property and all other Property, whether
tangible or intangible, owned by it, except defects in title which would not
have a Material Adverse Effect or as otherwise disclosed on Schedule 5.12.
The Company has complied with all commitments and obligations on its part to
be performed or observed under each of the leases listed on Schedule 5.12,
except for such noncompliance as would not have a Material Adverse Effect.
5.13 Employment Practices. The Company is not a party to, or
bound by, any collective bargaining agreement, Contract or other agreement or
understanding with a labor union organization except as set forth on Schedule
5.13. Except as set forth on Schedule 5.13, there (i) is no unfair labor
practice or material labor arbitration proceeding pending or threatened
against the Company, (ii) are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or, to the
Company's knowledge, threatened involving employees of the Company, and (iii)
is no labor controversy in existence with respect to the Company's business
and operations, except as would not in any such case have a Material Adverse
Effect.
5.14 Intellectual Property. The Company owns or, except as to
Intellectual Property with respect to which the United States Air Force or
Northwestern University has a paid-up, non-exclusive license, otherwise has
the exclusive right or license to use the Intellectual Property listed on
Schedule 5.14 attached hereto and all other Intellectual Property used by the
Company. Schedule 5.14 attached hereto contains an accurate and complete list
of all patents, trademarks, trade names and copyrights included in the
Intellectual Property owned or used by the Company, all pending applications
therefor and all licenses and other agreements relating thereto or to any
other item of Intellectual Property, whether as licensor or licensee or
otherwise. Schedule 5.14 contains an accurate and complete list of the
Intellectual Property of the Company, excluding know-how and trade secrets.
Except as set forth in Schedule 5.14, the complete right, title and interest
in and to the inventions described in the patent applications filed by the
Company, and the applications themselves, have been properly recorded in the
United States Patent and Trademark Office for U.S. applications. Except as
set forth on Schedule 5.14, the patent applications identified by the Company
in Schedule 5.14 as currently pending are currently pending in the appropriate
patent offices and are not abandoned. Except as set forth on Schedule 5.14
attached hereto, the Company owns the Intellectual Property it uses free and
clear of all Liens. Except as set forth on Schedule 5.14 attached hereto, and
in the Company SEC Documents no claims are currently being asserted by any
Person involving the Company's sole right to use any of the Intellectual
Property owned or used by the Company or challenging or questioning the
validity or effectiveness of any license or similar agreement with respect
thereto. To the best of the Company's knowledge, the Company's use of the
Intellectual Property owned or used by it does not infringe the rights of any
Person.
5.15 Material Contracts. The Company has previously furnished
or made available to the Purchaser all contracts, agreements, commitments,
obligations and licenses to which the Company is a party that are material
("Contracts"); provided, however, purchase agreements involving payments in
the aggregate of $50,000 per annum or less shall not be deemed to be material
unless such purchase agreement is by and between the Company and any
Affiliate. All of the Contracts are valid and binding and are in full force
and effect; and, except as set forth on Schedule 5.15 hereto, there are no
existing defaults (or events which, with notice or lapse of time or both,
would constitute a material default) by the Company or its Subsidiaries, or,
to the Company's knowledge, any other party thereunder, except as would not
have a Material Adverse Effect.
5.16 Taxes. (a) Except as set forth in Schedule 5.16:
(i) all Returns have been or will be timely filed when due in
accordance with all applicable Laws:
(ii) all Taxes shown on the Returns have been timely paid,
except those which are being contested (as described on Schedule 5.16) ;
(iii) the Returns completely, accurately and correctly reflect
the facts regarding the income, properties, operations and status of any
entity required to be shown thereon;
(iv) the Company has adequate reserves on its financial
statements for Taxes accrued but not yet due, relating to the income, property
or operations of the Company;
(v) there are no agreements or consents currently in effect for
the extension or waiver of the time (A) to file any Return or (B) for
assessment or collection of any Taxes relating to the Company, and no Person
has been requested to enter into any such agreement or consent;
(vi) none of the Returns have been examined or closed;
(vii) all Taxes which the Company is required by Law to withhold
or collect have been duly withheld or collected, and have been timely paid
over to the appropriate governmental authorities to the extent due and
payable;
(viii) there is no action, suit, proceeding, investigation,
audit or claim currently pending, or, to the Company's best knowledge,
threatened, regarding any Taxes relating to the Company or any group of which
the Company is now or was formerly a member;
(ix) all Tax deficiencies which have been claimed, proposed or
asserted against the Company or any group of which the Company is now or was
formerly a member, have been fully paid or finally settled;
(x) no Person has executed or entered into a closing agreement
pursuant to Section 7121 of the Code (or any comparable provision of State,
local or foreign Law) that is currently in force and determines the Tax
liabilities of the Company;
(xi) there are no liens for any Tax on the assets of the Company
other than liens in the ordinary course of business which arise as a matter of
law;
(xii) there are no tax allocation or other agreements with or
relating to any income or other Taxes with any other person to which the
Company is now or ever has been a party;
(xiii) the Company is not a party to any agreement, contract,
arrangement or plan that would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Code Section
280G (or any comparable provision of state, local or foreign Law);
(xiv) the Company has not agreed, and is not required, to make
any adjustment under Code Section 481(a) (or any comparable provision of
state, local, or foreign law) by reason of a change in accounting method or
otherwise;
(xv) no power of attorney is currently in effect, and no Tax
ruling has been requested of any governmental authority, with respect to any
Tax matter relating to the Company;
(xvi) no indebtedness of the Company consists of "corporate
acquisition indebtedness" within the meaning of Section 279 of the Code;
(xvii) the Company is not now and has never been included in any
"consolidated" or "combined" Return provided for under the Laws of the United
States, any foreign jurisdiction or any political subdivision of the foregoing
with respect to Taxes for any taxable period for which the statute of
limitations has not expired; and
(xviii) the Company is not a "United States real property
holding corporation" within the meaning of Section 897(c)(2) of the Code.
5.17 Licenses; Compliance with Laws. The Company holds all
licenses, franchises, permits, consents, registrations, certificates and other
approvals (individually, a "License" and collectively, "Licenses'') and owns
or licenses all Intellectual Property required for the conduct of its business
as now being conducted, and is operating in substantial compliance therewith,
except where the failure to hold any such License or to operate in compliance
therewith would not have a Material Adverse Effect. The exclusive patent
licenses obtained from Northwestern University and the United States Air Force
which are identified on Schedule 5.17 are currently in force and have not been
terminated or downgraded. Except as set forth on Schedule 5.17, the Company
is in substantial compliance with all Laws applicable to it, except in each
case where the failure so to comply would not have a Material Adverse Effect
taken as a whole.
5.18 Transactions with Affiliates. There are no material
transactions, agreements or understandings, existing or presently
contemplated, between or among the Company and any of its officers or
directors or stockholders or any of their Affiliates or associates except as
set forth on Schedule 5.18. Except as set forth on Schedule 5.18, no officer,
director or Affiliate of the Company or any Affiliate of any such officer or
director provides or causes to be provided any assets (including Intellectual
Property), knowhow, services or facilities used or held for use by the Company
in connection with its business and the Company does not provide or cause to
be provided any assets (including Intellectual Property), knowhow, services or
facilities to any such officer, director or Affiliate. Except as set forth on
Schedule 5.18, each of the transactions listed on such Schedule is engaged in
on an arm's-length basis.
5.19 Confidential Information. The Company has taken and shall
take all reasonable steps to protect the confidentiality of the semiconductor
laser technology which the Company presently uses or reasonably expects to use
in the future conduct of its business.
5.20 Insurance. The Company maintains all liability (including
product liability), property (including Intellectual Property), workers'
compensation, fire, casualty, officers' and directors' and other insurance
policies to the extent and in the manner customary in the industry for
companies in similar businesses similarly situated. Except as set forth on
Schedule 5.20, each insurance policy is valid and binding and in full force
and effect and all premiums thereunder have been paid. Except as set forth on
Schedule 5.20, the Company has not received any notice of cancellation or
termination in respect of any such policy and is not in default thereunder.
Except as set forth on Schedule 5.20, the Company has not received any notice
that any insurer under any policy referred to in such notice is denying
liability with respect to a claim thereunder or defending under a reservation
of rights clause.
5.21 Substantial Customers and Suppliers. Except as set forth on
Schedule 5.21, no material customer or supplier of the Company has ceased or
materially reduced its purchases from or sales or provisions of materials,
services or facilities to the Company since September 30, 1998 or has
threatened to cease or materially reduce such purchases or sales or provision
of materials, services or facilities. Except as set forth on Schedule 5.21, to
the knowledge of the Company, no material customer or supplier of the Company
is threatened with bankruptcy or insolvency.
5.22 Registration Rights. Except as set forth on Schedule 5.22,
the Company is not under any contractual obligation to register any of its
currently outstanding Capital Stock or any of its securities which may
hereafter be issued, except as contemplated by the Registration Rights
Agreement.
5.23 Distribution Rights. Except as set forth on Schedule 5.23,
the Company has not granted rights to distribute its products outside the
United States to any Person and is not bound any agreement with respect to the
foregoing.
5.24 Dividends. On or after September 30, 1998, the Company has
not declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its Capital Stock.
5.25 Year 2000. All computer software used by the Company in
the conduct of its business is, or will be prior to December 31, 1999, capable
of accurately processing, calculating, manipulating and storing and exchanging
with other software so capable, date/time, date from, into and between the
twentieth and twenty-first centuries, including, without limitation, the years
1999 and 2000 and any leap year calculations, except where the failure of such
software to so perform will not result in a Material Adverse Effect.
5.26 Disclosure. The Company has provided the Purchaser with
all the information reasonably available to the Company without undue expense
that the Purchaser has requested for deciding whether to purchase the
Securities and all information that the Company believes is reasonably
necessary to enable the Purchaser to make such decision. None of the
Schedules attached to this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
6. Representations and Warranties of the Purchaser.
(a) The Purchaser represents to the Company that (i) it is
an accredited investor as defined in Regulation D under the Securities Act,
and (ii) by reason of its business and financial experience, and the business
and financial experience of those persons, if any, retained by it to advise it
with respect to its investment in the Securities, such Purchaser together with
such advisers have such knowledge, sophistication and experience in business
and financial matters as to be capable of evaluating the merits and risk of
the prospective investment, and that it is purchasing the Securities for its
own account and not with a view to the distribution thereof or with any
present intention of distributing or selling any of the Securities except in
compliance with the Securities Act. The Purchaser understands and agrees that
the Company's offer and sale of the Securities have not been registered under
the Securities Act and the Securities may be resold only if registered
pursuant to the provisions thereunder or if an exemption from registration is
available.
(b) The Purchaser understands and acknowledges that if it
resells all (or any portion) of the Securities in a sale that relies on
Regulation S, that it shall comply with applicable offering restrictions
required under Regulation S.
(c) The Purchaser represents to the Company that it has
full power and authority and has taken all action necessary to authorize it to
enter into and perform its obligations under this Agreement and the other
Transaction Documents. This Agreement is the legal, valid and binding
obligation of the Purchaser, and is enforceable against the Purchaser in
accordance with its terms, except as may be limited by bankruptcy,
reorganization, moratorium, fraudulent conveyance and insolvency laws and by
other laws affecting the rights of creditors generally and except as may be
limited by the availability of equitable remedies.
(d) The Purchaser believes that it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Securities. The Purchaser further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding
the business, properties, prospects and financial condition of the Company and
to obtain additional information (to the extent the company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to the Purchaser
or to which the Purchaser had access. The foregoing, however, does not limit
or modify the representations and warranties of the Company in Section 5 of
this Agreement or the right of the Purchaser to rely thereon.
7. Covenants of the Company. The Company covenants and agrees that
from the date hereof until the Second Closing Date, except with respect to
Sections 7.6, 7.7 and 7.8 of this Agreement and, unless otherwise provided for
in this Agreement, or unless the Purchaser shall otherwise consent in writing,
it will do or cause the following:
7.1 Ordinary Course. The Company's business shall be conducted
only in the ordinary course of business and in a manner consistent with past
practice and the business plan(s) approved by the Company's Board of
Directors. The Company shall use commercially reasonable efforts, within the
limits of its available resources, to preserve substantially intact its
business organization, and to maintain or improve its profitability.
7.2 Issuance of Securities. The Company shall not issue,
deliver, sell, redeem, acquire, authorize or propose to issue, deliver, sell,
redeem, acquire or authorize, any shares of its Capital Stock of any class or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares or convertible securities or other ownership
interest, provided that the Company shall be permitted to (i) issue Common
Stock, and Series B Preferred Stock required to be issued to the Purchaser
pursuant to this Agreement, (ii) issue up to 500,000 Warrants exercisable for
up to 500,000 shares of Common Stock in connection with the Company's
contemplated amendment to its $1,000,000 secured line of credit (the "Line of
Credit") maintained by BSB Bank & Trust Company ("BSB") upon the terms and
conditions agreed to by the Company and BSB and (iii) issue options already
authorized pursuant to the Company's 1995 Stock Option Plan, as amended (the
"1995 Plan") and shares of Common Stock upon exercise of any such options,
provided, however, that such options shall be issued at an exercise price at
least equal to Fair Market Value. The Company shall not amend (i) its Charter
Documents to increase the number of authorized shares of Common Stock or
Preferred Stock thereunder or (ii) the 1995 Plan to increase the number of
authorized shares of Common Stock thereunder without the consent of the
Purchaser in either case.
7.3 Nasdaq Listing. The Company will use its best efforts to
continue the listing of the Common Stock on the Nasdaq SmallCap Market and to
ensure that the shares of Common Stock to be issued upon conversion of the
Series B Preferred Stock are listed or authorized to be quoted on the Nasdaq
SmallCap Market or listed on any national securities exchange on which shares
of Common Stock are then listed, to the extent that such listing is permitted
at such time.
7.4 Dividends; Changes in Capital Stock. The Company shall not,
nor shall it propose to: (i) declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property or otherwise, with
respect to any of its Capital Stock; or (ii) recapitalize or otherwise modify
its Capital Stock, except that the Company may effectuate a reverse stock
split as contemplated by its plan to reattain compliance with the minimum bid
price requirement of the Nasdaq SmallCap Market (the "Reverse Stock Split").
If such Reverse Stock Split is consummated by the Company prior to the Second
Closing Date, then, following the record date fixed for such Reverse Stock
Split, the number of shares of Series B Preferred Stock to be acquired by the
Purchaser and the Second Closing Purchase Price shall remain the same, but the
number of shares of Common Stock into which the Series B Preferred Stock may
be converted shall be appropriately adjusted by the Company in order to
maintain the proportionate conversion ratio set forth in Section 2.2(b)
hereof.
7.5 Financial Information. Immediately following the date of
execution of this Agreement, the Company shall commence providing the
Purchaser with monthly financial data to the extent that it is otherwise
prepared by the Company and that it is reasonably requested by the Purchaser.
7.6 Return and Other Tax Information. Following the First
Closing Date and for so long as Purchaser shall hold securities of the
Company, and for a reasonable time thereafter, the Company shall provide the
Purchaser with such cooperation and information as the Purchaser may
reasonably request with respect to (A) the filing of any Return, amended
Return, or claim for a refund of Taxes, (B) determining any potential or
asserted Tax liability or a right to a refund of Taxes under any Law, or (C)
conducting or defending any audit or other proceeding in respect of Taxes. Any
information obtained under this Section 7.6 shall be kept confidential, except
as may be otherwise necessary in connection with filing any Return, amended
audit or other proceeding in respect of Taxes as may otherwise be required by
any Law, rule, regulation or accounting principal or practice.
7.7 Stamp Taxes. The Company shall be liable for, and shall pay
when due, any transfer, gains, documentary, sales, use, registration, stamp,
value added or other similar Taxes payable by reason of the transactions
contemplated by this Agreement or attributable to the initial sale to the
Purchaser of the Common Stock or the Series B Preferred Stock, and the Company
shall, at its own expense, file all necessary Returns and other documentation
with respect to all such Taxes.
7.8 FIRPTA. On or prior to the First Closing Date, the Company
shall provide the Purchaser with a copy of a statement, issued by the Company
pursuant to U.S. Treasury Regulation Section 1.8972(h), certifying that
neither the Common Stock nor the Series B Preferred Stock is a United States
real property interest.
7.9 Regulatory Approval. The Company shall cooperate with the
Purchaser by providing information upon request of the Purchaser to the extent
the Purchaser receives any inquiry from any Governmental Authority in
connection with the transactions contemplated by this Agreement.
7.10 Warrants and Options. The Company will not take any action
to accelerate the exercisability or vesting of any outstanding warrants or
options to purchase Common Stock or modify any other terms of such warrants or
options, including the terms of the 1995 Plan, as a result of the transactions
contemplated hereby.
7.11 Public Announcements. Upon the execution of this Agreement,
the Company and the Purchaser will consult with each other with respect to the
issuance of a joint press release to be released by the Company with respect
to this Agreement and the transactions contemplated hereby. Prior to each of
the First Closing and the Second Closing, except as otherwise agreed to by the
parties, the parties shall not issue any report, statement or press release or
otherwise make any public statements with respect to this Agreement, except as
in the reasonable judgment of the party may be required by law or in
connection with the obligations of a publicly-held company. Upon each of the
First Closing and the Second Closing, the Company and the Purchaser will
consult with each other with respect to the issuance of a joint press release
with respect to the consummation of the transactions contemplated by this
Agreement.
7.12 Co-investment Rights. During the time period in which the
Purchaser holds at least fifty percent (50%) of the Securities issued pursuant
to this Agreement (including the Common Stock issuable upon conversion of the
Preferred Stock), the Purchaser shall have co-investment rights with respect
to any issuances of equity securities of the Company (or securities or rights
convertible into or exercisable for equity securities of the Company),
pursuant to which the Purchaser shall have the right, at its option, to
maintain up to its percentage ownership of outstanding equity of the Company
(on a fully diluted basis, with respect to ownership and with respect to
voting rights) by participating in such issuance of securities on terms no
less favorable in any respect than the terms on which any other purchaser of
such securities participates in such issuance. The maintenance of such
percentage ownership of the Purchaser shall be only to the extent practicable,
and the Purchaser shall take into account the difficulty of achieving a
precise percentage for the Purchaser while also satisfying a prospective
purchaser's objectives; provided, however, that any shortfall in such
maintenance of the Purchaser's percentage ownership shall be de minimus.
The Company shall notify the Purchaser, in writing (the "Notice"),
of its intention to sell such securities, setting forth the terms under which
it proposes to make such sale, the persons to whom such sale is proposed to be
made, and the number of securities it proposes to sell, and advising the
Purchaser of the amount of such securities which the Purchaser is entitled to
purchase in accordance with this Section 7.12. The Purchaser shall have the
right, but not the obligation, to notify the Company within thirty (30) days
after the Company gives such notice that the Purchaser desires to purchase
some or all of the securities which it is entitled to purchase hereunder.
Failure to give such notice within such thirty (30) day period shall
constitute a waiver of Purchaser's right to purchase such securities under
this Section 7.12. If the Purchaser shall give the Company timely notice
that it desires to purchase such securities, it shall purchase such securities
within two (2) Business Days of its notice to the Company regarding such
purchase, on the same terms, and at the same price that the Company sells the
remainder of such securities, all such sales to be made pursuant to the terms
set forth in the Notice. The provisions of this Section 7.12 shall not apply
to the issuance of (i) up to 500,000 Warrants exercisable for up to 500,000
shares of Common Stock in connection with the Company's contemplated amendment
to its Line of Credit maintained by BSB upon the terms and conditions agreed
to by the Company and BSB, (ii) employee stock options and (iii) the shares of
Common Stock issuable upon exercise of any such options.
8. Rights and Obligations of the Purchaser.
8.1 Reservation of Securities. The Company shall reserve and
set apart and have at all times, free from preemptive rights, the number of
authorized but unissued shares of Series B Preferred Stock or Common Stock,
to conform to the Company's obligations set forth in Section 7.
8.2 No Right to Convert Preferred Stock into Common Stock. The
convertible feature of the Series B Preferred Stock into Common Stock shall
not be exercisable by the Purchaser or any Affiliate of the Purchaser, but
shall be exercisable by a transferee of the Purchaser so long as such
transferee is not an Affiliate of the Purchaser.
8.3 Anti-Dilution Provisions - Adjustment of Number of Shares of
Capital Stock. The number of shares of Common Stock into which the Series B
Preferred Stock shall be converted shall be subject to adjustment as provided
in the Certificate of Designations.
8.4 Regulatory Approval. The Purchaser shall cooperate with the
Company by providing information upon request of the Company to the extent the
Company receives any inquiry from any Governmental Authority in connection
with the transactions contemplated by this Agreement.
8.5 Notice to the Holder.
In case at any time:
(i) the Company shall pay any dividend upon its outstanding
Common Stock or Preferred Stock payable in shares of Common Stock or Preferred
Stock or make any distribution (other than cash dividends out of earned
surplus) to the holders of its shares of Common Stock or Preferred Stock; or
(ii) the Company shall offer for subscription pro rata to the
holders of its Common Stock or Preferred Stock any additional shares of Common
Stock or Preferred Stock or other rights to acquire such Common Stock or
Preferred Stock; or
(iii) there shall be effected any recapitalization of the
Company or reclassification of the shares of Common Stock or Preferred Stock
of the Company, or any merger or consolidation of the Company into or with any
other corporation or business entity and as a result of which the Company is
not the surviving corporation, or the sale or transfer of all or substantially
all of the assets of the Company to any other corporation or business entity;
or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice
to the Purchaser of the date which is the record date for such dividend,
distribution or subscription rights, or on which such recapitalization,
reclassification, merger, consolidation, sale, transfer, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of record of the Company's
Common Stock or Preferred Stock shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange its
Common Stock or Preferred Stock for securities or other property deliverable
upon such recapitalization, reclassification, merger, consolidation, sale,
transfer, dissolution, liquidation or winding up, as the case may be. Such
written notice shall be given at least thirty (30) days prior to the action in
question and not less than ten (10) days prior to the record date.
9. Conditions to Closing.
9.1 Conditions to the Company's Obligations to Consummate the
First Closing.
The obligations of the Company to effect the sale and issuance of
the Common Stock shall be subject to the satisfaction of the conditions set
forth below, at or before the First Closing Date (which conditions may be
waived by the Company in writing).
(a) The representations and warranties of the Purchaser set
forth in Section 6 of this Agreement shall be true and correct as of the date
hereof and as of the First Closing Date.
(b) The Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement.
(c) The Purchaser shall have delivered to the Company at
the First Closing the items set forth in Section 4.2.
9.2 Conditions to the Purchaser's Obligations to Consummate the
First Closing.
The obligations of the Purchaser to effect the purchase of the
Common Stock shall be subject to the satisfaction of the conditions set forth
below, at or before the First Closing Date (which conditions may be waived by
the Purchaser in writing).
(a) The representations and warranties of the Company set
forth in Section 5 of this Agreement shall be true and correct as of the date
hereof and as of the First Closing Date (except to the extent specified by the
Company to be true and correct as of an earlier date) and the Purchaser shall
have received a certificate to such effect signed by the Chief Executive
Officer of the Company dated as of the First Closing Date.
(b) The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement, and the Purchaser shall have received a
certificate to such effect signed by the Chief Executive Officer of the
Company dated as of the First Closing Date.
(c) BSB shall (i) release to the Company simultaneously
with the purchase of the Common Stock by the Purchaser pursuant to Section
2.2(a) of this Agreement, $450,000 available under its Line of Credit, and
(ii) extend the maturity date of the Line of Credit until May 31, 1999, and
the Company shall have received a letter from BSB indicating its intent upon
completion of the purchase by the Purchaser of the Series B Preferred Stock
pursuant to Section 2.2(b) hereto, to further extend the maturity date of the
Line of Credit until May 31, 2000 (subject to the absence of any material
adverse change as determined by BSB).
(d) The Company shall deliver to the Purchaser at the First
Closing the items set forth in Section 4.1.
(e) The Company shall have delivered to the Purchaser a
Certificate dated as of a recent date prior to the First Closing Date issued
by the Secretary of State of the State of Delaware to the effect that the
Company is legally and validly existing and in good standing.
(f) The Company shall have delivered to the Purchaser a
certificate executed by the Secretary of the Company dated as of the First Closi
ng Date, certifying as to (a) the directors resolutions authorizing the
transactions contemplated by this Agreement, (b) the Charter Documents of the
Company, (c) the incumbency and specimen signatures of the Chief Executive
Officer, President and Secretary of the Company, and (d) such other matters as
the Purchaser may reasonably request.
9.3 Conditions to the Company's Obligations to Consummate the
Second Closing.
The obligations of the Company to effect the sale and issuance of
the Series B Preferred Stock shall be subject to the satisfaction of the
conditions set forth below, at or before the Second Closing Date (which
conditions may be waived by the Company in writing).
(a) The representations and warranties of the Purchaser set
forth in Section 6 of this Agreement shall be true and correct except as would
not have a material adverse effect on either party's ability to consummate the
transactions contemplated by this Agreement.
.
(b) The Purchaser shall have performed, satisfied and
complied in all material respects, with all covenants, agreements and
conditions required by this Agreement.
(c) The Purchaser shall have procured all regulatory
approvals and consents required by Law to be procured by it for the
transactions contemplated by this Agreement.
(d) The Purchaser shall have delivered to the Company at
the Second Closing the items set forth in Section 4.4.
9.4 Conditions to the Purchaser's Obligations to Consummate the
Second Closing.
The obligations of the Purchaser to effect the purchase of the
Series B Preferred Stock shall be subject to the satisfaction of the
conditions set forth below, at or before the Second Closing Date (which
conditions may be waived by the Purchaser in writing).
(a) The representations and warranties of the Company set
forth in Section 5 of this Agreement shall be true and correct in all material
respects as of the date hereof and as of the Second Closing Date, except to
the extent specified by the Company to be true and correct as of an earlier
date or except to the extent disclosed by the Company to the Purchaser on or
prior to the Second Closing Date, and the Purchaser shall have received a
certificate to such effect signed by the Chief Executive Officer of the
Company dated as of the date of the Second Closing Date.
(b) As of the Second Closing Date, there shall not have
occurred any event or condition which has had a Material Adverse Effect, and
the Purchaser shall have received a certificate to such effect signed by the
Chief Executive Officer of the Company dated as of the date of the Second
Closing Date.
(c) The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement, and the Purchaser shall have received a
certificate to such effect signed by the Chief Executive Officer of the
Company dated as of the Second Closing Date.
(d) The Company shall have procured all regulatory
approvals and consents required by Law to be procured by it for the
transactions contemplated by this Agreement.
(e) If required under Nasdaq rules, the Company shall have
obtained shareholder approval of the purchase.
of Credit until May 31, 2000.
(g) The Company shall have delivered to the Purchaser at
the Second Closing the items set forth in Section 4.3.
(h) The Company shall have delivered to the Purchaser a
bring-down Certificate dated as of a recent date prior to the Second Closing
Date issued by the Secretary of State of the State of Delaware to the effect
that the Company is legally and validly existing and in good standing.
(i) The Company shall have delivered to the Purchaser a
bring-down certificate executed by the Secretary of the Company dated as of
the Second Closing Date, certifying as to (a) the directors resolutions
authorizing the transactions contemplated by this Agreement, (b) the Charter
Documents of the Company, (c) the incumbency and specimen signatures of the
Chief Executive Officer, President and Secretary of the Company, and (d) such
other matters as the Purchaser may reasonably request..
(j) The Company shall have filed or caused to be filed the
Certificate of Designations relating to the Series B Preferred Stock with the
Secretary of State for the State of Delaware on or prior to the Second Closing
Date.
10. Restrictions on Transfer.
10.1 Restrictive Legends. Except as otherwise permitted by this
Section 10, each share certificate constituting the Common Stock and the
Series B Preferred Stock issued and sold pursuant to this Agreement and any
share certificate issued upon exchange of the Series B Preferred Stock for
Common Stock shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO
(i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, (iii)
REGULATION S, OR (iv) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT,
PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
10.2 Notice of the Proposed Transfer; Opinion of Counsel.
The Purchaser of each share certificate bearing the restrictive legend set
forth in Section 10.1 above ("Restricted Security") agrees that prior to any
transfer or attempted transfer of such Restricted Security to give to the
Company (a) written notice describing the manner or circumstances of such
transfer or proposed transfer, and (b) an opinion of counsel, which is
knowledgeable in securities law matters, in form and substance reasonably
satisfactory to the Company, to the effect that the proposed transfer of such
Restricted Security may be effected without registration of such Restricted
Security under the Securities Act. If the holder of the Restricted Security
delivers to the Company an opinion of counsel in form and substance reasonably
satisfactory to the Company that subsequent transfers of such Restricted
Security will not require registration under the Securities Act, the Company
will after such contemplated transfer deliver new Securities for such
Restricted Security which do not bear the Securities Act legend set forth in
Section 10.1 above. Except to the extent required by the Company's transfer
agent, the requirements for an opinion of counsel imposed by this Section 10.2
upon the transferability of any particular Restricted Security shall not apply
(i) when such Restricted Security is sold pursuant to an effective
registration statement under the Securities Act, (ii) when such Restricted
Security is transferred pursuant to Rule 144 or Rule 144A promulgated under
the Securities Act or (iii) when such Restricted Security is transferred
pursuant to Regulation S promulgated under the Securities Act. The
restrictions imposed by this Section 10 shall cease and terminate upon the
date which is two (2) years after the later of (A) the original issue date of
the Restricted Security and (B) the last date on which the Company or any
Affiliate of the Company was the owner of the Restricted Security (or any
predecessor Restricted Security). As used in this Section 10.2, the term
"transfer'' encompasses any sale, transfer or other disposition of any
Securities referred to herein.
11. Miscellaneous.
11.1 Indemnification; Expenses, Etc.
(a) The Company agrees to indemnify and hold harmless the
Purchaser, its Affiliates and each of its and their respective directors,
officers, partners, principals, shareholders and attorneys (individually, an
"Indemnified Party" and, collectively, the "Indemnified Parties") from and
against any and all losses, claims, damages, liabilities, costs (including
reasonable attorneys' fees and including any costs of investigation) and
expenses (collectively, "Losses") to which any Indemnified Party may become
subject, insofar as such Losses arise out of or result from (i) any breach of
any representation or warranty made by the Company, or the failure of the
Company to fulfill in any material respect any agreement or covenant contained
in this Agreement or any other Transaction Document, or (ii) any proceeding
against the Company or any Indemnified Party brought by any third party
arising out of or in connection with this Agreement or the other Transaction
Documents; provided, however, that the Company shall not have any obligation
under this indemnity provision to indemnify any Indemnified Party with respect
to Losses (x) resulting from a breach of any representation, warranty or
covenant of the Purchaser hereunder or (y) until, in the case of Losses
referred to in clause (i) of this paragraph, the aggregate combined total of
all such Losses incurred by any Indemnified Party exceeds (10%) of the
aggregate amount of the Financing consummated hereunder, whereupon the Indemnifi
ed Party shall be entitled to indemnity with respect to the amount of Losses
in excess of such amount, and the Company shall reimburse the Indemnified
Party for all such Losses as they are incurred or suffered by such Indemnified
Party; provided further, that clause (y) shall not apply to any third party
claim made directly against the Purchaser.
(b) If any Indemnified Party is entitled to indemnification
hereunder, such Indemnified Party shall give notice to the Company of any
claim or of the commencement of any proceeding against the Company or any
Indemnified Party brought by any third party with respect to which such
Indemnified Party seeks indemnification pursuant hereto; provided, however,
that the delay to so notify the Company shall not relieve the Company from any
obligation or liability except to the extent the Company is materially
prejudiced by such delay. The Company shall have the right, exercisable by
giving written notice to an Indemnified Party within thirty (30) days after
the receipt of written notice from such Indemnified Party of such claim or
proceeding, to assume, at the expense of the Company, the defense of any such
claim or proceeding with counsel reasonably satisfactory to such Indemnified
Party. After notice from the Company to the Indemnified Party of its election
to assume the defense of such claim or proceeding, the Company shall not be
liable to the Indemnified Party for any legal or other expenses subsequently
incurred by the Indemnified Party in connection with the defense thereof other
shall have the right to employ separate counsel to represent the Indemnified
Party which may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the Company,
but the fees and expenses of such counsel shall be for the account of such
Indemnified Party unless (i) the Company and the Indemnified Party shall have
mutually agreed to the retention of such counsel or (ii) in the reasonable
opinion of counsel to such Indemnified Party, representation of both parties
by the same counsel would be inappropriate due to actual or potential
conflicts of interest between them, it being understood, however, that the
Company shall not, in connection with any one such claim or proceeding or
separate but substantially similar or related claims or proceedings in the
same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for
all Indemnified Parties. The Company shall not consent to entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by claimant or plaintiff to such
Indemnified Party or Parties of a release from all liability in respect of
such claim, litigation or proceeding.
(c) If the indemnification provided for in Section 11.1(a)
is unavailable or insufficient to hold harmless an Indemnified Party in
respect of any loss, claim, damage, liability, cost or expense, then the
indemnifying party, in lieu of indemnifying such Indemnified Party thereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such loss, claim, damage, liability, cost or expense (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Purchaser on the other hand from the sale and
purchase of the Securities or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above, but
also the relative fault of the Company on the one hand and the Purchaser on
the other hand in connection with the events or facts which gave rise to such
loss, claim, damage, liability, cost or expense, as well as any other
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the events or facts that gave rise to such
loss, claim, damage, liability, cost or expense relate to a breach of
representations and warranties or other covenants and obligations under this
Agreement and the other Transaction Documents by the Company or the Purchaser
and the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such events. The amount paid
or payable by an Indemnified Party as a result of such loss, claim, damage,
liability, cost or expense shall be deemed to include any reasonable and
documented legal or other expenses incurred by such Indemnified Party in
connection with investigating or defending such claim
11.2 Survival of Representations, Warranties, Covenants and
Indemnification. All representations and warranties contained in this
Agreement or in the other Transaction Documents shall survive for a period of
one year from the date hereof, except for representations and warranties
relating to compliance with Laws, Taxes and Returns, and the covenants
contained in Sections 7.6, 7.7 and 7.8 of this Agreement, all of which shall
survive until the expiration of any applicable statute of limitations, and the
indemnity agreement contained in Section 11.1 of this Agreement; provided,
however, that such survival of representations and warranties relating to
compliance with Laws, Taxes and Returns and of the covenants contained in
Sections 7.6, 7.7 and 7.8 of this Agreement, shall only survive beyond one
year to the extent there is any third party claim made directly against the
Purchaser.
11.3 Amendment and Waiver. This Agreement may be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may be given, provided that the same are in writing and
signed by the Purchaser and the Company.
11.4 Notices, Etc. Except as otherwise provided in this
Agreement, notices and other communications under this Agreement shall be in
writing and shall be delivered personally, sent by telecopier (with written
confirmation of receipt), mailed by registered or certified mail, return
receipt requested, or by a nationally recognized overnight courier, postage
prepaid, addressed, (a) if to the Purchaser, at Charlottenstrasse 16, D-10117
Berlin, Germany, telecopier no.: 011-49-30-2030-5555, to the attention of
Oliver Bormann, with a copy to Linklaters & Paines, 1345 Avenue of the
Americas, 19th Floor, New York, New York 10105, telecopier no.: (212)
424-9100, to the attention of Lawrence A. Vranka, Jr., Esq. or (b) if to the
Company, at 15 Link Drive, Binghamton, New York 13904, telecopier no.: (607)
722-5045, to the attention of Dr. Geoffrey T. Burnham, with a copy to Swidler
Berlin Shereff Friedman LLP, 919 Third Avenue, New York, New York 10022,
telecopier no.: (212) 758-9526, to the attention of Richard A. Goldberg, Esq.
Any such notices which are mailed shall be deemed delivered five (5) Business
Days after mailing.
11.5 Expenses. Except as otherwise provided in this Agreement,
whether or not the transactions contemplated hereby are consummated, each
party will pay its own costs and expenses incurred in connection with the
negotiation, execution and closing of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby; provided, however, that the Company shall pay up to a maximum of
thirty seven thousand five hundred U.S. dollars ($37,500) of documented legal
expenses related to the Purchaser's due diligence, such amount to be deducted
from the Second Closing Purchase Price.
11.6 Entire Agreement. This Agreement and the other Transaction
Documents embody the entire agreement and understanding between the Purchaser
and the Company and except for the Confidentiality Agreement dated December 4,
1998 supersede all prior agreements and understandings, including, without
limitation, the Letter of Intent dated January 11, 1999 relating to the
subject matter hereof.
11.7 Successors and Assigns. Whenever in this Agreement any of
the parties hereto are referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the respective parties which are contained in
this Agreement shall bind and inure to the benefit of the successors and
assigns of all other parties. The terms and provisions of this Agreement and
the other Transaction Documents shall inure to the benefit of and shall be
binding upon any assignee or transferee of any Purchaser, and in the event of
such transfer or assignment, the rights and privileges herein conferred upon
any such Purchaser shall automatically extend to and be vested in, and become
an obligation of, such transferee or assignee, all subject to the terms and
conditions hereof.
11.8 Termination.
(a) This Agreement may be terminated and the transactions
contemplated hereby may be abandoned:
(i) at any time prior to the First Closing or the Second
Closing, by the mutual written consent of the Company and the Purchaser;
(ii) at any time prior to the Second Closing, by the Company or
Purchaser upon notice given to the other if the Second Closing shall not have
taken place for any reason by May 31, 1999; provided that the failure of the
Second Closing to occur on or before such date (or the inability to satisfy such
condition) is not the result of the breach of the covenants, agreements,
representations or warranties hereunder of the party seeking such termination;
(iii) at any time prior to the First Closing or the Second
Closing, upon the death or permanent physical disability or mental incapacity
of Dr. Geoffrey T. Burnham; or
(iv) at any time prior to the First Closing or the Second
Closing, by the Company or the Purchaser upon written notice to the other
party if any court or Governmental Authority of competent jurisdiction shall
have issued a final permanent order, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and the time for appeal or
reconsideration of such order shall have expired.
(b) In the event of the termination of this Agreement as
provided in Section 11.8(a), this Agreement shall forthwith become wholly void
and of no further force and effect and there shall be no liability on the part
of the Company, the Purchaser or their respective officers and directors
(except as set forth in Sections 11.1 and 11.5; provided, however, that
nothing contained in this sentence is intended to eliminate the liability of a
breaching party to a non-breaching party who terminates this Agreement
pursuant to Section 11.8(a)(ii) of this Agreement). The obligations of the
parties to this Agreement under Sections 11.1 and 11.5 shall survive any such
termination.
11.9 Descriptive Headings. The headings in this Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
11.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to any choice-of-law principles thereof.
11.11 Consent to Jurisdiction; Waiver of Immunities. (a) Each
of the Purchaser and the Company hereby irrevocably submits to the
non-exclusive jurisdiction of any court of the State of New York or United
States federal court sitting in the Borough of Manhattan, The City of New
York, and any appellate court therefrom in any action or proceeding arising
out of or relating to this Agreement, and the Purchaser hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard
and determined in such court. The Purchaser hereby irrevocably waives, to the
fullest extent permitted by applicable law, the defense of an inconvenient
forum to the maintenance of such action or proceeding.
(b) To the fullest extent permitted under applicable law
and to the extent that the Purchaser has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, the
Purchaser hereby irrevocably waives such immunity in respect of its
obligations under this Agreement and, without limiting the generality of the
foregoing, agrees that the waivers set forth in this Section 11.9(b) shall
have the fullest scope permitted under the Foreign Sovereign Immunities Act of
1976 of the United States of America and are intended to be irrevocable and
not subject to withdrawal for purposes of such Act.
11.12 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original but which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION,
a Delaware corporation
/s/ Geoffrey T. Burnham
By: __________________________________
Name: Geoffrey T. Burnham
Title: President & Chief Executive Officer
bmp MOBILITY AG VENTURE CAPITAL,
a German stock corporation
/s/ Oliver Borrmann
By:___________________________________
Name: Oliver Borrmann
Title: CEO
Schedule 5.2
Authorization
1. Stockholder approval for the Second Closing, to the extent
required by the Nasdaq SmallCap Market rules.
Schedule 5.3
Consents
1. BSB Bank & Trust Company, as per Commitment Letter dated February 3,
1999.
Schedule 5.4
Capitalization
1. 1,000,000 shares of Common Stock reserved for issuance under the
Company's 1995 Stock Option Plan, as amended (the "Plan"), of which 148,455
shares have been reserved for currently outstanding options (a list of which
has been provided to the Purchaser).
2. 112,604 shares issuable upon exercise of options and warrants
issued outside of the Plan to certain executive officers, non-employee
directors and consultants.
3. 2,118,000 shares issuable on exercise of certain registered
warrants issued in connection with the Company's initial public offering.
These registered warrants are exercisable on or prior to March 19, 2000, at an
exercise price of $5.00 per share (a list of which has been provided to the
Purchaser).
4. 750,000 shares of Common Stock issuable upon exercise of warrants
issued to Marketing Direct Concepts, Inc. The MDC warrants are exercisable at
the exercise prices and for the number of shares indicated: (i) 75,000 shares
of Common Stock at $3.4688; (ii) 25,000 shares of Common Stock at $4.3438;
(iii) 25,000 shares of Common Stock at $4.8438; and (iv) 25,000 shares of
Common Stock at $5.3438, and (b) a warrant to purchase 600,000 shares of
Common Stock at an exercise price of $3.4688. Of these shares, 150,000 can be
exercised at any time through October 26, 2000 and 600,000 can be exercised at
any time through December 11, 2000 (a list of which has been provided to the
Purchaser).
5. 20,000 warrants to purchase 20,000 shares issued to WCF at an
exercise price of $3.75 per share (a list of which has been provided to the
Purchaser).
6. 58,334 warrants to purchase 58,334 shares at an exercise price of
$5.00 per share issued to FINOVA Technology Finance, Inc. (a list of which has
been provided to the Purchaser).
Schedule 5.5
Litigation; Defaults
1. Since April 1998, the Company has been responding to informal
requests for information from the Securities and Exchange Commission. In
August 1998, the Company learned that in June 1998, the Commission had issued
a formal order of investigation to determine whether violations of certain
aspects of the federal securities laws had occurred in connection with the
Company. Pursuant to this formal order of investigation, the Company and
certain of its current and former officers and directors have produced
documents pursuant to subpoenas from the Northeast Regional Office of the
Commission. The investigation is in its early stages and the Company is not
able to speculate as to the specific subject matter of the investigation on
the Company. There can be no assurance as to the timeliness of the completion
of the investigation or as to the final result thereof, and no assurance can
be given that the final result of the investigation will not have a material
adverse effect on the Company. The Company is cooperating with the
investigation, and has responded and will continue to respond to requests for
information in connection with the investigation.
2. In August 1998, the Company learned that the United States
Attorney's Office for the Southern District of New York is investigating
whether violations of securities laws have occurred in connection with the
Company's public disclosures. The Company is cooperating with the
investigation and is responding to a grand jury subpoena issued in connection
with the investigation. There can be no assurance as to the timeliness of the
completion of the investigation or as to the final result thereof, and no
assurance can be given that the final result of the investigation will not
have a material adverse effect on the Company or its current management.
3. The Company is currently engaged in litigation with a former
employee, Dr. Keith Evans, who the Company brought an action against for a
breach of confidentiality obligations and defamation of character. Dr. Evans
has responded with a counter claim alleging defamation of character and is
seeking $500,000 in damages. The litigation is presently in the discovery
stage. The Company believes the counter claim is without merit and is
vigorously defending such action.
4. See Schedule 5.14.
5. See Schedule 5.21.
Schedule 5.6
Material Developments
1. See list of late payments on accounts payable list (a copy of
which has been provided to the Purchaser).
2. See Schedule 5.21.
Schedule 5.7
Benefits; ERISA
Benefit Plans
1. Blue Cross/Blue Shield Medical Insurance, Group Health Plan as per
employee handbook and policy that have been provided previously to the
Purchaser.
2. Vacation Holiday and Sick Day Policy, as per employee handbook
that has been provided previously to the Purchaser.
3. Vision Plan, as per employee handbook that has been provided
previously to the Purchaser.
4. Security Mutual Life Employee Life Insurance and Accidental Death
& Dismemberment, as per employee handbook and policy that have been provided
previously to the Purchaser.
5. Security Mutual Life Disability Insurance, as per employee
handbook and policy that have been provided previously to the Purchaser.
6. Chubb Indemnity Insurance Co. Worker's Compensation, dated October
14, 1998.
7. 1995 Stock Option Plan, dated October 1, 1995 and as amended
August 17, 1998.
Employment Agreements
1. Employment Agreement, dated October 1, 1995, between Semiconductor
Laser International Corporation and Geoffrey T. Burnham.
2. Employment Agreement, dated October 1, 1995, between Semiconductor
Laser International Corporation and Susan Burnham.
Schedule 5.10
Undisclosed Liabilities
(since September 30, 1998)
1. Accounts Payable increase of $344,000.
2. Accrued Audit Fees increase of $40,000.
3. Dr. Geoffrey Burnham and Susan Burnham have deferred automatic
salary increases and payment for offices provided for under their respective
employment agreements.
Schedule 5.11
Environmental
1. Phase I Environmental Site Assessment, dated May 1996, by Hawk
Engineering,P.C., previously provided to the Purchaser
Schedule 5.12
Property
1. On December 18, 1996, the Company entered into an agreement (a
copy of which has been provided to the Purchaser)(the "Sale and Leaseback
Agreement") with the Broome County IDA, in which the Company sold and leased
back its manufacturing facilities and equipment. The sale price was $1.00 and
the lease payment is $1.00 per year for twenty years. In accordance with the
terms of the Sale and Leaseback Agreement, the Company has the unilateral
right at any time to purchase from the Broome County IDA all assets sold to
them for the price of $1.00. The Sale and Leaseback Agreement also provides
that the Company would make payments in lieu of taxes at a rate dependent upon
employment levels. All rights of ownership of the facilities and equipment
remain with the Company.
2. FINOVA capital lease (copy of which has been provided to the
Purchaser).
3. BSB mortgage (copy of which has been provided to the Purchaser).
Schedule 5.13
Employment Practices
None.
Schedule 5.14
Intellectual Property
Licenses
1. License Agreement, dated September 1, 1996, by and between
Northwestern University and Semiconductor Laser International Corporation
(Patent Numbers 5,384,151 and 5,389,396).
2. License Agreement, dated November 1, 1996, by and between
Northwestern University and Semiconductor Laser International Corporation
(Patent Filing Serial Number 08/543,779).
3. License Agreement, dated June 3, 1994, by and between the
Government of the United States of America as represented by the Department of
the Air Force and Semiconductor Laser International Corporation, under U.S.
Patent Applications S/N 08/113,375 (issued) and
08/113,374.
Patents
1. List of U.S. patent applications which has been provided to the
Purchaser. No Notices of Appeal and Petition for Revival have been filed in
the appropriate circumstances. Note that if renewal payment is not made by
February 4, 1999, U.S. Patent Application No. 08/681,901 will lapse.
Claims
1. Reference is made to the e-mail message relating to the Status of
License Agreements sent by Dr. Geoffrey T. Burnham to the Purchaser on January
7, 1999.
Schedule 5.15
Defaults on Material Contracts
1. See list of late payments on accounts payable list (a copy of which
has been provided to the Purchaser).
2. See Schedule 5.21.
Schedule 5.16
Taxes
1. Local School taxes for the 1998-1999 school year were paid late;
penalty fee paid.
2. With respect to all clauses of Section 5.16 of the Agreement,
other than those covered by paragraph (1) of this Schedule 5.16: None.
Schedule 5.17
Compliance with Laws
None.
Schedule 5.18
Transactions with Affiliates
1. Employment Agreement, dated October 1, 1995, between Semiconductor
Laser International Corporation and Geoffrey T. Burnham.
2. Employment Agreement, dated October 1, 1995, between Semiconductor
Laser International Corporation and Susan Burnham.
3. Members of the Board of Directors are entitled to a one time
payment of $2,000 upon joining the Board. Subsequently, Board members are
entitled to receive 2,500 options per year under the 1995 Plan and $1,000 for
every Board meeting attended in person.
Schedule 5.20
Insurance
1. Company is late in payment of its insurance premiums, as noted on
the Accounts Payable list referred to in Schedule 5.15. Additionally, the
Company owes approximately $6,000 in insurance premiums to Blue Cross/Blue
Shield for the month of January 1999.
2. Dr. Geoffrey T. Burnham has submitted a claim with Great Northern
Insurance Company for certain property, valued at approximately $20,000 in the
aggregate, that was stolen from Dr. Burnham's company car. The insurance
company has acknowledged coverage of approximately $15,000 of such property,
and has requested that Dr. Burnham seek the remaining $5,000 from his personal
insurance coverage. The insurance company has not yet paid such $15,000
portion of the claim.<PAGE>Schedule 5.21
Customers and Suppliers
1. The Company is currently engaged in a dispute with one of its key
customers, Rocky Mountain Instruments("RMI"). RMI disputes the amounts owed to
the Company regarding certain orders, has made claims regarding defects in
certain of the units delivered and is currently late in making payments on
such orders. The Company believes that RMI owes approximately $468,571
(including a late charge) to the Company. RMI accounted for approximately 38.9
% of the Company's net sales for fiscal 1998 to date. Of the initial purchase
order for 500 units, only 97 have been delivered to date and RMI has indicated
that it does not want the remaining units. While the Company believes that RMI
is obligated to accept such units and intends to enforce its rights, it has
reduced its backlog by approximately $1.5 million. RMI has ceased making
purchases from the Company.
2. Most suppliers have either stopped delivery or conditioned
delivery on payment of past due bills or COD.
Schedule 5.22
Registration Rights
1. Davis & Gilbert has unlimited piggy-back registration rights on
the 110,280 shares issued to Davis & Gilbert in consideration of legal
services.
2. The Company agreed to file a Registration Statement within
45 days of the receipt of a request from the purchasers of common stock in the
December 1997 and June 1998 private placements and to use its best efforts to
have them be declared effective by the SEC. All shares of common stock issued
in the aforementioned private placements have been registered.
3. Common stock issuable upon conversion of the MDC warrants have
unlimited piggy-back registration rights. All of the shares of common stock
underlying the MDC warrants have been registered.
Schedule 5.23
Distribution Rights
1. See list that has been provided to the Purchaser.
EXHIBIT A
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE
PREFERRED STOCK
OF
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION, a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY THAT:
Pursuant to authority conferred upon the Board of Directors (the
"Board") by the Certificate of Incorporation of the Corporation, as amended to
date (the "Certificate of Incorporation") and pursuant to the provisions of
§151 of the Delaware General Corporation Law, the Board, at a meeting
held on February 2, 1999, adopted the following resolution providing for the
voting powers, designations, preferences and rights, and the qualifications,
limitations and restrictions of the Series B Convertible Preferred Stock.
WHEREAS, the Certificate of Incorporation provides for two classes
of shares known as common stock, $.01 par value per share (the "Common
Stock"), and preferred stock, $.01 par value per share (the "Preferred
Stock"); and
WHEREAS, the Board is authorized by the Certificate of Incorporation
to provide for the issuance of the shares of Preferred Stock in one or more
series and, by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in any such series and to fix the voting powers, designations,
preferences and rights of the shares of any such series and the
qualifications, limitations and restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable
to, and hereby does, designate a Series B Convertible Preferred Stock and
fixes and determines the voting powers, designations, preferences and rights,
and the qualifications, limitations and restrictions relating to the Series B
Convertible Preferred Stock as follows:
1. Designation. The shares of such series of Preferred Stock
individually and in the aggregate shall be designated "Series B Convertible
Preferred Stock" (referred to herein as the "Series B Stock").
2. Authorized Number. The number of shares constituting the Series B
Stock shall be one million (1,000,000). The number of authorized shares of
Series B Stock may be reduced by further resolution of the Board of Directors
of the Company and by the filing of a certificate pursuant to the provisions
of the Section 151(g) of the General Corporation Law of the State of Delaware
stating that such reduction has been so authorized (but not below the number
of shares of Series B Stock then outstanding) but the number of authorized
shares of Series B Stock shall not be increased.
3. Ranking. The Series B Stock shall rank as to dividends pari passu
with the Common Stock of the Corporation. The Series B Stock shall rank as to
liquidation, dissolution or winding up, senior and prior to the Common Stock
of the Corporation and to all other classes or series of stock issued by the
Corporation, except as otherwise approved by the affirmative vote or consent
of the holders of shares of Series B Stock pursuant to Section 8(b) hereof.
(All equity securities of the Corporation with respect to which the Series B
Stock ranks senior and prior with respect to liquidation, dissolution and
winding up, including the Common Stock, are collectively referred to herein as
"Junior Securities" and all equity securities of the Corporation with which
the Series B Stock ranks on a parity, with respect to dividends, are
collectively referred to herein as "Parity Securities.")
4. Dividends. The holders of shares of Series B Stock shall be
entitled to share, equally and ratably in any dividends declared by the Board
on the Common Stock, whether payable in cash, shares of Common Stock (or
fractions thereof) or property. The pro rata entitlement to such dividends of
each share of Series B Stock shall be computed on the basis of the conversion
rate then in effect (as defined in Section 6 hereof).
5. Liquidation.
(a) Liquidation Preference. Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the
holders of the shares of Series B Stock shall be entitled to receive and to be
paid out of the assets of the Corporation available for distribution to its
stockholders, before any distribution or payment is made upon any Junior
Securities, to be paid an amount equal to (i) $1.00 per share of Series B
Stock, representing the liquidation preference per share of the Series B Stock
(as adjusted for any combinations, divisions or similar recapitalizations
affecting the shares of Series B Stock) (the "Liquidation Payments"). If upon
any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series B Stock and the Parity Securities shall be insufficient to permit
payment in full to both the holders of Series B Stock of the Liquidation
Payments and to the holders of the Parity Securities any applicable
liquidation payments, then the entire assets of the Corporation shall be
distributed ratably among such holders in proportion to the full respective
distributive amounts to which they are entitled.
(b) Remaining Assets. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, after the
holders of Series B Stock shall have been paid in full the Liquidation
Payments, the remaining assets of the Corporation shall be distributed ratably
per share to the holders of the Series B Stock and the other Parity
Securities. The pro rata entitlement of each share of Series B Stock in any
such distribution shall be computed on the basis of the conversion rate then
in effect.
(c) Notice of Liquidation. Written notice of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, stating a payment date, the amount of the Liquidation Payments
and the place where said Liquidation Payments shall be payable, shall be given
by mail, postage prepaid, not less than 30 days prior to the payment date
stated therein, to each holder of record of Series B Stock at his post office
address as shown by the records of the Corporation.
(d) Fractional Shares. The Liquidation Payments with respect to
each outstanding fractional share of Series B Stock shall be equal to a
ratably proportionate amount of the Liquidation Payments with respect to each
outstanding share of Series B Stock.
(e) Certain Actions not Liquidation. Neither the sale, lease or
exchange (for cash, stock, securities or other consideration) of all or
substantially all of the property and assets of the Corporation, nor the
merger or consolidation of the Corporation with or into any other corporation,
nor the merger or consolidation of any other corporation with or into the
Corporation, shall be deemed to be a dissolution, liquidation or winding up,
voluntary or involuntary, for the purposes of this paragraph 5.
6. Conversion.
The holders of the Series B Stock shall have the following
conversion rights:
(a) Conversion. Each share of Series B Stock shall be
convertible at any time, at the option of the holder of record thereof, into
fully paid and nonassessable shares of Common Stock at the "conversion rate"
(as defined in paragraph (b) below) then in effect upon surrender to the
Corporation or its transfer agent of the certificate or certificates
representing the Series B Stock to be converted, as provided below, or if the
holder notifies the Corporation or its transfer agent that such certificate or
certificates have been lost, stolen or destroyed, upon the execution and
delivery of an agreement satisfactory to the Corporation to indemnify the
Corporation from any losses incurred by it in connection therewith.
(b) Basis For Conversion; Converted Shares. The basis for any
conversion under this Section 6 shall be the "conversion rate" in effect at
the time of conversion, which for the purposes hereof shall mean the number of
shares of Common Stock issuable for each share of Series B Stock surrendered
for conversion under this Section 6. Initially, the conversion rate shall be
5.0, i.e., 5.0 shares of Common Stock for each share of Series B Stock being
converted. Such conversion rate shall be subject to adjustment as provided in
Section 7 below. If any fractional interest in a share of Common Stock would
be deliverable upon conversion of Series B Stock, then such fractional share
shall be disregarded if less than one half a share, or if more than one-half a
share, the number of shares issuable upon conversion shall be rounded out to
the next full share. Any shares of Series B Stock which have been converted
shall be canceled and the certificates representing shares of Series B Stock
so converted shall represent the right to receive such number of shares of
Common Stock into which such shares of Series B Stock are convertible. The
Board of Directors of the Corporation shall at all times reserve a sufficient
number of authorized but unissued shares of Common Stock to be issued in
satisfaction of the conversion rights and privileges aforesaid.
(c) Mechanics of Conversion. In the case of a conversion,
before any holder of Series B Stock shall be entitled to convert the same into
shares of Common Stock, it shall surrender the certificate or certificates for
such shares of Series B Stock, duly endorsed, at the office of the Corporation
or its transfer agent for the Series B Stock, and shall give written notice to
the Corporation of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series B Stock,
or to the nominee or nominees of such holder, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be
entitled as aforesaid. A certificate or certificates will be issued for the
remaining shares of Series B Stock in any case in which fewer than all of the
shares of Series B Stock represented by a certificate are converted.
(d) Issue Taxes. The Corporation shall pay all issue taxes, if
any, incurred in respect of the issue of shares of Common Stock on
conversion. If a holder of shares surrendered for conversion specifies that
the shares of Common Stock to be issued on conversion are to be issued in a
name or names other than the name or names in which such surrendered shares
stand, the Corporation shall not be required to pay any transfer or other
taxes incurred by reason of the issuance of such shares of Common Stock to the
name of another, and if the appropriate transfer taxes shall not have been
paid to the Corporation or the transfer agent for the Series B Stock at the
time of surrender of the shares involved, the shares of Common Stock issued
upon conversion thereof may be registered in the name or names in which the
surrendered shares were registered, despite the instructions to the contrary.
(e) Rights of Holders of Shares. Each conversion of shares of
Series B Stock shall be deemed to have been made as of the close of business
on the applicable conversion date so that the rights of the holder of shares
of such Series B Stock shall, to the extent of such conversion, cease at such
time and the person or persons entitled to receive shares of the Common Stock
upon conversion of the shares of Series B Stock shall be treated for all
purposes as having become the record holder or holders of the Common Stock at
such time.
7. Adjustment of Conversion Price and Conversion Rate. The number
and kind of securities issuable upon the conversion of the Series B Stock, the
conversion price and the conversion rate shall be subject to adjustment from
time to time in accordance with the following provisions:
(a) Distributions Combinations and Subdivisions of Capital
Stock. If at any time the outstanding shares of Common Stock of the
Corporation shall be subdivided into a greater or combined into a lesser
number of shares (whether with the same or a different par value or without
par value), including, without limitation, through a reverse stock split, the
conversion rate shall be proportionately increased or decreased.
(b) Distributions in Respect of Capital Stock. If the
of Common Stock any cash, securities or property (excluding cash dividends
paid out of earnings or surplus), then upon conversion of shares of Series B
Stock occurring after such distribution date, the holder of the Series B Stock
will be entitled to receive the number of shares of the Common Stock of the
Corporation then deliverable pursuant to the terms hereof, and, in addition,
the cash, securities or property which such holder would have received by way
of such dividends or other distributions if such holder had been the record
holder of the number of shares of such Common Stock, which would have been
deliverable upon the exercise of such holder's conversion right if such
conversion had been effected immediately prior to the record date for such
distribution of cash, securities or property.
(c) Recapitalization, Reclassification and Succession. If any
recapitalization of the Corporation or reclassification of shares of Common
Stock of the Corporation or any merger or consolidation of the Corporation
into or with a corporation or other business entity shall be effected, then
the holder of the Series B Stock shall thereafter have the right to receive
the kind and number of shares of stock or other securities or other property
of the Corporation which the holder of Series B Stock would have been entitled
to receive if the holder had held the Common Stock issuable upon conversion of
his Series B Stock immediately prior to such recapitalization,
reclassification, merger or consolidation.
(d) Fractional Shares. In the event that the application of the
provisions of this Section 7 would result in the issuance of a fraction of a
share of Common Stock of the Corporation, or a number of full shares plus a
fraction of a share of such Common Stock, then such fractional share shall be
disregarded if less than one-half a share, or, if more than one-half of a
share, the number of shares issuable upon such exchange shall be rounded out
to the next full share.
(e) Issuance of Additional Shares of Capital Stock. If the
Corporation shall issue any additional shares of Common Stock or Common Stock
equivalents (other than as provided in the foregoing subsections (a) through
(d) of this Section) for no consideration or for a consideration per share
less than Fair Market Value (as defined below) (or, in the care of a Common
Stock equivalent, if the exercise price or conversion price shall be less than
Fair Market Value) in effect on the date of and immediately prior to the issue
of such additional shares of Common Stock or Common Stock equivalents, then
and in such event, the Corporation shall cause notice of such issuance to be
mailed to each holder of shares of Series B Stock at its then registered
address by first-class mail, postage prepaid, and an equitable adjustment as
determined by the Board in good faith shall be made to the conversion rate as
soon as practicable and retroactive to such issue date in order to prevent
dilution resulting from such below market issuance of the relative equity
interest in the Corporation represented by shares of Series B Stock then
outstanding compared to the total capital stock of the Corporation (including
the Series B Stock) outstanding immediately prior to such issuance; provided,
however, that this provision shall not apply to (i) the issue of up to 500,000
Warrants, convertible into 500,000 shares of Common Stock in connection with
the Corporation's contemplated amendment to its $1,000,000 secured line of
credit (the "Line of Credit") maintained by BSB Bank & Trust Company ("BSB");
(ii) the issuance of shares upon exercise or conversion of a Common Stock
equivalent, as long as the exercise price or conversion price on the date of
issuance of such Common Stock equivalent was in excess of Fair Market Value,
and (iii) the issuance of Common Stock to a person that is not an Affiliate of
the Corporation in a private placement at a discount to market not to exceed
twenty five percent (25%) to reflect an illiquidity discount.
The term "Fair Market Value" means the higher of (a) the Market
Price on the date of issuance of Common Stock or Common Stock equivalent or
(b) the average closing sales price per share of Common Stock for the ten (10)
trading days immediately preceding the date of issuance of Common Stock or
Common Stock equivalents; provided, however, that, in the case of the issuance
of shares of Common Stock or Common Stock equivalents for consideration other
than cash, the Board shall determine in good faith the value of such shares of
Common Stock or Common Stock equivalents.
The term "Market Price" means, with respect to the shares of Common
Stock issuable upon conversion of the Series B Stock, (a) if the shares are
listed or admitted for trading on any national securities exchange or included
in The Nasdaq National Market or Nasdaq SmallCap Market, the last reported
sales price as reported on such exchange or market; (b) if the shares are not
listed or admitted for trading on any national securities exchange or included
in The Nasdaq National Market or Nasdaq SmallCap Market, the average of the
last reported closing bid and asked quotation for the shares as reported on
NASDAQ or a similar service if NASDAQ is not reporting such information; (c)
if the shares are not listed or admitted for trading on any national
securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market or quoted by NASDAQ or a similar service, the average of the
last reported bid and asked quotation for the shares as quoted by a market
maker in the shares (or if there is more than one market maker, the bid and
asked quotation shall be obtained from two market makers and the average of
the lowest bid and highest asked quotation). In the absence of any available
public quotations for the Common Stock, the Board of Directors of the Company
shall determine in good faith the fair value of the Common Stock, which
determination shall be set forth in a certificate by the Secretary of the
Company.
The term "Affiliate" means any Person (i) which, directly or
indirectly, through one or more intermediaries controls, or is controlled by,
or is under common control with, another Person, (ii) which beneficially owns
or holds 20% or more of any class of the outstanding Voting Stock of such
other Person or (iii) which is a relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of Voting Stock, by contract or otherwise.
The term "Person" means any individual, entity or group, including,
without limitation, any corporation, limited liability company, limited or
general partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
The term "Voting Stock" means any class or classes of capital stock
pursuant to which the holders thereof have the general voting power under
ordinary circumstances to vote for the election of directors, managers or
trustees of any Person (irrespective of whether or not at the time capital
stock of any class or classes will have, or might have, voting power by the
reason of the happening of any contingency).
(f) Corporation to Prevent Dilution. If any event or condition
occurs as to which other provisions of this Section 7 are not strictly
applicable or if strictly applied would not fairly protect the exercise of
conversion rights hereunder in accordance with the essential intent and
principles of such provisions, or which might materially and adversely affect
the conversion rights of the holder of Series B Stock under any provisions
hereof, then the Board of Directors shall in good faith make an adjustment in
the application and interpretation of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid,
and any adjustment necessary with respect to the conversion rate or the nature
or kind of securities issuable upon conversion hereunder so as to preserve
without dilution the rights of such holder; provided, however, that in no
event shall any such adjustment (other than a reverse stock split or the
like) have the effect of decreasing the conversion rate as otherwise
determined pursuant to this Certificate.
(g) Valid Issuance. All shares of Common Stock which may be
issued in connection with the conversion provisions set forth herein shall,
upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
(h) Other Provisions Applicable to Adjustment Under this
Section. The following provisions shall be applicable to the adjustments in
Conversion Price as provided in this Section 7:
(i) Treasury Shares. The number of shares of Common Stock at
any time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation.
(ii) Minimum Adjustment. No adjustment of the conversion rate
shall be made if the amount of any such adjustment would be an amount less
than five percent (5%) of the conversion rate then in effect, but any such
amount shall be carried forward and an adjustment in respect thereof shall be
made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate an increase or decrease of five percent (5%) or more.
8. Voting Rights.
(a) General. Holders of Series B Stock shall be entitled to
notice of all meetings of the Corporation's stockholders but shall not be
entitled to vote except in respect of such matters as to which they are
entitled to vote as a class under the Delaware General Corporation Law.
(b) Amendment. The Corporation shall not, without the approval
by vote or written consent of the holders of not less than a majority of the
then outstanding shares of Series B Stock, voting as a separate class, amend,
alter or repeal any of the provisions of the Certificate of Incorporation or
the Certificate of Designation creating this Series B Stock which would alter
or change the powers, preferences or special rights of the shares of Series B
Stock so as to affect them adversely, including, but not limited to,
increasing or decreasing the par value of the Series B Stock.
9. No Reissuance of Series B Stock. No share or shares of Series B
Stock acquired by the Corporation by reason of purchase, conversion or
otherwise shall be reissued, and all such shares of Series B Stock shall be
canceled, retired and eliminated from the shares of Series B Stock which the
Corporation shall be authorized to issue. Upon the filing of a certificate
with the Secretary of State of the State of Delaware as contemplated by
paragraph 2 hereof, any such shares of Series B Stock acquired by the
Corporation shall have the status of authorized and unissued shares of
Preferred Stock issuable in undesignated Series and may be redesignated and
reissued in any series other than as Series B Stock.
10. Exclusion of Other Rights. Except as may otherwise be required
by law, shares of Series B Stock shall not have any voting powers,
designations, preferences and rights, other than those specifically set forth
herein (as may be amended from time to time) and in the Certificate of
Incorporation.
11. Registered Holders. A holder of Series B Stock registered on the
Corporation's stock transfer books as the owner of shares of Series B Stock
shall be treated as the owner of such shares for all purposes. All notices
and all payments required to be mailed to a holder of shares of Series B Stock
shall be mailed to such holder's registered address on the Corporation's stock
transfer books, and all dividend and redemption payments to a holder of shares
of Series B Stock made hereunder shall be deemed to be paid in compliance
hereof on the date such payments are deposited into the mail addressed to such
holder at his registered address on the Corporation's stock transfer books.
12. Headings of Subdivisions. The headings of the various
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
13. Severability of Provisions. If any right, preference or
limitation of the Series B Stock set forth herein (as may be amended) from
time to time is invalid, unlawful or incapable of being enforced by reason of
any rule of law or public policy, such right, preference or limitation
(including, without limitation, the dividend rate) shall be enforced to the
maximum extent permitted by law and all other rights, preferences and
limitations set forth herein (as so amended) which can be given effect without
the invalid, unlawful or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right, preference or
limitation herein set forth shall be deemed dependent upon any other such
right, preference or limitation unless so expressed herein.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate
this __ day of _____________, 1999.
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
By: __________________________
Geoffrey T. Burnham
President & Chief Executive Officer
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
BETWEEN
BMP MOBILITY AG
VENTURE CAPITAL
AND
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
Dated as of February 5, 1999
TABLE OF CONTENTS
Page No.
ARTICLE 1.
DEFINITIONS 1
SECTION 1.1.Definitions 1
ARTICLE 2.
REGISTRATION RIGHTS 4
SECTION 2.1.Demand Registration 4
SECTION 2.2.Piggy-Back Registration 5
SECTION 2.3.Reduction of Offering 6
ARTICLE 3.
REGISTRATION PROCEDURES 7
SECTION 3.1.Filings; Information 7
SECTION 3.2.Registration Expenses 11
ARTICLE 4.
INDEMNIFICATION AND CONTRIBUTION 12
SECTION 4.1.Indemnification by the Company 12
SECTION 4.2.Indemnification by Selling Holders 13
SECTION 4.3.Conduct of Indemnification Proceedings 13
SECTION 4.4.Contribution 14
ARTICLE 5.
MISCELLANEOUS 15
SECTION 5.1.Participation in Underwritten Registrations 15
SECTION 5.2.Rule 144 and 144A; Regulation S 15
SECTION 5.3.Amendment and Modification 15
SECTION 5.4.Successors and Assigns; Third Party
Beneficiaries 16
SECTION 5.5.Entire Agreement 16
SECTION 5.6.Headings 16
SECTION 5.7.Notices 16
SECTION 5.8.Governing Law; Forum; Process 17
SECTION 5.9.Consent to Jurisdiction, Waiver of Immunities 17
SECTION 5.10.Recapitalization, etc. 17
SECTION 5.11.Counterparts 17
SECTION 5.12.Severability 18
SECTION 5.13.No Prejudice 18
SECTION 5.14.Words in Singular and Plural Form 18
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February 5, 1999 (this
"Agreement"), between Semiconductor Laser International Corporation, a
Delaware corporation (the "Company") and bmp Mobility AG Venture Capital, a
German stock corporation ("Purchaser").
WHEREAS, the Company and the Purchaser have entered into a
Securities Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), pursuant to which the Purchaser will acquire an aggregate of two
million (2,000,000) shares of the Company's common stock (the "Common Stock"),
par value $.01 per share, for an aggregate purchase price of
seven-hundred-fifty thousand dollars ($750,000), and an aggregate of not less
than six hundred fifty thousand (650,000) and not more than one million
(1,000,000) shares of the Company's Series B Convertible Preferred Stock, $.01
par value per share (the "Series B Preferred Stock), for an aggregate purchase
price of up to two million dollars ($2,000,000); and
WHEREAS, it is a condition precedent to the purchase of the Common
Stock and the Series B Preferred Stock under the Purchase Agreement that the
Company provide certain registration rights to the Purchaser with respect to
the shares of Common Stock purchased pursuant to the terms of the Purchase
Agreement and issuable upon conversion of the Series B Preferred Stock.
NOW, THEREFORE, in consideration on the foregoing premises and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.1. Definitions. The following terms shall have the
meanings ascribed to them below:
"Agreement" means this Agreement, as amended, modified or
supplemented from time to time, in accordance with the terms hereof, together
with any exhibits, schedules or other attachments thereto.
"Business Day" means any day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York and Berlin, Germany are
authorized or obligated by law, executive order or government decree to be
closed.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
"Common Stock" has the meaning ascribed thereto in the introduction
hereof.
"Company" has the meaning ascribed thereto in the introduction
hereof.
"Controlling Person" has the meaning ascribed thereto in Section
4.1.
"Damages" has the meaning ascribed thereto in Section 4.1.
"Demand Registration" has the meaning ascribed thereto in Section
2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Holder" means any Person who now holds or shall hereafter acquire
and hold Registrable Securities.
"Indemnified Party" means an Indemnified Party as defined in Section
4.3.
"Indemnifying Party" means an Indemnifying Party as defined in
Section 4.3.
"Person" means any individual, entity or group, including without
limitation, any corporation, limited liability company, limited or general
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Piggy-Back Registration" has the meaning ascribed thereto in
Section 2.2.
"Prospectus" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the securities covered
by such Registration Statement, and all other amendments and supplements to
the prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such
prospectus.
"Purchase Agreement" has the meaning ascribed thereto in the
introduction hereof.
"Purchaser" has the meaning ascribed thereto in the introduction
hereof.
"Registrable Securities" means (i) the shares of Common Stock issued
pursuant to the terms of the Purchase Agreement, (ii) the shares of Common
Stock issued or issuable upon conversion of the Series B Preferred Stock
issued pursuant to the terms of the Purchase Agreement, and (iii) any other
shares of Common Stock acquired as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events relating to the shares
described in clauses (i) and (ii) above, in each case until such time as (x) a
Registration Statement covering such shares of Common Stock has been declared
effective by the Commission and such shares of Common Stock have been disposed
of pursuant to such effective Registration Statement, or (y) such shares of
Common Stock would be eligible for sale pursuant to Rule 144 under the
Securities Act (or any similar provisions then in force), without regard to
the volume limitations set forth in Rule 144(e), or (z) such shares of Common
Stock have been otherwise transferred and the Company has delivered a new
certificate or other evidence of ownership for such Common Stock not bearing a
restrictive legend and not subject to any stop transfer or similar restrictive
order and all of such Common Stock may be resold by the Person receiving such
certificate without complying with the registration requirements of the
Securities Act.
"Registration Statement" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
registration statement.
"Request" has the meaning ascribed thereto in Section 2.1(a).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a Registration Statement under the Securities Act.
the Selling Holders as set forth in Section 3.1(c).
"Series B Preferred Stock" has the meaning ascribed thereto in the
Purchase Agreement.
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal in an underwritten offering and not as
part of such dealer's market-making activities.
ARTICLE 2.
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration.
(a) Request for Registration. Subject to the limitations
contained in this Section 2.1(a), at any time after the date hereof any Holder
or Holders of an aggregate of Registrable Securities representing 25% or more
of all the Registrable Securities may make written requests (individually, a
"Request") to the Company for the registration of the offer and sale of some
or all of the Holders' Registrable Securities under the Securities Act (such
registration being hereinafter referred to as a "Demand Registration").
Subject to the penultimate sentence of Section 2.1(b), the Company shall have
no obligation to effect more than two (2) Demand Registrations, including, for
such purposes only, any Piggy-Back Registration offered to the Holders under
Section 2.2, unless the Company is unable to include all shares requested to
be included in any such registration. Any Request will specify the number of
Registrable Securities proposed to be sold and the intended method(s) of
disposition thereof and shall also state the firm intent of the Holder to
offer Registrable Securities for sale. The Company shall give written notice
of such Request within 10 days after the receipt thereof to all other
Holders. Within 20 days after receipt of such notice by any such Holder, such
Holder may request in writing that all or any portion of its Registrable
Securities be included in such Registration Statement and the Company shall
include in the Registration Statement for such Demand Registration the
Registrable Securities of all Holders that requested to be so included. Each
such request by such other Holders shall specify the number of Registrable
Securities proposed to be sold and the intended method(s) of disposition
thereof and shall also state the firm intent of the Holder to offer
Registrable Securities for sale. Notwithstanding the foregoing, the Company
shall not be requested to effect a Demand Registration (i) unless the Request
has been made at least 90 days since the last Registration Statement (other
than a shelf registration under Rule 415 of the Securities Act or a
Registration Statement on Form S-8) was filed by the Company and (ii) with
respect to shares of Common Stock issuable upon conversion of such Series B
Preferred Stock that are held by the Purchaser at the time of such Demand
Registration, unless the Purchaser provides the Company with a written
statement of its firm intent to sell its Series B Preferred Stock within 90
days of such Demand Registration.
(b) Effective Registration. A registration will not be deemed
to have been effected as a Demand Registration unless the Registration
Statement relating thereto has been declared effective by the Commission and
the Company has complied in all material respects with its obligations under
this Agreement with respect thereto; provided that if, after the Registration
Statement has become effective, the offering and/or sale of Registrable
Securities pursuant to such Registration Statement is or becomes the subject
of any stop order, injunction or other order or requirement of the Commission
or any other governmental or administrative agency, or if any court or other
governmental or quasi-governmental agency prevents or otherwise limits the
offer and/or sale of the Registrable Securities pursuant to the Registration
Statement, other than in each case primarily as a result of acts or omissions
of the Holder or any agent thereof, such registration will be deemed not to
have been effected. If (i) a registration requested pursuant to this Section
2.1 is deemed not to have been effected or (ii) the Registration Statement
relating to a Demand Registration requested pursuant to this Section 2.1 does
not remain effective for a period of at least 180 consecutive days beyond the
effective date thereof or, with respect to an underwritten offering of
Registrable Securities, until 45 days after the commencement of the
distribution by the Holders of the Registrable Securities included in such
Registration Statement, then the Company shall continue to be obligated to use
its best efforts to effect such Registration pursuant to this Section 2.1.
The Holders shall be permitted to withdraw all or any part of the Registrable
Securities from a Registration Statement at any time prior to the effective
date of such Demand Registration Statement.
(c) Selection of Underwriter. If a requested registration
pursuant to this Section 2.1 involves an underwritten offering, the managing
Underwriter(s) thereof shall be selected by the Selling Holders and shall be
reasonably acceptable to the Company unless the Company has theretofore sold
shares of Common Stock in an underwritten offering, in which case the managing
Underwriter(s) of a requested registration pursuant to this Section 2.1 shall
be selected by the Company and shall be reasonably acceptable to the Selling
Holders.
(d) Deferral of Registration. Notwithstanding any other
provision of this Section 2, the Company shall not be obligated to effect the
filing of a Registration Statement pursuant to Section 2(a) hereof (i) during
any period when there exists an effective Registration Statement covering the
Registrable Securities, or (ii) for a period not to exceed 120 days, if the
Company shall furnish to the Holders requesting a Registration Statement under
Section 2(a) hereof a certificate, signed by the Company, stating that in the
good faith judgment of the Board of Directors of the Company it would be
detrimental to the best interests of the Company and its stockholders
generally for such Registration Statement to be filed at that time and the
reasons therefore; provided that in such event, the Holders initiating the
request for registration will be entitled to withdraw such request and such
request will not be deemed as having been made by the Holders for purposes of
Section 2.1(a) of this Agreement.
SECTION 2.2. Piggy-Back Registration. If at any time the
Company proposes to file a Registration Statement under the Securities Act
with respect to an offering by the Company for its own account or for the
account of any of its respective security holders (other than (x) a
Registration Statement on Form S-4 or Form S-8 (or any substitute form that
may be adopted by the Commission) or on any other form inappropriate for an
underwritten public offering or related solely to securities to be issued in a
merger, acquisition of the stock or assets of another entity or in a similar
transaction, or (y) a Registration Statement pursuant to a Demand Registration
in accordance with Section 2.1 hereof), then the Company shall give written
notice of such proposed filing to the Holders as soon as practicable (but in
no event less than 30 days before the anticipated filing date), and such
notice shall offer such Holders the opportunity to register such number of
Registrable Securities as each such Holder may request (which request shall
specify the number of shares and the type of Registrable Securities intended
to be disposed of by such Holder and shall also state the firm intent of the
Holder to offer Registrable Securities for sale) (a "Piggy-Back
Registration"). The Company shall use its best efforts to cause the managing
Registrable Securities requested to be included in a Piggy-Back Registration
on the same terms and conditions as any similar securities of the Company or
any other security holder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Holder shall have the right to withdraw
its request for inclusion of its Registrable Securities in any Registration
Statement pursuant to this Section 2.2 by giving written notice to the Company
of its request to withdraw. The Company may withdraw a Piggy-Back
Registration at any time prior to the time it becomes effective and such
withdrawn Piggy-Back Registration shall not be counted for purposes of Section
2.1(a) of this Agreement.
SECTION 2.3. Reduction of Offering.
(a) Demand Registration. The Company may include in a Demand
Registration pursuant to Section 2.1 hereof securities of the same class as
the Registrable Securities for the account of the Company and any other
Persons who hold securities of the same class as the Registrable Securities on
the same terms and conditions as the Registrable Securities to be included
therein; provided, however, that (i) if the managing Underwriter or
Underwriters of any underwritten offering described in Section 2.1 hereof have
informed the Company in writing that it is their opinion that the total number
of Registrable Securities, and securities of the same class as the Registrable
Securities which Holders, the Company and any other Persons desiring to
participate in such registration intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the
number of shares to be offered for the account of the Company and for the
account of all such other Persons (other than the Holders) participating in
such registration shall be reduced or limited pro rata in proportion to the
respective number of shares requested to be registered to the extent necessary
to reduce the total number of shares requested to be included in such offering
to the number of shares, if any, recommended by such managing Underwriter or
Underwriters, and (ii) if the offering is not underwritten, no other Person,
including the Company, shall be permitted to offer securities under any such
Demand Registration unless the Selling Holders owning a majority-in-interest
of Common Stock to be sold consent to the inclusion of such shares therein.
(b) Piggy-Back Registration. (i) Notwithstanding anything
contained herein, if the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.2 have informed, in writing, the
Holders requesting inclusion in such offering that it is their opinion that
the total number of shares which the Company, Holders and any other Persons
holding securities of the same class as the Registrable Securities desiring to
participate in such registration intend to include in such offering is such as
to materially and adversely affect the success of such offering, then, the
Company will include in such registration (A) first, all the shares the
Company offered for its own account, if any, (B) then, if additional shares
may be included in such registration without materially and adversely
affecting the success of such offering, the shares offered by the holders of
securities as a result of their exercise of "demand" registration rights by
such holders, if any, and (C) then, if additional shares may be included in
such registration without materially and adversely affecting the success of
such offering, the number of shares offered by the Holders and such other
holders of securities of the same class as the Registrable Securities whose
piggy-back registration rights may not be reduced without violating their
contractual rights (provided such contractual rights were in existence prior
to the date of this Agreement), on a pro rata basis in proportion to the
relative number of Registrable Securities of the holders (including the
Holders) participating in such registration.
(ii) If the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.2 notify the Holders requesting
inclusion in such offering that the kind of securities that the Holders, the
Company and any other Persons desiring to participate in such registration
intend to include in such offering is such as to materially and adversely
affect the success of such offering, (A) the Registrable Securities to be
included in such offering shall be reduced as described in clause (i) above or
(B) if such reduction would, in the judgment of the managing Underwriter or
Underwriters, be insufficient to substantially eliminate the material adverse
effect that inclusion of the Registrable Securities requested to be included
would have on such offering, such Registrable Securities will be entirely
excluded from such offering.
(c) If, as a result of the proration provisions of this Section
2.3, any Holder shall not be entitled to include all Registrable Securities in
a Demand Registration or Piggy-Back Registration that such Holder has
requested to be included, such Holder may elect to withdraw his request to
include Registrable Securities in such registration without prejudice and
without having the Registration Statement treated as a Piggy-Back Registration
for purposes of Section 2.1(d).
(d) Holdback Agreements. If any registration of Registrable
Securities shall be in connection with an underwritten public offering, each
Holder agrees not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the Securities Act, of any Registrable
Securities, and not to effect any such public sale or distribution of any
other equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public offering) during the five
(5) days prior to, and during the one hundred eighty (180) day period
beginning on, the effective date of such Registration Statement (except as
part of such registration).
ARTICLE 3.
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever the Company is
required to effect or cause the registration of the offer and sale of
Registrable Securities pursuant to Section 2.1 or 2.2 hereof, the Company will
use its best efforts to effect the registration of the offer and the sale of
such Registrable Securities in accordance with the intended method(s) of
disposition thereof as quickly as practicable, and in connection with any such
request:
(a) The Company will prepare and file with the Commission a
Registration Statement with respect to the offer and sale of such securities
and use its best efforts to cause such Registration Statement to become and
remain effective until the completion of the distribution contemplated
thereby; provided, however, the Company shall not be required to keep such
Registration Statement effective for more than 180 days (or such shorter
period which will terminate when all Registrable Securities covered by such
Registration Statement have been sold, but not prior to the expiration of the
applicable period referred to in Section 4(3) of the Securities Act and Rule
174 thereunder, if applicable); provided, further, that with respect to a
Demand Registration, the Company shall file with the Commission a Registration
Statement as soon as is practicable after the date of the Request and in any
event no later than 60 days after the date of the Request for the Demand
Registration and shall cause such Registration Statement to be declared
effective as soon as is practicable after the date of filing and in any event
no later than 120 days after the date of such Request.
(b) The Company will prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement as may
be necessary to keep such Registration Statement effective for as long as such
registration is required to remain effective pursuant to the terms hereof;
cause the Prospectus to be supplemented by any required Prospectus supplement,
and, as so supplemented, to be filed pursuant to Rule 424 under the Securities
Act; and comply with the provisions of the Securities Act applicable to it
with respect to the disposition of all Registrable Securities covered by such
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Selling Holders set forth in such
Registration Statement or supplement to the Prospectus.
(c) The Company, at least fifteen (15) Business Days prior to
filing a Registration Statement or at least ten (10) Business Days prior to
filing a Prospectus or any amendment or supplement to such Registration
Statement or Prospectus, will furnish to (i) each Selling Holder, (ii) not
more than one counsel representing all Selling Holders ("Selling Holders
Counsel"), to be selected by a majority-in-interest of such Selling Holders,
and (iii) each Underwriter, if any, of the Registrable Securities covered by
such Registration Statement copies of such Registration Statement as proposed
to be filed, together with exhibits thereto (whether or not incorporated by
reference in such Registration Statement), which documents will be subject to
review and approval by each of the foregoing within ten (10) Business Days
after delivery (except that such review and approval of any Prospectus or any
amendment or supplement to such Registration Statement or Prospectus must be
within five (5) Business Days after delivery), and thereafter, furnish to such
Selling Holders, Selling Holders' Counsel and Underwriters, if any, at the
Company's expense, such number of conformed copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
Prospectus included in such Registration Statement (including each preliminary
Prospectus) and such other documents or information as such Selling Holders,
Selling Holders' Counsel or Underwriters may reasonably request in order to
facilitate the disposition of the Registrable Securities (it being understood
that the Company consents to the use of the Prospectus and any amendment or
supplement thereto by each Selling Holder and the Underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto).
(d) The Company will use its best efforts to prevent the entry
of such stop order or to remove it at the earliest possible moment if entered.
(e) On or prior to the date on which the Registration Statement
is declared effective, use its best efforts to register or qualify such
Registrable Securities under such other securities or "blue sky" laws of such
jurisdictions as any Selling Holder, Selling Holders Counsel or Underwriter
reasonably requests and do any and all other acts and things which may be
necessary or advisable to enable such Selling Holder to consummate the
disposition in such jurisdictions of such Registrable Securities owned by such
Selling Holder; use its best efforts to keep each such registration or
qualification (or exemption therefrom) effective during the period which the
Registration Statement is required to be kept effective; and use its best
efforts to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable Registration Statement; provided that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (e), (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction.
(f) The Company will notify each Selling Holder, Selling
Holders' Counsel and any Underwriter and (if requested by any such Person)
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed and, with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement or the initiation or
threatening of any proceedings for that purpose, (iii) of the issuance by any
state securities commission or other regulatory authority of any order
suspending the qualification or exemption from qualification of any of the
Registrable Securities under state securities or "blue sky" laws or the
initiation of any proceedings for that purpose, and (iv) of the happening of
any event which makes any statement made in a Registration Statement or
related Prospectus or any document incorporated or deemed to be incorporated
by reference therein untrue in a material respect or which requires the making
of any changes in such Registration Statement, Prospectus or documents so that
they will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements in the Registration Statement and Prospectus not misleading in
light of the circumstances in which they were made; and, as promptly as
practicable thereafter, prepare and file with the Commission and furnish a
supplement or amendment to such Prospectus so that, as thereafter deliverable
to the buyers of such Registrable Securities, such Prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, such amendment to be subject to the
Holders' review under Section 3.1(c).
(g) The Company will use its best efforts to make generally
available an earnings statement satisfying the provisions of Section 11(a) of
the Securities Act no later than 90 days after the end of the 12-month period
beginning with the first day of the Company's first fiscal quarter commencing
after the effective date of a Registration Statement, which earnings statement
shall cover said 12-month period, and which requirement will be deemed to be
satisfied if the Company timely files complete and accurate information on
Forms 10-QSB, 10-KSB and 8-KSB under the Exchange Act and otherwise complies
with Rule 158 under the Securities Act.
(h) The Company will enter into customary agreements reasonably
satisfactory to the Company (including, if applicable, an underwriting
agreement in customary form and which is reasonably satisfactory to the
Company) and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Registrable Securities.
(i) The Company, during the period when the Prospectus is
required to be delivered under the Securities Act, will use all reasonable
efforts to file all documents required to be filed with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act.
(j) The Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange or quoted on
any automated quotation system on which similar securities of the Company are
then listed or quoted and enter into customary agreements, including a listing
application in customary form; provided that the applicable listing
requirements are satisfied, and to provide a transfer agent and register (to
the extent that the Company utilizes the services of a transfer agent and
register at such time) for such Registrable Securities covered by the
Registration Statement no later than the effective date of such Registration
Statement.
(k) The Company will make available for inspection by any Holder
of Registrable Securities covered by the Registration Statement, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant, or other agent retained by any such
Holder or underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company as
such Inspector shall deem necessary or desirable in order to permit it to
conduct a reasonable investigation within the meaning of Section 11 of the
Securities Act and cause the Company's officers, directors and employees to
supply all information and respond to all inquiries reasonably requested by
any such Inspector in connection with such Registration Statement.
(l) The Company will use its best efforts to obtain a comfort
letter from the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by comfort letters.
(m) The Company will, not later than the effective date of the
Registration Statement, use its best efforts to provide a CUSIP number for all
Registrable Securities, and provide the applicable transfer agents with
printed certificates for the Registrable Securities, which are in a term
eligible for deposit with The Depository Trust Company.
The Company may require each Selling Holder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the Commission or the National Association of Securities Dealers,
Inc.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(f)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 3.1(f) hereof,
and, if so directed by the Company, such Selling Holder will deliver to the
Company all copies, other than permanent file copies then in such Selling
Holder's possession, of the most recent Prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the Company
shall give such notice, the Company shall extend the period during which such
Registration Statement shall be maintained effective (including the period
referred to in Section 3.1(a) hereof) by the number of days during the period
from and including the date of the giving of notice pursuant to Section 3.1(f)
hereof to the date when the Company shall make available to the Selling
Holders covered by such Registration Statement a Prospectus supplemented or
amended to conform with the requirements of Section 3.1(f) hereof.
SECTION 3.2. Registration Expenses. The Company shall pay all
expenses incident to the Company's performance of or compliance with this
Agreement including, without limitation: (i) all registration and filing fees,
(ii) the fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing, messenger
and delivery expenses, (iv) the Company's internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), (v) the fees and expenses incurred in
connection with the listing or quotation, as appropriate, of the Registrable
Securities, (vi) the fees and disbursements of counsel for the Company and the
fees and expenses for independent certified public accountants retained by the
Company (including the expenses of any special audit or cold comfort letters)
and (vii) the fees and expenses of any special experts retained by the Company
in connection with such registration. The Company shall have no obligation to
pay any underwriting fees, discounts or commissions attributable to the sale
of Registrable Securities and any of the expenses incurred by Selling Holders
which are not payable by the Company, such costs to be borne by the Selling
Holder or Selling Holders.
ARTICLE 4.
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company agrees
to indemnify and hold harmless, to the fullest extent permitted by law, each
Selling Holder, its general partners, limited partners, managers, officers,
directors, employees, advisors and agents, and each Person, if any, who
controls, is controlled by or is under common control with such Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the general partners, limited partners, managers,
officers, directors, employees, advisors and agents of such controlling Person
(collectively, the "Controlling Persons"), from and against any loss, claim,
damage, liability, attorneys' fees, cost or expense and costs and expenses of
investigating and defending any such claim (collectively, the "Damages") and
any action in respect thereof to which such Selling Holder, its general
partners, managing partners, managers, officers, directors, employees,
advisors and agents, and any such Controlling Person may become subject under
the Securities Act, the Exchange Act state blue sky laws, common law or
otherwise, insofar as such Damages (or proceedings in respect thereof) arise
out of, or are based upon, (x) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus or any preliminary or summary Prospectus, (y) any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are based upon information furnished in writing to the
Company by a Selling Holder expressly for use therein, or (z) any violation by
the Company of any federal, state or common law rule or regulation applicable
to the Company and relating to action required of or inaction by the Company
in connection with any such registration, and the Company shall reimburse each
Selling Holder, its partners, officers, directors, employees, advisors and
agents, and each such Controlling Person for any legal and other expenses
reasonably incurred by that Selling Holder, its partners, officers, directors,
employees, advisors and agents, or any such Controlling Person in
investigating or defending or preparing to defend against any such Damages or
proceedings; provided, however, that the Company shall not be liable to any
Selling Holder or other indemnitee to the extent that any such Damages arise
out of or are based upon an untrue statement or omission made in any
copy of the final Prospectus with or prior to the delivery of written
confirmation of the sale by such Selling Holder to the Person asserting the
claim from which such Damages arise in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Securities Act, and
(ii) the final Prospectus would have corrected such untrue statement or such
omission, where such failure to deliver the Prospectus was not a result of
non-compliance by the Company under Section 3.1(f) of this Agreement. The
Company also agrees to indemnify any Underwriters of the Registrable
Securities, their officers and directors and each Person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Selling Holders provided in this Section 4.1. This indemnity will survive
the transfer of the Registrable Securities by the Holder thereof.
SECTION 4.2. Indemnification by Selling Holders. Each Selling
Holder agrees, severally but not jointly, to indemnify and hold harmless the
Company, its officers, directors, employees, advisors and agents and each
Person, if any, who controls the Company within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, together with the
partners, officers, directors, employees, advisors and agents of such
Controlling Person, to the same extent as the foregoing indemnity from the
Company to such Selling Holder, but only with reference to information related
to such Selling Holder, or its plan of distribution, furnished in writing by
such Selling Holder expressly for use in any Registration Statement or
Prospectus, or any amendment or supplement thereto, or any preliminary
Prospectus; provided, however, that such Selling Holder shall not be liable in
any such case to the extent that prior to the filing of any such Registration
Statement or Prospectus or amendment or supplement thereto, such Selling
Holder has furnished in writing to the Company information expressly for use
in such Registration Statement or Prospectus or any amendment or supplement
thereto which corrected or made not misleading information previously
furnished to the Company. In no event shall the liability of any Selling
Holder be greater in amount than the dollar amount of the proceeds received by
such Selling Holder upon the sale of the Registrable Securities giving rise to
such indemnification obligation. In case any action or proceeding shall be
brought against the Company or its officers, directors, employees, advisors or
agents or any such Controlling Person or its officers, directors, employees or
agents, in respect of which indemnity may be sought against such Selling
Holder, such Selling Holder shall have the rights and duties given to the
Company, and the Company or its officers, directors, employees or agents, or
such Controlling Person, or its officers, directors, employees, advisors or
agents, shall have the rights and duties given to such Selling Holder, by the
preceding paragraph. This indemnity will survive the transfer of the
Registrable Securities by the Holder thereof.
SECTION 4.3. Conduct of Indemnification Proceedings. Promptly
after receipt by any Person in respect of which indemnity may be sought
pursuant to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim
or the commencement of any action, the Indemnified Party shall, if a claim in
respect thereof is to be made against the Person against whom such indemnity
may be sought (an "Indemnifying Party"), notify the Indemnifying Party in
writing of the claim or the commencement of such action; provided that the
failure to notify the Indemnifying Party shall not relieve it from any
liability which it may have to an Indemnified Party otherwise than under
Section 4.1 or 4.2 except to the extent of any actual prejudice resulting
therefrom. If any such claim or action shall be brought against an
Indemnified Party, and it shall notify the Indemnifying Party thereof, the
Indemnifying Party shall be entitled to participate therein, and, to the
extent that it wishes, jointly with any other similarly notified Indemnifying
Party, to assume the defense thereof with counsel reasonably satisfactory to
the Indemnified Party. After notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense of such claim or
action, the Indemnifying Party shall not be liable to the Indemnified Party
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party shall have the right to
employ separate counsel to represent the Indemnified Party and its Controlling
Persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel
or (ii) in the opinion of counsel to such Indemnified Party, representation of
both parties by the same counsel would be inappropriate due to actual or
potential conflicts of interest between them, it being understood, however,
that the Indemnifying Party shall not, in connection with any one such claim
or action or separate but substantially similar or related claims or actions
in the same jurisdiction arising out of the same allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of
attorneys (together with local counsel) at any time for all Indemnified
Parties. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any claim or pending or
threatened proceeding in respect of which the Indemnified Party is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, and such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such claim or
proceeding. Whether or not the defense of any claim or action is assumed by
the Indemnifying Party, such Indemnifying Party will not be subject to any
liability for any settlement made without its consent, which consent will not
be unreasonably withheld.
SECTION 4.4. Contribution. If the indemnification provided for
in this Article 4 is unavailable to the Indemnified Parties in respect of any
Damages referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Damages in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Selling Holders on the other from the offering
of the Registrable Securities, or if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company on the one hand
and the Selling Holders on the other in connection with the statements or
omissions which resulted in such Damages, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the holders of Registrable Securities on the other hand with
respect to an offering thereof shall be deemed to be in the same proportion
that the total purchase price paid to the Company in respect of the
Registrable Securities bears to the amount by which the total net proceeds
from the offering of the Registrable Securities (before deducting expenses)
received by the holders thereof with respect to such offering exceeds the
purchase price paid to the Company in respect of such Registrable Securities.
The relative fault of the Company on the one hand and of each Selling Holder
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 4.4 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the Damages referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.4, no Selling Holder shall be required to
contribute any amount in excess of the amount by which the total price at
which the Registrable Securities of such Selling Holder were offered to the
public exceeds the amount of any damages which such Selling Holder has
otherwise paid by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Each Selling Holder's obligations to contribute
pursuant to this Section 4.4 is several in the proportion that the proceeds of
the offering received by such Selling Holder bears to the total proceeds of
the offering received by all the Selling Holders and not joint.
ARTICLE 5.
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No
Person may participate in any underwritten registration hereunder unless such
Person (a) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements, and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and
these registration rights.
SECTION 5.2. Rule 144 and 144A; Regulation S. The Company
covenants that it will use all reasonable efforts to file any reports required
to be filed by it under the Securities Act and the Exchange Act and that it
will take such further action as any Holder may reasonably request, all to the
extent required from time to time to enable Holders to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 or Rule 144A under the Securities
Act, (b) Regulation S under the Securities Act, or (c) any other applicable
exemption from the registration requirements of the Securities Act adopted by
the Commission. Upon the request of any Holder, the Company will deliver to
such Holder a written statement as to whether it has complied with such
requirements.
SECTION 5.3. Amendment and Modification. Any provision of this
Agreement may be waived, provided that such waiver is set forth in a writing
executed by the party against whom the enforcement of such waiver is sought.
This Agreement may not be amended, modified or supplemented other than by a
written instrument signed by the holders of at least a majority of the
Registrable Securities (calculated on an as converted basis). No course of
dealing between or among any Persons having any interest in this Agreement
will be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any Person under or by reason of
this Agreement.
SECTION 5.4. Successors and Assigns; Third Party Beneficiaries.
This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto, each subsequent Holder and their
respective successors and assigns and executors, administrators and heirs.
Holders are intended third party beneficiaries of this Agreement and this
Agreement may be enforced by such Holders.
SECTION 5.5. Entire Agreement. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject
matter hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them, including the Letter of
Intent dated January 11, 1999.
SECTION 5.6. Headings. Subject headings are included for
convenience only and shall not affect the interpretation of any provisions of
this Agreement.
SECTION 5.7. Notices. Any notice, demand, request, waiver, or
other communication under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service if personally served or
sent by telecopy, on the Business Day after notice is delivered to a courier
or mailed by express mail if sent by courier delivery service or express mail
for next day delivery and on the third day after mailing if mailed to the
party to whom notice is to be given, by first class mail, registered, return
receipt requested, postage prepaid and addressed as follows:
If to the Company to:
15 Link Drive
Binghamton, New York 13904
Attention: Chief Executive Officer
Telecopier No.: (607) 722-5045
with a copy to:
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
20th Floor
New York, New York 10022
Attention: Richard A. Goldberg, Esq.
Telecopier No.: (212) 758-9526
If to the Purchaser to:
Charlottenstrasse 16
D-10117 Berlin
Germany
Attention: Oliver Bormann
Telecopier no.: 011 49 30 20 305 555
with a copy to:
Linklaters & Paines
1345 Avenue of the Americas
19th Floor
New York, New York 10105
Attention: Lawrence A. Vranka, Jr., Esq.
Telecopier no.: (212) 424-9100
SECTION 5.8. Governing Law; Forum; Process. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York, without regard to any choice-of-law principles thereof.
SECTION 5.9. Consent to Jurisdiction, Waiver of Immunities. The
Company and the Holders hereby irrevocably submit to the non-exclusive
jurisdiction of any court of the State of New York or United States federal
court sitting in the Borough of Manhattan, The City of New York, and any
appellate court therefrom, in any action or proceeding arising out of or
relating to this Agreement and hereby irrevocably agree that all claims in
respect of such action or proceeding may be heard and determined in such
court. The Company and the Holders irrevocably waive, to the fullest extent
permitted by applicable law, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
SECTION 5.10. Recapitalization, etc. In the event that any
securities are issued in respect of, in exchange for, or in substitution of,
any Registrable Securities by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, stock split, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any
other change in the Company's capital structure, appropriate adjustments shall
be made in the percentages specified herein so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement.
SECTION 5.11. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same agreement.
SECTION 5.12. Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
SECTION 5.13. No Prejudice. The terms of this Agreement shall not be
construed in favor of or against any party on account of its participation in
the preparation hereof.
SECTION 5.14. Words in Singular and Plural Form. Words used in the
singular form in this Agreement shall be deemed to import the plural, and vice
versa, as the sense may require.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date set forth above.
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION,
a Delaware corporation
By: __________________________________
Name: Geoffrey T. Burnham
Title: President & Chief Executive Officer
bmp MOBILITY AG VENTURE CAPITAL,
a German stock corporation
By:___________________________________
Name: Oliver Borrmann
Title: CEO
EXHIBIT C
[Form of OPINION]
_______________, 1999
bmp Mobility AG Venture Capital
Charlottenstrasse 16
D-10117 Berlin
Germany
Re:Stock Purchase Agreement, dated as of ____________, 1999
(the "Agreement"), between Semiconductor Laser International
Corporation, a Delaware corporation (the "Company") and bmp
Mobility AG Venture Capital, a German stock corporation
(the "Purchaser")
Gentlemen and Ladies:
We have acted as special corporate and securities counsel to the Company
in connection with the execution and delivery by the Company of the Agreement
and the transactions contemplated thereby. Unless otherwise indicated,
capitalized terms used but not otherwise defined herein shall have the
respective meanings attributed to them in the Agreement. This opinion is
being delivered to you pursuant to Section [4.1(b)][4.3(b)] of the Agreement.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction to be genuine, of the
following:
(i)the Agreement and all exhibits and schedules thereto, the Certificate of
Designations and the Registration Rights Agreement;
(ii)certain resolutions adopted by the Board of Directors of the Company
authorizing the execution and delivery of the Transaction Documents;
(iii) a certified copy of the Company's Certificate of Incorporation issued by
the Secretary of State of the State of Delaware as of March 20, 1996;
(iv)the By-laws of the Company, as amended to date, certified by the
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Chairman of the Board, President and Chief Executive Officer of the Company;
(v) a good standing certificate of the Company, issued by the Secretary of
State of the State of Delaware as of February 1, 1999 (the "Good Standing
Certificate"); and
(vi)such other agreements, documents, certificates and instruments relating to
the Company as we have deemed necessary under the circumstances.
In making such examination, we have assumed the genuineness of all
signatures, the authority of all signatories other than on behalf of the
Company, the legal competence and capacity of all individuals who are
signatories, the authenticity of all documents submitted to us as originals,
and the conformity to original documents of documents submitted to us as
certified or photostatic copies. Except as otherwise noted, we have also
assumed the due execution and delivery pursuant to valid authorization of each
Transaction Document by the Purchaser.
We note that we are not general counsel to the Company and would not
ordinarily be familiar with or aware of matters relating to the Company
unless they are brought to our attention by representatives of the Company, as
applicable, with respect to matters upon which we have been specifically
requested to act by the Company, as applicable. Accordingly, our examination
in connection herewith has been limited to the documents identified to us by
the Company as relevant to the transactions contemplated by the Agreement.
Our opinion as to the organization of the Company set forth in paragraph
1 below is based solely upon the certified copy of the Company's Certificate
of Incorporation issued by the Secretary of State of the State of Delaware as
of March 20, 1996. Our opinion as to the valid existence and good standing of
the Company in the State of Delaware set forth in paragraph 1 below is based
solely upon the Good Standing Certificate.
Insofar as paragraph 6 of this opinion relates to orders, writs,
injunctions, decrees, statutes, rules or regulations, we have relied on our inqu
iry of various officers of the Company and such examinations of law as we
deemed appropriate based upon such inquiry. In that regard, we advise you
that we have not searched any court records, indices or dockets. As to
matters of fact material to this opinion, we have relied upon a certificate of
an officer of the Company and, with the Company's permission, the
representations and warranties of the Company contained in the Agreement.
The phrase "to our knowledge" as used in this opinion shall mean the
actual knowledge of attorneys within our firm based on (i) work performed on
substantive aspects of this transaction or other matters which have come to
their attention in the course of their representation of the Company, as
applicable, (ii) inquiries of and consultations with certain officers of the
Company, and (iii) our review of the documents and agreements set forth
herein, and does not include matters as to which such attorneys could be
deemed to have constructive knowledge.
We note that we do not render any opinion herein regarding the laws of
jurisdictions other than the laws of the State of New York, except with
respect to the federal securities laws of the United States of America and
except for matters governed by Delaware general corporate law in the opinions
expressed below. To the extent that any matters covered by an opinion
expressed below involve the laws of the State of Delaware, our opinion is
based solely upon our reading of the General Corporation Law of the State of
Delaware and official certificates issued by appropriate authorities of the
State of Delaware.
Subject to and based upon the foregoing, and subject to the further
qualifications set forth below, it is our opinion that:
1.The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, properties or financial condition of
the Company (a "Material Adverse Effect"). The Company has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted.
2.The authorized capital stock of the Company consists solely of 20,000,000
shares of common stock and 5,000,000 shares of preferred stock.
3.The Securities have been duly authorized and, when the Common Stock is
issued, delivered and paid for on the First Closing Date and the Series B
Preferred Stock is issued, delivered and paid for on the Second Closing Date,
in each case in accordance with the terms of the Agreement, and subject to the
filing of the Certificate of Designations with the Secretary of State of the
State of Delaware, the Securities will be validly issued, fully paid and
non-assessable shares of (i) the Company's common stock, par value $0.01 per
share, and (ii) the Company's preferred stock, par value $0.01 per share,
respectively, free from all liens, claims and encumbrances with respect to the
issue thereof and will not impose personal liability on the holder thereof;
the holders of outstanding shares of the Company's Capital Stock are not
entitled to statutory preemptive or, to our knowledge, any other rights to
subscribe for the Securities.
4.5,000,000 shares of common stock of the Company have been duly authorized
and reserved for issuance upon the conversion of the Series B Preferred Stock
(the "Conversion Shares") and when issued upon such conversion in accordance
with the terms of the Certificate of Designations, subject to the filing of
the Certificate of Designations with the Secretary of State of the State of
Delaware, will be validly issued, fully paid and non-assessable, free from all
liens, claims and encumbrances with respect to the issue thereof and will not
impose personal liability on the holder thereof; the holders of outstanding
shares of the Company's Capital Stock are not entitled to preemptive or, to
our knowledge, other rights to subscribe for the Conversion Shares.
5.The Company has all requisite corporate power and authority to execute and
deliver the Agreement, the Registration Rights Agreement, the Certificate of
Designations and the other Transactions Documents and to consummate the
transactions contemplated thereby. The execution and delivery of the
Agreement, the Registration Rights Agreement, the Certificate of Designations
and the other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated thereby (including, without
limitation, the issuance of the Securities and the Conversion Shares) have
been duly and validly authorized by the Board of Directors of the Company, and
except to the extent shareholder approval is required to be obtained under the
NASDAQ SmallCap Market rules, no other corporate proceedings on the part of
the Company are necessary to authorize the Agreement, the Registration Rights
Agreement, the Certificate of Designations and the other Transaction Documents
or to consummate the transactions so contemplated. The Agreement, the
Registration Rights Agreement, the Certificate of Designations and the other
Transaction Documents have been duly and validly executed and delivered by the
Company and constitute valid and binding obligations, or, in the case of the
Certificate of Designations, instruments, of the Company, enforceable against
the Company in accordance with their terms, except as may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws affecting creditors rights generally and (ii) the
availability of equitable remedies, and except as indemnity and contribution
rights may be limited by applicable securities laws.
6.The execution, delivery and performance of the Agreement, the Registration
Rights Agreement, the Certificate of Designations and the other Transaction
Documents by the Company and the consummation of the transactions contemplated
thereby (including the issuance of the Securities and the Conversion Shares)
will not contravene or result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation to acceleration of any obligation, or result in
creation of any Lien upon any of the properties or assets or the Company
under, (a) the Charter Documents, (b) any instrument, contract or agreement
known to us as to which the Company is a party of by which any of its assets
or properties is bound, or (c) any Law, judgment or decree known by us to be
applicable to the Company or its properties or assets, other than, in the case
of clauses (b) or (c), any such violations, defaults, rights or Liens that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
7.No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Authority, is required by the
Company in connection with the execution and delivery of the Agreement by the
Company or the consummation by the Company of the transactions contemplated by
the Agreement, the Registration Rights Agreement, the Certificate of
Designations and the other Transaction Documents (including the issuance of
the Securities and the Conversion Shares), except those which are contemplated
by the Agreement.
8.Except as disclosed in the SEC Documents, to our knowledge there is (x) no
suit, action or proceeding pending or threatened against the Company that
could reasonably be expected to have a Material Adverse Effect, (y) judgment,
decree, injunction, rule or order of any Governmental Authority or arbitrator
outstanding against the Company in each case that could reasonably be expected
to have a Material Adverse Effect.
9.On the basis of and in reliance upon the factual representations, warranties
and covenants of the Purchaser contained in the Agreement, the offer and sale
of the Securities to the Purchaser pursuant to the Agreement is exempt from
the registration requirements of Section 5 of the Securities Act.
This opinion is delivered solely to you for your information in
connection with the transactions contemplated by the Agreement and may not be
used, circulated or relied on by any other person or quoted in whole or in
part or otherwise referred to without our express prior written consent. The
opinions expressed herein are as of the date hereof and we disclaim any
obligation to update this opinion.
Very truly yours,
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
SBSF:RAG:GA:SMZ:SAN
EX-10.18
REGISTRATION RIGHTS AGREEMENT
BETWEEN
BMP MOBILITY AG
VENTURE CAPITAL
AND
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
Dated as of February 5, 1999
TABLE OF CONTENTS
Page No.
ARTICLE 1.
DEFINITIONS 1
SECTION 1.1.Definitions 1
ARTICLE 2.
REGISTRATION RIGHTS 4
SECTION 2.1.Demand Registration 4
SECTION 2.2.Piggy-Back Registration 5
SECTION 2.3.Reduction of Offering 6
ARTICLE 3.
REGISTRATION PROCEDURES 7
SECTION 3.1.Filings; Information 7
SECTION 3.2.Registration Expenses 11
ARTICLE 4.
INDEMNIFICATION AND CONTRIBUTION 12
SECTION 4.1.Indemnification by the Company 12
SECTION 4.2.Indemnification by Selling Holders 13
SECTION 4.3.Conduct of Indemnification Proceedings 13
SECTION 4.4.Contribution 14
ARTICLE 5.
MISCELLANEOUS 15
SECTION 5.1.Participation in Underwritten Registrations 15
SECTION 5.2.Rule 144 and 144A; Regulation S 15
SECTION 5.3.Amendment and Modification 15
SECTION 5.4.Successors and Assigns; Third Party
Beneficiaries 16
SECTION 5.5.Entire Agreement 16
SECTION 5.6.Headings 16
SECTION 5.7.Notices 16
SECTION 5.8.Governing Law; Forum; Process 17
SECTION 5.9.Consent to Jurisdiction, Waiver of Immunities 17
SECTION 5.10.Recapitalization, etc. 17
SECTION 5.11.Counterparts 17
SECTION 5.12.Severability 18
SECTION 5.13.No Prejudice 18
SECTION 5.14.Words in Singular and Plural Form 18
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February 5, 1999 (this
"Agreement"), between Semiconductor Laser International Corporation, a
Delaware corporation (the "Company") and bmp Mobility AG Venture Capital, a
German stock corporation ("Purchaser").
WHEREAS, the Company and the Purchaser have entered into a
Securities Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), pursuant to which the Purchaser will acquire an aggregate of two
million (2,000,000) shares of the Company's common stock (the "Common Stock"),
par value $.01 per share, for an aggregate purchase price of
seven-hundred-fifty thousand dollars ($750,000), and an aggregate of not less
than six hundred fifty thousand (650,000) and not more than one million
(1,000,000) shares of the Company's Series B Convertible Preferred Stock, $.01
par value per share (the "Series B Preferred Stock), for an aggregate purchase
price of up to two million dollars ($2,000,000); and
WHEREAS, it is a condition precedent to the purchase of the Common
Stock and the Series B Preferred Stock under the Purchase Agreement that the
Company provide certain registration rights to the Purchaser with respect to
the shares of Common Stock purchased pursuant to the terms of the Purchase
Agreement and issuable upon conversion of the Series B Preferred Stock.
NOW, THEREFORE, in consideration on the foregoing premises and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.1. Definitions. The following terms shall have the
meanings ascribed to them below:
"Agreement" means this Agreement, as amended, modified or
supplemented from time to time, in accordance with the terms hereof, together
with any exhibits, schedules or other attachments thereto.
"Business Day" means any day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York and Berlin, Germany are
authorized or obligated by law, executive order or government decree to be
closed.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
"Common Stock" has the meaning ascribed thereto in the introduction
hereof.
"Company" has the meaning ascribed thereto in the introduction
hereof.
"Controlling Person" has the meaning ascribed thereto in Section
4.1.
"Damages" has the meaning ascribed thereto in Section 4.1.
"Demand Registration" has the meaning ascribed thereto in Section
2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder.
"Holder" means any Person who now holds or shall hereafter acquire
and hold Registrable Securities.
"Indemnified Party" means an Indemnified Party as defined in Section
4.3.
"Indemnifying Party" means an Indemnifying Party as defined in
Section 4.3.
"Person" means any individual, entity or group, including without
limitation, any corporation, limited liability company, limited or general
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Piggy-Back Registration" has the meaning ascribed thereto in
Section 2.2.
"Prospectus" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the securities covered
by such Registration Statement, and all other amendments and supplements to
the prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such
prospectus.
"Purchase Agreement" has the meaning ascribed thereto in the
introduction hereof.
"Purchaser" has the meaning ascribed thereto in the introduction
hereof.
"Registrable Securities" means (i) the shares of Common Stock issued
pursuant to the terms of the Purchase Agreement, (ii) the shares of Common
Stock issued or issuable upon conversion of the Series B Preferred Stock
issued pursuant to the terms of the Purchase Agreement, and (iii) any other
shares of Common Stock acquired as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events relating to the shares
described in clauses (i) and (ii) above, in each case until such time as (x) a
Registration Statement covering such shares of Common Stock has been declared
effective by the Commission and such shares of Common Stock have been disposed
of pursuant to such effective Registration Statement, or (y) such shares of
Common Stock would be eligible for sale pursuant to Rule 144 under the
Securities Act (or any similar provisions then in force), without regard to
the volume limitations set forth in Rule 144(e), or (z) such shares of Common
Stock have been otherwise transferred and the Company has delivered a new
certificate or other evidence of ownership for such Common Stock not bearing a
restrictive legend and not subject to any stop transfer or similar restrictive
order and all of such Common Stock may be resold by the Person receiving such
certificate without complying with the registration requirements of the
Securities Act.
"Registration Statement" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
registration statement.
"Request" has the meaning ascribed thereto in Section 2.1(a).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a Registration Statement under the Securities Act.
the Selling Holders as set forth in Section 3.1(c).
"Series B Preferred Stock" has the meaning ascribed thereto in the
Purchase Agreement.
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal in an underwritten offering and not as
part of such dealer's market-making activities.
ARTICLE 2.
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration.
(a) Request for Registration. Subject to the limitations
contained in this Section 2.1(a), at any time after the date hereof any Holder
or Holders of an aggregate of Registrable Securities representing 25% or more
of all the Registrable Securities may make written requests (individually, a
"Request") to the Company for the registration of the offer and sale of some
or all of the Holders' Registrable Securities under the Securities Act (such
registration being hereinafter referred to as a "Demand Registration").
Subject to the penultimate sentence of Section 2.1(b), the Company shall have
no obligation to effect more than two (2) Demand Registrations, including, for
such purposes only, any Piggy-Back Registration offered to the Holders under
Section 2.2, unless the Company is unable to include all shares requested to
be included in any such registration. Any Request will specify the number of
Registrable Securities proposed to be sold and the intended method(s) of
disposition thereof and shall also state the firm intent of the Holder to
offer Registrable Securities for sale. The Company shall give written notice
of such Request within 10 days after the receipt thereof to all other
Holders. Within 20 days after receipt of such notice by any such Holder, such
Holder may request in writing that all or any portion of its Registrable
Securities be included in such Registration Statement and the Company shall
include in the Registration Statement for such Demand Registration the
Registrable Securities of all Holders that requested to be so included. Each
such request by such other Holders shall specify the number of Registrable
Securities proposed to be sold and the intended method(s) of disposition
thereof and shall also state the firm intent of the Holder to offer
Registrable Securities for sale. Notwithstanding the foregoing, the Company
shall not be requested to effect a Demand Registration (i) unless the Request
has been made at least 90 days since the last Registration Statement (other
than a shelf registration under Rule 415 of the Securities Act or a
Registration Statement on Form S-8) was filed by the Company and (ii) with
respect to shares of Common Stock issuable upon conversion of such Series B
Preferred Stock that are held by the Purchaser at the time of such Demand
Registration, unless the Purchaser provides the Company with a written
statement of its firm intent to sell its Series B Preferred Stock within 90
days of such Demand Registration.
(b) Effective Registration. A registration will not be deemed
to have been effected as a Demand Registration unless the Registration
Statement relating thereto has been declared effective by the Commission and
the Company has complied in all material respects with its obligations under
this Agreement with respect thereto; provided that if, after the Registration
Statement has become effective, the offering and/or sale of Registrable
Securities pursuant to such Registration Statement is or becomes the subject
of any stop order, injunction or other order or requirement of the Commission
or any other governmental or administrative agency, or if any court or other
governmental or quasi-governmental agency prevents or otherwise limits the
offer and/or sale of the Registrable Securities pursuant to the Registration
Statement, other than in each case primarily as a result of acts or omissions
of the Holder or any agent thereof, such registration will be deemed not to
have been effected. If (i) a registration requested pursuant to this Section
2.1 is deemed not to have been effected or (ii) the Registration Statement
relating to a Demand Registration requested pursuant to this Section 2.1 does
not remain effective for a period of at least 180 consecutive days beyond the
effective date thereof or, with respect to an underwritten offering of
Registrable Securities, until 45 days after the commencement of the
distribution by the Holders of the Registrable Securities included in such
Registration Statement, then the Company shall continue to be obligated to use
its best efforts to effect such Registration pursuant to this Section 2.1.
The Holders shall be permitted to withdraw all or any part of the Registrable
Securities from a Registration Statement at any time prior to the effective
date of such Demand Registration Statement.
(c) Selection of Underwriter. If a requested registration
pursuant to this Section 2.1 involves an underwritten offering, the managing
Underwriter(s) thereof shall be selected by the Selling Holders and shall be
reasonably acceptable to the Company unless the Company has theretofore sold
shares of Common Stock in an underwritten offering, in which case the managing
Underwriter(s) of a requested registration pursuant to this Section 2.1 shall
be selected by the Company and shall be reasonably acceptable to the Selling
Holders.
(d) Deferral of Registration. Notwithstanding any other
provision of this Section 2, the Company shall not be obligated to effect the
filing of a Registration Statement pursuant to Section 2(a) hereof (i) during
any period when there exists an effective Registration Statement covering the
Registrable Securities, or (ii) for a period not to exceed 120 days, if the
Company shall furnish to the Holders requesting a Registration Statement under
Section 2(a) hereof a certificate, signed by the Company, stating that in the
good faith judgment of the Board of Directors of the Company it would be
detrimental to the best interests of the Company and its stockholders
generally for such Registration Statement to be filed at that time and the
reasons therefore; provided that in such event, the Holders initiating the
request for registration will be entitled to withdraw such request and such
request will not be deemed as having been made by the Holders for purposes of
Section 2.1(a) of this Agreement.
SECTION 2.2. Piggy-Back Registration. If at any time the
Company proposes to file a Registration Statement under the Securities Act
with respect to an offering by the Company for its own account or for the
account of any of its respective security holders (other than (x) a
Registration Statement on Form S-4 or Form S-8 (or any substitute form that
may be adopted by the Commission) or on any other form inappropriate for an
underwritten public offering or related solely to securities to be issued in a
merger, acquisition of the stock or assets of another entity or in a similar
transaction, or (y) a Registration Statement pursuant to a Demand Registration
in accordance with Section 2.1 hereof), then the Company shall give written
notice of such proposed filing to the Holders as soon as practicable (but in
no event less than 30 days before the anticipated filing date), and such
notice shall offer such Holders the opportunity to register such number of
Registrable Securities as each such Holder may request (which request shall
specify the number of shares and the type of Registrable Securities intended
to be disposed of by such Holder and shall also state the firm intent of the
Holder to offer Registrable Securities for sale) (a "Piggy-Back
Registration"). The Company shall use its best efforts to cause the managing
Registrable Securities requested to be included in a Piggy-Back Registration
on the same terms and conditions as any similar securities of the Company or
any other security holder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Holder shall have the right to withdraw
its request for inclusion of its Registrable Securities in any Registration
Statement pursuant to this Section 2.2 by giving written notice to the Company
of its request to withdraw. The Company may withdraw a Piggy-Back
Registration at any time prior to the time it becomes effective and such
withdrawn Piggy-Back Registration shall not be counted for purposes of Section
2.1(a) of this Agreement.
SECTION 2.3. Reduction of Offering.
(a) Demand Registration. The Company may include in a Demand
Registration pursuant to Section 2.1 hereof securities of the same class as
the Registrable Securities for the account of the Company and any other
Persons who hold securities of the same class as the Registrable Securities on
the same terms and conditions as the Registrable Securities to be included
therein; provided, however, that (i) if the managing Underwriter or
Underwriters of any underwritten offering described in Section 2.1 hereof have
informed the Company in writing that it is their opinion that the total number
of Registrable Securities, and securities of the same class as the Registrable
Securities which Holders, the Company and any other Persons desiring to
participate in such registration intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the
number of shares to be offered for the account of the Company and for the
account of all such other Persons (other than the Holders) participating in
such registration shall be reduced or limited pro rata in proportion to the
respective number of shares requested to be registered to the extent necessary
to reduce the total number of shares requested to be included in such offering
to the number of shares, if any, recommended by such managing Underwriter or
Underwriters, and (ii) if the offering is not underwritten, no other Person,
including the Company, shall be permitted to offer securities under any such
Demand Registration unless the Selling Holders owning a majority-in-interest
of Common Stock to be sold consent to the inclusion of such shares therein.
(b) Piggy-Back Registration. (i) Notwithstanding anything
contained herein, if the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.2 have informed, in writing, the
Holders requesting inclusion in such offering that it is their opinion that
the total number of shares which the Company, Holders and any other Persons
holding securities of the same class as the Registrable Securities desiring to
participate in such registration intend to include in such offering is such as
to materially and adversely affect the success of such offering, then, the
Company will include in such registration (A) first, all the shares the
Company offered for its own account, if any, (B) then, if additional shares
may be included in such registration without materially and adversely
affecting the success of such offering, the shares offered by the holders of
securities as a result of their exercise of "demand" registration rights by
such holders, if any, and (C) then, if additional shares may be included in
such registration without materially and adversely affecting the success of
such offering, the number of shares offered by the Holders and such other
holders of securities of the same class as the Registrable Securities whose
piggy-back registration rights may not be reduced without violating their
contractual rights (provided such contractual rights were in existence prior
to the date of this Agreement), on a pro rata basis in proportion to the
relative number of Registrable Securities of the holders (including the
Holders) participating in such registration.
(ii) If the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.2 notify the Holders requesting
inclusion in such offering that the kind of securities that the Holders, the
Company and any other Persons desiring to participate in such registration
intend to include in such offering is such as to materially and adversely
affect the success of such offering, (A) the Registrable Securities to be
included in such offering shall be reduced as described in clause (i) above or
(B) if such reduction would, in the judgment of the managing Underwriter or
Underwriters, be insufficient to substantially eliminate the material adverse
effect that inclusion of the Registrable Securities requested to be included
would have on such offering, such Registrable Securities will be entirely
excluded from such offering.
(c) If, as a result of the proration provisions of this Section
2.3, any Holder shall not be entitled to include all Registrable Securities in
a Demand Registration or Piggy-Back Registration that such Holder has
requested to be included, such Holder may elect to withdraw his request to
include Registrable Securities in such registration without prejudice and
without having the Registration Statement treated as a Piggy-Back Registration
for purposes of Section 2.1(d).
(d) Holdback Agreements. If any registration of Registrable
Securities shall be in connection with an underwritten public offering, each
Holder agrees not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the Securities Act, of any Registrable
Securities, and not to effect any such public sale or distribution of any
other equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public offering) during the five
(5) days prior to, and during the one hundred eighty (180) day period
beginning on, the effective date of such Registration Statement (except as
part of such registration).
ARTICLE 3.
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever the Company is
required to effect or cause the registration of the offer and sale of
Registrable Securities pursuant to Section 2.1 or 2.2 hereof, the Company will
use its best efforts to effect the registration of the offer and the sale of
such Registrable Securities in accordance with the intended method(s) of
disposition thereof as quickly as practicable, and in connection with any such
request:
(a) The Company will prepare and file with the Commission a
Registration Statement with respect to the offer and sale of such securities
and use its best efforts to cause such Registration Statement to become and
remain effective until the completion of the distribution contemplated
thereby; provided, however, the Company shall not be required to keep such
Registration Statement effective for more than 180 days (or such shorter
period which will terminate when all Registrable Securities covered by such
Registration Statement have been sold, but not prior to the expiration of the
applicable period referred to in Section 4(3) of the Securities Act and Rule
174 thereunder, if applicable); provided, further, that with respect to a
Demand Registration, the Company shall file with the Commission a Registration
Statement as soon as is practicable after the date of the Request and in any
event no later than 60 days after the date of the Request for the Demand
Registration and shall cause such Registration Statement to be declared
effective as soon as is practicable after the date of filing and in any event
no later than 120 days after the date of such Request.
(b) The Company will prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement as may
be necessary to keep such Registration Statement effective for as long as such
registration is required to remain effective pursuant to the terms hereof;
cause the Prospectus to be supplemented by any required Prospectus supplement,
and, as so supplemented, to be filed pursuant to Rule 424 under the Securities
Act; and comply with the provisions of the Securities Act applicable to it
with respect to the disposition of all Registrable Securities covered by such
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Selling Holders set forth in such
Registration Statement or supplement to the Prospectus.
(c) The Company, at least fifteen (15) Business Days prior to
filing a Registration Statement or at least ten (10) Business Days prior to
filing a Prospectus or any amendment or supplement to such Registration
Statement or Prospectus, will furnish to (i) each Selling Holder, (ii) not
more than one counsel representing all Selling Holders ("Selling Holders
Counsel"), to be selected by a majority-in-interest of such Selling Holders,
and (iii) each Underwriter, if any, of the Registrable Securities covered by
such Registration Statement copies of such Registration Statement as proposed
to be filed, together with exhibits thereto (whether or not incorporated by
reference in such Registration Statement), which documents will be subject to
review and approval by each of the foregoing within ten (10) Business Days
after delivery (except that such review and approval of any Prospectus or any
amendment or supplement to such Registration Statement or Prospectus must be
within five (5) Business Days after delivery), and thereafter, furnish to such
Selling Holders, Selling Holders' Counsel and Underwriters, if any, at the
Company's expense, such number of conformed copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
Prospectus included in such Registration Statement (including each preliminary
Prospectus) and such other documents or information as such Selling Holders,
Selling Holders' Counsel or Underwriters may reasonably request in order to
facilitate the disposition of the Registrable Securities (it being understood
that the Company consents to the use of the Prospectus and any amendment or
supplement thereto by each Selling Holder and the Underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto).
(d) The Company will use its best efforts to prevent the entry
of such stop order or to remove it at the earliest possible moment if entered.
(e) On or prior to the date on which the Registration Statement
is declared effective, use its best efforts to register or qualify such
Registrable Securities under such other securities or "blue sky" laws of such
jurisdictions as any Selling Holder, Selling Holders Counsel or Underwriter
reasonably requests and do any and all other acts and things which may be
necessary or advisable to enable such Selling Holder to consummate the
disposition in such jurisdictions of such Registrable Securities owned by such
Selling Holder; use its best efforts to keep each such registration or
qualification (or exemption therefrom) effective during the period which the
Registration Statement is required to be kept effective; and use its best
efforts to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable Registration Statement; provided that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (e), (ii) subject itself to taxation in any such jurisdiction or
(iii) consent to general service of process in any such jurisdiction.
(f) The Company will notify each Selling Holder, Selling
Holders' Counsel and any Underwriter and (if requested by any such Person)
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed and, with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement or the initiation or
threatening of any proceedings for that purpose, (iii) of the issuance by any
state securities commission or other regulatory authority of any order
suspending the qualification or exemption from qualification of any of the
Registrable Securities under state securities or "blue sky" laws or the
initiation of any proceedings for that purpose, and (iv) of the happening of
any event which makes any statement made in a Registration Statement or
related Prospectus or any document incorporated or deemed to be incorporated
by reference therein untrue in a material respect or which requires the making
of any changes in such Registration Statement, Prospectus or documents so that
they will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements in the Registration Statement and Prospectus not misleading in
light of the circumstances in which they were made; and, as promptly as
practicable thereafter, prepare and file with the Commission and furnish a
supplement or amendment to such Prospectus so that, as thereafter deliverable
to the buyers of such Registrable Securities, such Prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, such amendment to be subject to the
Holders' review under Section 3.1(c).
(g) The Company will use its best efforts to make generally
available an earnings statement satisfying the provisions of Section 11(a) of
the Securities Act no later than 90 days after the end of the 12-month period
beginning with the first day of the Company's first fiscal quarter commencing
after the effective date of a Registration Statement, which earnings statement
shall cover said 12-month period, and which requirement will be deemed to be
satisfied if the Company timely files complete and accurate information on
Forms 10-QSB, 10-KSB and 8-KSB under the Exchange Act and otherwise complies
with Rule 158 under the Securities Act.
(h) The Company will enter into customary agreements reasonably
satisfactory to the Company (including, if applicable, an underwriting
agreement in customary form and which is reasonably satisfactory to the
Company) and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Registrable Securities.
(i) The Company, during the period when the Prospectus is
required to be delivered under the Securities Act, will use all reasonable
efforts to file all documents required to be filed with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act.
(j) The Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange or quoted on
any automated quotation system on which similar securities of the Company are
then listed or quoted and enter into customary agreements, including a listing
application in customary form; provided that the applicable listing
requirements are satisfied, and to provide a transfer agent and register (to
the extent that the Company utilizes the services of a transfer agent and
register at such time) for such Registrable Securities covered by the
Registration Statement no later than the effective date of such Registration
Statement.
(k) The Company will make available for inspection by any Holder
of Registrable Securities covered by the Registration Statement, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant, or other agent retained by any such
Holder or underwriter (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company as
such Inspector shall deem necessary or desirable in order to permit it to
conduct a reasonable investigation within the meaning of Section 11 of the
Securities Act and cause the Company's officers, directors and employees to
supply all information and respond to all inquiries reasonably requested by
any such Inspector in connection with such Registration Statement.
(l) The Company will use its best efforts to obtain a comfort
letter from the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by comfort letters.
(m) The Company will, not later than the effective date of the
Registration Statement, use its best efforts to provide a CUSIP number for all
Registrable Securities, and provide the applicable transfer agents with
printed certificates for the Registrable Securities, which are in a term
eligible for deposit with The Depository Trust Company.
The Company may require each Selling Holder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably request
and such other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the Commission or the National Association of Securities Dealers,
Inc.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(f)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 3.1(f) hereof,
and, if so directed by the Company, such Selling Holder will deliver to the
Company all copies, other than permanent file copies then in such Selling
Holder's possession, of the most recent Prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the Company
shall give such notice, the Company shall extend the period during which such
Registration Statement shall be maintained effective (including the period
referred to in Section 3.1(a) hereof) by the number of days during the period
from and including the date of the giving of notice pursuant to Section 3.1(f)
hereof to the date when the Company shall make available to the Selling
Holders covered by such Registration Statement a Prospectus supplemented or
amended to conform with the requirements of Section 3.1(f) hereof.
SECTION 3.2. Registration Expenses. The Company shall pay all
expenses incident to the Company's performance of or compliance with this
Agreement including, without limitation: (i) all registration and filing fees,
(ii) the fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing, messenger
and delivery expenses, (iv) the Company's internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), (v) the fees and expenses incurred in
connection with the listing or quotation, as appropriate, of the Registrable
Securities, (vi) the fees and disbursements of counsel for the Company and the
fees and expenses for independent certified public accountants retained by the
Company (including the expenses of any special audit or cold comfort letters)
and (vii) the fees and expenses of any special experts retained by the Company
in connection with such registration. The Company shall have no obligation to
pay any underwriting fees, discounts or commissions attributable to the sale
of Registrable Securities and any of the expenses incurred by Selling Holders
which are not payable by the Company, such costs to be borne by the Selling
Holder or Selling Holders.
ARTICLE 4.
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company agrees
to indemnify and hold harmless, to the fullest extent permitted by law, each
Selling Holder, its general partners, limited partners, managers, officers,
directors, employees, advisors and agents, and each Person, if any, who
controls, is controlled by or is under common control with such Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, together with the general partners, limited partners, managers,
officers, directors, employees, advisors and agents of such controlling Person
(collectively, the "Controlling Persons"), from and against any loss, claim,
damage, liability, attorneys' fees, cost or expense and costs and expenses of
investigating and defending any such claim (collectively, the "Damages") and
any action in respect thereof to which such Selling Holder, its general
partners, managing partners, managers, officers, directors, employees,
advisors and agents, and any such Controlling Person may become subject under
the Securities Act, the Exchange Act state blue sky laws, common law or
otherwise, insofar as such Damages (or proceedings in respect thereof) arise
out of, or are based upon, (x) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus or any preliminary or summary Prospectus, (y) any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are based upon information furnished in writing to the
Company by a Selling Holder expressly for use therein, or (z) any violation by
the Company of any federal, state or common law rule or regulation applicable
to the Company and relating to action required of or inaction by the Company
in connection with any such registration, and the Company shall reimburse each
Selling Holder, its partners, officers, directors, employees, advisors and
agents, and each such Controlling Person for any legal and other expenses
reasonably incurred by that Selling Holder, its partners, officers, directors,
employees, advisors and agents, or any such Controlling Person in
investigating or defending or preparing to defend against any such Damages or
proceedings; provided, however, that the Company shall not be liable to any
Selling Holder or other indemnitee to the extent that any such Damages arise
out of or are based upon an untrue statement or omission made in any
copy of the final Prospectus with or prior to the delivery of written
confirmation of the sale by such Selling Holder to the Person asserting the
claim from which such Damages arise in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Securities Act, and
(ii) the final Prospectus would have corrected such untrue statement or such
omission, where such failure to deliver the Prospectus was not a result of
non-compliance by the Company under Section 3.1(f) of this Agreement. The
Company also agrees to indemnify any Underwriters of the Registrable
Securities, their officers and directors and each Person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Selling Holders provided in this Section 4.1. This indemnity will survive
the transfer of the Registrable Securities by the Holder thereof.
SECTION 4.2. Indemnification by Selling Holders. Each Selling
Holder agrees, severally but not jointly, to indemnify and hold harmless the
Company, its officers, directors, employees, advisors and agents and each
Person, if any, who controls the Company within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, together with the
partners, officers, directors, employees, advisors and agents of such
Controlling Person, to the same extent as the foregoing indemnity from the
Company to such Selling Holder, but only with reference to information related
to such Selling Holder, or its plan of distribution, furnished in writing by
such Selling Holder expressly for use in any Registration Statement or
Prospectus, or any amendment or supplement thereto, or any preliminary
Prospectus; provided, however, that such Selling Holder shall not be liable in
any such case to the extent that prior to the filing of any such Registration
Statement or Prospectus or amendment or supplement thereto, such Selling
Holder has furnished in writing to the Company information expressly for use
in such Registration Statement or Prospectus or any amendment or supplement
thereto which corrected or made not misleading information previously
furnished to the Company. In no event shall the liability of any Selling
Holder be greater in amount than the dollar amount of the proceeds received by
such Selling Holder upon the sale of the Registrable Securities giving rise to
such indemnification obligation. In case any action or proceeding shall be
brought against the Company or its officers, directors, employees, advisors or
agents or any such Controlling Person or its officers, directors, employees or
agents, in respect of which indemnity may be sought against such Selling
Holder, such Selling Holder shall have the rights and duties given to the
Company, and the Company or its officers, directors, employees or agents, or
such Controlling Person, or its officers, directors, employees, advisors or
agents, shall have the rights and duties given to such Selling Holder, by the
preceding paragraph. This indemnity will survive the transfer of the
Registrable Securities by the Holder thereof.
SECTION 4.3. Conduct of Indemnification Proceedings. Promptly
after receipt by any Person in respect of which indemnity may be sought
pursuant to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim
or the commencement of any action, the Indemnified Party shall, if a claim in
respect thereof is to be made against the Person against whom such indemnity
may be sought (an "Indemnifying Party"), notify the Indemnifying Party in
writing of the claim or the commencement of such action; provided that the
failure to notify the Indemnifying Party shall not relieve it from any
liability which it may have to an Indemnified Party otherwise than under
Section 4.1 or 4.2 except to the extent of any actual prejudice resulting
therefrom. If any such claim or action shall be brought against an
Indemnified Party, and it shall notify the Indemnifying Party thereof, the
Indemnifying Party shall be entitled to participate therein, and, to the
extent that it wishes, jointly with any other similarly notified Indemnifying
Party, to assume the defense thereof with counsel reasonably satisfactory to
the Indemnified Party. After notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense of such claim or
action, the Indemnifying Party shall not be liable to the Indemnified Party
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party shall have the right to
employ separate counsel to represent the Indemnified Party and its Controlling
Persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel
or (ii) in the opinion of counsel to such Indemnified Party, representation of
both parties by the same counsel would be inappropriate due to actual or
potential conflicts of interest between them, it being understood, however,
that the Indemnifying Party shall not, in connection with any one such claim
or action or separate but substantially similar or related claims or actions
in the same jurisdiction arising out of the same allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of
attorneys (together with local counsel) at any time for all Indemnified
Parties. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any claim or pending or
threatened proceeding in respect of which the Indemnified Party is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, and such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such claim or
proceeding. Whether or not the defense of any claim or action is assumed by
the Indemnifying Party, such Indemnifying Party will not be subject to any
liability for any settlement made without its consent, which consent will not
be unreasonably withheld.
SECTION 4.4. Contribution. If the indemnification provided for
in this Article 4 is unavailable to the Indemnified Parties in respect of any
Damages referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Damages in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Selling Holders on the other from the offering
of the Registrable Securities, or if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company on the one hand
and the Selling Holders on the other in connection with the statements or
omissions which resulted in such Damages, as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the holders of Registrable Securities on the other hand with
respect to an offering thereof shall be deemed to be in the same proportion
that the total purchase price paid to the Company in respect of the
Registrable Securities bears to the amount by which the total net proceeds
from the offering of the Registrable Securities (before deducting expenses)
received by the holders thereof with respect to such offering exceeds the
purchase price paid to the Company in respect of such Registrable Securities.
The relative fault of the Company on the one hand and of each Selling Holder
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 4.4 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Party as a
result of the Damages referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.4, no Selling Holder shall be required to
contribute any amount in excess of the amount by which the total price at
which the Registrable Securities of such Selling Holder were offered to the
public exceeds the amount of any damages which such Selling Holder has
otherwise paid by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Each Selling Holder's obligations to contribute
pursuant to this Section 4.4 is several in the proportion that the proceeds of
the offering received by such Selling Holder bears to the total proceeds of
the offering received by all the Selling Holders and not joint.
ARTICLE 5.
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No
Person may participate in any underwritten registration hereunder unless such
Person (a) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements, and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and
these registration rights.
SECTION 5.2. Rule 144 and 144A; Regulation S. The Company
covenants that it will use all reasonable efforts to file any reports required
to be filed by it under the Securities Act and the Exchange Act and that it
will take such further action as any Holder may reasonably request, all to the
extent required from time to time to enable Holders to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 or Rule 144A under the Securities
Act, (b) Regulation S under the Securities Act, or (c) any other applicable
exemption from the registration requirements of the Securities Act adopted by
the Commission. Upon the request of any Holder, the Company will deliver to
such Holder a written statement as to whether it has complied with such
requirements.
SECTION 5.3. Amendment and Modification. Any provision of this
Agreement may be waived, provided that such waiver is set forth in a writing
executed by the party against whom the enforcement of such waiver is sought.
This Agreement may not be amended, modified or supplemented other than by a
written instrument signed by the holders of at least a majority of the
Registrable Securities (calculated on an as converted basis). No course of
dealing between or among any Persons having any interest in this Agreement
will be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any Person under or by reason of
this Agreement.
SECTION 5.4. Successors and Assigns; Third Party Beneficiaries.
This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto, each subsequent Holder and their
respective successors and assigns and executors, administrators and heirs.
Holders are intended third party beneficiaries of this Agreement and this
Agreement may be enforced by such Holders.
SECTION 5.5. Entire Agreement. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject
matter hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them, including the Letter of
Intent dated January 11, 1999.
SECTION 5.6. Headings. Subject headings are included for
convenience only and shall not affect the interpretation of any provisions of
this Agreement.
SECTION 5.7. Notices. Any notice, demand, request, waiver, or
other communication under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service if personally served or
sent by telecopy, on the Business Day after notice is delivered to a courier
or mailed by express mail if sent by courier delivery service or express mail
for next day delivery and on the third day after mailing if mailed to the
party to whom notice is to be given, by first class mail, registered, return
receipt requested, postage prepaid and addressed as follows:
If to the Company to:
15 Link Drive
Binghamton, New York 13904
Attention: Chief Executive Officer
Telecopier No.: (607) 722-5045
with a copy to:
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
20th Floor
New York, New York 10022
Attention: Richard A. Goldberg, Esq.
Telecopier No.: (212) 758-9526
If to the Purchaser to:
Charlottenstrasse 16
D-10117 Berlin
Germany
Attention: Oliver Bormann
Telecopier no.: 011 49 30 20 305 555
with a copy to:
Linklaters & Paines
1345 Avenue of the Americas
19th Floor
New York, New York 10105
Attention: Lawrence A. Vranka, Jr., Esq.
Telecopier no.: (212) 424-9100
SECTION 5.8. Governing Law; Forum; Process. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York, without regard to any choice-of-law principles thereof.
SECTION 5.9. Consent to Jurisdiction, Waiver of Immunities. The
Company and the Holders hereby irrevocably submit to the non-exclusive
jurisdiction of any court of the State of New York or United States federal
court sitting in the Borough of Manhattan, The City of New York, and any
appellate court therefrom, in any action or proceeding arising out of or
relating to this Agreement and hereby irrevocably agree that all claims in
respect of such action or proceeding may be heard and determined in such
court. The Company and the Holders irrevocably waive, to the fullest extent
permitted by applicable law, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
SECTION 5.10. Recapitalization, etc. In the event that any
securities are issued in respect of, in exchange for, or in substitution of,
any Registrable Securities by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, stock split, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any
other change in the Company's capital structure, appropriate adjustments shall
be made in the percentages specified herein so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement.
SECTION 5.11. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one and the same agreement.
SECTION 5.12. Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
SECTION 5.13. No Prejudice. The terms of this Agreement shall not be
construed in favor of or against any party on account of its participation in
the preparation hereof.
SECTION 5.14. Words in Singular and Plural Form. Words used in the
singular form in this Agreement shall be deemed to import the plural, and vice
versa, as the sense may require.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date set forth above.
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION,
a Delaware corporation
/s/ Geoffrey T. Burnham
By: __________________________________
Name: Geoffrey T. Burnham
Title: President & Chief Executive Officer
bmp MOBILITY AG VENTURE CAPITAL,
a German stock corporation
/s/ Oliver Borrmann
By:___________________________________
Name: Oliver Borrmann
Title: CEO
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