SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[x]ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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) 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 is not 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, 1999) were $1,524,514.
The aggregate market value on February 18, 2000, of the voting stock held by
non-affiliates computed by reference to the last sales price on that date
was approximately $ 12,708,365. As of February 18, 2000, 15,641,064 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
telecommunications, printing, laser marking, medical, optical displays,
precision machining, illuminating 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 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 has raised an aggregate of $5,730,000 from a series of private
placements since January 1, 2000. The Company is currently in discussions
regarding raising additional financing of up to $4 million. The Company intends
to seek to grow its business through expansion into telecommunications products.
The Company has the capability without substantial capital expenditures or an
expansion of staff to manufacture products with telecommunications applications.
If the Company is successful in raising additional capital it is anticipated
that it will expend between $500,000 to $4,000,000 on capital expenditures to
expand significantly the products with telecommunications applications that the
Company could manufacture. Therefore, with additional capital the Company
believes that the potential for revenues in telecommunications is significantly
increased. There can be no assurances that additional financing or the ability
to increase sales in telecommunications can be obtained by the Company.
The Company is currently seeking to issue additional equity capital thru private
placements. 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.
The Company was incorporated in New York in September of 1993 and
reincorporated in Delaware in September 1997.
Recent Developments
The Company entered into a Securities Purchase Agreement (the "Securities
Purchase Agreement"), dated as of February 5, 1999, with bmp Mobility AG Venture
Capital ("bmp"), as amended by Amendment No. 1 to Securities Purchase Agreement
(the "Amendment"), dated as of April 28, 1999 (the Securities Purchase
Agreement, as amended by the Amendment is hereinafter referred to as the
"Amended Purchase Agreement"). Pursuant to the terms of the Amended Purchase
Agreement, bmp purchased, 2,000,000 shares of the Company's Common Stock and
1,000,000 shares of the Company's Series B Convertible Preferred Stock (the
"Series B Stock"), $.01 par value per share, each convertible into 5 shares
of the Company's Common Stock or an aggregate of 5,000,000 shares of the
Company's Common Stock. bmp had previously purchased 367,650 shares of the
Company's Common Stock in unrelated open market transactions. In connection
with the Amendment, on June 26, 1999 the Company issued to bmp a five year
warrant to purchase an aggregate of 500,000 shares Common Stock, at an exercise
price of $0.50 per share(the "bmp Warrrant"). Based on public filings, the
Company is aware that bmp has transferred ownership of its shares of Common
Stock, Series B Stock and the bmp Warrant to ANB Alster Neue Beiteiligungs GmbH
KG ("ANB"). The shares of Common Stock issued to bmp contain certain demand and
piggyback registration rights and the Series B Stock contains certain
anti-dilution rights.
In connection with the Amendment, the Company entered into a consulting
agreement (the "Consulting Agreement"), dated as of April 28, 1999, between
the Company and bmp Management Consultants GmbH ("bmp Consultants"), a German
limited liability corporation wholly owned by bmp AG Venture Capital &
Network Management, the parent company of bmp, providing for the retention of
bmp Consultants as strategic and financial consultants to the Company, for an
aggregate consulting fee of $200,000. Pursuant to a verbal agreement with bmp
Consultants SLI will be billed on a work performed basis for the $200,000
aggregate consulting fee. As of March 21, 2000, bmp Consultants had been paid
$80,887. In addition, bmp is eligible to receive a finder's fee in the amount
of 5% of the net proceeds of any transaction involving the raising of debt or
equity capital in a private placement from a source introduced to the Company by
bmp consummated by the Company until June 26, 2001.
In conjunction with the Securities Purchase Agreement, on February 16, 1999,
the Company issued to BSB Bank & Trust Company("BSB"), a five year warrant to
purchase an aggregate of 500,000 shares of the Company's common stock at an
exercise price of $0.575 per share (the "BSB Warrant"). The shares issuable
upon exercise of the BSB Warrant contain certain registration rights. The value
of the BSB warrant has been 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.
On March 14, 2000, the Company entered into a Waiver and Lock-up Agreement with
BSB, pursuant to which BSB waived any rights to adjustment that it may have
under the BSB Warrant. In addition, BSB agreed not to transfer the shares of
Common Stock issuable to BSB upon conversion of the BSB Warrant until March 20,
2001 without the prior written consent of the Company. The Company is in the
process of negotiating a Consent, Waiver and Lock-Up Agreement with ANB,
pursuant to which ANB would waive any rights to adjustment that it may have
under the Securities Purchase Agreement and the bmp Warrant and agree to lock-up
a percentage of its shares of Common Stock that it beneficially owns for a
period of one year. In addition, the Company would agree to include a certain
percentage of the shares of Common Stock beneficially owned by ANB on the
registration statement described below.
The Company has completed a private placement of Common Stock with certain
accredited investors introduced to the Company by a funding source referred
to the Company by bmp. As of September 30, 1999, 2,979,256 shares of Common
Stock were issued at an aggregate purchase price of $1,117,221. The
Company received $1,061,422 net of finder's fees. The shares of Common Stock
issued in this private placement contain certain piggyback registration
rights.
The Company has issued an aggregate of 12,833,333 shares of Common Stock
and 9,743,333 warrants in a series of private placements consummated between
December 31, 1999 and the end of March 2000. The Company is expected to file a
registration statement with the Securities and Exchange Commission by early May
2000, registering approximatley 9,400,000 shares of Common Stock issued in such
private placements. The Company raised an aggregate of $5,730,000 from such
private placements at purchase prices ranging between $0.30 and $0.50 per share
and warrant exercise prices ranging between $0.75 and $1.0625 per share. The
warrants range between 4 to 5 year warrants. The Company is in discussions with
certain other investors concerning up to an additional $4,300,000 of private
placement financing. There can be no assurance that such additional financing
can be consummated.
Orthogenesis Agreement
The Company entered into a Joint Venture Agreement (the "Orthogenesis
Agreement"), dated September 28, 1999, between the Company and Orthogenesis
System, Inc. ("Orthogenesis"). Pursuant to the Orthogenesis Agreement, the
Company and Orthogenesis agreed to develop, sell and distribute low level laser
systems used in non-invasive medical treatments for the purpose of
biostimulation. Primarily intended for use with certain medical conditions, its
principal focus is on arthritic conditions, accelerated wound healing and
chronic pain. Potential secondary applications include acute injuries, such as
those relating to sports or casual physical overexertion. The laser also has
potential to be used in related areas within veterinary practices.
Under the Orthogenesis Agreement, the Company and Orthogenesis each have a
50% voting interest in the joint venture and the Company has been granted an
exclusive license to manufacture the Orthogenesis laser system for the term of
the joint venture. The Company has agreed to manufacture and sell the
Orthogenesis laser system at the Company's total cost of manufacturing
(including material, direct labor and overhead costs) such system. The Company
has also agreed to perform the financial and accounting functions for the
joint venture and will be responsible for responding to customers' complaints.
Orthogenesis has agreed to be responsible for marketing, research and
development and product upgrades of such systems. Profits derived from the sale
of the Orthogenesis laser system will be divided 75% to the Company and 25% to
Orthogenesis.
The Company believes that it has the capability of manufacturing this system
without any significant initial capital investment. The system has shown
promise in early tests although no definitive study has been completed to date
and there can be no assurance that any future studies will be favorable. The
Company intends to commence marketing in Canada and in certain other countries
where it expects it will be permitted to sell the system without any additional
regulatory approval and expects to eventually apply for FDA approval to enable
it to sell the system in the United States. The Company's ability to obtain FDA
approval and to increase sales materially is dependent on its ability to raise
capital for the joint venture.
Nasdaq Delisting
The Company received notice from The Nasdaq Stock Market that its securities
were delisted from The Nasdaq SmallCap Market, effective as of the close of
business on May 26, 1999. The Nasdaq Stock Market based its determination on the
Company's failure to meet the minimum bid price requirement for its common stock
and the minimum net tangible assets requirement set forth under the Nasdaq
Marketplace Rules. The Company's securities are currently quoted on the
NASDAQ OTC Bulletin Board(Symbol SLIC).
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, optical data storage, laser marking and illuminating
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 proprietary 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 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 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 Desorption Mass
Spectrometric ("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 was 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 has fully
satisfied.
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.
In March 1999, the Company converted its MBE machine 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 has produced limited quantities of
aluminum free HPDLs. 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.
The Company has submitted a plan for the further development and
commercialization of certain licensed products, including the transfer of
technology and "know-how" from Northwestern University. The Company has paid
royalties due to Northwestern University under the License and provided further
information concerning the Company's satisfaction of the Northwestern License
milestones. As of March, 2000, the Company has met all of the requirements of
the Northwestern license. The Company continues to develop this technology and
expects to introduce new aluminum free products as time goes on.
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. 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. To date, the Company is dependent on a few major customers.
See Item 6. "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Overview."
The Company is currently engaged in a lawsuit with one of its 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. On November 2, 1999 SLI filed a
Complaint and Jury Demand against RMI claiming, among other things, that RMI had
breached its contract and failed to fulfill its promises relating to RMI's
purchase of laser diodes from SLI. A trial date has not yet been established.
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 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
bars and chips are sold unpackaged, the Company offers an array of packaging
options for various customer applications including the award winning 7 watt
HHL, LD, LS, TO-3, 9mm, 5.6mm and several fiber coupled styles.
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
Through their use with fiber-optics, diode lasers have materially improved
transmission speeds for the telecommunications industry. 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. As laser performance is becoming more reliable and uniform across
these industries, manufacturers have turned to laser products as alternatives
to traditional technologies. In the optical storage industry, diode lasers are
used with CD, CD-ROM, Laserdisc, magneto-optic drives, and, most recently,
Digital Video Disc (DVD).
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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 60 Watts and 120 Watts for CW and QCW bars,
respectively. 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 growth in the use of diode lasers in fiber optic telecommunications is
the optoelectronics success story of the 1990s. In 1998 the market for diode
lasers in telecommunications was $ 1.38 billion, or 64% of the total diode
laser market. Revenue growth was 20% while unit growth was a robust 34%. The
difference is accounted for by ongoing average selling price erosion of 15% -
20% per year, which shows some signs of slowing to about 10% in 1999 due to
production capacity limitations. This price erosion, however, is partly offset
by increasing share higher data rate transmission lasers and higher power pump
lasers, which command higher prices.
The Company has a purchase order with a customer in China for approximately $4
million for a single chip high power diode. The realization of the full
amount of the order is subject to the Company's ability to satisfy quality and
quantity requirements and the order can be increased if the Company satisfies
such requirements. There can be no assurance that the Company can satisfy such
requirements or realize such revenues.
Telecommunications Applications
The Company has raised an aggregate of $5,730,000 from a series of private
placements since January 1, 2000. The Company is currently in discussions
regarding raising additional financing of up to $4 million.
The Company intends to seek to grow its business through expansion into
telecommunications products. The Company has the capability without substantial
capital expenditures or an expansion of staff to manufacture products with
telecommunications applications. If the Company is successful in raising
additional capital it is anticipated that it will expend between $500,000 to
$4,000,000 on capital expenditures to expand significantly the products with
telecommunications applications that the Company could manufacture. Therefore,
with additional capital the Company believes that the potential for revenues in
telecommunications is significantly increased. There can be no assurances that
additional financing or the ability to increase sales in telecommunications can
be obtained by the Company. The Company is currently seeking to issue additional
equity capital thru private placements. The need to raise equity capital
through current stock prices is likely to result in substantial dilution to
shareholders and could result in a change of control.
The Company intends to dedicate a significant portion of the proceeds of
its recent private placements to the development of telecommunications products
and to enhancing its current products for telecommunications applications. If
the Company is successful in raising the additional financing discussed above,
it expects to spend approximately $3,235,000 on new equipment. A substantial
portion of such equipment would be financed. There can be no assurance that the
additional private placement financing can be completed or that equipment
financing can be obtained.
The Company is currently in discussions with several other
telecommunication companies concerning orders for new products. Although the
Company is hopeful that it will receive orders from one or more of these
customers, there can be no assurance that the Company will receive any orders
from these companies or if the Company does receive orders from one or more
customers that it will be able to consistently meet stringent telecommunication
specifications. The Company expects to emphasize the development of high power
single mode 980nm pump lasers for use in double clad fiber laser designs. The
Company is also exploring other areas of telecommunications that its products
can be used for.
The telecommunication laser market consists of two major applications,
signal transmission (lasers in the 1300 to 1550 nm range) and signal
amplification (lasers operating at 980 and 1480 nm). The latter used for pumping
erbium doped fiber amplifiers (EDFAs). According to industry data, pump lasers
accounted for approximately 18% of the telecom laser market in 1998.
Driven by the growth in Internet traffic, there is an ongoing expansion of
capacity in fiberoptic networks, including upgrades of existing systems and
construction of new systems. The principal technique for achieving this expanded
capacity is dense wavelength division multiplexing("DWDM"). The rapid growth in
deployment of DWDM systems has caused an ever increasing demand for wavelength
selected laser diodes in the 1530 to 1600 nm wavelength band. DWDM systems work
by packing as many individual wavelengths (signal carriers) as possible into a
very narrow band of wavelengths and transmitting them down a single optical
fiber. Consequently each signal carrier must occupy as little frequency space as
possible. This is achieved by employing what are known as distributed feedback
laser diodes (DFBs). Systems incorporating DFBs on the market today can pack as
many as 80 signal carriers into a band between 1530 and 1565 nm.
The increase in the number of wavelengths being transmitted per fiber has
resulted in requirements for ever increasing pump power in the optical
amplifiers used to regenerate the signals as they propagate over very long
distances. New EDFA designs are requiring as many as eight pumps sources per
amplifier and the trend is to increase this number as the number of signal
carriers increase as well. Some new amplifier designs are using both 980 and
1480 nm in the same system thus benefiting from the technical virtues of both.
Yet another technique for producing higher power at 980 nm that is
gaining significant acceptance in the industry is the double clad fiber
amplifier. The Company expects to emphasize the development of high power
single mode 980nm pump lasers for use in double clad fiber laser designs.This
design utilizes a relatively low brightness laser diode pump
source at 980 nm to inject energy into a multi mode waveguide surrounding a
doped core. The core of this fiber is single mode so the transmission signal
propagates normally through it but gets amplified on its way in much the same
fashion as a conventional EDFA. The advantages to a double clad fiber amplifier
system are, more easily produced pump sources, less stringent laser to fiber
alignment tolerances both of which contribute significantly to reduced cost and
potentially higher pump power.
Overall telecommunications laser revenue worldwide is expected to grow to $ 1.8
billion in 1999, an increase of more than 30% with no signs of slowing for the
foreseeable future. The highest growth rate is expected to be in pump lasers
according to industry data with revenues projected to increase by a whopping
70%. Pump lasers are expected to account for nearly a quarter of the telecom
laser market in 1999.
The market potential is one of the strengths of the laser industry. A drawback
is that it is highly competitive and may attract 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.
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. However, the Company is now starting 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.
7
<PAGE>
The Company's marketing program is designed to address some of the activities
described above with a strong focus on identifying potential customers in the
telecommunications area and increasing the visibility of the Company within this
market segment. 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 approximately $651,000, $7,000 and $77,000
for the years ended December 31, 1997, 1998 and 1999, respectively. The decline
in R & D expense since 1997 is attributable to the Company's emphasis on
manufacturing and the absence of financing.
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. This program ends in April 2000.
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.
8
<PAGE>
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.
The Company at the present time is focusing its efforts in R & D in the
areas of telecommunications, printing and theraputic medical and expects to
spend approximately $600,000 in the year 2000 for this effort.
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 telecommunications or medical and surgical
devices or in printing, or precision machining, illumination or the military.
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. 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.
9
<PAGE>
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. 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 and Coherent, Inc.
The Company believes that most 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. There can be no
assurance that the Company's current or potential competitors or customers will
not develop or acquire products comparable or superior to those developed by the
Company, combine or merge to form significant competitors, or adapt more quickly
than the Company to new technologies, evolving industry trends and changing
customer requirements. Increased competition has resulted and could, in the
future, result in price reductions, reduced margins or loss of market share, any
of which could materially and adversely affect the Company's business and
results of operations. There can be no assurance that the Company will be able
to compete successfully against current and future competitors or that
competitive pressures faced by the Company would not have a material adverse
effect on its business and results of operations. The Company expects that both
direct and indirect competition will increase in the future. Additional
competition could adversely affect the Company's results of operations through
price reductions and loss of market share.
10
<PAGE>
Employees
The Company currently has 33 full-time employees, none of whom are
represented by a union. There are 21 employees in production and production
support, 2 in finance and 10 in corporate management, sales and administration.
The Company has never experienced a work stoppage. At December 31, 1999, the
Company had 39 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.
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 tooling and
testing equipment for its production processing line.
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, against whom the Company brought an action for 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
further, believes that the ultimate outcome of such action will not have a
material impact on the financial condition, results of operations or cash flows
of the Company.
Investigations. Since April 1998, the Company had 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 Company does not know whether or not this investigation
remains active and is not able to speculate as to the specific subject matter of
the investigation. There are no current requests for information. 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 has cooperated with the investigation and responded to all requests
for information in connection with the investigation. No such requests for
information have been forthcoming since late 1998.
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 but has been informed that the Company is not presently a target of
the investigation. The Company has cooperated fully with the investigation and
has responded to a grand jury subpoena issued in connection with the
investigation. The Company does not know whether or not this investigation
remains active and is unable to speculate as to the outcome or possible effect
of the investigation on the Company or its management. 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.
In November, 1999, an action was filed against the Company and several of
its present and former officers and directors in the United States Federal Court
for the District of Massachusetts entitled Geran v. Semiconductor Laser
International Corporation, Whale Securities Co., LP, Geoffrey T. Burnham, Allen
W. Johnson, Jr., Theodore W. Konopelski, Susan M. Burnham, George Barrett, David
L. Koffman, Brian Thompson, and Nicholas L. Prioletti, Jr., No. CA99-30-251-MAP.
The Complaint alleges violations by the defendants of Section 12(2) of the
Securities Act of 1933 arising out of alleged misrepresentations by defendants
as to the Company that allegedly induced plaintiff to purchase warrants to
purchase the Company's stock. The Complaint seeks damages of $27,782.00. The
Company believes it has meritorious defenses to this action and intends to
defend the action vigorously and further, believes that the ultimate outcome
of such action will not have a material impact on the financial condition
or results of operations of the Company. As of December 31, 1999 the Company
had not been served with the summons and complaint in this matter, although the
company understands that several defendants who are current and former officers
and directors of the Company may have received service.
The Company is currently engaged in litigation with Newport Corporation, a
vendor who is seeking to recover $100,508 for goods allegedly sold to the
Company. Based on losses sustained by the Company as a result of previously
supplied defective equipment from this vendor, the Company's counterclaim
exceeds the amount sued for by Newport Corporation. The Company believes
that the ultimate outcome of the action will not have a material impact on
the financial condition or results of operations of the Company.
The Company is currently engaged in litigation with IOS Capital Corporation,
a vendor who is seeking to recover $55,821 on the basis of an alleged default
by the Company in making its lease agreement installments for color copying
equipment. The Company believes that the vendor was incapable of providing a
working product acceptable to the Company and the equipment was returned to the
vendor as a result. The Company believes that the ultimate outcome of the
action will not have a material impact on the financial condition or results of
operations of the Company.
The Company is currently engaged in a lawsuit with one of its 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. On November 2, 1999 SLI filed a
Complaint and Jury Demand against RMI claiming, among other things, that RMI had
breached its contract and failed to fulfill its promises relating to RMI's
purchase of laser diodes from SLI. A trial date has not yet been established.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held a special meeting of its stockholders (the "Special
Meeting") on December 14, 1999, for the purpose of approving an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of its Common Stock from 20,000,000 to 75,000,000 (the "Amendment"). As
of the record date of November 12, 1999, there were 15,153,955 shares of
the Company's Common Stock eligible to vote. Of these shares, 8,518,977
(56.22%) were represented either in person or by proxy at the Special Meeting.
At the Special Meeting, the Company's stockholders voted to approve the
Amendment. The number of shares of Common Stock voted in favor of the Amendment
was 8,083,606; the number of shares of Common Stock voted against the Amendment
was 407,538; and the number of shares of Common Stock that abstained was 26,833.
The Amendment was filed with the Delaware secretary of State on March 6, 2000.
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 OTC Bulletin Board
("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.
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, 1999 13/32 11/32
June 30, 1999 15/32 13/32
September 30, 1999 13/32 11/32
December 31, 1999 11/32 19/64
Holders of Common Stock
Based upon information supplied to the Company by its transfer agent, the
number of stockholders of record of the Common Stock on March 27, 2000 was
approximately 254. The Company believes that there are in excess of 2,430
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 and to date (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 1997 58,384 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(2) 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(1) Common Stock services to the
performed Company
for the
Company
Jun 1,650,000 shares $1,237,500 $1,237,500 Accredited
1998(3) of Common Stock Investors
Dec 1998 111,280 shares of $ 41,073 $41,073 in Legal
Common Stock at Services Counsel to
$0.375 per share Performed the Company
for the
Company
Feb 1999 2,000,000 shares $ 750,000 $ 750,000 Accredited
of Common Stock Investor
Feb 1999 500,000 warrants $ 287,500 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
May 1999 23,867 shares of $ 8,950 $8,950 in Company
Common Stock at Services Vendor
$0.375 per share Performed
for the
Company
Jun 1999 500,000 warrants $ 250,000 Amendment Accredited
to purchase to Investors
Common Stock at Securities
$0.50 per share Purchase
Agreement
Sep 1999 2,979,256 shares $1,116,734 $1,116,734 Private Accredited
of Common Stock Placement Investors
Dec 1999 40,000 shares of $ 15,000 $15,000 in Company
Common Stock at Services Vendor
$0.375 per share Performed
for the
Company
Dec 1999 447,109 shares of $ 100,000 $ 100,000 Private Accredited
Common Stock at Placement Investor
$0.2237 per share
and warrants to
purchase up to
447,109 shares of
Common Stock
Feb 2000 100,000 shares of $ 30,000 $ 30,000 Private Accredited
Common Stock and Placement Investor
Warrants to
purchase up to
10,000 shares of
Common Stock
Feb 2000 3,333,333 shares of $1,000,000 $1,000,000 Private Accredited
Common Stock and Placement Investor
Warrants to
purchase up to
333,333 shares of
Common Stock
Mar 2000 9,400,000 shares of $4,700,000 $4,700,000 Private Accredited
Common Stock and Placement Investors
Warrants to
purchase up to
9,400,000 shares of
Common Stock
</TABLE>
(1) Subsequently included in the Company's Registration Statement on Form S-3
declared effective on January 14, 1998.
(2) Underlying shares of common stock included in Company's Registration
Statement on Form S-3 declared effective on January 14, 1998.
(3) 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.
The Company has raised an aggregate of $5,730,000 from a series of private
placements since January 1, 2000. The Company is currently in discussions with
investors regarding an additional financing of up to $4 million. The Company
intends to grow its business through expansion into telecommunications products.
The Company has the capability without substantial capital expenditures or an
expansion of staff to manufacture products with telecommunications applications.
If the Company is successful in raising additional financing it is anticipated
that it will expend between $500,000 to $4,000,000 on capital expenditures to
expand significantly the products with telecommunications applications that the
Company could manufacture. Therefore, with additional financing the Company
believes that the potential for revenues in the area of telecommunications is
significantly increased. However, there can be no assurances that additional
financing or the ability to increase sales in telecommunications can be
obtained.
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 not experiencing any technical
difficulty of its production processing. Historically, cash flow problems have
placed considerable strain on Company management, financial, manufacturing and
other resources and limited the Company's ability to grow its revenues.
Although the Company has raised $5,730,000 in private placement financing since
January 1, 2000, lack of financial resources in the future 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 1999 were $1,524,514 compared to $2,197,736 for 1998. The decrease
was a result of reduced commercial and government contract revenue.
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, because of a legal dispute.See "Item 1. Business - Current and
Future Markets."
Cost of sales, which includes materials, production labor and certain overhead
was $1,871,216 in 1999 as compared to $3,093,343 in 1998. The decrease was
partially attributable to the decreased levels of production labor and overheads
(approximately $622,000) associated with the decrease in sales.
Cost of sales 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. The Company believes that if it is successful
with its current efforts to raise additional capital, that its sales levels will
increase in the future which would more effectively utilize the Company's
production capacity. There can be no assurance of any such increase in
revenues.
16
<PAGE>
Research and Development expenditures were $76,703 in 1999 compared to $7,273 in
1998. The majority of the research and development efforts in 1998 were charged
to the cost of sales as efforts were focused on the production process.
Research and Development expenditures were $7,273 in 1998 as compared to
$651,242 in 1997. The decrease in such expenditures was primarily associated
with a change in focus from research and development to production.
Sales and Marketing expenses were $329,927 in 1999 compared to $395,339 in 1998
or a decrease of $65,412. The decrease was reflected in advertising expenses
offset by minor increases in trade show, travel and meeting expenses.
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.
General and Administrative expenses were $2,651,139 in 1999 compared to 1998
expenses of $2,882,320 or a decrease of $231,181. The major impact was an
absence in 1999 of the need for a significant bad debt expense as was recorded
in 1998. This decrease equated to approximately $488,000. Additionally,
professional fees (primarily legal expenses) decreased approximately $52,000.
Offsetting these decreases were increases in 1999 compared to 1998 of
approximately $309,000. These increases were incurred in salaries
(approximately $213,000), interest expense (approximately $66,000), repairs
and maintenance ( approximately $21,000 ) and all other ( approximately
$9,000 ). Salaries increased due to the addition of positions in the
organization and the impact of required book accounting entries. Interest
expense increased due to the line of credit expansion by $450,000 to the
$1,000,000 maximum. Repairs and maintenance increased due to the equipment's
additional aging.
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.
Interest income decreased approximately $7,000 from 1999 compared to 1998
as a result of lower levels of invested cash occasioned by operating demands.
Interest income decreased approximately $63,000 from 1998 compared to 1997
as a result of lower levels of invested cash occasioned by operating demands.
17
<PAGE>
Liquidity and Capital Resources
The Company's cash and cash equivalents at December 31, 1999 were $347,747 as
compared to $111,820 at December 31, 1998, a net increase of $235,927 for
the twelve months ended December 31, 1999. The net increase was the result of
$4,303,802 provided by financing activities offset by the use of $3,954,701 in
operating activities and $113,174 in investing activities.
The $4,303,802 provided by financing activities was derived primarily from the
private placement of 1,000,000 shares of Series B Convertible Preferred Stock,
the private placement of 2,000,000 shares of Common Stock and the private
placement of 2,979,256 shares of Common Stock and the proceeds from the
expanded use of the line of credit offset by payments on the long-term debt.
The $113,174 used in investing activities was for the purchase of plant,
property and equipment.
The Company's cash and cash equivalents at December 31, 1998 were $111,820 as
compared to $1,934,574 at December 31, 1997, a net decrease of $1,822,754 for
the twelve months ended December 31, 1998. The net decrease was the result of
$1,560,140 provided by financing activities offset by the use of $176,502 in in-
vesting activities and $3,206,392 in operating activities.
The $1,383,638 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 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 May 31, 2000. At December 31, 1999, the
Company had $1,000,000 outstanding under this Line of Credit and no additional
availability under the eligibility formula.
Pursuant to its rights as lender under loan documents executed and
delivered in connection with its December 1996 loan to the Company, in
January 2000, BSB Bank and Trust Company required SLI to provide it with
additional security for the 1996 loan in the form of a $750,000.00 second
mortgage on the company's facility and a first security interest in all of its
assets. The second mortgage and the security agreement granting the requested
security interest were executed and delivered to the bank on January 31, 2000.
The bank has agreed to release the lien of the second mortgage upon satisfaction
of the bank's first mortgage, and a pay down or permanent reduction of the
company's line of credit with the bank of $300,000.00 or a pledge of cash
collateral in such amount.
The bank agreed to waive the Default of the Company under its Loan
Agreement with respect to "Mandatory Loan Repayments" and waived the Affirmative
Covenants - "Financial Covenants and Ratios" at December 31, 1999. Subsequently,
the bank agreed to waive the Default of the Company under its Loan Agreement
with respect to "Mandatory Loan Repayments" for the period ending February 29,
2000 provided the Company met the borrowing base requirements as of March 3,
2000. These requirements were met by the Company.
The Company entered into a Securities Purchase Agreement (the "Securities
Purchase Agreement"), dated as of February 5, 1999, with bmp Mobility AG Venture
Capital ("bmp"), as amended by Amendment No. 1 to Securities Purchase Agreement
(the "Amendment"), dated as of April 28, 1999 (the Securities Purchase
Agreement, as amended by the Amendment is hereinafter referred to as the
"Amended Purchase Agreement"). Pursuant to the terms of the Amended Purchase
Agreement, bmp purchased, 2,000,000 shares of the Company's Common Stock and
1,000,000 shares of the Company's Series B Convertible Preferred Stock (the
"Series B Stock"), $.01 par value per share, each convertible into 5 shares
of the Company's Common Stock or an aggregate of 5,000,000 shares of the
Company's Common Stock. bmp had previously purchased 367,650 shares of the
Company's Common Stock in unrelated open market transactions. In connection
with the Amendment, on June 26, 1999 the Company issued to bmp a five year
warrant to purchase an aggregate of 500,000 shares Common Stock, at an exercise
price of $0.50 per share(the "bmp Warrrant"). Based on public filings, the
Company is aware that bmp has transferred ownership of its shares of Common
Stock, Series B Stock and the bmp Warrant to ANB Alster Neue Beiteiligungs GmbH
KG ("ANB"). The shares of Common Stock issued to bmp contain certain demand and
piggyback registration rights and the Series B Stock contains certain
anti-dilution rights.
In connection with the first installment of the bmp investment, BSB agreed
to increase the amount available under the Line of Credit to $1,000,000, to
extend the maturity date thereof until June 30, 1999 and to further extend the
maturity of the Line of Credit until May 31, 2000 upon the investment by bmp in
the Company of an additional $1.3 million dollars, subject to the absence of any
material adverse change in the business. BSB waived the requirement that the
Company maintain the balance of the Line of Credit within its collateral base
formula until the earlier of June 30, 1999 or the date that the Company was in
receipt of funds equaling an additional $1.3 million arising out of the final
installments of the bmp investment. Upon funding by bmp of the full amount of
the final installments of the investment, BSB extended the maturity date of the
Line of Credit until May 31, 2000. There can be mo assurance that any additional
extension of this waiver can be negotiated. 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.
On March 14, 2000, the Company entered into a Waiver and Lock-up Agreement
with BSB, pursuant to which BSB waived any rights to adjustment that it may have
under the BSB Warrant. In addition, BSB agreed not to transfer the shares of
Common Stock issuable to BSB upon conversion of the BSB Warrant until March 20,
2001 without the prior written consent of the Company. The Company is in the
process of negotiating a Consent, Waiver and Lock-Up Agreement with ANB,
pursuant to which ANB would waive any rights to adjustment that it may have
under the Securities Purchase Agreement and the bmp Warrant and agree to lock-up
a certain percentage of its shares of Common Stock that it beneficially
owns for a period of one year. In addition, the Company would agree to include a
certain percentage of the shares of Common Stock beneficially owned by ANB on
the registration statement described below. There can be no assurances that the
Company will obtain such consent Waiver and Lock-up Agreement with ANB and the
failure to obtain it could result in anti-dilution adjustments under the
instruments governing the securities held by ANB.
The Company has completed a private placement of Common Stock with certain
accredited investors introduced to the Company by a funding source referred to
the Company by bmp. As of September 30, 1999, 2,979,256 shares of Common Stock
were issued at an aggregate purchase price of $1,117,221. The Company received
$1,061,422 net of finder's fees. The shares of Common Stock issued in this
private placement contain certain piggyback registration rights.
The Company has issued an aggregate of 12,833,333 shares of Common Stock
and 9,743,333 warrants in a series of private placements consummated between
December 31, 1999 and the end of March 2000. The Company is expected to file a
registration statement with the Securities and Exchange Commission by early May
2000 registering approximately 9,400,000 shares of Common Stock in such private
placements. The Company raised an aggregate of $5,730,000 from such private
placements at purchase prices ranging between $0.30 and $0.50 per share and
warrant exercise prices ranging between $0.75 and $1.0625 per share. The
warrants range between 4 to 5 year warrants. The Company is in discussions with
certain other investors concerning up to an additional $4,300,000 of private
placement financing. There can be no assurance that such additional financing
can be consummated.
The Company has incurred net losses from inception (September 21, 1993)
and has an accumulated deficit at December 31, 1999 of $20,329,027. 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 financings. 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 private placements. 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. The Company anticipates that capital
expenditures during fiscal 2000 will range between approximately $500,000 and
$4,000,000 depending on the level of additional financing raised.
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.
In addition, the Company is currently engaged in a dispute with one of
its key customers, Rocky Mountain Instruments. See Item 3. "Legal Proceedings."
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, 1998 and 1999 F-2
Statement of Operations for the Years Ended December 31,
1997, 1998 and 1999 F-3
Statement of Changes in Shareholders Equity for the Years
Ended December 31, 1996, 1997, 1998 and 1999 F-4
Statement of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999 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, 1998
and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States 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, 1999 and has a significant
accumulated deficit that raise substantial doubt about its ability to continue
as a going concern. Management'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
Syracuse, NY
February 18, 2000, except as to Note 9 which is dated March 27, 2000
<PAGE>
F-2
Semiconductor Laser International Corporation
Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
----------- ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents............. $ 111,820 $ 347,747
Accounts receivable, net of allowance.
for doubtful accounts of $560,645 ..
and $583,293, respectively.......... 296,193 295,561
Inventory............................. 333,806 861,911
Prepaid expenses and other assets..... 209,717 24,957
----------- -----------
Total current assets............... 951,536 1,530,176
Plant, property and equipment, net..... 2,691,926 2,584,974
Deposits and other assets.............. 95,093 149,396
----------- -----------
Total assets...................... $ 3,738,555 $ 4,264,546
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable...................... $ 1,127,589 $ 708,193
Notes payable ( Line of Credit )...... 550,000 1,000,000
Accrued expenses and other liabilities 164,235 174,809
Current portion of long-term debt..... 37,170 44,368
----------- -----------
Total current liabilities........... 1,878,994 1,927,320
Long-term debt........................... 765,686 713,668
Accrued royalty payments................. 100,000 100,000
----------- -----------
Total liabilities................... 2,744,680 2,741,038
----------- -----------
Commitments and contingencies ( Note 10)
Shareholders' Equity
Common stock, $.01 par value, 20,000,000
and 75,000,000 shares authorized;
10,039,552 and 15,641,064 shares are
issued and outstanding or subscribed at
December 31, 1998 and 1999............. 100,396 156,411
Common stock issuable................... 41,073 -
Subscriptions receivable................ - (100,000)
Treasury Stock, 35,463 Shares........... (248,241) (248,241)
Convertible Preferred Stock ............ - 10,000
Additional paid-in capital.............. 18,060,685 22,034,365
Accumulated deficit..................... (16,960,038) (20,329,027)
------------ ------------
Total shareholders' equity........... 993,875 1,523,508
------------ ------------
Total liabilities and shareholders'..
equity............................... $ 3,738,555 $4,264,546
=========== ============
</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,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 478,924 $ 2,197,736 $ 1,524,514
Cost of sales (1,482,579) (3,093,343) (1,871,216)
------------ ------------ ------------
Gross margin (1,003,655) ( 895,607) ( 346,702)
Operating expenses:
Research and development $ 651,242 7,273 76,703
Sales and marketing 368,513 395,339 329,927
General and administrative 4,082,360 2,882,320 2,651,139
------------ ------------ ------------
Loss from operations (6,105,770) (4,180,539) (3,404,471)
Interest income 105,959 42,677 35,482
------------ ------------ ------------
Net loss (5,999,811) (4,137,862) (3,368,989)
Less: Beneficial conversion
feature (1,688,000) -- --
------------- ------------- ------------
Net loss applicable to
common stock $(7,687,811) $(4,137,862) $(3,368,989)
============= ============= ============
Net loss per share-basic $ (2.15) $ (0.44) $ (0.26)
and diluted ============= ============= =============
Weighted average shares
outstanding 3,572,458 9,320,785 13,078,597
============= ============= =============
</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 Subscriptions Accumulated Shareholders'
Stock Stock Issuable Stock Capital Receivable Deficit Equity
--------- --------- ----------- --------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 (5,999,810) (5,999,810)
--------- --------- ----------- --------- ----------- ------------ ------------ -----------
Bal. at Dec.31, 1997
(8,389,552 shares
issued and outstanding) 0 83,896 0 (248,241) 17,035,225 0 (12,822,176) 4,048,704
--------- --------- ----------- --------- ----------- ------------ ------------ -----------
Issuance of common
stock, private placement
(1,650,000 shares) 16,500 1,025,460 1,041,960
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) $18,060,685 $0 $(16,960,038) $ 993,875
--------- --------- ----------- --------- ----------- ------------- ------------ -----------
Issuance of common
stock, private placement
Feb.1999(2,000,000 shares) 20,000 687,964 707,964
Issuance of common
stock issuable,
Feb.1999(111,280 shares) 1,113 (41,073) 39,960 0
Issuance of warrants for
extension of line of credit, 31,500 31,500
Feb.1999(500,000 warrants)
Issuance of common stock,
for services rendered,
May 1999(23,867 shares) 238 8,712 8,950
Issuance of Series B
Convertible Preferred
Stock, May 1999
(1,000,000 shares) 10,000 1,989,988 1,999,988
Issuance of common
stock, private placement
Aug.1999(2,979,256
shares) 29,793 1,048,987 1,078,780
Issuance of common stock,
for services rendered,
Dec.1999(40,000 shares) 400 14,600 15,000
Common Stock Subscribed,
(447,109 Shares)Dec.1999 4,471 140,392 (100,000) 44,863
Record Re-Issuance of
Stock Options, Nov.1999 11,577 11,577
Net loss for the year
ended Dec.31, 1999 (3,368,989) (3,368,989)
--------- --------- --------- --------- ----------- ------------- ------------ ------------
Bal. at Dec. 31, 1999
(15,641,064 shares
issued and outstanding $10,000 $156,411 - $(248,241) $22,034,365 $ (100,000) $(20,329,027) $ 1,523,508
and subscribed ========= ========= ========= ========= =========== ============= ============ ============
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,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(5,999,811) $(4,137,862) $(3,368,989)
Adjustments to reconcile
net loss to cash used in
operating activities:
Depreciation and amort. 126,344 205,066 220,126
Expenses settled through
the issuance of Common
shares, options and
warrants 1,282,379 41,073 48,673
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable (140,023) ( 95,123) 632
(Increase) in inventory (132,885) (194,605) (528,105)
(Increase) decrease in
prepaid exp. and other ( 70,717) (110,136) 184,760
assets
(Increase) decrease
in deposits and other
assets 64,608 467,363 (54,303)
Increase (decrease) in
accounts payable (629,825) 615,142 (419,396)
Increase (decrease) in
accrued expenses and
other liabilities 69,346 2,690 10,574
------------ ------------ ------------
Net cash used in operating
activities (5,430,584) (3,206,392) (3,906,028)
------------ ------------ ------------
Cash flows from investing
activities:
Purchase of plant, property
and equip., net: (2,463,450) (176,502) (113,174)
Sale of equipment, pursuant
to sale and leaseback
agreement 2,676,856 - -
------------ ------------ ------------
Net cash provided by (used
in) investing activities 213,406 (176,502) (113,174)
------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from long-term
debt 31,306 - -
Payments on long-term debt (32,503) (31,820) (44,820)
Proceeds from issuance of
stock, net of expenses 2,886,781 1,041,960 3,849,949
Proceeds from short-term
debt - 550,000 450,000
------------ ------------ ------------
Net cash provided by
financing activities 2,885,584 1,560,140 4,255,129
------------ ------------ ------------
Net (decrease) increase
in cash, cash equivalents,
and restricted cash (2,331,594) (1,822,754) 235,927
Cash, cash equivalents,
and restricted cash at
beginning of period 4,266,168 1,934,574 111,820
------------ ------------ ------------
Cash, cash equivalents,
and restricted cash at
end of period $ 1,934,574 $ 111,820 $ 347,747
============ ============ ============
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, 1999
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.
2. Financial Resources and Liquidity
The Company has incurred net losses from inception (September 21, 1993) and
has at December 31, 1999 an accumulated deficit of $20,329,027 and a working
capital deficit of $397,194. Such losses have resulted primarily from the
Company's activities as a development stage enterprise, until April 1997, and
have been financed primarily from proceeds from the Company's initial public
offering and private equity financings (see Notes 8 and 9). While the Company
is in receipt of approximately $5.7 million, subsequent to December 31, 1999(See
Note 9), certain of the monies will be utilized to pay payables in arrears,
prospectively however, the Company needs to demonstrate an ability to increase
its sales, generate positive gross margins and net income. Based upon the
fiscal 2000 budget, 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
financings. There can be no assurance that such additional financing can be
consummated.
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
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less, at the date of purchase, to be cash equivalents.
Inventory
Inventory is valued at the lower of cost or market on a 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. 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.
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. In the event such cash flows are not to be sufficient to
recover the recorded value of the assets, the assets are written down to their
estimated fair values.
Revenue Recognition
Revenue recognition is based on the terms of the underlying sales agreements
(purchase orders or contracts), typically when products are shipped to
customers.
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 approximately $651,000, $7,000 and $76,000 for the years ended
December 31, 1997, 1998 and 1999, respectively.
Income taxes
The Company provides for income taxes in accordance with the liability method
as set forth in Financial Accounting Standards No. 109, "Accounting for 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
Net loss per share, basic and diluted, is computed using the weighted average
number of common shares outstanding.
As of December 31, 1999, the Company had outstanding warrants and options to
purchase 4,203,493 and 552,304 shares of common stock, respectively, which are
not included in the calculation of diluted earnings per share for the twelve
months ended December 31, 1999, due to the anti-dilutive nature of these
instruments.
4. Inventories
Prior to July 1, 1999, the Company manufactured its product on a job basis,
however subsequent to July 1, 1999 the Company began building finished goods and
certain semi-assembled products for anticipated sales, thus representing an
increase in raw material and work-in-process at December 31, 1999. Inventory is
comprised of the following as of December 31:
1998 1999
---- ----
Raw Material and Supplies $333,806 $778,751
Work in Process - 83,160
-------- --------
Total $333,806 $861,911
======== ========
5. Plant, Property and Equipment
Plant, property and equipment consists of the following:
December 31, December 31,
1998 1999
----------- -----------
Land $ 175,459 $ 175,459
Building 2,099,861 2,099,861
Machinery and equipment 587,097 699,798
Furniture and fixtures 159,358 159,358
Automobiles 76,124 76,124
----------- -----------
3,097,899 3,210,600
Less: accumulated depreciation (405,973) (625,626)
----------- -----------
$ 2,691,926 $ 2,584,974
=========== ===========
Depreciation expense for the years ended December 31, 1997, 1998 and 1999, was
approximately $125,000, $204,000 and $218,000, respectively.
During 1997, the Company sold and leased back approximately $2,677,000 of
machinery, equipment, furniture and fixtures. No gain or loss was realized on
the sale and leaseback transactions.
<PAGE>
F-9
<PAGE>
F-10
6. Debt
Long-term debt consists of the following:
December 31,
--------------------------
1998 1999
------------ -----------
Bank term loan, principal and interest
at 10% payable monthly through
January 2002 $ 31,974 $ 20,600
Bank term loan, principal and interest
at 10% (adjustable after December 2001)
payable monthly through December 2006 770,882 737,436
------------ -----------
802,856 758,036
Less current portion (37,170) ( 44,368)
------------ -----------
$ 765,686 $ 713,668
============ ===========
Both loans are collateralized 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, 1999, 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 for the period ending
December 31, 1999.
Aggregate annual scheduled principal payments, assuming the bank does not call
its debts, applicable to long-term debt are as follows:
2000 - $ 44,368
2001 - 42,918
2002 - 39,085
2003 - 43,237
2004 therafter - 588,428
---------
$ 758,036
=========
The Company has available a collateralized line of credit, subject to a
borrowing base calculation, with an aggregate availability in the amount of
$1,000,000 for purposes of providing working capital. The line, which matures on
May 31, 2000, bears interest at prime plus 2.5% (prime being 8.75% at December
31, 1999). The Company has utilized $1,000,000 of this line of credit at
December 31, 1999. The Company was not in compliance with the financial
covenants at December 31, 1999, 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 Control" for the period
ending December 31, 1999. There can be no assurance that any additional
extension of this waiver can be negotiated.
7. Income taxes
There was no provision for income taxes for the years ended December 31,
1997, 1998 and 1999.
Deferred income tax assets (liabilities) consisted of the following:
December 31,
----------------------------
1998 1999
----------- ------------
Depreciation and amortization $ (143,546) $ (154,007)
Accruals 39,000 39,000
Compensatory Stock Options 56,668 22,012
Bad Debt Expense 199,226 208,058
Net operating loss carryforward 5,295,520 7,929,948
----------- ------------
5,446,868 8,045,011
Valuation allowance $ (5,446,868) $(8,045,011)
----------- ------------
$ - $ -
=========== ============
<PAGE>
F-11
Net operating loss carry forwards of approximately $20,500,000 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, 1998 and 1999.
8. 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.2002-Nov.2005
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
Granted-Employees 301,400 $ 0.05-0.5156 Mar 2003-Sep 2005
Granted-Directors 134,000 $ 0.3438-0.5156 Sep 2009-2011
Options forfeited (31,551) $ 0.05-1.50
---------
Outstanding at December 31, 1999 552,304
=========
</TABLE>
<PAGE>
F-12
102,755, 122,455 and 99,904 options were exercisable at December 31, 1997, 1998
and 1999, respectively, at a weighted average exercise price of $.38, $0.90 and
$0.44, respectively.
On October 23, 1995, the Board of Directors adopted the Company's 1995
Emplo`yee 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.
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 $27,000 (or $0.01 per share) in
1997, $14,000 (or $0.02 per share) in 1998 and $26,581(or $0.001 per share)
in 1999. The weighted average fair value of the options granted in 1997, 1998
and 1999 was estimated at $0.31, $0.70 and $0.505 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:
1997 1998 1999
---------- ---------- ----------
Dividend Yield 0% 0% 0%
Volatility 63.13% 65.78% 152.11%
Risk Free Interest Rate 5.68% 4.84% 5.81%
Expected Life 2.9 years 4.9 years 4.0 years
<PAGE>
F-13
Warrants
On January 3, 1997, the Company issued 58,384 warrants in connection with
an operating lease agreement (see Note 10). 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
<TABLE>
<CAPTION>
Warrants Issued and Outstanding at December 31, 1999
<S> <C> <C>
Issued Number Price
---------- ----------- ---------
March, 1996 1,693,000 $5.00
July, 1996 255,000 $5.00
January, 1997 58,384 $5.00
October, 1997 750,000 Various
February, 1999 500,000 $0.575
February, 1999 500,000 $0.500
December, 1999 447,109 $0.450
-----------
Balance at December 31, 1999 4,203,493
===========
</TABLE>
<PAGE>
F-14
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 $1,042,000. 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, with bmp Mobility AG Venture
Capital ("bmp"), as amended by Amendment No. 1 to Securities Purchase Agreement
(the "Amendment"), dated as of April 28, 1999 (the Securities Purchase
Agreement, as amended by the Amendment is hereinafter referred to as the
"Amended Purchase Agreement"). Pursuant to the terms of the Amended Purchase
Agreement, bmp purchased, in multiple tranches, 2,000,000 newly issued shares of
the Company's Common Stock at a purchase price of $0.375 per share for an
aggregate purchase price of $750,000, and 1,000,000 shares of the Company's
Series B Convertible Preferred Stock (the "Series B Stock"), $.01 par value per
share, each convertible into 5 shares of the Company's Common Stock or an
aggregate of 5,000,000 shares of the Company's Common Stock, at a purchase price
of $2.00 per share, or $0.40 per share of Common Stock into which the Series B
Stock is convertible. bmp had previously purchased 367,650 shares of the
Company's Common Stock in unrelated open market transactions. The shares of
Common Stock issued to bmp contain certain demand and piggyback registration
rights and the Series B Stock contains certain anti-dilution rights.
In connection with the Amendment, the Company entered into a consulting
agreement (the "Consulting Agreement"), dated as of April 28, 1999, between
the Company and bmp Management Consultants GmbH ("bmp Consultants"), a German
limited liability corporation wholly owned by bmp AG Venture Capital &
Network Management, the parent company of bmp, providing for the retention of
bmp Consultants as strategic and financial consultants to the Company, for the
$200,000 aggregate consulting fee. As of March 21, 2000, bmp Consultants had
been paid $80,887.
In connection with the Amendment, on June 26, 1999, the Company issued to bmp
a five year warrant to purchase an aggregate of 500,000 shares of Common
Stock, at an exercise price of $0.50 per share (the "bmp Warrant"). The
shares issuable upon exercise of the bmp warrant contain certain demand and
piggyback registration rights. In addition, bmp is eligible to receive a
finder's fee in the amount of 5% of the net proceeds of any transaction
involving the raising of debt or equity capital in a private placement from a
source introduced to the Company by bmp consummated by the Company until June
26, 2001.
Based solely on public filings, the Company is aware that bmp has
transferred ownership of its shares of Common Stock, Series B Stock and the bmp
Warrant to ANB Alster Neue Beiteiligungs GmbH & Co. KG ("ANB").
In conjunction with the Securities Purchase Agreement, on February 16, 1999,
the Company issued to BSB Bank & Trust Company, 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 has been
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.
On March 14, 2000, the Company entered into a Waiver and Lock-up Agreement with
BSB, pursuant to which BSB waived any rights to adjustment that it may have
under the BSB Warrant. In addition, BSB agreed not to transfer the shares of
Common Stock issuable to BSB upon conversion of the BSB Warrant until March 20,
2001 without the prior written consent of the Company.
The Company is in the process of negotiating a Consent, Waiver and Lock-Up
Agreement with ANB, pursuant to which ANB would waive any rights to adjustment
that it may have under the Securities Purchase Agreement and the bmp Warrant and
agree to lock-up a certain percentage of its shares of Common
Stock that it beneficially owns for a period of one year. In addition, the
Company would agree to include a percentage of the shares of the Company's
Common Stock beneficially owned by ANB on a registration statement to be filed
with the Securities and Exchange Commission by early May 2000.
The Company has completed a private placement of Common Stock with certain
accredited investors introduced to the Company by a funding source referred
to the Company by bmp. As of September 30, 1999, 2,979,256 shares of Common
Stock have been issued at an aggregate purchase price of $1,117,221. The
Company received $1,061,422 net of finder's fees. The shares of Common Stock
issued in this private placement contain certain piggyback registration
rights.
<PAGE>
F-16
9. Subsequent Events
Private Placements
The Company has issued an aggregate of 12,833,333 shares of Common Stock
and 9,743,333 warrants in a series of private placements consummated between
December 31, 1999 and the end of March 2000. The Company is expected to file a
registration statement with the Securities and Exchange Commission by early May
2000 registering approximately 9,400,000 shares of Common Stock in such private
placements. The Company raised an aggregate of $5,730,000 from such private
placements at purchase prices ranging between $0.30 and $0.50 per share and
warrant exercise prices ranging between $0.75 and $1.0625 per share. The
warrants range between 4 to 5 year warrants. The Company is in discussions with
certain other investors concerning up to an additional $4,300,000 of private
placement financing. There can be no assurance that such additional financing
can be consummated.
10. Commitments, Contingencies and Other Matters
Operating Leases
Rent expense under noncancellable operating leases was approximately $1,024,000,
$963,000 and $674,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
Future minimum payments under noncancellable operating leases, including
the Finova lease agreement, at December 31, 1999, are as follows:
Year Ending
December 31,
----------------
2000 1,006,748
2001 605,207
----------
$1,611,955
==========
Litigation
The Company is currently engaged in litigation with a former employee, Dr. Keith
Evans, against whom the Company brought an action for 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
further, believes that the ultimate outcome of such action will not have a
material impact on the financial condition, results of operations or cash flows
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 Company does not know whether or not this investigation
remains active and is not able to speculate as to the specific subject matter of
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. The Company has cooperated with the
investigation and has responded to all requests for information in connection
with the investigation. No such requests for information has been forthcoming
since late 1998.
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 but has been informed that the Company is not presently a target of
the investigation. The Company has cooperated fully with the investigation and
has responded to a grand jury subpoena issued in connection with the
investigation. The Company does not know whether or not this investigation
remains active and is unable to speculate as to the outcome or possible effect
of the investigation on the Company or its management. 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.
In November, 1999, an action was filed against the Company and several of
its present and former officers and directors in the United States Federal Court
for the District of Massachusetts entitled Geran v. Semiconductor Laser
International Corporation, Whale Securities Co., LP, Geoffrey T. Burnham, Allen
W. Johnson, Jr., Theodore W. Konopelski, Susan M. Burnham, George Barrett, David
L. Koffman, Brian Thompson, and Nicholas L. Prioletti, Jr., No. CA99-30-251-MAP.
The Complaint alleges violations by the defendants of Section 12(2) of the
Securities Act of 1933 arising out of alleged misrepresentations by defendants
as to the Company that allegedly induced plaintiff to purchase warrants to
purchase the Company's stock. The Complaint seeks damages of $27,782.00. The
Company believes it has meritorious defenses to this action and intends to
defend the action vigorously and further, believes that the ultimate outcome
of such action will not have a material impact on the financial condition
or results of operations of the Company. As of December 31, 1999 the Company
had not been served with the summons and complaint in this matter, although the
company understands that several defendants who are current and former officers
and directors of the Company may have received service.
The Company is currently engaged in litigation with Newport Corporation, a
vendor who is seeking to recover $100,508 for goods allegedly sold to the
Company. Based on losses sustained by the Company as a result of previously
supplied defective equipment from this vendor, the Company's counterclaim
exceeds the amount sued for by Newport Corporation. The Company believes
that the ultimate outcome of the action will not have a material impact on
the financial condition or results of operations of the Company.
The Company is currently engaged in litigation with IOS Capital Corporation,
a vendor who is seeking to recover $55,821 on the basis of an alleged default
by the Company in making its lease agreement installments for color copying
equipment. The Company believes that the vendor was incapable of providing a
working product acceptable to the Company and the equipment was returned to the
vendor as a result. The Company believes that the ultimate outcome of the
action will not have a material impact on the financial condition or results of
operations of the Company.
The Company is currently engaged in a lawsuit with one of its 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. On November 2, 1999 SLI filed a
Complaint and Jury Demand against RMI claiming, among other things, that RMI had
breached its contract and failed to fulfill its promises relating to RMI's
purchase of laser diodes from SLI. A trial date has not yet been established.
The Company's allowance for doubtful accounts includes an allowance for a
receivable due from Rocky Mountain Instruments ("RMI") which is in dispute.
On November 2, 1999 the Company filed a Complaint and Jury Demand against RMI
for breach of contract. The court is in the process of establishing a date
for a settlement conference.
<PAGE>
F-17
Agreements
Technology License Agreement
The Company entered into a license agreement for certain technology. The
agreement provides for a payment of $100,000 and 5,000 shares of the Company's
restricted common stock, upon delivery of the technology. In addition, the
Company will pay a royalty for sales utilizing this technology. As of December
31, 1999 the Company has made $10,000 of the required cash payments.
Orthogenesis Agreement
The Company entered into a Joint Venture Agreement (the "Orthogenesis
Agreement"), dated September 28, 1999, between the Company and Orthogenesis
System, Inc. ("Orthogenesis"). Pursuant to the Orthogenesis Agreement, the
Company and Orthogenesis agreed to develop, sell and distribute low level laser
systems used in non-invasive medical treatments for the purpose of
biostimulation. Primarily intended for use with certain medical conditions, its
principal focus is on arthritic conditions, accelerated wound healing and
chronic pain. Potential secondary applications include acute injuries, such as
those relating to sports or casual physical overexertion. The laser also has
potential to be used in related areas within veterinary practices.
Under the Orthogenesis Agreement, the Company and Orthogenesis each have a
50% voting interest in the joint venture and the Company has been granted an
exclusive license to manufacture the Orthogenesis laser system for the term of
the joint venture. The Company has agreed to manufacture and sell the
Orthogenesis laser system at the Company's total cost of manufacturing
(including material, direct labor and overhead costs) such system. The Company
has also agreed to perform the financial and accounting functions for the
joint venture and will be responsible for responding to customers' complaints.
Orthogenesis has agreed to be responsible for marketing, research and
development and product upgrades of such systems. Profits derived from the sale
of the Orthogenesis laser system will be divided 75% to the Company and 25% to
Orthogenesis.
The Company believes that it has the capability of manufacturing this system
without any significant initial capital investment. The system has shown
promise in early tests although no definitive study has been completed to date
and there can be no assurance that any future studies will be favorable. The
Company intends to commence marketing in Canada and in certain other countries
where it expects it will be permitted to sell the system without any additional
regulatory approval and expects to eventually apply for FDA approval to enable
it to sell the system in the United States. The Company's ability to obtain FDA
approval and to increase sales materially is dependent on its ability to raise
capital for the joint venture.
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.
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.
The Company has submitted a plan for the further development and
commercialization of certain Licensed Products, including the transfer of
technology and "know-how" from Northwestern University. The Company has paid
royalties due to Northwestern University under the License Agreement
and provided further information concerning the Company's satisfaction of the
License Agreement milestones. As of March 20, 2000 the Company has met all of
the requirements of the Northwestern License. The Company continues to develop
this technology and expects to introduce new aluminum free products as time
goes on.
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 ...... 51 Chairman of the Board of Directors,
President, Chief Executive Officer
Susan M. Burnham ............. 44 Vice President, Treasurer and Director
Leonard E. Lundberg........... 53 Chief Financial Officer
George W. Hippisley........... 59 Director
Dr. Vincent Tomaselli......... 59 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. Hippisley was elected as a director of the Company in June 1999. Mr.
Hippisley is currently the owner of Cohasset Enterprises, a sole-proprietorship
founded in late 1997 to provide business developement consulting services to
technology-intensive manufacturing firms and not-for-profit organizations. Since
August of 1998, Mr.Hippisley has been a member of the Board of Directors,
Secretary, and Executive Director of the Photonics Industry Association of New
York, Inc. (PIANY),a not-for-profit New York corporation which has filed with
the Internal Revenue Service for 501 (c)(6) trade association status. PIANY's
mission is to promote the photonics, optics, and imaging industry of New York
State. Since 1991 he has served as Executive Director of the New York Photonics
Development Corporation, a 501 (c)(3) not-for-profit New York corporation,
responsible for developeing and executing technology transfer and
commercialization programs to improve the competitiveness of small and mid-size
photonics manufacturing firms throughout New York State. From 1985 to 1990 Mr.
Hippisley was Chief Operating Officer for Eagle Comtronics, Inc., a privately-
held manufacturer of electronic filters and encryption systems for the CATV
industry.
Dr. Vincent P. Tomaselli was elected as a director of the Company in September
1999. Dr. Tomaselli is Deputy Director for Business Development and Operations
for the Center for Advanced Technology (CAT) at the City University Of New York
(CUNY). He has been associated with the CAT since its beginning in 1994.
Concurrently, he also manages the Department of Energy-sponsored Center for
Laser Imaging and Cancer Diagnostics and the NASA-sponsored Institutional
Research Award program, both at City College of CUNY.He has been a member of
the Board of Directors of the Photonics Industry Association of New York since
its inception in 1998. From 1998 to 1990, he was Director of the Center for
Photonics and Imaging Science and Professor of Electrical Engineering and
Physics at Fairleigh Dickinson University. From 1984 to 1988, he was Assistant
Dean for Research and Graduate Studies in the College of Science and Engineering
at FDU. In 1988, he served as University Grants Administrator. From 1975 to 1984
he was Professor of Physics and Manager of the Physics Research Laboratory.
During that time his research interests were in farinfrared spectroscopy,
optical properties of particulate and biological materials, and instrument
development. From 1990 to 1994, Dr. Tomaselli was a senior project scientist at
Woodward-Clyde Consultants, a major consulting firm specializing in enviromental
problems.He headed the program involving health issues related to low frequency
(ELF) electormagnetic fields, supervised and developed analytical and quality
control procedures for a large-scale data management effort, served as computer
services manager, and evaluated computer models. Dr. Tomaselli has a Ph.D. in
physics from New York University and a BS and MS (Magna Cum Laude) in physics
from Fairleigh Dickinson University. He was a member of the New Jersey
Governor's Science Advisory Panel (1981-1983), and was listed in Who's Who in
Optical Science and Engineering (1987), Who's Who in Science and Technology
(1983), and American Men and Women of Science(1981).
All directors hold office until the next annual meeting of shareholders and
until their successors have been elected and duly qualified. Roger D. O'Brien,
who served as a director during fiscal 1999, advised the Company of his
resignation as a director of the Company, effective as of February 29, 2000.
There has been no disagreement between the Company and Mr. O'Brien.
Edwin B. Spievack, who served as a director of the Company from May 1999
until the beginning of September 1999, advised the Company of his resignation
as a director of the Company effective as of September 7, 1999. There has been
no disagreement between the Company and Mr.Spievack.
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.
Hippisley and Tomaselli 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. Hippisley and Tomaselli are the current members of
the Audit Committee.
<PAGE>
22
Indemnification and Exculpation of Directors and Officers
Section 145 of the General Corporation Law of Delaware grants each
corporation organized thereunder the power to indemnify its officers, directors,
employees and agents on certain conditions against liabilities arising out of
any action or proceeding to which any of them is a party by reason of being such
officer, director, employee or agent. The Company's Bylaws and Certificate of
Incorporation also provide for the indemnification of such persons, to the
fullest extent permitted by the General Corporation Law of Delaware.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, 1999 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, 1999, 1998 and 1997.
No other executive officer of the Company received aggregate compensation and
bonuses which exceeded $100,000 during such years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Award
----------------------------------------------- ------------
Securities
Year Ended Other Annual Underlying
Name and Principal Position December 31, Salary($) Bonus($) Compensation($) Options
--------------------------- ------------ --------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Dr. Geoffrey T. Burnham, 1999 $ 133,000 - - 60,000(1)
Chairman, President and 1998 $ 133,000 - - -
Chief Executive Officer 1997 $ 127,395 - - -
</TABLE>
(1)There were 60,000 options to purchase Common Stock granted to Dr.
Burnham during the fiscal year ended December 31, 1999 at an exercise price of
$0.5156 per share.
<TABLE>
STOCK OPTION GRANTS AND EXERCISES
The following stock options were granted to the following named executives during 1999:
<S> <C> <C> <C> <C> <C>
Name Number of % of Total Exercise Expiration 5% 10%
Securities Options Price Date Potential Realized Value at
Underlying Granted to Assumed Annual Rates of
Options Employees Stock Price Appreciation for
in 1999 (1) Option Term (2)
Geoffrey T. Burnham 60,000 20% $0.5156 9/14/2003-05 $8,576 $19,038
___________
(1) The Company granted stock options representing 301,400 shares of our common stock to employees during
the fiscal year ended December 31, 1999.
(2) The potential realizable value illustrates value that might be realized upon exercise of the options
immediately prior to the expiration of their terms, assuming the specified compounded rates of
appreciation of the market price per share from the date of grant to the end of the option term. Actual
gains, if any, on stock option exercises are dependent upon a number of factors, including the future
performance of the common stock and the timing of option exercises, as well as the optionee's continued
employment through the vested period. There can be no assurance that the amounts reflected in this table
will be achieved.
</TABLE>
Aggregated Option Exercise During Fiscal 1999 and Year End Option Values
The following table sets forth information concerning outstanding options
to purchase Common Stock held by Dr. Burnham as of the fiscal year ended
December 31, 1999. Dr. Burnham did not exercise any options during fiscal 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options "In-the-Money" Options at
at Fiscal Year-End(#) Fiscal
Year-End($)
- ---------------------------- -------------- ----------- --------------- ---------------- --------------- ---------------
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
Acquired on Realized
Exercise
- ---------------------------- -------------- ----------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Geoffrey T. Burnham -0- -0- 39,404 60,000 9,729(1) -0-
- ---------------------------- -------------- ----------- --------------- ---------------- --------------- ---------------
(1) Based upon an estimated fair market value of $0.2969 per share of Common Stock as of December 31,
1999, less the $0.050 exercise price of such options.
</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 28, 2000 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) 1.1%
Susan M. Burnham........................ 431,894(4) 1.1%
Leonard E. Lundberg..................... 0 *
George W. Hippisley..................... 8,666(5) *
1101 Floyd Avenue
Rome, NY 07840
Vincent Tomaselli....................... 0 *
30 West Broadway
New York, NY 10007
Rennes Foundation....................... 19,666,666(6) 47.9%
Aeulestrasse 38
FL - 9490 Kaduz
Germany
ANB Alster Neue Beteiligungs GmbH & Co.. 7,872,650(7) 17.1%
Neuer Wall 20
20354 Hamburg
Germany
Strategic Management Corporation........ 2,800,000(8) 6.8%
282 Katona Avenue
Katona, NY 10536
All Directors and executive officers as
a group (5 persons)............... 872,454(9) 2.1%
</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, 2000
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, 2000 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 Option Plan options to purchase 8,666 shares.
(6) Consists of 11,333,333 shares of common stock and 8,333,333 warrants to
purchase common stock
(7) Consists of 2,372,650 shares of common stock and 500,000 warrants to
purchase common stock and 5,000,000 shares of common stock convertible
from 1,000,000 shares of preferred stock on a 5 to 1 conversion basis
(8) Consists of 1,400,000 shares of common stock and 1,400,000 warrants to
purchase common stock
(9) Includes an aggregate of 84,070 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
Currently, there are no such transactions. Any future transactions, if any,
between the Company and its officers, directors and/or greater than 5%
shareholders will 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.
3.1 By-Laws of the Company.(1)
3.2 Certificate of Ownership and Merger.(1)
* 3.3 Certificate of Amendment to the Company's Certificate of Incorporation
filed March 6, 2000
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(5)
4.16 Form of Certificate of Designations of Series B Convertible Preferred
Stock of the Registrant.(6)
* 4.17 Form of Warrant dated March 20, 2000 issued to Strategic Management
Corporation and to Rennes Foundation.
* 4.18 Waiver and Lock-Up Agreement dated March 14, 2000 by BSB Bank and 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(5)
10.16 Amendment to Line of Credit Commitment Letter between the
Registrant and BSB Bank & Trust Company(5)
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(5)
10.18 Registration Rights Agreement, dated February 5, 1999, between the
Registrant and bmp Mobility AG Venture Capital(5)
10.19 Amendment No. 1 to Securities Purchase Agreement, dated as of April 28,
1999, between the Company and bmp Mobility AG Venture Capital.(6)
10.20 Consulting Agreement, dated as of April 28, 1999 between the Company and
bmp Management Consultants GmbH.(6)
10.21 Common Stock Purchase Warrant, dated June 26,1999, issued to bmp.(7)
10.22 Form of Securities Purchase Agreement.(7)
10.23 Form of Registration Rights Agreement (Exhibit A to Form of Securities
Purchase Agreement).(7)
10.24 Promissory Note from BSB Bank & Trust.(7)
10.25 Joint Venture Agreement, dated as of September 28,1999, by and between
the Company and Orthogenesis Systems, Inc.(8)
10.26 Forbearance Letter Agreement, dated November 18, 1999, between the Company
and FINOVA.(8)
* 10.27 Form of Subscription Agreement dated as of February 25, 2000 between
the Registrant and Rennes Foundation and the Registrant and Nasser
Sahraian
* 10.28 Form of Securities Purchase Agreement dated as of March 20, 2000 by
and among the Registrant and Strategic Management Corporation and
Rennes Foundation
* 10.29 Registration Rights Agreement dated as of March 20,2000 by and among
the Registrant and Strategic Management Corporation and Rennes
Foundation
* 10.30 Form of Mortgage and Security Agreement dated January 31,2000, between
Broome County Industrial Development Agency, the Registrant and BSB.
* 10.31 Form of Subscription Agreement dated as of December 31, 1999 between
the Registrant and Michael Kachmarik
* 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.
(5) Incorporated by reference to Registrant's Annual Report on Form 10KSB for
the year ended December 31, 1998.
(6) Incorporated by reference to Registrant's Quarterly Report on Form 10QSB for
the quarter ended March 31, 1999.
(7) Incorporated by reference to Registrant's Quarterly Report on Form 10QSB for
the quarter ended June 30, 1999.
(8) Incorporated by reference to Registrant's Quarterly Report on Form 10QSB for
the quarter ended September 30, 1999.
(b) Reports on Form 8-K
None
<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 30, 2000 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 30, 2000
/s/ Susan M. Burnham
- ---------------------------- Vice President, Treasurer
Susan M. Burnham and Director March 30, 2000
/s/ Leonard E. Lundberg
- ------------------------------ Chief Financial Officer,
Leonard E. Lundberg Principal Financial Officer
and Principal Accounting
Officer March 30, 2000
/s/ George W. Hippisley
- -----------------------------
George W. Hippisley Director March 30, 2000
/s/ Dr. Vincent Tomaselli
- -----------------------------
Dr. Vincent Tomaselli Director March 30, 2000
<PAGE>
[TYPE] EX-3.3
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
(Pursuant to Sections 242 of the Delaware General Corporation Law)
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION, a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that:
FIRST: The name of the corporation is Semiconductor Laser International
Corporation.
SECOND: The Board of Directors of the Corporation duly adopted a resolution
proposing and declaring it advisable that the first paragraph of Article FOURTH
of the Certificate of Incorporation of the Corporation be amended in its
entirety to read as follows:
The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is eighty million (80,000,000)
shares divided into two classes of which five million (5,000,000) shares of par
value $.01 per share shall be designated Preferred Stock and seventy five
million (75,000,000) shares of par value $.01 per share shall be designated
Common Stock.
THIRD: This amendment to the Certificate of Incorporation of the
Corporation was duly adopted in accordance with the applicable provisions of
Section 242 of the Delaware General Corporation Law.
FOURTH: This amendment to the Certificate of Incorporation of the
Corporation shall be effective on and as of the date of filing of this
Certificate of Amendment with the office of the Secretary of State of the State
of Delaware.
SEMICONDUCTOR LASER INTERNATIONAL
CORPORATION
By:___________________________________
Name: Geoffrey T. Burnham
Title: President, Chief Executive Officer
and Chairman of the Board
[TYPE] EX-4.17
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES MAY
NOT BE SOLD, TRANSFERRED OR ASSIGNED WITHOUT (A) REGISTRATION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR (B) RECEIPT BY THE COMPANY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
_________________________________________
WARRANT TO PURCHASE COMMON STOCK
OF
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
______________________________________
No. 1 of ________
FOR VALUE RECEIVED, __________________, or its permitted assigns (the
"Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from Semiconductor Laser International Corporation, a Delaware corporation (the
"Company"), up to _____________ shares of common stock, par value $.01 per share
("Common Stock"), of the Company at any time or from time to time after
__________, 2000 and before 4:00 P.M., New York City time, on __________, 2004
(the "Termination Date"), at a price per share equal to $.75 (the "Exercise
Price"). The number of shares of Common Stock to be received upon the exercise
of this Warrant and the Exercise Price may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon any exercise
of this Warrant are hereinafter sometimes referred to as "Warrant Shares". This
Warrant is issued by the Company pursuant to the Securities Purchase Agreement
dated as of ___________, 2000 (the "Purchase Agreement") among the Company and
each of the purchasers named on the signature pages thereto and shall be
entitled to the rights set forth therein, including certain registration rights
relating to the Warrant Shares.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part
at any time or from time to time after __________, 2000 until the Termination
Date; provided, that, if the date of exercise shall be a day on which banking
institutions in the State of New York shall be authorized by law to close, then
the Warrant shall be exercisable on the next succeeding day which shall not be
such a day; and provided, further, that the Holder shall exercise this Warrant
for a number of Warrant Shares in a minimum amount equal to the lesser of (i)
20,000 Warrant Shares and (ii) such number of Warrant Shares (including any
fraction of a share) that shall remain issuable upon exercise of the Warrant in
full. This Warrant may be exercised by presentation and surrender hereof to the
Company at its principal office, or at the office of its stock transfer agent,
if any, with the Purchase Form annexed hereto duly executed and accompanied by
payment of the Exercise Price for the number of Warrant Shares specified in such
Form. As soon as practicable after each such exercise, but not later than five
(5) business days following the date of such exercise, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee(s). If this Warrant shall be exercised in part, the Company shall, upon
surrender of the Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
Warrant Shares purchasable hereunder. Upon receipt by the Company of the Warrant
at its office, or by the stock transfer agent of the Company at its office, in
proper form for exercise and accompanied by proper payment, the Holder shall be
deemed to be the holder of record of the Warrant Shares issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then have been physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company covenants and agrees that it shall
at all times reserve for issuance and delivery upon exercise of the Warrant such
number of shares of Common Stock as shall be required for issuance and delivery
upon exercise of the Warrant. In addition, the Company further covenants and
agrees that all Warrant Shares, upon issuance, shall be duly and validly issued,
fully paid and non-assessable and no personal liability shall attach to the
Holder.
(c) FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued
upon exercise of this Warrant. All fractional shares shall be eliminated by
rounding any fraction to the nearest whole number of shares of Common Stock.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant shall
be exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company, or at the office of its stock transfer
agent, for other Warrants of different denominations entitling the Holder
thereof to purchase in the aggregate the same number of shares of Common Stock
purchasable hereunder. Upon surrender of this Warrant to the Company or the
office of its stock transfer agent, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company, without
charge, shall execute and deliver new Warrants in the name of the assignee named
in such instrument of assignment and this Warrant shall be cancelled promptly,
provided that the Company shall receive from the Holder an opinion of counsel
satisfactory to the Company that such assignment, as contemplated by the Holder,
shall not violate applicable Federal or state securities laws. This Warrant may
be divided or combined with other Warrants which carry the same rights upon
presentation hereof at the principal office of the Company or the office of its
stock transfer agent, together with a written notice, signed by the Holder
hereof, specifying the names and denominations in which new Warrants are to be
issued. The term "Warrants" as used herein shall include any warrants into which
this warrant may be divided or exchanged. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.
-2-
(e) RIGHTS OF HOLDER. The Holder shall not, until the exercise hereof of
the Warrant, be entitled to any rights of a stockholder in the Company, either
at law or equity, and the rights of the Holder shall be limited to those
expressed herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and
the number and kind of securities purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of any of
the following events:
(i) In the event that the Company shall issue or sell any shares of Common
Stock (except as provided in paragraph (f)(v) hereof) for a consideration per
share less than the greater of (A) 75% of the Exercise Price in effect
immediately prior to such issue or sale and (B) 75% of the Market Price (as
defined in Paragraph (f)(ii)(G) hereof) on the date of such issue or sale, then
the Exercise Price, as of the date of such issue or sale, shall be reduced to
such lesser price (calculated to the nearest cent) as shall be determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (x) the number of shares of
Common Stock outstanding immediately prior to the issuance or sale of such
additional shares and (y) the number of shares of Common Stock which the
aggregate consideration received for the issuance or sale of such additional
shares would purchase at the greater of the Market Price on the date of such
issue or sale or the Exercise Price then in effect, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after the
issuance or sale of such additional shares.
(ii) For the purposes of paragraph (f)(i) above, the following subparagraphs
(A) to (G), inclusive, shall be applicable:
(A) If at any time the Company shall issue or sell any rights to subscribe
for, or any rights or options to purchase, Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (such convertible
or exchangeable stock or securities being hereinafter called "Convertible
Securities"), whether or not such rights or options or the right to convert or
exchange any such Convertible Securities shall be immediately exercisable, and
the price per share for which Common Stock shall be issuable upon the exercise
of such rights or options or upon conversion or exchange of such Convertible
Securities (determined by dividing (1) 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, plus, in the case of
any such rights or options which shall relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (2) the total number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the greater of (x) the Exercise Price in effect
immediately prior to the time of the issue or sale of such rights or options and
(y) the Market Price on the date of such issue or sale, then the total number of
shares of Common Stock issuable upon the exercise of such rights or options or
upon conversion or exchange of the total amount of such Convertible Securities
issuable upon the exercise of such rights or options shall (as of the date of
granting of such rights or options) be deemed to be outstanding and to have been
issued for such price per share, and except as provided in paragraph (f)(iv), no
further adjustments of the Exercise Price shall be made upon the actual issue of
such Common Stock or of such Convertible Securities, upon the exercise of such
rights or options or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities.
(B) If at any time the Company shall issue or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder shall be
immediately exercisable, and the price per share for which Common Stock shall be
issuable upon such conversion or exchange (determined by dividing (1) 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 (2) the total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the greater of (x) the Exercise Price in effect immediately prior to
the time of such issue or sale and (y) the Market Price on the date of such
issue or sale, then the total number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall (as of the date
of the issue or sale of such Convertible Securities) be deemed to be outstanding
and to have been issued for such price per share, and, except as provided in
paragraph (f)(iv), no further adjustments of the Exercise Price shall be made
upon the actual issue of such Common Stock, upon conversion or exchange of such
Convertible Securities. In addition, if any issue or sale of such Convertible
Securities shall be made upon exercise of any rights to subscribe for or to
purchase or any option to purchase any such Convertible Securities for which
adjustments of the Exercise Price shall have been or shall be made pursuant to
other provisions of this paragraph (f)(ii), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(C) If at any time the Company shall declare and pay a dividend or make any
other distribution upon the Common Stock payable in Common Stock or Convertible
Securities, any such Common Stock or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration; provided, that this provision shall
not apply to any shares of Common Stock issuable for additional consideration
upon conversion of such Convertible Securities. (D) If at any time any shares of
Common Stock or Convertible Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be issued or sold for cash,
the consideration received therefor shall be deemed to be the amount received by
the Company therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be deemed to be the fair value of such consideration as determined
by the Board of Directors, without deduction therefrom of any expenses incurred
or any underwriting commissions or concessions or discounts paid or allowed by
the Company in connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor shall
be deemed to be the fair value of such merged corporation as determined by the
Board of Directors reduced by all cash and other consideration (if any) paid by
the Company in connection with such merger.
(E) If at any time the Company shall fail to set a record date of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock or in Convertible
Securities, or (2) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(F) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the Company,
provided that such shares are neither issued, sold or otherwise distributed by
the Company.
(G) For purposes hereof, the "Market Price" shall mean the national best
bid price of the Common Stock as shown on the NASD's OTC Bulletin Board Service
as of 4:00 p.m. Eastern time on any day, or, if the Common Stock shall be quoted
on The Nasdaq National Market or The Nasdaq SmallCap Market or listed on a
national securities exchange, the closing sale price as of 4:00 p.m. Eastern
time on such principal market or national securities exchange on which the
Common Stock may be listed. If at any time the Common Stock shall not be traded
on the OTC Bulletin Board Service or quoted or listed on the Nasdaq National
Market or The Nasdaq SmallCap Market or a national securities exchange, the
"Market Price" of a share of Common Stock shall be deemed to be the higher of
(x) the book value thereof (as determined by any firm of independent public
accountants of nationally recognized standing selected by the Board of
Directors) as of the last day of any month ending within 60 days preceding the
date of determination, or (y) the fair value thereof (as determined in good
faith by the Board of Directors) as of a date which shall be within 15 days of
the date of determination.
(iii) In case at any time the Company shall subdivide its outstanding
shares of Common Stock into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision shall be proportionately reduced.
In case at any time the outstanding shares of Common Stock of the Company shall
be combined into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased.
(iv) If the purchase or exercise price provided for in any right or option
referred to in paragraph (f)(ii)(A), or the rate at which any Convertible
Securities referred to in paragraph (f)(ii)(A) or (B) shall be convertible into
or exchangeable for Common Stock, shall change or a different purchase or
exercise price or rate shall become effective at any time or from time to time,
then, upon such change becoming effective, the Exercise Price then in effect
hereunder shall forthwith be increased or decreased to such Exercise Price as
would have been in effect had the adjustments made upon the granting or issuance
of such rights or options or Convertible Securities been made upon the basis of
(A) the issuance of the number of shares of Common Stock theretofore actually
delivered upon the exercise of such options or rights or upon the conversion or
exchange of such Convertible Securities and (B) the granting or issuance at the
time of such change of any such options, rights or Convertible Securities then
still outstanding for the consideration, if any, received by the Company
therefor and to be received on the basis of such changed price; provided, that
no further adjustment will be made if the change in such purchase or exercise
price or rate shall occur pursuant to the anti-dilution provisions of such right
or option or Convertible Securities and there shall have already been a similar
adjustment to the Exercise Price or rate as a result of the same transaction
that precipitated the change in such purchase or exercise price or rate.
(v) Notwithstanding the foregoing, the Company shall not be required to
make any adjustment to the Exercise Price in the case of:
(A) the granting, after the date hereof, by the Company of stock options
with respect to shares of Common Stock under stock option plans of the Company,
so long as the total number of shares of Common Stock issuable pursuant to (i)
stock options outstanding as of any such date, including stock options then
granted (but not including any terminated or exercised options), and (ii) stock
options available to be granted, shall not exceed, in the aggregate, six million
of the total outstanding number of shares of Common Stock as of any such date;
(B) the issuance of shares of Common Stock pursuant to the exercise of the
options referred to in paragraph (f)(v)(A) above;
(C) the issuance of shares of Common Stock pursuant to the exercise of any
options or warrants outstanding on the date hereof;
(D) the issuance of shares of Common Stock pursuant to the Purchase
Agreement or the Registration Rights Agreement;
(E) the issuance of shares of Common Stock upon the exercise of any of the
Warrants;
(F) the issuance of shares of Common Stock pursuant to the acquisition of
another corporation or entity by the Company by merger, purchase of all or
substantially all of the assets or other reorganization whereby the Company
shall become the owner of more than 50% of the voting power of such corporation
or entity; and
(G) the issuance of shares of Common Stock issued pursuant to any public
offering and sale of equity securities of the Company pursuant to an effective
registration statement under the Securities Act.
(H) the issuance of shares of Common Stock privately placed for sale by the
Company to a group of investors within thirty (30) days from the Closing Date
(as defined in the Purchase Agreement); and
(I) the issuance of warrants privately placed by the Company to a group of
investors within thirty (30) days from the Closing Date (as defined in the
Purchase Agreement).
(vi) Whenever the Exercise Price payable upon exercise of this Warrant
shall be adjusted pursuant to this paragraph (f), the number of Warrant Shares
purchasable upon exercise hereof simultaneously shall be adjusted by multiplying
the number of Warrant Shares issuable immediately prior to such adjustment by
the Exercise Price in effect immediately prior to such adjustment and dividing
the product so obtained by the Exercise Price, as adjusted.
(g) OFFICER'S CERTIFICATE. The Company shall give notice to each record
holder of the Warrants of any event or transaction that shall result in an
adjustment in the Exercise Price, within five (5) business days thereof, at such
Holder's address as the same appears on the books of the Company, including a
computation of such adjustment and any adjustment in the number of Warrant
Shares for which such Holder may exercise such Holder's Warrant and any further
information as shall be necessary to confirm the computation of such
adjustments.
(h) CERTAIN NOTICES TO HOLDERS. If (i) the Company shall pay any dividend
or make any distribution upon the Common Stock, (ii) the Company shall offer to
the holders of the Common Stock for subscription or purchase by them any share
of any class of capital stock or any other rights or (iii) any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation, merger or other business combination of the Company with
or into another corporation, sale, lease or transfer of all or substantially all
of the assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then in
any such case, the Company shall cause to be mailed by certified mail to the
Holder, at least twenty (20) days prior to the date specified in (x) or (y)
below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record date shall be
established for the purpose of such dividend, distribution or rights offering or
(y) such reclassification, reorganization, consolidation, merger, conveyance,
sale, lease, transfer, dissolution, liquidation or winding up shall take place
and the date, if any to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION, MERGER OR OTHER BUSINESS COMBINATION.
In case of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock, or in case of any consolidation, merger or
other business combination of the Company with or into another corporation or
other entity (other than a merger with a subsidiary in which merger the Company
shall be the continuing corporation and which shall not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in case
of any sale, lease or conveyance to another corporation or other entity of all
or substantially all of the assets of the Company, the Company shall cause
effective provisions to be made so that the Holder, by exercising this Warrant
at any time after the consummation of such reclassification, change,
consolidation, merger, sale, lease or conveyance, shall be entitled to receive
the stock or other securities or property to which such Holder would have been
entitled upon such consummation if such Holder had exercised this Warrant
immediately prior to such consummation. Any such provision shall include
provisions for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this paragraph (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales, leases or conveyances. In the
event that, in connection with any such capital reorganization or
reclassification, consolidation, merger, sale, lease or conveyance, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock subject to
the provisions of paragraph (f) hereof.
(j) REDEMPTION. The Company, upon thirty (30) days' prior written notice to
the Holder, may elect to redeem all or part of this Warrant at a price equal to
$0.01 per Warrant Share issuable upon the exercise hereof, if, but only if: (i)
the Market Price shall have exceeded $.90 per share (adjusted as set forth in
paragraph (f)(iii) hereof, if applicable) on each of the twenty (20) trading
days for which quotes appear on the Common Stock ending on the business day
prior to the date on which the notice of redemption shall be mailed to the
Holder, (ii) the registration statement required to be filed under Section 2 of
the Registration Rights Agreement, dated as of the date hereof, by and among the
Company and the other parties signatory thereto, shall be effective and permit
the sale of all Warrant Shares, and (iii) the Common Stock shall be trading on
the OTC Bulletin Board Service, the NASDAQ National Market, the NASDAQ Small
Cap Market or a national securities exchange. Any such redemption shall be
effective on the thirtieth day following the date of such notice; provided,
however, that the Holder may elect at any time prior to the effective date of
redemption to exercise all or any portion of this Warrant in accordance with the
terms hereof; and, provided further, that the Company's right to redeem this
Warrant shall be suspended if the Warrant Shares may not be sold pursuant to an
effective registration statement for any reason whatsoever or the Common Stock
shall not be trading on the OTC Bulletin Board Service, the NASDAQ National
Market, the NASDAQ Small Cap Market or a national securities exchange. The
notice period shall then be extended for a period of time equal to the number of
days during the notice period during which the registration statement shall not
have permitted the sale of such Warrant Shares or the Common Stock shall not
have been so listed and trading, as the case may be. The redemption price shall
be payable in full, in cash, on the effective date of any redemption pursuant to
this paragraph (j). A redemption notice delivered by the Company pursuant to
this paragraph (j) shall be irrevocable. Notwithstanding the foregoing, the
Company's right to redeem all or part of this Warrant may not be exercised if on
the date on which the Company gives notice of such exercise the Market Price
shall be less than $.90 per share (adjusted as set forth in paragraph (f)(iii)
hereof, if applicable).
(k) GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the law of the State of New York.
(l) NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Warrant shall be in writing and addressed to the Chief
Financial Officer of the Company at its principal corporate offices. Any notice
required to be given or delivered to the Holder shall be in writing and
addressed to the Holder at the address indicated in the Purchase Agreement or to
such other address as such party may designate in writing from time to time to
the Company. All notices shall be deemed to have been given or delivered upon
any of the following: (i) personal delivery; (ii) five (5) days after deposit in
the United States mail by certified or registered mail (return receipt
requested); (iii) one (1) business day after deposit with any nationally
recognized overnight courier (prepaid); or (iv) one (1) business day after
transmission by facsimile and receipt by the sender of written facsimile
confirmation.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by the undersigned, each being duly authorized, as of the date below.
Dated: __________, 2000
SEMINCONDUCTOR LASER
INTERNATIONAL CORPORATION
By:_______________________________
Name:
Title:
Attest: ________________________
Name:
Title:
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ____________ shares of Common Stock and hereby makes total
payment of $______________ in payment of the Exercise Price multiplied by such
number of shares.
___________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, _____________________________________ hereby sells,
assigns and transfers unto
Name: __________________________________
(print in block letters)
Social Security No. or
Federal Taxpayer Identification No.:_________________________________
Address:________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent
of _________ shares of Common Stock as to which such right is exercisable and
does hereby irrevocably constitute and appoint _________________________ as
Attorney, to transfer the same on the books of the Company with full
power of substitution.
Date____________________, ____ Signature: _______________________
Name:
[TYPE] EX-4.18
WAIVER AND LOCK-UP AGREEMENT
Reference is made to the Common Stock Purchase Warrant, dated February 16,
1999 (the "Warrant"), issued to BSB Bank & Trust Company. The undersigned hereby
waives any rights to adjustment in the Purchase Price (as defined in the
Warrant) per share of the Company's Common Stock acquired through the exercise
of the Warrant (the "Securities") in connection with a private placement of
securities by the Company for an aggregate purchase price per share of at least
$4 million closed during the next 30 days for a consideration per share less
than the then current Market Price or the Lower Exercise Price (as such terms
are defined in the Warrant). In addition, the undersigned agrees not to sell,
make any short sale of, pledge, grant any option for the purchase of or
otherwise dispose of the Securities, without the prior written consent of the
Company until March 20, 2001. Before any transfer of the Securities may occur,
the transferee thereof shall agree in writing to the terms hereof. This Waiver
shall not operate as a waiver of any subsequent or future issuances and sales of
equity securities by the Company.
Dated:March 14, 2000
BSB BANK & TRUST COMPANY
By:______________________
Name:
Title:
[TYPE] EX-10.27
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
SUBSCRIPTION AGREEMENT
Dated as of December 31, 1999
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of December 31, 1999 (this "Agreement"),
by and among Semiconductor Laser International Corporation, a Delaware
corporation (the "Corporation"), and _______________ (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Corporation desires to sell and issue to the Subscriber, and
the Subscriber desires to purchase and subscribe from the Corporation (i)
447,109 shares (the "Shares") of common stock, $.01 par value per share (the
"Common Stock"), of the Corporation, and (ii) a warrant (the "Warrant")
exercisable for an aggregate of 447,109 shares of Common Stock (the "Warrant
Shares") which may be exercised in whole or in part at any time or from time to
time commencing on the date hereof and prior to December 31, 2004 for an
exercise price of $.45 per share; and
WHEREAS, certain terms used in this Agreement are defined in Section 7.1
hereof.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and agreements hereinafter contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
intending to be legally bound, the parties hereto hereby agree as follows:
1. Sale and Purchase of the Shares and the Warrant. Subject to the terms
and conditions of this Agreement, at the Closing, the Corporation shall sell and
deliver to the Subscriber, and the Subscriber shall purchase and subscribe from
the Corporation, the Shares of Common Stock and the Warrant.
2. Purchase Price.
2.1. Amount of the Purchase Price. The aggregate purchase price (the
"Purchase Price") for the Shares of Common Stock and the Warrants being
purchased by the Subscriber pursuant to Section 1 shall be One Hundred Thousand
Dollars ($100,000) (calculated with reference to the ten day average closing
price from December 16, 1999 to December 30, 1999 of the shares less a 10%
discount). The Purchase Price shall be payable as provided in Section 2.2
hereof.
2.2. Payment of the Purchase Price. At the Closing Date, the Subscriber
shall deliver the Purchase Price to the Corporation, which Purchase Price shall
be payable by a certified or official bank check(s) payable to the order of the
Corporation or wire transfer of immediately available funds. As soon as
practicable after such payment, the Corporation shall
2
deliver to the Subscriber (i) a certificate representing the Shares of
Common Stock and (ii) the Warrant which shall contain customary antidilution
protection and other customary terms.
3. Closing. The closing of this Agreement (the "Closing") is scheduled to
take place on December 31, 1999 at the offices of the Corporation, or at such
other time, date or place as the parties hereto may mutually agree. The date on
which the Closing is held is referred to in this Agreement as the "Closing
Date."
4. Representations and Warranties of the Corporation.
The Corporation hereby represents and warrants to the Subscriber, that:
4.1. Organization of the Corporation; Authority. The Corporation is duly
formed, validly existing and in good standing under the laws of the jurisdiction
of its formation. The Corporation has all requisite power and authority to enter
into this Agreement, and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Corporation of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of the Corporation. This Agreement has been
duly executed and delivered by the Corporation and, assuming that this Agreement
constitutes a valid and binding obligation of the Subscriber, constitutes a
valid and binding obligation of the Corporation, enforceable against the
Corporation in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
4.2. Consents of Third Parties. None of the execution and delivery by the
Corporation of this Agreement, the consummation of the transactions contemplated
hereby, or compliance by the Corporation with any of the provisions hereof will
(a) conflict with, or result in the breach of, any provision of the
organizational documents of the Corporation, (b) conflict with, violate, result
in the breach or termination of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) or give rise
to any right of termination or acceleration or right to increase the obligations
or otherwise modify the terms thereof under any Contract, Permit or Order to
which the Corporation is a party or by which the Corporation or any of its
properties or assets is bound, (c) constitute a violation of any Law applicable
to the Corporation, or (d) result in the creation of any Lien upon the
properties or assets of the Corporation.
5. Representations and Warranties of the Subscriber.
The Subscriber hereby represents and warrants to the Corporation, that:
3
5.1. Capacity; Authorization. The Subscriber has the legal capacity to
enter into this Agreement and to carry out their obligations hereunder. Assuming
due execution and delivery by the Corporation of this Agreement, this Agreement
will constitute a legal, valid and binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.2. Due Diligence. The Subscriber is an employee of the Corporation and is
familiar with the business, operations and management of the Corporation. The
Subscriber has had an opportunity to ask questions of and receive answers from
the Corporation and its officers and other directors concerning the terms and
conditions of the sale of the Shares of Common Stock and the Warrant, and has
had an opportunity to obtain additional information from the Corporation to the
extent deemed necessary or advisable by the Subscriber in order to verify the
accuracy of the information obtained. The Subscriber has, to the extent deemed
necessary by the Subscriber, consulted with his own advisors (including the
Subscriber's attorney, accountant or investment advisor) regarding the
Subscriber's investment in the Shares of Common Stock and the Warrant and
understands the significance and effect of its representations, warranties,
acknowledgments and agreements set forth in this Agreement. The Subscriber has,
to the extent deemed necessary by the Subscriber, completed due diligence and an
independent investigation concerning the Corporation and the terms and
conditions of the sale of the Shares of Common Stock and the Warrant.
5.3. Investment Purposes. (a) The Subscriber is acquiring the Shares of
Common Stock for investment purposes only, for their own account, and not as a
nominee or agent for any other Person, and not with a view to, or for resale in
connection with, any distribution thereof within the meaning of the Securities
Act, (b) the Subscriber has knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of their investment,
(c) the Subscriber is an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act (i.e., the Subscriber's net worth, or
joint net worth with that of his spouse, at the time of his purchase of the
Shares of Common Stock exceeds $1,000,000) and (d) the Corporation has made
available to the Subscriber the opportunity to ask questions and to receive
answers, and to obtain the information the Subscriber has deemed material and
necessary to evaluate the merits and risks of this investment.
5.4. Consents of Third Parties. None of the execution and delivery by the
Subscriber of this Agreement, the consummation of the transactions contemplated
hereby, or compliance by the Subscriber with any of the provisions hereof will
(a) conflict with, violate, result in the breach or termination of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) or give rise to any right of termination or
acceleration or right to increase the obligations or otherwise modify the terms
thereof under any Contract, Permit or Order to which the Subscriber is a party
or by which the Subscriber or any of
4
their properties or assets is bound; (b) constitute a violation of any Law
applicable to the Subscriber; or (c) result in the creation of any Lien upon the
properties or assets of the Subscriber. Other than those which have been
obtained or made, no consent, waiver, approval, Order, Permit or authorization
of, or declaration or filing with, or notification to, any Person or
Governmental Body is required on the part of the Subscriber, in connection with
the execution and delivery of this Agreement, or the compliance by the
Subscriber with any of the provisions hereof.
6. Transfer Restrictions; Private Placement.
6.1. The Subscriber understands and agrees that none of the Shares of
Common Stock, the Warrant or the Warrant Shares have been registered under the
Securities Act, and that accordingly they will not be transferable except as
permitted under various exemptions contained in the Securities Act, or upon
satisfaction of the registration and prospectus delivery requirements of the
Securities Act. The Subscriber acknowledges that it must bear the economic risk
of the Shares of Common Stock for an indefinite period of time since they have
not been registered under the Securities Act and therefore cannot be sold unless
they are subsequently registered or an exemption from registration is available.
6.2. The Subscriber agrees with the Corporation that the certificates
evidencing the Shares of Common Stock sold pursuant to this Agreement 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, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH
ACT, PROVIDED THAT, IF REQUESTED BY THE CORPORATION, AN OPINION
OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS
FURNISHED TO THE CORPORATION THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
6.3. The legend endorsed on the certificates pursuant to Section 6.2 hereof
shall be removed and the Corporation shall issue a certificate without such
legend to the holder thereof at such time as the securities evidenced thereby
cease to be restricted securities upon the earliest to occur of (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) the securities
shall have been sold to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, or (iii) such securities
5
may be sold by the holder without restriction or registration under Rule
144(k) under the Securities Act (or any successor provision).
7. Miscellaneous.
7.1. Certain Definitions.
"Contract" means any contract, agreement, indenture, note, bond, loan,
instrument, lease, conditional sale contract, mortgage, license, franchise,
insurance policy, commitment or other arrangement or agreement, whether written
or oral.
"Governmental Body" means any government or governmental or regulatory body
thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
"Law" means any applicable federal, state, local or foreign law (including
common law), statute, code, ordinance, rule, regulation or other requirement or
guideline.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including, without limitation, any conditional sale or other
title retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction and including any lien or charge arising by statute or other
law.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Securities Act" means the Securities Act of 1933, as amended.
7.2. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.3. Further Assurances. The Corporation and the Subscriber each agree to
execute and deliver such other documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated hereby.
6
7.4. Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of this Agreement shall remain in effect.
7.5. Entire Agreement; Amendments and Waiver. This Agreement represents the
entire understanding and agreement among the parties hereto with respect to the
subject matter hereof and can be amended, supplemented or changed, and any
provision hereof can be waived, only by written instrument making specific
reference to this Agreement signed by the parties hereto. No action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant or
agreement contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a further or
continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
7.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflict of laws thereunder which would specify the application of
the law of another jurisdiction.
7.7. Headings; Interpretive Matters. The section headings of this Agreement
are for reference purposes only and are to be given no effect in the
construction or interpretation of this Agreement. No provision of this Agreement
will be interpreted in favor of, or against, any of the parties hereto by reason
of the extent to which any such party or its counsel participated in the
drafting thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
7.8. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to create
any third-party beneficiary rights in any Person or entity not a party to this
Agreement except as provided below. No assignment of this Agreement or of any
rights or obligations hereunder may be made by the Corporation or the Subscriber
(by operation of law or otherwise) without the prior written consent of the
other party hereto and any attempted assignment without the required consents
shall be void. Upon any permitted assignment, the references in this Agreement
to the Corporation shall apply to any such assignee unless the context otherwise
requires.
7
IN WITNESS WHEREOF, the parties hereto have caused this Subscription
Agreement to be duly executed as of the date and year first written above.
SEMICONDUCTOR LASER
INTERNATIONAL CORPORATION
By:________________________
Name: Geoffrey T. Burnham
Title: President and Chief Executive Officer
___________________________
[Subscriber]
8
[TYPE] EX-10.28
SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement (this "Agreement"), dated as of March __,
2000, by and among Semiconductor Laser International Corporation, a Delaware
corporation (the "Company"), and each of the purchasers set forth on the
signature pages hereto (individually, a "Purchaser" and, collectively, the
"Purchasers").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue and sell to the Purchasers for cash
an aggregate of nine million four hundred thousand (9,400,000) shares
(individually, a "Share" and, collectively, the "Shares") of common stock, no
par value, of the Company (the "Common Stock") and nine million four hundred
thousand (9,400,000) warrants to purchase shares of Common Stock (as further
described below); and
WHEREAS, the Company, among other things, has agreed to provide certain
registration rights under the Securities Act of 1933 (the "Securities Act") with
respect to the Shares, the shares of Common Stock issuable upon exercise of
warrants that are being issued to the Purchasers pursuant to this Agreement and
certain shares of Common Stock issuable pursuant to this Agreement or the
Registration Rights Agreement (as hereinafter defined).
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants set forth herein, the parties hereto agree as follows:
1. Sale of Stock and Delivery of Warrants; Closing.
(a) Purchase and Sale. Subject to the terms and conditions hereof, the
Company shall issue and sell to each of the Purchasers, and each Purchaser,
severally, shall purchase from the Company, the number of Shares set forth
opposite such Purchaser's name on Schedule 1 hereto at a purchase price of $.50
per Share. The Company shall deliver to each Purchaser warrants to purchase, at
an exercise price of $.75 per share, such number of shares of Common Stock set
forth opposite such Purchaser's name on Schedule 1 hereto (the "Warrants"). The
shares of Common Stock issued or issuable upon exercise of the Warrants are
hereinafter referred to as the "Warrant Shares." The Warrants shall be in the
form of Exhibit A hereto.
(b) Closing. The closing of the purchase and sale of the Shares and
Warrants (the "Closing") shall take place at the offices of Swidler Berlin
Shereff Friedman, LLP, 405 Lexington Avenue, New York, New York 10022 on March
__, 2000, or such later date on which the conditions set forth in Sections 8 and
9 hereof shall have been satisfied or waived; provided, however, that the
Closing, in no event, shall occur later than March 28, 2000. The date of the
Closing shall be hereinafter referred to as the "Closing Date."
(c) Delivery. At the Closing, the Company shall deliver to each Purchaser a
stock certificate representing the Shares purchased by such Purchaser and the
Warrants to be delivered to such Purchaser, against payment of the purchase
price therefor by cashier's check, payable to the order of the Company, or by
wire transfer of immediately available funds to the Company in accordance with
the Company's wiring instructions. In addition, the Company shall deliver to
each Purchaser such other agreements, documents, certificates and opinions as
specified in this Agreement or as may reasonably be requested by such Purchaser.
2. Representations and Warranties of Purchasers. Each of the
Purchasers represents, warrants and covenants, severally, to the Company, as
of the date hereof and as of the Closing Date, as follows:
(a) Authorization. The Purchaser is duly organized, validly existing and in
good standing under the laws of its jurisdiction. The Purchaser has the
necessary power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of, and the
performance under, this Agreement by the Purchaser will not conflict with any
rule, regulation, judgment or material agreement applicable to the Purchaser.
Each of the Transaction Documents to which the Purchaser is a party constitutes
the valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditor's rights and (ii) as limited by
general principles of equity that restrict the availability of equitable
remedies.
(b) Investment Purpose. The Purchaser was not formed for the purpose of
acquiring the Securities (as defined below). The Purchaser is purchasing the
Shares and acquiring the Warrants, and will purchase the Warrant Shares
(together with the Shares and the Warrants, the "Securities"), for investment
purposes and not with a present view to, or for sale in connection with, a
distribution thereof within the meaning of the Securities Act. The Purchaser
understands that it may not be able to sell or otherwise dispose of the
Securities, and accordingly it must bear the economic risk of this investment
indefinitely. The Purchaser understands that the Company has had and continues
to have insufficient capital and that this investment involves a high degree of
risk.
(c) Reliance On Exemptions. The Purchaser understands that the Securities
have not been registered under the Securities Act or any state securities laws
and are being offered and sold in reliance upon specific exemptions from the
registration requirements of Federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations and
warranties of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Securities.
(d) Information. The Purchaser has been furnished all documents relating to
the business, finances and operations of the Company which the Purchaser
requested from the Company and has been able to evaluate the risks and merits
associated with an investment in the Securities to its satisfaction. The
Purchaser has been afforded the opportunity to ask questions of the Company's
representatives concerning the Company in making the decision to purchase the
Shares and acquire the Warrants, and such questions have been answered to its
satisfaction. However, neither the foregoing nor any other due diligence
investigation conducted by the Purchaser or on its behalf shall limit, modify or
affect the representations and warranties of the Company in Section 3 of this
Agreement or the right of the Purchaser to rely thereon.
(e) Governmental Review. The Purchaser understands that no Federal or state
agency or any other government or governmental agency has passed upon or made
any recommendation or endorsement of the Securities.
(f) Purchaser's Qualifications. The Purchaser is an "accredited investor"
as defined in Rule 501 under Regulation D of the Securities Act ("Regulation
D"). The Purchaser is capable of evaluating the merits and risks of an
investment in the Securities.
(g) Restrictions on Transfer. The Purchaser covenants and agrees that it
shall not transfer any of the Securities unless such Securities are registered
under the Securities Act or unless an exemption from registration and
qualification requirements are available under the Securities Act and applicable
state securities laws and the Company has received an opinion of counsel
satisfactory to it stating that such registration and qualification is not
required; provided, that such transaction be effected in accordance with the
assignment provisions of Section 11(e) hereof. The Purchaser understands that
certificates representing the Shares, the Warrants, the Warrant Shares, shares
of Common Stock issued pursuant to Section 5 of this Agreement, and any Default
Shares (as such term is defined in the Registration Rights Agreement attached
hereto as Exhibit B (the "Registration Rights Agreement")) shall bear the
following, or substantially similar, legends until such time as they have been
registered under the Securities Act or otherwise may be sold without compliance
with volume limitations under Rule 144 under the Securities Act:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED WITHOUT (A) REGISTRATION UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR (B) RECEIPT BY THE COMPANY OF AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
(h) Residence. The Purchaser is a resident of the jurisdiction set forth
under its name on the signature pages hereto.
(i) Antidilution. Each of the Purchasers understand that the Company has
antidilution protection provisions in its Certificate of Designations,
Preferences and Rights and Series B Convertible Preferred Stock covering
1,000,000 shares of the Company's Series B Preferred Stock which may be
convertible into 5,000,000 shares of Common Stock for each share of Series B
Preferred Stock and warrants convertible into 500,000 shares of the Company's
Common Stock. It is further understood that the investment in the Company may
trigger certain antidilution, adjustments and co-investment rights under such
instruments. Each of the Purchasers has been furnished with such instruments by
the Company and has been able to evaluate the risks and merits associated with
an investment in the Securities to its satisfaction.
3. Representations and Warranties of the Company. The Company
represents and warrants to each Purchaser,as of the date hereof and as of the
Closing Date, as follows:
(a) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all necessary corporate power and authority to own or lease
its assets and to carry on its business as now being conducted and presently
proposed to be conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which its
ownership or leasing of assets, or the conduct of its business, makes such
qualification necessary, except where the failure to be so qualified would not
result in a Material Adverse Change (as defined in Section 3(h) hereof).
(b) Subsidiaries. The Company has no subsidiaries. Except as listed on
Schedule 3(b), the Company has no equity interest in any corporation,
partnership, joint venture or other entity.
(c) Requisite Power and Authorization. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, the
Registration Rights Agreement and the Warrants (collectively, the "Transaction
Documents") and to perform its obligations under each of the Transaction
Documents, including without limitation the issuance of the Securities hereunder
and thereunder. All corporate action of the Company required for the execution
and delivery of the Transaction Documents and the issuance and delivery of the
Securities has been duly and effectively taken, and no further actions,
authorizations or consents, including, without limitation, any consents of the
stockholders of the Company, are required. Each of the Transaction Documents
constitutes the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditor's rights, (ii) as limited by
general principles of equity that restrict the availability of equitable
remedies and (iii) as the indemnity provisions of the Registration Rights
Agreement may be limited by law. The Shares, when issued, delivered and paid for
in compliance with the provisions of this Agreement, will be validly issued,
fully paid and non-assessable, free and clear of any and all liens, charges,
claims or encumbrances. The Warrant Shares, if and when issued, delivered and
paid for in compliance with the provisions of this Agreement and the Warrants,
will be validly issued, fully paid and non-assessable, free and clear of any and
all liens, charges, claims or encumbrances. The Company has reserved a
sufficient number of shares of Common Stock necessary for issuance of the Shares
and the Warrant Shares.
(d) SEC Documents. The Company has filed with the Securities and Exchange
Commission (the "SEC") all reports, statements, schedules and other documents
(collectively, the "SEC Documents") required to be filed by it pursuant to the
Securities Act and the Securities Exchange Act of 1934 (the "Exchange Act"). The
Company is subject to the reporting requirements of the Exchange Act and has
been so subject during the last three years. Since December 31, 1998, the
Company has filed in a timely manner all SEC Documents required to be filed (or
obtained extensions in respect thereof and filed within the applicable grace
period). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements included
in the SEC Documents (the "Financial Statements") complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Except (i) as may be
indicated in the notes to the Financial Statements or (ii) in the case of the
unaudited interim statements, as permitted by Form 10-Q under the Exchange Act,
the Financial Statements have been prepared in accordance with United States
generally accepted accounting principles consistently applied and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal recurring
year-end adjustments and footnotes).
(e) Capitalization. The capitalization of the Company as of the date hereof
is set forth on Schedule 3(e), including (i) the authorized capital stock, (ii)
the number of shares issued and outstanding, (iii) the number of shares reserved
for issuance pursuant to stock option, employee benefit or other plans, (iv) the
number of shares reserved for issuance or issuable pursuant to securities
exercisable for, or convertible into or exchangeable for, any shares of Common
Stock, (v) the number of shares of Common Stock reserved for issuance with
respect to the sale of the Shares, and (vi) the number of shares of Common Stock
reserved for issuance upon exercise of the Warrants. All outstanding shares of
capital stock have been duly authorized and validly issued and are fully paid
and non-assessable. Except as set forth on Schedule 3(e) and except for the
Securities issued hereunder, the Company has (i) no outstanding securities
convertible into or exchangeable for any shares of capital stock of the Company,
(ii) no rights, options, warrants, calls or other agreements or commitments of
any nature whatsoever relating to the purchase or other acquisition of any
shares of its capital stock or securities convertible into or exchangeable for
any shares of its capital stock or (iii) no shares of its capital stock reserved
for issuance. Except as set forth on Schedule 3(e), the Company is not a party
to, and it has no knowledge of, any agreement restricting the voting or transfer
of any shares of the capital stock of the Company.
(f) No Conflicts. Neither the execution, delivery and performance by the
Company of this Agreement, the other Transaction Documents, and all instruments
and documents to be delivered by the Company in connection therewith, nor the
consummation of the transactions contemplated by any of the foregoing (i) has
constituted or resulted in, or will constitute or result in, a default under or
breach or violation of any term or provision of the Certificate of Incorporation
or Restated By-Laws of the Company or material contracts or instruments to which
the Company is a party or Federal, state or local laws, rules or regulations,
writs, orders, judgments or decrees which are applicable to the Company or its
assets, (ii) will result in the acceleration or termination of any rights under
any material contract or instrument to which the Company is a party or (iii)
will result in the creation or imposition of any material liens, charges or
encumbrances upon any assets of the Company (except for such defaults,
accelerations, terminations, liens charges and encumbrances as would not,
individually or in the aggregate, have a Material Adverse Effect).
(g) Consents. Other than any necessary approvals of the Board of Directors
of the Company that will be obtained before the Closing, no approval, consent,
order, authorization or other action by, or notice to or filing with, any
governmental authority or regulatory agency or any other person or entity, and
no lapse of a waiting period, is required in connection with the execution,
delivery or performance by the Company of this Agreement, any other Transaction
Document, the issuance and delivery of any of the Securities or any other
transactions contemplated by any of the Transaction Documents except for (i) the
filing of a Form D with the SEC, (ii) filings required under applicable state
"blue sky" laws (which shall be duly filed and effective prior to the Closing if
so required under such laws) and (iii) the filing of a registration statement or
statements pursuant to the Registration Rights Agreement.
(h) No Material Adverse Change. Except as set forth on Schedule 3(h), since
December 31, 1998, the business of the Company has been operated in the ordinary
course and substantially consistent with past practice and there has not been
any material adverse change in the business, assets, financial condition,
results of operations, affairs or prospects of the Company (a "Material Adverse
Change"). Since December 31, 1998, the Company has not (i) paid any obligation
or liability or discharged or satisfied any liens or encumbrances other than in
the ordinary course of business; (ii) declared or made any payment or
distribution to its stockholders or purchased or redeemed any of its shares of
capital stock or other securities; (ii) mortgaged, pledged or subjected to any
lien, charge or other encumbrance any of its assets, tangible or intangible,
except in the ordinary course of business; (iv) sold, transferred or leased any
of its assets except for fair value in the ordinary course of business; (v)
increased the annual compensation payable to any of its officers or other
employees, consultants or representatives by greater than $20,000; (vi)
cancelled or compromised any debt or claim, or waived or released any right of
material value; (vii) entered into any transaction other than in the ordinary
course of business; (viii) issued or sold any shares of capital stock or other
securities or granted any options, warrants or other purchase rights with
respect thereto that are not disclosed on Schedule 3(e); or (ix) agreed to do
any of the foregoing (other than pursuant hereto).
(i) Litigation. Except as described in the SEC Documents or as set forth on
Schedule 3(i), there is no claim, action, suit, proceeding or investigation
pending or, to the Company's knowledge, threatened against the Company, or any
of its respective directors or officers, in their capacities as such, (i) that
questions the validity of this Agreement or any other Transaction Document or
the issuance of the Securities, or the right of the Company to enter into this
Agreement or any other Transaction Document or to consummate the transactions
contemplated by any Transaction Document or (ii) that could reasonably be
expected to result, either individually or in the aggregate, in any Material
Adverse Change or in any material change in the current equity ownership of the
Company. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment, stipulation or decree of any court, administrative
agency, commission, regulatory authority, other government agency or
instrumentality.
(j) No Default. The Company is not in violation of or default under any
provision of its Certificate of Incorporation or Restated By-Laws or other
constituent documents or is in default (or, with notice or the lapse of time,
would be in default) under any material agreement, contract, commitment or
instrument to which it is a party or by which it or its properties or assets is
bound or affected. To the Company's knowledge, no third party is in material
default under or in material breach or violation of any material contract,
commitment or instrument to which the Company is a party or by which any of its
properties or assets are bound or affected.
(k) Compliance with Laws. The Company is in compliance and has conducted
its business and operations so as to comply with all laws (including, without
limitation, any environmental laws), ordinances, rules and regulations,
judgments, decrees or orders of any regulatory authority or other governmental
or administrative body or instrumentality, whether domestic or foreign. The
Company has not, since December 31, 1998, received any notice relating to any
violation or potential violation of applicable law or regulations.
(l) Title. Except as set forth on Schedule 3(l), the Company has good and
marketable title to all real and personal property owned by it which is material
to its business, in each case free and clear of all liens, encumbrances and
defects. Any property, real or personal, held under lease by the Company, is
held by it under valid and enforceable leases.
(m) Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, domain names, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge necessary to conduct its business as heretofore conducted by it, as
now being conducted by it, and as proposed to be conducted by it (collectively,
the "Intangibles"). To the Company's knowledge, the Company has not infringed,
is infringing, or is in conflict with any right of any other person with respect
to, any Intangibles. To the knowledge of the Company, no person is infringing on
or violating the Intangibles owned or used by the Company.
(n) Registration Rights. The only registration rights, including piggyback
rights, granted (or agreed to be granted) to any person or entity other than the
Purchasers are set forth on Schedule 3(n). None of the registration rights
disclosed on Schedule 3(n) are senior in priority to the registration rights
provided for in the Registration Rights Agreement.
(o) OTC Bulletin Board. The Common Stock is traded by means of the National
Association of Securities Dealers, Inc. (the "NASD") OTC Bulletin Board Service
(the "OTCBB"). The sale of the Securities as contemplated hereby will not
violate any rule of the NASD applicable to the Company or the Common Stock. The
Company has not received notification, written or oral, and has no reason to
believe, that the Company has failed to satisfy any requirement of the NASD
relating to the trading of the Common Stock on the OTCBB.
(p) No Misrepresentation. No representation or warranty by the Company in
this Agreement (including any Exhibit or Schedule hereto) and no statements of
the Company contained in any document, certificate, schedule or other
information furnished or to be furnished by or on behalf of the Company pursuant
to this Agreement or any other Transaction Document or in connection with the
transactions contemplated by any Transaction Document contains or shall contain
any untrue statement of material fact or omits or shall omit to state a material
fact required to be stated herein or therein or necessary in order to make such
statements, in light of the circumstances under which they were made, not
misleading. Except for the transactions contemplated hereby, no event or
circumstance has occurred or exists with respect to the Company or its business
affairs, assets, properties, prospects, operations or financial condition which
has not been publicly disclosed, but which, under applicable law, rule or
regulation, would be required to be disclosed by the Company in a registration
statement filed on the date hereof by the Company under the Securities Act with
respect to the primary issuance of the Company's securities. The Company has
delivered true and complete copies of all documents requested by the Purchasers
in writing.
(q) Other Shares. Except as set forth on Schedule 3(q), no stockholder of
the Company or other person or entity has any preemptive right of subscription
or purchase or contractual right of first refusal or similar right with respect
to any of the Securities. Issuance of the Securities will not result in the
issuance of any additional shares of Common Stock or similar rights contained in
any options, warrants, debentures or other securities or agreements of the
Company.
(r) No Brokers or Finders. Except for the fee described on Schedule 3(r),
which fee is the responsibility of and is being paid by the Company, no person
or entity has or will have, as a result of any engagement or contractual
obligation incurred by the Company or any of its affiliates, any right, interest
or valid claim against any Purchaser for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.
(s) Change of Control Payments. Neither the execution, delivery and
performance by the Company of any of the Transaction Documents nor the
consummation of any of the transactions contemplated thereby shall require any
payment by the Company, in cash or kind, under any agreement, plan, policy,
commitment or other arrangement. There are no agreements, plans, policies,
commitments or other arrangements with respect to any compensation, benefits or
consideration which will be materially increased, or the vesting of benefits of
which will be materially accelerated, as a result of the execution and delivery
of the Transaction Documents or the occurrence of any of the transactions
completed thereby. There are no payments or other benefits, the value of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement or any other Transaction Document.
(t) Taxes. Except as set forth on Schedule 3(t), the Company has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the Financial Statements for all current taxes and other
charges to which the Company is subject and which are not currently due and
payable. None of the income tax returns of the Company is currently being
audited by the Internal Revenue Service or any other governmental entity. The
Company has not filed with the Internal Revenue Service or any other
governmental authority any agreement or document extending, or having the effect
of extending, the period for assessment or collection of any taxes. The Company
has no knowledge of any additional assessments, adjustments or contingent tax
liability (whether Federal or state) pending or threatened against the Company
for any period, nor of any material basis for any such assessment, adjustment or
contingency.
(u) Year 2000 Compliance. Each system, comprised of software, hardware,
databases or embedded control systems (microprocessor controlled or controlled
by any robotic or other device) that constitutes any material part of, or is
used in connection with the use, operation or enjoyment of, any material
tangible or intangible asset of the Company (collectively, a "System"), to the
Company's knowledge, was not and will not be materially adversely affected by
the advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the
twenty-first century. To the Company's knowledge, the Company has not incurred,
and it has no reason to believe that it may incur, material expenses arising
from or relating to the failure of any of its Systems as a result of the advent
of the year 2000, the advent of the twenty-first century or the transition from
the twentieth century through the year 2000 and into the twenty-first century.
To the Company's knowledge, each System of the Company is able to accurately
process, provide and/or receive all date/time data, including, but not limited
to, calculating, comparing and sequencing within, from, into and between the
twentieth century (through year 1999), the year 2000 and the twenty-first
century, including leap year calculations; and has not been, and will not be, as
to performance and functionality, affected by any dates/times prior to, on,
after or spanning January 1, 2000 ("Year 2000 Compliant"). To the Company's
knowledge, all vendors of products or services to the Company, and their
respective products, services and operations are Year 2000 Compliant.
(v) Registration Statement. The Company is currently eligible to register
the resale of its Common Stock under the Securities Act pursuant to a
registration statement on Form SB-2. To the Company's knowledge, there exist no
facts or circumstances that would inhibit or delay the preparation and filing of
a registration statement on Form SB-2 with respect to the Shares and the Warrant
Shares.
(w) ERISA. All "employee benefit plans", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and any
other employee benefit arrangements or payroll practices (the "Plans"),
maintained by the Company or to which the Company contributed or is obligated to
contribute thereunder, is and has been maintained in compliance with applicable
law, including but not limited to ERISA, the Internal Revenue Code of 1986, as
amended (the "Code"), and any applicable law of any other governmental authority
and with any other contractual obligations and their terms. Each Plan that is
intended to be a tax qualified plan under Section 401(a) of the Code has been
determined by the Internal Revenue Service to qualify under Section 401 of the
Code, and the trusts created thereunder have been determined to be exempt from
tax under the provisions of Section 501 of the Code, and nothing has occurred,
including the adoption of or failure to adopt any Plan amendment, which could
reasonably be expected to adversely affect its qualification or tax-exempt
status.
(x) Labor Matters. There are no strikes or other labor disputes against the
Company pending or, to the Company's knowledge, threatened. There is no
organizing activity involving the Company pending or, to the Company's
knowledge, threatened by any labor union or group of employees.
4. Registration Rights. At the Closing, the Company and the
Purchasers shall enter into the Registration Rights Agreement.
5. Co-investment Rights for New Securities.
(a) The Company hereby grants to each Purchaser that owns at least 50% of
the Shares purchased by it pursuant to this Agreement a co-investment right with
respect to any New Securities (as defined below) which the Company may, from
time to time, during the period beginning on the date of this Agreement and
ending on the fourth anniversary of the Closing Date, propose to sell and issue.
Such right of co-investment shall allow each eligible Purchaser, 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 any eligible Purchaser shall be only to the extent practicable, and
any eligible Purchaser shall take into account the difficulty of achieving a
precise percentage for such eligible Purchaser while also satisfying a
prospective purchaser's objectives; provided, however, that any shortfall in
such maintenance of such eligible Purchaser's percentage ownership shall be de
minimus.
(b) The Company shall notify any eligible 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 such eligible Purchaser of the amount of such securities which the
eligible Purchaser is entitled to purchase in accordance with this Section 5.
Any eligible Purchaser shall have the right, but not the obligation, to notify
the Company within 10 days after the Company gives such notice that such
eligible Purchaser desires to purchase some or all of the securities which it is
entitled to purchase hereunder. Failure to give such notice within such 10 day
period shall constitute a waiver of such eligible Purchaser's right to purchase
such securities under this Section 5. If any eligible Purchaser shall give the
Company timely notice that it desires to purchase such securities, it shall
purchase such securities within 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. "Business Day" shall mean any day
that is not a Saturday, a Sunday or a day on which banks are required or
permitted to be closed in the State of New York.
(c) "New Securities" shall mean any authorized but unissued shares, and any
treasury shares, of capital stock of the Company, and all rights, options or
warrants to purchase capital stock, and securities of any type whatsoever that
are, or may become, convertible into or exchangeable for capital stock;
provided, however, that the term "New Securities" does not include (i)
securities issued pursuant to the acquisition of another corporation or entity
by the Company by merger, purchase of all or substantially all of the assets or
other reorganization whereby the Company shall become the owner of more than 50%
of the voting power of such corporation or entity; (ii) shares of Common Stock
issued in connection with any stock split or stock dividend of the Company;
(iii) shares of Common Stock issued pursuant to any public offering and sale of
equity securities of the Company pursuant to an effective registration statement
under the Securities Act; (iv) Warrant Shares delivered to the Purchasers upon
exercise of the Warrants; (v) Default Shares issued pursuant to the Registration
Rights Agreement; (vi) options granted under, and shares of Common Stock issued
pursuant to the exercise of options granted under, the current stock option plan
of the Company plus up to an additional five million shares of Common Stock and
options to purchase Common Stock that may be granted under any successor stock
option plan of the Company; and (vii) the issuance of Common Stock and warrants
to purchase shares of Common Stock privately placed for sale by the Company to a
group of investors within thirty (30) days from the Closing Date on terms
substantially the same as applicable to the sale of the Shares pursuant to this
Agreement. "Proportionate Share" shall be equal to a fraction, the numerator of
which shall equal the total number of shares of Common Stock (taking into
account all shares of Common Stock issuable upon exercise of the Warrants) then
owned by such Purchaser and the denominator of which shall equal the total
number of shares of Common Stock outstanding immediately prior to the issuance
of the New Securities (assuming the exercise of all Warrants, but not including
options, warrants or other rights to acquire Common Stock).
(d) If the Company shall propose to issue New Securities, it shall give
each Purchaser written notice thereof, describing the New Securities, the number
thereof to be issued, the purchase price therefor (which shall be payable solely
in cash) and the terms upon which the Company shall propose to issue the same.
Each Purchaser shall have 10 Business Days from the date such notice is received
to determine whether to purchase all or any portion of such Purchaser's
Proportionate Share of such New Securities for the purchase price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the number of New Securities to be purchased.
(e) If the Purchasers shall not have elected within such 10 Business Day
period to purchase all of the New Securities proposed to be issued, the Company
shall provide to each Purchaser, within five Business Days thereafter, a
schedule setting forth the following information: (i) the amount of New
Securities elected to be purchased; (ii) the purchasers thereof (the
"Participating Purchasers") and the specific amount of New Securities elected to
be purchased by each such Participating Purchaser; and (iii) the amount of New
Securities not elected to be purchased. Each Participating Purchaser shall
thereafter have an additional 10 Business Days after such five Business Day
period has elapsed to determine whether to purchase all or any portion of such
Participating Purchaser's Residual Proportionate Share (as defined below) of
such remaining New Securities for the purchase price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the number of New Securities to be purchased. "Residual Proportionate
Share" shall be equal to a fraction, the numerator of which shall equal the
total number of shares of Common Stock (as determined in the definition of
Proportionate Share) then owned by such Participating Purchaser and the
denominator of which shall equal the total number of such shares owned by all
Participating Purchasers.
(f) If the Purchasers shall not have elected to purchase all of the New
Securities proposed to be issued (within the time period for notifying the
Company set forth above), then the Company shall have 60 calendar days in which
to complete the proposed issuance of the portion of the New Securities not
purchased by the Purchasers at a price not less than that contained in the
notice previously given to the Purchasers and on terms and conditions not more
favorable to the third party than those contained in such notice. If, at the end
of such 60-calendar day period, the Company shall not have completed such
issuance of New Securities, the Company shall no longer be permitted to issue
such New Securities pursuant to this Section 5 without again fully complying
with all of the provisions of this Section 5.
6. Buy-In Rights.
(a) In the event that (i) the Company shall fail for any reason to deliver
Warrant Shares to a Purchaser upon exercise of any Warrants within the time
period specified in paragraph (a) of such Warrants or the Company shall fail to
remove, or shall fail to cause its transfer agent to remove, any restrictive
legend on any certificates evidencing Shares, Warrant Shares, Default Shares or
shares of Common Stock issued pursuant to Section 5 of this Agreement
(collectively, the "Buy-In Shares") as and when required under Section 7(e) of
this Agreement and (ii) thereafter, such Purchaser shall purchase (in an open
market transaction or otherwise) shares of Common Stock to make delivery in
satisfaction of a sale by such Purchaser of (A) the Warrant Shares which such
Purchaser anticipated receiving upon such exercise or (B) such unlegended Buy-In
Shares, as the case may be (in each case, the "Sold Shares"), then the Company
shall pay to such Purchaser (in addition to any other remedies available to the
Purchaser) the amount by which (x) such Purchaser's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased shall exceed (y) the net proceeds received by such Purchaser from the
sale of the Sold Shares.
(b) The Company shall make any payments required pursuant to this Section 6
within five Business Days after receipt of written notice from the Purchaser
setting forth the correct calculation of the amount due hereunder. Nothing
contained herein shall relieve the Company from its continuing obligation to
deliver Warrant Shares upon any such exercise of the Warrants or the unlegended
Buy-In Shares, as the case may be.
7. Covenants of the Company. The Company hereby covenants that:
(a) Exchange Act Filings. The Company shall file in a timely manner all
reports and other documents required to be filed by it under the Exchange Act
(or obtain extensions in respect thereof and file within the applicable grace
period). The Company shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the Exchange Act or the rules and
regulations promulgated thereunder would permit such termination.
(b) Authorized Shares. The Company shall, from and at all times after the
Closing, maintain a reserve of authorized shares of Common Stock sufficient to
cover the issuance of the Warrant Shares underlying the Warrants.
(c) Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities for general corporate and working capital purposes and capital
expenditures.
(d) OTCBB Requirements. The Company shall use its best efforts to continue
to meet all requirements necessary for trading of the Common Stock on the OTCBB.
The Company shall use its best efforts, including, without limitation, promptly
filing any notification, application, form or other information and paying any
fees, to permit and maintain trading on the OTCBB of all shares of Common Stock
(including Shares, Default Shares and Warrant Shares) that may be issued to the
Purchasers.
(e) Removal of Legends. Any restrictive legend placed on a certificate
pursuant to Section 2(g) and any related stop transfer instructions with respect
to any Securities shall be removed, and the Company shall, within 2 Business
Days, issue, or cause its transfer agent to issue, a certificate without such
legend to the holder thereof, if (i) such Securities are sold pursuant to an
effective registration statement under the Securities Act or (ii) such holder
shall provide the Company with an opinion of counsel, satisfactory to the
Company, to the effect that a sale, transfer or assignment of such Securities
may be made pursuant to Rule 144(k) under the Securities Act or that such legend
may otherwise be properly removed under the terms of Rule 144 under the
Securities Act.
(f) Maintenance of Existence and Conduct of Business. The Company shall:
(i) do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, and its rights and franchises; and
(ii) at all times use its best efforts to maintain, preserve and protect all of
its material intellectual property including, but not limited to, licenses,
patents, trade secrets, confidential and proprietary information, domain names,
copyrights, trademarks, service marks and trade names, and preserve all the
remainder of its material assets, in use or useful in the conduct of its
business and keep the same in good repair, working order and condition (taking
into consideration ordinary wear and tear) and from time to time make, or cause
to be made, all needful and proper repairs, renewals and replacements,
betterments and improvements thereto consistent with industry practices.
8. Conditions to Obligations of the Purchasers at the Closing
The obligation of each Purchaser to purchase the Shares at the Closing shall
be subject to the fulfillment on or prior to the Closing Date of the
following conditions, any of which may be waived by such Purchaser:
(a) Certificates. The Company shall have delivered to each Purchaser a duly
executed certificate representing the Shares and the Warrants issuable to such
Purchaser.
(b) Trading. The Common Stock shall be trading on OTCBB.
(c) Representations and Warranties; Performance of Obligations. The
representations and warranties of the Company set forth in Section 3 of this
Agreement shall be true and correct when made, and shall be true and correct on
the Closing Date with the same force and effect as if they had been made on and
as of said date, except for representations and warranties made as of a specific
date which shall be true and correct as of such date. The Company shall have
performed, satisfied and complied with all obligations and conditions required
to be performed or observed by it under this Agreement or any other Transaction
Document on or prior to the Closing Date.
(d) Consents and Waivers. The Company shall have made all filings and
obtained any and all consents (including, without limitation, all governmental
or regulatory consents), approvals or authorizations, permits and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and any other Transaction Document.
(e) No Litigation or Legislation. To the Company's knowledge, no Federal,
state or local statute, rule, regulation, decree, ruling or injunction shall
have been enacted or entered, and no litigation, proceeding, government inquiry
or investigation shall be pending, which challenges, prohibits or restricts, or
seeks to prohibit or restrict, the consummation of the transactions contemplated
by this Agreement or any other Transaction Document, or restricts or impairs the
ability of any Purchaser to own an equity interest in the Company.
(f) Compliance Certificate. The Company shall have delivered to the
Purchasers a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, certifying to the fulfillment of the
conditions set forth in Sections 8(b), (c), (d), (e), and (g), and such other
matters as the Purchasers shall reasonably request.
(g) No Material Adverse Change. There shall not have occurred since the
execution of any of the Transaction Documents any Material Adverse Change.
(h) Registration Rights Agreement. At the Closing, the Company shall have
executed and delivered to the Purchasers the Registration Rights Agreement.
9. Conditions to Obligation of the Company at the Closing. The
obligation of the Company to sell and issue the Shares and the Warrants to the
Purchasers at the Closing shall be subject to the fulfillment on or prior to
the Closing Date of the following conditions, any of which may be waived by the
Company:
(a) Purchase Price. Each Purchaser shall have delivered the purchase price
for the Shares to be purchased by such Purchaser hereunder.
(b) Representations and Warranties. The representations and warranties made
by the Purchasers in this Agreement shall be true and correct when made, and
shall be true and correct on the Closing Date with the same force and effect as
if they had been made on and as of said date, except for representations and
warranties made as of a specific date which shall be true and correct as of such
date.
(c) No Litigation or Legislation. No Federal, State or local statute, rule,
regulation, decree, ruling or injunction shall have been enacted or entered, and
no litigation, proceeding, government inquiry or investigation shall be pending,
which challenges, prohibits or restricts, or seeks to prohibit or restrict, the
consummation of the transactions contemplated by this Agreement or any other
Transaction Document, or restricts or impairs the ability of any Purchaser to
own an equity interest in the Company.
(d) No Material Adverse Change. There shall not have occurred since the
execution of any of the Transaction Documents any Material Adverse Change
10. Survival; Indemnification; Expenses, Etc.
(a) All representations, warranties, covenants and agreements contained in
this Agreement or in any document delivered pursuant hereto shall be deemed to
be material and to have been relied upon by the parties hereto, and shall
survive the Closing and shall be fully effective and enforceable for a period of
one year following the Closing Date, but thereafter shall be of no further force
or effect, except as they relate to claims for indemnification timely made
pursuant to this Section 10. Any claim for indemnification asserted in writing
before the first anniversary of the Closing Date shall survive until resolved or
judicially determined.
(b) The Company agrees to indemnify and hold harmless the Purchaser and its
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 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. The Company shall
not have any obligation under this indemnity provision to indemnify any
Indemnified Party with respect to Losses until the aggregate combined total of
all such Losses incurred by any Indemnified Party exceeds 10% of the aggregate
purchase price of the Shares hereunder, whereupon the Indemnified 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.
Notwithstanding the foregoing or any other provision hereof to the contrary, the
aggregate liability of the Company to the Purchasers under this Agreement shall
in no event exceed the aggregate purchase price of the Shares.
(c) 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 than reasonable costs of
investigation; provided that the Indemnified Party 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.
(d) If the indemnification provided for in Section 10(b) 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. Miscellaneous.
(a) Governing Law; Jury Waiver. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Each of the
Company and the Purchasers irrevocably consents to the exclusive jurisdiction of
the United States Federal courts and state courts located in New York County,
New York, in any suit or proceeding based on or arising under this Agreement and
irrevocably agrees that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. Service of
process on the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Purchaser to serve
process in any manner permitted by law. The parties hereto waive all right to
trial by jury in any action or proceeding to enforce or defend any rights under
this Agreement.
(b) Finder's Fee. Each party shall indemnify and hold the other harmless
from any liability for any commission or compensation in the nature of a
finder's or broker's fee (and the costs and expenses of defending against such
liability or asserted liability) for which such party or any of its officers,
partners, employees or representatives shall be responsible.
(c) Further Assurances. Each party, whether prior to or after the Closing,
shall execute, acknowledge and deliver all such other instruments and documents,
and shall take all such other actions, as may be reasonably requested by any
other party for the purpose of effecting and evidencing the consummation of the
transactions contemplated by this Agreement.
(d) Successors; Assignment. This Agreement shall be binding upon and inure
to the benefit of the successors and permitted assigns of the parties hereto;
provided, however, that the rights of any Purchaser hereunder may only be
transferred in compliance with all applicable federal and state securities laws,
and provided, further, that a Purchaser may not assign its rights under this
Agreement in connection with the sale of Shares or Warrant Shares pursuant to a
Registration Statement under the Securities Act or under Rule 144.
(e) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) Entire Agreement. This Agreement, including and incorporating all
Schedules and all Exhibits hereto and referred to herein, the Registration
Rights Agreement and the Warrants constitute and contain the entire agreements
and understandings of the parties regarding the subject matter of each such
agreement and supercede any and all prior negotiations, correspondence,
understandings and agreements, written or oral, among the parties with respect
to the subject matter of any of the foregoing agreements.
(g) Notices. All notices required to be given hereunder shall be given by
personal delivery, facsimile transmission, nationally recognized overnight
carrier (prepaid) or registered or certified mail, postage prepaid with return
receipt requested. Notices shall be delivered, if to the Company, at its
principal corporate offices located at 15 Link Drive, Binghamton, New York
13904, or facsimile number (607) 722-5045, to the Attention: Chief Executive
Officer and, if to a Purchaser, to the address set forth below such Purchaser's
name on the signature pages hereto. Notices delivered personally shall be deemed
given as of actual receipt; notices sent via facsimile transmission shall be
deemed given as of one Business Day following receipt by the sender of written
confirmation of transmission thereof; notices sent via overnight courier shall
be deemed given as of one Business Day following sending; and notices mailed
shall be deemed given as of five Business Days after proper mailing. A party may
change his or its address by written notice in accordance with this Section
11(g).
(h) Amendments and Waivers. Except as otherwise provided therein, no
provision of this Agreement or any other Transaction Document may be waived or
amended other than by an instrument in writing signed by the Company and
Purchasers owning or having the right to acquire a majority of the Shares and
the Warrant Shares.
(i) Severability. If one or more provisions of this Agreement shall be held
to be unenforceable under applicable law, such provisions shall be excluded from
this Agreement to the extent unenforceable and the balance of this Agreement
shall be unaffected thereby and shall remain in full force and effect to the
fullest extent permitted by law.
(j) Expenses. Except as otherwise provided herein, the parties hereto shall
pay their own costs and expenses.
(k) Publicity. The parties shall consult with each other, to the extent
practicable, as to the form and content of any press releases and other third
party communications or disclosures relating to this Agreement or the
transactions contemplated hereby, except as may be required to be disclosed
pursuant to the rules and regulations of the SEC, and shall use reasonable
efforts, acting in good faith, to agree upon disclosure which shall be
satisfactory to the parties hereto.
(l) Headings. The headings of this Agreement are for convenience of
reference and shall not form a part of, or affect the interpretation of, this
Agreement.
(m) Termination of Covenants. The covenants of the Company set forth in
Section 7 of this Agreement shall terminate at such time as the Purchasers shall
not own any Securities issued or issuable pursuant to this Agreement or the
Warrants.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of the date
first above written.
SEMICONDUCTOR LASER
INTERNATIONAL CORPORATION
By:____________________
Name:__________________
Title:_________________
RENNES FOUNDATION
By:____________________
Name:__________________
Title:_________________
Address: Aeulestrasse 38
FL - 9490 Kaduz
Facsimile No.:00 11 41 1 217 97 00
Residence: Germany
STRATEGIC MANAGEMENT
CORPORATION
By:____________________
Name:__________________
Title:_________________
Address: 282 Katona Avenue
Katona, New York 10536
Facsimile No.:
Residence: New York
Schedule 1
Purchasers/Purchased Shares and Warrant Shares
- ----------------- ------------ ---------------- ----------------------
Aggregate Purchase
Purchaser Common Stock Warrant Shares Price
- ----------------- ------------ ---------------- ----------------------
Rennes Foundation 8,000,000 8,000,000 $4,000,000
Strategic Management 1,400,000 1,400,000 $700,000
Corporation
--------- --------- ----------
Total 9,400,000 9,400,000 $4,700,000
========= ========= ==========
[TYPE] EX-10.29
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement, dated as of _________, 2000, by and among
Semiconductor Laser International Corporation, a Delaware corporation (the
"Company"), and the other parties signatory hereto.
W I T N E S S E T H :
WHEREAS, the Company and the other parties signatory hereto have entered
into that certain Securities Purchase Agreement, dated as of _______, 2000 (the
"Purchase Agreement"), pursuant to which the Company has agreed to issue and
sell to such parties, and such parties have agreed to purchase from the Company,
an aggregate of __________ shares (each a "Share" and collectively, the
"Shares") of the Company's common stock, par value $.01 per share ("Common
Stock"), and warrants (the "Warrants") to purchase an aggregate of ___________
shares of Common Stock (the "Warrant Shares"); and
WHEREAS, in order to induce the parties signatory hereto to enter into the
Purchase Agreement and to purchase the Shares and the Warrants, the Company has
agreed to provide registration rights with respect thereto.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the
Purchase Agreement are used herein as therein defined, and the following shall
have (unless otherwise provided elsewhere in this Registration Rights Agreement)
the following respective meanings:
"Agreement" shall mean this Registration Rights Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference shall become operative.
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
"Holder" shall mean any holder of Registrable Securities.
"NASD" shall mean the National Association of Securities Dealers, Inc., or
any successor corporation thereto.
"Registrable Securities" shall mean the Shares and all shares of Common
Stock issued or issuable as Warrant Shares, and all shares of Common Stock
issued or issuable, from time to time (with any adjustments), as a distribution
on, in exchange for or otherwise with respect to the Shares or Warrant Shares.
"Requisite Holders" shall mean Holders, holding at the time, a majority of
the Registrable Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
2. Required Registration.
(a) Within forty-five (45) days following the Closing Date, the Company
shall use its best efforts to file a registration statement under the Securities
Act on Form SB-2 (or on such other Form as is then available to effect a
registration of all Registrable Securities on a delayed or continuous basis)
covering, and shall obtain all such qualifications and compliances as may be
required and as would permit the sale and distribution of, all Registrable
Securities. The Company shall use its best efforts to secure the effectiveness
of such registration statement no later than one hundred five (105) days
following the Closing Date (the "Effective Date"). If the actual number of
shares of Common Stock for which the Registrable Securities are exercisable
shall exceed the number of shares of Common Stock initially registered under
this Section 2, the Company shall have forty-five (45) days to file an amendment
to the registration statement described herein, or an additional registration
statement, covering such shares, and shall use its best efforts to cause such
amendment or registration statement to be declared effective as soon as
possible, but, in no event, later than one hundred five (105) days after filing.
(b) Only one registration shall be effected pursuant to this Section 2.
(c) The Company shall use its best efforts to cause the registration
statement or registration statements filed pursuant to this Section 2 to remain
effective until the earlier of (i) the date on which all Registrable Securities
shall have been sold and (ii) the second anniversary of the Effective Date;
provided, however, that such two-year period shall be extended by any period of
time during which (i) effectiveness of the registration statement(s) is
suspended due to the issuance of a stop order or otherwise or (ii) the
registration statement(s) does not cover the sale of all Registrable Securities.
3. Registration Piggyback.
(a) If the Company at any time proposes to file on its behalf and/or on
behalf of any of its security holders (the "demanding security holders") a
registration statement under the Securities Act on any form (other than a
Registration Statement on Form S-4 or S-8 or any successor form) for the general
registration of securities, the Company will give written notice to all Holders
at least thirty (30) days before the initial filing with the Commission of such
registration statement, which notice shall set forth the intended method of
disposition of the securities proposed to be registered by the Company. The
notice shall offer to include in such filing the aggregate number of shares of
Registrable Securities as may be requested by such Holders.
(b) Each Holder desiring to have Registrable Securities registered under
this Section 3 shall advise the Company in writing within ten (10) Business Days
after the date of receipt of such offer from the Company, setting forth the
amount of such Registrable Securities for which registration shall be requested.
The Company shall thereupon include in such filing the number of shares of
Registrable Securities for which registration shall be requested, subject to the
next sentence, and shall use its best efforts to effect registration under the
Securities Act of such shares. If the managing underwriter of a proposed public
offering shall advise the Company that, in such underwriter's opinion, the
distribution of the Registrable Securities requested to be included in the
registration concurrently with the securities being registered by the Company or
such demanding security holders would adversely affect the distribution or
marketability of such securities being registered by the Company, then all
selling security holders shall reduce the amount of securities each intended to
distribute through such offering on a pro rata basis. If a Holder shall decide
not to include all of its Registrable Securities in such Registration Statement,
such Holder nevertheless shall continue to have the right to include any
Registrable Securities in any subsequent registration statement or registration
statements as may be filed by the Company, in each instance upon the terms and
conditions set forth herein. The right to registration of Registrable Securities
under this Section 3 shall not be construed to limit in any way the obligation
of the Company to register the Registrable Securities under Section 2.
4. Registration Procedures.
(a) In connection with the registration of Registrable Securities under
Section 2, and if the Company shall be required by the provisions of Section 3
to effect the registration of any Registrable Securities, the Company will, as
expeditiously as possible:
(i) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become and remain effective for the period of time
specified in Section 2(b) hereof;
(ii) before filing a registration statement, furnish to the Holders of the
Registrable Securities covered by such registration statement and not more than
one attorney representing each Holder (i) copies of such registration statement
as proposed to be filed, together with exhibits thereto, which documents will be
subject to the review and comment of each of the foregoing within ten (10) days
after delivery (except that such review and comment of any prospectus or any
amendment or supplement to such registration statement or prospectus must be
within five (5) days after delivery), and (ii) such other information as shall
be reasonably requested in order to facilitate the disposition of the
Registrable Securities;
(iii) in the case of a registration statement filed pursuant to Section 2
hereof, prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the sale or other
disposition of all Registrable Securities covered by such registration statement
until the time specified in Section 2(c) hereof;
(iv) furnish to each selling Holder such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as such selling Holder may reasonably request;
(v) take all reasonable actions required to prevent the entry of any stop
order by the Commission or any state regulatory authority with respect to any
registration statement covering Registrable Securities, and take all reasonable
actions to remove it if entered;
(vi) use its best efforts to register or qualify the Registrable Securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions within the United States as shall be reasonably
requested by each Holder, and do such other reasonable acts and things as may be
required to enable such Holder to consummate the disposition in such
jurisdiction of the Registrable Securities covered by such registration
statement; provided, however, that the Company shall not be obligated to (a)
qualify as a foreign corporation to do business under the laws of any
jurisdiction in which it shall not then be qualified, (b) subject itself to
taxation in any such jurisdiction or (c) file any consent to general service of
process in any such jurisdiction; provided, further, such Holders shall not
request the Company to register or qualify the Registrable Securities covered by
such registration statement in more than ten (10) jurisdictions within the
United States in the aggregate;
(vii) enter into customary agreements reasonably satisfactory to the
Company (including 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;
(viii) use its best efforts to comply with the provisions of the Securities
Act applicable to it with respect to the disposition of the Registrable
Securities covered by such registration statement during the applicable period
in accordance with the intended methods of disposition by such selling Holders
set forth in such registration statement or supplement to the prospectus;
(ix) use its best efforts to make available to its security holders, as
soon as reasonably practicable, but not later than eighteen (18) months after
the effective date of the registration statement, an earnings statement covering
the period of at least twelve (12) months beginning with the first full month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(x) use its best efforts to cause all Registrable Securities to be listed
on any securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which the Common Stock shall then be listed.
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.
(b) It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Agreement in respect of the Registrable
Securities to be registered at the request of any Holder that such Holder shall
furnish to the Company such information regarding the Registrable Securities
held by such Holder and the intended method of disposition thereof as shall be
reasonably requested by the Company and as shall be required in connection with
the action taken by the Company and that such Holder executes and delivers the
form of underwriting agreement and any other questionnaires, powers of attorney
or other typical underwriting documents required by the managing underwriter, if
any, with respect to the registration in which such Holder is participating.
5. Default Shares.
(a) In the event that the registration statement or registration statements
required to be filed pursuant to Section 2 hereof shall not be declared
effective by the Commission within one hundred twenty (120) days from the
Closing Date (the "Default Effective Date"), the Company shall issue and
deliver, free of charge and without cost, to the Holders (i) within ten (10)
days of the Default Effective Date, certificates representing a number of fully
paid, non-assessable shares of Common Stock equal to the aggregate of 1% of the
Shares and the Warrant Shares (with additional shares issued pursuant to this
Section 5(a) referred to as "Default Shares"), and (ii) if such registration
statement shall not have been declared effective at the end of each thirty (30)
day period following the Default Effective Date, within ten (10) days of each
such thirty (30) day period, additional certificates representing a number of
fully paid, non-assessable shares of Common Stock equal to the aggregate of 1%
of such Shares and Warrant Shares.
(b) Any Default Shares shall be allocated pro rata among the Holders based
on the number of Shares purchased by each under the Purchase Agreement. Any and
all shares of Common Stock issued and delivered by the Company pursuant to this
Section 5 shall constitute "Registrable Securities," and the Company shall be
required to register them under the Securities Act in accordance with the
provisions of this Agreement.
(c) The remedies provided for in this Section 5 shall be in addition to any
other remedies available to Purchasers under this Agreement, at law or in
equity.
6. Expenses. All expenses incurred in complying with this Agreement,
including, without limitation, all registration and filing fees (including all
expenses incident to the filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, expenses of any special audits
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdiction pursuant to Section 4, shall
be paid by the Company, except that the Company shall not be liable for any
fees, discounts or commissions to any underwriter.
7. Indemnification and Contribution.
(a) In the event of any registration of any Registrable Securities under
the Securities Act pursuant to this Agreement, the Company shall indemnify and
hold harmless each Holder of such Registrable Securities, such Holder's
directors, officers, partners and agents, and each other person (including each
underwriter) who participated in the offering of such Registrable Securities and
each other person, if any, who controls such Holder or such participating person
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such Holder or any such director,
officer, partner, agent or participating person or controlling person may become
subject under the Securities Act or any other statute or at common law, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue or alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which such securities were registered under the Securities Act,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (ii) 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, and shall reimburse such Holder or such
director, officer, partner, agent or participating person or controlling person
for any legal or any other expenses reasonably incurred by such Holder or such
director, officer or participating person or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue or alleged untrue statement or omission or alleged
omission made in such registration statement, preliminary prospectus, prospectus
or amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Holder specifically for use
therein. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Holder or such director, officer,
partner, agent or participating person or controlling person, and shall survive
the transfer of such Registrable Securities by such Holder.
(b) Each Holder shall indemnify and hold harmless the Company, its
directors and officers and each other person, if any, who controls the Company
within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director or
officer or any such person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
information in writing provided to the Company by such Holder specifically for
use in the following documents and contained, on the effective date thereof, in
any Registration Statement under which securities were registered under the
Securities Act at the request of such Holder, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto.
Notwithstanding the provisions of this paragraph (b), no Holder shall be
required to indemnify any person pursuant to this Section 7 in an amount in
excess of the amount of the aggregate net proceeds received by such Holder in
connection with any such registration under the Securities Act.
(c) If any claim, action, suit or proceeding (a "Proceeding") shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity shall be sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination shall not be subject to appeal or
further review as a matter of right) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party. An Indemnified Party
shall have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof if (1) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding promptly after its
receipt of notice thereof from the Indemnifying Party or (2) the named parties
to any such Proceeding (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such Indemnified Party shall
have been advised in writing by counsel, a copy of which shall be provided to
Indemnifying Party, that a conflict of interest will exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it shall elect to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, which shall not be unreasonably withheld, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
shall be a party, unless such settlement shall include an unconditional release
of such Indemnified Party from all liability on claims that are the subject
matter of such Proceeding. All fees and expenses of the Indemnified Party
(including reasonable fees and expenses to the extent incurred in connection
with investigating or preparing to defend such Proceeding in a manner not
inconsistent herewith) shall be paid to the Indemnified Party, as incurred,
within ten (10) Business Days of written notice thereof to the Indemnifying
Party (regardless of whether it shall be ultimately determined that an
Indemnified Party shall not be entitled to indemnification hereunder; provided,
that the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it shall be finally
judicially determined that such Indemnified Party shall not be entitled to
indemnification hereunder).
(d) If the indemnification provided for in this Section 7 from the
Indemnifying Party is unavailable to an Indemnified Party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact,
shall have been made by, or shall relate to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding. The parties hereto agree that
it would not be just and equitable if contribution pursuant to this Section 7(d)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to herein.
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. Notwithstanding
anything to the contrary contained herein, a Holder shall be liable or required
to contribute under this Section 7(d) for only that amount as shall not exceed
the net proceeds to such Holder as a result of the sale of Registrable
Securities pursuant to such registration statement.
8. Rule 144. As long as any Holder shall own Registrable Securities, the
Company, at all times while it shall be reporting under the Exchange Act,
covenants to file timely (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act. The Company further covenants that it will take such further action as any
Holder may reasonably request, all to the extent required from time to time to
enable such Holder to sell shares of Common Stock held by such Holder without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including providing
any legal opinions. Upon the request of any Holder, the Company shall deliver to
such Holder a written certification of a duly authorized officer as to whether
it has complied with such requirements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into, and will
not hereafter enter into, any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders in this Agreement. The
Company has not previously entered into any agreement with respect to any of its
securities granting any registration rights to any person that is currently in
effect, except as set forth in the Schedules to the Purchase Agreement.
(b) Remedies. Each Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Agreement or where any provision hereof shall be validly asserted as a
defense, the successful party shall be entitled to recover reasonable attorneys'
fees in addition to any other available remedy.
(c) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departure from the provisions hereof may not be given
unless the Company has obtained the written consent of the Requisite Holders.
(d) Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Agreement shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid, or by
telecopy and confirmed by telecopy answerback, addressed as follows:
(i) If to any Holder, at its last known address appearing on the books of
the Company maintained for such purpose.
(ii) If to Company, at:
Semiconductor Laser International Corporation
15 Link Drive
Binghamton, New York 13904
Attention: Chief Executive Officer
Facsimile: (607) 722-5045
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback or three Business Days after the same shall have been deposited in
the United States mail.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties hereto,
including any person to whom Registrable Securities shall be transferred in a
private transaction exempt from registration.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Each of the
Company and the Holders irrevocably consents to the exclusive jurisdiction of
the United States Federal courts and state courts located in New York County,
New York, in any suit or proceeding based on or arising under this Agreement and
irrevocably agrees that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. Service of
process on the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Holder to serve process
in any manner permitted by law. The parties hereto waive all right to trial by
jury in any action or proceeding to enforce or defend any rights under this
Agreement.
(h) Severability. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
(i) Entire Agreement. This Agreement, together with the Purchase Agreement
and the Warrants, represents the complete agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to the subject matter hereof.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be executed by their duly appointed
representatives as of the date first above written.
SEMICONDUCTOR LASER INTERNATIONAL
CORPORATION
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
[TYPE] EX-10.30
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE (herein "Instrument") is made this _____ day of January,
2000, between the Mortgagor, BROOME COUNTY INDUSTRIAL DEVELOPMENT AGENCY, a
public benefit corporation of the State of New York with an office for the
transaction of business located at 49 Court Street, Binghamton, New York and
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION, a New York corporation, whose
address is 15 Link Drive, Binghamton, New York (herein collectively
"Mortgagor"), and the Mortgagee, BSB BANK & TRUST COMPANY, a domestic banking
corporation organized and existing under the laws of the State of New York,
whose address is 58-68 Exchange Street, Binghamton, New York (herein "Lender").
WHEREAS, SEMICONDUCTOR LASER INTERNATIONAL CORPORATION (herein "Borrower")
is indebted to Lender in the principal sum of $1,000,000.00 of which $750,000.00
is secured by this mortgage, which indebtedness is evidenced by Borrower's note
dated the same date as this Mortgage (herein "Note").
TO SECURE TO LENDER (a) the repayment of the indebtedness evidenced by the
Note with interest thereon, and all renewals, extensions and modifications
thereof; (b) the payment of all other sums, with interest thereon, advanced in
accordance herewith to protect the security of this Instrument; and (d) the
performance of the covenants and agreements of Borrower herein contained,
Borrower does hereby mortgage, grant, convey and assign to Lender the following
described property:
SEE SCHEDULE A ATTACHED.
Borrower is the lessee of the premises described above under a lease
between itself and Broome County Industrial Development Agency dated as of
December 18, 1996. Borrower executes this Mortgage to subject all of its
interest together with its leasehold interest in the above described premises to
this Mortgage. Broome County Industrial Development Agency is the owner of the
premises which are leased to Semiconductor Laser International Corporation and
executes this Mortgage for the purpose of subjecting its ownership interest in
the above-described premises to the lien of this Mortgage.
This mortgage secures a note which provides for the payment of varying
rates of interest.
This mortgage is second and subordinate to a mortgage in the amount of
$816,000.00 given to BSB Bank & Trust Company which mortgage is recorded in the
Broome County Clerk's Office on December 18, 1996 in Book 2433 of Mortgages at
Page 80.
If Borrower fails to keep any of the promises made in the prior mortgage,
the Lender may (a) require immediate payment of the entire amount then remaining
unpaid under the Note and this Mortgage, (b) make any payment or do anything
else necessary to correct any default under the prior mortgage. Any payment made
or cost by Borrower in correcting any default shall be added to the principal
owed to Lender and become immediately payable by Borrower with interest at the
rate stated in the Note.
TOGETHER with all buildings, improvements, and tenements now or hereafter
erected on the property, and all heretofore or hereafter vacated alleys and
streets abutting the property, and all easements, rights, appurtenances, rents,
royalties, mineral, oil and gas rights and profits, water, water rights, and
water stock appurtenant to the property, and all fixtures, machinery, equipment,
engines, boilers, incinerators, building materials, appliances and goods of
every nature whatsoever now or hereafter located in, or on, or used, or intended
to be used in connection with the property, including, but not limited to, those
for the purpose of supplying or distributing heating, cooling, electricity, gas,
water, air and light; and all elevators, and related machinery and equipment,
fire prevention and extinguishing apparatus, security and access control
apparatus and plumbing; all of which, including replacements and additions
thereto, shall be deemed to be and remain a part of the real property covered by
this Instrument; and all of the foregoing, together with said property (or the
leasehold estate in the event this Instrument is on a leasehold) are herein
referred to as the "Property".
It is stipulated that the maximum indebtedness secured by this mortgage at
execution, or which under any contingency may be secured thereby at any time in
the future, shall be the principal amount hereof as stated, together with
accrued interest thereon.
Borrower covenants that Borrower is lawfully seized of the estate hereby
conveyed and has the right to mortgage, grant, convey and assign the Property
(and, if this Instrument is on a leasehold, that the ground lease is in full
force and effect without modification except as noted above and without default
on the part of either lessor or lessee thereunder), that the Property is
unencumbered, and that Borrower will warrant and defend generally the title to
the Property against all claims and demands, subject to any easements and
restrictions listed in a schedule of exceptions to coverage in any title
insurance policy insuring Lender's interest in the Property.
Borrower and Lender covenant and agree as follows:
1. Payment of Principal and Interest. Borrower shall promptly pay when due
the principal of and interest on the indebtedness evidenced by the Note, any
prepayment and late charges provided in the Note and all other sums secured by
this Instrument.
2. Funds for Taxes, Insurance and Other Charges. Subject to applicable law
and at the demand of Lender, Borrower shall pay to Lender on the day monthly
installments of principal or interest are payable under the Note (or on another
day designated in writing by Lender), until the Note is paid in full, a sum
(herein "Funds") equal to one-twelfth of (a) the yearly water and sewer rates
and taxes and assessments which may be levied on the Property, (b) the yearly
ground rents, if any, (c) the yearly premium installments for fire and other
hazard insurance, rent loss insurance and such other insurance covering the
Property as Lender may require pursuant to paragraph 5 hereof, (d) the yearly
premium installments for mortgage insurance, if any, and (e) if this Instrument
is on a leasehold, the yearly fixed rents, if any, under the ground lease, all
as reasonably estimated initially and from time to time by Lender on the basis
of assessments and bills and reasonable estimates thereof. Any waiver by Lender
of a requirement that Borrower pay such Funds may be revoked by Lender, in
Lender's sole discretion, at any time upon notice in writing to Borrower. Lender
may require Borrower to pay to Lender, in advance, such other Funds for other
taxes, charges, premiums, assessments and impositions in connection with
Borrower or the Property which Lender shall reasonably deem necessary to protect
Lender's interests (herein "Other Impositions"). Unless otherwise provided by
applicable law, Lender may require Funds for Other Impositions to be paid by
Borrower in a lump sum or in periodic installments, at Lender's option.
The Funds shall be held in trust by Lender in a non-interest bearing
account. Lender shall apply the Funds to pay said rates, rents, taxes,
assessments, insurance premiums and Other Impositions so long as Borrower is not
in breach of any covenant or agreement of Borrower in this Instrument. Lender
shall make no charge for so holding and applying the Funds, analyzing said
account or for verifying and compiling said assessments and bills, unless Lender
pays Borrower interest, earnings or profits on the Funds and applicable law
permits Lender to make such a charge. Borrower and Lender may agree in writing
at the time of execution of this Instrument that interest on the Funds shall be
paid to Borrower, and unless such agreement is made or applicable law requires
interest, earnings or profits to be paid, Lender shall not be required to pay
Borrower any interest, earnings or profits on the Funds. Lender shall give to
Borrower, without charge, an annual accounting of the Funds in Lender's normal
format showing credits and debits to the Funds and the purpose for which each
debit to the Funds was made. The Funds are pledged as additional security for
the sums secured by this Instrument.
If at any time the amount of the Funds held by Lender shall be less than
the amount deemed necessary by Lender to pay water and sewer rates, taxes
assessments, insurance premiums, rents and Other Impositions, as they fall due,
Borrower shall pay to Lender any amount necessary to make up the deficiency
within thirty days after notice from Lender to Borrower requesting payment
thereof.
Upon Borrower's breach of any covenant or agreement of Borrower in this
Instrument, Lender may apply, in any amount and in any order as Lender shall
determine in Lender's sole discretion, any Funds held by Lender at the time of
application (i) to pay rates, rents, taxes, assessments, insurance premiums and
Other Impositions which are now or will hereafter become due, or (ii) as a
credit against sums secured by this Instrument. Upon payment in full of all sums
secured by this Instrument, Lender shall promptly refund to Borrower any Funds
held by Lender.
3. Application of Payments. Unless applicable law provides otherwise, all
payments received by Lender from Borrower under the Note or this Instrument
shall be applied by Lender in the following order of priority: (i) amount
payable to Lender by Borrower under paragraph 2 hereof; (ii) interest payable on
the Note; (iii) principal of the Note; (iv) interest payable on advances made
pursuant to paragraph 8 hereof; (v) principal of advances made pursuant to
paragraph 8 hereof; and (vi) any other sums secured by this Instrument in such
order as Lender, at Lender's option, may determine; provided, however, that
Lender may, at Lender's option, apply any sums payable pursuant to paragraph 8
hereof prior to interest on and principal of the Note, but such application
shall not otherwise affect the order of priority of application specified in
this paragraph 3.
4. Charges; Liens. Borrower shall pay all water and sewer rates, rents,
taxes, assessments, premiums, and Other Impositions attributable to the Property
at Lender's option in the manner provided under paragraph 2 hereof or, if not
paid in such manner, by Borrower making payment, when due, directly to the payee
thereof, or in such other manner as Lender may designate in writing. Borrower
shall promptly furnish to Lender all notices of amounts due under this paragraph
4, and in the event Borrower shall make payment directly, Borrower shall
promptly furnish to Lender receipts evidencing such payments. Borrower shall
promptly discharge any lien which has, or may have, priority over or equality
with, the lien of this Instrument, and Borrower shall pay, when due, the claims
of all persons supplying labor or materials to or in connection with the
Property. Without Lender's prior written permission, Borrower shall not allow
any lien inferior to this Instrument to be perfected against the Property.
5. Hazard Insurance. Borrower shall keep the improvements now existing or
hereafter erected on the Property insured by carriers at all time satisfactory
to Lender against loss by fire, hazards included within the term "extended
coverage", rent loss and such other hazards, casualties, liabilities and
contingencies as Lender (and, if this Instrument is on a leasehold, the ground
lease) shall require and in such amounts and for such periods as Lender shall
require. All premiums on insurance policies shall be paid, at Lender's option,
in the manner provided under paragraph 2 hereof, or by Borrower making payment,
when due, directly to the carrier, or in such other manner as Lender may
designate in writing.
All insurance policies and renewals thereof shall be in a form acceptable
to Lender and shall include a standard mortgage clause in favor of and in form
acceptable to Lender. Lender shall have the right to hold the policies, and
Borrower shall promptly furnish to Lender all renewal notices and all receipts
of paid premiums. At least thirty days prior to the expiration date of a policy,
Borrower shall deliver to Lender a renewal policy in form satisfactory to
Lender. If this Instrument is on the leasehold, Borrower shall furnish Lender a
duplicate of all policies, renewal notices, renewal policies and receipts of
paid premiums if, by virtue of the ground lease, the originals thereof may not
be supplied by Borrower to Lender.
In the event of loss, Borrower shall give immediate written notice to the
insurance carrier and to Lender. Borrower hereby authorizes and empowers Lender
as attorney-in-fact for Borrower to make proof of loss, to adjust and compromise
any claim under insurance policies, to appear in and prosecute any action
arising from such insurance policies, to collect and receive insurance proceeds,
and to deduct therefrom Lender's expenses incurred in the collection of such
proceeds; provided however, that nothing contained in this paragraph 5 shall
require Lender to incur any expense or take any action hereunder. Borrower
further authorizes Lender, at Lender's option, (a) to hold the balance of such
proceeds to be used to reimburse Borrower for the cost of reconstruction or
repair of the Property or (b) to apply the balance of such proceeds to the
payment of the sums secured by this Instrument, whether or not then due, in the
order of application set forth in paragraph 3 hereof.
If the insurance proceeds are held by Lender to reimburse Borrower for the
cost of restoration and repair of the Property, the Property shall be restored
to the equivalent of its original condition or such other condition as Lender
may approve in writing. Lender may, at Lender's option, condition disbursement
of said proceeds on Lender's approval of such plans and specifications of an
architect satisfactory to Lender, contractor's cost estimates, architect's
certificates, waivers of liens, sworn statements of mechanics and materialmen
and such other evidence of costs, percentage completion of construction,
application of payments, and satisfaction of liens as Lender may reasonably
require. If the insurance proceeds are applied to the payment of the sums
secured by this Instrument, any such application of proceeds to principal shall
not extend or postpone the due dates of the monthly installments referred to in
paragraphs 1 and 2 hereof or change the amounts of such installments. If the
Property is sold pursuant to paragraph 27 hereof or if Lender acquires title to
the Property, Lender shall have all of the right, title and interest of Borrower
in and to any insurance policies and unearned premiums thereon and in and to the
proceeds resulting from any damage to the Property prior to such sale or
acquisition.
6. Preservation and Maintenance of Property. Borrower (a) shall not commit
waste or permit impairment or deterioration of the Property, (b) shall not
abandon the Property, (c) shall restore or repair promptly and in a good and
workmanlike manner all
or any part of the Property to the equivalent of its original condition, or
such other condition as Lender may approve in writing, in the event of any
damage, injury or loss thereto, whether or not insurance proceeds are available
to cover in whole or in part the costs of such restoration or repair, (d) shall
keep the Property, including improvements, fixtures, equipment, machinery and
appliances thereon in good repair and shall replace fixtures, equipment,
machinery and appliances on the Property when necessary to keep such items in
good repair, (e) shall comply with all laws, ordinances, regulations and
requirements of any governmental body applicable to the Property, (f) shall
generally operate and maintain the Property in a manner to ensure maximum
rentals, and (g) shall give notice in writing to Lender of and, unless otherwise
directed in writing by Lender, appear in and defend any action or proceeding
purporting to affect the Property, the security of this Instrument or the rights
or powers of Lender. Neither Borrower nor any tenant or other person shall
remove, demolish or alter any improvement now existing or hereafter erected on
the Property or any fixture, equipment, machinery or appliance in or on the
Property except when incident to the replacement of fixtures, equipment,
machinery and appliances with items of like kind.
7. Use of Property and Right of Lender to Inspect. Unless required by law
or unless Lender has otherwise agreed in writing, Borrower shall not allow
changes in the use for which all or any part of the Property was intended at the
time this Instrument was executed. Borrower shall not initiate or acquiesce in a
change in the zoning classification of the Property without Lender's prior
written consent.
Lender may make or cause to be made reasonable entries upon and inspections
of the Property.
8. Protection of Lender's Security. If Borrower fails to perform the
covenants and agreements contained in this Instrument, or if any action or
proceeding is commenced which affects the Property or title thereto or the
interest of Lender therein, including, but not limited to, eminent domain,
insolvency, code enforcement, or arrange ments or proceedings involving a
bankrupt or decedent, or any action at law or in equity against Borrower by
Lender to enforce Lender's rights hereunder, then Lender at Lender's option may
make such appearances, disburse such sums and take such action as Lender deems
necessary, in its sole discretion, to protect Lender's interest, including, but
not limited to, (i) disbursement of attorney's fees, (ii) entry upon the
Property to make repairs, (iii) procurement of satisfactory insurance as
provided in paragraph 5 hereof, and (iv) if this Instrument is on a leasehold,
exercise of any option to renew or extend the ground lease on behalf of Borrower
and the curing of any default of Borrower in the terms and conditions of the
ground lease.
Any amounts disbursed by Lender pursuant to this paragraph 8, with interest
thereon, shall become additional indebtedness of Borrower secured by this
Instrument. Unless Borrower and Lender agree to other terms of payment, such
amounts shall be
immediately due and payable and shall bear interest from the date of
disbursement at the rate stated in the Note unless collection from Borrower of
interest at such rate would be contrary to applicable law, in which event such
amounts shall bear interest at the highest rate which may be collected from
Borrower under applicable law. Borrower hereby covenants and agrees that Lender
shall be subrogated to the lien of any mortgage or other lien discharged, in
whole or in part, by the indebtedness secured hereby. Nothing contained in this
paragraph 8 shall require Lender to incur any expense or take any action
hereunder.
9. Hazardous Materials. Except as otherwise described in the Phase I
Environmental Site Assessment Report by Gaynor Associates, Inc. dated December,
1996, Borrower represents and warrants that, to the best of Borrower's
knowledge, after due inquiry and investigation, the Property is not now and has
never been used to generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer, produce, process or in any manner deal with,
Hazardous Materials, and that no Hazardous Materials have ever been installed,
placed, or in any manner dealt with on the Property, and that no owner of the
Property or any tenant, subtenant, occupant, prior tenant, prior subtenant,
prior occupant or person (collectively, "Occupant") has received any notice or
advice from any governmental agency or any Occupant with regard to Hazardous
Materials on, from or affecting the Property. Except for the use of the Property
by Syracuse Supply Company, Inc., in accordance with all Federal, State and
local environmental laws, rules and regulations, Borrower covenants that the
Property shall be kept free of Hazardous Materials, and shall not be used to
generate, manufacture, refine, transport, treat, store, handle, dispose,
transfer, produce, process or in any manner deal with, Hazardous Materials, and
Borrower shall not cause or permit, as a result of any intentional or
unintentional act or omission on the part of Borrower or any Occupant, the
installation or placement of Hazardous Materials in or on the Property or a
release of Hazardous Materials onto the Property or onto any other property or
suffer the presence of Hazardous Materials on the Property. Borrower shall
comply with, and ensure compliance by all Occupants with, all applicable
federal, state and local laws, ordinances, rules or regulations, with respect to
Hazardous Materials, and shall keep the Property free and clear of any liens
imposed pursuant to such laws, ordinances, rules or regulations. In the event
that Borrower receives any notice or advice from any governmental agency, or any
Occupant with regard to Hazardous Materials on, from or affecting the Property,
Borrower shall immediately notify Lender. Borrower shall conduct and complete
all investigations, studies, sampling, and testing, and all remedial, removal,
and other actions necessary to clean up and remove all Hazardous Materials, on,
from or affecting the Property in accordance with all applicable federal, state,
and local laws, ordinances, rules, regulations, and policies. Borrower shall
defend, indemnify, and hold harmless Lender, its employees, agents, officers and
directors from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs or expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of in any way related to Hazardous
7
materials at or affecting the Property or the soil, water, vegetation,
buildings, personal property, persons, animals or otherwise and any personal
injury (including wrongful death) or property damage arising out of or related
to such Hazardous Materials. The term "Hazardous Materials" as used in this
Mortgage shall include, without limitation, gasoline, petroleum products,
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, polychlorinated biphenyls or related or similar
materials, asbestos or any material containing asbestos, or any other substance
or material as may be defined as a hazardous or toxic substance by any Federal,
state or local environmental law, ordinance, rule, or regulation including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C.
Sections 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
Sections 1251 et seq.), the Clean Air Act (42 U.S.C. Sections 7401 et seq.) and
in the regulations adopted and publications promulgated pursuant thereto. The
obligations and liabilities of Borrower under this paragraph shall survive the
foreclosure of this Mortgage or the delivery of a deed in lieu of foreclosure,
and shall continue to be binding upon Borrower notwithstanding any contrary
language contained in this Mortgage or any other document, specifically
including without limitation any document which otherwise relieves Borrower from
personal liability under the note secured by this Mortgage, this Mortgage or any
other document.
10. Books and Records. Borrower shall keep and maintain at all times at
Borrower's address stated above, or such other place as Lender may approve in
writing, complete and accurate books of accounts and records adequate to reflect
correctly the results of the operation of the Property and copies of all written
contracts, leases and other instruments which affect the Property. Such books,
records, con tracts, leases and other instruments shall be subject to
examination and inspection at any reasonable time by Lender. Borrower shall
furnish to Lender, within ninety days after the end of each fiscal year of
Borrower, a balance sheet, an income and expense statement covering the
operation of the Property for such period. Borrower shall furnish, together with
the foregoing financial statements and at any other time upon Lender's request,
a rent schedule for the Property, certified by Borrower, showing the name of
each tenant, and for each tenant, the space occupied, the lease expiration date,
the rent payable and the rent paid.
11. Condemnation. Borrower shall promptly notify Lender of any action or
proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or part thereof, and Borrower shall appear in and
prosecute any such action or proceeding unless otherwise directed by Lender in
writing. Borrower authorizes Lender, at Lender's option, as attorney-in-fact for
Borrower, to commence, appear in and prosecute, in Lender's or Borrower's name,
any action or proceeding
8
relating to any condemnation or other taking of the Property, whether
direct or indirect, relating to any condemnation or other taking of the
Property, whether direct or indirect, and to settle or compromise any claim in
connection with such condemnation or other taking. The proceeds of any award,
payment or claim for damages, direct or conse quential, in connection with any
condemnation or other taking, whether direct or indirect, of the Property, or
part thereof, or for conveyances in lieu of condemnation, are hereby assigned to
and shall be paid to Lender subject, if this Instrument is on a leasehold, to
the rights of lessor under the ground lease.
Borrower authorizes Lender to apply such awards, payments, proceeds or
damages, after the deduction of Lender's expenses incurred in the collection of
such amounts, at Lender's option, to restoration or repair of the Property or to
payment of the sums secured by this Instrument, whether or not then due, in the
order of application set forth in paragraph 3 hereof, with the balance, if any,
to Borrower. Unless Borrower and Lender otherwise agree in writing, any
application of proceeds to principal shall not extend or postpone the due date
of the monthly installments referred to in paragraphs 1 and 2 hereof or change
the amount of such installments. Borrower agrees to execute such further
evidence of assignment of any awards, proceeds, damages or claims arising in
connection with such condemnation or taking as Lender may require.
12. Borrower and Lien Not Released. From time to time, Lender may, at
Lender's option, without giving notice or obtaining the consent of Borrower
(except as hereinafter provided in this paragraph), Borrower's successors or
assigns or of any junior lienholder or guarantors, without liability on Lender's
part and notwithstanding Borrower's breach of any covenant or agreement of
Borrower in this Instrument, extend the time for payment of said indebtedness or
any part thereof, reduce the payments thereon, release anyone liable on any of
said indebtedness, accept a renewal note or notes therefor, modify the terms and
time of payment of said indebtedness, release from the lien of this Instrument
any part of the Property, take or release other or additional security, reconvey
any part of the Property, consent to any map or plan of the Property, consent to
the granting of any easement, join in any extension or subordination agreement,
and agree in writing with Borrower to modify the rate of interest or period of
amortization of the Note or change the amount of the monthly installments
payable thereunder. Any actions taken by Lender pursuant to the terms of this
paragraph 12 shall not affect the obligation of Borrower or Borrower's
successors or assigns to pay the sums secured by this Instrument and to observe
the covenants of Borrower contained herein, shall not affect the guaranty of any
person, corporation, partnership or other entity for payment of the indebtedness
secured hereby, and shall not affect the lien or priority of lien hereof on the
Property. Borrower shall pay Lender a reasonable service charge, together with
such title insurance premiums and attorney's fees as may be incurred at Lender's
option, for any such action if taken at Borrower's request.
9
13. Forbearance By Lender Not A Waiver. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by applicable
law, shall not be a waiver of or preclude the exercise of any right or remedy.
The acceptance by Lender of payment of any sum secured by this Instrument after
the due date of such payment shall not be a waiver of Lender's right to either
require prompt payment when due of all other sums so secured or to declare a
default for failure to make prompt payment. The procurement of insurance or the
payment of taxes or other liens or charges by Lender shall not be a waiver of
Lender's right to accelerate the maturity of the indebtedness secured by this
Instrument, nor shall Lender's receipt of any awards, proceeds or damages under
paragraphs 5 and 11 hereof operate to cure or waive Borrower's default in
payment of sums secured by this Instrument.
14. Estoppel Certificate. Borrower shall within ten days of a written
request from Lender furnish Lender with a written statement, duly acknowledged,
setting forth the sums secured by this Instrument and any right of set-off,
counterclaim or other defense which exists against such sums and the obligations
of this Instrument.
15. Uniform Commercial Code Security Agreement. This Instrument is intended
to be a security agreement pursuant to the Uniform Commercial Code for any of
the items specified above as part of the Property which, under applicable law,
may be subject to a security interest pursuant to the Uniform Commercial Code,
and Borrower hereby grants Lender a security interest in said items. Borrower
agrees that Lender may file this Instrument, or a reproduction thereof, in the
real estate records or other appropriate index, as a financing statement for any
of the items specified above as part of the Property. Any reproduction of this
Instrument or of any other security agreement or financing statement shall be
sufficient as a financing statement. In addition, Borrower agrees to execute and
deliver to Lender, upon Lender's request, any financing statements, as well as
extensions, renewals and amendments thereof, and reproductions of this
Instrument in such form as Lender may require to perfect a security interest
with respect to said items. Borrower shall pay all costs of filing such
financing statements and any extensions, renewals, amendments and releases
thereof, and shall pay all reasonable costs and expenses of any record searches
for financing statements Lender may reasonably require. Without the prior
written consent of Lender, Borrower shall not create or suffer to be created
pursuant to the Uniform Commercial Code any other security interest in said
items, including replacements and additions thereto. Upon Borrower's breach of
any covenant or agreement of Borrower contained in this Instrument, including
the covenants to pay when due all sums secured by this Instrument, Lender shall
have the remedies of a secured party under the Uniform Commercial Code and, at
Lender's option, may also invoke the remedies provided in paragraph 27 of this
Instrument as to such items. In exercising any of said remedies, Lender may
proceed against the items of real property and any items of personal property
specified above as part of the Property separately or together and in any order
whatsoever, without in any way affecting the availability of Lender's remedies
10
under the Uniform Commercial Code or of the remedies provided in paragraph
27 of this Instrument.
16. Leases of the Property. Borrower shall comply with and observe
Borrower's obligations as landlord under all leases of the Property or any part
thereof. Borrower, at Lender's request, shall furnish Lender with executed
copies of all leases now existing or hereafter made of all or any part of the
Property, and all leases now or hereafter entered into will be in form and
substance subject to the approval of Lender. All leases of the Property shall
specifically provide that such leases are subordinate to this Instrument; that
the tenant attorns to Lender, such attornment to be effective upon Lender's
acquisition of title to the Property; that the tenant agrees to execute such
further evidences of attornment as Lender may from time to time request, that
the attornment of the tenant shall not be terminated by foreclosure; and that
Lender may, at Lender's option, accept or reject such attornments. Borrower
shall not, without Lender's written consent, execute, modify, surrender or
terminate, either orally or in writing, any lease now existing or hereafter made
of all or any part of the Property, permit an assignment or sublease of such a
lease without Lender's written consent, or request or consent to the
subordination of any lease of all or any part of the Property to any lien
subordinate to this Instrument. If Borrower becomes aware that any tenant
proposes to do, or is doing, any act or thing which may give rise to any right
of set-off against rent, Borrower shall (i) take such steps as shall be
reasonably calculated to prevent the accrual of any right to a set-off against
rent, (ii) notify Lender thereof and of the amount of said set-offs, and (iii)
within ten days after such accrual, reimburse the tenant who shall have acquired
such right to set-off or take such other steps as shall effectively dis charge
such set-off and as shall assure that rents thereafter due shall continue to be
payable without set-off or deduction.
Upon Lender's request, Borrower shall assign to Lender, by written
instrument satisfactory to Lender, all leases now existing or hereafter made of
all or any part of the Property and all security deposits made by tenants in
connection with such leases of the Property. Upon assignment by Borrower to
Lender of any leases of the Property, Lender shall have all of the rights and
powers possessed by Borrower prior to such assignment and Lender shall have the
right to modify, extend or terminate such existing leases and to execute new
leases, in Lender's sole discretion.
17. Remedies Cumulative. Each remedy provided in this Instrument is
distinct and cumulative to all other rights or remedies under this Instrument or
afforded by law or equity, and may be exercised concurrently, independently, or
successively, in any order whatsoever.
18. Acceleration in Case of Borrower's Insolvency. If Borrower shall
voluntarily file a petition under the Federal Bankruptcy Act, as such Act may
from time to time be amended, or under any similar or successor Federal statute
relating to bankruptcy,
11
insolvency, arrangements or reorganizations, or under any state bankruptcy
or insolvency act, or file an answer in an involuntary proceeding admitting
insolvency or inability to pay debts, or if Borrower shall fail to obtain a
vacation or stay of involuntary proceedings brought for the reorganization,
dissolution or liquidation of Borrower, or if Borrower shall be adjudged a
bankrupt, or if a trustee or receiver shall be appointed for Borrower or
Borrower's property, or if the Property shall become subject to the jurisdiction
of a Federal bankruptcy court or similar state court, or if Borrower shall make
an assignment for the benefit of Borrower's creditors, or if there is an
attachment, execution or other judicial seizure of any portion of Borrower's
assets and such seizure is not discharged within ten days, then Lender may, at
Lender's option, declare all of the sums secured by this Instrument to be
immediately due and payable without prior notice to Borrower, and Lender may
invoke any remedies permitted by paragraph 27 of this Instrument. Any attorney's
fees and other expenses incurred by Lender in connection with Borrower's
bankruptcy or any of the other aforesaid events shall be additional indebtedness
of Borrower secured by this Instrument pursuant to paragraph 8 hereof.
19. Transfers of the Property or Beneficial Interests in Borrower. On sale
or transfer of (i) all or any part of the Property, or any legal or equitable
interest therein, whether voluntary or involuntary, or (ii) beneficial interests
in Borrower (if Borrower is not a natural person or persons but is a
corporation, partnership, limited liability company, trust or other legal
entity), Lender may, at Lender's option, declare all of the sums secured by this
Instrument to be immediately due and payable, and Lender may invoke any remedies
permitted by paragraph 27 of this Instrument.
20. Notice. Except for any notice required under applicable law to be given
in another manner, (a) any notice to Borrower provided for in this Instrument or
in the Note shall be given by mailing such notice by certified mail addressed to
Borrower at Borrower's address stated above or at such other address as Borrower
may designate by notice to Lender as provided herein, and (b) any notice to
Lender shall be given by certified mail, return receipt requested, to Lender's
address stated herein or to such other address as Lender may designate by notice
to Borrower as provided herein. Any notice provided for in this Instrument or in
the Note shall be deemed to have been given to Borrower or Lender when given in
the manner designated herein.
21. Successors and Assigns Bound; Joint and Several Liability; Agents;
Captions. The covenants and agreements herein contained shall bind, and the
rights hereunder shall inure to, the respective successors and assigns of Lender
and Borrower, subject to the provisions of paragraph 19 hereof. All covenants
and agreements of Borrower shall be joint and several. In exercising any rights
hereunder or taking any actions provided for herein, Lender may act through its
employees, agents or independent contractors as authorized by Lender. The
captions and
12
headings of the paragraphs of this Instrument are for convenience only and
are not to be used to interpret or define the provisions hereof.
22. Governing Law; Severability. This Instrument shall be governed by the
law of the State of New York. In the event that any provision of this Instrument
or the Note conflicts with applicable law, such conflict shall not affect other
provisions of this Instru ment or the Note which can be given effect without the
conflicting provisions, and to this end the provisions of this Instrument and
the Note are declared to be severable. In the event that any applicable law
limiting the amount of interest or other charges permitted to be collected from
Borrower is interpreted so that any charge provided for in this Instrument or in
the Note, whether considered separately or together with other charges levied in
connection with this Instrument and the Note, violates such law, and Borrower is
entitled to the benefit of such law, such charge is hereby reduced to the extent
necessary to eliminate such violation. The amounts, if any, previously paid to
Lender in excess of the amounts payable to Lender pursuant to such charges as
reduced shall be applied by Lender to reduce the principal of the indebtedness
evidenced by the Note. For the purpose of determining whether any applicable law
limiting the amount of interest or other charges permitted to be collected from
Borrower has been violated, all indebtedness which is secured by this Instrument
or evidenced by the Note and which constitutes interest, as well as all other
charges levied in connection with such indebtedness which constitute interest,
shall be deemed to be allocated and spread over the stated term of the Note.
Unless otherwise required by applicable law, such allocation and spreading shall
be effected in such a manner that the rate of interest computed thereby is
uniform throughout the stated term of the Note.
23. Waiver of Statute of Limitations. Borrower hereby waives the right to
assert any statute of limitations as a bar to the enforcement of the lien of
this Instrument or to any action brought to enforce the Note or any other
obligation secured by this Instrument.
24. Waiver of Marshalling. Notwithstanding the existence of any other
security interests in the Property held by Lender or by any other party, Lender
shall have the right to determine the order in which any or all of the Property
shall be subjected to the remedies provided herein. Lender shall have the right
to determine the order in which any or all portions of the indebtedness secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Borrower, any party who consents to this Instrument
and any party who now or hereafter acquires a security interest in the Property
and who has actual or constructive notice hereof hereby waives any and all right
to require the marshalling of assets in connection with the exercise of the
remedies permitted by applicable law or provided herein.
25. Construction Loan Provisions. Borrower agrees to comply with the
covenants and conditions of the Building Loan Contract, if any, which is hereby
13
incorporated by reference in and made a part of this Instrument. All
advances made by Lender pursuant to the Building Loan Contract shall be
indebtedness of Borrower secured by this Instrument, and such advances may be
obligatory as provided in the Building Loan Contract. All sums disbursed by
Lender prior to completion of the improvements to protect the security of this
Instrument up to the principal amount of the Note shall be treated as
disbursements pursuant to the Building Loan Contract. All such sums shall bear
interest from the date of disbursement at the rate stated in the Note, unless
collection from Borrower of interest at such rate would be contrary to
applicable law in which event such amounts shall bear interest at the highest
rate which may be collected from Borrower under applicable law and shall be
payable upon notice from Lender to Borrower requesting payment therefor.
From time to time as Lender deems necessary to protect Lender's interests,
Borrower shall, upon request of Lender, execute and deliver to Lender, in such
form as Lender shall direct, assignments of any and all rights or claims which
relate to the construction of the Property and which Borrower may have against
any party supplying or who has supplied labor, materials or services in
connection with construction of the Property. In case of breach by Borrower of
the covenants and conditions of the Building Loan Contract, Lender, at Lender's
option, with or without entry upon the Property, (i) may invoke any of the
rights or remedies provided in the Building Loan Contract, (ii) may accelerate
the sums secured by this Instrument and invoke those remedies provided in
paragraph 27 hereof, or (iii) may do both. If, after the commencement of
amortization of the Note, the Note and this Instrument are sold by Lender, from
and after such sale the Building Loan Contract shall cease to be a part of this
Instrument and Borrower shall not assert any right of set-off, counterclaim or
other claim or defense arising out of or in connection with the Building Loan
Contract against the obligations of the Note and this Instrument.
26. Assignment of Rents; Appointment of Receiver; Lender in Possession. As
part of the consideration for the indebtedness evidenced by the Note, Borrower
hereby absolutely and unconditionally assigns and transfers to Lender all the
rents and revenues of the Property, including those now due, past due, or to
become due by virtue of any lease or other agreement for the occupancy or use of
all or any part of the Property, regardless of to whom the rents and revenues of
the Property are payable. Borrower hereby authorizes Lender or Lender's agents
to collect the aforesaid rents and revenues and hereby directs each tenant of
the Property to pay such rents to Lender or Lender's agents; provided, however,
that prior to written notice given by Lender to Borrower of the breach by
Borrower of any covenant or agreement of Borrower in this Instrument, Borrower
shall collect and receive all rents and revenues of the Property as trustee for
the benefit of Lender and Borrower, to apply the rents and revenues so collected
to the sums secured by this Instrument in the order provided in paragraph 3
hereof with the balance, so long as no such breach has occurred, to the account
of Borrower, it being intended by Borrower and Lender that this assignment of
14
rents constitutes an absolute assignment and not an assignment for
additional security only. Upon delivery of written notice by Lender to Borrower
of the breach by Borrower of any covenant or agreement of Borrower in this
Instrument, and without the necessity of Lender entering upon and taking and
maintaining full control of the Property in person, by agent or by a
court-appointed receiver, Lender shall immediately be entitled to possession of
all rents and revenues of the Property as specified in this paragraph 26 as the
same become due and payable, including but not limited to rents then due and
unpaid, and all such rents shall immediately upon delivery of such notice be
held by Borrower as trustee for the benefit of Lender only; provided, however,
that the written notice by Lender to Borrower of the breach by Borrower shall
contain a statement that Lender exercises its rights to such rents. Borrower
agrees that commencing upon delivery of such written notice of Borrower's breach
by Lender to Borrower, each tenant of the Property shall make such rents payable
to and pay such rents to Lender or Lender's agents on Lender's written demand to
each tenant therefor, delivered to each tenant personally, by mail or by
delivering such demand to each rental unit, without any liability on the part of
said tenant to inquire further as to the existence of a default by Borrower.
Borrower hereby covenants that Borrower has not executed any prior
assignment of said rents, that Borrower has not performed, and will not perform,
any acts or has not executed, and will not execute, any instrument which would
prevent Lender from exercising its rights under this paragraph 26, and that at
the time of execution of this Instrument there has been no anticipation or
prepayment of any of the rents of the Property for more than two months prior to
the due dates of such rents. Borrower covenants that Borrower will not hereafter
collect or accept payment of any rents of the Property more than two months
prior to the due dates of such rents. Borrower further covenants that Borrower
will execute and deliver to Lender such further assignments of rents and
revenues of the Property as Lender may from time to time request.
Upon Borrower's breach of any covenant or agreement of Borrower in this
Instrument, Lender may in person, by agent or by a court-appointed receiver,
regardless of the adequacy of Lender's security, enter upon and take and
maintain full control of the Property in order to perform all acts necessary and
appropriate for the operation and maintenance thereof including, but not limited
to, the execution, cancellation or modification of leases, the collection of all
rents and revenues of the Property, the making of repairs to the Property and
the execution or termination of contracts providing for the management or
maintenance of the Property, all on such terms as are deemed best to protect the
security of this Instrument. In the event Lender elects to seek the appointment
of a receiver for the Property upon Borrower's breach of any covenant or
agreement of Borrower in this Instrument, Borrower hereby expressly consents to
the appointment of such receiver. Lender or the receiver shall be entitled to
receive a reasonable fee for so managing the Property.
15
All rents and revenues collected subsequent to delivery of written notice
by Lender to Borrower of the breach by Borrower of any covenant or agreement of
Borrower in this Instrument shall be applied first to the costs, if any, of
taking control of and managing the Property and collecting the rents, including,
but not limited to, attorney's fees, receiver's fees, premiums on receiver's
bonds, costs of repairs to the Property, premiums on insurance policies, taxes,
assessments and other charges on the Property, and the costs of discharging any
obligation or liability of Borrower as lessor or landlord of the Property and
then to the sums secured by this Instrument. Lender or the receiver shall have
access to the books and records used in the operation and maintenance of the
Property and shall be liable to account only for those rents actually received.
Lender shall not be liable to Borrower, anyone claiming under or through
Borrower or anyone having an interest in the Property by reason of anything done
or left undone by Lender under this paragraph 26.
If the rents of the Property are not sufficient to meet the costs, if any,
of taking control of and managing the Property and collecting the rents, any
funds expended by Lender for such purposes shall become indebtedness of Borrower
to Lender secured by this Instrument pursuant to paragraph 8 hereof. Unless
Lender and Borrower agree in writing to other terms of payment, such amounts
shall be payable upon notice from Lender to Borrower requesting payment thereof
and shall bear interest from the date of disbursement at the rate stated in the
Note unless payment of interest at such rate would be contrary to applicable
law, in which event such amounts shall bear interest at the highest rate which
may be collected from Borrower under applicable law.
Any entering upon and taking and maintaining of control of the Property by
Lender or the receiver and any application of rents as provided herein shall not
cure or waive any default hereunder or invalidate any other right or remedy of
Lender under applicable law or provided herein. This assignment of rents of the
Property shall terminate at such time as this Instrument ceases to secure
indebtedness held by Lender.
27. Acceleration; Remedies. Upon Borrower's breach of any covenant or
agreement of Borrower in this Instrument, including, but not limited to, the
covenants to pay when due any sums secured by this Instrument, Lender at
Lender's option, may declare all of the sums secured by this Instrument to be
immediately due and payable without further demand, may foreclose this
Instrument by judicial proceeding, shall be entitled to the appointment of a
receiver, without notice, and may invoke any other remedies permitted by
applicable law or provided herein. Lender may, at Lender's option, also
foreclose this Instrument for any portion of the sums secured hereby which is
then due and payable, subject to the continuing lien of this Instrument of the
balance of the Instrument debt then due. Lender shall be entitled to collect in
pursuing such remedies all costs and expenses allowed by applicable law
including, but not limited to,
16
attorney's fees and applicable statutory costs. The rights of Lender herein
specified shall be in addition to Lender's rights under Section 254 of the Real
Property Law.
28. Release. Upon payment of all sums secured by this Instrument, Lender
shall discharge this Instrument. Borrower shall pay Lender's reasonable costs
incurred in discharging this Instrument.
29. Lien Law. Borrower will receive advances hereunder subject to the trust
fund provisions of Section 13 of the Lien Law.
30. Late Payment. If any payment required to be made by Borrower in this
Instrument or the Note is not made before the tenth day of the month in which it
becomes due, Borrower shall pay to Lender with such payment an additional charge
equal to 5% of the payment due.
31. Subsequent Liens. In the event a mortgage or other lien, secondary and
subordinate to the lien of this Mortgage, is placed upon the Property without
the written consent of Lender, Lender may at Lender's option declare all of the
sums secured by this Instrument to be due and payable and Lender may invoke any
remedy permitted by paragraph 27 of this Instrument.
32. Exculpation of Broome County Industrial Development Agency.
Notwithstanding any contrary provision of this Mortgage, neither Broome County
Industrial Development Agency, nor any of the members, officers, agents or
employees, thereof shall be personally liable for payment of any indebtedness
represented by the Note which this Mortgage secures or any other amounts due
hereunder or for any other indebtedness or liabilities to Lender; and neither
Broome County Industrial Development Agency, nor any of the members, officers,
agents or employees thereof shall be personally liable for any deficiency
between the total amount of the judgment entered in any action, suit or
proceeding brought to foreclose this Mortgage, and the net proceeds of the sale
of the Property in such action, suit or proceeding, and no deficiency judgment
will be sought or taken against Broome County Industrial Development Agency, or
any of the members, officers, agents or employees thereof in any such action,
suit or proceeding; provided, however, that nothing contained in this paragraph
shall impair the validity of the indebtedness evidenced by the Note which this
Mortgage secures or in any way affect or impair the lien of this Mortgage or the
right of Lender to foreclose this Mortgage or exercise any of its other rights
and remedies hereunder upon Borrower's breach of any covenant or agreement of
Borrower in this Mortgage. This Mortgage is not and shall not be deemed to
constitute a debt of the State of New York (including, without limitation, the
County of Broome) neither the State of New York (including, without limitation,
the County of Broome) shall be liable hereunder.
17
IN WITNESS WHEREOF, Borrower has executed this Instrument or has caused
the same to be executed by its representatives thereunto duly authorized.
BROOME COUNTY INDUSTRIAL
DEVELOPMENT AGENCY
By ____________________________
Richard D'Attilio
Executive Director
SEMICONDUCTOR LASER INTERNATIONAL
CORPORATION
By ____________________________
Geoffrey Burnham, President
18
STATE OF NEW YORK )
) SS.:
COUNTY OF BROOME )
On this _____ day of January, in the year 2000, before me, the undersigned
personally appeared RICHARD D'ATTILIO, personally known to me or proved to me on
the basis of satisfactory evidence to be the individual whose name is subscribed
to the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
__________________________
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF BROOME )
On this _____ day of January, in the year 2000, before me, the undersigned
personally appeared GEOFFREY BURNHAM, personally known to me or proved to me on
the basis of satisfactory evidence to be the individual whose name is subscribed
to the within instrument and acknowledged to me that he executed the same in his
capacity, and that by his signature on the instrument, the individual, or the
person upon behalf of which the individual acted, executed the instrument.
__________________________
Notary Public
19
SCHEDULE "A"
All that certain parcel of land with the buildings and improvements thereon
erected in the Town of Kirkwood, County of Broome, and State of New York,
bounded and described as follows:
BEGINNING at a 5/8 inch rebar with cap on the existing Northerly boundary
of Link Drive at its intersection with the division line between the property
owned by Broome County Industrial Development Agency on the East, and the
property leased to Richard F. George on the West, said rebar being
Northeasterly, a distance of 224.54 feet measured along said boundary from a 5/8
inch rebar with cap at its intersection with the existing Northeasterly boundary
of Corporate Drive. RUNNING THENCE North 18 degrees 20 minutes 25 seconds West
along said division line, a distance of 508.73 feet to a 5/8 inch rebar with cap
at its intersection with the Southerly boundary of Valley View Subdivision;
thence along the last mentioned boundary the following three (3) courses and
distances: (1) North 81 degrees 12 minutes 42 seconds East, a distance of 275.00
feet to a 5/8 inch rebar with cap; (2) thence North 83 degrees 37 minutes 48
seconds East, a distance of 427.70 feet to a 1 inch rebar; (3) thence North 84
degrees 18 minutes 39 seconds East, a distance of 47.88 feet to a 5/8 inch rebar
with cap; thence South 06 degrees 22 minutes 12 seconds East through the
property owned by said Broome County Industrial Development Agency, a distance
of 499.43 feet to a 5/8 inch rebar with cap at its intersection with said
existing Northerly boundary of Link Drive; thence along the last mentioned
boundary the following (2) courses and distances: (1) South 83 degrees 37
minutes 48 seconds West, a distance of 580.20 feet to a 5/8 inch rebar with cap
at a point of curvature; (2) thence on a curve to the left having a radius of
230.00 feet, an arc distance of 65.50 feet to the POINT OR PLACE OF BEGINNING.
Containing 348,480 square feet or 8.0000 acres more or less. The last mentioned
curve being subtended by a chord having a bearing of South 75 degrees 28 minutes
15 seconds West and a length of 65.29 feet.
20
[TYPE] EX-10.31
SEMICONDUCTOR LASER INTERNATIONAL CORPORATION
SUBSCRIPTION AGREEMENT
Dated as of February __, 2000
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated as of February __, 2000 (this "Agreement"),
by and among Semiconductor Laser International Corporation, a Delaware
corporation (the "Corporation"), and certain subscribers whose names appear on
Schedule I attached hereto (each referred to individually as a "Subscriber" and
collectively as the "Subscribers").
W I T N E S S E T H:
WHEREAS, the Corporation desires to sell and issue to each Subscriber, and
each Subscriber desires to purchase and subscribe from the Corporation (i) the
number of shares (the "Shares") of common stock, $.01 par value per share (the
"Common Stock"), of the Corporation set forth opposite their name on Schedule I,
and (ii) the number of warrants (the "Warrants") of Common Stock (the "Warrant
Shares") set forth opposite their name on Schedule I which may be exercised in
whole or in part at any time or from time to time commencing on the Closing Date
(as defined below) and prior to the fifth anniversary of the Closing Date for an
exercise price of $.___ per share (the closing bid price of the Company's Common
Stock on the date hereof); and
WHEREAS, certain terms used in this Agreement are defined in Section 7.1
hereof.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and agreements hereinafter contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
intending to be legally bound, the parties hereto hereby agree as follows:
1. Sale and Purchase of the Shares and the Warrants. Subject to the terms
and conditions of this Agreement, at the Closing, the Corporation shall sell and
deliver to each Subscriber, and each Subscriber agrees, individually and not
jointly, to purchase and subscribe from the Corporation, the Shares of Common
Stock and the Warrants set forth opposite his name on Schedule I.
2. Purchase Price.
2.1. Amount of the Purchase Price. The purchase price (the "Purchase
Price") for each unit (each referred to as a "Unit") being purchased by the
Subscribers pursuant to Section 1 is $.30. Each Unit shall consist of one Share
of Common Stock and one tenth of one Warrant being purchased by the Subscribers.
The aggregate Purchase Price to be paid by each Subscriber is set forth opposite
such Subscriber's name on Schedule I. The Purchase Price shall be payable as
provided in Section 2.2 hereof.
2
2.2. Payment of the Purchase Price. At the Closing Date, each Subscriber
shall deliver the aggregate Purchase Price owed by such scriber set forth
opposite his name on Schedule I to the Corporation, which Purchase Price shall
be payable by certified or official bank check payable to the order of the
Corporation or wire transfer of immediately available funds. As soon as
practicable after such payment, the Corporation shall deliver to each of the
Subscribers (i) a certificate representing the shares of Common Stock set forth
opposite their name on Schedule I and (ii) a warrant representing the shares of
Common Stock set forth opposite their name on Schedule I which shall contain
dilution protection against stock splits, stock dividends and other similar
recapitalization events and other customary terms.
3. Closing. The closing of this Agreement (the "Closing") is scheduled to
take place on or prior to February __, 2000 at the offices of the Corporation,
or at such other time, date or place as the Corporation may decide. The date on
which the Closing is held is referred to in this Agreement as the "Closing
Date."
4. Representations and Warranties of the Corporation.
The Corporation hereby represents and warrants to each Subscriber, that:
4.1. Organization of the Corporation; Authority. The Corporation is duly
formed, validly existing and in good standing under the laws of the jurisdiction
of its formation. The Corporation has all requisite power and authority to enter
into this Agreement, and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Corporation of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of the Corporation. This Agreement has been
duly executed and delivered by the Corporation and, assuming that this Agreement
constitutes a valid and binding obligation of each Subscriber, constitutes a
valid and binding obligation of the Corporation, enforceable against the
Corporation in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity). The Shares, when issued and sold pursuant to
this Agreement, and the shares of Common Stock underlying the Warrants, when
issued pursuant to the Warrants, will be duly and validly issued, fully paid and
nonassessable.
4.2. Consents of Third Parties. None of the execution and delivery by the
Corporation of this Agreement, the consummation of the transactions contemplated
hereby, or compliance by the Corporation with any of the provisions hereof will
(a) conflict with, or result in the breach of, any provision of the
organizational documents of the Corporation, (b) conflict with, violate, result
in the breach or termination of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) or give rise
to any right of termination or acceleration or right to increase the obligations
or otherwise modify the terms thereof under any Contract, Permit or Order to
which the Corporation is a party or by which the
3
corporation or any of its properties or assets is bound, subject to the
rights of certain shareholders to invest on the same terms and pro rata basis
(c) constitute a violation of any Law applicable to the Corporation, or (d)
result in the creation of any Lien upon the properties or assets of the
Corporation.
5. Representations and Warranties of the Subscribers.
Each of the Subscribers hereby represents and warrants, severally and not
jointly, to the Corporation, that:
5.1. Capacity; Authorization. The Subscriber has the legal capacity to
enter into this Agreement and to carry out their obligations hereunder. Assuming
due execution and delivery by the Corporation of this Agreement, this Agreement
will constitute a legal, valid and binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
5.2. Due Diligence. The Subscriber is familiar with the business,
operations and management of the Corporation. The Subscriber has reviewed the
Company's filings with the Securities Exchange Commission and has had an
opportunity to ask questions of and receive answers from the Corporation and its
officers and other directors concerning the terms and conditions of the sale of
the shares of Common Stock and the warrants set forth opposite their name on
Schedule I, and has had an opportunity to obtain additional information from the
Corporation to the extent deemed necessary or advisable by the Subscriber in
order to verify the accuracy of the information obtained. The Subscriber has, to
the extent deemed necessary by the Subscriber, consulted with his own advisors
(including the Subscriber's attorney, accountant or investment advisor)
regarding the Subscriber's investment in the shares of Common Stock and the
warrants set forth opposite their name on Schedule I and understands the
significance and effect of its representations, warrants, acknowledgments and
agreements set forth in this Agreement. The Subscriber has, to the extent deemed
necessary by the Subscriber, completed due diligence and an independent
investigation concerning the Corporation and the terms and conditions of the
sale of the shares of Common Stock and the warrants set forth opposite their
name on Schedule I.
5.3. Investment Purposes. (a) The Subscriber is acquiring the shares of
Common Stock set forth opposite their name on Schedule I for investment purposes
only, for their own account, and not as a nominee or agent for any other Person,
and not with a view to, or for resale in connection with, any distribution
thereof within the meaning of the Securities Act, (b) the Subscriber has
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of their investment, (c) the Subscriber is an
"accredited investor" within the meaning of Rule 501 of Regulation D under the
Securities Act (i.e., the
4
subscriber's net worth, or joint net worth with that of his spouse, at the
time of his purchase of the shares of Common Stock set forth opposite their name
on Schedule I exceeds $1,000,000); (d) the Corporation has made available to the
Subscriber the opportunity to ask questions and to receive answers, and to
obtain the information the Subscriber has deemed material and necessary to
evaluate the merits and risks of this investment; and (e) the Subscriber
understands that the Company has had and continues to have insufficient capital
and that this investment involves a high degree of risk.
5.4. Consents of Third Parties. None of the execution and delivery by the
Subscriber of this Agreement, the consummation of the transactions contemplated
hereby, or compliance by the Subscriber with any of the provisions hereof will
(a) conflict with, violate, result in the breach or termination of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) or give rise to any right of termination or
acceleration or right to increase the obligations or otherwise modify the terms
thereof under any Contract, Permit or Order to which the Subscriber is a party
or by which the Subscriber or any of their properties or assets is bound; (b)
constitute a violation of any Law applicable to the Subscriber; or (c) result in
the creation of any Lien upon the properties or assets of the Subscriber. Other
than those which have been obtained or made, no consent, waiver, approval,
Order, Permit or authorization of, or declaration or filing with, or
notification to, any Person or Governmental Body is required on the part of the
Subscriber, in connection with the execution and delivery of this Agreement, or
the compliance by the Subscriber with any of the provisions hereof.
6. Transfer Restrictions; Private Placement.
6.1. The Subscribers understands and agrees that none of the Shares of
Common Stock, the Warrants or the Warrant Shares have been registered under the
Securities Act, and that accordingly they will not be transferable except as
permitted under various exemptions contained in the Securities Act, or upon
satisfaction of the registration and prospectus delivery requirements of the
Securities Act. The Subscribers acknowledges that it must bear the economic risk
of the Shares of Common Stock for an indefinite period of time since they have
not been registered under the Securities Act and therefore cannot be sold unless
they are subsequently registered or an exemption from registration is available.
6.2. The Subscribers agrees with the Corporation that the certificates
evidencing the Shares of Common Stock sold pursuant to this Agreement 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
5
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH
IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH
ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH
ACT, PROVIDED THAT, IF REQUESTED BY THE CORPORATION, AN OPINION
OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS
FURNISHED TO THE CORPORATION THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
6.3. The legend endorsed on the certificates pursuant to Section 6.2 hereof
shall be removed and the Corporation shall issue a certificate without such
legend to the holder thereof at such time as the securities evidenced thereby
cease to be restricted securities upon the earliest to occur of (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) the securities
shall have been sold to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, or (iii) such securities may be sold by the
holder without restriction or registration under Rule 144(k) under the
Securities Act (or any successor provision).
7. Miscellaneous.
7.1. Certain Definitions.
"Contract" means any contract, agreement, indenture, note, bond, loan,
instrument, lease, conditional sale contract, mortgage, license, franchise,
insurance policy, commitment or other arrangement or agreement, whether written
or oral.
"Governmental Body" means any government or governmental or regulatory body
thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private).
"Law" means any applicable federal, state, local or foreign law (including
common law), statute, code, ordinance, rule, regulation or other requirement or
guideline.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including, without limitation, any conditional sale or other
title retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction and including any lien or charge arising by statute or other
law.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
6
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Securities Act" means the Securities Act of 1933, as amended.
7.2. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.3. Further Assurances. The Corporation and the Subscribers each agree to
execute and deliver such other documents or agreements as may be necessary or
desirable for the implementation of this Agreement and the consummation of the
transactions contemplated hereby.
7.4. Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of this Agreement shall remain in effect.
7.5. Entire Agreement; Amendments and Waiver. This Agreement represents the
entire understanding and agreement among the parties hereto with respect to the
subject matter hereof and can be amended, supplemented or changed, and any
provision hereof can be waived, only by written instrument making specific
reference to this Agreement signed by the parties hereto. No action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, Warrants, covenant or
agreement contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a further or
continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
7.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflict of laws thereunder which would specify the application of
the law of another jurisdiction.
7.7. Notices. All notices and other communications to the Subscribers shall
be in writing (including facsimile, telecopy, telex or similar writing) and
shall be deemed given or made as of the date delivered, if delivered personally
or by telecopy, one day after being delivered by overnight courier or three days
after being mailed by registered or certified mail, to the Subscriber's
addresses provided on the signature page hereof.
7
7.8. Headings; Interpretive Matters. The section headings of this Agreement
are for reference purposes only and are to be given no effect in the
construction or interpretation of this Agreement. No provision of this Agreement
will be interpreted in favor of, or against, any of the parties hereto by reason
of the extent to which any such party or its counsel participated in the
drafting thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
7.9. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. Nothing in this Agreement shall create or be deemed to create
any third-party beneficiary rights in any Person or entity not a party to this
Agreement except as provided below. No assignment of this Agreement or of any
rights or obligations hereunder may be made by the Corporation or the
Subscribers (by operation of law or otherwise) without the prior written consent
of the other party hereto and any attempted assignment without the required
consents shall be void. Upon any permitted assignment, the references in this
Agreement to the Corporation shall apply to any such assignee unless the context
otherwise requires.
8
IN WITNESS WHEREOF, the parties hereto have caused this Subscription
Agreement to be duly executed as of the date and year first written above.
SEMICONDUCTOR LASER
INTERNATIONAL CORPORATION
By:________________________
Name: Geoffrey T. Burnham
Title: President and Chief Executive Officer
Name of Subscriber: ___________________________
Address:____________________
___________________________
Telephone:__________________
Fax:_______________________
9
SCHEDULE I
SUBSCRIBERS
Name Shares of Common Stock Warrant Shares Purchase Price
Totals
10
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 347,747
<SECURITIES> 0
<RECEIVABLES> 295,561
<ALLOWANCES> 0
<INVENTORY> 861,911
<CURRENT-ASSETS> 1,530,176
<PP&E> 2,584,974
<DEPRECIATION> 240,156
<TOTAL-ASSETS> 4,264,546
<CURRENT-LIABILITIES> 2,632,868
<BONDS> 0
0
10,000
<COMMON> 151,940
<OTHER-SE> 1,361,568
<TOTAL-LIABILITY-AND-EQUITY> 4,264,546
<SALES> 1,524,514
<TOTAL-REVENUES> 1,524,514
<CGS> 1,871,216
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,852,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169,738
<INCOME-PRETAX> (3,368,989)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,368,989)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,368,989)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
