UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 0-27908
Semiconductor Laser International Corporation
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(Exact name of small business issuer as specified in its charter)
Delaware 16-1494566
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 Link Drive, Binghamton, New York 13904
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(Address of principal executive offices)
(607) 722-3800
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(Issuer's telephone number)
--------------------------------------------------------------------------------
(former name,former address and former fiscal year,if changed since last report)
As of November 1, 2000, there were 28,518,263 outstanding shares of the
issuer's common stock, par value $.01 per share.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
<PAGE>
1
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements.
Semiconductor Laser International Corporation
Balance Sheet
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
(unaudited)
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 347,825 $ 1,788,558
Accounts Receivable, net of allowance for
doubtful accounts of $583,293 and $508,805,
respectively 295,483 352,574
Inventory 861,911 1,155,991
Prepaid expenses and other assets 21,147 36,069
------------ ------------
Total current assets 1,526,366 3,333,192
Property, plant and equipment, net 2,584,974 2,689,179
Deposits and other assets 151,021 128,745
------------ ------------
Total assets $ 4,262,361 $ 6,151,116
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 701,738 $ 650,767
Notes Payable ( Line of Credit ) 1,000,000 742,491
Accrued expenses and other liabilities 174,810 189,983
Current portion of long-term debt 44,368 51,477
------------ ------------
Total current liabilities 1,920,916 1,634,718
Long-term debt 713,668 687,439
Accrued royalty payments 100,000 100,000
------------ ------------
Total liabilities 2,734,584 2,422,157
------------ ------------
Commitments and contingencies (Note 5)
Shareholders' Equity
Common stock, par value $.01 per share, 75,000,000
shares authorized, 15,641,064 issued and outstanding
at December 31, 1999; 28,518,263 issued and
outstanding at September 30, 2000 156,411 285,182
Subscriptions Receivable (100,000) -
Treasury stock (248,241) (248,241)
Convertible Preferred Stock 10,000 10,000
Additional paid-in capital 22,034,364 27,460,509
Accumulated deficit (20,324,757) (23,778,491)
------------ ------------
Total Shareholders' Equity 1,527,777 3,728,959
------------ ------------
Total Liabilities and
Shareholders' Equity $ 4,262,361 $ 6,151,116
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
2
Semiconductor Laser International Corporation
Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 441,560 $ 410,886 $ 1,103,107 $ 1,175,098
Cost of sales (358,753) (676,764) (1,709,688) (2,143,525)
----------- ----------- ----------- -----------
Gross margin 82,807 (265,878) (606,581) (968,427)
Operating expenses:
Research and development $ 61,318 $ 45,102 $ 63,056 $ 71,568
Sales and marketing 67,839 75,880 264,413 278,227
General and administrative 657,989 901,506 1,821,294 2,255,799
---------- ---------- ----------- -----------
Total operating expenses 787,146 1,022,488 2,148,763 2,605,594
---------- ---------- ----------- -----------
Loss from operations 704,339 1,288,366 2,755,344 3,574,021
Interest income 9,594 40,107 15,630 120,287
---------- ---------- ----------- -----------
Net loss $ 694,745 $ 1,248,259 $ 2,739,714 $ 3,453,734
========== ========== =========== ===========
Net loss per share, basic and dilutive $(0.05) $(0.04) $(0.22) $(0.14)
========== ========== =========== ===========
Weighted average shares outstanding 13,476,629 28,518,263 12,374,959 24,986,031
========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
3
Semiconductor Laser International Corporation
Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 2000
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,739,714) $(3,453,734)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 173,548 166,283
Change in assets and liabilities:
Increase in accounts receivable, net (52,556) (57,091)
Increase in inventory (391,084) (294,080)
Decrease/(increase) in prepaid
expenses and other assets 32,845 (14,922)
(Increase)/decrease in deposits
and other assets (21,874) 11,043
Decrease in accounts payable (671,606) (50,971)
Increase in accrued expenses and
other liabilities 232,814 22,283
----------- -----------
Net cash used in operating activities (3,437,627) (3,671,189)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment (96,325) (259,255)
----------- -----------
Net cash used for investing activities (96,325) (259,255)
----------- -----------
Cash flows from financing activities:
Issuance of stock, net of expenses 3,824,698 5,654,915
Issuance of warrants 31,500 -
Proceeds from short-term debt 450,000 -
Payments on short-term debt - (257,509)
Payments on long-term debt (40,756) (26,229)
----------- -----------
Net cash provided by financing
activities 4,265,442 5,371,177
----------- -----------
Net increase in cash and cash
equivalents 731,490 1,440,733
Cash and cash equivalents at
beginning of period 111,820 347,825
----------- -----------
Cash and cash equivalents at
end of period $ 843,310 $ 1,788,558
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 123,345 $ 158,558
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
4
Semiconductor Laser International Corporation
Notes to Financial Statements
September 30, 2000
(Unaudited)
1. Organization
Semiconductor Laser International Corporation (the "Company") was
incorporated in the State of New York in September 1993 and, subsequently,
reincorporated in the Commonwealth of Delaware in September 1997, to produce
high power semiconductor diode laser wafers and bars and to market these
products worldwide.
2. Financial Resources and Liquidity
At September 30, 2000 the Company has an accumulated deficit of $23,778,491,
representing accumulated losses since inception. The Company also has working
capital of $1,698,474 at September 30, 2000. During the nine months
ended September 30, 2000, the Company has raised $5,830,000 from a series of
private placement offerings of the Company's common stock (more fully
described in Note 8).
Prospectively, however, the Company needs to demonstrate an ability to
increase its sales and generate positive gross margins and net income. Based
upon budget for the next twelve months, the Company expects that its cash and
working capital requirements will continue to be significant as its
operations expand. The Company expects that such cash and working capital
requirements will be satisfied through a combination of revenue growth and
additional private equity financing. There can be no assurance that such
additional financing can be consummated. 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. One investor who
purchased shares of common stock and shares of common stock issuable upon the
exercise of warrants in February 2000 and March 2000, now beneficially owns
approximately 39.7% of the Company's common stock not including warrants to
purchase 8,333,333 shares of common stock.
<PAGE>
5
3. Basis of Presentation
The accompanying unaudited financial statements have been prepared by the
Company. Certain information and footnote disclosures normally included in
financial statements prepared in conformity with accounting principles
generally accepted in the United States have been condensed or
omitted. In the opinion of the Company's management, the disclosures made
are adequate to ensure the information presented is not misleading. The
financial statements contain all adjustments necessary to present fairly the
financial position as of September 30, 2000 and the results of operations and
cash flows for the nine months ended September 30, 2000 and 1999. The
results of operations for the nine months ended September 30, 2000 are not
necessarily indicative of the results to be expected for the full fiscal year
or for any future period.
4. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
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 thirty 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.
<PAGE>
6
Revenue recognition
Revenue recognition is based on the terms of the underlying sales agreements
(purchase orders or contracts). Revenue is typically recognized when
products are shipped to customers.
Research and development
Research and development costs are expensed as incurred.
Income taxes
The Company provides for income taxes in accordance with the asset and
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.
Net loss per share
Net loss per share, basic and diluted, is computed using the weighted
average number of shares of common stock outstanding.
As of September 30, 2000, the Company had outstanding warrants and options to
purchase 12,773,271 and 1,118,129 shares of common stock, respectively, which
due to the anti-dilutive nature of these instruments, are not included in the
calculation of earnings per share for the nine months ended September 30,
2000.
As of September 30, 1999, the Company had outstanding warrants and options to
purchase 3,446,334 and 578,355 shares of common stock, respectively, which
due to the anti-dilutive nature of these instruments, are not included in the
calculation of earnings per share for the nine months ended September 30,
1999.
Recent accounting pronouncements
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 138, Accounting for Certain
Derivative Financial Instruments and Certain Hedging Activities - an
amendment of SFAS Statement No. 133 ("SFAS No. 138"). SFAS No. 138 amends
the accounting and reporting standards of SFAS 133 for certain derivative
instruments and for certain hedging activities. The Company is required to
adopt SFAS No. 133 by January 1, 2001. The Company does not expect that the
adoption of SFAS No. 133 will have a material effect on its financial
statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin: No. 101 - Revenue Recognition in Financial Statements
("SAB No. 101"), which provides guidance related to revenue recognition based
on interpretations and practices followed by the SEC. In June 2000, the SEC
issued SAB No. 101B to defer the effective date of SAB No. 101 until the
Fourth Quarter of fiscal year 2000. The Company does not expect the adoption
of SAB 101 to have a material effect on the Company's results of operations,
financial condition or cash flows.
<PAGE>
7
5. Commitment, Contingencies and Other Matters
Operating Leases
Rent expense under non-cancellable operating leases, including the FINOVA
leases, was $844,765 and $832,241 for the nine months ended September 30,
2000 and 1999, respectively.
Future minimum payments under non-cancellable operating leases, including
the FINOVA lease agreement, at September 30, 2000, are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Commitment
------------- -------------
<S> <C> <C>
2000(1) $ 358,140(1)
2001 1,222,974
-------------
$1,581,114
=============
(1) Three months ending Fiscal Year 2000
</TABLE>
6. Income taxes
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 carryforwards
when an ownership change, as defined by tax law, occurs. The annual
utilization of net operating loss carryforwards 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.
7. Litigation/Investigation
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. The action is pending
in the Supreme Court of Broome County, New York (the "Court"). In 1997, Dr.
Evans responded with a counterclaim alleging defamation of character and is
seeking $500,000 in damages. A motion to dismiss the counterclaim was presented
to the Court on July 28, 2000. In a decision dated August 15, 2000, the Court
denied the Company's motion to dismiss, however, the denial was without
prejudice, to allow the Company to its reply to Dr. Evans'
counterclaim, which in turn, would allow the Company to make another motion to
dismiss based on the amended Reply to the Counterclaim. A motion to amend the
Company's Reply to the Counterclaim and to dismiss the counterclaim was
presented to the Court on October 20, 2000. In a decision dated October 25,
2000 the Court granted that part of the motion seeking to amend the Reply to the
Counterclaim, however, it denied that part of the motion seeking to dismiss the
counterclaim, again, without prejudice. The Company is appealing that part of
the decision which denied the motion to dismiss to the Appellate Division:
Third Department. The Company 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. The action has been recently placed on
the trial calendar of the Court.
In August 1998, the Company learned that in June 1998, the Securities and
Exchange Commission (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 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 is responding to all
requests for information in connection with the investigation.
In August 1998, the Company learned that the United States Attorney's
Office for the Southern District of New York is investigating whether violations
of securities laws have occurred in connection with the Company's public
disclosures 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. The Company does
not know whether or not this investigation remains active and it is unable to
speculate as to the outcome or possible effect of the investigation on the
Company or its management. No requests for information have been received since
late 1998.
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 Timothy 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., Case No. CA99-30-251
-MAP. The complaint alleges violations by the defendants of Section 12(a)(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 common stock. The complaint seeks damages of
$27,782. An agreement in principle has been reached to settle this matter for
an immaterial amount.
The Company is currently engaged in litigation with Newport Corporation in the
Supreme Court of Broome County, New York, a vendor who is seeking to recover
$100,508 for goods allegedly sold to the Company. The action was commenced on
June 2, 1999. 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 action was commenced on July 9, 1999 in the Supreme Court of
Oneida County, New York. 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/Laser Marking Technologies ("RMI"). RMI disputes the
amounts owed to the Company regarding certain orders, has made claims regarding
defects in certain of the units delivered and it 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. The Company also has
asserted claims for lost profits and other damages. The Company has retained an
expert in the lawsuit with RMI to determine the total amount of its damages.
On November 2, 1999, the Company 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 the
Company. RMI then filed a counterclaim. A trial date has not yet been
established. The Company's allowance for doubtful accounts includes the
aforementioned amount which remains uncollected. The parties have agreed in
principle to settle this matter. However, there can be no assurance that a
definitive settlement will be rendered between the parties.
<PAGE>
8
8. Financing
The Company entered into a Securities Purchase Agreement, dated as of February
5, 1999 (the "Securities Purchase Agreement"), with bmp Mobility AG Venture
Capital ("bmp"), as amended by Amendment No. 1 to Securities Purchase Agreement,
dated as of April 28, 1999 (the "Amendment" together with the Securities
Purchase Agreement, collectively referred to as the "Amended Securities Purchase
Agreement"). Pursuant to the terms of the Amended Securities Purchase Agreement,
bmp purchased 2,000,000 shares of common stock and 1,000,000 shares of Series B
Convertible Preferred Stock, par value $0.01 per share (the "Series B Stock"),
each convertible into 5 shares of common stock or an aggregate of 5,000,000
shares of common stock. bmp had previously purchased 367,650 shares of 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 of common stock at an exercise price of $0.50 per
share (the "bmp Warrrant"). 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. Based on public filings, the Company is aware
that bmp has transferred ownership of its shares of common stock, the Series B
Stock and the bmp Warrant to ANB Alster Neue Beiteiligungs GmbH KG ("ANB").
The Company has available a collateralized line of credit with BSB Bank ("BSB")
pursuant to a loan agreement (the "Loan Agreement"), 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 of credit bears interest at
prime plus 2.5%. The Company has utilized $742,491 of this line as of September
30, 2000. There can be no assurance that the aggregate availability of the
collateralized line of credit will be available to the Company due to the
borrowing base calculation.
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 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 piggyback registration rights. The value of the BSB
Warrant has been reflected as deferred financing costs in the Company's
financial statements and was amortized over the period commencing from date of
issue to May 31, 2000.
In January 2000, BSB required the Company to provide it with additional security
for the Loan Agreement in the form of a $750,000 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 BSB on January 31, 2000. BSB has agreed
to release the lien of the second mortgage upon satisfaction of its first
mortgage, and a pay down or permanent reduction of the Company's line of credit
with BSB of $300,000 or a pledge of cash collateral in such amount.
BSB agreed to waive the default of the Company under the Loan Agreement with
respect to "Mandatory Loan Repayments" and waived the "Affirmative Covenants -
Financial Covenants and Ratios" at December 31, 1999. Subsequently, BSB agreed
to waive the default of the Company under the 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. On May 31, 2000, the Company paid down
$210,000 of the collateralized line of credit. On May 16, 2000, the Company
extended its $1,000,000 line of credit to March 31, 2001. In addition, the
Company agreed to issue BSB warrants to purchase 50,000 shares of common stock
at an exercise price of $1.00 per share.
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 Series B Stock and
the bmp Warrant (subsequently transferred to ANB) contain certain provisions
relating to antidilution protection against private placement issuances of
securities below fair market value. The Company has had certain discussions
with a representative of ANB concerning the applicability of these provisions to
the private placements consummated subsequent to January 1, 2000. The Company
has contended that no such adjustment is required and sought a waiver of such
provisions. To date, no agreement has been reached. To the extent it is
determined that such adjustment is required, the failure to reach such agreement
could result in an increase in the number of shares of common stock issuable
upon exercise of the Series B Stock and warrants and thereby result in potential
dilution to existing shareholders.
In September 1999, 2,979,256 shares of common stock were issued in a private
placement 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 12,877,199 shares of common stock and
10,517,778 shares of common stock issuable upon exercise of warrants in a series
of private placements since January 1, 2000. The Company raised an aggregate of
$5,830,000 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 of common stock. The warrants may be exercised from time to
time over a term of either 4 or 5 years. The Company is considering seeking
up to an additional $6 million to $8 million of private placement financing and
asset refinancing for expansion into telecommunications. The proceeds of the
financing would be used to support increasing sales and product development for
telecommunications as well as for facilities expansion and additional capital
equipment. There can be no assurance that such additional financing can be
consummated.
The Company has filed a registration statement with the Securities and Exchange
Commission to register certain shares issued in private placements consummated
over the preceding 21 months. The registration statement was declared effective
on June 30, 2000.
<PAGE>
9
Item 2. Management's Discussion and Analysis or Plan of Operation.
Certain statements in this report under the caption "Management's
Discussion and Analysis or 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; inability to expand into telecommunications
products; costs associated with and outcome of 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 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 utilizing 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.
The original four year equipment contract leases with FINOVA will be expiring in
the first four months of 2001. These contracts involve significant balloon
payments. In addition, the principle payments which were part of the
forbearance agreements signed in 1999, are required to be paid throughout the
Fourth Quarter of fiscal year 2000 and the First Quarter of fiscal year 2001.
These payments have been reflected in the Notes to the Financial Statements
(See Note 5).
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 the Company's management, financial, manufacturing
and other resources and limited the Company's ability to grow its revenues.
Although the Company has raised $5,830,000 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.
<PAGE>
10
Results of Operations
Comparison of three month periods ended September 30, 2000 and 1999.
Sales for the three months ended September 30, 2000 were $410,886 as compared to
$441,560 for the three months ended September 30, 1999. Although commercial
sales increased as compared to the prior period by approximately $20,000,
government sales decreased approximately $50,000. Telecommunications related
sales for the period in 2000 were approximately $176,000. The Company
experienced difficulties with certain pieces of equipment in the three months
ended September 30, 2000. The Company believes these difficulties have been
resolved. If the Company continues to experience problems with these certain
pieces of equipment, there could be an impact on the revenue for future fiscal
quarters.
The Company has a purchase order with a customer in China for approximately
$4 million for a single chip high power diode. Such customer has held up the
shipment of approximately $140,000 in products already manufactured by the
Company and delayed processing of the next production order pending resolution
of a claim by an agent in China. Although the claim has not been resolved, the
Company has shipped $100,000 in product to China and has been paid for 50% of
the shipment up front with the balance by letter of credit expected before the
end of November. In addition, the Company has received another purchase order
for $127,000 for which the Company received $30,000 in cash up front and a
letter of credit for the balance. The Company may not realize any additional
revenue from this customer. The realization of the full $4 million amount of the
original order is subject to the Company's ability to resolve the dispute and to
satisfy the customer's quality and quantity requirements.
Cost of sales, which includes materials, production labor and equipment costs
increased $318,012 to $676,764 for the three months ended September 30, 2000
compared to $358,753 for the three months ended September 30, 1999. The
increase was attributable to the one time impact in September 1999 of the
inclusion of certain work-in-process and finished goods inventories on the
balance sheet which reduced the Cost of Goods Sold by $371,000 during this
period. In addition, the Company had a lower volume of sales during the third
quarter of 2000. Cost of sales levels will continue to exceed sales levels
until the volume of sales increases.
<PAGE>
11
Research and Development("R & D") expenditures were $45,102 for the three months
ended September 30, 2000 as compared to $61,318 for the same period in 1999.
Prior to the three months ended September 30, 1999 R & D expenditures were
primarily being charged to the Cost of Goods Sold.
Sales and Marketing expenses were $75,880 for the three months ended September
30, 2000 as compared to $67,839 for the same period in 1999. The increase is
attributable to an increase in costs associated with travel expenses offset by a
decrease in advertising expenses.
General and Administrative expenses were $901,506 for the three months ended
September 30, 2000 as compared to $657,989 for the same period in 1999. The
increase was primarily attributable to an increase in professional fees of
approximately $123,000, payroll expense of approximately $62,000, recruiting
expenses of approximately $11,000 and other miscellaneous net expenses of
approximately $48,000. The increase in professional fees is primarily due to an
increase in the volume of services required while the other expense increases
are primarily due to the addition of sales and support personnel.
Interest income increased $30,513 from $9,594 during the three months ended
September 30, 1999 to $40,107 during the three months ended September 30, 2000
as a result of higher levels of invested cash.
Comparison of nine month periods ended September 30, 2000 and 1999.
Sales increased $71,991 from $1,103,107 for the nine month period ended
September 30, 1999 to $1,175,098 for the nine month period ended September 30,
2000. Although government contract revenue decreased, commercial revenues
increased to more than offset the aforementioned decline. Telecommunications
related sales for the period in 2000 were approximately $348,000.
Cost of sales increased $433,836 from $1,707,688 for the nine month period
ended September 30, 1999 to $2,143,525 for the nine month period ended September
30, 2000. The increase was attributable to the one time impact in September
1999 of the inclusion of certain work-in-process and finished goods inventories
on the balance sheet which reduced the Cost of Goods Sold by $371,000. Cost of
sales levels will continue to exceed sales levels until the volume of sales
increases. The Company expects sales levels to increase in the future, thus
steadily increasing production levels to levels approaching optimum capacity,
although no such assurance can be provided.
Research & Development expenditures were $71,568 and $61,318 for the nine months
ended September 30, 2000 and 1999, respectively.
Sales and Marketing expenses were $278,227 for the nine months ended September
30, 2000 as compared to $264,413 for the same period in 1999. The increase is
attributable to increases in costs associated with trade shows and travel
expenses offset by lower brochures and advertising expenses.
General and Administrative expenses were $2,255,799 for the nine months ended
September 30, 2000 as compared to $1,821,294 for the same period in 1999. The
increase was primarily attributable to an increase in professional fees of
approximately $197,000, insurance costs of approximately $32,000, bad debt
expense of $25,000, interest expense of approximately $35,000, taxes of
approximately $17,000 and payroll expenses of approximately $108,000 and other
miscellaneous net expenses of approximately $21,000. The increase in
professional fees is primarily due to an increase in the volume of services
required while the other expense increases are primarily due to the addition of
sales and support personnel and general business expense increases.
Interest income increased $104,657 from $15,630 for the nine month period ended
September 30, 1999 to $120,287 for the nine month period ended September 30,
2000 as a result of higher levels of invested cash.
Liquidity and Capital Resources
The Company's cash and cash equivalents at September 30, 2000 were $1,788,558 as
compared to $347,825 at December 31, 1999, a net increase of $1,440,733 for the
nine months ended September 30, 2000. The increase is the result of the receipt
of approximately $5.6 million in proceeds from private offerings of common
stock, offset by approximately $259,000 in capital expenditures and $3.4 million
in operating losses.
The $5,371,177 provided by financing activities was derived from the issuance
of 12,833,333 shares of common stock and warrants to purchase 9,743,333 shares
of Common Stock for an aggregate gross consideration of $5,830,000 ($5,654,915
net of fees), offset by payments on the line of credit of $257,509 and on
long-term debt of $26,229.
In conjunction with the Securities Purchase Agreement, on February 16, 1999,
the Company issued to BSB a five year warrant to purchase an aggregate of
500,000 shares of common stock at an exercise price of $0.575 per share. The
shares issuable upon exercise of the warrants contain certain piggyback
registration rights. The value of the warrants has been reflected as deferred
financing costs in the Company's financial statements and was amortized over
the period commencing from the date of issue to May 31, 2000.
The Company has available a collateralized line of credit with BSB
pursuant to the Loan Agreement, 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 of credit bears interest at prime plus 2.5%. The
Company has utilized $742,491 of this line as of September 30, 2000. There can
be no assurance that the aggregate availability of the collateralized line of
credit will be available to the Company due to the borrowing base calculation.
In January 2000, BSB required the Company to provide it with additional security
for the Loan Agreement in the form of a $750,000 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 BSB on January 31, 2000. BSB has agreed
to release the lien of the second mortgage upon satisfaction of its first
mortgage, and a pay down or permanent reduction of the Company's line of credit
with BSB of $300,000 or a pledge of cash collateral in such amount.
BSB agreed to waive the default of the Company under the Loan Agreement with
respect to "Mandatory Loan Repayments" and waived the "Affirmative Covenants -
Financial Covenants and Ratios" at December 31, 1999. Subsequently, BSB agreed
to waive the default of the Company under the 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. On May 31, 2000, the Company
paid down $210,224 of the collateralized line of credit. On May 16, 2000, the
Company extended its $1,000,000 line of credit to March 31, 2001. In addition,
the Company agreed to issue BSB warrants to purchase 50,000 shares of common
stock at an exercise price of $1.00 per share.
<PAGE>
12
Pursuant to the terms of the Amended Securities Purchase Agreement, bmp
purchased 2,000,000 shares of common stock and 1,000,000 shares of Series B
Stock, each convertible into 5 shares of common stock or an aggregate of
5,000,000 shares of common stock. bmp had previously purchased 367,650 shares
of common stock in unrelated open market transactions. In connection with the
Amendment, on June 26, 1999 the Company issued to bmp the bmp Warrrant. 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. Based on public filings, the Company is aware that bmp has transferred
ownership of its shares of common stock, the Series B Stock and the bmp Warrant
to ANB.
In September 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 12,877,199 shares of common stock and
10,517,778 shares of common stock issuable upon exercise of warrants in a series
of private placements since January 1, 2000. The Company raised an aggregate of
$5,830,000 in gross proceeds 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 may be exercised from time to
time over a term of either 4 or 5 years.
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 Series B Stock and
the bmp Warrant (subsequently transferred to ANB) contain certain provisions
relating to antidilution protection against private placement issuances of
securities below fair market value. The Company has had certain discussions
with a representative of ANB concerning the applicability of these provisions to
the private placements consummated subsequent to January 1, 2000. The Company
has contended that no such adjustment is required and sought a waiver of such
provisions. To date, no agreement has been reached. To the extent it is
determined that such adjustment is required, the failure to reach such agreement
could result in an increase in the number of shares of the Company's common
stock issuable upon exercise of the Series B Stock and warrants and thereby
result in potential dilution to existing shareholders.
The original four year equipment contract leases with FINOVA will be expiring in
the first four months of 2001. These contracts involve significant balloon
payments. In addition, the principle payments which were part of the
forbearance agreements signed in 1999, are required to be paid throughout the
Fourth Quarter of fiscal year 2000 and the First Quarter of fiscal year 2001.
These payments have been reflected in the Notes to the Financial Statements
(See Note 5).
The Company has filed a registration statement with the Securities and
Exchange Commission to register certain shares issued in private placements
consummated over the preceding 21 months. The Registration Statement was
declared effective on June 30, 2000.
The Company has incurred net losses from inception and has an accumulated
deficit at September 30, 2000 of $23,778,491. These losses 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 anticipates based upon its business plan, that without any capital
infusion, its cash will be sufficient for its needs at least until June 30,
2001. The Company intends to seek additional financing, from financial and
banking institutions as well as through further equity financings. There can be
no assurance that such additional financing can be consummated. If the
Company does not receive the additional financing or additional orders which
would result in additional revenue to offset the loss of the anticipated
financing, then its cash would be sufficient at least to April 30, 2001. 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.
One investor who purchased shares of common stock and shares of common stock
issuable upon exercise of warrants in March 2000, now beneficially owns
approximately 39.7% of the Company's common stock not including warrants to
purchase 8,333,333 shares of common stock.
The Company anticipates that capital expenditures during fiscal 2000 will be up
to $300,000. The Company had hoped to raise additional financing in the year
2000 in order to expand its manufacturing capacity in certain areas. It does
not appear that this financing will now be available. 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.
<PAGE>
13
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 7 to the Financial Statements.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on September 27,
2000. The shareholders elected the following four directors to serve
until the 2001 Annual Meeting of Shareholders or until the election and
qualification of their respective successors: Dr. Geoffrey T. Burnham,
Susan M. Burnham, George W. Hippisley and Dr. Vincent Tomaselli. In
addition, the shareholders of the Company voted on a proposal to approve
the Company's 2000 Stock Option Plan and to ratify the selection of
Deloitte & Touche, LLP as independent public accountants for the Company
for the fiscal year ending December 31, 2000. The results of the voting
for the proposal to approve the Company's 2000 Stock Option Plan were as
follows: 3,426,078 votes were cast for, 11,907,539 votes were cast
against and 5,319,712 votes were withheld. The results of the voting for
the proposal to ratify the selection of Deloitte & Touche, LLP as
independent public accountants were as follows: 20,603,589 votes were cast
for, 28,140 votes were cast against and 21,600 votes were withheld.
Item 5. Other Information.
The Company recently expanded its current Class 1,000 clean room facility
by adding an additional 500 square feet of clean room space. This space
will be dedicated to optoelectronic packaging and telecommunications
products. However, there can be no assurance that the Company will realize
any increase in volume or increase in revenues either from its standard
products or its telecommunication products which are currently under
development.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.32 Warrant Issued by the Company to EarlyBirdCapital.com,
Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant filed Current Reports on Form 8-K, dated July 17,
2000 and August 15, 2000, in connection with a change in the
Registrant's certifying accountant.
<PAGE>
14
SIGNATURES
In accordance with the requirements 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
---------------------------------------------
(Registrant)
Date: November 13, 2000 By:/s/ Geoffrey T. Burnham
----------------------------
Geoffrey T. Burnham
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 2000 By:/s/ Leonard E. Lundberg
----------------------------
Leonard E. Lundberg
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
[TYPE] EX-10.32
THE REGISTERED HOLDER OF THIS WARRANT, BY ITS ACCEPTANCE HEREOF, AGREES THAT IT
WILL NOT SELL, TRANSFER OR ASSIGN THIS WARRANT EXCEPT AS HEREIN PROVIDED.
VOID AFTER 5:00 P.M. EASTERN TIME, JUNE 26, 2004
WARRANT
For the Purchase of
300,000 Shares of Common Stock
of
SEMICONDUCTOR LASER INTERNATIONAL CORP.
1. Warrant.
THIS CERTIFIES THAT, in consideration of $10.00 and other good and valuable
consideration, duly paid on June 26, 2000 ("Issue Date") by or on behalf of
EarlyBirdCapital.com, Inc. ("Holder"), as registered owner of this Warrant, to
Semiconductor Laser International Corp. Inc. ("Company"), Holder is entitled, at
any time or from time to time at or after June 26, 2000 ("Commencement Date"),
and at or before 5:00 p.m., Eastern Time June 26, 2004 ("Expiration Date"), but
not thereafter, to subscribe for, purchase and receive, in whole or in part, up
to Three Hundred Thousand (300,000) shares of Common Stock of the Company, $.001
par value ("Common Stock"). If the Expiration Date is a day on which banking
institutions are authorized by law to close, then this Warrant may be exercised
on the next succeeding day which is not such a day in accordance with the terms
herein. During the period ending on the Expiration Date, the Company agrees not
to take any action that would terminate the Warrant. This Warrant is initially
exercisable at $1.00 per share of Common Stock purchased; provided, however,
that upon the occurrence of any of the events specified in Section 6 hereof, the
rights granted by this Warrant, including the exercise price and the number of
shares of Common Stock to be received upon such exercise, shall be adjusted as
therein specified. The term "Exercise Price" shall mean the initial exercise
price or the adjusted exercise price, depending on the context, of a share of
Common Stock. The term "Securities" shall mean the shares of Common Stock
issuable upon exercise of this Warrant.
2. Exercise.
2.1 Exercise Form. In order to exercise this Warrant, the exercise form
attached hereto must be duly executed and completed and delivered to the
Company, together with this Warrant and payment of the Exercise Price for the
Securities being purchased. If the subscription rights represented hereby shall
not be exercised at or before 5:00 p.m., Eastern time, on the Expiration Date,
this Warrant shall become and be void without further force or effect, and all
rights represented hereby shall cease and expire.
2.2 Legend. Each certificate for Securities purchased under this Warrant
shall bear a legend as follows, unless such Securities have been registered
under the Securities Act of 1933, as amended ("Act"):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act") or applicable
state law. The securities may not be offered for sale, sold or
otherwise transferred except pursuant to an effective registration
statement under the Act, or pursuant to an exemption from registration
under the Act and applicable state law."
2.3 Conversion Right.
2.3.1 Determination of Amount. In lieu of the payment of the
Exercise Price in cash, the Holder shall have the right (but not the obligation)
to convert this Warrant, in whole or in part, into Common Stock ("Conversion
Right"), as follows: upon exercise of the Conversion Right, the Company shall
deliver to the Holder (without payment by the Holder of any of the Exercise
Price) that number of shares of Common Stock equal to the quotient obtained
by dividing (x) the "Value" (as defined below) of the portion of the Warrant
being converted at the time the Conversion Right is exercised by (y) the Market
Price. The "Value" of the portion of the Warrant being converted shall equal the
remainder derived from subtracting (a) the Exercise Price multiplied by the
number of shares of Common Stock being converted from (b) the Market Price of
the Common Stock multiplied by the number of shares of Common Stock being
converted. As used herein, the term "Market Price" at any date shall be deemed
to be the last reported sale price of the Common Stock on such date, or, in case
no such reported sale takes place on such day, the average of the last reported
sale prices for the immediately preceding three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or if any such exchange
on which the Common Stock is listed is not its principal trading market, the
last reported sale price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through the Nasdaq National Market or SmallCap Market,
or, if applicable, the OTC Bulletin Board, or if the Common Stock is not listed
or admitted to trading on any of the foregoing markets, or similar organization,
as determined in good faith by resolution of the Board of Directors of the
Company, based on the best information available to it.
2.3.2 Exercise of Conversion Right. The Conversion Right may be exercised
by the Holder on any business day on or after the Commencement Date and not
later than the Expiration Date by delivering the Warrant with a duly executed
exercise form attached hereto with the conversion section completed to the
Company, exercising the Conversion Right and specifying the total number of
shares of Common Stock the Holder will purchase pursuant to such conversion.
3. Transfer.
3.1 General Restrictions. The registered Holder of this Warrant, by its
acceptance hereof, agrees that it will not sell, transfer or assign or
hypothecate this Warrant to anyone except upon compliance with, or pursuant to
exemptions from, applicable securities laws. In order to make any permitted
assignment, the Holder must deliver to the Company the assignment form attached
hereto duly executed and completed, together with this Warrant and payment of
all transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Warrant on the books of the Company and shall execute
and deliver a new Warrant or Warrants of like tenor to the appropriate
assignee(s) expressly evidencing the right to purchase the aggregate number of
shares of Common Stock purchasable hereunder or such portion of such number as
shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Securities Act. This Warrant and the
Securities underlying this Warrant shall not be transferred unless and until (i)
the Company has received the opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from registration under the Act,
and applicable state law, the availability of which is established to the
reasonable satisfaction of the Company, or (ii) a registration statement
relating to such Securities has been filed by the Company and declared effective
by the Securities and Exchange Commission and compliance with applicable state
law.
4. New Warrants to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in Section 3
hereof, this Warrant may be exercised or assigned in whole or in part. In the
event of the exercise or assignment hereof in part only, upon surrender of this
Warrant for cancellation, together with the duly executed exercise or assignment
form and funds (or conversion equivalent) sufficient to pay any Exercise Price
and/or transfer tax, the Company shall cause to be delivered to the Holder
without charge a new Warrant of like tenor to this Warrant in the name of the
Holder evidencing the right of the Holder to purchase the aggregate number of
shares of Common Stock and Warrants purchasable hereunder as to which this
Warrant has not been exercised or assigned.
4.2 Lost Certificate. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant and of
reasonably satisfactory indemnification, the Company shall execute and deliver a
new Warrant of like tenor and date. Any such new Warrant executed and delivered
as a result of such loss, theft, mutilation or destruction shall constitute a
substitute contractual obligation on the part of the Company.
5. Registration Rights.
5.1 "Piggy-Back" Registration.
5.1.1 Grant of Right. The Holders of this Warrant shall have the right for
a period of five years from the Issue Date to include all or any part of this
Warrant and the shares of Common Stock underlying this Warrant (collectively,
the "Registrable Securities") as part of any registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8 or any equivalent
form); provided, however, that if, in the written opinion of the Company's
managing underwriter or underwriters, if any, for such offering (the
"Underwriter"), the inclusion of the Registrable Securities, when added to the
securities being registered by the Company or the selling stockholder(s), will
exceed the maximum amount of the Company's securities which can be marketed (i)
at a price reasonably related to their then current market value, or (ii)
without materially and adversely affecting the entire offering, the Company
shall nevertheless register all or any portion of the Registrable Securities
required to be so registered but such Registrable Securities shall not be sold
by the Holders until 90 days after the registration statement for such offering
has become effective; and provided further that, if any securities are
registered for sale on behalf of other stockholders in such offering and such
stockholders have not agreed to defer such sale until the expiration of such 90
day period, the number of securities to be sold by all stockholders in such
public offering during such 90 day period shall be apportioned pro rata among
all such selling stockholders, including all holders of the Registrable
Securities, according to the total amount of securities of the Company proposed
to be sold by said selling stockholders, including all Holders of the
Registrable Securities.
5.1.2 Terms. The Company shall bear all fees and expenses attendant to
registering the Registrable Securities, including any filing fees payable to the
National Association of Securities Dealers, Inc., but the Holders shall pay any
and all underwriting commissions and the expenses of any legal counsel selected
by the Holders to represent them in connection with the sale of the Registrable
Securities. In the event of such a proposed registration, the Company shall
furnish the then Holders of outstanding Registrable Securities with not less
than thirty days written notice prior to the proposed date of filing of such
registration statement. Such notice to the Holders shall continue to be given
for each registration statement filed by the Company until such time as all of
the Registrable Securities have been sold by the Holder. The holders of the
Registrable Securities shall exercise the "piggy-back" rights provided for
herein by giving written notice, within twenty days of the receipt of the
Company's notice of its intention to file a registration statement. The Company
shall cause any registration statement filed pursuant to the above "piggyback"
rights to remain effective until all Registrable Securities thereunder have been
sold, or are freely saleable, without restriction, under an exemption from the
registration requirements. Nothing contained in this Warrant shall be construed
as requiring any Holder to exercise this Warrant or any part thereof prior to
the initial filing of any registration statement or the effectiveness thereof.
5.2 General Terms
5.2.1 Indemnification.
(a) The Company shall indemnify the Holder(s) of the Registrable Securities
to be sold pursuant to any registration statement hereunder and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such Holders or underwriters or persons deemed to be underwriters
within the meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim,
damage, expense or liability (including all reasonable attorneys' fees and other
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement. The
Holder(s) of the Registrable Securities to be sold pursuant to such registration
statement, and their successors and assigns, shall severally, and not jointly,
indemnify the Company, against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, in writing, for
specific inclusion in such registration statement.
(b) If any action is brought against a party hereto, ("Indemnified Party")
in respect of which indemnity may be sought against the other party
("Indemnifying Party"), such Indemnified Party shall promptly notify
Indemnifying Party in writing of the institution of such action and Indemnifying
Party shall assume the defense of such action, including the employment and fees
of counsel reasonably satisfactory to the Indemnified Party. Such Indemnified
Party shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the employment of such counsel shall have been
authorized in writing by Indemnifying Party in connection with the defense of
such action, or (ii) Indemnifying Party shall not have employed counsel to
defend such action, or (iii) such Indemnified Party shall have been advised by
counsel that there may be one or more legal defenses available to it which may
result in a conflict between the Indemnified Party and Indemnifying Party (in
which case Indemnifying Party shall not have the right to direct the defense of
such action on behalf of the Indemnified Party), in any of which events, the
reasonable fees and expenses of not more than one additional firm of attorneys
designated in writing by the Indemnified Party shall be borne by Indemnifying
Party. Notwithstanding anything to the contrary contained herein, if Indemnified
Party shall assume the defense of such action as provided above, Indemnifying
Party shall not be liable for any settlement of any such action effected without
its written consent.
(c) If the indemnification or reimbursement provided for hereunder is
finally judicially determined by a court of competent jurisdiction to be
unavailable to an Indemnified Party (other than as a consequence of a final
judicial determination of willful misconduct, bad faith or gross negligence of
such Indemnified Party), then Indemnifying Party agrees, in lieu of indemnifying
such Indemnified Party, to contribute to the amount paid or payable by such
Indemnified Party (i) in such proportion as is appropriate to reflect the
relative benefits received, or sought to be received, by Indemnifying Party on
the one hand and by such Indemnified Party on the other or (ii) if (but only if)
the allocation provided in clause (i) of this sentence is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in such clause (i) but also the relative fault of
Indemnifying Party and of such Indemnified Party; provided, however, that in no
event shall the aggregate amount contributed by a Holder exceed the profit, if
any, earned by such Holder as a result of the exercise by him of the Warrants
and the sale by him of the underlying shares of Common Stock.
(d) The rights accorded to Indemnified Parties hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise.
5.2.2 Exercise of Warrants. Nothing contained in this Warrant shall be
construed as requiring the Holder(s) to exercise their Warrants prior to or
after the initial filing of any registration statement or the effectiveness
thereof.
5.2.3 Documents Delivered to Holders. The Company shall furnish to each
Holder participating in any of the foregoing offerings and to each Underwriter
of any such offering, if any, a signed counterpart, addressed to such Holder or
Underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under any
underwriting agreement related thereto), and (ii) a "cold comfort" letter dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities. The Company shall
also deliver promptly to each Holder participating in the offering requesting
the correspondence and memoranda described below and to the managing underwriter
copies of all correspondence between the Commission and the Company, its counsel
or auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the registration statement and permit each Holder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder shall reasonably request.
6. Adjustments
6.1 Adjustments to Exercise Price and Number of Securities. The Exercise
Price and the number of shares of Common Stock underlying this Warrant shall be
subject to adjustment from time to time as hereinafter set forth:
6.1.1 Stock Dividends - Recapitalization, Reclassification, Split-Ups. If,
after the date hereof, and subject to the provisions of Section 6.2 below, the
number of outstanding shares of Common Stock is increased by a stock dividend on
the Common Stock payable in shares of Common Stock or by a split-up,
recapitalization or reclassification of shares of Common Stock or other similar
event, then, on the effective date thereof, the number of shares of Common Stock
issuable on exercise of this Warrant shall be increased in proportion to such
increase in outstanding shares.
6.1.2 Aggregation of Shares. If after the date hereof the number of
outstanding shares of Common Stock is decreased by a consolidation, combination
or reclassification of shares of Common Stock or other similar event, then, upon
the effective date thereof, the number of shares of Common Stock issuable on
exercise of this Warrant shall be decreased in proportion to such decrease in
outstanding shares.
6.1.3 Adjustments in Exercise Price. Whenever the number of shares of
Common Stock purchasable upon the exercise of this Warrant is adjusted, as
provided in this Section 6.1, the Exercise Price shall be adjusted (to the
nearest cent) by multiplying such Exercise Price immediately prior to such
adjustment by a fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and (y) the denominator of which shall be the number
of shares of Common Stock so purchasable immediately thereafter.
6.1.4 Replacement of Securities upon Reorganization, etc. In case of any
reclassification or reorganization of the outstanding shares of Common Stock
other than a change covered by Section 6.1.1 hereof or which solely affects the
par value of such shares of Common Stock, or in the case of any merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or reorganization of the
outstanding shares of Common Stock), or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is dissolved,
the Holder of this Warrant shall have the right thereafter (until the expiration
of the right of exercise of this Warrant) to receive upon the exercise hereof,
for the same aggregate Exercise Price payable hereunder immediately prior to
such event, the kind and amount of shares of stock or other securities or
property (including cash) receivable upon such reclassification, reorganization,
merger or consolidation, or upon a dissolution following any such sale or other
transfer, by a Holder of the number of shares of Common Stock of the Company
obtainable upon exercise of this Warrant immediately prior to such event; and if
any reclassification also results in a change in shares of Common Stock covered
by Sections 6.1.1 or 6.1.2, then such adjustment shall be made pursuant to
Sections 6.1.1, 6.1.2, 6.1.3 and this Section 6.1.4. The provisions of this
Section 6.1.4 shall similarly apply to successive reclassifications,
reorganizations, mergers or consolidations, sales or other transfers.
6.1.5 Changes in Form of Warrant. This form of Warrant need not be changed
because of any change pursuant to this Section, and Warrants issued after such
change may state the same Exercise Price and the same number of shares of Common
Stock and Warrants as are stated in the Warrants initially issued pursuant to
this Agreement. The acceptance by any Holder of the issuance of new Warrants
reflecting a required or permissive change shall not be deemed to waive any
rights to a prior adjustment or the computation thereof.
6.2 Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of this Warrant, nor shall it be required to issue scrip or pay cash in
lieu of any fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
7. Reservation and Listing. The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issuance upon exercise of this Warrant, such number of shares of Common Stock
or other securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price therefor, all shares of Common Stock and other
securities issuable upon such exercise shall be duly and validly issued, fully
paid and non-assessable and not subject to preemptive rights of any stockholder.
As long as the Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon exercise of the
Warrants to be listed (subject to official notice of issuance) on all securities
exchanges (or, if applicable on Nasdaq) on which the Common Stock is then listed
and/or quoted.
8. Certain Notice Requirements.
8.1 Holder's Right to Receive Notice. Nothing herein shall be construed as
conferring upon the Holders the right to vote or consent or to receive notice as
a stockholder for the election of directors or any other matter, or as having
any rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the events
described in Section 8.2 shall occur, then, in one or more of said events, the
Company shall give written notice of such event at least fifteen days prior to
the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend, distribution,
conversion or exchange of securities or subscription rights, or entitled to vote
on such proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of the closing of the transfer books, as
the case may be.
8.2 Events Requiring Notice. The Company shall be required to give the
notice described in this Section 8 upon one or more of the following events: (i)
if the Company shall take a record of the holders of its shares of Common Stock
for the purpose of entitling them to receive a dividend or distribution, or (ii)
the Company shall offer to all the holders of its Common Stock any additional
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option, right or
warrant to subscribe therefor, or (iii) a merger or reorganization in which the
Company is not the surviving party, or (iv) a dissolution, liquidation or
winding up of the Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property, assets and
business shall be proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly after
an event requiring a change in the Exercise Price pursuant to Section 6 hereof,
send notice to the Holders of such event and change ("Price Notice"). The Price
Notice shall describe the event causing the change and the method of calculating
same and shall be certified as being true and accurate by the Company's
President and Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other
communications under this Warrant shall be in writing and shall be deemed to
have been duly made on the date of delivery if delivered personally or sent by
overnight courier, with acknowledgment of receipt by the party to which notice
is given, or on the fifth day after mailing if mailed to the party to whom
notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of this Warrant, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, to its principal executive
office.
9. Miscellaneous.
9.1 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Warrant.
9.2 Entire Agreement. This Warrant (together with the other agreements and
documents being delivered pursuant to or in connection with this Warrant)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties, oral and written, with respect to the subject matter hereof.
9.3 Binding Effect. This Warrant shall inure solely to the benefit of and
shall be binding upon, the Holder and the Company and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Warrant or any provisions herein contained.
9.4 Governing Law; Submission to Jurisdiction. This Warrant shall be
governed by and construed and enforced in accordance with the law of the State
of New York, without giving effect to conflict of laws. The Company hereby
agrees that any action, proceeding or claim against it arising out of, or
relating in any way to this Warrant shall be brought and enforced in the courts
of the State of New York or of the United States of America for the Southern
District of New York, and irrevocably submits to such jurisdiction, which
jurisdiction shall be exclusive. The Company hereby waives any objection to such
exclusive jurisdiction and that such courts represent an inconvenient forum. Any
process or summons to be served upon the Company may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address set forth in Section 8 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the
Company in any action, proceeding or claim. The Company agrees that the
prevailing party(ies) in any such action shall be entitled to recover from the
other party(ies) all of its reasonable attorneys' fees and expenses relating to
such action or proceeding and/or incurred in connection with the preparation
therefor.
9.5 Waiver, Etc. The failure of the Company or the Holder to at any time
enforce any of the provisions of this Warrant shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Warrant or any provision hereof or the right of the Company or any Holder
to thereafter enforce each and every provision of this Warrant. No waiver of any
breach, non-compliance or non-fulfillment of any of the provisions of this
Warrant shall be effective unless set forth in a written instrument executed by
the party or parties against whom or which enforcement of such waiver is sought;
and no waiver of any such breach, non-compliance or non-fulfillment shall be
construed or deemed to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the 24th day of July, 2000.
____________________________________
By:/s/ Geoffrey T. Burnham
Name: Geoffrey T. Burnham
Title: President & CEO
Form to be used to exercise Warrant:
___________________________________
___________________________________
___________________________________
Date: _____________________, 20___
The undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase ________ shares of Common Stock of _________________________ and
hereby makes payment of $____________ (at the rate of $_________ per share of
Common Stock) in payment of the Exercise Price pursuant thereto. Please issue
the Common Stock as to which this Warrant is exercised in accordance with the
instructions given below.
or
The undersigned hereby elects irrevocably to convert its right to purchase
____________ shares of Common Stock purchasable under the within Warrant into
__________ shares of Common Stock of __________________________________________
(based on a "Market Price" of $________ per share of Common Stock). Please issue
the Common Stock in accordance with the instructions given below.
______________________________________
Signature
___________________________
Signature Guaranteed
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every particular without alteration or
enlargement or any change whatsoever, and must be guaranteed by a bank, other
than a savings bank, or by a trust company or by a firm having membership on a
registered national securities exchange.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name ________________________________________________________
(Print in Block Letters)
Address ________________________________________________________
Form to be used to assign Warrant:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within
Warrant):
FOR VALUE RECEIVED, ________________________________ does hereby sell,
assign and transfer unto _________________________________ the right to purchase
_____________________ shares of Common Stock of
_________________________________ ("Company") evidenced by the within Warrant
and does hereby authorize the Company to transfer such right on the books of the
Company.
Dated:____________________, 20___
______________________________________
Signature
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every particular without alteration or
enlargement or any change whatsoever, and must be guaranteed by a bank, other
than a savings bank, or by a trust company or by a firm having membership on a
registered national securities exchange.
