SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
__________
Commission file number 33-85664
FIBERSTARS, INC.
(Exact name of small business issuer as specified in its charter)
California 94-3021850
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2883 Bayview Drive, Fremont CA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 490-0719
Securities registered under
Section 12(b) of the Exchange Act: Title of Name of each exchange on
Each Class which registered
Common Stock Nasdaq National Market
Securities registered under section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not 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 amendments to
this Form 10-KSB. [ ]
Net sales of the registrant for the fiscal year ended December 31, 1996 were
$15,576,000.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $9,691,000 as of March 26, 1997 based upon the last
trading price of the Common Stock of registrant on the Nasdaq National Market as
of that date. This calculation does not reflect a determination that any person
is an affiliate of the registrant for any other purpose.
As of March 26, 1997, there were 3,412,721 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-KSB incorporates information by reference
from registrant's definitive Proxy Statement to be used in connection with its
1997 Annual Meeting of Shareholders.
<PAGE>
14
PART I
Item 1. Description of Business
Except for historical information contained herein, the following
material includes forward-looking statements that are subject to certain risks
and uncertainties. Discussion containing such forward-looking statements will be
found in the material set forth under, among other places in this Report,
"Description of Business," "Risk Factors," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations. By way of example and
not limitation, this Report contains forward-looking statements regarding
prospective competition and the results thereof upon the Company's business and
operating results, the development of existing and future technologies, the
prospective impact of consolidation among the Company's customer base, and
trends discussed in Management's Discussion and Analysis of Financial Condition
and Results of Operations regarding the Company's results of operations. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the factors discussed in this Report, including
without limitation the factors discussed in "Risk Factors." These factors should
be considered carefully by those considering transactions in the Company's
securities.
Overview
Fiberstars develops and markets fiber optic lighting systems, which are
used in a variety of commercial and residential applications. The Company
pioneered the use of fiber optic technology in lighting. By continuing to
improve the price and performance of its products and by expanding its marketing
efforts, Fiberstars has become the world's leading supplier in this emerging
market.
The Company's products often have advantages over conventional lighting
in areas of efficiency, safety, maintenance and beauty, and thus can be used in
place of conventional lighting in a number of applications. By delivering
special lighting effects which conventional lighting can not match, fiber optic
lighting systems are especially attractive for a wide range of decorative
applications, such as the lighting of swimming pools and spas, signage, "neon"
decoration, landscaping, and other segments within the commercial and
residential markets.
The Company designs, develops and manufactures its fiber optic lighting
systems and distributes its products worldwide, primarily through independent
sales representatives, distributors and swimming pool builders.
Products
Fiberstars lighting systems combine three types of products -
illuminators, fiber tubing, and fixtures in configurations which meet the needs
of specific market segments. The electrically powered illuminators generate and
focus light to enter into the ends of optical fiber. Fiber tubing products
connect to the illuminators and are designed to emit light either at the end of
the tube as a spot source of light, or along the length of the tube, similar in
effect to neon lighting. The systems can also include fixtures and other
accessories designed for specific applications.
Illuminators
The Company manufactures a number of different illuminators for use in
different applications. Most commercial illuminators utilize metal halide high
intensity discharge (H.I.D.) lamps to provide long life and maximum brightness.
Some include patented reflectors which have been designed by Fiberstars to
enhance performance. The Company's lower cost illuminators use quartz halogen
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lamps, some of which are custom products manufactured to Fiberstars'
specifications. Illuminator advances during 1996 included a lower cost version
of the largest selling commercial illuminator, with available features which
include synchronization of colors among groups of illuminators, and DMX 512
protocol capability that enables computer-control of the units to produce
special effects.
Fiberstars' FS4 pool illuminator, introduced for the 1996 season,
provides light output at least equal to previous models at substantially lower
cost. This product led the way to a strong increase in pool lighting sales and
was the Company's most successful product in 1996. Late in 1996, the Company
introduced a new brighter system for the 1997 season.
Fiber Tubing
Fiber tubing products are manufactured in various lengths and diameters
to meet the requirements of each particular market and application. Fiberstars'
patented BritePak(R) products can maintain consistent brightness for side-lit
fiber runs up to 120 feet in length. For end-lit applications, several
spotlights are typically connected to a single illuminator and are placed no
farther than fifty feet from the illuminator.
In 1996, the Company introduced BritePak(R) II, a new version of its
side-emitting fiber product line, with up to 38% improvement in brightness. The
performance improvement in this product line was due in part to the Company's
use of new equipment installed at Fiberstars to bring fiber processing in house.
Fixtures and Accessories
Certain fixtures and accessories have been designed by Fiberstars to
feature in the Company's product lines. Other fixtures are supplied by third
parties. A new paver fixture, one of the four end-lit fixtures introduced in
1996, received an "Award of Distinction" in the New Product Showcase at
Lightfair 1996, the main commercial lighting tradeshow in the United States.
Applications and End-Users
The Company's fiber optic lighting products are specified by
architects, professional lighting designers, swimming pool builders or
end-users.
The Company's products have been installed for commercial lighting
applications in fast food restaurants such as Burger King and McDonald's; retail
stores such as Albertson's, Giant Food and Toys R Us; hotels such as Hyatt and
the Stratosphere Tower in Las Vegas; and entertainment facilities such as theme
parks operated by the Walt Disney Company and Universal Studios. Fiberstars
commercial lighting systems also have been used in a number of specialty
applications, including theatrical productions, bridges, theater aisles and
ceilings, the Monterey Bay Aquarium, Marathon Coach, HBO Studios, AMC theaters,
Chevron and New York Life.
The Company's primary products for pool and spa lighting are designed
to provide underwater lighting for newly constructed pools. In addition,
Fiberstars markets pool products for spa lighting, pool perimeter lighting,
patios, decks and landscape lighting. The Company's underwater lighting systems
are installed in pools and spas built by major national pool builders, as well
as numerous regional and local pool builders throughout the United States and
Canada.
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Sales, Marketing and Distribution
Commercial Lighting Products
In the commercial lighting market, The Company's marketing efforts are
directed at creating specifications for Fiberstars systems in plans developed by
architects, professional lighting designers and building owners. The Company
reaches these professionals through approximately 60 independent lighting
representative organizations throughout the United States, approximately 20 of
which account for a substantial majority of the Company's commercial lighting
product sales. The independent lighting representatives assist in the
specification process, directing orders to electrical equipment distributors,
who in turn typically purchase products from Fiberstars. Domestic distributors
of commercial lighting products typically do not engage in marketing efforts or
stock any inventory of the Company's products. The Company's arrangements with
its independent representatives do not prohibit the handling of conventional
lighting products, including products that may be competitive with those of the
Company, although such representatives typically do not handle competing fiber
optic lighting products.
Fiberstars' commercial lighting products are sold internationally by
approximately 19 distributors that sell into more than 45 countries, including
Crescent Lighting in the U.K., which oversees other distributors in Europe;
Mitsubishi in Japan; and Fiberstars Australasia Pty Ltd., a 46%-owned joint
venture that sells products in Australia, New Zealand and Fiji. These
distributors are primarily responsible for any marketing activities in their
territories.
Swimming Pool and Spa Products
The Company's underwater lighting products are sold primarily for
installation in new swimming pools and spas. Accordingly, the marketing of the
Company's swimming pool and spa products depends substantially on swimming pool
builders to recommend the Company's products to their customers and to adapt
their swimming pool designs to include Fiberstars lighting systems. The Company
utilizes regional sales representative organizations that specialize in swimming
pool products sold to pool builders and pool product distributors. Each
representative organization typically has the exclusive right to sell the
Company's products within its territory, receiving commissions on sales in its
territory. Regional and national distributors in the swimming pool market stock
the Company's products to fill orders received from swimming pool builders, and
some of these distributors engage in limited marketing activities for the
Company's products.
The Company enters into incentive arrangements to encourage pool
builders to purchase the Company's products. The Company also has entered into
agreements with certain large national pool builders, under which the builders
purchase Fiberstars systems directly from the Company and offer the Company's
products with their swimming pools. The Company provides pool builders and
independent sales representatives with marketing tools, including promotional
videos, showroom displays and demonstration systems. The Company also uses trade
advertising and direct mail in addition to an ongoing program of sales
presentations to pool builders and distributors.
In the second half of 1996, the Company's largest customer, BLN (a pool
products distributor) was acquired by South Central Pools, another pool
distributor and also a Fiberstars customer. Together these customers accounted
for 21% of the Company's 1996 net sales. The Company expects its business
relationship with South Central to continue satisfactorily; however, a cessation
or substantial decrease in the volume of purchases by this customer could reduce
availability of the Company's products to end users and could in turn have a
material adverse effect on the Company's net sales and results of operations.
<PAGE>
Substantially all sales of the Company's swimming pool lighting systems
to date have been made in the United States and Canada.
Backlog
The Company normally ships product within a few days after receipt of
an order and generally does not have a significant backlog of orders. The
Company does not consider backlog to be an indicator of future performance.
Competition
The Company's products compete with a wide variety of lighting
products, including conventional electric lighting in various forms and
decorative neon lighting. The Company has also experienced increasing
competition from other companies offering products containing fiber optic
technology. Principal competitive factors include price, performance (including
brightness, reliability and other factors), aesthetic appeal (including color
and color variation), market presence, installation and maintenance
requirements, power consumption and safety.
The Company believes its products compete favorably against
conventional lighting in such areas as aesthetic appeal, ease of installation
and maintenance, power consumption and safety. In addition, the unique
characteristics of fiber optic lighting (such as no heat or electricity at the
light, ability to change colors, and remote lamp replacement) enable the
products to be used in some situations where conventional lighting is not
practical. However, the initial purchase price of the Company's products is
typically higher than conventional lighting, and the Company's products tend to
be less bright than conventional alternatives. In the case of Neon lighting,
certain popular neon colors, such as dark red, cannot be achieved as effectively
with the Company's products.
Fiberstars is engaged in ongoing efforts to develop and improve its
products, adapt its products for new applications and design and engineer new
products. The Company expects that its ability to compete effectively with
conventional lighting technologies, other fiber optic lighting products, and new
lighting technologies that may be introduced will depend substantially upon
achieving greater brightness and reducing the cost of the Company's systems. In
1995, the Company redesigned several of its illuminators, substantially reducing
costs so that in 1996, the installed price of a basic Fiberstars system was
reasonably close to that of conventional electric lighting. During 1996, the
Company achieved significant brightness improvements in certain illuminators and
fiber products.
Providers of conventional lighting systems include large lamp
manufacturers and lighting fixture companies, which have substantially greater
resources than the Company. These conventional lighting companies may introduce
new and improved products, which may reduce or eliminate some of the competitive
advantages of the Company's products. In commercial lighting, the Company also
competes primarily with local and regional neon lighting manufacturers and
craftspeople who in many cases are better established in their local markets
than the Company.
Direct competition from other fiber optic lighting products has been
limited, but is increasing. In the pool market, American Products, the largest
producer of electric lights for pools, introduced a fiber optic product line in
1996. In addition, Hayward Pool Products, another sizable manufacturer of pool
lights and other equipment, entered into an agreement with a small manufacturer
of fiber optic systems to offer those systems to the pool market under the
Hayward name. In commercial lighting, fiber optic lighting products are offered
by an increasing number of smaller companies, some of which compete aggressively
on price. Certain of these competitors offer products with performance
characteristics comparable to those of the Company's products. The Company is
aware that several larger companies in
<PAGE>
the conventional lighting industry are developing fiber optic lighting systems
that may compete in the near future with the Company's products. In Europe, both
Philips and Schott, a glass fiber company, offer fiber optic lighting systems.
Schott has recently formed an entity to enter the U.S. market. In Europe,
Philips markets Fiberstars' BritePak(R) fiber tubing on an OEM basis, along with
Philips' own illuminators and other products.
The Company cannot predict the impact of competition on its business.
Increased competition could result in price reductions, reduced profit margins
and loss of market share, which would adversely affect the Company's operating
results. There can be no assurance that the Company will be able to continue to
compete successfully against current and future competitors. However, the
Company also believes that increased competition may be accompanied by an
increase in the rate of market expansion, and that the Company is well
positioned to participate in any such expansion.
Assembly, Testing and Quality Assurance
The Company's illuminator manufacturing consists primarily of final
assembly, testing and quality control. The Company uses independent contractors
to manufacture some components and subassemblies, and has worked with a number
of its vendors to design custom components to meet Fiberstars' specific needs.
Inventories of domestically produced component parts are managed on a
just-in-time basis when practicable. The Company's quality assurance program
provides for testing of all sub-assemblies at key stages in the assembly process
as well as testing of finished products.
Prior to 1996, most of the Company's fiber processing activities were
performed by subcontractors to Fiberstars' specifications. During 1996 the
Company successfully brought these activities in house. Equipment was acquired
and installed to encase the fiber bundles in flexible jackets. The patented
process used to cable the fiber for side-emitting products is now being
performed on equipment designed and built by Fiberstars exclusively for this
purpose. These steps have reduced processing costs and improved quality.
Mitsubishi is the sole supplier of the Company's fiber, under a supply
agreement lasting until March 1998. The Company expects to maintain this
relationship with Mitsubishi indefinitely; Mitsubishi owns approximately 3.6% of
the Company and distributes Fiberstars products in Japan. The Company also
relies on sole source suppliers for certain lamps, reflectors, remote control
devices and power supplies. Although the Company cannot predict the effect that
the loss of one or more of such suppliers would have on the Company, such loss
could result in delays in the shipment of products and additional expenses
associated with redesigning products, and could have a material adverse effect
on the Company's operating results.
Research and Product Development
The Company believes that growth in fiber optic lighting will be driven
by improvements in technology to provide increased brightness at lower costs,
and the Company is committing much of its R&D resources to those challenges. In
1996, the Company significantly improved the brightness of its primary pool
lighting system and of its side-emitting fiber products, and engaged in ongoing
activities expected to result in improved performance of the Company's
commercial illuminators in 1997 and beyond. Despite its ongoing development
efforts, there can be no assurance that the Company will be able to achieve
future improvements in brightness and cost or that competitors will not develop
lighting technologies that are brighter, less expensive or otherwise superior to
those of the Company.
The Company augments its internal research and development efforts by
involving certain of its component suppliers, independent consultants and other
third parties in the process of seeking
<PAGE>
improvements in the company's products and technology. The Company depends
substantially on these parties to undertake research and development efforts
necessary to achieve improvements that would not otherwise be possible given the
multiple and diverse technologies that must be integrated in the Company's
products and the Company's limited engineering, personnel and financial
resources. These third parties have no material contractual commitments to
participate in these efforts, and there can be no assurance that they will
continue to do so.
Intellectual Property
The Company believes that the success of its business depends primarily
on its technical innovations, marketing abilities and responsiveness to customer
requirements, rather than on patents, trade secrets, trademarks, copyrights and
other intellectual property rights. Nevertheless, the Company has a policy of
seeking to protect its intellectual property through patents, license
agreements, trademark registrations, confidential disclosure agreements and
trade secrets. There can be no assurance, however, that the Company's issued
patents are valid or that any patents applied for will be issued. There can be
no assurance that the Company's competitors or customers will not copy aspects
of the Company's fiber optic lighting systems or obtain information that the
Company regards as proprietary. There also can be no assurance that others will
not independently develop products similar to those sold by the Company. The
laws of some foreign countries in which the Company sells or may sell its
products do not protect the Company's proprietary rights in its products to the
same extent as do the laws of the United States.
The Company is aware that a large number of patents and pending patent
applications exist in the field of fiber optic technology. The Company also
believes that certain of its competitors hold and have applied for patents
related to fiber optic lighting. Although to date the Company has not been
involved in litigation challenging its intellectual property rights, there can
be no assurance that third parties will not assert claims that the Company's
products infringe patents or other intellectual property rights or that, in case
of a dispute, licenses to such technology will be available, if at all, on
reasonable terms. In the event of litigation to determine the validity of any
third-party claims, such litigation, whether or not determined in favor of the
Company, could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel from productive
tasks. Also in the event of an adverse ruling in such litigation, the Company
might be required to expend significant resources to develop non-infringing
technology or to obtain licenses to the infringing technology, which licenses
may not be available on acceptable terms. In the event of a successful claim
against the Company and the Company's failure to develop or license a substitute
technology, the Company's operating results could be adversely affected.
Fiberstars has licensed the rights to manufacture certain of its
illuminators to Mitsubishi for sale in Japan, and to Crescent Lighting in the
United Kingdom for sale in the European Economic Community, in exchange for
certain royalty payments.
Employees
At December 31, 1996, Fiberstars employed 47 people full time, of whom
14 were involved in sales, marketing and customer service, 7 in research and
product development, 18 in assembly and quality assurance, and 8 in finance and
administration. From time to time the Company also employs part time personnel
in various capacities, primarily assembly and clerical support. The Company has
never had a work stoppage, no employees are subject to any collective bargaining
agreement, and the Company considers its employee relations to be good.
The Company's future success will depend to a large extent on the
continued contributions of certain employees, many of whom would be difficult to
replace. The future success of the Company also
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will depend on its ability to attract and retain qualified technical, sales,
marketing and management personnel, for whom competition is intense. The loss of
or failure to attract and retain any such persons could delay product
development cycles, disrupt the Company's operations or otherwise have a
material adverse effect on the Company's business.
Item 2. Description of Property
The Company's principal executive offices and manufacturing and
assembly facilities are located in a 31,500 square foot facility in Fremont,
California, under a lease expiring in 1999, subject to a renewal option for a
five-year additional term. The Company also leases a separate 7,800 square foot
facility in Fremont, California, devoted to fiber processing. This lease also
expires in 1999 and is subject to renewal options for three additional years.
Item 3. Legal Proceedings
On June 8, 1994, a lawsuit was filed against the Company and others by
Steven Lombardo, James Rogers and Landtech Investment Corporation ("Landtech"),
who purported to be shareholders or affiliates of shareholders of the Company.
The complaint made various allegations in connection with a proposed investment
by Landtech in the Company in 1993. On March 24, 1997, the case was dismissed in
its entirety, without liability on the part of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1996.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock trades on the Nasdaq National Market tier of
The Nasdaq Stock MarketSM under the symbol "FBST". The following table sets
forth the high and low sale prices for the Company's Common Stock, as reported
by NASDAQ for the periods indicated.
High Low
First quarter 1995 6 1/2 5 1/4
Second quarter 1995 6 1/8 4 3/8
Third quarter 1995 6 3 1/4
Fourth quarter 1995 5 1/2 3 5/8
First quarter 1996 4 3/4 3 1/2
Second quarter 1996 6 1/4 4
Third quarter 1996 6 5
Fourth quarter 1996 5 1/2 4 3/8
There were approximately 200 holders of record of the Company's Common
Stock as of March 26, 1997, and the Company estimates that at that date there
were approximately 800 additional beneficial owners.
The Company has not paid any cash dividends and does not anticipate
paying cash dividends in the foreseeable future.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
attached financial statements and notes thereto.
Results of Operations
1996 Compared with 1995
Net sales increased to $15,576,000 in 1996, up 32% from 1995 sales of
$11,798,000. The 1996 increase is primarily attributable to introduction of new,
lower cost products, as well as improved conditions in the swimming pool
construction market, which resulted in a significant increase in sales of the
Company's pool lighting products. Sales of commercial lighting and medical
products also increased compared to 1995. International sales accounted for
approximately 15% and 18% of net sales in 1996 and 1995, respectively, most of
which represented sales of commercial lighting products.
The Company's gross margin percentage decreased to 42% in 1996 from 43%
in 1995. The decrease was primarily attributable to an increase in fixed
overhead in connection with the Company's new fiber processing facility.
Research and development expenses increased by 22% to $962,000 in 1996,
reflecting the Company's continuing commitment to improving its technology and
products. As a percentage of sales, research and development expenses decreased
from 6.7% to 6.2%. The Company anticipates that research and development
expenses will continue to increase in absolute dollars in future periods, but
may fluctuate as a percentage of sales.
Selling and marketing expenses increased by 13% to $3,728,000 in 1996.
Increases occurred primarily in the pool division and included increases in
advertising, sales literature and personnel related expenses. As a percentage of
sales, selling and marketing expenses declined to 24% of net sales in 1996 from
28% in 1995.
General and administrative expenses decreased by 7% to $1,254,000 in
1996, primarily due to lower legal fees combined with other expense reductions.
The Company expects general and administrative expenses to increase moderately
in future periods.
Total operating expenses increased by $500,000 to $5,944,000 in 1996.
As a percentage of sales, total operating expenses decreased from 46% in 1995 to
38% in 1996, as sales increased more rapidly than expenses.
Other income and expense includes interest income and expense, plus
income from the Company's joint ventures recognized under the equity method. Net
interest income improved to $246,000 in 1996 from $181,000 in 1995, primarily
due to higher cash balances. Income from joint ventures decreased to $8,000 in
1996, compared to $117,000 in 1995, because the Company sold its equity interest
in Fiberoptic Medical Products as of February 21, 1996 (see Note 5 to Financial
Statements). The Company does not expect income from its remaining joint venture
to have a material impact on the Company's financial results in the near future.
The Company recorded net income of $511,000 in 1996, compared to a net
loss of $15,000 in 1995.
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1995 Compared with 1994
Net sales decreased to $11,798,000 in 1995, down 13% from 1994 sales of
$13,562,000. The 1995 decrease was primarily attributable to a weak year in the
swimming pool construction market, which resulted in a significant decrease in
sales of the Company's pool lighting products. Sales of commercial lighting and
medical products increased slightly compared to 1994. International sales
accounted for approximately 18% and 16% of net sales in 1995 and 1994,
respectively, most of which represented sales of commercial lighting products.
The Company's gross margin percentage decreased to 43% in 1995,
compared to 44% in 1994. The decrease is primarily attributable to fixed
overhead, which remained level with 1994 in absolute dollars, but was a higher
percentage of sales due to the decrease in revenue.
Research and development expenses increased by 1% to $791,000 in 1995,
reflecting the Company's continuing commitment to improving its technology and
products. As a percentage of sales, research and development expenses increased
from 5.8% to 6.7%.
Selling and marketing expenses also increased by 1% to $3,311,000 in
1995, an increase from 24% of sales in 1994 to 28% in 1995. Increases occurred
primarily in the Commercial Lighting Division and included increases in
advertising, sales literature and personnel related expenses. These increases
were partly offset by reduced commissions associated with lower sales levels in
the Pool Division.
General and administrative expenses totaled $1,342,000 in 1995, an
increase of $372,000 from $970,000 in 1994. The increase was primarily
attributable to higher operating costs of operating as a public company for the
full year 1995, following the Company's IPO in August 1994 - including
professional fees, directors and officers insurance, SEC and shareholder
reporting, including annual report publication. Litigation expenses related to a
shareholder lawsuit against the Company also contributed to the increase.
As a percentage of sales, total operating expenses increased from 37%
in 1994 to 46% in 1995. This increase results from the increase in absolute
dollar expenses (mainly general and administrative), combined with the decrease
in sales.
Other income and expense includes interest income and expense, plus
income from the Company's joint ventures recognized under the equity method. Net
interest income was $181,000 in 1995, compared to net interest expense of
$12,000 in 1994. This improvement is primarily attributable to higher cash
balances after the Company's IPO. Income from joint ventures improved from
$55,000 in 1994 to $117,000 in 1995.
The Company recorded a net loss of $15,000 in 1995, compared to net
income of $2,062,000 in 1994. Net income for 1994 included an income tax benefit
of $1,078,000.
Seasonality; Risk Factors
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect revenues and
profitability. These include factors relating to competition, such as
competitive pricing pressure and the potential introduction of new products by
competitors; manufacturing factors, including constraints in the Company's
manufacturing and assembly operations and shortages or increases in the prices
of raw materials and components; sales and distribution factors, such as changes
in product mix or distribution channels resulting in lower margins,
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the loss of a significant distributor or sales representative, the loss of a
significant customer or swimming pool builder, the effects of volume discounts
that may be granted to larger customers, product returns and exchanges, and
seasonality of sales, particularly in sales of the Company's swimming pool and
spa lighting products; product development and introduction problems, such as
increased research, development and marketing expenses associated with new
product introductions, delays in the introduction of new products and
technologies and adverse effects on sales of existing products; as well as other
factors, including levels of expenses relative to revenue levels, personnel
changes, expenses that may be incurred in litigation, generally prevailing
economic conditions and fluctuations in foreign currency exchange rates. The
Company's annual and quarterly results of operations also have been and will
continue to be affected by national economic and other factors, including
factors affecting the construction of new swimming pools, such as housing market
trends, interest rates and the weather.
The Company's quarterly operating results are also substantially
affected by the market's acceptance of the Company's products and the level and
timing of orders received. Historically the Company has shipped a substantial
portion of its quarterly sales in the last month of each of the second and
fourth quarters of the year. Significant portions of the Company's expenses are
relatively fixed in advance based upon the Company's forecasts of future sales.
If sales fall below expectations in any given quarter, the Company's operating
results will be adversely affected. In addition, certain product development and
marketing expenditures may vary significantly from quarter to quarter and are
made well in advance of potential resulting revenue.
Sales of the Company's pool and spa lighting products, which currently
are available only with newly constructed pools and spas, are highly dependent
upon the level of such construction. Sales of commercial lighting products also
depend significantly upon the level of new building construction. Because of the
seasonality of construction, the Company's sales of swimming pool and commercial
lighting products, and thus the Company's overall revenues and income, have
tended to be significantly lower in the first quarter of each year. Various
economic and other trends may alter these seasonal trends from year to year, and
the Company cannot predict the extent to which these seasonal trends will
continue.
The Company anticipates that any future growth in the fiber optic
lighting market will be accompanied by increasing competition in a number of its
product lines. Such competition could adversely affect the Company's operating
results.
Liquidity and Capital Resources
For the year ended December 31, 1996, cash and cash equivalents
decreased by $236,000. Investments in short term marketable securities increased
by $869,000.
Cash provided by operating activities totaled $853,000, largely
resulting from operating income before depreciation, partly offset by an
increase in inventories.
Investing activities absorbed $1,132,000, including $869,000 to
purchase short term securities, $400,000 in acquisition of fixed assets, and
loans to officers totaling $161,000, partly offset by proceeds of $298,000 from
the sale of the Company's joint venture investment in Fiber Optic Medical
Products.
In June 1996, the Company renewed its $1 million unsecured line of
credit for working capital purposes and its $500,000 term loan commitment to
finance equipment purchases. Both lines expire on
<PAGE>
June 28, 1997. At December 31,
1996, the Company had no borrowings outstanding against either of these lines of
credit.
The Company believes that existing cash balances, together with the
Company's bank lines of credit and funds that may be generated from operations,
will be sufficient to finance the Company's currently anticipated working
capital requirements and capital expenditure requirements for at least the next
twelve months.
Item 7. Financial Statements
The financial statements and related notes thereto required by this
item are listed and set forth in a separate section of this report following the
index to exhibits.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
The information required by this Item regarding directors and nominees
is incorporated herein by reference to the information in the Company's
definitive Proxy Statement for the 1997 Annual Meeting of Shareholders to be
held on May 21, 1997 (the "Proxy Statement") under the caption "PROPOSAL NO. 1:
ELECTION OF DIRECTORS."
The executive officers of the Company who are not directors, and their
ages as of December 31, 1996, are as follows:
Name Age Position
George K. Awai 41 Vice President, Research and Development
Barry R. Greenwald 50 Senior Vice President and General
Manager, Pool Division
J. Arthur Hatley 47 Vice President and General Manager,
Commercial Lighting
J. Steven Keplinger 37 Senior Vice President,
Operations
William C. Lapworth 46 Vice President, Finance, Chief Financial
Officer and Secretary
Fredrick N. Martin 53 Senior Vice President, Engineering, R&D
and Commercial Lighting
- -------------
Mr. Awai joined the Company in October 1986 as Vice President,
Engineering. Prior to joining the Company, Mr. Awai served as Senior Fiber
Optics Engineering Supervisor at Advanced Cardiovascular Systems, Inc., a
subsidiary of Eli Lilly engaged in research and development of medical devices,
from August 1985 to October 1986. From December 1983 to August 1985, Mr. Awai
served as Quality Assurance Optics Manager at Kaptron, Inc., a fiber optics
manufacturing company. Mr. Awai served as Senior Optical Engineering Technician
at Siemens Optoelectronics from August 1982 to December 1983, as Fiber Optics
Laboratory Supervisor at Cooper Medical Devices, Inc. from May 1981 to July
1982, and as Senior Fiber Optics Technician at Olympus Corporation from
September 1979 to May 1981.
Mr. Greenwald joined the Company in October 1989 as General Manager,
Pool Division. He became Vice President in September 1993 and Senior Vice
President in February 1997. Prior to joining the Company, Mr. Greenwald served
as National Sales Manager at Aquamatic, a swimming pool accessory company, from
August 1987 to October 1989. From May 1982 to August 1987, Mr. Greenwald served
as National Sales Manager at Jandy Inc., a swimming pool equipment company.
Mr. Hatley joined the Company in July 1995 as National Sales Manager,
Commercial Lighting Division. He was promoted to General Manager in January 1996
and was named Vice President in December 1996. Prior to joining the Company, Mr.
Hatley served in progressive sales management capacities for Reggiani and Capri
Lighting companies. Mr. Hatley was previously a commercial lighting agency
principal and also served at Graybar Electric, a national lighting and
electrical products distributor.
<PAGE>
Mr. Keplinger joined the Company in August 1988 as Manager of
Operations. He became Vice President in 1991 and Senior Vice President in
February 1997. From June 1986 to August 1988, Mr. Keplinger was a sales
representative at Leemah Electronics, an electronics manufacturing company. From
February 1983 to June 1986, Mr. Keplinger was a sales manager with California
Magnetics Corp, a custom transformer manufacturing company.
Mr. Keplinger is also a director of Fiberstars Australasia Pty. Ltd.
Mr. Lapworth joined the Company in July 1993 as Vice President, Finance
and Chief Financial Officer, and became Secretary in February 1994. From
November 1987 to November 1992, Mr. Lapworth served as Chief Financial Officer
of Standard Engineering Data Company. From 1981 to 1987, he served in various
financial management capacities, including Controller and Chief Financial
Officer, with Omega Performance Corporation. He previously held financial
positions with Progressive Corporation and the Pillsbury Company. Mr. Lapworth
earned his C.P.A. certificate at Price Waterhouse and is a graduate of Duke
University and Stanford Graduate School of Business.
Mr. Martin joined the Company in February 1997 as Senior Vice President
responsible for Engineering, R&D and Commercial Lighting sales and marketing.
From May 1994 to February 1997, Mr. Martin was general partner in a retail
business. From 1989 to 1993, Mr. Martin was President and Chief Executive
Officer of Progress Lighting. Prior to that, he served as Executive Vice
President of sales & marketing for USI Lighting, a large lighting fixture and
controls company, and as President of Prescolite, a lighting fixture company.
Item 10. Executive Compensation
The information regarding executive compensation required by Item 10 is
incorporated herein by reference to the information in the Proxy Statement under
the caption "Executive Compensation."
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information regarding security ownership of certain beneficial
owners and management required by Item 11 is incorporated herein by reference to
the information in the Proxy Statement under the caption "Security Ownership of
Principal Shareholders and Management."
Item 12. Certain Relationships and Related Transactions
The information regarding certain relationships and related
transactions required by Item 12 is incorporated herein by reference to the
information in the Proxy Statement under the caption "Certain Transactions."
Item 13. Exhibits and Reports on Form 8-K
(a) Reference is made to the Index to Exhibits that begins on page 16
of this report.
(b) There were no reports on Form 8-K filed by the registrant during
the quarter ended December 31, 1996.
<PAGE>
INDEX TO EXHIBITS
(Item 13(a))
Exhibit
Number Document
3.1 Amended and Restated Articles of Incorporation of the
Registrant(incorporated by reference to Exhibit 3.3 in the
Registrant's Registration Statement on Form SB-2 (Commission
File No. 33-79116-LA) which became effective on August 17, 1994)
3.2 Bylaws of Registrant, including all amendments (incorporated by
reference to Exhibit 3.2 in the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1994).
3.3 Amendment to Bylaws of Registrant, dated as of December 1, 1995
(incorporated by reference to Exhibit 3.3 in the Registrant's
Annual Report on Form 10-KSB for the year ended December 31,
1995).
10.0 Form of warrant issued to the Underwriters in the Company's
initial public offering (incorporated by reference to Exhibit
1.1 in the Registrant's Registration Statement on Form SB-2
(Commission File No. 33-79116-LA) which became effective on
August 17, 1994)
10.1+ Form of Indemnification Agreement for directors and officers of
the Registrant (incorporated by reference to Exhibit 10.1 in the
Registrant's Registration Statement on Form SB-2 (Commission
File No. 33-79116-LA) which became effective on August 17,
1994).
10.2+ 1988 Stock Option Plan, as amended, and forms of stock
option agreement (incorporated by reference to Exhibit 10.2 in
the Registrant's Registration Statement on Form SB-2 (Commission
File No. 33-79116-LA) which became effective on August 17,
1994).
10.3+ 1994 Stock Option Plan, as amended, and forms of stock
option agreement (incorporated by reference to Exhibit 10.3 in
the Registrant's Registration Statement on Form SB-2 (Commission
File No. 33-79116-LA) which became effective on August 17,
1994).
10.4+ 1994 Employee Stock Purchase Plan and form of subscription
agreement (incorporated by reference to Exhibit 10.4 in the
Registrant's Registration Statement on Form SB-2 (Commission
File No. 33-79116-LA) which became effective on August 17,
1994).
<PAGE>
10.5+ Directors' Stock Option Plan and form of stock option agreement
(incorporated by reference to Exhibit 10.5 in the Registrant's
Registration Statement on Form SB-2 (Commission File No.
33-79116-LA) which became effective on August 17, 1994).
10.6 Registration Rights Agreement dated as of June 27, 1990, between
the Registrant and certain holders of the Registrant's capital
stock, as amended by Amendment No. 1 dated as of February 6,
1991 and Amendment No. 2 dated as of April 30, 1994
(incorporated by reference to Exhibit 10.10 in the Registrant's
Registration Statement on Form SB-2 (Commission File No.
33-79116-LA) which became effective on August 17, 1994).
10.7 Amendment No. 3 to Registration Rights Agreement to include
Warrant shares as Registrable Securities (incorporated by
reference to Exhibit 1.2 in the Registrant's Registration
Statement on Form SB-2 (Commission File No. 33-79116-LA) which
became effective on August 17, 1994).
10.8+ Stock Purchase Agreement and related Promissory Note between
David N. Ruckert and the Registrant dated as of December 9,
1987, as amended (incorporated by reference to Exhibit 10.14 in
the Registrant's Registration Statement on Form SB-2 (Commission
File No. 33-79116-LA) which became effective on August 17,
1994).
10.9+ Common Stock Purchase Warrant dated as of June 27, 1988 issued
by the Registrant to Philip Wolfson (incorporated by reference
to Exhibit 10.15 in the Registrant's Registration Statement on
Form SB-2 (Commission File No. 33-79116-LA) which became
effective on August 17, 1994).
10.10 Lease Agreement dated December 20, 1993 between the Registrant
and Bayside Spinnaker Partners IV (incorporated by reference to
Exhibit 10.19 in the Registrant's Registration Statement on Form
SB-2 (Commission File No. 33-79116-LA) which became effective on
August 17, 1994).
10.11 Form of Agreement between the Registrant and independent sales
representatives (incorporated by reference to Exhibit 10.20 in
the Registrant's Registration Statement on Form SB-2 (Commission
File No. 33-79116-LA) which became effective on August 17,
1994).
10.12+ Consulting Agreement dated August 25, 1994 between the
Registrant and Philip Wolfson, M.D. (incorporated by reference
to Exhibit 10.17 in the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1994).
10.13* Distribution Agreement dated March 21, 1995 between the
Registrant and Mitsubishi International Corporation
(incorporated by reference to Exhibit 10.18 in the Registrant's
Annual Report on Form 10-KSB for the year ended December 31,
1994).
<PAGE>
10.14* Three (3) Year Supply Agreement dated March 21, 1995 between the
Registrant and Mitsubishi International Corporation
(incorporated by reference to Exhibit 10.19 in the Registrant's
Annual Report on Form 10-KSB for the year ended December 31,
1994).
10.15 Stock Purchase Agreement dated March 21, 1995 among the
Registrant, Mitsubishi International Corporation and Mitsubishi
Corporation (incorporated by reference to Exhibit 10.20 in the
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1994).
10.16+ Consulting Agreement dated as of December 14, 1995, between
Registrant and Michael D. Ernst (incorporated by reference to
Exhibit 10.21 in the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1995).
10.17 Distribution Agreement dated as of February 21, 1996, between
the Registrant and Fiberoptic Medical Products, Inc.
(incorporated by reference to Exhibit 10.24 in the Registrant's
Annual Report on Form 10-KSB for the year ended December 31,
1995).
10.18 Loan Agreement dated as of June 28, 1996, between the Registrant
and Wells Fargo Bank.
10.19 Term Commitment Note of the Registrant dated as of June 28,
1996, to Wells Fargo Bank.
10.20 Revolving Line of Credit Note of the Registrant dated as of
June 28, 1996, to Wells Fargo Bank.
10.21 Amendment to 1994 Stock Option Plan, effective as of December 6,
1996.
10.22 Promissory Note dated as of October 7, 1996, issued in favor of
the Registrant by Steve Keplinger.
10.23 Promissory Note dated as of March 25, 1997, issued in favor of
the Registrant by Barry Greenwald.
11.1 Statement Regarding Computation of Net Income (Loss) per Share.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.
* Confidential treatment requested
+ Management Compensatory Plan or Arrangement
<PAGE>
FIBERSTARS, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
As of December 31, 1996 and 1995
and
For the Three Years Ended December 31, 1996
Page
Financial Statements:
Balance Sheets..................................................... F-1
Statements of Operations........................................... F-2
Statements of Shareholders' Equity................................. F-3
Statements of Cash Flows........................................... F-4
Notes to Financial Statements...................................... F-5
Report of Independent Accountants....................................... F-20
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
<PAGE>
<TABLE>
F-1
FIBERSTARS, INC.
BALANCE SHEETS, December 31, 1996 and 1995
(amounts in thousands except share and per share amounts)
<CAPTION>
ASSETS 1996 1995
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,520 $ 1,756
Short-term investments 3,315 2,446
Accounts receivable, net of allowances for doubtful
accounts of $236 in 1996 and $209 in 1995
2,621 2,614
Notes receivable from officers 91
Inventories 2,168 1,904
Prepaids and other current assets 181 176
Deferred income taxes 585 668
-------------- --------------
Total current assets 10,481 9,564
Fixed assets, net 832 754
Investment in joint ventures 52 342
Notes receivable from officers, less current portion 70
Other assets 74 21
Deferred income taxes 553 813
-------------- --------------
Total assets $ 12,062 $ 11,494
-------------- --------------
LIABILITIES
Current liabilities:
Accounts payable $ 967 $ 1,098
Accrued expenses 1,122 977
Current portion of long-term debt 13 13
-------------- --------------
Total current liabilities 2,102 2,088
Long-term debt, less current portion 28 40
-------------- --------------
Total liabilities 2,130 2,128
-------------- --------------
Commitments and contingencies (Note 8).
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.0001 per share:
Authorized: 2,000,000 shares in 1996 and 1995
Issued and outstanding: no shares in 1996 and 1995
Common stock, par value $0.0001 per share:
Authorized: 30,000,000 shares in 1996 and 1995
Issued and outstanding: 3,412,680 shares in 1996 and
3,380,615 shares in 1995
- -
Additional paid-in capital 11,903 11,848
Note receivable from shareholder (75) (75)
Accumulated deficit (1,896) (2,407)
-------------- --------------
Total shareholders' equity 9,932 9,366
-------------- --------------
Total liabilities and shareholders' equity $ 12,062 $ 11,494
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
F-2
FIBERSTARS, INC.
STATEMENTS OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
(amounts in thousands, except per share amounts)
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 15,576 $ 11,798 $ 13,562
Cost of sales 9,032 6,678 7,592
------------ ------------ ------------
Gross profit 6,544 5,120 5,970
------------ ------------ ------------
Operating expenses:
Research and development 962 791 784
Sales and marketing 3,728 3,311 3,275
General and administrative 1,254 1,342 970
------------ ------------ ------------
Total operating expenses 5,944 5,444 5,029
------------ ------------ ------------
Income (loss) from operations 600 (324) 941
Other income (expense):
Equity in joint ventures' income 8 117 55
Interest and other income 252 191 65
Interest expense (6) (10) (77)
------------ ------------ ------------
Income (loss) before (provision for) benefit
from income taxes
854 (26) 984
(Provision for) benefit from income taxes (343) 11 1,078
------------ ------------ ------------
Net income (loss) $ 511 $ (15) $ 2,062
------------ ------------ ------------
Net income (loss) per share $0.15 $ (0.00) $0.75
------------ ------------ ------------
Shares used in per share calculation 3,468 3,344 2,761
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
F-3
FIBERSTARS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994
(in thousands)
<CAPTION>
Preferred Common Additional Notes
Stock Stock Paid-In Receivable
from Accumulated
Shares Amount Shares Amount Capital Shareholders Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 1,505 $ 7,131 698 $ 174 $ (78) $ (4,454) $ 2,773
Conversion of preferred stock to common stock in
connection with initial public offering (1,505) (7,131) 1,513 7,131 --
Conversion of no par value common stock to par value of
$0.0001 per share (7,305) $ 7,305 --
Issuance of common stock in connection with initial
public offering 1,000 3,670 3,670
Exercise of common stock options 24 22 22
Issuance of common stock under employee stock purchase plan 3 14 14
Net income 2,062 2,062
Balances, December 31, 1994 -- -- 3,238 -- 11,011 (78) (2,392) 8,541
Exercise of common stock options 14 18 18
Issuance of common stock under employee stock purchase plan 9 27 27
Issuance of common stock in private placement 120 792 792
Repayment of notes receivable 3 3
Net loss (15) (15)
Balances, December 31, 1995 -- -- 3,381 -- 11,848 (75) (2,407) 9,366
Exercise of common stock options 7 9 9
Issuance of common stock under employee stock purchase plan 9 32 32
Issuance of common stock pursuant to exercise of warrants 16 14 14
Net income 511 511
Balances, December 31, 1996 -- $ -- 3,413 $ -- $ 11,903 $ (75) $ (1,896) $ 9,932
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
F-4
FIBERSTARS, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
(in thousands)
<CAPTION>
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 511 $ (15) $ 2,062
----------- ------------ ------------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 322 178 173
Provision for doubtful accounts receivable 56 54 34
Deferred income taxes 343 25 (1,186)
Equity in joint venture (8) (117) (55)
Changes in assets and liabilities:
Accounts receivable (63) 560 (1,176)
Inventories (264) (640) (285)
Prepaids and other current assets (5) (37) (114)
Other assets (53) 16
Accounts payable (131) 309 97
Accrued expenses 145 19 511
----------- ------------ ------------
Total adjustments 342 351 (1,985)
----------- ------------ ------------
Net cash provided by operating activities 853 336 77
----------- ------------ ------------
Cash flows from investing activities:
Decrease in restricted short-term investments 60
Purchase of short-term investments (869) (2,446)
Loans made to officers (161)
Acquisition of fixed assets (400) (379) (374)
Sale of investment in joint venture 298
----------- ------------ ------------
Net cash used in investing activities (1,132) (2,825) (314)
----------- ------------ ------------
Cash flows from financing activities:
Net proceeds from initial public offering 3,670
Proceeds from issuances of common stock 55 837 36
Proceeds from short-term borrowings 1,350
Repayment of short-term borrowings (1,350)
Repayment of long-term debt (12) (84) (68)
Repayment of notes receivable for common stock 3
----------- ------------ ------------
Net cash provided by financing activities 43 756 3,638
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents (236) (1,733) 3,401
Cash and cash equivalents, beginning of year 1,756 3,489 88
----------- ------------ ------------
Cash and cash equivalents, end of year $ 1,520 $ 1,756 $ 3,489
----------- ------------ ------------
Supplemental information:
Interest paid $6 $10 $77
Income taxes paid $38 $3
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
F-5
1. Nature of Operations:
Fiberstars, Inc. (the Company) develops and assembles lighting products
using fiber optic technology for commercial lighting and swimming pool and
spa lighting applications. The Company markets its products for worldwide
distribution primarily through independent sales representatives,
distributors and swimming pool builders.
2. Summary of Significant Accounting Policies:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from those estimates.
Cash Equivalents:
The Company considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash equivalents.
Short-Term Investments:
Short-term investments consist of debt securities with remaining
maturity of more than three months when purchased. The Company has
determined that all of its debt securities should be classified as
available-for-sale. The difference between the cost basis and the
market value of the Company's investments was not material at December
31, 1996 and 1995. The Company's investments at December 31, 1996 and
1995 primarily consist of corporate notes with maturities of one year
or less. Short-term investments are held by one investment bank as of
December 31, 1996.
Inventories:
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Investments in Joint Ventures:
The Company records its investments in joint ventures under the equity
method of accounting.
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
2. Summary of Significant Accounting Policies, continued:
Fair Value of Financial Instruments:
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and other accrued liabilities approximate
fair value due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the
carrying value of long-term debt obligations also approximates fair
value.
Revenue Recognition:
The Company recognizes sales upon shipment.
Depreciation and Amortization:
Fixed assets are stated at cost and depreciated by the straight-line
method over the estimated useful lives of the related assets (two to
five years). Leasehold improvements are amortized on a straight-line
basis over their estimated useful lives or the lease term, whichever is
less.
Certain Risks and Concentrations:
The Company invests its excess cash in deposits and high-grade
short-term securities with two major banks.
The Company sells its products primarily to residential lighting
distributors and pool installation contractors in North America, Europe
and the Far East. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. Although the
Company maintains allowances for potential credit losses that it
believes to be adequate, a payment default on a significant sale could
materially and adversely affect its operating results and financial
condition. At December 31, 1996, one customer accounted for 13% of
accounts receivable and at December 31, 1995, no single customer
accounted for more than 10% accounts receivable.
During 1996, two customers of the Company merged and their combined
revenues accounted for 21% of net sales for the year ended December 31,
1996.
The Company currently buys all of its fiber, the main component of its
products, from one supplier. Although there is a limited number of
fiber suppliers, management believes that other suppliers could provide
fiber on comparable terms. A change in suppliers, however, could cause
delays in manufacturing and a possible loss of sales which would
adversely affect operating results.
2. Summary of Significant Accounting Policies, continued:
Research and Development:
Research and development costs are charged to operations as incurred.
Income Taxes:
The Company accounts for income taxes using the liability method under
which deferred tax assets or liabilities are calculated at the balance
sheet date using current tax laws and rates in effect.
Stock-Based Compensation:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation," which is effective for the
Company's financial statements for fiscal years beginning after
December 15, 1995. SFAS No. 123 allows companies to account for
stock-based compensation either under the new provisions of SFAS No.
123 or under the provisions of Accounting Principles Board Opinion No.
25 (APB No. 25), "Accounting for Stock Issued to Employees," but
requires pro forma disclosure in the footnotes to the financial
statements as if the measurement provisions of SFAS No. 123 had been
adopted. The Company accounts for its stock based compensation in
accordance with the provisions of APB No. 25 and presents disclosures
required by SFAS No. 123.
Net Income (Loss) Per Share:
Net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding and common stock
equivalent shares. Common stock equivalent shares from stock options
and warrants are excluded from the computation to the extent that their
effect is antidilutive. Dilution from common equivalents has been
further limited in 1996 under the modified treasury stock method.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common stock equivalent shares issued at prices
below the anticipated public offering price during the 12 months
immediately preceding the offering date have been included in the
calculation as if they were outstanding for all periods presented
(using the treasury stock method and the initial public offering
price).
<PAGE>
<TABLE>
3. Inventories (in thousands):
December 31,
<CAPTION>
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
Raw materials $ 1,528 $ 1,111
Finished goods 640 793
------------- ------------
$ 2,168 $ 1,904
------------- ------------
</TABLE>
<TABLE>
4. Fixed Assets (in thousands):
December 31,
---------------------------
1996 1995
------------ ------------
<CAPTION>
<S> <C> <C>
Equipment $ 1,757 $ 1,380
Furniture and fixtures 114 112
Computer software 92 85
Leasehold improvements 80 66
------------ ------------
2,043 1,643
Less accumulated depreciation and amortization
(1,211) (889)
------------ ------------
$ 832 $ 754
------------ ------------
</TABLE>
5. Joint Ventures:
Fiberoptic Medical Products, Inc.:
In February 1996, the Company entered into an agreement to sell its
equity in Fiberoptic Medical Products, Inc. (FMP) for the net book
value of approximately $300,000.
Fiberstars Australasia Pty. Ltd:
The Company participates in a joint venture with Fiberstars Australasia
Pty. Ltd., to market lighting products using fiberoptic technology in
Australia and New Zealand. The Company maintains a 46.5% interest in
Fiberstars Australasia.
The Company recorded sales to Fiberstars Australasia totaling $234,000,
$130,000 and $95,000, for the years ended December 31, 1996, 1995 and
1994, respectively. Accounts receivable from Fiberstars Australasia
Pty. Ltd. as of December 31, 1996 and 1995 were $52,000 and $41,000,
respectively.
<PAGE>
5. Joint Ventures, continued:
<TABLE>
The following represents condensed financial information (unaudited) of
Fiberstars Australasia as of December 31, 1996 and for the year then
ended, and combined information of FMP and Fiberstars Australasia as of
December 31, 1995 and for the two years ended December 31, 1995 (in
thousands):
<CAPTION>
December 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Current assets $ 204 $ 1,365
Property and other assets 47 77
------------- -------------
$ 251 $ 1,442
------------- -------------
Current liabilities $ 129 $ 731
Issued capital 108 558
Retained earnings 14 153
------------- -------------
$ 251 $ 1,442
------------- -------------
</TABLE>
<TABLE>
December 31,
-------------------------------------------
1996 1995 1994
------------ ------------- -------------
<CAPTION>
<S> <C> <C> <C>
Revenue $ 566 $ 3,909 $ 3,038
Expenses 545 3,654 2,920
------------ ------------- -------------
Net income $ 21 $ 255 $ 118
------------ ------------- -------------
</TABLE>
<TABLE>
6. Accrued Expenses (in thousands):
December 31,
--------------------------
1996 1995
------------- ----------
<CAPTION>
<S> <C> <C>
Sales commissions and incentives $ 656 $ 577
Other 466 400
------------- ----------
$ 1,122 $ 977
------------- ----------
</TABLE>
<PAGE>
7. Lines of Credit:
On June 28, 1996, the Company entered into the following borrowing
arrangements with its bank:
a) A $1,000,000 revolving line of credit expiring June 28, 1997, bearing
interest at prime plus 0.25% (9.0% at December 31, 1996). Borrowings
under this line are uncollateralized, and the Company must maintain a
zero balance for at least 30 consecutive days during each fiscal
year.
b) A $500,000 term loan commitment to finance equipment purchases,
expiring June 28, 1997. Borrowings bear interest at prime plus 0.75%
(9.50% at December 31, 1996). Under this note, the Company may
finance up to 80% of the cost of new equipment and 75% of the cost of
used equipment. The note is collateralized by a security interest in
all equipment financed with the proceeds. Interest only is payable
monthly until June 28, 1997, after which the principal plus interest
is repayable in 36 monthly installments.
There were no amounts outstanding at December 31, 1996. The Company is
required to maintain certain financial ratios on a quarterly basis,
including specified levels of working capital and tangible net worth.
8. Commitments and Contingencies:
The Company occupies manufacturing and office facilities under operating
leases expiring in 1999 under which it is responsible for related
maintenance, taxes and insurance. Minimum lease commitments under the
leases are as follows (in thousands):
1997 $ 272
1998 272
1999 68
Rent expense approximated $318,000, $279,000 and $252,000, for the
years ended December 31, 1996, 1995 and 1994, respectively.
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of these actions at this time, management
believes that any liabilities resulting from such proceedings, or claims
which are pending or known to be threatened, will not have a material
adverse effect on the Company's financial position or results of
operations.
<PAGE>
9. Shareholders' Equity:
Preferred Stock:
At the time of the Company's initial public offering in August 1994,
all outstanding shares of preferred stock converted automatically into
an aggregate of 1,512,788 shares of common stock.
Concurrent with the closing of the initial public offering, the
Articles of Incorporation of the Company were amended, deleting all
references to series of preferred stock and authorizing undesignated
preferred stock consisting of 2,000,000 shares with par value of
$0.0001 per share.
Common Stock:
Concurrent with the closing of the initial public offering, the
Articles of Incorporation were amended to authorize an increase in the
number of shares of common stock to 30,000,000 with par value of
$0.0001 per share.
The note receivable from a shareholder for common stock bears interest
at a rate of 9% and is payable ten years from the date of issuance.
Under the terms of certain agreements with the Company, the holders of
approximately 1,489,000 shares of common stock have certain demand and
piggyback registration rights. All registration expenses generally
would be borne by the Company.
Warrants:
The Company has issued warrants to purchase shares of its common stock
to certain directors and consultants of the Company. These warrants,
which were granted at the fair market value of the common stock at the
date of grant as determined by the Board of Directors, expire on
varying dates through 1998.
In connection with its public offering in August 1994, the Company
issued to the underwriters, RvR Securities Corp. and Van Kasper &
Company, warrants (the Underwriters' warrants) to purchase up to
100,000 shares of the Company's common stock at an exercise price equal
to 120% of the initial offering price of $4.50 per share. The
Underwriters' warrants are exercisable for a period of five years from
the date of the public offering expiring on August 18, 1999.
<PAGE>
9. Shareholders' Equity, continued:
<TABLE>
Warrants, continued:
Warrant activity comprised:
Warrants Outstanding
---------------------------------------------
Exercise
Shares Price Amount
----------- ------------- ----------------
(in thousands)
<CAPTION>
<S> <C> <C> <C>
Balances, January 1, 1994 26,666 $.90 $ 24
Warrants granted 100,000 $5.40 540
----------- ----------
Balances, December 31, 1994 and 1995 126,666 $0.90-$5.40 564
Warrants exercised (15,625) $0.90 (14)
----------- ----------
Balances, December 31, 1996 111,041 $0.90-$5.40 $ 550
----------- ----------
</TABLE>
At December 31, 1996, 111,041 outstanding warrants were exercisable.
The Company has reserved 111,041 shares of common stock for issuance
upon exercise of the common stock warrants.
Adoption of SFAS No. 123, "Accounting for Stock-Based Compensation":
The Company has Stock Option Plans and an Employee Stock Purchase Plan
under which an aggregate of 1,267,579 shares of the Company's common
stock have been reserved for future issuance.
<TABLE>
9. Shareholders' Equity, continued:
Adoption of SFAS No. 123, "Accounting for Stock-Based Compensation",
continued:
Effective January 1, 1996, the Company elected to adopt the disclosure
only provision of Statement of Financial Accounting Standards No. 123
(SFAS No. 123), "Accounting for Stock-Based Compensation." The Company,
however, continues to apply APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for
options granted under the Stock Option Plans. Had compensation cost for
these plans been determined based on the fair value of the options at
the grant date for awards in 1996 and 1995 consistent with the
provisions of SFAS No. 123, the Company's net income (loss) and net
income (loss) per share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):
1996 1995
------------- -------------
<CAPTION>
<S> <C> <C>
Net income (loss) - as reported $ 511 $ (15)
------------- -------------
Net income (loss) - pro forma $ 422 $ (74)
------------- -------------
Net income (loss) per share - as reported $ 0.15 $ (0.00)
------------- -------------
Net income (loss) per share - pro forma $ 0.12 $ (0.02)
------------- -------------
</TABLE>
As the provisions of SFAS No. 123 are only applied to stock options
granted after January 1, 1995 in the above pro forma amounts, the
impact of the pro forma stock compensation cost will likely continue to
increase, as the vesting period for the Company's options and the
period over which compensation is charged to expense is generally four
years.
The fair value of each option grant is estimated on the date of grant
using a type of Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995:
<TABLE>
1996 1995
-------------- --------------
<CAPTION>
<S> <C> <C>
Exercise price $4.80 $5.32
Expected life of option 3.89 years 3.86 years
Risk-free interest rate 6.11% 6.95%
Expected volatility 23% 23%
</TABLE>
<PAGE>
9. Shareholders' Equity, continued:
1988 Stock Option Plan:
Upon adoption of the 1994 Stock Option Plan (see below), the Company's
Board of Directors determined to make no further grants under the 1988
Stock Option Plan (the 1988 Plan). Upon cancellation or expiration of
any options granted under the 1988 Plan, the related reserved shares of
common stock will become available instead for options granted under
the 1994 Stock Option Plan.
1994 Stock Option Plan:
At December 31, 1996, an aggregate of 850,000 shares of the Company's
common stock are reserved for issuance under the 1994 Stock Option Plan
to employees, officers, directors and consultants at prices not lower
than the fair market value of the common stock of the Company on the
date of grant. Options granted may be either incentive stock options or
nonstatutory stock options. The plan administrator (the Board of
Directors or a committee of the Board) determines the terms of options
granted under the plan including the number of shares subject to the
option, exercise price, term and exercisability.
1994 Directors' Stock Option Plan:
At December 31, 1996, a total of 150,000 shares of common stock has
been reserved for issuance under the 1994 Directors' Stock Option Plan.
The plan provides for the granting of nonstatutory stock options to
nonemployee directors of the Company.
<PAGE>
<TABLE>
9. Shareholders' Equity, continued:
Activity Under the Stock Option Plans:
Option activity under all plans comprised:
Options Outstanding
Weighted
Options Average
Available Exercise
for Number Price
Grant of Shares Per Share Amount
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C>
Balances, January 1, 1994 33,970 208,985 $0.90 $ 187
Additional shares reserved 540,000
Granted (291,069) 291,069 $5.39 1,471
Canceled 72,581 (72,581) $4.82 (350)
Exercised (23,957) $0.90 (22)
Balances, December 31, 1994 355,482 403,516 $3.19 1,286
Granted (178,200) 178,200 $5.51 963
Canceled 23,560 (23,560) $3.40 (94)
Exercised (13,953) $1.32 (18)
Balances, December 31, 1995 200,842 544,203 $3.83 2,137
Additional shares reserved 500,000
Granted (299,050) 299,050 $4.99 1,455
Canceled 49,892 (49,892) $5.15 (216)
Exercised (7,188) $1.04 (9)
Balances, December 31, 1996 451,684 786,173 $4.10 $ 3,367
</TABLE>
At December 31, 1996, options to purchase 372,818 shares of common
stock were exercisable. The weighted average fair value of options
granted in 1996 and 1995 was $1.39 and $1.64, respectively.
<PAGE>
<TABLE>
9. Shareholders' Equity, continued:
Activity Under the Stock Option Plans:
OPTIONS OUTSTANDING OPTIONS CURRENTLY
EXERCISABLE
Weighted
Average Weighted Weighted
Number Remaining Average Average
Exercise of Shares Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
(in thousands) (in years) (in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
$0.90-$0.90 162 5.6 $0.90 154 $0.90
$3.60-$4.50 89 6.8 $4.29 62 $4.29
$4.75-$4.75 214 4.9 $4.75 $4.75
$5.125-$5.88 271 4.8 $5.51 132 $5.47
$6.50-$6.50 50 2.7 $6.50 25 $6.50
</TABLE>
1994 Employee Stock Purchase Plan:
At December 31, 1996, a total of 50,000 shares of common stock has been
reserved for issuance under the 1994 Employee Stock Purchase Plan. The
plan permits eligible employees to purchase common stock through
payroll deductions at a price equal to the lower of 85% of the fair
market value of the Company's common stock at the beginning or ending
of the offering period. Employees may end their participation at any
time during the offering period, and participation ends automatically
on termination of employment with the Company. At December 31, 1996,
20,278 shares had been issued under this plan.
<PAGE>
<TABLE>
10. Income Taxes:
The components of the (provision for) benefit from income taxes are as
follows (in thousands):
Years Ended
December 31,
-----------------------------------
1996 1995 1994
<CAPTION>
<S> <C> <C> <C>
Current:
Federal $ (23) $ 27 $ (88)
State (1) 9 (20)
---------- ---------- ----------
(24) 36 (108)
---------- ---------- ----------
Deferred:
Federal (303) (17)
State (16) (8)
---------- ---------- ----------
(319) (25) -
---------- ---------- ----------
Reduction in valuation allowance 1,186
---------- ---------- ----------
(Provision for) benefit from income taxes $ (343) $ 11 $ 1,078
---------- ---------- ----------
</TABLE>
<TABLE>
The principal items accounting for the difference between income taxes
computed at the United States statutory rate and the provision for income
taxes reflected in the statements of operations are as follows:
<CAPTION>
Years Ended
December 31,
----------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
United States statutory rate (34.0) % 34.0% (34.0)%
State taxes (net of federal tax benefit) (5.5) 5.5 (5.5)
Utilization of net operating loss carryforwards 34.0
Change in valuation allowance 119.9
Other (0.6) 2.8 (4.8)
-------- -------- ---------
(40.1) % 42.3% 109.6%
-------- -------- ---------
</TABLE>
<PAGE>
<TABLE>
10. Income Taxes, continued:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset are as follows (in thousands):
<CAPTION>
Years Ended
December 31,
----------------------------
1996 1995
------------ -------------
<S> <C> <C>
Allowance for doubtful accounts $ 94 $ 84
Accrued expenses and other reserves 336 280
Depreciation and amortization (7) (19)
General business credits 100 153
Net operating loss carryforwards 609 1,022
Equity in joint ventures' income (4) (47)
Other 10 8
------------ -------------
Total deferred tax asset $ 1,138 $ 1,481
------------ -------------
</TABLE>
The Company has a federal net operating loss carryforward for tax purposes
at December 31, 1996 of approximately $1,877,000. Additionally, at
December 31, 1996 the Company had federal research and development credit
carryforwards of approximately $100,000. The carryforwards expire from
1997 to 2007.
The deferred tax is not reduced by a valuation allowance as management
believes it will fully realize the benefit from its deferred tax assets.
Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred
tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
<PAGE>
<TABLE>
11. Export Sales:
A summary of export sales is as follows (in thousands):
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1995 1994
-------------- -------------- ---------------
<S> <C> <C> <C>
U.S. Domestic $ 13,294 $ 9,626 $ 11,450
Export 2,282 2,172 2,112
-------------- -------------- ---------------
$ 15,576 $ 11,798 $ 13,562
-------------- -------------- ---------------
</TABLE>
12. Employee Retirement Plan:
The Company maintains a 401(k) profit sharing plan for its employees who
meet certain qualifications. The Plan allows eligible employees to defer
up to 15% of their earnings, not to exceed the statutory amount per year
on a pretax basis through contributions to the Plan. The Plan provides for
employer contributions at the discretion of the Board of Directors;
however, no such contributions were made in 1996 and 1995.
13. Related Party Transactions:
During 1996, the Company advanced a total of $161,000 to two officers by
way of promissory notes for the purchase of permanent residences. The
notes are collateralized by certain issued or potentially issuable shares
of the Company's common stock. The notes bear interest at rates ranging
from 6% to 8% per annum and are repayable at various dates through 1999.
At December 31, 1996, no amounts had been repaid on these notes.
<PAGE>
F-20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Fiberstars, Inc.
Fremont, California
We have audited the accompanying balance sheets of Fiberstars, Inc. as of
December 31, 1996 and 1995 and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fiberstars, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
January 31, 1997
WELLS FARGO BANK LOAN AGREEMENT
This Loan Agreement (this "Agreement") is entered into by and between
FIBERSTARS, INC. ("Borrower") and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank") and sets forth the terms and conditions which govern all Borrower's
commercial credit accommodations from Bank, whether now existing or hereafter
granted (each, a "Credit" and collectively, "Credits"), which terms and
conditions are in addition to those set forth in any other contract, instrument
or document (collectively with this Agreement, the "Loan Documents") required by
this Agreement orheretofore or at any time hereafter delivered to Bank in
connection with any Credit.
1. REPRESENTATIONS AND WARRANTIES. Borrower makes the following representations
and warranties to Bank, which representations and warranties shall be true as of
the date hereof and on the date of each extension of credit under each Credit
with the same effect as though made on each such date:
(a) Legal Status. Borrower is a corporation, duly organized and existing and
in good standing under the laws of the State of California, and is qualified or
licensed to do business in all jurisdictions in which such qualification or
licensing is required or in which the failure to be qualified or licensed could
have a material adverse effect on Borrower.
(b) Authorization and Validity. Each of the Loan Documents has been duly
authorized, and upon its execution and delivery to Bank will constitute a legal,
valid and binding obligation of Borrower or the party which executes the same,
enforceable in accordance with its respective terms.
(c) No Violation. The execution, delivery and performance by Borrower of each
of the Loan Documents do not violate any provision of law or regulation, or
contravene any provision of Borrower's Articles of Incorporation or By-Laws, or
result in any breach of or default under any agreement, indenture or other
instrument to which Borrower is a party or by which Borrower may be bound.
(d) No Litigation. There is no litigation or other action or proceeding pending
or threatened against Borrower which could have a material adverse effect on the
financial condition or operation of Borrower except as disclosed by Borrower to
Bank in writing prior to the date hereof.
(e) Financial Statements. The most recent annual financial statement of
Borrower, and all interim financial statements delivered to Bank since the date
of said annual financial statement, true copies of which have been delivered by
Borrower to Bank prior to the date hereof, are complete and correct, present
fairly the financial condition of Borrower and disclose all liabilities of
Borrower, and have been prepared in accordance with generally accepted
accounting principles. Since the dates of such financial statements there has
been no material adverse change in the financial condition of Borrower, nor has
Borrower mortgaged, pledged, granted a security interest in or otherwise
encumbered any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.
(f) Tax Returns. Borrower has no knowledge of any pending assessments or
adjustments of its income tax payable with respect to any year except as
disclosed by Borrower to Bank in writing prior to the date hereof.
II. ADDITIONAL TERMS.
(a) Conditions Precedent. The obligation of Bank to grant any Credit is
subject to the condition that Bank shall have received all contracts,
instruments and documents, duly executed where applicable, deemed necessary by
Bank to evidence such Credit and all terms and conditions applicable thereto,
all of which shall be in form and substance satisfactory to Bank.
(b) Application of Payments. Each payment made on each Credit shall be applied
first, to any interest then due, second, to any fees and charges then due, and
third, to the outstanding principal balance thereof.
III. COVENANTS. So long as any Credit remains available or any amounts under
any Credit remain outstanding, Borrower shall,unless Bank otherwise consents in
writing:
(a) Insurance. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public, liability,
property damage, flood and workers' compensation, carried with companies and in
amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's
request schedules setting forth all insurance then in effect.
(b) Compliance. Preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of its
business; and comply with the requirements of all laws, rules, regulations and
orders of any governmental authority applicable to Borrower and/or its business,
including without limitation, the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time, and all state or Federal
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any operations
and/or properties of Borrower.
(c) Indebtedness. Not create, incur, assume or permit to exist any
indebtedness or other liabilities, whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, direct or contingent
(including any contingent liability under any guaranty of the obligations of any
person or entity), except (i) the liabilities of Borrower to Bank, (ii) trade
debt incurred by Borrower in the normal course of its business, and (iii) any
other liabilities of Borrower existing as of, and disclosed to Bank in writing
prior to, the date hereof.
(d) Merger; Consolidation; Transfer of Assets. Not merge into or consolidate
with any other entity; nor make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; nor acquire all or
substantially all of the assets of any other person or entity; nor sell lease,
transfer or otherwise dispose of all or a substantial or material portion of
Borrower's assets except in the ordinary course of its business.
(e) Pledge of Assets. Not mortgage, pledge, grant or permit to exist a security
interest in, or lien upon, all or any portion of Borrower's assets now owned or
hereafter acquired, except in favor of Bank and except any of the foregoing
existing as of, and disclosed to Bank in writing prior to, the date hereof.
(f) Financial Statements. Provide to Bank all of the following, in form and
detail satisfactory to Bank, together with such current financial and other
information as Bank from time to time may reasonably request:
(i) As soon as available, but in no event later than 45 days after and
as of the end of each fiscal quarter, a financial statement of Borrower,
prepared by Borrower and certified as correct by an officer of Borrower
authorized to borrow under the most current Corporate Borrowing Resolution
delivered by Borrower to Bank, to include a balance sheet and income statement,
together with all supporting schedules and footnotes.
(g) Financial Condition. Maintain Borrower's financial condition as follows
using generally accepted accounting principles consistently applied and used
consistently with prior practices, except to the extent modified by the
following definitions:
(I) Total Liabilities divided by Tangible Net Worth not at any time
greater than 0.75 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets.
(ii) Quick Ratio not at any time less than 2.00 to 1.0, with "Quick
Ratio" defined as the aggregate of unrestricted cash, unrestricted marketable
securities and receivables convertible into cash divided by total current
liabilities.
(iii) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit not less than $1.00 on
a year-to-date basis, determined as of the end of the second fiscal quarter of
each year.
(iv) EBITDA Coverage Ratio not less than 1.50 to 1.0 as of each fiscal
year end, with "EBITDA" defined as net profit before tax plus interest expense
(net of capitalized interest expense), depreciation expense and amortization
expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the
aggregate of interest expense plus the prior period current maturity of
long-term debt and the prior period current maturity of subordinated debt.
IV. DEFAULT; REMEDIES.
(a) Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" Under this Agreement:
(i) The failure to pay any principal, interest, fees or other charges
when due under any of the Loan Documents.
(ii) Any representation or warranty hereunder or under any other Loan
Document shall prove to be incorrect, false or misleading in any material
respect when made.
(iii) Any violation or breach of any term or condition of this
Agreement or any other of the Loan Documents.
(iv) Any default in the payment or performance of any obligation, or
any defined event of default, under any provisions of any contract, instrument
or document pursuant to which Borrower or any guarantor hereunder has incurred
debt or any other liability of any kind to any person or entity, including Bank.
(v) The filing of a petition by or against Borrower or any guarantor
hereunder under any provisions of the Bankruptcy Reform Act, Title 11 of the
United States code, as amended or recodified from time to time, or under any
similar or other law relating to bankruptcy, insolvency, reorganization or other
relief for debtors; the appointment of a receiver, trustee, custodian or
liquidator of or for any part of the assets or property of Borrower or any such
guarantor; Borrower or any such guarantor becomes insolvent, makes a general
assignment for the benefit of creditors or is generally not paying its debts as
they become due; or any attachment or like levy on any property of Borrower or
any such guarantor.
(vi) Any material adverse change, as determined solely by Bank, in the
financial condition of Borrower.
(vii) The death or incapacity of any individual guarantor hereunder
or the dissolution or liquidation of Borrower or of any guarantor hereunder
which is a corporation, partnership or other type of entity.
(viii) Any change in ownership during the term hereof of an aggregate
of 25% or more of the common stock of Borrower.
(b) Remedies. Upon the occurrence of any Event of Default: (i) the entire
balance of principal, interest, fees and charges on each Credit shall, at Bank's
option, become immediately due and payable in full without presentment, demand,
protest or notice of dishonor, all of which are expressly waived by Borrower;
(ii) the obligation, if any, of Bank to extend any further credit to Borrower
under any Credit shall immediately cease and terminate; and (iii) Bank shall
have all rights, powers and remedies available under each of the Loan Documents,
or accorded by law, including without limitation the right to resort to any
security for any Credit. All rights, powers and remedies of Bank shall be
cumulative.
V. MISCELLANEOUS
(a) No Waiver. No delay, failure or discontinuance of Bank in exercising any
right, power or remedy shall affect or operate as a waiver of such right, power
or remedy; nor shall any single or partial exercise of any such right, power or
remedy preclude, waive or otherwise affect any other or further exercise thereof
or the exercise of any other right, power or remedy. Any waiver, permit, consent
or approval of any kind by Bank of any breach of or default under this
Agreement, or any such waiver of any provisions or conditions hereof, must be in
writing and shall be effective only to the extent set forth in writing.
(b) Notices. All notices, requests and demands required under this Agreement
must be in writing, addressed to the applicable party at its address specified
below or to such other address as any party may designate by written notice to
each other party, and shall be deemed to have been given or made as follows: (i)
if personally delivered, upon delivery: (ii) if sent by mail, upon the earlier
of the date of receipt or 3 days after deposit in the U.S. mail, first class and
postage prepaid; and (iii) if sent by telecopy, upon receipt.
(c) Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), incurred by
Bank in connection with (i) the negotiation and preparation of this Agreement
and the other Loan Documents, and Bank's continued administration of each
Credit, (ii) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (iii) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding relating to Borrower.
(d) Successors; Assignment. This Agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interests or rights hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in; Bank's rights
and benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any Credit, Borrower or its business, any guarantor of any
Credit or the business of any such guarantor, or any collateral for any Credit.
(e) Controlling Agreement; Amendment. In the event of any direct conflict
between any provision of this Agreement and any provision of any other Loan
Document, the terms of this Agreement shall control. This Agreement may amended
or modified only in writing signed by Bank and Borrower.
(f) No Third Party Beneficiaries. This Agreement is made and entered into for
the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any other Loan Document to which it is not a
party.
(g) Severability of Provisions. If any provision of this Agreement shall be
held to be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
(i) Cancellation of Prior Loan Agreements. This Agreement cancels and
supersedes all prior loan agreements between Borrower and Bank relating to any
Credit.
VI. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. ss.91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law in such arbitrations (A) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (B) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (C) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (1) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (2) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) Real Property Collateral Judicial Reference. Notwithstanding anything
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code or Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(9) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control this arbitration provision shall survive termination, amendment or
expiration of any of the Loan Documents or any relationship between the parties.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of June
28, 1996.
FIBERSTARS, INC. WELLS FARGO BANK
NATIONAL ASSOCIATION
By: /s/ William C. Lapworth By: /s/ Nuzha Bukhari
Title: CFO Title: AVP
Address: 2883 BAYVIEW DRIVE Address: 121 Park Center Plaza 3rd Flr
FREMONT, CA 94538 San Jose, CA 95115
WELLS FARGO BANK TERM COMMITMENT NOTE
$500,000.00 San Jose, California
June 28, 1996
FOR VALUE RECEIVED, the undersigned FIBERSTARS, INC. ('Borrower") promises to
pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its
office at Santa Clara Valley RCBO, 121 Park Center Plaza, 3rd Flr, San Jose, CA
95115, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of $500,000.00, or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the date
of its disbursement as set forth herein.
INTEREST/FEES:
(a) Interest. The outstanding principal balance of this Note shall bear
interest at a rate per annum (computed on the basis of a 360-day year, actual
days elapsed) .75000% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is announced
within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable on the
28th day of each month, commencing July 28,1996.
(c) Default Interest. From and after the maturity date of this Note, or such
earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
(e) Collection of Payments. Borrower authorizes Bank to collect all interest
and fees due hereunder by charging Borrower's demand deposit account number
4124-053885 with Bank, or any other demand deposit account maintained by any
Borrower with Bank, for the full amount thereof. Should there be insufficient
funds in any such demand deposit account to pay all such sums when due, the full
amount of such deficiency shall be immediately due and payable by Borrower.
BORROWING AND REPAYMENT:
(a) Use of Proceeds; Limitation on Borrowings. Each advance under this Note
shall be available solely to finance Borrower's purchase of new and/or used
equipment to be used in Borrower's business. Each advance shall be available to
a maximum of 80.0% of the cost or appraised value (as required by Bank) of the
new equipment purchased with the proceeds thereof, and 75.0% of the cost or
appraised value (as required by Bank) of the used equipment purchased with the
proceeds thereof, as evidenced by copies of invoices and/or appraisals
acceptable to Bank.
(b) Borrowing and Repayment. Borrower may from time to time during the term of
this Note borrow and partially or wholly repay its outstanding borrowings,
subject to all of the limitations, terms and conditions of this Note and of any
document executed in connection with, or at any time as a supplement to, this
Note; provided however, that amounts repaid may not be reborrowed; and provided
further, that the total borrowings under this Note shall not exceed the
principal smount stated above. The unpaid principal balance of this obligation
at any time shall be the total amounts advanced hereunder by the holder hereof
less the amount of any principal payments made hereon by or for any Borrower,
which balance may be endorsed hereon from time to time by the holder. The
outstanding principal balance of this Note shall be due and payable in full on
June 28, 1997, unless said balance is refinanced by Bank pursuant to the
provisions of (d) below.
(c) Advances. Advances hereunder, to the total amount of the principal sum
available hereunder, may be made by the holder at the oral or written request of
(i) DAVID N. RUCKERT or WILLIAM C. LAPWORTH, any one acting alone, who are
authorized to request advances and direct the disposition of any advances until
written notice of the revocation of such authority is received by the holder at
the office designated above, or (ii) any person, with respect to advances
deposited to the credit of any account of any Borrower with the holder, which
advances, when so deposited, shall be conclusively presumed to have been made to
or for the benefit of each Borrower regardless of the fact that persons other
than those authorized to request advances may have authority to draw against
such account. The holder shall have no obligation to determine whether any
person requesting an advance is or has been authorized by any Borrower.
(d) Refinancing. So long as Borrower is in compliance with all terms and
conditions contained herein and in any loan agreement or other loan documents in
effect between Borrower and Bank on the maturity date set forth above (or on
such earlier date as may be requested by Borrower), and Borrower executes a new
promissory note and such other documents as Bank shall require, all in form and
substance satisfactory to Bank, Bank agrees to refinance the then outstanding
principal balance of this Note on the following terms and conditions:
(i) The outstanding principal balance of this Note shall be amortized over 3
years and shall be repaid in 36 monthly installments over said term, as set
forth in the promissory note executed by Borrower to evidence such refinancing.
(ii) The outstanding principal balance so refinanced shall bear interest at
a rate per annum (computed on the basis of a 360-day year, actual days elapsed)
0.750% above Bank's Prime Rate in effect from time to time.
COLLATERAL:
As security for the payment and performance of all obligations of Borrower
under this Note, Borrower grants to Bank security interests of first priority
(except as agreed otherwise by Bank in writing) in the following property of
Borrower, now owned or at any time hereafter acquired: all equipment financed
with the proceeds of this note, together with security interests in all other
personal property of Borrower now or at any time hereafter pledged to Bank as
collateral for any other commercial credit accommodation granted by Bank to
Borrower. All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements and other documents as Bank shall
reasonably require, all in form and substance satisfactory to Bank. Borrower
shall reimburse Bank immediately upon demand for all costs and expenses incurred
by Bank in connection with any of the foregoing security, including without
limitation, filing fees and allocated costs of collateral audits.
EVENTS OF DEFAULT:
Any default in the payment or performance of any obligation under this Note,
or any defined event of default under any loan agreement now or at any time
hereafter in effect between Borrower and Bank (whether executed prior to,
concurrently with or at any time after this Note), shall constitute an "Event of
Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of this
Note, at the holder's option, may declare all sums of principal, interest, fees
and charges outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by each Borrower, and the obligation, if any, of the holder to extend any
further credit hereunder shall immediately cease and terminate. Each Borrower
shall pay to the holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of the holder's in-house
counsel), incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to any Borrower.
(b) Obligations Joint and Several. Should more than one person or entity sign
this Note as a Borrower, the obligations of each such Borrower shall be joint
and several.
(c) Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
FIBERSTARS, INC.
By: /s/ William C. Lapworth
Title: CFO
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
$1,000,000 San Jose, California
June 28, 1996
FOR VALUE RECEIVED, the undersigned FIBERSTARS, INC. (" Borrower") promises to
pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (Bank ) at its office
at Santa Clara Valley RCBO, 121 Park Center Plaza 3rd Flr, San Jose, CA 95115,
or at such other place as the holder hereof may designate, in lawful money of
the United States of America and in immediately available funds, the principal
sum of $1,000,000.00, or so much thereof as may be advanced and be outstanding
with interest thereon, to be computed on each advance from the date of its
disbursement as set forth herein.
INTEREST/FEES:
(a) Interest. The outstanding principal balance of this Note shall bear
interest at a rate per annum (computed on the basis of a 360-day year, actual
days elapsed) 0.25% above the Prime Rate in effect from time to time. The "Prime
Rate" is a base rate that Bank from time to time establishes and which serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto. Each change in the rate of interest hereunder shall
become effective on the date each Prime Rate change is announced within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable on the
28th day of each month, commencing July 28, 1996.
(c) Default Interest. From and after the maturity date of this Note, or such
earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
(d) Commitment Fee. Prior to the initial extension of credit under this
Note, Borrower shall pay to Bank a non-refundable commitment fee of $2,500.00.
(e) Collection of Payments. Borrower authorizes Bank to collect all interest
and fees due hereunder by charging Borrower's demand deposit account number
4124-053885 with Bank, or any other demand deposit account maintained by any
Borrower with Bank, for the full amount thereof. Should there be insufficient
funds in any such demand deposit account to pay all such sums when due, the full
amount of such deficiency shall be immediately due and payable by Borrower.
SIGHT AND USANCE COMMERCIAL LETTER OF CREDIT SUBFEATURE:
(a) Letter of Credit Subfeature. As a subfeature under this Note, Bank agrees
from time to time during the term hereof to issue sight commercial and usance
commercial letters or credit for the account of Borrower to finance Borrower's
inventory purchases (each, a "Letter of Credit" and collectively, "Letters of
Credit"); provided however, that the form and substance of each Letter of Credit
shall be subject to approval by Bank, in its sole discretion; and provided
further, that the aggregate undrawn amount of all outstanding Letters of Credit
shall not at any time exceed $250,000.00. Each Letter of Credit shall be issued
for a term not to exceed 180 days, as designated by Borrower; provided however,
that no Letter of Credit shall have an expiration date more than 30 days beyond
the maturity date of this Note. The undrawn amount of all Letters of Credit
shall be reserved under this Note and shall not be available for borrowings
hereunder. Each Letter of Credit shall be subject to the additional terms and
conditions of the Letter of Credit Agreement and related documents, if any,
required by Bank in connection with the issuance thereof. Each draft paid by
Bank under a Letter of Credit shall be deemed an advance under this Note and
shall be repaid by Borrower in accordance with the terms and conditions of this
Note; provided however, that if advances hereunder are not available, for any
reason, at the time any draft is paid by Bank, then Borrower shall immediately
pay to Bank the full amount of such draft, together with interest thereon from
the date such amount is paid by Bank to the date such amount is fully repaid by
Borrower, at the rate of interest applicable to advances hereunder. In such
event Borrower agrees that Bank, in its sole discretion, may debit any demand
deposit account maintained by Borrower with Bank for the amount of any such
draft. Notwithstanding the foregoing, usance commercial Letters of Credit shall
be issued only to finance Borrower's importation of goods into the United
States, and shall contain such provisions and be issued in such manner as to
satisfy Bank that any banker's acceptance created by Bank's acceptance or a
draft thereunder shall be eligible for discount by a Federal Reserve Bank, will
not result in a liability of Bank subjected to reserve requirements under any
law, regulation or administrative order, and will not cause Bank to violate any
lending limit imposed upon Bank by any law, regulation or administrative order
Usance commercial Letters of Credit shall provide for drafts thereunder with
terms which do not exceed the lesser of 180 days or such other period of time as
may be necessary for the acceptance created thereunder to be eligible for
discount and otherwise comply with the terms and conditions of this Note;
provided however, that no usance commercial Letter of Credit shall provide for
drafts with terms that extend more than 30 days beyond the maturity date of this
Note. The amount of each draft accepted by Bank under a usance commercial Letter
of Credit shall be paid by Borrower in accordance with the terms and conditions
of this Note applicable to Acceptances.
(b) Letter of Credit Fees. Borrower shall pay to Bank fees upon the issuance
of each Letter of Credit, upon the payment or negotiation by Bank of each draft
under any Letter of Credit and upon the occurrence of any other activity with
respect to any Letter of Credit (including without limitation, the transfer,
amendment or cancellation of any Letter of Credit) determined in accordance with
Bank's standard fees and charges then in effect for such activity.
CLEAN AND DOCUMENTARY ACCEPTANCE SUBFEATURE:
(a) Acceptance Subfeature. As a subfeature under this Note, Bank agrees from
time to time during the term hereof to create banker's acceptances (each, an
"Acceptance" and collectively, "Acceptances" ) for the account of Borrower (i)
by accepting drafts drawn on Bank by Borrower for the purpose of financing
Borrower's importation of goods into the United States and (ii) by accepting
time drafts presented under usance commercial Letters of Credit issued by Bank
for the account of Borrower under this Note; provided however, that the form and
substance of each Acceptance shall be subject to approval by Bank, in its sole
discretion and provided further, that the aggregate amount of all outstanding
Acceptances shall not at any time exceed $250,000.00. Each Acceptance created by
Bank's acceptance of a draft drawn on Bank by Borrower shall be in the minimum
amount of $5,000.00. Each Acceptance shall be subject to the additional terms
and conditions of an Acceptance Agreement in form and substance satisfactory to
Bank. Each Acceptance shall be created for a term not to exceed the lesser of
180 days, as designated by Borrower, or such period of time as may be necessary
to comply with the terms of the Acceptance Agreement; provided however, that no
Acceptance shall mature more than 30 days beyond the maturity date of this Note.
The outstanding amount of all Acceptances shall be reserved under this Note and
shall not be available for borrowings hereunder. The amount of each Acceptance
which matures shall be deemed an advance under this Note and shall be repaid by
Borrower in accordance with the terms and conditions of this Note; provided
however that if advances hereunder are not available, for any reason, at the
time any Acceptance matures, then Borrower shall immediately pay to Bank the
full amount of such matured Acceptance, together with interest thereon from the
date such Acceptance matures to the date such amount is fully repaid by
Borrower, at the rate of interest applicable to advances hereunder. In such
event Borrower agrees that Bank, in its sole discretion, may debit any demand
deposit account rnaintained by Borrower with Bank for the amount of any such
Acceptance. All Acceptances created by Bank's acceptance of drafts drawn on Bank
by Borrower shall be discounted with Bank. Bank shall not be obligated to
discount Acceptances created by Bank's acceptance of time drafts presented under
usance commercial Letters of Credit.
(b) Acceptance Fees. For each Acceptance created hereunder, Borrower shall pay
to Bank on the date such Acceptance is created an acceptance fee determined in
accordance with Bank's standard fees and charge then in effect for the creation
of Acceptances.
BORROWING AND REPAYMENT:
(a) Use of Proceeds. Advances under this Note shall be available solely to
finance working capital requirements.
(b) Borrowing and Repayment. Borrower may from time to time during the term of
this Note borrow, partially or wholly repay its outstanding borrowings, and
reborrow, subject to all of the limitations, terms and conditions of this Note
and of any document executed in connection with, or at any time as a supplement
to, this Note; provided however, that the total outstanding borrowings under
this Note shall not at any time exceed the principal amount stated above and
provided further, that Borrower shall maintain a zero balance on advances under
this Note for a period of at least 30 consecutive days during each fiscal year.
The unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of any principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on June 28, 1997, except with respect
to any draft paid by Bank under a commercial Letter of Credit and any Acceptance
which matures subsequent to said date, the full amount of which shall be due and
payable by Borrower immediately upon payment by Bank or at such maturity as
applicable.
(c) Advances. Advances hereunder, to the total amount of the principal sum
available hereunder, may be made by the holder at the oral or written request of
(i) DAVID N. RUCKERT or WILLIAM C. LAPWORTH, any one acting alone, who are
authorized to request advances and direct the disposition of any advances until
written notice of the revocation of such authority is received by the holder at
the office designated above, or (ii) any person, with respect to advances
deposited to the credit of any account of any Borrower with the holder, which
advances, when so deposited, shall be conclusively presumed to have been made to
or for the benefit of each Borrower regardless of the fact that persons other
than those authorized to request advances may have authority to draw against
such account. The holder shall have no obligation to determine whether any
person requesting an advance is or has been authorized by any Borrower.
EVENTS OF DEFAULT:
Any default in the payment or performance of any obligation under this Note,
or any denied event of default under any loan agreement now or at any time
hereafter in effect between Borrower and Bank (whether executed prior to,
concurrently with or at any time after this Note), shall constitute an "Event of
Default" under this Note.
MlSCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of this
Note, at the holder's option, may declare all sums of principal, interest, fees
and charges outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by each Borrower, and the obligation, if any, of the holder to extend any
further credit hereunder shall immediately cease and terminate. Each Borrower
shall pay to the holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of the holder's in-house
counsel), incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to any Borrower.
(b) Obligations Joint and Several. Should more than one person or entity sign
this Note as a Borrower, the obligations of each such Borrower shall be joint
and several.
(c) Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first
written above.
FIBERSTARS, INC.
By: /s/ William C. Lapworth
Title: CFO
AMENDMENT NO. 1
TO 1994 STOCK OPTION PLAN
Pursuant to a resolution duly adopted at the meeting of the
Board of Directors of Fiberstars, Inc. (the "Company"), Section 3 of the
Company's 1994 Stock Option Plan was amended and restated to read in its
entirety as follows:
3. Stock Subject to the Plan. Subject to the provisions of Section 14
of the Plan, the maximum aggregate number of shares that may be
optioned and sold under the plan is the sum of (i) 850,000 shares of
the Common Stock plus (ii) such number of shares as are subject to
outstanding and unexercised stock options under the Company's 1988
Stock Option Plan as of the date of adoption of the Plan by the
Shareholders, and which options are canceled or otherwise terminated
without exercise; provided that the total number of shares available
under the Plan shall in no event exceed 1,123,058. The Shares may be
authorized but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares
that were subject thereto shall, unless the Plan shall have been
terminated, become available for future grant under the Plan.
Notwithstanding any other provision of the Plan, Shares issued under
the Plan and later repurchased by the Company shall not become
available for future grant or sale under the Plan.
IN WITNESS WHEREOF, I have set my hand this 6th day of
December, 1996.
/s/ William C. Lapworth
William Lapworth, Secretary
PROMISSORY NOTE
$35,188.00 October 7, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to Fiberstars,
Inc., a California corporation (the "Company"), the principal sum of thirty-five
thousand one hundred eighty-eight dollars ($35,188). Such principal sum shall
bear interest from the date hereof at a rate of six percent (6%) per annum on
the unpaid balance of this promissory note (the "Note") compounded monthly. Upon
demand by the Company, principal and accrued interest shall be paid by the
undersigned to the Company. This Note shall be paid in full no later than one
year from the date first written above. Each payment shall be credited first to
interest then due and the remainder to principal.
Principal and interest are payable in lawful money of the United States
of America. The undersigned may prepay any amount due hereunder, without premium
or penalty.
In the event the Company incurs any costs or fees in order to enforce
payment of this Note or any portion hereof, the undersigned agrees to pay to the
Company, in addition to such amounts as are owed pursuant to this Note, such
costs and fees, including, without limitation, a reasonable sum for attorneys'
fees.
As security for the full and timely payment of this Note, the
undersigned pledges and grants to the Company a security interest in certain
shares of the Company's stock acquired by the undersigned pursuant to the terms
of the Company's 1994 Employee Stock Purchase Plan and the Company's 1988 Stock
Option Plan and 1994 Stock Option Plan, as well as shares of the Company's stock
which are issuable or potentially issuable to the undersigned pursuant to the
1988 Stock Option Plan and 1994 Stock Option Plan (the "Pledged Stock"). Pledged
Stock includes the stock and options listed in Exhibit A. The undersigned shall,
upon execution of this Note, deliver all certificates and agreements
representing the Pledged Stock to the Company. The Company shall hold the
Pledged Stock solely for its benefit for the purpose of perfecting its security
interest granted herein.
Notwithstanding the foregoing, the undersigned acknowledges that this
Note is a full recourse note and that the undersigned is liable for full payment
of this Note without regard to the value at any time or from time to time of the
Pledged Stock. In the event of any default in the payment of this Note, the
Company shall have and may exercise any and all remedies of a secured party
under the California Commercial Code, and any other remedies available at law or
in equity, with respect to the Pledged Stock. The undersigned (i) acknowledges
that state or federal securities laws may restrict the public sale of
securities, and may require private sales at prices or on terms less favorable
to the seller than public sales and (ii) agrees that where the Company, in its
sole discretion, determines that a private sale is appropriate, such sale shall
be deemed to have been made in a commercially reasonable manner.
In the event the undersigned desires to obtain a release from the Company's
security interest in some or all of the Pledged Stock, the undersigned shall pay
that portion of the principal balance of this Note equal to the purchase price
of the Pledged Stock being released plus accrued interest thereon.
The failure of the Company to exercise any of the rights created
hereby, or to promptly enforce any of the provisions of this Note, shall not
constitute a waiver of the right to exercise such rights or to enforce any such
provisions.
As used herein, the undersigned includes the successors, assigns and
distributees of the undersigned.
As used herein, the Company includes the successors, assigns and
distributees of the Company, as well as a holder in due course of this Note.
This Note is made under and shall be construed in accordance with the
laws of the State of California, without regard to the conflict of law
provisions thereof.
/s/ J. Steven Keplinger
J. Steven Keplinger
5759 Caribbean Circle
Stockton, CA 95210
Fiberstars, Inc., a California corporation, hereby approves the terms
of the above promissory note, effective as of October 7, 1996.
Dated: October 7, 1996 FIBERSTARS, INC.,
a California corporation
/s/ William C. Lapworth
William C. Lapworth
Chief Financial Officer
SECURED PROMISSORY NOTE
$125,000.00 March 25, 1997
FOR VALUE RECEIVED, the undersigned, Barry Greenwald, ("Maker")
promises to pay to Fiberstars, Inc., a California corporation (the "Company"),
the principal sum of one hundred twenty-five thousand dollars ($125,000). Such
principal sum shall bear interest from the date hereof at a rate of eight
percent (8%) per annum on the unpaid balance of this promissory note (the
"Note") compounded monthly, except that any amount which becomes past due or
remains unpaid after demand shall bear interest at a rate of eighteen percent
(18%) per annum, compounded monthly, from the date payment was due. Upon demand
by the Company, principal and accrued interest shall be paid by Maker to the
Company. This Note shall be paid in full no later than December 31, 1999. Each
payment shall be credited first to interest then due and the remainder to
principal.
Principal and interest are payable in lawful money of the United States
of America. Maker may prepay any amount due hereunder, without premium or
penalty.
Maker acknowledges and understands that the Company will make
deductions from Maker's paychecks in order to satisfy Maker's obligations under
this Note; and Maker irrevocably authorizes Company to make such deductions.
Maker further acknowledges and understands that the Company will accelerate this
Note by demand as of the effective date of Maker's termination of employment
with Fiberstars (for any reason). In the event of such demand, all sums
remaining unpaid under this note shall become immediately due and payable; and
Maker irrevocably authorizes the Company to deduct any unpaid sums due under
this Note from any unpaid salary, bonuses, commissions, accrued paid-time-off,
and any other compensation or other payments due to Maker.
Pending any demand or acceleration of this Note by the Company or other
arrangement by mutual consent, the Company will deduct payments in the amount of
$2,882 (two thousand eight hundred eighty-two dollars) from Maker's paycheck on
the fifteenth of each month, from April 15, 1997 through and including December
15, 1999. An additional lump sum payment of thirty thousand dollars, plus
interest thereon, is due on or before May 31, 1997. In any period, to the extent
that the total of Maker's base salary plus a commission draw approved by
Fiberstars plus the monthly repayment amount indicated above is less than
Maker's earned compensation, Fiberstars may at its option reduce the repayment
amount for that period and modify the oustanding balance of this note
accordingly. Any such difference will be made up by increasing the repayment
amount in future periods, at Fiberstars' discretion.
In the event the Company incurs any costs or fees in order to enforce
payment of this Note or any portion hereof, Maker agrees to pay to the Company,
in addition to such amounts as are owed pur-suant to this Note, such costs and
fees, including, without limitation, a reasonable sum for attorneys' fees.
As security for the full and timely payment of this Note, Maker pledges
and grants to the Company a security interest in all shares of the Company's
stock owned by Maker, acquired pursuant to the terms of the Company's 1994
Employee Stock Purchase Plan and the Company's 1988 Stock Option Plan and 1994
Stock Option Plan, as well as shares of the Company's stock which are issuable
or potentially issuable to Maker pursuant to the 1988 Stock Option Plan and 1994
Stock Option Plan (the "Pledged Stock"). Maker shall, upon execution of this
Note, deliver all certificates and agreements representing the Pledged Stock to
the Company. The Company shall hold the Pledged Stock solely for its benefit for
the purpose of perfecting its security interest granted herein.
Notwithstanding the foregoing, Maker acknowledges that this Note is a
full recourse note and that Maker is liable for full payment of this Note
without regard to the value at any time or from time to time of the Pledged
Stock. In the event of any default in the payment of this Note, the Company
shall have and may exercise any and all remedies of a secured party under the
California Commercial Code, and any other remedies available at law or in
equity, with respect to the Pledged Stock. Maker (i) acknowledges that state or
federal securities laws may restrict the public sale of securities, and may
require private sales at prices or on terms less favorable to the seller than
public sales and (ii) agrees that where the Company, in its sole discretion,
determines that a private sale is appropriate, such sale shall be deemed to have
been made in a commercially reasonable manner.
Maker hereby waives presentment, demand, protest, notices of protest,
dishonor and non-payment of this Note and all notices of every kind. The failure
of the Company to exercise any of the rights created hereby, or to promptly
enforce any of the provisions of this Note, shall not constitute a waiver of the
right to exercise such rights or to enforce any such provisions.
Notwithstanding any provision contained herein to the contrary, the
benefits of the interest arrangements of this Note shall not be transferable and
shall be conditioned on Maker's future performance of substantial services for
the Company within the meaning of Section 7872(f)(5) of the Internal Revenue
Code of 1986, as amended ("Code").
As used herein, Maker includes the successors, assigns and distributees
of Maker.
As used herein, the Company includes the successors, assigns and
distributees of the Company, as well as a holder in due course of this Note.
This Note is made under and shall be construed in accordance with the
laws of the State of CaliforniaIn any action brought under or arising out of
this Note, Maker hereby consents to the jurisdiction of any competent court
within the State of California and consents to the service of process by any
means authorized by California law.
/s/ Barry R. Greenwald
Barry R. Greenwald
410 Castanya Court
Danville, California 94526
Fiberstars, Inc., a California corporation, hereby approves the terms
of the above promissory note, effective as of March 25, 1997.
Dated: March 27, 1997 FIBERSTARS, INC.,
a California corporation
/s/ William C. Lapworth
William C. Lapworth
Chief Financial Officer
FIBERSTARS INC.
STATEMENT REGARDING COMPUTATION
OF NET INCOME (LOSS) PER SHARE
(amounts in thousands except per share data)
Year Ended December 31,
1996 1995 1994
Primary and Fully Diluted:
Weighted average common shares
outstanding for the period 3,398 3,344 1,591
Weighted average shares from assumed
conversion of preferred stock -- -- 973
Common equivalent shares pursuant to
Staff Accounting Bulletin No. 83 -- -- 10
Common equivalent shares assuming conversion of
dilutive stock options and warrants under the treasury
stock method (modified treasury stock method in
1996 70 -- 187
Shares used in computing net income (loss) per share 3,468 3,344 2,761
Net income (loss) $511 ($15) $2,062
Net Income (loss) per share $0.15 ($0.00) $0.75
Calculated in accordance with the guidelines of item 601 of Regulation S-B.
All share numbers take account of the Company's 1-for-6 reverse stock split in
1994.
Primary and fully diluted calculations are substantially the same.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
registration statement of Fiberstars, Inc. on Form S-8 (File No. 33-85664) of
our report dated January 31, 1997, on our audits of the financial statements of
Fiberstars, Inc. as of December 31, 1996 and 1995, and for each of the three
years in the period ended December 31, 1996, which report is included in this
Annual Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
San Jose, California
March 31, 1997
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<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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0
0
<COMMON> 9,932
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<SALES> 15,576
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