U.S. 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, 1997
OR
[ ] 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 0-24230
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, 1997
were $17,871,000.
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $9,436,000 as of March 19, 1998 based upon the
last trading price of the Common Stock of registrant on the Nasdaq Stock 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 19, 1998, there were 3,537,140 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 1998 Annual Meeting of Shareholders.
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PART I
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 effects 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 perceived trends in 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.
Item 1. Description of Business
Overview
Fiberstars, Inc. ("Fiberstars" or the "Company"), which was
incorporated in California in 1985, 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 cannot 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.
In 1997, Fiberstars' Pool and Spa Group introduced Fiberstars
Catalyst(TM), a safe chemical product designed to reduce the usage of chlorine
in residential swimming pools. Chlorine reducing systems are projected to be
among the fastest growing product segments within the pool industry over the
next few years. The Company's strategy is to take advantage of its established
distribution channels to increase sales of this new product, which favorably
impacted the Company's sales margin in 1997.
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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
lamps, some of which are custom products manufactured to Fiberstars'
specifications. Illuminator advances during 1997 include the Model 405
commercial illuminator, up to 50% brighter than the model 403, which it
replaces.
Fiberstars also introduced a new pool lighting product line in the
November 1997 National Spa and Pool Institute trade show. The new line, named
Fiberstars System 2000(TM), offers superior design, installation and other
characteristics compared to the Company's previous line. The line also includes
a superior new lens to distribute light into pool water and four new fixtures to
light water features and pool walls.
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
further than fifty feet from the illuminator.
In 1997, the Company's in-house fiber processing facility was
operational for the entire year. Lower processing costs helped improve the
Company's gross margin. Higher quality was another significant benefit. New
fiber products in 1997 include a 77 fiber BritePak(R) cabled side light product
and a 300 fiber spotlight product for larger pools.
Fixtures and Accessories
Certain fixtures and accessories have been designed by Fiberstars for
the Company's product lines. Other fixtures are supplied by third parties. The
Company's Commercial Lighting Division produces a broad assortment of ceiling
and landscape fixtures from among which lighting designers may choose. The
Fiberstars System 2000(TM) product line includes several lenses and fixtures for
swimming pools and surrounding areas.
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 the MGM
Grand 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 and
builder groups, as well as numerous regional and local pool builders throughout
the United States and Canada.
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A series of residential landscape lighting products was developed
during 1997 and is being tested in limited retail distribution. This product was
not a material portion of the Company's business in 1997 and is not expected to
be material in 1998.
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 46.5%-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 for 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.
South Central Pools (SCP), the largest Pool distributor in the U.S. and
Company's largest customer, accounted for 13% of the Company's net sales in 1997
and 10% in 1996. The Company expects to maintain its business relationship with
SCP; 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.
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The majority of sales of the Company's swimming pool lighting systems
to date have been made in the United States and Canada. The Company entered into
a distribution agreement in Europe in 1997 with Bayrol, a European pool
equipment company. Sales to Bayrol were not material in 1997.
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. Although
the Company's backlog at year's end was unusually high at $1.3 million compared
to an average of $535,000 per month in 1997, 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
1997, the Company redesigned several illuminators and fiber products to improve
performance such as the above mentioned 405 illuminator and the line of
Fiberstars System 2000 illuminators. In addition to continuing work with a
number of outside lamp, power supply and optic companies, the Company has begun
working on advanced product development with Advanced Lighting Technologies,
Inc., the world leader in metal halide lamp technology.
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
continued to increase. Competitive products are offered in the pool market by
Pac-Fab, Inc. and Hayward Pool Products, two major manufacturers of pool
equipment and supplies. In commercial lighting, fiber optic lighting products
are offered by an increasing number of smaller companies, some of which compete
aggressively on price. These competing products include a new line of fiber
products recently introduced by a European manufacturer at very aggressive
pricing. Certain of these competitors offer products with performance
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characteristics comparable to those of the Company's products. The Company is
aware that several larger companies in 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. Many companies compete with the Company in Asia, including
Mitsubishi, Bridgestone and Toray. Mitsubishi sells Fiberstars BritePak(R) fiber
tubing in Japan, and licenses certain illuminator technology from Fiberstars for
manufacture and sale in Japan.
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. The results of these steps were realized for the full 1997 year,
yielding reduced processing costs and improved fiber quality.
Mitsubishi is the sole supplier of the Company's fiber, under a newly
updated supply agreement lasting until March 2001. The Company expects to
maintain this relationship with Mitsubishi; Mitsubishi owns approximately 3.2%
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
1997, the Company redesigned its most popular commercial illuminator, improving
brightness by 50%. In the fall of 1996, the Company increased BritePak fiber
tubing brightness by nearly 40%. Pool illuminator brightness was increased by
30% in 1997. 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.
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During 1997, the Company began cooperative development efforts with
Advanced Lighting Technologies, Inc. (ADLT), the world leader in metal halide
lamp technology. ADLT acquired 18% of the Company's common stock in a private
transaction during 1997 and in the first quarter of 1998 increased that position
to almost 30%. Fiberstars and ADLT currently plan to work together to design
next generation systems. The Company's goal is to improve the price/performance
of fiber optic lighting systems to compete more directly with conventional
lighting across a much broader spectrum of the general lighting market.
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 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, including ADLT, 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.
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Employees
As of December 31, 1997, Fiberstars employed 65 people full time, of
whom 16 were involved in sales, marketing and customer service, 12 in research
and product development, 27 in assembly and quality assurance, and 10 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 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 agreement expiring in 1999, subject to a renewal
option for a five-year additional term. The Company leases a 7,787 square foot
facility in Fremont, California, which it devotes to fiber processing, under a
lease agreement which expires in 1999 and is subject to renewal options for
three additional years. The Company also subleases an approximately 5,200 square
foot facility in Fremont, California under a sublease agreement that expires in
1999.
Item 3. Legal Proceedings
None.
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, 1997.
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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
on the Nasdaq National Market for the periods indicated. These reported prices
reflect interdealer prices without adjustments for retail markups, markdowns or
commissions.
High Low
---- ---
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
First quarter 1997 5 1/8 4 1/4
Second quarter 1997 5 1/4 3 3/4
Third quarter 1997 6 9/16 4 7/8
Fourth quarter 1997 8 1/2 4 7/8
There were approximately 200 holders of record of the Company's Common
Stock as of March 19, 1998, and the Company estimates that at that date there
were approximately 800 additional beneficial owners.
The Company has not declared or paid any cash dividends and does not
anticipate paying cash dividends in the foreseeable future.
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
1997 Compared with 1996
Net sales increased to $17,871,000 in 1997, up 15% from 1996 sales of
$15,576,000. The 1997 increase is primarily attributable to growth in both the
commercial and pool fiber optic lighting markets. Increased lighting sales were
in part offset by a decline in OEM sales of Fiberstars' medical product to
Healthdyne Technologies. International sales accounted for approximately 17% and
15% of net sales in 1997 and 1996, respectively, most of which represented sales
of commercial lighting products.
The Company's gross margin percentage improved to 44% in 1997 from 42%
in 1996. The increase was primarily attributable to lower fiber processing costs
in connection with the Company's fiber processing facility, as well as initial
sales of the new Fiberstars Catalyst(TM) pool sanitation product line.
Research and development expenses increased by 21% to $1,165,000 in
1997, reflecting the Company's continuing commitment to improving its technology
and products. The increases consisted primarily of increased personnel and
project expenses associated with increased development activity. As a percentage
of sales, research and development expenses increased from 6.2% to 6.5%. 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.
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Selling and marketing expenses increased by 18% to $4,393,000 in 1997.
Increases occurred in the pool division and included increases in advertising,
sales literature and personnel related expenses. As a percentage of sales,
selling and marketing expenses increased to 25% of net sales in 1997 from 24% in
1996.
General and administrative expenses increased by 13% to $1,419,000 in
1997, primarily due to increases in personnel expenses, professional fees, and
other expenses, consistent with growth in the business during the year. The
Company expects general and administrative expenses to increase moderately in
future periods.
Total operating expenses increased by $1,033,000 to $6,977,000 in 1997,
an increase of 17%. As a percentage of sales, total operating expenses increased
to 39% in 1997 from 38% in 1996, as operating expenses increased more rapidly
than sales.
Other income and expense includes interest income and expense, plus
income (loss) from the Company's joint venture recognized under the equity
method. Net interest income remained the same as in 1996, at $246,000. The
Company's investment in joint venture activities yielded a loss of $12,000 in
1997, compared to a profit of $8,000 in 1996. The Company does not expect income
from its remaining joint venture in Australia to have a material impact on the
Company's financial results in the near future.
Net income increased 26% to $644,000 in 1997.
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 was 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.
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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 recorded net income of $511,000 in 1996, compared to a net
loss of $15,000 in 1995.
Year 2000 Compliance
Many currently installed computer systems are not capable of
distinguishing 20th century dates from 21st century dates. As a result, in less
than two years, computers systems and/or software used by many companies in a
very wide variety of applications will experience operating difficulties unless
they are modified or upgraded to adequately process information involving,
related to or dependent upon the century change. Significant uncertainty exists
in the software and other industries concerning the scope and magnitude of
problems associated with the century change. In light of the potentially broad
effects of the year 2000 on a wide range of business systems, the Company's
products and services may be affected. The Company is currently assessing the
potential overall impact of the impending century change on the Company's
business, financial condition and results of operations.
The Company utilizes and is dependent upon data processing computer
hardware and software to conduct its business, and recently completed an upgrade
of all such hardware and software. Based on the Company's assessment to date,
the Company believes its computer systems are "Year 2000 compliant;" that is,
capable of adequately distinguishing 21st century dates from 20th century dates.
However, there can be no assurance that the Company has or will timely identify
and remediate all significant Year 2000 problems in its own computer systems,
that remedial efforts subsequently made will not involve significant time and
expense, or that such problems will not have a material adverse effect on the
Company's business, operating results and financial conditions.
The Company has currently made only limited efforts to determine the
extent of and minimize the risk that the computer systems of the Company's
suppliers or customers are not Year 2000 compliant, or will not become compliant
on a timely basis. If Year 2000 problems prevent any of the Company's suppliers
from timely delivery of products or services required by the Company, the
Company's operating results could be materially adversely affected. Further, if
the Company's customers face Year 2000 problems that result in the deferral or
cancellation of such customers' purchases of the Company's products and
services, the Company's business, operating results and financial conditions
could be materially adversely affected.
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, 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 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.
11
<PAGE>
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, 1997, cash and cash equivalents
decreased by $997,000. Investments in short term marketable securities increased
by $1,282,000.
Cash provided by operating activities totaled $818,000, largely
resulting from operating income before depreciation, partly offset by an
increase in inventories.
Investing activities absorbed $1,936,000, including $1,282,000 to
purchase short term securities, $624,000 in acquisition of fixed assets, and
loans to officers totaling $30,000.
In June 1997, 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 June 28, 1998. As of December
31, 1997, 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.
12
<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 1998 Annual Meeting of Shareholders to be
held on June 24, 1998 (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, 1997, are as follows:
Name Age Position
---- --- --------
George K. Awai 42 Vice President, Research and Development
Barry R. Greenwald 51 Senior Vice President and General
Manager, Pool Division
J. Arthur Hatley 48 Vice President and General Manager,
Commercial Lighting
J. Steven Keplinger 38 Senior Vice President,
Operations
Fredrick N. Martin 54 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.
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.
13
<PAGE>
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. Martin joined the Company in March 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, 1997.
14
<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).
10.5+ 1994 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).
15
<PAGE>
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).
10.14 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).
10.15+ 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).
10.16 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).
10.17 Loan Agreement dated as of June 28, 1996, between the Registrant
and Wells Fargo Bank (incorporated by reference to Exhibit 10.18
in the Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 1996).
10.18 Term Commitment Note of the Registrant dated as of June 28,
1996, to Wells Fargo Bank (incorporated by reference to Exhibit
10.19 in the Registrant's Annual Report on Form 10-KSB of the
year ended December 31, 1996).
16
<PAGE>
10.19 Revolving Line of Credit Note of the Registrant dated as of June
28, 1996, to Wells Fargo Bank (incorporated by reference to
Exhibit 10.20 in the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1996).
10.20 Amendment to 1994 Stock Option Plan, effective as of December 6,
1996 (incorporated by reference to Exhibit 10.21 in the
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1996).
10.21 Promissory Note dated as of October 7, 1996, issued in favor of
the Registrant by Steve Keplinger (incorporated by reference to
Exhibit 10.22 in the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1996).
10.22 Promissory Note dated as of March 25, 1997, issued in favor of
the Registrant by Barry Greenwald (incorporated by reference to
Exhibit 10.23 in the Registrant's Annual Report on Form 10-KSB
for the year ended December 31, 1996).
10.23* Amended and Restated Three (3) Year Supply Agreement dated March
31, 1998 between the Registrant and Mitsubishi International
Corporation.
10.24 Rental Agreement dated February 1, 1998 between the Registrant
and Signature Floors.
10.25 Promissory Note dated as of March 15, 1998, issued in favor of
the Registrant by Barry Greenwald.
10.26 Loan Agreement dated as of June 28, 1997, between the Registrant
and Wells Fargo Bank.
10.27 Term Commitment Note of the Registrant dated as of June 28,
1997, to Wells Fargo Bank.
10.28 Revolving Line of Credit Note of the Registrant dated as of June
28, 1997, to Wells Fargo Bank.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule
27.3 Financial Data Schedule
* Confidential treatment requested
+ Management Compensatory Plan or Arrangement
17
<PAGE>
FIBERSTARS, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
As of December 31, 1997 and 1996
and
For the Three Years Ended December 31, 1997
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-21
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.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereto duly authorized, on the 31st day of March, 1998.
FIBERSTARS, INC.
By: /S/ DAVID N. RUCKERT
----------------------------
David N. Ruckert
Chief Executive Officer
(Principal Executive and
Financial Officer)
<TABLE>
In accordance with the Securities Exchange Act of 1934, this Report has
been signed by the following persons in the capacities and on the dates
indicated.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ DAVID N. RUCKERT Chief Executive Officer and Director March 31, 1998
-------------------------------------------
David N. Ruckert (Principal Executive and Financial
Officer)
/S/ ROLAND DENNIS Chief Financial Officer (Principal March 31, 1998
-------------------------------------------
Roland Dennis Accounting Officer)
/S/ JOHN B. STUPPIN Director March 31, 1998
-------------------------------------------
John B. Stuppin
/S/ THEODORE L. ELIOT, JR Director March 31, 1998
-------------------------------------------
Theodore L. Eliot, Jr.
/S/ MICHAEL FEUER, PH.D. Director March 31, 1998
-------------------------------------------
Michael Feuer, Ph.D.
/S/ B.J. GARET Director March 31, 1998
-------------------------------------------
B.J. Garet
/S/ WAYNE R. HELLMAN Director March 31, 1998
-------------------------------------------
Wayne R. Hellman
/S/ PHILIP WOLFSON Director March 31, 1998
-------------------------------------------
Philip Wolfson
</TABLE>
19
<PAGE>
FIBERSTARS, INC.
-----
FINANCIAL STATEMENTS
as of December 31, 1997 and 1996
and for each of the three years in the
period ended December 31, 1997
<PAGE>
<TABLE>
FIBERSTARS, INC.
BALANCE SHEETS, December 31, 1997 and 1996
(amounts in thousands except share and per share amounts)
----
<CAPTION>
ASSETS 1997 1996
--------------- ---------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 523 $ 1,520
Short-term investments 4,597 3,315
Accounts receivable, net of allowances for doubtful accounts of
$293 in 1997 and $236 in 1996 2,525 2,621
Notes receivable from officers 161 91
Inventories 3,068 2,168
Prepaids and other current assets 373 181
Deferred income taxes 677 585
----------------- ---------------
Total current assets 11,924 10,481
Fixed assets, net 1,003 832
Investment in joint ventures 40 52
Notes receivable from officers, less current portion 70
Other assets 103 74
Deferred income taxes 54 553
----------------- ---------------
Total assets $ 13,124 $ 12,062
================= ===============
LIABILITIES
Current liabilities:
Accounts payable $ 1,068 $ 967
Accrued expenses 1,318 1,122
Current portion of long-term debt 13 13
----------------- ---------------
Total current liabilities 2,399 2,102
Long-term debt, less current portion 17 28
----------------- ---------------
Total liabilities $ 2,416 $ 2,130
----------------- ---------------
Commitments and contingencies (Note 8).
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.0001 per share:
Authorized: 2,000,000 shares in 1997 and 1996
Issued and outstanding: no shares in 1997 and 1996
Common stock, par value $0.0001 per share:
Authorized: 30,000,000 shares in 1997 and 1996
Issued and outstanding: 3,509,474 shares in 1997 and -- --
3,412,680 shares in 1996
Additional paid-in capital 12,035 11,903
Note receivable from shareholder (75) (75)
Accumulated deficit (1,252) (1,896)
Total shareholders' equity 10,708 9,932
----------------- ----------------
Total liabilities and shareholders' equity $ 13,124 $ 12,062
================= ================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-1
<PAGE>
<TABLE>
FIBERSTARS, INC.
STATEMENTS OF OPERATIONS
for the years ended December 31, 1997, 1996 and 1995
(amounts in thousands except share and per share amounts)
----
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 17,871 $ 15,576 $ 11,798
Cost of sales 10,047 9,032 6,678
-------- -------- --------
Gross profit 7,824 6,544 5,120
-------- -------- --------
Operating expenses:
Research and development 1,165 962 791
Sales and marketing 4,393 3,728 3,311
General and administrative 1,419 1,254 1,342
-------- -------- --------
Total operating expenses 6,977 5,944 5,444
-------- -------- --------
Income (loss) from operations 847 600 (324)
Other income (expense):
Equity in joint ventures' income (loss) (12) 8 117
Interest and other income 248 252 191
Interest expense (2) (6) (10)
-------- -------- --------
Income (loss) before (provision for) benefit from
income taxes 1,081 854 (26)
(Provision for) benefit from income taxes (437) (343) 11
-------- -------- --------
Net income (loss) $ 644 $ 511 $ (15)
======== ======== ========
Net income (loss) per share - basic $ 0.19 $ 0.15 $ (0.00)
======== ======== ========
Shares used in per share calculation - basic 3,446 3,398 3,344
======== ======== ========
Net income (loss) per share - diluted $ 0.18 $ 0.14 $ (0.00)
======== ======== ========
Shares used in per share calculation - diluted 3,597 3,539 3,344
======== ======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-2
<PAGE>
<TABLE>
FIBERSTARS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1997, 1996 and 1995
(in thousands)
----
<CAPTION>
Notes
Receivable
Common Stock Additional from
------------------ Paid-In Share- Accumulated
Shares Amount Capital holder Deficit Total
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 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
Exercise of common stock options 88 97 97
Issuance of common stock under employee stock purchase plan 9 35 35
Net income 644 644
------- ------- ------- ------- ------- -------
Balances, December 31, 1997 3,510 $ -- $12,035 $ (75) $(1,252) $10,708
======= ======= ======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
FIBERSTARS, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
(in thousands)
----
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 644 $ 511 $ (15)
------- ------- -------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 453 322 178
Provision for doubtful accounts receivable 76 56 54
Deferred income taxes 407 343 25
Equity in joint venture 12 (8) (117)
Changes in assets and liabilities:
Accounts receivable, trade 2 (63) 560
Inventories (900) (264) (640)
Prepaids and other current assets (192) (5) (37)
Other assets 19 (53)
Accounts payable 101 (131) 309
Accrued expenses 196 145 19
------- ------- -------
Total adjustments 174 342 351
------- ------- -------
Net cash provided by operating activities 818 853 336
------- ------- -------
Cash flows from investing activities:
Purchase of short-term investments (1,282) (869) (2,446)
Loans made to officers (30) (161)
Acquisition of fixed assets (624) (400) (379)
Sale of investment in joint venture 298
------- ------- -------
Net cash used in investing activities (1,936) (1,132) (2,825)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuances of common stock 132 55 837
Repayment of long-term debt (11) (12) (84)
Repayment of notes receivable for common stock 3
------- ------- -------
Net cash provided by financing activities 121 43 756
------- ------- -------
Net decrease in cash and cash equivalents (997) (236) (1,733)
Cash and cash equivalents, beginning of year 1,520 1,756 3,489
------- ------- -------
Cash and cash equivalents, end of year $ 523 $ 1,520 $ 1,756
======= ======= =======
Supplemental information:
Interest paid $ 2 $ 6 $ 10
Income taxes paid $ 24 $ 38
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-4
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
Continued
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, 1997 and 1996. The Company's investments at December 31, 1997 and
1996 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, 1997.
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.
Contiued
F-5
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
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, 1997, one customer accounted for 11% of
accounts receivable and at December 31, 1996, one customer accounted
for more than 13% accounts receivable.
One customer accounted for 13% and 10% of net sales in 1997 and 1996,
respectively.
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.
Continued
F-6
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
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.
Earnings Per Share:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128")
effective December 31, 1997. SFAS 128 requires the presentation of
basic and diluted earnings per share (EPS). Basic EPS is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted
EPS is computed giving effect to all dilutive potential common shares
that were outstanding during the period. Dilutive potential common
shares consist of incremental shares upon exercise of stock options.
All prior period earnings per share amounts have been restated to
comply with SFAS 128.
Continued
F-7
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
2. Summary of Significant Accounting Policies, continued:
Earnings Per Share, continued:
<TABLE>
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted
EPS is provided as follows (in thousands, except per share amounts):
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Numerator - Basic and Diluted EPS
Net income (loss) $ 644 $ 511 $ (15)
Denominator - Basic EPS
Weighted average shares outstanding 3,446 3,398 3,344
------------ ------------- --------------
Basic earnings per share $ 0.19 $ 0.15 $ (0.00)
============ ============= ==============
Denominator - Diluted EPS
Denominator - Basic EPS 3,446 3,398 3,344
Effect of dilutive securities:
Stock options and warrants 151 141
------------ ------------- --------------
3,597 3,539 3,344
------------ ------------- --------------
Diluted earnings per share $ 0.18 $ 0.14 $ (0.00)
============ ============= ==============
</TABLE>
Options and warrants to purchase 371,705 and 421,095 shares of common
stock were outstanding at December 31, 1997 and 1996, respectively, but
were not included in the calculations of diluted EPS because their
exercise prices were greater than the average fair market price of the
common shares. Options and warrants to purchase 670,869 shares of
common stock were outstanding at December 31, 1995, but were not
included in the calculation of diluted EPS because their inclusion
would have been antidilutive.
Recent Pronouncements:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components
(including revenues, gains and losses) in a full set of general purpose
financial statements. This statement is effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
Continued
F-8
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
2. Summary of Significant Accounting Policies, continued:
Recent Pronouncements, continued:
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"), which supersedes SFAS 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 changes
current practice under SFAS 14 by establishing a new framework on which
to base segment reporting and also requires interim reporting of
segment information. SFAS 131 is effective for fiscal years beginning
after December 15, 1997 with earlier application encouraged. The
statement's interim reporting disclosures would not be required until
the first quarter immediately subsequent to the fiscal year in which
SFAS 131 is effective. The Company is evaluating the requirements of
SFAS 131 and the effects, if any, on the Company's current reporting
and disclosures.
3. Inventories (in thousands):
December 31,
--------------------------------
1997 1996
--------------- ---------------
Raw materials $ 2,020 $ 1,528
Finished goods 1,048 640
--------------- ---------------
$ 3,068 $ 2,168
=============== ===============
<TABLE>
4. Fixed Assets (in thousands):
<CAPTION>
December 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Equipment $ 2,197 $ 1,757
Furniture and fixtures 127 114
Computer software 242 92
Leasehold improvements 101 80
------------- -------------
2,667 2,043
Less accumulated depreciation and amortization (1,664) (1,211)
------------- -------------
$ 1,003 $ 832
============= =============
</TABLE>
Continued
F-9
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
5. Joint Venture:
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 $259,000,
$234,000 and $130,000, for the years ended December 31, 1997, 1996 and
1995, respectively. Accounts receivable from Fiberstars Australasia
Pty. Ltd. as of December 31, 1997 and 1996 were $67,752 and $52,000,
respectively.
Continued
F-10
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
5. Joint Venture, continued:
<TABLE>
The following represents condensed financial information (unaudited) of
Fiberstars Australasia as of December 31, 1997 and for the year then
ended, and combined information of FMP and Fiberstars Australasia as of
December 31, 1996 and for the two years ended December 31, 1996 (in
thousands):
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Current assets $ 208 $ 204
Property and other assets 37 47
----------------- ----------------
$ 245 $ 251
================= ================
Current liabilities $ 172 $ 129
Issued capital 108 108
Retained earnings (35) 14
----------------- ----------------
$ 245 $ 251
================= ================
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1997 1996 1995
------------ -------------- ----------------
<S> <C> <C> <C>
Revenue $ 589 $ 566 $ 3,909
Expenses 626 545 3,654
------------ -------------- ----------------
Net loss $ (37) $ 21 $ 255
============ ============== ================
</TABLE>
<TABLE>
6. Accrued Expenses (in thousands):
<CAPTION>
December 31,
---------------------------------------
1997 1996
---------------- ------------------
<S> <C> <C>
Sales commissions and incentives $ 735 $ 656
Other 583 466
--------------- -----------------
$ 1,318 $ 1,122
=============== =================
</TABLE>
Continued
F-11
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
7. Lines of Credit:
On June 28, 1997, the Company entered into the following borrowing
arrangements with its bank:
a) A $1,000,000 revolving line of credit expiring June 28, 1998,
bearing interest at prime plus 0.125% (8.625% at December 31,
1997). Borrowings under this line are uncollateralized, and the
Company must maintain 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, 1998. Borrowings bear interest at prime plus
0.50% (9% at December 31, 1997). Under this note, the Company may
finance up to 80% of the cost of the 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, 1998, after which the principal
plus interest is repayable in 36 monthly installments.
There were no amounts outstanding at December 31, 1997. 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):
1998 $ 272
1999 68
Rent expense approximated $322,000, $318,000 and $279,000, for the years
ended December 31, 1997, 1996 and 1995, 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.
Continued
F-12
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
9. Shareholders' Equity:
Common Stock:
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.
<TABLE>
Warrant activity comprised:
<CAPTION>
Warrants Outstanding
-------------------------------------------------------
Exercise
Shares Price Amount
-------------- ----------------- --------------------
(in thousands)
<S> <C> <C> <C>
Balances, December 31, 1995 12,6666 $0.90-$5.40 $ 564
Warrants exercised (15,625) $0.90 (14)
-------------- ----------------------
Balances, December 31, 1996 and
1997 111,041 $0.90-$5.40 $ 550
============== ======================
</TABLE>
Continued
F-13
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
9. Shareholders' Equity, continued:
Warrants, continued:
At December 31, 1997, 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.
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, 1997, 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, 1997, 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.
Continued
F-14
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
9. Shareholders' Equity, continued:
<TABLE>
Activity Under the Stock Option Plans:
Option activity under all plans comprised:
<CAPTION>
Options Outstanding
-------------------------------------------------
Weighted
Options Average
Available Exercise
for Number Price
Grant of Shares Per Share Amount
-------------- ---------------- -------------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
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
Granted (355,600) 355,600 $ 4.93 1,866
Canceled 22,724 (22,724) $ 4.83 (114)
Exercised (87,791) $ 0.99 (97)
---------- --------- ----------
Balances, December 31, 1997 118,808 1,031,258 $5,022
---------- --------- ----------
</TABLE>
At December 31, 1997, 1996 and 1995, options to purchase 436,497, 372,818
and 259,289 shares of common stock, respectively were exercisable at
weighted average fair values of $4.44, $3.46 and $2.78, respectively.
Continued
F-15
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
9. Shareholders' Equity, continued:
<TABLE>
Activity Under the Stock Option Plans:
<CAPTION>
OPTIONS OPTIONS CURRENTLY
OUTSTANDING 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)
<S> <C> <C> <C> <C> <C> <C>
$0.90-$0.90 79 4.5 $0.90 79 $0.90
$3.60-$4.63 111 6.7 $4.40 85 $4.37
$4.75-$4.75 287 4.0 $4.75 52 $4.75
$5.13-$5.88 494 4.2 $5.49 180 $5.49
$6.25-$6.50 60 3.1 $6.46 40 $6.48
</TABLE>
1994 Employee Stock Purchase Plan:
At December 31, 1997, 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, 1997,
27,281 shares had been issued under this plan.
Continued
F-16
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
9. Shareholders' Equity, continued:
<TABLE>
Stock-Based Compensation:
The Company has adopted the disclosure only provision of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." The Company, however, continues to apply APB
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 1997, 1996 and 1995 consistent with the provisions of SFAS
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):
<CAPTION>
December 31,
-----------------------------------------------
1997 1996 1995
-------------- ------------ --------------
<S> <C> <C> <C>
Net income (loss) - as reported $ 644 $ 511 $ (15)
============== ============ ==============
Net income (loss) - pro forma $ 480 $ 422 $ (74)
============== ============ ==============
Basic earnings per share - as reported $ 0.19 $ 0.15 $ (0.00)
============== ============ ==============
Basic earnings per share - pro forma $ 0.14 $ 0.12 $ (0.02)
============== ============ ==============
Diluted earnings per share - as reported $ 0.18 $ 0.14 $ (0.00)
============== ============ ==============
Diluted earnings per share - pro forma $ 0.13 $ 0.12 $ (0.02)
============== ============ ==============
</TABLE>
As the provisions of SFAS 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.
<TABLE>
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 1997, 1996 and 1995:
<CAPTION>
1997 1996 1995
--------------------- -------------------- --------------------
<S> <C> <C> <C>
Exercise price $5.20 $4.80 $5.32
Expected life of option 3.91 years 3.89 years 3.86 years
Risk-free interest rate 6.00% 6.11% 6.95%
Expected volatility 50% 23% 23%
</TABLE>
Contiued
F-17
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
10. Income Taxes, continued:
<TABLE>
The components of the (provision for) benefit from income taxes are as follows
(in thousands):
<CAPTION>
Years Ended
December 31,
------------------------------------------------
1997 1996 1995
------------- ------------- -------------
Current:
<S> <C> <C> <C>
Federal $ (20) $ (23) $ 27
State (10) (1) 9
------------- ------------- -------------
(30) (24) 36
------------- ------------- -------------
Deferred:
Federal (386) (303) (17)
State (21) (16) (8)
------------- ------------- -------------
(407) (319) (25)
------------- ------------- -------------
(Provision for) benefit from income taxes $ (437) $ (343) $ 11
============= ============= =============
</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,
--------------------------------------------------
1997 1996 1995
--------------- ---------------- -------------
<S> <C> <C> <C>
United States statutory rate (34.0)% (34.0)% 34.0%
State taxes (net of federal tax benefit) (3.9) (5.5) 5.5
Other (2.5) (0.6) 2.8
--------------- --------------- -------------
(40.4)% (40.1)% 42.3%
=============== =============== =============
</TABLE>
Continued
F-18
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
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):
Years Ended
December 31,
---------------------------------
1997 1996
--------------- --------------
Allowance for doubtful accounts $ 117 $ 94
Accrued expenses and other reserves 352 336
Depreciation and amortization (31) (7)
General business credits 215 100
Net operating loss carryforwards 95 609
Other (17) 6
--------------- ---------------
Total deferred tax asset $ 731 $ 1,138
=============== ===============
The Company has a federal net operating loss carryforward for tax
purposes at December 31, 1997 of approximately $279,000. Additionally, at
December 31, 1997 the Company had federal research and development credit
carryforwards of approximately $190,000. The carryforwards expire from
1998 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.
Continued
F-19
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
-----
11. Export Sales:
A summary of export sales is as follows (in thousands):
Year Ended December 31,
--------------------------------------------------
1997 1996 1995
----------------- --------------- ----------------
U.S. Domestic $ 14,736 $ 13,294 $ 9,626
Export 3135 2,282 2,172
---------------- --------------- ---------------
$ 17,871 $ 15,576 $ 11,798
================ =============== ===============
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 1997 and 1996.
13. Related Party Transactions:
During 1997 and 1996, the Company advanced a total of $30,000 and
$161,000 to four 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, 1997, $30,000 had been repaid
on these notes.
14. Subsequent Event (unaudited):
During 1997, the Company began cooperative development efforts with
Advanced Lighting Technologies, Inc. (ADLT). ADLT acquired 18% of the
Company's common stock in private transaction during 1997 and in the
first quarter of 1998 ADLT acquired 353,600 shares increasing its
ownership in the Company to almost 30%.
Continued
F-20
<PAGE>
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, 1997 and 1996 and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
San Jose, California
February 4, 1998
F-21
AMENDED AND RESTATED
THREE (3) YEAR SUPPLY AGREEMENT
THIS AMENDED AND RESTATED THREE (3) YEAR SUPPLY AGREEMENT, made and
entered into this 31st day of March, 1998, by and between FIBERSTARS, INC., a
company organized and existing under laws of the state of California, having its
principal place of business at 2883 Bayview Drive, Fremont, CA 94538
(hereinafter called the "Buyer") and MITSUBISHI INTERNATIONAL CORPORATION, a
company organized and existing under the laws of the state of New York having
its principal place of business at 520 Madison Avenue, New York, NY 10022
(hereinafter called the "Seller").
WITNESSETH
WHEREAS, the Buyer requires a stable supply of ESKA fiber optics
hereinafter more particularly specified (hereinafter called the "Products"); and
WHEREAS, the Seller is desirous of furnishing the Buyer's requirements
by selling the Products to the Buyer throughout the period hereinafter more
particularly specified;
WHEREAS, the Buyer and the Seller are parties to that certain Three (3)
Year Supply Agreement (the "October Agreement") dated October 29, 1997; and
WHEREAS, the Buyer and the Seller wish to amend and supplement the
October Agreement as set forth herein to provide that they shall keep the price
and quantity terms of the Agreement confidential;
NOW, THEREFORE, in consideration of the foregoing and the obligations
of the Seller and the Buyer herein contained, the parties hereby agree as
follows:
[ ] = Confidential Treatment Requested
<PAGE>
ARTICLE 1. DEFINITIONS
In this agreement, the following terms shall have the following
meanings, except where the context otherwise requires;
(a) "Contract Period" means a period of 3 years commencing on
January 1, 1998 and ending on December 31, 2000.
(b) "$" means the lawful currency of the United States of America.
(c) "Month" means a calendar month.
(d) "Price" means the price of the Products DDP Port of Oakland.
"DDP" means the delivery terms of Delivered Duty Paid that is
construed in accordance with 1990 Incoterms Edition.
(e) "Products" means ESKA plastic fiber optics Item No. LK-30,
meeting the description and specifications produced by
Mitsubishi Rayon Co., Ltd. Japan and other items to be
mutually agreed by the Buyer and the Seller and to be supplied
by the Seller.
(f) "Competitive Products" means:
(i) any other plastic fiber optics that are similar in
composition and performance to the Products and also
technically suppliable from the Seller; and
(ii) any fiber optics produced in Japan.
(g) "Stage l" means the period which the Seller sell and deliver
the Products or Competitive Products from [ ] spools to [ ]
spools from the beginning of the Contract Period.
[ ] = Confidential Treatment Requested
2
<PAGE>
(h) "Stage 2" means the period which the Seller sell and deliver
the Products or Competitive Products to the Buyer from [ ]
spools to [ ] spools after completion of Stage 1 during the
Contract Period.
(i) "Stage 3" means the period which the Seller sell and deliver
Products or Competitive Products to the Buyer from [ ] spools
to [ ] spools after completion of Stage 2 during the Contract
Period.
In this Agreement, unless the context requires otherwise, the singular
includes the plural and vice-versa.
ARTICLE 2. SALES AND PURCHASE OF PRODUCTS
2.1 Subject to the terms and conditions hereinafter set forth, the
Seller shall sell and deliver the Buyer's requirements of the
Products and the Buyer shall purchase and take delivery of the
Products for the period of Contract. It is the intention of
the parties hereto that in recognition that the long term
contractual relationship is the essence of this Agreement,
unless specifically provided for in this Agreement, neither
party may in any way be exempted from those obligations to
sell or to purchase the Products, as the case may be, during
the term of this Agreement, nor may terminate this agreement.
2.2 Subject to the conditions set forth in this section, the Buyer
shall purchase the Products and the Competitive Products
solely from the Seller and shall not purchase the Products or
the Competitive Products from any individual firm or company
other that the Seller for the Contract Period. [ ].
2.3 The Seller represents and warrants that [ ].
2.4 [ ].
2.5 During the Term of this Agreement, [ ].
[ ] = Confidential Treatment Requested
3
<PAGE>
ARTICLE 3. PRICE AND QUANTITY
3.1 QUANTITY
Contract quantity is[ ]spools.
The Buyer shall make best efforts to purchase all of contract
quantity no later than the end of Contract Period on the basis
of the following estimated quantities of the Products with the
Seller expects to deliver to the Buyer and of which the Buyer
expects to take delivery in each year:
1998 [ ] spools Stage 1
1999 [ ] spools Stage 2
2000 [ ] spools Stage 3
3.2 If the Buyer shall fail to take all of contract quantity by
the end of 2000, then the Buyer shall continue to purchase the
Products at above prices and this contract is considered to be
completed only when the total purchasing quantity comes up to
[ ] spools.
3.3 If Seller's shipping quantity reaches [ ] spools before the
end of November 2000: price for over [ ] spools valid until
shipment in November 2000 shall be negotiated and fixed by and
between the Buyer and the Seller.
[ ] = Confidential Treatment Requested
4
<PAGE>
3.4 PRICE
Item LK30, length per spool: 9,000 meter, Price in $ per meter
Exchange Rate Higher 124.99 114.99 104.99 Lower
(Yen/$ TTB) than 125 - 115 -105 -95 than 94.99
Quantity(Spool) [ ] [ ] [ ] [ ] [ ]
Stage 1
[ ]
Stage 2 [ ] [ ] [ ] [ ] [ ]
[ ]
Stage 3 [ ] [ ] [ ] [ ] [ ]
[ ]
The inland freight from the Port of Oakland (CA) to any destination designated
by the Buyer shall be charged by the Seller to the Buyer additionally.
ARTICLE 4. DELIVERY SCHEDULE
The delivery of Products shall be made once a month and the monthly
delivery quantity for each calendar quarter in each Stage shall be confirmed by
the Buyer to the Seller in writing no later than 45 days prior to the first
monthly delivery of each calendar quarter.
ARTICLE 5. INSPECTION
The Seller shall have the Products inspected by the manufacturer, prior
to each shipment, in accordance with the manufacturer's usual inspection method.
ARTICLE 6. PACKING AND MARKING
Packing of the Products shall be made in the usual manner of the
manufacturer: however, the Buyer and the Seller shall continue to investigate
possible improvements in the packing of the Products for the purpose of reducing
damage.
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ARTICLE 7. TERMINATION
7.1 The Seller and the Buyer shall negotiate and make reasonable
best efforts to agree upon the extension or renewal of this
Agreement for the next 3 year period following the Contract
Years no later than October 15, 2000.
7.2 If any one of following shall occur:
(a) Either party hereto shall fail to perform any material
obligation under this Agreement.
(b) Either party shall become unable to pay its debts generally as
they become due, or shall hold a meeting of its creditors, or
shall make a general assignment for the benefit of its
creditors, or shall file a petition for bankruptcy, or shall
be adjudicated or declared a bankrupt or insolvent, or shall
file a petition or an answer seeking, consenting to or
acquiescing in any reorganization, arrangement, adjustment,
composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation,
or shall file an answer admitting or not contesting the
material allegations of a petition or answer filed against it
for or opposing any such relief, or
(c) a trustee, receiver or liquidator of either party or of any
material part of such party's assets or properties shall be
appointed with the consent or acquiescence of such party, or
if any such appointment, not so consented to or acquiesced in,
shall remain unvacated or unstayed or such trustee, receiver
or liquidator shall not have been dismissed or discharged for
an aggregate of (90) days (whether or not consecutive), then,
in addition to any other rights or remedies stipulated herein
and
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at law, the other party ("Non-Defaulting Party") shall give
written notice of such breach or default and to the effect
that if the breach or default is not remedied or made good,
the Non-Defaulting Party may terminate this Agreement. In the
Event that the party alleged to be in breach or default
("Defaulting Party"), within thirty (30) days after the
receipt of such notice, dose not remedy such breach or make
good such default and pay or agree to indemnify the
Non-Defaulting Party for and against all loss or damage that
may be incurred by the Non-Defaulting Party as a result
thereof, the Non-Defaulting Party forthwith may terminate this
Agreement and any other contract or agreement then effective
with Defaulting Party.
7.3 Neither of the parties hereto shall be responsible for any
incidental or consequential damage(e.g., loss of profit or
loss of production) to be sustained as a result of breach or
default of the Agreement on the part of either party.
ARTICLE 8. OTHER TERMS AND CONDITIONS
The terms and conditions of the Seller's GENERAL TERMS AND CONDITIONS
OF SALE attached hereto as Exhibit A shall be amended as follows: (the
amendments are numbered to correspond to the numbered terms.)
8.1 The first sentence is deleted and following substituted: "the
Seller warrants only that the Products conform to the
description and specification."
8.2 The Buyer agrees to inspect the Products within 30 days of
delivery. The period for the Buyer to make claims for
nonconformity with the specification is extended to 60 days
from delivery.
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8.3 Clause 3 Increased Costs is modified to delete the phrase
"shall be for the Buyer's account" and to replace it with
"shall be negotiated and agreed by the Seller and the Buyer as
to who bears such increase."
8.9 Clause 9 Entire Agreement is deleted in its entirety.
8.12 Delete and substitute: "This contract shall be governed by and
construed in accordance with the law of the State of
California."
8.13 Substitute San Francisco, California as the location for
arbitration under the contract.
ARTICLE 9. CONFIDENTIALITY
The parties hereto agree that they will keep secret and retain in
strictest confidence, and that each party shall not, without the prior written
consent of the other party, make available or disclose to any third party or use
for the benefit of itself or any third party, any information relating to the
price and quantity terms of this agreement, unless the disclosure of such
information was required by a valid order of a court or other governmental body,
was otherwise required by law, or was necessary to establish the rights of
either party under this agreement.
ARTICLE 10. ENTIRE AGREEMENT
This Agreement is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. The undersigned
parties who are parties to such October Agreement hereby amend and restate the
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October Agreement to read in its entirety as set forth in this Agreement, all
with the intent and effect that the October Agreement shall hereby be terminated
and entirely replaced and superseded by this Agreement. This Agreement
supersedes all other prior agreements and understandings between the parties
with respect to such subject matter.
Any other terms and conditions which are not stipulated hereof shall be
negotiated separately and confirmed in writing by the Seller and the Buyer.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives in duplicate, each duplicate
to be considered an original and each party to retain one duplicate, as of the
day and year first above written.
FIBERSTARS, INC. MITSUBISHI INTERNATIONAL
CORPORATION
/s/ DAVID N. RUCKERT /s/ MICHIO ANZAI
- ------------------------------- --------------------------------
David N. Ruckert Michio Anzai,
President and C.E.O. Senior Vice President
Gen. Mgr., Textile Division
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GENERAL TERMS AND CONDITIONS OF SALE
1. WARRANTIES: Seller warrants only that the Goods conform to the
description stated on the face hereof. NO OTHER WARRANTY, EXPRESS OR
IMPLIED, IS MADE BY SELLER, INCLUDING WARRANTY OF MERCHANTABILITY AND
WARRANTY THAT THE GOODS ARE FIT FOR ANY PARTICULAR PURPOSE. No agent,
employee or representative of Seller has any authority to bind Seller
to any affirmation, representation or warranty concerning the Goods not
expressly included herein.
2. CLAIMS: Any claim of non-conformity with respect to the Goods or their
shipment or delivery is waived, unless made in writing by Buyer to
Seller, specifically stating the details of such non-conformity, within
a reasonable time not exceeding thirty (30) days after Buyer receives
the Goods. Seller's liability shall in no event be greater in amount
than the purchase price of the Goods in respect of which damages are
claimed. Buyer waives any right to incidental or consequential damages.
3. INCREASED COSTS: Any increase in Seller's costs of performance after
the date stated in the box marked DATE OF CONTRACT on the face hereof
resulting from increased freight rates, increase or additional freight
surcharges, additional taxes, duties, assessments or other charges
imposed or collected by any governmental or taxing authority, increased
insurance rates, and all other additional charges relating to the sale,
loading, unloading, delivery, storage and transportation of the Goods,
shall be for Buyer's account.
4. SHIPMENT: All shipment or delivery dates are approximate. The date of
bill of lading shall constitute conclusive evidence of the date of
shipment. Partial shipment and/or transshipment shall be permitted. No
non-conforming tender, or delay or failure in the shipment or delivery
of any one lot shall excuse Buyer from accepting tender of any
remaining installments hereunder. In case of failure of performance by
Buyer hereunder, Seller may defer further shipments or deliveries or,
at its option, cancel this Contract as to any Goods which have not been
shipped or delivered, and any losses, liabilities, costs or expenses
resulting from such deferral or cancellation shall be for Buyer's
account.
5. INSURANCE: If this is a C.I.F. contract, one hundred ten percent (110%)
of the invoice amount shall be insured by Seller, unless otherwise
agreed herein.
6. FORCE MAJEURE: Seller shall not be liable for delay of or failure to
make shipment or delivery for any cause beyond its reasonable shipment
or delivery of the Goods. Shipment or delivery dates shall be extended
for a period equal to the time lost by reason of any such cause;
provided, however, that if any such delay exceeds ninety (90) days,
either party shall have the right to cancel this Contract with respect
to such shipment or delivery by written notice to the other party.
7. INFRINGEMENT: Seller shall not be liable to Buyer in any way for any
losses, liabilities, settlements, costs or expenses (including
attorney's fees) paid or incurred by Buyer resulting form any claim
that the Goods or their sale infringe any patent, trademark,
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copyright, design or other industrial property right of any third party
and, if Buyer has furnished the specifications, Buyer shall indemnify
and defend Seller against any and all losses, liabilities, settlements,
costs and expenses (including attorneys' fees) paid or incurred by
Seller resulting from any such claim.
8. LATE CHARGE: If any of the purchase price is not paid in full when due,
Buyer shall pay a late charge on the amount unpaid for each day from
the due date until paid in full at a rate per annum at all times equal
to five percent (5%) above the prime commercial lending rate announced
from time to time by The Chase Manhattan Bank, N.A. at its principal
New York City office; provided, however, that nothing herein shall
require the payment of any amount in excess of the maximum amount
permitted by law. Late charge shall be payable on demand.
9. ENTIRE AGREEMENT: This writing is intended by the parties as the final,
complete and exclusive expression of their agreement relating to the
subject matter hereof, and supersedes any prior agreement or
understanding between them. No waiver, amendment or modification of any
of the provisions hereof shall be effective, unless made in writing and
signed by both parties.
10. TIME FOR BRINGING ACTION: Any action by Buyer for breach of this
Contract must be commenced within one (1) year after the cause of
action has accrued.
11. NO ASSIGNMENT: Buyer shall not assign its rights or delegate its duties
under this Contract without the prior written consent of Seller.
12. GOVERNING LAW: This Contract shall be governed by and construed in
accordance with the law of the State of New York.
13. ARBITRATION: Seller and Buyer agree that any controversy or claim
arising out of or relating to this Contract, or the breach hereof,
shall be settled by arbitration in New York, New York in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association. The award of the arbitrator(s) shall be final and binding
upon the parties hereto and judgment on the award may be entered in any
court of competent jurisdiction.
14. EQUAL EMPLOYMENT OPPORTUNITY: The Equal Opportunity Clause set forth in
Executive Order 11246, as amended (30 F.R.12319), and the Affirmative
Action Clause set forth in the relevant federal government regulations
pertaining to government contractors and subcontractors (41 C.F.R. ss.
60-250.4 (Vietnam Veterans and Disabled Veterans) and 41 C.F.R. ss.
60-741.4 (Handicapped)), are incorporated by reference herein.
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Addendum
The payment term of this contract is Net 10 days after invoice date.
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RENTAL AGREEMENT
This Rental Agreement made the first day of February, 1998, between Signature
Floors, Sub-lessor, and Fiberstars, Sub-lessee, for the term of fourteen months
commencing on February 1, 1998 and ending on March 31, 1999 for the total rent
of $15,190.00 the following Real Estate, in its present condition in the city
of Fremont, CA, at 41539 Albrae Street (It shall be an area of approximately
5200 sq. feet including common areas to be equally divided between three
occupants).
WITNESSETH: That the Sub-lessor, in consideration of the hereinafter mentioned
and of the covenant of the Sub-lessee herein contained, hereby rent the
previously defined premises as follows:
RENTAL: $1,085.00 per month, payable monthly in advance, on the first day of
each and every month without notice or demand and without deduction of any kind;
it being hereby expressly conditioned and agreed that the punctual payment of
said rent is a material consideration for the letting of said premise to the
lessee at rental above stated. SUB-LESSEE will also be responsible for payment
of one third of annual property tax (approximately $965.00), one third of annual
property insurance (approximately $211.00), and one third of the water bills and
landscaping.
The Sub-lessee agrees with the Sub-lessor as follows:
1. That they will pay said rent at the time specified above.
2. That they will not use or permit said premises to be used for any
unlawful, improper or offensive purpose.
3. That they will not assign said premises or any part thereof without
the written consent of the Sub-lessor.
4. That they will, before vacating said premises give said Sub-lessor
notice of their intention to do so at least 30 days before the
expiration of the rental month.
5. That in addition to the rental aforesaid they will indemnify the
Sub-lessor to the full amount of all injury of damage to the above
premises and the property described not due to ordinary wear and
tear of unavoidable casualty.
6. That the Sub-lessor or his agent may at reasonable times, enter upon
said premises to examine the conditions of the same, to take or
send persons on said property, seeking to rent, make repairs or
improvement.
7. That they have carefully read this agreement and understands same.
Security deposit of $1,117.00 received.
For non-payment of Rent-Damage to building or cleaning. To be refunded to the
Sub-lessee upon full performance of all of the terms, covenants and conditions
herein contained and on their part to be observed and/or performed.
SIGNATURE FLOORS-SUB-LESSOR /S/ JOHN SHEA IV
-----------------------
FIBERSTARS-SUB-LESSEE /S/ STEVE KEPLINGER
-----------------------
SECURED PROMISSORY NOTE
$106,600.00 March 15, 1998
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 six thousand six hundred dollars ($106,600.00).
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. 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
$2,500 (two thousand five hundred dollars) from Maker's paycheck on the
fifteenth of each month, from March 15, 1998 through and including December 15,
1999. 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 that Maker's earned compensation, Fiberstars may at its
option reduce the repayment amount for that period and modify the outstanding
balance of this note accordingly. Any such difference will be made up by
increasing the repayment amount in future periods, at Fiberstars' direction.
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 pursuant to this Note, such costs and
fees, including, without limitation, a reasonable sum for attorneys' fees.
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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 nonpayment 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 California. In 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.
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/S/ BARRY R. GREENWALD
----------------------
Barry R. Greenwald
410 Castanya Court
Danville, CA 94526
Fiberstars, Inc., a California corporation, hereby approves the terms
of the above promissory note, effective as of March 15, 1998.
Dated: March 15, 1998 FIBERSTARS, INC.,
a California corporation
/S/ DAVID N. RUCKERT
--------------------
David N. Ruckert
President, CEO
WELLS FARGO BANK LOAN AGREEMENT
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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 or heretofore or at any time hereafter delivered to Bank in
connection with any Credit.
I. 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 are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
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.
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(c) Other 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 120 days after and
as of the end of each fiscal year, an audited financial statement of Borrower,
prepared by an independent certified public accountant acceptable to Bank, to
include a balance sheet, income statement and statement of cash flow, together
with all supporting schedules and footnotes.
(ii) 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 determined as of the end of 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
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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 under any of the Loan Documents 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), expended or
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,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(d) Successors; Assiqnment. 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 be
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.
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(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) Governinq 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, (it) 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 of 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.
(g) 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
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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, 1997.
FIBERSTARS, INC. WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ WILLIAM C. LAPWORTH By: /s/ LAURA ZARAGOZA
--------------------------- ---------------------------
Title: CHIEF FINANCIAL OFFICER Title: RELATIONSHIP MANAGER
------------------------- -----------------------
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, 1997
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 (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum .50000% 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, 1997.
(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 $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.
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 amount 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, 1998, 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
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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) 0.500% 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; all equipment, 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, notice of nonperformance, notice of protest, 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), expended
or 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,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(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
-------------------------
Page 2
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$1,000,000.00 San Jose, California
June 28, 1997
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 (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum .12500% 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, 1997.
(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 of 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 90 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 bankers' acceptance
created by Bank's acceptance of a draft thereunder shall be eligible for
discount by a Federal Reserve Bank, will not result in a liability of Bank
subject 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 90
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
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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 bankers' 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 90 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 maintained 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 charges 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, 1998; 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 ot 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 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,
Page 2
<PAGE>
may declare all sums of principal, interest, fees and charges outstanding
hereunder to be immediately due and payable without presentment, demand, notice
of nonperformance, notice of protest, 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), expended or 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, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower or any other person or
entity.
(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
----------------------------
Page 3
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 reports dated February
4, 1998, on our audits of the financial statements of Fiberstars, Inc. as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, which report is included in this Annual Report on Form
10-KSB.
San Jose, California
- --------------------------
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