THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE, AND WILL BE OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF FEDERAL AND STATE LAW BY
VIRTUE OF THE COMPANY'S INTENDED COMPLIANCE WITH SECTION 4(2) OF THE ACT, THE
PROVISIONS OF REGULATION D PROMULGATED THEREUNDER AND PARALLEL EXEMPTIONS
UNDER STATE LAW, AND THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE ACT.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY ANY REGULATORY
AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
428,572 Shares of Common Stock
(Par Value $.001 Per Share)
Options to Purchase 500,000 Shares Common Stock
At $9.00 per Share, Exercisable Until May 1, 2007
Securities Purchase Agreement
Ion Laser Technology, Inc.
0000 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: E. Xxxxx Xxxxxxx
President and Chief Executive Officer
Gentlemen:
In connection with the offer and proposed issuance of up to $3,000,000
in Common Stock and options to purchase Common Stock (the "Offering") by Ion
Laser Technology, Inc., a Utah corporation ("ILT" or the "Company"), in
reliance on exemptions from the registration requirements of the U.S.
Securities Act of 1933, as amended (the "Act"), and similar provisions of
state law, the undersigned purchasers (collectively, the "Purchasers") and the
Company hereby agree as follows:
1. Purchase of Securities. Subject to the terms and conditions of
this Agreement, each of the Purchasers hereby agrees to acquire, and the
Company agrees to sell, the following securities (collectively the "Purchased
Securities"):
1.1 Common Stock. Each of the Purchasers shall purchase and the
Company shall sell to each such Purchaser that number of shares of the
Company's Common Stock, par value $.001 per share (the "Common Shares"),
set forth opposite such Purchaser's name on Schedule I to this
Agreement. The consideration for the issuance of the Common Shares
shall be $7.00 per share. The total purchase price (the "Purchase
Price") for the 428,572 shares of Common Stock being purchased hereunder
shall be Three Million Dollars ($3,000,000). Each Purchaser shall pay
his or its portion of the Purchase Price in full at Closing, as
hereinafter defined, via wire transfer to the Company on or before the
Closing Date, as that term is defined in Section 5 of this Agreement.
Wire instructions shall be provided to Purchasers by the Company prior
to the Closing.
1.2 Options to Acquire Common Stock. As additional
consideration for the Purchase Price, the Company shall grant to each of
the Purchasers, in addition to the Common Shares, options to purchase up
to that number of shares of Common Stock set forth opposite such
Purchaser's name on Schedule I hereto over a ten-year period at a price
of $9.00 per share (the "New Options"). The rights of each Purchaser to
acquire Common Stock under the New Options shall be as set forth in
written option agreements in the form attached to this Agreement as
Exhibit "A" (the "New Option Agreements") and by this reference made a
part hereof.
2. Amendment of Old Options. The Company hereby agrees to amend that
certain Option Agreement No. 001 dated April 1, 1996 issued to LCO Investments
Limited, relating to 773,334 shares of Common Stock, and that certain Option
Agreement No. 002 dated April 1, 1996 issued to Xxxxxxx X. Xxxxxxxx
("Xxxxxxxx"), relating to 193,333 shares of Common Stock (together the "Old
Options"), such that: (i) the purchase price of the shares underlying the Old
Options shall be changed from $20.00 per share to $9.00 per share, and (ii)
any provisions in the Old Options, or in the original Securities Purchase
Agreement dated April 1, 1996 between the Company and the Purchasers,
purporting to restrict by contractual agreement the resale of shares of Common
Stock underlying the Old Options for a period of two years from April 1, 1996,
shall be deleted. The amendments to the Old Options shall be in the form set
forth in Exhibit "B" (the "Amended Option Agreements") and by this reference
made a part hereof.
3. Delivery of Share Certificates and Option Agreements. At the
Closing, the Company shall deliver to Purchasers certificates representing the
Common Shares, which shall be fully paid and nonassessable upon issuance, as
well as the New Option Agreements and the Amended Option Agreements. The
Common Shares and the New Options shall be issued in increments and in the
names of the Purchasers as set forth in Schedule I hereto.
4. Registration Rights and Exchange Filings. The Common Shares and
the shares of Common Stock underlying the exercise of the New Options shall be
subject to certain registration rights, as provided in that certain
Registration Rights Agreement attached hereto as Exhibit "C" and by reference
made a part hereof. (Such Registration Rights Agreement, together with this
Securities Purchase Agreement, the New Option Agreements, and the Amended
Option Agreements, constitute the "Transaction Documents"). In addition, ILT
shall make appropriate filings under the rules of the American Stock Exchange
("AMEX") in order that the Common Shares and the shares of Common Stock
underlying the New Options will be included in the Company's listing with the
AMEX.
5. Closing. Payment of the Purchase Price by the Purchasers and
delivery of the Common Shares and the fully executed New Option Agreements and
Amended Option Agreements by ILT shall be deemed to be the completion of the
transactions contemplated by this Agreement ("Closing"). Closing shall occur
concurrently with the execution of this Agreement (the "Closing Date"), or
such later date as the parties may hereafter agree in writing (the "Closing
Date").
6. Failure of Any Purchaser to Close. The Company shall not be
obligated to issue and sell any of the Purchased Securities unless all 428,572
of the Common Shares and all of the New Options to be purchased and sold
hereunder are purchased by the Purchasers. In the event any Purchaser fails
to purchase at the Closing any of the Common Shares and New Options scheduled
to be purchased by him or it, the other Purchasers shall have the right to
purchase at the Closing (or on such other date as the Company and such
Purchaser(s) shall agree) the Common Shares and New Options that are not so
purchased, and the Company shall issue and sell such Common Shares and New
Options to such other Purchaser(s).
7. Use and Disposition of Proceeds. The gross proceeds of this
transaction will be Three Million Dollars ($3,000,000). The Company intends
to use the proceeds as follows:
Approximate
Application of Proceeds Dollar Amount Percentage
Promote BriteSMILE products $1,500,000 50%
Equipment and improvements 300,000 10%
Research and development 500,000 17%
Working capital and payment
of offering expenses 700,000 23%
========== ====
Total $3,000,000 100%
The foregoing represents the Company's present intention and best estimates
with respect to the use of the offering proceeds. Pending use of the net
proceeds for the above purposes, the Company intends to invest the funds in
certificates of deposit or other fully-insured investment grade securities.
Any funds received from the exercise of the New Options will be added to
working capital. Purchasers acknowledge and agree that the Company shall have
immediate access to such funds, according to the Company's management's
discretion, following the Closing and delivery of the Common Shares and the
New Options to Purchasers.
8. Special Covenants.
8.1 Financial Reports. While any of the New Options remain
outstanding and unexercised, ILT shall provide Purchasers with copies of
its annual report to shareholders, annual report on Form 10-KSB (or such
other form as ILT may be qualified to use for such purpose), quarterly
reports on Form 10-QSB (or such other form as may properly be available
to ILT for such reports), any report on Form 8-K, and internally
prepared (unaudited) financial statements, to the extent prepared by
ILT. In the case of the reports described above which are filed with
the Securities and Exchange Commission, copies of the same will be
provided to Purchasers within five (5) working days of filing with the
Commission. In the case of the other documents, to the extent the same
are prepared by ILT, they shall be provided on or before the 20th day
following the month then ended.
8.2 At the Closing, or as soon thereafter as practical (but in
no event later than May 7, 1997), the Company shall deliver to
Purchasers a Cashflow Analysis, including estimations of the rate at
which the proceeds of this Offering will be used by the Company.
9. Representations and Warranties of Purchasers. To induce the
Company's acceptance of this Agreement, each Purchaser hereby represents and
warrants, severally as to itself or himself and not jointly, to the Company
and its agents and attorneys as follows:
9.1 Accredited Status. Purchaser is an "accredited investor"
within the meaning of Section 501(a) of Regulation D under the Act or is
not a "U.S. Person" as that term is defined under Rule 902(o)(1) of
Regulation S under the Act, because the undersigned is [THE UNDERSIGNED
MUST INITIAL ALL OF THE FOLLOWING PARAGRAPHS WHICH ACCURATELY DESCRIBE
THE UNDERSIGNED'S STATUS]:
(1) Purchaser is an accredited person because Purchaser
is:
(a) A director or executive officer of the Company.
(Initial)
(b) A natural person whose net worth (i.e. the
excess of his/her total assets over his/her total
liabilities, including the value of his/her personal
residence), individually or jointly with his/her spouse, as
of the date hereof, exceeds $1,000,000.
(Initial)
(c) A natural person who had an individual income
in excess of $200,000 in each of the past two years, or
whose joint income with that person's spouse during each of
the past two was in excess of $300,000, and who reasonably
expects to reach the same income level in the present year.
(Initial)
(d) A corporation or partnership, not formed for
the specific purpose of acquiring the securities offered,
with total assets in excess of $5,000,000.
(Initial)
(e)A broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934.
(Initial)
(f) An entity in which all of the equity owners
are "accredited investors" pursuant to one of the categories
set forth above.
(Initial)
(g) None of the above.
(Initial)
(2) Purchaser is not a "U.S. Person" as defined under
Regulation S because (xxxx and complete each applicable item):
(a) Purchaser is a corporation organized under
the laws of __________________, which is outside the
United States and is not a territory or possession of the
United States and in addition to the foregoing, Purchaser
was not formed by a U.S. Person for the purpose of
investment in securities not registered under the Act and
Purchaser will not purchase the Purchased Securities on
behalf of a U.S. Person as defined by the Act.;
(Initial)
(b) Purchaser is a natural person resident in
________________ and a citizen of _____________________.
(Initial)
9.2 Liquidity. Purchaser presently has sufficient liquid assets
to pay that portion of the Purchase Price to be paid by such Purchaser
hereunder. Purchaser's overall commitments to investments that are not
readily marketable is not disproportionate to Purchaser's total assets,
and Purchaser's investment in the Company will not cause such overall
commitment to become excessive. Purchaser has adequate means of
providing for its current needs and contingencies and has no need for
liquidity in its investment in the Company or for a source of income
from the Company. Purchaser is capable of bearing the economic risk and
the burden of the investment contemplated by this Agreement, including,
but not limited to, the possibility of the complete loss of the value of
the Purchased Securities and the limited transferability of the
Purchased Securities, which may make the liquidation of the Purchased
Securities impossible in the near future.
9.3 Organization, Standing, Authorization. If not an
individual, Purchaser is duly organized, validly existing, and in good
standing under the laws of the country of organization described in
Schedule I hereto and has the requisite power and authority to enter
into this Agreement, acquire the Purchased Securities and execute and
deliver any documents or instruments in connection with this Agreement.
The execution and delivery of this Agreement, and all other documents
and instruments executed by Purchaser in connection with any of the
transactions contemplated by this Agreement have been duly authorized by
all required action of Purchaser's members or managers. The person
executing, on Purchaser's behalf, this Agreement and any other documents
or instruments executed by Purchaser in connection with this Agreement
is duly authorized to do so.
9.4 Absence of Conflicts. Purchaser represents and warrants
that the execution and delivery of this Agreement and any other document
or instrument executed in connection with this Agreement, and the
consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding
on Purchaser, or the provision of any indenture, instrument or agreement
to which Purchaser is a party or is subject, or by which Purchaser or
any of their properties is bound, or conflict with or constitute a
material default thereunder, or result in the creation or imposition of
any lien pursuant to the terms of any such indenture, instrument or
agreement, or constitute a breach of any fiduciary duty owed by such
Purchaser to any third party, or require the approval of any third-party
pursuant to any material contract, agreement, instrument, relationship
or legal obligation to which Purchaser are subject or to which any of
their properties, operations or management may be subject.
9.5 Sole Party in Interest. Purchaser represents that it is the
sole and true party in interest, and no other person or entity has or
will have upon the issuance of the Purchased Securities any beneficial
ownership interest in the Purchased Securities or any portion of the
Purchased Securities, whether direct or indirect, other than the equity
holders or beneficiaries of such Purchaser.
9.6 Investment Purpose. Purchaser represents that it is
acquiring the Purchased Securities for its own account and for
investment purposes and not on behalf of any other person or entity or
for or with a view to resale or distribution.
9.7 Knowledge and Experience. Purchaser is experienced in
evaluating and making speculative investments, and has the capacity to
protect Purchaser's interests in connection with the acquisition of the
Purchased Securities. Purchaser has such knowledge and experience in
financial and business matters in general, and investments in the laser
industry in particular, that Purchaser is capable, on Purchaser's
behalf, of evaluating the merits and risks of Purchaser's investment in
the Company. Purchaser has been informed that an investment in the
Company is speculative and has concluded that Purchaser's proposed
investment is appropriate in light of its overall investment objectives
and financial situation.
9.8 Investment Advisors. No party has received or will receive
any compensation or other remuneration for advising Purchaser with
respect to this investment, and Purchaser represents that no investment
advisor or purchaser representative has been consulted or retained in
connection with Purchaser's decision to invest in the Company.
9.9 Disclosure, Access to Information. Purchaser confirms that
it has received and thoroughly read and is familiar with and understands
this Agreement, and that all documents, records, books and other
information pertaining to Purchaser's investment in the Company
requested by Purchaser have been made available for inspection and
copying and that there are no additional materials or documents that
have been requested by Purchaser that have not been made available by
the Company. Purchaser further acknowledges that on behalf of the
Purchasers and as Purchasers representatives, since May 2, 1996,
Xxxxxxxx and Xxxxxx Xxxxxxxxxx have served as members of the Board of
Directors of the Company. Purchaser further acknowledges that the
Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Purchaser has reviewed or received copies of any such reports that have
been requested by it. Without limiting the generality of the foregoing,
Purchaser acknowledges that it has received and has reviewed copies of
the following documents and materials, all of which are incorporated
herein by reference:
(1) Articles of Incorporation of the Company, as amended;
(2) Bylaws of the Company, as amended;
(3) Asset Purchase Agreement with Brite Smile, Inc., dated
as of February 6, 1996;
(4) Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1995 and 1996;
(5) Quarterly Reports on Form 10-QSB for the quarters
ended June 30, September 30, and December 31, 1995 and
1996;
9.10 Exclusive Reliance on this Agreement. In making the
decision to purchase the Purchased Securities, Purchaser has relied
exclusively upon information included in this Agreement or incorporated
herein by reference pursuant to Section 9.9, and not on any other
representations, promises or information, whether written or verbal, by
any person.
9.11 Accuracy of Unincorporated Documents and Other
Unincorporated Materials. To the extent Purchaser has received
documents or other materials, other than as expressly incorporated
herein by reference pursuant to Section 9.9, and subject to Section 9.15
of this Agreement, Purchaser acknowledges the following with respect to
such documents and materials:
(1) Such documents and materials and any projections
contained therein may be incomplete, may contain errors or
misstatements, and do not purport to adequately describe the
transactions contemplated by this Agreement or the status of the
development of the Company's technology. Purchaser agrees that
such documents and materials cannot be relied upon in making a
decision as to whether to purchase the Purchased Securities and
acknowledges that there can be no assurance that any of the
projections contained therein will be accomplished by the Company;
and
(2) Purchaser has been advised and fully understands that
any summaries, projections, forecasts or estimates included in
such documents and materials, including those relating to product
development schedules and projections, possible revenues, income,
profitability of the Company or an investment therein inherently
involve uncertainties and may be affected by circumstances in the
future which cannot be reasonably predicted and are beyond the
control of the Company. Further, the projections, forecasts and
estimates are speculative and may be optimistic, and there can be
no assurance that any of the projections, forecasts or estimates
will be reached, or that the Company will successfully produce a
commercially viable product or that the Company will realize any
income or profits or that any dividends or distributions of
profits will be paid on the Company's securities. The use of the
words "believes," "estimates," "anticipates" and similar
expressions are intended to identify forward-looking statements,
all of which are subject to certain risks and uncertainties that
could cause actual results to differ materially from those
projected. Purchaser should not place undue reliance on such
forward-looking statements, which speak only as of the date(s)
made. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
9.11 Residency. Each Purchaser has its principal place of
business as set forth in Schedule I hereto.
9.12 Advice of Counsel. Purchaser understands the terms and
conditions of this Agreement, has investigated all issues to Purchaser's
satisfaction, has consulted with such of Purchaser's own legal counsel
or other advisors as Purchaser deems necessary, and is not relying, and
has not relied on the Company for an explanation of the terms or
conditions of this Agreement or any document or instrument related to
the transactions contemplated thereby. Purchaser further acknowledges,
understands and agrees that, in arranging for the preparation of this
Agreement and all other documents and materials related thereto, the
Company has not attempted to procure, and has not procured, legal
representation for Purchaser.
9.13 Accuracy of Representations and Information. All
representations made by Purchaser in this Agreement and all documents
and instruments related to this Agreement, and all information provided
by Purchaser to the Company concerning Purchaser and its financial
position is correct and complete in all material respects as of the date
hereof. If there is any material change in such information before the
actual issuance of the Purchased Securities, Purchaser immediately will
provide such information to the Company.
9.14 No Representations. None of the following have ever been
represented, guaranteed, or warranted to Purchaser by the Company or any
of its employees, agents, representatives or affiliates, or any broker
or any other person, expressly or by implication:
(1) The approximate or exact length of time that
Purchaser will be required to remain as owner of the
Purchased Securities;
(2) The percentage of profit or amount of or type of
consideration, profit or loss (including tax write-offs or
other tax benefits) to be realized, if any, as a result of
an investment in the Purchased Securities; or
(3) The past performance or experience on the part
of the Company or any affiliate or their associates, agents
or employees, or of any other person as being indicative of
future results of an investment in the Purchased Securities.
9.15 Federal Tax Matters. Purchaser has reviewed and understands
the federal income tax aspects of its purchase of the Purchased
Securities, and has received such advice in this regard as Purchaser
deems necessary from qualified sources such as attorneys, tax advisors
or accountants, and is not relying on any representative or employee of
the Company for such advice.
9.16 No Brokers or Finders. Purchaser represents that no third
person has in any way brought the parties together or been instrumental
in the negotiation, execution, or consummation of this Agreement or any
instrument, document or agreement related to this Agreement, or will
receive a fee or any compensation for doing so. Purchaser agrees to
indemnify the Company against any claim by any third person for any
commission, brokerage fee, finders fee, or other payment with respect to
this Agreement or the transactions contemplated hereby based upon any
alleged agreement or understanding between such party and such third
person, whether expressed or implied, arising from the actions of such
party. The covenants set forth in this Section 9.17 shall survive the
Closing Date and the consummation of the transactions contemplated by
this Agreement.
10. Certain Risk Factors. Purchasers have been informed about and
fully understand that there are risks associated with an investment in the
Company. Such risks may include, but not necessarily be limited to, the
following:
10.1 Forward Looking Statements. Statements contained in the
Company's annual and quarterly reports on Forms 10-KSB and 10-QSB that
are not purely historical are forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. Such statements include statements
regarding the Company's expectations, beliefs, hopes, intentions or
strategies regarding the future. All forward looking statements
included in such reports are based on information available to the
Company on the date thereof and the Company assumes no obligation to
update any such statements. The Company cautions that actual results
could differ materially from those in such forward looking statements.
Among other things, the Company's business and its results of operations
may be affected by factors which could cause actual results to differ
materially from those described in the forward looking statements
contained in the reports. Such factors include, but are not limited to,
the following additional risks set forth in this section 10.
10.2 Government Regulation. The Company's products are subject
to the provisions of the Federal Food, Drug and Cosmetic Act (the "Act")
and the Safe Medical Devices Amendment of the Act. The Act is
administered by the Food and Drug Administration ("FDA") and similar
laws are administered by similar agencies in other countries. The Act
generally classifies medical devices into categories, and establishes
varying degrees of labeling and marketing clearance procedures. The
Company is subject to FDA standards and procedures governing the
manufacture of medical devices and to FDA inspection for compliance with
such standards. The Company has obtained FDA clearance for the use of
its lasers in the tooth whitening process. The Company is required to
manufacture its regulated products in accordance with Good Manufacturing
Procedures ("GMP") and is subject to periodic audits by the FDA. In
addition, the use of the Company's products may be regulated by various
state agencies. Although the Company believes it has been and is now in
compliance with the FDA's rules and GMP, there can be no assurance that
the Company's products will be able to comply successfully with any such
requirements or regulations. Federal and state regulations regarding
the manufacture and sale of medical devices are subject to future
change. The Company cannot predict what material impact, if any, such
changes might have on its business. In addition, the introduction of
the Company's products in foreign markets will require obtaining foreign
regulatory clearances. There can be no assurance that the Company will
be able to obtain regulatory clearances for all of its products in the
U.S. or in foreign markets. Although the Company believes that it will
continue to be able to comply with all applicable regulations of the
FDA, including GMP guidelines, current regulations depend heavily on
administrative interpretations, and there can be no assurance that
future interpretations made by the FDA or other regulatory bodies, with
possible retroactive effect, will not adversely affect the Company.
10.3 Certain Restrictions on Dental Technicians Related to Laser
Procedures. Many dentists who have acquired and who desire to acquire
the Company's laser tooth whitening system also desire to utilize a
dental hygienist and/or dental technician to perform many aspects of the
laser tooth whitening procedure. The dental licensing boards or similar
regulatory bodies in several states of the United States have recently
promulgated or proposed rules which prohibit dental hygienists and/or
dental technicians from operating or using lasers in connection with
dental procedures, including tooth whitening procedures. Dental
licensing boards or similar regulatory bodies in other states and
countries can and may adopt similar rules, the effect of which is to
discourage some dentists from acquiring the Company's laser tooth
whitening system because they are not able to utilize less expensive
employees and staff (dental hygienists and/or dental technicians) for a
significant portion of the laser tooth whitening procedure. The Company
has determined to challenge rules adopted by states prohibiting dental
hygienists and/or dental technicians from operating laser equipment in
tooth whitening procedures. Further, the Company has determined to
initiate rulemaking procedures in other states which would expressly
allow dental hygienists, and in some cases, dental technicians, to
utilize lasers in tooth whitening procedures. However, there can be no
assurance that the Company's efforts opposing rules prohibiting dental
hygienists and/or dental technicians from operating lasers in tooth
whitening procedures or advancing rules allowing such will be
successful. To the extent that state licensing boards or similar
regulatory bodies in a majority of the states of the United States
and/or in foreign countries adopt rules prohibiting dental hygienists
and/or dental technicians from operating lasers in tooth whitening
procedures, the Company believes that the appeal of its laser tooth
whitening products as a significant profit center for dentists engaged
in cosmetic dentistry practices will be reduced.
10.4 Technological Obsolescence. The business of designing and
manufacturing technical products such as lasers is characterized by
rapid technological change. In addition, there is increasing
competition in the creation and manufacture of tooth whitening compounds
used in the tooth whitening process. Although the Company has obtained
or applied for patents on certain aspects of its technology and
processes used by it, there can be no assurance that the Company's
competitors will not develop or manufacture products technologically
superior to those of the Company. The Company also relies upon trade
secrets and no assurance can be given that others will not independently
develop substantially equivalent proprietary information and techniques
or otherwise gain access to the Company's trade secrets or disclose such
technology, or that the Company can meaningfully protect its rights to
unpatented trade secrets. The Company requires its key employees,
consultants and advisors to execute confidentiality agreements upon the
commencement of an employment or consulting relationship with the
Company.
10.5 Competition. The Company operates in a highly competitive
industry and competes with firms which may have greater financial
resources, broader experience and more substantial marketing operations
than the Company. Other laser manufacturers have also begun to market
and use lasers in the tooth whitening process. Although the Company
believes its process to be superior to those of its competitors, there
can be no assurance that the Company will be able to effectively compete
with larger, better financed companies in the same industry.
10.6 Product Liability. Manufacturers and distributors of
products used in the medical industry are from time to time subject to
lawsuits alleging product liability, negligence or related theories of
recovery, which have become an increasingly frequent risk of doing
business in these industries. Although lawsuits may arise or claims may
be asserted based on product liability or other legal theories against
the Company, all such actions have been insured against and there are no
such actions pending. While the Company does not anticipate any such
lawsuits, there can be no assurance that the Company will not be
subjected to claims for and suffer substantial losses arising out of the
use of any of its products which may be defective. Such claims and
losses, and the expense of defending against such claims, would be
costly and could have a materially adverse effect on the Company's
results of operations. Although the Company presently maintains product
liability insurance coverage, there can be no assurance that such
coverage will be available for such risks in the future or that, if
available, it would prove sufficient to cover potential claims or that
the present amount of insurance can be maintained in force at an
acceptable cost. Furthermore, the assertion of such claims, regardless
of their merit or eventual outcome, also may have a material adverse
effect on the Company, its business reputation and its operations.
10.7 Dependence Upon Market Acceptance of Company's Products.
The Company's ability to expand its product line and market its new
products and processes (including the BriteSmile process) will depend
upon the willingness of potential customers to purchase the products, in
many instances to replace products presently purchased from the
Company's competitors. In addition, there can be no assurance that any
new products or technologies developed or acquired by the Company,
including those currently being developed by the Company, will be
accepted by the industry. The Company currently has limited marketing
capabilities and will need to hire additional sales and marketing
personnel for the new products. There can be no assurance that any
sales and marketing effort undertaken by the Company will be successful.
Furthermore, marketing is expensive and amounts spent to promote the
products and processes of the Company will affect its results of
operations.
10.8 Dependence on Patents and Proprietary Rights. The Company
has several United States patents and has filed additional patent
applications in the U.S. Patent and Trademark Office. These patents and
pending applications relate to the Company's multiplexer, collinated
beam delivery system for composite curing, laser resonator, krypton or
"mixed gas" ion laser device, and the BriteSmile process. The Company
believes patents and proprietary rights have been and will continue to
be important in enabling the Company to compete. However, there can be
no assurance that the pending patents will issue or, if they do issue,
that they and the other patents of the Company will not be challenged or
circumvented or will provide the Company with any competitive advantages
or that any patents will issue from pending patent applications.
Failure to obtain patents in certain foreign countries may materially
adversely affect the ability of the Company to compete effectively in
certain international markets. The Company also relies on trade secrets
that it seeks to protect, in part, through confidentiality agreements
with employees and other parties. There can be no assurance that these
agreements will not be breached, that the Company would have adequate
remedies for any breach or that the Company's trade secrets will not
otherwise become known to or independently developed by competitors.
The Company may become involved from time to time in litigation to
determine the enforceability, scope and validity of proprietary rights.
Any such litigation could result in substantial cost to the Company and
divert the efforts of its management and technical personnel and
adversely affect results of operations.
10.9 Risks of Foreign Sales; Foreign Operations. The Company's
expanded marketing strategy includes increased marketing of its products
in foreign countries. Accordingly, the Company's business is subject to
many of the risks of international operations, including tariff
restrictions, foreign currency fluctuations, currency control
regulations, competing or conflicting manufacturing standards,
government regulation and approval policies for medical testing and
therapy devices and licensing requirements. In addition to the foreign
sales activity of the Company, since 1989 the Company has been engaged
in manufacturing operations in Shanghai, China, through its wholly-owned
subsidiary, Ion Laser Technology Development Company and its ownership
in Shanghai Laser Technology Company, a Chinese joint venture. The
joint venture manufactures and sells lasers to markets in China and
other parts of the world. In recent years, the political and economic
climate in China has been subject to volatile change. Political and
economic changes in the future could adversely affect the Company's
investment in the joint venture.
10.10 Recent Net Loss; Possible Future Losses. Although the
Company realized a modest net profit in its last fiscal year, the
Company realized net losses in prior years. The Company's operations
continue to use significant amounts of cash as the Company endeavors to
promote its BriteSmile tooth whitening products and services. Although
the Company has experienced revenue growth since its inception, there
can be no assurance that such growth will continue or that net losses
will not be incurred in future operating periods.
10.11 Backlog; Quality Assurance. The Company has recently
increased its production capacity and is in the process of adding to
that capacity at its Salt Lake City facility. The increased demand for
its lasers and for the chemical reagents used in the tooth whitening
process resulting from increased sales activity in this industry has
resulted in an increase in orders for the Company's products.
Inventories of finished products and work in progress have increased
substantially. In the past nine months the Company has experienced
delays in delivering some finished products to customers. In some cases
there have also been an unusually high number of warranty claims related
to delivered product. While some quality assurance problems may
reasonably be expected as a new product line is started or as new
personnel are hired and trained to meet increasing demand, warranty
claims are a significant expense to the Company and the delays caused by
backlogs or by quality assurance problems adversely affect operating
results. The Company constantly works to improve quality and to reduce
backlog, but there can be no assurance that these trends will not
continue in the foreseeable future.
10.12 Change in Business Focus. The Company is currently
transitioning its business to rely more heavily on the sale of laser
tooth whitening chemicals and lasers used in the cosmetic dental market.
In addition to the foregoing, factors that may affect the Company's
results of operations include the volume and timing of orders received,
changes in the mix of product sold, market acceptance of the Company's
products, competitive pricing pressures, the Company's ability to meet
increasing demand, the Company's ability to introduce new products on a
timely basis, the timing of new product announcements and introductions
by the Company or its competitors, changing customer requirements,
delays in meeting new product qualifications, the time of research and
development, and the timing and extent of expenses related tosuch
research and development.
10.13 Future Capital Requirements. In the course of expansion,
there is no guarantee that the Company will be able to raise adequate
capital to fund subsequent growth, whether via the capital markets,
private placements, lines of credit or other means.
10.14 Absence of Dividend Policy. The Company has never declared
or paid any cash dividends on its shares and does not anticipate paying
cash dividends in the foreseeable future.
10.15 Immediate and Substantial Dilution. The Purchasers will
incur immediate, substantial dilution of their interests, because the
net tangible book value per share of the common stock after the offering
will be substantially less than the price per share paid by the
Purchasers.
11. Manner of Sale. At no time were Purchasers presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
12. Restricted Shares. Purchasers understand and acknowledge that
neither the Purchased Securities nor the Common Stock underlying the New
Options have been registered under the Act, or any state securities laws, and
that they will be issued in reliance upon certain exemptions from the
registration requirements of those laws, and thus cannot be resold unless they
are registered under the Act or unless the Company has first received an
opinion of competent securities counsel that an exemption from registration is
available for such resale. As to certain of the Purchasers which are not U.S.
persons within the meaning of Regulation S, the offer and sale contemplated
hereunder has been and will be made in an "offshore transaction" with no
"directed selling efforts" in the U.S. (all within the meaning of Regulation
S), and each such Purchaser has agreed and hereby confirms that during the
Holding Period (as defined below) commencing on the Closing Date, no offer or
sale of any Purchased Securities shall be made in the U.S. or to a "U.S.
person" (as defined in Regulation S) or for the account or benefit of a "U.S.
person." The "Holding Period" shall expire on the 360th day after the Closing
Date. With regard to the restrictions on resales of the Purchased Securities
or any security underlying or into which the Purchased Securities are or may
be convertible, Purchasers are aware (i) of the limitations and applicability
of Securities and Exchange Commission Rule 144; (ii) that the Company will
issue stop transfer orders to its stock transfer agent in the event of
attempts to improperly transfer any such securities; and (iii) that a
restrictive legend will be placed on certificates representing the Purchased
Securities and any security underlying or into which any of the Purchased
Securities are or will be convertible, which legend will read substantially as
follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
PURSUANT TO A CLAIM OF EXEMPTION FROM THE REGISTRATION OR
QUALIFICATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND STATE SECURITIES LAWS AND THEREFORE HAVE NOT BEEN
REGISTERED UNDER THE ACT OR UNDER THE SECURITIES LAWS OF ANY
STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED WITHOUT COMPLIANCE WITH THE REGISTRATION
OR QUALIFICATION PROVISIONS OF THE ACT OR APPLICABLE STATE LAWS,
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS [AS TO HOLDERS WHICH ARE NOT "U.S. PERSONS" WITHIN
THE MEANING OF REGULATION S]. SUBJECT TO CERTAIN REGISTRATION
RIGHTS, THE HOLDER OF THESE SECURITIES HAS AGREED AND COVENANTED
NOT TO OFFER OR SELL THESE SECURITIES IN THE UNITED STATES, ITS
TERRITORIES OR POSSESSIONS, OR TO PERSONS KNOWN TO BE NATIONALS OR
RESIDENTS OF THE UNITED STATES, UNTIL THE 361ST DAY FOLLOWING THE
CLOSING DATE, 1998, AND THEREAFTER ONLY IF THE SHARES ARE
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREUNDER IS AVAILABLE. FURTHERMORE, THE COMPANY
WILL INSTRUCT ITS STOCK TRANSFER AGENT NOT TO RECOGNIZE ANY SALE
OF THESE SECURITIES UNLESS THE COMPANY HAS FIRST RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS SECURITIES
COUNSEL, THAT AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS
AVAILABLE.
13. Indemnification. The Company agrees to indemnify each of the
Purchasers and their respective officers, employees and agents, and hold them
harmless from and against any and all liability, damage, cost or expense,
including attorney's fees, incurred on account or arising out of any
inaccuracy in or breach of the declarations, covenants, agreements,
representations, and warranties by the Company set forth herein.
14. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchasers as follows:
14.1 Organization, Standing, Etc. The Company is duly organized,
validly existing, and in good standing under the laws of the State of
Utah, and has the requisite power and authority to enter into and
perform this Agreement and to execute and perform under the documents,
instruments and agreements related to this Agreement.
14.2 Authorization. The execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all required action of the Company, including any
necessary approval by its Board of Directors or shareholders, and each
of the Transaction Documents and all instruments and agreements to be
delivered in connection therewith constitute its legal, valid and
binding obligation, enforceable against the Company in accordance with
their respective terms, subject to laws of general application relating
to the rights of creditors generally.
14.3 Absence of Conflicts. Neither the execution and delivery of
the Transactions Documents or any other agreement or instrument to be
delivered to the Purchasers in connection therewith, nor the
consummation of the transactions contemplated thereby, by the Company,
shall (i) conflict with or result in a breach of or constitute a
violation or default under (A) any provision of the Articles of
Incorporation or By-laws, each as amended to date, or the Company, or
(B) the provision of any indenture, instrument or agreement to which the
Company is a party or by which it or any of its properties is bound, or
(C) any order, writ, judgment, award, injunction, decree, law, statute,
rule or regulation, license or permit applicable to the Company; (ii)
result in the creation or imposition of any lien pursuant to the terms
of any such indenture, instrument or agreement, or constitute a breach
of any fiduciary duty owned by the Company to any third party, or (iii)
require the approval of any third party pursuant to any material
contract, agreement, instrument, relationship or legal obligation to
which the Company is subject or to which it or any of its properties,
operations or management may be subject.
14.4 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock par value $.001 per share.
As of April 30, 1997, 5,177,855 shares of Common Stock were issued and
outstanding, 118,875 shares were held in the company's treasury, and
1,862,600 shares were reserved for issuance in connection with options
outstanding as shown on Schedule II, attached. All of the outstanding
shares of Common Stock are, and the Common Shares and the shares of
Common Stock to be issued to the Purchasers pursuant to exercise of the
New Options will be, when paid for and issued, duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive rights.
14.5 Financial Statements. The Company, the Company's annual
reports on Form 10-KSB for the fiscal years ended March 31, 1995 and
1996 (the "10-K's"), and its quarterly reports on Form 10-QSB for the
periods ended June 30, September 30, and December 31, 1995 and 1996 (the
"10-Qs"), and all 8-K's filed by the Company since March 31, 1995 (the
"8-K's) and its 1995 and 1996 Annual Proxy Statements, copies of which
have been filed with or furnished to the Securities and Exchange
Commission, were when filed or furnished, accurate in all material
respects and did not include any untrue statement of material fact or
omit to state material facts necessary to make the statements therein
not misleading. The financial statements included in the 10-K's and
the 10-Qs present fairly the financial position of the Company at such
dates and the results of its operations and cash flows for the periods
then ended, in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods covered by such
statements.
14.6 Litigation, Etc. Except as disclosed in the 10-K's and the
10-Q's and 8-K's, there are no suits, actions or legal, administrative,
arbitration or other proceedings or governmental investigations or other
controversies pending, or to the knowledge of the Company threatened, or
as to which the Company has received any notice, claim or assertion,
which involve a potential cost or liability to the Company which would
singly or in the aggregate, materially or adversely affect the financial
condition, results of operations, business or prospects of the company.
The Company is not in default with respect to any order, writ,
injunction or decree of any court or before any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign affecting or relating to
it which is material to the financial condition, results of operations
or business of the Company.
14.7 No Material Adverse Change. Since March 31, 1996, other
than as disclosed in 1996 10-Qs and 8-Ks, there has been no material
adverse change in the assets, business, prospects, operations or
financial condition of the Company.
14.8 Brokers and Finders. Neither the Company nor any person
acting on behalf of the Company has employed any broker, agent or
finder, or incurred any liability for any brokerage fees, agents'
commissions or finders' fees, in connection with the transactions
contemplated herein. The Company agrees to indemnify Purchasers against
any claim by any third person for any commission, brokerage fee, finders
fee, or other payment with respect to this Agreement or the transactions
contemplated hereby based upon any alleged agreement or understanding
between such party and such third person, whether expressed or implied,
arising from the actions of such party. The covenants set forth in this
Section 14.8 shall survive the Closing Date and the consummation of the
transactions contemplated by this Agreement.
14.9 Regulatory Compliance. To the best knowledge of the
Company, it has operated and is currently operating in compliance in all
material respects with all laws, rules, regulations, orders, decrees,
licenses or permits applicable to it or to its business. The Company
has not received any notice from the FDA or any other governmental
agency or authority of any noncompliance by the Company with any law,
rule, regulation, order, decree, license or permit applicable to it or
its business or properties.
14.10 Articles of Incorporation and By-laws. The Company has
delivered to the Purchasers copies of its Articles of Incorporation and
all amendments thereto, which copies are complete and correct. The
Company is not in default under or in violation of any provisions of its
Articles of Incorporation. The Company's Articles of Incorporation have
not been amended since the date of certification thereof and no action
has been taken for the purpose of effecting any amendment thereto. The
Company has delivered to the Purchasers copies of its By-laws and all
amendments thereto, which copies are complete and correct. The Company
is not in default under or in violation of any provision of its By-laws.
14.11 Product Liability. The Company has not received any notice,
claim or assertion regarding an actual or alleged liability of the
Company with respect to any of its products.
14.12 OEM Relationships. The Company has not received any notice,
claim or assertion from or with respect to any OEM counterparty of the
Company regarding intention of such OEM party to either discontinue its
relationship with the Company or develop or market products in
competition with the Company.
14.13 Patents and Proprietary Rights. The Company received FDA
market clearance for the argon laser in February 1996. The Company also
received formal notice of allowance for its initial patent application
concerning laser teeth whitening in April, 1997. The Company has no
reason to believe that any of its patents or proprietary rights
infringes upon or otherwise violates the patents or proprietary rights
of any other party. Except for the demand letter dated March 14, 1996
received from BioLase Technology, Inc. and an action filed in the
Circuit Court of Jefferson County, Alabama, against the Company, Xx.
Xxxxx Xxxxxxxxxx and others by Xxxxx X. Black, the company has not
received any notice, claim or assertion that its patents or proprietary
rights infringe upon or otherwise violate the patents or proprietary
rights of any other party.
14.14 Unincorporated Documents or Materials. With respect to any
document or other materials received by the Purchasers from the Company
or its representatives which are incorporated herein by reference
pursuant to Section 9.9 hereof, (i) the Company has no reason to believe
any of such documents and materials or any projections contained therein
contain errors or misstatements or do not adequately describe the
transactions contemplated by this Agreement or the status of the
development of the Company's technology, and (ii) such documents,
materials and projections were prepared by the Company and its
management in good faith.
14.15 Information. To the best knowledge of the Company, the
information concerning the Company set forth in this Agreement is
complete and accurate in all material respects and does not contain any
untrue statement of a material fact or omit to state a material fact
required to make the statements made, in light of the circumstances
under which they were made, not misleading. The Company is not aware of
any facts or circumstances existing or any event which has had or which
reasonably could be expected to have in the future a material adverse
effect with respect to the financial condition, business, affairs or
prospects of the Company since the last day of its most recent fiscal
year which is not otherwise disclosed in the documents provided to
Purchasers hereunder.
14.16 Nature of Company. The Company is not an open ended
investment company or a unit investment trust, registered or required to
be registered, or a closed end investment company required to be
registered, but not registered, under the Investment Company Act of
1940.
15. Confidentiality. Purchasers acknowledge and agree that the
Company has provided them with certain information about the Company that is
proprietary and confidential in connection with the consummation of the
transactions contemplated by this Agreement (the "Confidential Information").
Purchasers covenant to preserve the confidentiality of the Confidential
Information and to use the Confidential Information only for the purpose of
determining to proceed with the transactions contemplated by this Agreement,
except that information (i) in the public domain without violation of any
confidentiality agreement, if known by the party receiving it before receipt,
or (ii) received from a third party without violation of a non-disclosure
obligation of that third party of the party delivering or disclosing
information shall not be considered Confidential Information subject to this
Section 15.
16. Nondisclosure. Except as required by applicable securities laws,
rules and regulations, prior to the Closing Date, no press release or other
announcement concerning the proposed transactions will be issued except by
mutual consent of the parties. This Agreement and all negotiations and
discussions between the parties in connection with this Agreement shall be
strictly confidential and will not be disclosed in any manner prior to the
Closing Date, except to employees and agents of the parties on a need-to-know
basis, as required by applicable law or regulations or as otherwise agreed by
the parties. After Closing, disclosure shall be at the sole discretion of the
Company.
17. Conditions to Closing. Closing of the transactions contemplated
by this Agreement shall be contingent upon the satisfaction of the following
conditions precedent:
17.1 Approvals, Waivers, Etc. ILT shall have delivered to
Purchasers evidence of all approvals of its board of directors,
government or third-parties which may be required for the sale of the
Purchased Securities, in full force and effect as of the Closing Date.
17.2 Securities Laws Filings. ILT shall have made or obtained
all federal, state or local government filings, permits and
authorizations (including without limitation federal and state
securities laws filings) necessary for the sale of the Purchased
Securities.
17.3 Opinions. The Company shall have delivered to the
Purchasers an opinion of counsel to the Company that any shares of
Common Stock of the Company issued since the Securities Purchase
Agreement dated April 1, 1996 were validly issued, fully paid and non-
assessable, that the Purchased Securities, when paid for and issued,
will be validly issued, fully paid and non-assessable, and that the
Transaction Documents have been duly authorized and constitute legal and
binding obligations of the Company enforceable according to their terms.
18. General Provisions.
18.1 Attorneys' Fees. In the event of a default in the
performance of this Agreement or any document or instrument executed in
connection with this Agreement, the defaulting party, in addition to all
other obligations of performance hereunder, shall pay reasonable
attorneys' fees and costs incurred by the non-defaulting party to
enforce performance of this Agreement.
18.2 Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah, including
choice of law rules.
18.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so signed shall be deemed to be an
original, and such counterparts together shall constitute one and the
same instrument.
18.4 Entire Agreement. This Agreement, and the Exhibits,
Schedules and other attachments referred to herein (all of which are
incorporated in this Agreement by reference) collectively set forth the
entire agreement between the parties as to the subject matter hereof,
supersede any and all prior or contemporaneous agreements or
understandings of the parties relating to the subject matter of this
Agreement (including without limitation the letter agreement between the
Company and CAP Advisors Limited dated April 9, 1997), and may not be
amended except by an instrument in writing signed by all of the parties
to this Agreement.
18.5 Expenses. The parties shall be responsible for and shall
pay their own costs and expenses, including without limitation
attorneys' fees and accountants' fees and expenses, in connection with
the conduct of the due diligence inquiry, negotiation, execution and
delivery of this Agreement and the instruments, documents and agreements
executed in connection with this Agreement. Notwithstanding the
foregoing, the Company shall pay any stock transfer taxes payable in
connection with the issue and sale of the Purchased Securities to the
Purchasers.
18.6 Headings. The headings of the sections and paragraphs of
this Agreement have been inserted for convenience of reference only and
do not constitute a part of this Agreement.
18.7 Notices. All notices or other communications provided for
under this Agreement shall be in writing, and mailed, telecopied or
delivered by hand delivery or by overnight courier service, to the
parties at their respective addresses as indicated below or at such
other address as the parties may designate in writing:
(1) If to Purchaser, then to the address set forth in
Schedule I hereto.
(2) If to the Company:
Ion Laser Technology, Inc.
0000 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Fax: (000) 000-0000
With a copy to:
Xxxxxxx X. Xxxxx, Esq.
DURHAM, EVANS, XXXXX & XXXXXXX, P.C.
Key Bank Tower, Suite 850
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Fax: (000) 000-0000
All notices and communications shall be effective as follows: When
mailed, upon three (3) business days after deposit in the mail (postage
prepaid); when telecopied, upon confirmed transmission of the telecopied
notice; when hand delivered, upon delivery; and when sent by overnight
courier, the next business day after deposit of the notice with the
overnight courier.
18.8 Severability. Should any one or more of the provisions of
this Agreement be determined to be illegal or unenforceable, all other
provisions of this Agreement shall be given effect separately from the
provision or provisions determined to be illegal or unenforceable and
shall not be affected thereby.
18.9 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors, but
shall not be assignable by Purchasers without the prior written consent
of the Company.
18.10 Survival of Representations, Warranties and Covenants
Closing. All warranties, representations, indemnities and agreements
made in this Agreement by a party hereto shall survive the date of this
Agreement, the Closing Date, the consummation of the transactions
contemplated by this Agreement, and the issuance by the Company of the
Purchased Securities.
IN WITNESS WHEREOF, the party named below has caused this Agreement to
be executed, as of the date first above written.
LCO INVESTMENTS LIMITED
BY: /s/ Xxxxxxx X. X. Xxxxx
----------------------------
NAME: Xxxxxxx X. X. Xxxxx
TITLE: Director
DATE: May 8, 1997
/s/ Xxxxxxx X. Xxxxxxxx
----------------------------
XXXXXXX X. XXXXXXXX
DATE: May 8, 1997
ACCEPTED AND AGREED:
ION LASER TECHNOLOGY, INC.
BY: /s/ E. Xxxxx Xxxxxxx
----------------------------
NAME: E. Xxxxx Xxxxxxx
TITLE: President and CEO
DATE: May 8, 1997