SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999
[ ] 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: 0-23081
FARO TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 59-3157093
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 TECHNOLOGY PARK DRIVE, LAKE MARY, FLORIDA 32746
- --------------------------------------------- -------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code: 407-333-9911
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Class: Voting Common Stock, $.001 Par Value
Outstanding at November 12, 1999: 11,351,670
1
FARO Technologies Inc.
Index to Form 10-Q
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1998 and September 30, 1999 3
Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30,
1998 and 1999 4
Condensed Consolidated Statement of Shareholders' Equity 5
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1998 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30,
DECEMBER 31, 1999
1998 (UNAUDITED)
------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,183,656 $ 1,747,152
Short term investments 8,314,337 10,600,492
Accounts receivable - net of allowance 8,963,343 7,879,215
Income taxes refundable 716,048 1,336,785
Inventories 6,443,618 8,290,160
Prepaid expenses and other assets 155,037 311,713
Deferred income taxes 121,543 26,543
------------ ------------
Total current assets 25,897,582 30,192,060
------------ ------------
PROPERTY AND EQUIPMENT - at cost:
Machinery and equipment 1,873,146 2,438,047
Furniture and fixtures 899,616 936,838
Leasehold improvements 28,889 34,120
------------ ------------
Total 2,801,651 3,409,005
Less accumulated depreciation (1,276,459) (1,932,909)
------------ ------------
Property and equipment, net 1,525,192 1,476,096
------------ ------------
INTANGIBLE ASSETS - net 12,821,191 11,351,302
NOTES RECEIVABLE 178,688 132,196
Long-term investments 8,697,494 4,337,620
DEFERRED INCOME TAXES -- 52,617
------------ ------------
TOTAL ASSETS $ 49,120,147 $ 47,541,891
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term notes payable to banks $ 296,230
Accounts payable and accrued liabilities 2,852,452 $ 4,490,462
Current portion of unearned service revenues 329,731 463,268
Current portion of long-term debt 4,156 --
Customer deposits 114,738 108,310
------------ ------------
Total current liabilities 3,597,307 5,062,040
DEFERRED INCOME TAXES 78,220 --
UNEARNED SERVICE REVENUES - less current portion 31,905 66,895
LONG TERM DEBT - less current portion 37,324 6,275
------------ ------------
TOTAL LIABILITIES 3,744,756 5,135,210
------------ ------------
SHAREHOLDERS' EQUITY:
Class A preferred stock - par value $.001,
10,000,000 shares authorized, no shares issued
and outstanding
Common stock - par value $.001, 50,000,000 shares
authorized, 11,048,137 and 11,058,336 issued and
11,008,137 and 11,018,336 outstanding, respectively 11,048 11,059
Additional paid-in-capital 47,520,732 47,542,190
Unearned compensation (292,316) (165,632)
Retained earnings (deficit) (1,912,829) (4,881,925)
Accumulated other comprehensive income:
Cumulative translation adjustments, net of tax 199,381 51,614
Treasury stock (150,625) (150,625)
------------ ------------
Total shareholders' equity 45,375,391 42,406,681
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 49,120,147 $ 47,541,891
============ ============
See accompanying notes to condensed consolidated financial statements.
3
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
Sales $ 4,972,182 $ 7,025,005 $ 19,376,191 $ 22,540,937
Cost of sales 2,460,143 3,391,029 7,921,748 9,577,211
------------ ------------ ------------ ------------
Gross profit 2,512,039 3,633,976 11,454,443 12,963,726
Operating expenses:
Selling 2,870,373 2,824,957 6,665,432 8,120,043
General and administrative 851,532 1,511,350 1,967,250 4,017,697
Depreciation and amortization 1,038,391 879,535 1,718,729 2,607,631
Research and development 737,732 895,227 1,559,710 2,582,794
Employee stock options 43,041 42,243 129,123 126,717
Purchased in-process research and development costs -- -- 3,210,000 --
------------ ------------ ------------ ------------
Total operating expenses 5,541,069 6,153,312 15,250,244 17,454,882
------------ ------------ ------------ ------------
Loss from operations (3,029,030) (2,519,336) (3,795,801) (4,491,156)
Interest income 215,766 165,393 838,545 522,116
Other (expense) income 19,391 230,522 22,145 380,923
Interest expense (3,234) (1,945) (11,099) (1,945)
------------ ------------ ------------ ------------
Loss before income taxes (2,797,107) (2,125,366) (2,946,210) (3,590,062)
Income tax (expense) benefit 56,298 461,616 (480,939) 620,966
------------ ------------ ------------ ------------
Net loss $ (2,740,809) $ (1,663,750) $ (3,427,149) $ (2,969,096)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC $ (0.25) $ (0.15) $ (0.33) $ (0.27)
============ ============ ============ ============
NET LOSS PER SHARE - DILUTED $ (0.25) $ (0.15) $ (0.33) $ (0.27)
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
ADDITONAL RETAINED
COMMON STOCK PAID-IN UNEARNED EARNINGS
SHARES AMOUNTS CAPITAL COMPENSATION (DEFICIT)
------ ------- ------- ------------ ---------
BALANCE DECEMBER 31, 1996 7,000,000 $ 7,000 $ 3,961,564 $ (6,500) $ (188,365)
Net income 3,206,630
Currency translation adjustment,
net of tax
Comprehensive income
Granting of employee and
director stock options 866,793 (501,834)
Amortization of unearned compensation 43,854
Issuance of common stock 2,919,000 2,919 31,673,647
--------- ------------ ------------ ------------ ------------
BALANCE DECEMBER 31, 1997 9,919,000 9,919 36,502,004 (464,480) 3,018,265
Net loss (4,931,094)
Currency translation adjustment, net of tax
Comprehensive loss
Issuance of common stock 1,129,137 1,129 10,323,564
Income tax benefit resulting from the
exercise of stock options 695,164
Amortization of unearned compensation 172,164
Acquisition of treasury stock (40,000)
--------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 11,008,137 11,048 47,520,732 (292,316) (1,912,829)
Net loss (2,969,096)
Currency translation adjustment, net of tax
Comprehensive loss
Issuance of common stock 10,199 11 21,458
Amortization of unearned compensation 126,684
---------- ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1999 11,018,336 $ 11,059 $ 47,542,190 $ (165,632) $ (4,881,925)
========== ============ ============ ============ ============
ACCUMULATED
OTHER
COMPREHENSIVE TREASURY
INCOME STOCK TOTAL
------------- -------- -----------
BALANCE DECEMBER 31, 1996 $ 3,773,699
Net income 3,206,630
Currency translation adjustment,
net of tax $(126,297) (126,297)
-----------
Comprehensive income 3,080,333
Granting of employee and
director stock options 364,959
Amortization of unearned compensation 43,854
Issuance of common stock 31,676,566
BALANCE DECEMBER 31, 1997 (126,297) 0 38,939,411
Net loss (4,931,094)
Currency translation adjustment, net of tax 325,678 325,678
-----------
Comprehensive loss (4,605,416)
Issuance of common stock 10,324,693
Income tax benefit resulting from the
exercise of stock options 695,164
Amortization of unearned compensation 172,164
Acquisition of treasury stock (150,625) (150,625)
--------- -------- -----------
BALANCE, DECEMBER 31, 1998 199,381 (150,625) 45,375,391
Net loss (2,969,096)
Currency translation adjustment, net of tax (147,767) (147,767)
-----------
Comprehensive loss (3,116,863)
Issuance of common stock 21,469
Amortization of unearned compensation 126,684
--------- -------- -----------
BALANCE, SEPTEMBER 30, 1999 51,614 (150,625) 42,406,681
See accompanying notes to condensed financial statements.
5
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1998 1999
------------- -------------
OPERATING ACTIVITIES:
Net loss $ (3,427,149) $ (2,969,096)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation, amortization and other 1,829,314 2,800,828
In-process research and development 3,210,000 --
Deferred income taxes (1,391,422) 42,383
Change in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable (575,203) 1,084,128
Income taxes refundable -- (698,957)
Inventories (1,537,663) (1,846,542)
Notes receivable -- 46,491
Prepaid expenses and other assets (42,878) (177,522)
Increase (decrease) in:
Accounts payable and accrued liabilities (992,933) 1,638,008
Income taxes payable 1,403,017 --
Unearned service revenues (169,056) 168,527
Customer deposits 39,643 (6,429)
------------ ------------
Net cash (used in) provided by operating activities (1,654,330) 81,819
------------ ------------
INVESTING ACTIVITIES:
Sales of investments 9,239,075 2,073,718
Purchases of property and equipment (852,906) (607,354)
Payments of patent costs (65,587) (121,665)
Payments of product design costs (485,120) (358,592)
Payments for other intangibles -- (173,384)
Acquisition of business, net of cash acquired (5,306,057) --
------------ ------------
Net cash provided by investing activities 2,529,405 812,723
------------ ------------
FINANCING ACTIVITIES:
Payments on debt -- (331,435)
Proceeds from issuance of common stock, net 225,228 148,156
Acquisition of treasury stock (150,625) --
------------ ------------
Net cash provided by (used in) financing activities 74,603 (183,279)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (32,868) (147,767)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 916,810 563,496
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 717,498 1,183,656
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,634,308 $ 1,747,152
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 11,099 $ 1,945
============ ============
Cash paid for income taxes $ 492,749 $ --
============ ============
Noncash financing activities:
Acquisition of business:
Fair value of assets acquired $ 17,667,382
Common stock issued 10,395,000
Liabilities assumed (1,614,000)
See accompanying notes to condensed consolidated financial statements.
6
FARO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
NOTE A - DESCRIPTION OF ORGANIZATION AND BUSINESS
FARO Technologies Inc. and Subsidiaries (the "Company") develops, manufactures,
markets and supports Computer Aided Design (CAD)-based quality assurance
products and CAD-based inspection and statistical process control software.
On May 15, 1998 the Company acquired all the stock of privately held CATS
Computer Aided Technologies, Computeranwendungen in der Fertigungssteurung, GmbH
("CATS") of Karlsruhe, Germany for $5 million in cash, 916,668 shares of common
stock of the Company, plus the right to receive up to an additional 333,332
shares of Company common stock if CATS meets certain performance goals. In
addition, the Company assumed certain of CATS outstanding liabilities. CATS
develops, markets and supports 3-D measurement retrofit and statistical process
control software used in both mainframe and PC based CAD environments. The
acquisition was treated as a purchase for accounting purposes.
The Company has three wholly owned operating subsidiaries, FARO Worldwide, Inc.,
Faro Europe GmbH and Co. KG, a German company, and Antares LDA, a Portuguese
company. In connection with a restructuring of legal entities in Europe,
effective January 1, 1999, CATS was consolidated under the name of Faro Europe
GmbH and Co. KG.
NOTE B - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all the
information and footnote disclosure required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the consolidated financial position and
operating results for the interim periods have been included. The consolidated
results of operations for the three and nine months ended September 30, 1999 are
not necessarily indicative of results that may be expected for the year ending
December 31, 1999. These condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements of the
Company as of December 31, 1997 and 1998, and for each of the three years in the
period ended December 31, 1998 included in the Company's Annual Report to
Stockholders included by reference within the Company's Annual Report on Form
10-K and in conjunction with the Form S-1, as amended, dated August 7, 1998.
Effective January 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Prior year financial statements have been restated for comparative
purposes to conform with this new standard.
Certain prior year amounts have been reclassified to conform to current year
presentation.
NOTE C - ACQUISITION OF CATS
The operating results of CATS have been included in the consolidated statements
since May 15, 1998, the date of the acquisition. The following unaudited pro
forma results of operations are presented for
7
informational purposes assuming that the Company had acquired CATS as of January
1, 1998. The $3.2 million charge off for in process research and development has
been excluded from the pro forma results as it represents a material
non-recurring charge.
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
Revenues $ 20,200,000
Net income (loss) (1,798,000)
Income (loss) per share:
Basic $ (.16)
Diluted $ (.16)
The pro forma results of operations have been provided for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the acquisition occurred on the date indicated,
or which may result in the future.
NOTE D - Earnings Per Share
A reconciliation of the number of common shares used in the calculation of basic
and diluted earnings per share ("EPS") is presented below:
THREE MONTHS ENDED SEPTEMBER 30, 1998 1999
- --------------------------------------------------------------------------------
PER-SHARE PER-SHARE
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Basic EPS
Weighted-Average Shares 11,028,890 $(.25) 11,017,810 $ (.15)
Effect of Dilutive Securities
Stock Options
---------- ----------
Diluted EPS
Weighted-Average Shares and
Assumed Conversions 11,028,890 $(.25) 11,017,810 $ (.15)
========== ==========
Nine months ended September 30, 1998 1999
- --------------------------------------------------------------------------------
PER-SHARE PER-SHARE
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
Basic EPS
Weighted-Average Shares 10,506,189 $(.33) 11,013,885 $ (.27)
Effect of Dilutive Securities
Stock Options
---------- ----------
Diluted EPS
Weighted-Average Shares and
Assumed Conversions 10,506,189 $(.33) 11,013,885 $ (.27)
========== ==========
8
NOTE E - SEGMENT GEOGRAPHIC DATA
The Company develops, manufactures, markets and supports Computer Aided Design
(CAD)-based quality assurance products and CAD-based inspection and statistical
process control software. This one line of business represents more than 99% of
consolidated sales. The Company operates through sales teams established by
geographic area. Each team is equipped to deliver the entire line of Company
products to customers within its geographic area. The Company has aggregated the
sales teams into a single operating segment as a result of the similarities in
the nature of products sold, the type of customers and the methods used to
distribute the Company's products. The following table presents information
about the Company by geographic area:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------
SALES: 1998 1999 1998 1999
--------------------------------------------------------------
United States $ 2,496,012 $ 2,297,742 $10,664,459 $10,449,564
Germany 1,303,421 1,849,935 3,296,021 5,100,516
United Kingdom 264,037 450,032 1,368,561 1,791,406
Canada 158,977 1,108,009
Other foreign 749,735 2,427,296 2,939,141 5,199,451
----------- ----------- ----------- -----------
Total $ 4,972,182 $ 7,025,005 $19,376,191 $22,540,937
=========== =========== =========== ===========
DECEMBER 31, SEPTEMBER 30,
LONG-LIVED ASSETS (NET) 1998 1999
------------------------------
UNITED STATES $ 2,707,920 $ 3,058,709
GERMANY 11,592,360 9,726,073
OTHER FOREIGN 46,103 42,615
----------- -----------
TOTAL $14,346,383 $12,827,397
=========== ===========
9
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, INCLUDING THE NOTES
THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-Q, AND THE MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDED IN THE
COMPANY'S QUARTERLY REPORTS ON FORM 10-Q DATED MAY 14, 1999 AND AUGUST 13, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
SALES. Sales increased $2.1 million, or 41.3%, from $5.0 million for
the three months ended September 30, 1998 to $7.0 million for three months ended
September 30, 1999. The increase was due to increases in product sales in the
United States ($1.3 million) and in the three European countries where the
Company has sales offices ($757,000).
GROSS PROFIT. Gross profit increased $1.1 million, or 44.7%, from $2.5
million for the three months ended September 30, 1998 to $3.6 million for the
three months ended September 30, 1999. Gross margin increased to 51.7% for the
three months ended September 30, 1999 from 50.5% for the three months ended
September 30, 1998. The increase in gross margin was primarily a result of
smaller price discounts in the three months ended September 30, 1999, partially
offset by fewer sales of higher margin software.
SELLING EXPENSES. Selling expenses decreased $45,000, or 1.6%, from
$2.9 million for the three months ended September 30, 1998 to $2.8 million for
the three months ended September 30, 1999. This decrease was primarily a result
of lower selling expenses in the United States ($373,000), partially offset by
an increase in selling expenses in Europe ($327,000).
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $660,000, or 77.5%, from $852,000 for the three months ended
September 30, 1998 to $1.5 million for the three months ended September 30,
1999. The increase was due to increases across many categories related to the
company's expansion in the United States and Europe. The Company's United States
operations accounted for $492,000 of the increase, including increases in
professional and legal ($158,000), salaries ($111,000), subcontractor expenses
($60,000), telecommunications ($47,000) and hiring and training costs ($43,000).
Expenses in Europe increased primarily as a result of staffing additions
($160,000).
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses decreased $159,000, or 15.3%, from $1.0 million for the three months
ended September 30, 1998 to $880,000 for the three months ended September 30,
1999. This decrease was primarily due to the completion of the amortization of
existing product technology in 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased $157,000, or 21.3%, from $738,000 for the three months ended September
30, 1998 to $895,000 for the three months ended September 30, 1999.
The increase was primarily due to increases in salaries ($106,000) in the
United States, and expenses in Europe ($85,000).
INTEREST INCOME. Interest income decreased $50,000, or 23.3%, from
$216,000 for the three months ended September 30, 1998, to $165,000 for the
three months ended September 30, 1999. The decrease was primarily attributable
to a decrease in the amount of interest-earning cash, cash equivalents, and
investments.
INCOME TAX BENEFIT. Income tax benefit increased $406,000 from $56,000
for the three months ended September 30, 1998, to $462,000 for the three months
ended September 30, 1999. The tax
10
benefit in the three months ended September 30, 1999 resulted from tax benefits
in the United States ($416,000) and Europe ($46,000).
NET LOSS. Net loss decreased $1.1 million from $2.7 million for the
three months ended September 30, 1998 to $1.7 million for the three months ended
September 30, 1999 due to the factors stated above.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
SALES. Sales increased $3.2 million, or 16.3%, from $19.4 million for
the nine months ended September 30, 1998 to $22.5 million for the nine months
ended September 30, 1999. The increase was primarily a result of an increase in
product sales in Germany ($2.5 million), primarily as a result of the Company's
acquisition of CATS in May 1998.
GROSS PROFIT. Gross profit increased $1.5 million, or 13.2%, from $11.5
million for the nine months ended September 30, 1998 to $13.0 million for the
nine months ended September 30, 1999. Gross margin decreased to 57.5% for the
nine months ended September 30, 1999 from 59.1% for the nine months ended
September 30, 1998. The decrease in gross margin was primarily a result of a
decrease in the average selling price of the Company's FAROArm products,
beginning in September 1998.
SELLING EXPENSES. Selling expenses increased $1.5 million, or 21.8%,
from $6.7 million for the nine months ended September 30, 1998 to $8.1 million
for the nine months ended September 30, 1999. This increase was a result of the
Company's expansion of sales and marketing staff and activities, including those
resulting from the Company's acquisition of CATS in May 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $2.1 million, or 104.2%, from $2.0 million for the nine
months ended September 30, 1998 to $4.0 million for the nine months ended
September 30, 1999. The increase from the Company's United States operations was
$1.2 million, including increases in salaries ($530,000), professional and legal
expenses ($408,000) and subcontractor expenses ($190,000). The increase in the
Company's European operations was $811,000, primarily from the addition of CATS
in May 1998.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased $889,000, or 51.7%, from $1.7 million for the nine months
ended September 30, 1998 to $2.6 million for the first nine months of 1999. This
increase was primarily due to the amortization expenses related to the
intangible assets associated with the Company's acquisition of CATS.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased $1.0 million or 65.6%, from $1.6 million for the nine months ended
September 30, 1998 to $2.6 million for the nine months ended September 30, 1999.
The increase was primarily due to increases in salaries in the United States of
$555,000, and an increase in expenses in Europe of $644,000, resulting from the
Company's acquisition of CATS, offset in part by a reduction in other research
and development expenses in the United States of $176,000.
IN-PROCESS RESEARCH AND DEVELOPMENT RESULTING FROM ACQUISITION.
In-process research and development expenses of $3.2 million were recorded in
the second quarter of 1998 related to the acquisition of CATS.
INTEREST INCOME. Interest income decreased $316,000, or 37.7%, from
$839,000 for the nine months ended September 30, 1998, to $522,000 for the nine
months ended September 30, 1999. The decrease was primarily attributable to a
decrease in the amount of interest-earning cash, cash equivalents, and
investments.
INCOME TAX EXPENSE (BENEFIT). Income tax expense decreased $1.1
million, or 229.1%, from expense of $481,000 for the nine months ended September
30, 1998, to a benefit of $621,000 for the nine months ended September 30, 1999.
The Company had income tax expense for the nine months ended September 30, 1998
due to U. S. taxable income and the writeoff of the deferred tax asset relating
to
11
German net operating loss carryforwards. The Company had a net tax benefit for
the nine months ended September 30, 1999, primarily due to the generation of U.
S. taxable losses.
NET LOSS. Net loss decreased $458,000 from $3.4 million for the nine
months ended September 30, 1998 to $3.0 million for the nine months ended
September 30, 1999, due to the factors stated above.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, net cash provided by
operating activities was $82,000 compared to cash used in operating activities
of $1.7 million for the nine months ended September 30, 1998. The increase was
due to decreases in accounts receivable and increases in accounts payable and
accrued liabilities. Net cash provided by investing activities was $813,000 for
the nine months ended September 30, 1999, compared to net cash provided by
investing activities of $751,000 for the nine months ended September 30, 1998.
Net cash used in financing activities for the nine months ended September 30,
1999 was $183,000 compared to net cash provided of $75,000 for the nine months
ended September 30, 1998. This increase was due to payments on debt during the
nine months ended September 30, 1999.
In April 1997, the Company obtained a one-year unsecured $1.0 million
line of credit which bears interest at the 30-day commercial paper rate plus
2.65% per annum. There were no outstanding borrowings under this loan agreement
at September 30, 1999.
The Company's principal commitments at September 30, 1999 were leases
on its headquarters and regional offices and a loan commitment to the two former
shareholders of CATS (see Part II, Item 5, Other Information). There were no
material commitments for capital expenditures at that date. The Company believes
that its cash, investments, cash flows from operations and funds available from
its credit facilities will be sufficient to satisfy its working capital, loan
commitment and capital expenditure needs at least through 1999.
FOREIGN EXCHANGE EXPOSURE
Sales outside the United States represent a significant portion of the
Company's total revenues. Fluctuations in exchange rates between the U.S. dollar
and the currencies where the Company conducts such business may have a material
adverse effect on the Company's business, results of operation and financial
condition, particularly its operating margins, and could also result in exchange
losses. The impact of future exchange rate fluctuations on the results of the
Company's operations cannot be accurately predicted. To the extent that the
percentage of the Company's non-U.S. dollar revenues derived from international
sales increases in the future, the risks associated with fluctuations in foreign
exchange rates will increase. Historically, the Company has not managed the
risks associated with fluctuations in exchange rates but may undertake
transactions to manage such risks in the future using forward foreign exchange
contracts, foreign currency options or other instruments to hedge these risks.
YEAR 2000
The Company has invested significant resources in the latest
information technologies over the past five years and therefore has minimized
the effect of Year 2000 issues. Management initiated a program to evaluate all
internal computer systems and applications, and products with computer systems
and determined the adjustments necessary to become Year 2000 compliant.
Management believes that existing internal resources are sufficient to correct
any internal systems deficiencies that have or may be determined. The Company
has completed compliance of internal computer systems, applications, and
products. A final roll-over test of the Company's headquarters' internal
computer systems will be held by November 30, 1999. The Company has received
positive responses from its major customers and substantially all of its
suppliers regarding their Year 2000 readiness. However, there can be no
assurance that the systems of other companies on which the Company relies will
be timely corrected, or that any failure by another company to correct such
systems would not have a material adverse effect on the Company. Contingency
plans have been developed to be implemented in the event any information
12
technology system, non-information technology system, third party or supplier is
not Year 2000 compliant in a timely manner.
The total cost to the Company of these Year 2000 Compliance activities
has not been and is not anticipated to be material to its financial position or
results of operations in a given year. This is based on Management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans, and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ from those
plans. The Company does not separately track the internal costs incurred on Year
2000 Compliance activities, and such costs are principally the payroll costs of
employees participating in these activities.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the cost of
labor, equipment and raw materials. The Company does not believe that inflation
has had any material effect on the Company's business over the last three years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference
herein from the section of this report in Part I, Item 2, under the caption
"Foreign Exchange Exposure."
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On May 15, 1998, the Company acquired CATS Computer Aided Technolgies,
GmbH ("CATS"), a company based in Karlsruhe, Germany that develops, markets, and
supports 3-D measurement retrofit and statistical process control software. The
CATS acquisition agreement provided that the Company would provide a loan to the
two former shareholders of CATS to fund their tax liability in connection with
the shares of FARO common stock that they received in the acquisition. The
former CATS shareholders remain key employees of the Company.
Pursuant to a Loan Agreement dated August 2, 1999 with each of the
former CATS shareholders, the Company has agreed to loan to the former CATS
shareholders an amount equal to their tax obligation to the German tax
authorities in connection with the acquisition of CATS. The aggregate amount of
the loans is estimated to be approximately $2 million. The Company is not
obligated to provide the loans until the German tax authorities request payment
for the tax from the former CATS shareholders, which has not yet occurred.
Moreover, the loan commitment will cease if the Company's share price rises to
$11.34 per share (the price establishing the tax liability) for several
consecutive days.
If the loans are made, they will be for a term of three years, at an
interest rate of approximately 4.3%, with an option for the borrower to extend
the term for an additional three years. As collateral for the loans, the former
CATS shareholders will pledge to the Company the number of shares of Company
common stock equal to the amount of the loan divided by $6.375. If the amount of
the loans is $ 2 million, the loans will be secured by 313,725 shares. The loans
will be a non-recourse obligation of the former CATS shareholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule (FOR SEC USE ONLY)
13
99.1 Loan Agreement dated August 2, 1999 between FARO
Technologies, Inc. and Wendelin Karl Johannes Scharbach
99.2 Loan Agreement dated August 2, 1999 between FARO
Technologies, Inc. and Siegfried Kurt Buss
b.) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1999 FARO TECHNOLOGIES, INC.
(Registrant)
By: /s/ STUART W. JONES
-------------------------------------
Stuart W. Jones
Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule (FOR SEC USE ONLY)
99.1 Loan Agreement dated August 2, 1999 between FARO
Technologies, Inc. and Wendelin Karl Johannes Scharbach
99.2 Loan Agreement dated August 2, 1999 between FARO
Technologies, Inc. and Siegfried Kurt Buss
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is dated and entered into as of
August 2, 1999, by and between FARO TECHNOLOGIES, INC., a Florida corporation
("Lender"), whose current mailing address is 125 Technology Park, Lake Mary,
Florida 32746, and WENDELIN KARL JOHANNES SCHARBACH, an individual resident of
the Federal Republic of Germany ("Borrower"), whose current mailing address is
Schwarzwaldstrasse 94, 68163 Mannheim, Germany.
In consideration of the Loan described below and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby,
Borrower and Lender agree as follows:
1. LOAN. Lender hereby agrees to make a loan (the "Loan") to Borrower
in an aggregate principal face amount of such number of United States Dollars
that is necessary to enable Borrower to satisfy his tax obligations to the
competent German tax authority as a result of Borrower's receipt of 458,334
shares of the issued and outstanding common stock of the Lender (which shares
Borrower received in connection with the May 15, 1998 transaction more fully
described in Section 4 below). To evidence his obligation to repay the Loan, and
to otherwise induce Lender to make the Loan, Borrower shall execute and deliver
to Lender a Promissory Note, Stock Pledge Agreement, Affidavit and Indemnity
Agreement, Stock Power and UCC-1 Financing Statement in the forms attached
hereto a EXHIBITS A, B, C, D and E, respectively (together, the "Loan
Documents"). Lender will be obligated to make the Loan to Borrower within three
(3) business days after Borrower presents written evidence to Lender that the
competent German tax authority has requested payment of the tax obligations
described in Section 4 of this Agreement.
2. LENDER'S COMMITMENT. Lender's obligation to extend the Loan to
Borrower is a valid, legal, irrevocable and binding corporate obligation which
shall not be rescinded or withdrawn in the event of a change of Lender's present
management or ownership.
3. TERMS AND CONDITIONS OF LOAN. The Loan shall be governed by the
following terms and conditions in addition to all terms and conditions set forth
in the Loan Documents.
A. PAYMENT.
i. Notwithstanding any contrary provision set forth herein or in
any document related hereto, Borrower shall be obligated to pay
all outstanding principal, together with all then accrued and
unpaid interest under the Loan, on or before the earlier of (a)
the end of the three year period that commences on the date the
Borrower executes and delivers the Loan Documents to Lender, or
(b) that date when the preceding five (5) trading days of the
Lender's common stock yields an average closing price of $11.34
per share (each such date hereinafter referred to as the
"Maturity Date"). On such Maturity Date as defined in Section
3A(i)(b), it shall be within Borrower's discretion to repay the
Loan either in cash, or, in lieu thereof, with shares of the
common stock of Lender at an agreed upon price of $11.34 per
share. For the purpose of repaying the Loan with shares of the
Lender's common stock as provided for in this Section 3A(i),
Borrower shall be required to utilize that portion of the
Collateral (as defined in Section 3E below) which is equal in
value to the Loan obligation being repaid.
ii. Notwithstanding the foregoing, in the event the Loan is still
outstanding at end of the three year period that commences on the
date Borrower executes and delivers the Loan Documents to the
Lender, Borrower shall have the option of either: (a) requiring
Lender to renew or extend the Loan for an additional term of
three (3) years or (b) canceling the Loan, effective as of the
three year anniversary date, by providing Lender with written
notice in accordance with the provisions of Section 10 below, and
in exchange for such cancellation Borrower shall irrevocably
authorize Lender to dispose of the Collateral in accordance with
the terms and conditions of Section 9 below. The parties hereby
agree that the three year anniversary date shall be the date
which coincides with the end of the three year period that
commences on the date Borrower executes and delivers the Loan
Documents to the Lender, and if Borrower elects to cancel the
loan effective as of such date, the date shall hereinafter be
referred to as the "Anniversary Cancellation Date." If on the
Anniversary Cancellation Date, the value of the Collateral is
less than the sum of: (i) the outstanding principal balance of
the Loan; (ii) any accrued but unpaid interest on the Loan; (iii)
any fees authorized and due and owing to Lender pursuant to the
Promissory Note; and (iv) any costs and expenses authorized and
due and owing to Lender pursuant to the Promissory Note, Borrower
shall not be required to pay to Lender the amount by which the
sum of items (i) through (iv) exceeds the value of the
Collateral. On the other hand, if on the Anniversary Cancellation
Date, the value of the Collateral exceeds the sum of items (i)
through (iv), Lender shall be required to release and return to
Borrower, free and clear of all liens and encumbrances, the
portion of the Collateral which exceeds the sum of items (i)
through (iv). For purposes of determining the value of the
Collateral on the Anniversary Cancellation Date, the parties
shall utilize the closing price of the shares of Lender's common
stock (as traded on the NASDAQ National Market) on that
particular date, or, if that date is not a trading day on the
NASDAQ National Market, the immediately preceding trading day.
-2-
iii. All Shares used by Borrower to repay the Loan pursuant to
the provisions of Section 3A(i) above, as well as all Shares
comprising the Collateral used by Borrower to compensate Lender
for the cancellation of the Loan pursuant to the provisions of
Section 3A(ii) above, shall be subject to sale by Lender on
Borrower's behalf in accordance with the terms and conditions of
Section 9 below, and Borrower shall cooperate with Lender in
effecting any such sale.
B. INTEREST.
i. Except as otherwise provided in Section 5 of the Promissory
Note, interest shall accrue on the outstanding principal balance
of the Loan at a rate that is equal to the sum of (a) the EURIBOR
rate that is in effect at 10:00 A.M. on the date of this
Agreement (and which is applicable to loans with a maturity date
of one year); and (b) 1.57%. Interest on the outstanding
principal balance of the Loan shall be paid annually, on the last
business day in December of each year, until the entire principal
is paid.
ii. Interest shall be calculated on the basis of a 360 day year
based upon the actual number of days elapsed. No interest shall
accrue after the Maturity Date (as defined in Section 3A(i)
above), the Anniversary Cancellation Date (as defined in Section
3A(ii) above), or the Cancellation Date (as defined in Section 8
below).
iii. The total liability of Borrower under the Loan for payment
of interest shall not exceed any limitations imposed on the
payment of interest by applicable usury laws. If any interest is
received or charged in excess of that amount, Borrower shall be
entitled to a refund of the excess.
iv. Upon the occurrence of an Event of Default under the
Promissory Note, interest shall accrue at the Default Rate
thereunder set forth notwithstanding the provisions of this
section.
C. PREPAYMENT. The Borrower shall be entitled to prepay the Loan
in whole or in part at any time without penalty.
D. APPLICATION OF PAYMENTS. All payments under the Promissory
Note shall be applied first to the Lender's costs and expenses, then to fees
authorized thereunder, then to interest and then to principal.
E. GRANT OF SECURITY INTEREST. To secure the due and punctual
payment of the Loan and all of his other liabilities to Lender arising in
connection with the Loan, and all reasonable costs and expenses incurred by
Lender in connection with enforcement or collection of the Loan or any liability
of Borrower in connection therewith (including reasonable legal fees and
expenses incurred in trial, appellate, bankruptcy, and judgment-execution
proceedings) and all reasonable costs and expenses incurred in connection with
realizing on the value of the Collateral (including appraisal fees,
broker-dealer fees, and legal fees incurred in trial, appellate, bankruptcy, and
judgment-execution proceedings), Borrower shall pledge, hypothecate, assign,
-3-
convey and grant to Lender a first lien and security interest (collectively, the
"Security Interest") in the following:
i. Such number of shares (the "Shares") of the issued and
outstanding common stock of FARO Technologies, Inc., a Florida
corporation, which is arrived at as a result of dividing (i) the
original principal sum of the Note (stated in US dollars) by (ii)
US $6.375; the denominator of US $6.375 being the closing price
of each share of Lender's common stock (as traded on the NASDAQ
National Market) on March 31, 1999.
ii. All dividends, additional shares or other property or
securities that are receivable or otherwise distributable at any
time and from time to time in respect of, or in exchange or
substitution for, the Shares and all profits therefrom; and
iii. All proceeds of the foregoing.
As used herein, the term "Collateral" refers to all the property
described in this Section 3E, as well as any portion or any interest in it.
4. PURPOSE OF LOAN. The purpose of the Loan will be to enable Borrower
to timely satisfy his obligation to pay certain taxes in the Federal Republic of
Germany in connection with Borrower's sale on May 15, 1998 of all of his right,
title and interest in and to the "Quotas" (defined to mean all of the then
issued and outstanding capital stock of Cats computer aided technologies,
Computeranwendungen in der Fertigungssteuerung GmbH, a limited liability company
organized under the laws of the Federal Republic of Germany). The parties hereby
acknowledge that, as part of the consideration (the "Consideration") paid to
Borrower in connection with his sale on May 15, 1998 of all of his right, title
and interest in and to the Quotas, Borrower received 458,334 shares of the
issued and outstanding common stock of Lender at or immediately subsequently to
the closing of that stock sale transaction. Lender will make a loan (the "Loan")
to Borrower in an aggregate principal amount of such number of United States
Dollars that is equal to the amount of taxes that Borrower is required to pay to
the competent German tax authority in connection with and as a result of the
458,334 shares of Lender's common stock received by Borrower at or immediately
subsequently to the closing of the stock sale transaction. Lender will be
obligated to make the Loan to Borrower within three (3) business days after
Borrower presents written evidence to Lender that the competent German tax
authority has requested payment of the tax obligations.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to lender as follows:
A. AUTHORITY AND COMPLIANCE. Borrower has full power and
authority to execute and deliver this Agreement and the Loan Documents and to
incur and perform the obligations provided for therein. No consent or approval
of any public authority or other third party is required as a condition to the
validity of this Agreement or any of the Loan Documents, and Borrower is in
compliance with all laws and regulatory requirements to which they are subject.
-4-
B. BINDING AGREEMENT. This Agreement and the Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
C. LITIGATION. There is no proceeding involving Borrower pending
or, to the knowledge of Borrower, threatened before any court or governmental
authority, agency or arbitration authority, except as disclosed to Lender in
writing and acknowledged by Lender prior to the date of this Agreement.
D. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the power or
authority of Borrower and no provision of any existing agreement, mortgage,
indenture or contract binding on Borrower or affecting his property, which would
conflict with or in any way prevent the execution, delivery or carrying out of
the terms of this Agreement and the Loan Documents.
E. OWNERSHIP OF COLLATERAL. Borrower has good title to the
collateral that will secure the loan, and the collateral is, and will be kept,
free and clear of liens, except those to be granted to Lender pursuant to the
Stock Pledge Agreement attached hereto in the form of EXHIBIT B.
6. DEFAULT. Borrower shall be in default under this Agreement and under
each of the Loan Documents if he shall default in the payment of any amounts due
and owing to Lender pursuant to the Loan Documents or should he fail to timely
and properly observe, keep or perform any term, covenant, agreement or condition
in any Loan Document or in any other loan agreement, promissory note, security
agreement, deed of trust, deed to secure debt, mortgage, assignment or other
contract securing or evidencing payment of any indebtedness of Borrower to
Lender or any affiliate or subsidiary of Lender.
7. REMEDIES UPON DEFAULT. If an event of default shall occur, Lender
shall have all rights, powers and remedies available under each of the Loan
Documents as well as all rights and remedies available at law or in equity.
8. BORROWER'S OPTION TO CANCEL LOAN. Notwithstanding anything to the
contrary in any document or agreement between Borrower and Lender, Borrower
shall have the option, in his sole discretion, at anytime, to cancel the Loan,
and in exchange for such cancellation Borrower shall irrevocably authorize
Lender to dispose of the Collateral in accordance with the terms and conditions
of Section 9 below. For purposes of this Section 8, the "Date of Cancellation"
shall be the date on which Lender receives a written notice from Borrower to
cancel the Loan. The written notice shall be furnished in accordance with the
notice provisions of Section 10 below. PROVIDED, HOWEVER, that if on the Date of
Cancellation, the value of the Collateral is less than the sum of (i) the
outstanding principal balance of the Loan; (ii) any accrued but unpaid interest
on the Loan; (iii) any fees authorized and due and owing to Lender pursuant to
the Promissory Note; and (iv) any costs and expenses authorized and due and
owing to Lender pursuant to the Promissory Note, Borrower shall be required to
pay to Lender the amount by which the sum of items (i) through (iv) listed in
this Section 8 exceeds the value of the Collateral. Borrower shall have the
option of making the payment herein provided for to
-5-
Lender in either additional cash or additional shares of Lender's issued and
outstanding common stock. If on the Date of Cancellation, the value of the
Collateral exceeds the sum of items (i) through (iv) listed in this Section 8,
Lender shall be required to release and return to Borrower, free and clear of
all liens and encumbrances, the portion of the Collateral which exceeds the sum
of items (i) through (iv) of this Section 8. For purposes of determining the
value of the Collateral and additional shares on the Date of Cancellation, the
parties shall utilize the closing price of the shares of Lender's common stock
(as traded on the NASDAQ National Market) on the Date of Cancellation. Any
Shares used by Borrower to compensate Lender in consideration for the
cancellation of the Loan pursuant to the provisions of this Section 8 shall be
subject to sale by Lender on Borrower's behalf pursuant to the terms and
conditions of Section 9 below, and Borrower shall cooperate with Lender in
effecting any such sale.
9. MECHANISM FOR SALE OF SHARES. The Shares to be pledged by Borrower
to Lender pursuant to the Stock Pledge Agreement will, in part, consist of a
portion of the 343,750 shares of Lender common stock registered with the United
States Securities and Exchange Commission (the "SEC") pursuant to that certain
S-1 Registration Statement dated and filed with the SEC on June 22, 1998 (the
"Registered Shares"). The balance of the Shares to be pledged to Lender by
Borrower pursuant to the Stock Pledge Agreement shall consist of shares of
Lender's common stock that have not been registered with the SEC (the
"Non-registered Shares"). It is also contemplated that if Borrower is required
to utilize additional shares to compensate Lender pursuant to the provisions of
Section 8 above or under any of the Loan Documents, Borrower will utilize
Registered Shares and/or Non-registered Shares. If, in order to satisfy any of
Borrower's obligations or commitments pursuant to any Loan Document, a sale must
be made of any or all of the Registered Shares or Non-registered Shares pledged
or otherwise delivered by Borrower to Lender, Borrower shall authorize Lender to
make such sale as an agent of Borrower and on Borrower's behalf. Any sale of
Registered Shares as provided for in this Section 9 shall be made pursuant to
the S-1 Registration Statement, and shall be deemed to be a sale by Borrower
through his duly appointed and authorized agent. Any sale of Non-Registered
Shares as provided for in this Section 9 shall be made pursuant to and in
satisfaction of the requirements of Rule 144 promulgated by the SEC under the
Securities Act of 1933, as amended, and shall be deemed to be a sale by Borrower
through his duly appointed and authorized agent. Lender shall have the right to
keep and maintain custody of any and all proceeds of any sale of Registered
Shares or Non-registered Shares in satisfaction of any sum due and owing to
Lender pursuant to the Loan transaction. Borrower's appointment of Lender as his
agent for purposes of this Section 9, and the authorization to be granted to
Lender to sell Registered Shares and/or Non-registered Shares on behalf of
Borrower, shall be set forth in the Promissory Note, Stock Pledge Agreement and
Stock Power delivered to Lender along with the pledged Shares (and in the Stock
Power alone, in the case of any additional shares delivered to Borrower).
Further, Borrower shall covenant and agree to make all such reasonable
arrangements, do and perform all such reasonable acts and things, execute and
deliver all such certificates, documents and other instruments, and to take such
further reasonable actions as Lender may deem necessary or advisable to effect
the sale of Registered Shares pursuant to the S-1 Registration Statement, or
Non-registered Shares in compliance with the requirements of Rule 144, as the
case may be, as Borrower's agent and on Borrower's behalf.
-6-
10. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing, and may be by means of facsimile transmission,
delivered to the other party at the following address:
If to Lender:
FARO Technologies, Inc.
125 Technology Park
Lake Mary, Florida 32746
Telecopy: (407) 333-4181
Attention: Gregory A. Fraser
With a copy to:
Foley & Lardner
100 North Tampa St., Suite 2700
Tampa, Florida 33602
Telecopy: (813) 221-4210
Attention: Martin A. Traber
If to Borrower:
Wendelin Karl Johannes Scharbach
Schwarzwaldstrasse 94
68163 Mannheim
Germany
Telecopy: 011 49 711 2222 444
With a copy to:
Hasche Eschenlohr Peltzer Riesenkampff Fischotter
Neidenau 68
60325 Frankfurt/Main
Germany
Telecopy: 011-49-69-71-701-230
Attention: Thomas Link
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows: (i) if sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid; (ii) if
electronically transmitted, the next business day after transmission (and
-7-
the sender shall bear the burden of proof of delivery), or (iii) if sent by any
other means, upon delivery.
11. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Lender
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees) incurred by Lender
in connection with Lender's enforcement of its rights hereunder or under the
Loan Documents.
12. MISCELLANEOUS. Borrower and Lender further covenant and agree as
follows, without limiting any requirement of any of the Loan Documents:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted
to Lender under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all other
rights of Lender, and no delay in exercising any right shall operate as a waiver
thereof, nor shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right. Borrower expressly waives any presentment, demand, protest or other
notice of any kind, including but not limited to notice of intent to accelerate
and notice of acceleration. No notice to or demand on Borrower in any case
shall, of itself, entitle Borrower to any other or future notice or demand in
similar or other circumstances.
B. LEGAL MATTERS. The validity, construction, enforcement, and
interpretation of this Agreement shall be governed by the laws of the State of
Florida and the United States of America, without regard to principles of
conflict of laws. Each party to this Agreement (a) consents to the personal
jurisdiction of the state and federal courts having jurisdiction in Seminole
County, Florida, (b) stipulates that the proper, exclusive, and convenient venue
for any legal proceeding arising out of this Agreement is Seminole County,
Florida, for state court proceedings, and the Middle District of Florida,
Orlando Division, for federal district court proceedings, and (c) waives any
defense, whether asserted by a motion or pleading, that Seminole County,
Florida, or the Middle District of Florida, Orlando Division, is an improper or
inconvenient venue. In any mediation, arbitration, or legal proceeding arising
out of this Agreement, the losing party shall reimburse the prevailing party, on
demand, for all costs incurred by the prevailing party in enforcing, defending,
or prosecuting any claim arising out of this Agreement, including all fees,
costs, and expenses of experts, attorneys, witnesses, collection agents, and
supersedeas bonds, whether incurred before or after demand or commencement of
legal proceedings, and whether incurred pursuant to trial, appellate, mediation,
arbitration, bankruptcy, administrative, or judgment-execution proceedings.
C. LOAN TO BE DEEMED REPAID. The Loan shall be deemed to have
been repaid effective as of the earliest of: (i) the date on which Borrower
prepays the Loan (as allowed under Section 3C above); (ii) the Maturity Date (as
defined in Section 3A(i) above); (iii) the Anniversary Cancellation Date (as
defined in Section 3A(ii) above); or (iv) the Cancellation Date (as defined in
Section 8 above), so long as by the particular date Lender has received from
Borrower any combination of cash and/or shares of Lender's stock sufficient to
cover the then outstanding Loan obligations in accordance with the provisions of
this Agreement. From and after the repayment date, Borrower shall have no
obligations to Lender pursuant to or under this
-8-
Agreement or the Loan Documents, except for Borrower's obligation to cooperate
with lender in disposing of the Collateral Shares (and any additional shares
delivered to Lender) pursuant to the provisions of Section 9 above.
D. AMENDMENT. No modification, consent, amendment or waiver of
any provision of this Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Lender, and then shall be effective only in the specified instance
and for the purpose for which given. This Agreement is binding upon Borrower,
his heirs, successors and assigns, and inures to the benefit of Lender, its
successors and assigns; however, no assignment or other transfer of Borrower's
rights or obligations hereunder shall be made or be effective without Lender's
prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Agreement.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or validity of
any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
13. NO ORAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
To the extent permitted by law, the Borrower agrees to and does hereby
waive trial by jury in any action, proceeding, or counterclaim brought by either
the Borrower or the Lender on any matters whatsoever arising out of or in any
way connected with this Agreement or any claim of damage resulting from any act
or omission of the Borrower or Lender or either of them in any way connected
with this Agreement.
-9-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
LENDER
FARO Technologies, Inc.
/s/ SIMON RAAB
--------------------------
Simon Raab
President
BORROWER
/s/ WENDELIN KARL JOHANNES SCHARBACH
------------------------------------
Wendelin Karl Johannes Scharbach
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is dated and entered into as of
August 2, 1999, by and between FARO TECHNOLOGIES, INC., a Florida corporation
("Lender"), whose current mailing address is 125 Technology Park, Lake Mary,
Florida 32746, and SIEGFRIED KURT BUSS, an individual resident of the Federal
Republic of Germany ("Borrower"), whose current mailing address is
Erbprinzenstr. 31, Karlsruhe, Deutschland 76133.
In consideration of the Loan described below and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby,
Borrower and Lender agree as follows:
1. LOAN. Lender hereby agrees to make a loan (the "Loan") to Borrower
in an aggregate principal face amount of such number of United States Dollars
that is necessary to enable Borrower to satisfy his tax obligations to the
competent German tax authority as a result of Borrower's receipt of 458,334
shares of the issued and outstanding common stock of the Lender (which shares
Borrower received in connection with the May 15, 1998 transaction more fully
described in Section 4 below). To evidence his obligation to repay the Loan, and
to otherwise induce Lender to make the Loan, Borrower shall execute and deliver
to Lender a Promissory Note, Stock Pledge Agreement, Affidavit and Indemnity
Agreement, Stock Power and UCC-1 Financing Statement in the forms attached
hereto a EXHIBITS A, B, C, D and E, respectively (together, the "Loan
Documents"). Lender will be obligated to make the Loan to Borrower within three
(3) business days after Borrower presents written evidence to Lender that the
competent German tax authority has requested payment of the tax obligations
described in Section 4 of this Agreement.
2. LENDER'S COMMITMENT. Lender's obligation to extend the Loan to
Borrower is a valid, legal, irrevocable and binding corporate obligation which
shall not be rescinded or withdrawn in the event of a change of Lender's present
management or ownership.
3. TERMS AND CONDITIONS OF LOAN. The Loan shall be governed by the
following terms and conditions in addition to all terms and conditions set forth
in the Loan Documents.
A. PAYMENT.
i. Notwithstanding any contrary provision set forth herein or in
any document related hereto, Borrower shall be obligated to pay
all outstanding principal, together with all then accrued and
unpaid interest under the Loan, on or before the earlier of (a)
the end of the three year period that commences on the date the
Borrower executes and delivers the Loan Documents to Lender, or
(b) that date when the preceding five (5) trading days of the
Lender's common stock yields an average closing price of $11.34
per share (each such date hereinafter
referred to as the "Maturity Date"). On such Maturity Date as
defined in Section 3A(i)(b), it shall be within Borrower's
discretion to repay the Loan either in cash, or, in lieu thereof,
with shares of the common stock of Lender at an agreed upon price
of $11.34 per share. For the purpose of repaying the Loan with
shares of the Lender's common stock as provided for in this
Section 3A(i), Borrower shall be required to utilize that portion
of the Collateral (as defined in Section 3E below) which is equal
in value to the Loan obligation being repaid.
ii. Notwithstanding the foregoing, in the event the Loan is still
outstanding at end of the three year period that commences on the
date Borrower executes and delivers the Loan Documents to the
Lender, Borrower shall have the option of either: (a) requiring
Lender to renew or extend the Loan for an additional term of
three (3) years or (b) canceling the Loan, effective as of the
three year anniversary date, by providing Lender with written
notice in accordance with the provisions of Section 10 below, and
in exchange for such cancellation Borrower shall irrevocably
authorize Lender to dispose of the Collateral in accordance with
the terms and conditions of Section 9 below. The parties hereby
agree that the three year anniversary date shall be the date
which coincides with the end of the three year period that
commences on the date Borrower executes and delivers the Loan
Documents to the Lender, and if Borrower elects to cancel the
loan effective as of such date, the date shall hereinafter be
referred to as the "Anniversary Cancellation Date." If on the
Anniversary Cancellation Date, the value of the Collateral is
less than the sum of: (i) the outstanding principal balance of
the Loan; (ii) any accrued but unpaid interest on the Loan; (iii)
any fees authorized and due and owing to Lender pursuant to the
Promissory Note; and (iv) any costs and expenses authorized and
due and owing to Lender pursuant to the Promissory Note, Borrower
shall not be required to pay to Lender the amount by which the
sum of items (i) through (iv) exceeds the value of the
Collateral. On the other hand, if on the Anniversary Cancellation
Date, the value of the Collateral exceeds the sum of items (i)
through (iv), Lender shall be required to release and return to
Borrower, free and clear of all liens and encumbrances, the
portion of the Collateral which exceeds the sum of items (i)
through (iv). For purposes of determining the value of the
Collateral on the Anniversary Cancellation Date, the parties
shall utilize the closing price of the shares of Lender's common
stock (as traded on the NASDAQ National Market) on that
particular date, or, if that date is not a trading day on the
NASDAQ National Market, the immediately preceding trading day.
iii. All Shares used by Borrower to repay the Loan pursuant to
the provisions of Section 3A(i) above, as well as all Shares
comprising the Collateral used by Borrower to compensate Lender
for the cancellation of the Loan pursuant to the provisions of
Section 3A(ii) above, shall be subject to sale by Lender on
Borrower's behalf in accordance with the terms and conditions of
Section 9 below, and Borrower shall cooperate with Lender in
effecting any such sale.
-2-
B. INTEREST.
i. Except as otherwise provided in Section 5 of the Promissory
Note, interest shall accrue on the outstanding principal balance
of the Loan at a rate that is equal to the sum of (a) the EURIBOR
rate that is in effect at 10:00 A.M. on the date of this
Agreement (and which is applicable to loans with a maturity date
of one year); and (b) 1.57%. Interest on the outstanding
principal balance of the Loan shall be paid annually, on the last
business day in December of each year, until the entire principal
is paid.
ii. Interest shall be calculated on the basis of a 360 day year
based upon the actual number of days elapsed. No interest shall
accrue after the Maturity Date (as defined in Section 3A(i)
above), the Anniversary Cancellation Date (as defined in Section
3A(ii) above), or the Cancellation Date (as defined in Section 8
below).
iii. The total liability of Borrower under the Loan for payment
of interest shall not exceed any limitations imposed on the
payment of interest by applicable usury laws. If any interest is
received or charged in excess of that amount, Borrower shall be
entitled to a refund of the excess.
iv. Upon the occurrence of an Event of Default under the
Promissory Note, interest shall accrue at the Default Rate
thereunder set forth notwithstanding the provisions of this
section.
C. PREPAYMENT. The Borrower shall be entitled to prepay the Loan
in whole or in part at any time without penalty.
D. APPLICATION OF PAYMENTS. All payments under the Promissory
Note shall be applied first to the Lender's costs and expenses, then to fees
authorized thereunder, then to interest and then to principal.
E. GRANT OF SECURITY INTEREST. To secure the due and punctual
payment of the Loan and all of his other liabilities to Lender arising in
connection with the Loan, and all reasonable costs and expenses incurred by
Lender in connection with enforcement or collection of the Loan or any liability
of Borrower in connection therewith (including reasonable legal fees and
expenses incurred in trial, appellate, bankruptcy, and judgment-execution
proceedings) and all reasonable costs and expenses incurred in connection with
realizing on the value of the Collateral (including appraisal fees,
broker-dealer fees, and legal fees incurred in trial, appellate, bankruptcy, and
judgment-execution proceedings), Borrower shall pledge, hypothecate, assign,
convey and grant to Lender a first lien and security interest (collectively, the
"Security Interest") in the following:
i. Such number of shares (the "Shares") of the issued and
outstanding common stock of FARO Technologies, Inc., a Florida
corporation, which is arrived at as a result of dividing (i) the
original principal sum of the Note (stated in US dollars) by (ii)
US $6.375; the denominator of US $6.375 being the closing price
of each share of Lender's common stock (as traded on the NASDAQ
National Market) on March 31, 1999.
-3-
ii. All dividends, additional shares or other property or
securities that are receivable or otherwise distributable at any
time and from time to time in respect of, or in exchange or
substitution for, the Shares and all profits therefrom; and
iii. All proceeds of the foregoing.
As used herein, the term "Collateral" refers to all the property
described in this Section 3E, as well as any portion or any interest in it.
4. PURPOSE OF LOAN. The purpose of the Loan will be to enable Borrower
to timely satisfy his obligation to pay certain taxes in the Federal Republic of
Germany in connection with Borrower's sale on May 15, 1998 of all of his right,
title and interest in and to the "Quotas" (defined to mean all of the then
issued and outstanding capital stock of Cats computer aided technologies,
Computeranwendungen in der Fertigungssteuerung GmbH, a limited liability company
organized under the laws of the Federal Republic of Germany). The parties hereby
acknowledge that, as part of the consideration (the "Consideration") paid to
Borrower in connection with his sale on May 15, 1998 of all of his right, title
and interest in and to the Quotas, Borrower received 458,334 shares of the
issued and outstanding common stock of Lender at or immediately subsequently to
the closing of that stock sale transaction. Lender will make a loan (the "Loan")
to Borrower in an aggregate principal amount of such number of United States
Dollars that is equal to the amount of taxes that Borrower is required to pay to
the competent German tax authority in connection with and as a result of the
458,334 shares of Lender's common stock received by Borrower at or immediately
subsequently to the closing of the stock sale transaction. Lender will be
obligated to make the Loan to Borrower within three (3) business days after
Borrower presents written evidence to Lender that the competent German tax
authority has requested payment of the tax obligations.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to lender as follows:
A. AUTHORITY AND COMPLIANCE. Borrower has full power and
authority to execute and deliver this Agreement and the Loan Documents and to
incur and perform the obligations provided for therein. No consent or approval
of any public authority or other third party is required as a condition to the
validity of this Agreement or any of the Loan Documents, and Borrower is in
compliance with all laws and regulatory requirements to which they are subject.
B. BINDING AGREEMENT. This Agreement and the Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
C. LITIGATION. There is no proceeding involving Borrower pending
or, to the knowledge of Borrower, threatened before any court or governmental
authority, agency or arbitration authority, except as disclosed to Lender in
writing and acknowledged by Lender prior to the date of this Agreement.
-4-
D. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the power or
authority of Borrower and no provision of any existing agreement, mortgage,
indenture or contract binding on Borrower or affecting his property, which would
conflict with or in any way prevent the execution, delivery or carrying out of
the terms of this Agreement and the Loan Documents.
E. OWNERSHIP OF COLLATERAL. Borrower has good title to the
collateral that will secure the loan, and the collateral is, and will be kept,
free and clear of liens, except those to be granted to Lender pursuant to the
Stock Pledge Agreement attached hereto in the form of EXHIBIT B.
6. DEFAULT. Borrower shall be in default under this Agreement and under
each of the Loan Documents if he shall default in the payment of any amounts due
and owing to Lender pursuant to the Loan Documents or should he fail to timely
and properly observe, keep or perform any term, covenant, agreement or condition
in any Loan Document or in any other loan agreement, promissory note, security
agreement, deed of trust, deed to secure debt, mortgage, assignment or other
contract securing or evidencing payment of any indebtedness of Borrower to
Lender or any affiliate or subsidiary of Lender.
7. REMEDIES UPON DEFAULT. If an event of default shall occur, Lender
shall have all rights, powers and remedies available under each of the Loan
Documents as well as all rights and remedies available at law or in equity.
8. BORROWER'S OPTION TO CANCEL LOAN. Notwithstanding anything to the
contrary in any document or agreement between Borrower and Lender, Borrower
shall have the option, in his sole discretion, at anytime, to cancel the Loan,
and in exchange for such cancellation Borrower shall irrevocably authorize
Lender to dispose of the Collateral in accordance with the terms and conditions
of Section 9 below. For purposes of this Section 8, the "Date of Cancellation"
shall be the date on which Lender receives a written notice from Borrower to
cancel the Loan. The written notice shall be furnished in accordance with the
notice provisions of Section 10 below. PROVIDED, HOWEVER, that if on the Date of
Cancellation, the value of the Collateral is less than the sum of (i) the
outstanding principal balance of the Loan; (ii) any accrued but unpaid interest
on the Loan; (iii) any fees authorized and due and owing to Lender pursuant to
the Promissory Note; and (iv) any costs and expenses authorized and due and
owing to Lender pursuant to the Promissory Note, Borrower shall be required to
pay to Lender the amount by which the sum of items (i) through (iv) listed in
this Section 8 exceeds the value of the Collateral. Borrower shall have the
option of making the payment herein provided for to Lender in either additional
cash or additional shares of Lender's issued and outstanding common stock. If on
the Date of Cancellation, the value of the Collateral exceeds the sum of items
(i) through (iv) listed in this Section 8, Lender shall be required to release
and return to Borrower, free and clear of all liens and encumbrances, the
portion of the Collateral which exceeds the sum of items (i) through (iv) of
this Section 8. For purposes of determining the value of the Collateral and
additional shares on the Date of Cancellation, the parties shall utilize the
closing price of the shares of Lender's common stock (as traded on the NASDAQ
National Market) on the Date of Cancellation. Any Shares used by Borrower to
compensate Lender in consideration for the cancellation of the Loan pursuant to
the provisions of this Section 8 shall be subject to sale by
-5-
Lender on Borrower's behalf pursuant to the terms and conditions of Section 9
below, and Borrower shall cooperate with Lender in effecting any such sale.
9. MECHANISM FOR SALE OF SHARES. The Shares to be pledged by Borrower
to Lender pursuant to the Stock Pledge Agreement will, in part, consist of a
portion of the 343,750 shares of Lender common stock registered with the United
States Securities and Exchange Commission (the "SEC") pursuant to that certain
S-1 Registration Statement dated and filed with the SEC on June 22, 1998 (the
"Registered Shares"). The balance of the Shares to be pledged to Lender by
Borrower pursuant to the Stock Pledge Agreement shall consist of shares of
Lender's common stock that have not been registered with the SEC (the
"Non-registered Shares"). It is also contemplated that if Borrower is required
to utilize additional shares to compensate Lender pursuant to the provisions of
Section 8 above or under any of the Loan Documents, Borrower will utilize
Registered Shares and/or Non-registered Shares. If, in order to satisfy any of
Borrower's obligations or commitments pursuant to any Loan Document, a sale must
be made of any or all of the Registered Shares or Non-registered Shares pledged
or otherwise delivered by Borrower to Lender, Borrower shall authorize Lender to
make such sale as an agent of Borrower and on Borrower's behalf. Any sale of
Registered Shares as provided for in this Section 9 shall be made pursuant to
the S-1 Registration Statement, and shall be deemed to be a sale by Borrower
through his duly appointed and authorized agent. Any sale of Non-Registered
Shares as provided for in this Section 9 shall be made pursuant to and in
satisfaction of the requirements of Rule 144 promulgated by the SEC under the
Securities Act of 1933, as amended, and shall be deemed to be a sale by Borrower
through his duly appointed and authorized agent. Lender shall have the right to
keep and maintain custody of any and all proceeds of any sale of Registered
Shares or Non-registered Shares in satisfaction of any sum due and owing to
Lender pursuant to the Loan transaction. Borrower's appointment of Lender as his
agent for purposes of this Section 9, and the authorization to be granted to
Lender to sell Registered Shares and/or Non-registered Shares on behalf of
Borrower, shall be set forth in the Promissory Note, Stock Pledge Agreement and
Stock Power delivered to Lender along with the pledged Shares (and in the Stock
Power alone, in the case of any additional shares delivered to Borrower).
Further, Borrower shall covenant and agree to make all such reasonable
arrangements, do and perform all such reasonable acts and things, execute and
deliver all such certificates, documents and other instruments, and to take such
further reasonable actions as Lender may deem necessary or advisable to effect
the sale of Registered Shares pursuant to the S-1 Registration Statement, or
Non-registered Shares in compliance with the requirements of Rule 144, as the
case may be, as Borrower's agent and on Borrower's behalf.
10. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing, and may be by means of facsimile transmission,
delivered to the other party at the following address:
If to Lender:
FARO Technologies, Inc.
125 Technology Park
Lake Mary, Florida 32746
-6-
Telecopy: (407) 333-4181
Attention: Gregory A. Fraser
With a copy to:
Foley & Lardner
100 North Tampa St., Suite 2700
Tampa, Florida 33602
Telecopy: (813) 221-4210
Attention: Martin A. Traber
If to Borrower:
Siegfried Kurt Buss
Erbprinzenstr. 31
Karlsruhe, Deutschland 76133
Telecopy: 011-49-711-2222-444
With a copy to:
Hasche Eschenlohr Peltzer Riesenkampff Fischotter
Neidenau 68
60325 Frankfurt/Main
Germany
Telecopy: 011-49-69-71-701-230
Attention: Thomas Link
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows: (i) if sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid; (ii) if
electronically transmitted, the next business day after transmission (and the
sender shall bear the burden of proof of delivery), or (iii) if sent by any
other means, upon delivery.
11. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Lender
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees) incurred by Lender
in connection with Lender's enforcement of its rights hereunder or under the
Loan Documents.
12. MISCELLANEOUS. Borrower and Lender further covenant and agree as
follows, without limiting any requirement of any of the Loan Documents:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted
to Lender under any Loan Document, or allowed it by law or equity shall be
cumulative of each
-7-
other and may be exercised in addition to any and all other rights of Lender,
and no delay in exercising any right shall operate as a waiver thereof, nor
shall any single or partial exercise by Lender of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrower
expressly waives any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case shall, of itself,
entitle Borrower to any other or future notice or demand in similar or other
circumstances.
B. LEGAL MATTERS. The validity, construction, enforcement, and
interpretation of this Agreement shall be governed by the laws of the State of
Florida and the United States of America, without regard to principles of
conflict of laws. Each party to this Agreement (a) consents to the personal
jurisdiction of the state and federal courts having jurisdiction in Seminole
County, Florida, (b) stipulates that the proper, exclusive, and convenient venue
for any legal proceeding arising out of this Agreement is Seminole County,
Florida, for state court proceedings, and the Middle District of Florida,
Orlando Division, for federal district court proceedings, and (c) waives any
defense, whether asserted by a motion or pleading, that Seminole County,
Florida, or the Middle District of Florida, Orlando Division, is an improper or
inconvenient venue. In any mediation, arbitration, or legal proceeding arising
out of this Agreement, the losing party shall reimburse the prevailing party, on
demand, for all costs incurred by the prevailing party in enforcing, defending,
or prosecuting any claim arising out of this Agreement, including all fees,
costs, and expenses of experts, attorneys, witnesses, collection agents, and
supersedeas bonds, whether incurred before or after demand or commencement of
legal proceedings, and whether incurred pursuant to trial, appellate, mediation,
arbitration, bankruptcy, administrative, or judgment-execution proceedings.
C. LOAN TO BE DEEMED REPAID. The Loan shall be deemed to have
been repaid effective as of the earliest of: (i) the date on which Borrower
prepays the Loan (as allowed under Section 3C above); (ii) the Maturity Date (as
defined in Section 3A(i) above); (iii) the Anniversary Cancellation Date (as
defined in Section 3A(ii) above); or (iv) the Cancellation Date (as defined in
Section 8 above), so long as by the particular date Lender has received from
Borrower any combination of cash and/or shares of Lender's stock sufficient to
cover the then outstanding Loan obligations in accordance with the provisions of
this Agreement. From and after the repayment date, Borrower shall have no
obligations to Lender pursuant to or under this Agreement or the Loan Documents,
except for Borrower's obligation to cooperate with lender in disposing of the
Collateral Shares (and any additional shares delivered to Lender) pursuant to
the provisions of Section 9 above.
D. AMENDMENT. No modification, consent, amendment or waiver of
any provision of this Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Lender, and then shall be effective only in the specified instance
and for the purpose for which given. This Agreement is binding upon Borrower,
his heirs, successors and assigns, and inures to the benefit of Lender, its
successors and assigns; however, no assignment or other transfer of Borrower's
rights or obligations hereunder shall be made or be effective without Lender's
prior written consent, nor shall it relieve Borrower of any obligations
hereunder. There is no third party beneficiary of this Agreement.
-8-
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or validity of
any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
13. NO ORAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
To the extent permitted by law, the Borrower agrees to and does hereby
waive trial by jury in any action, proceeding, or counterclaim brought by either
the Borrower or the Lender on any matters whatsoever arising out of or in any
way connected with this Agreement or any claim of damage resulting from any act
or omission of the Borrower or Lender or either of them in any way connected
with this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
LENDER
FARO Technologies, Inc.
/s/ SIMON RAAB
---------------------------
Simon Raab
President
BORROWER
/s/ SIEGFRIED KURT BUSS
----------------------------
Siegfried Kurt Buss
-9-
5
9-MOS
DEC-31-1999
JUL-01-1999
SEP-30-1999
1,747,152
10,600,492
7,879,215
248,199
8,290,160
30,192,060
3,409,005
1,932,909
47,541,891
5,062,040
0
0
0
11,059
42,395,622
47,541,891
7,025,005
7,025,005
3,391,029
6,153,312
0
0
1,945
(2,125,366)
(461,616)
(1,663,750)
0
0
0
(1,663,750)
(0.15)
(0.15)
