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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
DECEMBER 29, 1997 (DECEMBER 12, 1997)
-------------------------------------
IMAGE GUIDED TECHNOLOGIES, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 001-12189 84-1139082
-------- --------- ----------
(State or other jurisdiction (Commission file number) (IRS Employer
of incorporation or organization) Identification No.)
5710-B FLATIRON PARKWAY, BOULDER, CO 80301
------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 447-0248
--------------
Item 2. Acquisition or Disposition of Assets
On December 12, 1997, Image Guided Technologies, Inc. (the "Company")
finalized the acquisition of all the outstanding stock of Brimfield Precision,
Inc. ("Brimfield") for a purchase price of $9,285,000. The purchase price was
paid with a combination of $7,785,000 in cash and 579,510 shares of the
Company's common stock (valued at the average of the last price for the 10 days
prior to December 12, 1997).
Brimfield sells surgical instruments and orthopedic implants to OEM
surgical instrument companies. Brimfield's products are used for spinal
surgery, orthopedic surgery and minimally invasive surgical procedures. Prior
to its sale to the Company, Brimfield was owned by William and Matthew Lyons.
William Lyons will continue to act as President of Brimfield and has been
elected as a director of the Company.
The Company obtained the cash for the acquisition from bank financing and
its own funds. The Company has entered into a secured loan agreement with
Imperial Bank pursuant to which Imperial Bank has loaned the Company $4,000,000
pursuant to a three-year term loan (payable in thirty-six equal installments of
principal) and up to $2,000,000 (the actual amount to be determined by a
collateral audit) pursuant to a revolving loan payable on or before June 30,
1999. In connection with the loan agreement, the Company has agreed to raise
$1,000.000 in equity by March 15, 1998. The Company paid Cruttenden
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Roth ("Cruttenden") a $300,000 finder's fee for introducing the Company to,
and advising the Company in negotiations with, Imperial Bank. The Company
has issued a one-year $500,000 subordinated note to Cruttenden to pay the
finder's fee plus an additional $200,000 owed to Cruttenden. In connection
with the loan and subordinated note, the Company issued a seven-year warrant
for 160,000 shares of the Company's common stock at $2.92 per share to
Imperial Bank and a seven-year warrant for 100,000 shares of the Company's
common stock at $2.92 per share to Cruttenden.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Page
----
Report of Independent Accountants 3
Balance Sheet - October 31, 1997 4
Statement of Operations and Retained Earnings -- Year
Ended October 31, 1997 5
Statement of Cash Flows -- Year Ended October 31, 1997 6
Notes to Financial Statements 7
The following financial statements of Brimfield will be filed by
amendment to this Form 8-K no later than February 27,1998. Extension is
necessary in order to complete an audit of Brimfield for the year ended
October 31, 1996.
Financial Statements to be filed no later than February 27, 1998:
Report of Independent Accountants
Balance Sheet - October 31, 1996
Statement of Operations and Retained Earnings -- Year
Ended October 31, 1996
Statement of Cash Flows -- Year Ended October 31, 1996
Notes to Financial Statements
(b) Pro Forma Financial Information.
It is impractical to provide the required pro forma financial
information at the time of filing this report. The required pro forma
financial information will be filed by amendment to this Form 8-K not later
than February 27, 1998.
(c) Exhibits
Exhibit
Number Description
------ -----------
2.1 Agreement of Purchase and Sale Among Image Guided
Technologies, Inc. and Stockholders of Brimfield
Precision, Inc. dated 11/25/97.
2.2 Amendment dated 12/12/97 to Agreement of Purchase
and Sale Among Image Guided Technologies, Inc. and
Stockholders of Brimfield Precision, Inc. dated
11/25/97.
2.3 Loan Agreement between Image Guided Technologies,
Inc. and Imperial Bank, dated December 12, 1997.
2.4 Subordinated Note from Image Guided Technologies,
Inc. payable to Cruttenden Roth, dated December 12,
1997.
2.5 Warrant from Image Guided Technologies, Inc. to
Imperial Bank, dated December 12, 1997
2.6 Warrant from Image Guided Technologies, Inc. to
Cruttenden Roth, dated December 12, 1997
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To the Board of Directors
BRIMFIELD PRECISION, INC.
Brimfield, Massachusetts
Independent Auditors' Report
We have audited the accompanying balance sheet of Brimfield Precision, Inc. (an
S-Corporation) as of October 31, 1997 and the related statements of operations
and retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brimfield Precision, Inc. as of
October 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Aubrey, Dixon, Riley, Turgeon & Schultz LLC
December 3, 1997
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BRIMFIELD PRECISION, INC.
BALANCE SHEET
OCTOBER 31, 1997
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 284,007
Accounts receivable 1,627,969
Inventory 1,092,406
Other current assets 143,423
----------
Total current assets 3,147,805
Property and equipment, net of accumulated depreciation of
$3,002,166 at October 31, 1997 3,733,545
Other assets 251,651
----------
Total assets $7,133,001
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 545,170
Accrued liabilities 453,235
Due to officer 12,758
Current portion of long-term debt 219,106
Current portion of note payable - officer 173,400
Current portion of long-term capital lease obligation 348,967
----------
Total current liabilities 1,752,636
----------
Long-term debt 399,400
----------
Long-term capital lease obligation 1,104,473
----------
Stockholders' equity
Common stock, no par value, 100 shares
authorized and issued, 43 shares outstanding 10,500
Retained earnings 4,213,992
----------
4,224,492
Less 57 shares of treasury stock - at cost (348,000)
----------
Total stockholders' equity 3,876,492
----------
Total liabilities and stockholders' equity $7,133,001
----------
----------
See accountants' audit report and accompanying notes to financial statements.
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BRIMFIELD PRECISION, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED OCTOBER 31, 1997
Revenue $10,178,731
Cost of goods sold 7,026,213
-----------
Gross profit 3,152,518
-----------
Operating expenses:
Selling and marketing 355,929
Research and development 203,582
General and administrative 1,655,684
-----------
Total operating expenses 2,215,195
-----------
Income from operations 937,323
-----------
Other income (expense):
Interest and other expense (180,567)
Interest and other income 81,384
-----------
Total other expense (99,183)
-----------
Net income before income taxes 838,140
Income taxes 10,609
-----------
Net income 827,531
Retained earnings - beginning of year 3,810,629
Less dividends 424,168
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Retained earnings - end of year $ 4,213,992
-----------
-----------
See accountants' audit report and accompanying notes to financial statements.
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BRIMFIELD PRECISION, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1997
Cash flows from operations
Net income $ 827,531
Non-cash items included in net income
Depreciation and amortization 534,715
Gain on disposition of property and equipment (28,120)
Deferred tax asset (18,000)
Other changes in operating assets and liabilities
Accounts receivable (222,515)
Inventory (142,485)
Federal tax deposit (91,005)
Other current assets (100,308)
Other assets 3,572
Accounts payable 170,103
Accrued liabilities 218,376
Due to officer 12,758
Income taxes payable (72,381)
---------
Net cash provided by operations 1,092,241
---------
Cash flows from investing activities
Acquisition of property and equipment (540,567)
Proceeds on disposition of property and equipment 47,550
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Net cash used by investing activities (493,017)
---------
Cash flows from financing activities
Payments on note payable - officer (15,300)
Proceeds from long-term debt 42,839
Payments on long-term debt (235,418)
Payments on long-term capital lease obligations (251,837)
Payment of dividends (424,168)
---------
Net cash used by financing activities (883,884)
---------
Net decrease in cash and cash equivalents (284,660)
Net cash and cash equivalents- beginning of year 568,667
---------
Net cash and cash equivalents- end of year $ 284,007
---------
---------
See accountants' audit report and accompanying notes to financial statements.
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BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS: Brimfield Precision, Inc. manufactures
specialized medical instruments and medical equipment.
B. ACCOUNTS RECEIVABLE: The Company accounts for uncollectible accounts
receivable using the direct write-off method. Generally accepted
accounting principles require that the allowance method be used to account
for bad debts. The effects of this departure from generally accepted
accounting principles on financial position, results of operations, and
cash flows have been determined to be not material.
C. INVENTORY: Inventory is valued at the lower of cost, determined on
the first-in, first-out (FIFO) method, or market.
D. PROPERTY AND EQUIPMENT: Property and equipment are carried at cost.
Depreciation is computed on both the straight-line and accelerated methods
based on the estimated useful lives of the related assets. Depreciation
expense was $530,875 for the year ended October 31, 1997.
E. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be
cash equivalents.
F. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
G. ADVERTISING: The Company expenses advertising costs as incurred.
Advertising expense was $42,737 in 1997.
H. INCOME TAXES: Effective November 1, 1986 the Company, with the consent
of its stockholders, elected to be treated as an S Corporation. In this
status, the corporation is generally not a taxable entity and elements of
income and expense flow through and are taxed to the stockholders on an
individual basis.
Effective for years ending on and after December 31, 1988, the Commonwealth
of Massachusetts imposes an income tax on S Corporations whose gross
receipts exceed $6,000,000.
Massachusetts Investment Tax Credits are accounted for using the flow-
through method which reduces income tax expense for the current year in
which the credits are utilized.
I. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of cash and
short and long-term debt is a reasonable estimate of the fair value based
on instruments with similar terms and maturities.
J. AMORTIZATION: The costs of intangible assets are amortized on a
straight-line basis over a period of 5 to 17 years.
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BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
2. TRANSACTIONS WITH RELATED PARTIES
Note payable - officer of $173,400 at October 31, 1997, is due in monthly
principal installments of $1,275, plus interest at 8 3/4%. An additional
final principal payment of $159,375 is due October 1998, unless paid
sooner.
The Company leases a facility and land in Brimfield, Massachusetts which is
owned by a former stockholder of the Company. In addition, the Company has
constructed a building on the leased property. Rental expense for the
building and land in 1997 amounted to $108,000.
The Company subleases a facility in Springfield, Massachusetts from a
corporation in which the two stockholders are the same stockholders of
Brimfield Precision, Inc. The lease agreement requires payments of $4,927
per month until December 2001.
3. NOTE PAYABLE - BANK
At October 31, 1997 the Company had no borrowings under a line of credit
agreement with a bank. The agreement provides for interest at the bank's
prime lending rate, and is secured by all assets of the Company. The
maximum available credit on this note was $750,000 at October 31, 1997.
4. LONG-TERM DEBT
Long-term debt at October 31, 1997 consisted of the following:
Note payable to a bank, at prime, payable in monthly installments
of $12,500 plus interest, secured by all assets of the Company,
maturing in June 2000. $400,000
Note payable to a finance company, at 8 1/2 %, payable in monthly
installments of $1,060 including interest, secured by a motor
vehicle, maturing in October 2001. 42,839
Note payable to a bank, at prime plus 1/4%, payable in monthly
installments of $2,167 plus interest, secured by machinery,
maturing in October 2000. 73,667
Note payable to a bank, at prime plus 1/4%, payable in monthly
installments of $2,833 plus interest, secured by machinery,
maturing in August 2000. 102,000
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618,506
Less current portion 219,106
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Total long-term debt $399,400
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BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
4. LONG-TERM DEBT (CONTINUED)
Aggregate maturities on long-term debt are as follows:
Years Ending
October 31, Amount
----------- ------
1998 $219,106
1999 220,240
2000 166,813
2001 12,347
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$618,506
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5. LEASE COMMITMENTS
The gross amount of the capitalized leased assets and the accumulated
depreciation are included in property and equipment as reported on the
balance sheet. The amortization of this lease is included in depreciation
expense.
Equipment Under
Capitalized Lease
at October 31, 1997
-------------------
Equipment $1,847,821
Less accumulated amortization 254,482
----------
$1,593,339
----------
----------
Future minimum payments on lease in effect at October 31, 1997 are as
follows:
Years Ending
October 31, Amount
----------- ------
1998 $ 460,348
1999 449,848
2000 408,633
2001 295,967
2002 130,870
----------
Total minimum lease payments 1,745,666
Less amount representing interest 292,226
----------
Net present value 1,453,440
Less current portion 348,967
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Long-term capital lease obligation $1,104,473
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6. CONCENTRATION OF CREDIT RISK
Substantially all of the Company's accounts receivable are due from
companies in the high technology medical industry located throughout the
United States. Two of the Company's customers accounted for approximately
$4,948,237 of total sales in 1997. Two customers accounted for
approximately $737,593 of accounts receivable at October 31, 1997.
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BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
6. CONCENTRATION OF CREDIT RISK (CONTINUED)
The Company performs regular credit reviews of its significant customers'
financial condition. Receivables generally are collected within 60 days.
The Company maintains its operating accounts in certain financial
institutions, which balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At times, the Company may maintain operating
account balances which exceed $100,000.
7. INVENTORY
Inventory consisted of the following at October 31, 1997:
Raw materials $ 144,871
Work in process 384,724
Finished goods 562,811
----------
$1,092,406
----------
----------
8. INCOME TAXES
The components of income tax expense related to continuing operations at
October 31, 1997 were:
Tax computed at statutory rates $ 55,609
Investment tax credit taken currently (27,000)
Deferred taxes - State (18,000)
--------
Total provision for income taxes $ 10,609
--------
--------
As of October 31, 1997, a Massachusetts Investment Tax Credit carryforward
of approximately $18,000, which begins to expire in 2003, is available to
offset future Massachusetts tax.
Deferred income taxes provide for the effects of timing differences in
reporting for financial statement and income tax purposes. Such timing
differences primarily relate to Massachusetts Investment Tax Credits.
At October 31, 1997 the long-term deferred tax asset consisted of the
following temporary difference component:
Massachusetts Investment Tax Credit $18,000
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BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
9. DISCLOSURES FOR CASH FLOW STATEMENT
CASH PAID DURING THE YEAR FOR: 1997
------------------------------ ----
Interest $ 174,391
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----------
Income taxes $ 119,441
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----------
NONCASH INVESTING AND FINANCING ACTIVITIES:
-------------------------------------------
Capital lease obligations for new equipment $1,029,325
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10. RETIREMENT PLAN
Effective June 1, 1991 the Company implemented the Brimfield Precision,
Inc. 401(k) Savings and Retirement Plan covering substantially all
employees. Employees may contribute from 2% up to 15% of total salary not
to exceed Internal Revenue Service limits. The Company does not make
matching contributions.
11. SUBSEQUENT EVENT
In November 1997 the stockholders entered into a purchase and sale
agreement to sell 100% of the outstanding stock of the Company. At the
date of this report the terms of the transaction have not been formalized.
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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 hereunto duly authorized.
IMAGE GUIDED TECHNOLOGIES, INC.
(Registrant)
By: /s/ Paul L. Ray
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December 29, 1997 Paul L. Ray
Chairman of the Board and Chief
Executive Officer
By: /s/ Jeffrey J. Hiller
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December 29, 1997 Jeffrey J. Hiller
Vice President and Chief Financial Officer
(Principal Accounting Officer)
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AGREEMENT
OF
PURCHASE AND SALE
AMONG IMAGE GUIDED TECHNOLOGIES, INC.
AND
STOCKHOLDERS OF BRIMFIELD PRECISION, INC.
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TABLE OF CONTENTS
Page
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ARTICLE I - CERTAIN DEFINITIONS 1
ARTICLE II - PURCHASE AND SALE OF SHARES 3
2.1 Purchase and Sale 3
2.2 Earnest Money 3
2.3 Payment of Purchase Price 4
2.4 Certain Other Agreements 4
2.5 Closing 4
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS 5
3.1 Title to Shares 5
3.2 Authority, Execution and Delivery 5
3.3 Due Organization and Standing 5
3.4 Capitalization 5
3.5 Conflicting Agreements and Company Consents 6
3.6 Financial Statements 6
3.7 Corporate Books and Records 6
3.8 Assets 6
3.9 Tangible Personal Property 6
3.10 Real Property 7
3.11 Receivables and Inventory 7
3.12 FDA Regulations 7
3.13 Employee Plans 8
3.14 Labor Matters 8
3.15 No Changes 9
3.16 Taxes 10
3.17 Intellectual Property 10
3.18 Agreements, Contracts and Commitments 11
3.19 Litigation 12
3.20 Environmental Matters 12
3.21 Insurance 12
3.22 Compliance with Laws 12
3.23 Transactions With Affiliates 12
3.24 FIRPTA 13
3.25 Brokers 13
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER 13
4.1 Due Organization and Standing 13
4.2 Execution and Delivery 13
4.3 Consents, Waivers and Approvals 13
4.4 Investment Purpose 13
4.5 Capitalization 13
4.6 SEC Documents 14
4.7 Buyer Common 14
4.8 Brokers 14
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ARTICLE V - INTERIM PERIOD CONDUCT 14
5.1 Affirmative Acts 14
5.2 Prohibitions 15
5.3 List of Depositories and Bank Balances 15
5.4 Investigation by Buyer 16
ARTICLE VI - COVENANTS 16
6.1 Director 16
ARTICLE VII - COVENANTS OF BUYER AND STOCKHOLDERS 16
7.1 Third Party Consents 16
7.2 Further Assurances 16
ARTICLE VIII - CONDITIONS TO OBLIGATIONS OF BUYER 16
8.1 General 16
8.2 Performance 16
8.3 Representations and Warranties True as of Closing Date 16
8.4 Adverse Proceedings, Consents and Agreements 17
8.5 Opinion of Stockholders' Counsel 17
8.6 Environmental Inspection 17
8.7 Title Insurance 17
8.8 No Material Adverse Changes 18
8.9 Delivery of Stock 18
8.10 Resignations 18
8.11 Audited Financial Statements 18
8.12 Listing 18
8.13 Legal Matters 18
ARTICLE IX - CONDITIONS TO OBLIGATIONS OF STOCKHOLDERS 18
9.1 General 18
9.2 Performance 18
9.3 Representations and Warranties True as of Closing Date 18
9.4 Opinion of Buyer's Counsel 18
9.5 Payment of Purchase Price 19
9.6 Listing 19
9.7 Director 19
9.8 Legal Matters 19
ARTICLE X - MODIFICATION, WAIVERS AND TERMINATION 19
10.1 Modification 19
10.2 Waivers 19
10.3 Termination 19
10.4 Effect of Termination 20
10.5 Specific Performance 20
ARTICLE XI - INDEMNIFICATION 21
11.1 Survival of Representations and Warranties 21
11.2 Obligation of the Stockholders to Indemnify 21
11.3 Obligations of the Buyer to Indemnify 22
11.4 Administration of Indemnification 22
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ARTICLE XII - MISCELLANEOUS 23
12.1 Notices 23
12.2 Gender and Number 23
12.3 Expenses 23
12.4 Announcements 23
12.5 Successors and Assigns 24
12.6 Waiver 24
12.7 Attorneys' Fees 24
12.8 Counterparts 24
12.9 Entire Agreement 24
12.10 Governing Law 24
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INDEX OF EXHIBITS
Exhibit Description
- ------- ------------
A Escrow Agreement
B Investment Letter
C Non-Competition and Confidentiality Agreement
D Employment Agreement
E Stockholders' Counsel's Opinion
F Buyer's Counsel's Opinion
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement"), dated this 25th day of November,
1997, among IMAGE GUIDED TECHNOLOGIES, INC., a Colorado corporation
("Buyer"), and the undersigned stockholders ("Stockholders") of BRIMFIELD
PRECISION, INC., a Massachusetts corporation ("Company").
WITNESSETH
WHEREAS, the Stockholders own of record and beneficially all of the
issued and outstanding shares of the common stock, no par value, of the
Company ("Company Common Stock"); and
WHEREAS, Buyer desires to purchase from the Stockholders, and the
Stockholders desire to sell to Buyer, all the issued and outstanding shares
of the Company's Common Stock;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and in reliance upon the representations and warranties
contained herein, Buyer and Stockholders agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
I.1 "Acquisition Proposal" is any proposal, other than the transactions
contemplated herein, for (i) any merger or other business combination
involving the Company, (ii) the acquisition of the Company or a material
equity interest therein, (iii) the acquisition of a material portion of the
assets of the Company, or (iv) the acquisition by the Company of a material
equity interest in, or a material portion of the assets of, another entity.
I.2 "Affiliate" with respect to any Person means a Person which
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person.
I.3 "Buyer Common Stock" shall have the meaning set forth in Section
2.3(b).
I.4 "Closing" shall have the meaning set forth in Section 2.5.
I.5 "Closing Date" shall have the meaning set forth in Section 2.5.
I.6 "Code" means the Internal Revenue Code of 1986, as amended.
I.7 "Commission" shall have the meaning set forth in Section 4.6.
I.8 "Company Common Stock" shall have the meaning set forth in the
first paragraph of the Recitals.
I.9 "Company Financial Statements" shall have the meaning set forth in
Section 3.6.
I.10 "Disclosure Letter" shall have the meaning set forth in the
introductory paragraph to Article III.
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I.11 "Documents" shall mean this Agreement and all Exhibits hereto, the
Disclosure Letter and each other agreement, certificate, document or
instrument delivered pursuant to or in connection with this Agreement.
I.12 "Earnest Money" shall have the meaning set forth in Section 2.2.
I.13 "Employee Plans" shall have the meaning set forth in Section 3.13.
I.14 "Encumbrances" means any and all mortgages, leases, security
interests, claims, liens, charges, preferential rights and encumbrances.
I.15 "Environmental Claim" means any notice (written or oral) by any
Person alleging potential liability arising out of, based on or resulting
from (i) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by Seller or (ii)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
I.16 "Environmental Indemnity Claim" shall have the meaning set forth in
Section 11.1(b)(iii).
I.17 "Environmental Laws" means all federal, state, local and foreign
laws and regulations relating to pollution or protection of human health or
the environment including laws and regulations relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environment Concern.
I.18 "ERISA" shall have the meaning set forth in Section 3.13.
I.19 "Escrow Agent" means Bowditch & Dewey, LLP.
I.20 "Escrow Agreement" means the Escrow Agreement in the form attached
as Exhibit A which the Stockholders, Buyer and the Escrow Agent have entered
into concurrently with execution of this Agreement relating to the deposit,
holding and disbursement of the Earnest Money.
I.21 "FDA" means the United States Food and Drug Administration.
I.22 "GAAP" shall have the meaning set forth in Section 3.6(a).
I.23 "General Claim" shall have the meaning set forth in Section
11.1(b)(i).
I.24 "Governmental Entity" means any court, administrative agency or
commission, or other federal, state or local governmental authority or
instrumentality.
I.25 "Intellectual Property Rights" shall have the meaning set forth in
Section 3.17.
I.26 "IRS" means the Internal Revenue Service.
I.27 "Losses" shall have the meaning set forth in Section 11.2.
I.28 "Manufacturing Facilities" shall have the meaning set forth in
Section 3.10.
I.29 "Material" and "materially" shall be interpreted in terms of the
aggregate, potential effect on the matter or issue with respect to which such
words are used (to the extent the effect of such words can be measured in
monetary terms, it shall mean having a financial value in excess of One
Hundred Thousand Dollars ($100,000)).
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I.30 "Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products.
I.31 "New Manufacturing Facility" shall have the meaning set forth in
Section 3.10.
I.32 "Old Manufacturing Facility" shall have the meaning set forth in
Section 2.4(d).
I.33 "Permitted Lien" shall mean any lien securing indebtedness to the
Bank of Boston and any statutory lien which secures a payment not yet due
that arises, and is customarily discharged, in the ordinary course of the
Company's business; or any imperfections of title, easements or Encumbrances
that, individually and in the aggregate, are not material in character or
amount and do not and could not reasonably be expected to materially impair
the value or materially interfere with the use of any asset or property of
the Company material to the operation, financial condition or results of
operation of its business as it has been and is now conducted.
I.34 "Person" means any individual, corporation or other entity.
I.35 "Purchase Price" shall have the meaning set forth in Section 2.3.
I.36 "Returns" shall have the meaning set forth in Section 3.16.
I.37 "SEC Documents" has the meaning set forth in Section 4.6.
I.38 "Securities Act" has the meaning set forth in Section 4.4.
I.39 "Shares" shall have the meaning set forth in Section 3.4.
I.40 "Stock Claim" shall have the meaning set forth in Section
11.1(b)(iv).
I.41 "Tax Claim" shall have the meaning set forth in Section 11.1(b)(ii).
I.42 "Taxes" (or "Tax" where the context requires) means all federal,
state, county, local, foreign and other taxes (including, without limitation,
income, profits, premium, estimated, excise, sales, use, occupancy, gross
receipts, franchise, ad valorem, severance, capital levy, production,
transfer, withholding, employment and payroll related, and property taxes,
import duties, insolvency assessments from guaranty associations, and other
governmental or other charges and assessments), whether attributable to
statutory or non-statutory rules and whether or not measured in whole or in
part by net income, and including interest, additions to tax or interest, and
penalties with respect thereto, and including expenses associated with
contesting any proposed adjustment related to any of the foregoing.
ARTICLE II
PURCHASE AND SALE OF SHARES
II.1 PURCHASE AND SALE. At Closing and upon the terms and conditions
hereinafter set forth, Stockholders agree to sell to Buyer, and Buyer agrees
to purchase from Stockholders, all of the shares of the Company Common Stock
owned by each of the Stockholders. The number of shares of the Company
Common Stock owned by each Stockholder is set forth in Section 3.1 of the
Disclosure Letter.
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II.2 EARNEST MONEY.
(a) Concurrently with the execution of this Agreement, Buyer has
deposited with the Escrow Agent under the Escrow Agreement in immediately
available funds the sum of Five Hundred Thousand Dollars ($500,000), which
amount is referred to herein as the "Earnest Money." The Escrow Agent shall
hold the Earnest Money, under the terms of the Escrow Agreement, in trust for
the benefit of the parties hereto.
(b) If Closing does not occur, the Earnest Money shall be
delivered to Stockholders or returned to Buyer in accordance with the terms
of the Escrow Agreement, and if Closing does occur, the Earnest Money shall
be applied to payment of the Purchase Price at Closing as provided in Section
2.3.
II.3 PAYMENT OF PURCHASE PRICE. The total purchase price (the "Purchase
Price") for the Company Common Stock being acquired hereby shall be Nine
Million Five Hundred Thousand Dollars ($9,500,000) payable as follows:
(a) At the Closing, Eight Million Dollars ($8,000,000) in
immediately available funds to the accounts of the Stockholders to be
designated in writing not later than three (3) business days prior to the
Closing. Such funds shall come from the following sources: (i) Five Hundred
Thousand Dollars ($500,000) shall be the Earnest Money and shall be disbursed
by the Escrow Agent; and (ii) Seven Million Five Hundred Thousand Dollars
($7,500,000) shall be from Buyer.
(b) One Million Five Hundred Thousand Dollars ($1,500,000) in
common stock, no par value, of Buyer ("Buyer Common Stock") divided among the
Stockholders in accordance with the percentages set forth in Section 3.1 of
the Disclosure Letter. The number of shares of Buyer Common Stock to be
delivered pursuant to this Section 2.3(b) shall be calculated by dividing One
Million Five Hundred Thousand Dollars ($1,500,000) by the Closing Market
Price per share of Buyer Common Stock. The term "Closing Market Price per
share of Buyer Common Stock" means the average "last" price of Buyer Common
Stock, as reported in the Wall Street Journal for the ten trading days
immediately preceding the Closing Date.
II.4 CERTAIN OTHER AGREEMENTS.
(a) Concurrently with the execution and delivery of this
Agreement, each Stockholder shall execute and deliver to Buyer an Investment
Letter in the form of Exhibit B attached hereto.
(b) At Closing, Matthew Lyons shall execute and deliver to Buyer a
noncompetition and confidentiality agreement in the form of Exhibit C
attached hereto.
(c) At Closing, William G. Lyons will enter into a one-year
employment agreement with the Company in the form of Exhibit D attached
hereto.
(d) At Closing, the Stockholders will cause the William G. Lyons
Trust to transfer and convey, without additional charge or payment therefor,
the real property where the Company's manufacturing facility at 68 Mill Lane
Road, Brimfield, Massachusetts is located ("Old Manufacturing Facility") to
the Company. Such conveyance shall transfer fee simple title to the Company,
free and clear of all liens, security interests, mortgages and encumbrances,
except existing water rights to contiguous real estate.
II.5 CLOSING. Subject to the satisfaction or waiver of the terms and
conditions hereof, the closing ("Closing") of the transactions contemplated
by this Agreement shall take place at the offices of Image Guided
Technologies, Inc., 5710-B Flatiron Parkway, Boulder, CO 80301 at 1:00 p.m.,
local
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time, on December 12, 1997 (or such other time and place as is mutually
acceptable to the parties; the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
The Stockholders, jointly and severally, represent and warrant to Buyer
that the statements contained in this Article III are true and correct,
except to the extent set forth in the disclosure letter delivered by the
Stockholders to the Buyer on or before the date of this Agreement (the
"Disclosure Letter"). The Disclosure Letter shall be arranged in sections
corresponding to the numbered sections contained in this Article III and the
disclosure in any section shall qualify only the corresponding section in
this Article III.
III.1 TITLE TO SHARES. Each Stockholder is the lawful owner, of
record and beneficially, of the number of shares of Company Common Stock set
forth in Section 3.1 of the Disclosure Letter. Each Stockholder has the full
power and authority to sell and deliver his shares of the Company Common
Stock to the Buyer hereunder, and will irrevocably transfer to Buyer at
Closing, full, valid, legal and marketable title to his shares of the Company
Common Stock, free and clear of all Encumbrances. There are no restrictions
on the voting or transfer rights of the Company Common Stock.
III.2 AUTHORITY, EXECUTION AND DELIVERY. This Agreement has been,
and the Documents at Closing will be, duly executed and delivered by the
Stockholders and constitute or will constitute the valid and binding
obligations of the Stockholders, enforceable against the Stockholders in
accordance with their terms. Neither the execution nor delivery of this
Agreement or the Documents nor the closing of the transactions contemplated
hereby will violate or result in a default under or conflict with the terms
or provisions of any material contract or commitment by which the
Stockholders may be bound or affected or violate any law or order, rule,
regulation, right or injunction or decree of any Governmental Entity having
jurisdiction over the Stockholders. No consent or approval of, or filing
with, any Governmental Entity or any Person under any contract or commitment
by which the Stockholders may be bound or affected is required in connection
with the execution and delivery by the Stockholders of this Agreement or the
Documents or the closing by the Stockholders of the transactions provided for
herein.
III.3 DUE ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and is duly qualified to transact business and
is in good standing as a foreign corporation in each jurisdiction where the
failure to so qualify would have a material adverse effect on the assets of
the Company or the business conducted by the Company. The Company has the
corporate power and authority to own its assets, to conduct its business as
it is now being conducted, and to enter into and perform its obligations
under this Agreement. The Company has no subsidiaries or direct or indirect
interests in any firm, corporation, association or business.
III.4 CAPITALIZATION. The authorized capital stock of the Company
consists of 200,000 shares of common stock, no par value. There are
presently issued and outstanding 43 shares (the "Shares") of the Company
Common Stock, all of which are duly authorized, validly issued, fully paid
and nonassessable and none of which were issued in violation of any
preemptive, first refusal or other rights of any Person. There are no
outstanding subscriptions, preemptive rights, warrants, options or other
agreements or rights of any kind to purchase or otherwise receive or be
issued, or securities or obligations of any kind convertible into, any shares
of capital stock of the Company. Section 3.1 in the Disclosure Letter is a
true and complete list of the record, and beneficial, owners of all the
Company capital stock.
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III.5 CONFLICTING AGREEMENTS AND COMPANY CONSENTS. Neither the
execution and delivery of this Agreement or the Documents nor the closing of
the transactions contemplated hereby (i) will violate or result in a default
under the terms or provisions of the Company's Articles of Incorporation or
By-Laws, or, except as set forth in Section 3.5 of the Disclosure Letter,
under any material contract or commitment by which the Company may be bound
or affected, (ii) violate any material license, permit or authorization held
by the Company, (iii) violate any law or order, rule, regulation, writ,
injunction, or decree of any Governmental Entity having jurisdiction over the
Company, or (iv) result in the creation or imposition of any Encumbrances on
any asset of the Company. Except as set forth in Section 3.5 of the
Disclosure Letter, no consent or approval of, or filing with, any
Governmental Entity or any Person under any contract or commitment by which
the Company may be bound or affected is required in connection with the
execution and delivery of this Agreement or the Documents by the Stockholders
or the closing by the Stockholders of the transactions provided for herein.
III.6 FINANCIAL STATEMENTS.
(a) True and correct copies of the Company's unaudited financial
statements for the years ended October 31, 1997, 1996 and 1995 have
previously been delivered to Buyer. These financial statements ("Company
Financial Statements") are true and complete, are in accordance with and
accurately reflect the books and records of the Company, have been prepared
in accordance with generally accepted accounting principles ("GAAP")
consistently maintained and applied and present fairly the financial position
of the Company at the respective dates indicated and the results of
operations of the Company for the respective periods indicated.
(b) Except for liabilities and obligations incurred in the
ordinary course of business since October 31, 1997 and except for the
Company's guaranty of the obligations of Blackstone Medical Corp. for lease
of the premises containing the New Manufacturing Facility, the Company has no
material liabilities or obligations of any nature, fixed or contingent,
matured or unmatured, which are not shown or provided for on the balance
sheet included in the Company Financial Statements as of October 31, 1997
(the "October Balance Sheet").
III.7 CORPORATE BOOKS AND RECORDS. The Minute Books of the Company
heretofore furnished Buyer for inspection contained complete and accurate
records of all the Company's meetings and actions of its stockholders, board
of directors and committees of the board. The stock books and ledgers of the
Company heretofore furnished Buyer for inspection contained complete and
accurate records of all issuances and transfers of its capital stock. True
and correct copies of the Articles of Incorporation and By-Laws of the
Company, in each case as amended to the date hereof, have been delivered to
Buyer.
III.8 ASSETS. Except as set forth in Section 3.8 of the Disclosure
Letter, the Company has good and marketable title, legal and equitable, to
all the assets (the "Assets") shown or reflected on the October Balance Sheet
(other than those disposed of in the ordinary course of business since such
date), free and clear of all Encumbrances except Permitted Liens. Except as
set forth in Section 3.8 of the Disclosure Letter, the Assets include all of
the assets, properties and rights of every type and description that are
necessary for or used to a material extent in the operation of the Company's
business as now conducted. The operation and use of the Assets conforms in
all material respects to all applicable laws, rules, regulations, permits and
authorities.
III.9 TANGIBLE PERSONAL PROPERTY. The material tangible personal
property owned or leased by the Company is in good operating condition and
repair, ordinary wear and tear excepted, except as set forth in Section 3.9
of the Disclosure Letter.
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III.10 REAL PROPERTY.
(a) The Company has two manufacturing facilities ("Manufacturing
Facilities"), the Old Manufacturing Facility and a recently leased facility
at 90 Brookdale Drive, Springfield, MA (the New Manufacturing Facility").
The Stockholders have heretofore delivered to Buyer true and complete copies
of the leases which evidence the Company's interest in the Manufacturing
Facilities. Such leases are in full force and effect and neither the Company
nor any other party thereto is in default thereunder. The Company does not
have any other interests in real property whether owned in fee, leased or
otherwise. The Old Manufacturing Facility currently leased by the Company
will be transferred to the Company prior to Closing.
(b) The Company holds all easements and rights-of-way necessary
for present access to and present operation of the Manufacturing Facilities.
The Manufacturing Facilities conform in all material respects with all
applicable laws, including, without limitation, building and zoning laws
(however, no representation is made with respect to the Americans With
Disability Act) and no notice or actual knowledge of any violation of zoning,
building or other laws, statutes and ordinances and regulations relating to
the Manufacturing Facilities has been received or is known as to either of
the Manufacturing Facilities. There is no proposed, pending or threatened
condemnation proceeding or similar action affecting any of the Manufacturing
Facilities. The buildings and improvements located on the Manufacturing
Facilities are in good condition and repair, ordinary wear and tear excepted,
and do not encroach on any real property not included in the Manufacturing
Facilities.
III.11 RECEIVABLES AND INVENTORY.
(a) Except as set forth in Section 3.11 of the Disclosure Letter,
the accounts receivable of the Company as shown on the October Balance Sheet
and all accounts receivable of the Company created after October 31, 1997,
arose from valid sales in the ordinary course of business. These accounts
have been collected in full since such date, or are collectible in full in
accordance with their terms in the ordinary course of the business of the
Company less (i) any reserve for doubtful accounts shown on the October
Balance Sheet, and (ii) a reasonable reserve consistent with past practices
for accounts receivable created after October 31, 1997.
(b) Except as set forth in Section 3.11 of the Disclosure Letter,
the inventory, raw materials, work in process and finished goods shown on the
October Balance Sheet are usable and saleable in the ordinary course of the
Company's business without markdown or discount. The finished goods: (i)
conform to the customer's current specifications; and (ii) were manufactured
in accordance with FDA Good Manufacturing Practices. The accrual for
warranty obligations on the Company's books and records is sufficient to
discharge all warranty obligations, based on the Company's historic warranty
claims (which is believed to be an accurate way to measure such obligations).
III.12 FDA REGULATIONS. The Company is in compliance in all material
respects with all laws, rules and regulations of the FDA applicable to its
business, including the FDA's Good Manufacturing Practice requirements. The
Company has not received any notice from the FDA of, and there has not been
asserted before the FDA, any claim, action or proceeding to which the Company
is a party or involving the Company and there is neither pending nor, to the
knowledge of the Company threatened, any investigation or administrative
proceeding concerning the Company arising out of or based upon any
governmental law, rule or regulation of the FDA, including the FDA's Good
Manufacturing Practice requirements. To the Company's knowledge, there are
no valid grounds for recall of any products heretofore sold by the Company,
except as set forth in Section 3.12 of the Disclosure Letter.
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III.13 EMPLOYEE PLANS.
(a) Set forth in Section 3.13 of the Disclosure Letter is a true
and complete list of all the Company's employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), all the Company's bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance,
insurance (including any self-insured or post-retirement arrangements),
disability, vacation, profit-sharing and other similar employee benefit
plans, arrangements, policies or agreements, and all the Company's unexpired
severance agreements, written or otherwise, for the benefit of, or relating
to, any current or former employee of the Company (collectively, the
"Employee Plans").
(b) With respect to each Employee Plan, the Company has made
available to Buyer, a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the IRS, (ii) such Employee Plan, and (iii) the
most recent actuarial report or calculation relating to any Employee Plan
subject to Title IV of ERISA.
(c) With respect to the Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of the Company, there
exists no condition or set of circumstances in connection with which the
Company could be subject to any liability that is reasonable likely to have a
material adverse effect on the Company, under ERISA, the Code or any other
applicable law.
(d) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during
the period from its adoption to date, and each trust forming a part thereof
is exempt from tax pursuant to Section 501(a) of the Code. The Company has
furnished to Buyer copies of the most recent IRS determination letters with
respect to each such plan.
(e) Each Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including but not limited to ERISA and the Code, which
are applicable to such Employee Plan. No "prohibited transaction" (as that
term is defined in Section 406 of ERISA or Section 4975 of the Code) has
occurred with respect to any Employee Plan. No tax under Section 4980B of
the Code has been incurred in respect to any Employee Plan that is a group
health plan, as defined in Section 5000(b) (1) of the Code. With respect to
the employees and former employees of the Company, there are no employee
post-retirement medical or health plans in effect, except as required by
Section 4980B of the Code.
(f) With respect to the Employee Plans, there are no funded
benefit obligations for which contributions have not been made or properly
accrued and there are no unfunded benefit obligations which have not been
accounted for by reserves, or otherwise properly footnoted in accordance with
generally accepted accounting principles, on the Company Financial Statements.
III.14 LABOR MATTERS.
(a) Schedule 3.14 of the Disclosure Letter contains a complete and
accurate list as of the date indicated thereon of the names of all persons
who are employed by the Company, job titles, the current annual salary or
hourly rate, original date of hire, bonus arrangements, severance benefits,
and fringe benefits other than those furnished to the Company's employees
generally. The Company has delivered to Buyer all employee handbooks, policy
memoranda and procedure manuals or similar documents applicable to its
employees. The Company is not a party to any collective bargaining
agreement, and there is no collective bargaining agreement applicable to any
employees of the Company.
(b) Except as disclosed in Section 3.14 of the Disclosure Letter:
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(i) None of the employees of the Company has given notice
to the Company of an intention to cancel or otherwise terminate the
employment relationship with the Company or an intention not to be employed
following the Closing;
(ii) There is no labor strike, dispute, slow-down or
stoppage pending or threatened against the Company;
(iii) There are neither pending nor threatened, suits,
actions, administrative proceedings, union organizing activities,
arbitrations, grievances or other proceedings between the Company and any
employees of the Company; and there are no existing labor or employment or
other disturbances involving employees of the Company which have had or could
reasonably be expected to have a material adverse effect on the financial
condition or operation of the Company;
(iv) The Company is in compliance in all material respects
with all laws, rules and regulations relating to the employment of labor and
all contractual obligations, including those related to wages, hours,
collective bargaining, affirmative action, discrimination, sexual harassment,
wrongful discharge, and occupational safety and health employment practices.
The Company has not received any notice from any Governmental Entity, and
there has not been asserted before any Governmental Entity, any claim, action
or proceeding to which the Company is a party or involving the Company and
there is neither pending nor threatened investigations or administrative
proceedings concerning the Company arising out of or based upon any such law,
regulations or practices; and
(v) Buyer's consummation of the transactions contemplated
by this Agreement in accordance with the terms hereof shall not, as a result
of or in connection with the transactions contemplated hereby, impose upon
Buyer the obligation or potential obligation to pay any severance or
termination pay under any agreement, plan or arrangement binding upon the
Company.
III.15 NO CHANGES. Except as set forth in Section 3.15 of the
Disclosure Letter, the Company since July 31, 1997, has not:
(a) Suffered any material adverse change in its condition
(financial or otherwise), assets, business or prospects;
(b) Incurred any damage, destruction or similar loss, whether or
not covered by insurance, materially affecting its business or assets;
(c) Sold, transferred, or removed from the Company properties any
machinery, equipment, inventory or other property, except in the ordinary
course of business;
(d) Granted any severance or termination pay to any director,
officer or employee of the Company or amended any Employee Plan;
(e) Received notice of loss of any significant customer or
customers, made any material changes in the credit terms offered to any
significant customers, or materially changed the pricing on any of its
products;
(f) Committed to any capital expenditures in excess of Twenty Five
Thousand Dollars ($25,000) except with respect to manufacturing software
having a purchase price of approximately One Hundred Thousand Dollars
($100,000);
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(g) Declared, set aside, or paid any dividend or other
distribution in respect to the shares of the Company, directly or indirectly
redeemed, purchased or acquired or sold any of its shares of capital stock;
(h) Increased the salary or other compensation payable or to
become payable by the Company to any of its officers, directors or employees,
or declared, paid or committed to the payment of a bonus or other additional
salary or compensation to any such person, other than increases, declarations
or commitments in the ordinary course of business to employees who are not
officers or directors;
(i) Materially amended or terminated any material contract,
agreement or commitment to which it is a party; or
(j) Conducted its business or entered into any material
transaction other than in the ordinary course of business.
III.16 TAXES. The Company has timely filed all required federal,
state and local returns, estimates, information statements and reports
("Returns") with respect to Taxes relating to or attributable to the Company
and its operations and such Returns are true and correct and have been
properly completed. The Company has timely paid all Taxes required to be
paid with respect to such Returns and has withheld all Taxes required to be
withheld. The accruals for the Company's Taxes on the books and records of
the Company are sufficient to discharge all Taxes. No issues have been
raised (and are currently pending) by any federal, state or local taxing
authority in connection with any of the Returns and the Company has not
executed any waiver of any statute of limitations on or extended the period
for the assessment or collection of any the Tax relating to the Company. No
audit or other examination of any Return of the Company is presently in
progress nor has any notification of any intention to examine such returns
been given. The Company is not a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement and has never been a member of a group of
corporations filing a consolidated return and no related party transactions
have occurred which could create liability for Taxes due to actions which
such related party might take. The Company's S corporation election was
properly made (a copy of which has been provided to Buyer) and has been
effective since made and no actions have been taken to terminate that
election. The transactions set forth in this Agreement are not subject to
the tax withholding provisions of Section 3406 of the Code or any other
provisions of law. The Company has provided to Buyer copies of all federal
and state S Corporation and all state sales and use Returns for the fiscal
years ending October 31, 1994, 1995 and 1996. There is no contract,
agreement, plan or arrangement, including but not limited to the provisions
of this Agreement, covering any employee or former employee of the Company
that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 162 or 404 of
the Code.
III.17 INTELLECTUAL PROPERTY. The Company owns, is licensed to use,
or has the legal right to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are used or currently proposed to be
used in its business as currently conducted or as currently proposed to be
conducted (the "Intellectual Property Rights"). Schedule 3.17 of the
Disclosure Letter contains a true and complete list of all Intellectual
Property Rights and the status of the ownership thereof. There is, to the
Company's knowledge, no unauthorized use, disclosure or infringement of any
of the Intellectual Property Rights. No claims with respect to the
Intellectual Property Rights have been asserted or are threatened by any
Person, nor is there any valid grounds for any bona fide claim that the
Company infringes on any copyright, patent, trade mark, service mark or trade
secret of a third party, against the use by the Company of the Intellectual
Property Rights or challenging the ownership of the Intellectual Property
Rights. Each employee of, and consultant to, the Company has signed a
non-disclosure agreement, or consultant agreement, respectively, on the
Company's standard forms which have previously been delivered to the Company.
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III.18 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in
Section 3.18 of the Disclosure Letter, the Company does not have, is not a
party to, nor is it bound by:
(a) Any agreements that contain any unpaid severance liabilities or
obligations;
(b) Any agreement, contract or commitment with a vendor, or service
maintenance contract involving, a future obligation in excess of Ten Thousand
Dollars ($10,000);
(c) Any agreement, contract or commitment with any customer of the
Company or involving the Company's Intellectual Property Rights;
(d) Any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization, not
terminable by the Company on thirty days notice without liability;
(e) Any lease of personal property having a value in excess of Ten
Thousand Dollars ($10,000);
(f) Any agreement of indemnification or guaranty;
(g) Any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or compete
with any Person;
(h) Any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of Ten Thousand Dollars
($10,000);
(i) Any agreement, contract or commitment relating to the disposition
or acquisition of assets not in the ordinary course of business or any ownership
interest in any corporation, partnership, joint venture or other business
enterprise;
(j) Any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit;
(k) Any distribution, joint marketing or development agreement;
(l) Any other agreement, contract or commitment which involves Ten
Thousand Dollars ($10,000) or more and is not cancelable without penalty within
thirty (30) days; or
(m) Any agreement, contract or commitment which is otherwise material
to the Company or its business.
The Company has not breached, or received any notice that it has breached,
any of the terms or conditions of any material agreement, contract or commitment
to which it is bound (including those set forth in the Disclosure Letter) in
such manner as would permit any other party to cancel or terminate the same or
seek material damages from the Company. Each material agreement, contract or
commitment required to be set forth in the Disclosure Letter is in full force
and effect and, except as otherwise disclosed, is not subject to any material
default thereunder of which the Company has knowledge by any party obligated to
the Company pursuant thereto. There is no contract, agreement or commitment to
which the Company is a party or is bound that is currently known or expected by
the Company to result in any material loss to the Company upon completion or
performance thereof. The Company has heretofore delivered to Buyer true and
correct copies of all agreements, contracts and commitments listed in Section
3.18 of the Disclosure Letter.
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III.19 LITIGATION. Section 3.19 of the Disclosure Letter lists all
suits, actions and legal, administrative, arbitration or other proceedings and
governmental investigations pending against the Company or its Assets and all
other claims as to which the Company has received any notice of assertion, or as
to which the Company has a reasonable basis to expect such notice of assertion.
There is no judgment, decree or order enjoining the Company in respect of, or
the effect of which is to prohibit, any business practice or the acquisition or
disposition of any property or the conduct of business by the Company. Section
3.19 of the Disclosure Letter also lists all suits and legal actions initiated
by the Company.
III.20 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 3.20 of the Disclosure Letter,
the Company and the Old Manufacturing Facility are in compliance in all
material respects with all applicable Environmental Laws; the Company has not
received any communication (written or oral), whether from a governmental
authority, citizens group, employee or otherwise, that alleges that the
Company or the Old Manufacturing Facility are not in compliance; and to the
Company's knowledge, there are no circumstances that may prevent or interfere
with such compliance in the future.
(b) There is no Environmental Claim pending or threatened against
the Company or the Old Manufacturing Facility or, to the Company's knowledge,
against any Person or entity whose liability for any Environmental Claim the
Company has or may have retained or assumed either contractually or by
operation of law.
(c) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including the release,
emission, discharge or disposal of any Material of Environmental Concern that
could form the basis of any material Environmental Claim against the Company
or the Old Manufacturing Facility or, to the Company's knowledge, against any
Person or entity whose liability for any Environmental Claim the Company has
or may have retained or assumed either contractually or by operation of law.
III.21 INSURANCE. Section 3.21 of the Disclosure Letter lists all
insurance policies covering the assets, business, equipment, products,
operations, employees, officers and directors of the Company as well as all
claims made under any insurance policy by the Company since December 31,
1993. There is no claim by the Company pending under any of such policies as
to which coverage has been questioned, denied or disputed by the underwriters
of such policies. All premiums payable under all such policies have been
paid and the Company is otherwise in full compliance with the terms of such
policies (or other policies providing substantially similar insurance
coverage). During the past five (5) years the Company has not been denied
insurance coverage nor has any insurance policy of the Company been cancelled
for any reason.
III.22 COMPLIANCE WITH LAWS. The Company is in compliance, and has
complied in every material respect, with all federal, state and local laws,
rules and regulations and all decrees and orders of all Governmental Entities
that are material to the conduct of its business and/or ownership of its
assets. There are no existing or contemplated suits, investigations, or
claims of any Governmental Entity or any party asserting a claim or violation
of any such laws or other governmental rules or regulations. The Company has
all required approvals, permits, licenses and certifications necessary for
the conduct of its business, the sale of its products and the ownership of
its assets.
III.23 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule
3.23 of the Disclosure Letter, there are no loans, leases or other agreements
or continuing transactions between the Company and any Affiliate of the
Company or a member of the Immediate Family of an officer, director or
stockholder of the Company. None of the Stockholders or members of their
Immediate Family have any material, direct or indirect, interest in any
entity which does business with the
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Company or in any material property or asset owned by the Company other than
relationships which occur as an officer, director or stockholder of the
Company. As used herein, the term "Immediate Family" shall mean a person's
spouse, parents, children, siblings, mothers and fathers-in-law, sons and
daughters-in-law and brothers and sisters-in-law.
III.24 FIRPTA. The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
III.25 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Stockholders
directly with Buyer without the intervention of any Person on behalf of
Stockholders in such manner as to give rise to any claim by any Person
against Buyer, Stockholders or the Company for a finder's fee, brokerage
commission or similar payment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Stockholders that:
IV.1 DUE ORGANIZATION AND STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Colorado and has all requisite corporate power and authority to execute
and deliver this Agreement and the Documents, and to perform its obligations
under this Agreement.
IV.2 EXECUTION AND DELIVERY. The execution, delivery and performance
of this Agreement and the Documents by Buyer have been duly and validly
authorized by all requisite corporate action on the part of Buyer. This
Agreement has been, and the Documents at Closing will be, duly executed and
delivered by Buyer and constitute or will constitute the valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their
terms.
IV.3 CONSENTS, WAIVERS AND APPROVALS. The execution and delivery of
this Agreement and the Documents by Buyer, the performance by Buyer of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby do not require Buyer to obtain any consent,
waiver, approval or action of, or make any filing with or give any notice to,
any Person or any Governmental Entity.
IV.4 INVESTMENT PURPOSE. The Shares to be acquired by Buyer under the
terms of this Agreement will be acquired for its own account for the purpose
of investment only and not with a view to the public resale or public
distribution of all or any part of the Shares. Buyer agrees that it will
refrain from transferring or otherwise disposing of any of the Shares, or any
interest therein, in such manner as to violate the Securities Act of 1933, as
amended (the "Securities Act"), or of any applicable state securities law
regulating the disposition thereof.
IV.5 CAPITALIZATION. As of October 31, 1997, the authorized capital
stock of Buyer consisted of (i) 2,416,688 shares of Series Preferred Stock,
no par value, none of which were issued and outstanding, and (ii) 10,000,000
shares of Buyer Common Stock, of which 3,114,112 shares were issued and
outstanding. As of October 31, 1997, there were reserved for issuance under
Buyer's various stock plans an aggregate of 919,118 shares of Buyer Common
Stock and warrants to issue 165,000 shares of Buyer Common Stock. Except as
provided in the immediately preceding sentence of this Section 4.5 and in
connection with the Buyer's proposed private placement in connection with
this transaction, as of October 31, 1997, there were no outstanding options,
warrants, calls, rights, commitments or agreements to which Buyer is a party
or by which Buyer is bound obligating Buyer to (x) issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock
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of Buyer or (y) grant, execute or enter into any such option, warrant, call,
right, commitment or agreement.
IV.6 SEC DOCUMENTS. Buyer has made available to the Stockholders a
true and complete copy of the following Buyer documents: (i) its annual
report on Form 10-KSB for the fiscal year ended December 31, 1996; (ii) its
quarterly reports on Form 10-QSB for the fiscal quarters ended March 31,
1997, June 30, 1997, and September 30, 1997, (iii) its proxy statement dated
March 18, 1997; and (v) each report, schedule, registration statement and
definitive proxy filed by the Buyer with the Securities and Exchange
Commission (the "Commission") since December 31, 1996, and publicly available
prior to the date hereof (collectively, the "SEC Documents"), which are all
of the documents that Buyer was required to file with the Commission since
such date. As of their respective dates, the SEC Documents compiled in all
material respects with the requirements of the Securities Act, or the
Securities Exchange Act of 1934, as amended, as the case may be, and the
rules and regulations of the Commission thereunder applicable to such SEC
Documents, and none of the SEC Documents, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Buyer included in the SEC
Documents complied as to form in all material respects with the published
rules and regulations of the Commission with respect thereto, were prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
the unaudited statements, as permitted by Rule 10-01 of Regulation S-X) and
fairly presented in accordance with applicable requirements of GAAP (subject,
in the case of the unaudited statements, to normal recurring adjustments,
none of which will be material and recognizing that there are no notes to
such interim financial statements) the financial position of Buyer as of
their respective dates and the results of operations and cash flows of Buyer
for the periods presented therein.
IV.7 BUYER COMMON. The shares of Buyer Common Stock to be issued and
exchanged for shares of the Company Common Stock pursuant to this Agreement
will, at Closing, be duly authorized, validly issued, fully paid and
nonassessable and subject to no preemptive rights.
IV.8 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Buyer directly with
the Stockholders, without the intervention of any Person on behalf of Buyer
in such manner as to give rise to any claim by any Person against Buyer,
Stockholders or the Company for a finder's fee, brokerage commission or
similar payment.
ARTICLE V
INTERIM PERIOD CONDUCT
The Stockholders agree to cause the Company, except as otherwise
consented to in writing by Buyer prior to the Closing Date, to comply with
the following provisions:
V.1 AFFIRMATIVE ACTS. Except as otherwise permitted or restricted by
this Agreement, the Company shall:
(a) Carry on its business as now being conducted;
(b) Shall use its best efforts to keep available the services of its
existing employees and preserve the good will of its suppliers, customers and
others having business relations with it;
(c) Maintain, preserve, protect and keep its assets and properties in
good repair, working order and condition, reasonable wear and tear excepted; and
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(d) Maintain in full force and effect all policies of insurance
currently in force or in substitution therefor enter into policies with
comparable coverage.
V.2 PROHIBITIONS. Except as required by this Agreement or the Documents
or as permitted in writing by the Buyer, the Company, and with respect to
paragraph (i) and (k), the Stockholders, will not:
(a) Create, authorize, issue, sell or deliver any of its capital
stock or its securities or grant or otherwise issue any options, warrants or
other rights with respect thereto, or enter into any contract or commitment to
do any of the foregoing;
(b) Incur, assume, guarantee or otherwise become liable with respect
to any indebtedness for money borrowed, except indebtedness in the ordinary
course of its business;
(c) Make any loan, advance or capital contribution to or investment
in any Person;
(d) Declare, set aside or make any payment of any dividend or other
distribution in respect of the capital stock of the Company or any direct or
indirect redemption, purchase or other acquisition of any such stock by the
Company;
(e) Sell, assign, transfer or otherwise dispose of, or pledge,
mortgage or otherwise encumber, any material part of its assets, properties or
rights;
(f) Enter into, amend or terminate any material agreements except in
the ordinary course of its business;
(g) Make any material expenditures not in the ordinary course of
business;
(h) Enter into or amend any employment contracts other than in the
ordinary course of business, increase the rate of compensation payable, or grant
bonuses, to any of its employees, or become obligated to increase such
compensation or grant bonuses, or modify any of its Employee Plans (nothing
herein shall prevent the Company from entering into one year employment
contracts with each of Messrs. Lemek, Szall, Irish, Labbe, McCurry, Shoar, Hicks
and McDonald at substantially similar salaries to their current salaries and
with other terms substantially similar to the Company's standard employment
agreement; the terms of such contracts to be discussed with Mr. Ray prior to
execution).
(i) Solicit, encourage or negotiate any Acquisition Proposal or
supply any non-public information concerning the Company's business, properties
or assets to anyone other than as required in the ordinary course of business;
(j) Except with regard to claims or disputes in the ordinary course
of business, commence any material litigation or arbitration; or
(k) Take any action which might cause any of the representations or
warranties set forth in Article III to be untrue in any material respect at the
Closing.
V.3 LIST OF DEPOSITORIES AND BANK BALANCES. The Company shall furnish to
Buyer at Closing a list, certified by its treasurer, which contains the names of
all banks and other institutions which are depositories of its funds and
securities, the names of all persons authorized to draw or sign checks or drafts
upon, or to give instructions with respect to, the accounts established in said
banks and other institutions, and the names and locations of any institutions in
which the Company has safe deposit boxes, the names of the persons having access
thereto and the contents thereof.
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V.4 INVESTIGATION BY BUYER. Buyer may, prior to the Closing Date, make
or cause to be made such reasonable investigation of the business,
operations, assets, properties and legal and financial condition of the
Company as Buyer deems necessary or advisable; provided, however, that no
such investigation shall unduly interfere with the normal operations of the
Company. The Stockholders agree to cause the Company to permit Buyer or its
authorized representatives to have, after the date hereof and until the
Closing Date, full access to the books and records of the Company at all
reasonable hours. The Stockholders shall cause the Company to furnish Buyer
with such financial and operating data and other information with respect to
the business, operations, assets, properties and legal and financial
condition of the Company as Buyer shall reasonably request.
ARTICLE VI
COVENANTS
VI.1 DIRECTOR. Buyer agrees to cause William G. Lyons to be included in
the directors' slate of nominees for director for the next annual meeting of
the shareholders of Buyer.
ARTICLE VII
COVENANTS OF BUYER AND STOCKHOLDERS
VII.1 THIRD PARTY CONSENTS. The Stockholders and Buyer shall
cooperate with each other and use all reasonable efforts promptly to prepare
and file all necessary documentation, to effect all applications, notices,
petitions and filings, and to obtain as promptly as practicable all permits,
consents, approvals, waivers and authorizations of all third parties and
Governmental Entities which are necessary or advisable to consummate the
transactions contemplated by this Agreement.
VII.2 FURTHER ASSURANCES. Each party shall, on or prior to the
Closing Date, use all reasonable efforts to fulfill or obtain the fulfillment
of the conditions precedent to the consummation of the transactions
contemplated hereby, including the execution and delivery of any agreements,
certificates, instruments or other papers that are reasonably required for
the consummation of the transactions contemplated hereby. From time to time
following the Closing, each of the parties hereto shall, without additional
consideration, execute and deliver such further instruments and take such
further actions as may reasonably be requested by the other to make effective
the transactions contemplated by this Agreement.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER
VIII.1 GENERAL. Except as may be waived in writing by Buyer, the
obligations of Buyer to consummate the transactions contemplated hereby on
the Closing Date shall be subject to the satisfaction, prior to or
concurrently with the Closing, of each of the conditions set forth in this
Article VIII.
VIII.2 PERFORMANCE. The Stockholders shall have complied with and
performed in all material respects the terms, conditions, acts, undertakings,
covenants and obligations required by this Agreement and the Documents to be
complied with and performed by the Stockholders on or before the Closing
Date, and Buyer shall have received from the Stockholders at the Closing a
currently dated certificate signed by the Stockholders to such effect.
VIII.3 REPRESENTATIONS AND WARRANTIES TRUE AS OF CLOSING DATE. All
representations and warranties of the Stockholders set forth in this
Agreement shall be true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made on
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and as of the Closing Date and Buyer shall have received from the
Stockholders at the Closing a currently dated certificate signed by the
Stockholders to such effect.
VIII.4 ADVERSE PROCEEDINGS, CONSENTS AND AGREEMENTS.
(a) Buyer shall not be subject to any ruling, decree, order or
injunction restraining, imposing material limitations on or prohibiting (i)
the consummation of the transactions contemplated hereby or (ii) its
participation in the operation, management, ownership or control of the
Company; and no litigation, proceeding or other action seeking to obtain any
such ruling, decree, order or injunction shall be pending or shall have been
threatened. No Governmental Entity shall have notified any party to this
Agreement that consummation of the transaction contemplated hereby would
constitute a violation of the laws of the United States or of any state or
political subdivision or that it intends to commence proceedings to restrain
such consummation or to force divestiture, unless such Governmental Entity
shall have withdrawn such notice. No Governmental Entity having jurisdiction
shall have commenced any such proceeding.
(b) All consents, waivers and approvals listed in Section 3.5 of
the Disclosure Letter hereto shall have been obtained, and Buyer shall have
been furnished with appropriate evidence, reasonably satisfactory to it and
its counsel, of the granting of such consents, waivers and approvals.
(c) The Agreements to be executed and delivered pursuant to
Section 2.4 above shall have been so executed and delivered.
VIII.5 OPINION OF STOCKHOLDERS' COUNSEL. Buyer shall have received the
opinion of Bowditch & Dewey, LLP, outside counsel for the Stockholders, dated
the Closing Date, in the form of Exhibit E attached hereto.
VIII.6 ENVIRONMENTAL INSPECTION. Buyer shall have caused, at Buyer's
expense, an environmental inspection of the Old Manufacturing Facility by a
reputable engineering company to determine compliance with Environmental Laws
and the inspection report shall not disclose a reasonable basis for a
determination that the Old Manufacturing Facility in its current condition
would cause the Company as the owner to incur liability in excess of one
hundred thousand dollars $100,000 under applicable Environmental Laws.
VIII.7 TITLE INSURANCE.
(a) Within ten (10) calendar days after the date of this
Agreement, Buyer shall obtain at its expense a commitment to issue an ALTA
owner's title insurance policy ("Title Insurance Commitment"), committing to
insure fee simple title to the Old Manufacturing Facility in the amount of
$500,000. The Title Insurance Commitment shall provide that upon payment of
the premium therefor, an owner's title insurance policy will be issued to the
Company and shall provide for the deletion of the standard printed exceptions
by endorsement. The premium for such title policy shall be paid by the
Buyer. Prior to Closing, the Company shall obtain an owner's title insurance
policy issued in accordance with the Title Insurance Commitment.
(b) The Buyer may, within twenty (20) calendar days after the date
of this Agreement, obtain a current, pinned, monumented on the ground,
boundary and improvements survey ("Survey") of the Old Manufacturing Facility
(showing such other matters as Buyer shall request). Buyer shall pay the
costs of such Survey, and if Buyer fails to obtain such Survey it shall be
deemed to have waived the requirement to delete the standard printed
exceptions to the title insurance policy.
(c) Buyer shall have ten (10) days from the receipt thereof to
examine the Title Insurance Commitment and Survey. If Buyer reasonably finds
either of these unsatisfactory, it shall
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notify the Stockholders of such fact in writing, and this Agreement, and the
obligations of the parties hereunder to each other, shall terminate and the
Earnest Money shall be returned to Buyer.
VIII.8 NO MATERIAL ADVERSE CHANGES. Since the date of executing the
Agreement, there shall have been no material adverse change in the financial
position, properties, net worth, prospects, business or results of operations
of the Company.
VIII.9 DELIVERY OF STOCK. The Stockholders shall have delivered to
Buyer stock certificates and stock powers duly executed, sufficient to
transfer to Buyer good and marketable title to the Shares, free and clear of
all Encumbrances and adverse claims. Such certificates shall represent all
of the issued and outstanding capital stock of the Company.
VIII.10 RESIGNATIONS. Stockholders shall have delivered to Buyer the
resignations of Matthew Lyons and Pasqualina C. Lyons as directors of the
Company.
VIII.11 AUDITED FINANCIAL STATEMENTS. Stockholders shall have
delivered to Buyer the audited balance sheet of the Company as of October 31,
1997, and the related statements of operations, stockholders' equity and cash
flows for the year ended on such date together with the notes thereto, in
each case audited by, and accompanied by the report thereon, of Aubrey Dixon
& Riley. Such audited financial statements shall not be materially different
from the Company Financial Statements for the same date and period.
VIII.12 LISTING. The shares of Buyer Common Stock to be issued to
Stockholders pursuant to this Agreement shall be authorized for listing on
the Nasdaq Small Cap Market.
VIII.13 LEGAL MATTERS. All actions, proceedings, instruments and
documents required to carry out this Agreement and to close the transactions
contemplated hereby and all other related legal matters shall be reasonably
satisfactory to counsel for Buyer.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF STOCKHOLDERS
IX.1 GENERAL. Except as may be waived in writing by the Stockholders,
the obligation of Stockholders to consummate the transactions contemplated
hereby on the Closing Date shall be subject to the satisfaction, prior to or
concurrently with the Closing, of each of the conditions set forth in this
Article IX.
IX.2 PERFORMANCE. Buyer shall have complied with and performed in all
material respects the terms, conditions, acts, undertakings, covenants and
obligations required by this Agreement and the Documents to be complied with
and performed by Buyer on or before the Closing Date, and Stockholders shall
have received from Buyer at the Closing a currently dated certificate signed
by the Chairman of the Board, the President or an authorized Vice President
of Buyer to such effect.
IX.3 REPRESENTATIONS AND WARRANTIES TRUE AS OF CLOSING DATE. All
material representations and warranties of Buyer set forth in this Agreement
shall be true and correct on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of the
Closing Date, and Stockholders shall have received from Buyer at the Closing
a currently dated certificate signed (in form and substance reasonably
satisfactory to Stockholders) by the Chairman of the Board, the President or
an authorized Vice President of Buyer to such effect.
IX.4 OPINION OF BUYER'S COUNSEL. Stockholders shall have received an
opinion of Ireland, Stapleton, Pryor & Pascoe, P.C., outside counsel to
Buyer, dated the Closing Date, in the form of EXHIBIT F attached hereto.
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IX.5 PAYMENT OF PURCHASE PRICE. Buyer shall have paid and delivered to
Stockholders the cash portion of the Purchase Price and delivered to the
Stockholders the Buyer Common Stock.
IX.6 LISTING. The shares of Buyer Common Stock to be issued to
Stockholders pursuant to this Agreement shall be authorized for listing on
the Nasdaq Small Cap Market.
IX.7 DIRECTOR. At Closing, William G. Lyons shall be elected a director
of the Company.
IX.8 LEGAL MATTERS. All actions, proceedings, instruments and documents
required to carry out this Agreement and to close the transactions
contemplated hereby and all other related legal matters shall be reasonably
satisfactory to counsel for Stockholders.
ARTICLE X
MODIFICATION, WAIVERS AND TERMINATION
X.1 MODIFICATION. Buyer and Stockholders may amend, modify or
supplement this Agreement in such manner as may be agreed upon by them in
writing at any time.
X.2 WAIVERS. Each of Buyer or the Stockholders may, by an instrument
in writing, extend the time for or waive the performance of any of the
obligations of the other parties or waive compliance by the other parties
with any of the covenants or conditions contained herein.
X.3 TERMINATION. If Closing shall not have previously occurred, this
Agreement shall terminate upon the earliest of:
(a) The giving of written notice from the Stockholders to Buyer, or
from Buyer to the Stockholders, if:
(i) The Stockholders give such termination notice and are not at
such time in material default hereunder, or Buyer gives such termination notice
and Buyer is not at such time in material default hereunder; and
(ii) Either:
(A) Any of the representations or warranties contained
herein of Buyer if such termination notice is given by the Stockholders or of
Stockholders if such termination notice is given by Buyer, are inaccurate in
any respect materially adverse to the party giving such termination notice; or
(B) Any material obligation to be performed by Buyer if
such termination notice is given by the Stockholders, or by Stockholders if
such termination notice is given by Buyer, is not timely performed in any
material respect; or
(C) Any condition (other than those referred to in
foregoing Clauses (A) and (B)) to the obligation to close the transaction
contemplated herein of the party giving such termination notice has not been
timely satisfied;
and any such inaccuracy, failure to perform or non-satisfaction of a
condition has been neither cured nor satisfied within twenty (20) days after
written notice thereof from the party giving such termination notice nor
waived in writing by the party giving such termination notice.
(b) Written notice from the Stockholders to Buyer, or from Buyer
to the Stockholders, at any time after December 12, 1997, unless extended by
both parties in writing,
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provided that termination shall not occur upon the giving of such termination
notice by the Stockholders if the Stockholders are at such time in material
default hereunder or upon the giving of such termination notice by Buyer if
Buyer is at such time in material default hereunder.
X.4 EFFECT OF TERMINATION.
(a) Upon termination of the Agreement, each party hereto shall
thereafter remain liable for breach of this Agreement prior to termination
and remain liable to pay and perform any obligations under Article XI and
this Article; provided, however, that in the event of termination, the
aggregate liability of Buyer for breach hereunder shall be limited as
provided in paragraph (c) below.
(b) Upon termination of this Agreement, Buyer shall be entitled to
the return of the Earnest Money from the Escrow Agent under the Escrow
Agreement unless such termination is effected by Stockholders' giving of
written notice to Buyer pursuant to subsection 10.3(a) (excluding, however,
clause (ii)(C) of such subsection). If Buyer is entitled to the return of
the Earnest Money, Stockholders shall cooperate with Buyer in taking such
action as is required under the Escrow Agreement in order to effect such
return from the Escrow Agent.
(c) If this Agreement is terminated by Stockholders' giving of
written notice to Buyer pursuant to Subsection 10.3(a) (excluding, however,
clause (ii)(C) of such subsection), Buyer agrees that Stockholders shall be
entitled to receive upon such termination, as liquidated damages and not as a
penalty, the Earnest Money; PROVIDED, HOWEVER, if Buyer is unable to close
due to its failure to obtain financing for the purchase of the Shares on
commercially reasonable terms, Stockholders shall only be entitled to receive
upon such termination, as liquidated damages and not as a penalty, Three
Hundred Thousand Dollars ($300,000) of such Earnest Money, and the balance of
Two Hundred Thousand Dollars ($200,000) shall be returned to Buyer.
STOCKHOLDERS' RECEIPT OF THE LIQUIDATED DAMAGE AMOUNT SHALL CONSTITUTE
PAYMENT OF LIQUIDATED DAMAGES HEREUNDER AND NOT A PENALTY, AND SHALL BE
STOCKHOLDERS' SOLE REMEDY AT LAW OR IN EQUITY FOR BUYER'S BREACH HEREUNDER IF
CLOSING DOES NOT OCCUR. Buyer and Stockholders each acknowledge and agree
that the liquidated damage amount is reasonable in light of the anticipated
harm which will be caused by Buyer's breach of this Agreement, the difficulty
of proof of loss, the inconvenience and non-feasibility of otherwise
obtaining an adequate remedy, and the value of the transaction to be
consummated hereunder.
X.5 SPECIFIC PERFORMANCE. Stockholders acknowledge that the Company is
of a special, unique and extraordinary character, and that any breach of this
Agreement by Stockholders could not be compensated for by damages.
Accordingly, if Stockholders shall breach their obligations under this
Agreement, Buyer shall be entitled, in addition to any other remedies that it
may have, to enforcement of this Agreement by a decree of specific
performance or injunctive relief requiring the Stockholders to fulfill their
obligations under this Agreement.
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ARTICLE XI
INDEMNIFICATION
XI.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) All representations, warranties, covenants and agreements
contained in this Agreement or in any other Document shall survive the
Closing, and the Closing shall not be deemed a waiver by either party of the
representations, warranties, covenants or agreements of the other party
contained herein or in any other Document; provided, however, that except as
set forth in the last sentence of this Section 11.1 (a) the period of
survival (i) in the case of General Claims, shall end two years after the
Closing Date, (ii) in the case of Tax Claims, shall survive for a period
equal to the statute of limitations to which the underlying Taxes relate,
(iii) in the case of Environmental Indemnity Claims, shall survive for a
period of time until all such claims are barred by applicable statutes of
limitations, (iv) in the case of Stock Claims, shall survive indefinitely (in
each case, the "Survival Period"), and (b) no claim may be brought under this
Agreement or any other Document unless written notice describing in
reasonable detail the nature and basis of such claim is given on or prior to
the last day of the applicable Survival Period. In the event such notice is
so given, the right to indemnification with respect thereto under this
Article shall survive the applicable Survival Period until such claim is
finally resolved and any obligations with respect thereto are fully satisfied.
(b) As used in this Article XI, the following terms have the
following meanings:
(i) "GENERAL CLAIM" means any claim based upon, arising out
of or otherwise in respect of any of the matters described in Section
11.2(a)(ii) below.
(ii) "TAX CLAIM" means any claim based upon, arising out of or
otherwise in respect of (A) issues raised on audit by taxing authorities with
respect to any period on or before the Closing Date or (B) any inaccuracy in
or any breach of any representation, warranty, covenant or agreement of the
Stockholders contained in this Agreement related to Taxes.
(iii) "ENVIRONMENTAL INDEMNITY CLAIM" means any claim based
upon, arising out of or otherwise in respect of any inaccuracy in or breach
of Section 3.20 of this Agreement.
(iv) "STOCK CLAIM" means any claim based upon, arising out of
or otherwise in respect of any matters described in Section 11.2(a)(i) below.
XI.2 OBLIGATION OF THE STOCKHOLDERS TO INDEMNIFY.
(a) Subject to the limitations set forth in this Article XI, the
Stockholders, jointly and severally, shall indemnify, defend and hold
harmless the Buyer (and its directors, officers, employees, Affiliates and
assigns) from and against all losses, liabilities, judgments, damages,
deficiencies, citations, fines, costs and expenses (including interest and
penalties imposed or assessed by any judicial or administrative body and
reasonable attorneys fees) ("Losses") based upon, arising out of or otherwise
in respect of:
(i) Any inaccuracy of any representation or warranty
contained in Sections 3.1, 3.2 or 3.4 to the Agreement or in any related part
of any Document;
(ii) Any inaccuracy in or any breach of any representation or
warranty (other than as set forth in paragraph (i) above), or covenant or
agreement of the Stockholders contained in this Agreement or in any Document;
or
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(iii) Any Tax Claim or Environmental Indemnity Claim, whether
or not included in paragraph (ii) above.
(b) The Stockholders' obligations to indemnify under this Article
XI are subject to, and limited by, the following: (i) the Stockholders'
aggregate monetary liability for indemnification of Stock Claims,
Environmental Indemnity Claims and Tax Claims shall be limited to the
Purchase Price; and (ii) the Stockholders' aggregate monetary liability for
all General Claims shall be limited to $1,000,000.
(c) Notwithstanding anything contained herein to the contrary, if
Closing occurs, Stockholders shall not be obligated until the aggregate
amount of such Losses exceeds Two Hundred Fifty Thousand Dollars ($250,000),
in which case Buyer shall then be entitled to indemnification of the entire
such aggregate amount.
XI.3 OBLIGATIONS OF THE BUYER TO INDEMNIFY. Subject to the limitations
set forth in this Article XI, Buyer shall indemnify, defend and hold harmless
the Stockholders from and against all Losses based upon, arising out of or
otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Buyer contained in this
Agreement. If Closing does not occur, Stockholders shall not be entitled to
indemnification from Buyer or any other recourse or remedy except to the
extent provided under Section 10.4 above. Notwithstanding anything contained
herein to the contrary, if Closing occurs, Buyer shall not be obligated until
the aggregate amount of such Losses exceeds Two Hundred Fifty Thousand
Dollars ($250,000), in which case Stockholders shall then be entitled to
indemnification of the entire such aggregate amount.
XI.4 ADMINISTRATION OF INDEMNIFICATION. For purposes of administering
the indemnification provisions set forth in this Article XI, the following
procedure shall apply:
(a) Whenever a claim shall arise for indemnification under this
Article, the party entitled to indemnification (the "Indemnified Party")
shall reasonably promptly give written notice to the party from whom
indemnification is sought (the "Indemnifying Party") setting forth in
reasonable detail, to the extent then available, the facts concerning the
nature of such claim and the basis upon which the Indemnified Party believes
that it is entitled to indemnification hereunder.
(b) In the event of any claim for indemnification hereunder
resulting from or in connection with any claim, action, suit or legal
proceeding by a third party, the Indemnifying Party shall be entitled, at its
sole expense, either (i) to participate therein or (ii) to assume the entire
defense thereof with counsel which is selected by it and which is reasonably
satisfactory to the Indemnified Party, provided that (A) the Indemnifying
Party agrees in writing that it does not and will not contest its
responsibility for indemnifying the Indemnified Party, in respect of such
claim or proceeding and (B) no settlement shall be made without the prior
written consent of the Indemnified Party which shall not be unreasonably
withheld (except that no such consent shall be required if claimant is
entitled under the settlement to only monetary damages to be paid solely by
the Indemnifying Party). If, however, (A) the claim, action, suit or
proceeding would, if successful, result in the imposition of damages for
which the Indemnifying Party would not be solely responsible hereunder, (B)
representation of both parties by the same counsel would otherwise be
inappropriate due to actual or potential differing interests between them, or
(C) the Indemnified Party elects to participate in the defense with counsel
of its own choice, then the Indemnifying Party shall not be entitled to
assume the entire defense and each party shall be entitled to retain counsel
(in the case of Clause (A) and Clause (C), at their own expense) who shall
cooperate with one another in defending against such action, claim or
proceeding.
(c) If the Indemnifying Party does not choose to defend against a
claim, action, suit or legal proceeding by a third party, the Indemnified
Party may defend against such claim, action, suit or proceeding in such
manner as it deems appropriate or settle such action, suit or proceeding
(after giving notice thereof to the Indemnifying Party) on such terms as the
Indemnified Party may deem appropriate, and the Indemnified Party shall be
entitled to periodic reimbursement
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of expenses incurred in connection therewith and prompt indemnification from
the Indemnifying Party, including reasonable attorneys' fees, in accordance
with this Article.
(d) Failure or delay by an Indemnified Party to give a reasonably
prompt notice of any claim or claims (if given prior to expiration of the
applicable Survival Period) shall not release, waive or otherwise affect an
Indemnifying Party's obligations with respect thereto, except to the extent
that the Indemnifying Party can demonstrate actual loss or prejudice as a
result of such failure or delay.
ARTICLE XII
MISCELLANEOUS
XII.1 NOTICES. Any notices or other communications required or
permitted hereunder shall be deemed to have been duly given only when
received by the party to whom such notice or communication is addressed at
the following addresses (or at such other address for a party as shall be
specified by like notice), having been sent by certified mail, return receipt
requested, or by hand delivery (including express courier):
To Stockholders: William G. Lyons
Brimfield Precision, Inc.
68 Mill Lane Road
Brimfield, MA 01010
Matthew Lyons
With Copy To: Michael P. Angelini
Bowditch & Dewey, LLP
311 Main Street
Worcester, MA 01608-1552
To Buyer: Paul L. Ray, Chairman of the Board
Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, CO 80301
With Copy To: William E. Tanis, Esq.
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway, Suite 2600
Denver, CO 80202
XII.2 GENDER AND NUMBER. All words or terms used in this Agreement,
regardless of the number or gender in which they are used, shall be deemed to
include any other number and any other gender as the context may require.
XII.3 EXPENSES. All legal, accounting and other costs and expenses
incurred in connection with this Agreement and the transaction contemplated
hereby shall be paid by the party incurring such expenses.
XII.4 ANNOUNCEMENTS. It is a condition to Stockholders proceeding with
the transaction that no public announcement be made until Buyer has received
financing commitment(s) to close the transaction. Accordingly (except as
otherwise required by law), Buyer will not make a public announcement with
respect to this Agreement until such financing commitments have been
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<PAGE>
received and will at such time then make a public announcement. Upon such
public announcement after the financing commitments have been received, the
limitation of liquidated damages to Three Hundred Thousand Dollars ($300,000)
as set forth in Section 10.4 shall no longer apply (liquidated damages being
therefore increased to Five Hundred Thousand Dollars ($500,000)).
XII.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the respective successors and assigns of the
parties hereto but shall not be assigned by either of the parties without the
prior written consent of the other (however, nothing herein shall prevent
Buyer from assigning this Agreement to an Affiliate).
XII.6 WAIVER. The failure of any party at any time or times to require
performance of any provisions hereof shall in no manner affect such party's
right at a later date to enforce the same. No waiver by either party of a
condition or a breach of any term, covenant, representation or warranty
contained in this Agreement, whether by conduct or otherwise, in any one or
more instances shall be deemed to be construed as a further or continuing
waiver of such condition, breach or waiver of any condition or of the breach
of any other term, covenant, representation or warranty of this Agreement.
XII.7 ATTORNEYS' FEES. If either party hereto becomes a party to
litigation or any other proceeding in connection with or related to this
Agreement with the other party and prevails in such litigation or proceeding,
the other party will pay the cost and expenses relating to such litigation or
other proceeding including, without limitation, the attorneys' fees and
expenses of investigation of the prevailing party.
XII.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if the signatures to each counterpart
were upon the same instrument.
XII.9 ENTIRE AGREEMENT. This Agreement, the Disclosure Letter and the
Exhibits and the Documents set forth the entire understanding of Buyer and
the Stockholders and supersede all prior agreements, arrangements and
communications, whether oral or written, between Buyer and Stockholders with
respect to the subject matter hereof; and this Agreement shall not be
modified or amended other than by written agreement of Buyer and the
Stockholders. Captions appearing in this Agreement are for convenience of
reference only and shall not be deemed to explain, limit or amplify the
provisions hereof.
XII.10 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Colorado.
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<PAGE>
IN WITNESS WHEREOF, the Buyer and the Stockholders have caused this
Agreement to be duly executed on the date first above written.
BUYER:
IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ Paul L. Ray
-------------------------------------------
Paul L. Ray, Chairman of the Board
STOCKHOLDERS:
/s/ William G. Lyons
-----------------------------------------------
WILLIAM G. LYONS
/s/ Matthew Lyons
-----------------------------------------------
MATTHEW LYONS
25
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ESCROW AGREEMENT
THIS ESCROW AGREEMENT, made and entered into as of this 25th day of
November, 1997, by and between WILLIAM G. AND MATTHEW LYONS (collectively
"Stockholders"), IMAGE GUIDED TECHNOLOGIES, INC. ("Purchaser"), and BOWDITCH
& DEWEY, LLP ("Escrow Agent").
WITNESSETH
WHEREAS, the Purchaser and the Stockholders (hereinafter collectively
the "Parties") have entered into an Agreement of Purchase and Sale, dated as
of November 25, 1997 (the "Stock Purchase Agreement"), in order for Purchaser
to acquire all the issued and outstanding capital stock of Brimfield
Precision, Inc.; and
WHEREAS, Section 2.2 of the Purchase Agreement requires that the sum of
Five Hundred Thousand Dollars ($500,000) in cash (the "Escrow Deposit") be
deposited with the Escrow Agent; and
WHEREAS, the Stockholders and Purchaser have agreed that Bowditch &
Dewey, LLP shall act as Escrow Agent for the Escrow Deposit; and
WHEREAS, as provided in Paragraph 2.2 of the Stock Purchase Agreement,
Stockholders and Purchaser agree to enter into this Escrow Agreement, and
Escrow Agent acknowledges receipt of a copy of the Stock Purchase Agreement
and has agreed to act as Escrow Agent.
NOW, THEREFORE, in consideration of the mutual promises and the mutual
benefits to be derived therefrom, the parties hereto agree as follows:
1. PURCHASER'S DEPOSIT OF FUNDS. Pursuant to Paragraph 2.2 of the
Purchase Agreement, Purchaser hereby deposits with the Escrow Agent the
Escrow Deposit, subject to the terms and conditions herein contained.
2. RECEIPT ACKNOWLEDGMENT AND INSTRUCTIONS. The Escrow Agent
acknowledges receipt of the Escrow Deposit and agrees to deliver the Escrow
Deposit to Stockholders or Purchaser upon the receipt of instructions
executed jointly by Stockholders and Purchaser, as directed by those
instructions.
3. INVESTMENT. The Escrow Agent shall invest and reinvest the Escrow
Deposit in short-term interest bearing obligations of the United States
Government, or in short-term federally insured certificates of deposit, or in
money market accounts, as directed by Purchaser. Interest earned on the
Escrow Deposit shall be paid by the Escrow Agent to the Purchaser when
received.
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4. ESCROW DEPOSIT. The Escrow Deposit shall be:
a. Delivered to Stockholders in accordance with Section 2.3 of
the Stock Purchase Agreement if the purchase contemplated in the Stock
Purchase Agreement closes; or
b. Delivered to Stockholders or returned to Purchaser, as the
case may be, in accordance with Article 10 of the Stock Purchase Agreement if
the Stock Purchase Agreement is terminated.
Purchaser and Stockholders agree to instruct Escrow Agent in writing in
accordance with the foregoing, and Escrow Agent shall be obligated to deliver
the Escrow Deposit upon receipt of, and in accordance with, such
instructions.
5. ESCROW AGENT ACTS ONLY AS DEPOSITORY. The Escrow Agent will act
hereunder as a depository only and is not a party to or bound by the Stock
Purchase Agreement or any other agreement, document or understanding to which
Purchaser and Stockholders are parties and is not responsible or liable in
any manner for the sufficiency, correctness, genuineness or validity of any
of the agreements or documents existing between Purchaser and Stockholders.
6. ACTION IN GOOD FAITH. The Escrow Agent is authorized to act upon
any document, request, or notice which in good faith is believed by the
Escrow Agent to be genuine and signed or presented by the proper party or
parties, and shall be protected in so acting.
7. ESCROW AGENT'S DUTIES IN THE EVENT OF CONFLICTING DEMANDS. In the
event conflicting demands are made or conflicting notices are served upon the
Escrow Agent growing out of or directly related to its duties under this
Escrow Agreement, the Parties hereto expressly agree and consent that the
Escrow Agent may file an interpleader action in _________________,
Massachusetts (the "Court") and place the Escrow Deposit with the clerk of
said Court. Purchaser and Stockholders jointly and severally agree to pay
the Escrow Agent's costs, including reasonable attorney's fees which the
Escrow Agent may expend or incur in such interpleader suit. Upon the filing
of the interpleader action and the payment of the Escrow Deposit into the
registry of the Court, the Escrow Agent shall be fully released and
discharged from all obligations imposed on it in this Escrow Agreement.
8. ESCROW AGENT'S LIABILITY. The Escrow Agent shall have no liability
hereunder except for its own willful misconduct, bad faith or gross
negligence.
9. NOTICES. All notices, instructions or requests required or
permitted to be given under the provisions hereof shall be deemed to have
been fully given if personally delivered, or mailed, by registered mail,
postage prepaid, as follows:
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As to Purchaser:
Paul L. Ray, Chairman and CEO
Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, CO 80301
With a copy to:
William E. Tanis, Esq.
Ireland, Stapleton, Pryor & Pascoe, P.C.
1675 Broadway, Suite 2600
Denver, CO 80202
As to Stockholders:
William G. Lyons, President
Brimfield Precision, Inc.
68 Mill Lane Road
Brimfield, MA 01010
With a copy to:
Michael P. Angelini
Bowditch & Dewey, LLP
311 Main Street
Worcester, MA 01608-1552
As to Escrow Agent:
Bowditch & Dewey, LLP
311 Main Street
Worcester, MA 01608-1552
10. COUNTERPART SIGNATURES. This Escrow Agreement may be executed by
the parties in any number of counterparts and each executed copy shall be an
original for all purposes without account for the other copies, provided that
all parties hereto have executed a counterpart.
11. INTERPRETATION. This Escrow Agreement shall be construed and
interpreted under the laws of the Commonwealth of Massachusetts.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed through their duly authorized representatives on the date first above
written.
STOCKHOLDERS:
/s/ William G. Lyons
------------------------------------
William G. Lyons
/s/ Matthew Lyons
------------------------------------
Matthew Lyons
PURCHASER:
IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ Paul L. Ray
--------------------------------
Paul L. Ray, Chairman and CEO
ESCROW AGENT:
BOWDITCH & DEWEY, LLP
By: /s/ illegible signature
--------------------------------
4
<PAGE>
Investment Letter
Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, CO 80301
Gentlemen:
In connection with the undersigned's acquisition of shares ("Shares") of
the common stock, no par value, of Image Guided Technologies, Inc. (the
"Company") pursuant to the Agreement of Purchase and Sale, dated November 25,
1997 (the "Agreement"), among the Company and the undersigned and his
brother, the undersigned advises you as follows:
1. The undersigned is knowledgeable about and understands the
Company's business affairs and financial condition and has sufficient
information about the Company to reach an informed and knowledgeable decision
to acquire the Shares in the transaction contemplated by the Agreement. The
undersigned understands that the Company intends to finance the cash portion
of the Purchase Price (as defined in the Agreement) with debt or equity or a
combination thereof and accordingly the liabilities and/or number of shares
of capital stock outstanding of the Company will increase. The undersigned
acknowledges he has previously received from the Company and has read (i) its
annual report on Form 10-KSB for the fiscal year ended December 31, 1996,
(ii) its proxy statement dated March 18, 1997, (iii) its quarterly reports on
Form 10-QSB for the fiscal quarters ended March 31, 1997, June 30, 1997, and
September 30, 1997 and (iv) the other SEC Documents (as defined in the
Agreement).
2. The undersigned acknowledges that the Company has made available to
him at a reasonable time prior to the date hereof the opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering and to obtain any additional information which the Company possesses
or can acquire without unreasonable effort or expense that is necessary to
verify the accuracy of the information provided by the Company.
3. The undersigned understands that the Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), or
any state securities laws and, therefore, cannot be resold unless they are
subsequently registered under the 1933 Act and applicable state securities
laws or unless an exemption from such registration is available; that he may
not resell or otherwise dispose of all or any part of the Shares unless (i)
such sale or other disposition is within the limitations of and in compliance
with Rule 144 promulgated by the Securities and Exchange Commission under the
1933 Act, (ii) some other exemption from registration under the 1933 Act is
available with respect to any proposed sale or other disposition or (iii)
such sale or disposition has been registered under the 1933 Act; that the
Company is under no obligation to register the sale, transfer or other
disposition of the Shares; and that the Company will issue stop transfer
instructions to its transfer agent in accordance with the provisions
contained in this paragraph.
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4. Each certificate for the Shares shall be stamped or otherwise
imprinted with a legend stating in substance:
The shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended. Such shares are
subject to and may not be sold, offered for sale, transferred or
otherwise disposed of except (i) pursuant to an effective
registration statement related thereto, (ii) in compliance with
Rule 144 or (iii) pursuant to an opinion of counsel for the Company
that such registration is not required under the Securities Act of
1933.
5. The undersigned is acquiring the Shares for his own account for
investment only and has no present intention of selling or otherwise
disposing of the Shares.
6. The undersigned is a natural person whose individual net worth, or
joint net worth with his spouse, at the date hereof exceeds $1,000,000.
7. The undersigned by reason of his knowledge and experience in
financial and business matters is capable of evaluating the merits and risks
of this investment and has the capacity to protect his interest in connection
with this investment. The undersigned has determined that the Shares are a
suitable investment for him.
8. The undersigned understands that his representations are being
relied upon by the Company for purposes of establishing an exemption from
registration for the sale of the Shares.
9. The undersigned's address is
- ------------------------------------------------------------
- --------------------------------------------------.
Very truly yours,
/s/ Matthew Lyons
------------------------------
Matthew Lyons
2
<PAGE>
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT
THIS NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (the "Agreement") effective
as of December 12, 1997, is by and between Brimfield Precision, Inc., a
Massachusetts corporation, with its offices located at 68 Mill Lane Rd.,
Brimfield, Massachusetts 01010 (the "Company"), and Matthew Lyons ("Lyons"),
an individual whose residence
is____________________________________________________________________
This Agreement is entered into in connection with the sale of all the stock of
the Company by Lyons and his brother to Image Guided Technologies, Inc. ("IGT").
Lyons understands and acknowledges that IGT would not have acquired the stock
of the Company without this Agreement.
1. NON-COMPETITION.
(a) NON-COMPETITION. For two years after the date first stated
above, Lyons will not, directly or indirectly, engage in, or own or control an
interest in (except as a passive investor owning less than one (1%) percent of
the equity securities of a publicly owned company), or act as a director,
officer or employee of, or consultant to, any individual, partnership, joint
venture, corporation or other business entity directly or indirectly engaged in,
the Business (as hereinafter defined) anywhere in the United States. The time
period during which the restrictions set forth in this Section 1(a) apply shall
be extended by the length of time during which it is judicially determined that
Lyons has violated these restrictions in any respect. In the event any of the
provisions of this Section 1(a) are unenforceable by law, then the restrictions
shall be for such period and such geographic area as a court shall find is
necessary to protect the goodwill and business of the Company. The provisions
of this Section 1(a) shall no longer be enforceable in the event the Company
either files for bankruptcy or other protection from creditors or ceases to
operate as an ongoing business entity.
(b) BUSINESS: The term "Business" as used in this Section 1 shall
mean (i) healthcare product contract machining, and (ii) any other business in
which the Company is engaged on the date first stated above; PROVIDED, HOWEVER,
"Business" shall not include the development, manufacture or sale of proprietary
(created by Blackstone Medical Corp.) health care products.
2. LYONS REPRESENTATION: Lyons represents that the Company does not owe
him any money, nor is it liable to him for any amount.
3. CONFIDENTIALITY. Lyons acknowledges that his stock ownership and
positions with the Company have brought him into close contact with many
confidential affairs of the Company and its collaborators, consultants and
clients, including, without limitation information about costs, profits,
markets, sales, key personnel, pricing policies, operational methods, concepts,
and other business affairs and methods of the Company and its collaborators,
consultants and clients and other information not readily available to the
public, as well as plans for future developments (collectively referred to
hereinafter as "Proprietary Information"). In recognition of the foregoing,
Lyons covenants and agrees:
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<PAGE>
(a) That all Proprietary Information shall be the exclusive property
of the Company and that he will keep secret all Proprietary Information and will
not use it for his own benefit or disclose it to, or use it for the benefit of,
anyone outside of the Company; and
(b) That he has delivered to the Company all memoranda, notes,
documentation, data listing, records, reports and other tangible manifestations
of the Proprietary Information (and all copies thereof), that he may possess or
have under his control.
4. NON-SOLICITATION. Lyons hereby covenants and agrees that, for a
period of two (2) years after the date first stated above, he will not induce or
attempt to induce any officer, employee, agent, consultant, or client of the
Company to discontinue such affiliation with the Company or to refrain from
entering into new business relationships with the Company. The time period
during which the prohibitions set forth above apply shall be extended by the
length of time during which it is judicially determined that Lyons has violated
any such prohibition in any respect.
5. SPECIFIC PERFORMANCE. Without intending to limit the remedies
available to the Company, Lyons agrees that damages at law will be an
insufficient remedy to the Company in the event that Lyons violates the terms of
Section 1, 3 or 4 of this Agreement and that the Company may apply for and
obtain immediate injunctive relief in any court of competent jurisdiction to
restrain the breach or threatened breach of, or otherwise to specifically
enforce, any of the agreements and covenants contained in such Sections. The
parties hereto understand that each of the agreements and covenants of Lyons
contained in Sections 1, 3 and 4 of this Agreement are essential elements of
this Agreement and agree that the obligations of Lyons thereunder will survive
the termination of this Agreement.
6. ENTIRE AGREEMENT AND WAIVER: This Agreement is the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior or contemporaneous oral and prior written agreements and
understandings. There are no oral promises, conditions, representations,
understandings, interpretation or terms of any kind or condition or inducements
to the execution hereof or in effect among the parties. No custom or trade
usage, nor course of conduct among the parties, shall be relied upon to vary the
terms hereof. This Agreement may not be amended, and no provision hereof shall
be waived, except by writing signed by all the parties to this Agreement, which
states that it is intended to amend or waive a provision of this Agreement. Any
waiver of any rights or failure to act in a specific instance shall relate only
to such instance and shall not be construed as an agreement to waive any rights
or fail to act in any other instance, whether or not similar.
7. SEVERALITY. Should any provision of this Agreement be unenforceable
or prohibited by any applicable law, this Agreement shall be considered
divisible as to such provision which shall be inoperative, and the remainder of
this Agreement shall be valid and binding as though such provision were not
included herein.
8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original. It shall not be
necessary when making proof of this Agreement to account for more than one
counterpart.
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<PAGE>
9. HEADINGS. All headings in this Agreement are for convenience only and
shall not affect the meaning of any provision hereof.
10. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
and be binding upon, the Company and any corporation with which the Company
merges or consolidates or to which the Company sells all or substantially all of
its assets, and upon Lyons and his executors, administrators, heirs and legal
representatives.
11. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts, without reference
to the conflict of laws principles thereof.
12. NOTICES. All notices hereunder shall be in writing and shall be sent
to the parties at the following addresses:
If to Company:
Brimfield Precision, Inc.
c/o Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, CO 80301
If to Lyons:
_____________________________
_____________________________
_____________________________
and shall be deemed received by the recipient when personally delivered or, if
mailed, three (3) days after the date of deposit in the United States Mail,
certified or registered, postage prepaid. Either party hereto may change its or
his address for notices by notice to the other party as above provided.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY: LYONS:
Brimfield Precision, Inc.
By: /s/ William G. Lyons /s/ Matthew Lyons
--------------------------------- ----------------------------------
Matthew Lyons
3
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") effective as of December 12,
1997, is by and between Brimfield Precision, Inc., a Massachusetts corporation,
with its offices located at 68 Mill Lane Rd., Brimfield, Massachusetts 01010
(the "Company"), and William G. Lyons (the "Employee"), an individual whose
residence is __________________________________________.
This Agreement is entered into in connection with the sale of all the
stock of the Company by Employee and his brother to Image Guided Technologies,
Inc. ("IGT"). Employee understands and acknowledges that IGT would not have
acquired the stock of the Company without this Agreement, including, without
limitation, its covenant not to compete.
1. EMPLOYMENT AND ACCEPTANCE OF EMPLOYMENT TERMS. Upon and subject to
the terms and conditions set forth herein, the Company hereby employs the
Employee as its President and in such additional management position(s) as
the Board of Directors of the Company (the "Board") may determine from time
to time, and the Employee hereby agrees to accept such employment, for a
period of one year (unless sooner terminated as hereinafter set forth)
commencing on the date hereof and ending one year thereafter (the "Term").
2. DUTIES. The Employee agrees, during the Term to devote his entire
business time, attention, and energies exclusively to the business of the
Company as shall be required to perform the duties of the position specified
in Section 1 (except with respect to advisory services to Blackstone Medical
and other incidental business and community responsibilities), and to conform
to the rules, regulations, instructions, personnel practices and policies of
the Company, as existing and amended from time to time by the Company.
3. COMPENSATION.
(a) SALARY. In consideration of the Employee's performance of
services hereunder, the Company will pay to the Employee, during the Term of
the Employee's employment, and the Employee agrees to accept from the Company
for his services, a salary (the "Salary") of $150,000 per annum during the
Term, payable in accordance with the Company's normal payroll practices
applicable to its executive officers but not less often than monthly.
(b) BENEFITS. During the term of the Employee's employment
hereunder, the Employee shall be entitled to full health insurance in
accordance with the plan currently in place at the Company and to participate
in any other medical, pension, bonus, profit-sharing or similar plan or
program that may be established by the Company and made available to its
officers and key employees generally; provided that the Company shall not be
required to implement or continue any such other employee benefit program.
(c) PAID VACATIONS. The Employee shall be entitled to an annual
paid vacation of five weeks at such times and for such periods as may be
mutually acceptable
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<PAGE>
to the Company and the Employee, in accordance with the Company's policies
governing vacations for officers and key employees. Unused vacation shall
not accumulate.
(d) PAID HOLIDAYS. The Employee shall be entitled to paid
holidays, in accordance with the Company's policies governing holidays for
officers and key employees.
(e) DEDUCTIONS. The Company shall have the right to deduct from
the Salary and all other cash amounts payable by the Company under the
provisions of this Agreement to the Employee or, if applicable, to his
estate, legal representatives or other beneficiary designated in writing by
the Employee (a 'Designee') all social security taxes, all federal, state and
municipal taxes and all other charges and deductions which now or hereafter
are imposed by law as charges on the compensation of the Employee or charges
on cash benefits payable by the Company hereunder to his estate, legal
representatives or Designee.
4. REIMBURSEMENT OF CERTAIN EXPENSES. The Company shall reimburse the
Employee, upon production of accounts and vouchers or other reasonable
evidence of payment by the Employee, all in accordance with the Company's
regular procedures in effect, from time to time and in form suitable to
establish the validity and deductibility of such expenses for tax purposes,
all reasonable, ordinary and necessary travel, automobile and other expenses
as shall have been incurred by him in the performance of his duties hereunder.
5. NON-COMPETITION.
(a) NON-COMPETITION. During the term of the Employee's employment
with the Company and the two year period immediately following the date on
which the Employee's employment with the Company terminates (the "Termination
Date"), the Employee will not, directly or indirectly, engage in or own or
control an interest in (except as a passive investor owning less than one
(1%) percent of the equity securities of a publicly owned company), or act as
a director, officer or employee of, or consultant to, any individual,
partnership, joint venture, corporation or other business entity directly or
indirectly engaged in, the Business (as hereinafter defined) anywhere in the
world. The time period during which the restrictions set forth in this
Section 5(a) apply shall be extended by the length of time during which it is
judicially determined that the Employee has violated these restrictions in
any respect. In the event any of the provisions of this Section 5(a) are
unenforceable by law, then the restrictions shall be for such period and such
geographic area as a court shall find is necessary to protect the goodwill
and business of the Company. The provisions of this Section 5(a) shall no
longer be enforceable in the event the Company either files for bankruptcy or
other protection from creditors or ceases to operate as an ongoing business
entity.
(b) BUSINESS. The term "Business" as used in this Agreement shall
mean (i) healthcare product contract machining, (ii) any other business in
which the Company or IGT is engaged on the this date, and (iii) any other
business in which the Company or IGT is engaged or is actively planning to
become engaged on the Termination Date, and in connection with the planning
of which the Employee has had significant involvement.
2
<PAGE>
(c) EMPLOYEE REPRESENTATION. The Employee represents that he is
not now subject to any employment agreement nor has he previously, at any
time, entered into any written agreement with any person, firm or corporation
which would or could preclude or prevent him from entering into this
Agreement or which requires the consent of any other party, the employee
agrees to indemnify the Company and each of its officers, directors and
controlling persons against any loss, liability or expense (including
reasonable counsel fees) incurred by the Company or its officers, directors
and controlling persons arising out of or in connection with any knowing
misrepresentation made by the Employee hereunder. Employee further represents
that the Company does not owe him any money, nor is it liable to him for any
amount, other than his salary and other employment related expenses due him
in the ordinary course of business.
6. CONFIDENTIALITY. The Employee acknowledges that his employment by
the Company brings him into close contact with many confidential affairs of
the Company and its collaborators, consultants and clients, including,
without limitation information about costs, profits, markets, sales, key
personnel, pricing policies, operational methods, concepts, and other
business affairs and methods of the Company and its collaborators,
consultants and clients and other information not readily available to the
public, as well as plans for future developments (collectively referred to
hereinafter as "Proprietary Information"). The Employee further acknowledges
that the relationships between the Company and its officers, employees,
agents, consultants and clients constitute a valuable asset of the Company.
In recognition of the foregoing, the Employee covenants and agrees:
(a) That all Proprietary Information shall be the exclusive
property of the Company and that he will keep secret all Proprietary
Information and will not use it for his own benefit or disclose it to, or use
it for the benefit of, anyone outside of the Company, either during or after
his employment by the Company; and
(b) That he will deliver promptly to the Company on termination of
his employment by the Company, or at any time the Board may so request, all
memoranda, notes, documentation, data listing, records, reports and other
tangible manifestations of the Proprietary Information (and all copies
thereof), that he may then possess or have under his control.
7. NON-SOLICITATION. The employee hereby covenants and agrees that,
for a period of two (2) years after the termination of his employment
hereunder, he will not induce or attempt to induce any officer, employee,
agent, consultant, or client of the Company to discontinue such affiliation
with the Company or to refrain from entering into new business relationships
with the Company. The time period during which the prohibitions set forth
above apply shall be extended by the length of time during which it is
judicially determined that the Employee has violated any such prohibition in
any respect.
8. SPECIFIC PERFORMANCE. Without intending to limit the remedies
available to the Company, the Employee agrees that damages at law will be an
insufficient remedy to the Company in the event that the Employee violates
the terms of Section 5, 6 or 7 of this Agreement and that the Company may
apply for and obtain immediate injunctive
3
<PAGE>
relief in any court of competent jurisdiction to restrain the breach or
threatened breach of, or otherwise to specifically enforce, any of the
agreements and covenants contained in such Sections. The parties hereto
understand that each of the agreements and covenants of the Employee
contained in Sections 5, 6 and 7 of this Agreement are essential elements of
this Agreement and agree that the obligations of the Employee thereunder will
survive the termination of this Agreement.
9. TERMINATION.
(a) TERMINATION BY THE COMPANY FOR CAUSE. The Company may
terminate this Agreement and its obligations to the Employee hereunder at any
time for "Cause", which shall mean only (i) the willful or reckless failure
by the Employee to perform his duties hereunder (other than a failure
resulting from the Employee's incapacity due to physical or mental illness),
which failure shall not have been cured within fifteen (15) days after the
receipt by the Employee of written notice thereof from the Board specifying
with reasonable particularity such alleged failure; (ii) the willful or
reckless violation by the Employee of Sections 5, 6 or 7 hereof, which
violation shall not have been cured within fifteen (15) days after the
receipt by the Employee of written notice thereof from the Board specifying
with reasonable particularity such alleged violation; (iii) the commission by
the Employee of an act of fraud or theft against the Company or any of its
subsidiaries, or the Employee's willful misfeasance or willful malfeasance in
the performance of his duties to the Company; or (iv) the conviction of the
Employee of (or the plea by the Employee of nolo contendere to) any felony.
(b) TERMINATION UPON DEATH OR DISABILITY OF EMPLOYEE. This
Agreement shall terminate upon the disability (resulting from the Employee's
inability, due to physical or mental illness, to perform his duties hereunder
on a full-time basis for three consecutive months or an aggregate of 90 days)
or death of the Employee, in which event the Employee or his estate, legal
representatives or designee shall be entitled to receive, in full
satisfaction of all obligations due to the Employee by the Company hereunder,
an amount equal to one month's Salary.
(c) TERMINATION BY THE COMPANY WITHOUT CAUSE. In the event the
Company terminates this Agreement without Cause, the Employee shall be
entitled to the following benefits:
(i) The Company shall continue to pay the Employee the
Employee's Salary for the remaining period of the Term; and
(ii) The Company shall maintain in effect for the Employee for
the remaining period of the Term, at its sole expense and on terms of
participation substantially the same as those in effect prior to such
termination, all group insurance and all other employee benefit plans,
programs or arrangements, in which the Employee was participating immediately
prior to such termination except for any revenue sharing programs based on
corporate performance.
(d) TERMINATION BY THE EMPLOYEE FOR CAUSE. The Employee may
terminate his employment hereunder for cause. Only the following shall
constitute "cause" for such termination: (i) failure of the Company to
continue the Employee in his
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then current position during the term of this Agreement; (ii) a material
change by the Company in the nature or scope of the Employee's
responsibilities, title, authorities, powers, functions or duties from the
responsibilities, title, authorities, powers, functions or duties normally
exercised by an executive in the then current position in the Company, or
(iii) a material breach by the Company of Section 3 hereof or of any other
provision of this Agreement; which failure, change or breach continues for
more than fifteen (15) days following written notice given by the Employee to
the Company, such written notice to set forth in reasonable detail the nature
of such failure, change or breach. In such event the Company shall continue
to provide compensation and benefits in accordance with Sections 9(c)(i) and
(ii).
10. INDEMNIFICATION. To the fullest extent permitted by law and in
addition to any other rights permitted or granted under the Company's
articles of incorporation, by-laws, or any agreement or policy of insurance,
or by law, the Company shall indemnify the Employee if the Employee is made a
party, or threatened to be made a party, to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that the Employee is
or was an employee, officer or director of the Company or any subsidiary of
the Company, in which capacity the Employee is or was serving at the
Company's request, against any and all costs, losses, damages, judgments,
liabilities and expenses (including reasonable attorneys' fees) which may be
suffered or incurred by him in connection with any such action, suit or
proceeding provided, however that, there shall be no indemnification in
relation to matters as to which the Employee is adjudged to have been guilty
of fraud, bad faith or gross negligence or as a result of the Employee's
material breach of this Agreement.
11. IDEAS AND INVENTIONS. Employee agrees to, and does hereby, assign
to the Company all of Employee's right, title and interest in and to any and
all ideas, concepts, know-how, techniques, processes, inventions,
discoveries, developments, works of authorship, innovations and improvements
("Inventions") conceived or made by Employee, prior to or during the term of
this Agreement, whether alone or with others, whether patentable or not, that
relate to or are connected with the Business.
12. ENTIRE AGREEMENT AND WAIVER. This Agreement is the entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all prior or contemporaneous oral and prior written
agreements and understandings. There are no oral promises, conditions,
representations, understandings, interpretation or terms of any kind or
condition or inducements to the execution hereof or in effect among the
parties. No custom or trade usage, nor course of conduct among the parties,
shall be relied upon to vary the terms hereof. This Agreement may not be
amended, and no provision hereof shall be relied upon to vary the terms
hereof. This Agreement may not be amended, and no provision hereof shall be
waived, except by writing signed by all the parties to this Agreement, which
states that it is intended to amend or waive a provision of this Agreement.
Any waiver of any rights or failure to act in a specific instance shall
relate only to such instance and shall not be construed as an agreement to
waive any rights or fail to act in any other instance, whether or not similar.
13. SEVERALITY. Should any provision of this Agreement be
unenforceable or prohibited by any applicable law, this Agreement shall be
considered divisible as to such
5
<PAGE>
provision which shall be inoperative, and the remainder of this Agreement
shall be valid and binding as though such provision were not included herein.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original. It shall not
be necessary when making proof of this Agreement to account for more than one
counterpart.
15. HEADINGS. All headings in this Agreement are for convenience only
and shall not affect the meaning of any provision hereof.
16. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and be binding upon, the Company and any corporation with which the
Company merges or consolidates or to which the Company sells all or
substantially all of its assets, and upon the Employee and his executors,
administrators, heirs and legal representatives. This Agreement may not be
assigned by the Employee.
17. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts, without
reference to the conflict of laws principles thereof.
18. NOTICES. All notices hereunder shall be in writing and shall be
sent to the parties at the following addresses:
If to Company:
Brimfield Precision, Inc.
c/o Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, CO 80301
If to Employee:
_____________________________
_____________________________
_____________________________
and shall be deemed received by the recipient when personally delivered or,
if mailed, three (3) days after the date of deposit in the United States
Mail, certified or registered, postage prepaid. Either party hereto may
change its or his address for notices by notice to the other party as above
provided.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY: EMPLOYEE:
Brimfield Precision, Inc.
By: /s/ William G. Lyons
----------------------------- ------------------------------------
William G. Lyons
7
<PAGE>
EXHIBIT E
STOCKHOLDERS' COUNSEL'S OPINION
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts and has
all corporate power and authority necessary to enable it to own, lease and
otherwise hold its properties and assets and to carry on its business as now
conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each state where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to
be so qualified would not have a material adverse effect upon the financial
condition, results of operations, business, properties, assets or operations
of the Company.
2. The Agreement has been duly executed and delivered by the
Stockholders and constitutes the valid and binding obligation of the
Stockholders enforceable against the Stockholders in accordance with its
terms, subject to limitations on enforceability under normal principles of
equity and by applicable bankruptcy, insolvency, reorganization, moratorium,
and other similar laws of general application affecting the rights of
creditors generally.
3. Neither the execution, delivery and performance by the Stockholders
of the Agreement nor the consummation of the transactions contemplated
thereby will (i) contravene or conflict with the Articles of Incorporation or
Bylaws of the Company, (ii) contravene or conflict with or constitute a
violation of any provision of any law, rule or regulation, or any judgment,
injunction, order or decree known to such counsel, that is currently in
effect and binding upon or applicable to the Stockholders or the Company, or
(iii) to such counsel's knowledge, require any consent, approval or other
action by any Person, or contravene or conflict with or constitute a
violation of or a default under any material agreement, contract, indenture,
lease or other instrument binding upon the Stockholders or the Company or its
assets.
4. The authorized capital stock of the Company consist of _________
shares of Common Stock, par value $___ per share. All issued and outstanding
shares of the Company's Common Stock are validly issued, fully paid and
nonassessable, and have not been issued in violation of any preemptive, first
refusal or other subscription rights of any stockholder of the Company or any
other person. Except as set forth on SCHEDULE 3.1 of the Disclosure Letter,
there are no outstanding (i) shares of capital stock or other voting
securities of the Company, (ii) securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
or (iii) options, warrants, exchange rights, subscription rights, preemptive
or other agreements, commitments or rights to purchase or otherwise acquire
from the Company, or agreements, commitments or obligations of the Company to
issue or sell, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the Company.
<PAGE>
5. To such counsel's knowledge, there is no action, suit,
investigation or proceeding pending against or threatened against or
affecting, the Company or any of its properties or assets before any court or
arbitrator or any Governmental Entity. Except as set forth in Section 3.19
of the Disclosure Schedule, to such counsel's knowledge, the Company is not
subject to any judgment, order or decree entered in any lawsuit or proceeding
or issued by any Governmental Entity.
Very truly yours,
/s/ illegible signature
-----------------------------------
Michael P. Angelini
MPA: cms
-2-
<PAGE>
EXHIBIT F
BUYER'S COUNSEL'S OPINION
1. Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Colorado and has all corporate power
and authority necessary to enable it to own, lease or otherwise hold its
properties and assets and to carry on its business as now conducted.
2. The Agreement has been duly authorized, executed and delivered by
Buyer and constitutes the valid and binding obligation of Buyer enforceable
against Buyer in accordance with its terms, subject to limitations on
enforceability under normal principles of equity and by applicable
bankruptcy, insolvency, reorganization, moratorium, and other similar laws of
general application affecting the rights of creditors generally.
3. Neither the execution, delivery and performance by Buyer of the
Agreement nor the consummation of the transactions contemplated thereby will
(i) contravene or conflict with the Articles of Incorporation or By-laws of
the Buyer, (ii) contravene or conflict with or constitute a violation of any
provision of any law, rule or regulation, or any judgment, injunction, order
or decree known to such counsel, that is currently in effect and binding upon
or applicable to Buyer, or (iii) to such counsel's knowledge, require any
consent, approval or other action by any Person, or contravene or conflict
with or constitute a violation of or a default under any provision of any
material agreement, contract, indenture, lease or other instrument binding
upon Buyer.
4. The shares of Buyer Common Stock issued and exchanged for the
Shares have been duly authorized, and when issued and delivered in
accordance with the terms of the Agreement, will be validly issued,
fully paid and nonassessable.
This opinion is subject to the exception that prohibition against oral
modification or modification by course of conduct may be unenforceable.
<PAGE>
In rendering this opinion, we have relied, as to matters of fact, on the
representations and warranties contained in the Agreement, on Buyer's Closing
Certificate and on statements of governmental officials and officers of Buyer.
Very truly yours,
IRELAND, STAPLETON, PRYOR & PASCO, P.C.
By: /s/ William E. Tanis
---------------------------
Vice President
-2-
<PAGE>
AMENDMENT
TO
AGREEMENT OF PURCHASE AND SALE
Amendment ("Amendment"), dated as of December 12, 1997, to Agreement of
Purchase and Sale ("Agreement"), dated as of November 25, 1997, between Image
Guided Technologies, Inc., a Colorado corporation ("Buyer"), and William G.
and Matthew Lyons (collectively the "Stockholders").
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. The Purchase Price (as defined in the Agreement) shall be reduced
by Two Hundred Fifteen Thousand Dollars ($215,000) to Nine Million Two
Hundred Eighty Five Thousand Dollars ($9,285,000), the cash portion of the
Purchase Price set forth in Section 2.3(a) of the Agreement shall be reduced
to Seven Million Seven Hundred Eighty Five Thousand ($7,785,000), and the
non-escrow cash portion of the Purchase Price shall be reduced to Seven
Million Two Hundred Eighty Five Thousand Dollars ($7,285,000).
2. All other terms and conditions of the Agreement shall remain the
same.
BUYER:
IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ Paul L. Ray
------------------------------------
Its: CEO
------------------------------------
STOCKHOLDERS:
/s/ William G. Lyons
-----------------------------------------
William G. Lyons
/s/ Matthew Lyons
-----------------------------------------
Matthew Lyons
<PAGE>
IMPERIAL BANK
MEMBER FDIC
LOAN AGREEMENT
DATED AS OF: DECEMBER 12, 1997
THIS LOAN AGREEMENT, dated as of December 12, 1997, is entered into between
IMAGE GUIDED TECHNOLOGIES, INC., a Colorado corporation (herein called
"Borrower"), and IMPERIAL BANK, a California bank (herein called "Bank").
1. REVOLVING LOANS.
a. COMMITMENT TO MAKE REVOLVING LOANS. Bank hereby commits, subject
to all the terms and conditions of this Agreement, and prior to the
termination of the Commitment as hereinafter provided, to make loans to
Borrower from time to time ("Revolving Loans") in such amounts up to, but not
exceeding in the aggregate unpaid principal balance at any time, the
Commitment Amount at such time. The Bank's Commitment shall terminate on the
Commitment Termination Date, and Bank shall have no obligation hereunder to
make any Revolving Loans to Borrower after that date. The Commitment may
terminate prior to the Commitment Termination Date in accordance with Section
11 or 12 hereof.
b. REQUESTS FOR REVOLVING LOANS. Each request for a Revolving Loan
hereunder shall be in writing duly executed by Borrower in a form
satisfactory to Bank and shall contain a certification (i) setting forth, in
reasonable detail, calculations establishing to the reasonable satisfaction
of Bank that Borrower is entitled to the amount of the Revolving Loan being
requested, (ii) that on the date of such Revolving Loan, and before and after
giving effect to such Revolving Loan, all representations and warranties of
the Principal Companies set forth herein and in the other Loan Documents will
be true and correct, and (iii) that no Default or Event of Default shall be
continuing on the date of such Revolving Loan, either before or after giving
effect to such Revolving Loan or the application by Borrower of the proceeds
thereof. Anything herein to the contrary notwithstanding, Bank shall not be
obligated to make any Revolving Loan to Borrower while any Default or Event
of Default shall be continuing, or if any Default or Event of Default would
arise from the making of such Revolving Loan or the application of the
proceeds thereof. The proceeds of Revolving Loans shall be used by Borrower
for general corporate purposes not prohibited by this Agreement.
c. LOAN ACCOUNT; REPAYMENTS AND PREPAYMENTS OF REVOLVING LOANS. The
amount of each Revolving Loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank (herein
called "Loan Account"), and Bank shall credit the Loan Account with all
repayments of Revolving Loans made by Borrower. Borrower promises to pay
Bank the unpaid balance of the Loan Account on June 30, 1999 or such earlier
date on which the outstanding principal of the Revolving Loans shall be
declared to be or shall otherwise become due and payable pursuant to Section
11 or 12 hereof (June 30, 1999 or such earlier date being called the
"Revolving Loan Maturity Date"). Revolving Loans may be prepaid by Borrower
at any time without premium or penalty.
In the event that the unpaid balance of the Loan Account shall at any
time exceed the maximum amount of outstanding Revolving Loans to which
Borrower is entitled under SECTION 1.a, Borrower promises immediately to pay
to Bank, for credit to the Loan Account, the amount of such excess.
d. REVOLVING NOTE. The obligations of Borrower in respect of the
Revolving Loans and any interest accrued thereon shall also be evidenced by a
Promissory Note executed and delivered by Borrower to Bank on the date
hereof, in the face amount of $2,000,000 ("Revolving Note"). Borrower hereby
irrevocably authorizes Bank to make appropriate notations on any Schedule
attached to such Revolving Note, which notations, if made, shall evidence the
date of, the outstanding principal of and payments on the Revolving Loans
evidenced thereby. Bank's notations on any Schedule attached to the
Revolving Note shall constitute rebuttable presumptive evidence of the
principal amount of Revolving Loans outstanding, but the failure to record
such information on any such Schedule shall not limit or affect the
obligations of Borrower hereunder or under the Revolving Note to make
payments of principal or interest on the Revolving Loans when due.
e. FINAL DETERMINATION OF ADVANCE RATE AND MAXIMUM COMMITMENT.
Borrower acknowledges that, as of the date of this Agreement, Bank is
conducting an audit of the Collateral of the Principal
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<PAGE>
Companies, including the Accounts of the Principal Companies ("Collateral
Audit"). Upon completion of the Collateral Audit, Bank will prepare and
deliver to Borrower the Collateral Audit Report, specifying the Advance Rate
and the Maximum Commitment. From and after delivery by Bank to Borrower of
the Collateral Audit Report, the Advance Rate and the Maximum Commitment
specified in the Collateral Audit Report shall be applicable for all purposes
of this Agreement, PROVIDED, HOWEVER, that any increase (above $1,250,000) in
the Maximum Commitment reflected in the Collateral Audit Report shall only be
effective from and after the closing date of the Qualified Financing. Until
the closing date of the Qualified Financing, the Maximum Commitment
originally specified herein ($1,250,000) shall continue to be applicable for
all purposes of this Agreement. Borrower acknowledges that the Advance Rate
specified by Bank in the Collateral Audit Report may be less than .75.
2. TERM LOAN.
a. COMMITMENT TO MAKE TERM LOAN. Bank hereby commits to make a loan
to Borrower on the date hereof ("Term Loan") in the amount of $4,000,000.
The proceeds of the Term Loan shall be used by Borrower to finance the
acquisition of Brimfield pursuant to the Agreement of Purchase and Sale,
dated as of November 25, 1997, among Borrower, Brimfield and the stock
holders of Brimfield ("Brimfield Purchase Agreement").
b. REPAYMENT OF TERM LOAN. Borrower promises to pay to Bank the
aggregate principal of the Term Loan in thirty-six equal monthly installments
on the last day of each calendar month commencing with the first such
installment payment on January 31, 1998. The aggregate outstanding principal
amount of the Term Loan shall, if not sooner paid, be in any event due and
payable in full on December 12, 2000 ("Term Loan Maturity Date"). The
outstanding principal amount of the Term Loan may be prepaid by Borrower
without penalty or premium at any time. Any such optional prepayments shall
reduce each of the remaining installment payments of principal on the Term
Loan in the inverse order of the respective due dates of such installments.
The obligations of Borrower in respect of the Term Loan and any interest
accrued thereon shall be evidenced by a Promissory Note executed and
delivered to Bank on the date hereof, in the face amount of $4,000,000 ("Term
Note"). Borrower hereby irrevocably authorizes Bank to make appropriate
notations on any Schedule attached to the Term Note, which notations, if
made, shall evidence the date of, the outstanding principal of, and payments
on the Term Loan evidenced thereby. Bank's notations on any Schedule attached
to the Term Note shall constitute rebuttable presumptive evidence of the
principal amount of the Term Loan outstanding, but any failure to record any
information on any such Schedule shall not limit or affect the obligations of
Borrower hereunder or under the Term Note to make payments of principal or
interest on the Term Loan when due.
3. INTEREST. Borrower promises to pay to Bank interest (i) on the
average daily unpaid balance of the Loan Account, at the rate of three
quarters of one percent (.75%) per annum in excess of the rate of interest
announced by Bank from time to time as its prime lending rate (as the same
may vary from time to time, "Prime Rate") and (ii) on the aggregate
outstanding principal amount of the Term Loan at the rate of one and one-half
percent (1.5%) per annum in excess of the Prime Rate. Interest shall be
computed at the above rates on the basis of the actual number of days elapsed
divided by 360, which shall for interest computation purposes be considered
one year. Interest accrued on the outstanding principal of the Loan Account,
and on the outstanding principal of the Term Loan, shall be payable in
arrears on the first day of each calendar month. All accrued and unpaid
interest on the balance of the Loan Account shall in any event be due and
payable on the Revolving Loan Maturity Date. All accrued and unpaid interest
on principal of the Term Loan shall in any event be due and payable on the
Term Loan Maturity Date.
4. DEFAULT INTEREST, ETC. Upon the occurrence and during the
continuance of any Event of Default, the entire principal balance of the Loan
Account and the entire outstanding principal of the Term Loan (whether or not
such balance or such principal shall then be due and payable hereunder) shall
bear interest at the rate of five percent (5%) per annum in excess of the
rate otherwise applicable to the principal balance of the Loan Account, or
the outstanding principal of the Term Loan, as applicable. To the extent
permitted by applicable law, all overdue interest, fees, charges and other
sums (other than principal) payable under this Agreement and the other Loan
Documents shall bear interest at the rate of five percent (5%) per annum in
excess of the rate otherwise applicable to principal of the Term Loan. All
interest that shall accrue under this SECTION 4 shall be due and payable upon
demand by Bank and, in any event, on the first day of each calendar month.
5. PAYMENTS. All payments required to be made by Borrower to Bank
hereunder or under any of the Loan Documents shall be made at the SANTA CLARA
REGIONAL OFFICE OF BANK AT 226 AIRPORT PARKWAY, SAN JOSE, CALIFORNIA, on or
prior to 11:00 a.m., San Jose time, on the due date of such payment, without any
set-off or counterclaim, and in immediately available funds. Any partial
payments of the obligations of Borrower hereunder or
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<PAGE>
under any of the other Loan Documents, except where this Agreement or any
other Loan Document otherwise specifies, shall be applied FIRST, to any
charges, sums or other amounts (other than principal or interest) due and
payable under the Loan Documents, SECOND, to accrued and unpaid interest, and
THIRD, to the unpaid balance of the Loan Account or the Term Loan, in such
order as Bank shall determine.
6. SECURITY. All of the obligations of Borrower to Bank under this
Agreement, the Revolving Note, and the other Loan Documents shall be secured
by and entitled to the benefit of certain Collateral, and to the benefit of
certain guaranties provided by the Guarantors. Reference is made to the Loan
Documents for a complete description of the Collateral, and of the rights of
Bank with respect thereto, and to the Guaranty Agreement for a complete
description of such guaranties, and of Bank's rights with respect thereto.
7. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
"Accounts" means any right to payment for goods sold or leased, or to be
sold or leased, or for services rendered or to be rendered, no matter how
evidenced, including accounts receivable, contract rights, chattel paper,
instruments, purchase orders, notes, drafts, acceptances, general
intangibles, and other forms of obligations and receivables. The amount of
any Account shall be determined in accordance with generally accepted
accounting principles.
"Advance Rate" means (i) initially, .75, and (ii) upon completion by
Bank of the Collateral Audit, the figure specified by Bank in the Collateral
Audit Report as the Advance Rate for purposes of the Borrowing Base.
"Ancillary Documents" means, collectively, (i) the Brimfield Purchase
Agreement, (ii) the Subordinated Note, and (iii) each other agreement
designated by Borrower and Bank from time to time as an "Ancillary Document"
for purposes of this Agreement and the other Loan Documents.
"Associated Person" means (i) any person (other than any Principal
Company) that is an affiliate of any Principal Company (including, without
limitation, any officer or director of any Principal Company, and any
corporation, partnership, limited liability company or other entity (other
than any Principal Company) that controls or is controlled by any of the
foregoing, and (ii) any parent, child, sibling or spouse of any individual
person described in clause (i) above, and any corporation, partnership,
limited liability company or other entity (other than any Principal Company)
that controls or is controlled by any such parent, child, sibling or spouse.
"Authorizing Resolutions" means, relative to any class or series of
capital stock of any person, any resolutions of the Board of Directors of
such person setting forth the powers, designations, preferences and relative,
participating, optional or other rights of, or the qualifications,
limitations or restrictions of, such class or series of capital stock.
"Borrowing Base" means, at any time, the product of (i) the Advance Rate
at such time, MULTIPLIED BY (ii) the amount of Eligible Accounts at such time.
"Brimfield" means Brimfield Precision Inc., a Massachusetts corporation.
"Change in Control" means any event or series of events (including a
merger or consolidation) as a result of which (i) any "person" or "group"
within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act of
1934, as amended, together with their affiliates, (ii) shall hold or acquire,
directly or indirectly, outstanding voting shares of Borrower such that such
person or group, together with such affiliates thereof, is or becomes the
"beneficial owner" (within the meaning of Rules 13d-3 and 13d-5 under the
Exchange Act of 1934, as amended) of outstanding voting shares of Borrower
entitling such person or group, together with such affiliates, to exercise
more than 30% of the total voting power of all classes of outstanding voting
shares of Borrower, or (iii) shall have a sufficient number of its or their
nominees elected to Borrower's Board of Directors such that such nominees so
elected (whether new or continuing as directors) shall constitute a majority
of Borrower's Board of Directors, or (iv) individuals who are directors of
Borrower on the date hereof (and any new director whose election by the
directors of Borrower or nomination for election by the stockholders of
Borrower was approved by a vote of at least two-thirds of the directors then
still in office who either were directors on the date hereof or whose
election or nomination for election was previously so approved) shall cease
to constitute a majority of the directors of Borrower.
"Collateral" means any and all property of any Principal Company which
is or shall be assigned to Bank as security or in which Bank now has or
hereafter acquires a security interest to secure the payment
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and performance of any of the obligations of Borrower or any other Principal
Company to Bank under this Agreement or any of the other Loan Documents.
"Collateral Audit Report" means the report prepared by Bank and
delivered to Borrower upon completion of the Collateral Audit specifying the
results of the Collateral Audit and Bank's determination of the Advance Rate
and the Maximum Commitment for purposes of this Agreement.
"Commitment" means Bank's commitment to make Revolving Loans pursuant to
SECTION 1.a hereof.
"Commitment Amount" means, at any time, an amount equal to the lesser of
(i) the Maximum Commitment at such time, and (B) the Borrowing Base at such
time.
"Commitment Termination Date" means June 30, 1999.
"Consolidated Debt Service" means, in relation to Borrower and its
subsidiaries for any period, the sum of (i) the consolidated interest expense
of Borrower and its subsidiaries for such period, PLUS (ii) all amounts for
which Borrower or its subsidiaries shall be obligated (without regard to any
applicable subordination provisions or other similar prohibitions) to make
cash payments during such period in respect of principal of Indebtedness for
Borrowed Money.
"Consolidated EBITDA" means, in relation to Borrower and its
subsidiaries for any period, the sum of (i) the consolidated net operating
profit of Borrower and its subsidiaries for such period, PLUS (ii) the
aggregate amount of all depreciation and amortization expense of Borrower and
its subsidiaries for such period to the extent, but only to the extent, that
such aggregate amount was deducted in determining consolidated net operating
profit of Borrower and its subsidiaries for such period. For purposes of
calculating Consolidated EBITDA of Borrower and its subsidiaries for any
period, there shall be excluded from such Consolidated EBITDA all net
operating profit (or loss) and all related depreciation and amortization
expense attributable to any property or business sold by any Principal
Company during such period, determined as if such property or business was
not owned at any time by Borrower or its subsidiaries during such period.
"Debt Service Coverage Ratio" means, in relation to Borrower and its
subsidiaries for any period, the ratio of (i) the Consolidated EBITDA of
Borrower and its subsidiaries for such period, to (ii) the Consolidated Debt
Service of Borrower and its subsidiaries as at the last day of such period.
"Default" means any of the events specified in Section 11(i) through
11(xii) hereof, whether or not any requirement for the giving of notice, the
lapse of time, or both, or any other condition has been satisfied.
"Eligible Accounts" means all Accounts of the Principal Companies,
EXCLUDING, HOWEVER, (i) all Accounts under which payment is not received
within 90 days from any invoice date, (ii) all Accounts against which the
account debtor or any other person obligated to make payment thereon asserts
any defense, offset, counterclaim or other right to avoid or reduce the
liability represented by the Account (but only to the extent of such claim,
defense or offset), (iii) any Accounts if the account debtor or any other
person liable in connection therewith is insolvent, subject to bankruptcy or
receivership proceedings or has made an assignment for the benefit of
creditors or whose credit standing is unacceptable to Bank and Bank has so
notified Borrower, (iv) any other Accounts that Bank in its reasonable
discretion shall determine are ineligible from time to time, and Bank so
notifies Borrower, (v) fifty percent (50%) of otherwise Eligible Accounts
with respect to which 25% or more of the account debtor's total accounts or
obligations outstanding to the Principal Companies are more than 90 days from
invoice date, (vi) for Accounts representing more than 25% of the total
Accounts of the Principal Companies, the balance in excess of the 25%
(however, Bank may deem, in its reasonable discretion, the entire amount, or
any portion thereof, eligible), (vii) Accounts with respect to international
transactions unless insured by an insurance company acceptable to Bank or
covered by letters of credit issued or confirmed by a bank acceptable to
Bank, (viii) Accounts with respect to which the account debtor is any
Principal Company or any officer, director, shareholder, employee, subsidiary
or affiliate of any Principal Company, (ix) Accounts where the account debtor
is a seller to any Principal Company, whereby a potential offset (contra)
exists, (x) consignment or guaranteed sales, (xi) bill and hold Accounts,
(xii) collection Accounts, (xiii) C.O.D. Accounts, (xiv) distributor sample
Accounts, whereby Accounts are offset by commissions payable, (xv) government
receivables, unless formally assigned to Bank in accordance with the Federal
Assignment of Claims Act or applicable state laws, and (xvi) Accounts over
which Bank does not have a first priority perfected security interest
(including without limitation Accounts arising out of any sale of any Atlas
Copco products).
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"Event of Default" is defined in Section 11 hereof.
"Guarantors" means, collectively, Brimfield and each other subsidiary of
Borrower that is designated by Bank and Borrower as, and that agrees to
become a party to the Guaranty Agreement as, a "Guarantor" thereunder.
"Guaranty Agreement" means the Guaranty Agreement of the Guarantors,
dated as of the date hereof, as amended and in effect from time to time.
"Indebtedness for Borrowed Money" means, in relation to any person at
any time, (i) all indebtedness of such person for borrowed money (including
all notes payable and drafts accepted representing extensions of credit and
all obligations evidenced by bonds, debentures, notes or other similar
instruments on which interest charges are customarily paid), all indebtedness
of such person relative to the face amount of all letters of credit, whether
or not drawn, all indebtedness of such person constituting capitalized lease
obligations, and all other obligations of such person for the deferred
purchase price of property or services (other than in the ordinary course of
business), and (ii) all guarantees or other contingent obligations of such
person in respect of any indebtedness of any other persons of the kind
described in CLAUSE (i) of this definition.
"Interest Coverage Ratio" means, in relation to Borrower and its
subsidiaries for any period, the ratio of (i) Consolidated EBITDA of Borrower
and its subsidiaries for such period, to (ii) the consolidated interest
expense of Borrower and its subsidiaries for such period.
"Leverage Ratio" means, as at any date, the ratio of (i) the
consolidated total liabilities of Borrower and its subsidiaries as at such
date, to (ii) the Tangible Net Worth of Borrower and its subsidiaries
determined at such date.
"Loan Documents" means, collectively, (i) this Agreement, (ii) each of
the following documents or instruments executed and delivered to Bank in
connection with the financing arrangements contemplated hereby: the
Revolving Note, the Term Note, the Security Agreement, the Trademark
Collateral Security and Pledge Agreements, the Patent Collateral Security and
Pledge Agreements, the Guaranty Agreement, and the Stock Pledge Agreement,
(iii) the Subordination Agreement and (iv) each other instrument or agreement
evidencing, guarantying or securing any of the obligations of Borrower or any
of the other Principal Companies to Bank under this Agreement or any other
Loan Document, in each case, as amended and in effect from time to time.
"Materially Adverse Effect" means, in relation to any event, occurrence
or development, (i) a material adverse effect on the business, property,
operations or financial condition of Borrower and its subsidiaries, taken as
a whole, (ii) a material adverse effect on the ability of Borrower or any
other Principal Company to perform any of its obligations, covenants or
agreements under this Agreement or any other Loan Document, or (iii) a
material impairment of the validity or enforceability of any Loan Document,
or a material impairment of the rights, remedies or benefits available to
Bank under any Loan Document.
"Maximum Commitment" means, (i) initially, $1,250,000, and (ii) upon
completion by Bank of the Collateral Audit (and subject to the provisions of
SECTION 1.e above), the amount specified by Bank as the Maximum Commitment
for Revolving Loans in the Collateral Audit Report.
"Permitted Capital Stock" means any capital stock of the Borrower with
respect to which the Principal Companies shall have no obligation, contingent
or otherwise, under its articles of incorporation or Authorizing Resolutions,
or pursuant to any contractual obligation, to (a) declare or pay any
dividend, (b) make any redemption, repurchase, retirement or acquisition,
whether through a subsidiary of such person or otherwise, (c) make any return
of capital thereon, or (d) make any other distribution of any kind.
"Principal Companies" means, collectively, Borrower and each Guarantor.
"Qualified Equity Financing" means a Financing involving exclusively the
issuance and sale by Borrower of Borrower's Permitted Capital Stock for or in
consideration of cash proceeds actually received by Borrower at the initial
closing thereof of $1,000,000 or more.
"Reference Period" means each period of four (4) consecutive fiscal
quarters of Borrower ending on the last day of each fiscal quarter of
Borrower commencing with the fiscal quarter ending December 31, 1997.
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"Subordinated Note" means to 12% Subordinated Promissory Note, dated as of
December 12, 1997, between Cruttenden Roth, Inc. and Borrower.
"Subordination Agreement" means the Subordination Agreement, dated as of
December 12, 1997, between Cruttenden Roth, Inc. and Borrower, as amended,
restated or otherwise modified from time to time.
"Tangible Net Worth" means, as at any date, (i) consolidated total
assets of Borrower and its subsidiaries as at such date (but in any event
EXCLUDING all value for goodwill, trademarks, patents, organization expenses
and other similar intangible items), LESS (ii) consolidated total liabilities
of Borrower and its subsidiaries as at such date (excluding the outstanding
principal amount of the Subordinated Note at such date), LESS (iii) the
consolidated amount of deferred expense of Borrower and its subsidiaries as
at such date.
"Warrants" means the Common Stock Purchase Warrant of the Borrower
issued to the Bank on the date of this Agreement, and any other Common Stock
Purchase Warrant issued in substitution or exchange therefor, or in
accordance with the last paragraph of Section 11 hereof.
8. FINANCIAL INFORMATION. All financial covenants and financial
information referenced herein shall be interpreted and prepared in accordance
with generally accepted accounting principles applied on a basis consistent
with previous years.
9. WARRANTIES, ETC. In order to induce Bank to make loans to Borrower
under this Agreement, Borrower represents and warrants to Bank that (each of
which representations will be deemed repeated as of the date of any Revolving
Loan hereunder as if made on such date):
a. ORGANIZATION; POWER AND AUTHORITY. Each Principal Company is duly
organized and existing as a corporation in the jurisdiction of its
organization; each of the Loan Documents to which any Principal Company is a
party has been duly and validly executed and delivered by such Principal
Company; and the execution, delivery and performance by each Principal
Company of each Loan Document to which such Principal Company is a party are
within such Principal Company's corporate powers, have been duly authorized
by such Principal Company, and are not in conflict with any applicable law or
with any Ancillary Documents, any of the charter documents of any charter or
by-laws, or any indenture, material agreement or undertaking to which any
Principal Company is a party or by which any Principal Company is bound or
affected. The obligations of each Principal Company set forth in the Loan
Documents (including the Guaranty Agreement) to which such Principal Company
is a party constitute legal, valid and binding obligations of such Principal
Company, enforceable against such Principal Company in accordance with their
respective terms, SUBJECT, HOWEVER, to any applicable bankruptcy or
insolvency laws affecting generally the enforcement of creditors' rights
against such Principal Company, and to the discretion of any court with
respect to the enforcement of any equitable remedies.
The Warrant has been duly and validly executed and delivered by
Borrower; the execution, delivery and performance of the Warrant are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with any applicable law or with the terms of Borrower's charter or
by-laws, as amended, or any indenture, agreement or undertaking to which
Borrower is a party or by which Borrower is bound or affected. The
obligations of Borrower set forth in the Warrant constitute legal, valid and
binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms, SUBJECT, HOWEVER, to any applicable bankruptcy
or insolvency laws affecting generally the enforcement of creditors rights
against Borrower, and to the discretion of any court with respect to the
enforcement of any equitable remedies.
b. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting any Principal Company that could reasonably
be expected to have a Materially Adverse Effect, and no Principal Company is
in default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
c. FINANCIAL CONDITION.
i. The unaudited consolidated balance sheet of Borrower and its
subsidiaries as of September 30, 1997, and the related unaudited consolidated
income statement and cash flows of Borrower and its subsidiaries (collectively,
"Financials"), copies of which have heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by Borrower to
Bank in connection with this request for credit, and not subsequently
supplemented, modified or amended in writing to Bank, are true and correct, and
the Financials fairly present the consolidated financial condition of Borrower
and its subsidiaries as of the dates thereof and the consolidated results of
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the operations of Borrower and its subsidiaries for the periods covered
thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since September
30, 1997, there have been no events or occurrences which, individually or in
the aggregate, have had or are reasonably likely to have a Materially Adverse
Effect. Borrower has no knowledge of any liabilities, contingent or
otherwise, at September 30, 1997 not reflected in the balance sheet as of
such date which are required under such generally accepted accounting
principles to be so reflected, and Borrower has not entered into any special
commitments or substantial contracts since the date of such balance sheet,
other than the Brimfield Purchase Agreement and other contracts entered into
in the ordinary and normal course of its business which could not reasonably
be expected to have a Materially Adverse Effect. Except for Borrower's and
the Guarantors' obligations under the Loan Documents, and the Indebtedness
for Borrowed Money reflected in SCHEDULE 10(b)(v) attached hereto, none of
the Principal Companies has any Indebtedness for Borrowed Money.
ii. The projected consolidated financial statements of Borrower and its
subsidiaries for the fiscal years ending December 31, 1997, December 31,
1998, and December 31, 1999, in each case prepared on a PRO FORMA basis
giving effect to the transactions contemplated by the Brimfield Purchase
Agreement ("Projections"), copies of which have heretofore been delivered by
Borrower to Bank, have been prepared on the basis of the assumptions
accompanying them and reflect the best good faith estimates by Borrower of
the performance of Borrower and its subsidiaries for the periods covered
thereby, and the financial condition of Borrower and its subsidiaries as of
the dates thereof, based on such assumptions.
d. TRADEMARKS, PATENTS, COPYRIGHTS. Each Principal Company, as of the
date hereof, possesses all necessary trademarks, service marks, trade names,
copyrights, patents, patent rights, and licenses known to be required to
conduct its business as now operated, without any known conflict with any
trademarks, trade names, copyrights, patents or license rights of others.
SCHEDULE 9(d) sets forth a true and complete list and description of each (i)
patent or patent application held or filed by any Principal Company, (ii)
registered trademark or service mark, or trademark or service mark
registration application, held or filed by any Principal Company, and (iii)
material copyright of any Principal Company, and, with respect to each such
copyright, whether such copyright has been registered by such Principal
Company or whether such Principal Company has applied for any such
registration.
e. TAX STATUS. No Principal Company has any liability for any
delinquent state, local or federal taxes.
f. SUBSIDIARIES; CAPITALIZATION: SCHEDULE 9(F) sets forth a true and
complete list of all direct and indirect subsidiaries of Borrower, together
with its state of organization or incorporation. SCHEDULE 9(f) also sets
forth with respect to each Guarantor, the authorized capital stock of such
Guarantor, the number of shares of capital stock of each Guarantor
outstanding as of the date hereof, and the holder of such capital stock.
Except as set forth on SCHEDULE 9(f), there are no outstanding options,
warrants, subscription rights or other rights to purchase or acquire any
capital stock of any Guarantor, and there are no outstanding securities
convertible into or exchangeable for any capital stock of any Guarantor.
g. AFFILIATE TRANSACTIONS. Except as described in SCHEDULE 9(g)
attached hereto, no Principal Company is a party to or otherwise bound by any
written or oral contracts with any Associated Person. Except as described on
SCHEDULE 9(g), there is no Indebtedness for Borrowed Money owing by any
Principal Company to any Associated Person, and there is no Indebtedness for
Borrowed Money owing by any Associated Person to any Principal Company.
Borrower has delivered to Bank a true and complete copy of each contract (or,
where such contract is oral, a true and complete description thereof)
described in SCHEDULE 9(g).
h. OTHER REPRESENTATIONS. Each of the representations and warranties
of any Principal Company in any of the other Loan Documents is true and
correct. To the best knowledge of the Borrower, each of the representations
and warranties of Brimfield or any stockholder of Brimfield set forth in the
Brimfield Purchase Agreement was true and correct in all material respects as
of the date made, and is true and correct on the date hereof.
i. BRIMFIELD PURCHASE AGREEMENT. Simultaneously with the closing of
the transactions contemplated by this Agreement, the Borrower will acquire
all of the outstanding capital stock of Brimfield. All of the conditions to
closing by Borrower set forth in the Brimfield Purchase Agreement (as in
effect on the original date thereof) have been satisfied, without any
amendment or waiver of any such conditions not approved in writing by Bank.
The sources and uses of funds statement delivered by Borrower to Bank on
December 11, 1997 represents a true and accurate description of the sources
and uses of funds of Borrower in connection with the transactions
contemplated by the Brimfield Purchase Agreement.
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j. KEY CUSTOMERS. SCHEDULE 9(j) hereto lists the five largest
customers of each of the Principal Companies for the 1997 calendar year.
Except as set forth on SCHEDULE 9(j), no such customer has canceled or
otherwise terminated its relationship with the Principal Companies or its
usage or purchase of products or services of the Principal Companies. Except
as set forth on SCHEDULE 9(j), Borrower has no knowledge that any such
customer intends to cancel or otherwise materially and adversely modify its
relationship with the Principal Companies, or to decrease materially or limit
materially the purchase of products or services of the Principal Companies.
k. PRODUCT LIABILITY CLAIMS. The representations of Borrower set
forth in the section captioned "The Risk of Product Liability Claims" set
forth in Borrower's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996 ("1996 10-K") and in Borrower's Quarterly Report on Form
10-QSB for the fiscal quarter of Borrower ended September 30, 1997
("September 10-Q"), were true and correct when made, and are true and correct
on and as of the date of this Agreement as if repeated in their entirety on
the date hereof.
l. PATENT INFRINGEMENT. To the best knowledge of Borrower, neither
Borrower nor any of Borrower's customers have received any notice (whether
written or oral) that any one or more of Borrower's products, or any one or
more products of any such customer in which any of Borrower's products are
embedded infringes any patent or other intellectual property of any other
person.
10. COVENANTS.
a. CERTAIN AFFIRMATIVE COVENANTS. Borrower affirmatively covenants
that so long as any obligations of any Principal Company to Bank under this
Agreement or any other Loan Document remain outstanding or the Commitment
remains outstanding, the Principal Companies will:
i. ACCOUNTS RECEIVABLE. Within 20 days after each month-end, deliver
to Bank an accounts receivable aging for such month reconciled to the general
ledgers of Borrower and its subsidiaries, a detailed accounts payable aging
for such month reconciled to the general ledgers of Borrower and its
subsidiaries, and a certificate setting forth Borrower's calculation of the
Borrowing Base as at the end of such month, in reasonable detail. All of the
foregoing will be in form satisfactory to Bank.
ii. FINANCIAL AND OTHER REPORTS.
(A) Within 20 days after each month-end (other than the last month of
each fiscal quarter), deliver to Bank a consolidated balance sheet of
Borrower and its subsidiaries as at the end of such month, together with
related consolidated statements of operations and cash flows for such month,
in form satisfactory to Bank, all certified as to fairness of presentation by
the chief financial officer of Borrower.
(B) Within 45 days after the end of each of the first three (3) fiscal
quarters of each fiscal year of Borrower, deliver to Bank a consolidated
balance sheet of Borrower and its subsidiaries as at the end of such fiscal
quarter, together with related consolidated statements of operations and cash
flows for such quarter and for the portion of the fiscal year ended at the
end of such quarter, all certified as to fairness of presentation by the
chief financial officer of Borrower.
(C) Within 90 days after the end of each fiscal year, deliver to Bank a
consolidated balance sheet of Borrower and its subsidiaries as at the end of
such fiscal year, together with related consolidated statements of operations
and cash flows for such fiscal year, and together with a Changes in Financial
Position Statement, prepared on an audited basis with an unqualified opinion
by an independent certified public accountant selected by Borrower but
reasonably acceptable to Bank.
(D) Promptly upon completion thereof, and in any event not later than
December 1 of each fiscal year, deliver to Bank a copy of the annual business
plan and budget of Borrower and its subsidiaries for the next fiscal year,
including budgeted results for each fiscal quarter and for the fiscal year as
a whole, and upon the delivery of any financial statements relating to any
period included in such budget, a summary comparing the actual financial
performance of Borrower and its subsidiaries during such period to that shown
in the budget.
(E) Promptly upon obtaining knowledge thereof, deliver to Bank written
notice of the occurrence of any event which has had, or is reasonably likely
to have, a Materially Adverse Affect.
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(F) Promptly upon any filing thereof by Borrower, any annual, periodic,
or special reports or registration statements which Borrower may file with
the Securities and Exchange Commission or with any other securities exchange.
(G) Deliver to Bank, promptly upon Bank's request, all other
information relating to the affairs of Borrower and its business as Bank may
reasonably request.
iii. OTHER NOTICES.
(A) Promptly upon obtaining knowledge thereof, deliver to Bank written
notice of the occurrence of any Default or Event of Default.
(B) Promptly upon obtaining knowledge thereof, deliver to Bank written
notice of (1) the occurrence of any event which constitutes a material
default or breach of a material promise or agreement of any person under any
Ancillary Document (together with a brief description thereof), or (2) any
amendment, modification or supplement to any Ancillary Document.
iv. COMPLIANCE CERTIFICATE. Together with the financial statements
described in subparagraph (ii)(B) below for any fiscal quarter, deliver to
Bank a certificate, prepared and signed by the chief financial officer of
Borrower, certifying as to (A) compliance by the Principal Companies with the
covenants set forth in PARAGRAPH 10(b)(ii) through (iv) hereof for the fiscal
quarter most recently ended, and showing, in reasonable detail, the
calculations necessary to demonstrate such compliance and (B) the absences of
any Defaults or Events of Default.
v. RIGHTS AND FACILITIES. Maintain and preserve all rights,
franchises, licenses and other authorities adequate for the conduct of its
business; maintain its properties, equipment and facilities in good order and
repair; conduct its business in an orderly manner without voluntary
interruption and maintain and preserve its limited liability or corporate
existence and good standing.
vi. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property including,
but not limited to, the Collateral against fire and other hazards with
responsible insurance carriers to the extent usually maintained by similar
businesses. At the request of Bank, each Principal Company will provide
evidence of property and casualty and general liability insurance in amounts
and types reasonably acceptable to Bank. Bank will be named as Loss Payee
and Additional Insured on such policies, and, in the event Bank takes
possession of any Collateral, the insurance policy or policies and any
unearned or returned premium thereon shall at the option of Bank become the
sole property of Bank, and such policies and the proceeds of any other
insurance covering or in any way relating to the Collateral, whether now in
existence or hereafter obtained, shall be assigned to Bank.
vii. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
of its indebtedness and other liabilities, except to the extent and so long
as:
(A) the same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any material adverse effect upon
its financial condition or the loss of any right of redemption from any sale
thereunder; and
(B) it shall have set aside on its books reserves segregated (to the
extent required by generally accepted accounting practice) and adequate with
respect thereto.
viii. RECORDS AND REPORTS. Maintain a system of accounting in
accordance with generally accepted accounting principles on a basis
consistently maintained; and permit Bank's representatives to have access to,
and to examine, its properties, books and records at all reasonable times.
ix. FURTHER ASSURANCES. Upon the request of Bank from time to time, at
its own expense, promptly execute and deliver all such further instruments,
and take all such further action that may be necessary or appropriate, or
that Bank may reasonably request, in order to perfect, preserve or protect
any liens granted or purported to be granted under the Loan Documents, to
enable Bank to exercise and enforce any of its rights or remedies under this
Agreement or any of the other Loan Documents or otherwise to carry out the
intent of this Agreement or any of the other Loan Documents.
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x. REIMBURSEMENT OBLIGATIONS. Reimburse Bank upon demand for any and
all legal costs, including all reasonable attorneys' fees, and other expenses
incurred in connection with any and all amendments or modifications of, and
any and all consents or waivers under, this Agreement or any of the other
Loan Documents, the enforcement of any term or provision of this Agreement,
the Guaranty Agreement, any of the other Loan Documents or the Warrant, the
consideration of any legal questions relevant to the transactions
contemplated by this Agreement, the other Loan Documents or the Warrant and
the consideration and/or conduct of any proposed or actual "workout" of any
of the obligations of any Principal Company under this Agreement, the
Guaranty Agreement, or any of the other Loan Documents, and the structuring,
preparation, negotiation, review, execution, or delivery of this Agreement,
any of the other Loan Documents or the Warrant or amendments or waivers
thereunder, or any related documents (whether or not any of the same become
effective). COSTS FOR LEGAL FEES (EXCLUSIVE OF DISBURSEMENTS) ACCRUED IN
CONNECTION WITH THE DOCUMENTATION, NEGOTIATION AND IMPLEMENTATION OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE
WARRANT THROUGH THE DATE OF THIS AGREEMENT SHALL BE PAID BY BORROWER ON OR
PRIOR TO THE DATE OF ANY EXTENSIONS OF CREDIT UNDER THIS AGREEMENT.
xi. INDEMNIFICATION. Indemnify and hold free and harmless Bank and
each of its shareholders, officers, directors, employees, agents,
subsidiaries and affiliates (collectively, the "Indemnified Parties" and,
individually, an "Indemnified Party"), upon demand, from and against any and
all actions, causes of action, suits, losses, costs, liabilities, damages and
expenses actually incurred in connection with any of the transactions
contemplated by any of the Loan Documents (irrespective of whether such
Indemnified Party is a party to the action for which indemnification is
sought), including all reasonable fees and disbursements of counsel, all
amounts paid in settlement for any third party claim for which Borrower and
its subsidiaries shall have acknowledged and confirmed their obligation to
indemnify Bank (provided that Bank will not enter into any settlement
arrangement for which Borrower shall not have given its prior consent), and
all court costs incurred from time to time by the Indemnified Parties or any
of them, and all liabilities and expenses that may arise under any
environmental laws; EXCEPT for acts of such Indemnified Parties which arise
out of or by reason of such Indemnified Party's gross negligence or willful
misconduct.
b. CERTAIN NEGATIVE COVENANTS. Borrower agrees that so long as any
obligations of any Principal Company to Bank under this Agreement, the
Guaranty Agreement or any of the Loan Documents remain outstanding, or the
Commitment remains outstanding, Borrower will not, and will not permit any
Principal Company to, without Bank's written consent:
i. TYPE OF BUSINESS. Make any material change in the character of its
business.
ii. COVERAGE RATIOS.
(A) Permit the Interest Coverage Ratio for any Reference Period to
be less than 4.0:1.0.
(B) Permit the Debt Service Coverage Ratio for any Reference
Period identified in the table below to be less than the ratio set forth
opposite such Reference Period.
- ----------------------------------------------------------------
Minimum
Reference Period Debt Service
Ending Coverage Ratio
---------------- --------------
Closing thru 6/29/98 1.10:1.0
- ----------------------------------------------------------------
6/30/98 thru 6/29/99 1.25:1.0
- ----------------------------------------------------------------
6/30/99 thru 3/30/00 1.50:1.0
- ----------------------------------------------------------------
3/31/00 and thereafter 2.00:1.0
- ----------------------------------------------------------------
iii. MINIMUM EBITDA. Permit the Consolidated EBITDA of Borrower and its
subsidiaries (A) for any fiscal quarter to be less than $400,000, (B) for
the period of three fiscal quarters ending September 30, 1998 to be less
than $1,500,000, or (C) for any Reference Period, beginning with the
Reference Period ending September 30, 1998, to be less than $2,000,000.
iv. LEVERAGE RATIOS.
(A) Permit the Leverage Ratio as at any date identified in the table
set forth be low to be greater than the ratio set forth opposite such date.
Page 10
<PAGE>
- ----------------------------------------------------------------
Maximum
Date Leverage Ratio
- ----------------------------------------------------------------
Closing Date thru 6/29/98 3.00:1.0
- ----------------------------------------------------------------
6/30/98 thru 12/30/98 2.00:1.0
- ----------------------------------------------------------------
12/31/98 thru 6/29/99 1.75:1.0
- ----------------------------------------------------------------
6/30/99 and thereafter 1.00:1.0
- ----------------------------------------------------------------
(B) Permit the ratio of (1) Indebtedness for Borrowed Money of Borrower
and its subsidiaries, determined on a consolidated basis, as at any date
identified in the table below, DIVIDED BY (2) Consolidated EBITDA for the
Reference Period ending on such date, to be greater than the ratio set forth
opposite such date.
- ----------------------------------------------------------------
Last day of Each
Reference Period Minimum
Ending Ratio
- ----------------------------------------------------------------
closing thru 6/29/98 3.50:1.0
- ----------------------------------------------------------------
6/30/98 thru 12/30/98 2.25:1.0
- ----------------------------------------------------------------
12/31/98 thru 6/29/99 1.75:1.0
- ----------------------------------------------------------------
6/30/99 thru 3/30/00 1.25:1.0
- ----------------------------------------------------------------
3/31/00 and thereafter 1.00:1.0
- ----------------------------------------------------------------
v. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
Indebtedness for Borrowed Money other than (A) loans from Bank, (B)
obligations existing on the date hereof set forth on SCHEDULE 10(b)(v), (C)
loans made by any Principal Company to any other Principal Company permitted
by SECTION 10(b)(vii), (D) Indebtedness for Borrowed Money of the Borrower or
any of its subsidiaries entered into after the date of this Agreement in the
form of capitalized lease obligations, PROVIDED that the aggregate
outstanding amount of such capitalized lease obligations shall not at any
time exceed $500,000, and (E) Indebtedness for Borrowed Money in respect of
the Subordinated Note, in an aggregate outstanding principal amount not to
exceed $500,000.
vi. LIENS AND ENCUMBRANCES. Create, incur, assume or permit to exist
any mortgage, pledge, encumbrance, lien (except for liens for taxes not yet
due and payable or other similar liens incurred in the ordinary course of
such Principal Company's business) or charge of any kind upon any asset now
owned or hereafter acquired by it, other than (A) liens in Bank's favor and
(B) existing liens set forth on SCHEDULE 10(b)(vi), and (C) liens securing
capitalized lease obligations permitted by PARAGRAPH (6)(v)(D), PROVIDED that
no such lien shall cover any property other than the property leased under
the applicable capitalized lease.
vii. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Except as otherwise set
forth below, make any loans or advances to any person or other entity, other
than to employees for relocation, travel or other business expenses in the
normal and ordinary course of its business; or make any investment in the
securities of any person or other entity, other than the United States
Government, and other than short-term liquid investments consistent with the
Borrower's historical cash management practices; or guarantee or otherwise
become liable upon the obligations of any other person or entity, except by
endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business; or make any other investments.
Nothing in this paragraph (vii) shall prohibit any cash investments, loans or
advances by any Principal Company in any other Principal Company; PROVIDED
THAT, while any Default or Event of Default is continuing, Borrower will not
make any investments in or other loans or advances to any of its subsidiaries.
viii. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION.
Purchase or otherwise acquire the assets or business of any person or other
entity; or liquidate, dissolve, merge or consolidate, or commence any
proceedings therefore; or, except in the ordinary and normal course of its
business, sell (including without limitation the selling of any property or
other asset accompanied by leasing back of same) any property or assets.
Upon any sale of any property or assets not permitted hereunder, Borrower
shall pay to Bank, immediately upon receipt by Borrower or any other
Principal Company, all of the net proceeds of such sale, for application by
Bank to the outstanding obligations of Borrower under the Loan Documents in
such manner as Bank shall deem appropriate.
ix. DIVIDENDS, DISTRIBUTIONS, RESTRICTED PAYMENTS. Declare or pay any
dividend or make any other distribution on or in respect of any shares or
interests in the capital of any Principal Company or any securities convertible
into or exchangeable for any shares or interests in the capital of any Principal
Company (except so long as no Default or Event of Default is continuing, the
payment of cash dividends by any Guarantor to any other Guarantor or to
Borrower); make any payment in respect of the purchase, repurchase, redemption
or retirement of any of such
Page 11
<PAGE>
shares or interests in the capital of any Principal Company or other
securities; make any payment, prepayment or other distribution on, or any
payment or distribution in respect of the purchase, repurchase, retirement or
other acquisition of, any Indebtedness for Borrowed Money or other liability
of any Principal Company to any Associated Person; or make any payment,
prepayment or other distribution on, or any payment or distribution in
respect of the purchase, repurchase, retirement or other acquisition of any
obligations of Borrower under or in respect of, the Subordinated Note, except
any such payments or distributions that are not prohibited by the
Subordination Agreement. Borrower shall not at any time make any payments on
or in respect of, or in respect of the purchase, repurchase, retirement or
other acquisition of any indebtedness or other liabilities of Borrower to any
of its subsidiaries. This PARAGRAPH (ix) shall not prohibit the payment by
any Principal Company of any salaries or bonuses to employees, or the making
by any Principal Company of any loans or advances to employees, in each case
in the ordinary and normal course of its business (it being understood that
the exercise of stock options or warrants pursuant to "cashless" exercise
provisions or the withholding of shares of common stock exercisable upon
issuance of employee stock options to cover payment of applicable withholding
taxes shall not constitute a repurchase of shares of capital stock for
purposes of this PARAGRAPH (ix)).
x. TRANSACTIONS WITH ASSOCIATED PERSONS. Engage in any transactions
with any Associated Person, EXCEPT transactions in the ordinary and normal
course of business which (A) include only terms and conditions that are fair
and equitable to each Principal Company, (B) do not violate or otherwise
conflict with any of the terms and provisions of this Agreement or any of the
Loan Documents, (C) require the payment of no fees, charges or commissions by
any Principal Companies to any Associated Person, and (D) involve terms no
less favorable to any Principal Company than would be the terms of a similar
transaction with any person other than an Associated Person.
xi. CHANGE OF CONTROL TRIGGERING EVENTS. Enter into or undertake any
transaction, arrangement or agreement (whether a consolidation, merger, issue
or sale of capital stock or other securities, reorganization, voting
agreement or otherwise) that will or could reasonably be expected to result
in a Change of Control.
xii. FORMATION OF NEW SUBSIDIARIES. Form any new subsidiary unless (A)
such subsidiary becomes a party to the Guaranty Agreement as a Guarantor
thereunder and agrees to guaranty the obligations of Borrower under this
Agreement and the Revolving Note, (B) such subsidiary becomes a party to the
Security Agreement executed by the other Principal Companies on the date
hereof, and (C) all capital stock or other equity interests of such
subsidiary are pledged t o Bank as security for the obligations of Borrower
and the other Principal Companies under this Agreement and the other Loan
Documents pursuant to a pledge agreement satisfactory to Bank.
xiii. AMENDMENT OF CERTAIN DOCUMENTS. Amend, restate or otherwise
modify, or waive any of its rights under, any Ancillary Document, any
agreements or instruments between or among any Principal Company and any
Associated Person, or any charter document or by-laws of any Principal
Company.
xiv. ISSUANCE OR SALE OF SECURITIES. Issue or sell (i) any shares or
other interests of any class in the capital of any Guarantor, (ii) any
securities exchangeable for or convertible into or carrying any rights to
acquire any shares or other interests of any class in the capital of any
Guarantor, or (iii) any options, warrants or other rights to acquire any
shares or other interests of any class in the capital of any Guarantor;
EXCLUDING, HOWEVER, the pledge by Borrower to Bank pursuant to the Loan
Documents of the outstanding shares of capital stock of the Guarantors.
11. EVENTS OF DEFAULT; REMEDIES. Should any of the following events
occur (any such event being referred to as an "Event of Default"): (i)
default by any Principal Company in the payment when due of any obligation of
such Principal Company under this Agreement or any of the other Loan
Documents; (ii) default by Borrower of any agreement, promise or covenant of
Borrower under SECTION 10(a)(i), 10(a)(ii), 10(a)(iii), 10(a)(iv), 10(a)(vi)
or 10(b); (iii) default by any Principal Company in the due performance or
observance of any of the agreements, promises or covenants of such Principal
Company under any of the Loan Documents or any Warrant, other than, with
respect to Borrower, any such agreements, promises or covenants described in
clause (i) or (ii) above, which default shall continue unremedied for ten or
more days after notice from Bank to Borrower; (iv) any material
representation or warranty of any Principal Company set forth in any of the
Loan Documents or any Warrant, or in any certificate, instrument or statement
delivered to Bank pursuant to any Loan Document or any Warrant, shall be
untrue or incorrect in any material respect when made; (v) default by any
Principal Company or any other party of any of its material obligations or
agreements under any Ancillary Document, which default continues unremedied
for ten or more days after notice from Bank to Borrower; (vi) any Principal
Company shall default in the payment when due (whether at stated maturity, by
acceleration or otherwise) of $100,000 or more of any Indebtedness for
Borrowed Money, or any Principal Company shall default in the observance or
performance of any term, covenant or agreement contained in any instrument
governing or evidencing any Indebtedness for Borrowed Money, and such default
shall permit the holders of such Indebtedness for Borrowed Money to declare
immediately due and payable or to otherwise
Page 12
<PAGE>
accelerate Indebtedness for Borrowed Money in an aggregate amount exceeding
$100,000; (vii) any Change of Control shall occur; (viii) Borrower shall have
failed to complete a Qualified Financing on terms reasonably satisfactory to
Bank on or prior to March 15, 1998; (ix) any Principal Company shall become
insolvent or make an assignment for the benefit of creditors; (x) any
Principal Company shall apply for or consent to or shall permit or suffer to
exist the voluntary or involuntary appointment of a trustee, receiver,
custodian, or liquidator of all or any material part of its property; (xi)
any Principal Company shall have commenced against it, or shall voluntarily
commence, any bankruptcy, reorganization or other similar proceeding under
bankruptcy or insolvency laws or any dissolution, winding up or liquidation
proceeding, which, in the case of any such involuntary proceeding, shall have
been consented to by such Principal Company, shall have resulted in entry of
an order for relief against such Principal Company, or shall have remained
undismissed, undischarged or unbonded for a period of more than 60 days; or
(xii) any other event or circumstance shall occur or arise which, in the
reasonable judgment of Bank, has had or is reasonably likely to have a
Materially Adverse Effect; then, in any such event, Bank may, at its option
and without demand first made and without notice to any Principal Company, do
any one or more of the following: (a) terminate the Commitment; (b) declare
all obligations of the Principal Companies to Bank under this Agreement, the
Guaranty Agreement and the other Loan Documents immediately due and payable;
and (c) proceed to enforce all or any of its rights under any of the Loan
Documents or available at law or in equity. In the event Bank sells or
disposes of any Collateral, and a sufficient sum is not realized from any
such sale or disposition to pay all obligations of the Principal Companies to
Bank under this Agreement, the Guaranty Agreement, any of the other Loan
Documents or otherwise, each of the Principal Companies shall be liable to
Bank for any deficiency.
In addition, in the event of the occurrence of any Event of Default
under CLAUSE (viii) above, Borrower will issue to Bank (x) on and as of March
15, 1997, a Warrant entitling the Bank to purchase 80,000 shares of
Borrower's Common Stock (as proportionately adjusted for any stock splits,
split-ups, stock dividends or other recapitalizations or other similar
transactions effecting Borrower's Common Stock), at a purchase price per
share calculated in the same manner as the initial Warrant hereunder (but as
of March 15, 1998), and (y) on the last day of each calendar month thereafter
(commencing March 31, 1998) on which such Event of Default is continuing, a
Warrant entitling Bank to purchase 10,000 shares of Borrower's Common Stock
(as proportionately adjusted for any stock splits, split-ups, stock dividends
or other recapitalizations or other similar transactions affecting Borrower's
Common Stock), at a purchase price per share calculated in the same manner as
the initial Warrant hereunder (but as of the date of issuance of such
additional Warrants). Each of the additional Warrants will be in
substantially the form of the initial Warrant issued hereunder.
12. ATTACHMENT, ETC. If any garnishment, execution or other legal
process be issued against any property of any Principal Company, or if any
assessment for taxes against any Principal Company is made by any Federal or
State government or any department thereof relating to an amount unpaid or in
dispute in excess of $100,000, the Commitment shall immediately terminate and
all obligations hereunder or under any of the Loan Documents shall
immediately become due and payable without demand, presentment or notice of
any kind.
13. SETOFF. Regardless of the adequacy of any Collateral, during the
continuance of any Default or Event of Default, any deposits or other sums
credited by or due from Bank to any Principal Company, and any securities or
other investments or property of such Principal Company in the possession of
Bank, may be applied to or set off against any obligations of such Principal
Company to Bank under this Agreement or any other Loan Document.
14. FEES. Borrower shall pay to Bank (a) a non-refundable closing fee
for the transactions contemplated by the Loan Documents in an amount equal to
$50,000, payable in four equal quarterly payments with the first payment due
on the date hereof and the remaining three payments due on March 1, 1998,
June 1, 1998 and September 1, 1998 (and, in any event, with any unpaid
balance thereof due on the Revolving Loan Maturity Date), and (b) commitment
fees at the annual rate of one half of one percent (0.5%) on the average
daily amount by which the Maximum Commitment exceeds the outstanding balance
of the Loan Account. The commitment fees shall be payable in arrears on the
first day of each calendar month and on the Revolving Loan Maturity Date.
15. SPECIAL POST-CLOSING COVENANT. On or prior to January 15, 1999,
Borrower will deliver to Bank, in a form satisfactory to Bank, a registration
rights agreement entitling Bank, on customary terms, to (i) one demand
registration of the shares of Common Stock issuable upon exercise of the
Warrants on Form S-3 or other similar "short-form", and (ii) unlimited
"piggyback" registration rights with respect to such shares of Common Stock,
subject to standard pro rata underwriter's cut-backs.
16. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of Bank in the exercise of any power, right or privilege hereunder, under the
Guaranty Agreement or under any other Loan Document, shall operate as a
waiver thereof, nor shall any single or partial exercise thereof or of any
other right, power or privilege preclude
Page 13
<PAGE>
other or further exercise thereof or of any other right, power or privilege.
All rights and remedies existing hereunder are cumulative to, not exclusive
of, any other rights or remedies provided in any of the Loan Documents or at
law or in equity.
17. CHOICE OF LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT AND EACH OF
THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF CALIFORNIA. BORROWER AGREES THAT ANY SUIT FOR
THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR ANY FEDERAL COURT SITTING
THEREIN AND CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS AND TO
SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON BORROWER IN ANY MANNER
PERMITTED BY CALIFORNIA LAW. EACH PARTY WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR
OBLIGATIONS.
18. AMENDMENT AND WAIVER. This Agreement is subject to modification
only by a writing signed by Bank and Borrower. Bank shall not be deemed to
have waived any right hereunder unless such waiver shall be in writing and
signed by Bank. A waiver on any one occasion shall not be construed as a bar
to or waiver of any right on any future occasion.
19. DATE OF AGREEMENT. This Agreement is executed by and on behalf of
the parties as of December 12, 1997.
IMAGE GUIDED TECHNOLOGIES, INC. IMPERIAL BANK
"BORROWER" "BANK"
By: /s/ Jeffrey J. Hiller By: /s/ Oscar C. Jazdowski
----------------------------- -----------------------------
Title: Vice President Finance Title: Senior Vice President
Page 14
<PAGE>
THE INDEBTEDNESS OF THE COMPANY EVIDENCED BY THIS NOTE SHALL BE SUBORDINATED
AND JUNIOR IN RIGHT OF PAYMENT TO ALL INDEBTEDNESS OF THE COMPANY UNDER THE
LOAN AGREEMENT (DEFINED BELOW), ON THE TERMS SET FORTH IN THE SUBORDINATION
AGREEMENT (DEFINED BELOW).
12% SUBORDINATION PROMISSORY NOTE
$500,000 December 12, 1997
On December 12, 1998 (the "Maturity Date"), and as hereinafter provided,
for value received, IMAGE GUIDED TECHNOLOGIES, INC., a Colorado corporation
("Company"), promises to pay to CRUTTENDEN ROTH, INC., a California
corporation ("Lender"), or order, the principal sum of $500,000, together
with interest from the date hereof on the unpaid principal balance of this
Note at the rate of twelve percent (12%) per annum. Interest shall be
computed at the above rate on the basis of the actual number of days elapsed,
divided by 360, which shall, for interest computation purposes, be considered
one year. Interest shall be payable in arrears on the first day of each
calendar month and on the Maturity Date. All of the obligations evidenced by
this Note shall, if not sooner paid, in any event become and be due and
payable in full to the Lender by the Company on the Maturity Date. All
payments by the Company to the Lender hereunder shall be made without set-off
or counterclaim, and in immediately available funds, at the location
specified from time to time by the Lender.
The Company irrevocably authorizes the Lender to make appropriate
notations on any SCHEDULE attached to this Note to evidence the outstanding
principal amount of this Note and repayments thereof. Any such notations
indicating the outstanding principal amount of this Note shall be rebuttable
presumptive evidence of the principal amount of this Note outstanding, but
the failure to make any such notation or any error in making any such
notations, shall not limit or affect the obligations of the Company hereunder.
In the event of any Event of Default, the Lender may, by written notice
to the Company, declare the entire outstanding principal of this Note, and
all accrued and unpaid interest thereon, to be immediately due and payable,
whereupon all such principal and interest shall, without further notice,
become and be immediately due and payable. The term "Event of Default," as
used herein, shall mean any of the following events: (i) any failure by the
Company to make any payment of principal or interest hereunder when the same
shall be due and payable, and the continuation of such failure for two
business days, (ii) the failure of the Company to comply with any other
covenant set forth herein, which failure shall continue for five business
days, (iii) the Company shall become insolvent or make an assignment for the
benefit of creditors, (iv) the Company shall apply for or consent to or shall
permit or suffer to exist the voluntary or involuntary appointment of a
trustee, receiver, custodian, or liquidator of all or any material part of
its property, or (v) the Company shall have commenced against it, or shall
voluntarily commence, any bankruptcy, reorganization or other similar
proceeding under bankruptcy or insolvency laws or any dissolution, winding up
or liquidation proceeding, which, in the case of any such involuntary
proceeding, shall have been consented to by the Company, shall have resulted
in entry of an order for relief against the Company, or shall have remained
undismissed, undischarged or unbonded for a period of more than 60 days.
The Company waives diligence, presentment, demand, notice, protest and
all other notices in connection with the delivery, acceptance, performance or
enforcement of this Note, and assents to all extensions of time for payment,
forbearances and other indulgences without notice. In any action brought
under or arising out of this Note, the Company, including its successor(s) or
assign(s), hereby consents to the application of Massachusetts law.
<PAGE>
REFERENCE IS MADE TO THE LOAN AGREEMENT, DATED AS OF DECEMBER 12, 1997 (AS
AMENDED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE "LOAN
AGREEMENT"), BETWEEN THE COMPANY AND IMPERIAL BANK ("SENIOR LENDER"). ALL OF
THE INDEBTEDNESS AND OTHER OBLIGATIONS AND LIABILITIES OF THE COMPANY
EVIDENCED BY THIS NOTE ("SUBORDINATED DEBT") SHALL BE SUBORDINATED AND JUNIOR
IN RIGHT OF PAYMENT TO THE INDEBTEDNESS AND OTHER OBLIGATIONS AND
LIABILITIES OF THE COMPANY UNDER THE LOAN AGREEMENT ("SENIOR DEBT") ON THE
TERMS SET FORTH IN THE SUBORDINATION AGREEMENT, DATED AS OF DECEMBER 12,
1997, BETWEEN THE LENDER AND THE COMPANY (AS AMENDED, RESTATED OR OTHERWISE
MODIFIED FROM TIME TO TIME, THE "SUBORDINATION AGREEMENT").
The Company hereby agrees with the Lender that on or prior to January 15,
1998, the Company will execute, for the benefit of the Lender, one or more
security agreements granting to the Lender a security interest in all of the
Company's assets on terms reasonably satisfactory to the Lender, and such
financing statements and other instruments as the Lender may reasonably
request in order to perfect such security interest.
Simultaneously with the implementation of the security arrangements
described above, the Company and the Lender will amend and restate the
Subordination Agreement to provide, upon customary terms, as follows:
(a) No payments or distributions will be permitted on Subordinated
Debt while any payment default is continuing on Senior Debt.
(b) While any bankruptcy or insolvency proceeding with respect to the
Company is continuing, no payments or distributions will be permitted on
Subordinated Debt until all Senior Debt has been paid in full in cash.
(c) No payments or distributions in respect of Subordinated Debt will
be permitted while any Payment Blockage Period is continuing. Payment
Blockage Periods may be commenced by the Senior Lender by delivering a
notice to the Lender while any event(s) of default are continuing under the
Loan Agreement, specifying such event(s) of default. Payment Blockage Periods
shall expire on the earlier of (i) the date on which the specified event(s)
of default have been cured, or (ii) the 180th day after commencement of the
Payment Blockage Period.
(d) No remedies may be exercised by the Lender in respect of
Subordinated Debt or any collateral therefor while any Remedy Standstill
Period is continuing. Remedy Standstill Periods may be commenced by the
Senior Lender by delivering a notice to the Lender while any event(s) of
default are continuing under the Loan Agreement, specifying such event(s) of
default. Remedy Standstill Periods shall expire on the earlier of (i) the
date the specified event(s) of default are cured, or (ii) the 180th day after
commencement of the Remedy Standstill Period.
(e) All liens securing Subordinated Debt shall be subordinated and
junior to liens securing Senior Debt.
(f) There shall be a permanent standstill on the exercise of remedies
by the Lender in respect of any collateral for Subordinated Debt until all
Senior Debt has been paid in full in cash.
Executed this 12th day of December, 1997.
IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ Jeffrey J. Hiller
------------------------------------
Title: Vice President Finance
<PAGE>
By its signature below, the Senior Lender agrees to negotiate in good
faith with the Lender and the Company to effect the amendment and restatement
of the Subordination Agreement on the terms described above and on such other
terms as shall be reasonably acceptable to the Senior Lender, and to enter
into such amendments to, and consents under, the Loan Agreement as may be
necessary to permit the Company to grant the security interest to the Lender,
and to permit the amendment and restatement of the Subordination Agreement,
contemplated by the Note.
Executed this 12th day of December, 1997.
IMPERIAL BANK
By: /s/ Oscar C. Jazdowski
-------------------------------------
Title: Senior Vice President
<PAGE>
THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT IN THE LIMITED
CIRCUMSTANCES SET FORTH HEREIN OR WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY
- -------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT
for the purchase of
COMMON STOCK
of
IMAGE GUIDED TECHNOLOGIES, INC.
(A COLORADO CORPORATION)
ORIGINAL ISSUE DATE: DECEMBER 12, 1997
IMAGE GUIDED TECHNOLOGIES, INC., a Colorado corporation (the "COMPANY"),
for good and valuable consideration received, hereby certifies that IMPERIAL
BANK, a California banking corporation, or registered assigns permitted
hereunder (the "HOLDER"), is entitled to purchase from the Company, at any time
or from time to time during the Warrant Exercise Period (as hereinafter
defined), that number of shares of the Company's Common Stock, no par value per
share ("COMMON STOCK"), as shall be equal to the Warrant Number (as hereinafter
defined), at that price per share of Common Stock as shall be equal to the
Purchase Price (as hereinafter defined).
1. DEFINITIONS.
For the purposes of this Warrant:
"FAIR MARKET VALUE" means the average of the closing sale prices (if listed
on a stock exchange or quoted on the Nasdaq National Market System or any
successor thereto), or the average last price as reported in the Wall Street
Journal if quoted on the NASDAQ small-cap market, or the average of the mean
between the closing bid and asked prices (if otherwise publicly traded), of the
Common Stock on each of the five (5) trading days prior to the date of exercise.
"PURCHASE PRICE" means, initially, $2.92, subject to automatic adjustment
from time to time in accordance with SECTION 3.
"TERMINATION DATE" is defined in SECTION 7.
<PAGE>
2
"WARRANT EXERCISE PERIOD" means the period commencing with the original
issue date of this Warrant and ending on the Termination Date.
"WARRANT NUMBER" means, initially, 160,000, subject to automatic adjustment
from time to time in accordance with SECTION 3.
2. EXERCISE.
(a) This Warrant may be exercised by the Holder, in whole or in part, by
surrendering this Warrant, with the purchase form appended hereto as EXHIBIT A,
duly executed by such Holder, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by payment in
full by bank or certified check in lawful money of the United States, of the
aggregate Purchase Price payable in respect of the total number of shares of
Common Stock purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in SUBSECTION 2(a) above.
At such time, the person or persons in whose name or names any certificates for
or other instruments evidencing shares of Common Stock shall be issuable upon
such exercise as provided in SUBSECTION 2(d) below shall be deemed to have
become the holder or holders of record of the Common Stock represented by such
certificates or other instruments.
(c) (i) The Holder may at its sole option, and in lieu of paying the
Purchase Price pursuant to SUBSECTION 2(a) hereof, exchange this
Warrant in whole or in part for a number of shares of Common Stock as
determined below. Such shares of Common Stock shall be issued by the
Company to the Holder without payment by the Holder of any other
exercise price or any cash or other consideration. The number of
shares of Common Stock to be so issued to the Holder shall be equal to
the quotient obtained by dividing (A) the Surrendered Value (as
defined below) on the date of surrender of this Warrant pursuant to
SUBSECTION 2(a), by (b) the Fair Market Value on the exchange date of
one share of Common Stock.
(ii) For the purposes of this SUBSECTION 2(c), the "SURRENDERED
VALUE" of a portion of this Warrant on a given date shall be deemed to
be the difference between (A) the aggregate Fair Market Value on such
date of the total number of shares of Common Stock otherwise issuable
upon exercise of such portion of the Warrant, MINUS (B) the aggregate
Purchase Price of such total number of shares of Common Stock.
(d) As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within three (3) business days thereafter, the
Company, at its expense, will cause to be issued in the name of, and delivered
to, the Holder, or, subject to the terms and conditions hereof, as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct:
<PAGE>
3
(i) a certificate or certificates for the number of full shares
of Common Stock to which such Holder shall be entitled upon such
exercise, PLUS, in lieu of any fractional share to which such Holder
would otherwise be entitled, cash in an amount determined pursuant to
SECTION 3 hereof, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of shares of
Common Stock equal (without giving effect to any adjustment therein)
to the Warrant Number minus the number of such shares of Common Stock
purchased by the Holder upon such exercise.
3. ADJUSTMENTS; FRACTIONAL SECURITIES.
(a) If, at any time after the original issue date of this Warrant, the
outstanding Common Stock shall be subdivided into a greater number of shares or
a dividend in Common Stock shall be paid in respect of Common Stock, the
Purchase Price in effect immediately prior to such subdivision or at the record
date of such dividend shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend be immediately
and automatically proportionately and equitably reduced. If, at any time after
the original issue date of this Warrant, the outstanding Common Stock shall be
combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be immediately and automatically
proportionately and equitably increased. When any adjustment is required to be
made in the Purchase Price, the number of shares of Common Stock purchasable
upon the exercise of this Warrant shall be changed to the number determined by
dividing (i) an amount equal to the maximum number of shares of Common Stock
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) If, at any time after the original issue date of this Warrant, there
shall occur any capital reorganization or reclassification of the Common Stock
(other than a change in par value or a subdivision or combination as provided
for in SUBSECTION 3(a) above), or any consolidation or merger of the Company
with or into another corporation, or a transfer of all or substantially all of
the assets of the Company, or the payment of a liquidating distribution, then,
as part of any such reorganization, reclassification, consolidation, merger,
sale, automatic conversion or liquidating distribution, lawful provision shall
be made so that the Holder of this Warrant shall have the right thereafter to
receive upon the exercise hereof (to the extent, if any, still exercisable) the
kind and amount of shares of stock or other securities or property which such
Holder would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger, sale, automatic
conversion or liquidating distribution, as the case may be, such Holder had held
the number of shares of Common Stock which were then purchasable upon the
exercise of this Warrant. In any
<PAGE>
4
such case, appropriate adjustment (as reasonably determined by the Board of
Directors of the Company) shall be made in the application of the provisions
set forth herein with respect to the rights and interests thereafter of the
Holder of this Warrant such that the provisions set forth in this SECTION 3
(including provisions with respect to adjustment of the Purchase Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation
to any shares of stock or other securities or property thereafter deliverable
upon the exercise of this Warrant.
(c) In case the Company shall issue shares of Common Stock (excluding
shares issued (i) in any of the transactions described in SUBSECTION 3(A) above
or SUBSECTION 3(B) above, (ii) upon exercise of options granted to the Company's
officers, employees, directors and consultants under a plan or plans adopted by
the Company's Board of Directors, if such shares would otherwise be included in
this SUBSECTION (c), and (iii) upon exercise of options and warrants outstanding
at December 12, 1997, and this Warrant (and any warrants with the same terms as
this Warrant)) for a consideration per share (the "OFFERING PRICE") less than
the Purchase Price, the Purchase Price shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the Purchase Price in
effect immediately prior to the date of issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received (determined as
provided in SUBSECTION 3(e) below) for the issuance of such additional shares
would purchase at the Purchase Price in effect immediately prior to the date of
such issuance, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance of such additional
shares. Such adjustment shall be made successively whenever such an issuance is
made. When any such adjustment is required to be made in the Purchase Price,
the number of shares of Common Stock purchasable upon exercise of this Warrant
shall be changed to the number determined by dividing (A) an amount equal to the
maximum number of shares of Common Stock issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Purchase Price
in effect immediately prior to such adjustment, by (B) the Purchase Price in
effect immediately after such adjustment.
(d) In case the Company shall issue any securities convertible into or
exchangeable for its Common Stock (excluding options and warrants which are
governed by SUBSECTION (c) above) for a consideration per share of Common Stock
(the "CONVERSION PRICE") initially deliverable upon conversion or exchange of
such securities (determined as provided in SUBSECTION (e) below) less than the
Purchase Price, the Purchase Price shall be adjusted immediately thereafter so
that it shall equal the price determined by multiplying the Purchase Price in
effect immediately prior to the date of issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities and the number of shares of
Common Stock which the aggregate consideration received (determined as provided
in SUBSECTION (e) below) for such securities would purchase at the Purchase
Price in effect immediately prior to the date of such issuance, and the
denominator of which shall be the sum of the
<PAGE>
5
number of shares of Common Stock outstanding immediately prior to the
issuance of such securities and the maximum number of shares of Common Stock
of the Company deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange price or rate. Such
adjustment shall be made successively whenever such issuance is made.
(e) For purposes of any computation respecting consideration received
pursuant to SUBSECTIONS (c) and (d) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors of the Company (irrespective of the accounting
treatment thereof), whose determination shall be conclusive; and
(iii) in the case of the issuance of securities convertible into
or exchangeable for shares of Common Stock, the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (i) and (ii) of this SUBSECTION (e)).
(f) When any adjustment is required to be made in the Purchase Price or
the Warrant Number, the Company shall promptly mail to the Holder a certificate
setting forth the Purchase Price and the Warrant Number after such adjustment,
and setting forth a brief statement of the facts requiring such adjustment.
Such certificate shall also set forth the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable following
the occurrence of any of the events specified in SUBSECTION 3(a), (b), (c) or
(d) above.
(g) The Company shall not be required, upon the exercise of this Warrant,
to issue any fractional shares, but shall make an adjustment therefore in cash
on the basis of the Fair Market Value of the Common Stock at the time of
exercise.
4. LIMITATION ON SALES, ETC.
The Holder, and each subsequent holder of this Warrant, if any,
acknowledges that this Warrant and the underlying shares of Common Stock have
not been registered under the Securities Act of 1933, as now in force or
hereafter amended, or any successor legislation (the "ACT"), and agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Common Stock issued upon its exercise in
<PAGE>
6
the absence of (a) an effective registration statement under the Act as to
this Warrant or such underlying shares of Common Stock and registration or
qualification of this Warrant or such underlying shares of Common Stock under
any applicable Blue Sky or state securities laws then in effect, or (b) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required.
Without limiting the generality of the foregoing, unless the offering
and sale of the Common Stock to be issued upon the particular exercise of the
Warrant shall have been effectively registered under the Act, the Company
shall be under no obligation to issue the shares covered by such exercise
unless and until the registered Holder shall have executed an investment
letter in form and substance reasonably satisfactory to the Company,
including a warranty at the time of such exercise that it is acquiring such
shares for its own account, for investment, and not with a view to, or for
sale in connection with, the distribution of any such shares, in which event
the registered Holder shall be bound by the provisions of a legend to such
effect on the certificate(s) representing the Common Stock.
In addition, without limiting the generality of the foregoing, the
Company may delay issuance of the Common Stock hereunder until completion of
any action or obtaining of any consent which the Company deems necessary
under any applicable law (including without limitation state securities or
"blue sky" laws), PROVIDED that the Company shall use all reasonable efforts
in good faith to diligently pursue completion of such action or the receipt
of such consent.
5. NOTICES OF RECORD DATE, ETC.
In case:
(a) the Company shall take a record of the holders of Common Stock for
the purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares
of stock of any class or any other securities, or to receive any other right,
or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation, or any transfer of all or
substantially all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
the Holder of this Warrant a notice specifying, as the case may be, (i) the
date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any
is to be fixed, as of which the holders of record of Common Stock shall be
entitled to exchange their Common
<PAGE>
7
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
record date or effective date for the event specified in such notice, PROVIDED
that the failure to so mail such notice shall not affect the legality or
validity of any such action.
6. RESERVATION OF STOCK, ETC.
(a) The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of this Warrant, such stock and other
property as from time to time shall be issuable upon the exercise of this
Warrant.
(b) The Company further covenants that it will, at its expense, prior to
the issuance of any Common Stock upon exercise of this Warrant, procure the
listing on all stock exchanges (if any) on which the Common Stock is then listed
of all such shares of Common Stock.
(c) The Company will not, by amendment of its Articles of Incorporation
or through reorganization, consolidation, merger, dissolution, issuance of
capital stock or sale of treasury stock (otherwise than upon exercise of this
Warrant) or sale of assets, or by any other act or deed, avoid or seek to
avoid the material performance or observance of any of the covenants,
stipulations or conditions in this Warrant to be observed or performed by the
Company. The Company will at all times in good faith assist, insofar as it
is able, in the carrying out of all of the provisions of this Warrant in a
reasonable manner and in the taking of all other action which may be
necessary in order to protect the rights hereunder of the Holder of this
Warrant.
(d) The Company will maintain an office where presentations and demands
to or upon the Company in respect of this Warrant may be made. The Company
will give notice in writing to the Holder, at the address of the Holder
appearing on the books of the Company, of each change in the location of such
office.
7. TERMINATION.
THIS WARRANT SHALL TERMINATE AND NO LONGER BE EXERCISABLE FROM AND AFTER
5:00 P.M., BOSTON TIME, ON DECEMBER 12, 2004 (THE "TERMINATION DATE").
8. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names and
addresses of the Holders of this Warrant. The Holder may change its, his or
her address as shown on the warrant register by written notice to the Company
requesting such change.
<PAGE>
8
(b) Until any transfer of this Warrant is made in the warrant register,
the Company may treat the Holder of this Warrant as the absolute owner hereof
for all purposes.
9. REPLACEMENT OF WARRANTS.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) upon delivery of an indemnity agreement (with
surety if reasonably required) in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will issue, in lieu thereof, a new Warrant of like
tenor.
10. MAILING OF NOTICES, ETC.
All notices and other communications from the Company to the Holder of
this Warrant shall be mailed by first-class certified or registered mail,
postage prepaid, to the address furnished to the Company in writing by the
last Holder of this Warrant who shall have furnished an address to the
Company in writing. All notices and other communications from the Holder of
this Warrant or in connection herewith to the Company shall be mailed by
first-class certified or registered mail, postage prepaid, to the Company at
its principal executive offices or at such other address as the Company shall
so notify the Holder.
11. NO RIGHTS AS STOCKHOLDER.
Until the exercise of this Warrant, the Holder shall not have or
exercise any rights by virtue hereof as a stockholder of the Company.
12. CHANGE OR WAIVER.
Any term of this Warrant may be changed or waived only by an instrument
in writing signed by the party against which enforcement of the change or
waiver is sought.
13. HEADINGS.
The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning of any provision of this
Warrant.
<PAGE>
9
14. GOVERNING LAW.
THE VALIDITY, CONSTRUCTION AND PERFORMANCE OF THIS WARRANT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS EXECUTED IN AND PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REFERENCE TO ANY CHOICE OF LAW PRINCIPLES OF SUCH STATE. With respect
to any suit, action or other proceeding arising out of this Warrant, or any
other transaction contemplated thereby, the parties hereto expressly waive any
right they may have to a jury trial and agree that any proceeding hereunder
shall be tried by a judge without a jury.
<PAGE>
10
IN WITNESS WHEREOF, IMAGE GUIDED TECHNOLOGIES, INC. has caused this COMMON
STOCK PURCHASE WARRANT to be signed in its corporate name and its corporate seal
to be impressed hereon by its duly authorized officers on and as of December 12,
1997.
THE COMPANY:
[CORPORATE SEAL] IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ Jeffrey J. Hiller
---------------------------------
Title: Vice President Finance
Attest: /s/ Waldean Schulz
------------------------------
<PAGE>
11
EXHIBIT A
PURCHASE FORM
To:
The undersigned, pursuant to the provisions set forth in the attached
COMMON STOCK PURCHASE WARRANT, hereby irrevocably elects either (a) to
purchase _________ shares of Common Stock covered by such Warrant and
herewith makes payment of $ _______, representing the full purchase price for
such shares at the Purchase Price per share provided for in such Warrant, or
(b) to surrender __________ number of shares of such Warrant in exchange for
the number of shares of Common Stock determined pursuant to SECTION 2(c)
thereof.
Dated: By:
------------------------------
<PAGE>
12
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto: ______________ the right to purchase Common Stock represented by this
Warrant to the extent of __________ shares, and does hereby irrevocably
constitute and appoint _______________, attorney-in-fact to transfer the same
on the books of the Company with power of substitution in the premises.
Dated: By:
-------------------------------
<PAGE>
THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT IN THE LIMITED
CIRCUMSTANCES SET FORTH HEREIN OR WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY
- -------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT
for the purchase of
COMMON STOCK
of
IMAGE GUIDED TECHNOLOGIES, INC.
(A COLORADO CORPORATION)
ORIGINAL ISSUE DATE: DECEMBER 12, 1997
IMAGE GUIDED TECHNOLOGIES, INC., a Colorado corporation (the "COMPANY"),
for good and valuable consideration received, hereby certifies that CRUTTENDEN
ROTH, INC., a California corporation, or registered assigns permitted hereunder
(the "HOLDER"), is entitled to purchase from the Company, at any time or from
time to time during the Warrant Exercise Period (as hereinafter defined), that
number of shares of the Company's Common Stock, no par value per share ("COMMON
STOCK"), as shall be equal to the Warrant Number (as hereinafter defined), at
that price per share of Common Stock as shall be equal to the Purchase Price (as
hereinafter defined).
1. DEFINITIONS.
For the purposes of this Warrant:
"FAIR MARKET VALUE" means the average of the closing sale prices (if listed
on a stock exchange or quoted on the Nasdaq National Market System or any
successor thereto), or the average last price as reported in the Wall Street
Journal if quoted on the NASDAQ small-cap market, or the average of the mean
between the closing bid and asked prices (if quoted on NASDAQ or otherwise
publicly traded), of the Common Stock on each of the five (5) trading days prior
to the date of exercise.
"PURCHASE PRICE" means, initially, $ 2.92, subject to automatic adjustment
from time to time in accordance with SECTION 3.
"TERMINATION DATE" is defined in SECTION 7.
<PAGE>
2
"WARRANT EXERCISE PERIOD" means the period commencing with the original
issue date of this Warrant and ending on the Termination Date.
"WARRANT NUMBER" means, initially, 100,000, subject to automatic adjustment
from time to time in accordance with SECTION 3.
2. EXERCISE.
(a) This Warrant may be exercised by the Holder, in whole or in part, by
surrendering this Warrant, with the purchase form appended hereto as EXHIBIT A,
duly executed by such Holder, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by payment in
full by bank or certified check in lawful money of the United States, of the
aggregate Purchase Price payable in respect of the total number of shares of
Common Stock purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in SUBSECTION 2(a) above.
At such time, the person or persons in whose name or names any certificates for
or other instruments evidencing shares of Common Stock shall be issuable upon
such exercise as provided in SUBSECTION 2(d) below shall be deemed to have
become the holder or holders of record of the Common Stock represented by such
certificates or other instruments.
(c) (i) The Holder may at its sole option, and in lieu of paying the
Purchase Price pursuant to SUBSECTION 2(a) hereof, exchange this
Warrant in whole or in part for a number of shares of Common Stock as
determined below. Such shares of Common Stock shall be issued by the
Company to the Holder without payment by the Holder of any other
exercise price or any cash or other consideration. The number of
shares of Common Stock to be so issued to the Holder shall be equal to
the quotient obtained by dividing (A) the Surrendered Value (as
defined below) on the date of surrender of this Warrant pursuant to
SUBSECTION 2(a), by (b) the Fair Market Value on the exchange date of
one share of Common Stock.
(ii) For the purposes of this SUBSECTION 2(c), the "SURRENDERED
VALUE" of a portion of this Warrant on a given date shall be deemed to
be the difference between (A) the aggregate Fair Market Value on such
date of the total number of shares of Common Stock otherwise issuable
upon exercise of such portion of the Warrant, MINUS (B) the aggregate
Purchase Price of such total number of shares of Common Stock.
(d) As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within three (3) business days thereafter, the
Company, at its expense, will cause to be issued in the name of, and delivered
to, the Holder, or, subject to the terms and conditions hereof, as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct:
<PAGE>
3
(i) a certificate or certificates for the number of full shares
of Common Stock to which such Holder shall be entitled upon such
exercise, PLUS, in lieu of any fractional share to which such Holder
would otherwise be entitled, cash in an amount determined pursuant to
SECTION 3 hereof, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of shares of
Common Stock equal (without giving effect to any adjustment therein)
to the Warrant Number minus the number of such shares of Common Stock
purchased by the Holder upon such exercise.
3. ADJUSTMENTS; FRACTIONAL SECURITIES.
(a) If, at any time after the original issue date of this Warrant, the
outstanding Common Stock shall be subdivided into a greater number of shares
or a dividend in Common Stock shall be paid in respect of Common Stock, the
Purchase Price in effect immediately prior to such subdivision or at the
record date of such dividend shall simultaneously with the effectiveness of
such subdivision or immediately after the record date of such dividend be
immediately and automatically proportionately and equitably reduced. If, at
any time after the original issue date of this Warrant, the outstanding
Common Stock shall be combined into a smaller number of shares, the Purchase
Price in effect immediately prior to such combination shall, simultaneously
with the effectiveness of such combination, be immediately and automatically
proportionately and equitably increased. When any adjustment is required to
be made in the Purchase Price, the number of shares of Common Stock
purchasable upon the exercise of this Warrant shall be changed to the number
determined by dividing (i) an amount equal to the maximum number of shares of
Common Stock issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in effect immediately prior
to such adjustment, by (ii) the Purchase Price in effect immediately after
such adjustment.
(b) If, at any time after the original issue date of this Warrant,
there shall occur any capital reorganization or reclassification of the
Common Stock (other than a change in par value or a subdivision or
combination as provided for in SUBSECTION 3(a) above), or any consolidation
or merger of the Company with or into another corporation, or a transfer of
all or substantially all of the assets of the Company, or the payment of a
liquidating distribution, then, as part of any such reorganization,
reclassification, consolidation, merger, sale, automatic conversion or
liquidating distribution, lawful provision shall be made so that the Holder
of this Warrant shall have the right thereafter to receive upon the exercise
hereof (to the extent, if any, still exercisable) the kind and amount of
shares of stock or other securities or property which such Holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger, sale, automatic conversion or
liquidating distribution, as the case may be, such Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of
this Warrant. In any
<PAGE>
4
such case, appropriate adjustment (as reasonably determined by the Board of
Directors of the Company) shall be made in the application of the provisions
set forth herein with respect to the rights and interests thereafter of the
Holder of this Warrant such that the provisions set forth in this SECTION 3
(including provisions with respect to adjustment of the Purchase Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation
to any shares of stock or other securities or property thereafter deliverable
upon the exercise of this Warrant.
(c) In case the Company shall issue shares of Common Stock (excluding
shares issued (i) in any of the transactions described in SUBSECTION 3(a) above
or SUBSECTION 3(b) above, (ii) upon exercise of options granted to the Company's
officers, employees, directors and consultants under a plan or plans adopted by
the Company's Board of Directors, if such shares would otherwise be included in
this SUBSECTION (c), and (iii) upon exercise of options and warrants outstanding
at December 12, 1997, and this Warrant (and any warrants with the same terms as
this Warrant)) for a consideration per share (the "OFFERING PRICE") less than
the Purchase Price, the Purchase Price shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the Purchase Price in
effect immediately prior to the date of issuance by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received (determined as
provided in SUBSECTION 3(e) below) for the issuance of such additional shares
would purchase at the Purchase Price in effect immediately prior to the date of
such issuance, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the issuance of such additional
shares. Such adjustment shall be made successively whenever such an issuance is
made. When any such adjustment is required to be made in the Purchase Price,
the number of shares of Common Stock purchasable upon exercise of this Warrant
shall be changed to the number determined by dividing (A) an amount equal to the
maximum number of shares of Common Stock issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Purchase Price
in effect immediately prior to such adjustment, by (B) the Purchase Price in
effect immediately after such adjustment.
(d) In case the Company shall issue any securities convertible into or
exchangeable for its Common Stock (excluding options and warrants which are
governed by SUBSECTION (c) above) for a consideration per share of Common Stock
(the "CONVERSION PRICE") initially deliverable upon conversion or exchange of
such securities (determined as provided in SUBSECTION (e) below) less than the
Purchase Price, the Purchase Price shall be adjusted immediately thereafter so
that it shall equal the price determined by multiplying the Purchase Price in
effect immediately prior to the date of issuance by a fraction, the numerator of
which shall be the sum of the
<PAGE>
5
number of shares of Common Stock outstanding immediately prior to the
issuance of such securities and the number of shares of Common Stock which
the aggregate consideration received (determined as provided in SUBSECTION
(e) below) for such securities would purchase at the Purchase Price in effect
immediately prior to the date of such issuance, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities and the maximum number
of shares of Common Stock of the Company deliverable upon conversion of or in
exchange for such securities at the initial conversion or exchange price or
rate. Such adjustment shall be made successively whenever such issuance is
made.
(e) For purposes of any computation respecting consideration received
pursuant to SUBSECTIONS (c) and (d) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors of the Company (irrespective of the accounting
treatment thereof), whose determination shall be conclusive; and
(iii) in the case of the issuance of securities convertible into
or exchangeable for shares of Common Stock, the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (i) and (ii) of this SUBSECTION (e)).
(f) When any adjustment is required to be made in the Purchase Price or
the Warrant Number, the Company shall promptly mail to the Holder a certificate
setting forth the Purchase Price and the Warrant Number after such adjustment,
and setting forth a brief statement of the facts requiring such adjustment.
Such certificate shall also set forth the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable following
the occurrence of any of the events specified in SUBSECTION 3(a), (b), (c) or
(d) above.
(g) The Company shall not be required, upon the exercise of this Warrant,
to issue any fractional shares, but shall make an adjustment therefore in cash
on the basis of the Fair Market Value of the Common Stock at the time of
exercise.
4. LIMITATION ON SALES, ETC.
The Holder, and each subsequent holder of this Warrant, if any,
acknowledges that this Warrant and the underlying shares of Common Stock have
not been registered under the Securities Act of 1933, as now in force or
hereafter amended, or any successor legislation (the "ACT"), and agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Common Stock issued upon its exercise in
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the absence of (a) an effective registration statement under the Act as to
this Warrant or such underlying shares of Common Stock and registration or
qualification of this Warrant or such underlying shares of Common Stock under
any applicable Blue Sky or state securities laws then in effect, or (b) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required.
Without limiting the generality of the foregoing, unless the offering and
sale of the Common Stock to be issued upon the particular exercise of the
Warrant shall have been effectively registered under the Act, the Company shall
be under no obligation to issue the shares covered by such exercise unless and
until the registered Holder shall have executed an investment letter in form and
substance reasonably satisfactory to the Company, including a warranty at the
time of such exercise that it is acquiring such shares for its own account, for
investment, and not with a view to, or for sale in connection with, the
distribution of any such shares, in which event the registered Holder shall be
bound by the provisions of a legend to such effect on the certificate(s)
representing the Common Stock.
In addition, without limiting the generality of the foregoing, the Company
may delay issuance of the Common Stock hereunder until completion of any action
or obtaining of any consent which the Company deems necessary under any
applicable law (including without limitation state securities or "blue sky"
laws), PROVIDED that the Company shall use all reasonable efforts in good faith
to diligently pursue completion of such action or the receipt of such consent.
5. NOTICES OF RECORD DATE, ETC.
In case:
(a) the Company shall take a record of the holders of Common Stock for the
purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares of
stock of any class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation, or any transfer of all or substantially all of
the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
the Holder of this Warrant a notice specifying, as the case may be, (i) the
date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any
is to be fixed, as of which the holders of record of Common Stock shall be
entitled to exchange their Common
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7
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation
or winding-up. Such notice shall be mailed at least twenty (20) days prior
to the record date or effective date for the event specified in such notice,
PROVIDED that the failure to so mail such notice shall not affect the
legality or validity of any such action.
6. RESERVATION OF STOCK, ETC.
(a) The Company will at all times reserve and keep available, solely
for issuance and delivery upon the exercise of this Warrant, such stock and
other property as from time to time shall be issuable upon the exercise of
this Warrant.
(b) The Company further covenants that it will, at its expense, prior
to the issuance of any Common Stock upon exercise of this Warrant, procure
the listing on all stock exchanges (if any) on which the Common Stock is then
listed of all such shares of Common Stock.
(c) The Company will not, by amendment of its Articles of Incorporation
or through reorganization, consolidation, merger, dissolution, issuance of
capital stock or sale of treasury stock (otherwise than upon exercise of this
Warrant) or sale of assets, or by any other act or deed, avoid or seek to
avoid the material performance or observance of any of the covenants,
stipulations or conditions in this Warrant to be observed or performed by the
Company. The Company will at all times in good faith assist, insofar as it
is able, in the carrying out of all of the provisions of this Warrant in a
reasonable manner and in the taking of all other action which may be
necessary in order to protect the rights hereunder of the Holder of this
Warrant.
(d) The Company will maintain an office where presentations and demands
to or upon the Company in respect of this Warrant may be made. The Company
will give notice in writing to the Holder, at the address of the Holder
appearing on the books of the Company, of each change in the location of such
office.
7. TERMINATION.
THIS WARRANT SHALL TERMINATE AND NO LONGER BE EXERCISABLE FROM AND AFTER
5:00 P.M., BOSTON TIME, ON DECEMBER 12, 2004 (THE "TERMINATION DATE").
8. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names and
addresses of the Holders of this Warrant. The Holder may change its, his or
her address as shown on the warrant register by written notice to the Company
requesting such change.
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(b) Until any transfer of this Warrant is made in the warrant register,
the Company may treat the Holder of this Warrant as the absolute owner hereof
for all purposes.
9. REPLACEMENT OF WARRANTS.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) upon delivery of an indemnity agreement (with
surety if reasonably required) in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation of
this Warrant, the Company will issue, in lieu thereof, a new Warrant of like
tenor.
10. MAILING OF NOTICES, ETC.
All notices and other communications from the Company to the Holder of
this Warrant shall be mailed by first-class certified or registered mail,
postage prepaid, to the address furnished to the Company in writing by the
last Holder of this Warrant who shall have furnished an address to the
Company in writing. All notices and other communications from the Holder of
this Warrant or in connection herewith to the Company shall be mailed by
first-class certified or registered mail, postage prepaid, to the Company at
its principal executive offices or at such other address as the Company shall
so notify the Holder.
11. NO RIGHTS AS STOCKHOLDER.
Until the exercise of this Warrant, the Holder shall not have or
exercise any rights by virtue hereof as a stockholder of the Company.
12. CHANGE OR WAIVER.
Any term of this Warrant may be changed or waived only by an instrument
in writing signed by the party against which enforcement of the change or
waiver is sought.
13. HEADINGS.
The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning of any provision of this
Warrant.
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9
14. GOVERNING LAW.
THE VALIDITY, CONSTRUCTION AND PERFORMANCE OF THIS WARRANT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO CONTRACTS EXECUTED IN AND PERFORMED ENTIRELY WITHIN SUCH STATE,
WITHOUT REFERENCE TO ANY CHOICE OF LAW PRINCIPLES OF SUCH STATE. With respect
to any suit, action or other proceeding arising out of this Warrant, or any
other transaction contemplated thereby, the parties hereto expressly waive any
right they may have to a jury trial and agree that any proceeding hereunder
shall be tried by a judge without a jury.
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10
IN WITNESS WHEREOF, IMAGE GUIDED TECHNOLOGIES, INC. has caused this
COMMON STOCK PURCHASE WARRANT to be signed in its corporate name and its
corporate seal to be impressed hereon by its duly authorized officers on and
as of December 12, 1997.
THE COMPANY:
[CORPORATE SEAL] IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ Jeffrey J. Hiller
-----------------------------------
Title: Vice President Finance
Attest: /s/ Waldean Schulz
----------------------
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EXHIBIT A
PURCHASE FORM
To:
The undersigned, pursuant to the provisions set forth in the attached
COMMON STOCK PURCHASE WARRANT, hereby irrevocably elects either (a) to purchase
_________ shares of Common Stock covered by such Warrant and herewith
makes payment of $___________, representing the full purchase price for such
shares at the Purchase Price per share provided for in such Warrant, or (b) to
surrender _________________ number of shares of such Warrant in exchange for the
number of shares of Common Stock determined pursuant to SECTION 2(c) thereof.
Dated: By:
-----------------------
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EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:__________________ the right to purchase Common Stock represented by
this Warrant to the extent of ________________ shares, and does hereby
irrevocably constitute and appoint ______________________, attorney-in-fact
to transfer the same on the books of the Company with power of substitution
in the premises.
Dated: By:
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