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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to______________
Commission file number: 001-12189
IMAGE GUIDED TECHNOLOGIES, INC.
(name of small business issuer in its charter)
COLORADO 84-1139082
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5710-B FLATIRON PARKWAY, BOULDER, CO 80301
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 447-0248
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock, no par value The Nasdaq SmallCap Market
The Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
Check whether Image Guided Technologies, Inc. (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $5,713,000.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within the
past 60 days: $7,957,000 as of March 19, 1998.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,693,822 shares of common
stock, no par value, were outstanding on March 11, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into Part III of this report is the information
contained in the Image Guided Technologies, Inc. Proxy Statement for the
annual meeting of shareholders proposed to be held May 19, 1998, which will
be filed with the Securities and Exchange Commission within 120 days after
December 31, 1997.
Transitional Small Business Disclosure Format (Check one): Yes ; No X
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Table of Contents
Item Page
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Part I 1. Description of Business 1
2. Description of Property 6
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 7
Part II 5. Market for Common Equity and Related Stockholder Matters 7
6. Management's Discussion and Analysis or Plan of Operation 8
7. Financial Statements 13
Part III 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 29
9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange
Act. 29
10. Executive Compensation 29
11. Security Ownership of Certain Beneficial Owners and
Management 29
12. Certain Relationships and Related Transactions 29
13. Exhibits and Reports on Form 8-K 29
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Image Guided Technologies, Inc. (the "Company") was incorporated in
Colorado in 1990, and until December 1997, substantially all its revenues
were derived from sales of 3D optical measurement devices ("optical
localizers") manufactured at the Company's Boulder, Colorado facility (the
Company's Boulder, Colorado operations are sometimes referred to as "IGT").
In December 1997, the Company purchased all the stock of Brimfield Precision,
Inc. ("BPI"). BPI manufactures surgical instruments and implants.
OPTICAL LOCALIZERS. IGT's optical localizers have both medical and
industrial applications and typically consist of the following: a proprietary
microprocessor-based control system, proprietary software to calculate the
digital coordinate location of light emitting diodes ("LEDs"), a multi-camera
array for detecting the LED emissions, a relative position dynamic reference
device connected to the measured object, and a number of custom-manufactured
LEDs mounted on the device or instrument to be tracked in 3D space.
IGT's FlashPoint-Registered Trademark- localizer is a key component of
the anatomical image display workstation used by physicians to perform image
guided surgery, a specialty procedure in the field of minimally invasive
surgery. When the FlashPoint localizer is combined with the imaging software
provided by IGT's customers, the location of specially designed surgical
instruments can be tracked in relation to the patient's anatomy during
surgical procedures by display as an overlay on a magnetic resonance imaging
("MRI") or computerized tomography ("CT") image. IGT's Pixsys-TM- localizer
is used in various industrial applications to measure the position or shape
of objects in 3D space.
SURGICAL INSTRUMENTS AND IMPLANTS. BPI is a contract manufacturer of
stainless steel surgical instruments and titanium and cobalt-chrome implants
for various medical supply companies. Its surgical instruments are used for
implant procedures, minimally invasive surgery and other surgical procedures.
The Company plans to combine IGT's expertise in image guided surgery with
BPI's instrument manufacturing skills to develop, manufacture and market
surgical instruments for image guided surgery.
The Company's overall business strategy is to increase market share in its
core markets and to acquire companies and/or licenses in related markets.
IMAGE GUIDED SURGERY
In image guided surgery, a surgeon tracks the location of specially
designed surgical instruments on the medical image (such as CT or MRI). Image
guided surgery requires a method for registering (i.e., mapping) the points in
the medical image onto the patient's anatomical physical space and a method for
localizing (i.e., determining the position in 3D space) the surgical
instrument. Knowing the exact position of the probe or pointer is key to the
successful completion of a surgical procedure.
Image guided surgery, by allowing the patient's CT, MRI or other medical
image to be used as a map, provides the surgeon with a real-time visual
representation of the surgical probe or pointing device on the interactive
medical image. It allows the spatial position of the instrument to be
tracked during the surgical procedure and to be displayed as an overlay on
the medical image shown on the workstation. The medical image may either be
historical (i.e., pre-operative), or real-time (i.e., intraoperative).
Image guided surgery couples recent advances in imaging with the
instruments used in the course of surgery. While image guided surgery has
been most extensively used in neurosurgery, the Company anticipates that
image guided surgery will provide benefits for ear, nose and throat surgery,
needle biopsies, orthopedics (e.g., hip replacement surgery), maxillofacial
surgery and radiosurgery.
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PRODUCTS
OPTICAL LOCALIZERS. The FlashPoint and Pixsys localizers consist of a
number of LEDs used as markers mounted on a pointer device or surgical
instrument, a relative position dynamic reference device (the "Dynamic
Reference Frame"-Registered Trademark-) connected to the measured object (a
patient in a medical application or a part in an industrial application), a
multi-camera array for detecting the X, Y and Z positions of the LEDs, a
proprietary microprocessor based control system, and a proprietary,
internally developed, software package. IGT's optical localizer is an input
subsystem providing real-time mathematical coordinates to a host computer.
IGT's optical localizer determines the position of the hand-held probe or
surgical instrument and the patient reference device by tracking the X, Y and
Z coordinates of each infrared light emitting diode mounted on the probe or
surgical instrument and reference device. It then communicates this position
in the form of X, Y and Z coordinates to the host computer. Most localizer
models sold by the Company are customized to satisfy customer requirements.
IGT, in conjunction with custom fabricators and surgical instrument
manufacturers, has provided various instruments, such as probes and pointers,
containing LEDs and Dynamic Reference Frames as component parts to its optical
localizers. For both medical and industrial applications, the LEDs are placed
on the instrument, and the distance between the LED and the tip of the
instrument is precisely calibrated. The medical instruments are designed to be
reused on a limited basis, while an industrial instrument can normally be
reused until it no longer fulfills its intended use. The Company plans to
manufacture image guided instruments at its Brimfield facility.
SURGICAL INSTRUMENTS AND IMPLANTS. BPI's instruments are used in implant
procedures, minimally invasive surgery and other surgical procedures. BPI's
implants are used in orthopedic, cardiovascular and dental procedures. BPI
controls all aspects of the manufacturing process from machining through
finishing, including in-house passivation and laser marking.
CUSTOMERS AND USE
OPTICAL LOCALIZERS. IGT sells most of its optical localizers to original
equipment manufacturers ("OEMs"). During 1997, approximately 81% of IGT's
total revenues were derived from its six largest customers.
IGT's FlashPoint product is used to determine the position in 3D space
of the surgical probe or instrument. The FlashPoint 5000 medical optical
localizer is a component currently being integrated into several medical
devices. Sales of localizers and related components to medical customers
constituted approximately 78% of IGT sales in 1997. Current medical customers
and illustrative uses are set forth below.
CARL ZEISS, OBERKOCHEN, GERMANY. The Company's FlashPoint product is an
integral and key component of the Zeiss Stereotactic System. By combining
imaging diagnostic data with powerful computers, precision optics and finely
crafted hand-held instrumentation, Zeiss has created a product enhancement to
its operating microscope line.
GE MEDICAL SYSTEMS, MILWAUKEE, WISCONSIN. In 1993, GEMS introduced its
magnetic resonance guided therapy ("MRT") system which provides direct
physician access to the patient during imaging, giving a real-time, internal
view of patients for procedures such as needle biopsies. MRT is currently used
to plan, guide and monitor surgical procedures in a minimally invasive manner.
FlashPoint is being used by GEMS for the guidance system in its MRT device.
RADIONICS SOFTWARE APPLICATIONS, INC., A SUBSIDIARY OF RADIONICS, INC.,
BURLINGTON, MASSACHUSETTS. Radionics employs the FlashPoint in the Radionics
Optical Tracking System for Frameless Stereotaxy. This real-time, free-hand
stereotaxy system is primarily used in neurosurgical applications.
SPINEX MEDICAL TECHNOLOGIES INC., MONTREAL, QUEBEC. Spinex has developed a
spine motion diagnostic system which gives physical therapists and health
insurance providers an accurate indication of the presence and extent of back
injuries. The Company's FlashPoint system provides the motion tracking means
for observing the patient.
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IGT's Pixsys product is used to determine the shape or position of an
object by rapidly collecting a large number of points on the object's surface
or locating a particular location on the object. Sales of localizers and
related accessories to industrial customers constituted approximately 22% of
IGT's sales in 1997. A key industrial customer and illustrative use is set
forth below.
NU-TECH INDUSTRIES, INC. ("BREWCO"), CENTRAL CITY, KENTUCKY (A WHOLLY-OWNED
SUBSIDIARY OF SNAP-ON INCORPORATED). In a variation of its standard product
offering for automobile collision repair, Brewco has created the Wolf frame
straightening system. The Wolf incorporates a Pixsys localizer into its
system to measure the extent of damage caused by a collision and indicate to
the system operator the progress of the straightening operation.
SURGICAL IMPLANTS AND INSTRUMENTS. The two largest customers for surgical
implants and instruments in 1997 were Johnson & Johnson and Exactech, which,
when combined, represented approximately 50% of Brimfield's 1997 sales. Other
significant BPI customers in 1997 were Encore Orthopedics, Xomed, Stryker, and
Imagyn Medical Technologies.
MARKETING AND SALES
IGT's marketing strategy focuses on selling its localizers to OEM
customers. BPI is a contract manufacturer for medical supply companies. None
of the Company's customers has entered into a long-term minimum purchase
agreement with the Company. Accordingly, purchases from the Company by
customers in any prior period may not be indicative of orders or purchases in
any future period, and there can be no assurance that these companies will
remain customers of the Company.
BACKLOG
At December 31, 1997, the Company's backlog was approximately $3,658,000.
Since backlog fluctuates depending on how customers order their products and
over what period of time, the Company currently does not consider backlog to be
a meaningful indicator of future sales.
COMPETITION
IGT's primary competitor in the medical OEM localizer market is Northern
Digital Inc. ("NDI"). NDI markets a localizer to the medical OEM marketplace
named the Polaris, an infrared based optical localizer using two two-
dimensional CCD cameras. Medical device companies have also developed their
own optical localization devices for their image guided surgery systems.
Companies have also attempted to use other systems as localization devices for
medical applications.
The competition for the contract manufacturing of implants and surgical
instruments provided by BPI is, in general, from other machine shops that can
manufacture product to a customer's design specifications.
The methods of competition for the Company are in general based on price,
quality and delivery.
MANUFACTURING AND SUPPLIERS
IGT's localizer manufacturing activities primarily consist of assembling
and testing components and subassemblies acquired from qualified vendors, as
well as final assembly and testing of the Company's fully-configured systems.
Components are generally available from several sources, although the order
lead-time for the semi-custom isolated power supply used in the FlashPoint 5000
varies from four to six months.
IGT uses a coordinate measurement machine ("CMM") to improve the
calibration process for products being shipped to its customers. The CMM gives
IGT a final calibration tool which is traceable to National Institute of
Standards and Technology standards. The CMM system is also used by IGT for
research and development projects.
BPI's implants and surgical instruments manufacturing activities primarily
consist of assembling components, machining high quality titanium and cobalt
chrome alloys, or some combination thereof, and finishing the product to
include passivation and laser marking. Raw materials are generally available
from many suppliers.
3
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BPI manufactures orthopedic, dental and cardiovascular implants,
instruments used in implant procedures, and minimally invasive instruments and
mechanisms suitable for use through small incisions.
BPI utilizes several types of high-technology machine tools in its
manufacturing operations. Its computer numerically controlled ("CNC") machines
are programmable milling and turning machines used to remove metal according to
pre-programmed specifications. CNC machines typically require less machine
operator time and produce less variation in the final product. Its electrical
discharge machines ("EDMs") typically produce contoured shapes to very close
manufacturing tolerances through programmed procedures. EDMs minimize the
secondary finishing operations required on the final product. BPI also
utilizes electron beam welding within a vacuum chamber to minimize weld
contamination and assure quality welds on small parts.
INTELLECTUAL PROPERTY
IGT's optical localizer is a complex measuring device. Its software
contains elaborate mathematical modeling and its manufacture requires precise
production and careful calibration. IGT primarily relies on a combination of
trade secret and copyright laws, together with non-disclosure agreements, to
establish and protect proprietary rights in its localizer.
The Company currently has seven patents, four of which were acquired in
the acquisition of BPI.
U.S. Patent #5,198,877 is a non-contact, laser based, hand-held 3D
localizer that allows the user to acquire simply and easily a multitude of
points on the surface of an object or anatomy by sweeping a hand-held scanner
over the desired target. This patent does not cover any product currently
being sold by the Company. An application to reissue this patent has been
filed which, if granted, may broaden its claims.
U.S. Patent #5,617,857 describes a "smart" 3-D probe (such as a medical
instrument) which contains a memory module which can store its serial number,
calibration data, and similar information in a computer-readable form. The
patent also provides for interchangeable tips or other workpieces which can be
identified electronically.
U.S. Patent #5,622,170 describes an optical system for determining the
location and orientation of one object (such as a medical probe) relative to
another object (such as a patient), where the first object has an invasive
portion which is partially inside the second. A display device connected to a
computer graphically indicates the location of a representation of the probe
with respect to a model of the second object.
U.S. Patent #4,499,899 issued in 1985 which describes a fiber-optic
illuminated microsurgical scissors used in surgery to illuminate the surgical
site so that the surgeon can more clearly see the site.
U.S. Patent #4,770,174 issued in 1988 describes a rotary cutting scissors
used for surgical procedures in which soft tissue needs to be cut. The inner
blade rotates against the outer blade through the use of a unique helical drive
mechanism.
U.S. Patent #5,054,906 issued in 1991 describes an indirectly illuminating
ophthalmological speculum used for opening the eyelids to permit access to the
eye and for illuminating the eye. This device is primarily suited for
procedures upon the surface of the eye.
U.S. Patent #5,263,967 issued in 1993, which currently is subject to an
interference claim, describes a medical instrument utilizing a dual action
drive mechanism that actuates two jaws or blades that in turn move rotationally
relative to each other and a center pivot point. This instrument is
particularly useful in procedures performed through small incisions such as
laparoscopy, arthroscopy and endoscopy.
4
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GOVERNMENT REGULATION
IGT's FlashPoint localizer is incorporated into medical devices that are
subject to extensive regulation by the United States Food and Drug
Administration (the "FDA") and corresponding foreign organizations in the
countries to which the devices are exported. The FDA regulates the processes
of design, manufacture, labeling, clinical testing, distribution and promotion
of medical devices. Before a new device or significantly modified device can
be introduced into the market, the manufacturer must generally obtain clearance
through either the 510(k) premarket notification process or the more rigorous
premarket approval application process. Medical device customers that
incorporate the Company's products may be subject to regulation by the FDA.
Medical devices which incorporate IGT products, and are sold into the
European Union and other international markets, must comply with additional
standards and regulations. Some of the compliance requirements include the
European Economic Community Medical Device Directive (MDD), International
Electrotechnical Commission (IEC), conformity assessment (CE MARK), and
ISO9000/EN46001 guidelines.
BPI is registered as an original equipment manufacturer and contract
manufacturer with the FDA. The scope of BPI manufacturing includes FDA Class
III Orthopedic Implants, and general surgical instrumentation. BPI is a
certified ISO 9001 organization.
IGT is currently preparing the necessary quality systems and controls to
become certified at its Boulder, Colorado facility under the requirements of
ISO 9001.
RESEARCH AND DEVELOPMENT
For the fiscal years ended December 31, 1997 and 1996, the Company
expended $1,098,000 and $618,000, respectively, on research and development
activities. Some of the Company's customers may at times pay for research and
development activities related to specific applications of the Company's
localizer technology.
IGT has developed core competencies in software development, mathematical
modeling of the 3D measurement process, digital signal processing, circuit
design, computer system integration and 3D optical sensor system development.
Outside consultants and contract engineering are employed, when needed, for
optical system design, surgical instrument development and safety engineering.
IGT's engineers work closely with its OEMs to assist in the integration of
IGT's products with customer systems and to identify new applications for IGT's
products.
IGT is currently developing a set of cordless instruments for use by its
medical customers. These instruments should allow the surgeon greater freedom
of movement and ease of use.
In addition to improving functionality, IGT's product development
engineering staff continues to refine the overall accuracy of its localizer.
Improvements in the sensor array design, emitter technology, calibration and
position calculation algorithms are expected to improve the accuracy of the
system.
BPI's research and development activities are generally paid for by the
customer as part of its manufacturing activities for such customer.
Although the Company intends to build upon, and expand its current
technical competencies to introduce new products and product enhancements, it
also intends to review compatible, complimentary technology for possible
acquisition or licensing.
EMPLOYEES
At December 31, 1997, the Company had 118 employees, of which 115 are full-
time and 3 are part-time. 37 employees were employed at IGT and 81 at BPI.
5
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EXECUTIVE OFFICERS OF REGISTRANT
Paul L. Ray, age 51 Chief Executive Officer and Chairman of the
Board of the Company since January 1994;
President of the Company from January 1994
through November 1995 and since March 1998;
Director of the Company since 1992; Managing
Partner and Director of Paradigm Partners,
LLC, a venture investment company, from 1992
to January 1994.
William J. O'Connor, D.B.A.,
age 55 Vice President of the Company and Chief
Operating Officer of the Boulder, Colorado
operations since March 1998; Executive Vice
President and Chief Operating Officer of
Erbtec Engineering, Inc., a division of
Colorado MEDtech, Inc., a medical
electronics OEM company, from July 1995
through February 1998; Vice President of
Sales and Marketing, Medgraphics, Inc., from
July 1994 through June 1995; Senior Vice
President of Sales and Marketing, Valleylab,
Inc., a division of Pfizer, Inc., April 1989
through June 1994; Adjunct Professor of
Marketing and Strategy, University of
Phoenix, June 1994 through March 1998.
Director of the Company since November 1996.
Waldean A. Schulz, Ph.D., age 52 Vice President of Technology and Secretary
of the Company since December 1990; Founded
the Company and served as its President from
inception until December 1990; Director of
the Company since 1990.
Jeffrey J. Hiller, age 45 Chief Financial Officer and Vice President
of Finance of the Company from January 1994
(CFO) and May 1994 (VP); Chief Financial
Officer and Vice President of BI
Incorporated, an electronic monitoring
equipment company, from 1989 through 1993.
William G. Lyons, age 42 Director of the Company since December 1997;
President, CEO and Chairman of Brimfield
Precision, Inc. since 1995; served as
President of Brimfield Precision, Inc. from
1987 through 1995, and as Vice President and
General Manager from 1981 through 1987.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 18,000 square feet within a 133,000
square foot multi-tenant facility in Boulder, Colorado, where it performs all
development, manufacturing and marketing activities related to its optical
localizers. The current lease has approximately two years remaining. In
addition to base rent, the Company pays its pro-rata share of building
operating expenses, insurance and taxes and its own utilities. Monthly base
rent is as follows: $15,046 through March 1998, $15,709 from April 1998 through
March 1999, and $16,406 from April 1999 through March 2000.
BPI owns a manufacturing facility in Brimfield, Massachusetts containing
approximately 30,000 square feet and leases approximately 14,000 square feet in
a facility in Springfield, Massachusetts. The current lease for the
Springfield facility has approximately 4 years remaining. In addition to base
rent, BPI pays its pro-rata share of building operating expenses, taxes and
utilities. Monthly base rent is $4,927 through December 2001.
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ITEM 3. LEGAL PROCEEDINGS.
BPI is a party to two lawsuits, which, while the outcome cannot be
predicted with certainty, the Company's management expects will not have a
materially adverse affect on the consolidated financial position or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of 1997, no matters were submitted to a vote of
security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock was sold in its initial public offering ("IPO")
on October 21, 1996 for $5.00 per share. The shares began trading immediately
on the Nasdaq SmallCap Market under the symbol "IGTI" and on the Boston Stock
Exchange under the symbol "IGK." The following table sets forth, for the
quarters indicated, the range of high and low bid prices of the shares of the
Company's common stock as reported by Nasdaq. Such bid prices reflect inter-
dealer quotations, without retail mark-up, mark-down or commission, and may not
represent actual transactions.
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HIGH LOW
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1996
Fourth quarter......................... $ 7.00 $ 5.00
1997
First quarter........................... $ 7.00 $ 5.50
Second quarter........................ $ 6.38 $ 4.50
Third quarter.......................... $ 6.38 $ 3.50
Fourth quarter......................... $ 4.63 $ 1.50
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No dividends were declared on the Company's Common Stock during the fiscal
years ended December 31, 1997 and 1996. The Company expects that it will
retain any available earnings generated by its operations for the development
and growth of its business and does not anticipate paying any cash dividends on
its Common Stock in the foreseeable future. Any future determination as to
dividend policy will be made at the discretion of the Company's Board of
Directors and will depend on a number of factors, including the future
earnings, capital requirements, financial condition and business prospects of
the Company.
On February 27, the Company had approximately 754 shareholders of record.
On December 12, 1997, the Company sold a total of 579,710 shares of its
Common Stock to William G. Lyons and Matthew Lyons in connection with the
Company's purchase from the two Lyons of all the stock of Brimfield Precision,
Inc. ("BPI"). See "Management's Discussion and Analysis or Plan of Operation -
Other Matters." Such shares were sold to the Lyons under the exemption from
registration provided by Section 4(2) of the Securities Act of 1933 and
Regulation D promulgated thereunder. In connection with financing the
acquisition of BPI, the Company issued a warrant for 160,000 shares of the
Company's Common Stock to Imperial Bank and a warrant for 100,000 shares of the
Company's Common Stock to Cruttenden Roth, Inc. Both Warrants have seven-year
terms and are exercisable at $2.92 per share.
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USE OF PROCEEDS
The Company's first registration statement with the SEC was declared
effective October 21, 1996. The commission file number assigned to this
registration is 1-12189. The net offering proceeds to the Company after
deducting the total expenses were approximately $5,687,000.
The following table lists an estimate of the amount of net offering
proceeds used from October 21, 1996 through December 31, 1997:
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<CAPTION>
Direct or indirect payments to others*
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Construction of plant, building and facilities $ ---
Purchase and installation of machinery and
equipment 150,000
Purchase of real estate ---
Acquisition of other business(es) 800,000
Repayment of indebtedness 889,000
Working capital 1,727,000
Short-term temporary investments ---
Research and development 1,207,000
Marketing and technical support 914,000
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Total $5,687,000
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* Except for approximately $373,000 of the $889,000 repayment of indebtedness,
there were no direct or indirect payments to directors, officers, or to persons
owning ten percent or more of any class of equity securities of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
The following table sets forth for the periods indicated certain line
items derived from the Company's statement of operations as a percentage of the
Company's revenues.
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Year Ended
December 31,
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1997 1996
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Revenue 100.0% 100.0%
Cost of Goods Sold 46.5% 45.0%
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Gross Profit 53.5% 55.0%
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Operating Expenses:
Research and Development 19.2% 15.1%
Selling and Marketing 11.8% 13.6%
General and Administrative 20.8% 17.3%
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Total Operating Expenses 51.8% 46.0%
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Income (Loss) from Operations 1.7% 9.0%
Other Income (Expense) 2.9% (0.3)%
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Net Income (Loss) 4.6% 8.7%
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RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996. Revenue increased by $1,633,000,
or approximately 40%, to $5,713,000 for the year ended December 31, 1997, as
compared to $4,080,000 for the year ended December 31, 1996. The increase was
primarily due to the increased level of sales of the FlashPoint 5000 and Pixsys
5000 products.
Cost of goods sold increased by $821,000, or approximately 45%, to
$2,657,000 for the year ended December 31, 1997, compared to $1,836,000 for the
year ended December 31, 1996. Cost of goods sold as a percentage of revenue
increased to 47% for the year ended December 31, 1997, as compared to 45% for
the year ended December 31, 1996. The increase in cost of goods sold was
primarily attributable to the increase in the number of systems sold. The
increase in cost of goods sold as a percentage of revenue was attributable to
increased costs associated with improvements in the reliability and durability
of certain components, as well as changes in the mix of products sold.
Gross profit increased by $812,000, or approximately 36%, to $3,056,000
for the year ended December 31, 1997, compared to $2,244,000 for the year ended
December 31, 1996. Such increase was principally a result of the increase in
revenue.
Research and development expenses increased by $480,000, or approximately
78%, to $1,098,000 for the year ended December 31, 1997, compared to $618,000
for the year ended December 31, 1996. This increase was principally due to the
addition of engineering personnel and related expenses, to increased testing of
product to meet regulatory requirements and to product development.
Selling and marketing expenses increased by $121,000, or approximately
22%, to $675,000 for the year ended December 31, 1997, compared to $554,000 for
the year ended December 31, 1996. This increase was primarily attributable to
the addition of personnel and related expenses, as well as expanded marketing
activities to generate increases in revenue.
General and administrative expenses increased by $485,000, or
approximately 69%, to $1,190,000 for the year ended December 31, 1997, compared
to $705,000 for the year ended December 31, 1996. This increase was primarily
attributable to the additional expenses necessary for a public company,
increased salaries, additional personnel and associated costs, and to the
incremental expenses due to the acquisition of BPI.
Operating income decreased by $274,000 to $93,000 for the year ended
December 31, 1997, compared to $367,000 for the year ended December 31, 1996.
This decrease was primarily attributable to additional personnel and related
expenses, increased testing of products, product development, and to the
expenses necessary to operate as a public company.
Net other income (expense) increased by $179,000 to $167,000 for the year
ended December 31, 1997, compared to ($12,000) for the year ended December 31,
1996. This change was primarily due to interest income on net proceeds from
the IPO and to interest expense incurred in 1996 in connection with funds
borrowed by the Company and paid off with a portion of the IPO proceeds.
As a result of the foregoing, net income decreased to $260,000 for the
year ended December 31, 1997, compared to $355,000 for the year ended
December 31, 1996.
Income tax expenses were not recognized on the Company's 1997 operating
income due to utilization of net operating losses generated in prior years.
Income tax benefits were not recognized on the Company's 1996 pre-tax losses
due to the uncertainty surrounding the future utilization of such net
operating losses. As of December 31, 1997, the Company's net operating loss
carryforwards were approximately $2,107,000 which expire from the years 2008
to 2010. The Company's ability to use the net operating loss carryforwards
is limited due to certain changes in ownership which occurred in 1994 as
defined by the Internal Revenue Code. Due to the Company's history of
pre-tax losses and the uncertainty surrounding the timing of realizing the
benefits of net operating loss carryforwards, the Company has placed a
valuation allowance against its deferred tax assets. In reaching its
determination of the need to provide a deferred tax valuation allowance, the
Company considered all available evidence, both positive and negative, as
well as the weight and importance given to such evidence. Specifically, the
Company has completed only two profitable fiscal years and has an accumulated
deficit of $2,766,000 at December 31, 1997. See Note 6 of Notes to Financial
Statements.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1997, $378,000 in cash was used by
operating activities, principally by increased accounts receivable and
decreased accounts payable and accrued liabilities, all partially offset by net
income. The Company used $8,234,000 in cash for investing activities during
the year ended December 31, 1997 to purchase property and equipment and to
acquire Brimfield Precision, Inc. See Note 10 of Notes to the Financial
Statements. Also during the year ended December 31, 1997 $4,588,000 in cash
was provided by debt incurred to acquire BPI, offset by payments on capital
leases and debt.
As of December 31, 1997, the Company had working capital of $2,197,000,
compared to $5,571,000 at December 31, 1996. The decrease in working capital
was primarily the result of cash used and debt incurred to purchase BPI.
The Company anticipates making approximately $1,000,000 of capital
purchases during 1998, and plans to finance these purchases using an equipment
lease line of credit with BankBoston.
ISSUANCE OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") was issued. SFAS 130 establishes
standards for the reporting of comprehensive income and its components. It
requires all items that are required to be recognized as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other income statement information. SFAS 130 is
effective for financial statements for periods beginning after December 15,
1997. Reclassification of financial statements for earlier periods presented
for comparative purposes is required upon adoption.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related Information" ("SFAS
131") was issued. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in annual financial statements and in
interim financial reports issued to shareholders. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997.
The Company anticipates that the adoption of SFAS 130 and SFAS 131 will
not have a significant affect on its 1998 financial statements.
OTHER MATTERS
On October 24, 1996, the Company closed on its initial public offering
("IPO") of 1,437,500 shares of common stock, including a 187,500 share over-
allotment purchase by the underwriters, at the IPO price of $5.00 per share.
The offering resulted in gross proceeds of $7,187,500. The aggregate offering
cost was approximately $1,500,000. A portion of the proceeds was used to
retire approximately $889,000 of 11% secured notes and related interest.
On December 12, 1997, the Company finalized the acquisition of all the
outstanding stock of Brimfield Precision, Inc. ("BPI") for a purchase price of
approximately $9,844,000 (including expenses related to the acquisition),
consisting of approximately $8,069,000 in cash, $500,000 in a subordinated note
payable to Cruttenden Roth, Inc. ("Cruttenden") and 579,710 shares of the
Company's common stock. BPI sells surgical instruments and implants to medical
supply companies. Prior to its sale to the Company, BPI was owned by William
and Matthew Lyons. William Lyons has a one-year employment contract with BPI
as its President and has been elected a director of the Company.
To finance the acquisition, the Company entered into a secured loan
agreement with Imperial Bank under which Imperial Bank loaned the Company
$4,000,000 pursuant to a three-year term loan and up to $2,000,000 (the actual
amount to be determined by calculating the borrowing base) pursuant to a
revolving loan payable on or before June 30, 1999. The Company paid Cruttenden
a $300,000 finder's fee for introducing the Company to, and advising the
Company in negotiations with, Imperial Bank. The Company issued a one-year
$500,000 subordinated note to Cruttenden to pay the finder's fee and an
additional $200,000 advisory fee 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 with an exercise price of $2.92 per share
to Imperial Bank and a seven-year warrant for 100,000 shares of the
10
<PAGE>
Company's common stock with an exercise price of $2.92 per share to
Cruttenden. On March 15, 1998, the Company issued to Imperial Bank an
additional seven-year warrant for 80,000 shares of the Company's common stock
with an exercise price of $2.65 per share and on March 31, 1998 a seven-year
warrant for 10,000 shares of the Company's common stock with an exercise
price of $2.86 per share.
On April 3, 1998, Imperial Bank assigned its loan to BankBoston. After
the assignment, BankBoston and the Company amended and restated the loan to
provide for a $2,700,000 sixty-month term loan (payable in 58 installments of
$40,000 in principal with a final principal payment of $380,000) at an interest
rate initially equal to the BankBoston base rate plus one-half of one percent
on the unpaid principal balance, and up to $3,000,000 (the actual amount to be
determined by calculating the borrowing base) pursuant to a twenty-four month
revolving loan at an interest rate initially equal to the BankBoston base rate
plus one-quarter of one percent. The Company has agreed to raise $1,000,000 by
July 2, 1998 to pay off the $500,000 note due Cruttenden and to reduce the
principal amount of the term loan by $500,000.
Many existing computer systems, applications software, and other control
devices, rely on only two digits to identify the year, without considering the
impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000 ("the Year 2000 Issue"). The
Company's current estimate is that the costs associated with the Year 2000
Issue, and the consequences of incomplete or untimely resolution of the Year
2000 Issue, will not have a material adverse effect on the results of
operations or financial position of the Company in any given year. However,
even if the Company's internal systems, applications and devices are not
materially affected by the Year 2000 Issue, the Company could still be
adversely affected through disruptions in the operations of other enterprises
with which the Company interacts.
FORWARD-LOOKING STATEMENTS
The Company may, in discussions of its future plans, objectives and
expected performance in periodic reports filed by the Company with the
Securities and Exchange Commission (or documents incorporated by reference
therein) and in written and oral presentations made by the Company, include
projections or other forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act
of 1934, as amended. Such projections and forward-looking statements are based
on assumptions which the Company believes are reasonable, but are by their
nature inherently uncertain. In all cases, there can be no assurance that such
assumptions will prove correct or that projected events will occur, and actual
results could differ materially from those projected. Some of the important
factors that could cause actual results to differ from any such projections or
other forward-looking statements follow.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. Since the Company generally
ships its products on the basis of purchase orders, operating results in any
quarter are highly dependent on orders booked and shipped in that quarter and,
accordingly, may fluctuate materially from quarter to quarter. The Company's
operating expense levels are based on the Company's internal forecasts of
future demand and not on firm customer orders. Failure by the Company to
achieve these internal forecasts could result in expense levels which are
inconsistent with actual revenues. Moreover, the Company's results may also be
affected by fluctuating demand for the Company's products, declines in the
average selling prices for its products, and by increases in the costs of the
components and subassemblies acquired by the Company from vendors.
DEBT. The Company has a term loan of $2,700,000 and a revolving loan of
up to $3,000,000 with BankBoston. The Company also owes BankBoston
approximately $1,300,000 in connection with previous equipment financings and
anticipates financing an additional $1,000,000 of equipment with BankBoston in
1998. The Company also owes Cruttenden $500,000 pursuant to a one year note
due December 12, 1998 with interest at 12% per annum. There can be no
assurance that the Company will be able to meet the payment terms of the above
loans, comply with the various loan covenants (including, without limitation,
the obligation to raise $1,000,000 by July 2, 1998), or obtain the necessary
funds to meet its anticipated equipment requirements.
DEPENDENCE ON FEW CUSTOMERS. The Company realizes a majority of its
revenues by sales to relatively few customers. None of these customers has
entered into any long term minimum purchase agreements with the Company. The
loss of, or substantial diminution of purchases from the Company by, any of
these customers could have a material adverse effect on the Company.
11
<PAGE>
TECHNOLOGICAL CHANGE IN THE MEDICAL INDUSTRY AND IN THE COMPANY'S PRODUCT.
There can be no assurance that the Company's competitors will not succeed in
developing or marketing products or technologies that are more effective and/or
less costly and which render the Company's products obsolete or non-
competitive. In addition, new technologies and procedures could be developed
for medical and other industries that replace or reduce the value of the
Company's products. The Company's success will depend in part on its ability
to respond quickly to technological changes through the development and
improvement of its products. The Company believes that a substantial amount of
capital will be required to be allocated to such activities in the future.
THE COMPANY'S ABILITY TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS. IGT
does not have any patents which directly cover its FlashPoint or Pixsys optical
localizers. IGT primarily relies on a combination of trade secret and
copyright laws, together with nondisclosure agreements to protect its know-how
and proprietary rights. There can be no assurance that such measures will
provide adequate protection for IGT's intellectual property rights, that
disputes with respect to ownership of its intellectual property rights will not
arise, that IGT's trade secrets or proprietary technology will not otherwise
become known or be independently developed by competitors or that IGT can
otherwise meaningfully protect its intellectual property rights. Furthermore,
there can be no assurance that others will not develop similar products or
software, duplicate IGT's products or software or that third parties will not
assert intellectual property infringement claims against IGT. Moreover, there
can be no assurance that any patent owned by, or issued to, the Company will
not be invalidated, circumvented or challenged, or that the rights granted
thereunder will provide meaningful competitive advantages to the Company.
Litigation may be necessary to protect the Company's intellectual property
rights and trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources, regardless of the outcome of the litigation. If any claims are
asserted against the Company, the Company may be required to obtain a license
under a third party's intellectual property rights. However, such a license
may not be available on reasonable terms or at all.
COMPETITION BY EXISTING COMPETITORS AND POTENTIAL NEW ENTRANTS INTO THE
MARKETPLACE. Companies with substantially greater financial, technical,
marketing, manufacturing and human resources, as well as name recognition, than
the Company may enter markets currently serviced by the Company. Additionally,
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements and to devote substantially greater
resources to the development, marketing and sale of their products than the
Company. The Company's customers may develop their own products to be able to
differentiate their product or for other reasons. Furthermore, such competitors
may develop technologies and/or products other than that currently offered by
the Company that are more effective or economical.
REGULATION BY THE FDA. Noncompliance with applicable requirements of FDA
can result in, among other things, fines, injunctions, civil penalties, recall
or seizure of products, total or partial suspension of production, failure of
the government to grant premarket clearance or premarket approval for medical
devices, withdrawal of marketing approvals and criminal prosecution. The FDA
also has the authority to request repair, replacement or refund of the cost of
any medical device.
In addition, international sales of medical devices are subject to foreign
regulatory requirements, which vary from country to country.
THE RISK OF PRODUCT LIABILITY CLAIMS. The Company faces an inherent
business risk of exposure to product liability claims in the event that the use
of its products is alleged to have resulted in adverse effects. To date, no
product liability claims have been asserted against the Company. The Company
maintains a product liability and commercial general liability insurance policy
with coverage of $1,000,000 per occurrence and an annual aggregate maximum
coverage of $2,000,000 ($1,000,000 for lawsuits outside the United States,
Canada and Puerto Rico). The Company's product liability and general liability
policy is provided on an occurrence basis and is subject to annual renewal.
There can be no assurance that liability claims will not exceed the coverage
limits of such policy or that such insurance will continue to be available on
commercially reasonable terms or at all. If the Company does not or cannot
maintain sufficient liability insurance, its ability to market its products
could be significantly impaired.
POSSIBLE CHANGES TO GOVERNMENT REGULATIONS GOVERNING HEALTH CARE. The
health care industry is undergoing fundamental changes as a result of
political, economic and regulatory influences. In the United States,
comprehensive programs have been proposed that seek to increase access to
health care for the uninsured, control the escalation of health care
expenditures within the economy and use health care reimbursement policies to
help control the federal deficit. The
12
<PAGE>
Company anticipates that Congress and state legislatures will continue to
review and assess alternative health care delivery systems and methods of
payment and public debate of these issues will likely continue. Due to
uncertainties regarding the outcome of reform initiatives and their enactment
and implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted or when they might be adopted. Other countries are
also considering health care reform. Significant changes in health care
systems could have a substantial impact on the manner in which the Company
conducts its business.
SHORTAGES OF LABOR. The Company is dependent upon certain labor skills
that may not be readily available. The shortage of skilled labor could
materially affect the Company's results of operations.
THE COMPANY'S DEPENDENCE ON KEY MANAGEMENT AND TECHNICAL PERSONNEL AND ITS
ABILITY TO ATTRACT NEW PERSONNEL. The Company's success depends in significant
part on the continued contribution of certain key management and technical
personnel, including: Paul L. Ray, Chairman of the Board, Chief Executive
Officer and President; William J. O'Connor, Vice President and Chief Operating
Officer of the Boulder, Colorado operations; Waldean Schulz, Vice President,
Technology and Secretary; and Jeffrey J. Hiller, Vice President, Finance and
Chief Financial Officer. The loss of services of any of these individuals
could have a material adverse effect on the Company. The Company's growth and
profitability also depend on its ability to attract and retain other management
and technical personnel.
ITEM 7. FINANCIAL STATEMENTS.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants ...................................... 14
Consolidated Balance Sheet as of December 31, 1997 and 1996 ............ 15
Consolidated Statement of Income for the Years Ended
December 31, 1997 and 1996 ........................................... 16
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the Years Ended December 31, 1997 and 1996 ............ 17
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1997 and 1996 ..................................... 18
Notes to Consolidated Financial Statements ............................. 20
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Image Guided Technologies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Image Guided Technologies, Inc. and its subsidiary at
December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boulder, Colorado
April 3, 1998
14
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
---------------------
ASSETS 1997 1996
------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,216,000 $ 5,240,000
Accounts receivable, net of allowance for doubtful accounts of
$176,000 and $58,000 respectively 2,667,000 522,000
Inventories, net 1,629,000 417,000
Other current assets 375,000 105,000
------------- --------------
Total current assets 5,887,000 6,284,000
Property and equipment, net of accumulated depreciation of
$298,000 and $145,000 respectively 4,405,000 281,000
Goodwill, net of accumulated amortization of $16,000 5,732,000 ---
Other assets 82,000 17,000
------------- --------------
Total assets $ 16,106,000 $ 6,582,000
------------- --------------
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 913,000 $ 394,000
Accrued liabilities 494,000 291,000
Current portion of capital lease obligations 390,000 28,000
Current portion of notes payable 1,893,000 ---
------------- --------------
Total current liabilities 3,690,000 713,000
Capital lease obligations 1,114,000 96,000
Line of credit 1,250,000 ---
Notes payable, net of warrant discount of $227,000 2,545,000 ---
------------- --------------
Total liabilities 8,599,000 809,000
Commitments and contingencies
Shareholders' equity:
Series A Convertible Preferred Stock, no par value; 2,416,668
shares authorized, no shares issued and outstanding --- ---
Common Stock, no par value; 10,000,000 shares authorized;
3,693,822 and 3,106,024 shares issued and outstanding respectively 10,273,000 8,799,000
Accumulated deficit (2,766,000) (3,026,000)
------------- --------------
Total shareholders' equity 7,507,000 5,773,000
------------- --------------
Total liabilities and shareholders' equity $ 16,106,000 $ 6,582,000
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Revenue $5,713,000 $4,080,000
Cost of goods sold 2,657,000 1,836,000
------------- --------------
Gross profit 3,056,000 2,244,000
------------- --------------
Operating expenses:
Research and development 1,098,000 618,000
Selling and marketing 675,000 554,000
General and administrative 1,190,000 705,000
------------- --------------
Total operating expenses 2,963,000 1,877,000
------------- --------------
Operating income (loss) 93,000 367,000
Other income (expense):
Interest and other expense (72,000) (74,000)
Interest and other income 239,000 62,000
------------- --------------
Net income (loss) $ 260,000 $ 355,000
------------- --------------
------------- --------------
Earnings per share:
Basic $0.08 $0.21
Diluted $0.07 $0.16
Weighted average common shares outstanding:
Basic 3,138,267 1,726,324
Diluted 3,557,298 2,171,639
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Convertible
Preferred Stock Common Stock
--------------- ------------ Accumulated Total Equity
Shares Amount Shares Amount Deficit (Deficit)
------ ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 83,332 $1,000,000 1,093,451 $1,777,000 $(3,381,000) $(604,000)
Exercise of stock options
and warrants 270,783 338,000 338,000
Conversion of Series A
convertible preferred stock (83,332) (1,000,000) 304,290 1,000,000 ---
Initial public offering, net 1,437,500 5,684,000 5,684,000
Net income 355,000 355,000
--------- ----------- ---------- ----------- ----------- ----------
Balance at December 31, 1996 --- --- 3,106,024 8,799,000 (3,026,000) 5,773,000
Exercise of stock options 20,000 33,000 33,000
Repurchase of common stock (11,912) (61,000) (61,000)
Common stock issued for
acquisition 579,710 1,275,000 1,275,000
Warrants issued with debt 227,000 227,000
Net income 260,000 260,000
--------- ----------- ---------- ----------- ----------- ----------
--- $ --- 3,693,822 $10,273,000 $(2,766,000) $7,507,000
--------- ----------- ---------- ----------- ----------- ----------
--------- ----------- ---------- ----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 260,000 $ 355,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 191,000 90,000
Provision for doubtful accounts 19,000 34,000
Loss on disposition of assets 13,000 ---
Provision for inventory obsolescence 45,000 45,000
Changes in operating assets and liabilities, net of acquired
assets and liabilities:
Accounts receivable (535,000) (34,000)
Inventories (75,000) (287,000)
Other current assets and other assets (20,000) (84,000)
Accounts payable (51,000) 91,000
Accrued liabilities (225,000) (93,000)
----------- -----------
Net cash provided by (used in) operating activities (378,000) 117,000
----------- -----------
INVESTING ACTIVITIES:
Additions to property and equipment (257,000) (154,000)
Cash received from sales of property 42,000 ---
Acquisition of Brimfield Precision, Inc., net of cash acquired (8,019,000) ---
----------- -----------
Net cash used in investing activities (8,234,000) (154,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from debt 4,000,000 ---
Payments of debt (390,000) (775,000)
Net proceeds from the issuance of common stock --- 6,022,000
Principal payments on capital leases (73,000) (2,000)
Retire common stock (28,000) ---
Retire loan to officer (171,000) ---
Proceeds from line of credit 1,250,000 ---
----------- -----------
Net cash provided by financing activities 4,588,000 5,245,000
----------- -----------
Net increase (decrease) in cash and cash equivalents (4,024,000) 5,208,000
Cash and cash equivalents at beginning of period 5,240,000 32,000
----------- -----------
Cash and cash equivalents at end of period $1,216,000 $5,240,000
----------- -----------
----------- -----------
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid 54,000 114,000
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES
Equipment acquired under capital lease --- 126,000
Common stock issued in connection with acquisition 1,275,000 ---
Promissory note issued in connection with acquisition 500,000 ---
Warrants issued with debt 227,000 ---
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Image Guided Technologies, Inc. (the "Company") was incorporated in 1990
in the State of Colorado to design, develop, manufacture and market
proprietary, hand-held electro-optical 3-dimensional position input devices
for medical and industrial applications. In December 1997, the Company
acquired Brimfield Precision, Inc. ("Brimfield" or "BPI") which designs,
manufactures, and markets surgical instruments and implants.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary from the date of acquisition. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION AND WARRANTY
Revenue is recognized upon shipment of product to customer. The Company
offers a one-year warranty on certain of its products. The costs of product
warranties are accrued at the time sales are recorded based upon estimates of
costs to be incurred to repair or replace items under warranty.
INVENTORIES
Inventories are carried at the lower of cost or market. Cost is
determined using the first-in, first-out ("FIFO") method. Cost includes
materials, labor and manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a
straight-line basis over their estimated useful lives of two to twenty years.
GOODWILL
Goodwill represents the excess of cost over the fair value of the net
assets acquired in the Brimfield purchase. The goodwill is being amortized
on a straight-line basis over 20 years. The Company analyzes the
recoverability of the goodwill based on the estimated future undiscounted
cash flows of the acquired company. If the Company determines that the
goodwill is impaired, the goodwill is then written down to its estimated fair
value based on discounted cash flows.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are carried at cost which approximates fair value.
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 certain assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the related reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including
cash, short-term trade receivables and payables, and notes payable
approximate their fair values.
20
<PAGE>
CONCENTRATION OF CREDIT RISK
The majority of the Company's revenues during 1997 and 1996 resulted from
sales of a single product which is used to determine the location of a
surgical instrument in a three dimensional space. Customers accounting for
10% or more of total revenues during 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Customer A 41 % 38 %
Customer B 3 % 25 %
Customer C 14 % 12 %
</TABLE>
At December 31, 1997, 28%, 1%, and 7% of accounts receivable were with
customers A, B, and C, respectively. At December 31, 1996, 18%, 21% and 18%
of accounts receivable were with customers A, B, and C, respectively.
EXPORT SALES
The Company had export sales totaling approximately $3,333,000 and
$1,601,000 for the years ended December 31, 1996 and 1995, respectively,
principally to Germany, France and Canada.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"). The Company's adoption of SFAS 128, on December 31,
1997, resulted in the restatement of the Company's "primary" earnings per
share calculations to "basic" earnings per share and "fully diluted" earnings
per share calculations to "diluted" earning per share for all periods
presented. Basic earnings per share excludes any dilution from common stock
equivalents and is based on the weighted average common shares outstanding.
Diluted earnings per share includes dilution from the Company's stock options
and warrants, calculated under the treasury stock method. The difference
between weighted average common shares outstanding - basic and weighted
average common shares outstanding - diluted is due to the dilutive effect of
outstanding stock options and warrants.
ADDITIONAL STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), which are
effective for financial statements for periods beginning after December 15,
1997. The Company anticipates that the adoption of SFAS 130 and SFAS 131
will not have a significant effect on its 1998 financial statements.
2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
---------- --------
<S> <C> <C>
Raw materials $ 487,000 $284,000
Work-in-process 435,000 36,000
Finished goods 768,000 113,000
---------- --------
1,690,000 433,000
Less allowance for obsolescence (61,000) (16,000)
---------- --------
$1,629,000 $417,000
---------- --------
---------- --------
</TABLE>
21
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
Estimated Useful Life 1997 1996
---------------------- ---- ----
<S> <C> <C> <C>
Production equipment 1 - 10 years $2,917,000 $ 205,000
Leasehold improvements 3 - 20 years 878,000 20,000
Computer equipment 1 - 5 years 446,000 104,000
Land --- 169,000 ---
Furniture and fixtures 2 - 7 years 149,000 34,000
Other 1 - 5 years 144,000 63,000
---------- ---------
4,703,000 426,000
Less accumulated depreciation (298,000) (145,000)
---------- ---------
$4,405,000 $ 281,000
---------- ---------
---------- ---------
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
-------- --------
<S> <C> <C>
Employee accruals $297,000 $141,000
Professional fees 53,000 39,000
Warranty reserves 41,000 82,000
Other accrued liabilities 103,000 29,000
-------- --------
Total accrued liabilities $494,000 $291,000
-------- --------
-------- --------
</TABLE>
22
<PAGE>
5. DEBT
NOTES PAYABLE
Notes payable consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Senior note payable (net) due December 12, $3,773,000
2000, interest at rate of one and one-half
percent in excess of the Prime Rate, payable in
monthly installments of $111,111 plus interest,
secured by all assets of the Company. The
interest rate at December 31, 1997 was 10%.
Subordinated note payable due December 12, 500,000
1998, interest at a rate of 12%, interest paid
monthly and principal at maturity, secured by
all assets of the Company; junior to the senior
note payable to bank.
Note payable, at one-quarter percent in excess 69,000
of the Prime Rate, payable in monthly
installments of $2,167 plus interest, secured
by machinery, maturing in August 2000. The
interest rate at December 31, 1997 was 8.5%.
Note payable, at one-quarter percent in excess 96,000
of the Prime Rate, payable in monthly
installments of $2,833 plus interest, secured
by machinery, maturing in October 2000. The
interest rate at December 31, 1997 was 8.5%.
----------
4,438,000
Less current portion (1,893,000)
----------
Long-term notes payable $2,545,000
----------
----------
</TABLE>
The senior note payable was issued with detachable warrants, which were
recorded as debt discount. The discount will be amortized over the term of
the notes payable. See Note 7.
The aggregate maturities of the Company's notes payable are as follows:
<TABLE>
<S> <C>
1998 $1,893,000
1999 1,393,000
2000 1,379,000
</TABLE>
LINE OF CREDIT
In December of 1997, the Company entered into an agreement with a bank
for $2,000,000 revolving line of credit secured by all assets of the Company,
maturing on June 30, 1999, and bearing interest at the rate of three quarters
of one percent in excess of the bank's prime lending rate. At December 31,
1997, $1,250,000 was outstanding under this revolving note payable and
proceeds were used in connection with the acquisition of Brimfield Precision,
Inc. At December 31, 1997, the interest on the revolving note payable was
9.25%.
23
<PAGE>
6. INCOME TAXES
The Company acquired Brimfield Precision, Inc. on December 12, 1997.
Brimfield was previously an S-Corporation for income tax purposes. On the
date of acquisition, under Internal Revenue Service Regulations Brimfield
became a C-Corporation.
The components of the Company's deferred income tax assets and
liabilities under FAS 109 are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---------- ----------
<S> <C> <C>
Net operating loss carryforwards $ 786,000 $ 900,000
R&D credits 90,000 21,000
Allowance for doubtful accounts 28,000 22,000
Employee accruals 18,000 53,000
Write-off of fixed assets 18,000 19,000
Warranty 15,000 31,000
Depreciation (315,000) --
Deferred revenue (18,000) --
Other 66,000 14,000
---------- ----------
688,000 1,060,000
Less valuation allowance (688,000) (1,060,000)
---------- ----------
Net deferred tax asset -- --
---------- ----------
---------- ----------
</TABLE>
During 1996, the Company reduced its valuation allowance by $372,000
mainly due to the utilization of net operating loss carryforwards to offset
current taxable income. The deferred tax asset has been reduced by a
valuation allowance because management believes it is more likely than not
that such benefits will not be realized.
The following is a reconciliation of the statutory U.S. federal income
tax rate to the Company's effective income tax rate:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---------- ----------
<S> <C> <C>
Federal income tax rate 34.0 % 34.0 %
State income tax, net of federal benefit 3.7 % 3.3 %
Goodwill amortization 2.0 % ---
Meals and entertainment 1.9 % 1.0 %
Effect of utilization of net operating loss
carryforwards and valuation allowance (41.6)% (38.3)%
----- -----
Effective income tax rate -- --
----- -----
----- -----
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards
of approximately $2,107,000 which expire from 2008 to 2010.
As a result of certain changes in the Company's ownership, the future
utilization of these net operating loss carryforwards may be limited. The
Company also has R&D credits of approximately $90,000, which may be subject
to future limitations.
24
<PAGE>
7. SHAREHOLDERS' EQUITY
STOCK SPLIT
In September 1996, the Company effected a four-for-five reverse stock
split of the Company's common stock. All common stock and stock option
amounts presented in these financial statements reflect the stock split.
COMMON STOCK
At December 31, 1997, the Company has reserved an aggregate of 1,235,951
shares of its common stock for stock issuable upon exercise of outstanding
options and warrants.
CONVERSION OF PREFERRED STOCK
In conjunction with the Company's initial public offering on October 21,
1996, all of the Company's previously outstanding shares of Series A
Convertible Preferred Stock were converted into shares of the Company's
common stock.
STOCK OPTIONS AND WARRANTS
At December 31, 1997, the Company has two stock option plans, one
adopted in 1997 and one adopted in 1994.
The company has authorized 940,000 options to be granted pursuant to its
stock option plans. As of December 31, 1997, 108,171 options were available
for grant under the plans. Options are generally granted at fair market
value as determined by the Board of Directors at the date of grant and vest
over a three-year period. At December 31, 1997, 529,044 options are
exercisable.
In connection with the acquisition of Brimfield Precision Inc., the
Company financed a portion of the purchased priced with debt and attachable
warrants. The Company issued 260,000 warrants with an exercise price of
$2.92. The warrants are exercisable over seven years.
In conjunction with the Company's initial public offering, 125,000
warrants were issued to the underwriters during 1996. The warrants were
issued at 115% of the initial public offering price.
A summary of the changes in options and warrants during the two years
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Warrants Exercise Price Options Exercise Price
--------- --------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1995 332,240 $1.38 635,552 $1.30
Granted 125,000 5.75 72,000 5.03
Exercised (270,000) 1.25 (886) 1.25
Forfeited (22,240) 3.13 (86,669) 1.25
--------- -------
Outstanding December 31, 1996 165,000 4.66 619,997 1.74
Granted 260,000 2.92 214,954 4.44
Exercised --- --- (20,000) 1.67
Forfeited --- --- (4,000) 5.00
--------- -------
Outstanding December 31, 1997 425,000 810,951 2.45
--------- -------
--------- -------
</TABLE>
25
<PAGE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ---------------------------------
RANGE OF AVERAGE WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.24 - 1.67 528,001 1.93 $1.31 483,542 $ 1.30
3.75 - 5.50 256,929 4.42 4.45 40,722 5.12
5.88 - 6.25 26,021 4.21 6.15 4,780 6.25
-------- -------
810,951 529,044
-------- -------
-------- -------
</TABLE>
The following table summarizes information concerning outstanding
warrants at December 31, 1997:
WARRANTS OUTSTANDING
<TABLE>
<CAPTION>
AVERAGE
NUMBER REMAINING
EXERCISE PRICE OUTSTANDING CONTRACT LIFE
-------------- ----------- -------------
<S> <C> <C>
$ 1.25 40,000 3.00
2.92 260,000 7.00
5.75 125,000 3.00
-------
425,000
-------
-------
</TABLE>
All warrants are exercisable at December 31, 1997.
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), issued in October 1995, established
financial accounting and reporting standards for stock-based employee
compensation plans. As permitted by SFAS 123, the Company elected to continue
to use Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations, in accounting for its Stock
Option Plan.
If the Company had elected to recognize compensation cost based on the
fair value of the options granted at the grant date as well as the vesting
provisions under the Stock Option Plan, net income for 1997 would have been
$179,000, or $0.06 and $0.05 per basic and diluted share, respectively. Net
income for 1996 would have been $326,000, or $0.19 and $0.15 per basic and
diluted share, respectively. The weighted average fair value of the options
granted during 1997 and 1996 is estimated at $1.85 and $2.15 per share,
respectively. The average fair value of the warrants granted during 1997 and
1996 is estimated at $.87 and $1.66 per share, respectively.
The options were valued on the date of grant using the Black-Scholes
option pricing model with the following assumptions: volatility of 34.7% and
40.4% in 1997 and 1996, respectively; risk free interest rates of 5.9% and
4.8% for 1997 and 1996, respectively; expected terms of five years, and no
dividend yield rate.
26
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under capital leases. Future
minimum payments under the equipment lease are as follows:
<TABLE>
<S> <C>
1998 $ 498,000
1999 486,000
2000 417,000
2001 274,000
2002 93,000
----------
Total minimum lease payments 1,768,000
Less amounts representing interest (264,000)
----------
Present value of minimum lease payments 1,504,000
Less current portion (390,000)
----------
Total capital lease obligation $1,114,000
----------
----------
Equipment under capital lease is as follows:
Equipment $1,977,000
Less accumulated depreciation (340,000)
----------
----------
$1,637,000
----------
----------
</TABLE>
The Company also leases office space under a non-cancelable operating
lease and the Company has required future minimum rental payments of
$186,000, $194,000, and $66,000 for the years ended December 31, 1998, 1999,
and 2000, respectively. A shareholder of the Company was an owner of the
facility which was leased by the Company under a short-term cancelable lease
which expired in February 1996. Rent expense for that facility under that
lease for the year ended December 31, 1996 was $10,000.
The Company subleases a facility in Springfield, Massachusetts from an
entity, the same stockholders of which, had owned Brimfield Precision, Inc.
The lease agreement requires payments of $5,000 per month until December 2001.
BPI is a party to two lawsuits, which, while the outcome cannot be
predicted with certainty, the Company's management expects will not have a
materially adverse affect on the consolidated financial position or results
of operations of the Company.
9. RETIREMENT PLAN
In 1996, the Company implemented the Image Guided Technologies, Inc.
401(k) Profit Sharing Plan covering substantially all employees of Image
Guided Technologies, Inc. Employees may contribute up to 15% of compensation
not to exceed Internal Revenue Service limits. The Company made a
discretionary matching contribution for the years ended December 31, 1997 and
December 31, 1996. In connection with the Brimfield Precision Inc.
acquisition, the Company also has the Brimfield Precision, Inc. 401(k)
Savings and Retirement Plan covering substantially all employees of Brimfield
Precision, Inc. Employees may contribute from 2% to 15% of compensation not
to exceed the Internal Revenue Service limits. The Company has not made a
matching contribution for the Brimfield Precision, Inc. 401(k) Savings and
Retirement Plan to date.
10. ACQUISITION OF BRIMFIELD PRECISION, INC.
On December 12, 1997, the Company acquired all the outstanding stock of
Brimfield, for a purchase price of approximately $9,844,000, including
expenses related to the acquisition. The transaction was recorded using the
purchase method of accounting. The purchase price was paid with a
combination of approximately $8,069,000 in cash, $500,000 in a note payable
and 579,710 shares of the Company's common stock. The Company obtained the
cash for the acquisition from bank financing and its own funds. In
conjunction with the bank financing, the Company issued two
27
<PAGE>
seven-year warrants for a total of 260,000 shares of the Company's common
stock. The goodwill of approximately $5,748,000 recorded represents the
excess of the purchase price over the fair value of the net identifiable
assets of Brimfield. Such goodwill will be amortized over twenty years using
the straight-line method.
In conjunction with the acquisition of Brimfield Precision, Inc. the
Company retired a $171,000 note payable from an officer of Brimfield
Precision, Inc.
The following represents selected pro forma results of operations as if
Brimfield had been included in the results of operations of the Company as of
the beginning of each of the periods presented.
<TABLE>
<CAPTION>
Unaudited
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue $15,708,000 $16,717,000
Net Income 366,000 1,785,000
Earnings per Share
Basic $0.12 $1.03
Diluted $0.10 $0.82
</TABLE>
11. SUBSEQUENT EVENT
On March 15, 1998, the Company issued to Imperial Bank an additional
seven-year warrant for 80,000 shares of the Company's common stock with an
exercise price of $2.65 per share and on March 31, 1998 a seven-year warrant
for 10,000 shares of the Company's common stock with an exercise price of
$2.86 per share.
On April 3, 1998, Imperial Bank assigned its loan to BankBoston. After
the assignment, BankBoston and the Company amended and restated the loan to
provide for a $2,700,000 sixty-month term loan (payable in 58 installments of
$40,000 in principal with a final principal payment of $380,000) at an
interest rate initially equal to the BankBoston base rate plus one-half of
one percent on the unpaid principal balance, and up to $3,000,000 (the actual
amount to be determined by calculating the borrowing base) pursuant to a
twenty-four month revolving loan at an interest rate initially equal to the
BankBoston base rate plus one-quarter of one percent. The Company has agreed
to raise $1,000,000 by July 2, 1998 to pay off the $500,000 note due
Cruttenden and to reduce the principal amount of the term loan by $500,000.
28
<PAGE>
PART III
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information required to be set forth hereunder has been omitted and will
be incorporated by reference, when filed, from the Sections entitled
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders to be held on or about May 19, 1998. Executive officers of the
Company are listed on page 6 of this form 10-KSB.
ITEM 10. EXECUTIVE COMPENSATION.
Information required to be set forth hereunder has been omitted and will
be incorporated by reference, when filed, from the Sections entitled
"Executive Compensation" and "Election of Directors" in the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders to be held on or about
May 19, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required to be set forth hereunder has been omitted and will
be incorporated by reference, when filed, from the Section entitled "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders to be held on or about
May 19, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required to be set forth hereunder has been omitted and will
be incorporated by reference, when filed, from the Section entitled "Certain
Relationships and Related Transactions" in the Company's Proxy Statement for
its 1997 Annual Meeting of Shareholders to be held on or about May 19, 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of the Company and
Articles of Amendment and Certificate of Correction thereto
(incorporated herein by reference to Exhibit 3.1 of the Company's
Registration Statement on Form SB-2 (SEC File No. 333-09103). *
3.2 Bylaws of the Company (incorporated herein by reference to Exhibit
3.2 of the Company's Registration Statement on Form SB-2 (SEC File
No. 333-09103). *
4.1 Specimen Common Stock Certificate (incorporated herein by reference
to Exhibit 4.1 of the Company's Registration Statement on Form SB-2
(SEC File No. 333-09103). *
10.1 1994 Stock Option Plan of the Company, as amended, and after the
Company's December 1994 four-for-one stock split (incorporated
herein by reference to Exhibit 10.1 of the Company's Registration
Statement on Form SB-2 (SEC File No. 333-09103). *
29
<PAGE>
10.2 1997 Stock Option Plan of the Company (incorporated herein by
reference from the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders). *
10.3 Registration Rights Agreement dated as of July 1994 among the
Company and holders of previously issued (and converted) Series A
Preferred Stock (incorporated herein by reference to Exhibit 10.3
of the Company's Registration Statement on Form SB-2 (SEC File No.
333-09103). *
10.4 Form of Promissory Notes payable by the Company to each of the
Company's Lenders and form of Extension Agreements thereto
(incorporated herein by reference to Exhibit 10.6 of the Company's
Registration Statement on Form SB-2 (SEC File No. 333-09103). *
10.5 Form of Security Agreement between the Company and each of the
Company's Lenders (incorporated herein by reference to Exhibit 10.7
of the Company's Registration Statement on Form SB-2 (SEC File No.
333-09103). *
10.6 Form of Stock Purchase Warrants issued by the Company to each of
the Company's Lenders (incorporated herein by reference to Exhibit
10.8 of the Company's Registration Statement on Form SB-2 (SEC File
No. 333-09103). *
10.7 Strategic Alliance Agreement dated as of February 27, 1995, between
the Company and Surgical Navigation Technologies, Inc. and letters
regarding termination of such agreement (incorporated herein by
reference to Exhibit 10.10 of the Company's Registration Statement
on Form SB-2 (SEC File No. 333-09103). *
10.8 Equipment Lease Agreement between the Company and Machinery
Systems, Inc., for a refurbished Zeiss Coordinate Measuring Machine
(incorporated herein by reference to Exhibit 10.11 of the Company's
Registration Statement on Form SB-2 (SEC File No. 333-09103). *
10.9 Commercial Industrial Lease dated January 11, 1996, between the
Company and Life Investors Company of America (incorporated herein
by reference to Exhibit 10.12 of the Company's Registration
Statement on Form SB-2 (SEC File No. 333-09103). *
10.10 Amendment dated March 7, 1997 to the Commercial Industrial Lease
dated January 11,1996, between the Company and Life Investors
Insurance Company of America (incorporated herein by reference to
Exhibit 10.10 of the Company's Form 10-QSB report filed May 12,
1997). *
10.11 Employment Agreement between the Company and Paul L. Ray, and
amendment thereto (incorporated herein by reference to Exhibit
10.15 of the Company's Registration Statement on Form SB-2 (SEC
File No. 333-09103). *
10.12 Employment Agreement between the Company and Robert E. Silligman
(incorporated herein by reference to Exhibit 10.16 of the Company's
Registration Statement on Form SB-2 (SEC File No. 333-09103). *
10.13 Employment Agreement between the Company and Waldean A. Schulz
(incorporated herein by reference to Exhibit 10.17 of the Company's
Registration Statement on Form SB-2 (SEC File No. 333-09103). *
10.14 Employment Agreement between the Company and Jeffrey J. Hiller
(incorporated herein by reference to Exhibit 10.18 of the Company's
Registration Statement on Form SB-2 (SEC File No. 333-09103). *
10.15 Lease between the Company and Raycon Properties (incorporated
herein by reference to Exhibit 10.19 of the Company's Registration
Statement on Form SB-2 (SEC File No. 333-09103). *
30
<PAGE>
10.16 Form of Representative's Warrants (incorporated herein by reference
to Exhibit 10.20 of the Company's Registration Statement on Form SB-
2 (SEC File No. 333-09103). *
10.17 Terms and Conditions of Sale Between the Company and Carl Zeiss
dated 2/20/97 (incorporated herein by reference to Exhibit 10.20 of
the Company's Form 10-QSB report filed May 12, 1997). *
10.18 Agreement of Purchase and Sale Among Image Guided Technologies,
Inc. and Stockholders of Brimfield Precision, Inc. dated 11/25/97
(incorporated herein by reference to Exhibit 2.1 of the Company's
Form 8-K report filed December 29, 1997). *
10.19 Amendment dated December 12, 1997 to Agreement of Purchase and Sale
Among Image Guided Technologies, Inc. and Stockholders of Brimfield
Precision, Inc. dated November 25, 1997 (incorporated herein by
reference to Exhibit 2.2 of the Company's Form 8-K report filed
December 29, 1997). *
10.20 Loan Agreement between Image Guided Technologies, Inc. and Imperial
Bank, dated December 12, 1997 (incorporated herein by reference to
Exhibit 2.3 of the Company's Form 8-K report filed December 29,
1997). *
10.21 Subordinated Note from Image Guided Technologies, Inc. payable to
Cruttenden Roth, dated December 12, 1997 (incorporated herein by
reference to Exhibit 2.4 of the Company's Form 8-K report filed
December 29, 1997). *
10.22 Warrant from Image Guided Technologies, Inc. to Imperial Bank,
dated December 12, 1997 (incorporated herein by reference to
Exhibit 2.5 of the Company's Form 8-K report filed December 29,
1997). *
10.23 Warrant from Image Guided Technologies, Inc. to Cruttenden Roth,
dated December 12, 1997 (incorporated herein by reference to
Exhibit 2.6 of the Company's Form 8-K report filed December 29,
1997). *
10.24 Warrant from Image Guided Technologies to Imperial Bank, dated
3/15/98.
10.25 Warrant from Image Guided Technologies to Imperial Bank, dated
3/31/98.
10.26 Bill Lyons Employment Agreement.
10.27 Springfield lease
10.28 Promissory Note to Pasqualina Lyons from BPI dated 8/19/88
10.29 Employment agreement between the Company and Robert E. Silligman,
dated February 21, 1998.
10.30 Amended and Restated Loan Agreement dated 4/3/98 between Image
Guided Technologies, Inc. and BankBoston, N.A.
21.0 Subsidiaries of the Company.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule.
</TABLE>
- -------------------
* Incorporated herein by reference.
31
<PAGE>
(b) Form 8-K Reports
The Company filed one report on Form 8-K December 29, 1997 (amended on
February 27, 1998) in connection with the acquisition of Brimfield Precision,
Inc. BPI audited financial statements for the years ended October 31, 1996 and
1997 and pro forma financial statements were filed with respect to the
acquisition.
32
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
IMAGE GUIDED TECHNOLOGIES, INC.
April 14, 1998 By: /s/ Paul L. Ray
-------------------
Paul L. Ray
Chairman of the Board, President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
April 14, 1998 /s/ Paul L. Ray
-------------------
Paul L. Ray
Chairman of the Board, President and Chief
Executive Officer
April 14, 1998 /s/ William O'Connor
----------------------
William O'Connor
Director, Vice President and Chief Operating
Officer
April 14, 1998 /s/ Jeffrey J. Hiller
----------------------
Jeffrey J. Hiller
Vice President and Chief Financial Officer
(Principal Accounting Officer)
April 14, 1998 /s/ Waldean Schulz
----------------------
Waldean Schulz
Director and Vice President, Technology
April 14, 1998 /s/ Ray Hauser
----------------------
Ray Hauser
Director
April 14, 1998 /s/ Clifford Frith
----------------------
Clifford Frith
Director
April 14, 1998 /s/ William Lyons
----------------------
William Lyons
Director
33
<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: MARCH 15, 1998
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, $2.65, subject to automatic adjustment
from time to time in accordance with SECTION 3.
"TERMINATION DATE" is defined in SECTION 7.
"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, 80,000, 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
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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:
(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
2
<PAGE>
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 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 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
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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 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
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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 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.
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7. TERMINATION.
THIS WARRANT SHALL TERMINATE AND NO LONGER BE EXERCISABLE FROM AND AFTER
5:00 P.M., BOSTON TIME, ON MARCH 14, 2005 (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.
(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.
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
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hereunder shall be tried by a judge without a jury.
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 March
15, 1998.
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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<PAGE>
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:
8
<PAGE>
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:
9
<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: MARCH 31, 1998
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, $2.86, subject to automatic adjustment
from time to time in accordance with SECTION 3.
"TERMINATION DATE" is defined in SECTION 7.
"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, 10,000, 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
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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:
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
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<PAGE>
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 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 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.
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<PAGE>
(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 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),
4
<PAGE>
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 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
5
<PAGE>
TIME, ON MARCH 30, 2005 (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.
(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.
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.
6
<PAGE>
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
March 31, 1998.
The Company:
[CORPORATE SEAL] IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ Jeffrey J. Hiller
--------------------------------
Title: Vice President Finance
Attest: /s/ Waldean Schulz
----------------------
7
<PAGE>
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:
-------------------------- ----------------------------
8
<PAGE>
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:
---------------------------- --------------------------
9
<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").
1. 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.
1. 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.
(a) 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.
(b) 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 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.
(a) PAID HOLIDAYS. The Employee shall be entitled to paid
holidays, in accordance with the Company's policies governing holidays for
officers and key employees.
(a) 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.
<PAGE>
1. 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.
1. 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.
(a) 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.
(a) 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.
1. 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
<PAGE>
(a) 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.
1. 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.
1. 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 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.
1. 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.
(a) 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.
(a) 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
(i) 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,
<PAGE>
in which the Employee was participating immediately prior to such termination
except for any revenue sharing programs based on corporate performance.
(a) 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 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).
1. 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.
1. 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.
1. 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.
1. 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.
1. 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.
<PAGE>
1. HEADINGS. All headings in this Agreement are for convenience
only and shall not affect the meaning of any provision hereof.
1. 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.
1. 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.
1. 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.
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
<PAGE>
LEASE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement of Lease, made and entered into, as of this first day of
January, 1997 by and between Blackstone Medical, Inc., a Massachusetts
corporation with offices at 90 Brookdale Drive, Springfield, Massachusetts
(hereinafter referred to as "Lessor"), and Brimfield Precision, Incorporated,
a Massachusetts corporation with offices at 68 Mill Lane, Brimfield,
Massachusetts (hereinafter referred to as "Lessee").
Witnesseth:
That Lessor does by these presents lease and demise unto Lessee the
following described property, lying and being situated in the City of
Springfield, County of Hampden, Commonwealth of Massachusetts, and being more
particularly described as follows: 13, 821 square feet of the building at 90
Brookdale Drive, for a term of five (5) years beginning on the first day of
January 1997, and ending on the last, day of December, 2001, to be occupied
for the purpose of manufacturing and related activities only, (and said
Demised Premises are to be used in no other manner and for no other purposes
whatsoever without the prior written consent of Lessor).
1. LEASE PAYMENTS
AND EARLY TERM OPTION
(A)Lessor shall yield and pay therefor the sum of Two Hundred forty-eight
Thousand Seven Hundred Seventy-eight ($338,778.00) Dollars (the "Basic Rent")
for the term of the Lease in monthly installments of Four Thousand One
Hundred Forty-six and 30/100 ($4,146.30) Dollars on the first day of each
month, monthly in advance as aforesaid, as the same shall fall due at the
above address of Lessor or wherever directed to make such payments by Lessor.
(B) During the original term of the Lease, Lessee may terminate this
Lease by serving written notice on Lessor, which notice would be an executed
Termination Agreement suitable for recording. In such event, this Lease
shall terminate sixty (60) days after the date of the notice and for that
sixty (60) day period Lessee will be responsible for all expenses and lease
payments required under this Lease. Upon receipt of such notice, Lessor
shall take reasonable action to lease the premises to another tenant and
shall use its best efforts to do so.
1
<PAGE>
Thereafter, Lessor and Lessee shall have no further rights, duties or
obligations under this Lease, or any part thereof, except that all rents,
taxes and other monetary obligations for the period prior to the notice must
also be paid. All improvements located in the Demised Premises on the date
of the notice shall become the property of Lessor except the Lessee shall
have the right to remove trade fixtures, equipment, furnishings, signs and
other identifying characteristics. Lessee agrees to promptly repair any
damage done to the Demised Premises by the removal of any of those items.
2. LESSEE'S DUTIES
Lessee shall, at its own cost and expense, throughout the term of this
Lease, and so long as it shall remain in possession of the Demised Premises,
keep and maintain in good repair, all portions of the building or buildings
located upon the Demised Premises including all fixtures, and equipment,
appurtenances, machinery therein which are brought into and become a part of
the Real Estate, and all glass, including, but not limited to, plate glass,
window panes, etc., except that the Lessor shall be responsible for all roof
repairs and maintenance; furthermore, Lessee shall keep the plumbing work,
closets, pipes and fixtures belonging thereto in good repair, and keep the
water pipes and connections free from ice and all other obstructions, to the
satisfaction of the municipal, and/or any other governmental authority,
during the term of this Lease. Lessee shall not overload the carrying
capacity of the floors of the Demised Premises and will keep the electrical
system, roof and any and all other interior and exterior portions of the
building in good repair. Likewise, it shall be the obligation of Lessee to
keep and maintain in good repair, the sidewalks, driveways, curbs and parking
areas, if any, adjoining the Demised Premises, or forming a part thereof,
including also the land, which it will keep properly landscaped and cut, and
will keep the sidewalks, driveways and parking areas free from ice and snow.
It is distinctly understood and agreed that the preceding sentences do
require maintenance of said building or buildings and fixtures, equipment,
appurtenances and machinery in excellent condition and Lessee shall at all
times keep and maintain same in such condition as to minimize, so far as is
practicable, by usual care and repairs, the effects of use, decay, injury and
destruction of said property; Lessor recognizes that certain depreciation, by
reason of increasing age and use, is unavoidable. Lessee, so long as it
shall remain in possession of the Demised Premises, shall keep and maintain
all portions of the premises, the improvements thereon, the appurtenances,
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machinery, equipment, and fixtures therein, in such condition as to prevent any
loss, damage or injury to the persons, property, businesses, business or
occupations of any other persons permitted by Lessee to be in or about the
Demised Premises, owners, occupants and invitees of adjoining premises, and
persons upon the adjacent portions of the street in front of the Demised
Premises. At the termination of this Lease, Lessee shall deliver up the Demised
Premises in as good a condition as at the beginning of the term, natural
deterioration, depreciation and damage by fire and the elements only excepted.
Lessor shall not be required to furnish any services or Facilities to make any
improvements, repairs or alterations in or to the Demised Premises during the
term of this Lease.
3. LESSEE'S ACCEPTANCE OF PREMISES
Lessee agrees to accept possession of the Demised Premises in their
present condition, and to allow for changes in such condition which may occur
by reasonable deterioration between the date hereof, and the date that Lessee
actually occupies said premises.
4. LESSEE'S HOLD HARMLESS
All property of every kind which may be on said Demised Premises during
the term hereof, shall be at the sole risk of Lessee or those claiming under
it and the Lessor shall not be liable to Lessee, or to any other person
whatsoever, for any injury, loss or damage to any person or property in or
upon said Demised Premises, or upon the sidewalks and alleyways contiguous
thereto. Lessee hereby covenants and agrees to assume all liability for or on
account of any injury, loss or damage above described, and to save Lessor
harmless therefrom. Furthermore, Lessor shall not be liable to Lessee or to
Lessee's patrons, employees, licensees, permittees, or visitors, for any
damage to person or property caused by the act or negligence of any other
tenant of said Demised Premises, or due to the building on said premises or
any appurtenances thereof being improperly constructed, or being or becoming
out of repair, nor for any damages from any defects or want of repair of any
part of the building of which the Demised Premises form a part, but Lessee
accepts said premises as wholly suitable for the purposes for which same are
leased and accepts the building and each and every appurtenance thereof and
waives defects therein, and further agrees to hold Lessor harmless from all
claims for any such damage. It is further especially understood and agreed
that Lessor shall not be liable for any failure of water supply, gas supply,
or electric
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current, or for injury or damage which may be sustained to person or property
by Lessee or any other person, caused by or resulting from steam,
electricity, gas, water, rain, ice, or by snow or other liquid, which may
leak or flow from or into any part of said building or caused by the
breakage, leakage, obstruction or other defect of pipes, wiring, appliances,
plate glass, plumbing or lighting fixtures of the same, or by the condition
of said premises or any part thereof, or by the elevator, if any, or by the
street or subsurface, or from any other source, or by any other cause
whatsoever, whether said damage or injury shall be caused by or be due to the
negligence of Lessor, Lessor's agents, servants, employees or not, nor shall
Lessor be liable for interference with light or other incorporeal
hereditaments, provided such interference is caused by anyone other than the
landlord, nor shall Lessor be liable for such interference from operations by
or for governmental agencies in construction of any public or quasi-public
work.
5. ADDITIONAL RENT
Lessee shall pay three quarters of the water, sewer, electric, gas,
trash removal, taxes, assessments, betterments and all other expenses and
utilities and will pay three quarters of all municipal, state or federal
taxes assessed against Lessor as it relates to Lessor's ownership of Demised
Premises or imposed upon the Demised Premises as the same shall become due
during the term of this Lease, all of which shall be considered as additional
rent. Lessor shall not be required to furnish any services or facilities to
make any improvements, repairs or alterations in or to the Demised Premises
during the term of this Lease. It is the intention of the parties hereto
that the rent payable hereunder be net to the Lessor so that this Lease shall
yield to Lessor the fixed annual rent specified in Section 1 hereof without
reduction or set off whatsoever and that all costs, expenses and obligations
of every kind and nature relating to the Demised Premises shall be paid by
Lessee, except as otherwise expressly provided herein.
6. GOVERNMENTAL REGULATIONS
Lessee agrees that it will promptly execute and fulfill all ordinances and
regulations of the state, county, city and other governmental agencies
applicable to said Demised Premises, and all ordinances imposed by any
governmental unit or department for the correction, prevention and abatement
of nuisances in or upon or
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connected with said Demised Premises during the term of this Lease, at
Lessee's sole expense and cost and will ensure that no hazardous waste or any
waste will be disposed on the premises in violation of Chapter 21E of the
Mass. General Laws or any federal, state or local ordinance, law, rule or
regulation.
7. ASSIGNMENT, SUBLEASE, HAZARDS
Lessee shall not assign this Agreement, nor underlet the whole or any
part of the Demised Premises, or make any alteration in or to the building
without the consent of Lessor first obtained in writing, and shall not occupy
or permit or suffer same to be occupied for any business or purpose deemed
extrahazardous on account of fire, and it shall be lawful for Lessor at all
reasonable times and hours to enter into and upon said Demised Premises to
examine the condition thereof.
8. FIRE NOTICE
Lessee shall, in case of fire or other casualty, give immediate notice in
writing to Lessor, who shall thereupon cause the damage to be repaired
forthwith, provided materials, supplies and labor are reasonably available; if
any portion of the premises is rendered unfit for occupancy, the rent shall be
apportioned for the period of time required to make the repairs, according to
the part of the premises, if any, which remains usable by Lessee. If the
entire building shall be destroyed, then within thirty (30) days after the fire
or other casualty, either Lessor or lessee may cancel this Lease by notice in
writing to the other, effective as of the date of the mailing of the written
notice.
9. SIGNS
Lessee shall not place, paint or otherwise affix any signs at, on or about
the premises, or any part thereof, except as and where first approved in
writing by Lessor which approval shall not be unreasonably withheld, and Lessor
shall have the right to remove any sign or signs in order to paint the building
or premises or make any other repairs or alterations, but nothing herein shall
be construed to require or obligate Lessor, at any time or in any manner, to
paint the building or premises or make any other repairs or alterations;
provided, however, that it is distinctly understood and agreed by and between
Lessor and Lessee that Lessor expressly reserves and retains unto Lessor the
surface of the roof of the Demised Premises for erection and maintenance
hereon, by Lessor or by
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any organized advertising agency authorized by Lessor, of sign or signs,
advertising the business or products of Lessor or of any other person, firm
or organization, save and except such products, or person, firm or
organization as may be in active and direct competition with the business and
products of Lessee; and Lessor, at all reasonable times and hours, shall have
the right of ingress and egress to and from said roof, for the purpose of
erecting and maintaining such sign or signs, provided, however, that the
exercising of such rights of ingress and egress by Lessor shall not interfere
materially with the normal operations of Lessee's business.
10. BREACH
In the event of a breach or threatened breach by Lessee of any of the
agreements, conditions, covenants or terms hereof, Lessor shall have the
right of injunction to restrain same, and the right to invoke any remedy
allowed by law or in equity, as if specific remedies, indemnities or
reimbursements were not herein provided for. Furthermore, the rights and
remedies given to Lessor in this Lease are distinct, separate and cumulative
rights and remedies and no one of them, whether or not exercised by Lessor
shall be deemed to be in exclusion of any of the others.
11. BINDING AGREEMENTS
The agreements, conditions, covenants and terms herein contained, shall in
every case, apply to, be binding upon and inure to the benefit of the
respective parties hereto, their heirs, executors, administrators, successors
and assigns, with the same force and effect, as if specifically mentioned in
each instance where a party hereto is named, provided, however, that no
assignment or underletting by Lessee in violation of the provisions of this
Lease, shall vest in any such assignee or undertenant any right or title in
or to the leasehold estate hereby created.
12. WAIVER
No assent, expressed or implied, by Lessor to any breach of any of
Lessee's covenants, agreements, conditions or terms hereof, shall be deemed
or taken to be a waiver of any succeeding breach of any covenant, agreement,
condition or term hereof.
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13. CONDITION ON TERMINATION
It is especially understood and agreed that boilers, engines, machinery,
hangers, pulleys, shafting and fixtures and all personal property placed on
the Demised Premises by the Lessee may be removed by Lessee at the
termination of this Lease, provided Lessee shall not then be in default of
the performance of any of its agreements, conditions, covenants or terms
hereof, and provided further, that the building shall be left by Lessee,
substantially as well equipped as it is at the beginning of the term, and
provided further, that no such property shall be removed by Lessee if such
removal should permanently injure or dismantle said building, and provided
further that the removal of any such property, shall be effected within five
(5) days after the expiration of the said term, and all damage caused to said
premises by such removal shall be repaired by Lessee at its own cost and
expense.
14. ALTERATIONS
Lessee shall not make alterations, additions or improvements to the
Demised Premises or the building thereon, without the prior written consent
of Lessor, and after such consent has been given, unless otherwise agreed
upon in writing, all alterations, improvements and additions made by Lessee
upon the Demised Premises, although at his own cost and expense, shall, at
the option of Lessor, remain upon the premises at the expiration of this
Lease and become the property of Lessor in fee simple, without other action
or process of law.
15. PENALTY
In the event Lessee shall make default in the performance of any of the
agreements, conditions, covenants or terms herein contained, Lessor,
immediately, or at any time thereafter (no obligation, however, being imposed
upon Lessor, to do so) may perform the same for the account of Lessee, and
any amount paid or any expense or liability incurred by Lessor in the
performance of same, shall be deemed to be additional rent payable by Lessee
for the Demised Premises, together with six percent (6%) interest thereon
from the date of payment by the Lessor to the date of repayment, and the
same, at the option of Lessor, may be added to any fixed rent then due
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or thereafter falling due hereunder; and Lessor shall have the right to enter
upon said Demised Premises for the purpose of correcting or remedying said
default and to remain therein until same shall have been corrected or
remedied.
16. LANDLORD'S LIEN
Lessor shall have a statutory landlord's lien and in addition, Lessor hereby
is given an express landlord's lien as security for the fixed rent herein
reserved, as well as any of the other charges or expenses elsewhere
hereinabove or hereinafter designated as "additional rent" upon all of the
goods, wares, chattels, implements, fixtures, furniture, tools, machinery,
and other personal property which Lessee now, or at any time hereafter,
placed in or upon the Demised Premises, all exemptions of said property or
any part of it, being hereby waived.
17. SUBORDINATION
Lessee hereby especially covenants and agrees that this Lease shall be
subject and subordinate to any mortgage or mortgages now or hereafter placed
on the Demised Premises. Lessee agrees to enter into reasonable
Non-Disturbance and Attornment Agreements with Lessor's mortgagee(s) upon
Lessor's request.
18. LESSOR COVENANT
Lessor hereby covenants and agrees that Lessee shall and will, upon
payment of all of the rents and all other sums of money herein provided to be
paid by Lessee, upon fully observing and performing the covenants and
agreements herein provided to be observed and performed by Lessee, quietly
and peaceably possess and enjoy said above Demised Premises, unless said
Lease is sooner terminated under and in accordance with any of the provisions
herein or elsewhere contained providing for such termination.
19. INSURANCE
The Lessee shall maintain (with respect to the Demised Premises and the
property of which the Demised Premises are a part) comprehensive public
liability insurance in the amount of Three Million ($3,000,000.00)
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Dollars and with property and fire damage insurance in limits of Seven
Hundred Fifty Thousand ($750,000.00) Dollars and damage to others' property
of One Million ($1,000,000.00) Dollars in responsible companies qualified to
do business in Massachusetts and in good standing therein insuring the Lessor
as well as Lessee against injury to persons or damage to property as
provided. In addition, Lessee shall keep all insurance required by law of
any business or employer. The Lessee shall deposit with the Lessor
certificates for such insurance at or prior to the commencement of the term,
and thereafter within thirty (30) days prior to the expiration of any such
Policies. All such insurance certificates shall provide that such policies
shall not be canceled without at least thirty (30) days' prior written notice
to each insured named therein. All such policies will name Lessor as a loss
payee and Lessor's mortgagee as mortgagee and Lessee will provide a copy of
such policy within thirty (30) days of receipt by Lessee.
20. RENTAL PAYMENTS AND DEFAULT
If Lessee shall fail to pay any installment of rent or additional expenses
hereinabove designated as "additional rent," or any of the taxes,
assessments, charges, or other sums of money, shall not be paid as and when
same becomes due and payable hereunder, and such failure shall continue for a
period of ten (10) days from the due date, or if Lessee shall fail to keep
and perform, promptly any other affirmative covenant of this Lease in
accordance with the provisions hereof and such failure shall continue for a
period of thirty (30) days after receipt by Lessee or written notice thereof
from Lessor, the Lessor may, at its option, declare this Lease and all of its
provisions to be terminated, and enter into the Demised Premises or any part
thereof, with or without process of law, and expel Lessee or any person
occupying the same in or upon said premises, and repossess and enjoy the
Demised Premises as in Lessor's former estate in which event Lessor may
remove from the Demised Premises all of the personal property of Lessee and
Lessor shall make reasonable efforts to relet the Demised Premises, applying
said rent from the new tenant on this Lease. In the event of Lessor's
repossession of the Demised Premises as set forth above, Lessee shall remain
liable for the equivalent amount of rent reserved hereunder and the amount of
the other costs which Lessee has agreed to pay under Clause 1 and Clause 5
hereunder and the cost of maintaining insurance required to be maintained by
Lessee pursuant to
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the provisions of this Lease, payable to Lessor as rent or damages, as the
case may be, on the successive rent dates herein provided and Lessor may
recover periodically such amounts on the successive rent dates, together with
reasonable costs of re-letting including reasonable brokers and attorney's
fees, and reasonable expenses incurred by Lessor in restoring the building
and improvements to good condition and repair, but excluding costs of
renovation or remodeling the building and improvements. However, if the
default requires repairs that cannot, with due diligence, be cured prior to
the expiration of thirty (30) days from the date of receipt of the notice
provided for above, and if Lessee commences within thirty (30) days after the
date of notice to eliminate the cause of such default and proceeds diligently
and with reasonable dispatch to take all steps and do all work required to
cure such default, then Lessor shall not have the right to declare this Lease
terminated by reason of such default.
If Lessee shall fail to pay any installment of rent or additional rent
promptly on the day same shall all become due and payable hereunder, and such
failure shall continue for a period of five (5) days after such due date,
then Lessee shall pay a late charge equal to five percent (5%) of such
installment of rent and/or additional rent.
If Lessee should fail to make any payment or cure any default hereunder
within the time herein provided, Lessor, without being under any obligation
to do so and without thereby waiving such default, may make such payment
and/or remedy such other default for the account of Lessor and thereupon
Lessee shall be obligated to, and hereby agrees to pay to Lessor, all
reasonable costs, expenses and disbursements, including reasonable attorney's
fees incurred by Lessor in taking such remedial action, together with
interest thereon at the rate of twelve percent (12%) per annum.
21. NET LEASE
Anything herein contained to the contrary notwithstanding, the intention,
of this Lease is that it be a net lease. All expenses of any kind and
nature, whether specifically mentioned herein or not, of the building and
land, the Demised Property shall be the responsibility of Lessee and
considered as additional rent, which monies shall be due immediately upon
presentation.
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22. CONDEMNATION
It is especially understood and agreed by and between Lessor and Lessee that
in the event the Demised Premises are condemned for public use by any
governmental agency, municipal, county, State or Federal, this Lease shall
cease and terminate and be of no further effect, and Lessee shall have no claim
or demand of any kind or character in and to any award made to Lessor by reason
of such condemnation.
23. LESSOR'S OWNERSHIP
It is expressly understood and agreed by and between Lessor and Lessee
that in the event that Lessor herein shall not be the owner of the premises
herein demised, but shall hold a lease of the property of which the Demised
Premises are a part, then the resulting sublease is and shall remain subjects
to all of the terms and conditions of such existing Lease to Lessor, so far
as they may be applicable to the premises herein demised.
24. INSPECTIONS
At all times during the term of this Lease, Lessor shall have the right by
itself, his agents and employees, to enter into and upon the Demised Premises
during reasonable business hours for the purpose of examining and inspecting
the same and determining whether Lessee shall have complied with all of its
obligations hereunder in respect to the care and maintenance of the premises,
the repair and rebuilding of the improvements thereon when necessary, and all
other terms and conditions hereof.
25. ADDRESS OF PAYMENT
Lessee especially covenants and agrees to pay and discharge all reasonable
costs, attorney's fees, and expenses that may be incurred by Lessor in
enforcing the covenants, agreements, conditions and terms hereof, and all of
the same shall be payable to Lessor in Springfield, Hampden County,
Massachusetts or at some other address as directed by Lessor in writing.
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26. LEASEHOLD ESTATE
Lessee shall have no power to do any act or to make any contract that may
create or be the foundation for any lien upon the present or other estate of
the leasehold and Demised Premises, or upon any of the buildings or
improvements thereon, except as herein or elsewhere specifically provided;
and should any such lien be created or filed, Lessee, at his own cost and
expense, shall liquidate and discharge same in full within ten (10) days
after the filing thereof, and should Lessee fail to discharge the same, that
shall constitute a breach of Lessee's covenant herein.
27. CONDITION OF PREMISES
Lessee agrees that in taking this Lease, it is governed by its own
inspection of the premises and its own judgment of its desirability for its
purposes, and has not been governed or influenced by any representation of
Lessor as to the condition and character of the building upon the premises,
or as to the earning capacity thereof; that no agreements, stipulations,
reservations, exceptions, or conditions whatsoever have been made or entered
into in regard to said premises or this Lease, which will in any way vary,
contradict or impair the validity of this Lease or of any of its terms and
conditions, and that no modification of this Lease shall be binding unless it
be in writing and executed and acknowledged in due form for recording by all
of the parties hereto. Furthermore, Lessee takes this Lease and the Demised
Premises subject to all recorded easements and restrictions affecting the
occupation and use thereof, and subject to all statutes, ordinances and
regulations of competent governmental authority affecting the occupancy and
use thereof, the construction and maintenance of improvements thereon, and
the businesses and occupations to be engaged in by Lessee, in force now and
subsequently during the term of this Lease.
28. LEASE CLAUSE EFFECT
Any word, group of words, phrase, sentence, paragraph or provision herein
prohibited by law, or decision by a court of final jurisdiction shall be
ineffective to the extent of such prohibition without invalidating the
remaining provisions hereof.
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29. TIME OF THE ESSENCE
Whenever any payment is to be made under this Lease, at or within a time
stated, and whenever any act is to be done under this Lease, by either party,
at or within a stated time, time shall be of the essence of this Agreement.
30. NOTICES
Any notice from Lessor to Lessee relating to the Demised Premises, or to
the occupancy thereof excepting any notice of payment, shall be duly served
if addressed to Lessee by United States Certified Mail, Return Receipt
Requested, to Lessee. Any notice from Lessee to Lessor, shall be sent by
United States Certified Mail, Return Receipt Requested, to Lessor.
31. HOLDING OVER
It is distinctly understood and agreed by and between the Lessor and the
Lessee that any holding over by Lessee of the herein Demised Premises after
the expiration of this Lease shall operate and be construed only as a tenancy
from month-to-month, terminable at the will of Lessor, at a monthly rental of
One Hundred Fifty (150%) percent of the monthly rental payment due under the
terms of the Lease and all other expenses required under the terms of the
Lease.
32. LESSOR ENTERING PROPERTY
It shall be lawful for Lessor, or its agents, at any time within sixty
(60) days before the expiration of the term of this Lease, to enter upon the
Demised. Premises and to affix upon any suitable part thereof a notice or
notices for the leasing of same, and the Lessee agrees not to remove any such
notice or notices or permit any of its employees, licensees or permittees to
remove same.
33. OPTION TO RENEW
Provided Lessee has not defaulted in any of the terms, conditions and
provisions hereof, Lessee shall have the privilege of renewing and extending
the term hereof for a period of five (5) years, beginning on the first day of
January, 2002, and terminating on the last day of December, 2006, upon the
same terms, conditions and provisions hereunder in Clause 35, except that
such renewal and extension shall contain two (2) further options or
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renewal privileges of the same nature and the same terms; provided, however,
that in order to exercise this option, Lessee shall and must give Lessor
written notice by United States Certified Mail, Return Receipt Requested, of
its intention to exercise said option no later than the ninetieth (90th) day
before the expiration of said Lease, otherwise, the option becomes null and
void.
34. COST OF OPTION TO RENEWS
A. INCREASE ON OPTION TO RENEW. The "Consumer Price Index for Urban
Wage Earners and Clerical Workers, U.S. City Average, All Items (1967 =100)"
(hereinafter referred to as the "Price Index") published by the Bureau of
Labor Statistics of the U.S. Department of Labor, or any comparable
successor or substitute index designated by the Lessor appropriately
adjusted, as of January 1, 1997 is hereinafter called the "Base Price Index."
B. Commencing as of the first day of each optional Terms, there shall
be an adjustment (hereinafter referred to as "Adjustment") in the annual
Basic Rent calculated by multiplying Fifty-Nine Thousand One Hundred Twenty
Four ($59,124.00) Dollars by a fraction, the numerator of which shall be the
Price Index for the beginning of the Lease period and the denominator of
which (for each such fraction) shall be the Base Price Index; PROVIDED,
HOWEVER, no Adjustment shall reduce the Basic Rent as previously payable in
accordance with this Article or in Article 1 of this Lease and the Lease
increase in any event shall not be more than twenty (20%) percent nor less
than fifteen (l5%) percent of the prior Lease term expiring, except with
respect to the first Option Term.
C. In the event the Price Index ceases to use the 1967 average of 100
as the basis of calculation, or if a substantial change is made in the terms
or number of items contained in the Price Index, then the Price Index shall
be adjusted to the figure that would have been arrived at had the manner of
computing the Price Index in effect at the date of this Lease not been
changed.
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35. UTILITIES
Lessee is responsible for any damage caused to the building because of
heat shutdowns or other utility shutoffs or shutdown.
Lessor shall have no obligation to provide utility service or equipment
other than the utilities and equipment within the premises as of the
commencement date of this Lease. In the event Lessee requires additional
utilities or equipment, the installation and maintenance thereof shall be the
Lessee's sole obligation, provided that such installation shall be subject to
the written consent of the Lessor.
36. SEPARABILITY
If any provision of this Lease or portion of such provision or the
application thereof to any person or circumstances is held invalid, the
remainder of the Lease (or the remainder of such provision) and the
application thereof to other persons or circumstances shall not be affected
thereby.
37. COMPLETE AGREEMENT
The undersigned agrees that the aforesaid Lease contains all of the terms
of the tenancy, and it has not relied on any other oral representations not
contained herein.
IN WITNESS WHEREOF, the Parties to this Agreement have hereunto set their
hands to duplicate originals, the day and year first above-written, after
having first noted and approved all erasures, interlineations, insertions,
strike-outs and strike-overs and have attached the votes of their respective
Board of Directors authorizing the named party to sign this Lease.
Blackstone Medical, Inc.
Lessor
By: /s/ Matthew Lyons
------------------------
Its President
Brimfield Precision, Inc.
Lessee
By: /s/ Christopher J. Lemek
-------------------------
Its Controller
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PROMISSORY NOTE
$306,000.00 August 19, 1988
Brimfield, Massachusetts
FOR VALUE RECEIVED, BRIMFIELD PRECISION, INC., a Massachusetts,
corporation with a principal place of business at Mill Lane Road, Brimfield,
Massachusetts (the "Borrower"), promises to pay to PASQUALINA LYONS (the
"Lender"), or order, at the Lender's residence at Lake Shore Drive, West
Brookfield, Massachusetts, the principal sum of THREE HUNDRED SIX THOUSAND AND
00/100 DOLLARS ($306,000.00) in lawful money of the United States of America,
with interest from the date hereof on the unpaid balance at the rate and in the
manner hereafter provided.
The unpaid principal of this Note from time to time outstanding shall bear
interest at a rate per annum equal to two percent (2.00%) above the Corporate
Base Rate of interest (or successor rate if the term "Corporate Base Rate" is
no longer used), established from time to time by Shawmut Worcester County
Bank, N.A. or its successor, such interest rate to be adjusted on each
anniversary date of this Note.
Interest shall be payable monthly beginning January 1, 1989 and continuing
on the same day of each succeeding month. Principal shall be payable in equal
monthly installments of One Thousand Two Hundred Seventy-Five Dollars
($1,275.00), beginning January 1, 1989 and continuing on the same day of each
succeeding month. Borrower shall pay an additional principal payment in the
amount of One Hundred Fourteen Thousand Seven Hundred Fifty and 00/100 Dollars
($l14,750.00) five (5) years from the date hereof. Any remaining indebtedness
evidenced by this Note, if not sooner paid, shall be due and payable ten (10)
years from the date hereof.
The borrower shall have the privilege of prepaying all or, in multiples of
$1,000.00, any part of the unpaid principal balance at any time without
premium.
Each payment made hereunder shall be applied first to interest then due on
the unpaid balance of principal and then to principal. Whenever any
installment of principal or interest due under this Note shall not be paid
within ten (10) days of its due date, the Borrower shall pay in addition
thereto as a late charge five percent (5%) of the amount of such installment.
If at any time while this Note is outstanding, any one or more of the
following events of default shall occur:
(a) a default in the performance or observance of any agreements
contained in this Note;
(b) a default in the prompt payment of any sum at any time due under this
Note;
(c) a default in the prompt payment of any other indebtedness at any time
due to the Lender from the Borrower;
(d) bankruptcy or insolvency of the Borrower or any guarantor, endorser
or other person now or hereafter liable for the payment of any
indebtedness evidenced by this Note;
then in any such event the Lender may, at its option, without notice or demand,
declare the principal and all interest then accrued under this Note to be
immediately due and payable without presentment, demand, protest or other
notice of dishonor of any kind, all of which are hereby expressly waived. No
course of dealing or delay in accelerating the maturity of this Note or in
taking any other action with respect to any event of default shall affect
<PAGE>
rights later to take such action with respect thereto and no waiver as to any
one default shall affect rights as to any other default.
Each borrower guarantor, endorser or other person now or hereafter liable
to the payment of any of the indebtedness evidenced by this Note, severally
agrees, by making, guaranteeing or endorsing this Note or by making any
agreement to pay any of the indebtedness evidenced by this Note, to waive
presentment for payment, protest and demand, notice of protest, demand and of
dishonor and nonpayment of this Note, and consents, on one or more occasions,
without notice or further assents (a) to the acceptance or release by the
holder or holders hereof at any time of any collateral or security for or other
guarantors of this Note, (b) to the modification or amendment at any time and
from time to time, of this Note (c) to the granting by the holder hereof of any
extension of the time for payment of this Note or for the performance of the
agreements, covenants and conditions contained in this Note at the request of
any person liable hereon, and (d) to any and all forbearances and indulgences
whatsoever. Such consent shall not alter nor diminish the liability of any
person.
The Borrower agrees to pay all reasonable expenses or costs, including
attorney's fees and costs of collection, which may be incurred by the holder
hereof in connection with the enforcement of any obligations hereunder or
representation with respect to bankruptcy or insolvency proceedings.
Executed as a sealed instrument as of the date first written above.
Witness: BRIMFIELD PRECISION, INC.
By: /s/ William G. Lyons
- -------------------- --------------------
Its President
By: /s/ Pasqualina Lyons
--------------------
Its Treasurer
<PAGE>
EMPLOYMENT AGREEMENT
This Employment agreement ("Agreement") is entered into as of February 21,
1998, between Image Guided Technologies, Inc., a Colorado corporation (the
"Company"), and Robert E. Silligman ("Silligman").
In consideration of the mutual covenants and conditions set forth herein,
the parties hereby agree as follows:
1. EMPLOYMENT.
(a) The Company hereby employs Silligman (i) to provide, on request,
support for operational matters, including without limitation, manufacturing,
product development, sales and research and development, and (ii) to perform
such other services as the chief executive officer shall designate from time to
time. Silligman shall report to the chief executive officer.
(b) Silligman hereby accepts such employment. Silligman agrees not
to commit any act, nor make any statement, deleterious to the reputation and
goodwill of the Company.
2. TERM. The term of this Agreement shall commence on the date first
stated above and end on the 31st day of December, 1998, unless sooner
terminated as hereinafter set forth.
3. COMPENSATION AND BENEFITS.
(a) For the performance of Silligman's duties hereunder, the
Company shall pay Silligman $11,250 per month during the term of this
Agreement.
(b) Silligman shall be entitled to such medical, disability and
life insurance coverage and such vacation, sick leave and holiday benefits, if
any, as are made available to the Company's top executive personnel, all in
accordance with the Company's benefits program in effect from time to time.
(c) All compensation shall be subject to payroll deductions and
withholding as required by federal, state and local rules and regulations.
4. TERMINATION. The employment hereunder shall terminate if Silligman
is discharged for cause. As used in this Agreement, the term "cause" shall
mean Silligman is willfully engaged in misconduct which has a direct and
material adverse monetary affect on the Company.
<PAGE>
5. COVENANT NOT TO COMPETE. During the term of this Agreement and for
a period of six months thereafter, Silligman agrees:
(a) Silligman will not directly or indirectly without the consent
of IGT, whether for his own account or as an individual, employee, director,
consultant or advisor, or in any other capacity whatsoever, provide services to
any person, firm, corporation or other business enterprise which is involved in
the design, development or marketing of optical localizers or image guided
surgery products.
(b) Silligman will not directly or indirectly encourage or
solicit, or attempt to encourage or solicit, any individual to leave the
Company's employ for any reason or interfere in any other manner with the
employment relationships at the time existing between the Company and its
current or prospective employees.
(c) Silligman will not induce or attempt to induce any customer,
supplier, distributor, licensee or other business relation of the Company to
cease doing business with the Company or in any way interfere with the existing
business relationship between any such customer, supplier, distributor,
licensee or other business relation and the Company.
Silligman acknowledges that monetary damages may not be sufficient to
compensate the Company for any economic loss which may be incurred by reason of
breach of the foregoing restrictive covenants. Accordingly, in the event of
any such breach, the Company shall, in addition to any remedies available to
the Company at law, be entitled to obtain equitable relief in the form of an
injunction precluding Silligman from continuing to engage in such breach. If
any restriction set forth in this paragraph is held to be unreasonable, then
Silligman and the Company agree, and hereby submit, to the reduction and
limitation of such prohibition to such area or period as shall be deemed
reasonable.
6. GENERAL PROVISIONS.
(a) This Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes any and all
prior agreements between the parties relating to such subject matter. The
parties agree that any employment agreement between the parties, including,
without limitation, that certain employment agreement, dated as of November 28,
1995, as amended, is terminated and neither party shall have any obligation to
the other under any such employment agreement (Silligman waives any right that
he may have to severance). The Non-Disclosure and Inventions Agreement between
Silligman and the Company shall not be affected by this Agreement and shall
continue in full force and effect in accordance with its terms.
(b) Silligman hereby resigns as president and chief operating
officer of the Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY SILLIGMAN
Image Guided Technologies, Inc.
By: /s/ Paul L. Ray /s/ Robert E. Silligman
--------------------------- ----------------------------
Paul L. Ray Robert E. Silligman
Chief Executive Officer
<PAGE>
WHEREAS, pursuant to that certain Assignment without recourse of Loan
Documents dated April 3, 1998, Imperial Bank has assigned all of its rights
with respect to that certain Loan Agreement dated as of December 12, 1997
between Imperial Bank and Image Guided Technologies, Inc. (the "Original Loan
Agreement") and all notes and other documents executed in connection therewith,
to BankBoston, N.A. Image Guided Technologies, Inc. and BankBoston, N.A.
desire to restate and amend the provisions of the Original Loan Agreement, as
set forth herein.
NOW, THEREFORE, the parties agree that the Original Loan Agreement is
hereby amended and stated in its entirety as follows:
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (the "Agreement") is made as of
April 3, 1998, between IMAGE GUIDED TECHNOLOGIES, INC., a Colorado corporation
with its principal place of business at 5710-B Flatiron Parkway, Boulder,
Colorado (the "Borrower"), and BANKBOSTON, N.A. (the "Bank"), a national
banking institution having its head office at 100 Federal Street, Boston,
Massachusetts.
SECTION I
DEFINITIONS
1.1. GENERAL.
All capitalized terms used in this Agreement or in any certificate, report
or other document made or delivered pursuant to this Agreement (unless
otherwise defined therein) shall have the meanings assigned to them below:
AGREEMENT. This Agreement (including all exhibits, schedules, annexes and
the like referred to herein) as originally executed, or if amended, varied or
supplemented from time to time, as so amended, varied or supplemented.
BPI. Brimfield Precision, Inc.
BASE RATE. The rate of interest announced from time to time by the Bank
at its head office at 100 Federal Street, Boston, Massachusetts as its "Base
Rate," which Base Rate is not necessarily the lowest or best rate available at
the Bank or charged to its customers.
BUSINESS DAY. Any day other than a Saturday, Sunday or legal holiday on
which banks in Boston, Massachusetts are open for the conduct of a substantial
part of their commercial lending business.
<PAGE>
CAPITAL EXPENDITURES. All acquisitions of machinery, equipment, land,
leaseholds, buildings, leasehold improvements and all other property considered
to be fixed assets under generally accepted accounting principles consistently
applied. Where a fixed asset is acquired by a lease which is required to be
capitalized pursuant to statement of financial accounting standards no. 13 or
any successor thereto, the amount required to be capitalized pursuant thereto
shall be considered to be an expenditure in the year such asset is first
leased.
CHANGE IN CONTROL. 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 the Borrower entitling such
person or group, together 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
of 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.
CODE. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
COLLATERAL. Any and all property of the Borrower or Brimfield Precision,
Inc. in which the Bank now has, or by the Security Agreements acquires or
hereafter acquires, a security interest, lien or encumbrance.
CONSOLIDATED NET OPERATING INCOME. At any date as of which the amount
thereof shall be determined, the consolidated net income of the Borrower and
its Subsidiaries from continuing operations, after deduction of all expenses,
taxes and other proper charges, determined in accordance with generally
accepted accounting principles, after eliminating therefrom all extraordinary
non-recurring items of income.
CONSOLIDATED OPERATING CASH FLOW. For any period, an amount equal to (i)
the sum of (A) Earnings before Interest and Taxes for such period, PLUS (B)
depreciation and amortization expense, LESS (ii) the sum of (A) cash payments
for all taxes paid by Borrower and its Subsidiaries during such period and (B)
Capital Expenditures made during such period to the extent permitted by the
Agreement, PLUS (iii) issuance of long term debt for Bank equipment financing.
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<PAGE>
CONSOLIDATED TANGIBLE NET WORTH. At any date as of which the amount
thereof shall be determined, the consolidated total assets of the Borrower and
its Subsidiaries MINUS (i) the sum of any amounts attributable to (a) goodwill,
(b) intangible items such as unamortized debt discount and expense, patents,
trade and service marks and names, copyrights and research and development
expenses except prepaid expenses, (c) all reserves not already deducted from
assets; and (d) any write-up in the book value of assets resulting from any
revaluation thereof subsequent to the date of the financial statements referred
to in Section 6.6, and (ii) Consolidated Total Liabilities.
CONSOLIDATED TOTAL LIABILITIES. At any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
generally accepted accounting principles, be classified as liabilities on the
consolidated balance sheet of the Borrower and its Subsidiaries, including in
any event all Indebtedness.
CONTROLLED GROUP. All trades or businesses (whether or not incorporated)
under common control that, together with the Borrower, are treated as a single
employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA.
DEFAULT. An event or condition that, with the passage of time or the
giving of notice, or both, would constitute an Event of Default if not cured or
corrected.
EARNINGS BEFORE INTEREST AND TAXES. The Consolidated Net Operating Income
of the Borrower and its Subsidiaries for any period, but before payment or
provision for any income taxes or interest expense for such period, determined
in accordance with generally accepted accounting principles.
ENCUMBRANCES. See Section 8.5.
ENVIRONMENTAL LAWS. Any and all applicable foreign, federal, state and
local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law (whether now existing or hereafter
enacted or promulgated), of all governmental agencies, bureaus or departments
which may now or hereafter have jurisdiction over the Borrower or any of its
Subsidiaries and all applicable judicial and administrative and regulatory
decrees, judgments and orders, including common law rulings and determinations,
relating to injury to, or the protection of, real or personal property or human
health or the environment, including, without limitation, all requirements
pertaining to reporting, licensing, permitting, investigation, remediation and
removal of emissions, discharges, releases or threatened releases of Hazardous
Materials, chemical substances, pollutants or contaminants whether solid,
liquid or gaseous in nature, into the environment or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of such Hazardous Materials, chemical substances,
pollutants or contaminants.
EQUIPMENT LOANS. See Section 4.8.
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<PAGE>
ERISA. The Employee Retirement Income Security Act of 1974 and the rules
and regulations thereunder, collectively, as the same may from time to time be
supplemented or amended and remain in effect.
EVENT OF DEFAULT. Any event described in Section IX.
GUARANTEES. As applied to the Borrower and its Subsidiaries, all
guarantees, endorsements or other contingent or surety obligations with respect
to obligations of others whether or not reflected on the balance sheet of the
Borrower, including any obligation to furnish funds, directly or indirectly
(whether by virtue of partnership arrangements, by agreement to keep well or
otherwise), through the purchase of goods, supplies or services, or by way of
stock purchase, capital contribution, advance or loan, or to enter into a
contract for any of the foregoing, for the purpose of payment of obligations of
any other person or entity.
HAZARDOUS MATERIALS. Any substance (i) the presence of which, or the
notification of the presence of which, requires or may hereafter require
investigation or remediation under any Environmental Law; (ii) which is or
becomes defined as a "hazardous waste", "hazardous material" or "hazardous
substance" or "controlled industrial waste" or "pollutant" or "contaminant"
under any present or future Environmental Law or amendments thereto including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 ET SEQ.) and any applicable local
statutes and the regulations promulgated thereunder; (iii) which is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous and is or becomes regulated by any
governmental authority, agency, department, commission, board, agency or
instrumentality of any foreign country, the United States, any state of the
United States, or any political subdivision thereof to the extent any of the
foregoing has or had jurisdiction over the Borrower or its Subsidiaries; or
(iv) without limitation, which contains gasoline, diesel fuel or other
petroleum products, asbestos or polychlorinated biphenyls ("PCB's").
INDEBTEDNESS. As applied to the Borrower and its Subsidiaries, (i) all
obligations for borrowed money or other extensions of credit, including all
obligations representing the deferred purchase price of property, other than
accounts payable arising in the ordinary course of business, (ii) all
obligations evidenced by bonds, notes, debentures or other similar instruments,
(iii) all obligations secured by any mortgage, pledge, security interest or
other lien on property owned or acquired by the Borrower whether or not the
obligations secured thereby shall have been assumed, (iv) that portion of all
obligations arising under capital leases that is required to be capitalized on
the consolidated balance sheet of the Borrower and its Subsidiaries, (v) all
Guarantees, and (vi) all obligations that are immediately due and payable out
of the proceeds of or production from property now or hereafter owned or
acquired by the Borrower or any of its Subsidiaries.
INVESTMENTS. The purchase or acquisition of any share of capital stock,
partnership interest, evidence of indebtedness or other equity security of any
other person or entity, any loan, advance or extension of credit to, or
contribution to the capital of, any other person or entity, any real estate
held for sale or investment, any commodities futures contracts held other than
in
4
<PAGE>
connection with bona fide hedging transactions, any other investment in any
other person or entity, and the making of any commitment or acquisition of
any option to make an Investment.
LOAN. Any loan made to the Borrower by the Bank pursuant to Section II or
III of this Agreement and all Equipment Loans, and "Loans" means all of such
loans, collectively.
LOAN DOCUMENTS. All documents and agreements by Borrower in favor of Bank
evidencing, securing or otherwise relating to any of the Obligations, including
without limitation, all Loans pursuant hereto, including without limitation all
Original Loan Documents assigned to the Bank by Imperial Bank and all documents
in connection with Equipment Loans.
NOTES. The Revolving Note, the Term Note, and any notes given in
connection with each certain Lease Line of Credit from BancBoston Leasing or a
similar affiliate of the Bank (as described in Section 4.8).
NOTICE OF BORROWING. Such notice as is required of Borrower pursuant to
Section 2.2.
OBLIGATIONS. Any and all obligations of the Borrower to the Bank of every
kind and description, direct or indirect, absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising or acquired,
regardless of how they arise or are acquired or by what agreement or
instrument, if any, and including obligations to perform acts and refrain from
taking action as well as obligations to pay money.
PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA.
PERMITTED ENCUMBRANCES. See Section 8.5.
PERSON. An individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
PLAN. At any time, an employee pension or other benefit plan that is
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group or (ii) if such Plan is established, maintained pursuant
to a collective bargaining agreement or any other arrangement under which more
than one employer makes contributions and to which the Borrower, or any member
of the Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding five Plan years made contributions.
QUALIFIED INVESTMENTS. Investments in (i) notes, bonds or other
obligations of the United States of America or any agency thereof that as to
principal and interest constitute direct obligations of or are guaranteed by
the United States of America; (ii) certificates of deposit or other deposit
instruments or accounts of banks or trust companies organized under the laws of
the United States or any state thereof that have capital and surplus of at
least $100,000,000, (iii)
5
<PAGE>
commercial paper that is rated not less than prime-one or A-1 or their
equivalents by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, respectively, or their successors, (iv) mutual funds, and (v)
any repurchase agreement secured by any one or more of the foregoing.
REVOLVING CREDIT COMMITMENT AMOUNT. $3,000,000.00
REVOLVING CREDIT TERMINATION DATE. April 1, 2000.
REVOLVING LOAN. Any loan or loans made by Bank pursuant to Section
2.1(a).
REVOLVING NOTE. The promissory note of the Borrower evidencing the
obligation of the Borrower to the Bank to repay the Revolving Loan.
SECURITY AGREEMENT. The security agreement by each of the Borrower and
BPI in favor of Bank of even date hereto as amended by First Amendment of even
date (including all exhibits, schedules, annexes and the like referred to
therein) as originally executed, or if amended, varied or supplemented from
time to time, as so amended, varied or supplemented.
SUBORDINATED DEBT. The debt in the principal amount of $500,000.00 owed
by Borrower to Cruttenden Roth, Inc., evidenced by that certain 12%
Subordinated Promissory Note dated December 12, 1997.
SUBSIDIARY. Any corporation, association, joint stock Borrower, business
trust or other similar organization of which 50% or more of the ordinary voting
power for the election of a majority of the members of the board of directors
or other governing body of such entity is held or controlled by the Borrower;
or any other such organization the management of which is directly or
indirectly controlled by the Borrower through the exercise of voting power or
otherwise; or any joint venture, whether incorporated or not, in which the
Borrower has a 50% or more ownership interest.
TERM LOAN. The loan made by the Bank pursuant to Section 3.1(a).
TERM LOAN MATURITY DATE. April 1, 2003.
TERM NOTE. The promissory note of the Borrower evidencing the obligation
of the Borrower to the Bank to repay the Term Loan.
TOTAL DEBT SERVICE. The total of (i) interest expense for such period,
PLUS (ii) consolidated current maturities of long-term Indebtedness, including
annual principal payments of term debt and annual operating and capital lease
obligations, for such period.
1.2. ACCOUNTING TERMS. All terms of an accounting character shall have
the meanings assigned thereto by generally accepted accounting principles
applied on a basis consistent with the financial statements referred to in
Section 6.6 of this Agreement, modified to the extent, but only to the extent,
that such meanings are specifically modified herein.
SECTION II
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<PAGE>
DESCRIPTION OF REVOLVING CREDIT
2.1. THE REVOLVING LOANS.
(a) Subject to the terms and conditions hereof, the Bank will make
Revolving Loans to the Borrower from time to time until the close of business
on the last Business Day preceding the Revolving Credit Termination Date, in
such amounts as the Borrower may request, PROVIDED that the aggregate principal
amount of all Revolving Loans at any one time outstanding hereunder may not
exceed the Maximum Permitted Amount of Revolving Credit (defined in Section
2.1(b)(iii)). Subject to the terms and conditions hereof, the Borrower may
borrow, repay pursuant to Section 2.2, and reborrow, from the date of this
Agreement until the last Business Day preceding the Revolving Credit
Termination Date, an amount up to the Maximum Permitted Amount of Revolving
Credit less any principal amounts outstanding under the Revolving Loan. Any
Revolving Loan not repaid by the Revolving Credit Termination Date shall be due
and payable on the Revolving Credit Termination Date.
(b) DEFINITIONS WITH RESPECT TO REVOLVING LOAN ELIGIBILITY.
(i) "ACCEPTABLE ACCOUNTS" means an account receivable or accounts
receivable of Borrower due not more than:
(a) ninety (90) days from the date set forth on the original
invoice evidencing such account receivable, or
(b) 120 days from such date in the case of Richard Allen
accounts; in each case arising from the absolute sale of goods by
Borrower in which Borrower had the sole and complete ownership or the
performance of services by Borrower in the ordinary course of its
business, which conforms to the warranties set forth in Section 7.14,
and which:
(A) is not an account receivable of a person or entity
obligated to Borrower upon such account receivable (an "Account
Debtor") which has suspended business, made a general assignment
for the benefit of creditors, committed any act of insolvency,
or filed or have had filed against it any petition under any
bankruptcy law or any other law or laws for the relief of
debtors;
(B) is not an account receivable which: (1) is subject to
any setoff, counterclaim, defense, allowance or adjustment other
than discounts for prompt payment shown on the invoice or to any
dispute, objection or complaint by the Account Debtor concerning
its liability on the account receivable and the goods, the sale
of which gave rise to the account receivable, have not been
returned, rejected, lost or damaged; (2) arises from a sale or
sales to an affiliate, parent, or subsidiary of the Borrower;
(3) is the obligation of a Account Debtor located in a foreign
country, except that obligations of existing international
customers of the Borrower shall be
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<PAGE>
included, and (4) arises from a contract containing a prohibition
against assigning or granting a security interest therein; and
(C) is not a account receivable which the Bank, in its
sole discretion, shall notify the Borrower as being ineligible
for an advance.
(ii) "ACCEPTABLE INVENTORY" means inventory of the Borrower
consisting of BPI raw materials, and Borrower finished goods which are
held by or on behalf of the Borrower for sale or lease and which is: (A)
in first class condition and salable through normal trade channels; (B)
new and unused; (C) owned by the Borrower and subject to no lien, security
interest, charge or other encumbrance whatsoever, except those of the
Bank, if any; and (D) not of a class which the Bank, in its sole
discretion, shall notify the Borrower as being ineligible for an advance.
(iii) "MAXIMUM PERMITTED AMOUNT OF REVOLVING CREDIT" means an
amount equal to the lesser of: (A) $3,000,000, or (B) the sum of: (1)
ninety percent (90%) of the net balance due on Acceptable Accounts; PLUS
(2)(i) seventy percent (70%) of the lesser of the cost or market value of
Acceptable Inventory consisting of Borrower finished goods and (ii)
seventy percent (70%) of the lesser of the cost or market value of
Acceptable Inventory consisting of BPI raw materials.
2.2. NOTICE AND MANNER OF BORROWING. (a) Whenever the Borrower desires
to obtain a Revolving Loan hereunder, the Borrower shall notify the Bank (which
notice shall be irrevocable) in writing received no later than 10:00 a.m.
(Boston, Massachusetts time) one Business Day before the day on which the
requested Revolving Loan is to be made. Such notice shall specify the
effective date and amount of each Revolving Loan, subject to the limitations
set forth in Section 2.1, and shall include a borrowing base certificate
evidencing compliance with the provisions of Section 2.1 (each such
notification is called a "NOTICE OF BORROWING ").
(b) Subject to the terms and conditions hereof, the Bank shall make each
Revolving Loan on the effective date specified therefor by crediting the amount
of such Revolving Loan to the Borrower's demand deposit account with the Bank.
2.3 INTEREST RATES AND PAYMENT OF INTEREST UPON REVOLVING LOANS. Each
Revolving Loan shall bear interest at the Base Rate plus one-quarter of one
percent (.25%) per annum. On April 1, 1999, if the Borrower satisfies all
covenants set forth herein through December 31, 1998, the interest rate payable
with respect to the Revolving Loans shall decrease to the Base Rate. All such
interest shall be payable by Borrower to Bank in accordance with the terms and
conditions contained herein and in the Revolving Note.
2.4 REPAYMENT OF PRINCIPAL. Unless due and payable to the Bank sooner,
all Revolving Loans outstanding hereunder, and all unpaid interest thereon,
shall be due and payable in full on the Revolving Credit Termination Date.
2.5 THE REVOLVING NOTE. (a) The Revolving Loans shall be evidenced by
the Revolving Note, payable to the order of the Bank and having a final
maturity on the Revolving
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Credit Termination Date. The Revolving Note shall be dated on or before the
date of the first Revolving Loan and shall have the blanks therein
appropriately completed.
(b) The Bank shall, and is hereby irrevocably authorized by the Borrower
to, enter on the schedule forming a part of the Revolving Note or otherwise in
its records appropriate notations evidencing the date and the amount of each
Revolving Loan, the applicable interest rate and the date and amount of each
payment of principal made by the Borrower with respect thereto; and such
notations shall constitute presumptive evidence thereof. The Bank is hereby
irrevocably authorized by the Borrower to attach to and make a part of the
Revolving Note a continuation of any such schedule as and when required. No
failure on the part of the Bank to make any notation as provided in this
subsection (b) shall in any way affect any Revolving Loan or the rights or
obligations of the Bank or the Borrower with respect thereto.
2.6. REVOLVING CREDIT AVAILABILITY. The Borrower understands that the
Bank will use the Maximum Permitted Amount of Revolving Credit as a maximum
ceiling on Revolving Loans. Notwithstanding the other provisions of this
Agreement, in computing loan availability under the Revolving Note, the Bank
will subtract from the Maximum Permitted Amount of Revolving Credit the
aggregate amount of Revolving Loans outstanding upon the Revolving Note.
2.7. REVOLVING CREDIT EXCESSES. If at any time or times the aggregate
amount of Revolving Loans outstanding upon the Revolving Note exceeds the
Maximum Permitted Amount of Revolving Credit, the Borrower shall pay
immediately to the Bank for application to the Revolving Note all amounts
necessary to reduce the aggregate amount of Revolving Loans outstanding under
the Revolving Note to an amount not exceeding the Maximum Permitted Amount of
Revolving Credit.
2.8. FACILITY FEES. The Borrower shall pay a facility fee of $15,000.00
at Closing and a quarterly fee equal to one-quarter of one percent on the
unused portion of the Revolving Line of Credit.
SECTION III
DESCRIPTION OF TERM LOAN
3.1. THE TERM LOAN. (a) Pursuant to this Agreement, the Bank is this
day making a term loan to the Borrower in an original principal amount of TWO
MILLION SEVEN HUNDRED THOUSAND DOLLARS ($2,700,000.00) (the "Term Loan"). The
principal amount of the Term Loan shall be paid down by the Borrower by an
amount equal to FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) upon satisfaction
of the conditions described in Section 7.14.
3.2. INTEREST RATE AND PAYMENT OF INTEREST UPON THE TERM LOAN. The Term
Loan shall bear interest at the Base Rate plus one-half of one percent (.50%)
per annum. When the Borrower repays the Subordinated Debt as described in
Section 7.14, the principal amount of the Term Loan shall be reduced by
$500,000.00 and the interest rate payable with respect to the
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Term Loan shall decrease to the Base Rate plus one-quarter of one percent
(.25%) per annum. The interest rate payable with respect to the Term Loan
shall decrease to the Base Rate on April 1, 2000, if the Borrower satisfies
all covenants through, and has an Operating Cash Flow Coverage ratio equal to
or greater than 1.50:1.00 on, December 31, 1999. All such interest shall be
payable by Borrower to Bank in accordance with the terms and conditions
contained herein and in the Term Note.
3.3. REPAYMENT OF NOTE. Borrower will repay the Term Loan in fifty-nine
installments commencing June 1, 1998, the first fifty-eight of which shall be
in the principal amount of Forty Thousand Dollars ($40,000.00) plus all
interest accrued thereon in arrears, and the fifty-ninth and final payment
shall equal Three Hundred Eighty Thousand Dollars ($380,000.00) plus all
interest accrued thereon in arrears due on the Term Loan Maturity Date.
3.4. THE TERM NOTE. (a) The Term Loan shall be evidenced by the Term
Note, payable to the order of the Bank and having a final maturity on the
Term Loan Maturity Date. The Term Note shall be dated on or before the date
of the Term Loan and shall have the blanks therein appropriately completed.
(b) The Bank shall, and is hereby irrevocably authorized by the
Borrower to, enter on the schedule forming a part of the Term Note or
otherwise in its records appropriate notations evidencing the date and the
amount of the Term Loan, the applicable interest rate and the date and amount
of each payment of principal made by the Borrower with respect thereto; and
such notations shall constitute presumptive evidence thereof. The Bank is
hereby irrevocably authorized by the Borrower to attach to and make a part of
the Term Note a continuation of any such schedule as and when required. No
failure on the part of the Bank to make any notation as provided in this
subsection (b) shall in any way affect the Term Loan or the rights or
obligations of the Bank or the Borrower with respect thereto.
3.5. FACILITY FEE. The Borrower shall pay a facility fee to the Bank
for the Term Loan equal to $9,450.00 at the Closing.
SECTION IV
PROVISIONS APPLICABLE TO ALL LOANS
4.1. INTEREST RATES AND PAYMENTS OF INTEREST. Each Loan shall bear
interest on the outstanding principal amount thereof at a rate per annum equal
to the Base Rate plus the applicable percentage described in Sections 2.3 and
3.2, which rate shall change contemporaneously with any change in the Base
Rate. Such interest shall be payable each month, and when such Loan is due
(whether at maturity, by reason of acceleration or otherwise), all in
accordance with the terms and conditions of this Agreement and the Notes
evidencing such Loan.
4.2. PAYMENTS AND PREPAYMENTS OF THE LOANS. (a) Revolving Loans may be
prepaid at any time, in whole or in part, without premium or penalty, but with
accrued interest to the date of payment, at any time and without prior notice.
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(b) If the Borrower desires to prepay the Term Loan in full prior to the
Term Loan Maturity Date, it shall pay to the Bank an amount equal to: three
percent (3%) of the principal amount outstanding if prepaid during the first,
second, or third years of said loan. No amount shall be payable for prepayment
after the third year of the Term Loan. The Borrower shall be permitted to
make partial prepayments of the Term Loan from its operating cash flow without
premium or penalty.
(c) All payments received by the Bank with respect to any Loan shall be
applied first to fees, charges, costs and expenses payable to the Bank with
respect thereto under this Agreement, or otherwise, next to interest then
accrued on account of such Loan, and only thereafter to principal of the
Loan, or in such other manner or order as the Bank shall determine in its
sole discretion. All prepayments (with prepayment defined herein as any
payment of principal in advance of its due date) shall be applied to the
principal payments due with respect to any Loan in the inverse order of their
maturity.
4.3. METHOD OF PAYMENT. All payments and prepayments of principal and
any and all other amounts due hereunder shall be made by the Borrower to the
Bank at 100 Federal Street, Boston, Massachusetts in immediately available
funds and in United States Dollars, on or before 11:00 a.m. (Boston time) on
the due date thereof, free and clear of, and without any deduction or
withholding for, any taxes or other payments. The Bank may, and the Borrower
hereby authorizes the Bank to, debit the amount of any payment not made by
such time to the demand deposit account of the Borrower with the Bank.
4.4. LATE CHARGES AND DEFAULT RATE INTEREST. (a) If a payment of
principal or interest hereunder or with respect to any Loan is not made
within fifteen (15) days of its due date, the Borrower will also pay on
demand a late payment charge equal to 5% of the amount of such payment.
Nothing in the preceding sentence shall affect the Bank's right to exercise
any of its rights or remedies, including those provided in Section 9.2, if an
Event of Default has occurred.
(b) Upon the occurrence of an Event of Default, and without affecting
the Bank's right to exercise any of its rights and remedies provided herein,
interest upon the principal amount of any Loan, and to the extent permitted
by law, on any accrued but unpaid interest thereon, shall, at the Bank's
option, accrue at a rate (the "Default Rate") equal to the lesser of (a) the
highest interest rate permitted by applicable law or (b) five percent (5%)
above the interest rate then applicable to the Loans.
4.5. COMPUTATION OF INTEREST AND FEES. (a) Interest and all fees
payable hereunder shall be computed daily on the basis of a year of 360 days
and paid for the actual number of days for which due. If the due date for
any payment of principal is extended by operation of law, interest shall be
payable for such extended time. If any payment required by this Agreement
becomes due on a day that is not a Business Day such payment may be made on
the next succeeding Business Day, and such extension shall be included in
computing interest in connection with such payment.
(b) It is not intended under this Agreement or any of the Notes to
charge interest at a rate exceeding the maximum rate of interest permitted to
be charged under applicable law, but if
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interest exceeding said maximum rate should be paid hereunder or thereunder,
the excess shall, at the Bank's option, be (a) deemed a voluntary prepayment
of principal or (b) refunded to Borrower.
4.6. AUTHORIZATION TO CHARGE BORROWER'S ACCOUNT. The Borrower authorizes
the Bank, in the Bank's sole discretion, to charge when due any monetary
Obligation, including, without limitation, all amounts owing for interest,
fees, costs and expenses and other charges provided by any of the Notes, or
this Agreement, to the outstanding principal balance due upon any of the Notes,
to be selected by the Bank in its sole discretion, and such amounts shall be
Loans hereunder and shall be disclosed promptly to the Borrower by way of
written advices adding such charges to the unpaid balance due upon the Notes,
to be selected by the Bank in its sole discretion.
4.7. CAPITAL ADEQUACY. If the Bank shall have determined that the
adoption of any applicable law, rule, regulation, guideline, directive or
request (whether or not having the force of law) regarding capital
requirements for banks or bank holding companies, or any change therein or in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any of the foregoing
imposes or increases a requirement by the Bank to allocate capital resources
to the Bank's commitment to make Loans hereunder which has or would have the
effect of reducing the return on the Bank's capital to a level below that
which the Bank could have achieved (taking into consideration the Bank's then
existing policies with respect to capital adequacy and assuming full
utilization of the Bank's capital) but for such adoption, change or
compliance by any amount reasonably deemed by the Bank to be material, then
the Bank may, at its option and by notice to the Borrower, charge to the
Borrower, and Borrower agrees to pay, on demand, to the Bank, as an
additional fee hereunder from time to time, such amount or amounts as the
Bank, in its good faith judgment, determines to be necessary to compensate
the Bank for such reduction in the Bank's return on its capital, upon
presentation by the Bank of a statement in the amount and setting forth the
Bank's calculation thereof. In determining such amount, the Bank may use any
reasonable averaging and attributation method.
Notwithstanding any other provision hereof, in the event the Bank shall
at any time give notice to the Borrower pursuant to this Section 4.7
implementing additional charges pursuant thereto, the Borrower shall have the
right to satisfy in full (within thirty (30) days from the date of such
notice but without the imposition of any penalty or the additional charges
pursuant to this Section 4.7 above, or any prepayment penalty pursuant to
Section 4.2 above, so long such full payment is so received by the Bank
within such thirty (30) day period above, and no Default has occurred and is
continuing hereunder, all Obligations due the Bank, including, without
limitation, all Loans and all unpaid interest thereon. All borrowing
availability of Borrower under this Agreement shall automatically terminate
upon the Bank's receipt of such full payment if such availability has not
already terminated pursuant to any other provision of this Agreement.
4.8 EQUIPMENT LEASE LOANS. The Borrower has obtained and may in the
future obtain equipment lease lines of credit from BancBoston Leasing,
including a $1,380,000.00 equipment
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lease line of credit facility and a $1,000.000.00 new equipment lease line of
credit facility (collectively, the "Equipment Loans").
SECTION V
CONDITIONS OF LOANS
5.1. CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation of the Bank to
make the initial Loans is subject to the condition precedent that the Bank
shall have received, in form and substance satisfactory to the Bank and its
counsel, the following:
(a) this Agreement, the Notes and other loan documents, including
assignment of existing loan documents in favor of Imperial Bank and amendments
thereto, all as required by Bank, duly executed by the Borrower;
(b) a certificate of the Clerk of the Borrower with respect to
resolutions of the Board of Directors authorizing the execution and delivery of
this Agreement, the Notes and all other loan documents, and identifying the
officer(s) authorized to execute, deliver and take all other actions required
under this Agreement, and providing specimen signatures of such officers;
(c) the articles of organization of the Borrower and all amendments and
supplements thereto, each certified by the clerk as being a true and correct
copy thereof;
(d) the Bylaws of the Borrower and all amendments and supplements
thereto, certified by the clerk as being a true and correct copy thereof;
(e) a certificate of the Secretary of State of the State of Colorado, as
to legal existence and good standing in such state and listing all documents on
file in the office of said Secretary of State;
(f) favorable opinions addressed to the Bank from the Borrower's
counsel opining as to the matters reasonably required by the Bank; and
(g) such other documents, and completion of such other matters, as
counsel for the Bank may deem necessary or appropriate.
5.2. CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the Bank to make
any future Loan advance, including the initial Loan, is further subject to the
following conditions:
(a) timely receipt by the Bank of the applicable Notice of Borrowing, as
provided in Section 2.2 hereof;
(b) the representations and warranties contained in Section VI shall be
true and accurate in all material respects on and as of such Notice of
Borrowing and on the effective date of the making, continuation or conversion
of each Loan as though made at and as of each such date (except to the extent
that such representations and warranties expressly relate to an earlier date),
and no Default shall have occurred and be continuing, or would result from such
Loan;
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(c) the resolutions referred to in Section 5.1(b) shall remain in full
force and effect;
(d) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for the Bank, would make
it illegal or against the policy of any governmental agency or authority for
the Bank to make any Loan hereunder.
The making of each Loan shall be deemed to be a representation and
warranty by the Borrower on the date of the making, continuation or conversion
of such Loan as to the accuracy of the facts referred to in subsection (b) of
this Section 5.2.
SECTION VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make Loans
hereunder, the Borrower represents and warrants to the Bank that:
6.1. ORGANIZATION AND QUALIFICATION. Each of the Borrower and its
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated, (c) is duly qualified and in good
standing as a foreign corporation and is duly authorized to do business in each
jurisdiction where the failure to be so qualified would have a material adverse
effect on the business, financial condition, assets or properties of the
Borrower or any of its Subsidiaries, (d) has its chief executive office located
at the address of the Borrower shown in the preamble to this Agreement and (e)
has an office, manufacturing facility, warehouse or occupies space in the
states and at the locations specified in EXHIBIT "6.1" hereto.
6.2. CORPORATE AUTHORITY. The execution, delivery and performance of
this Agreement, the Notes and other Loan Documents and the transactions
contemplated hereby and thereby are within the corporate power and authority of
the Borrower and have been authorized by all necessary corporate proceedings,
and do not and will not:
(a) require any consent or approval of the stockholders of the Borrower
other than those consents and approvals, if any, previously obtained;
(b) contravene any provision of the charter documents or by-laws of the
Borrower or any law, rule or regulation applicable to the Borrower;
(c) contravene any provision of, or constitute an event of default or
event that, but for the requirement that time elapse or notice be given, or
both, would constitute an event of default under, any other agreement,
instrument, order or undertaking binding on the Borrower; or
(d) result in or require the imposition of any Encumbrance on any of the
properties, assets or rights of the Borrower.
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6.3. VALID OBLIGATIONS. This Agreement, the Notes and all other Loan
Documents and all of their respective terms and provisions are the legal, valid
and binding obligations of the Borrower, enforceable in accordance with their
respective terms except as limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting the enforcement of creditors' rights
generally, and except as the remedy of specific performance or of injunctive
relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
6.4. CONSENTS OR APPROVALS. The execution, delivery and performance of
this Agreement, the Notes and all other Loan Documents and the transactions
contemplated herein and therein do not require any approval or consent of, or
filing or registration with, any governmental or other agency or authority, or
any other party.
6.5. TITLE TO PROPERTIES; ABSENCE OF ENCUMBRANCES. Each of the
Borrower and its Subsidiaries has good and marketable title to all of the
properties, assets and rights of every name and nature now purported to be
owned by it, including, without limitation, such properties, assets and rights
as are reflected in the financial statements referred to in Section 6.6 (except
such properties, assets or rights as have been disposed of in the ordinary
course of business since the date thereof), free from all Encumbrances except
Permitted Encumbrances or those Encumbrances permitted by the Bank and
disclosed in EXHIBIT "8.5" hereto, and, except as so disclosed, free from all
defects of title that might materially adversely affect such properties, assets
or rights, taken as a whole.
6.6. FINANCIAL STATEMENTS. The Borrower has furnished the Bank with its
draft 10-K consolidated financial statement as of December 31, 1997 and with
its consolidated statements of income, changes in stockholders' equity and cash
flow for the fiscal year then ended, and related footnotes. Borrower
represents that the final financial statements for such period shall be
identical to the draft statements presented to the Bank. All such financial
statements were prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods specified and
present fairly the financial position of the Borrower and its Subsidiaries as
of such dates and the results of the operations of the Borrower and its
Subsidiaries for such periods. There are no liabilities, contingent or
otherwise, not disclosed in such financial statements that involve a material
amount.
6.7. CHANGES. Since the date of the financial statements referred to in
Section 6.6, there have been no changes in the assets, liabilities, financial
condition, business or prospects of the Borrower or any of its Subsidiaries
other than changes in the ordinary course of business, the effect of which has
not, in the aggregate, been materially adverse.
6.8. DEFAULTS. As of the date of this Agreement, no Default exists.
6.9. TAXES. The Borrower and each Subsidiary have filed all federal,
state and other tax returns which were due prior to the date of this Agreement,
and all taxes, assessments and other governmental charges (other than those
which are being contested in good faith and in accordance with the terms and
conditions of Section 7.4 hereof) due from the Borrower and each Subsidiary
prior to or as of the date hereof have been fully paid. The Borrower and each
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Subsidiary has established and will maintain on their books reserves adequate
for the payment of all federal, state and other tax liabilities.
6.10. LITIGATION. Except as set forth on EXHIBIT "6.10" hereto, there is
no litigation, arbitration, proceeding or investigation pending, or, to the
knowledge of the officers of the Borrower or its Subsidiaries threatened,
against the Borrower or any Subsidiary that, if adversely determined, would
result in a material judgment not fully covered by insurance or would otherwise
have a material adverse effect on the assets, business or prospects of the
Borrower or any Subsidiary.
6.11. USE OF PROCEEDS. No portion of any Loan is to be used for the
purpose of purchasing or carrying" any "margin stock" as such terms are used in
Regulations G, U and X of the Board of Governors of the Federal Reserve System,
12 C.F.R. 221 and 224, as amended.
6.12. SUBSIDIARIES. As of the date of this Agreement, all the
Subsidiaries of the Borrower are listed on EXHIBIT "6.12" hereto. The Borrower
is the owner, free and clear of all liens and encumbrances, of all of the
issued and outstanding stock of each Subsidiary, except for liens in favor of
the Bank as assignee of Imperial Bank. All shares of such stock have been
validly issued and are fully paid and nonassessable, and no rights to subscribe
to any additional shares have been granted, and no options, warrants or similar
rights are outstanding.
6.13. INVESTMENT BORROWER ACT. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
6.14. COMPLIANCE WITH ERISA. The Borrower and each member of the
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the applicable provisions of ERISA and the Code,
and have not incurred any liability to the PBGC or a Plan under Title IV of
ERISA; and no "prohibited transaction" or "reportable event" (as such terms are
defined in ERISA) has occurred with respect to any Plan.
6.15. SECURITY INTEREST. Each Security Agreement creates and continues
in favor of the Bank a security interest in the Collateral as described
therein. All financing statements with respect to the Collateral have been
executed and will be filed on or before the date of the initial Loan hereunder
in all offices necessary to perfect a security interest in the Collateral, and
such security interest constitutes a first priority perfected security interest
in the Collateral, except in Collateral (if any) in which a security interest
cannot be perfected by filing under the Uniform Commercial Code and except for
Permitted Encumbrances.
6.16. INTENTIONALLY DELETED.
6.17. TAXES AND CHARGES RELATING TO THE AGREEMENT. All state and local
recording, franchise, stamp, documentary and other governmental charges and
assessments required to be paid in connection with the execution, delivery,
filing or recordation of, or as a condition to, the enforcement of this
Agreement, or the Bank's lien on or security interest in the Collateral, have
been duly paid.
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6.18. ENVIRONMENTAL MATTERS. (a) The Borrower and each of its
Subsidiaries has obtained all material permits, licenses and other
authorizations which are required under all Environmental Laws. The Borrower
and each of its Subsidiaries is in material compliance with the terms and
conditions of all such permits, licenses and authorizations, and is in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
(b) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
governmental or other entity with respect to any alleged failure by the
Borrower or any of its Subsidiaries to have any permit, license or
authorization required in connection with the conduct of its business or with
respect to any Environmental Laws, including, without limitation, Environmental
Laws relating to the generation, treatment, storage, recycling, transportation,
disposal or release of any Hazardous Materials.
(c) No material oral or written notification of a release of a Hazardous
Material has been filed by or on behalf of the Borrower or any of its
Subsidiaries and no property now or previously owned, leased or used by the
Borrower or any of its Subsidiaries is listed or proposed for listing on the
National Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or on any similar state
list of sites requiring investigation or clean-up.
(d) There are no liens or encumbrances arising under or pursuant to any
Environmental Laws on any of the real property or properties owned, leased or
used by the Borrower or any of its Subsidiaries and no governmental actions
have been taken or are in process which could subject any of such properties to
such liens or encumbrances or, as a result of which the Borrower or any of its
Subsidiaries would be required to place any notice or restriction relating to
the presence of Hazardous Materials at any property owned by it in any deed to
such property.
(e) Neither the Borrower or any of its Subsidiaries, nor any previous
owner, tenant, occupant or user of any property owned, leased or used by the
Borrower or any of its Subsidiaries has (i) engaged in or permitted any
operations or activities upon or any use or occupancy of such property, or any
portion thereof, for the purpose of or in any way involving the handling,
manufacture, treatment, storage, use, generation, release, discharge, refining,
dumping or disposal (whether legal or illegal, accidental or intentional) of
any Hazardous Materials on, under, in or about such property, except to the
extent commonly used in day-to-day operations of such property and, in such
case, in compliance with all Environmental Laws, or (ii) transported any
Hazardous Materials to, from or across such property except to the extent
commonly used in day-to-day operations of such property and, in such case, in
compliance with all Environmental Laws; nor have any Hazardous Materials
migrated from other properties upon, about or beneath such property, nor are
any Hazardous Materials presently constructed, deposited, stored or otherwise
located on, under, in or about such property except to the extent
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commonly used in day-to-day operations of such property and, in such case, in
compliance with all Environmental Laws.
(f) Borrower agrees to indemnify, defend and hold harmless the Bank from
and against any and all liabilities, debts, liens, claims, causes of action,
administrative orders or notices, losses, permit fees, damages, fines,
penalties, or expenses, including reasonable attorney's fees, suffered or
incurred by the Bank on account of the presence or release of any Hazardous
Material in, upon or under any property now or previously owned, leased or used
by Borrower or any of its Subsidiaries, or the failure of the Borrower or any
of its Subsidiaries to comply with any Environmental Law.
6.19. INTELLECTUAL PROPERTY RIGHTS. Borrower owns or has a valid right
to use the patents, patent rights or licenses, trademarks, trademark rights and
trade names or trade name rights or franchises now being used or necessary to
conduct its business, all of the patents and trademarks of which are listed on
EXHIBIT 6.19 hereto, and the conduct of its business as now operated does not
conflict with valid patents, patent rights or licenses, copyrights, trademarks,
trademark rights and trade names and trade name rights or franchises of others
in any manner. Borrower has not granted any license, franchise or other right
to use with respect to any of Borrower's intellectual property except for the
licenses which are also listed in EXHIBIT 6.19 hereto. Borrower agrees not to
enter into any agreement which is inconsistent with Borrower's obligations
under this Agreement, without Bank's prior written consent. Borrower has
granted and may, however, grant licenses pursuant to OEM agreements entered
into in the ordinary course of its business. True and complete copies of each
license and franchise agreement, and evidence of all patents, patent rights,
trademarks, trademark rights, copyrights, trade names and trade name rights,
shall be furnished to the Bank upon request. If Borrower shall obtain any new
rights in and to any patents, copyrights, trademarks, tradenames or other
intellectual property, the provisions of this Agreement shall apply, and
Borrower shall, within ten (10) days thereof, if not sooner, give Bank proper
written notice thereof, and the Bank shall be authorized to amend EXHIBIT 6.19
hereof to include such additional rights.
SECTION VII
AFFIRMATIVE COVENANTS
So long as the Bank has any commitment to lend hereunder or any Loan or
other Obligation remains outstanding, the Borrower covenants as follows:
7.1. FINANCIAL STATEMENTS AND OTHER REPORTING REQUIREMENTS. The Borrower
shall furnish to the Bank:
(a) as soon as available to the Borrower, but in any event within 90 days
after the end of each of its fiscal years commencing December 31, 1998, a
consolidated balance sheet as of the end of, and a related consolidated
statement of income, changes in stockholders' equity and cash flow for, such
year (together with comparative figures for the preceding year, and with all
expenses detailed to the Bank's satisfaction), audited and unqualified by
certified public accountants acceptable to the Bank with respect to Borrower
and its Subsidiaries; and,
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concurrently with such financial statements, a copy of said certified public
accountants' management report and a written statement by such accountants
that Borrower is not in violation of any of the financial covenants contained
herein, and that in the making of the audit necessary for their report and
opinion upon such financial statements they have obtained no knowledge of any
Default or, if in the opinion of such accountants any such Default exists,
they shall disclose in such written statement the nature and status thereof;
(b) as soon as available to the Borrower, but in any event within 45 days
after the end of each fiscal quarter for Borrower commencing March 31, 1998, a
consolidated balance sheet as of the end of, and a related consolidated
statement of income and cash flow for, the period then ended, all as internally
prepared by Borrower in accordance with generally accepted accounting
principals consistently applied (together with comparison figures for the
preceding year, and with all expenses detailed to the Bank's satisfaction) and
certified to by Borrower's chief financial officer but subject, however, to
normal, recurring year-end adjustments that shall not in the aggregate be
material in amount.
(c) concurrently with the delivery of each financial statement pursuant
to subsections (a) and (b) of this Section 7.1, a compliance certificate signed
on behalf of the Borrower by its chief financial officer;
(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 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.
(f) if and when the Borrower gives or is required to give notice to the
PBGC of any "Reportable Event" (as defined in Section 4043 of ERISA) with
respect to any Plan that might constitute grounds for a termination of such
Plan under Title IV of ERISA, or knows that any member of the Controlled Group
or the plan administrator of any Plan has given or is required to give notice
of any such Reportable Event, a copy of the notice of such Reportable Event
given or required to be given to the PBGC;
(g) immediately upon becoming aware of the existence of any condition or
event that constitutes a Default, written notice thereof specifying the nature
and duration thereof and the action being or proposed to be taken with respect
thereto;
(h) promptly upon becoming aware of any litigation or of any
investigative proceedings by a governmental agency or authority commenced or
threatened against the Borrower or any of its Subsidiaries of which it has
notice, the outcome of which would or might have a materially adverse effect on
the assets, business, prospects or financial condition of the
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<PAGE>
Borrower or the Borrower and its Subsidiaries on a consolidated basis,
written notice thereof and the action being or proposed to be taken with
respect thereto;
(i) as soon as available to Borrower, but in any event within fifteen
(15) days of the end of each quarter and in form and substance satisfactory to
the Bank, (i) an internally prepared listing of all accounts receivables and
their aging status, and (ii) internally prepared accounts payable summary aging
reports;
(j) by September 15 of each year, copies of the signed, dated and filed
federal income tax return for the Borrower and for Brimfield Precision, Inc.
with respect to the income tax year (then) just ended;
(k) immediately upon becoming aware of any investigative proceedings by a
governmental agency or authority commenced or threatened against the Borrower
or any of its Subsidiaries regarding any potential violation of environmental
laws or any spill, release, discharge or disposal of any Hazardous Material, or
upon becoming aware of any violation of any Environmental Law or any spill,
release, discharge or disposal of any Hazardous Material by Borrower or any of
its Subsidiaries, written notice thereof and the action being or proposed to be
taken with respect thereto;
(l) simultaneous with any Change in Control; and
(m) from time to time, such other financial data and information about
the Borrower or its Subsidiaries as the Bank may reasonably request.
7.2. CONDUCT OF BUSINESS. Each of the Borrower and its Subsidiaries
shall:
(a) duly observe and comply in all material respects with all applicable
laws and valid requirements of any governmental authorities relative to its
corporate existence, rights and franchises, to the conduct of its business and
to its property and assets, and shall maintain and keep in full force and
effect all licenses and permits necessary in any material respect to the proper
conduct of its business;
(b) maintain its corporate existence;
(c) remain engaged substantially in the business of manufacturing image
guided surgery products, surgical instruments, and implants; and
(d) maintain its chief executive office at the address specified in the
preamble hereof, unless the Bank shall have first been notified in writing of
any change.
7.3. MAINTENANCE AND INSURANCE. Each of the Borrower and its
Subsidiaries shall maintain its properties in good repair, working order and
condition as required for the normal conduct of its business. Each of the
Borrower and its Subsidiaries shall at all times maintain with financially
sound and reputable insurers, liability and casualty insurance customary for
companies engaged in businesses similar to that of the Borrower and its
Subsidiaries including in
20
<PAGE>
any event fire and extended coverage and theft, and, with respect to the
Borrower's casualty insurance covering the Collateral, shall, in addition be
in amounts, containing such terms, in such form, and for such periods as may
be reasonably satisfactory to the Bank, such insurance to be payable to the
Bank (as loss payee and additional insured) and the Borrower as their
interests may appear. All such policies of insurance shall provide for no
less than thirty (30) days written minimum cancellation notice to the Bank.
In the event a failure to provide and maintain insurance as herein required,
the Bank may, at its option, provide such insurance and charge the amount
thereof to the Revolving Note, which amount shall bear interest at the rate
specified in, and in accordance with, Section 2.3 of this Agreement. The
Borrower shall furnish to the Bank certificates or other evidence reasonably
satisfactory to the Bank of compliance with the foregoing insurance
provisions.
7.4. TAXES. The Borrower shall pay or cause to be paid all taxes,
assessments or governmental charges on or against it or any of its Subsidiaries
or its or their properties on or prior to the time when they become due
provided that this covenant shall not apply to any tax, assessment or charge
that is being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been established and are being
maintained in accordance with generally accepted accounting principles and no
lien shall have been filed to secure any such tax, assessment or charge.
7.5. INSPECTION AND VERIFICATION OF ACCOUNTS. The Borrower shall
permit the Bank or its designees, upon request at any reasonable time and upon
reasonable notice (or if a Default shall have occurred and is upon request
continuing, at any time and without prior notice), including without limitation
at least once per year for examination by the Bank of the Borrower and BPI, to
(i) visit and inspect the properties of the Borrower and its Subsidiaries, (ii)
examine and make copies of and take abstracts from the books and records of the
Borrower and its Subsidiaries, (iii) discuss the affairs, finances and accounts
of the Borrower and its Subsidiaries and their appropriate officers, employees
and accountants and (iv) arrange for verification of accounts receivables under
reasonable procedures directly with the Borrower's accountants, the account
debtors or by other methods. In handling such information the Bank shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of
any non-public information thereby received or received pursuant to subsections
7.1(a), (b), or (c) except that disclosure of such information may be made (i)
to the subsidiaries or affiliates of the Bank in connection with their present
or prospective business relations with the Borrower, (ii) to prospective
transferees or purchasers of an interest in the Loans, (iii) as required by
law, regulation, rule or order, subpoena, judicial order or similar order and
(iv) as may be required in connection with the examination, audit or similar
investigation of the Bank.
7.6. MAINTENANCE OF BOOKS AND RECORDS. Each of the Borrower and its
Subsidiaries shall keep adequate books and records of account, in which true
and complete entries will be made reflecting all of its business and financial
transactions, and such entries will be made in accordance with generally
accepted accounting principles consistently applied and applicable law.
21
<PAGE>
7.7 SENIOR DEBT/EARNINGS BEFORE INTEREST AND TAXES. Borrower shall, by
December 31, 1998 and as of the end of each fiscal year for Borrower
thereafter, maintain a ratio of Senior Debt (which shall mean all Bank secured
debt including operating leases with BancBoston Leasing), to Earnings before
Interest and Taxes, PLUS depreciation and amortization, as follows:
<TABLE>
<CAPTION>
Fiscal Year End Ratio
--------------- ------
<S> <C>
12/31/98 2.65:1.0
12/31/99 2.50:1.0
12/31/2000 2.35:1.0
</TABLE>
7.8. CONSOLIDATED TOTAL LIABILITIES TO CONSOLIDATED TANGIBLE NET WORTH
RATIO. Borrower shall, as of the end of each quarter (commencing with
Borrower's fiscal quarter ending June 30, 1998), maintain a ratio of
Consolidated Total Liabilities as of the end of such fiscal year to
Consolidated Tangible Net Worth as follows:
<TABLE>
<CAPTION>
Quarter End Ratio
--------------- ------
<S> <C>
6/30/98 4.25:1.0
12/31/98 3.50:1.0
12/31/99 3.00:1.0
12/31/2000 2.50:1.0
</TABLE>
7.9. OPERATING CASH FLOW COVERAGE. Borrower shall, with respect to
each "rolling" four quarter period ending on the last day of each fiscal
quarter for Borrower (commencing with Borrower's fiscal quarter ending June
31, 1998), maintain a ratio of consolidated Operating Cash Flow to Total Debt
Service of not less than 1.35:1.00.
7.10. PRINCIPAL DEPOSITORY. Borrower will at all times maintain the
Bank as its principal bank of deposit and account for purposes of
facilitating perfection of Bank's security interest and to facilitate Loan
advances pursuant hereto. The Borrower shall upon request, permit the Bank
to be a co-borrower on the depository accounts of the Borrower located at
financial institutions other than the Bank, and the Borrower will execute any
documents necessary to provide the Bank with the right to collect all such
deposits following an Event of Default.
7.11. INTENTIONALLY DELETED.
7.12. SHAREHOLDER/OFFICER DEBT SUBORDINATION. All debt due
shareholders, officers, related parties, and guarantors shall be fully
subordinated to the Bank and remain at standstill until all debt due to the
Bank is paid in full.
7.13 ACCOUNTS RECEIVABLE WARRANTIES. Each Acceptable Account is
or, at the time it comes into existence will be, a true and correct statement
of: (A) the bona fide indebtedness of the
22
<PAGE>
applicable Account Debtor; and (B) the amount of the account for merchandise
sold and delivered to, or for services performed for and accepted by, such
Account Debtor, net of any charges, adjustments, discounts or other
reductions whatsoever; and (i) at the time of each borrowing hereunder, there
are and, to the best of the Borrower's knowledge after due investigation,
will be no defenses, counterclaims, discounts or setoffs that may be asserted
against Acceptable Accounts.
7.14 REPAYMENT OF SUBORDINATED DEBT. Within ninety (90) days of
the date hereof, the Borrower shall raise One Million Dollars ($1,000,000.00)
(either in equity or fully subordinated debt) and shall apply such funds to
repay the Subordinated Debt and to reduce the principal amount of the Term
Loan by Five Hundred Thousand Dollars ($500,000.00).
7.15 FURTHER ASSURANCES. At any time and from time to time the
Borrower shall, and shall cause each of its Subsidiaries to, execute and
deliver such further instruments and take such further action as may
reasonably be requested by the Bank to effect the purposes of this Agreement,
the Notes or other Loan Documents.
SECTION VIII
NEGATIVE COVENANTS
So long as the Bank has any commitment to lend hereunder or any Loan or
other Obligation remains outstanding, the Borrower covenants as follows:
8.1. INDEBTEDNESS. Neither the Borrower or any of its Subsidiaries
shall create, incur, assume, guarantee or be or remain liable with respect to
any Indebtedness other than the following:
(a) Indebtedness of the Borrower to the Bank or any of its Subsidiaries to
the Bank or any of its affiliates;
(b) Indebtedness existing as of the date of this Agreement and disclosed
on EXHIBIT "8.1(b)" hereto or in the financial statements referred to in
Section 8.1(a); and
(c) Indebtedness secured by Permitted Encumbrances.
8.2. CONTINGENT LIABILITIES. Neither the Borrower nor any of its
Subsidiaries shall create, incur, assume, guarantee or remain liable with
respect to any Guarantees other than the following:
(a) Guarantees in favor of the Bank, or any of its or their affiliates;
(b) Guarantees existing on the date of this Agreement and disclosed on
EXHIBIT "8.2(B)" hereto or in the financial statements referred to in Section
6.6;
(c) Guarantees resulting from the endorsement of negotiable instruments
for collection in the ordinary course of business;
23
<PAGE>
(d) Guarantees with respect to surety, appeal performance and return-of-
money and other similar obligations incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(e) Guarantees of normal trade debt relating to the acquisition of goods
and supplies; and
8.3. LEASES. Neither the Borrower nor any of its Subsidiaries
shall during any fiscal year enter into any leases of real or personal
property as lessee, except for capital leases to the extent not otherwise
prohibited by or constituting a violation of any other provision of this
Agreement, and except for leases pursuant to any Equipment Loans, and except
for any other lease in an amount up to $25,000.
8.4. SALE AND LEASEBACK. Neither the Borrower nor any of its
Subsidiaries shall enter into any arrangement, directly or indirectly,
whereby it shall sell or transfer any property owned by it in order to lease
such property or lease other property that the Borrower or any such
Subsidiaries intends to use for substantially the same purpose as the
property being sold or transferred.
8.5. ENCUMBRANCES. Neither the Borrower nor any of its
Subsidiaries shall create, incur, assume or suffer to exist any mortgage,
pledge, security interest, lien or other charge or encumbrance , including
the lien or retained security title of a conditional vendor upon or with
respect to any of its property or assets ("ENCUMBRANCES"), or assign or
otherwise convey any right to receive income, including the sale or discount
of accounts receivable with or without recourse, except the following
("PERMITTED ENCUMBRANCES"):
(a) Encumbrances in favor of the Bank, or any of the Bank's affiliates;
(b) Encumbrances existing as of the date of this Agreement and disclosed
in EXHIBIT "8.5" hereto;
(c) Liens for taxes, fees, assessments and other governmental charges to
the extent that payment of the same may be postponed or is not required in
accordance with the provisions of Section 7.4;
(d) Landlords' and lessors' liens in respect of rent not in default or
liens in respect of pledges or deposits under workmen's compensation,
unemployment insurance, social security laws, or similar legislation (other
than ERISA) or in connection with appeal and similar bonds incidental to
litigation; mechanics', laborers' and materialmen's and similar liens, if the
obligations secured by such liens are not then delinquent; liens securing the
performance of bids, tenders, contracts (other than for the payment of money);
and statutory obligations incidental to the conduct of its business and that do
not in the aggregate materially detract from the value of its property or
materially impair the use thereof in the operation of its business; and
(e) Rights of lessors under capital leases.
24
<PAGE>
8.6. MERGER; CONSOLIDATION; SALE OR LEASE OF ASSETS. Neither the
Borrower nor any of its Subsidiaries shall sell, transfer, lease or otherwise
dispose of assets or properties other than sales of inventory or obsolete
equipment to the extent permitted under the terms of the Security Agreement,
or liquidate, merge or consolidate into or with any other person or entity.
8.7 ADDITIONAL STOCK ISSUANCE. The Borrower shall not permit any
of its Subsidiaries to issue any additional shares of its capital stock or
other equity securities, any options therefor or any securities convertible
thereto other than to the Borrower. Neither the Borrower nor any of its
Subsidiaries shall sell, transfer or otherwise dispose of any of the capital
stock or other equity securities of a Subsidiary, except to the Borrower or
any of its wholly-owned Subsidiaries.
8.8. EQUITY DISTRIBUTIONS. Without the prior written consent of
the Bank, the Borrower shall not pay any dividends on any class of its
capital stock or make any other distribution or payment on account of or in
redemption, retirement or purchase of such capital stock; PROVIDED that this
Section shall not apply to (i) the issuance, delivery or distribution by the
Borrower of shares of its common stock pro rata to its existing shareholders,
(ii) the purchase or redemption by the Borrower of its capital stock with the
proceeds of the issuance of additional shares of capital stock, (iii) the
declaration and payment of dividends to shareholders of Borrower so long as
at the time of any such declaration and payment (and after giving effect
thereto) no Default (including, without limitation, a violation of any
financial covenant herein) has occurred and is continuing hereunder nor would
a Default (including, without limitation, a violation of any financial
covenant herein) have occurred had the declaration and payment occurred as of
the last day of the prior fiscal quarter or year for Borrower, all as
confirmed to the satisfaction of the Bank by the financial information
required to be furnished to the Bank pursuant to Section 7.1(a) and (b)
hereof with respect to such prior fiscal year and quarter preceding such
dividend; or (iv) the exercise of options or warrants pursuant to "cashless"
exercise provisions or the withholding of shares of stock exercisable upon
issuance of employee stock options to cover withholding taxes.
8.9. INVESTMENTS. Without the Bank's consent, neither the Borrower
nor any of its Subsidiaries shall make or maintain any Investments other than
(i) existing Investments in Subsidiaries, and (ii) Qualified Investments.
8.10. ERISA. Neither the Borrower nor any member of the Controlled
Group shall permit any Plan maintained by it to (i) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code, (ii) incur any
"accumulated funding deficiency" (as defined in Section 302 of ERISA) whether
or not waived, or (iii) terminate any Plan in a manner that could result in
the imposition of a lien or encumbrance on the assets of the Borrower or any
of its Subsidiaries pursuant to Section 4068 of ERISA.
8.11. ENVIRONMENTAL COMPLIANCE. Borrower covenants to duly observe
and comply with all Environmental Laws, not to use or store (except in the
ordinary course of Borrower's business and in full compliance with all
Environmental Laws), transport, dispose or release, or suffer or permit the
use or storage (except where such transport, disposal, release, use or
storage occurs in the ordinary course of Borrower's business and in full
compliance with all Environmental Laws),
25
<PAGE>
transportation, disposal or release by any other party of, any Hazardous
Material on, in or from any Collateral or any premises upon which such
Collateral is at any time located.
8.12. FISCAL YEAR AND CAPITAL STRUCTURE. The Borrower will not
change its fiscal year or capital structure, nor will Borrower permit any of
its Subsidiaries to change its fiscal year or capital structure or suffer or
permit any circumstance to exist in which any such Subsidiary is not
wholly-owned, directly or indirectly, by the Borrower.
8.13 CAPITAL EXPENDITURES. The Borrower shall not incur Capital
Expenditures in excess of the following amounts for the following periods:
<TABLE>
<CAPTION>
FISCAL YEAR END LIMIT
--------------- ------
<S> <C>
12/31/98 $1,000,000.00
12/31/99 750,000.00
12/31/2000 750,000.00
</TABLE>
Notwithstanding the foregoing, any amount not incurred in 1998 may be
incurred in 1999 provided that the aggregate limit for fiscal years 1998 and
1999 is $1,750,000.
8.14. TRANSACTIONS WITH AFFILIATES. Except as set forth in EXHIBIT
"8.14", the Borrower will not enter into any transaction, including, without
limitation, the purchase, sale or exchange of any property, or the rendering
of any service, with any Affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of the Borrower's business and upon
fair and reasonable terms no less favorable to the Borrower than would be
obtained in a comparable arms-length transaction with any Person not an
Affiliate. As used herein, the term "Affiliate" includes (i) any officer or
director of the Borrower or any Subsidiary, or (ii) any Person, which,
directly or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with the Borrower, or (iii) any
Person which beneficially owns or holds five percent (5%) or more of any
class of equity or debt securities of the Borrower. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of any Person, whether through the
ownership of voting securities, by contract or otherwise.
8.15. CHANGE OF CONTROL TRIGGERING EVENTS. The Borrower will not 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.
SECTION IX
DEFAULTS
9.1. EVENTS OF DEFAULT. There shall be an Event of Default
hereunder if any of the following events occurs:
26
<PAGE>
(a) The Borrower shall fail to pay within ten (10) days of the due date
therefor (i) any amount of principal of or interest on any Loan, or (ii) any
fees or expenses payable hereunder; or
(b) The Borrower shall fail to perform any term, covenant or agreement
contained in Sections 7 or 8;
(c) The Borrower shall fail to perform any term, covenant or agreement
(other than in respect of any other subsection of this Section 9.1) contained
in this Agreement and such default shall continue for 30 days after notice
thereof has been sent by the Bank to the Borrower; or
(d) Any representation or warranty of the Borrower made in this Agreement
or any other documents or agreements executed in connection with the
transactions contemplated by this Agreement or in any certificate delivered
hereunder shall prove to have been false in any material respect upon the date
when made or deemed to have been made; or
(e) The Borrower or any of its Subsidiaries (except with respect to
obligations to the Bank or its affiliates which are addressed in Section
9.1(j)), shall fail to (i) pay within ten (10) days of maturity, or within any
applicable period of grace, any obligations for borrowed monies or advances of
Five Thousand Dollars ($5,000.00) or more, or for the use of real or personal
property, or (ii) observe or perform any term, covenant or agreement evidencing
or securing such obligations for borrowed monies or advances, or relating to
such use of real or personal property, the result of which failure is to permit
the holder or holders of such Indebtedness to cause such Indebtedness to become
due prior to its stated maturity upon delivery of required notice, if any; or
(f) The Borrower shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee, liquidator or
similar official of itself or of all or a substantial part of its property,
(ii) be generally not paying its debts as such debts become due, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the Federal Bankruptcy Code (as now or hereafter in effect), (v)
take any action or commence any case or proceeding under any law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or adjustment
of debts, or any other law providing for the relief of debtors, (vi) fail to
contest in a timely or appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under such Bankruptcy Code or
other law, (vii) take any action under the laws of its jurisdiction of
incorporation or organization similar to any of the foregoing, or (viii) take
any corporate action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application or
consent of the Borrower in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, dissolution, winding up, or composition or
readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any substantial part of
its assets, or (iii) similar relief in respect of it, under any law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or adjustment
of debts or any other law providing for the relief of debtors, and such
proceeding or case shall continue undismissed, or unstayed and in effect, for a
period of 30 days; or an order for relief shall be entered in an involuntary
case under
27
<PAGE>
such Bankruptcy Code, against the Borrower or action under the laws of the
jurisdiction of incorporation or organization of the Borrower similar to any
of the foregoing shall be taken with respect to the Borrower and shall
continue unstayed and in effect for any period of 60 days; or
(h) A judgment or order for the payment of money not covered by insurance
shall be entered against the Borrower by any court, or a warrant of attachment
or execution or similar process shall be issued or levied against property of
the Borrower, and such judgment, order, warrant or process shall continue
undischarged or unstayed for 60 days; or
(i) The Borrower or any member of the Controlled Group shall fail to pay
when due any amount which it shall have become liable to pay to the PBGC or to
a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or
Plans shall be filed under Title IV of ERISA by the Borrowers, any member of
the Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of any such Plan or
Plans against the Borrower and such proceedings shall not have been dismissed
within 60 days thereafter; or a condition shall exist by reason of which the
PBGC would be entitled to obtain a decree adjudicating that any such Plan or
Plans must be terminated;
(j) Borrower or any guarantor (including BPI) shall fail to perform or
observe, after any applicable period of grace, any term, covenant or agreement
contained in, or the occurrence of a default or event of default under, any
note, contract, agreement or understanding (whether related or unrelated to
this Agreement) now existing or hereafter entered into with or for the benefit
of the Bank, BancBoston Leasing or any affiliate in any capacity or capacities;
(k) The occurrence of any of the foregoing Events of Default with respect
to any guarantor (including without limitation, BPI) or endorser of any
obligation of Borrower to Bank, including, but not limited to, the breach of,
or the occurrence of a default or event of default under, any obligation or
agreement by any such guarantor (including without limitation, BPI), or
endorser in favor of the Bank;
(l) The revocation or termination of any guaranty in favor of Bank by any
guarantor (including, without limitation, BPI), of any obligation of Borrower
to the Bank;
(m) A Change in Control shall occur;
(n) The Collateral or the real estate (the "Real Property") subject to a
mortgage (the "Mortgage") granted to the Bank by BPI to secure its guaranty, or
any portion thereof, shall be damaged by fire or other casualty (i) which
involves an uninsured loss involving aggregate costs of repair, restoration or
replacement, in the Bank's sole judgment, exceeding $100,000 or (ii) in
connection with which the Bank is not obligated, under the provisions of either
the Security Agreement, or the Mortgage, to make available insurance proceeds,
if any, to assist the repair, replacement or restoration of the Collateral or
Real Property; or
28
<PAGE>
(o) The Collateral or Real Property, or any portion thereof, shall be
damaged or taken through condemnation or conveyance in lieu thereof (i) which
involves, in the Bank's sole judgment, an award or claim for damages in excess
of $50,000 or (ii) in connection with which the Bank is not obligated, under
the provisions of either the Security Agreement with the Borrower or the
Mortgage, to make available the proceeds of any award or claim for damages in
connection therewith to assist the restoration of the Collateral or Real
Property.
9.2. REMEDIES. Upon the occurrence of an Event of Default
described in subsections 9.1(f) and (g), immediately and automatically, and
upon the occurrence of any other Event of Default, at any time thereafter
while such Event of Default is continuing, at the Bank's option and upon the
Bank's declaration:
(a) The Bank's commitment to make any further Loans hereunder shall
terminate;
(b) The unpaid principal amount of the Loans together with accrued
interest and all other Obligations shall become immediately due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived; and
(c) The Bank may exercise any and all rights it has under this Agreement
or any other documents or agreements executed in connection herewith, or at law
or in equity, and proceed to protect and enforce the Bank's rights by any
action at law, in equity or other appropriate proceeding.
9.3 CROSS-DEFAULT AND CROSS-COLLATERALIZATION. An Event of
Default in any of the terms and conditions of the Loans shall constitute a
Default in all other Obligations (or any document evidencing such obligation
or security therefor) of the Borrower, and all obligations (however arising)
of any guarantor including BPI, to the Bank. An Event of Default in any of
the terms and conditions of any other Obligations (or any document evidencing
such obligation or security therefor) of the Borrower, or any obligations of
any guarantor including BPI to the Bank (however arising), shall constitute
an Event of Default hereunder. All Collateral granted by the Borrower or
any guarantor including BPI to the Bank shall secure all Obligations of the
Borrower and such guarantor to the Bank.
SECTION X
MISCELLANEOUS
10.1. NOTICES. All notices, requests and demands to or upon the
Borrower or the Bank shall be deemed to have been duly given or made: if by
telecopy, telex, telegram or by hand, immediately upon sending or delivery;
if by any overnight delivery service, one (1) day after dispatch; and if
mailed by certified mail, return receipt requested, five (5) days after
mailing. All notices, requests and demands are to be given or made to the
respective parties at the following addresses (or to such other address as
any party may designate by notice in accordance with this Section):
(a) If to the Borrower:
29
<PAGE>
Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, Colorado
ATTN: Jeffrey J. Hiller, Vice President
Telephone: (303) 447-0248
Telecopier: (303) 447-3905
(b) With a copy to:
William G. Tanis, Esq.
Ireland, Stapleton
1675 Broadway, Suite 2600
Denver, CO 80202-4685
Telephone: (303) 623-2700
Telecopier: (303) 623-2062
(c) If to the Bank:
BankBoston, N.A.
1350 Main Street
Springfield, MA 01103
ATTN: David M. Hobert, Vice President
Telephone: (413) 731-4003
Telecopier: (413) 731-4433
(d) With a copy to:
Robinson, Donovan, Madden & Barry, P.C.
1500 Main Street, 16th Floor
Springfield, MA 01115
ATTN: James F. Martin, Esquire
Telephone: (413) 732-2301
Telecopier: (413) 785-4658
10.2. EXPENSES. The Borrower shall, on demand, pay or reimburse the
Bank for all reasonable incurred expenses (including attorneys' fees of
outside counsel or allocation costs of in-house counsel) incurred or paid by
the Bank in connection with the administration or amendment of this Agreement
(whether or not the transactions contemplated hereby shall be consummated)
and with the enforcement of any Obligation of the Borrower or exercise of any
right of the Bank hereunder.
10.3. SET-OFF. Regardless of the adequacy of the Collateral or
other means of obtaining payment of the Obligations, any deposits, balances
or other sums credited by or due from the
30
<PAGE>
head office of the Bank or any of its branch offices to the Borrower may, at
any time after the occurrence of a Default hereunder, without notice to the
Borrower or compliance with any other condition precedent now or hereafter
imposed by statute, rule of law, or otherwise (all of which are hereby
expressly waived) be set off, appropriated, and applied by the Bank against
any and all obligations of the Borrower to the Bank or any of its affiliates
in such manner as the head office of the Bank or any of its branch offices in
their sole discretion may determine, and the Borrower hereby grants the Bank
a continuing security interest in such deposits, balances or other sums for
the payment and performance of all such obligations.
10.4. TERM OF AGREEMENT. This Agreement shall continue in force and
effect so long as the Bank has any commitment to make Loans hereunder or any
Loan or any Obligation shall be outstanding.
10.5. NO WAIVERS. No failure or delay by the Bank in exercising any
right, power or privilege hereunder or under any other documents or
agreements executed in connection herewith shall operate as a waiver thereof;
nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law.
10.6. GOVERNING LAW. This Agreement and the Notes shall be deemed
to be a contracts made under seal and shall be construed in accordance with
and governed by the laws of the Commonwealth of Massachusetts (without giving
effect to any conflicts of laws provisions contained therein).
10.7. AMENDMENTS. Neither this Agreement nor the Notes nor any
provision hereof or thereof may be amended, waived, discharged or terminated
except by a written instrument signed by the Bank and, in the case of
amendments, by the Borrower.
10.8. BINDING EFFECT OF AN AGREEMENT. This Agreement shall be
binding upon and inure to the benefit of the Borrower and the Bank and their
respective successors and assigns; PROVIDED that the Borrower may not assign
or transfer its rights or obligations hereunder. The Bank may assign all of
its rights and obligations hereunder without the consent of the Borrower.
The Bank may sell, transfer or grant participations in any Loan without the
prior written consent of the Borrower, and the Borrower agrees that any
transferee or participant shall thereupon become vested, to the extent set
forth in the agreement evidencing such assignment, transfer or participation,
with all rights in respect thereof granted to Bank hereunder.
10.9. COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
10.10. SEVERABILITY. The invalidity or unenforceability of any one
or more phrases, clauses or sections of this Agreement shall not affect the
validity or enforceability of the remaining portions of it.
10.11. INTENTIONALLY DELETED.
31
<PAGE>
10.12. CAPTIONS. The captions and headings of the various sections and
subsections of this Agreement are provided for convenience only and shall not
be construed to modify the meaning of such sections or subsections.
10.13. ENTIRE AGREEMENT. This Agreement, the Revolving Note, and the
documents and agreements executed in connection herewith and therewith
constitute the final agreement of the parties hereto and supersede any prior
agreement or understanding, written or oral, with respect to the matters
contained herein and therein.
10.14. JURY WAIVER. EACH OF THE BORROWER AND THE BANK AGREE THAT
NEITHER OF THEM, NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN
ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER ACTION BASED UPON, OR
ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR
THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL
CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN
FULLY DISCUSSED BY THE BORROWER AND THE BANK, AND THESE PROVISIONS SHALL BE
SUBJECT TO NO EXCEPTIONS. NEITHER THE BORROWER NOR THE BANK HAS AGREED WITH
OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as an instrument under seal as of the day and
year first above written.
IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ Jeffrey J.Hiller
- ------------------------ ----------------------------------
Witness Name: Jeffrey J. Hiller
Title: Vice President
[Seal]
BANKBOSTON, N.A.
By: /s/ David M. Hobert
- ------------------------ ----------------------------------
Witness Name: David M. Hobert
Title: Vice President
[Seal]
32
<PAGE>
Exhibit 21.0
LIST OF SUBSIDIARIES OF IMAGE GUIDED TECHNOLOGIES, INC.
Brimfield Precision, Inc., a Massachusetts corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (file no. 333-32435) of Image Guided Technologies, Inc.
of our report dated April 3, 1998 appearing on page 14 of this Annual Report on
Form 10-KSB.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boulder, Colorado
April 13, 1998
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<PAGE>
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<MULTIPLIER> 1,000
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<INVENTORY> 1,629
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<SALES> 5,713
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