<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C.
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
COMMISSION FILE NUMBER 001-12189
IMAGE GUIDED TECHNOLOGIES, INC.
-------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1139082
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
5710-B FLATIRON PARKWAY, BOULDER, COLORADO 80301
-------------------------------------------------
(Address of principal executive offices)
(303) 447-0248
--------------
(Registrant's telephone number, including area code)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
The number of shares outstanding of the registrant's common stock as of July
31, 1999 was 3,803,020.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE>
IMAGE GUIDED TECHNOLOGIES
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
Part I Financial Information Page
<S> <C>
Item 1. Balance Sheets as of June 30, 1999 and December 31, 1998 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998 4
Statements of Cash Flows for the six months ended
June 30, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations 7
Part II Other Information and Signatures 13
</TABLE>
2
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 84,000 $ 23,000
Accounts receivable, net of allowance for doubtful
accounts of $90,000 and $76,000, respectively 1,109,000 1,710,000
Inventories, net 903,000 921,000
Investment--Discontinued operations -- 1,437,000
Other current assets 141,000 174,000
--------------- ----------------
Total current assets 2,237,000 4,265,000
Property and equipment, net of accumulated depreciation of
$722,000 and $602,000, respectively 732,000 650,000
Goodwill, net of accumulated amortization of $44,000 and
$31,000, respectively 537,000 550,000
Patents and Trademarks net of accumulated amortization
$22,000 and $21,000, respectively 56,000 57,000
Investment--Discontinued operations -- 5,184,000
Other assets 149,000 165,000
--------------- ----------------
Total assets $ 3,711,000 $ 10,871,000
--------------- ----------------
--------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,322,000 $ 860,000
Accrued liabilities 400,000 403,000
Line of credit 173,000 2,524,000
Current portion of capital lease obligations 86,000 1,332,000
Current portion of notes payable 487,000 2,986,000
--------------- ----------------
Total current liabilities 2,468,000 8,105,000
Capital lease obligations 292,000 38,000
--------------- ----------------
Total liabilities $ 2,760,000 $ 8,143,000
--------------- ----------------
Shareholders' equity:
Common stock, no par value, 10,000,000 shares
authorized; 3,803,020 and 3,705,222 shares issued and 10,475,000 10,456,000
outstanding; respectively
Accumulated deficit (9,524,000) (7,728,000)
--------------- ----------------
Total shareholders' equity $ 951,000 $ 2,728,000
--------------- ----------------
Total liabilities and shareholders' equity $ 3,711,000 $ 10,871,000
--------------- ----------------
--------------- ----------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
------------------------------ --------------------------------
1999 1998 1999 1998
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 1,338,000 $ 1,252,000 $ 3,192,000 $ 2,972,000
Cost of goods sold 862,000 939,000 1,893,000 1,995,000
----------- ------------- ------------- ------------
Gross profit 476,000 313,000 1,299,000 977,000
----------- ------------- ------------- ------------
Operating expenses:
Research and development 357,000 357,000 702,000 736,000
Selling and marketing 306,000 185,000 613,000 393,000
General and administrative 510,000 543,000 1,041,000 859,000
----------- ------------- ------------- ------------
Total operating expenses 1,173,000 1,085,000 2,356,000 1,988,000
----------- ------------- ------------- ------------
Operating loss (697,000) (772,000) (1,057,000) (1,011,000)
Other income (expense) (77,000) 1,000 (79,000) (37,000)
----------- ------------- ------------- ------------
Loss from continuing operations (774,000) (771,000) (1,136,000) (1,048,000)
Discontinued operations:
Income (loss) from
discontinued operations (115,000) 30,000 (164,000)
Loss on disposal of
discontinued operations -- -- (690,000) --
Extraordinary item--loss on early -- (253,000) -- (253,000)
pay off of debt-net of taxes
----------- ------------- ------------- ------------
Net loss $ (774,000) $ (1,139,000) $ (1,796,000) $ (1,465,000)
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
Loss per share (basic and diluted):
Continuing operations $ (0.20) $ (0.21) $ (0.30) $ (0.28)
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
Discontinued operations $ 0.00 $ (0.03) $ (0.18) $ (0.05)
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
Extraordinary item $ 0.00 $ (0.07) $ 0.00 $ (0.07)
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
Net income $ (0.20) $ (0.31) $ (0.48) $ (0.40)
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
Weighted average common shares
outstanding (basic and diluted) 3,803,020 3,697,822 3,754,121 3,697,822
----------- ------------- ------------- ------------
----------- ------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,796,000) $ (1,465,000)
Net loss from discontinued operations (660,000) (164,000)
------------ ------------
Loss from continuing operations $ (1,136,000) $ (1,301,000)
Adjustments to reconcile net loss from continuing operations
to net cash used in continuing operating activities:
Extraordinary loss net of tax -- 253,000
Depreciation and amortization 134,000 410,000
Gain on disposition of assets -- 33,000
Provision for inventory obsolescence 42,000 10,000
Provision for doubtful accounts 14,000 16,000
Changes in operating assets and liabilities:
Accounts receivable 587,000 216,000
Inventories (24,000) (123,000)
Other assets 49,000 163,000
Accounts payable 462,000 103,000
Accrued liabilities (3,000) 79,000
------------ ------------
Net cash used in continuing operating activities $ 125,000 $ (141,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (202,000) --
Proceeds from sales/lease back arrangements 325,000 --
Proceeds from sale of discontinued operations 5,961,000 --
------------ ------------
Net cash provided by investing activities $ 6,084,000 $ --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 19,000 4,000
Proceeds from lines of credit 173,000 5,187,000
Principal payments on term loans (2,499,000) (5,346,000)
Payments on line of credit (2,524,000) (577,000)
Payments on capital lease obligations (1,317,000) (175,000)
------------ ------------
Net cash used in financing activities $ (6,148,000) $ (907,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents 61,000 (1,048,000)
CASH AND CASH EQUIVALENTS, beginning of period 23,000 1,216,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 84,000 $ 168,000
------------ ------------
------------ ------------
Supplemental Cash Flow Disclosures:
Interest paid $ 210,000 $ 361,000
Equipment acquired under capital lease $ 325,000 --
Warrants issued in connection with debt $ -- $ 169,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Note 1--Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Springfield Surgical Instruments, Inc.
(Springfield), f/k/a Brimfield Precision, Inc. The consolidated financial
statements have been adjusted and restated to reflect the results of
operations and net assets of the general instrument and implant business
units of Springfield as discontinued operations for the three months ended
June 30, 1998 and six months ended June 30, 1999 and 1998. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. The
financial statements reflect all adjustments which, in the opinion of
management, are necessary to present fairly the financial position of the
Company as of June 30, 1999 and its results of operations and cash flows for
the three and six month periods then ended. The unaudited financial
statements should be read with the financial statements and footnotes thereto
included in the Company's Form 10-KSB for the year ended December 31, 1998
previously filed with the Securities and Exchange Commission.
Note 2--Sale of Springfield Surgical Instruments, Inc. Assets
On March 30, 1999, Springfield sold substantially all the assets of its
general surgical instruments, orthopedic implants and orthopedic
instrumentation business located at Brimfield, Massachusetts. Total
consideration from the sale was $6,158,000 in cash plus assumption by the
purchaser of certain trade payables and accrued liabilities totaling
$449,000.
The funds received from the asset sale were used to repay amounts outstanding
under equipment leases and the Company's term loan with BankBoston and to pay
down the Company's revolving loan with BankBoston.
Note 3--Line of Credit
On April 9, 1999, BankBoston assigned its loan to Silicon Valley Financial
Services ("Silicon"), a division of Silicon Valley Bank. After the
assignment, Silicon and the Company amended and restated the loan to provide
for a loan facility under which Silicon would purchase certain of the
Company's receivables, initially at the rates of 90% and decreasing to 75% of
the face amount of the receivables by July 1, 1999. Under the facility, the
Company will repurchase from Silicon any uncollected receivables which are
over 90 days old from the date of the invoice and pay Silicon a finance
charge equal to 2% per month on the face amount of all purchased receivables
and an administrative fee of 1.5% of the face amount of each purchased
receivable. Silicon has no obligation to purchase any receivable under the
facility.
On July 2, 1999 Silicon and the Company amended the loan to provide for a
loan facility under which Silicon would purchase certain of the Company's
receivables at 75% of the face amount of the receivables. Also, the total
amount of receivables purchased at any one time cannot exceed $650,000. As
of August 1, 1999, approximately $167,000 of the Company's accounts
receivable had been purchased by Silicon.
6
<PAGE>
Note 4 - Segment Information
The Company has two business segments--optical localizers and surgical
instruments. The optical localizer segment typically sells a system which
consists of the following: a number of light-emitting diodes ("LED's") used
as markers mounted on a pointer device or surgical instrument, a relative
position dynamic reference device connected to a patient or industrial part,
a multi-camera array for detecting positions of the LED's in three
dimensional space, a proprietary microprocessor-based control system and a
proprietary software package. The surgical instrument segment sells
stainless steel surgical instruments used for minimally invasive surgery and
other surgical procedures including the newly emerging image guided surgical
instrument market segment.
The Company does not have any intersegment revenue and evaluates segment
performance based upon revenue and gross profit. The combined segment gross
profit equals consolidated gross profit. The Company does not allocate
research and product development costs, selling, general and administrative
expenses, other income and expense or income taxes to the two segments. The
revenue and gross profit by segment for the first six months of the year are
as follows.
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenue: Optical localizers $ 2,583,000 $ 1,637,000
Surgical instruments 609,000 1,335,000
------------ ------------
Total revenue $ 3,192,000 $ 2,972,000
------------ ------------
------------ ------------
Gross profit: Optical localizers $ 1,344,000 $ 648,000
Surgical instruments (45,000) 329,000
------------ ------------
Total gross profit $ 1,299,000 $ 977,000
------------ ------------
------------ ------------
</TABLE>
Note 5 - Contingencies
The Company is a party to one lawsuit and one threatened lawsuit, which,
while the outcome cannot be predicted with certainty, management expects they
will not have a material adverse effect on the consolidated financial
position or results of operations of the Company.
Note 6 - Default on Note Payable
The Company is currently in default under its $500,000 12% subordinated
promissory note payable to Cruttenden Roth, Inc. While interest has been
paid to date, the Company owes the $500,000 principal amount in full. The
note is subordinated to the Company's bank debt and the holders of the note
are not permitted under the terms of the subordination agreement with the
bank to sue upon or collect, nor to make demand for, nor to exercise any
rights or remedies to enforce, the note, so long as any bank obligation
remains outstanding.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1998
REVENUE. Revenue increased $86,000 or 6.9% from $1,252,000 in the second
quarter 1998 to $1,338,000 in the second quarter 1999. The increase is due
to higher optical localizer business from existing and new customers
primarily related to increased sales of wireless systems and an increase in
sales in the industrial market, partially offset by a decrease in minimally
invasive surgical instruments sales spread across the Company's customer
base.
7
<PAGE>
COST OF GOODS SOLD AND GROSS MARGIN. The Company's gross margin increased
from 25.0% in the second quarter 1998 to 35.6% in the second quarter 1999.
This increase is due to a favorable product mix and the impact of cost
reduction efforts partially offset by a decrease in surgical instruments
margins related to lower revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
remained the same for 1998 and 1999 at $357,000. The impact of the reduction
in engineering personnel in the third quarter of 1998 was offset by
additional spending for base technology enhancement and customization to meet
customer requirements.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
$121,000 or 65.4% from $185,000 in the second quarter 1998 to $306,000 in the
second quarter 1999. This increase is due to two additional sales personnel
in 1999 plus increased expenses related to broadening the customer base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $33,000 or 6.1% from $543,000 in the second quarter 1998 to
$510,000 in the second quarter 1999. This decrease is due a reduction in the
number of personnel supporting this function.
OTHER INCOME (EXPENSE). Other income and expense increased $78,000 from the
$1,000 income recognized in the second quarter of 1998 to $77,000 of expense
for the second quarter of 1999 primarily due to increased interest costs to
support the debt associated with continuing operations.
DISCONTINUED OPERATIONS. Income (loss) from discontinued operations
represents the results of operations and loss on disposal of the general
surgical instruments, orthopedic implants and orthopedic instrumentation
business that the Company sold in March, 1999. No additional loss was
recognized on the disposal of these operations, which occurred during the
first quarter of 1999.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1998
REVENUE. Revenue increased $220,000 or 7.4% from $2,972,000 in the first
half of 1998 to $3,192,000 in the first half of 1999. The increase is due to
higher optical localizer business from existing and new customers related to
increased sales of the Company's wireless systems and an increase in sales in
the industrial market, partially offset by a decrease in surgical instruments
sales due to the loss of a major customer.
COST OF GOODS SOLD AND GROSS MARGIN. The Company's gross margin increased
from 32.9% in the first half 1998 to 40.7% in the first half 1999. This
increase is due to higher optical localizer margins related to a favorable
product mix and the impact of cost reduction efforts, partially offset by a
decrease in surgical instruments margins.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased $34,000 or 4.6% from $736,000 in the first quarter 1998 to $702,000
in the first half 1999. The net decrease is due to a reduction in
engineering personnel in the third quarter of 1998 offset by an increase in
quality assurance expenses in the first quarter of 1999 related to the
Company's obtaining ISO 9001 certification.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
$220,000 or 56.0% from $393,000 in the first half 1998 to $613,000 in the
first half 1999. This increase is due to two additional sales personnel in
1999 plus increased expenses related to trade shows and an attempt to broaden
the customer base.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $182,000 or 21.2% from $859,000 in the first half 1998 to
$1,041,000 in the first half 1999. This increase is due to salary costs in
the first quarter of 1999 for a former officer, increases in legal fees, and
utilization of temporary and contract personnel during the period of
recruitment activity to replace key employees no longer with the Company.
OTHER INCOME (EXPENSE). Other expense increased by $42,000 or 113% from the
first half 1998 to the first half 1999. The increase was primarily due to
increased interest costs associated with the debt associated with continuing
operations.
8
<PAGE>
DISCONTINUED OPERATIONS. Income (loss) from discontinued operations
represents the results of operations and loss on the disposal of the general
surgical instruments, orthopedic implants and orthopedic instrumentation
business, which the Company sold in March 1999. The loss for 1999 represents
a loss recognized in the first quarter of 1999 due to a change in the
estimated sale price primarily due to the valuation of net assets sold and
the costs associated with finalizing the sale.
LIQUIDITY AND CAPITAL RESOURCES. Working capital decreased in the second
quarter, 1999 to a deficit of $231,000 versus a surplus of $327,000 at the
end of the first quarter, 1999. Cash provided by a $713,000 reduction in
accounts receivable, $325,000 capital lease financing, and a $173,000
increase in accounts payable and accrued liabilities was primarily used to
fund the $774,000 operating loss for the quarter and to reduce the line of
credit by $414,000.
As of August 1, 1999, approximately $167,000 of the Company's outstanding
accounts receivable had been purchased by Silicon Financial Services. The
Company is pursuing various alternatives to raise cash to fund its
operations, pay down its obligations to its suppliers and for other corporate
purposes.
Effective June 14, 1999 for a cash receipt of $200,000, the Company sold
certain of its equipment pursuant to a sale and leaseback agreement. On June
17 and June 24, 1999 the Company entered into lease based financing
agreements for the purchase of equipment in the amount of $125,285. Pursuant
to these lease based financing agreements, the Company committed to make
monthly lease payments of approximately $8,400 for a period of 60 months. At
the conclusion of the lease period, the ownership of the leased equipment
will revert to the Company for a nominal charge.
In July 1999, the Company signed an exclusive licensing agreement for its
localizer technology for use in the automotive, truck and golf cart market
with a customer. Under the terms of the agreement, the Company will receive
three equal payments totaling $500,000 as a license fee (one such payment of
$167,000 has already been received). The payments are based upon the
successful transfer of certain intellectual property and proprietary
information to the customer.
During the 3rd and 4th quarters of 1999, the Company intends to purse a
program with selected customers where unique customizations of the Company's
core technology requested by the customer will be funded directly by the
customer. It is anticipated that the ownership of the unique technology
adaptation/customization will be transferred to the customer with the
ownership of the core technology retained by the Company.
YEAR 2000 ISSUES. Pursuant to the Company's readiness programs, all major
categories of information technology systems and non-information technology
systems (i.e., equipment with embedded microprocessors) in use by the
Company, including manufacturing, sales, financial and human resources, are
being inventoried and assessed. In addition, plans are being developed for
the required systems modifications or replacements. With respect to its
information technology systems, the Company has completed the entire
assessment phase and has completed 95% of the remediation phase as of July
31, 1999. The Company plans to complete the final 5% of the remediation
phase for its information technology by September 30, 1999. With respect to
its non-information technology systems, the Company has completed
approximately 95% of the assessment phase and has initiated its remediation
phase activities. The remainder of the assessment for non-technology systems
will be completed by September 30, 1999 and remediation will be complete by
the end of October, 1999. Selected areas, both internal and external, will
be tested to assure the integrity of the Company's remediation programs. The
testing is expected to be completed by October 31, 1999. The company plans
to have all internal mission-critical information technology and
non-information technology systems Year 2000 compliant by October 31, 1999.
The Company is in the process of communicating with its major customers,
suppliers and financial institutions to assess the potential impact on the
Company's operations if those third parties fail to become Year 2000
compliant in a timely manner. A formal survey of major customers and
suppliers began in April 1999. Risk assessment, readiness evaluation,
action plans and contingency plans related to the Company's significant
customers and suppliers are expected to be completed by October 31, 1999.
The Company's key financial institutions have been surveyed and it is the
Company's understanding that they are or will be Year 2000 compliant on or
before December 31, 1999.
The costs incurred to date related to its Year 2000 activities have not been
material to the Company, and, based upon current estimates, the Company does
not believe that the total cost of its Year 2000 readiness programs will have
a material adverse impact on the Company's result of operations or financial
condition.
9
<PAGE>
The Company's readiness programs will also include the development of
contingency plans to protect its business and operations from Year
2000-related interruptions. These plans should be complete by October 31,
1999 and, by way of examples, will include back-up procedures, identification
of alternate suppliers, where possible, and increases in safety inventory
levels. There can be no assurances, however, that any of the Company's
contingency plans will be sufficient to handle all problems or issues, which
may arise.
The Company believes that it is taking reasonable steps to identify and
address those matters that could cause serious interruptions in its business
and operations due to Year 2000 issues. However, delays in the
implementation of new systems, a failure to fully identify all Year 2000
dependencies in the Company's systems and in the systems of its suppliers,
customers and financial institutions, a failure of such third parties to
adequately address their respective Year 2000 issues, or a failure of a
contingency plan could have a material adverse effect on the Company's
business, financial condition and results of operations.
The statements set forth herein concerning Year 2000 issues which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
in the forward-looking statements. In particular, the costs associated with
the Company's Year 2000 programs and the time-frame in which the Company
plans to complete Year 2000 modifications are based upon management's best
estimate. These estimates were derived from internal assessments and
assumptions of future events. These estimates may be adversely affected by
the continued availability of personnel and system resources, and by the
failure of significant third parties to properly address Year 2000 issues.
Therefore, there can by no guarantee that any estimates, or other
forward-looking statements will be achieved, and actual results could differ
significantly from those contemplated.
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.
FACTORS AFFECTING THE COMPANY'S BUSINESS, OPERATION RESULTS AND FINANCIAL
CONDITION
LOSS DURING 1998 AND 1999; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS.
During the first half of the year, the Company lost $1,301,000 in 1998 and
$1,136,000 in 1999 from continuing operations. There can be no assurance the
Company will generate sufficient revenue to attain profitability. In
addition, because 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 partially
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, by changes in product mix sold, by increases
in the costs of the components and subassemblies acquired by the Company from
vendors, and by availability of such component and subassemblies from vendors.
BANK DEBT. The Company is currently borrowing money from Silicon Valley
Financial Services, a division of Silicon Valley Bank through an arrangement
by which involves transfer of outstanding accounts receivable to Silicon.
The arrangement is expensive and Silicon has no obligation to purchase any
receivable. While the Company hopes to be able to obtain a more favorable
banking arrangement, there can be no assurance that it will be successful.
10
<PAGE>
NEED FOR ADDITIONAL CAPITAL. The Company will need additional capital to
satisfy its obligations to Cruttenden Roth, Inc. and to meet its other
capital requirements. There can be no assurance that such capital will be
available on reasonable terms, or at all.
DEPENDENCE ON FEW CUSTOMERS. The Company realizes a majority of its revenues
by sales to relatively few customers. Purchases by its customers are
generally by purchase order and do not involve long-term commitments. 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.
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.
PROPERTY RIGHTS. The Company does not have any patents which directly cover
its FlashPoint or Pixsys optical localizers. The Company 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 the
Company's intellectual property rights, that disputes with respect to
ownership of its intellectual property rights will not arise, that the
Company's trade secrets or proprietary technology will not otherwise become
known or be independently developed by competitors or that the Company can
otherwise meaningfully protect its intellectual property rights.
Furthermore, there can be no assurance that others will not develop similar
products or software, duplicate the Company's products or software or that
third parties will not assert intellectual property infringement claims
against the Company. 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.
A patent granted to St. Louis University ("SLU Patent"), and subsequently
licensed to a company acquired by Sofamor Danek, one of the Company's major
customers, covers, in general, a particular technique for determining the
position of a surgical probe within a patient's body on a historical image of
that body. Sofamor Danek has recently sued BrainLab GmbH for infringement of
this patent. The Company's documents have been subpoenaed and Waldean
Schulz, PhD. Vice President-Technology of the Company, has had his deposition
taken in connection with such lawsuit. In 1995, the Company assigned to St.
Louis University all right, title and interest it had in the SLU Patent.
There can be no assurance that Sofamor Danek may not challenge the Company's
ownership of certain of its patents based on such assignment. The Company is
not in a position to evaluate what effect this lawsuit, or any further
lawsuits, will have on its customers or whether it will become a defendant in
any lawsuit involving this patent or any of the Company's patents.
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.
11
<PAGE>
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.
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. 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.
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. 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.
CLAIM BY DANIEL HANNIFY. The Company and Springfield have received a notice
of claim pursuant to the December 1, 1997 Employment Agreement between
Brimfield Precision, Inc. and Daniel T. Hannify. Mr. Hannify is claiming
that he is entitled to payment of $200,000 per year plus benefits for two
years and eight months.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to one lawsuit, which, while the outcome cannot
be predicted with certainty, management expects will not have a
material adverse affect on the consolidated financial position or
results of operations of the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
The Company is currently in default under its $500,000 12%
subordinated promissory note payable to Cruttenden Roth, Inc. See
"Liquidity and Capital Resources."
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Title
----------- -----
<S> <C>
10.32 Employment Agreement dated 3/1/98 between the Company
and William O'Connor.
10.35 Stock Option Agreement for Paul L. Ray
10.36 Second Amended and Restated Loan Agreement, dated as of
April 3, 1998, with Silicon Valley Financial Services.
10.37 July, 1999 Modification to Second Amended and Restated
Loan Agreement with Silicon Valley Financial Services
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Filed April 4, 1999--The Company announced the sale of the
orthopedic and general instrument business units of the Company's
subsidiary, Brimfield Precision Inc. to an entity controlled by
MedSource Technologies, Inc. This 8-K was subsequently amended
by a filing on August 4, 1999.
13
<PAGE>
SIGNATURES
In accordance with the requirements 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.
/s/ Paul L. Ray
- ----------------------------- Date: August 13, 1999
Paul L. Ray
President, Chief Executive Officer and
Chief Financial Officer
14
<PAGE>
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of March 1,
1998 between Image Guided Technologies, Inc., a Colorado corporation (the
"Company"), and William O'Connor ("O'Connor").
In consideration of the mutual covenants and conditions set forth herein,
the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs O'Connor in the capacity of
Vice President and Chief Operating Officer of the Company's Boulder and
Springfield operations. O'Connor accepts such employment and agrees to
perform such services as are customary to such office and as shall from time
to time be assigned to him by the Chairman of the Board, the President or the
Board of Directors.
2. TERM. Subject to earlier termination as provided in Section 5, the
employment hereunder shall be for a period of one year, commencing on March
1, 1998 (the "Commencement Date") and ending on February 28, 1999 and shall
automatically be renewed on the same terms and conditions for two additional
one-year periods unless either party notifies the other at least 90 days
prior to the expiration of the initial term or the first renewal term, as the
case may be, not to renew the Agreement (i.e., unless earlier terminated, the
initial term and the two renewal terms will end on February 28, 2001).
O'Connor's employment will be on a full-time basis requiring the devotion of
such amount of his productive time as is necessary for the efficient
operation of the business of the Company.
3. COMPENSATION AND BENEFITS.
3.1. SALARY. For the performance of O'Connor's duties hereunder, the
Company shall pay O'Connor an annual salary of $135,000, payable (less
required withholdings) no less frequently than twice monthly.
3.2. BENEFITS. O'Connor 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.
3.3. REIMBURSEMENT OF EXPENSES. O'Connor shall be entitled to be
reimbursed for all reasonable expenses, including but not limited to expenses
for travel, meals and entertainment, incurred by O'Connor in connection with
and reasonably related to the furtherance of the Company's business.
3.4. OPTIONS. Notwithstanding anything to the contrary set forth in
any of his stock option agreements, if O'Connor is entitled to severance
pursuant to Section 5.2(b)(ii) below and if such severance is paid over a
period of time rather than in one lump sum, then
<PAGE>
O'Connor's options will continue to vest over the one year severance period
and any vested options will remain exercisable during such severance period
(but not thereafter) despite earlier termination of his employment. Such
options, however, remain subject to the terms and provisions of the stock
option plans pursuant to which they were granted including those provisions
with respect to termination in the event of a merger or sale of assets or
dissolution or liquidation of the Company.
4. CHANGE OF CONTROL. In the event of a Change of Control of the Company
(as defined below), all options then granted to O'Connor which are unvested
at the date of the Change of Control will be immediately vested. In addition,
in the event of a termination of O'Connor's employment during the term hereof
for any reason (other than as set forth in Section 5.1(f)) following a Change
of Control, the Company will promptly pay O'Connor, in addition to the
amounts required under Section 5.2(a), severance in accordance with Section
5.2(b) below.
As used herein, a "Change of Control" of the Company shall be deemed to
have occurred:
(a) Upon the consummation, in one transaction or a series of related
transactions, of the sale or other transfer of voting power (including voting
power exercisable on a contingent or deferred basis as well as immediately
exercisable voting power) representing effective control of the Company to a
person or group of related persons who, on the date of this Agreement, is not
affiliated (within the meaning of the Securities Act of 1933) with the
Company, whether such sale or transfer results from a tender offer or
otherwise; or
(b) Upon the consummation of a merger or consolidation in which the
Company is a constituent corporation and in which the Company's shareholders
immediately prior thereto will beneficially own, immediately thereafter,
securities of the Company or any surviving or new corporation resulting
therefrom having less than a majority of the voting power of the Company or
any such surviving or new corporation; or
(c) Upon the consummation of a sale, lease, exchange or other transfer or
disposition by the Company of all or substantially all its assets to any
person or group of related persons.
5. TERMINATION.
5.1. TERMINATION EVENTS. The employment hereunder will terminate upon
the occurrence of any of the following events ("Termination Event"):
(a) O'Connor dies;
(b) The Company, by written notice to O'Connor or his personal
representative, discharges O'Connor due to the inability to perform the
duties assigned to him hereunder for a continuous period exceeding 90 days by
reason of injury, physical or mental illness or other disability, which
condition has been certified by a physician; provided, however, that prior to
discharging O'Connor due to such disability, the Company shall give a written
2
<PAGE>
statement of findings to O'Connor or his personal representative setting
forth specifically the nature of the disability and the resulting performance
failures, and O'Connor shall have a period of ten (10) days thereafter to
respond in writing to the Board of Directors' findings;
(c) O'Connor is discharged by the Board of Directors of the Company
for cause. As used in this Agreement, the term "cause" shall mean:
(i) O'Connor's conviction of (or pleading guilty or nolo
contendere to) a felony or any misdemeanor involving dishonesty or moral
turpitude; or
(ii) (a) The willful and continued failure of O'Connor to
substantially perform his duties with the Company (other than any such
failure resulting from illness or disability) after a demand for substantial
performance is requested by the Company's Board of Directors, which
specifically identifies the manner in which it is claimed O'Connor has not
substantially performed his duties, or (b) O'Connor is willfully engaged in
misconduct which has a direct and material adverse monetary affect on the
Company. For purposes of this subpart (ii) no act or failure to act on
O'Connor's part shall be considered "willful" unless done, or omitted to be
done, by O'Connor not in good faith and without reasonable belief that
O'Connor's action or omission was in the best interest of the Company. No
termination shall be effected for cause pursuant to this subpart (ii) unless
O'Connor has been provided with specific information as to the acts or
omissions which form the basis of the allegation of cause, and O'Connor has
had an opportunity to be heard, with counsel if he so desired, before the
Board of Directors and such Board determines in good faith that O'Connor was
guilty of conduct constituting "cause" as herein defined, specifying the
particulars thereof in detail;
(d) O'Connor is discharged by the Board of Directors of the Company
without cause, which the Company may do at any time upon notice to O'Connor,
or if the Agreement is not renewed by the Company at the end of the initial
term or the first renewal term as provided in Section 2;
(e) O'Connor voluntarily terminates his employment due to either (i) a
default by the Company in the performance of any of its obligations
hereunder, or (ii) an Adverse Change in Duties (as defined below), which
default or Adverse Change in Duties remains unremedied by the Company for a
period of ten days following its receipt of written notice thereof from
O'Connor; or
(f) O'Connor voluntarily terminates his employment for any reason
other than the Company's default or an Adverse Change in Duties, which
O'Connor may do at any time with at least 30 days advance notice, or if the
Agreement is not renewed by O'Connor at the end of the initial term or the
first renewal term as provided in Section 2.
As used herein, "Adverse Change in Duties" means an action or series of
actions taken by the Company, without O'Connor's prior written consent, which
results in:
3
<PAGE>
(1) A change in O'Connor's reporting responsibilities, titles,
job responsibilities or offices which, in O'Connor's reasonable judgment,
results in a diminution of his status, control or authority; or
(2) The assignment to O'Connor of any positions, duties or
responsibilities which, in O'Connor's reasonable judgment, are inconsistent
with O'Connor's positions, duties and responsibilities or status with the
Company; or
(3) A requirement by the Company that O'Connor be based or
perform his duties anywhere other than (i) at the Company's corporate office
location on the date of this Agreement, or (ii) if the Company's corporate
office location is moved after the date of this Agreement, at a new location
that is no more than 60 miles from such prior location.
5.2. EFFECTS OF TERMINATION.
(a) Upon termination of O'Connor's employment hereunder for any
reason, the Company will promptly pay O'Connor all compensation owed to
O'Connor and unpaid through the date of termination (including, without
limitation, salary and employee expense reimbursements).
(b) In addition, if O'Connor's employment is terminated under
Section 4 or under Sections 5.1(a), (b), (d) or (e), the Company shall also
pay O'Connor:
(i) If such termination is within the first three months
of employment, O'Connor is not entitled to any severance.
(ii) If such termination is after the first three months of
employment, the Company shall pay O'Connor severance equal to 12 times his
then monthly salary; such severance to be paid, at the Company's option, in
one lump sum or at his then monthly salary commencing on the next month
following his last day of employment for 12 consecutive months (E.G., at his
current monthly salary of $11,250.00, the severance will be $135,000.00). In
addition, as long as O'Connor does not have other medical insurance, the
Company will pay O'Connor's medical insurance for the 18-month COBRA election
period.
(a) Upon termination of O'Connor's employment hereunder for any
reason, O'Connor agrees that for the twelve (12) month period following the
Termination Event:
(i) O'Connor will not directly or indirectly, 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
surgical instruments unless he obtains the prior written consent of the Board
of Directors.
(ii) O'Connor 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
4
<PAGE>
interfere in any other manner with the employment relationships at the time
existing between the Company and its current or prospective employees.
(iii) O'Connor 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.
O'Connor 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 O'Connor from continuing to engage in such breach.
If any restriction set forth in this paragraph is held to be
unreasonable, then O'Connor 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.
6.1. ASSIGNMENT. O'Connor may not assign or delegate any of his rights
or obligations under this Agreement.
6.2. ENTIRE AGREEMENT. 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.
6.3. MODIFICATIONS. This Agreement may be changed or modified only by
an agreement in writing signed by both parties hereto.
6.4. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Company and its successors
and assigns and O'Connor and O'Connor's legal representatives and heirs.
6.5. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of Colorado.
6.6. SEVERABILITY. If any provision of the Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect.
6.7. FURTHER ASSURANCES; COMMITTEES OF BOARD. The parties will execute
such further instruments and take such further actions as may be reasonably
necessary to carry out the intent of this Agreement. The term "Board of
Directors" shall include any committee of the Board.
5
<PAGE>
6.8. NOTICES. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed received by the
recipient when delivered personally or, if mailed, five (5) days after the
date of deposit in the United States mail, certified or registered, postage
prepaid and addressed, in the case of the Company, to 5710-B Flatiron
Parkway, Boulder, CO 80301, and in the case of O'Connor, to the address shown
for O'Connor on the signature page hereof, or to such other address as either
party may later specify by at least ten (10) days advance written notice
delivered to the other party in accordance herewith.
6.9. NO WAIVER. The failure of either party to enforce any provision
of this Agreement shall not be construed as a waiver of that provision, nor
prevent that party thereafter from enforcing that provision or any other
provision of this Agreement.
6.10. LEGAL FEES AND EXPENSES. In the event of any disputes under this
Agreement, each party shall be responsible for their own legal fees and
expenses which it may incur in resolving such dispute.
6.11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and O'Connor have executed this Agreement
effective as of the date first above written.
COMPANY O'CONNOR
Image Guided Technologies, Inc.
By:
-------------------------- ------------------------------
Paul L. Ray William O'Connor
President Address:
----------------------
------------------------------
------------------------------
Date of Execution: Date of Execution:
----------- -----------
6
<PAGE>
EXHIBIT 10.35
IMAGE GUIDED TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
FOR PAUL L. RAY
STOCK OPTION AGREEMENT between Paul L. Ray (the "Optionee"), and Image
Guided Technologies, Inc., a Colorado corporation (the "Corporation").
1. OPTION; BASIC TERMS.
(a) DEFINITIONS.
(i) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(ii) "Non-Statutory Option" shall mean an option other than
an incentive stock option described in Section 422 of the Code, the exercise
of which generally results in an immediate taxable event.
(iii) "Change of Control" shall be deemed to have occurred:
(1) Upon the consummation, in one transaction or a
series of related transactions, of the sale or other transfer of voting power
(including voting power exercisable on a contingent or deferred basis as well
as immediately exercisable voting power) representing effective control of
the Company to a person or group of related persons who, on the date of this
Agreement, is not affiliated (within the meaning of the Securities Act of
1933) with the Company, whether such sale or transfer results from a tender
offer or otherwise; or
(2) Upon the consummation of a merger or
consolidation in which the Company is a constituent corporation and in which
the Company's shareholders immediately prior thereto will beneficially own,
immediately thereafter, securities of the Company or any surviving or new
corporation resulting therefrom having less than a majority of the voting
power of the Company or any such surviving or new corporation; or
(3) Upon the consummation of a sale, lease,
exchange or other transfer or disposition by the Company of all or
substantially all its assets to any person or group of related persons.
(iv) "Committee" shall mean the Compensation Committee of
the Board.
(b) GRANT OF OPTION.
<PAGE>
(i) The Corporation hereby grants to the Optionee an option
(the "Option") to purchase 200,000 shares of the Common Stock of the
Corporation, upon the terms and conditions set forth below. The date of
grant of the Option is February 25, 1999 (the "Grant Date").
(ii) This Option is a Non-Statutory Option.
(iii) The Optionee is an employee ("Employee") of the
Corporation.
(c) EXPIRATION OF OPTION. This Option shall expire on February
24, 2004, subject to earlier expiration pursuant to the provisions set forth
in paragraphs 6 and 7 below.
(b) EXERCISE PRICE. The purchase price for the shares subject to
the Option shall be $0.56 per share.
2. EXERCISABILITY. Subject to the provisions relating to
termination, death or permanent disability as set forth in paragraph 6 below,
this Option shall vest over a three year period, in equal quarterly
installments, beginning after six months from Grant Date, I.E., one-sixth of
the Option shares shall be exercisable six months after the Grant Date, and
one-twelfth of the Option shares shall be exercisable at the end of each
quarter thereafter. Under these provisions, the Option is fully exercisable
36 months after the Grant Date. The holder of the Option shall not have any
of the rights of a shareholder with respect to the Shares covered by the
Option except to the extent that one or more certificates for such Shares
shall be delivered to him or her upon the due exercise of the Option.
3. METHOD OF EXERCISING OPTION.
(a) This Option shall be exercisable by written notice in the form
attached hereto which shall state the election to exercise the Option, the
number of shares in respect of which the Option is being exercised, and such
other representations and agreements as to the holder's investment intent
with respect to such shares as may be required by the Corporation. Such
written notice shall be signed by the Optionee and shall be delivered in
person or by certified mail to the Secretary of the Corporation prior to the
expiration of the Option, accompanied by full payment of the purchase price
in cash, or, if approved by the Corporation's Board of Directors or the
Committee, by tender of stock of the Corporation held for at least 6 months
having a fair market value not less than the purchase price or by payment of
other consideration. The certificate or certificates for the shares as to
which the Option shall be exercised shall be registered in the name of the
person or persons exercising the Option.
(b) Optionee agrees to have withheld from any remuneration payable
to him by the Corporation and/or to pay to the Corporation, at the time of
exercise of the Option, an amount which is required to be withheld or paid
pursuant to any Federal, State or local tax or revenue laws or regulations,
as may be determined by the Corporation; provided, however, the Corporation's
Board of Directors on the Committee may, in its discretion, allow the
Optionee to elect to pay any withholding taxes payable, in whole or in part,
by transferring to the Corporation shares of Common Stock of the Corporation
owned by him or by being credited by the
<PAGE>
Corporation for shares he has a right to acquire in the Option being
exercised, in which case such certificate shall reflect the number of shares
after payment of the taxes.
4. NON-TRANSFERABILITY. The Option shall not be transferable otherwise
than by will or the laws of descent and distribution, and the Option may be
exercised, during the lifetime of the Optionee, only by the Optionee or his
or her legal representative. The Option shall be null and void and without
effect upon any attempted assignment or transfer, except as hereinabove
provided, including without limitation, any purported assignment, whether
voluntary or by operation of law, pledge, hypothecation or other disposition
contrary to the provisions hereof.
5. RESTRICTIONS AND LEGENDS.
(a) This Option may not be exercised if the issuance of such
shares upon such exercise would constitute a violation of any applicable
federal or state securities laws or other law or regulations. As a condition
to the exercise of this Option, the Corporation may require the Optionee to
make any representation or warranty to the Corporation as may be required by
any applicable law or regulation.
(b) All certificates representing any shares of Common Stock of
the Corporation issued upon exercise of this Option may have endorsed thereon
the following or similar legend and any other legends if, in the opinion of
the Corporation, such legend(s) are necessary for compliance with securities
or other applicable laws:
"These securities have not been registered under the Securities
Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration
statement as to the securities under said Act or an opinion of
counsel satisfactory to the Corporation that such registration is
not required."
6. TERMINATION, DEATH, DISABILITY.
(a) Options shall not become exercisable for additional shares
(i.e., no further vesting) following the first to occur of Optionee's
termination of employment with the Corporation, death or legal disability (as
that term is defined in Section 22(e)(3) of the Code); provided, however, if
Optionee is being paid severance by the Corporation pursuant to an employment
agreement with the Corporation, his options will continue to vest over such
severance period. In no event shall an Option be exercisable after the
expiration date set forth in paragraph 1(c) above.
(b) If Optionee's employment with the Corporation is terminated
for cause, the Option shall not be exercisable at any time after such
termination. "Cause" shall mean (i) Optionee's commission of a felony, fraud
or willful misconduct which has resulted, or is likely to result, in damage
to the Corporation, as determined in the sole discretion of the Board or
Committee, or (ii) the breach by Optionee of the terms of any non-disclosure
or non-competition agreement with the Corporation, as determined in the sole
discretion of the Board or Committee.
<PAGE>
7. STOCK SPLITS, CHANGE IN CONTROL, ETC.
(a) In case of any stock split, stock dividend or similar
transaction which increases or decreases the number of outstanding shares of
the Corporation's Common Stock, appropriate adjustment will be made to the
number and price per share of Common Stock which may be purchased under the
Option. If any adjustment shall result in a fractional share, the fraction
shall be disregarded, and the Corporation shall have no obligation to make
any cash or other payment with respect to such a fractional share. Any
adjustment shall be made by the Board, whose determination in that respect,
and as to whether any adjustment needs to be made, shall be final, binding
and conclusive.
(b) In the event of a Change in Control of the Corporation, all
Options granted hereunder which are unvested at the time of the Change of
Control shall be immediately vested. All Options outstanding on the date any
such event or transaction is consummated, to the extent not assumed by the
surviving or acquiring corporation or exercised by the Optionee, shall be
terminated and no longer exercisable.
(c) In the event of a dissolution or liquidation of the
Corporation, all Options shall terminate immediately prior to the
consummation of such dissolution or liquidation, unless otherwise determined
by the Board.
8. INTERPRETATION. The Board shall have the power to interpret the
provisions of this Agreement and all decisions made by the Board in such
interpretation shall be binding and conclusive for all purposes. No member
of the Board shall be liable for any action taken or decision made by him in
good faith with respect to this Agreement and all members of the Board shall,
in addition to their rights as directors, be fully indemnified by the
Corporation with respect to any such action or determination.
IN WITNESS WHEREOF, the Corporation has caused this Option Agreement to
be duly executed by its officers thereunto duly authorized, and the Optionee
has executed this Agreement, all as of the Grant Date set forth in paragraph
1(b)(i) above.
IMAGE GUIDED TECHNOLOGIES, INC.
By:
----------------------------
Date of Execution: Title:
---------- -------------------------
-------------------------------
Date of Execution: Optionee
----------
<PAGE>
EXHIBIT A
IMAGE GUIDED TECHNOLOGIES, INC.
NOTICE OF EXERCISE OF OPTION
The undersigned hereby gives notice to Image Guided Technologies, Inc.
(the "Company"), of his intent to exercise his right and option to purchase
__________ shares of the Company's common stock granted to him pursuant to a
Stock Option Agreement dated February 25, 1999 ("Option Agreement").
[Required representations or warranties.]
IN WITNESS WHEREOF, the undersigned has executed this Notice this _____
day of _______________, _____.
------------------------------
(Signature)
------------------------------
(Name Printed)
------------------------------
(Social Security Number)
<PAGE>
EXHIBIT 10.36
SILICON VALLEY FINANCIAL SERVICES
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, Ca. 95054
(408) 654-1000 - Fax (408) 980-6410
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Pursuant to that certain Assignment Without Recourse of Loan Documents,
dated _____________, 1999, BankBoston, N.A. ("Assignor") has assigned all of
its rights with respect to that certain Amended and Restated Loan Agreement,
dated as of April 3, 1998, between Assignor and Image Guided Technologies,
Inc. (the "Amended Loan Agreement") and all notes and other documents
executed in connection therewith, to Silicon Valley Bank. Image Guided
Technologies, Inc., Springfield Surgical Instruments, a Massachusetts
corporation (as co-borrower), and Silicon Valley Bank now desire to restate
and amend the provisions of the Amended Loan Agreement, as set forth therein.
NOW THEREFORE, the parties agree that the Amended and Restated Loan
Agreement is hereby amended and restated in its entirety as follows:
This Second Amended and Restated Loan Agreement (this "Agreement") is
made on this ______ day of MARCH, 1999, by and among Silicon Valley Financial
Services (a division of Silicon Valley Bank) ("Buyer"), having a place of
business at the address specified above, and IMAGE GUIDED TECHNOLOGIES, INC.,
a COLORADO corporation ("IGT"), whose principle place of business is 5710-B
Flatiron Parkway, Boulder, Colorado 80301, and SPRINGFIELD SURGICAL
INSTRUMENTS, a Massachusetts corporation, formerly known as Brimfield
Precision, Inc. ("SSI; " SSI and IGT are collectively called "Seller"), whose
principle place of business is 90 Brookdale Drive, Springfield,
Massachusetts; 01104. Each and every obligation and liability of IGT and
SSI under this Agreement are and shall remain joint and several.
1. DEFINITIONS. When used herein, the following terms shall have the
following meanings.
1.1. "Account Balance" shall mean, on any given day, the gross amount
of all Purchased Receivables unpaid on that day.
1.2. "Account Debtor" shall have the meaning set forth in the
California Uniform Commercial Code and shall include any person liable on any
Purchased Receivable, including without limitation, any guarantor of the
Purchased Receivable and any issuer of a letter of credit or banker's
acceptance.
1.3. "Adjustments" shall mean all discounts, allowances, returns,
disputes, counterclaims, offsets, defenses, rights of recoupment, rights of
return, warranty claims, or short payments, asserted by or on behalf of any
Account Debtor with respect to any Purchased Receivable.
1.4. "Administrative Fee" shall have the meaning as set forth in
Section 3.3 hereof.
1.5. "Advance" shall have the meaning set forth in Section 2.2 hereof.
1.6. "Collateral" shall have the meaning set forth in Section 8 hereof.
1.7. "Collections" shall mean all good funds received by Buyer from or
on behalf of an Account Debtor with respect to Purchased Receivables.
1.8. "Compliance Certificate" shall mean a certificate, in a form
provided by Buyer to Seller, which contains the certification of the chief
financial officer of Seller that, among other things, the representations
and warranties set forth in this Agreement are true and correct as of the
date such certificate is delivered.
1.9. "Documents" shall mean, collectively, this Agreement, any note, or
notes or guaranties executed by Seller or Guarantor, and any other present or
future agreement between Seller and/or for the benefit of Buyer in connection
with this Agreement, all as amended, extended or restated.
1.10. "Event of Default" shall have the meaning set forth in Section 9
hereof.
1.11. "Finance Charges" shall have the meaning set forth in Section 3.2
hereof.
1.12. "Invoice Transmittal" shall mean a writing signed by an
authorized representative of Seller which accurately identifies the
receivables which Buyer, at its election, may purchase, and includes for each
such receivable the correct amount owed by the Account Debtor, the name and
address of the Account Debtor, the invoice number, the invoice date and the
account code.
1.13. "Obligations" shall mean all advances, financial accommodations,
liabilities, obligations, covenants and duties owing, arising, due or payable
by Seller to Buyer of any kind or nature, present or future, arising under or
in connection with this Agreement or under any other document, instrument or
agreement, whether or not evidenced by any note, guarantee or other
instrument, whether arising on account or by overdraft, whether direct or
indirect (including those acquired by assignment) absolute or contingent,
primary or secondary, due or to become due, now owing or hereafter arising,
and however acquired; including, without limitation, all Advances, Finance
Charges, Administrative Fees, interest, Repurchase Amounts, fees, expenses,
professional fees and attorneys' fees and any other sums chargeable to
Seller hereunder or otherwise.
1.14. "Purchased Receivables" shall mean all those accounts,
receivables, chattel paper, instruments, contract rights, documents, general
intangibles, letters of credit, drafts, bankers acceptances, and rights to
payment, and all proceeds thereof (all of the foregoing being referred to as
"receivables"), arising out of the invoices and other agreements identified
on or
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delivered with any Invoice Transmittal delivered by Seller to Buyer
which Buyer elects to purchase and for which Buyer makes an Advance.
1.15. "Refund" shall have the meaning set forth in Section 3.5 hereof.
1.16. "Reserve" shall have the meaning set forth in Section 2.4 hereof.
1.17. "Repurchase Amount" shall have the meaning set forth in Section 4.2
hereof.
1.18. "Reconciliation Date" shall mean the last calendar day of each
Reconciliation Period.
1.19. "Reconciliation Period" shall mean each calendar month of every
year.
2. PURCHASE AND SALE OF RECEIVABLES.
2.1. OFFER TO SELL RECEIVABLES. During the term hereof, and provided
that there does not then exist any Event of Default or any event that with
notice, lapse of time or otherwise would constitute an Event of Default,
Seller may request that Buyer purchase receivables and Buyer may, in its sole
discretion, elect to purchase receivables. Seller shall deliver to Buyer an
Invoice Transmittal with respect to any receivable for which a request for
purchase is made. An authorized representative of Seller shall sign each
Invoice Transmittal delivered to Buyer. Buyer shall be entitled to rely on
all the information provided by Seller to Buyer on or with the Invoice
Transmittal and to rely on the signature on any Invoice Transmittal as an
authorized signature of Seller.
2.2. ACCEPTANCE OF RECEIVABLES. Buyer shall have no obligation to
purchase any receivable listed on an Invoice Transmittal. Buyer may exercise
its sole discretion in approving the credit of each Account Debtor before
buying any receivable. Upon acceptance by Buyer of all or any of the
receivables described on any Invoice Transmittal, Buyer shall pay to Seller
80 (%) percent of the face amount of each receivable Buyer desires to
purchase (the "Advance Rate"). Notwithstanding the foregoing, (i) effective
only for the initial Advance, the Advance Rate shall be 90 (%) percent, and
(ii) effective April 1, 1999 and continuing through June 30, 1999, the
Advance Rate shall be 85 (%) percent. Effective July 1, 1999 and thereafter,
the Advance Rate shall be 80 (%) percent. Such payment shall be the
"Advance" with respect to such receivable. The initial Advance made to
Seller pursuant to this Agreement shall be utilized to satisfy Seller's
outstanding obligations to BankBoston, N.A. Buyer may, from time to time, in
its sole discretion, change the percentage of the Advance. Upon Buyer's
acceptance of the receivable and payment to Seller of the Advance, the
receivable shall become a "Purchased Receivable." It shall be a condition to
each Advance that (i) all of the representations and warranties set
forth in Section 6 of this Agreement be true and correct on and as of the
date of the related Invoice Transmittal and on and as of the date of such
Advance as though made at and as of each such date, and (ii) no Event of
Default or any event or condition that with notice, lapse of time or
otherwise would constitute an Event of Default shall have occurred and be
continuing, or would result from such Advance. Notwithstanding the
foregoing, in no event shall the aggregate amount of all Purchased
Receivables outstanding at any time exceed ONE MILLION FIVE HUNDRED THOUSAND
AND NO/100**** Dollars ($1,500,000.00).
2.3. EFFECTIVENESS OF SALE TO BUYER. Effective upon Buyer's payment
of an Advance, and for and in consideration therefor and in consideration of
the covenants of this Agreement, Seller hereby absolutely sells, transfers
and assigns to Buyer, all of Seller's right, title and interest in and to
each Purchased Receivable and all monies due or which may become due on or
with respect to such Purchased Receivable. Buyer shall be the absolute owner
of each Purchased Receivable. Buyer shall have, with respect to any goods
related to the Purchased Receivable, all the rights and remedies of an unpaid
seller under the California Uniform Commercial Code and other applicable law,
including the rights of replevin, claim and delivery, reclamation and
stoppage in transit.
2.4. ESTABLISHMENT OF A RESERVE. Upon the purchase by Buyer of each
Purchased Receivable, Buyer shall establish a reserve. The reserve shall be
the amount by which the face amount of the Purchased Receivable exceeds the
Advance on that Purchased Receivable (the "Reserve"); provided, the Reserve
with respect to all Purchased Receivables outstanding at any one time shall
be an amount not less than (i) 10(%) percent of the Account Balance with
respect to the initial Advance, (ii) 15(%) percent of the Account Balance
with respect to Advances made between April 1, 1999 and June 30, 1999, and
(iii) 20(%) percent of the Account Balance with respect to Advances made on
July 1, 1999 and thereafter, and may be set at a higher percentage at Buyer's
sole discretion. The reserve shall be a book balance maintained on the
records of Buyer and shall not be a segregated fund.
3. COLLECTIONS, CHARGES AND REMITTANCES.
3.1. COLLECTIONS. Upon receipt by Buyer of Collections, Buyer shall
promptly credit such Collections to Seller's Account Balance on a daily
basis; provided, that if Seller is in default under this Agreement, Buyer
shall apply all Collections to Seller's Obligations hereunder in such order
and manner as Buyer may determine. If an item of collection is not honored
or Buyer does not receive good funds for any reason, the amount shall be
included in the Account Balance as if the Collections had not been received
and Finance Charges under Section 3.2 shall accrue thereon.
3.2. FINANCE CHARGES. On each Reconciliation Date Seller shall pay to
Buyer a finance charge in an amount equal to 2.00 (%) percent per month of
the average daily Account Balance outstanding during the applicable
Reconciliation Period (the "Finance Charges"). Buyer shall deduct the
accrued Finance Charges from the Reserve as set forth in Section 3.5 below.
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3.3. ADMINISTRATIVE FEE. On each Reconciliation Date Seller shall pay
to Buyer an Administrative Fee equal to 1.50 (%) percent of the face amount
of each Purchased Receivable first purchased during that Reconciliation
Period (the "Administrative Fee"). Buyer shall deduct the Administrative Fee
from the Reserve as set forth in Section 3.5 below.
3.4. ACCOUNTING. Buyer shall prepare and send to Seller after the
close of business for each Reconciliation Period, an accounting of the
transactions for that Reconciliation Period, including the amount of all
Purchased Receivables, all Collections, Adjustments, Finance Charges, and the
Administrative Fee. The accounting shall be deemed correct and conclusive
unless Seller makes written objection to Buyer within thirty (30) days after
the Buyer mails the accounting to Seller.
3.5. REFUND TO SELLER. Provided that there does not then exist an
Event of Default or any event or condition that with notice, lapse of time or
otherwise would constitute an Event of Default, Buyer shall refund to Seller
by check after the Reconciliation Date, the amount, if any, which Buyer owes
to Seller at the end of the Reconciliation Period according to the accounting
prepared by Buyer for that Reconciliation Period (the "Refund"). The Refund
shall be an amount equal to:
(A) (1) The Reserve as of the beginning of that Reconciliation Period,
PLUS
(2) the Reserve created for each Purchased Receivable purchased
during that Reconciliation Period, MINUS
(B) The total for that Reconciliation Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(3) Adjustments;
(4) Repurchase Amounts, to the extent Buyer has agreed to accept
payment thereof by deduction from the Refund;
(5) the Reserve for the Account Balance as of the first day of the
following Reconciliation Period in the minimum percentage set forth in
Section 2.4 hereof; and
(6) all amounts due, including professional fees and expenses, as
set forth in Section 12 for which oral or written demand has been made by
Buyer to Seller during that Reconciliation Period to the extent Buyer has
agreed to accept payment thereof by deduction from the Refund. In the event
the formula set forth in this Section 3.5 results in an amount due to Buyer
from Seller, Seller shall make such payment in the same manner as set forth
in Section 4.3 hereof for repurchases. If the formula set forth in this
Section 3.5 results in an amount due to Seller from Buyer, Buyer shall make
such payment by check, subject to Buyer's rights under Section 4.3 and
Buyer's rights of offset and recoupment.
4. RECOURSE AND REPURCHASE OBLIGATIONS.
4.1. RECOURSE. Buyer's acquisition of Purchased Receivables from
Seller shall be with full recourse against Seller. In the event the
Obligations exceed the amount of Purchased Receivables and Collateral, Seller
shall be liable for any deficiency.
4.2. SELLER'S AGREEMENT TO REPURCHASE. Seller agrees to pay to Buyer on
demand, the full face amount, or any unpaid portion, of any Purchased
Receivable:
(A) which remains unpaid ninety (90) calendar days after the invoice
date; or
(B) which is owed by any Account Debtor who has filed, or has had filed
against it, any bankruptcy case, assignment for the benefit of creditors,
receivership, or insolvency proceeding or who has become insolvent (as
defined in the United States Bankruptcy Code) or who is generally not paying
its debts as such debts become due; or
(C) with respect to which there has been any breach of warranty or
representation set forth in Section 6 hereof or any breach of any covenant
contained in this Agreement; or
(D) with respect to which the Account Debtor asserts any discount,
allowance, return, dispute, counterclaim, offset, defense, right of
recoupment, right of return, warranty claim, or short payment;
together with all reasonable attorneys' and professional fees and expenses
and all court costs incurred by Buyer in collecting such Purchased Receivable
and/or enforcing its rights under, or collecting amounts owed by Seller in
connection with, this Agreement (collectively, the "Repurchase Amount").
4.3. SELLER'S PAYMENT OF THE REPURCHASE AMOUNT OR OTHER AMOUNTS DUE
BUYER. When any Repurchase Amount or other amount owing to Buyer becomes due,
Buyer shall inform Seller of the manner of payment which may be any one or
more of the following in Buyer's sole discretion: (a) in cash immediately
upon demand therefor; (b) by delivery of substitute invoices and an Invoice
Transmittal acceptable to Buyer which shall thereupon become Purchased
Receivables; (c) by adjustment to the Reserve pursuant to Section 3.5
hereof; (d) by deduction from or offset against the Refund that would
otherwise be due and payable to Seller; (e) by deduction from or offset
against the amount that otherwise would be forwarded to Seller in respect of
any further Advances that may be made by Buyer; or (f) by any combination of
the foregoing as Buyer may from time to time choose.
4.4. SELLER'S AGREEMENT TO REPURCHASE ALL PURCHASED RECEIVABLES. Upon
and after the occurrence of an Event of Default, Seller shall, upon Buyer's
demand (or, in the case of an Event of Default under Section 9(B),
immediately without notice or demand from Buyer) repurchase all the Purchased
Receivables then outstanding , or such portion thereof as Buyer may demand.
Such demand may, at Buyer's option, include and Seller shall pay to Buyer
immediately upon demand, cash in an amount equal to the Advance with respect
to each Purchased Receivable then outstanding together with all accrued
Finance Charges, Adjustments, Administrative Fees, attorney's and
professional fees, court costs and expenses as provided for herein,
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and any other Obligations. Upon receipt of payment in full of the
Obligations, Buyer shall immediately instruct Account Debtors to pay Seller
directly, and return to Seller any Refund due to Seller. For the purpose of
calculating any Refund due under this Section only, the Reconciliation Date
shall be deemed to be the date Buyer receives payment in good funds of all
the Obligations as provided in this Section 4.4.
5. POWER OF ATTORNEY. Seller does hereby irrevocably appoint Buyer and its
successors and assigns as Seller's true and lawful attorney in fact, and
hereby authorizes Buyer, regardless of whether there has been an Event of
Default, (a) to sell, assign, transfer, pledge, compromise, or discharge the
whole or any part of the Purchased Receivables; (b) to demand, collect,
receive, sue, and give releases to any Account Debtor for the monies due or
which may become due upon or with respect to the Purchased Receivables and to
compromise, prosecute, or defend any action, claim, case or proceeding
relating to the Purchased Receivables, including the filing of a claim or the
voting of such claims in any bankruptcy case, all in Buyer's name or Seller's
name, as Buyer may choose; (c) to prepare, file and sign Seller's name on any
notice, claim, assignment, demand, draft, or notice of or satisfaction of
lien or mechanics' lien or similar document with respect to Purchased
Receivables; (d) to notify all Account Debtors with respect to the Purchased
Receivables to pay Buyer directly; (e) to receive, open, and dispose of all
mail addressed to Seller for the purpose of collecting the Purchased
Receivables; (f) to endorse Seller's name on any checks or other forms of
payment on the Purchased Receivables; (g) to execute on behalf of Seller any
and all instruments, documents, financing statements and the like to perfect
Buyer's interests in the Purchased Receivables and Collateral; and (h) to do
all acts and things necessary or expedient, in furtherance of any such
purposes. If Buyer receives a check or item which is payment for both a
Purchased Receivable and another receivable, the funds shall first be applied
to the Purchased Receivable and, so long as there does not exist an Event of
Default or an event that with notice, lapse of time or otherwise would
constitute an Event of Default, the excess shall be remitted to Seller. Upon
the occurrence and continuation of an Event of Default, all of the power of
attorney rights granted by Seller to Buyer hereunder shall be applicable with
respect to all Purchased Receivables and all Collateral.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
6.1. RECEIVABLES' WARRANTIES, REPRESENTATIONS AND COVENANTS. To induce
Buyer to buy receivables and to render its services to Seller, and with full
knowledge that the truth and accuracy of the following are being relied upon
by the Buyer in determining whether to accept receivables as Purchased
Receivables, Seller represents, warrants, covenants and agrees, with respect
to each Invoice Transmittal delivered to Buyer and each receivable described
therein, that:
(A) Seller is the absolute owner of each receivable set forth in the
Invoice Transmittal and has full legal right to sell, transfer and assign
such receivables;
(B) The correct amount of each receivable is as set forth in the
Invoice Transmittal and is not in dispute;
(C) The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future and any and all
obligations required of the Seller have been fulfilled as of the date of the
Invoice Transmittal;
(D) Each receivable set forth on the Invoice Transmittal is based on an
actual sale and delivery of goods and/or services actually rendered, is
presently due and owing to Seller, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged, and is free of any
and all liens, security interests and encumbrances other than liens, security
interests or encumbrances in favor of Buyer or any other division or
affiliate of Silicon Valley Bank;
(E) There are no defenses, offsets, or counterclaims against any of the
receivables, and no agreement has been made under which the Account Debtor
may claim any deduction or discount, except as otherwise stated in the
Invoice Transmittal;
(F) Each Purchased Receivable shall be the property of the Buyer and
shall be collected by Buyer, but if for any reason it should be paid to
Seller, Seller shall promptly notify Buyer of such payment, shall hold any
checks, drafts, or monies so received in trust for the benefit of Buyer, and
shall promptly transfer and deliver the same to the Buyer;
(G) Buyer shall have the right of endorsement, and also the right to
require endorsement by Seller, on all payments received in connection with
each Purchased Receivable and any proceeds of Collateral;
(H) Seller, and to Seller's best knowledge, each Account Debtor set
forth in the Invoice Transmittal, are and shall remain solvent as that term
is defined in the United States Bankruptcy Code and the California Uniform
Commercial Code, and no such Account Debtor has filed or had filed against it
a voluntary or involuntary petition for relief under the United States
Bankruptcy Code;
(I) Each Account Debtor named on the Invoice Transmittal will not
object to the payment for, or the quality or the quantity of the subject
matter of, the receivable and is liable for the amount set forth on the
Invoice Transmittal;
(J) Each Account Debtor shall promptly be notified, after acceptance by
Buyer, that the Purchased Receivable has been transferred to and is payable
to Buyer, and Seller shall not take or permit any action to countermand such
notification; and
(K) All receivables forwarded to and accepted by Buyer after the date
hereof, and thereby becoming Purchased Receivables, shall comply with each
and every one of the foregoing representations, warranties, covenants and
agreements referred to above in this Section 6.1.
6.2. ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. In addition to
the foregoing warranties, representations and covenants, to induce Buyer to buy
receivables and to render its services to Seller, Seller hereby represents,
warrants, covenants and agrees that:
(A) Seller will not assign, transfer, sell, or grant , or permit any lien
or security interest in any Purchased Receivables or Collateral to or in
favor of any other party, without Buyer's prior written consent;
(B) The Seller's name, form of organization, chief executive office,
and the place where the records concerning all Purchased Receivables and
Collateral are kept is set forth at the beginning of this Agreement,
Collateral is located only at the
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location set forth in the beginning of this Agreement, or, if located at any
additional location, as set forth on a schedule attached to this Agreement,
and Seller will give Buyer at least thirty (30) days prior written notice if
such name, organization, chief executive office or other locations of
Collateral or records concerning Purchased Receivables or Collateral is
changed or added and shall execute any documents necessary to perfect Buyer's
interest in the Purchased Receivables and the Collateral;
(C) Seller shall (i) pay all of its normal gross payroll for employees,
and all federal and state taxes, as and when due, including without
limitation all payroll and withholding taxes and state sales taxes; (ii)
deliver at any time and from time to time at Buyer's request, evidence
satisfactory to Buyer that all such amounts have been paid to the proper
taxing authorities; and (iii) if requested by Buyer, pay its payroll and
related taxes through a bank or an independent payroll service acceptable to
Buyer.
(D) Seller has not, as of the time Seller delivers to Buyer an Invoice
Transmittal, or as of the time Seller accepts any Advance from Buyer, filed
a voluntary petition for relief under the United States Bankruptcy Code or had
filed against it an involuntary petition for relief;
(E) If Seller owns, holds or has any interest in, any copyrights
(whether registered, or unregistered), patents or trademarks, and licenses of
any of the foregoing, such interest has been disclosed to Buyer and is
specifically listed and identified on a schedule to this Agreement, and
Seller shall immediately notify Buyer if Seller hereafter obtains any
interest in any additional copyrights, patents, trademarks or licenses that
are significant in value or are material to the conduct of its business; and
(F) Seller shall provide Buyer with a Compliance Certificate (i) on a
quarterly basis to be received by Buyer no later than the fifth calendar day
following each calendar quarter, and; (ii) on a more frequent or other basis
if and as requested by Buyer.
7. ADJUSTMENTS. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6.1, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall
promptly advise Buyer and shall, subject to the Buyer's approval, resolve
such disputes and advise Buyer of any adjustments. Unless the disputed
Purchased Receivable is repurchased by Seller and the full Repurchase Amount
is paid, Buyer shall remain the absolute owner of any Purchased Receivable
which is subject to Adjustment or repurchase under Section 4.2 hereof, and
any rejected, returned, or recovered personal property, with the right to
take possession thereof at any time. If such possession is not taken by
Buyer, Seller is to resell it for Buyer's account at Seller's expense with
the proceeds made payable to Buyer. While Seller retains possession of said
returned goods, Seller shall segregate said goods and mark them "property of
Silicon Valley Financial Services."
8. SECURITY INTEREST. To secure the prompt payment and performance to
Buyer of all of the Obligations, Seller hereby grants to Buyer a continuing
lien upon and security interest in all of Seller's now existing or hereafter
arising rights and interest in the following , whether now owned or existing
or hereafter created, acquired, or arising, and wherever located
(collectively, the "Collateral"):
(A) All accounts, receivables, contract rights, chattel paper,
instruments, documents, letters of credit, bankers acceptances, drafts,
checks, cash, securities, and general intangibles (including, without
limitation, all claims, causes of action, deposit accounts, guaranties,
rights in and claims under insurance policies, including rights to premium
refunds), rights to tax refunds, copyrights, patents, trademarks, rights in
and under license agreements, and all other intellectual property);
(B) All inventory, including Seller's rights to any returned or rejected
goods, with respect to which Buyer shall have all the rights of any unpaid
seller, including the rights of replevin, claim and delivery, reclamation, and
stoppage in transit;
(C ) All monies, refunds and other amounts due Seller, including,
without limitation, amounts due Seller under this Agreement (including
Seller's right of offset and recoupment);
(D) All equipment, machinery, furniture, furnishings, fixtures, tools,
supplies and motor vehicles;
(E) All farm products, crops, timber, minerals and the like (including
oil and gas);
(F) All accessions to, substitutions for, and replacements of, all of
the foregoing;
(G) All books and records pertaining to all of the foregoing; and
(H) All proceeds of the foregoing, whether due to voluntary or
involuntary disposition, including insurance proceeds.
Seller is not authorized to sell, assign, transfer or otherwise convey any
Collateral without Buyer's prior written consent, except for the sale of
finished inventory in the Seller's usual course of business. Seller agrees
to sign UCC financing statements, in a form acceptable to Buyer, and any
other instruments and documents requested by Buyer to evidence , perfect, or
protect the interests of Buyer in the Collateral. Seller agrees to deliver
to Buyer the originals of all instruments, chattel paper and documents
evidencing or related to Purchased Receivables and Collateral.
9. DEFAULT. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder.
(A) Seller fails to pay any amount owed to Buyer as and when due;
(B) There shall be commenced by or against Seller any voluntary or
involuntary case under the United States Bankruptcy Code, or any assignment
for the benefit of creditors, or appointment of a receiver or custodian for
any of its assets;
(C) Seller shall become insolvent in that its debts are greater than
the fair value of its assets, or Seller is generally not paying its debts as
they become due or is left with unreasonably small capital;
(D) Any involuntary lien, garnishment, attachment or the like is issued
against or attaches to the Purchased Receivables or any Collateral;
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(E) Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Buyer's
satisfaction within ten (10) days after Buyer has given Seller oral or
written notice thereof; provided, that if such breach is incapable of being
cured it shall constitute an immediate default hereunder;
(F) Seller is not in compliance with, or otherwise is in default under,
any term of any document, instrument or agreement evidencing a debt,
obligation or liability of any kind or character of Seller, now or hereafter
existing, in favor of Buyer or any division or affiliate of Silicon Valley
Bank, regardless of whether such debt, obligation or liability is direct or
indirect, primary or secondary, joint, several or joint and several, or fixed
or contingent, together with any and all renewals and extensions of such
debts, obligations and liabilities, or any part thereof;
(G) An event of default shall occur under any guaranty executed by any
guarantor of the Obligations of Seller to Buyer under this Agreement, or any
material provision of any such guaranty shall for any reason cease to be
valid or enforceable or any such guaranty shall be repudiated or terminated,
including by operation of law;
(H) A default or event of default shall occur under any agreement
between Seller and any creditor of Seller that has entered into a
subordination agreement with Buyer; or
(I) Any creditor that has entered into a subordination agreement with
Buyer shall breach any of the terms of or not comply with such subordination
agreement.
10. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, (1)
without implying any obligation to buy receivables, Buyer may cease buying
receivables or extending any financial accommodations to Seller; (2) all or
a portion of the Obligations shall be, at the option of and upon demand by
Buyer, or with respect to an Event of Default described in Section 9(B),
automatically and without notice or demand, due and payable in full; and (3)
Buyer shall have and may exercise all the rights and remedies under this
Agreement and under applicable law, including the rights and remedies of a
secured party under the California Uniform Commercial Code, all the power of
attorney rights described in Section 5 with respect to all Collateral, and
the right to collect, dispose of, sell, lease, use, and realize upon all
Purchased Receivables and all Collateral in any commercial reasonable manner.
Seller and Buyer agree that any notice of sale required to be given to
Seller shall be deemed to be reasonable if given five (5) days prior to the
date on or after which the sale may be held. In the event that the
Obligations are accelerated hereunder, Seller shall repurchase all of the
Purchased Receivables as set forth in Section 4.4.
11. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not paid
when due, including, without limitation, amounts due under Section 3.5,
Repurchase Amounts, amounts due under Section 12, and any other Obligations,
such amounts shall bear interest at a per annum rate equal to the per annum
rate of the Finance Charges until the earlier of (i) payment in good funds or
(ii) entry of a final judgment thereof, at which time the principal amount of
any money judgment remaining unsatisfied shall accrue interest at the highest
rate allowed by applicable law.
12. FEES, COSTS AND EXPENSES; INDEMNIFICATION. The Seller will pay to
Buyer immediately upon demand all fees, costs and expenses (including fees
of attorneys and professionals and their costs and expenses) that Buyer
incurs or may from time to time impose in connection with any of the
following: (a) preparing, negotiating, administering, and enforcing this
Agreement or any other agreement executed in connection herewith, including
any amendments, waivers or consents in connection with any of the foregoing,
(b) any litigation or dispute (whether instituted by Buyer, Seller or any
other person) in any way relating to the Purchased Receivables, the
Collateral, this Agreement or any other agreement executed in connection
herewith or therewith, (d) enforcing any rights against Seller or any
guarantor, or any Account Debtor, (e) protecting or enforcing its interest in
the Purchased Receivables or the Collateral, (f) collecting the Purchased
Receivables and the Obligations, and (g) the representation of Buyer in
connection with any bankruptcy case or insolvency proceeding involving
Seller, any Purchased Receivable, the Collateral, any Account Debtor, or any
guarantor. Seller shall indemnify and hold Buyer harmless from and against
any and all claims, actions, damages, costs, expenses, and liabilities of any
nature whatsoever arising in connection with any of the foregoing.
13. SEVERABILITY, WAIVER, AND CHOICE OF LAW. In the event that any
provision of this Agreement is deemed invalid by reason of law, this
Agreement will be construed as not containing such provision and the
remainder of the Agreement shall remain in full force and effect. Buyer
retains all of its rights, even if it makes an Advance after a default. If
Buyer waives a default, it may enforce a later default. Any consent or
waiver under, or amendment of, this Agreement must be in writing. Nothing
contained herein, or any action taken or not taken by Buyer at any time,
shall be construed at any time to be indicative of any obligation or
willingness on the part of Buyer to amend this Agreement or to grant to
Seller any waivers or consents. This Agreement has been transmitted by
Seller to Buyer at Buyer's office in the State of California and has been
executed and accepted by Buyer in the State of California. This Agreement
shall be governed by and interpreted in accordance with the internal laws of
the State of California.
14. ACCOUNT COLLECTION SERVICES. Certain Account Debtors may require
or prefer that all of Seller's receivables be paid to the same address and/or
party, or Seller and Buyer may agree that all receivables with respect to
certain Account Debtors be paid to one party. In such event Buyer and Seller
may agree that Buyer shall collect all receivables whether owned by Seller or
Buyer and (provided that there does not then exist an Event of Default or
event that with notice, lapse or time or otherwise would constitute an Event
of Default, and subject to Buyer's rights in the Collateral) Buyer agrees to
remit to Seller the amount of the receivables collections it receives with
respect to receivables other than Purchased Receivables. It is understood
and agreed by Seller that this Section does not impose any affirmative duty
on Buyer to do any act other than to turn over such amounts. All such
receivables and collections are Collateral and in the event of Seller's
default hereunder, Buyer shall have no duty to remit collections of
Collateral and may apply such collections to the obligations hereunder and
Buyer shall have the rights of a secured party under the California Uniform
Commercial Code.
6
<PAGE>
15. NOTICES. Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement
entered into in connection herewith shall be in writing and (except for
financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by a
recognized overnight delivery service, certified mail, postage prepaid,
return receipt requested, or by telefacsimile to Seller or to Buyer, as the
case may be, at its addresses set forth below:
If to Seller: Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, Co 80301
Attn: CFO
FAX: 303/447-3905
and to: Springfield Surgical Instruments
90 Brookdale Drive
Springfield, MA 01104
Attn: CFO
FAX: __________
If to Buyer: Silicon Valley Bank/SVFS
3003 Tasman Drive, HF170
Santa Clara, CA 95054-1191
Attn: Credit Manager
FAX: 408/980-6410
16. SUBROGATION AND SIMILAR RIGHTS. Notwithstanding any other provision of
this Agreement or any other Document, so long as any Obligations remain
outstanding, each Seller irrevocably waives all rights that it may have at
law or in equity (including, without limitation, any law subrogating the
Seller to the rights of Buyer under the Documents) to seek contribution,
indemnification, or any other form of reimbursement from any other Seller, or
any other Person now or hereafter primarily or secondarily liable for any of
the Obligations, for any payment made by the Seller with respect to the
Obligations in connection with the Documents or otherwise and all rights that
it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by the Seller with respect to the
Obligations in connection with the Documents or otherwise. Subject to the
foregoing, any agreement providing for indemnification, reimbursement or any
other arrangement prohibited under this Section shall be null and void. If
any payment is made to a Seller in contravention of this Section, such Seller
shall hold such payment in trust for Buyer and such payment shall be promptly
delivered to Buyer for application to the Obligations, whether matured or
unmatured.
17. WAIVERS OF NOTICE. Each Seller waives notice of acceptance hereof;
notice of the existence, creation or acquisition of any of the Obligations;
notice of an Event of Default; notice of the amount of the Obligations
outstanding at any time; notice of intent to accelerate; notice of
acceleration; notice of any adverse change in the financial condition of any
other Seller or of any other fact that might increase the Seller's risk;
presentment for payment; demand; protest and notice thereof as to any
instrument; default; and all other notices and demands to which the Seller
would otherwise be entitled. Each Seller waives any defense arising from any
defense of any other Seller, or by reason of the cessation from any cause
whatsoever of the liability of any other Seller. Buyer's failure at any time
to require strict performance by any Seller of any provision of the Documents
shall not waive, alter or diminish any right of Buyer thereafter to demand
strict compliance and performance therewith. Nothing contained herein shall
prevent Buyer from foreclosing on the Lien of any deed of trust, mortgage or
other security instrument, or exercising any rights available thereunder, and
the exercise of any such rights shall not constitute a legal or equitable
discharge of any Seller. Each Seller also waives any defense arising from
any act or omission of Buyer that changes the scope of the Seller's risks
hereunder. Each Seller hereby waives any right to assert against Buyer any
defense (legal or equitable), setoff, counterclaim, or claims that such
Seller individually may now or hereafter have against another Seller or any
other Person liable to Seller with respect to the Obligations in any manner
or whatsoever.
18. SUBROGATION DEFENSES. Each Seller hereby waives any defense based on
impairment or destruction of its subrogation or other rights against any
other Seller and waives all benefits which might otherwise be available to it
under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848,
2850, 2899 and 3433 and California Code of Civil Procedure Sections 580a,
580b, 580d and 726, as those statutory provisions are now in effect and
hereafter amended, and under any other similar statutes now and hereafter in
effect.
19. RIGHT TO SETTLE, RELEASE. The liability of Sellers hereunder shall
not be diminished by (i) any agreement, understanding or representation that
any of the Obligations is or was to be guaranteed by another Person or
secured by other property, or (ii) any release or unenforceability, whether
partial or total, or rights, if any, which Seller may now or hereafter have
against any other Person, including another Seller, or property with respect
to any of the Obligations.
Without notice to any Seller and without affecting the liability of any
Seller hereunder, Buyer may (i) compromise, settle, renew, extend the time
for payment, change the manner or terms of payment, discharge the performance
of, decline to enforce, or release all or any of the Obligations with respect
to a Seller, (ii) grant other indulgences to a Seller in respect of the
7
<PAGE>
Obligations, (iii) modify in any manner any documents, relating to the
Obligations with respect to a Seller, (iv) release, surrender or exchange any
deposits or other property securing the Obligations, whether pledged by a
Seller or any other Person, or (v) compromise, settle renew, or extend the
time for payment, discharge the performance of, decline to enforce, or
release all or any obligations of any guarantor, endorser or other Person who
is now or may hereafter be liable with respect to any of the Obligations.
20. JURY TRIAL. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THE FOREGOING
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT;
AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS
DETERMINED FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL
COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.
21. TERM AND TERMINATION. The term of this Agreement shall be for one (1)
year from the date hereof, and from year to year thereafter unless terminated
in writing by Buyer or Seller. Seller and Buyer shall each have the right to
terminate this Agreement at any time. Notwithstanding the foregoing, any
termination of this Agreement shall not affect Buyer's security interest in
the Collateral and Buyer's ownership of the Purchased Receivables, and this
Agreement shall continue to be effective, and Buyer's rights and remedies
hereunder shall survive such termination, until all transactions entered into
and Obligations incurred hereunder or in connection herewith have been
completed and satisfied in full.
22. TITLES AND SECTION HEADINGS. The titles and section headings used
herein are for convenience only and shall not be used in interpreting this
Agreement.
23. OTHER AGREEMENTS. The terms and provisions of this Agreement shall not
adversely affect the rights of Buyer or any other division or affiliate of
Silicon Valley Bank under any other document, instrument or agreement. The
terms of such other documents, instruments and agreements shall remain in
full force and effect notwithstanding the execution of this Agreement. In
the event of a conflict between any provision of this Agreement and any
provision of any other document, instrument or agreement between Seller on
the one hand, and Buyer or any other division or affiliate of Silicon Valley
Bank on the other hand, Buyer shall determine in its sole discretion which
provision shall apply. Seller acknowledges specifically that any security
agreements, liens and/or security interests currently securing payment of any
obligations of Seller owing to Buyer or any other division or affiliate of
Silicon Valley Bank also secure Seller's obligations under this Agreement,
and are valid and subsisting and are not adversely affected by execution of
this Agreement. Seller further acknowledges that (a) any collateral under
other outstanding security agreements or other documents between Seller and
Buyer or any other division or affiliate of Silicon Valley Bank secures the
obligations of Seller
8
<PAGE>
under this Agreement and (b) a default by Seller under this Agreement
constitutes a default under other outstanding agreements between Seller and
Buyer or any other division or affiliate of Silicon Valley Bank.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the
day and year above written.
SELLER: IMAGE GUIDED TECHNOLOGIES, INC.
By
---------------------------
Title
------------------------
SELLER: SPRINGFIELD SURGICAL INSTRUMENTS, formerly
known as Brimfield Precision, Inc.
By
---------------------------
Title
------------------------
BUYER: SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By
---------------------------
Title
------------------------
9
<PAGE>
EXHIBIT 10.37
JULY, 1999 MODIFICATION TO SECOND AMENDED AND
RESTATED LOAN AGREEMENT
This July, 1999 Modification to Second Amended and Restated Loan
Agreement is entered into as of July 2, 1999 (this "Agreement"), by and
between Image Guided Technologies, Inc., a Colorado corporation, and
Springfield Surgical Instruments, a Massachusetts corporation (collectively,
"Seller"), and Silicon Valley Financial Services, a division of Silicon
Valley Bank ("Buyer").
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
may be owing by Seller to Buyer, Seller is indebted to Buyer pursuant to,
among other documents, a Second Amended and Restated Loan Agreement, dated
April 8, 1999, by and between Seller and Buyer (as amended, the "Loan
Agreement"). Capitalized items used without definition herein shall have the
meanings assigned to them in the Loan Agreement.
Hereinafter, all obligations owing by Seller to Buyer shall be referred to as
the "Obligations" and the Loan Agreement and any and all other documents
executed by Seller in favor of Buyer shall be referred to as the "Existing
Documents."
2. DESCRIPTION OF MODIFICATIONS TO THE LOAN AGREEMENT.
a. The final sentence of Section 2.2 of the Loan Agreement is amended
by deleting the reference to "One Million Five Hundred Thousand and
No/100**** Dollars ($1,500,000.00)" contained therein and by substituting
therefor a reference to "Six Hundred Thousand and No/100**** Dollars
($650,000.00)."
b. Notwithstanding anything to the contrary contained in the Loan
Agreement, Buyer shall have no obligation to purchase any receivable as to
which either Snap-on Technologies, Inc. or Brewco is the account debtor,
such constituting ineligible receivables under the Loan Agreement.
3. NO DEFENSES OF SELLER. Seller agrees that, as of this date, it has no
defenses against and of the Obligations.
4. CONTINUING VALIDITY. Seller understands and agrees that in modifying
the existing Loan Agreement, Buyer is relying upon Seller's representations,
warranties, and agreements, as set forth in the Existing Documents. Except
as expressly modified hereby, the forms of the Existing Documents remain
unchanged and in full force and effect. Buyer's agreement to modifications
to the existing Indebtedness pursuant to this Agreement shall in no way
obligate Buyer to make any future modifications to the Loan Agreement or the
Obligations. Nothing in this Agreement shall constitute a satisfaction of the
Obligations. It is the intention of
1
<PAGE>
Buyer and Seller to retain as liable parties all makers and endorsers of
Existing Documents, unless the party is expressly released by Buyer in
writing. No maker, endorser, or guarantor will be released by virtue of this
Agreement. The terms of this paragraph apply not only to this Agreement, but
also to any subsequent modifications of the Loan Agreement.
This Agreement is executed as of the date first written above.
SELLER: BUYER:
Image Guided Technologies, Inc. Silicon Valley Financial Services, a
division of Silicon Valley Bank
By: By:
--------------------------- -----------------------
Name: Name:
------------------------ --------------------
Title: Title:
----------------------- --------------------
Springfield Surgical Instruments
By:
---------------------------
Name:
------------------------
Title:
-----------------------
2
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 84,000
<SECURITIES> 0
<RECEIVABLES> 1,199,000
<ALLOWANCES> (90,000)
<INVENTORY> 903,000
<CURRENT-ASSETS> 2,237,000
<PP&E> 1,454,000
<DEPRECIATION> (722,000)
<TOTAL-ASSETS> 3,711,000
<CURRENT-LIABILITIES> 2,468,000
<BONDS> 0
0
0
<COMMON> 10,475,000
<OTHER-SE> (9,524,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,711,000
<SALES> 3,192,000
<TOTAL-REVENUES> 3,192,000
<CGS> 1,893,000
<TOTAL-COSTS> 1,893,000
<OTHER-EXPENSES> 2,356,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210,000
<INCOME-PRETAX> (362,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,136,000
<DISCONTINUED> (660,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,796,000)
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)
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