<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 March 31, 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 May 14,
1999 was 3,787,980.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE>
IMAGE GUIDED TECHNOLOGIES
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
Part I Financial Information Page
----
<S> <C> <C>
Item 1. Balance Sheets as of March 31, 1999 and December 31, 1998 3
Statements of Operations for the three months ended
March 31, 1999 and 1998 4
Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 8
Part II Other Information and Signatures 12
</TABLE>
2
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- -----------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 52,000 $ 23,000
Accounts receivable, net of allowance for doubtful
accounts of $83,000 and $76,000, respectively 1,822,000 1,710,000
Inventories, net 919,000 921,000
Investment--Discontinued operations -- 1,437,000
Other current assets 207,000 174,000
----------------- -----------------
Total current assets 3,000,000 4,265,000
Property and equipment, net of accumulated depreciation of
$648,000 and $602,000, respectively 644,000 650,000
Goodwill, net of accumulated amortization of $38,000 and
$31,000, respectively 543,000 550,000
Investment--Discontinued operations -- 5,184,000
Other assets 221,000 222,000
----------------- -----------------
Total assets 4,408,000 10,871,000
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,172,000 860,000
Accrued liabilities 377,000 403,000
Line of credit 587,000 2,524,000
Current portion of capital lease obligations 37,000 1,332,000
Current portion of notes payable 500,000 2,986,000
----------------- -----------------
Total current liabilities 2,673,000 8,105,000
Capital lease obligations 29,000 38,000
----------------- -----------------
Total liabilities 2,702,000 8,143,000
----------------- -----------------
Shareholders' equity:
Common stock, no par value, 10,000,000 shares
authorized; 3,705,222 shares issued and outstanding 10,456,000 10,456,000
Accumulated deficit (8,750,000) (7,728,000)
----------------- -----------------
Total shareholders' equity 1,706,000 2,728,000
----------------- -----------------
Total liabilities and shareholders' equity $ 4,408,000 $ 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 MONTHS ENDED MARCH 31
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
<S> <C> <C>
Revenue $ 1,854,000 $ 1,720,000
Cost of goods sold 1,031,000 1,056,000
-------------------- --------------------
Gross profit 823,000 664,000
-------------------- --------------------
Operating expenses:
Research and development 345,000 379,000
Selling and marketing 307,000 208,000
General and administrative 531,000 316,000
-------------------- --------------------
Total operating expenses 1,183,000 903,000
-------------------- --------------------
Operating income (loss) (360,000) (239,000)
Other income (expense) (2,000) (38,000)
-------------------- --------------------
Income (loss) from continuing operations before taxes (362,000) (277,000)
Income taxes -- --
Discontinued operations:
Income (loss) from discontinued operations 30,000 (49,000)
Loss on disposal (690,000) --
-------------------- --------------------
Net income (loss) $ (1,022,000) $ (326,000)
-------------------- --------------------
-------------------- --------------------
Earnings (loss) per share (basic and diluted):
Continuing operations $ (0.10) $ (0.08)
-------------------- --------------------
-------------------- --------------------
Discontinued operations $ (0.18) $ (0.01)
-------------------- --------------------
-------------------- --------------------
Net income $ (0.28) $ (0.09)
-------------------- --------------------
-------------------- --------------------
Weighted average common shares outstanding (basic and diluted) 3,705,222 3,693,822
-------------------- --------------------
-------------------- --------------------
</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 THREE MONTHS ENDED MARCH 31
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,022,000) $ (326,000)
Net loss from discontinued operations (660,000) (49,000)
----------------- -----------------
Income (loss) from continuing operations (362,000) (277,000)
Adjustments to reconcile net loss from continuing operations
to net cash used in continuing operating activities:
Depreciation and amortization 53,000 88,000
Loss on disposition of assets -- (388,000)
Provision for inventory obsolescence -- (7,000)
Provision for doubtful accounts 7,000 12,000
Changes in operating assets and liabilities:
Accounts receivable (119,000) 202,000
Inventories 2,000 (50,000)
Other current assets (33,000) 184,000
Accounts payable 312,000 125,000
Accrued liabilities (26,000) 83,000
----------------- -----------------
Net cash used in continuing operating activities (166,000) (28,000)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment 40,000 --
Proceeds from sale of net assets 5,869,000 --
----------------- -----------------
Net cash provided by investing activities 5,909,000 --
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Pay off of revolving loan (1,924,000) --
Pay off of capital lease obligations (1,304,000) (110,000)
Pay off of notes payable (2,486,000) (223,000)
----------------- -----------------
Net cash used in investing activities $ (5,714,000) $ (333,000)
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 29,000 (361,000)
CASH AND CASH EQUIVALENTS, beginning of period 23,000 1,216,000
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period $ 52,000 $ 855,000
----------------- -----------------
----------------- -----------------
Supplemental Cash Flow Disclosures:
Interest paid $ 153,000 $ 182,000
Warrants issued in connection with debt -- 119,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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 March 31, 1999 and its results of operations and cash flows for
the three month period then ended. The unaudited financial statements should be
read with the complete 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. The sales price was $6,000,000 in
cash plus assumption of certain trade payables and accrued liabilities, subject
to adjustment for changes for the period from June 30, 1998 through closing.
The final purchase price is not expected to be finalized until June 1999.
The funds received from the net asset sale were used to pay off 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 80% of the face
amount of the receivables by July 1, 1999. The total amount of receivables
purchased at any time cannot exceed $1,500,000. Under the facility, the Company
will repurchase from Silicon any uncollected receivables which are over 90 days
old from the date of the invoice. Silicon has no obligation to purchase any
receivable under the facility. As of May 14, 1999, the balance of the Company's
accounts receivable that had been purchased by Silicon was approximately
$837,000. The funds were used to pay off the BankBoston line of credit and to
fund operations.
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
6
<PAGE>
connected to a patient or industrial part, a multi-camera array for detecting
the X, Y and Z positions of the LED's, 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.
The Company does not have any intersegment revenue and evaluates segment
performance based upon revenue and gross profit. The 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 is as follows.
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Revenue: Optical localizers $ 1,480,000 $ 1,017,000
Surgical instruments 374,000 703,000
----------------- -----------------
Total revenue $ 1,854,000 $ 1,720,000
----------------- -----------------
----------------- -----------------
Gross profit: Optical localizers $ 800,000 $ 454,000
Surgical instruments 23,000 210,000
----------------- -----------------
Total gross profit $ 823,000 $ 664,000
----------------- -----------------
----------------- -----------------
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1998
REVENUE. Revenue increased $134,000 or 7.8% from $1,720,000 in the first quarter
1998 to $1,854,000 in the first quarter 1999. The increase is due to optical
localizer business from new customers, increased sales of the Company's wireless
systems and an increase in sales in the industrial market, 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
38.6% in the first quarter 1998 to 44.4% in the first quarter 1999. This
increase is due to higher optical localizer margins due to a more favorable
product mix offset by a decrease in surgical instruments margins.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
$34,000 or 9% from $379,000 in the first quarter 1998 to $345,000 in the first
quarter 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 of ISO 9001
certification in the second quarter.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased $99,000
or 47.6% from $208,000 in the first quarter 1998 to $307,000 in the first
quarter 1999. This increase is due to two additional sales personnel in 1999
plus increased expenses related to trade shows.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $208,000 or 65.8% from $316,000 in the first quarter 1998 to $524,000
in the first quarter 1999. This increase is due to several
7
<PAGE>
factors: severance costs in the first quarter of 1999 for a former officer,
and increases in legal fees and travel costs.
OTHER INCOME (EXPENSE). Other income (expense) decreased $36,000 in the first
quarter 1999 compared to the first quarter 1998. Of the total $153,000 interest
expense during the first quarter 1999, $30,000 is related to debt from
continuing operations. The decrease is due to an increase in other income.
DISCONTINUED OPERATIONS. Income (loss) from discontinued operations represents
the results of operations of the general surgical instruments, orthopedic
implants and orthopedic instrumentation business which the Company sold in March
1999. The loss on disposal of assets represents an additional 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
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.
As of May 24, 1999, approximately $464,000 of the Company's outstanding
accounts receivable had been purchased by Silicon. The Company expects to
incur operating losses for the months of April and May and has exceeded its
agreed upon terms for payment with several creditors. The Company is pursuing
various alternatives to raise cash to fund its operating losses, pay down
its obligations to its suppliers and for other corporate purposes.
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.
LOSS DURING 1998 AND 1999; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The
Company lost $1,352,000 from continuing operations in 1998 and $362,000 in the
first quarter 1999. 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 not on firm customer orders. Failure by the Company to
achieve these internal forecasts could result in expense levels which are
inconsistent with actual revenues. Moreover, the Company's results may also be
affected by fluctuating demand for the Company's products, declines in the
average selling prices for its products, 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 it sells its 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.
8
<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. None of these customers has entered into any
long term minimum purchase agreements with the Company. The loss of, or
substantial diminution of purchases from the Company by, any of these customers
could have a material adverse effect on the Company.
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, 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. Sofamar Danek has
recently sued BrainLab GmbH for infringement of this patent. The Company's
documents have been subpoenaed and Waldean Schulz, Vice President-Technology of
the Company, has had his deposition taken in connection with such lawsuits. 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.
9
<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 with coverage of
$1,000,000 per occurrence and an annual aggregate maximum coverage of $2,000,000
($1,000,000 for lawsuits outside the United States, Canada and Puerto Rico). The
Company's product liability and general liability policy is provided on an
occurrence basis and is subject to annual renewal. There can be no assurance
that liability claims will not exceed the coverage limits of such policy or that
such insurance will continue to be available on commercially reasonable terms or
at all. If the Company does not or cannot maintain sufficient liability
insurance, its ability to market its products could be significantly impaired.
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 recently 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.
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 complete 90% of the remediation phase as of March 31, 1999. The Company
plans to complete the final 10% of the remediation phase for its information
technology by June 30, 1999. With respect to its non-information technology
systems, the Company has completed approximately 85% of the assessment phase and
has yet to begin the remediation phase. The remainder of the assessment for
non-technology systems will be complete by May 31, 1999 and remediation will be
complete by June 30, 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 June 30, 1999. The company plans to have
all internal mission-critical information technology and non-information
technology systems Year 2000 compliant by June 30, 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 June 30, 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.
10
<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 June 30, 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.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
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>
2.35 Stock Option Agreement for Paul L. Ray
2.36 Employment Agreement dated December 1, 1997 between
Brimfield Precision, Inc. and Daniel T. Hannify
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Filed January 8, 1999--The Company issued two press releases
announcing (1) that its stock would be quoted on the OTC Bulletin
Board, (2) the execution of an agreement to sell certain assets of
Brimfield Precision, Inc., its wholly-owned subsidiary and (3) the
hiring of a new chief financial officer as of January 1, 1999.
Filed March 29, 1999--The Company announced that its chief
financial officer had resigned effective March 12, 1999, and that
William O'Connor, the Company's Chief Operating Officer, has been
appointed Treasurer effective March 29, 1999.
12
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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: May 24, 1999
- -------------------------------------
Paul L. Ray
President, Chief Executive Officer and
Chief Financial Officer
13
<PAGE>
EXHIBIT 2.35
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 $.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 2.36
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") effective as of December 1, 1997, is
by and between Brimfield Precision, Inc., a Massachusetts corporation, with its
offices located at 68 Mill Lane Rd., Brimfield, Massachusetts 01010 (the
"Company"), and Daniel T. Hannify (the "Employee"), an individual whose
residence is 229 Guilford Street Extension, Brattleboro, VT 05301. When taken
with the Offering Letter dated November 10, shall constitute all guidelines for
the employment of said individual.
The Company acknowledges and recognizes the value of the Employee's experience
and ability and desires to provide for the employment and continuation of his
employment with the Company on the terms set forth herein.
1. Employment and Acceptance of Employment Terms: Upon and subject to the
terms and conditions set forth herein, the Company hereby employs the Employee
as its Vice President and General Manager or in such other management
position(s) as the Board of Directors of the Company (the "Board") may determine
from time to time, and the Employee hereby agrees to accept such employment, for
a period of one year (unless sooner terminated as hereinafter set forth)
commencing on the date hereof, or such other date as the Company and the
Employee may mutually agree to (the "Commencement Date") and ending one year
thereafter (the "Initial Term"). This Agreement shall be automatically extended
thereafter for successive three year terms commencing on the first anniversary
date of the Commencement Date unless the Employee or the Company give the other
party not less than three (3) months written notice prior to the first
anniversary date of the Commencement Date, or any anniversary of the
Commencement Date thereafter. It is expected that within the first term, the
Employee will succeed the current President as President and Chief Operating
officer (COO) of the Company with the accompanying Compensation changes.
2. Duties: The Employee agrees, during the Initial Term and any extension of
the Initial Term, to devote his entire business time, attention, and energies
exclusively to the business of the Company as shall be required to perform the
duties of the position specified in Section 1, and to conform to the rules,
regulations, instructions, personnel practices and policies of the Company, as
existing an amended from time to time by the Company.
3. Compensation.
(a) Salary: Bonus. In consideration of the Employee's performance of services
hereunder, the Company will pay to the Employee, during the initial Term of the
Employee's employment, and the Employee agrees to accept from the Company for
his services, a salary (the "Base Salary") of $175,000 per annum during the
initial Term, payable in accordance with the Company's normal payroll practices
applicable to its executive offices but not less often than monthly. In the
event that the Initial Term is extended, the Employee's Base Salary shall be
subject to annual review by the Board or the Company's Compensation Committee in
the event
<PAGE>
one is then appointed (the "Committee") and may be increased (but not
decreased) in such amounts as the Board or Committee may determine. Upon
elevation to the position of President/COO the Employee shall be entitled to
an additional $25,000 in base salary for a total of $200,000.00. In the
event that the Board or Committee establishes a bonus pool to be distributed
to employees of the Company, the Employee shall be entitled to receive a
bonus in such amount as is reasonably determined by the Board or Committee.
(b) Benefits: Automobile Allowance: During the term of the Employee's
employment hereunder, the Employee shall be entitled to full health insurance in
accordance with the Plan currently in place at the Company and to participate in
any other medical, pension, bonus, profit-sharing or similar plan or program
that may be established by the Company and made available to its officers and
key employees generally; provided that the Company shall not be required to
implement or continue any such other employee benefit program. In addition, the
employee shall be entitled to a car allowance to be applied to the leasing and
maintenance of an automobile of appropriate age and condition in an amount not
to exceed $7.200 per annum payable monthly.
(c) Paid Vacations: The Employee shall be entitled to annual paid vacations of
three weeks in each year of the Initial Term and any extension of the Initial
Term, at such times and for such periods as may be mutually acceptable to the
Company and the Employee, in accordance with the Company's policies governing
vacations for officers and key employees. Unused vacation shall not accumulate.
(d) Paid Holidays: The Employee shall be entitled to paid holidays, in
accordance with the Company's policies governing holidays for officers and key
employees.
(e) Deductions: The Company shall have the right to deduct from the Base
Salary and all other cash amounts payable by the Company under the provisions of
this Agreement to the Employee or, if applicable, to his estate, legal
representatives or other beneficiary designated in writing by the Employee (a
"Designee") all social security taxes, all federal, state and municipal taxes
and all other charges and deductions which now or hereafter are imposed by law
as charges on the compensation of the Employee or charges on cash benefits
payable by the Company hereunder to his estate, legal representatives or
Designee.
4. Reimbursement of Certain Expenses: The Company shall reimburse the
Employee, upon production of accounts and vouchers or other reasonable evidence
of payment by the Employee, all in accordance with the Company's regular
procedures in effect, from time to time and in form suitable to establish the
validity and deductibility of such expenses for tax purposes, all reasonable,
ordinary and necessary travel, automobile and other expenses as shall have been
incurred by him in the performance of his duties hereunder.
5. Non-Competition
(a) Non-Competition: During the term of the Employee's employment with the
Company and the three year period immediately following the date on which the
Employee's employment with the Company terminates (the "Termination Date"), the
Employee will not, directly or indirectly, engage in the business of, or own or
control an interest in (except as a passive investor
2
<PAGE>
owning less than one (1%) percent of the equity securities of a publicly
owned company), or act as director, officer or employee of, or consultant to,
any individual, partnership, joint venture, corporation or other business
entity directly or indirectly engaged anywhere in the United States in any
Business (as hereinafter defined) competing with the business then being
carried on by the Company. Notwithstanding the foregoing, in the event that
the employee's employment with the Company is terminated pursuant to Section
9(c) or 10, the non-competition period shall be equal to the period during
which the Employee receives severance payments thereunder. The time period
during which the restrictions set forth in this Section 5(a) apply shall be
extended by the length of time during which it is judicially determined that
the Employee has violated these restrictions in any respect. In the event of
any provisions of this Section 5(a) are unenforceable by law, then the
restrictions shall be for such period and such geographic area as a court
shall find is necessary to protect the goodwill and business of Company. The
provisions of this Section 5(a) shall no longer be enforceable in the event
the Company either files for bankruptcy or other protection from creditors or
ceases to operate as an ongoing business entity.
(b) Business: The term "Business" as used in this Section 5 shall mean (i)
healthcare product contract manufacturing, (ii) any other business in which the
Company or any affiliate is engaged on the Termination Date, and (iii) any other
business in which the Company or any affiliate is actively planning to become
engaged on the Termination Date, and in connection with the planning of which
the employee has had significant involvement.
(c) Employee Representation: The Employee represents that he is not now
subject to any employment agreement nor has he previously, at any time, entered
into any written agreement with any person, firm or corporation which would or
could preclude or prevent him from entering into this Agreement or which
requires the consent of any other party. The Employee agrees to indemnify the
Company and each of its officers, directors, and controlling persons against any
loss, liability or expense (including reasonable counsel fees) incurred by the
Company or its officers, directors and controlling persons arising out of or in
connection with any knowing misrepresentation made by the Employee hereunder.
6. Confidentiality: The Employee acknowledges that his employment by the
Company brings him into close contact with many confidential affairs of the
Company and its collaborators, consultants and clients, including, without
limitation, information about costs, profits, markets, sales, key personnel,
pricing policies, operational methods, concepts, and other business affairs and
methods of the Company and its collaborators, consultants and clients and other
information not readily available to the public, as well as plans for future
developments (collectively referred to hereinafter as "Proprietary
Information"). The Employee further acknowledges that the relationships between
the Company and its officers, employees, agents, consultants and clients
constitute a valuable asset of the Company. In recognition of the foregoing,
the Employee covenants and agrees:
(a) That all Proprietary Information shall be the exclusive property of the
Company and that he will keep secret all Proprietary Information and will not
use it for his own benefit or disclose it to, or use it for the benefit of,
anyone outside of the Company, either during or after his employment by the
Company, either during or after his employment by the Company, and (b) that he
will deliver promptly to the Company on termination of his employment by the
3
<PAGE>
Company, or at an time the Board may so request, all memoranda, notes,
documentation, data listing, records, reports and other tangible manifestations
of the Proprietary Information (and all copies thereof), that he may then
possess or have under his control.
7. Non-Solicitation: The Employee hereby covenants and agrees that, for a
period of three (3) years after the termination of his employment hereunder, he
will not induce or attempt to induce any officer, employee, agent, consultant,
or client of the Company to discontinue such affiliation with the Company or to
refrain from entering into new business relationships with the Company. the
time period during which the prohibitions set forth above apply shall be
extended by the length of time during which it is judicially determined that the
Employee has violated any such prohibition in any respect.
8. Specific Performance: Without intending to limit the remedies available to
the Company, the Employee agrees that damages at law will be an insufficient
remedy to the Company in the event that the Employee violates the terms of
Section 5, 6 or 7 of this Agreement and that the Company may apply for and
obtain immediate injunctive relief in any court of competent jurisdiction or
restrain the breach or threatened breach of, or otherwise to specifically
enforce, any of the agreements and covenants contained in such Sections. The
parties hereto understand that each of the agreements and covenants of the
Employee contained in Sections 5, 6 and 7 of this Agreement is an essential
element of this Agreement and agree that the obligations of the Employee
thereunder will survive the termination of this Agreement.
9. Termination.
(a) Termination by the Company for Cause: The Company may terminate this
Agreement and its obligations to the Employee hereunder at any time for "Cause,"
which shall mean only (i) the willful or reckless failure by the Employee to
perform his duties hereunder (other than a failure resulting from the Employee's
incapacity due to physical or mental illness), which failure shall not have been
cured within fifteen (15) days after the receipt by the Employee of written
notice thereof from the Board specifying with reasonable particularity such
alleged failure; (ii) the willful or reckless violation by the Employee of
Sections 5, 6 or 7 hereof, which violation shall not have been cured within
fifteen (15) days after the receipt by the Employee of written notice thereof
from the Board specifying with reasonable particularity such alleged violation;
(iii) the commission by the Employee of an act of fraud or theft against the
Company or any of its subsidiaries, or the Employee's willful misfeasance or
willful malfeasance in the performance of his duties to the Company; or (iv) the
conviction of the Employee of (or the plea by the Employee of nolo contendere
to) any felony.
(b) Termination upon Death or Disability of Employee: This Agreement shall
terminate upon the disability (resulting from the Employee's inability, due to
physical or mental illness, to perform his duties hereunder on a full-time basis
for three consecutive months or an aggregate of 90 days within a one-year
period) or death of the Employee, which event the Employee or his estate, legal
representatives or designee shall be entitled to receive, in full satisfaction
of all obligations due to the Employee by the Company hereunder:
4
<PAGE>
(i) Within the first six months of employment the Employee is not
entitled to any compensation.
(ii) After the first six months but before the end of the first term, the
Company shall continue to pay the Employee the Employee's Base Salary for a
period equal to the number of months then employed.
(iii) In any term subsequent to the first term, the Company shall continue
to pay the Employee the Employee's Base Salary for a period equal to one year.
(c) Termination by the Company Without Cause: In the event the Company
terminates this Agreement without Cause (except as provided in Section 10
herein), the Employee shall be entitled to the following benefits:
(i) Within the first six months of employment the Employee is not
entitled to any compensation.
(ii) After the first six months but before the end of the first term, the
Company shall continue to pay the Employee the Employee's Base Salary for a
period equal to the number of months then employed.
(iii) In any term subsequent to the first term, the Company shall continue
to pay the Employee the Employee's Base Salary for a period equal to one year.
(iv) The Company shall maintain in effect for the Employee, at its sole
expense and on terms of participation substantially the same as those in effect
prior to such termination, and in the same manner and requirement as (i), (ii)
and (iii) above, all group insurance and all other employee benefit plans,
programs or arrangements, in which the Employee was participating immediately
prior to such termination except for any revenue sharing programs based on
corporate performance.
(d) Termination by the Employee Without Cause: Nothwithstanding the provisions
of Section 1, the Employee may resign from the Company at any time upon ninety
(90) days prior written notice to the Company. In the event of resignation by
the Employee under this Section 9(d), the Board may elect to waive the period of
notice, or any portion thereof, and, in such event, the Company will pay the
Employee's salary for the notice period (or for any remaining portion of the
period). From and after the effective date of such termination by the Employee
of his employment hereunder, the Company shall have no further liability to the
Employee for salary or other compensation (or benefits, except as provided
pursuant to the terms of any compensation or benefit plan of the Company in
which the Employee is a participant).
(e) Termination by the Employee for Cause: The Employee may terminate his
employment hereunder for cause. Only the following shall constitute "cause" for
such termination: (i) failure of the Company to continue the Employee in his
then current position during the term of this Agreement; (ii) a material change
by the Company in the nature or scope of the Employee's responsibilities, title,
authorities, powers, functions or duties from the responsibilities, title,
5
<PAGE>
authorities, powers, functions or duties normally exercised by an executive in
the then current position in the Company, or (iii) a material breach by the
Company of Section 3 hereof or of any other provision of this Agreement, which
breach continues for more than ten (10) days following written notice given by
the Employee to the Company, such written notice to set forth in reasonable
detail the nature of such breach, or (iv) any constructive discharge situation.
In such event the Employee shall have no further obligations to the Company
except his obligations under Section 6 hereof and shall be entitled to the
termination benefits set forth in Section 9c.
10: Change of Control.
(a) Benefits Upon Termination: Notwithstanding the provisions of Section 9(c),
in the event that the Employee is terminated without Cause as a result of a
Change of Control (as hereinafter defined), the Employee shall be entitled to
the following benefits:
(i) For a period equal to the greater of (A) one year from the date of
such termination, or (B) the remainder of the term of this Agreement, the
Company shall continue to pay to the Employee, or to the Employee's designated
beneficiary (or to his estate if he fails to make such designation) the
Employee's salary at the rate of his last Salary in effect as of the date of
such termination, and
(ii) The Company shall maintain in effect for the Employee for a period
equal to the grater of (A) one year from the date of such termination, or (B)
the remainder of the term of this Agreement, at its sole expense and on terms of
participation substantially the same as those in effect prior to such
termination, all group insurance and all other employee benefit plans, programs
or arrangement, in which the Employee was participating immediately prior to
such termination except for any revenue sharing programs based on corporate
performance.
(b) Definition of Change of Control: For purposes hereof, a "Change of
Control" shall mean the merger or consolidation of the Company with any person,
the sale or other disposition of all or substantially all of the Company's
assets to any person or the transfer of any voting securities of the Company in
one transaction or in a series of related transactions, in each case, as a
consequence of which those persons who held all of the voting securities of the
Company immediately prior to such transaction do not hold at least a majority of
the voting securities of the surviving or resulting entity.
11. Indemnification: To the fullest extent permitted by law and in addition to
any other rights permitted or granted under the Company's articles of
incorporation, by-laws, or any agreement or policy of insurance, or by law, the
Company shall indemnify the Employee if the Employee is made a party, or
threatened to be made a party, to any threatened, pending or contemplated
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the Employee is or was an employee,
officer or director of the Company or any subsidiary of the Company, in which
capacity the Employee is or was serving at the Company's request, against any
and all costs, losses, damages, judgments, liabilities and expenses (including
reasonable attorneys' fees) which may be suffered or incurred by him in
connection with any such action, suit or proceeding provided, however that,
there shall be no indemnification in relation to matters as to which the
Employee is adjudged to have been guilty
6
<PAGE>
of fraud, bad faith or gross negligence or as a result of the Employee's
material breach of this Agreement.
12. Entire Agreement and Waiver: This Agreement is the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior or contemporaneous oral and prior written agreements and
understandings. There are no oral promises, conditions, representations,
understandings, interpretation or terms of any kind as conditions or inducements
to the execution hereof or in effect among the parties. No custom or trade
usage, nor course of conduct among the parties, shall be relied upon to vary the
terms hereof. This Agreement may not be amended, and no provision hereof shall
be waived, except by writing signed by all the parties to this Agreement, which
states that it is intended to amend or waive a provision of this Agreement. Any
waiver of rights or failure to act in a specific instance shall relate only to
such instance and shall not be construed as an agreement to waive any rights or
fail to act in any other instance, whether or not similar.
13. Severity: Should any provision of this Agreement be unenforceable or
prohibited by any applicable law, this Agreement shall be considered divisible
as to such provision which shall be inoperative, and the remainder of this
Agreement shall be valid and binding as though such provision were not included
herein.
14. Counterparts: This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original. It shall not be necessary when
making proof of this Agreement to account for more than one counterpart.
15. Headings: All headings in this Agreement are for convenience only and
shall not affect the meaning of any provision hereof.
16. Successors and Assigns: This Agreement shall inure to the benefit of, and
be binding upon, the Company and any corporation with which the Company merges
or consolidates or to which the Company sells all or substantially all of its
assets, and upon the Employee and his executors, administrators, heirs and legal
representatives. This Agreement may not be assigned by the Employee.
17. Governing Law: This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts, without reference
to the conflict of laws principles thereof.
18. Notices: All notices hereunder shall be in writing and shall be sent to
the parties at the following address:
If to the Employee, to:
7
<PAGE>
If to the Company, to:
William G. Lyons III
c/o Brimfield Precision Incorporated
68 Mill Lane Road
P. O. Box 460
Brimfield, Massachusetts 01010
If to the Employee:
/s/ Daniel T. Hannify
- ------------------------------
All notices shall be delivered in person or given by registered or certified
mail, postage prepaid, and shall be deemed to have been given when delivered in
person or deposited in the United States mail. Either party may designate any
other address to which notice shall be given, by giving notice to the other of
such change of address in the manner herein provided.
IN WITNESS WHEREOF, the Employee has executed this Agreement and the Company has
caused this Agreement to be executed by a duly authorized officer as of the day
and year first above written.
BRIMFIELD PRECISION INC.
By: /s/ William G. Lyons
- -------------------------
Name:
Title:
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 52,000
<SECURITIES> 0
<RECEIVABLES> 1,905,000
<ALLOWANCES> (83,000)
<INVENTORY> 919,000
<CURRENT-ASSETS> 3,000,000
<PP&E> 1,292,000
<DEPRECIATION> (648,000)
<TOTAL-ASSETS> 4,408,000
<CURRENT-LIABILITIES> 2,673,000
<BONDS> 0
0
0
<COMMON> 10,456,000
<OTHER-SE> (8,750,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,408,000
<SALES> 1,854,000
<TOTAL-REVENUES> 1,854,000
<CGS> 1,031,000
<TOTAL-COSTS> 1,031,000
<OTHER-EXPENSES> 1,183,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,000
<INCOME-PRETAX> (362,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (362,000)
<DISCONTINUED> (660,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,022,000)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
</TABLE>
