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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997
Commission File Number 000-21157
C O M P U R A D, I N C.
(Exact name of small business issuer as specified in its charter)
Delaware 86-0710268
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1350 North Kolb
Tucson, Arizona 85715
(Address of principal executive offices)
(520) 298-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No _____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
At November 12, 1997 there were 3,973,880 shares, $.01 par value, outstanding.
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COMPURAD, INC.
FORM 10-QSB
TABLE OF CONTENTS
Part I. - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. FINANCIAL STATEMENTS
Condensed Balance Sheets - September 30, 1997 and December 31, 1996 3
Condensed Statements of Operations - Three Months and Nine Months
Ended September 30, 1997 and September 30, 1996 4
Condensed Statements of Cash Flows - Nine Months
Ended September 30, 1997 and September 30, 1996 5
Notes to Condensed Financial Statements 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
Part II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 17
Item 2. CHANGES IN SECURITIES 17
Item 3. DEFAULTS UPON SENIOR SECURITIES 17
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 17
Item 5. OTHER INFORMATION 17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 19
</TABLE>
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COMPURAD, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,635,268 $ 4,051,968
Accounts receivable, net of $150,000 and $80,000 allowance at
September 30, 1997 and December 31, 1996, respectively 2,075,418 1,423,910
Inventories 723,244 313,724
Prepaid expenses and other 197,460 75,789
Deferred merger costs 150,917 --
----------- -----------
Total current assets 4,782,307 5,865,391
Property and equipment, net 598,467 466,768
Purchased developed technology, net 511,015 71,250
----------- -----------
Total assets $ 5,891,789 $ 6,403,409
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 839,253 $ 558,290
Accrued expenses 249,527 456,428
Customer deposits and unearned revenue 256,765 227,329
----------- -----------
Total current liabilities 1,345,545 1,242,047
Note payable to related party 125,923 117,969
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
issued or outstanding at September 30, 1997 and December 31,
1996, respectively -- --
Common stock, $.01 par value; 20,000,000 shares authorized, 3,962,750
and 3,857,260 shares issued and outstanding at September 30, 1997
and December 31, 1996, respectively 7,126,973 6,551,967
Paid in capital--stock-based compensation and expenses 476,500 467,500
Accumulated deficit (3,183,152) (1,976,074)
----------- -----------
Total stockholders' equity 4,420,321 5,043,393
----------- -----------
Total liabilities and stockholders' equity $ 5,891,789 $ 6,403,409
=========== ===========
</TABLE>
See accompanying notes.
3
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COMPURAD, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 2,046,706 $2,039,170 $ 6,729,126 $ 5,219,515
Cost of revenues 978,675 1,024,451 3,437,296 2,903,632
----------- ---------- ----------- -----------
Gross profit 1,068,031 1,014,719 3,291,830 2,315,883
Operating expenses:
Selling and marketing 479,588 294,979 1,591,424 735,807
Research and development 468,421 399,190 1,543,382 898,165
General and administrative 553,643 255,756 1,434,034 609,312
Stock-based compensation and expenses 3,000 3,000 9,000 364,500
----------- ---------- ----------- -----------
Income (loss) from operations (436,621) 61,794 (1,286,010) (291,901)
Other income 16,430 11,477 78,932 4,266
----------- ---------- ----------- -----------
Net income (loss) $ (420,191) $ 73,271 $(1,207,078) $ (287,635)
=========== ========== =========== ===========
Net income (loss) per common share $ (0.11) $ 0.02 $ (0.31) $ (0.11)
=========== ========== =========== ===========
Shares used in computing net income (loss) per common share 3,927,241 3,256,826 3,882,031 2,725,464
========= ========= ========= =========
</TABLE>
See accompanying notes.
4
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COMPURAD, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,207,078) $ (287,635)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 214,266 50,637
Stock-based compensation and expenses 9,000 364,500
Provision for bad debt 70,000 --
Changes in operating assets and liabilities:
Accounts receivable (721,508) (895,817)
Inventories (393,938) (16,798)
Prepaid expenses and other (121,671) (35,313)
Deferred merger costs (150,917) --
Accounts payable and accrued expenses 82,016 640,426
Customer deposits and unearned revenue 29,436 (316,163)
----------- -----------
Net cash used in operating activities (2,190,394) (496,163)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (226,312) (184,831)
----------- -----------
Net cash used in investing activities (226,312) (184,831)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from note payable -- 250,000
Principal payments on note payable -- (250,000)
Proceeds from issuance of common stock 6 5,153,484
----------- -----------
Net cash provided by financing activities 6 5,153,484
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,416,700) 4,472,490
Cash and cash equivalents, beginning of period 4,051,968 36,024
----------- -----------
Cash and cash equivalents, end of period $ 1,635,268 $ 4,508,514
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Purchased developed technology, stock issued $ 575,000 --
</TABLE>
See accompanying notes.
5
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COMPURAD, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of CompuRAD, Inc. (the
"Company" or "CompuRAD") presented herein have been prepared in accordance with
generally accepted accounting principles for interim financial information,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, such unaudited interim information reflect all
adjustments, consisting of normal recurring adjustments, necessary to present
the Company's financial position and results of operations for the periods
presented. The results of operations for the three months and nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for a full fiscal year or future operating periods. The Condensed Balance Sheet
as of December 31, 1996 was derived from audited financial statements as of that
date but does not include all of the information and footnotes required by
generally accepted accounting principles. The information included in this
report should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1996, which are contained in the
Company's 1996 Form 10-KSB, filed with the Securities and Exchange Commission.
2. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The Company develops, manufactures, and markets
computer software which captures, stores, distributes, and displays electronic
medical images and other types of clinical information and distributes this
information: (i) between hospitals and physicians' offices and homes; (ii)
between clinicians and healthcare delivery systems; and (iii) between various
departments within hospitals and clinics. The Company currently operates
primarily in North America and in only one business segment, the medical
software industry.
Inventories: The Company values its inventories at the lower of cost or market.
Cost is computed on a first-in, first-out basis. Substantially all inventories
are comprised of finished computer hardware goods purchased from computer
manufacturers. The Company does not modify any such computer hardware, but
integrates its software into the customer's ordered system.
Software Development Costs: Under Statement of Financial Accounting Standards
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, once technological feasibility is established related to
software development costs for new products or for enhancements to existing
products which extend the product's useful life, such costs are capitalized up
until the time the product or enhancement is available for release to customers,
after which the capitalized costs are amortized over the estimated life of the
products.
Income Taxes: The Company was a subchapter S-corporation for income tax purposes
until August 28, 1996 (the date of the Company's initial public offering). At
the date of the offering, deferred taxes were established for the difference in
the financial reporting and tax basis of the Company's assets and liabilities.
The Company's deferred tax assets at September 30, 1997 and December 31, 1996
approximate $805,000 and $322,000, respectively. The deferred tax assets at each
such date were fully offset by a valuation allowance due to uncertainties
regarding recoverability.
Revenue Recognition: Revenue from the sale of hardware and software is
recognized when the product has been shipped. Related costs of installation are
not significant and are accrued upon shipment. Revenue from maintenance,
service, and support agreements is recognized over the term of the agreement,
which in most instances is one year. Revenue from post-contract customer support
is recognized in the period the customer support services are provided. At the
request of certain customers, the Company acquires computer hardware for
purposes of configuration with its software products. The Company expects that
this service of acquiring hardware for resale will be phased out in the next
several years.
Loss per Common Share: Loss per common share is computed using the weighted
average number of shares of common stock outstanding, except as noted below.
Common equivalent shares from stock options are excluded from the computation
when their effect is antidilutive, except that, pursuant to the Securities and
Exchange Commission Staff
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Accounting Bulletins and Staff Policy, common shares, warrants, and options
issued during the period commencing 12 months prior to the initial filing of the
initial public offering at prices below the anticipated public offering price
are presumed to have been in contemplation of the public offering and have been
included in the calculation as if they were outstanding for all periods
presented prior to the initial public offering determined using the treasury
stock method.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"),
which is required to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. Due to the Company's net losses for the three months and nine
months ended September 30, 1997 and 1996, the impact of SFAS No. 128 will not be
material.
3. COMMON STOCK
On August 28, 1996, the Company completed an initial public offering (the
"Offering"), selling 1,000,000 shares of common stock at $6.00 per share. The
net proceeds to the Company were $5,130,000 after payment of underwriting
discounts and offering expenses. In conjunction with the Offering, the Company
effected a 150-for-1 stock split. All share and per share amounts have been
retroactively adjusted to reflect the stock split. On October 1, 1996 the
Company's underwriters exercised their overallotment option. The underwriters
purchased an additional 150,000 shares of Common Stock from the Company,
resulting in additional net proceeds of $837,000 to the Company after payment of
underwriting discounts and offering expenses.
4. RELATED PARTY TRANSACTIONS
The Company's president, was, and certain of the Company's stockholders are,
stockholders of Arizona State Radiology, P.C. ("ASR"). Certain technology was
transferred to the Company at its inception by ASR. The terms and amount to be
paid to ASR for such technology were subject to negotiations between the
parties, which were finalized in July 1996. The final settlement, which is
reflected in the accompanying condensed financial statements as if it had
occurred on January 1, 1993, called for the Company to pay ASR a settlement
consisting of common stock, a note payable ($125,923 and $117,969 at September
30, 1997 and December 31, 1996, respectively), and a deferred payment of
$541,676 due either in cash or stock. The technology was valued at $610,000,
based on the value of consideration given, and was amortized over a three year
period beginning January 1, 1993. The technology is fully amortized on the
accompanying condensed balance sheets. The Company issued 93,480 shares of stock
to ASR in November 1996 in compensation of the deferred payment. Subsequently,
ASR requested mediation with the Company related to the number of shares
tendered. Should mediation be unsuccessful, ASR could file litigation against
the Company. While the outcome of such litigation is uncertain, the Company
believes it has meritorious defenses to the claims and intends to conduct a
vigorous defense.
7
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COMPURAD, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-QSB contains forward looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Predictions of future events
are inherently uncertain. Actual events could differ materially from those
predicted in the forward looking statements as a result of the risks set forth
in the following discussion, and in particular, the risks discussed below under
the caption "Risk Factors that Could Effect Operating Results." Readers are also
encouraged to refer to the Company's 1996 Form 10-KSB for a further discussion
of the Company's business and the risks and opportunities attendant thereto.
GENERAL
CompuRAD, Inc. is a leading provider of software that enables
healthcare clinicians to access medical images and clinical information at any
point of care. The Company pioneered the use of personal computer software in
the point-to-point, on call teleradiology market, with the introduction of its
PC Teleradiology product. In response to the increasing acceptance of
teleradiology and increasing demand for multi-user and multi-access off-site
teleradiology systems, the Company introduced its iNET product line in late
1994. Recently in 1997, CompuRAD introduced ClinicalWare, an Internet/Intranet
software solution which provides enterprise-wide, secure electronic access
through a Web browser to clinical information systems at any point of care.
On July 30, 1997 CompuRAD acquired technology from Star Technologies,
Inc., a Delaware corporation, ("Star"). The technology acquired includes a DICOM
archive, formerly known as Image Management Server ("IMS"). Management believes
that this acquisition complements and extends the Company's existing iNETPro and
iVIEWPro DICOM image product lines allowing the Company to offer a
comprehensive, top-to-bottom, medical image networking solution to a wider
spectrum of customers. The product, which has received 510(k) clearance, will be
marketed by CompuRAD under the brand name iARCHIVE and is configurable for shelf
storage management as well as multi-terabyte, robotic archival of medical images
on jukeboxes of magneto-optical disks or digital linear tape. CompuRAD also
acquired certain assets of Medical Imaging Technology Associates, Inc. ("MITA")
related to nuclear medicine software. The MITA acquisition will close in April
1998.
On September 28, 1997 CompuRAD entered into an Agreement and Plan of
Merger and Reorganization ("the Reorganization Agreement") among Lumisys
Incorporated (NASDAQ:LUMI), ("Lumisys"), SAC Acquisition Corporation, a
wholly-owned subsidiary of Lumisys ("Merger Sub") and CompuRAD providing for the
merger of Merger Sub with and into CompuRAD upon terms and subject to the
conditions of the Reorganization Agreement (the "Merger"). Upon the closing of
the proposed merger, CompuRAD will become a wholly-owned subsidiary of Lumisys.
Stockholders who were holders of record at the close of business on October 31,
1997 will be entitled to vote at the CompuRAD Special Meeting of Stockholders on
November 25, 1997. Proxy materials were mailed to such stockholders on or about
November 5, 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH
THREE MONTHS ENDED SEPTEMBER 30, 1996
Net Revenues
Net revenues for both the three months ended September 30, 1997 and
September 30, 1996 were $2.0 million. Hardware sales, software licenses and
maintenance and support services accounted for 47.7%, 42.2% and 10.1%,
respectively, of net revenues for the 1997 period and 46.7%, 45.4% and 7.9%,
respectively, for the 1996 period. Net revenues were flat primarily due to the
lack of market acceptance of ClinicalWare. One customer represented 8.7% and
22.2% of net revenues for the three months ended September 30, 1997 and 1996,
respectively. No other customer accounted for more than 10% of net revenues in
either period.
Gross Margin
Gross margin increased to 52.2% for the three months ended September
30, 1997 from 49.8% for the three months ended September 30, 1996. This increase
in gross margin was attributable to the relative mix of higher margin
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direct, OEM and channel software sales. Cost of hardware sales for the three
months ended September 30, 1997 was $706,000 and for the three months ended
September 30, 1996 was $824,000. Cost of software licenses for the three months
ended September 30, 1997 was $211,000 and for the three months ended September
30, 1996 was $136,000. Cost of maintenance and support services for the three
months ended September 30, 1997 was $62,000 and for the three months ended
September 30, 1996 was $64,000.
Selling and Marketing Expense
Selling and marketing expense for the three months ended September 30,
1997 was $480,000, or 23.4% of net revenues, compared with $295,000 or 14.5% of
net revenues, for the three months ended September 30, 1996, an increase of
62.6%. This increase was attributable primarily to increases in compensation
associated with a larger sales force and greater advertising and marketing
expenses.
Research and Development Expense
Research and development expense for the three months ended September
30, 1997 was $468,000, or 22.9% of net revenues, compared with $399,000, or
19.6% of net revenues, for the three months ended September 30, 1996, an
increase of 17.3%. This increase was attributable primarily to the Company's
hiring and contracting of additional research and development staff and the
amortization of purchased developed technology from Star.
General and Administrative Expense
General and administrative expense for the three months ended September
30, 1997 was $554,000, or 27.1% of net revenues, compared with $256,000, or
12.5% of net revenues, for the three months ended September 30, 1996, reflecting
an increase of 116.5%. This increase was attributable primarily to the Company's
hiring of additional administrative staff, additional legal and other
professional services in connection with the Company's acquisitions of Star and
MITA, and an increase in bad debt expense.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 1996
Net Revenues
Net revenues for the nine months ended September 30, 1997 were $6.7
million, compared with $5.2 million for the nine months ended September 30,
1996, reflecting an increase of 28.9%. Of these amounts, hardware sales,
software licenses and maintenance and support services accounted for 45.9%,
44.8% and 9.3%, respectively, for the 1997 period and 45.6%, 47.0% and 7.4%,
respectively, for the 1996 period. The overall increase in revenues was
attributable to an increase in revenues from sales of iNET software, partially
offset by a decrease in revenues from sales of the Company's PC Teleradiology
products. One customer represented 19.6% and 22.3% of net revenues for the nine
months ended September 30, 1997 and 1996, respectively. No other customer
accounted for more than 10% of net revenues in either period.
Gross Margin
Gross margin increased to 48.9% for the nine months ended September 30,
1997 from 44.4% for the nine months ended September 30, 1996. This increase in
gross margin was attributable to a continued change in the relative mix of
higher margin direct, OEM and channel software sales. Cost of hardware sales for
the nine months ended September 30, 1997 was $2.6 million and for the nine
months ended September 30, 1996 was $2.2 million. Cost of software licenses for
the nine months ended September 30, 1997 was $577,000 and for the nine months
ended September 30, 1996 was $510,000. Cost of maintenance and support services
for the nine months ended September 30, 1997 was $228,000 and for the nine
months ended September 30, 1996 was $233,000.
Selling and Marketing Expense
Selling and marketing expense for the nine months ended September 30,
1997 was $1.6 million, or 23.6% of net revenues, compared with $736,000 or 14.1%
of net revenues, for the nine months ended September 30, 1996, an increase of
116.3%. This increase was attributable primarily to increases in compensation
associated with a larger sales force and greater advertising and marketing
expenses.
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Research and Development Expense
Research and development expense for the nine months ended September
30, 1997 was $1.5 million, or 22.9% of net revenues, compared with $898,000, or
17.2% of net revenues, for the nine months ended September 30, 1996, an increase
of 71.8%. This increase was attributable primarily to the Company's hiring and
contracting of additional research and development staff.
General and Administrative Expense
General and administrative expense for the nine months ended September
30, 1997 was $1.4 million, or 21.3% of net revenues, compared with $609,000, or
11.7% of net revenues, for the nine months ended September 30, 1996, reflecting
an increase of 135.4%. This increase was attributable primarily to the Company's
hiring of additional administrative staff, additional legal and other
professional services, and an increase in bad debt expense.
Stock-Based Compensation and Expenses
Stock-based compensation and expenses for the 1996 period are comprised
of non-cash charges primarily associated with the Company's grant of options to
purchase 75,000 shares of the Company's Common Stock to the co-signer of the
Company's borrowing from BankOne Arizona, N.A. in May 1996 and the Company's
issuance of 150,000 shares of the Company's Common Stock to an executive officer
of the Company in March 1996. The difference between the exercise price of such
options (or in the case of the March 1996 issuance, the price paid for such
shares) and the deemed fair market value of the Company's Common Stock on the
dates of grant of $2.50 and $1.00 per share, respectively, was recognized
immediately as a $337,500 non-cash charge. Total stock-based compensation and
expenses for the nine months ended September 30, 1996 were $364,500.
LIQUIDITY AND CAPITAL RESOURCES
Although there are no current capital commitments, the Company expects
its capital needs and operating expenditures to increase in the next few years.
There can be no assurance that the Company will not need additional capital. The
Company's need for additional financing will depend upon numerous factors,
including, but not limited to, the level of future revenues and expenditures,
market acceptance of new products, the results and scope of ongoing research and
development projects, competing technologies, market and regulatory developments
and increased working capital requirements. There can be no assurance that
additional financing will be available when needed or, if available, that it
will be available on acceptable terms. If additional funds are raised by issuing
equity securities, further dilution to then existing stockholders may result and
debt financing, if available, may involve restrictive covenants. If adequate
funds are not available, the Company's business, financial condition and results
of operations could be materially affected.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
No. 128"), which is required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new requirements
for calculating primary earnings per share, the dilutive effect of stock options
will be excluded. Due to the Company's net losses for the three months and nine
months ended September 30, 1997 and 1996, the impact of SFAS No. 128 will not be
material.
RISK FACTORS THAT COULD EFFECT OPERATING RESULTS
The Company's future operating results are subject to a number of risks
and uncertainties including those listed below.
History of Operating Losses; Uncertain Profitability
The Company incurred net losses of approximately $420,000 and $1.2
million for the three months and nine months ended September 30, 1997,
respectively, and net income of $73,000 and net loss of $288,000 for the three
months and nine months ended September 30, 1996, respectively, and, as of
September 30, 1997, had an accumulated deficit of
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$3.2 million. The development and marketing by the Company of new and existing
products will continue to require substantial product development and other
expenditures. The Company's prior operating history and dependence upon emerging
and developing markets and key personnel, as well as competition, uncertainty in
the consolidation of the healthcare industry, and general economic and other
factors make the prediction of future operating results difficult. There can be
no assurance that any of the Company's business strategies will be successful or
that the Company will be able to achieve consistent revenue growth or achieve
profitability on a quarterly or annual basis.
Variability in Quarterly Operating Results; Seasonality
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results may fluctuate as
a result of a variety of factors, including the following: demand for the
Company's software, applications and services, including the relative mix of
hardware and software purchased by its customers; the number, timing and
significance of announcements and releases of software enhancements and new
applications by the Company and its competitors; the number, timing and
significance of announcements and releases of hardware and other related
peripherals by third party suppliers; the termination of, or a reduction in,
offerings of the Company's software, applications and services; the loss of
customers due to consolidation in the healthcare industry; delays in delivery
requested by customers or caused by other factors; customer budgeting cycles;
marketing and sales promotional activities; software defects and other system
quality factors; and general economic conditions. In addition, since purchases
of the Company's software generally involve a significant commitment of capital,
any downturn in a potential customer's business or the economy in general,
including changes in the healthcare market, could have a materially adverse
effect on the Company's business, financial condition and results of operations.
Moreover, the Company's operating expense levels are relatively fixed and, to a
large degree, are based on anticipated revenues. Therefore, if revenues are
below expectations, net income is likely to be disproportionately affected.
Further, it is likely that in some future quarter the Company's operating
results, including the Company's revenues, gross margins, expenses or backlog,
will be below the expectations of public market analysts and investors. In such
event, the trading price of the Company's Common Stock could be materially
adversely affected.
The Company has historically experienced some seasonality. The Company
believes a number of its customers and potential customers defer making purchase
commitments in the fourth quarter and there can be no assurance that the Company
will not experience seasonality in the future. In addition to normal
seasonality, management has focused during the third and fourth quarters of 1997
on issues related to the pendency of the merger with Lumisys, the closing of
such merger and the Company's joint presentation at the Radiological Society of
North America Conference ("RSNA"). Downward seasonal fluctuations in the fourth
quarter may, in addition, be accentuated by market uncertainty related to the
pending merger.
Risk Associated with Delay or Failure to Complete Merger with Lumisys
The Company expects its proposed merger with Lumisys to be consummated
during the fourth quarter of 1997, at which time the Company will become a
wholly-owned subsidiary of Lumisys. If the merger fails to be consummated during
the fourth quarter of 1997 or at all, the Company's business, operating results
and financial condition would be adversely affected. Certain of the Company's
suppliers compete with Lumisys and these suppliers and other existing direct and
new customers may delay delivery of supplies and orders during the pendency of
the proposed merger with Lumisys given the uncertainties surrounding the merger,
including the product and customer support plans of Lumisys for the combined
enterprise. While the Company is working closely with its suppliers and
customers to maintain these relationships, there can be no assurance that such
relationships will not be adversely affected during the pendency of the proposed
merger, or if the merger were not to be completed. In addition, management of
the Company has dedicated significant time and attention to working with Lumisys
on plans designed to integrate a number of products, marketing strategies and
efforts, and operational functions during the pendency of the merger, and if the
merger failed to be completed, these efforts may be of questionable value to the
Company operating as an independent enterprise. Subject to stockholder approval
at special meetings of both Lumisys and the Company currently scheduled for
November 25, 1997, the Company currently expects to consummate the merger prior
to the RSNA in December 1997, at which Lumisys and the Company currently are
planning to appear jointly. If the merger failed to close before the conference
or failed to close at all, the Company's business may be adversely affected by
having appeared jointly with Lumisys at the conference.
Possible Need for Additional Funds; Uncertainty of Additional Financing
The Company expects its capital needs and operating expenditures to
increase in the next few years. There can be no assurance that the Company will
not need additional capital. The Company's need for additional financing will
depend upon numerous factors, including, but not limited to, the level of future
revenues and expenditures, market acceptance of new products, the results and
scope of ongoing research and development projects, competing technologies,
market and regulatory developments and increased working capital requirements.
There can be no assurance that additional financing will be available when
needed or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders may result and debt financing, if available, may
involve restrictive covenants. If adequate funds are not available, the
Company's business, financial condition and results of operations could be
materially adversely affected.
Dependence on Emerging Medical Image Management and Teleradiology Systems
Markets; Uncertainty of Market Acceptance
The Company's success is dependent on the development of the medical
image management and teleradiology systems markets and on market acceptance of
its existing software, as well as software it is currently developing. To date,
substantially all of the Company's revenues have been derived from the sale of
software and related hardware for the teleradiology market. The markets for the
Company's software are still relatively undeveloped and may not grow in the near
future, if at all. In the event that the medical image management and
teleradiology systems markets do not develop as anticipated by the Company, the
Company's business, financial condition and results of operations would be
materially adversely affected.
11
<PAGE> 12
Risks Associated with Products
Software and systems as complex as those offered by the Company
frequently contain undetected errors or failures when first introduced or when
new versions are released. The Company has in the past discovered bugs and
system errors in certain of its software enhancements, both before and after
initial shipment. There can be no assurance that, despite testing by the
Company, errors will not occur in the Company's products resulting in loss of,
or delay in, market acceptance. Any such loss or delay could have a materially
adverse effect on the Company's business, financial condition and results of
operations. Peripherals and hardware from third party manufacturers may contain
defects and incompatibilities which could adversely affect market acceptance of
the Company's software products.
In addition, the markets for the Company's software are characterized
by rapid technological advances, changes in customer requirements and frequent
new product introductions and enhancements of products, operating systems and
environments. The Company's future success will depend upon its ability to
enhance its current product line, to complete products currently under
development, to develop and introduce new products that keep pace with
technological developments and to respond to evolving customer requirements. Any
failure by the Company to anticipate or respond adequately to technological
developments by its competitors or to changes in customer requirements, or any
significant delays in product development or introduction could have a
materially adverse effect on the Company's business, financial condition and
results of operations. In the past, the Company has occasionally experienced
delays in the development and introduction of new software and software
enhancements, and there can be no assurance that the Company will not experience
such delays in the future. Timeliness of delivery is of critical importance to
certain customers, and the Company's failure to successfully develop and ship
such products in a timely manner could result in cancellation of customer orders
which could have a materially adverse affect on the Company's business,
financial condition and results of operations.
New Product Development; Technological Change
The market for Internet/Intranet-related software designed for use in
healthcare environments is in the early stages of development. Since this market
is new, and because current and future competitors are likely to introduce
competing Internet/Intranet software, it is difficult to predict the rate at
which the market will grow, if at all, or the rate at which new or increased
competition will result in market saturation. The Company's ClinicalWare product
was only recently introduced in 1997 and is highly dependent upon the market
acceptance of the Internet/Intranet technologies for healthcare environments. If
the market for such Internet/Intranet software fails to grow or grows more
slowly than anticipated, the Company's business, financial condition and results
of operations would be materially adversely affected. The Company has had only
limited shipments of ClinicalWare, and it expects that the sales cycle for
ClinicalWare will be longer than that for its other existing products and that
the price for ClinicalWare will be higher than that for many of the Company's
other current products. Accordingly, the Company's quarterly revenues and
operating results may be subject to greater fluctuation as the Company begins to
market and sell ClinicalWare. Additionally, the Company faces greater challenges
in installing and supporting ClinicalWare because of the complexity of
Internet/Intranet related software and systems. The Company has limited
experience in marketing, installing and supporting Internet/Intranet clinical
information systems, and there can be no assurance that the Company can obtain
the necessary resources to market, install and support ClinicalWare in an
efficient, cost-effective and competitive manner. The failure of ClinicalWare to
achieve market acceptance for any reason could have a materially adverse affect
on the Company's business, financial condition and results of operations.
Integration of Acquisitions
The Company acquired the IMS archive and Film Image Scan System and
software products from Star in July 1997 in exchange for 100,000 shares of the
Company's Common Stock and future royalties on software sales. The Company also
acquired certain assets of MITA related to nuclear medicine software in exchange
for 17,500 shares of the Company's Common Stock. The MITA acquisition will close
in April 1998.
The Company intends to continue to evaluate potential acquisitions of,
or investments in, companies which the Company believes will complement or
enhance its existing business. In connection with any future acquisitions or
strategic investments, the Company may incur debt or issue debt or equity
securities depending on market conditions and other factors. There can be no
assurances that the Company will consummate any acquisition in the future or, if
consummated, that any such acquisition will ultimately be beneficial to the
Company.
12
<PAGE> 13
The integration of acquired companies is typically difficult, time
consuming and subject to a number of inherent risks. In particular, the success
of acquisitions is often dependent upon the integration and retention of
existing employees. There can be no assurance that employees of an acquired
enterprise will remain with the Company after an acquisition. The success of
acquisitions will also be dependent upon the Company's ability to fully
integrate the management information and accounting systems and procedures of
acquired companies with those of the Company. The Company's management will be
required to devote substantial time and attention to the integration of these
businesses and to any material operational or financial problems which may occur
as a result of the acquisitions. Failure to effectively integrate acquired
businesses could have a material adverse affect on the Company's business,
results of operations and financial condition.
Consolidation and Uncertainty in the Healthcare Industry
Many healthcare providers are consolidating to create larger healthcare
networks with greater market concentration. Such consolidation could erode the
Company's existing customer base and reduce the size of the Company's target
markets. In addition, the resulting enterprises could have greater bargaining
power, which could lead to price erosion of the Company's software and services.
The reduction in the size of the Company's target market or the failure of the
Company to maintain adequate price levels could have a materially adverse effect
on the Company's business, financial condition and results of operations. The
healthcare industry also is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare industry participants. During the past several years, the United
States healthcare industry has been subject to an increase in governmental
regulation and reform proposals. These proposed reforms, if adopted, may
increase governmental involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for the Company's customers.
Healthcare industry participants may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including those for the Company's software and services. This could have a
materially adverse affect on the Company's business, financial condition and
results of operations.
Long Sales Cycles
The sales cycle for medical image management systems is lengthy. The
sales cycle of the Company's products is subject to delays associated with
changes or the anticipation of changes in the regulatory environment affecting
healthcare enterprises, changes in the customer's strategic system initiatives,
competing information systems projects within the customer organization,
consolidation in the healthcare industry in general, the highly sophisticated
nature of the Company's software and competition in the medical image management
and healthcare information systems markets in general. The time required from
initial contact to purchase order typically ranges from one to six months, and
the time from purchase order to delivery and recognition of revenue typically
ranges from one to six months. During the sales process, the Company expends
substantial time, effort and funds preparing a contract proposal, demonstrating
the software and negotiating the purchase order. For these and other reasons,
the Company cannot predict when or if the sales process with a prospective
customer will result in a purchase order.
Need to Manage Anticipated Growth in Operations; Dependence Upon Key Personnel
The Company intends to expand its operations which may place a strain
on its management systems and resources. In addition, planned increases in the
number of products sold by the Company and an increased number of distributors
requiring training and support may place additional strains on the Company's
installation and support services requiring the Company to train and manage
additional customer service personnel. There can be no assurance that the
Company will be able to effectively manage these tasks, and the failure to do so
could have a materially adverse affect on the Company's business, financial
condition and results of operations.
The Company's future success also depends to a significant part upon
the continued service of its executive officers and other key sales, marketing,
development and installation employees. The loss of the services of any of its
executive officers or other key employees could have a materially adverse affect
on the Company's business, financial condition and results of operations.
Product Liability
The Company's software captures, stores, distributes and displays
clinical information used by clinicians in the diagnosis and treatment of
patients. Any failure by the Company's software to provide accurate, reliable
and timely information, or to adequately protect the confidentiality of the
information, could result in claims against the Company. The Company maintains
insurance to protect against claims associated with the use of its software or
systems, but there
13
<PAGE> 14
can be no assurance that its insurance coverage would adequately cover any
claims asserted against the Company. A successful claim brought against the
Company in excess of its insurance coverage could have a materially adverse
effect on the Company's business, financial condition and results of operations.
Even unsuccessful claims could result in the Company's expenditure of funds in
litigation and diversion of management time and resources. There can be no
assurance that the Company's insurance will cover such claims, that the Company
will not be subject to product liability claims that will result in liability in
excess of its insurance coverage or that appropriate insurance will continue to
be available to the Company in the future at commercially reasonable rates.
International Sales
To date, the Company's international sales have been insignificant. The
Company intends to increase its marketing efforts in the international markets.
To the extent that international sales become significant, the Company's results
of operations may be subject to the risks inherent in international
transactions, including difficulties in staffing and managing foreign sales
operations, changes in regulatory requirements, exchange rates and tariffs or
other barriers. The Company has limited experience in business operations
outside the United States, and there can be no assurance that the Company's
software will be accepted in international markets or that the Company can
compete successfully in such markets.
Customer Concentration
CompuRAD presently has licensed its products to hospitals, clinics,
other healthcare facilities and physician groups. The Company's customers
include New York University Medical Center, Alliant Health Systems, Symphony
Mobilex and the Nursing Home Group plus many other leading healthcare facilities
and organizations.
For the three months and nine months ended September 30, 1997 and 1996,
one customer, Symphony Mobilex, accounted for 8.7% and 19.6% and 22.2% and
22.3%, respectively, of the Company's revenues. The Company has agreements with
OEMs and some of these agreements require OEMs to purchase a minimum amount of
the Company's products each year. A significant reduction in sales volume
attributable to the loss of any of the Company's customers, losses arising from
customer disputes regarding shipments or license, installation and service fees
or the Company's inability to collect accounts receivable from any major
customer could have a materially adverse affect on the Company's business,
financial condition and results of operations.
To date, sales of the Company's teleradiology products, including PC
Teleradiology and its successor iNET, accounted for a substantial majority of
its revenues. Sales of the iNET product line could decline for a number of
reasons including consolidation in the healthcare market and changes in
government regulation that reduce or eliminate reimbursement for teleradiology
services. If sales of the Company's iNET product line decline for any reason,
the Company's business, financial condition and results of operations would be
materially adversely affected.
Competition
The Company believes that the principal competitive factors for
selecting medical image management software and systems are the reputation and
market position of the vendor and the price, reliability, ease of use,
functionality and performance of the product or system. The Company believes it
competes effectively with respect to these factors.
Competition in the markets for medical image management products and
healthcare information systems and services is intense and is expected to
increase. The Company's competitors include other providers of medical image
management and healthcare information products. The Company's principal
competitors in the medical image management industry are E-Med, CEMAX, Applicare
Medical Imaging B.V. and Access Radiology Corporation. Furthermore, other major
healthcare information and equipment companies not presently offering competing
products may enter the Company's markets. In addition, the emerging market for
Internet/Intranet clinical information systems is expected to be highly
competitive, and the Company's competitors in this market could include many of
its competitors in the medical image management systems market as well as other
providers of healthcare information systems and new entrants into the
marketplace. Increased competition could result in price reductions, reduced
gross margins and loss of market share, any of which could materially adversely
affect the Company's business, financial condition and results of operations. In
addition, many of the Company's competitors and potential competitors have
significantly greater financial, technical, product development, marketing and
other resources and market recognition than the Company. Many of the Company's
competitors also currently have, or may develop or acquire, substantial
installed customer bases in the healthcare industry. As a result of these
factors, the Company's competitors may be able to respond more quickly to new
14
<PAGE> 15
or emerging technologies and changes in customer requirements or to devote
greater resources to the development, promotion and sale of their products than
the Company. There can be no assurances that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not have a materially adverse affect on its
business, financial condition or results of operations.
Proprietary Rights
The Company relies on a combination of trade secrets, copyright and
trademark laws, nondisclosure and other contractual provisions to protect its
proprietary rights. The Company currently has no patents covering its technology
and it has not registered its trademarks. There can be no assurance that
measures taken by the Company to protect its intellectual property will be
adequate or that the Company's competitors will not independently develop
systems and services that are substantially equivalent or superior to those of
the Company. Substantial litigation regarding intellectual property rights
exists in the software industry, and the Company expects that software products
may be increasingly subject to third party infringement claims as the number of
competitors in the Company's industry segment grows and the functionality of
systems overlap. Although the Company believes that its systems and applications
do not infringe upon the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future, that the Company would prevail in any such dispute or
that a license or similar agreement will be available on reasonable terms in the
event of an unfavorable ruling on any such claim. In addition, any such claim
may require the Company to incur substantial litigation expenses or subject the
Company to significant liabilities and could have a material adverse affect on
the Company's business, financial condition and results of operations.
Government Regulation
Medical image management software is subject to extensive government
regulation as a medical device in the United States by the Food and Drug
Administration ("FDA") and in other countries by corresponding foreign
regulatory authorities. The process of obtaining and maintaining required
regulatory clearances and approvals is lengthy, expensive and uncertain.
Generally, before a new medical device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) premarket notification or approval of a Premarket Approval ("PMA")
application. If a medical device manufacturer or distributor can establish,
among other things, that a device is "substantially equivalent" in intended use
and technological characteristics to certain legally marketed devices, for which
the FDA has not required a PMA, the manufacturer or distributor may seek
clearance from the FDA to market the device by filing a 510(k). In recent years,
the FDA has been requiring a more rigorous demonstration of substantial
equivalence. Material changes to legally marketed medical devices are also
subject to FDA review and clearance or approval prior to commercialization in
the United States.
The Company relies on 510(k) pre-market notification for its current
internally developed products. Additionally, the Company relies on 510(k)
clearance and the finding by the FDA of substantial equivalence for the IMS and
the Film Image Scan Software technologies acquired from Star in July 1997.
However, the Company believes that its success depends upon commercial sales of
new versions of its medical image management software which may be subject to
clearance or approval from the FDA and its foreign counterparts. There can be no
assurance that a similar 510(k) clearance for any future product or enhancement
of an existing product will be granted or that the process will not be lengthy.
If the Company cannot establish that a product is "substantially equivalent" to
certain legally marketed devices, the 510(k) clearance procedure may be
unavailable and the Company may be required to utilize the longer and more
expensive PMA process. Failure to receive or delays in receipt of FDA clearances
or approvals, including the need for additional data as a prerequisite to
clearance or approval, could have a materially adverse affect on the Company's
business, operating results and financial condition.
The process of obtaining a 510(k) clearance generally requires
supporting data, which can be extensive and extend the regulatory review process
for a considerable length of time. FDA enforcement policy strictly prohibits the
marketing of cleared or approved medical devices for uncleared or unapproved
uses. The Company has been inspected once and will continue to be inspected on a
routine basis by the FDA for compliance with the FDA's Quality System Regulation
("QSR") and other applicable regulations. The Company will be required to adhere
to applicable FDA QSR regulations and similar regulations in other countries,
which include testing, control, and documentation requirements. Failure to
comply with applicable regulatory requirements could result in the failure of
the government to grant market clearance or premarket approval, withdrawal of
approvals or criminal prosecution. The Company is also subject to other federal,
state and local laws and regulations relating to safe working conditions and
manufacturing practices. The extent of government regulation that might result
from any future legislation or administrative action cannot be predicted.
15
<PAGE> 16
Failure to comply with regulatory requirements could have a materially adverse
effect on the Company's business, financial condition and results of operations.
Sales of the Company's software outside the United States are subject
to foreign regulatory requirements that vary from country to country. Additional
approvals from foreign regulatory authorities may be required, and there can be
no assurance that the Company will be able to obtain foreign marketing approvals
on a timely basis or at all, or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
In Europe, the Company will be required to obtain certifications necessary to
enable the "CE" mark to be affixed to the Company's products by mid 1998 to
continue commercial sales in member countries of the European Union. The CE mark
is an international symbol of quality and complies with applicable European
medical device directives. The Company has not obtained such certifications, and
there can be no assurance it will be able to obtain such certifications or any
other international regulatory approvals in a timely manner, or at all. Failure
to comply with regulatory requirements could have a materially adverse affect on
the Company's business, financial condition and results of operations.
16
<PAGE> 17
COMPURAD, INC.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings
at this time. However, there can be no assurances that the
Company will not be subject to legal proceedings in the
future, which could have a material effect on the Company's
financial position. In addition, even if the ultimate outcome
of such legal proceedings is resolved in favor of the Company,
the defense of such litigation could entail considerable costs
and the diversion of efforts of management, either of which
could have a material adverse effect on the Company's results
of operations.
Item 2. CHANGES IN SECURITIES - None.
Item 3. DEFAULTS UPON SENIOR SECURITIES - None.
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. Description
----------- ----------
<S> <C>
2.0 (7) Agreement and Plan of Merger and Reorganization dated September 28, 1997.
2.1 (1) Technology Purchase Agreement.
2.2 Agreement for Purchase and Sale of Assets.
3.1 (2) Restated Certificate of Incorporation, as amended, of Registrant.
3.2 (2) Bylaws, as amended, of Registrant.
3.3 (5) Certificate of Amendment of Bylaws of Registrant.
4.1 (2) Form of Common Stock certificate.
4.2 (2) Form of Warrant.
10.1 (2) Stock Option Plan and form of option agreement thereunder.
10.2 (2) 1996 Stock Plan and form of option agreement thereunder.
10.3 (2) 1996 Employee Stock Purchase Plan and form of subscription agreement thereunder.
10.4 (2) Form of Indemnification Agreement to be entered into between Registrant and its directors and
officers.
10.5 (2) Shareholder Agreement dated January 15, 1993 between Registrant and certain holders of
Common Stock, amended by Settlement Agreement - See Exhibit 10.10.
10.6 (3) Lease dated August 24, 1996, relating to facility located at Tucson, Arizona.
10.7 (3) Amendment one to the lease dated August 24, 1996, relating to facility located at Tucson,
Arizona.
10.8 (3) Amendment two to the lease dated August 24, 1996, relating to facility located at Tucson,
Arizona.
10.9 (4) Amendment three to the lease dated August 24, 1996, relating to facility located at Tucson,
Arizona.
10.10 (2) Settlement Agreement dated as of July 14, 1996 among the Company, Arizona State Radiology, P.C.
et al.
10.11 (6) Employment Agreement between Registrant and Phillip Berman.
10.12 (6) Employment Agreement between Registrant and Cary Cole.
10.13 (5) Amendment four to the lease dated August 24, 1996, relating to facility located at Tucson,
Arizona.
10.14 (6) Employment Agreement between Registrant and Henky Wibowo.
11.1 Statement Regarding Computation of Net Loss Per Share.
27.1 Financial Data Schedule.
99.1 (7) Joint Press Release.
99.2 (7) Form of Voting Agreement.
</TABLE>
(1) Incorporated by reference to the Company's Form 8-K (File No. 0000-21157)
and its exhibits for the report dated July 30, 1997.
(2) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form SB-2 (File No. 333-5296-LA), in the form declared
effective on August 27, 1996.
(3) Incorporated by reference to the Company's Form 10-QSB (File No. 000-21157)
and its exhibits filed for the quarterly period ended September 30, 1996.
17
<PAGE> 18
(4) Incorporated by reference to the Company's Form 10-KSB (File No.
0000-21157) and its exhibits filed for the year ended December 31, 1996.
(5) Incorporated by reference to the Company's Form 10-QSB (File No.
0000-21157) and its exhibits filed for the quarterly period ended March 31,
1997.
(6) Incorporated by reference to the Company's Form 10-QSB (File No.
0000-21157) and its exhibits filed for the quarterly period ended June 30,
1997.
(7) Incorporated by reference to the Company's Form 8-K (File No. 0000-21157)
and its exhibits filed for the report dated September 28, 1997.
(b) REPORTS ON FORM 8-K
A Form 8-K was filed during the quarter for which this report
is filed for item 2, acquisition of assets, dated July 30,
1997.
A Form 8-K was filed during the quarter for which this report
is filed for item 5, other events, dated September 28, 1997.
18
<PAGE> 19
COMPURAD, INC.
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.
CompuRAD, Inc.
Date: November 12, 1997 /s/ Phillip Berman
----------------- ---------------------------------
Phillip Berman, M.D.
Chairman, Chief Executive Officer
and President
Date: November 12, 1997 /s/ Kevin Donovan
----------------- ---------------------------------
Kevin Donovan
Vice President, Finance and Chief
Financial Officer
19
<PAGE> 20
COMPURAD, INC.
EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.0 (7) Agreement and Plan of Merger and Reorganization dated September 28, 1997.
2.1 (1) Technology Purchase Agreement.
2.2 Agreement for Purchase and Sale of Assets.
3.1 (2) Restated Certificate of Incorporation, as amended, of Registrant.
3.2 (2) Bylaws, as amended, of Registrant.
3.3 (5) Certificate of Amendment of Bylaws of Registrant.
4.1 (2) Form of Common Stock certificate.
4.2 (2) Form of Warrant.
10.1 (2) Stock Option Plan and form of option agreement thereunder.
10.2 (2) 1996 Stock Plan and form of option agreement thereunder.
10.3 (2) 1996 Employee Stock Purchase Plan and form of subscription agreement thereunder.
10.4 (2) Form of Indemnification Agreement to be entered into between Registrant and its directors and
officers.
10.5 (2) Shareholder Agreement dated January 15, 1993 between Registrant and certain holders of
Common Stock, amended by Settlement Agreement - See Exhibit 10.10.
10.6 (3) Lease dated August 24, 1996, relating to facility located at Tucson, Arizona.
10.7 (3) Amendment one to the lease dated August 24, 1996, relating to facility located at Tucson,
Arizona.
10.8 (3) Amendment two to the lease dated August 24, 1996, relating to facility located at Tucson,
Arizona.
10.9 (4) Amendment three to the lease dated August 24, 1996, relating to facility located at Tucson,
Arizona.
10.10 (2) Settlement Agreement dated as of July 14, 1996 among the Company, Arizona State Radiology, P.C.
et al.
10.11 (6) Employment Agreement between Registrant and Phillip Berman.
10.12 (6) Employment Agreement between Registrant and Cary Cole.
10.13 (5) Amendment four to the lease dated August 24, 1996, relating to facility located at Tucson,
Arizona.
10.14 (6) Employment Agreement between Registrant and Henky Wibowo.
11.1 Statement Regarding Computation of Net Loss Per Share.
27.1 Financial Data Schedule.
99.1 (7) Joint Press Release.
99.2 (7) Form of Voting Agreement.
</TABLE>
(1) Incorporated by reference to the Company's Form 8-K (File No. 0000-21157)
and its exhibits for the report dated July 30, 1997.
(2) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form SB-2 (File No. 333-5296-LA), in the form declared
effective on August 27, 1996.
(3) Incorporated by reference to the Company's Form 10-QSB (File No. 000-21157)
and its exhibits filed for the quarterly period ended September 30, 1996.
(4) Incorporated by reference to the Company's Form 10-KSB (File No.
0000-21157) and its exhibits filed for the year ended December 31, 1996.
(5) Incorporated by reference to the Company's Form 10-QSB (File No.
0000-21157) and its exhibits filed for the quarterly period ended March 31,
1997.
(6) Incorporated by reference to the Company's Form 10-QSB (File No. 000-21157)
and its exhibits filed for the quarterly period ended June 30, 1997.
(7) Incorporated by reference to the Company's Form 8-K (File No. 0000-21157)
and its exhibits for the report date September 28, 1997.
20
<PAGE> 1
AGREEMENT FOR PURCHASE AND SALE OF ASSETS EXHIBIT 2.2
This Agreement is made and entered into this 19th day of August, 1997,
by and between CompuRAD, Inc. ("Buyer"), and Medical Imaging Technology
Associates, Inc. ("Seller").
RECITALS
A. Seller is engaged in the business of a manufacturing and selling
medical imaging computer software products and services (the "Business"); and
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, on the terms and subject to the conditions of this Agreement, the assets
and other properties described below which are owned or used by Seller in
connection with the operation of the Business.
COVENANTS
In consideration of the foregoing recitals, which are incorporated
herein and made a part hereof, and the mutual covenants and agreements
hereinafter set forth, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 DEFINITIONS. On the terms and subject to the conditions of this
Agreement, Seller agrees to sell, convey, transfer, assign and deliver to Buyer,
and Buyer agrees to purchase from Seller, on the Closing Date (as hereinafter
defined), the following described assets and other properties owned or used by
Seller in connection with the operation of the Business, all of which are
referred to herein collectively as the "Assets":
(a) "Inventory" which means and includes all items including
computers, diskettes, products, supplies and other goods held for sale by Seller
in the ordinary course of the Business, whether or not such computers,
diskettes, products, supplies or other goods are prepared for sale or delivery
to customers of the Business, but excluding any items which are unusable,
obsolete or unsaleable in the ordinary course of the Business;
(b) "Contractual Rights" which means and includes any and all
rights under any contracts, agreements or other documents in any manner related
to the ownership, possession, lease or use of the Assets, or to the ownership,
operation or conduct of the Business, including, but not limited to, rights and
obligations under or in or claims, under any and all permits, licenses,
franchises, purchase and sales orders, all service and support contracts, all
other contracts necessary, convenient or required in order to carry on the
Business, and all of Seller's rights and obligations to service its customers,
all customer records and other books and records. The Contractual Rights,
includes, but are not limited to, the contractual rights described in Exhibit A;
(c) "Intellectual Property" which includes all intellectual
property, know-how and information owned or licensed by Seller, including, but
not limited to, all of the following in any manner related to the ownership,
possession or use of the Assets or to the ownership, operation or conduct of the
Business and includes but is not limited to the Intellectual Property identified
in Exhibit B hereto. The Intellectual Property may be recorded or fixed in
written or other form and includes:
(1) All of Seller's right, title and interest in and
to the names "Tapestry" or "Gammacon" or similar words or phrases, and all other
trademarks, service marks, trade names and logos, including all registrations
and applications therefor (collectively, "Trademarks");
(2) All trade secrets, know-how, inventions, models,
confidential business information, product designs, processes, drawings,
formulae, customer lists, supplies and distribution lists, price lists, computer
programs, technical and engineering data, trade information, catalogs and
marketing
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materials (collectively, "Other Proprietary Rights");
(3) All licenses and similar agreements to which
Seller is a party, either as licensee or licensor, relating to Trademarks or
Other Proprietary Rights (collectively, "Licenses");
(4) All computer software programs owned by Seller
(including, without limitation, the Tapestry and Gammacon products,) the
exclusive worldwide rights and obligations to market and service such programs,
all trade secrets and processes relating to such programs, all current,
previous, enhanced and developmental versions of the source and object codes and
any variations thereof, and all documentation related thereto, all design
specifications therefor, all maintenance and installation job control language,
all copyrights pertaining to such programs, the programs' operators' manuals,
the user documentation, the systems' documentation and manuals (including all
flowcharts, systems' procedures and program component descriptions), all
procedures for the modification and preparation for the release of enhanced
versions of such programs, all compiler and developmental tools and licenses,
all component programs, and all available testing data relative to the
installation and checkout of such programs including but not limited to all
Device Master Records ("ADMR") for the Products, all Device History Records
("DHRs") for the Products, all Food & Drug Administration ("FDA") compliance
documents, all correspondence between or among Seller and the FDA (collectively,
the "Proprietary Rights");
(5) all related documentation in which Seller owns
intellectual property rights, including user manuals, operator manuals,
maintenance manuals, published product specifications and other such
documentation normally distributed with the Proprietary Rights (collectively,
"Related Documentation");
(6) all derivative products including any and all
computer programs or documentation based upon any portion of the Technology or
Related Documentation, such as an abridgment, condensation, addition, extension,
improvement, change, enhancement or update, or any other form in which the
Technology or Related Documentation may be recast, transformed or adapted
(collectively, "Derivative Products"); and
(7) the exclusive worldwide rights and obligations to
market and service the Trademarks, Proprietary Rights, the Other Proprietary
Rights the Licenses, Derivative Products, and Related Documentation.
(d) "Equipment" which means and includes all items listed on
Exhibit C attached hereto including all demonstration and development equipment.
1.2 CLOSING DATE. The "Closing Date" (or "Closing") shall be on or
about April 1, 1998 at 9:00 a.m. and shall take place at Law Offices of Joel L.
Herz, 1050 E. River Rd., Suite 300, Tucson, Arizona, or at such other time and
place as the parties may agree to in writing. The foregoing sale and transfer of
the Assets shall be made effective as of April 1, 1998 (the "Transfer Date")
even if the execution and delivery of this Agreement and the Closing of the
transactions contemplated hereby (the "Closing Date") occurs on a later date.
All documents and Assets may be delivered by Seller to the Closing via express
mail.
1.3 LIABILITIES EXCLUDED. Except for a single contract with General
Electric Corp. for which MITA's obligations shall not exceed $12,000 or as
otherwise listed in this Agreement, this Agreement is for the purchase and sale
of the Assets only. Accordingly, notwithstanding any other provision hereof,
this Agreement excludes, and Buyer does not assume, any liabilities of Seller,
except as set forth in this Agreement. The liabilities excluded include, but are
not limited to, Seller's accounts payable and all obligations arising out of or
related to any collective bargaining agreement, employment agreement, pension or
retirement plan, profit-sharing plan, stock purchase or stock option plan,
medical insurance plan, compensation and bonus agreement, vacation or severance
pay plan or agreement or any other employee benefit or plan. As provided herein,
Seller's obligations to trade creditors and other persons having claims against
Seller shall be paid by Seller. Any and all other accounts payable or other
obligations or liabilities accruing to and existing on the Closing Date are and
shall remain the sole obligation and responsibility of Seller.
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1.4 PURCHASE PRICE.
The purchase price for the Assets (the "Purchase Price") shall
be Seventeen Thousand Five Hundred (17,500) shares of Buyer's restricted
non-registered Common Stock, $.01 par value per share (the "Common Stock"). The
Buyer shall instruct its transfer agent to transfer the Common Stock at the
Closing. The actual transfer will take place as soon as reasonably possible
within the requirements of the transfer agent of Buyer. In addition, Buyer
agrees to reimburse Seller, at the Closing, Seller's attorneys fees incurred in
connection with this Agreement of up to Two Thousand Dollars ("$2,000.00").
Buyer shall not be responsible for any additional fees of Seller.
1.5 INVENTORY. The Inventory shall include Seller's inventory of
diskettes, computers, products, supplies and other goods held for sale by Seller
in the ordinary course of the Business, excluding any items that are unusable,
obsolete or unsaleable in the ordinary course of the Business, and shall be
priced at Seller's actual cost of such Inventory (based on Seller's most recent
invoice for such items, and net of any volume or sales discounts), plus freight
charges actually paid by Seller in connection therewith. Seller shall provide
Buyer with invoices or other documentation or evidence reasonably requested by
Buyer to verify Seller's figures with respect to the cost of such Inventory and
the freight charges paid by Seller in connection therewith. Seller shall retain,
and the Purchase Price shall not reflect, any items of Inventory that, in
Buyer's reasonable judgment, are unusable, obsolete or unsaleable in the
ordinary course of the Business. Buyer and Seller shall cooperate reasonably
with one another in determining the amount of Inventory to be sold by Seller to
Buyer hereunder and in arriving at the portion of the Purchase Price to be paid
by Buyer for such Inventory.
1.6 PAYMENT OF TAXES AND OTHER CHARGES. Seller shall pay any
transaction privilege tax, use tax, excise tax or other transfer fee, tax,
charge or assessment which may be imposed by any governmental agency with
respect to the sale, transfer, conveyance or assignment of the Assets pursuant
to this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that, as of the date of this
Agreement and as of the Closing Date:
2.1 ORGANIZATION AND STANDING. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the Commonwealth of
Pennsylvania. Seller has the requisite corporate power and corporate authority
to own, lease and operate the Assets and the Business and is duly authorized,
licensed, and in good standing to carry on the Business in the places and in the
manner in which the Business is presently being conducted.
2.2 CAPACITY; AUTHORITY; CONSENTS.
(a) Seller has full corporate power, legal capacity and
authority to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations hereunder. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
hereby and the performance of the obligations of Seller hereunder have been duly
authorized by the Board of Directors and shareholders of Seller and no other
corporate proceedings on the part of Seller are necessary in connection
therewith. This Agreement constitutes, and each other instrument or document to
be executed and delivered by Seller will constitute, valid and binding
obligations of Seller, enforceable against Seller in accordance with their
respective terms;
(b) Neither the execution and delivery of this Agreement by
Seller, the consummation of the transactions contemplated hereby nor the
performance of Seller's obligations hereunder will (i) violate any provision of
the Articles of Incorporation, as amended, or By-Laws, as amended, of Seller;
(ii) violate any
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statute, code, ordinance, rule or regulation of any jurisdiction applicable to
Seller or the Assets; (iii) violate any judgment, order, writ, decree,
injunction or award of any court, arbitrator, mediator, government or
governmental agency or instrumentality, which is binding upon Seller or which
would have a materially adverse effect on the Assets or the operation or conduct
of the Business; (iv) materially violate, breach, conflict with, constitute a
default under (whether with notice or lapse of time, or both), result in
termination of or accelerate the performance required by, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Seller is a
party or by which Seller, the Assets or the Business is bound; or (v) result in
the creation of any lien, security interest, charge or other encumbrance upon
any of the Assets; and
(c) Except as set forth in Exhibit D, no consents, approvals,
filings or registrations with or by any governmental agency or instrumentality
or any other person or entity are necessary in connection with the execution or
delivery by Seller of this Agreement, the consummation by Seller of the
transactions contemplated hereby, or the performance of Seller's obligations
hereunder. All such necessary consents, approvals, filings or registrations
which have not been obtained on the date hereof shall be obtained by Seller, at
its cost and expense, prior to the Closing Date.
2.3 ABSENCE OF DEFAULTS. Seller is not in default under, or in
violation of, any provision of its Articles of Incorporation, as amended, or
By-Laws, as amended, or any indenture, mortgage, deed of trust, loan agreement
or similar debt instrument, or any other agreement to which it is a party or by
which it is bound or to which any of its properties is subject, nor is Seller
aware of any fact, circumstance or event which has occurred which, upon notice,
lapse of time or both, would constitute such a default or violation. Seller is
not in violation of any statute, rule, regulation or order of any court or
Federal, state or local governmental agency or instrumentality having
jurisdiction over it or any of its properties.
2.4 LITIGATION AND CLAIMS. There is no action, suit or proceeding
pending, or to the Seller's knowledge, threatened against or affecting the
Seller in any court, before any arbitrator or before or by any governmental body
which (i) affects the validity or enforceability of this Agreement, (ii) affects
the Assets, or (iii) could materially and adversely affect the ability of Seller
to perform Seller's obligations hereunder, or under any document to be delivered
pursuant hereto.
2.5 COMPLIANCE WITH LAWS. Seller is in compliance with and not in
default under or in violation of any applicable federal, state or local
statutes, ordinances, rules, regulations, safety standards, environmental
standards or any other applicable law in connection with the ownership or use of
the Assets, or the conduct or operation of the Business. Seller holds all
required franchises, permits, licenses, certificates and authorizations
necessary or appropriate in connection with the ownership and use of the Assets
and the conduct and operation of the Business and all are current, not in
default, and valid as of the date of this Agreement. The Seller is not insolvent
and the transfer of assets provided for herein does not constitute a fraudulent
conveyance or any other violation of creditor rights.
2.6 INVESTMENT REPRESENTATION. (a) Seller understands that (i) the
Common Stock being acquired by Seller pursuant to this Agreement has not been
registered under the Securities Act of 1933, as amended, and is being issued in
reliance upon the exemption afforded by Section 4(2) and Regulation D
promulgated thereunder, thereof for transactions by an issuer not involving any
public offering; (ii) such Common Stock must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act of 1933,
as amended, or is exempt from such registration, (iii) Buyer will make a
notation on its transfer books to such effect; (iv) such Common Stock is being
acquired for investment and without any present view toward distribution thereof
to any other person, (v) it will not sell or otherwise dispose of such Common
Stock except in compliance with the registration requirements or exemption
provision under the Securities Act of 1933, as amended, the rules and
regulations thereunder, and as otherwise set forth by the Securities and
Exchange Commission, (vi) it has such knowledge and experience in financial and
business matters in that it is capable of evaluating the risks and merits of an
investment in such Common Stock, (vii) it has consulted with counsel, to the
extent deemed necessary, as to all matters covered by this Agreement and have
not relied upon Buyer for any explanation of the application of the various
federal or state securities laws with regard to the
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acquisition of such Common Stock, (viii) it has investigated and is familiar
with the affairs, financial condition and prospects of Buyer, and has been given
sufficient access to and has acquired sufficient information about Buyer to
reach an informed and knowledgeable decision to acquire such Common Stock, and
(ix) it is able to bear the economic risks of such an investment. Buyer
understands that the Common Stock is delivered pursuant to the Registration
Rights Agreement attached as Exhibit E hereto
(b) LEGENDS. The certificate representing the Buyer's Common Stock may
be endorsed with the following legends:
(1) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT.
THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED
EXCEPT (I) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT, (II) IN COMPLIANCE WITH RULE 144 OR (III) PURSUANT TO AN
OPINION OF COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION OR COMPLIANCE IS
NOT REQUIRED AS TO SUCH SALE, OFFER OR DISTRIBUTION."
(2) Any other legends required by applicable federal or state blue sky
or security laws.
The buyer need not register a transfer of any Common Stock, and may also
instruct its transfer agent not to register the transfer of the Common Stock,
unless the conditions specified in the foregoing legends are satisfied.
(c) REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS.
(1) Any legend endorsed on a certificate pursuant to
subsection 2.6(b) and the stop transfer instructions with respect to such common
Stock shall be removed and the Buyer shall issue a certificate without such
legend to the holder thereof if such Common Stock is registered under the
Securities Act and a prospectus meeting the requirements of Section 10 of the
Securities Act is available, if such legend may be properly removed under the
terms of Rule 144 promulgated under the Securities Act if such holder provides
the Company with an opinion of counsel for such holder, reasonably satisfactory
to legal counsel for the Buyer, to the effect that a sale, transfer or
assignment of such common Stock may be made without registration.
(2) Any legend endorsed on a certificate pursuant to
subsection 2.6(b) and the stop transfer instructions with respect to such Common
Stock shall be removed upon receipt by the Buyer of an order of an appropriate
state securities authority authorizing such removal.
2.7 INTENTIONALLY DELETED.
2.8 ASSETS OWNED DIRECTLY BY SELLER. The Seller's Business and the
Assets are owned and operated by the corporate entity of the Seller directly and
exclusively and not through (i) a direct or indirect subsidiary, partnership,
joint venture or other entity of any kind or (ii) any shareholder or affiliate
thereof. The Seller has no legal or beneficial interest in any subsidiary,
partnership, joint venture or other entity.
2.9 NO PAYMENTS OWED ON ASSETS. The Seller does not owe any payments to
any party with respect to a prior purchase of any assets (to be transferred to
Buyer herein) or the business of the Seller. Seller is not a party to any
patent, license or royalty agreements in connection with its Assets or the
Business requiring it to pay any license or royalty fees to any party in
connection therewith.
2.10 INTELLECTUAL PROPERTY.
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(a) Seller owns and possesses all right, title and interest in
and to the Intellectual Property, free and clear of all liens, security
interests and encumbrances; and to the best of Seller's knowledge no claim has
been made or threatened by any third party against Seller contesting the
validity, enforceability, use or ownership of any of the Intellectual Property;
(b) Seller has, and immediately after the Closing Buyer will
have, the right and authority to use the Intellectual Property in the operation
of the Business as presently conducted. Such use does not currently, and Buyer's
use of such Intellectual Property after the Closing Date will not to the best of
Seller's knowledge, conflict with, infringe upon or violate the proprietary
rights of any other person or entity;
(c) Seller will execute such documents as may be necessary and
will otherwise cooperate with Buyer in connection with any registrations or
assignments of registrations undertaken in connection with the Intellectual
Property transferred to Buyer hereunder, all at Seller's cost and expense; and
(d) Except as set forth in Schedule F, Seller has not granted
to any third party any license, right or other interest in the Intellectual
Property.
2.11 TITLE TO ASSETS. Seller has or will at the Closing have good and
marketable title to the Assets, free and clear of all liens, deeds of trust,
mortgages, pledges, charges, security interests, encumbrances, claims,
conditional sales agreements, licenses, covenants, conditions, restrictions on
transfer, and other rights or interests in favor of any third party whatsoever.
No officer, director, shareholder or employee of Seller owns or has any
interest, directly or indirectly, in any of the Assets.
2.12 SUPPLIERS AND CUSTOMERS. Exhibit G contains a list of all Seller's
suppliers and customers since January 1, 1990 to the present. The Seller has
paid on or before the Closing Date, or will pay when due, all of its
obligations, including, but not limited to trade payables, hospitalization,
wages and other expenses incurred to the Closing Date, and shall pay when due,
all taxes and other obligations which have accrued prior to the Closing Date and
shall become payable after the Transfer Date.
2.13 NO CONTRACTUAL DEFAULTS. The contracts listed in Exhibit H
constitute all contracts, written or oral, to which Seller is a party and which
affect the Assets, Seller's title thereto, or the use or maintenance of the
Assets in connection with the Business. Except as otherwise disclosed in Exhibit
H, Seller has performed all obligations required to be performed to date, is not
in material default under any such contract, has no knowledge of any event or
knows of no fact which, with notice or lapse of time, or both, would constitute
a default by any party to any such contract.
2.14 PAYMENT OF TAXES. All tax returns required with respect to the
Business have been prepared in accordance with applicable laws and regulations
and filed on a timely basis, and effective as of the Closing Date, all federal
and state payroll, real and personal property, sales, use and other taxes
payable as a result of Seller's operation of the Business (other than Seller's
liability for income taxes in connection therewith) will have been paid or
prorated as provided in Section 10.8 hereof. To the extent any inquiries
required hereunder with respect to Seller's liability for any such taxes show
that, as of the Closing Date, such taxes have not been paid in connection with
Seller's operation of the Business, Seller and Buyer agree that such taxes shall
be paid out of any funds that may be paid to Seller or its shareholders or
former employees in the future and Buyer is authorized to make payment of such
taxes directly to the applicable taxing authorities for and on behalf of Seller.
2.15 FULL DISCLOSURE. The representations, warranties and statements of
Seller in this Agreement, including those in any exhibit attached hereto, or in
any certificate or other document furnished by Seller to Buyer pursuant to this
Agreement, are complete, current and accurate, do not contain or will not
contain any untrue statement of material fact, and do not omit or will not omit
to state any material fact necessary to make each representation, warranty and
statement accurate and not misleading in any material respect. Seller has, and
prior to Closing shall have, provided to Buyer, in writing, any information
necessary to insure that the representations, warranties, or statements made to
Buyer are complete, current and accurate and are not
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misleading in any material respect.
2.16 BROKERS. No broker or finder has acted for Seller in connection
with this Agreement or the transactions contemplated hereby and no broker or
finder is entitled to any brokerage commissions, finder's fee or other
compensation based on agreements or arrangements made by Seller.
2.17 CONFIDENTIALITY. All of the Assets and information and
documentation furnished by Seller to Buyer pursuant to this Agreement are
confidential. Except in the ordinary course of the Business and solely pursuant
to standard confidentiality provisions, Seller has not disclosed any of the
source code relating to the Assets, and any documents relating thereto, to any
third parties and has taken all reasonable measures to protect the secrecy of,
and avoid disclosure, dissemination or the unauthorized use of all source code
relating to the Assets, and any documents relating thereto. Seller shall provide
to Buyer all confidential documents and other materials containing, reflecting
or referring to such information, shall keep confidential all such information,
and shall not directly or indirectly use such information for any competitive or
other commercial purpose. Seller's obligation to keep such information
confidential and to not use such information shall continue for an indefinite
period after the execution of this Agreement and shall extend to the directors,
officers, employees and agents of Seller. The obligation to keep such
information confidential shall not apply to any information which (a) was then
generally known to the public; (b) became known to the public through no fault
of Seller or any of its directors, officers, employees or agents; or (c) was
disclosed by a third party unaffiliated with Seller who was not bound by an
obligation of confidentiality to Seller; nor shall the obligation to keep such
information confidential apply to disclosures required to be made in accordance
with any law or regulation or any order of a court of competent jurisdiction or
made in the ordinary course of the Business and solely pursuant to standard
confidentiality provisions.
2.18 EMPLOYEES. The Seller does not have any collective bargaining
agreements with any of its employees, and to the Seller's knowledge, no labor
union organizing is pending or threatened with respect to the Seller. Each of
the key employees have executed and delivered a nondisclosure agreement in the
form generally accepted in the industry by which such employee has agreed that
any work or ideas resulting from his employment became the property of Seller
and that the employee has no interest in such property. The execution or
delivery of this Agreement, will not conflict with or result in a breach of the
terms, conditions or provisions, or constitute a default under, any contract,
covenant or instrument under with any of such key employees is now obligated.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that, as of the date of this
Agreement and as of the Closing Date:
3.1 ORGANIZATION AND STANDING. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
3.2 CAPACITY; AUTHORITY; CONSENTS.
(a) Buyer has full corporate power, legal capacity and
authority to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations under this Agreement. The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and the performance of Buyer's obligations hereunder have
been duly authorized by the Board of Directors of Buyer and no other corporate
proceedings on the part of Buyer are necessary in connection therewith. This
Agreement constitutes, and each other instrument or document to be executed and
delivered by Buyer will constitute, valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms;
(b) Neither the execution and delivery of this Agreement by
Buyer, the consummation of
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the transactions contemplated hereby nor the performance of Buyer's obligations
hereunder will (a) violate any provision of the Certificate of Incorporation, as
amended, or By-Laws, as amended, of Buyer; (b) violate any statute, code,
ordinance, rule or regulation of any jurisdiction applicable to Buyer, or its
properties or assets; (c) violate any judgment, order, writ, decree, injunction
or award of any court, arbitrator, mediator, government or governmental agency
or instrumentality, which is binding upon Buyer or which would have an adverse
effect on its properties or assets; (d) violate, breach, conflict with,
constitute a default under, result in termination of or accelerate the
performance required by, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer is a party or by which Buyer or any of
its properties or assets is bound; or (e) result in the creation of any lien,
security interest, charge or other encumbrance upon any of Buyer's properties or
assets; and
(c) No consents, approvals, filings or registrations with or
by any governmental agency or instrumentality or any other person or entity are
necessary in connection with the execution and delivery by Buyer of this
Agreement, the consummation by Buyer of the transactions contemplated hereby, or
the performance of Buyer's obligations hereunder.
3.3 FULL DISCLOSURE. The representations, warranties and statements of
Buyer in this Agreement, in any exhibit attached hereto, or in any certificate
or other document furnished by Buyer to Seller pursuant to this Agreement, are
complete, current and accurate, do not contain or will not contain any untrue
statement of material fact, and do not omit or will not omit to state any
material fact necessary to make each representation, warranty or statement
accurate and not misleading in any material respect.
3.4 BROKERS. No broker or finder has acted for Buyer in connection with
this Agreement or the transactions contemplated hereby and no broker or finder
is entitled to any brokerage commission, finder's fee or other compensation
based on agreements or arrangements made by Buyer.
ARTICLE IV
COVENANTS OF SELLER
4.1 RIGHT OF INSPECTION. From the date of this Agreement through the
Closing Date, Seller shall permit Buyer and its authorized agents and
representatives to have full access to Seller's business premises during regular
business hours, shall make its employees and authorized agents and
representatives available to confer with Buyer and its authorized agents and
representatives, shall make available to Buyer and its authorized agents and
representatives all books, papers and records relating to the Assets and the
Business including, but not limited to, books of account, tax records, contracts
and agreements, filings with any regulatory authority and any other business
information relating to Seller's business activities or prospects as Buyer may
from time to time request. No such investigation by Buyer shall affect the
representations, statements and warranties of Seller which Buyer shall be
entitled to continue to rely upon and each such representation, statement and
warranty shall survive any such investigation and the Closing.
4.2 CONDUCT OF BUSINESS. From the date of this Agreement until the
Closing Date:
(a) Seller shall conduct the Business and will engage in
transactions only in the usual and ordinary course of business and in a
commercially reasonable manner and will do so diligently and in substantially
the same manner as it has previously. Seller shall use all commercially
reasonable efforts to preserve its business organization intact and to preserve
all present relationships of Seller with, and the goodwill of, suppliers,
customers and others having a business relationship with Seller. Seller further
agrees to protect the Assets and maintain such Assets in good operating,
condition and repair, and shall, at its expense, repair, replace or restore, as
applicable, any item of tangible or intangible property included in such Assets
which cease to be in such condition, ordinary wear and tear excepted. Seller
shall take all steps reasonably necessary to preserve all Contractual Rights and
the Intellectual Property;
(b) Seller shall not, unless otherwise consented to or
approved by Buyer in writing, or as
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permitted or required by this Agreement: (i) sell, dispose of or encumber any of
the Assets; (ii) modify, amend, cancel, renew or terminate any contract listed
in Exhibits A or H; or (iii) take any action or fail to take any action which
would cause any of Seller's representations herein to be untrue as of the
Closing Date;
(c) Seller shall maintain its corporate existence and powers
and will not dissolve or liquidate; and
(d) Seller shall not do any act or omit to do any act that
would cause a material breach or default of any contract, obligation, lease,
license or other agreement to which Seller is a party and which affects the
Assets, Seller's title thereto or the operation or conduct of the Business.
4.3 BULK TRANSFER LAW. Seller and Buyer hereby agree to waive
compliance with any bulk transfer law which might be applicable to the
transactions contemplated herein. In the event the failure of the parties to
comply with any such bulk transfer law should cause any creditor of Seller to
attempt to collect any claim against Seller by levy of execution, attachment or
other proceeding against the Business or Assets transferred to Buyer hereunder,
Seller (as provided in Section 9.2 hereof) agrees to indemnify, protect, defend
and hold Buyer harmless for, from and against any and all liability, loss, cost,
damage and expense resulting from any such claim or claims.
4.4 COVENANT NOT TO COMPETE.
(a) Effective on the Closing Date, all of its shareholders and
officers and directors of Seller agree, for themselves, the Seller and any other
person or entity they may directly or indirectly own or control, for their
account or on behalf of any other party or as an employer, employee, consultant,
manager, agent, broker, contractor, shareholder, director or officer of a
corporation, investor, owner, lender, partner or otherwise, not to compete,
directly or indirectly with Buyer in connection with the Business for a period
of two (2) years after the Closing Date in the geographic area necessary or
required for Buyer to receive the benefits associated with its purchase of the
Assets, including:
(1) Engaging in any medical imaging software Business
(including without limitation, the retail distribution and custom development of
medical imaging software).
(2) Directly or indirectly for their own account or
the benefit of others solicit, hire or retain any employee of Buyer or its
affiliates or persuade or entice any employee of Buyer or its affiliates to
leave the employ of Buyer or its affiliates.
(3) Disclose or furnish to anyone the names,
addresses and requirements of any of the customers of Buyer or its affiliates,
unless required to do so by legal process.
(4) Molest or interfere with the goodwill and
relationship with any of the customers of the Buyer or its affiliates.
(5) Persuade, accept, induce or solicit any of the
customers of Buyer or its affiliates, to engage anyone, other than the Buyer or
its affiliates, to deliver product and perform services in the nuclear medicine
business, including, but not limited to, system integration, file transfer, and
image display.
(b) Seller acknowledges that the success of Buyer is dependent
on its innovative and proprietary systems, devices and business methods for
providing medical imaging software and related services to its customers (and,
after the Closing to customers of Seller) as well as its lists and files of
customers and referral sources; that it is imperative that these be maintained
in strict confidence; and that Buyer is obligated to its customers (and to
Seller's customers after the Closing) to assure confidentiality of medical and
other information acquired by Buyer in the course of performing medical imaging
software and related services. Accordingly, Seller shall keep and maintain in
strict confidence, not utilize or copy for any
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purpose other than in furtherance of Buyer's business, and not transfer, divulge
or disclose to any third party other than in furtherance of Buyer's business (i)
all technical and business information and proprietary systems and business
methods of Buyer, including without limitation, business and marketing plans and
opportunities, agreements, know-how, trade secrets, inventions, research and
developments as to archive and digitizer devices, books, records, forms,
documents and manuals (whether or not any of the foregoing are copyrightable or
patentable), pricing policies, patient and customer lists, referral sources and
lists and financial and cost information, (ii) all records, files, information
and documents relating to customers and (iii) all reports, documents and
communications between customers.
(c) At the Closing, copies of all documentation of the
foregoing which may be in the possession of Seller shall be delivered to Buyer.
(d) In addition to any and all other remedies available at law
or equity, in the event the Seller shall breach any covenant in Section 4.4 of
this agreement, Seller acknowledges that damages would be difficult to ascertain
and Buyer shall be entitled, in addition to any and all other remedies, an
injunction issued by a court of competent jurisdiction restraining the aforesaid
violations of Seller, without the necessity of posting a bond or proving special
damages.
(e) The provisions of Section 4.4 of this agreement shall
apply with respect to Buyer and all subsidiary, affiliate and parent
corporations of Buyer and licensees thereof and shall survive the Closing.
4.5 EMPLOYMENT AGREEMENT. On the Closing Date, Seller shall cause the
Seller's employees, Ray Deininger and Tom Deininger, to execute employment
agreements ("Employment Agreement") attached hereto as Exhibit I, in form and
substance acceptable to Buyer, under which such employees shall agree to become
employees of Buyer for a period of one (1) year after the Closing Date. The
remuneration payable by Buyer for such employees shall be as set forth in each
employees' Employment Agreement.
4.6 CONSENTS. Seller, at its cost and expense, shall obtain any and all
necessary consents, waivers, permits, approvals and authorizations of, and to
complete any and all filings or registrations with, all federal, state and local
governmental bodies which are necessary or required to consummate the
transactions contemplated by this Agreement or to permit Buyer to continue the
Business after the Closing Date. Seller, at its cost and expense, shall also
obtain any and all consents, waivers, approvals and authorizations from all
persons and entities as may be required for the sale, assignment or transfer to
Buyer of the Assets as provided herein.
4.7 COOPERATION. Seller agrees to use its best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all acts and
actions necessary, proper or advisable to consummate the transactions
contemplated by this Agreement and to perform its obligations hereunder.
4.8 DISCLOSURE OF CHANGES. Through the Closing Date, Seller shall
within two (2) days notify Buyer in writing of (a) any threatened lawsuit or
claim; (b) any threatened claims or proceedings of any kind; (c) any adverse
change in the financial condition of Seller or the Business; and (d) any change
in any representations or warranties of Seller set forth in this Agreement or in
any exhibit, certificate or other document delivered to Buyer by Seller pursuant
to this Agreement.
4.9 INFORMATION. On or prior to the Closing Date, Seller shall deliver
to Buyer all documents, instruments and other information (a) related to the
Assets and Business and reasonably necessary, required or convenient in
connection with Buyer's investigation of the Assets and Business; (b) necessary,
required or convenient to effectuate the terms of this Agreement and the
transactions contemplated herein; and (c) otherwise reasonably requested by
Buyer. Such documents, instruments and other information shall include, but is
not limited to, originals (or accurate copies if originals are unavailable) of
all contracts, and other agreements listed on Exhibit B attached hereto,
together with all modifications and amendments thereto.
ARTICLE V
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CONDITIONS TO OBLIGATION OF BUYER TO PERFORM
The obligations of Buyer under this Agreement are subject to the full
and complete satisfaction and fulfillment, on or before the Closing Date, or as
otherwise provided herein, of all of the following conditions and contingencies,
each of which may be waived by Buyer by delivery to Seller of a written notice
of such waiver:
5.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. The
representations and warranties of Seller contained in this Agreement, in the
exhibits hereto, and in any certificate, document or statement delivered
pursuant to the provisions hereof, shall be true and correct on and as of the
Closing Date as though such representations and warranties were made on and as
of the Closing Date.
5.2 COMPLIANCE WITH AGREEMENTS. Seller shall have performed and
complied with all agreements, covenants, conditions and obligations required by
this Agreement to be performed or complied with by Seller prior to or on the
Closing Date.
5.3 APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, and other documents delivered to Buyer pursuant to
this Agreement or required to carry out the transactions contemplated hereby,
shall have been approved by counsel for Buyer, which approval shall not be
unreasonably withheld.
5.4 THIRD PARTY CONSENTS. Seller, at its cost and expense, shall have
obtained all consents, waivers, permits, approvals and authorizations, and
completed all filings and registrations, described in exhibits attached hereto
or which are or might be construed as conditions precedent to fully consummating
the transactions contemplated hereby, and shall have delivered executed copies
or other written evidence thereof to Buyer.
5.5 TRANSFER OF LICENSES. Seller shall have transferred or assigned to
Buyer all contracts, licenses, permits, franchises, certificates and
authorizations required, convenient or necessary to enable Buyer to operate and
conduct the Business in the manner in which Seller operates and conducts the
Business.
5.6 ASSIGNMENT OF WARRANTIES. Seller shall assign to Buyer any and all
warranties covering or affecting the Assets.
ARTICLE VI
CONDITIONS TO OBLIGATION OF SELLER TO PERFORM
The obligations of Seller under this Agreement are subject to the full
and complete satisfaction and fulfillment, on or before the Closing Date, or as
otherwise provided herein, of all of the following conditions and contingencies,
each of which may be waived by Seller by delivery to Buyer of a written notice
of such waiver:
6.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING DATE. The
representations and warranties of Buyer contained in this Agreement, in the
exhibits hereto, and in any certificate, document or statement delivered
pursuant to the provisions hereof, shall be true and correct on and as of the
Closing Date as though such representations and warranties were made on the
Closing Date.
6.2 COMPLIANCE WITH AGREEMENT. Buyer shall have performed and complied
with all agreements, conditions and obligations required by this Agreement to be
performed or complied with by Buyer prior to or on the Closing Date.
6.3 APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, opinions and other documents delivered to Seller
pursuant to this Agreement or required to carry out the transactions
contemplated hereby, shall have been approved by counsel for Seller, which
approval shall not be unreasonably withheld.
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ARTICLE VII
REMEDIES
7.1 REMEDIES PRIOR TO OR ON CLOSING.
(a) In the event of any material breach or default of any
warranty, covenant, agreement, condition or other obligation of either party
hereunder, the non-defaulting party may, at its option, and without prejudice to
any other rights or remedies such party may have at law or in equity for any
such breach or default, terminate this Agreement promptly upon learning of the
breach by delivering written notice of termination to the breaching or
defaulting party on or before the Closing Date, provided that such breach or
default is of such a nature that it cannot be cured prior to the Closing Date.
The notice shall specify with particularity the breach or default on which the
notice is based. If Seller terminates this Agreement prior to the Closing Date
for any reason other than a breach or default by Buyer, Seller agrees to pay
Buyer, as liquidated damages, a fee in the amount of One Million Dollars
($1,000,000). The parties agree that such amount shall be paid from the proceeds
of any other transaction(s) that Seller enters into with any third party.
(b) In the event of termination of this Agreement by either
Buyer or Seller as provided in this Section 7.1, this Agreement shall become
null and void, except for the provisions of Section 9.2 hereof, which shall
remain in full force and effect. Upon such termination, Buyer shall deliver to
Seller, and Seller shall deliver to Buyer, any and all documentation provided by
either party to the other pursuant to the terms of this Agreement.
7.2 REMEDIES SUBSEQUENT TO CLOSING. In the event of any material breach
or default of any warranty, covenant, agreement, condition or other obligation
of either party hereto, the non-defaulting party may pursue whatever rights and
remedies are available to such party at law or in equity, including, without
limitation, the rights and remedies provided in this Agreement.
ARTICLE VII
CLOSING
8.1 SELLER'S OBLIGATIONS AT CLOSING. At the Closing, Seller shall
deliver or cause to be delivered to Buyer the following:
(a) All of the Assets and all instruments of transfer,
properly executed by Seller and acknowledged, including, but no limited to, a
bill of sale, deeds and assignments transferring and assigning to Buyer all of
Seller's right, title and interest in and to the Assets and delivery of the
Assets to Buyer's place of business in Tucson, Arizona at Buyer's cost of
shipping;
(b) All instruments evidencing any and all consents, waivers,
permits, approvals, authorizations, filings and registrations described in
Sections 2.2 and 5.4;
(c) The Employment Agreements referred to in Section 4.5
hereof, duly executed by the intended employees thereunder;
(d) The agreed upon listing of the Inventory described in
Section 1.5 hereof, duly executed by an authorized representative of Seller;
(e) Certified resolutions of Seller's Board of Directors and
shareholders authorizing the execution and performance of this Agreement and all
actions taken by Seller in furtherance of this Agreement pursuant to Section 2.2
hereof; and
(f) A certificate, executed by the President of Seller, dated
as of the Closing Date, certifying that the representations and warranties of
Seller in this Agreement are true and correct on the
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Closing Date, as though each such representation and warranty had been made on
the Closing Date.
8.2 BUYER'S OBLIGATIONS AT CLOSING. On the Closing Date, Buyer shall
deliver or cause to be delivered to Seller, the following:
(a) The payments referred to in Section 1.4 on the Closing
Date and the instruction to Buyer's transfer agent as set forth therein;
(b) The Employment Agreement referred to in Section 4.5
hereof, duly executed by an authorized office of Buyer;
(c) The Covenant referred to in Section 4.4 hereof, duly
executed by an authorized officer of Buyer;
(d) The agreed upon listing of the Inventory described in
Section 1.5 hereto, duly executed by an authorized representative of Buyer;
(e) Certified resolutions of Buyer's Board of Directors
authorizing the execution and performance of this Agreement and all actions
taken by Buyer in furtherance of this Agreement pursuant to Section 3.2 hereof;
and
(f) A certificate, executed by the President of Buyer, dated
as of the Closing Date certifying that the representations and warranties of
Buyer in this Agreement are true and correct on the Closing Date, as though each
such representation and warranty had been made on the Closing Date.
ARTICLE IX
OBLIGATIONS AFTER CLOSING
9.1 EMPLOYEES.
(a) Buyer and Seller acknowledge and agree that Buyer expects
to hire some of Seller's employees after the Closing Date on such terms as are
acceptable to Buyer and such employees. Effective as of the Closing Date, Seller
shall terminate the employment of all such employees of Seller in connection
with the Business, and Buyer shall be entitled to hire such of those employees
that Buyer deems appropriate in its sole discretion. Notwithstanding the
foregoing, nothing contained herein shall be deemed to constitute Buyer's
assumption of any liability of Seller with respect to any employees, including,
but not limited to, any liability arising out of or related to any collective
bargaining agreement, employment agreement, pension or retirement plan,
profit-sharing plan, stock purchase or stock option plan, medical insurance
plan, compensation or bonus agreement, vacation or severance pay plan or
agreement or any other employee benefit or plan, all of which shall be and
remain the sole responsibility and obligation of Seller.
(b) With respect to any current or former employee of Seller
who is not hired by Buyer on the Closing Date, Seller shall expeditiously take
all steps necessary to provide such employee (or any Code Section 4980B(g)
qualified beneficiary of such employee) with the health coverage continuation
rights that the employee (or any Code Section 4980B(g) qualified beneficiary of
such employee) is entitle to under the continuation health care coverage
requirement of Code Section 4980B and ERISA Sections 601 through 609. Seller
agrees to provide Buyer with proof of its satisfaction of its duties under this
paragraph.
(c) Seller agrees to pay and be liable to Buyer and shall
assume, indemnify, defend and hold harmless Buyer from and against and in
respect of any and all losses, damages, liabilities, taxes, sanctions that arise
under Code Section 4980B(b), interest and penalties, costs and expenses
(including, without limitation, disbursements and reasonable legal fees incurred
in connection therewith and in seeking indemnification therefor, and any amounts
or expenses required to be paid or incurred in connection with any action, suit,
proceeding, claim, appeal, demand, assessment, or judgment) imposed upon,
incurred by, or
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assessed against Buyer and any of its employees arising by reason of or relating
to any failure to comply with the continuation health care coverage requirements
of Code Section 4980B and ERISA Sections 601 through 609 which failure occurred
with respect to any current or prior employee of Seller (or any Code Section
4980(g) qualified beneficiary of such employee) on or prior to the Closing Date.
(d) Seller also agrees to use its best efforts to
expeditiously provide the person(s) designated by Buyer with all information
that such person(s) deems necessary to determine whether there have been any
failures to comply with the continuation health care coverage requirements of
Code Section 4980B and ERISA Sections 601 through 609 as such requirements have
applied to any group health plan maintained by or for Seller which failure
occurred with respect to any current or prior employee of Seller (or any Code
Section 4980(B)(g) qualified beneficiary of such employee) on or prior to the
Closing Date. Seller further agrees to use its best efforts to expeditiously
provide to the person(s) designated by Buyer with all information that such
person(s) deems necessary to correct any failures to comply with such
continuation health care coverage requirements. Such information shall include,
without limitation, the identification of all Code Section 4980B(f)(7) covered
employees and their Code Section 4908(g) qualified beneficiaries and information
otherwise demonstrating compliance with all of the continuation health care
coverage requirements or Code Section 4980B and ERISA Sections 601 through 609.
(e) For purposes of this Section, references to the Code and
ERISA shall include references to any provisions of such statutes as they may be
amended from time to time.
9.2 INDEMNIFICATION.
(a) Seller shall indemnify, defend, protect and hold Buyer
harmless from and against any and all claims, losses, expenses, damages,
obligations, deficiencies and liabilities of any kind, including, without
limitation, costs of investigation, interest, fines and penalties, reasonable
attorney's fees and any and all costs, expenses and fees incident to any suit,
action or proceeding incurred or sustained by Buyer which arise out of, result
from or are related to: (i) Seller's breach of any representation, warranty,
covenant, agreement or obligation of Seller contained herein or in any other
instrument or document executed and delivered by Seller in connection herewith;
or (ii) any or all liabilities or obligations arising out of or in any manner
relating to the operation of the Business or any event occurring on or prior to
the Closing Date related thereto or the assets thereof; or (iii) any claim that
the Intellectual Property infringes a copyright, trademark, trade secret, United
States patent or other intellectual property right.
(b) Buyer shall indemnify, defend, protect and hold Seller
harmless from and against any and all claims, losses, expenses, damages,
obligations, deficiencies and liabilities of any kind, including, without
limitation, costs of investigation, interest, penalties, reasonable attorney's
fees and any and all costs, expenses and fees incident to any suit, action or
proceeding incurred or sustained by Seller which arise out of, result from or
are related to Buyer's breach of any representation, warranty, covenant,
agreement or obligation of Buyer contained herein or in any other instrument or
document executed and delivered by Buyer in connection herewith.
(c) Buyer and Seller agree that, upon receipt by either party
of a claim or notice thereof in respect of which indemnity, defense, protection
or hold harmless may be sought under this Section 9.2, said party ("Claimant")
shall give written notice within ten (10) days thereafter ("Notice of Claim") to
the party from whom indemnification, defense, protection or hold harmless may be
sought hereunder ("Indemnitor"). No indemnification, defense, protection or hold
harmless under this Section 9.2 shall be available to any party who fails to
give the required Notice of Claim within such ten (10) days period if the party
to whom such notice should have been given was unaware of the matter and was
prejudiced by the failure to receive the Notice of Claim in a timely manner. The
Indemnitor shall be entitled at its own expense to participate in the defense of
any clam or action against the Claimant. The Indemnitor shall behave the right
to assume the entire defense of such clam provided that (i) the Indemnitor gives
written notice of its desire to defend such claim (the "Notice of Defense") to
the Claimant within fifteen (15) days after Indemnitor's receipt of the Notice
of Claim; (ii) the Indemnitor's defense of such claim shall be without cost to
the Claimant or prejudice to the
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Claimant's rights under this Section 9.2; (iii) counsel chosen by the Indemnitor
to defend such claim shall be reasonably acceptable to Claimant, (iv) the
Indemnitor shall bear all costs and expenses in connection with the defense of
such claim; (v) the Claimant shall have the right, at the Claimant's expense, to
have Claimant's counsel participate in the defense of such claim; and (vi) the
Claimant shall have the right to receive periodic reports from the Indemnitor
and Indemnitor's counsel with respect to the state and details of the defense of
such claim and shall have the right to make direct inquiries to Indemnitor's
counsel in this regard.
(d) To the extent Buyer incurs any liability, damage, cost or
expense in connection with a claim against which Seller is obligated to
indemnify, defend, protect or hold Buyer harmless hereunder, Buyer shall be
entitled to offset such liabilities, damages, costs or expenses against (i) any
payment due in connection with the fees referred to in Section 1.4 hereof; or
(ii) by a return to Seller of shares of the Common Stock equal to offset such
liabilities, damages, costs or expenses by valuing the Common Stock at the then
current market value.
9.3 TRANSITION. Seller, as part of the consideration described herein,
shall render reasonable cooperation to Buyer to effectuate a smooth and orderly
transition in the operation and conduct of the Business following the Closing
Date.
ARTICLE X
ARBITRATION
10.1 ARBITRATION. In the event any dispute or controversy arising out
of this Agreement cannot be settled by the parties, such controversy or dispute
shall be submitted to binding arbitration in Tucson, Arizona. In the event the
parties cannot mutually agree upon the arbitrator to settle their dispute or
controversy, each party shall then select one arbitrator and the two so selected
shall select a third arbitrator. If either party fails to select an arbitrator
within fifteen (15) days after written demand from the other party to do so, or
if the two arbitrators selected fail to select a third arbitrator within fifteen
(15) days after the last of such selected arbitrators is appointed, then such
arbitrator or arbitrators shall be selected pursuant to the then existing rules
and regulations of the American Arbitrator Association governing commercial
transactions. The decision of the majority of said arbitrators shall be binding
upon the parties hereto for all purposes and judgment to enforce any such
decision may be entered in the Superior Court, Pima County, Arizona (and for
this purpose each party expressly and irrevocably consents to the jurisdiction
of said Court). At the request of either party, the arbitrator proceedings shall
be conducted in the utmost secrecy. In that event, all documents, testimony and
records shall be received, heard and maintained by the arbitrators in secrecy,
available for inspection only by either party and by their respective attorneys
and experts who shall agree, in advance and in writing, to receive all such
information in secrecy. In all other respects, the arbitrators shall conduct all
proceedings pursuant to the Uniform Arbitration Act as adopted in the State of
Arizona, and the then existing rules and regulations of the American Arbitration
Association governing commercial transactions to the extent such rules are not
inconsistent with such Act and this Agreement.
ARTICLE XI
GENERAL PROVISIONS.
11.1 PUBLICITY. All notices to third parties and all other publicity
concerning the transactions contemplated by this Agreement shall be jointly
planned and coordinated by and between Buyer and Seller. Neither Buyer nor
Seller shall act unilaterally in this regard without the prior written approval
of the other party; however, this approval shall not be unreasonably withheld.
11.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
respective representations, warranties and covenants of Buyer and Seller made
herein or in any certificate or other document delivered pursuant to this
Agreement, including, without limitation, the obligations of indemnity, defense,
protection, and holding harmless hereunder, shall survive the Closing Date and
the consummation of the transactions contemplated hereby until the applicable
statute of limitations has run, notwithstanding any examination made by or for
the party to whom such representations, warranties or covenants were made, the
knowledge of any
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officers, directors, shareholders, employees or agents of the party, or the
acceptance of any certificate or opinion.
11.3 NOTICES. All notices, requests, demands and other communications
required under this Agreement shall be in writing and shall be deemed duly given
and received (a) if personally delivered, on the date of delivery, (b) if
mailed, three (3) days after deposit in the United States Mail, registered or
certified, return receipt requested, postage prepaid and addressed as provided
below, or (c) if by a courier delivery service providing overnight or "next-day"
delivery, on the next business day after deposit with such service, addressed as
follows:
IF TO SELLER: Medical Imaging Technology Associates, Inc.
49 Main Street
Mainland, PA 19451-0197
WITH A COPY TO: Christopher F. Wright, Esq.
Pepper, Hamilton & Sheets, L.L.P.
1235 Westlakes Drive, Suite 400
Berwyn, PA 19312
Tel:610-640-7803
Fax: 610-640-7835
IF TO BUYER: Dr. Phillip Berman
CompuRAD, Inc.
1350 N. Kolb
Tucson, AZ 85715
Tel: 520-298-1000;Fax: 520-298-1400
e-mail: Berman @ compurad.com
WITH A COPY TO: Joel L. Herz
Law Offices of Joel L. Herz
1050 E. River Rd., Suite 300
Tucson, AZ 85718
Tel: 293-1400 Fax: 293-1558
e-mail: jherzlaw @ aol.com
Any party may change its above-designated address by giving the other party
written notice of such change in the manner set forth herein.
11.4 HEADINGS. Headings contained in this Agreement are inserted only
as a matter of convenience and in no way define, limit, extend or describe the
scope of this Agreement or of any provision hereof.
11.5 ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the
entire agreement among the parties and supersedes all prior and contemporaneous
agreements and undertakings of the parties with respect to the subject matter
hereof. No supplement, modification or amendment of this Agreement shall be
binding or enforceable unless executed in writing by the parties hereto.
11.6 WAIVER. No waiver of any of the provisions of this Agreement shall
be deemed, or shall constitute, a waiver of any other provision hereof (whether
or not similar), nor shall such waiver constitute a continuing waiver, and no
waiver shall be binding unless executed in writing by the party making the
waiver.
11.7 EXHIBITS. Exhibits attached hereto and referred to in this
Agreement are hereby incorporated into this Agreement and made a part hereof.
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11.8 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed, construed, and considered to be an
original, but all of which shall constitute one and the same instrument, when
signed by both of the parties hereto.
11.9 GOVERNING LAW; JURISDICTION. Except as expressly provided herein,
this Agreement shall be construed in accordance with, and governed by, the laws
of the State of Arizona, without regard to the application of conflicts of law
principles. Except in respect of an action commenced by a third party in another
jurisdiction, the parties agree that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted in a State or
Federal court in the City of Tucson, Pima County, State of Arizona only, and
they hereby irrevocably submit to the jurisdiction of any such court.
11.10 ATTORNEYS' FEES. In the event an action or suit is brought by any
party hereto to enforce the terms of this Agreement, the prevailing party shall
be entitled to the payment of its reasonable attorney's fees and costs, as
determined by the judge of the court.
11.11 PARTIES IN INTEREST. Nothing in this Agreement, whether expressed
or implied, is intended to confer upon any person or entity other than the
parties hereto and their respective heirs, representatives, successors and
permitted assigns, any rights or remedies under or by reason of this Agreement,
nor is anything in this Agreement intended to relieve or discharge the liability
of any party hereto or third party, nor shall any provision hereof give any
person or entity any right of subrogation against or action over or against any
party hereto.
11.12 SUCCESSORS IN INTEREST. Except as otherwise provided herein, all
provisions and obligations of this Agreement shall be binding upon, inure to the
benefit of and be enforceable by and against the respective heirs, executors,
administrators, personal representatives, successors and assigns of any of the
parties hereto.
11.13 SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Agreement, or any part thereof, shall not effect the other
provisions hereof and this Agreement shall be continued in all respect as if
such invalid or unenforceable provision were omitted herefrom.
11.14 RISK OF LOSS. Seller shall bear all risk of loss with respect to
the Assets arising on and prior to the Closing Date. In the event that all or
any part of the Assets are damaged or destroyed by fire, windstorm or any other
casualty on or prior to the Closing Date (whether or not insured), Seller shall
immediately notify Buyer of such damage or destruction. In such event, Seller
and Buyer agree as follows:
(a) If the amount of the casualty loss is less than Five Thousand
and 00/100 Dollars ($5,000.00), the portion of the Purchase Price set forth in
Section 1.4 shall be reduced by the amount of the casualty loss, and Seller
shall retain the right to receive proceeds of any insurance policies which cover
any such loss.
(b) If the amount of the casualty loss is Five Thousand and 00/100
Dollars ($5,000.00) or more, Buyer shall have the option to either: (i)
terminate this Agreement by written notice to Seller, in which case the parties
shall have no further obligations or liabilities hereunder, or (ii) continue to
proceed with the transactions contemplated by this Agreement. If Buyer elects to
continue to proceed with the transactions contemplated hereby: (i) all insurance
proceeds collectible by reason of such casualty loss shall be deemed to have
been absolutely and irrevocably assigned to, and shall be payable directly to,
Buyer and the portion of the Purchase Price set forth in Section 1.4 shall be
reduced by the amount of any deductible under any insurance policies; (ii)
Seller shall deliver to Buyer, on or before the Closing Date, a duly executed
assignment of all insurance proceeds, in form and substance acceptable to Buyer;
(iii) Buyer shall have the right to conduct all settlement proceedings with
respect to such insurance claims; (iv) Buyer shall have the right and option to
extend the Closing Date for a period of up to thirty (30) days from the date of
such casualty loss; and (v) if Seller does not have insurance, or the limits
thereof are not sufficient to cover the
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loss, the portion of the Purchase Price set forth in Section 1.4 shall be
reduced by the amount of the loss or the insufficiency, as the case may be.
11.15 FURTHER DOCUMENTATION. Each party shall execute and deliver such
further and additional instruments and documents and do such further and
additional acts as may be required to carry out the intents and purposes of this
Agreement.
11.16 INTERPRETATION. The parties hereto agree that each party and its
counsel have reviewed this Agreement and that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
apply to the interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
MEDICAL IMAGING
TECHNOLOGY ASSOCIATES, INC. COMPURAD, INC.
/s/ Ray Deininger /s/ Phillip Berman
- ---------------------------- -----------------------------
By: Ray Deininger By: Dr. Phillip Berman, M.D.
Title: President Title: CEO, President and Chairman
Ray Deininger, individually /s/ Ray Deininger
------------------------------
By: Tom Deininger, individually /s/ Tom Deininger
------------------------------
By: Peter Heckman, individually /s/ Peter Heckman
------------------------------
39
<PAGE> 1
EXHIBIT 11.1
COMPURAD, INC.
SCHEDULE REGARDING COMPUTATION OF LOSS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ (420,191) $ 73,271 $(1,207,078) $ (287,635)
=========== ========== =========== ===========
Weighted average common shares outstanding 3,927,241 3,066,926 3,882,031 2,300,842
Common stock equivalents pursuant to
SAB No. 83: Stock and options issued
within one year of initial filing -- -- -- 424,622
Common stock equivalents-dilutive options -- 189,900 -- --
Weighted average common shares and
common share equivalents outstanding
during the period ----------- ---------- ----------- -----------
3,927,241 3,256,826 3,882,031 2,725,464
=========== ========== =========== ===========
Net income (loss) per common share $ (0.11) $ 0.02 $ (0.31) $ (0.11)
=========== ========== =========== ===========
</TABLE>
40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<CIK> 0001019947
<NAME> COMPURAD, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,635,268
<SECURITIES> 0
<RECEIVABLES> 2,225,418
<ALLOWANCES> 150,000
<INVENTORY> 723,244
<CURRENT-ASSETS> 4,782,307
<PP&E> 842,215
<DEPRECIATION> 243,748
<TOTAL-ASSETS> 5,891,789
<CURRENT-LIABILITIES> 1,345,545
<BONDS> 0
0
0
<COMMON> 7,126,973
<OTHER-SE> 476,500
<TOTAL-LIABILITY-AND-EQUITY> 5,891,789
<SALES> 6,729,126
<TOTAL-REVENUES> 6,729,126
<CGS> 3,437,296
<TOTAL-COSTS> 3,437,296
<OTHER-EXPENSES> 4,577,840
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,207,078)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,207,078)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,207,078)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
